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Notes to Accounts of Merck Ltd.

Dec 31, 2014

1. Company overview

Merck Limited (''the Company'') is a public company domiciled and headquartered in India. It is incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The Company is in the business of manufacturing and marketing of pharmaceuticals, bulk drugs, fine chemicals and pigments. The Company is organized in two major divisions – Pharmaceuticals and Chemicals.

2. (a) Related party disclosures

Related parties where control exists Ultimate Holding Company:

Merck KGaA, Germany through its subsidiaries listed below as Investing Associates holds 51.8% (2013: 51.8%) of the equity share capital, as at 31 December 2014.

Investing Associates:

Chemitra GmbH, Germany

Emedia Export Company mbH, Germany

Merck Internationale Beteiligungen GmbH, Germany

Other related parties with whom transactions have taken place during the year: Fellow Subsidiaries:

Ares Trading S.A., Switzerland

Ares Trading, Uruguay

EMD Millipore Corporation, USA

Heipha Dr. Müller GmbH, Germany

Merck & Cie., Switzerland

Merck (Private) Limited, Pakistan

Merck (Pty) Limited, South Africa

Merck Chemicals (Shanghai) Co., Limited, China

Merck Inc., Philippines

Merck KGaA & Co. Werk Spittal, Austria

Merck Limited, Japan

Merck Limited, Taiwan

Merck Limited, Thailand

Merck Pte Ltd, Singapore

Merck Sdn Bhd, Malaysia

Merck Selbstmedikation GmbH, Germany

Merck Serono (Beijing) Merck Pharmaceutical Consulting Ltd., China

Merck Serono Co., Limited, Japan

Merck Serono Middle East FZE, United Arab Emirates

Merck Serono S.A., Switzerland

Merck Specialities Private Limited, India

Merck spol. s r.o., Czech Republic

Millipore India Private Limited, India

P.T. Merck Indonesia, Indonesia

Seven Seas Limited, United Kingdom

Suzhou Taizhu Technology Development Co., China

Key Managerial Personnel:

Dr. Claus Boedecker (Managing Director)

Mr. N Krishnan (Director)

Mr. P.H. Pimplikar (Director)

3. Contingent liabilities

(to extent not provided for)

Summary of disputed statutory demands not accepted by the Company are given below:

2014 2013

Income tax 504.2 554.1

State and Central Sales Tax, Entry Tax 62.0 35.8

Excise duty 5.7 5.7

571.9 595.6

4. (a) During previous year, the Company had received a show cause notice from National Pharmaceutical Pricing Authority (NPPA) alleging that the Company had sold product Polybion L Syrup 250ml without price approval from the period January 2008 until June 2009. The notice calculates Rs. 128.0 million as the value of over charge equivalent to the entire sale value of said product for the referred period. The Company, based on the legal opinion believes that no provision is required to be made in the books of account.

(b) During the year, the Company has made a provision of Rs. 69.8 million towards a possible liability which may accrue to the Company due to a recent judgement passed by the Supreme Court impacting the Pharmaceutical industry in India including the Company.

(c) National Pharmaceutical Pricing Authority (NPPA) issued the price fixation orders for about 350 drugs on June 21, 2013 including Metformin, a formulation used by us in our product Carbophage 500 SR. The orders do not clarify whether the prices so fixed are applicable only for plain tablet or innovative dosages as well. The Company sought clarification from NPPA, however, no clear response has been received. Pending this clarification NPPA has sent us a notice dated June 6, 2014, claiming the differential pricing charged by the Company for Carbophage 500 SR over the prices notified.

(d) Central Excise show cause cum demand raised on the Company covering the period of five years for alleged wrong classification of the products, Vitamin E Acetate min. 92% for Poultry/Cattle/Pig-feed, Vitamin E Liquid for Animal Nutrition (for Pig/Cattle/Poultry) and Vitamin E Dry Powder 50% for Animal Nutrition – total demand Rs. 276.0 million including penalty and interest. Earlier also on the same issue the demand was raised on the Company to the tune of Rs. 18.0 million which was then contested before the lower authorities. On the representation made by the Company the demand was dropped after considering various decisions pronounced by judicial and quasi-judicial authorities at the relevant time.

