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Notes to Accounts of Natco Pharma Ltd.

Mar 31, 2023

There are no disputed trade receivables as at 31 March 2023 and 31 March 2022.

There are no outstanding trade receivables by directors or other officers of the Company or by firms or private companies in which director is partner or member as at 31 March 2023 and as at 31 March 2022.

Information about the Company''s exposure to credit risks and market risks and impairment losses for trade receivables is included in Note 33.

Transfer of trade receivables

The Company sold with recourse trade receivables to banks. These trade receivables have not been derecognised from the balance sheet, because the Company retains substantially all of the risks and rewards - primarily credit risk. The amount received on transfer has been recognised as a secured bank loan (see Note 17).

(a) The Board of Directors at its meeting held on 08 March 2023 had approved the buy-back of fully paid up equity shares of face value of H 2 each from the eligible equity shareholders of the Company other than the Promoters, the Promoter group and Persons who are in control of the Company, at a price not exceeding H 700 per equity share (Maximum Buy-back Price), payable in cash for an aggregate amount not exceeding H 2,100 million (Maximum Buy-back Size, excluding transaction costs and taxes thereon), from the Open Market route through the stock exchange mechanism under the Companies Act, 2013 and Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018, as amended (''Buy-back Regulations'').

The Buy-back commenced on 21 March 2023 and as of 31 March 2023, the scheme of Buy-back was open. The Company bought back 87,050 equity shares as of the balance sheet date, resulting in total cash consideration of H 47 million (excluding H 27 million towards transaction cost and tax on Buy-back). These equity shares were extinguished as at 31 March 2023 as per the records of the depositories. In line with the requirement of Companies Act, 2013, an amount of H 47 million has been utilised from securities premium account for the buyback. Balance expense towards transaction cost and the tax on buy-back amounting to H 27 million has been debited directly to the retained earnings. Further, capital redemption reserve of H 0.17 million representing the nominal value of shares bought back, has been created in accordance with Section 69 of the Companies Act, 2013. Subsequent to the year end, the Company has bought back additional 3,360,245 equity shares. The aforesaid buy-back was closed by the Company on 12 May 2023. Till the date of closure of the buy-back, the Company has bought back 3,447,295 equity shares under the aforesaid approved buy-back at a volume weighted average price of H 609.17 per equity share (excluding transaction costs and taxes).

iv. Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares having a par value of H2 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupees. The final dividend proposed by the Board of Directors is subject to the approval of the Shareholders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company, after distribution of all preferential amounts in proportion of their shareholding.

viii. Share based payments

(a) The Company has instituted the NATCO Employee Stock Option Plan ''ESOP-2017'' ("the ESOP Scheme"). The ESOP Schemes were formulated in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 issued by the Securities and Exchange Board of India ("SEBI"). Pursuant to the terms of the ESOP Scheme, the Board of Directors of the Company granted 600,000 options to eligible employees on 2 November 2017. The terms of the ESOP Scheme provide that each option entitles the holder to one equity share of H2 each and that the options can be settled only by way of issue of equity shares. The options vest in a phased manner ranging from 1 to 5 years from the date of grant and the options are entirely time-based with no performance conditions.

The weighted average share price on the date of exercise of options during the years ended 31 March 2023 and 31 March 2022 was H 791.43 and H 822 per share, respectively.

There were no stock options granted by the Company during the years ended 31 March 2023 and 31 March 2022. The fair value of stock options granted in earlier years had been measured using the Black-Scholes option pricing model at the date of the grant. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates.

C Nature and purpose of reserves

Securities premium

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

Capital reserve

Capital reserve was created on amalgamation of certain entities into the Company in the earlier years and the transactions with Shareholders. The Company uses capital reserve for transactions in accordance with the provisions of the Companies Act, 2013.

Capital redemption reserve

The Company had purchased its own shares and as per the provision of the applicable laws, a sum equal to the nominal value of the shares so purchased is required to be transferred to the capital redemption reserve. The Company uses capital redemption reserve for transactions in accordance with the provisions of the Companies Act, 2013.

General reserve

The Company generally appropriates a portion of its earnings to the general reserve to be used for contingencies. These reserves are freely available for use by the Company.

Share options outstanding account

This reserve represents the excess of the fair value of the options on the grant date over the exercise price which is accumulated by the Company in respect of all options that have been granted. The Company transfers the proportionate amounts, outstanding in this account, in relation to options exercised to securities premium on the date of exercise of such options.

Fair value through Other comprehensive income (FVOCI)

The Company has elected to recognise the change in fair value of certain investments in equity shares in other comprehensive income. These changes are accumulated within the FVOCI equity instruments reserve within equity. The Company transfers amounts from this reserve to retained earnings when the relevant equity instruments are derecognised.

Retained earnings

Retained earnings mainly represent all current and prior year profits as disclosed in the statement of profit and loss and other comprehensive income pertaining to remeasurement gains/(losses) arising from the actuarial valuation of the defined benefit plan less dividend distribution. The expense towards transaction cost and the tax on buy-back amounting to H 27 million has been debited directly to the retained earnings.

(i) Working capital loans (secured) represents cash credit and bills discounted with various banks. These working capital loans are secured by joint pari-passu first charge on all the current assets and property, plant and equipment of:

i) Land admeasuring 17.19 acres comprised in survey no. 70 of village Nandikonda, Mandal Peddavoora, District Nalgonda in the State of Telangana together with all buildings and structures thereon and all plant and equipment attached to the earth.

ii) House/premise bearing municipal no. 8-2-120/112/A/33 and 8-2-120/112/A/32 in plot no.100 admeasuring 1,166 sq. yards with all its building and fixed assets situated at Road No.2, Banjara Hills, Hyderabad - 500034."

(ii) Working capital loans (unsecured) represents overdraft facility and bills discounted with various banks.

(iii) The rate of interest applicable was in the range of 1.21% to 7.20% p.a (31 March 2022: 0.60% to 8.05% p.a).

(iv) Information about the Company''s exposure to interest rate, foreign currency and liquidity risks is included in Note 33.

(v) Quarterly statements of current assets filed by the Company with banks or financial institutions are in agreement with the books of account.

(vi) The Company does not have any charges or satisfaction which is yet to be registered with Registrar of Companies beyond the statutory period.

(vii) The Company has not availed any specific borrowing during the year.

(viii) There were no delay/default in repayment of dues or delays in payment of interest to banks.

(a) Gratuity

The Company has subscribed to a group gratuity scheme of Life Insurance Corporation of India (LIC). Under the said policy, the eligible employees are entitled for gratuity upon their resignation, retirement or in the event of death in lumpsum after deduction of necessary taxes up to a maximum limit of H2. Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. The defined benefit plans expose the Company to actuarial risk, interest rate risk and investment risk etc.

Interest Rate Risk: The plan exposes the Company to the risk of fall in interest rates. A fall in interest rates will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of liability.

Liquidity Risk: This is the risk that the Company is not able to meet the short-term gratuity payouts. This may arise due to non availability of enough cash/cash equivalent to meet the liabilities or holding of illiquid assets not being sold in time.

Investment Risk: The probability or likelihood of occurrence of losses relative to the expected return on any particular investment. The following tables sets out the status of the gratuity plan and the reconciliation of opening and closing balances of the present value and defined benefit obligation.

The discount rate indicated above reflects the estimated timing and currency of benefit payments. It is based on the yields/ rates available on applicable bonds on the current valuation date.

The salary growth indicated above is the Company''s best estimate of an increase in salary of the employees in future years, determined considering the general trend in inflation, seniority, promotion, past experience and other relevant factors such as demand and supply in employment market etc.

Attrition rate indicated above represents the Company''s best estimates of employee turnover in future (other than on account of retirement, death or disablement) determined considering various factors such as nature of business, retention policy, industry factors, past experience etc.

(xi) The weighted average duration of the defined benefit plan obligation at the end of the reporting period is 12 years (Previous year: 11 years).

(b) Compensated absences:

The accrual for unutilised leave is determined for the entire available leave balance standing to the credit of the employees at the year-end. The value of such leave balances that are eligible for carry forward, is determined by an actuarial valuation as at the end of the year and is charged to the statement of profit and loss. The actual liability towards leave obligations as at 31 March 2023 is H 440 (31 March 2022: H 435). Expense recognised in the statement of profit and loss under employee benefit expense is H 88 (31 March 2022: H 72).

(c) The Indian Parliament has approved the Code on Social Security, 2020 which would impact the contributions towards provident fund and gratuity. The Ministry of Labour and Employment has released draft rules for the Code on Social Security, 2020 on 13 November 2020, and has invited suggestions from stakeholders which are under active consideration by the Ministry. The Company will assess the impact and its evaluation once the subject rules are notified and will give appropriate impact in its financial statements in the period in which, the Code becomes effective and related rules to determine the financial impact are published.

