1. CORPORATE INFORMATION
Lyka Labs Limited(“the Company”) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956 (as amended by the Companies Act, 2013). Its shares are listed on two stock exchanges in India. The Company is engaged in the business of pharmaceutical and related activities, including research.
A. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS:
The preparation of Financial Statements is in conformity with the recognition and measurement principles of Ind AS which requires the management to make judgements for estimates and assumptions that affect the amounts of assets, liabilities and the disclosure of contingent liabilities on the reporting date and the amounts of revenues and expenses during the reporting period and the disclosure of contingent liabilities. Differences between actual results and estimates are recognized in the period in which the results are known/ materialized.
2.1 ESTIMATES ASSUMPTIONS AND JUDGEMENTS:
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financialstatements:
a) Estimation of current tax expense and deferred tax:
The calculation of the Company’s tax charge necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The final resolution of some of these items may give rise to material profits/losses and/or cash flows. Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions.
b) Recognition of deferred tax assets/ liabilities:
The recognition of deferred tax assets/ liabilities is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available in the future against which the reversal of temporary differences can be deducted. To determine the future taxable profits, reference is made to the latest available profit forecasts.
c) Estimation of Provisions & Contingent Liabilities:
The Company exercises judgement in measuring and recognising provisions and the exposures to contingent liabilities which is related to pending litigation or other outstanding claims. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in this evaluation process, actual liability may be different from the originally estimated as provision.
d) Estimated useful life of Property, Plant and Equipment:
Property, Plant and Equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life, its expected usage pattern and the expected residual value at the end of its life. The useful lives, usage pattern and residual values of Company’s assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology etc.
e) Estimation of Provision for Inventory:
The Company writes down inventories to net realisable value based on an estimate of the realisability of inventories. Write downs on inventories are recorded where events or changes in circumstances indicate that the balances may not be realised. The identification of writedowns requires the use of estimates of net selling prices of the down-graded inventories. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write-downs of inventories in the periods in which such estimate has been changed.
f) Estimation of Defined Benefit Obligation:
The present value of the defined benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for post employment plans include the discount rate. Any changes in these assumptions will impact the carrying amount of such obligations.
g) The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit obligations. In determining the appropriate discount rate, the Company considers the interest rates of government bonds of maturity approximating the terms of the related plan liability.
h) Estimated fair value of Financial Instruments.
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Management uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.
2.2 STANDARDS ISSUED BUT NOT YET EFFECTIVE
Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from April 1, 2018. The Company has evaluated the effect of this on the financial statements and there is no impact on the company’s financial statements due to the said changes.
Ind AS 115- Revenue from Contract with Customers: On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The standard permits two possible methods of transition:
- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors.
- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach).
The company is in the process of evaluating the impact of above on its Financial Statements.
3.1 Rights, preferences and restriction attached to equity shares :
The Company has only one class of equity shares having par value of Rs. 10 per share. Each holder of equity share is entitled to one vote per share.
In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company after distribution of all preferential amounts .The distribution will be in the proportion to the number of equity shares held by the shareholders.
3.2 Terms of warrants issued:
Each warrant is entitled to be converted in equity shares of Rs.10/- each Warrant does not bear any interest.
The warrants will be converted into equal no. of shares within a period of 18 months from the date of allotment upon receipt of balance amount of 75% of issue price. In the event of non receipt of balance amount of issue price, the subscription money paid on warrant shall be forfeited. All the outstanding warrants in respect of which the holder has not exercised option shall lapse on the completion of 18 months from the date of allotment.
The shares so allotted on conversion of warrants shall rank pari pasu in all respect in existing equity shares.
The shares so allotted on conversion of warrants shall remain under lock-in period of three years from the date of trading approval granted by the stock exchange.
The warrant holders shall have no right or privileges.
3.4 40 Lakhs Equity shares of Rs.10/- each were issued on 07.12.2005 by conversion of Global Depository Receipts.
3.5 The Company has allotted 4.60 Lakhs convertible warrants at Rs. 28/- per warrant to Promoters / Promoters Group on preferential basis pursuant to the Special Resolution passed by the members of the Company at their Extra Ordinary General Meeting held on January 23,2015. These warrants were converted ( in the ratio of 1 share for 1 warrant ) into equity shares of Rs.10/- each at a premium of Rs.18/-per share during the previous period.
