To the Members of
Torrent Pharmaceuticals Limited
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the standalone financial statements of Torrent Pharmaceuticals Limited (the “Company”), which comprise the standalone balance sheet as at 31st March, 2023, and the standalone statement of profit and loss (including other comprehensive income), standalone statement of changes in equity and standalone statement of cash flows for the year then ended, and notes to the standalone financial statements, including a summary of significant accounting policies and other explanatory information (in which are included the financial statements of erstwhile Curatio Health Care (I) Private Limited (CHPL) as at 31st March, 2023 and for the period from 14th October, 2022 to 31st March, 2023 audited by other auditor, pursuant to the Scheme of Arrangement in the nature of Amalgamation of CHPL with the Company which has been approved by the National Company Law Tribunal vide its order dated 17th May, 2023 with the appointed date of 14th October, 2022) (hereinafter together referred to as standalone financial statements).
In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of report of the other auditor on separate financial statements of CHPL as at 31st March, 2023 and for the period from 14th October, 2022 to 31st March, 2023 as were audited by the other auditor, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (“Act”) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2023, and its profit and other comprehensive income, changes in equity and its cash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Act. Our responsibilities under those SAs are further described in the Auditor’s Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence obtained by us along with the consideration of the report of the other auditor referred to in paragraph(a) of the “Other Matter” section below, is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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Impairment Testing of Goodwill
See Note 4.8.2, 8 and 9 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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The Company tests goodwill for impairment annually, or more frequently when there is an indication that the cash generating unit to which goodwill has been allocated may be impaired.
We identified the annual impairment assessment of goodwill as a key audit matter because the assessment process is complex and judgmental by nature and is based on assumptions on:
• projected future cash inflows;
• expected growth rate and profitability;
• discount rate;
• perpetuity value based on long term growth rate;
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Our audit procedures included the following:
• Testing operating effectiveness of controls over determination of the recoverable amounts of cash generating units. Cash generating units for this purpose are those to which the goodwill is allocated;
• Evaluating the model used in determining the recoverable value of the cash generating units;
• Assessing the reasonableness of prior period cash flow forecasts of the Company by reference to actual performance to assess forecast accuracy;
• Challenging the significant assumptions and judgements used in impairment analysis, such as forecast revenue, margins, long term growth and discount rates in comparison to economic and industry forecasts with the assistance of our valuations specialist;
• Performing sensitivity analysis of the key assumptions, such as future revenue growth rates, future gross margins, and the discount rate used in determining the recoverable value;
• Evaluating the adequacy of disclosures, including disclosures of key assumptions, judgements and sensitivities.
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Business combination - Purchase Price Allocation for acquisition of Curatio Health Care (I) Private Limited
See Note 4.2.1 and 42 to standalone financial statements
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The key audit matter
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How the matter was addressed in our audit
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On 14th October, 2022, the Company acquired 100% of the equity shares of Curatio Health Care (I) Private Limited (“Curatio”) and its two wholly owned subsidiaries, Curatio Inc., Philippines and Curatio International Lanka (PVT) Ltd., Sri Lanka. The purchase price amounted to '2,000 crores.
Subsequently, the Company filed a Scheme of Arrangement in the nature of Amagamation ('Scheme') with the National Company Law Tribunal ('NCLT') for merger of Curatio with the Company. The Scheme was approved by the NCLT on 17th May, 2023, with an appointed date of 14th October, 2022.
The acquisition is accounted for in accordance with Ind AS 103 Business Combinations.
The assets, liabilities including the identifiable intangible assets acquired are stated at their fair values which are determined in the course of the purchase price allocation performed. The excess of acquisition cost over the identified fair value of recognised assets and liabilities is recognised as goodwill.
This results in the net assets measured at fair value aggregating to '1,920.40 crores and goodwill of '79.60 crores.
The purchase price allocation has been performed by an independent valuer and requires the management and the Board of Directors to make various estimates and assumptions.
Due to the matter described, we considered the business combination and in particular the purchase price allocation as a key audit matter in our audit.
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Our audit procedures included the
following:
• Reading the share purchase agreement, the approved scheme of merger and other related documents to obtain an understanding of the acquisition and the key terms and conditions;
• Evaluating the design, implementation, and operating effectiveness of the relevant internal controls over accounting for business combination;
• Evaluating the competence, capabilities, and objectivity of the independent valuer appointed by management. Along with our valuation specialist evaluated the reasonableness of methodology and key assumptions used by management and the independent valuer to measure the assets and liabilities at their fair values;
• Assessing the adequacy and appropriateness of accounting and disclosures made in accordance with Ind AS 103 Business Combinations.
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Information Other than the Standalone Financial Statements and Auditor’s Report Thereon
The Company’s Management and Board of Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report, but does not include the financial statements and auditor’s report(s) thereon.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed and based on the work done/ audit report of other auditor, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Management's and Board of Directors' Responsibilities for the Standalone Financial Statements
The Company’s Management and Board of Directors are responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs, profit and other comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act. The respective Management and Board of Directors of the Companies are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of each Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the respective Management and Board of Directors are responsible for assessing the ability of each Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the respective Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The respective Board of Directors are also responsible for overseeing the financial reporting process of each Company.
