Fair value of investment properties

The fair value of the Company’s investment properties as at March 31, 2023 has been arrived at H 950.60 Million (as at March 31, 2022: H 949 Million) on the basis of a valuation carried out by independent valuers. The valuation is done by valuers as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017 and have appropriate qualifications and relevant experience in the valuation of properties in the relevant locations.

The fair value has been categorised as level 3 hierarchy based on the inputs used in valuation technique. The inputs used are as follows:

• Monthly market rent, taking into account the differences in location, and individual factors, such as frontage and size, between the comparables and the property; and

• Capitalisation rate, taking into account the capitalisation of rental income potential, nature of the property, and prevailing market condition.

(iv) Investment properties are pledged as security

• towards term loan (first pari passu charge) and working capital borrowings (second pari passu charge) by the Company.

• towards borrowings by subsidiary

(v) During the previous year the Company has sold an investments property with a net book value of H 525.03 Million for a total consideration of H 630.00 Million (Refer note 42).

(vi) Amounts recognised in profit or loss for investment properties.

a) 11,087,706 (As at March 31, 2022: 5,979,370) equity shares are pledged against borrowings taken by Stelis Biopharma Limited from a financial institution.

b) During the year ended March 31, 2023, Stelis Biopharma Limited (‘the Associate’) has incurred loss of H 7,998 Million and has a net negative working capital position amounting to H 6,368 Million, which includes the current maturities of non-current borrowings of H 3,079 Million as of March 31, 2023. The significant loss for the current year has been on account of continuing operating losses, impairment of certain intangibles under development, provisions recorded for write down of certain inventories and advances.

During the year, the Associate had inventories relating to Sputnik V, which remained unsold due to geopolitical situation between Russia and Ukraine and sanctions on Russia and Russian Direct Investment Fund (RDIF) and accordingly has recorded a provision for these inventories towards obsolescence.

The Associate is expected to grow the business of Contract Development and Manufacturing Operations (CDMO) further during the year. During the current financial year, Associate’s facility in Bengaluru has successfully

completed inspection by several regulators including EMA and USFDA and one of its customer has also recently received approval from USFDA for a product filed from the site.

The Associate has requested for temporary relaxations for compliance with the financial covenants from the lenders for fiscal 2022 and 2023 as these have not been met as of the date of these financial results. However, during the year ended March 31, 2023, the shareholders have infused H 7,102 Million by subscribing towards call against the partly paid-up shares, rights issues and as intercorporate debt.

The Associate has received letter of support from one of its shareholders who have committed to extend the necessary financial support. The Associate is exploring various fund raising options including refinancing of debts and currently has received certain term sheets from investors / lenders which are being negotiated. The Associate is also exploring options to monetise some of its assets. The Associate management believes they will be able to finalise these arrangements over the next two quarters to enable it to repay the borrowings due and meet all its other obligations as they fall due. Given the mitigating factors discussed above, the Associate has concluded that it will be able to generate/raise adequate resources to continue operating for the foreseeable future and that the going concern basis for the preparation of its financial statements remains appropriate.

Nature and purpose of other reserve

(a) Capital reserve

Capital reserve is created on account of FCCB’s, Mergers and acquisitions and Demergers. It is utilised in accordance with the provisions of the Companies Act, 2013.

(b) Securities premium

Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013.

(c) Reserve for Business Restructure

The Scheme of restructuring approved by the shareholders on April 13, 2009 included a Scheme of Arrangement that envisaged the creation of a Reserve for Business Restructure(BRR) as set out in the Scheme. The Reserve was to be utilised by December 31, 2012 for specified purposes by either the Company or its subsidiaries. The balance of H 3,846.38 Million identified under the Securities Premium Account represents amounts utilised by the subsidiaries of the Company from the Reserve prior to December 31, 2012 and have been earmarked for set off on consolidation.

(d) Capital redemption reserve

Capital redemption reserve is a statutory, non-distributable reserve into which the amounts are transferred following the redemption or purchase of Company’s own shares. It is utilised in accordance with the provisions of the Companies Act, 2013.

(e) Share options outstanding account

The fair value of the equity-settled share based payment transactions with employees is recognised in statement of profit and loss with corresponding credit to employee stock options outstanding account. The amount of cost recognised is transferred to share premium on exercise of the related stock options.