Nature of Reserves:
Capital Reserves
The Capital reserve is created from the forfeiture of equity warrants and receipts of subsidy for setting up the factories in backward areas for performing research on critical medicines for the betterment of the society.
Securities Premium
Securities Premium account comprises of the premium on issue of shares. The reserve is utilised in accordance with the specific provision of the Companies Act, 2013.
General Reserves
The General reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the General reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the General reserve will not be reclassified subsequently to the statement of profit and loss.
4.1 Details of terms of repayment and security provided for in respect of the Long-Term Borrowings as follows : (Including Current Maturities of Term Loans from Banks and finance lease obligation -Refer Note No. 21)
(a) Term Loan (Expansion) from Dena Bank repayable in 8 quarterly instalments of Rs. 18.09 Lakhs each. Interest rate is MCLR 1.10 % ##
(b) Term Loan (R&D) from Dena Bank repayable in 8 quarterly instalments of Rs. 6.77 Lakhs each. Interest rate is MCLR 1.10 % ##
(c) Term Loan from Dena Bank repayable in 6 quarterly instalments of Rs. 16.40 Lakhs each. Interest rate is MCLR 1.65 % ##
(d) Term Loan (working capital) from Dena Bank repayable in 4 quarterly instalments of Rs. 40 Lakhs each. Interest rate is MCLR 1.10 % ##
(e) Term Loan (Lyophilisation II) from Dena Bank repayable in 8 quarterly instalments of Rs. 7.81 Lakhs each. Interest rate is MCLR 1.10 % ##
(f) Term Loan (New Expansion ) from Dena Bank repayable in 11 quarterly instalments of Rs. 90.90 Lakhs each. Interest rate is MCLR 1.10 % # #
(g) Term Loan (Schedule - M Requirement) from Dena Bank repayable in 10 quarterly instalments of Rs. 15.50 Lakhs each. Interest rate is mClR 1.10 % # #
(h) Term Loan (working capital) from Dena Bank repayable in 4 quarterly instalments of Rs. 60 Lakhs each. Interest rate is MCLR 1.15% ##
(i) Term loan WCTL (Fresh) from Dena Bank repayable in 6 quarterly instalments of Rs. 100 Lakhs each and subsequently 10 quarterly instalments of Rs.140 Lakhs commencing after 1 year of moratorium period from the date of disbursement. Interest rate is MCLR 1.65% ##
## The above Term Loans are secured by first charge on stock in trade, book debts, other movable assets, movable machinery and guaranteed by some of the directors of the Company. These Loans are also secured by registered mortgage of Company’s immovable properties at Ankleshwar and Valsad.
(j) Term Loan from Bank of Maharashtra repayable in 16 quarterly instalments of Rs. 30 Lakhs each. Interest rate is MCLR 3.5 % 1 % . *
(k) Term Loan from Bank of Maharashtra repayable in 4 quarterly instalment of Rs.50 Lakhs each. Interest rate is MCLR 1.25 %. *.
* Above Term Loans are Secured by extension of equitable mortgage of property situated at Shiv Shakti industrial Estate, Andheri - East, Mumbai - 400059
(l) Term Loan from Kapol Co-Operative Bank Ltd. repayable in 51 equal monthly instalments of Rs. 12.16 Lakhs each. Interest rate is @15%. **
* *Above Term Loan are Secured by extension of equitable mortgage of property and machinery situated at Ankleshwar.
4.2 7 Lease obligations repayable in equated monthly instalments upto March 2020 secured by respective Vehicles. Rate of interest ranges from 8.37% to 18.01%.
4.3 108,570 10% Cumulative Redeemable Preference Shares of Rs. 100 each fully paid up were issued on 30th September, 2005 redeemable at the option of the company but not later than 20 years from the date of allotment.
4.4 Details of continuing default as at 31st March, 2018 is as follows:
Principal Amount: Rs. 2570.38 Lakhs, period of default: From June 2016 to March 2018 InterestAmount: Rs. 814.26 Lakhs, period of default: From February 2016 to March 2018
5.1 Details of terms of repayment and securities provided in respect of Current Borrowings from bank:
(a) Interest on Dena Bank Cash Credit Loan is MCLR 1.10 %o p.a. # #
(b) Interest on Dena Bank Buyers Credit Loan ranges from LIBOR 0.75% to LIBOR 2.00% # #
# # The above Loans are secured by first charge on stock in trade, book debts, other movable assets, movable machinery and guaranteed by some of the Directors of the Company. These Loans are also secured by registered mortgage of Company’s immovable properties at Ankleshwar and Valsad.