Management feels that the Company has a good case on merits as well as on limitations. If the Company succeeds on merits the entire duty demand including penalty and interest would be dropped. However, if the Company does not succeed on merits the Company has still chances of succeeding on limitations as the matter was known to the authorities and there was no suppression or mis-declaration of facts by the Company. In such an eventuality the duty demand would be restricted to one year with interest and the penalty would be dropped.

5. Commitments

Estimated amount of contracts remaining to be executed on Capital Account (net of capital advance Rs. 5.3 million; 2013 Rs. 78.6 million) and not provided for Rs. 72.1 million (2013: Rs. 50.2 million).

6. Dues to micro, small and medium enterprises

Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from October 2, 2006 certain disclosures are required to be made relating to with Micro Small and Medium Enterprises. On the basis of the information and records available with the Management, the following disclosures are made for the amounts due to the Micro Small and Medium Enterprises, who have registered with the competent authorities:

7. Disclosure relating to provisions

Personnel and other related provisions

The Company has made provisions for performance-based incentives which are expected to be paid in the next financial year.

8. Transfer pricing

Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Company''s international and domestic transactions with related parties are at arm''s length as per the independent accountants report for the year ended 31 March 2014. Management believes that the Company''s international transactions with related parties post March 2014 continue to be at arm''s length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

9. Information with regard to other matter specified in schedule VI to the Act is either nil or not applicable to the Company for the year.

10. Prior year figures

Previous year''s figures have been regrouped/rearranged wherever necessary to conform to current year''s presentation.


Dec 31, 2013

1. Company overview

Merck Limited (''the Company'') is a public company domiciled and headquartered in India. It is incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The Company is in the business of manufacturing and marketing of pharmaceuticals, bulk drugs, fine chemicals and pigments. The Company is organized in two major divisions – Pharmaceuticals and Chemicals.

2. Lease accounting

The Company has entered into cancellable operating lease agreements for vehicles and office premises/godowns. The lease charges of Rs. 17.0 million (2012: Rs. 21.5 million) and Rs. 104.6 million (2012: Rs. 114.6 million) for vehicles and office premises/godowns respectively have been included under the sub-head Travelling, Conveyance and Vehicle Expenses and Rent respectively, which are shown under the head "Other Expenses" [refer note 25] in the Statement of profit and loss.

3. Employee Benefits:

(i) Defined Benefit Plans

The Company operates two post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half month''s salary for each year of completed service at the time of retirement/exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.

Note: Employer''s contribution includes payments made of Rs. 10.6 million (2012: Rs. 23.3 million) towards Gratuity obligation by the Company directly to its past employees.

Estimate of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Assumptions regarding future mortality are based on published statistics and mortality tables. The calculation of the defined benefit obligation is sensitive to the mortality assumptions.

(iii) Broad category of plan assets relating to Gratuity as a percentage of total plan assets:

The Company''s gratuity fund is managed by its insurer, Life Insurance Corporation of India. The plan assets under the fund are deposited under approved securities.

(iv) Disclosure for defined benefit plan (Provident fund): (i) Contribution to Provident and Superannuation fund

Amount of Rs. 36.2 million (2012: Rs. 31.0 million) is recognised as an expense and included in "Personnel costs" (Refer note 23) in the Statement of profit and loss.

The guidance issued by the Accounting Standard Board on implementing AS 15, Employee Benefits (revised 2005) states that provident fund set up by employer, which requires interest shortfall to be met by the employer, needs to be treated as defined benefit plan.

The Institute of Actuaries of India has issued guidance for measurement of provident fund liabilities on actuarial basis. Based on this guidance note, the actuary has provided an actuarial valuation of the provident fund liability of the Company as at 31 December 2013.