The Company offsets tax assets and liabilities only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

Significant management judgement is required in determining provision for income-tax, deferred income tax assets and liabilities and recoverability of deferred income tax assets. The recoverability of deferred income tax assets is based on estimates of taxable income by each jurisdiction in which the relevant entity operates and the period over which deferred income tax assets will be recovered.

The Company did not recognise deferred tax assets of H 1,325, primarily on MAT credit entitlement, as the Company is unable to estimate the availability of taxable profits beyond foreseeable future with reasonable certainty after taking into consideration the tax holiday units/ benefits available including financial projections, business plans and the availability of sufficient taxable income. The above MAT credit expires at various dates ranging from 2030 through 2037.

The Company''s financial liabilities comprise of borrowings from banks, trade payables and other financial liabilities. The main purpose of these financial liabilities is to finance the Company''s operations. The Company''s principal financial assets include loans, trade receivables, other financial assets, cash and cash equivalents and other bank balances that derive directly from its operations. The Company also holds certain investments in entities other than in subsidiaries.

The fair value of cash and cash equivalents, other bank balances, trade receivables, loans, investment in quoted and unquoted debentures and bonds, borrowings, trade payables, other financial assets and other financial liabilities approximate their carrying amount largely due to the nature of these instruments. The Company''s loans have been contracted at market rates of interest. Accordingly, the carrying value of such loans approximate fair value.

B. Measurement of fair values

Valuation technique and significant unobservable inputs

Level 1: The fair value of the quoted equity investments are based on market price at the reporting date.

Level 3: The Investments measured at fair value and falling under fair value hierarchy Level 3 are valued on the basis of valuation reports provided by valuers with the exception of certain investments, where the impact of fair valuation of investment is considered as insignificant and hence carrying value and fair value is considered as same. The valuers have considered discounted cashflow method for the purpose of valuation of investments. The assumptions involved are primarily growth rate, discount rate and terminal growth rate.

Transfer between Level 1 and 2

There have been no transfers from Level 2 to Level 1 or vice-versa in 2022-23 and no transfers in either direction in 2021-22.

The Board of Directors of the Company has overall responsibility for the establishment and deployment of risk management framework. The Board of Directors have adopted a Risk Policy, which empowers the management to access and monitor the risk management parameters along with action taken and the same is updated to Board of Directors.

The Company''s risk management policies are established to identify and analyse the risks being faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company''s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee of the Company oversees how management monitors compliance with the Company''s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risk faced by the Company. The Audit Committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and adhoc reviews of risk management controls and procedures, the result of which are reported to the Audit Committee.

A. Market risk:

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises two types of risks: interest rate risk and currency risk. Financial instruments affected by market risk include borrowings, deposits, loans, trade receivables and trade payables.

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 changes in market interest rates. The Company''s entire borrowings carried at amortised cost are variable rate instruments and are subject to fluctuation because of a change in market interest rates. The Company considers the impact of fair value interest rate risk on variable rate borrowings as not material.

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk to the extent that there is mismatch between the currencies in which sales, purchase are denominated and the respective functional currencies of the Company. The Company exposure to the risk of changes in foreign exchange rates relates primarily to the Company''s operating activities.

Foreign currency sensitivity

A reasonably possible strengthening (weakening) of the Indian Rupee against various foreign currencies at 31 March would have affected the measurement of financial instruments denominated in foreign currencies and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

B. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and loans given. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivables. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.

Trade and other receivables:

The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

As per simplified approach the Company makes provision of expected credit losses on trade receivable using a provision matrix to mitigate the risk of default payment and make appropriate provision at each reporting date wherever required.

Other financial assets:

Other financial assets primarily consists of cash and cash equivalents and deposits. Credit risk on cash and cash equivalents and deposits with banks and financial institutions are generally low as the said deposits have been made with the banks and financial institutions who have been assigned high credit rating by international and domestic credit rating agencies.

I nvestments in other than subsidiaries are strategic investments in the normal course of business of the Company. Loans to related parties are given for business purposes. The Company reassesses the recoverability of loans periodically. Interest recoveries from these loans are regular and there is no interest received defaults.

C. Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company''s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company''s reputation.

Management monitors rolling forecasts of the Company''s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entities operates. In addition, the Company''s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

The Company''s principal sources of liquidity are the cash flows generated from operations. The Company has no long-term borrowings and believes that the working capital is sufficient for its current requirements. Accordingly, no liquidity risk is perceived.

34. Capital management

The Company''s objective when managing capital is to safeguard the Company''s ability to continue as a going concern in order to provide returns for shareholders and benefits for stakeholders. The Company also proposes to maintain an optimal capital structure to reduce the cost of capital. Hence, the Company may adjust any dividend payments, return capital to shareholders or issue new shares. Total capital is the total equity as shown in the Standalone Balance Sheet. Currently, the Company primarily monitors its capital structure on the basis of gearing ratio. Management is continuously evolving strategies to optimise the returns and reduce the risks. It includes plans to optimise the financial leverage of the Company.

37. Segment reporting

The Company has presented segment information in the consolidated financial statements which are presented in the same financial report. Accordingly, in terms of paragraph 3 of Ind AS 108 ''Operating Segments'' no disclosures related to segment are presented in these standalone financial statements.

38. Contingent liabilities and commitments (a) Commitments Particulars	As at 31 March 2023 31 March 2022
Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances)	48 87
Pending export obligation under EPCG Scheme	27 57
Corporate Guarantee (refer Note - 1 below)	329 299
Note 1: The Company has given Corporate Guarantees aggregating to H 329 (31 March 22: 299) to the banks on behalf of its step-down subsidiary NatcoFarma do Brasil Ltda., Brazil (b) Contingent liabilities (i) Matters under appeals with tax authorities:
Particulars	As at 31 March 2023 31 March 2022
Disputed sales tax liabilities	- 10
Disputed Income tax liabilities	144 68
Disputed customs liability	2 2

The Company is contesting the demand and the management believes that its position will likely be upheld in the appellate process and no expenses has been accrued in the standalone financial statements for the demand raised/ show cause notice received as the ultimate outcome of these proceedings will not have a material adverse effect on the Company''s standalone financial statements.

(ii) The Company is contesting certain process and product patent infringement cases filed against it by the innovators in the ordinary course of business. A few of these cases pertain to products already launched by the Company in the market. These cases are pending before different authorities / courts and most of the claims involve complex issues. The outcome from these claims are uncertain due to a number of factors involved in legal trial such as stage of the proceedings and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. Further, at present, the management does not expect such liabilities to be significant.

(iii) The Hon''ble Supreme Court (SC) has clarified in the case of Vivekananda Vidyamandir and Others Vs. The Regional Provident Fund Commissioner (II) West Bengal that various allowances like conveyance allowance, special allowance, education allowance, medical allowance etc., paid uniformly and universally by an employer to its employees shall form part of basic wages for computation of the provident fund contribution. However, considering that there are numerous interpretative issues relating to this judgement, on the basis of internal evaluation, supported by a legal opinion from an independent legal expert, management of the Company has determined that the aforesaid ruling is applicable prospectively.

39. The Company does not have any long-term contracts including derivatives for which there are any material foreseeable losses.

As at balance sheet date, the Company is not exposed to future cash flows for extension / termination options, residual value guarantees and leases not commenced to which lessee is committed.

The Company does not face a significant liquidity risk with regard to its lease liabilities as the current assets are sufficient to meet the obligations related to lease liabilities as and when they fall due.

The Company has taken certain rented premises on lease with contract terms within one year. These leases are short-term in nature and the Company has elected not to recognise right-of-use-assets and lease liabilities for these assets. The Company has incurred following expenses relating to short-term leases for which the recognition exemption has been applied (Refer note 29).

43. Other Statutory Information

(i) The Company has not entered into any transaction with struck off companies as per Section 248 of Companies Act, 2013 or Section 560 Companies Act 1956.

(ii) a) No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other

sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in party identified by or on behalf of the Company (Ultimate Beneficiaries) except as disclosed below. The Company has invested funds in the following entity, including foreign entities (Intermediaries) with the understanding that the Intermediary shall directly invest in other entities identified on behalf of the Company (Ultimate Beneficiaries).

The Company has complied with relevant provisions of the Foreign Exchange Management Act, 1999 (42 of 1999) and the Companies Act, 2013. Such transactions are not violative of the Prevention of Money-Laundering Act, 2002 (15 of 2003).