5.2 Interest on Loans from related parties ranges between 10.25 % and 18% ( simple Interest ).
5.3 Interest on Inter Corporate Deposits is 21% ( simple interest ).
5.4 Interest on Short Term Loans ranges between 12% and 21%
(6) Contingent Liabilities are not provided for in respect of following:
(i) Demands were raised against the Company aggregating to Rs. 680.62 Lakhs ( as at 31st March 2017 Rs. 680.62 Lakhs and as at 1st April 2016 Rs. 680.62 Lakhs) plus interest thereon under the Drug Price Control Order 1979 by the Government of India and the same was contested by the Company. In the earlier years, the Company had received recovery notices for recovery of Rs. 2,094.41 Lakhs( as at 31st March 2017 Rs. 2,094.41 Lakhs and as at 1st April 2016 Rs. 2,094.41 Lakhs) to be deposited into “Drug Price Equalisation Account”.
The Company has challenged the said notices in the writ petitions before the Hon’ble High Court of Gujarat. The Hon’ble High Court has admitted the writ petitions subject to the Company depositing certain amounts against the said demands. Accordingly, the Company has deposited Rs. 1,032.45 Lakhs (as at 31st March 2017 Rs. 1,032.45 Lakhs and as at 1st April 2016 Rs. 1,032.45 Lakhs).
The Company expects favourable outcome in the said writ petitions and hence, the amounts paid have been treated as advances which are considered by the Company as good and recoverable.
(ii) (a) The Company has received an Order from the Gujarat Sales Tax Commissioner (Appeals)Baroda, dated 24th January, 2011 in respect of Company’s appeal against the demand for Gujarat Sales Tax of Rs. 1,324.08 Lakhs ( as at 31st March 2017 Rs. 1,324.08 Lakhs and as at 1st April 2016 Rs. 1,324.08 Lakhs) for the financial year 2002-2003 for nonsubmission of proof of export. The Commissioner of Sales Tax (Appeals) based on the facts as submitted, has revised the demand to Rs. 85.45 Lakhs (as at 31st March 2017 Rs. 85.45 Lakhs and as at 1st April 2016 Rs. 85.45 Lakhs) against which Company has made payment of Rs. 45.81 Lakhs (as at 31st March 2017 Rs. 85.45 Lakhs and as at 1st April 2016 Rs. 85.45 Lakhs) under protest. The Company has further contested this demand before the Sales Tax Tribunal. The matter is sub-judice and the payments of Rs. 45.81 Lakhs (as at 31st March 2017 Rs. 45.81 Lakhs and as at 1st April 2016 Rs. 45.81 Lakhs) are considered by the Company as good and recoverable.
(b) There are disputed Sales Tax demands in respect of prior years amounting to Rs. 549.96 Lakhs (as at 31st March 2017 Rs. 834.34 Lakhs and as at 1st April 2016 Rs. 677.71 Lakhs) against which the Company has made payment of Rs. 22.22 lakhs (as at 31st March 2017 Rs. 95.32 Lakhs and as at 1st April 2016 Rs. 69.02 Lakhs) under protest. The Company has further contested these demands before the Sales Tax Commissioner / Tribunal. The matters are sub-judice and the payments of Rs. 22.22 Lakhs (as at 31st March 2017 Rs. 95.32 Lakhs and as at 1st April 2016 Rs.45.85 Lakhs) are considered by the Company as good and recoverable.
(iii) The Company has received notices from Central Excise department raising demands as stated below:
(a) Rs. 108.75 Lakhs (as at 31st March 2017 Rs. 108.75 Lakhs and as at 1st April 2016 Rs. 108.75 Lakhs) against which the Company has paid Rs. 25.00 Lakhs (as at 31st March 2017 Rs. 25.00 Lakhs and as at 1st April 2016 Rs. 25.00 Lakhs). The matter is sub-judice and the payment of Rs. 25.00 Lakhs (as at 31st March 2017 Rs. 25.00 Lakhs and as at 1st April 2016 Rs. 25.00 Lakhs) is considered by the Company as good and recoverable.