As per the report of the independent actuary, there is no shortfall as at 31 December 2013 (2012: shortfall of Rs. Nil) that needs to be recorded by the Company.

(v) Compensated absences:

Compensated absences are recognised when the employees render service that increase their entitlement to future compensated absence. Employees can carry forward and avail/encash leave as per the policy of the Company. Compensated absences have been provided for, based on outstanding leave balance and the employees'' gross pay.

The undiscounted amount of short term employee benefits of Rs. 14.3 million (2012: Rs. 8.3 million) is expected to be paid in the exchange for the services rendered by employees and is recognised as an expense during the year.

(a) Business segment:

For Management reporting purposes, the Company is organised into two major operating divisions - Pharmaceuticals and Chemicals. The divisions are the basis on which the Company reports its primary segment information. The above segments have been identified taking into account the organisation structure as well as the differing risks and returns of these segments.

Pharmaceutical business comprises of Ethicals used in the treatment of Cardiovascular and Metabolic diseases, Consumer Healthcare products and Vitamins-based formulations.

Chemicals business comprises Bulk drugs and Pigments. Segment Revenue relating to the Chemicals business segment includes income from services provided to customers of this segment.

(b) Geographical segment:

In respect of secondary segment information, the Company has identified its geographical segment as (i) Domestic and (ii) Exports. The secondary segment information has been disclosed accordingly.

(c) Accounting policies:

The accounting policies adopted for segment reporting are in line with The accounting policies adopted by the Company for the purpose of these financial statements, except in respect of inter-segment revenues, which have been accounted on the basis of prevailing market rates.

Segment assets include all operating assets used by a segment and consist principally of debtors, inventories and fixed assets, net of allowances and provisions which are reported as direct offsets in the Balance Sheet. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two segments is allocated to the segments on a reasonable basis. Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities. Segment assets and liabilities do not include current and deferred income taxes.

Segment revenue: Segment revenue comprises the portion of company''s revenue that is directly attributable to a segment or that can be allocated on a reasonable basis to a segment, and intersegment transfer.

Segment expense: Segment expense comprises of the expense resulting from the operating activities of a segment that is directly attributable to the segment or that can be allocated on a reasonable basis to the segment and expense relating to transaction with other segments.

Inter-segment transfers: Segment revenue, segment expense and segment result include transfers between business segments and between geographical segments. Those transfers are eliminated in preparing company-wide results.

4. (a) Related party disclosures

Related parties where control exists Ultimate Holding Company:

Merck KGaA, Germany through its subsidiaries listed below as Investing Associates holds 51.8% (2012: 51.8%) of the equity share capital, as at 31 December 2013.

Investing Associates:

- Chemitra GmbH, Germany

- Emedia Export Company mbh, Germany

- Merck Internationale Beteiligungen GmbH, Germany

Other related parties with whom transactions have taken place during the year: Fellow Subsidiaries:

- Ares Trading S.A., Switzerland

- EMD Millipore Corporation, USA

- EMD Serono Inc., USA

- Heipha Dr. Müller GmbH, Germany

- Merck & Cie., Switzerland

- Merck (Private) Limited, Pakistan

- Merck Chemicals (Shanghai) Co., Limited, China

- Merck Chimie S.A.S., France

- Merck Inc., Philippines

- Merck KGaA & Co. Werk Spittal, Austria

- Merck Limited, Japan

- Merck Limited, South Korea

- Merck Limited, Taiwan

- Merck Limited, Thailand

- Merck Pte Ltd, Singapore

- Merck Sdn Bhd, Malaysia

- Merck Selbstmedikation GmbH, Germany

- Merck Serono Co., Limited, Japan

- Merck Serono S.A., Switzerland

- Merck Specialities Private Limited, India

- Merck spol. s r.o., Czech Republic

- Merck Vietnam Company, Vietnam

- Millipore India Private Limited, India

- Millipore S.A.S., France

- P.T. Merck Indonesia, Indonesia

- Seven Seas Limited, United Kingdom

- Suzhou Taizhu Technology Development Co., China

Key Managerial Personnel:

