1. Corporate Information:
SMS Lifesciences India Limited (SMS Life), (the ‘Company’) is a Company limited by Shares domiciled in India incorporated under the Companies Act, 1956. The registered office of the Company is at Plot No. 19-III, Road No. 71, Jubliee Hills, and Hyderabad. The Equity Shares of the Company are listed in Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The Company is engaged in the business of manufacturing of Active Pharma Ingredients and their intermediates. The Company is having manufacturing facilities at Khazipally, Jeedimetla, Hyderabad.
These Financial Statements for the year ended 31st March, 2018 were authorized and approved for issue by the Board of Directors on 28th May, 2018.
2. Basis of Preparation:
(i) Compliance with Ind AS
The financial statements of the Company have been prepared in accordance with the Indian Accounting Standards as notified under section 133 of the Companies Act 2013 (“the Act”) read with the Companies (Indian Accounting Standards) Rules 2015 issued by Ministry of Corporate Affairs (‘MCA’). The Company has uniformly applied the accounting policies during the years presented.
For all years up to and including the year ended 31st March 2017, the Company had prepared its financial statements in accordance with accounting standards notified under the section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (‘Indian GAAP’). Effective from 01st April 2017, the Company has adopted all the Ind AS Standards and the adoption was carried out in accordance with Ind AS 101 First time adoption of Indian Accounting Standards, with transition date as 01st April 2016. The reconciliation of effects of the transition as required by Ind AS 101 is disclosed in Note No. 43 to these financial statements.
Amounts for the year ended and as at 31st March, 2017 were audited by the previous auditors M/s. Rambabu & Co, Chartered Accountants.
(ii) Historical Cost Convention:
The financial statements have been prepared on a going concern basis under the historical cost basis except for the following:
- Certain Financial Assets and Liabilities that is measured at Fair Value; (refer accounting policy regarding financial instruments).
- Defined Benefit Plans - Plan Assets measured at Fair Value.
(iii) Current and Non-Current Classification:
The Company presents assets and liabilities in the balance sheet based on current and noncurrent classification.
(a) An asset is treated as current when it satisfies the below mentioned criteria:
- Expected to be realized or intended to be sold or consumed in normal operating cycle;
- Held primarily for the purpose of trading;
- Expected to be realized within twelve months after the reporting period, or
- Cash or Cash Equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
(b) All Other Assets are classified as noncurrent.
(c) A liability is classified as current when it satisfies the below mentioned criteria:
- Expected to settle the liability in normal operating cycle;
- Held primarily for the purpose of trading;
- Due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
(d) All Other liabilities are classified as noncurrent.
(e) Deferred Tax Assets and Liabilities are classified as non-current assets and liabilities.
(f) The Operating Cycle is the time between the acquisition of assets for processing and their realization in Cash and Cash Equivalents. The Company has identified Twelve months as its Operating Cycle.
3. New Standards and Interpretations not yet adopted:
3.1 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 01st April 2018. The Company is evaluating the requirement of the amendment and the effect of the financial statements.
3.2 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:
a. 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.
b. Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach).
The effective date for adoption of Ind AS 115 is financial years beginning on or after 01st April 2018. The Company is evaluating the requirement of the amendment and the effect of the financial statements.
4.1 The Company has entered into a Share Purcahse Agreement with the Shareholders of M/s Mahi Drugs Private Limited to buy 100% holding @ Rs.55/- per share with face value of share Rs.10/- each to acquire their manufacturing facility situated at Jawaharlal Nehru Pharmacity, Parwada, Visakapatnam. During the year, the Company has purchased 9,00,000 Equity Shares which is 19% of holding.