(b) Rs. 71.37 Lakhs (as at 31st March 2017 Rs. 71.37 Lakhs and as at 1st April 2016 Rs.71.37 Lakhs) relating to disputed Central Excise duty, the matter is sub-judice.
(iv) Disputed Service Tax demand amounts to Rs. 18.10 Lakhs (as at 31st March 2017 Rs. 18.10 Lakhs and as at 1st April 2016 Rs. 18.10 Lakhs) against which the Company has made payment of Rs. 1.81 Lakhs (as at 31st March 2017 Rs. 1.81 Lakhs and as at 1st April 2016 Rs. NIL). The matter is sub-judice, and the payment of Rs. 1.81 Lakhs (as at 31st March 2017 Rs. 1.81 Lakhs and as at 1st April 2016 Rs. NIL) is considered by the Company as good and recoverable.
(v) The Company has received orders from Income Tax Department raising demands aggregating to Rs. 2,402.26 Lakhs (as at 31st March 2017 Rs. 2,325.04 Lakhs and as at 1st April 2016 Rs. 2,325.04 Lakhs) relating to prior years against which the Company has paid Rs. 115.45 Lakhs (as at 31st March 2017 Rs. 100.00 Lakhs and as at 1st April 2016 Rs. 100.00 Lakhs). The matter is sub-judice and the payment of Rs. 115.45 Lakhs (as at 31st March 2017 Rs. 100.00 Lakhs and as at 1st April 2016 Rs.100.00 Lakhs) is considered by the Company as good and recoverable.
(vi) Rs. 7.95 Lakhs (as at 31st March 2017 Rs. 7.95 Lakhs and as at 1st April 2016 Rs. 7.95 Lakhs) being claims against the Company not acknowledged as debt.
(vii) Employee (Including Ex-Employees) Claims relating to ex-gratia and other benefits aggregating to Rs. 429.55 Lakhs (as at 31st March 2017 Rs. 427.32 Lakhs and as at 1st April 2016 Rs. 424.57 Lakhs) as the matter is sub-judice.
(viii) Bank Guarantees provided by a Bank on behalf of the Company Rs. 56.92 Lakhs (as at 31st March 2017 Rs. 58.84 Lakhs and as at 1st April 2016 Rs. 96.33 Lakhs).
(ix) Arrears of dividend on 10% Cumulative Redeemable Preference Shares aggregates to Rs. 135.71 Lakhs (as at 31st March 2017 Rs. 124.86 Lakhs and as at 1st April 2016 Rs. 114.00 Lakhs ).
(7) Fixed Deposits:
During the year, the Company has repaid deposits that were claimed aggregating to Rs. 17.85 Lakhs as regard the balance of unclaimed deposits of Rs. 49.52 Lakhs shall be paid as and when claimed.
The additional liability of interest, if any, arising on account of delayed payment/ non-payment shall be provided for in the year in which the said liability is settled.
(8) Debentures:
The Company has repaid Debentures as per Order of National Company Law Tribunal (Ahmedabad Bench) dated 22nd May, 2017 as follows:
*Out of Rs. 724.00 Lakhs debentures paid by the Company during the year, Rs 12.00 Lakhs is outstanding due to cheques returned Undelivered/ Unclaimed.
(9) Rs. 502.50 Lakhs (Previous Year Rs. 502.50 Lakhs) placed with the Managing Director, as security deposit for residential accommodation/garage taken on leave and license, which has been given by the Company to him, in accordance with the terms of his reappointment. The Company has been legally advised that the provisions of section 185 of the Companies Act, 2013 are not attracted in respect of the same.
(10) The balances relating to Trade Receivables, Trade Payables, Group Companies and Loans and Advances as on 31stMarch,2018 are subject to confirmation and adjustments, if any, on reconciliation of accounts. Since the extent to which these balances are subject to confirmation is not ascertainable, the resultant impact of the same on the accounts cannot be ascertained and shall be adjusted in the year in which the confirmation process is completed.