- Dr. Claus Boedecker (Managing Director) (Appointed on 1st August 2012) n Dr. M. Dziki (Managing Director) (Resigned on 31st July 2012) n Mr. N. Krishnan (Director) (Appointed on 22nd October 2012) n Mr. R.L. Shenoy (Director) (Retired on 30th September 2012) n Mr. P.H. Pimplikar (Director)

5. Contingent liabilities

(to extent not provided for)

Summary of disputed statutory demands not accepted by the Company are given below:

2013 2012 Income tax 554.1 719.0

State and Central Sales Tax, Entry Tax 35.8 40.5

Excise duty 5.7 5.7

Custom duty 1.3

595.6 766.5

6. The Company has received a show cause notice from National Pharmaceutical Pricing Authority (NPPA) alleging that the Company had sold the product Polybion L Syrup 250ml without price approval for the period January 2008 until June 2009. The notice calculates Rs.128.0 million as the value of over charge equivalent to the entire sale value of said product for the referred period. The Company, based on the legal opinion believes that no provision is required to be made in the books of account.

7. Commitments

Estimated amount of contracts remaining to be executed on Capital Account, (net of capital advance Rs. 78.6 million; 2012: Rs. 1.1 million) and not provided for Rs. 50.2 million (2012: Rs. 26.3 million).

8. Dues to micro, small and medium enterprises

Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from October 2, 2006, certain disclosures are required to be made relating to transactions with Micro Small and Medium enterprises. On the basis of the information and records available with the Management, the following disclosures are made for the amounts due to the Micro Small and Medium enterprises, who have registered with the competent authorities:

9. Disclosure relating to provisions Personnel and other related provisions

The Company has made provisions for performance-based incentives which are expected to be paid in the next financial year.

10. Transfer pricing

Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Company''s international and domestic transactions with related parties are at arm''s length as per the independent accountants report for the year ended 31 March 2013. Management believes that the Company''s transactions with related parties post March, 2013 continue to be at arm''s length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

11. Information with regards to other matter specified in Schedule VI to the Companies Act, 1956 is either nil or not applicable to the Company for the year.

12. Prior year figures

Previous year''s figures have been regrouped/rearranged wherever necessary to conform to current year''s presentation.


Dec 31, 2012

1. COMPANY OVERVIEW

Merck Limited (''the Company'') is a public company domiciled in India. It is incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange (NSE)''and Bombay Stock Exchange (BSE). The Company is primarily engaged in manufacturing and marketing of pharmaceuticals, bulk drugs, fine chemicals and pigments. The Company is organized in two major divisions - Pharmaceuticals and Chemicals.

A. Rights, preferences and restrictions attached to equity shares

The Company has a single class of equity shares. Accordingly, ali equity shares rank equally with regard to dividends and share in the Company''s residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an . equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company. Voting rights cannot be exercised in respect of shares on which any call or other sums presently payable have not been paid.

Failure to pay any amount called up on shares may lead to forfeiture of the shares.

On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.

2. CONTINGENT LIABILITIES

(to extent not provided for)

Summary of disputed statutory demands not accepted by the Company are given below:

2012 2011 Income tax 719.0 708.2

State and Central Sales Tax, Entry Tax 40.5 39.1

Excise duty 5.7 5.7

Custom duty 1.3 1.3

766.5 754.3

3. COMMITMENTS

Estimated amount of contracts remaining to be executed on Capital Account, (net of capital advance Rs. 1.1 million; 2011: Rs. 5.8 million) and not provided for Rs. 26.3 million (2011: Rs. 15.7 million).

