Terms and conditions of transactions with related parties
The sales, services and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. For the year ended December 31, 2022, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (December 31, 2021: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
1) Loan given to Sanofi Healthcare India Private Limited. The rate of interest was 7.5% till April 14, 2021 and 5.5% from April 15, 2021 to April 14, 2022, and then 5.55% till July 25, 2022. Maximum balance outstanding during the year C 4,450 Million (December 31, 2021: C 4,450 Million) from Sanofi Healthcare India Private Limited. The said loan has been proposed to be utilized by Sanofi Healthcare India Private Limited for business purpose and was fully recovered during the current year. The Maturity date of the loan was April 15, 2023.
The Loan was given against corporate guarantee by Sanofi S.A. France. Guarantee is valid till April 15, 2023.
2) Given as per the Company's policies for employees. These are interest free loan and repayable in 12 month equal installments.
41. Share Based Payments
Restricted Stock Units (RSU's)
The Company does not provide any equity based compensation to its employees. However, the ultimate holding company, Sanofi SA, France (“the grantor”) maintains equity incentive plans that provide for award of restricted share plans to certain employees of the
Company. The terms of those plans make the award contingent on the attainment of certain performance criteria which are considered to be defined grants. The vesting period of such plans is either three or four years.
The fair value of an equity instrument granted under a plan is the market price of the share at the grant date, adjusted for expected dividends during the vesting period.
Defined Benefit Plans
I) Other long term employee benefits (Refer Note 2.3 (xvi)(II))
Compensated absences (included as a part of salaries and wages in Note 31 - Employee benefits expense)
All eligible employees can carry forward and avail / encash leave as per Company’s rules.
Long Service Award (included as a part of salaries and wages in Note 31 - Employee benefits expense)
Under this scheme, long service benefits accrues to the employees, while in service and is payable upon completion of stipulated services with the Company.
II) Post employment employee benefits plans (Refer Note 2.3 (xvi)(III))
A. Gratuity
Gratuity is payable to all eligible employees of the Company on superannuation, death and permanent disablement in terms of provisions of the Payment of Gratuity Act or as per the Company's Scheme whichever is more beneficial. Benefit would be paid
at the time of separation based on the last drawn base salary.
B. Pension plan
Under the Company's Pension scheme, certain executives are eligible for fixed pension for five years, depending on their level at the time of retirement on superannuation, death or early retirement with the consent of the Company.
In above cases, the Company’s liability is actuarially determined (using the Projected unit credit method) at the end of each year. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the period in which they occur, directly in other comprehensive income.
Based on the actuarial valuation obtained in this respect, the following table sets out the status of the gratuity and Pension plan and the amounts recognised in the Company’s financial statements as at the Balance Sheet date:
42. Employee Benefits
Defined Contribution Plans (Refer Note 2.3 (xvi)(III))
The Company makes contributions towards provident fund (Nepal), superannuation fund and pension scheme to a defined contribution retirement benefit plan for qualifying employees. The superannuation fund is administered by the Life Insurance Corporation of India (LIC). Under the plan, the Company is required to contribute a specified percentage of payroll cost to the retirement benefit plan to fund the benefits.
Notes:
1) The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion, and other relevant factors, such as supply and demand in the employment market.
2) The discount rate is based on the prevailing market yields of Indian Government securities as at the Balance sheet date for the estimated term of the obligation.
viii) Risk exposure:
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
Investment risk: If future investment returns on assets are lower than assumed in valuation, the scheme’s assets will be lower and the funding level higher than expected.
Changes in bond yields: A decrease in yields will increase plan liabilities, although this will be partially
offset by an increase in the value of the plans’ bond holdings.
Longevity risk: If improvements in life expectancy are greater than assumed, the cost of benefits will increase because pensions are paid for longer period than expected. This will mean the funding level will be higher than expected.
Inflation risk: If inflation is greater than assumed, the cost of benefits will increase as pension increases and deferred revaluations are linked to inflation.