(11) Pledged shares of a Director encashed by a Lender:
During the year, the Company has received claims from a Director aggregating to Rs. 128.25 Lakhs being the value of 225,000 equity shares of the Company pledged as security for finance supposed to have been provided by a Finance Company to the Company. These pledged shares were allegedly invoked by the said Finance Company. Further, the said Director has claimed the interest on the same, post invocation of the pledged shares.
Pending receipt of documentary evidence to substantiate the above claims, the Company has debited to Finance Company with Rs. 128.25 Lakhs. However, the said Finance Company has not confirmed the same for which no provision has been made in the books. The Company is in the process of resolving the counter claims of both the parties.
(12) Investments in Subsidiaries:
(a) The Board of Directors at their meeting held on 10th March, 2016 resolved to merge Company’s Subsidiary i.e. Lyka Exports Limited with it, effective from 1st April, 2015 (“Appointed Date”) under the provisions of sections 391 to 394 and other applicable provisions, if any, of the Companies Act, 1956 as amended and the corresponding provisions of the Companies Act, 2013 and SEBI circular No. CIR/CFD/CMD/16/2015 dated 30th November, 2015. Since then the “appointed date” of the said merger of Lyka Exports Limited is postponed to 1st April, 2017 by the Board of Directors at their meeting held on 30th August, 2017.
(b) The Board of Directors at their meeting held on 29th May 2017, resolved to merge Company’s subsidiary Lyka Healthcare Limited with it effective from 1st April 2017 (“Appointed Date”) under the provisions of sections 391 to 394 and other applicable provisions, if any, of the Companies Act, 1956 as amended and the corresponding provisions of the Companies Act, 2013 and SEBI circular No. CIR/CFD/CMD/16/2015 dated 30th November, 2015.
The National Company Law Tribunal (NCLT), Ahmedabad approved the application vide its order dated 6th February 2018 and ordered to call Equity/Preference Shareholders and Secured/ Unsecured Creditors meeting on 27th March 2018 for approving the arrangement
The Equity / Preference Shareholders at the meetings convened, approved the arrangements of merger. The Unsecured Creditors at their meeting also approved the arrangement of merger. However, the meeting of Secured Creditors could not be proceeded, due of lack of quorum. Accordingly, the Company filed an interlocutory Application on 13th April 2018, before NCLT seeking directions for re-convening / conducting a fresh meeting of the Secured Creditors. Pursuant to Interlocutory Application, NCLT passed an order dated 9th May, 2018 directing the Company for reconvening meeting of Secured Creditors on 2nd July, 2018.
(13) Capital Expenditure:
(i) Tangible Project Capital Work-in-Progress Rs. 1,666.25 Lakhs as at 31st March,2018, (as at 31st March 2017 Rs. 1669.63 Lakhs and as at 1st April 2016 Rs. 1,624.60 Lakhs) includes allocable indirect expenditure in respect of modernization/expansion of Ankleshwar unit aggregating to Rs. 262.44 Lakhs (as at 31st March 2017 Rs. 258.15 Lakhs and as at 1st April 2016 Rs. 213.69 Lakhs) and interest amount of Rs. 299.66 Lakhs (as at 31st March 2017 Rs. 299.66 Lakhs and as at 1st April 2016 Rs. 235.56 Lakhs) which is pending allocation to Fixed Assets on completion of the project.
(ii) The Company has incurred direct expenditure and allocable indirect expenditure up to 31st March,2018 in respect of “new product development and applied research” aggregating to Rs. 976.53 Lakhs (as at 31st March 2017 Rs. 753.64 Lakhs and as at 1st April 2016 Rs. 569.22 Lakhs) including finance cost of Rs. 76.12 Lakhs (as at 31st March 2017 Rs. 214.40 Lakhs and as at 1st April 2016 Rs. 220.88 Lakhs) which is carried forward under “Capital Work in Progress - Intangibles”, to be recognized as “Self-Generated Intangible Assets” upon successful development of respective products or to be charged to Statement of Profit and Loss in the year in which development is abandoned.
During the year, the Company has capitalized Rs. 42.93 Lakhs (as at 31st March 2017 Rs. 93.27 Lakhs and as at 1st April 2016 Rs. 33.22 Lakhs) as “Self-Generated Intangible Assets” upon successful development of respective products.
(14) During the year, inventories include slow/non-moving raw material and packing materials procured during the earlier years amounting to 174.06 Lakhs as on 31st March 2018, which are valued at cost. The Company is evaluating to utilize/realise the same.