5.1 Capital Advances consists of an amount of Rs.251.88 Lakhs (31st March, 2017, Rs. 251.88 Lakhs and 01st April, 2016 Rs. 251.88 Lakhs) paid for acquiring land to the extent of 19 acres, in JNPC, Parwada, Visakhapatnam District. The said land along with the proportionate amount of advance was vested with the Company in pursuance of demerger scheme between the Company and M/s. SMS Pharmaceuticals Ltd, the demerged Company, out of Ac.42.00 originally allotted to the demerged Company. On account of dispute between the demerged Company and the developer, the matter is sub-judice before the High Court of Judicature at Hyderabad (for the state of Andhra Pradesh and Telangana). The Company has impleaded in this case.
6.1 Finished Goods includes stock in transit of Rs. 299.02 Lakhs (31st March, 2017 Rs.Nil/-, 01st April, 2016 Rs. Nil/-).
7.1 The Company has computed the expected credit loss allowance for doubtful trade receivables based on past experience.
7.2 Trade Receivables includes an amount of Rs. 186.34 Lakhs (31st March, 2017 Rs. 145.17 Lakhs, 01st April, 2016 Rs. 145.33 Lakhs ) due from related Parties.
7.3 Trade Receivables amounting Rs. 104.20 Lakhs (31st Mach, 2017 Rs. 188.02 Lakhs, 01st April, 2016 Rs. 179.64 Lakhs) is held against letter of credit provided by customers of the Company.
8.1 Advance to Suppliers includes an amount of Rs. 182.82 Lakhs (31st March, 2017 Rs. 78.96 Lakhs, 01st April, 2016 Rs 93.24 Lakhs) to R Chem (Somanahalli) Pvt Ltd, a related Party.
8.2 The Company has paid an amount of Rs. 133.42 Lakhs as advance for import of raw materials. This amount was included in Advance to Suppliers. The said materials was kept with Universal Logisitics, (a Customs notifide godown) where the said material got damaged due to fire. Universal Logistics has filed a case aginst the insurance Company and made the Comapny as one of the party. Subsequently, the Company has also made a claim against the said Universal Logistics for recovery. The management is confident of recovery of the said amount.
9.1 All above shares are issued for consideration other than cash in pursuance of Demerger Scheme (Refer Note 41)
9.2 Reconciliation of Number of Equity Shares outstanding at the beginning and at the end of the Year
9.3 Rights 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 shares is entitled to one vote per share at the general meetings of the Company. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
9.4 Details of shareholders holding more than 5% shares in the Company
10.1.1 Capital Reserve is created during the year due to cancellation of Equity Share Capital held by the Company before issue of Equity Shares in Pursuance of Demerger Scheme. (Refer Note 41).
11.1.1 Security Terms
(a) Term Loan availed from Export-Import Bank of India is secured by first charge of all movable and immovable fixed assets both present and future and second charge of all current assets both present and future and guaranteed by Sri P.Ramesh Babu, Director and Sri TVVSN Murthy, Managing Director of the Company in their personal capacities.
(b) Hire Purchase Loan availed from ICICI Bank Ltd is secured by the respective vehicles.
(c) The carrying amounts of financial and non-financial assets pledged as security for current and non current borrowings are disclosed in Note 44.
11.1.2 Rate of Interest: The above said term loan carries an interest rate @ 11.5% p.a (LTMLR 250 bps p.a.)
11.1.3 Terms of Repayment
Term loan availed from Export Import Bank of India amounting to Rs.3,000.00 Lakhs for funding the Expansion Project of Kazipally unit. The loan is repayable in 20 Quarterly Installments of Rs.150.00 Lakhs each, commencing from December, 2015.
11.1.4 Current Maturities of Long Term borrowings have been disclosed seperately under the head other current financial liabilities (Refer Note No.26)
11.2.1 Un-Secured Loans
(a) During the Year, the Company has taken Unsecured Loan from Sri TVVSN Murthy, Managing Director for an amount of Rs. 495.00 Lakhs. The above said loan is carrying interest rate of 9.75% pa.