(iii) 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:

(a) 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

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

(iv) The Company does not have any transaction which is not recorded in the books of account and 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).

(v) There are no proceeding initiated or pending against the Company as at 31 March 2023 and as at 31 March 2022 under Prohibition of Benami Property Transactions Act, 1988 (as amended in 2016).

(vi) The Company is not declared as a wilful defaulter by any bank or financial institution or other lenders.

(vii) Compliance with number of layers of companies prescribed under clause (87) of Section 2 of the Companies Act, 2013 read with Companies (Restriction on number of Layers) Rules, 2017 is not applicable.

(viii) The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous financial year.

(ix) The Company has not traded or invested in Crypto currency or Virtual currency during the current year and previous year.

45. Impact of COVID-19

The Company has considered internal and external sources of information up to the date of approval of the above financial statements in evaluating the possible impact that may result from the pandemic relating to COVID-19 on the carrying amounts of property, plant and equipment, intangible assets, inventories, receivables, investments and other financial assets. The Company has applied prudence in arriving at the estimates and assumptions and also performed sensitivity analysis on the assumptions used. The Company is confident about the recoverability of these assets. However, the impact of the global health pandemic may be different from that estimated as at the date of approval of the above financial statements. Considering the continuing uncertainties, the Company will continue to closely monitor any material changes to future economic conditions.

46. The Company has established the 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 requires existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the international transactions and specified domestic transactions entered into with associated enterprises during the financial year and expects such records to be in existence latest by 31 October 2023 as required by law. The management confirms its international transaction are at arms'' length price so that aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

Mar 31, 2022

(i) Contractual obligations - Refer to note 38(a) for disclosure of contractual commitments for the acquisition of property, plant and equipment.

(ii) Right-of-use assets consists of leasehold land from the State Industrial Development Corporation of Uttarakhand Limited for a period of 90 years, Uttar Pradesh State Industrial Development Corporation Limited for a period of 87 years, Ramky Pharma City (India) Limited for a period of 33 years which is renewable for a further period of 2 terms of 33 years each at the option of the Company and lease hold land from Maharashtra Industrial Coropration (MIDC) at Taloja Industrial area for peroid of 69 years.

(iii) Land parcels with an aggregate carrying amount of ? 4 (31 March 2021: ? 4) are under dispute pending in a court as to the ownership of the property. The Management, based on available information is confident of favourable outcome in this case and hence, no adjustments are made in these financial statements.

*The Company has invested in NATCO Pharma Australia PTY Ltd. (NATCO Australia) and NatcoFarma do Brasil Ltda. (''Natco Brazil'') (through its subsidiary Time Cap Overseas Limited ("Timecap")) which are engaged in marketing of pharmaceutical products in Australia and Brazil respectively. As on date accumulated losses of NATCO Australia amounts to H 190 and NATCO Brazil amounts to H 1,160. These accumulated losses have substantially eroded the net worth of respective entites which indicates a possible impairment in the carrying value of the investments. Accordingly, the management with the help of valuation expert, has carried out an impairment assessment and concluded that the estimated recoverable amount computed using value-in-use method, is higher than the carrying value of the investment in NATCO Australia and Natco Brazil and accordingly, there is no impairment. Determination of recoverable amount using Discounted Cash Flow (DCF) valuation method by the independent valuer involved consideration of key assumptions including, but not limited to, projections of future cash flows, growth rates, discounts rates, estimated future operating expenditure. The planning horizon reflects the assumptions for short-to-mid term market developments which are based on key assumptions such as margins, expected growth rates based on past experience and management''s expectations / extrapolation of normal increase / steady terminal growth rate. Discount rate reflects the current market assessment of the risks. The discount rate is estimated based on the weighted average cost of capital for NATCO Australia and Natco Brazil respectively. The management based on sensitivity analysis performed believes that any reasonable possible change in the key assumptions would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the investment.

iv. Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares having a par value of H2 per share. Each holder of equity shares is entitled to one vote per share. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company, after distribution of all preferential amounts in proportion of their shareholding.

viii. Share based payments

(a) The Company has instituted the NATCO Employee Stock Option Plan ''ESOP-2016'' and NATCO Employee Stock Option Plan ''ESOP-2017'' ("the ESOP Schemes"). The ESOP Schemes were formulated in accordance with the Securities Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 issued by the Securities and Exchange Board of India ("SEBI"). Pursuant to the terms of the ESOP Schemes, the Board of Directors of the Company have granted 174,330 options and 600,000 options to eligible employees on 11 November 2016 and 2 November 2017 respectively. The terms of the ESOP Schemes provide that each option entitles the holder to one equity share of H2 each and that the options can be settled only by way of issue of equity shares. The options vest in a phased manner ranging from 1 to 5 years from the date of grant and the options are entirely time-based with no performance conditions. Options shall be exercised within 1 year from from the date of vesting.

The weighted average remaining contractual life of unvested options is Nil (31 March 2021: 7.27 months).

The weighted average share price on the date of exercise of options during the years ended 31 March 2022 and 31 March 2021 was H 822 and H 859 per share, respectively.

There were no stock options granted by the Company during the years ended 31 March 2022 and 31 March 2021. The fair value of stock options granted in earlier years had been measured using the Black-Scholes option pricing model at the date of the grant. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates.

Nature and purpose of other reserves

Securities premium

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

Capital reserve

Capital redemption reserve

General reserve

The Company generally appropriates a portion of its earnings to the general reserve to be used for contingencies. These reserves are freely available for use by the Company.

Share options outstanding account

Fair value through Other comprehensive income (FVTOCI) equity securities

The Company has elected to recognise the change in fair value of certain investments in equity shares in other comprehensive income. These changes are accumulated within the FVTOCI equity instruments reserve within equity. The Company transfers amounts from this reserve to retained earnings when the relevant equity instruments are derecognised.

Retained earnings

(i) Working capital loans (secured) represents cash credit, overdraft facility bills discounted with various banks. These working capital loans are secured by joint pari-passu first charge on all the current assets and property, plant and equipment of:

(ii) Working capital loans (unsecured) represents overdraft facility and bills discounted with various banks.

(iii) The rate of interest applicable was in the range of 0.60% to 8.05% p.a

(a) Gratuity

Interest Rate Risk: The plan expose the company to the risk of fall in interest rates. A fall in interest rates will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of liability.

Liquidity Risk: This is the risk that the company is not able to meet the short-term gratuity payouts. This may arise due to non availability of enough cash/cash equivalent to meet the liabilities or holding of illiquid assets not being sold in time.

Investment Risk: The probability or likelihood of occurrence of losses relative to the expected return on any particular investment.

The discount rate indicated above reflects the estimated timing and currency of benefit payments. It is based on the yields/rates available on applicable bonds on the current valuation date.

(b) Compensated absences:

The accrual for unutilised leave is determined for the entire available leave balance standing to the credit of the employees at the year-end. The value of such leave balances that are eligible for carry forward, is determined by an actuarial valuation as at the end of the year and is charged to the statement of profit and loss. The actual liability towards leave obligations as at 31 March 2022 is H 435 (31 March 2021: H 444). Expense recognised in the statement of profit and loss under employee benefit expense is H 72 (31 March 2021: H 96).

(c) The Code on Social Security, 2020 (''Code'') relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified. The Company will asses the impact of the Code when it comes into effect and will record any related impact in the period the Code becomes effective.

Defined contribution plan:

The Company makes contributions, determined as a specified percentage of employee salaries, in respect of qualifying employees towards provident fund and employee state insurance schemes which are defined contribution plans. The Company has no obligations other than to make the specified contributions. The contribution to provident fund and employee state insurance schemes charged to the statement of profit and loss is H 254 (31 March 2021: H 237).

* As per Indian tax laws, companies are liable for a Minimum Alternate Tax ("MAT" tax) when current tax, as computed under the provisions of the Income-tax Act, 1961 ("Tax Act"), is determined to be below the MAT tax computed under section 115JB of the Tax Act. The excess of MAT tax over current tax is eligible to be carried forward and set-off in the future against the current tax liabilities over a period of 15 years.

The Company did not recognise deferred tax assets of H 613, primarily on MAT credit entitlement, as the Company is unable to estimate the availability of taxable profits beyond foreseeable future with reasonable certainty after taking into consideration the tax holiday units/ benefits available including financial projections, business plans and the availability of sufficient taxable income. The above MAT credit expires at various dates ranging from 2030 through 2037.

The Company''s financial liabilities comprise of borrowings from banks, lease liability, trade payables and other financial liabilities. The main purpose of these financial liabilities is to finance the Company''s operations. The Company''s principal financial assets include loans, trade receivables, other financial assets, cash and cash equivalents and other bank balances that derive directly from its operations. The Company also holds certain investments in entities other than in subsidiaries.