(f) General reserve

General reserves are the retained earnings of a Company which are apportioned out of Company’s profits. General reserve is a free reserve which can be utilised for any purpose after fulfilling certain conditions in accordance with the provisions of the Companies Act, 2013.

(g) Retained earnings

Retained earnings are the profits that the Company has earned till date, less any transfers to other reserves, dividends or other distributions paid to its equity shareholders.

(h) Cash flow hedging reserve

The cash flow hedging reserve represents the cumulative effective portion of gains or losses (net of taxes, if any) arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges.

(i) Remeasurement of the defined benefit liabilities / (asset)

The cumulative balances of actuarial gain or loss arising on remeasurements of defined benefit plan is accumulated and recognised with in this component of other comprehensive income. Items included in actuarial gain or loss reserve will not be reclassified subsequently to statement of profit and loss.

(j) Share warrants

Board of Directors of the Company on March 14, 2022 approved the issuance of upto 2,000,000 Equity Warrants at a price of H 442/- per warrant, to Karuna Business Solutions LLP, a promoter group entity, with a right to apply for and get allotted, within a period of 18 (Eighteen) months from the date of allotment of Warrants, 1 (one) Equity Share of face value of H 10/- (Rupee Ten Only) each for each Warrant, for cash. The issue was approved by the shareholders of the Company at the Extra Ordinary General Meeting held on April 7,2022 and has also received requisite listing approvals.

An amount of H 221 Million equivalent to 25% of the Warrant Price was paid to the Company at the time of subscription and the balance 75% of the Warrant Price was payable by the Warrant holder against each Warrant at the time of allotment of Equity Shares pursuant to exercise of the options.

During the year ended March 31, 2023, on exercise of options by Karuna Business Solutions LLP and on receipt of balance subscription money of H150 Million, the Company has fully converted 452,490 convertible warrants into equity shares. Equity warrants of 1,547,510 are pending to be allotted as on March 31.2023.

The Company has fully utilised the amounts of H 371 Million towards capital resources and operations.

(a) Details of security for the secured loans repayable on demand: Working capital and short term loans from banks are secured by first pari passu charge over current assets of the Company and second pari passu charge on movable and immovable fixed assets of the Company (other than land and building situated at Navi Mumbai).

Rate of interest ranges from 1.50% to 10.4%.

(b) Rate of interest ranges from 6% to 10% for unsecured loans from banks.

(c) The returns and statements filed by the Company with the banks for its working capital loans, are in line with books of accounts of the Company.

(d) Information about Company’s exposure to interest rate, foreign currency exposure and liquidity risk are included in note 45.

The Company is eligible for various tax incentives / exemptions with respect to taxability of income received in India including repatriation of any profits as dividends from subsidiaries and associates, which may result in possible tax litigations/assessments. Assessing the applicability of tax for such repatriations involve complexities with respect to various tax positions on availability of tax incentives / exemptions resulting in possible tax litigations/assessments. Judgment is required in assessing the availability of tax incentives / exemptions. These judgments could change over time as each of the matter progresses with the relevant tax authorities and accordingly may impact the accounting treatment followed by the Company. The Company based on its assessments believes that appropriate accruals have been recorded for all these matters, to the extent necessary.

* Refer note 42

As per the judgment of Honourable Supreme Court dated February 28, 2019 on the definition of “Basic Wages” under the Employees Provident Funds & Misc. Provisions Act, 1952 and based on Company’s evaluation, there are significant uncertainties and numerous interpretative issues relating to the judgement and hence it is unclear as to whether the clarified definition of Basic Wages would be applicable prospectively or retrospectively. The amount of the obligation therefore cannot be measured with sufficient reliability for past periods and hence has currently been considered to be a contingent liability.

Other than the matters disclosed above, the Company is also involved in other disputes including patent and commercial matters that arise from time to time in the ordinary course of business. Management is of the view that the resolution of these disputes will not have any material adverse effect on the Company’s financial position or results of operations.