(b) Sales Tax (deferment) Loan liability is due for repayment as under:
12.1.1 Security Terms
(a) Working capital facility sanctioned by RBL Bank Limited is secured by first charge on pari-passu basis of all current assets both present and future. These facilities are further secured by way of second charge on pari-passu basis of all movable and immovable fixed assets of the Company both present and future and also guaranteed by Sri TVVSN Murthy, Managing Director and Sri P.Ramesh Babu, Director of the Company in their personal capacities.
(b) The carrying amounts of financial and non-financial assets pledged as security for current and non-current borrowings are disclosed in Note 44.
12.1.2 Rate of Interest: The above loan carries an interest rate of 9.75% p.a
12.1.3 During the year, RBL Bank Limited has extended total working capital facilities of Rs. 4,300.00 Lakhs consisting of fund based and non fund based with interchangebility. Fund based balance outstanding as on 31.03.2018 is Rs. 599.31 Lakhs and non fund based outstanding as on 31.03.2018 is Rs. 456.90 Lakhs.
12.1.4 Repayment Terms: The above working capital facilities are repayable on demand.
12.4 Debt Reconciliation as required by Ind AS -7, Statement of Cash Flows
13.1 Goods and Service Tax (GST) has come into force w.e.f 01st July, 2017. The revenue for the year ended 31st March, 2018 is net of such GST. However, the revenues for the year ended 31st March, 2017 and current year upto 30th June, 2017 are inclusive of Excise Duty of an amount of Rs.1201.62 Lakhs and Rs.444.97 Lakhs respectively.
14.1 Expenditure relating to Directors Remuneratrion and Cost Audit fee for the previous year i.e. 2016-17 were considered in the books of Demerged Company, SMS Pharmaceuticals Ltd. Hence, current year figures under these heads are not comparable.
15 Scheme of arrangement (De-Merger) between the Company and SMS Pharmaceuticals Ltd, the Demerged Company.
The Demerger Scheme as sactioned by the National Company Law Tribunal (NCLT) has been implemented with appointed date as 01st April, 2016 as provided in the Scheme. Accordingly, the Company has vested with all assets and liabilities pertaining to each of the demerged undertakings at their book value as appearing in the books of the demerged Company. The balances present in the financial statements as on 01st April, 2016 are conferred with the Company as per this scheme.
During the year, the Company has alloted 30,23,287 Equity Shares of Rs. 10/- each out of general reserve vested with the Company on 01st April, 2016 in pursuance of the demerger scheme.
16 (i) M/s SMS Pharmaceuticals Ltd (SMSPL), the demerged Company, has entered in to an agreement with M/s. Divya Enterprises Limited for purchase of industrial plot bearing number D-63, Phase - I, IDA Jeedimetla, Hyderabad for a consideration of Rs.60.00 Lakhs. Pending registration of the same, Demerged Company has taken the possession during the year 2002-03 and has paid the concederation to the vendor.
(ii) The Company is pursuing to sought out the issue to get the title.
(iii) The Demerged Company has constructed/modified buildings and structures to suit the requirement for carrying out its manufacturing activity in the said premises and has incurred an amount of Rs.169.68 Lakhs during the earlier years for modification of buildings and also for acquiring required equipment and other assets. The said assets were capitalized In the books of the demerged Company and it has claimed depreciation up to 31-03-2016 and thereafter, the Company is contuing to charge the depreciation on these assets.
(iv) Central excise department has issued a demand for an amount of Rs.16.40 Lakhs towards interest for the period from 01-04-1995 to 18-03-2011 jointly in the name of Divya Enterprises Limited and Demerged Company for which M/s Divya Enterprises Limited has obtained stay from the Honourable High court of Andhra Pradesh in the year 2013.
(v) The assets mentioned in above (i) and (ii) have got transferred from the Demerged Company by virtue of scheme of arrangement approved by the NCLT (National Company Law Tribunal) dated 15-05-2017. presently no manufacturing activity is carried out at this premises.