4. SHARE BUY-BACK

The Company has, during the year, incurred expenses of Rs. Nil (2011: Rs. 0.2 million), towards the buy-back of shares, in terms of the share buy-back scheme approved by the Board of Directors on 20th May 2009.

5. IMPAIRMENT OF ASSETS

The Company had impaired one of its Chemical plants on account of significant reduction in the market demand of the product and no identified alternate use of the Cash Generating Unit (CGU) during the year ended 31 December 2010. The amount of impairment loss aggregating Rs. 142.8 million was debited to statement of profit and loss and formed part of the ''Chemicals'' segment of the Company. During the year ended 31 December 2011, the Company identified alternate uses for the said CGU and had modified and put to use the chemical plant to manufacture alternate product. Accordingly, as at the end of the previous year, based on the approved utilization plan for the CGU, the Company reversed impairment loss of Rs. 142.8 million crediting statement of profit and loss.

6. LEASE ACCOUNTING

The Company has entered into cancellable operating lease agreements for vehicles and office premises/godowns. The lease charges of Rs. 21.5 million (2011: Rs. 21.6 million) and Rs. 114.6 million (2011: Rs. 100.5 million) for vehicles and office premises/godowns have been included under the sub-head Travelling, Conveyance and Vehicle Expenses and Rent respectively under the head "Other Expenses" (refer note 22) in the statement of profit and loss.

7. DISCLOSURE RELATING TO PROVISIONS

Personnel and other related provisions:

The Company has made provisions for performance-based incentives which are expected to be paid in the next financial year.

Provisions in respect of sales tax matters:

The Company has also made provisions for various sales tax/value added tax related matters, which will be settled on completion of the respective assessments.

8. EMPLOYEE BENEFITS

(i) Contribution to Provident and Superannuation Funds

Amount of Rs. 31.0 million (2011: Rs. 29.8 million) is recognised as an expense and included in "Employee Benefits" (Refer note 21) in the statement of Profit and Loss.

(ii) Defined benefit plan

The Company operates two post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plans entitles an employee, who has rendered atleast five years of continious service, to receive one-half month''s salary for each year of completed service at the time of retirement/exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.

Note: Note: Employer''s contribution includes payments made of Rs. 23.3 million (2011: Rs. 5.4 million) towards Gratuity obligation by the Company directly to its past employees.

Estimate of future salary increases, considered in actuarial valuation, take account of inflation, seniority, increments and other relevant factors, such as supply and demand in the employment market.

Assumptions regarding future mortality are based on published statistics and mortality tables. The calculation of the defined benefit obligation is sensitive to the mortality assumptions.

(v) Broad category of plan assets relating Gratuity as a percentage of total plan assets:

The Company''s gratuity fund is managed by its insurer, Life Insurance Corporation of India. The plan assets under the fund are deposited under approved securities.

(vi) Disclosure for defined benefit plan (Provident Fund):

The guidance issued by the Accounting Standard Board on implementing AS 15, Employee Benefits (revised 2005) states that provident fund set up by employer, which requires interest shortfall to be met by the employer, needs to be treated as defined benefit plan. The Institute of Actuaries of India has, during the year, issued the guidance for measurement of provident fund liabilities on actuarial basis. Based on this guidance note, the actuary has provided an actuarial valuation of the provident fund liability of the Company as at 31 December 2012.

As per the report of the independent actuary, there is no shortfall as at 31 December 2012 (2011: shortfall of Rs. 5.3 million) that needs to be recorded by the Company.

(vii) Compensated absences:

Compensated absences are recognized when the employees render service that increase their entitlement to future compensated absence. Employees can carry forward and avail/ encash leave as per the policy of the Company. Compensated absences have been provided for, based on outstanding leave balance and the employees'' gross pay.

The undiscounted amount of short term employee benefits of Rs. 8.3 million (2011: Rs. 8.1 million) is expected to be paid in the exchange for the services rendered by employees is recognised as an expense during the year.