C. Provident Fund (other than Nepal)
The Company manages the provident fund through a Provident Fund Trust for its employees (except Staff and Workmen at Nepal unit) which are permitted under The Employees' Provident Fund and Miscellaneous Provisions Act, 1952. Eligible employees receive benefits from the said Provident Fund. Both the employees and the Company make monthly contributions to the Provident Fund Trust equal to a specified percentage of the covered employee’s salary. The minimum interest rate payable by the Trust to the beneficiaries every year is being notified by the Government of India. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate. The Board of Trustees administers the
contributions made by the Company to the schemes and also defines the investment strategy.
The Company has an obligation to service the shortfall on account of interest generated by the fund and on maturity of fund investments and hence the same has been classified as Defined Benefit Plan in accordance with Ind AS 19 “Employee Benefits”. As per the Guidance Note from the Actuarial Society of India, the Company has obtained the actuarial valuation of principal loss and interest rate obligation in respect of Provident Fund as at December 31, 2022 and based on the same Loss of C 6 million (Previous Year C 39 million) on account of re-measurement of fair value of plan assets and on account of interest shortfall is recognised in Other Comprehensive Income.
Note: Figures in brackets are for the previous year.
1. Provision for indirect taxes represents differential excise duty, GST, sales tax and service tax in respect of which the claims are pending before various authorities for a considerable period of time and based on management’s estimate of claims provision is made on prudent basis that possible outflow of resources may arise in future.
2. Provision for sales returns are on account of expected date expiry and breakages returns based on historical trends.
3. In respect of Provision for DPCO matters, based on the management assessment, the likelihood of any additional outflow is considered as remote.
4. Other provisions on prudent basis are towards possible outflow of resources in respect of legal cases pending against the Company or in respect of contractual obligations of the Company.
44. Derivative Instruments and Un-hedged Foreign Currency Exposure:
There are no derivative instrument as at Balance Sheet date
45. (a) Consequent upon the decision of the Supreme
Court in the matter of prices of certain bulk drugs fixed by the Government of India under the Drug (Prices Control) Order, 1979, the Company paid an amount of C 31 Million in 1988 being the liability determined by the Special Team appointed by the Government. However, during 1990, fresh demands aggregating to C 781 Million alleged to be payable into the Drug Prices Equalisation Account (DPEA) were made by the Government on account of alleged unintended benefit enjoyed by the Company. The Government has also made certain claims for applicable interest. On a Writ Petition filed by the Company in 1991, the Bombay High Court passed an order whereby the demands were to be treated as show cause notices. The High Court directed the Company and the Government to furnish relevant data to each other based on which the Government was to rework the figures. The Government did not furnish the requisite data to the Company. In 1995, a further demand of C 80 Million was made by the Government.
In the meantime, a Committee was constituted by the Government to determine the liabilities of the Drug Companies. The Company filed written submissions with the Committee and contended during the personal hearing that in the absence of the Government furnishing the requisite data as directed by the Bombay High Court, the Company
was not in a position to make an effectual presentation before the Committee.
In January 1999, the Company filed an Application before the Bombay High Court seeking directions to the Government to furnish the requisite data. The Application is pending.
In the meantime, the Committee has deferred further hearing of the Company’s case, until the Application is heard and decided by the Bombay High Court. In any event, the Company is contesting the above demand.
(b) National Pharmaceutical Pricing Authority
(NPPA) had raised demands on the Company for alleged overcharging of some of its products. The Company had contested the demands by filing writ petitions in the Delhi High Court. The Hon’ble Delhi High Court vide order dated May 16, 2019, without expressing any opinion on the matter, set aside the demands raised and the matter was remanded back to NPPA for considering them afresh in accordance with law.
As a matter of abundant precaution, an amount of C 162 million which had been provided in the books of account in earlier years has been retained. The Company will continue to assess any further developments in this matter.
Based on the management assessment, the likelihood of any additional outflow is considered as remote in respect of above (a) and (b) matters.