17 Post Employment Benefits
17.1 Defined Contribution Plans
17.1.1 Employer’s Contribution to Provident Fund:
Contributions are made to provident fund in India for employees at the rate of 12% of basic salary as per regulations. The contributions are made to registered provident fund administered by the Government. The obligation of the Company is limited to the amount contributed and it has no further contractual nor any constructive obligation. The expense recognised during the year towards PF Contribution is Rs.99.46 Lakhs. (Previous Year- Rs. 72.50 Lakhs).
17.1.2 Employer’s Contribution to State Insurance Scheme:
Contributions are made to State Insurance Scheme for employees at the rate of 4.75%. The Contributions are made to Employee State Insurance Corporation(ESI) to the respective State Governments of the Company’s location. This Corporation is administered by the Government and the obligation of the Company is limited to the amount contributed and it has no further contractual nor any constructive obligation. The expense recognised during the period towards ESI Contribution is Rs.15.47 Lakhs (Previous Year - Rs.10.77 Lakhs).
17.2 Defined Benefit Plans
The Company has a defined benefit gratuity plan governed by Payment of Gratuity Act, 1972. Every Employee who has completed five years or more of service is entilted to a gratuity on departure at 15 days salary for each completed year of Service. The Scheme is funded through a policy with Life Insurance Corporation of India (LIC).
The Company has a defined benefit Compensated Absence Plan governed by The Factories Act, 1948. Every Employee who has worked for a period of 240 days or more during a calendar year shall be allowed during the subsequent calendar year, leave with wages for a number of days calculated as per Act.
The following table summarise net benefit expenses recognised in the statement of profit and loss, the status of funding and the amount recognised in the Balance Sheet for both the plans:
(a) Assumptions regarding future mortality experience are set in accordance with the published statistics by the Life Insurance Corporation of India.
(b) Plan assets does not comprise any of the Company’s own financial instruments or any assets used by the Company. The Company has the plan covered under a policy with the Life Insurance Corporation of India.
(c) The Significant acturial assumptions for the determination of the defined benefit obligation are the discount rate, the salary growth rate and the average life expectancy. The calculation of the net defined benefit liability is sensitive to these assumptions. However, the impact of these changes is not ascertained to be material by the management.
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated When calculating the sensitivity of the defined benefit obligation to significant acturial assumptions, the same method (Projected Unit Credit Method) has been applied while calculating the defined benefit liability recognised within the Balance Sheet.
17.2.1 Other Information
(i) Expected rate of return basis
Since the scheme funds are invested with LIC of India EROA is based on rate of return declared by fund managers
(ii) Description of Plan Assets and Reimbursement Conditions
100% of the Plan Asset is entrusted to LIC of India under their Group Gratuity Scheme. The reimbursement is subject to LIC’s Surrender Policy
(iii) Discount Rate
The discount rate has increased from 6.69% to 7.68% and hence there is a decrease in liability leading to actuarial gain due to change in discount rate.
(iv) Present Value of Defined Benefit Obligation:
Present value of the deined benefit obligation is calculated by using Projected Unit Credit Method (PUC Method). Under the PUC Method, a “projected accrued benefit” is calculated at the beginning of the year and again at the end of the year for each benefit that will accrue for all active members of the Plan. The “Projected accrued benefit” is based on the Plan’s accrual formula and upon service as of the beginning or end of the year, but using a member’s final compensation, projected to the age at which the employee is assumed to leave active service. The Plan Liability is the acturial present value of the “ Projected accrued benefits” as of the begining of the year for active members.
(v) Expected Average remaining service vs. Average remaining future service:
The average remaining service can be arithmatically arrived by deducting current age from normal retirement age whereas the expected average remaining service is arrived acturially by applying multiple decrements to the average remaining future service namely mortality and withdrawals. Thus, the expected average remaining service is always less than the average remaining future service.