9. (a) RELATED PARTY DISCLOSURES

Related parties where control exists Ultimate Holding Company:

Merck KGaA, Germany through its subsidiaries listed below as Investing Associates holds 51.8% (2011: 51.8%) of the equity share capital, as at 31 December 2012.

Investing Associates:

- Chemitra GmbH, Germany

- Emedia Export Company mbh, Germany

- Merck Internationale Beteiligungen GmbH, Germany ''

Other related parties with whom transactions have taken place during the year:_

Fellow Subsidiaries:

- EMD Millipore Corporation, USA (Formerly known as EMD Chemicals Inc., USA)

- EMD Serono Inc., USA

- Merck Et Cie., Switzerland

- Merck (Private) Limited, Pakistan

- Merck Consumer Health Care Holding GmbH, Germany

- Merck Inc., Philippines

- Merck KGaA Et Co. Werk Spittal, Austria

- Merck Limited, Japan

- Merck Limited, South Korea

- Merck Limited, Taiwan

- Merck Limited, Thailand

- Merck Patent GmbH, Germany

- Merck Pharmaceutical (HK) Limited, Hong Kong

- Merck Pte Ltd, Singapore

- Merck S.A., France

- Merck Sdn Bhd, Malaysia

- Merck Serono Co., Limited, Japan ''

- Merck Serono S.A., Switzerland

- Merck Specialities, Private Limited, India

- Merck Vietnam Company, Vietnam

- Millipore India Private Limited, India

- Millipore S.A.S., France

- P.T. Merck Indonesia, Indonesia

- Seven Seas Limited, United Kingdom

- Suzhou Taizhu Technology Development Co., China

Key Managerial Personnel:

- Dr. Claus Boedecker (Managing Director) (Appointed on 1st August 2012)

- Dr. M. Dziki (Managing Director) (Resigned on 31st July 2012)

- Mr. N. Krishnan (Appointed on 22nd October 2012)

- Mr. R.L. Shenoy (Retired on 30th September 2012)

- Mr. P.H. Pimplikar

- Mr. K. Shivkumar (Resigned on 24 May 2011)

(a) Business segment:

For Management reporting purposes, the Company is organised into two major operating divisions - Pharmaceuticals and Chemicals. The divisions are the basis on which the Company reports its primary segment information. The above segments have been identified taking into account the organisation structure as well as the differing risks and returns of these segments.

Pharmaceutical business comprises of Ethicals used in the treatment of Cardiovascular and Metabolic diseases, Consumer Healthcare products and Vitamins-based formulations.

Chemicals business comprises Bulk drugs and Pigments. Segment Revenue relating to the Chemicals business segment includes income from services provided to customers of this segment.

(b) Geographical segment: -

In respect of secondary segment information, the Company has identified its geographical segment as (i) Domestic and (ii) Exports. The secondary segment information has been disclosed accordingly.

(c) Accounting policies: ,

The accounting policies adopted for segment reporting are in line with the accounting policies adopted by the Company for the purpose of these financial statements, except in respect of inter-segment revenues, which have been accounted on the basis of prevailing market rates.

Segment assets include all operating assets used by a segment and consist principally of debtors, inventories and fixed assets, net of allowances and provisions which are reported as direct offsets in the Balance Sheet. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two segments is allocated to the segments on a reasonable basis. Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities. Segment assets and liabilities do not include current and deferred income taxes.

Segment revenue: Segment revenue comprises the portion of company''s revenue that is directly attributable to a segment or that can be allocated on a reasonable basis to a segment, and intersegment transfer.

Segment expense: Segment expense comprises the expense resulting from the operating activities of a segment that is directly attributable to the segment or that can be allocated on a reasonable basis to the segment and expense relating to transactions with other segments.

Inter-segment transfers: Segment revenue, segment expense and segment result include transfers between business segments and between geographical segments. Such transfers are accounted for at competitive market prices charged to unaffiliated customers for similar goods. Those transfers are eliminated in preparing company-wide results.