48. a) The Board of Directors of the Company at its
meeting held on November 25, 2021, approved the transfer of certain assets namely marketing intangibles, customer lists/database, trade channel knowledge/wholesaler lists, vendor/ supplier database, pharmacovigilance/medical database that are related to the distribution business of Soframycin and Sofradex conducted by the Company and product inventory to Encube Ethicals Private Limited.
Pursuant to the agreement dated December 1, 2021 with Encube Ethicals Private Limited, the transaction concluded on January 31, 2022 after fulfillment of the underlying conditions and the Company has received the full consideration of C 1,369 million including working capital adjustments and consequently, the Company had accounted for a gain of C 1,181 million from sale of this business after working capital adjustment and transaction costs. This has been disclosed as an exceptional item.
b) Exceptional Item for the current year also includes profit on sale of a property amounting to C 320 Million and separation cost relating to the sales force management amounting to C 181 Million.
49. During the year ended December 31, 2021, the Board of Directors of the Company at its meeting held on July 27, 2021 approved a transaction for the slump sale and transfer of the Company’s Nutraceuticals business, on a going concern basis to Universal Nutriscience Private Limited for a consideration of C 5,870 million including debt like obligations, subject to customary working capital adjustments. The transaction was closed on September 30, 2021. Subsequent to the closing, the final consideration of C 5,860 million (after working capital adjustments) was received in full and during the year ended December 31, 2021, the Company had accounted for gain of C 4,892 million (comprising debt like obligation taken over by the purchaser C 196 million, intangible assets adjusted C 827 million and transaction costs C 337 million), which has been disclosed as an exceptional item in the previous year.
51. Financial risk management
The Company's activities expose it to variety of financial risks namely market risk, credit risk and liquidity risk. The Company has various financial assets such as deposits, trade and other receivables and cash and bank balances directly related to their business operations. The Company's principal financial liabilities comprise of trade and other payables. The Company's senior management's focus is to foresee the unpredictability and minimize potential adverse effects on the Company's financial performance. The Company's overall risk management procedures to minimise the potential adverse effects of financial market on the Company's performance are as follows:
The Company’s Board of Directors have overall responsibility for the establishment and oversight of the Company’s risk management framework.
The Company’s risk management is carried out by the management in consultation with the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific risk areas.
This note explains the sources of risk which the entity is exposed to and how the entity manages the risk.
(A) Management of Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and from its financing activities including deposits with banks and other financial instruments. The Company establishes an impairment allowance
based on expected credit loss model that represents its estimate of incurred losses in respect of trade and other receivables.
(i) Trade and other receivables
The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to C 1,291 million as at December 31,
2022 (December 31, 2021 - C 1,429 million). Trade receivables are typically unsecured and are derived from revenue earned from customers located in India as well as outside India.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry, the country and the state in which the customer operates, also has an influence on credit risk assessment. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. Further, significant sales of the Company are against advance payment/collection on delivery terms.
The management continuously monitors the credit exposure towards the customers outstanding at the end of each reporting period to determine incurred and expected credit losses.
Fair value of financial assets/liabilities measured at amortised cost
The carrying amounts of trade receivables, cash and cash equivalents, other bank balances, loans, other financial assets, trade payables, other financial liabilities are considered to be the same as their fair values, as they are current in nature.
The categories used are as follows:
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. Considering that all significant inputs required to fair value such instruments are observable, these are included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The management believes that no further provision is necessary in respect of trade receivables based on historical trends of these customers.
Concentration of credit risk arises when counter parties are engaged in similar business activities or have similar economic features that would cause the ability to meet contractual obligations to be similarly affected by changes in economical, political or other conditions. Concentration of credit risk indicate the relative sensitivity of the Company's performance to developments affecting a particular industry. The Company's exposure to customers is diversified and no
single customer has significant contribution to trade receivable balances.
(ii) Cash and cash equivalents and bank balances
The Company held cash and cash equivalents of C 10,049 million as at December 31, 2022 (December 31, 2021: C 15,380 million) and other bank balances of C 120 million (December 31, 2021: C 123 million). Credit risk on cash and cash equivalents is limited as these are generally held or invested in deposits with banks and financial institutions with good credit ratings.