(vi) Current and Non Current Liability:
The total of current and non-current liability must be equal with the total of PVO (Present value oblition) at the end of the period plus short term compensated liability if any. It hasbeen classified in terms of “Schedule III” of the Companies Act, 2013.
(vii) Defined Benefit Liability and Employer Contributions
The Company has purchased insurance policy to provide for payment of gratuity to the employees. Every year, the insurance Company carries out a funding valuation based on the latest employee data provided by the Company. Any deficit in the assets arising as a result of such valuation is funded by the Company. The Company considers that the contribution rate set at the last valuation date are sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs will not increase significantly.
17.2.2 Risk Exposure
Though it is defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
(a) Investment / Interest Risk:
The Company is exposed to Investment / Interest risk if the return on the invested fund falls below the discount rate used to arrive at present value of the benefit.
(b) Longevity Risk:
The Company is not exposed to risk of the employees living longer as the benefit under the scheme ceases on the employee separating from the employer for any reason.
(c) Risk of Salary Increase
The Company is exposed to higher liability if the future salaries rise more than assumption of salary escalation.
18 Assets pledged as Security For Non Current Borrowings
Secured by First Charge on Property, Plant and Equipment, Investment Property and Second Charge on Current Assets.
For Current Borroiwngs
Secured by First Charge on Current Assets and Second Charge on Property, Plant and Equipment and Investment Property.
The carrying amounts of Company’s assets pledged as security for Non Current and Current Borrowings of an amount of Rs.2,144.39 Lakhs (as at 31st March, 2017, Rs. 2,513.41 Lakhs and as at 01st April, 2016 Rs. 3,327.28 Lakhs) are as follows:
19 Fair Value Measurements
19.1 Fair Value Hierarchy
Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:
Level 1: Quoted prices (un adjusted) in active market for identical assets or liabilities.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data rely as little as possible on entry specific estimates.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
19.2 Valuation techniques used to determine fair value:
Specific Valuation techniques used to value financial instruments include:
- The use of quoted market price or dealer quotes for similar instruments.
- The fair value of remaining financial instruments is determined using discounted cashflow analysis.
19.3 Valuation Process:
The Finance and accounts department of the Company performs the valuation of financial assets and liabilities required for financial reporting purposes, and report to the Board of Directors. The main Level 3 inputs are derived using the discounted cash flow analysis, Market Approach, Net Assets Value Method as applicable.
20 Financial Risk Management Objectives and Policies Financial Risk Management Framework
The Company is exposed primarily to credit risk, liquidity risk and market risk (fluctuations in foreign currency exchange rates and interest rate), which may adversley impact the fair value of its financial instruments. The Company assesses the unpredictability of the financial environment and seeks to mitigate potential adverse effects on the financial performance of the Company.
20.1 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. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of credit worthiness as well as concentration of risks. Credit risk is controlled by analysing credit limits and creditworthiness of customers on a continuous basis to whom the credit has been granted after obtaining necessary approvals for cerdit. Financial instruments that are subject to concentrations of credit risk principally consist of trade receivables, cash and cash equivalents, bank deposits and other financial assets. None of the financial instruments of the Company result in Material Concentration of credit risk, except for Trade Receivables.
(i) Financial Instruments and Cash Deposits
For banks and financial institutions, only high rated banks/institutions are accepted. Other Financial Assets (excluding Bank Deposits) majorly constitute deposits given to State electricity departments for supply of power, which the Company considers to have negligible credit exposure. Counterparty credit limits are reviewed by the Management on an annual basis, and may be updated throughout the year. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
(ii) Expected Credit Loss for Trade Receivables under simplified approach
For trade receivables, the Company applies the simplified approach permitted by Ind AS 109 Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
20.2 Liquidity Risk:
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments:
20.3 Market Risk:
Market risk is the risk that the fair value or future cash flows of a financial isntrument will fluctuate because of changes in market prices. Market prices comprise three types of risk, currency rate risk, interest rate risk and other price risks such as equity risk. Financial instruments affected by market risk include loans and advances deposits investments in debt securities mutual funds and other equity funds.