10. DUES TO MICRO, SMALL AND MEDIUM ENTERPRISES

Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from October 2, 2006, certaip disclosures are required to be made relating to transactions with Micro Small and Medium enterprises. On the basis of the information and records available with the Management, the following disclosures are made for the amounts due to the Micro Small and Medium enterprises, who have registered with the competent authorities:

11. TRANSFER PRICING

Transactions with overseas related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Company''s international transactions with related parties are at arm''s length as per the independent accountants report for the year ended 31 March 2012. Management believes that the Company''s international transactions with related parties post March 2012 continue to be at arm''s length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expanse and that of provision for taxation.

12. Information with regard to other matter specified in Schedule VI to the Act is either nil or not applicable to the Company for the year.

13. PRIOR YEAR FIGURES

Previous year''s figures have been regrouped/rearranged wherever necessary to conform to current year''s presentation.


Dec 31, 2009

1. CONTINGENT LIABILITIES

Summary of disputed statutory demands not accepted by the Company are given below:

2009 2008

Income tax 345.0 252.2

State and Central Sales Tax 11.7 20.2

Excise duty # 108.6 108.5

Service tax 5.4 5.4

Custom Duty 1.3 1.3

472.0 387.6

# Includes Rs. 89.9 million (2008: Rs. 89.9 million) in respect of a guarantee given to a toll center, towards an excise duty demand.

2. CAPITAL COMMITMENTS

Estimated amount of contracts remaining to be executed on Capital Account (net of advance) and not provided for: Rs. 17.4 million (2008: Rs. 29.8 million).

3. SHARE BUY BACK

In terms of the share buy back scheme approved by the Board of Directors on 20 May 2009, the Company has, during the year, bought back 261,842 (2008: Nil) shares for an aggregate consideration of Rs. 107.4 million (2008: Rs. Nil), including related expenses. The nominal value of the shares bought back has been adjusted against the share capital. In the above scheme, the approved maximum buy back price was Rs. 435 per share.

The nominal value of shares purchased i.e. Rs. 2.6 million has been adjusted against the share capital. An equal amount has been reduced from General Reserve and credited to Capital Redemption Reserve, as per the provisions of the Companies Act, 1956.

The difference between consideration paid (including related expenses) and nominal value of shares aggregating Rs. 2.6 million has been adjusted against General Reserve.

(a) Business segment

For Management reporting purposes, the Company is organised into two major operating divisions - Pharmaceuticals and Chemicals.

The divisions are the basis on which the Company reports its primary segment information. The above segments have been identified taking into account the organisation structure as well as the differing risks and returns of these segments.

Pharmaceuticals business comprises of Ethicals used in the treatment of Cardiovascular and Metabolic diseases, Consumer Healthcare products and Vitamins-based formulations.

Chemicals business comprises of Bulk drugs and Pigments. Segment revenue relating to the Chemicals business includes income from services provided to customers of this segment.

(b) Geographical segment

In respect of secondary segment information, the Company has identified its geographical segment as (i) Domestic and (ii) Exports. The secondary segment information has been disclosed accordingly.

(c) Accounting policies

The accounting policies adopted for segment reporting are in line with the accounting policies adopted by the Company for the purpose of these financial statements, except in respect of inter-segment revenues, which have been accounted on the basis of prevailing market rates.

Segment assets include all operating assets used by a segment and consist principally of debtors, inventories and fixed assets, net of allowances and provisions which are reported as direct offsets in the Balance Sheet. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two segments is allocated to the segments on a reasonable basis. Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities. Segment assets and liabilities do not include current and deferred income taxes.

4. (a) RELATED PARTY DISCLOSURES

Holding Company:

Merck KGaA, Germany through its subsidiaries listed below as Investing Associates holds 51.8% (2008: 51.0°/o) of the equity share capital, as at 31 December 2009.