The fair value of cash and cash equivalents, bank balances, trade receivables, loans, unquoted debentures and bonds, borrowings, trade payables and other financial assets and liabilities approximate their carrying amount largely due to the nature of these instruments. The Company''s loans have been contracted at market rates of interest. Accordingly, the carrying value of such loans approximate fair value.

B. Measurement of fair values

The following methods and assumptions were used to estimate the fair values:

Level 1: The fair value of the quoted equity investments are based on market price at the reporting date.

Level 3: The Investments measured at fair value and falling under fair value hierarchy Level 3 are valued on the basis of valuation reports provided by external valuers with the exception of certain investments, where the impact of fair valuation of investment is considered as insignificant and hence carrying value and fair value is considered as same.

33. Financial risk management

The Company''s financial risk management is an integral part of how to plan and execute its business strategies. The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk and market 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. A summary of the risks have been given below.

A. Market risk:

i. Interest rate risk

ii. Foreign currency risk:

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk to the extent that there is mismatch between the currencies in which sales, purchase are denominated and the respective functional currencies of Company companies. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''s operating activities.

Foreign currency sensitivity -

B. Credit risk

Trade and other receivables:

Other financial assets:

Other financial assets primarily consist cash and cash equivalents and deposits. Credit risk on cash and cash equivalents and deposits with banks and financial institutions are generally low as the said deposits have been made with the banks and financial institutions who have been assigned high credit rating by international and domestic credit rating agencies.

Investments in other than subsidiaries are strategic investments in the normal course of business of the Company. Loans to related parties are given for business purposes. The Company reassesses the recoverability of loans periodically. Interest recoveries from these loans are regular and there is no event of defaults.

C. Liquidity risk

The Company''s principal sources of liquidity are the cash flows generated from operations. The Company has no longterm borrowings and believes that the working capital is sufficient for its current requirements. Accordingly, no liquidity risk is perceived.

34. Capital management

37. Segment reporting

38. Contingent liabilities and commitments (a) Commitments

	As at	As at
	31 March 2022	31 March 2021
Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances)	87	129
Pending export obligation under EPCG Scheme	57	140
Corporate Guarantee (refer Note - 1 below)	299	147

Note 1:

The Company has given Corporate Guarantees aggregating to H 299 (31 March 21: 147) to the banks on behalf of its step-down subsidiary NatcoFarma do Brasil Ltda.

(b) Contingent liabilities
	As at 31 March 2022	As at 31 March 2021
(i) Matters under appeals with tax authorities:
Disputed sales tax liabilities	10	10
Disputed Income tax liabilities	68	-
Disputed customs liability	2	2

(i) The Company has not entered into any transaction with struck off companies as per Section 248 of Companies Act, 2013 or Section 560 Companies Act 1956.

The Company has complied with relevant provisions of the Foreign Exchange Management Act, 1999 (42 of 1999) and the Companies Act has been complied with for the above transactions and the transactions are not violative of the Prevention of Money-Laundering Act, 2002 (15 of 2003).

b) 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 the Intermediary shall: provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(a) 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

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

(iv) The Company does not have any 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.

(v) There are no proceeding initiated or pending against the Company as at 31 March 2022, under Prohibition of Benami Property Transactions Act, 1988 (as amended in 2016).

(vi) The Company is not declared wilful defaulter by any bank or financial institution or other lenders.

45. Impact of COVID-19

46 . The Company has established the 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 requires existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the international transactions entered into with associated enterprises during the financial year and expects such records to be in existence latest by 31 October, 2022 as required by law. The management confirms its international transaction are at arms'' length price so that aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

47 . The Company does not have any long-term contracts including derivatives for which there are any material foreseeable losses.

48 . The Ministry of Corporate Affairs (MCA) vide notification dated 24 March 2021 has amended Schedule III to the Companies Act, 2013 in respect of certain disclosures. Amendments are applicable from 01 April 2021. The Company has incorporated the changes as per the said amendment in the financial statements and has also changed comparative numbers wherever it is applicable.

Mar 31, 2018

1. General information

NATCO Pharma Limited (âthe Companyâ) is a public limited company domiciled and incorporated in India in accordance with the provisions of the Companies Act, 1956. The registered office of the Company is at NATCO House, Road No. 2, Banjara Hills, Hyderabad - 500034. The equity shares of the Company are listed on the National Stock Exchange and Bombay Stock Exchange.

The Company is engaged in the business of pharmaceuticals which comprises research and development, manufacturing and selling of bulk drugs and finished dosage formulations. The Company has manufacturing facilities in India which caters to both domestic and international markets including regulated markets like United States of America and Europe.

These financial statements for the year ended 31 March 2018 were authorised and approved for issue by the Board of Directors on 23 May 2018.

2. Basis of preparation

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 (âthe Actâ) read with the Companies (Indian Accounting Standards) Rules 2015 issued by Ministry of Corporate Affairs (âMCAâ). The Company has uniformly applied the accounting policies during the periods presented.

Transactions and balances with values below the rounding off norm adopted by the Company have been reflected as â0â in the relevant notes in these financial statements.

The financial statements have been prepared on going concern basis under the historical cost basis except for the following -

- Certain financial assets and liabilities which are measured at fair value;

- Share based payments which are measured at fair value of the options; and

- Contingent consideration

3. Standards, not yet effective and have not been adopted early by the Company

a. Appendix B to Ind AS 21, Foreign currency transactions and advance consideration:

On 28 March 2018, Ministry of Corporate Affairs (âMCAâ) 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 1 April 2018. The Company has evaluated the effect of this on the financial statements and the impact is not expected to be material.

b. Ind AS 115 - Revenue from Contract with Customers:

Applicable from 1 April 2018. The Core principle of the new standard is that revenue should be recognized when (or as) an entity transfers control of goods or services to a customer at an amount to which the entity expects to be entitled. To achieve the core principle the new standard establishes a five step model that entities would need to apply to determine when to recognise revenue, and at what amount. Applying this core principle involves the 5 steps approach.

i. The standard requires to identify contract with customer as a first step.

ii. Having identified a contract, the entity next identifies the performance obligations within that contract. A performance obligation is a promise in a contract with a customer to transfer either a good or service or bundle of goods or services, that are âdistinctâ.

iii. Third step in the model is to determine the transaction price and then as a fourth step, such transaction price needs to be allocated to the performance obligation identified in step ii.

iv. In accordance with this Standard, entity is required to recognise revenue when the entity satisfies the performance obligations.

The Standard requires extensive disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entityâs contracts with customers. The effect on adoption of Ind AS 115 is not expected to be significant.

4. Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company.

Recognition of deferred tax assets: The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the Companyâs future taxable income against which the deferred tax assets can be utilized. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions (see note 20).

Recognition of deferred tax liability on undistributed profits: The extent to which the Company can control the timing of reversal of deferred tax liability on undistributed profits of its subsidiaries requires judgement.

Evaluation of indicators for impairment of assets:

The evaluation of applicability of indicators of impairment of assets requires assessment of several external and internal factors which could result in deterioration of recoverable amount of the assets.

Recoverability of advances/receivables: At each balance sheet date, based on historical default rates observed over expected life, the management assesses the expected credit loss on outstanding receivables and advances.

Useful lives of depreciable/amortisable assets:

Management reviews its estimate of the useful lives of depreciable/amortisable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of certain software, customer relationships, IT equipment and other plant and equipment.

Defined Benefit Obligation (DBO): Managementâs estimate of the DBO is based on a number of critical underlying assumptions such as standard rates of inflation, medical cost trends, mortality, discount rate and anticipation of future salary increases. Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.

Fair value measurements: Management applies valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with how market participants would price the instrument. Management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an armâs length transaction at the reporting date.

Provisions: At each balance sheet date basis the management judgment, changes in facts and legal aspects, the Company assesses the requirement of provisions against the outstanding warranties and guarantees. However, the actual future outcome may be different from this judgement.

iv. Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares having a par value ofX2 per share. Each holder of equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors (except interim dividend) is subject to the approval of the shareholders in the ensuing general meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company, after distribution of all preferential amounts in proportion of their shareholding.

v. The Board of Directors have recommended two interim dividends of Rs.1.25 and XI during the current financial year.

vii. Shares reserved for issue under options

(a) The Company has instituted the NATCO Employee Stock Option Plan âESOP-2015â, NATCO Employee Stock Option Plan âESOP-2016â and the NATCO Employee Stock Option Plan âESOP-2017â (âthe Schemesâ). The Schemes were formulated in accordance with the Securities Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 issued by the Securities and Exchange Board of India (âSEBIâ). Pursuant to the terms of the Scheme, the Board of the Directors of the Company have granted 750,000 options (post split).