(i) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of change in market ineterest rates. In order to optimize the Company’s position with regard to interest income and interest expenses and to manage the interest rate risk, treasury performs a comprehensive corporate interest risk management by balancing the proportion of fixed rate and floating rate financial instruments in its portfolio.
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment.
(ii) Foreign Currency Exchange Rate Risk:
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises when transactions are denominated in foreign currencies.
The Company has transactional currency exposures arising from services provided or availed that are denominated in a currency other than the functional currency. The foreign currencies in which these transactions are denominated are mainly in US Dollars ($). The Company’s trade receivable and trade payable balances at the end of the reporting period have similar exposures.
(a) Details of Unhedged Foreign Currency Exposure:
The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are as under:
(b) Foreign Currency Sensitivity
The following table demonstrate the sensitivity to a reasonably possible change in USD exchange rate, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities including foreign currency derivatives. The Company’s exposure to foreign currency changes for all other currencies is not material.
(iii) Other Price Risk:
Other price risk is the risk that the fair value or future cash flows of the Company’s financial instruments will fluctuate because of changes in market price (other than those arising from interest rate risk or currency risk) whether those changes are caused by factors specific to the individual financial instrument or its issuer or by factors affecting all similar financial instruments traded in the market.
21 Capital Management
For the purposes of the Company’s Capital Management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders. The primary objective of the Company’s capital management is to maximise the shareholder value.
The Company manages its capital structure in consideration to the changes in economic conditions and the requirements of the financial covenants. The Company monitors capital using a gearing ratio, which is net debt divided by total equity plus net debt. The Company intends to keep the gearing ratio less than 1. The Company includes within net debt, borrowings including interest accrued on borrowings less cash and short term deposits.
22 Leases (Ind AS -17):
22.1 Operating Lease Commitments - Company as Lessee
The Company has taken leased premises for its office use on sub lease basis upto 31.03.2019. During the year, the Company has paid an amount of Rs. 22.27 Lakhs (Previous Year Rs. 22.42 Lakhs) towards rental charges. As the said lease is revocable by either of the parties with prior notice, other disclosure requirements under Ind AS 17 “Leases” is not applicable.
22.2 Operating Lease Commitments - Company as Lessor
The Company has given on Lease, its Premises in Sanath Nagar for a lease term of 12 Months. During the year, the Company has received annual lease receipts of Rs. 18.90 Lakhs.
23 Segment Information
(a) Description of Segments and Principal Activities
The Managing Director has been identified as being the chief operating decision maker(CODM). Operating segments are defined as components of an enterprise for which discrete financial information is available. This is evaluated regularly by the CODM, in deciding how to allocate resources and assessing the Company’s performance. The Company is engaged in manufacturing and sale of Active Pharma Ingredients and their Intermediates and operates in a single operating segment.
Revenues are attributed to geographical areas based on the location of the customers as detailed below:
24 Payables to Micro, Small & Medium Enterprises
The Company has certain dues to suppliers registered under Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’). The disclosures pursuant to the said MSMED Act are as follows:
*Specified Bank Notes (SBNs) mean the bank notes of denominations of the existing series of the value of five hundred rupees and thousand rupees as defined under the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs no. S.O. 3407(E), dated the 8th November, 2016.
25 First-Time adoption of Ind AS Transition to Ind AS
These are the Company’s first financial statements prepared in accordance with Ind AS.
The accounting policies set out in Note 4 have been applied in preparing the financial statements for the year ended 31st March, 2018, the comparitive information presented in these financial statements for the year ended 31st March, 2017 and in the preparation of an opening Ind AS balance sheet at 01st April, 2016 (Company’s date of transition to IND AS). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting standards) Rules, 2006 (as amended) and other relevant provisions of the Act(previous GAAP or Indian GAAP). An explanation on how the transition from previous GAAP to Ind AS has effected the Company’s financial position, financial performance and cash flows is set out in the following tables and notes.