Note No. 40 Share-based paymentsa. Details of the employee share option plan of the Company:

(a) The ESOP titled “Strides ESOP 2016” (formerly known as Strides Shasun ESOP 2016) (ESOP 2016) was approved by the shareholders on April 21, 2016. 3,000,000 options are covered under the Plan which are convertible into equal number of equity shares of the Company. The vesting period of these options range over a period of three years. The options must be exercised within a period of one year from the date of vesting. Company has granted 442,500 options (Previous year: 67,500) under this scheme during the current year.

(b) During the current year, Employee compensation costs of H 12.68 Million (for the year ended March 31, 2022: H 10.90 Million) relating to the above referred Employee Stock Option Plans have been recognised in the Statement of Profit and Loss.

Fair value of share options granted during the year

The fair value of the share options granted during the year under ESOP 2016 Lot XII, ESOP 2016 Lot XIII, ESOP Lot XIV and ESOP 2016 Lot XV are H154.79, 163.72, 126.76, and H161.52 respectively. Options were priced using a Black- Scholes method of valuation at grant date. Expected volatility is based on the historical share price volatility over the past 3 years.

b. Details of the cash settled share based payment plan of the Company:

On May 20, 2020, the Board approved “Strides Long Term Incentive Plan 2020” titled the LTIP 2020 (“the Plan”). The Plan shall be in the form of Phantom Units. Each Phantom Unit, upon exercise, entitles the awardee a cash benefit equal to the Share Price on the date of exercise minus exercise price to be paid to the Company.

The vesting period of these units is one year. The units must be exercised within a period of twelve months from the date of vesting. The Company has granted Nil options (Previous year: Nil) under this scheme during the current year.

During the current year, Employee compensation cost reversal of H 3 Million (cost reversal for the year ended March 31, 2022: H 19.80 Million) relating to the plan have been recorded in the statement of Profit and Loss on account of final settlement of the Phantom units granted previous year.

Note No. 41 Employee Benefits Plans Defined contribution plan

The Company makes contributions to provident fund and employee state insurance schemes which are defined contribution plans, for qualifying employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll cost to fund the benefits. The Company recognised H 137.69 Million for provident fund contributions, H 1.95 Million for employee state insurance scheme contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.

Defined benefit plan

The Company offers gratuity benefits, a defined employee benefit scheme to its employees.

Composition of the plan assets

The fund is managed by LIC, the fund manager. The details of composition of plan assets managed by the fund manager is not available with the Company. However, the said funds are subject to Market risk (such as interest risk, investment risk, etc.).

Significant actuarial assumptions for the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

If the discount rate increases (decrease) by 1%, the defined benefit obligation would be H 407.14 Million (H 448.87 Million) as at March 31, 2023.

If the expected salary growth increases (decrease) by 1%, the defined benefit obligation would be H 466.72 Million (H 408.18 Million) as at March 31, 2023.

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.

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the balance sheet.

There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

There has been no change in the process used by the Company to manage its risks from prior periods.

Fair value hierarchy

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consist of the following three levels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

Fair value of the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis

Some of the Company’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).

45.3 Financial risk management

The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivatives financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivatives for speculative purposes maybe undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:

Foreign currency risk management

The Company is exposed to foreign exchange risk due to:

• debt availed in foreign currency

• net investments in subsidiaries and joint ventures that are in foreign currencies

• exposure arising from transactions relating to purchases, revenues, expenses, etc., to be settled (within and outside the group) in currencies other than the functional currency (i.e Indian rupees)

Exchange rate exposures are managed within approved policy parameters by utilising forward foreign exchange contracts.

45.3.1 Forward foreign exchange contracts

It is the policy of the Company to enter into forward foreign exchange contracts to cover the forecast sales transactions

The impact on profit has been arrived at by applying the effects of appreciation / deprecation effects of currency on the net position (Assets in foreign currency - Liabilities in foreign currency) in the respective currencies.

For the purposes of the above table, it is assumed that the carrying value of the financial assets and liabilities as at the end of the respective financial years remains constant thereafter. The exchange rate considered for the sensitivity analysis is the exchange rate prevalent as at each year end.

The sensitivity analysis might not be representative of inherent foreign exchange risk due to the fact that the foreign exposure at the end of the reporting period might not reflect the exposure during the year.

45.4 Interest rate risk management

Interest rate risk arises from borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued at fixed rate exposes the Company to fair value risk.