174,330 (post split) and 600,000 (post split) to eligible employees on 12 August 2015, 11 November 2016 and 02 November 2017 respectively. The terms of the Scheme provide that each option entitles the holder to one equity share of X2 each (post split) and that the options can be settled only byway of issue of equity shares. The options vest on an annual basis over a period ranging from 4 to 5 years from the date of grant and the options are entirely time-based with no performance conditions.

(b) During the year ended 31 March 2018, the Company had incurred stock compensation cost of Rs.180 (31 March 2017: Rs.123) in respect of ESOP 2015, ESOP 2016 and ESOP 2017 schemes.

The weighted average exercise price at the date of exercise for stock options exercised during the year was XI post split (31 March 2017: X2 post split). The stock options outstanding as at 31 March 2018 had a weighted average exercise price of X2 post split (31 March 2017: X2 post split), and the weighted average remaining contractual life of unvested options is 22.98 months (31 March 2017: 29.41 months).

(a) During the year ended 31 March 2015, the Company has issued 808,875 equity shares (post split) of X2 each, fully paid-up at a premium of Rs.238 per equity share (post split) to the erstwhile shareholders of Natco Organic Limited (âNOLâ) in exchange of 19,310,000 equity shares of Rs.10 each at face value held in NOL.

(b) Balance equity shares comprising of 319,155 (31 March 2017: 1,259,165) (post split) were allotted during the period of five years, on exercise of the options granted under the employee stock option plan wherein part consideration was received in the form of employee services.

(i) Nature and purpose of other reserves Securities premium reserve

Securities premium reserve is used to record the premium on issue of shares. The reserve is utilised in accordance with provisions of the Act.

Capital reserve

Capital reserve was created on amalgamation of certain entities into the Company in the earlier years. The Company uses capital reserve for transactions in accordance with the provisions of the Act.

Capital redemption reserve

In accordance with the requirements of the Companies Act, 1956, the Company has created capital redemption reserve on buyback of shares. The Company uses capital redemption reserve for transactions in accordance with the provisions of the Act.

General reserve

The Company generally appropriates a portion of its earnings to the general reserve to be used for contingencies. These reserves are freely available for use by the Company.

Share options outstanding account

The reserve represents the excess of the fair value of the options on the grant date over the exercise price which is accumulated by the Company in respect of all options that have been granted. The Company transfers the proportionate amounts, outstanding in this account, in relation to options exercised to securities premium account on the date of exercise of such options.

Gain/(loss) on FVTOCI equity securities

Remeasurement of defined benefit obligation

The reserve represents the remeasurement gains/(losses) arising from the actuarial valuation of the defined benefit obligations of the Company. The remeasurement gains/(losses) are recognized in other comprehensive income and accumulated under this reserve within equity. The amounts recognized under this reserve are not reclassified to profit or loss.

(i) Working capital loans represents cash credit, overdraft, commercial paper, bills purchased and discounted with various banks and carry interest linked to the respective Bankâs base lending rate/marginal cost of lending rate and range from 1.50% per annum to 10.05% per annum (31 March 2017:1.00% per annum to 12.70% per annum).

(ii) Working capital loans are secured by way of first charge on all the current assets of the Company. The collateral security is joint pari-passu first charge on the corporate office and all fixed assets of Nagarjuna Sagar Unit apart from personal guarantees of Mr. V.C. Nannapaneni, Chairman and Managing Director, Ms. Durga Devi Nannapaneni and Dr. N. Ramakrishna Rao, relatives of Chairman and Managing Director.

(iii) A portion of the unsecured loans is personally guaranteed by Mr. V. C. Nannapaneni, Chairman and Managing Director.

(a) Gratuity

The Company has subscribed to a group gratuity scheme of Life Insurance Corporation of India (LIC). Under the said policy, the eligible employees are entitled for gratuity upon their resignation, retirement or in the event of death in lumpsum after deduction of necessary taxes upto a maximum limit of X2 (31 March 2017: Rs.1). Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund.

Assumptions regarding future mortality experience are set in accordance with the published statistics by the Life Insurance Corporation of India.

Plan assets does not comprise any of the Companyâs 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 Limited.

The significant actuarial 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.

(a) The Company has not recognized deferred tax assets in respect of unused tax credits (minimum alternate tax credits) of Rs.1,737 (31 March 2017: Rs.2,016). The above MAT credit expire at various dates ranging from 2023 through 2032.

(b) Movement in deferred tax liabilities (net)

5. Fair value measurements

(i) 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 (unadjusted) in active markets for financial instruments.

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 entity 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.

The Companyâs principal financial liabilities comprise of borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Companyâs operations. The Companyâs principal financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations. The Company also holds FVOCI investments and investment in itâs subsidiaries.

The Company is exposed to market risk, credit risk and liquidity risk. The Companyâs Board of Directors oversees the management of these risks. The Companyâs Board of Directors is supported by the senior management that advises on financial risks and the appropriate financial risk governance framework for the Company. The senior management provides assurance to the Companyâs board of directors that the Companyâs financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Companyâs policies and risk objectives.

The carrying amounts reported in the statement of financial position for cash and cash equivalents, trade and other receivables, trade and other payables and other liabilities approximate their respective fair values due to their short maturity.

6. Financial instruments risk management

A. Market risk:

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, FVOCI investments, trade receivables and other financial instruments.

The sensitivity analysis in the following sections relate to the position as at 31 March 2018 and 31 March 2017. The analysis exclude the impact of movements in market variables on: the carrying values of gratuity and other post retirement obligations; provisions; and the non-financial assets and liabilities.

i. Interest rate risk:

The Companyâs entire borrowings are carried at amortised cost are variable rate instruments and are subject to fluctuation because of a change in market interest rates. The Company considers the impact of fair value interest rate risk on variable rate borrowings as not material.

The Companyâs variable rate borrowing is subject to interest rate risk. Below is the details of exposure to fixed rate and variable rate instruments:

ii. Foreign currency risk:

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Companyâs exposure to the risk of changes in foreign exchange rates relates primarily to the Companyâs operating activities (when revenue or expense is denominated in a foreign currency).

The Companyâs exposure to foreign currency financial assets and financial liabilities are as follows:

Foreign currency sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in USD. The Companyâs exposure to foreign currency changes for all other currencies is not material.

iii. Equity price risk:

The Companyâs exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet as FVOCI (Note 8).

To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set up by the Company.

The majority of the Companyâs equity investments are publicly traded and are listed on the National Stock Exchange (NSE).

The table below summarises the impact of increase/decrease of the index on the Companyâs equity and profit for the period. The analysis is based on the assumption that the equity index had increased/decreased by 10% with all other variables held constant, and that off the Companyâs equity instruments moved in line with the index.

B. Credit risk

Credit risk is the risk that a counterparty fails to discharge an obligation to the Company, leading to a financial loss. The Company is mainly exposed to the risk of its balances with the bankers and trade and other receivables.

C. Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the nature of the business, the Company maintains flexibility in funding by maintaining availability under committed facilities.

Management monitors rolling forecasts of the Companyâs liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates. In addition, the Companyâs liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

The Companyâs principal sources of liquidity are the cash flows generated from operations. The Company has no long term borrowings and believes that the working capital is sufficient for its current requirments. Accordingly, no liquidity risk is perceived.

Maturities of financial liabilities

The tables below analyse the Companyâs financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is insignificant.

7. Capital risk management

The Companyâs objective when managing capital is to safeguard the Companyâs ability to continue as a going concern in order to provide returns for shareholders and benefits for stakeholders. The Company also proposes to maintain an optimal capital structure to reduce the cost of capital. Hence, the Company may adjust any dividend payments, return capital to shareholders or issue new shares. Total capital is the equity as shown in the statement of financial position. Currently, the Company primarily monitors its capital structure on the basis of gearing ratio. Management is continuously evolving strategies to optimize the returns and reduce the risks. It includes plans to optimize the financial leverage of the Company.

(e) Transaction with related parties

In accordance with the applicable provisions of the Income Tax Act, 1961, the Company is required to use certain specified methods in assessing that the transactions with the related parties, are carried at an armâs length price and is also required to maintain prescribed information and documents to support such assessment. The appropriate method to be adopted will depend on the nature of transactions / class of transactions, class of associated persons, functions performed and other factors as prescribed. Based on certain internal analysis carried out, management believes that transactions entered into with the related parties were carried out at arms length prices. The Company is in the process of updating the transfer pricing documentation for the financial year ended 31 March 2018. In opinion of the management, the same would not have an impact on these financial statements. Accordingly, these financial statements do not include the effect of the transfer pricing implications, if any.