(15) The Company has provided Rs. 76.89 Lakhs (Previous Year Rs. 109.24 Lakhs) being interest / damages on an estimated basis in respect of delays in depositing statutory dues with Government, Semi-Government and Local Authorities beyond the time allowed.
(16) Employment and Retirement Benefits :
(i) The actuarial valuation of the present value of the defined benefit obligation in respect of Gratuity has been carried out as at 31st March, 2018. The following tables set out the amounts recognized in the financial statements as at 31st March,2018 for the defined benefit plans.
(ii) The actuarial valuation of the present value of the defined benefit obligation in respect of Compensated Absence Liabilities has been carried out as at 31st March,2018. The following tables set out the amounts recognized in the financial statements as at 31st March, 2018 for the defined benefit plan.
Sensitivity Analysis:
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase and mortality. The sensitivity analysis below have been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period, while holding all other assumptions constant. The results of sensitivity analysis is given below:
Please note that the sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
(17) During the year, the Company has applied to two of its banks for settlement of principal / interest amount. The management has accordingly reversed interest on term loan provided for the period from April 2017 to September 2017 amounting to Rs 469.92 Lakhs and has not provided interest on term loan from said two banks for the period from October 2017 to March 2018 amounting to Rs 471.64 Lakhs, aggregating to Rs. 941.56 Lakhs.
Further the Company has reversed interest expenses for earlier years for the period from February 2016 to March 2017 amounting to Rs 344.35 Lakhs. There is also no provision for penal interest on term loan from two banks and working capital limit from one bank amounting to Rs 80.04 Lakhs.
(18) Assets taken on operating lease:
The future minimum lease payments and payment profile of non-cancellable operating leases are as under:
(19) Segment Disclosures :
a. Segment information for primary segment reporting (by business segments):
Based on guiding principles given in the Indian Accounting standard on ‘Operating Segments’ (IndAS-108), the primary segment of the Company is business segment, which comprises of pharmaceutical products/ pharma related services. As the Company operates in a single primary business segment, no segmental information thereof is given.
b. Segment information for secondary segment reporting (by geographical segments)
The company caters mainly to the needs of Indian market and the export turnover being below 10% of the total turnover of the Company, there is no reportable geographical segment.
c. Revenues from two customers of the company were approximately Rs. 1794.77 Lakhs and Rs. 423.29 Lakhs representing approximately 42% and 10% of the Company’s total revenues, for the year ended 31st March, 2018.
Revenues from two customers of the company were approximately Rs. 2410.88 Lakhs and Rs. 1618.50 Lakhs representing approximately 31% and 21% of the Company’s total revenues, for the year ended 31st March, 2017.
20. Taxtation:
Current tax :
In view of Current year business loss, unabsorbed Business Losses and Depreciation of the earlier years, current tax has not been provided for the year.
Deferred Tax:
Reconciliation of tax expenses and accounting profit multiplied by India’s domestic tax rate for the year ended 31st March 2018 and 31st March 2017.
b. Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
The following table provides the fair value measurement hierarchy of the Company’s financials assets and liabilities that are measured at fair value or where fair value disclosure is required:
c Valuation technique to determine fair value
The following methods and assumptions were used to estimate the fair values of financial instruments
(i) The management assesses that fair value of cash and cash equivalents, trade receivables, trade payables, bank overdrafts and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
(ii) The fair values of the equity investment which are quoted, are derived from quoted market prices in active markets. The fair value of Mutual Fund Investment under Level-2 are based on NAV published. The Investments measured at fair value and falling under fair value hierarchy Level 3 are valued on cost which is considered as an appropriate estimate of fair value because of a wide range of possible fair value measurements and cost represents the best estimate of fair values within that range. The carrying value of those investments are individually immaterial.
d. 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 prices comprises of risks relating to interest rate risk and other price risks such as equity price risk and commodity price risk. Financial instruments affected by market risks mainly include borrowings, deposits and investments.
Foreign currency risk management
Foreign exchange risk arises on future commercial transactions and on all recognised monetary assets and liabilities, which are denominated in a currency other than the functional currency of the Company. The Company’s management has set policy wherein exposure is identified, benchmark is set and monitored closely, and accordingly suitable hedges are undertaken. Policy also includes mandatory initial hedging requirements for exposure above a threshold.