(iii) Loans
Outstanding loan given to its fellow subsidiary amounting to C Nil as at December 31, 2022 (December 31, 2021: C 4,450 million). This loan has been given against the corporate guarantee by group Company i.e. Sanofi S.A.
The Company's maximum exposure to credit risk as at December 31, 2022 and December 31, 2021 is the carrying value of each class of Financial Assets.
(B) Liquidity Risk
Liquidity risk is the risk that the Company will face in meeting its obligations associated with its financial liabilities. The Company’s approach in managing
liquidity is to ensure that it will have sufficient funds to meet its liabilities when due without incurring unacceptable losses. In doing this, management considers both normal and stressed conditions.
The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended December 31, 2022 and December 31, 2021. Cash Flow from operating activities provides the funds to service the financial liabilities on a day-to-day basis.
The following table shows the maturity analysis of the Company’s all non- derivative, contractual financial liabilities based on agreed undiscounted cash flows along with its carrying value as at the Balance Sheet date.
(C) Management of Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks namely interest rate risk, currency risk and other price risk, such as commodity risk. The Company is not exposed to interest rate risk and other price risk whereas the exposure to currency risk is given below:
(iii) Wilful defaulter
The Company has not been declared wilful defaulter by any bank or financial institution or government or any government authority.
(iv) Relationship with struck off companies
The following table depicts the details of balances outstanding in respect of transactions undertaken with a company struck-off under section 248 of the Companies Act, 2013.
(v) Compliance with number of layers of companies
The Company has complied with the number of layers prescribed under the Companies Act, 2013.
(vi) Compliance with approved scheme(s) of arrangements
The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous financial year.
(vii) Utilisation of borrowed funds and share premium
The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the
Intermediary shall:
a. directly or indirectly lend or invest in other person(s) or entity(ies) identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or
b. provide any guarantee, security or the like on behalf of the ultimate beneficiaries
The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:
a. directly or indirectly lend or invest in other person(s) or entity(ies) identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
b. provide any guarantee, security or the like on behalf of the ultimate beneficiaries
52. Capital management
(a) Risk management
For the purpose of the Company's capital management, capital includes issued equity capital and all other equity reserves attributable to the equity share holders of the Company. The primary objective of the Company's capital management is to safeguard the Company's ability to remain as a going concern and maximise the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic
53. Additional Regulatory Information required by Schedule III
(i) Details of benami property held
No proceedings have been initiated on or are pending against the Company for holding benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and Rules made thereunder.
(ii) Borrowing secured against current assets
The Company has no borrowings from banks and financial insitutions on the basis of security of current assets.
conditions, annual operating plans and long term and other strategic investment plans. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares. The current capital structure of the Company is equity based with no financing through borrowings. The Company is not subject to any externally imposed capital requirement.
No changes were made in the objectives, policies or processes for managing capital during the year ended December 31, 2022 and December 31, 2021.
: (viii)Undisclosed income
There is no income surrendered or disclosed as income during the current or previous year in the tax assessments under the Income Tax Act, 1961, that has not been recorded in the books of account.
(ix) Details of crypto currency or virtual currency
The Company has not traded or invested in crypto currency or virtual currency during the current or previous year.
(x) Valuation of PP&E, intangible asset and investment property
The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or both during the current or previous year.
Other Regulatory Information
(i) Title deeds of immovable properties not held in name of the Company
All the title deeds of immovable properties are held in the name of Company .
(ii) Registration of charges or satisfaction with Registrar of Companies
There are no charges or satisfaction which are yet to be registered with the Registrar of Companies beyond the statutory period.
(iii) Utilisation of borrowings availed from banks and financials institutions
The Company has no borrowings from banks and financial institutions. Hence this disclosure clause is not applicable
Notes:
1. Working Capital= Current Asset-Current Liability
2. EBIT Profit before Interest and tax
3. Debt to Equity ratio and Debt service coverage ratio is not applicable as there are no debts
4. Net Profit includes exceptional items and excludes Other Comprehensive Income.
56. Previous year comparative figures have been regrouped wherever necessary.
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