8. Segment reporting

In accordance with Ind AS 108 - âOperating segmentsâ, segment information has been given in the consolidated financial statements of the Company and therefore no separate disclosure on segment information is given in these standalone financial statements.

9. Contingent liabilities and commitments

During the year, the Company has agreed to provide necessary financial support for the continuing operations of itâs subsidiaries as to enable them to meet their liabilities as they fall due and carry on its business over the next 12 months from the balance sheet date.

(ii) The Company is contesting certain patent infringement cases filed against it by the innovators. A few of these cases pertain to products already launched by the Company in the market. These cases are pending before different authorities / courts and the outcome cannot be ascertained with reasonable certainty. Accordingly, a reliable estimate of the liability towards damages/penalties, if any, cannot be made at present. These amounts will be recognised during the periods in which such liabilities can be reasonably measured. Further, at present, the management does not expect such liabilities to be significant.

The aforementioned expenditure, other than capital equipments, are included under the respective heads of the Statement of Profit and Loss.

10. Corresponding previous periodâs figures have been regrouped/reclassified wherever necessary.

Mar 31, 2017

1. FAIR VALUE MEASUREMENTS i) Fair value hierarchy

Level 1: Quoted prices (unadjusted) in active markets for financial instruments.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data rely as little as possible on entity 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.

The Company''s principal financial liabilities, comprise loans and borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Company''s operations. The Company''s principal financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations. The Company also holds FVTOCI investments and investment in its subsidiaries.

The Company is exposed to market risk, credit risk and liquidity risk. The Company''s Board of Directors oversees the management of these risks. The Company''s Board of Directors is supported by the senior management that advises on financial risks and the appropriate financial risk governance framework for the Company. The senior management provides assurance to the Company''s board of directors that the Company''s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company''s policies and risk objectives.

2. FINANCIAL INSTRUMENTS RISK MANAGEMENT

A. Market risk:

The sensitivity analysis in the following sections relate to the position as at 31 March 2017 and 31 March 2016. The analysis exclude the impact of movements in market variables on: the carrying values of gratuity and other post retirement obligations; provisions; and the non-financial assets and liabilities.

i. Interest rate risk

The Company''s fixed rate borrowings are carried at amortized cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates. The Company considers the impact of fair value interest rate risk on investment in deposits with banks and financial institutions and debentures as not material.

The Company''s variable rate borrowing is subject to interest rate risk. Below is the details of exposure to fixed rate and variable rate instruments:

ii. Foreign currency risk:

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the Group''s operating activities (when revenue or expense is denominated in a foreign currency) and the Company''s net investments in foreign subsidiaries.

iii. Equity price risk:

The Company''s exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet as FVOCI (Note 8).

The majority of the Company''s equity investments are publicly traded and are included in the NSE Nifty 50 index.

The table below summarizes the impact of increase/decrease of the index on the Company''s equity and profit for the period. The analysis is based on the assumption that the equity index had increased/decreased by 10% with all other variables held constant, and that of the Company''s equity instruments moved in line with the index.

3. FINANCIAL INSTRUMENTS RISK MANAGEMENT (CONTINUED)

B. CREDIT RISK

c. Liquidity risk

Management monitors rolling forecasts of the Company''s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates. In addition, the Company''s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

Maturities of financial liabilities

The tables below analyse the Company''s financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is insignificant.

4. CAPITAL RISK MANAGEMENT

The Company''s objective when managing capital is to safeguard the Company''s ability to continue as a going concern in order to provide returns for shareholders and benefits for stakeholders. The Company also proposes to maintain an optimal capital structure to reduce the cost of capital. Hence, the Company may adjust any dividend payments, return capital to shareholders or issue new shares. Total capital is the equity as shown in the statement of financial position. Currently, the Company primarily monitors its capital structure on the basis of gearing ratio. Management is continuously evolving strategies to optimize the returns and reduce the risks. It includes plans to optimize the financial leverage of the Company.

5. RELATED PARTY DISCLOSURES

a) Names of the related parties and nature of relationship (as per Ind AS 24)

Names of related parties Nature of relationship

NATCO Pharma Inc., United States of America Time cap Overseas Limited, Mauritius

NATCO Pharma (Canada) Inc., Canada Subsidiary company

NATCO Pharma Asia PTE Ltd., Singapore NATCO Pharma Australia PTY Ltd., Australia

NATCO Farma Do Brazil Ltda., Brazil Step-down subsidiary company

Time Cap Pharma Labs Limited NATCO Trust NATCO Aqua Limited

Entities in which KMP have control or have significant influence

NDL Infratech Private Limited NATCO Group Employees Welfare Trust Natsoft Information Systems Private Limited V. C. Nannapaneni

Key management personnel ("KMP")

Rajeev Nannapaneni Durga Devi Nannapaneni Venkata Satya Swathi Kantamani

Relative of KMP

Neelima Nannapaneni Dr. Ramakrishna Rao

(e) Transaction with related parties

In accordance with the applicable provisions of the Income Tax Act, 1961, the Company is required to use certain specified methods in assessing that the transactions with the related parties, are carried at an arm''s length price and is also required to maintain prescribed information and documents to support such assessment. The appropriate method to be adopted will depend on the nature of transactions / class of transactions, class of associated persons, functions performed and other factors as prescribed. Based on certain internal analysis carried out, management believes that transactions entered into with the related parties were carried out at armâs length prices. The Company is in the process of updating the transfer pricing documentation for the financial year ended 31 March 2017. In opinion of the management, the same would not have an impact on these financial statements. Accordingly, these financial statements do not include the effect of the transfer pricing implications, if any.

6. SEGMENT REPORTING

In accordance with Ind AS 108 - ''Operating segments'', segment information has been given in the consolidated financial statements of the Company and therefore no separate disclosure on segment information is given in these standalone financial statements.

(c) The Company is contesting certain patent infringement cases filed against it by the innovators. A few of these casespertain to products already launched by the Company in the market. These cases are pending before different authorities / courts within the Indian jurisdiction and the outcome cannot be ascertained with reasonable certainty. Accordingly, a reliable estimate of the liability towards damages/penalties, if any, cannot be made at present. These amounts will be recognized during the periods in which such liabilities can be reasonably measured. Further, the management does not expect such liabilities to be significant.

The aforementioned expenditure, other than capital equipments, are included under the respective heads of the Statement of Profit and Loss.

7. During the year ended 31 March 2016, the Company made a Qualified Institutional Placement (''QIP'') and allotted 8,000,000 equity shares (post split) on 18 September 2015 of face value of ''2 each (post split) at a premium of ''424.11 per equity share (post split), pursuant to clause 49 of the erstwhile listing agreement with the stock exchanges, for the purposes of capital expenditure and long-term working and capital requirements, expenses for exploring acquisition opportunities and general corporate requirements of the Company.

8. AMALGAMATION OF NATCO ORGANICS LIMITED

(a) NATCO Organics Limited (âNOLâ), a wholly owned subsidiary of the Company, amalgamated with the Company, with effect from 1 April 2015 (âthe appointed dateâ). NOL was engaged in the business of manufacturing and selling of bulk drugs in domestic markets. The amalgamation was pursuant to a composite scheme of amalgamation sanctioned by the Honourable High Court of Judicature at Madras vide their Order dated 28 April 2016. Pursuant thereto all the assets and properties, both movable and immovable, rights, title and interests, secured and unsecured debts, borrowings, and all other duties, debts, liabilities, undertakings and obligations of NATCO Organics Limited, have been transferred to and vested in the Company retrospectively with effect from 1 April 2015. The amalgamation has been accounted for under the ''pooling of interests'' method as prescribed by the Indian Accounting Standard 103 (Ind AS 103) - âBusiness Combinationsâ specified under Section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules, 2014. Accordingly, the assets, liabilities and reserves of NATCO Organics Limited as at 1 April 2015 have been taken over at their book values and in the same form.

(b) Since NOL was wholly owned by the Company, no shares were exchanged to effect the amalgamation.

Accordingly, the amalgamation has resulted in transfer of assets, liabilities and reserves in accordance with the terms of the Scheme at the following summarized values:

9. FIRST TIME ADOPTION OF 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

31 March 2017, the comparative information presented in these financial statements for the year ended 31 March 2016 and in the preparation of an opening Ind AS balance sheet at 1 April 2015 (the Company''s date of transition). An explanation of how the transition from previous GAAP to Ind AS has affected the Company''s financial position, financial performance and cash flows is set out in the following tables and notes.