Auditor’s Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management and Board of Directors.
• Conclude on the appropriateness of the Management and Board of Directors use of the going concern basis of accounting in preparation of standalone financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial statements of CHPL to express an opinion on the standalone financial statements. For the financial statements of CHPL included in the standalone financial statements, which has been audited by other auditor, such other auditor remain responsible for the direction, supervision and performance of the audit carried out by them. We remain solely responsible for our audit opinion. Our responsibilities in this regard are further described in paragraph (a) of the section titled “Other Matter” in this audit report.
We communicate with those charged with governance of the Company regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Other Matter
a. We did not audit the financial statements of CHPL (component) included in the standalone financial statements of the Company whose financial statements reflect total assets of '171.12 crores as at 31st March, 2023 and total revenue of '126.35 crores and net cash outflows amounting to '50.61 crores for the period from 14th October, 2022 to 31st March, 2023, as considered in the standalone financial statements. The financial statements of this component have been audited by the other auditor whose report has been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of this component, and our report in terms of Section 143(11) of the Act, in so far as it relates to this component is based solely on the report of such other auditor.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor’s Report) Order, 2020 (“the Order”) issued by the Central Government of India in terms of Section 143(11) of the Act, we give in the “Annexure A” a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2 A. As required by Section 143(3) of the Act, based on our audit and on the consideration of report of the other auditor on separate financial statements of CHPL, as noted in the “Other Matter” paragraph (a), we report, to the extent applicable, that:
a. We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
b. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books and the report of the other auditor.
c. The standalone balance sheet, the standalone statement of profit and loss (including other comprehensive income), the standalone statement of changes in equity and the standalone statement of cash flows dealt with by this Report are in agreement with the books of account.
d. In our opinion, the aforesaid standalone financial statements comply with the Ind AS specified under Section 133 of the Act.
e. On the basis of the written representations received from the directors as on 20th April, 2023 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2023 from being appointed as a director in terms of Section 164(2) of the Act.
f. With respect to the adequacy of the internal financial controls with reference to financial statements of the Company and CHPL and the operating effectiveness of such controls, refer to our separate Report in “Annexure B”.
B. With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us and based on the consideration of the report of the other auditor on separate financial statements of CHPL, as noted in the “Other Matter” paragraph (a):
a. The Company has disclosed the impact of pending litigations as at 31st March, 2023 on its financial position in its standalone financial statements - Refer Note 41 to the standalone financial statements.
b. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note 39 to the standalone financial statements.
c. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
d (i) The respective management of the Company and CHPL incorporated in India whose financial statements have been audited have represented to us and the other auditor of CHPL that, to the best of their knowledge and belief, as disclosed in the Note 47 to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company or CHPL to
or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company or CHPL (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(ii) The respective management of the Company and CHPL incorporated in India whose financial statements have been audited have represented to us and the other auditor of CHPL that, to the best of their knowledge and belief, as disclosed in the Note 47 to the standalone financial statements, no funds have been received by the Company or CHPL from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Company or CHPL shall directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Parties (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(iii) Based on the audit procedures that have been considered reasonable and appropriate in the circumstances performed by us and that performed by the auditor of CHPL incorporated in India whose financial statements have been audited under the Act, nothing has come to our or other auditor's notice that has caused us or the other auditor to believe that the representations under sub-clause (i) and (ii) of Rule 11(e), as provided under (i) and (ii) above, contain any material misstatement.
e. The final dividend paid by the Company during the year, in respect of the same declared for the previous year, is in accordance with Section 123 of the Act to the extent it applies to payment of dividend.
The interim dividend declared and paid by the Company during the year and until the date of this Audit report is in accordance with Section 123 of the Act.
As stated in Note 48 to the standalone financial statements, the Board of Directors of the Company has proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with Section 123 of the Act to the extent it applies to declaration of dividend.
f. As proviso to rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable for the Company or CHPL only with effect from 1st April, 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 is not applicable.
C. With respect to the matter to be included in the Auditor’s Report under Section 197(16) of the Act:
In our opinion and according to the information and explanations given to us the remuneration paid/payable by the Company to their directors during the current year is in accordance with the provisions of Section 197 of the Act. The remuneration paid/ payable to any director by the Company is not in excess of the limit laid down under Section 197 of the Act. The Ministry of Corporate Affairs has not prescribed other details under Section 197(16) of the Act which are required to be commented upon by us.
For B S R & Co. LLP Chartered Accountants
Firm’s Registration No.:101248W/W-100022
Sadashiv Shetty Partner
Place: Mumbai Membership No.: 048648
Date: 30th May 2023 ICAI UDIN: 23048648BGWANN2757
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