Investing Associates:

- Chemitra GmbH, Germany

- Emedia Export Company mbh, Germany

- Merck Internationale Beteiligungen GmbH, Germany

Other related parties with whom transactions have taken place during the year:

Fellow Subsidiaries: Executive Directors:

- EMD Biosciences Inc., USA - Dr. M. Dziki (Managing Director)

- EMD Chemicals Inc., USA - Mr. R. L Shenoy

- Merck Et Cie KG, Switzerland - Mr. K. Shivkumar

- Merck Chemical (Shanghai) Pvt. Ltd., China

- Merck KGaA & Co. Werk Spittal, Austria

- Merck Ltd., Japan

- Merck Ltd., Thailand

- Merck Marker (Pvt.) Ltd., Pakistan

- Merck Pte. Ltd., Singapore

- Merck Pty. Ltd., Australia

- Merck Pty. Ltd., South Africa

- Merck Sante SAS, France

- Merck Serono International S.A., Switzerland

- Merck Specialities Pvt. Ltd., India

- PT Merck Tbk, Indonesia

- Seven Seas Ltd., UK

5. DISCLOSURE RELATING TO PROVISIONS Personnel and other related provisions

The Company has made provisions for performance based incentives which are expected to be paid in the first half of the next financial year.

6. EMPLOYEE BENEFITS

(i) Effective 1 January 2007, the Company adopted Accounting Standard 15 (AS-15) (revised 2005) on "Employee Benefits" prescribed in Companies (Accounting Standard) Rules, 2006.

(ii) Contribution to Provident and Superannuation Funds Amount of Rs. 27.3 million (2008: Rs. 21.5 million) is recognised as an expense and included in "Personnel costs" (Refer schedule 15) in the Profit and Loss Account.

(iv) Broad category of plan assets relating to Gratuity as a percentage of total plan assets

The Companys gratuity fund is managed by its insurer, Life Insurance Corporation of India. The plan assets under the fund are deposited under approved securities.

(v) Compensated absences

Compensated absences are recognised when the employee renders services that increase their entitlement to future compensated absences. As per the policy of the Company, all employees can carry forward and avail/encash leave on superannuation, death, permanent disablement, retirement and resignation subject to (a) maximum accumulation of 240 days. Compensated absence has been provided for based on outstanding leave balance and the employees gross pay

The undiscounted amount of short term employee benefits of Rs. 4.5 million (2008 Rs. 2.1 million) is expected to be paid in exchange for the services rendered by employee is recognised as an expense during the year.

(vi) The guidance issued by the Accounting Standard Board (A5B) on implementing AS 15, Employee Benefits (revised 2005) states that provident fund set up by employer, which requires interest shortfall to be met by the employer, needs to be treated as defined benefit plan. The fund does not have any existing deficit or interest shortfall. In regard to any future obligation due to interest shortfall (i.e. government interest to be paid on provident fund scheme exceeds rate of interest earned on investment), pending the issuance of guidance note from the Actuarial Society of India, the Companys actuary has confirmed no additional liability would arise as at the Balance Sheet date.

7. Provision for current tax is based on the results for the year ended December 31, 2009 and is determined in accordance with the provisions of the Income Tax Act, 1961. The final tax liability will be determined on the basis of the operations for the year April 1, 2009 to March 31, 2010, being the tax year of the Company.

8. TRANSFER PRICING

The Companys Management has developed a system of maintenance of information and documents as required by the Transfer Pricing legislation under Section 92-92F of the Income tax Act, 1961. The Companys international transactions with related parties are at arms length as per the independent accountants report for the year ended 31 March, 2009. Management believes that the Companys international transactions with related parties post 31st March, 2009 continue to be at arms length and that the Transfer Pricing legislation will not have any impact on these financial statements, particularly on amount of tax expense and that of Provision of Taxation.

9. PREVIOUS YEAR COMPARATIVES

Previous years figures have been regrouped, wherever necessary, to conform to the current years classification.

 
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