A Ind AS optional exemptions

A1 Deemed cost for property, plant and equipment and intangible assets

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized 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. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets. Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.

A2 Designation of previously recognized financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS. The Company has elected to apply this exemption for its investment in equity investments.

B Ind AS mandatory exemptions B1 Estimates

An entity''s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with 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 1 April 2015 are consistent with the estimates as at the same date made in conformity 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:

a) Investment in equity instruments carried at FVTPL or FVOCI

b) Impairment of financial assets based on expected credit loss model.

B2 Classification and measurement of financial assets and liabilities

The classification and measurement of financial assets will be made considering whether the conditions as per Ind AS 109 are met based on facts and circumstances existing at the date of transition.

Financial assets can be measured using effective interest method by assessing its contractual cash flow characteristics only on the basis of facts and circumstances existing at the date of transition and if it is impracticable to assess elements of modified time value of money i.e. the use of effective interest method, fair value of financial asset at the date of transition shall be the new carrying amount of that asset. The measurement exemption applies for financial liabilities as well.

Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. It is impracticable to apply the changes retrospectively if:

a) The effects of the retrospective application or retrospective restatement are not determinable;

b) The retrospective application or restatement requires assumptions about what management''s intent would have been in that period;

The retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that existed at that time.

10. FIRST TIME ADOPTION OF IND AS (CONTINUED)

B3 De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity''s choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognized as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

11. FIRST TIME ADOPTION OF IND AS (CONTINUED)

C Reconciliations between previous GAAP and Ind AS (continued)

NOTES TO THE RECONCILIATIONS

i. Investments

Under the previous GAAP, investments in equity instruments and mutual funds were classified as long-term investments or current investments based on the intended holding and reliability. Long-term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current Investments were carried at lower of cost or fair value. Under Ind AS, these investments are required to be measured at fair value. The resulting fair value changes of these investments (other than equity instruments designated as at FVOCI) have been recognized in retained earnings as at the date of transition and subsequently in the profit or loss for the year ended 31 March 2016. This increased the retained earnings by ''11 as at 31 March 2016 (1 April 2015: ''11).

Fair value changes with respect to investments in equity instruments designated as at FVOCI have been recognized in FVOCI - Equity investments reserve as at the date of transition and subsequently in the other comprehensive income for the year ended 31 March 2016. This increased other reserves by ''17 as at 31 March 2016 (1 April 2015: ''6).

Consequent to the above, the total equity as at 31 March 2016 increased by ''28 (1 April 2015: ''17) and profit and other comprehensive income for the year ended 31 March 2016 increased/(decreased) by (''11) and ''5 respectively.

ii. Revenue from operations

Under Indian GAAP, sale of goods was presented as net of excise duty. However, under Ind AS, sale of goods includes excise duty. Excise duty on sale of goods is separately presented in the face of statement of profit and loss. Thus sale of goods under Ind AS has increased by ''378 with a corresponding increase in expense.

iii. Remeasurement of post-employment benefit obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognized 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 31 March 2016 decreased by ''31. There is no impact on the total equity as at 31 March 2016.

iv. Deferred tax

Deferred tax have been recognized on the adjustments made on transition to Ind AS.

v. Retained earnings

Retained earnings as at April 1, 2015 has been adjusted consequent to the above Ind AS transition adjustments.

vi. Other comprehensive income

Under Ind AS, all items of income and expense recognized in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognized in profit or loss but are shown in the statement of profit and loss as ''other comprehensive income'' includes re-measurements of defined benefit plans, foreign exchange differences arising on translation of foreign operations and fair value gains or (losses) on FVOCI equity instruments. The concept of other comprehensive income did not exist under previous GAAP.

Mar 31, 2016

1. a) Change in accounting estimate

In accordance with the provisions of the Act, effective 1 April 2014, the Company has adopted useful lives as prescribed under Schedule II, which coincides with the useful lives as estimated by the management. Accordingly the depreciation on tangible fixed assets for the previous year ended was higher by Rs.127,839,130 and further an amount of Rs.62,258,333 was charged to the opening balance of the general reserve in respect of the assets whose remaining useful life was nil as at 1 April 2014.

b) Change in accounting policy

Hitherto, the group had used intrinsic value method for recognition of employee stock option compensation cost arising on account of grant of stock options. However, during the year management of the group has elected the fair value method of accounting for compensation on stock options granted during the year. Management is of the opinion that the impact of such change is expected to be insignificant on the consolidated financial statements of the group.

(b) Terms and rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs.2 per share. Each holder of equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing general meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company, after distribution of all preferential amounts in proportion of their shareholding.

(d) Shares reserved for issue under options

(i) The Company has instituted the NATCO Employee Stock Option Plan ''ESOP-2015'' ("the Scheme") as per the special resolution passed in the Extraordinary General Meeting of the Company held on 27 June 2015. The scheme was formulated in accordance with the Securities Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 issued by the Securities and Exchange Board of India ("SEBI"). Pursuant to such order, the Board of the Directors of the Company have granted 750,000 options (post split) to eligible employees on 12 August 2015. The terms of the Scheme provide that each option entitles the holder to 5 equity shares of Rs.2 each (post split) and that the options can be settled only by way of issue of equity shares. The options vest on an annual basis over a period of 5 years from the date of grant and the options are entirely time-based with no performance conditions.

(ii) The Company had instituted NATCO Stock Option Plan 2010 ("ESOP 2010") as per the special resolution passed in the annual general meeting of the members held on 30 September 2010. The Scheme was formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 ("SEBI ESOP Guidelines") issued by the Securities and Exchange Board of India ("SEBI") and pursuant to the provisions of Section 81(1A) and other applicable provisions of the Companies Act, 1956. Pursuant to such approval, the Board was authorized to issue employee stock options, that were exercisable into not more than 600,000 equity shares of the Company to eligible employees based on specific recommendations of the remuneration committee. Each option comprises of one underlying equity share of TIO each (pre split) 236,551 options were granted during August 2011 at an exercise price of TIO each (pre split) and were accounted at an intrinsic value of Rs.252.55 per share (pre split), being the difference between the market value, calculated in accordance with the valuation methods prescribed by the SEBI and the grant price and accounted as stock option compensation over the vesting period of twelve months from the date of the grant. During the year the Company has terminated NATCO Employee Stock Option Plan, 2010 (NATSOP 2010).

(i) During the year ended 31 March 2015, the Company has issued 808,875 equity shares (post split) of Rs.2 each, fully paid- up at a premium of Rs.238 per equity share (post split) to the erstwhile shareholders of Natco Organic Limited (''NOL'') in exchange of 19,310,000 equity shares of TIO each at face value held in NOL.

(ii) Balance equity shares comprising of 1,125,610 (31 March 2015:1,125,610) (post split) were allotted during the period of five years, on exercise of the options granted under the employee stock option plan (ESOP 2010) wherein part consideration was received in the form of employee services.

(f) Equity shares of the Company with face value of TIO per share were sub-divided into 5 equity shares of T2 each effective 30 November 2015, accordingly comparative has been restated to be inline with the current year''s face value per share and number of shares. Consequently, in accordance with Accounting Standard (AS) 20 - "Earnings Per Share", the basic and diluted earnings per share of the previous year have been recomputed and disclosed accordingly.

(a) Terms and conditions of loans and nature of security

(i) Term loans amounting to Rs.75,000,000 (31 March 2015: Rs.623,235,295) is secured by pari-passu first charge on the entire immovable properties and movable fixed assets both present and future of Mekaguda Unit and part of the loan is further secured by an exclusive charge on all the immovable properties and movable fixed assets of both the units (Plot No-19 and Plot NoA-3) at Dehradun and exclusive charge on the R&D equipment acquired from the loan amount.

(ii) Term loan amounting to Rs.66,581,648 (31 March 2015: Rs.122,086,614) is secured by first charge on the movable and immovable fixed assets of Mekaguda unit along with other lenders.

(iii) Term loan amounting to Rs.Nil (31 March 2015: Rs.657,781,706) is secured by pari-passu first charge on the entire fixed assets both present and future of Kothur Unit.

2. Exceptional item

Exceptional item represents amount paid on settlement of pending legal dispute with M/s. SMS Pharmaceuticals Limited.

3. Segment reporting

In accordance with AS 17 - Segment Reporting, segment information has been given in the consolidated financial statements of NATCO Pharma Limited and therefore no separate disclosure on segment information is given in these standalone financial statements.