The Company’s foreign currency exposure arises mainly from foreign exchange imports, exports and other income/expenses in foreign currency, primarily with respect to USD.
As at the end of the reporting period, the carrying amounts of the company’s foreign currency denominated monetary assets and liabilities in respect of the primary foreign currency i.e. USD and derivative to hedge the exposure, are as follows:
The company’s exposure to foreign currency changes for all other currencies is not material.
Foreign currency sensitivity analysis
The following table demonstrate the sensitivity to a reasonable possible change in USD exchange rate, with all other variables held constant.
Interest rate risk management
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company exposure to the risk of changes in market interest rates relates primarily to the Company’s debt obligations and investments in debt instruments including debt mutual fund.
Interest rate sensitivity
The below table demonstrate the sensitivity of the company’s profit before tax to a reasonable possible change in interest rate with all other variables being constant.
e Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and other financial instruments.
Trade Receiveble
Customer credit risk is managed by SCM team subject to the company’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored and followed up.
Financial instruments and cash deposits
Credit risk from balances with banks is managed by the Company’s treasury department in accordance with the Company’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
Liquidity risk
Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at reasonable price. The Company’s objective is to at all times maintain optimum levels of liquidity to meet its cash and liquidity requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It maintains adequate source of financing through the use of bank deposits and cash credit facilities. Processes and policies related to such risks are overseen by senior management. Management monitors the Company’s liquidity position through rolling forecasts on the basis of expected cash flows. The Company assessed the concentration of risk with respect to its debt and concluded it to be low.
The table below summarises the maturity profile of the company’s financial liabilities based on contractual undiscounted payments.
f Excessive risk concentration
Concentrations arise when a number of counter parties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry. Company believes that there is no such excessive risk concentration.
21 Capital Management
The Company’s objective when managing capital is to ensure the going concern operation and to maintain an efficient capital structure to reduce the cost of capital, support the corporate strategy and meet shareholders expectations. The policy of the company is to borrow through banks supported by committed borrowing facility to meet anticipated funding requirements.The capital structure is governed by policies approved by the Baord of Directors.The following table summarises the capital of the Company.
21.1 Effect of Ind AS adoption on the statement of cash flows for the year ended March 31, 2017
There are no material adjustments to the statement of cash flow as reported under previous GAAP
22.2 Reconciliation Explanations:
a Remeasurements of financial assets and liabilities measured at amortised cost
Under Indian GAAP, the Security deposits/ Rent deposits receivable/payable are valued at cost less provision for impairment. Ind AS requires certain categories of financial assets and liabilities to be measured at amortized cost using the effective interest rate method. Security deposits/ Rent deposits are Financial Asset as the lease agreement/work contracts give a contractual right to the company to receive cash. Security deposit/ Rent deposit satisfies the contractual cash flow characteristic test and it also satisfies the business model test as there is intention of holding to collect contractual cash flows. Thus the same have been valued at amortised cost. The same has resulted in decrease in equity under Ind-AS by Rs. 322.04 Lakhs and Rs. 344.41 Lakhs respectively as at 31st March, 2017 and 1st April, 2016. b Restatement of fair value of investments
The company has invested in certain equity instruments. In previous GAAP, the same was measured at cost. As per Ind AS, investments are required to be measured at fair value. The same has resulted in decrease in equity under Ind-AS by Rs. 1.77 Lakhs as at 1st April, 2016. The same being sold within the year ending 31st March, 2017, there was no adjustment in equity as at 31st March, 2017. c Derecognition of assets under Ind AS
The company has derecognised its certain loans and advances, certain trade receivables, certain trade advances given and certain tangible and intangible capital work-in-progress, as they did not meet the recognition criteria. In previous GAAP, the same was measured at cost. The same has resulted in decrease in equity under Ind-AS by Rs. 1669.10 Lakhs as at 31st March, 2017 and 1st April, 2016. d ECL on Trade Receivables