25.1 Exemptions and Exceptions Availed
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.
25.1.1 Ind AS Optional Exemptions (a) Deemed Cost
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its Property, Plant and Equipment, Intangible assets and Investment Property as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. Accordingly, the Company has elected to measure all of its property, plant and equipment, intangible assets and Investment Property at their previous GAAP carrying value.
25.1.2 Ind AS Mandatory Exceptions
(a) Estimates
An entity’s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with the estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
Ind AS estimates as at 01st April, 2016 are consistent with the estimates as at the same date made in confirmity with previous GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:
-Investment in Equity Instruments carried at FVPL or FVOCI -Investments in Debt Instruments carried at FVPL and;
-Impairment of Financial Asset based on Expected Credit Loss Model.
(b) Classification and Measurement of Financial Asset
Ind AS 101 requires an entity to assess classification and measurement of financial assets (investments in debt instruments) on the basis of the facts and circumstances that exist on the date of transition to Ind AS.
25.2.1 Statement of Cash Flows
The transition from Indian GAAP to Ind AS has not had a material impact on the statement of cash flows.
25.3 Notes to First-Time Adoption:
25.3.1 MAT Credit Entitlement
MAT credit entitlement is to be presented under loans and advance in accordance with Guidance Note on “Accounting for Credit available in respect of MAT under the Income Tax Act, 1961” issued by ICAI. However, as per Ind AS, MAT credit entitlement is generally recognized as a deferred tax asset with a corresponding deferred tax benefit in the statement of profit and loss. Accordingly, the Company has reclassified the MAT credit entitlement from loans and advances to deferred tax assets as at 31st March, 2017, Rs. 84.18 Lakhs (01st April, 2016: Rs. 84.18 Lakhs).
25.3.2 Trade Receivables
As per Ind AS 109, the Company is required to apply Expected Credit Loss Model for recognising the allowance for doubtful debts.
25.3.3 Revenue Recognition and Excise Duty
Under the previous GAAP, revenue from sale of products was presented exclusive of excise duty. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. The excise duty paid is presented on the face of the statement of profit and loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended 31st March, 2017 by Rs. 1,201.62 Lakhs. There is no impact on the total equity and profit.
25.3.4 Remeasurements of Post-Employement Benefit Obligations
Under Ind AS, remeasurements i.e. Acturial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year. As a result of this change, the profit for the year ended 31st March, 2017 increased by Rs. 37.19 Lakhs. There is no impact on the total equity as at March 3,1 2017.
25.3.5 Retained Earnings
Retained earnings as at 01st April, 2016 has been adjusted consequent to the above Ind AS transition adjustments.
25.3.6 Deferred Tax
Indian GAAP requires deferred tax accounting using the statement of profit and loss approach, which focuses on difference between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of the asset or liability in the balance sheet and its tax base.
As per Ind AS-12, the Company has recognised deferred tax asset on the indexation benefit available on free hold land as it has no plans to sell the business on a slump sale thereby increasing the retained earnings by Rs. 137.55 Lakhs as at 31st March, 2017 (01st April, 2016: INR 129.43 Lakhs).
Other Deferred tax adjustments amounting to (INR (30.61) Lakhs/-) as at 31st March, 2017 (01st April, 2016: INR (18.09) Lakhs) include deferred tax impact on account of differences between previous GAAP and Ind AS. The profit for the year ended i.e. 31st March, 2017 increased by INR 3.27 Lakhs due to the deferred tax adjustments made.
25.3.7 Other Comprehensive Income
Under Ind AS, all items of income and expense recognized in a period should be included in the profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit or loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans. The concept of ‘other comprehensive income’ did not exist under previous GAAP.
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