45.4.1 Interest rate sensitivity analysis

Financial instruments affected by interest rate changes include secured long term loans from banks and secured long term loans from others. The impact of a 1% change in interest rates on the profit of an annual period will be H 135.55 Million (March 31, 2022: 124.65 Million) assuming the loans at each year end remain constant during the respective years. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.

45.5 Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk to the company primarily arises from trade receivables. Credit risk also arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions and other financial assets.

The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company has an internal mechanism of determining the credit rating of the customers and setting credit limits. Credit risk is controlled by analysing the credit limits and credit worthiness of customers on a continuous basis to whom credit has been given after obtaining necessary approvals.

The Company was not significantly exposed to geographical credit risk as the counterparties operate across various countries across the globe.

Credit risk on cash and cash equivalent and derivatives is limited as the Company generally transacts with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.

45.6 Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the Board of directors, which has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual short term and long term cash flows, and by matching the maturity profiles of financial assets and liabilities. A portion of the company’s surplus cash is retained as investments in liquid mutual funds or fixed deposits to fund short term requirements.

45.6.1 Liquidity analysis for non-derivative liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted contractual cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Company may be required to pay.

Note No. 46 Capital management

The Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of net debt (borrowings as detailed in notes 20 offset by cash and bank balances) and total equity.

The Company reviews the capital structure on a quarterly basis to ensure that it is in compliance with the required covenants. As of the date of the issue of financial results, the management of the Company have not complied with certain financial covenants related to their respective borrowings and have obtained temporary relaxations for compliance with those financial covenants from the lenders . The Company has a target gearing ratio of 1:1 determined as the proportion of net debt to total equity. The gearing ratio is as follows

The Company is not subject to any externally imposed capital requirements.

1. Reduction in profits and increase in interest payments during the year leading to decrease in the ratio

2. Reduction in profits during the year leading to decrease in the ratio

3. Decrease in net capital turnover ratio is on account of increase in networking capital position without a corresponding decrease in turnover

4. Reduction in profits during the year leading to decrease in the ratio

5. In the current year, the Company did not invest in any mutual funds.

Note No. 48 Other Statutory Information

(a) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Company for holding any Benami property.

(b) The Company does not have any transactions with struck off companies.

(c) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period (excluding the charge with respect to Debentures mentioned in note 20 (i), as the Company is awaiting no objection certificate from the other lenders.

(d) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.

(e) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that:

(i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or

(ii) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.

(f) The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:

(i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or

(ii) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries,

(g) The Company has not done any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961.

(i) The Company has complied with the number of layers prescribed under the Companies Act, 2013.

(j) The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or both during the current or previous year.

(k) The Company has borrowings from banks and financial institutions on the basis of security of current assets. The quarterly returns or statements of current assets filed by the Company with banks and financial institutions are in agreement with the books of accounts.

(l) The Company have not been declared as wilful defaulter by any bank or financial institution or government or any government authority.

Note No. 49 Transfer Pricing

The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under Sections 92-92F of the Income-tax Act, 1961. Since the law required existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the international as well as domestic transactions entered into with the associated enterprise during the financial year and expects such records to be in existence as required by law. The Management is of the opinion that its international as well as domestic transactions are at arm’s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for tax.

Note No. 50 During the year ended March 31, 2023, no material foreseeable loss (March 31, 2022: Nil) was incurred for any long-term contract including derivative contracts.

Note No. 51 The Board of Directors of the Company on February 10, 2022 have approved the Scheme of Amalgamation u/s 230 to 232 of the Companies Act, 2013, between Strides Pharma Science Limited and Vivimed Lifesciences Private Limited with an appointed date of April 1, 2022. The Scheme of Amalgamation is yet to be filed with National Company Law Tribunal (NCLT) for approval. The Scheme was originally approved by the Board of Directors at their meeting held on October 29, 2020. However, the Company did not proceed with the Scheme at that time and the current Scheme supersedes the original Scheme.

Note No. 52 The Board of Directors have proposed a final dividend of H 1.5 per share, which is subject to approval by the shareholders in the Annual General Meeting.

Note No. 53 The previous year’s figures in the notes to accounts have been re-grouped/ reclassified, where necessary to confirm to current year’s classification.

The accompanying notes are an integral part of the standalone financial statements As per our report of even date attached