As per Ind AS 109, the financial assets are subject to provision of expected credit loss. Under previous GAAP, there was no such provision. In compliance with Ind AS 109, the company has made provision of ECL on Trade Receivables following simplified approach. The same has resulted in decrease in equity under Ind-AS by Rs 132.79 Lakhs and Rs 114.18 Lakhs respectively as at 31st March, 2017 and 1st April, 2016. e Borrowings recognised as per EIR
Under Indian GAAP, the term loans are recorded at contracted rate. As per Ind AS, Borrowings are to be recognised as per effective interest rate. The same has resulted in decrease in equity under Ind-AS by Rs 27.49 Lakhs as at 31st March, 2017 and 1st April, 2016. f Redeemable Preference Shares classified as liability under Ind AS
Under the previous GAAP, Cumulative redeemable preference shares were classified as equity. As per Ind AS, the same is to be treated as a liability, since the company has contractual obligation to redeem the preference shares. The same has resulted in decrease in equity under Ind-AS by Rs. 81.96Lakhs as at 31st March, 2017 and 1st April, 2016. g Deferred Tax impact on Ind-AS adjustments
Various transitional adjustments resulted in temporary differences between taxable profits and accounting profits. Tax adjustments includes deferred tax impact on account of difference between previous GAAP and Ind AS on the adjustments discussed above. The same has resulted in increase in equity under Ind-AS by Rs. 102.58 Lakhs and Rs. 65.54 Lakhs respectively as at 31st March, 2017 and 1st April, 2016. h Remeasurement of defined benefit obligation
Under the previous GAAP, actuarial gain and losses are charged to profit or loss, however under Ind-AS, they form part of remeasurement of defined benefit liability/assets and are recognised in OCI.
22.3 Disclosures as required by Indian Accounting Standard (Ind-AS) 101 First Time adoption of Indian Accounting Standards:
The Company has adopted Ind AS with effect from 1 April 2017 with comparatives being restated. Accordingly the impact of transition has been provided in the Opening Retained Earnings as at 1 April 2016 and all the periods presented have been restated accordingly.
Exemptions availed on first time adoption of Ind AS 101:
On first time adoption of Ind AS, Ind AS 101 allows certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has availed the following exemptions:
i) Deemed Cost:
Ind AS 101 permits a first time adopter to elect to continue with the carrying values measured under the previous GAAP and use that carrying value as the deemed cost for property, plant and equipment, and intangible assets on the date of transition.
ii) Investments in subsidiary and associate:
The company has elected to consider the carrying cost of equity investments in subsidiary and associate as per the previous GAAP as the deemed cost at the date of transition.
iii) Designation of previously recognised financial instruments:
a) Under Ind AS 109, at initial recognition of a financial asset, an entity may make an irrevocable election to present subsequent changes in the fair value of an investment in an equity instrument in other comprehensive income. Ind AS 101 allows such designation of previously recognized financial assets, as ‘fair value through other comprehensive income’ or ‘fair value through profit and loss’ on the basis of the facts and circumstances that existed at the date of transition to Ind AS.
Accordingly, the Company has designated its investments in certain investments at fair value through other comprehensive income and fair value through profit and loss on the basis of the facts and circumstances that existed at the date of transition to Ind AS.
iv) Leases:
Ind AS17 - Leases requires an entity to assess whether a contract or an arrangement is in the nature of lease arrangement. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. However, the Company has used Ind AS 101 exemption and recognised arrangements having embedded leases based on facts and circumstances existing as at the date of Transition.
Exceptions
The following mandatory exceptions have been applied in accordance with Ind AS 101 in preparing the financial statements:
a) Estimates:
The estimates as at 1st April 2016 and 31st March 2017 are consistent with those made for the same dates in accordance with previous GAAP (after adjustment to reflect and differences if any, in accounting policies) apart from the following items where the application of previous GAAP did not require estimation:
(i) Impairment of financial assets based on the expected credit loss model; and
(ii) Investments in equity instruments carried as FVPL or FVOCI.
The estimates used by the Company to present the amounts in accordance with the Ind AS reflect conditions that existed at the date on transition to Ind AS.
b) Derecognition of financial assets:
The Company has elected to apply the Derecognition requirements for financial assets and financial liabilities in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS.
c) Classification and movement of financial assets and liabilities:
The Company has classified the financial assets and liabilities in accordance with Ind AS 109 on the basis of facts and circumstances that existed at the date on transition to Ind AS.
(23) The Company has regrouped/reclassified the Previous Year’s figures in order to conform to the figures of the Current Year.
|