4. Amalgamation of NATCO Organics Limited

(a) NATCO Organics Limited ("NOL"), a wholly owned subsidiary of the Company, amalgamated with the Company, with effect from 1 April 2015 ("the appointed date"). NOL was engaged in the business of manufacturing and selling of bulk drugs in domestic markets. The amalgamation was pursuant to a composite scheme of amalgamation, "the Scheme" sanctioned by the Honourable High Court of Judicature at Madras vide their Order dated 28 April 2016. Pursuant thereto all the assets and properties, both movable and immovable, rights, title and interests, secured and unsecured debts, borrowings, and all other duties, debts, liabilities, undertakings and obligations of NATCO Organics Limited, have been transferred to and vested in the Company retrospectively with effect from 1 April 2015. The amalgamation has been accounted for under the ''pooling of interests'' method as prescribed by Accounting Standard 14 specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014. Accordingly, the assets, liabilities and reserves of NATCO Organics Limited as at 1 April 2015 have been taken over at their book values and in the same form.

(b) Since NOL was wholly owned by the Company, no shares were exchanged to effect the amalgamation. The difference between the amounts recorded as investments of the Company and the amount of share capital of NATCO Organics Limited, if any has been adjusted in the General Reserve.

Accordingly, the amalgamation has resulted in transfer of assets, liabilities and reserves in accordance with the terms of the Scheme at the following summarised values:

5. Additional information as required under paragraph 5 of the part II of the Schedule III to the Act to the extent either "Nil" or "Not Applicable" has not been furnished.

6. Comparatives

Previous year figures have been reclassified / regrouped wherever necessary, to confirm to current year presentation.

Mar 31, 2015

1. COMPANY OVERVIEW

NATCO Pharma Limited ("the Company") is a public company listed in India and incorporated in accordance with the provisions of Companies Act, 1956. The Company is engaged in manufacturing and selling of bulk drugs and finished dosage formulations and caters to both domestic and international markets.

2. CHANGE IN ACCOUNTING ESTIMATE

Hitherto, depreciation on all tangible fixed assets was provided on straight line method over the estimated useful lives using the rates prescribed under erstwhile Schedule XIV of the Companies Act, 1956. Effective 1 April 2014, in accordance with the requirements to Schedule II of the Act, the Company has adopted the rates prescribed under Schedule II and accordingly, depreciation on the tangible fixed assets for the year ended 31 March 2015 is higher by Rs.127,839,130 and further an amount of Rs.62,258,333 has been charged to the opening balance of the general reserve in respect of the assets whose remaining useful life is nil as at 1 April 2014 in accordance with Schedule II of the Act.

(A) Employee stock option scheme ("ESOP")

(i) The Company had instituted NATCO Stock Option Plan 2010 ("ESOP 2010") as per the special resolution passed in the annual general meeting of the members held on 30 September 2010. The Scheme was formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 ("SEBI ESOP Guidelines") issued by the Securities and Exchange Board of India ("SEBI") and pursuant to the provisions of Section 81(1 A) and other applicable provisions of the Companies Act, 1956. Pursuant to such approval, the Board is authorized to issue employee stock options, that are exercisable into not more than 600,000 equity shares of the Company to eligible employees based on specific recommendations of the remuneration committee. Each option comprises of one underlying equity share of Rs.10 each. 236,551 options were granted during August 2011 at an exercise price of Rs.10 each and were accounted at an intrinsic value of T252.55 per share, being the difference between the market value, calculated in accordance with the valuation methods prescribed by the SEBI and the grant price and accounted as stock option compensation over the vesting period of twelve months from the date of the grant.

(ii) During the year ended 31 March 2015, the Company has not granted any options to the employees and no options were pending for vesting / exercise as at 31 March 2015.

(a) Terms and conditions of loans and nature of security

(i) Term loans amounting to Rs.623,235,295 (31 March 2014: Rs.457,205,883) is secured by pari-passu first charge on the entire immovable properties and movable fixed assets both present and future of Mekaguda Unit and part of the loan is further secured by an exclusive charge on all the immovable properties and movable fixed assets of both the units (Plot No-19 and Plot NoA-3) at Dehradun and exclusive charge on the R&D equipment acquired from the loan amount.

(ii) Term loan amounting to Rs.122,086,614 (31 March 2014:Rs.241,300,697) is secured by an exclusive charge over all movable and immovable fixed assets of NATCO Research Centre and a part of the loan is secured by first charge on the movable and immovable fixed assets of Mekaguda unit along with other lenders.

(iii) Term loan amounting to Rs.657,781,706 (31 March 2014:Rs.686,805,556) is secured by pari-passu first charge on the entire fixed assets both present and future of Kothur Unit.

All the above loans are guaranteed by Mr.V.C Nannapaneni, Chairman and Managing Director and carry interest linked to the respective Bank''s / Institution''s prime / base lending rate, and range from 3.53% per annum to 12.75% per annum (31 March 2014:3.53% per annum to 12.50% per annum).

(a) Loans repayable on demand represents cash credit, overdraft, bills purchased and discounted with various banks and carry interest linked to the respective Bank''s / Institution''s prime / base lending rate, and range from 10% per annum to 14% per annum (31 March 2014:5.75% per annum to 14% per annum)

(b) Loans repayable on demand are secured by way of first charge on all the current assets of the Company. The collatera security is joint pari-passu first charge on the corporate Office and all fixed assets of Nagarjuna Sagar Unit apart from personal guarantees of Mr. V.C. Nannapaneni, Chairman and Managing Director, Mrs. Durga Devi Nannapaneni, promoter and Dr. N. Ramakrishna Rao, relative of Chairman and Managing Director.

(c) Unsecured loans are personally guaranteed by Mr. V.C. Nannapaneni, Chairman and Managing Director.

(a) Investment in portfolio management services

The Company has made an investment, aggregating to Rs.15,000,000 in the private equity opportunities fund of Anand Rathi Financial Services Limited (ARFSL). By virtue of shareholders agreement and share subscription agreement, both dated 29 November 2010, ARFSL has invested the Company''s fund in the Compulsorily Convertible Preference Shares of Ravindranath GE Medical Associates Private Limited. The Company''s investment in the private equity opportunities fund of ARFSL provides for a return of 20% in excess of 16% on a gross pre-tax IRR basis. In the absence of reasonable certainty of realization of return, no income was accrued on such investment for the year ended 31 March 2015.

3. SEGMENT REPORTING

In accordance with AS 17 - Segment Reporting, segment information has been given in the consolidated financial statements of NATCO Pharma Limited and therefore no separate disclosure on segment information is given in these standalone financial statements.

As at 31 March, 2015 As at 31 March, 2014

4. CONTINGENT LIABILITIES AND COMMITMENTS

(a) Commitments

Estimated amount of contracts remaining to be executed on capital 17,95,36,081 17,84,85,937 account and not provided for (net of advances)

(b) Contingent liabilities

Claims against the company not acknowledged as debt - 20,42,27,280

Disputed sales tax liabilities 86,90,000 86,90,000

Disputed service tax liabilities 17,49,256 -

Disputed customs liability 20,00,000 -

Disputed income tax liabilities 6,56,957 2,99,52,680

5. EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES

(a) Gross amount required to be spent by the company during the year

(b) Contribution to trusts controlled by the company NATCO Trust

(c) Provision towards CSR activities undertaken by entering into a contractual obligation and which have completed during the year

6. Additional information as required under paragraph 5 of the part II of the Schedule III to the Act to the extent either "Nil" or "Not Applicable" has not been furnished.

7. COMPARATIVES

Previous year figures have been reclassified / regrouped wherever necessary, to confirm to current year presentation.

Mar 31, 2014

1. Exceptional item

Exceptional item represents written-off of amount deposited with the Hon''ble High Court of Andhra Pradesh for payment against a pending legal dispute with M/s. SMS Pharmaceuticals Limited.

2. Related party disclosures

(a) Names of the related parties and nature of relationship

Names of related parties Nature of relationship

NATCO Pharma Inc., United States of America

Subsidiary company

Timecap Overseas Limited, Mauritius NATCO Pharma (Canada) Inc., Canada

NATCO Organics Limited

Subsidiary company (w.e.f. 30 June 2012) Entity in which Directors have control or have significant influence (up to 29 June 2012)

K & C Pharmacy, United States of America (Up to 14 June 2012)

Partnership firm in which the Company is a partner

NATCO Farma Do Brazil Ltda EPP Step-down subsidiary company

Time Cap Pharma Labs Limited

NATCO Trust, Hyderabad

NATCO Group Employees Welfare Trust

Natsoft Information Systems Private Limited

NDL Infratech Private Limited

Entities in which Directors have control or have significant influence

V C Nannapaneni Rajeev Nannapaneni P Bhaskara Narayanan A K S Bhujanga Rao

Key management personnel ("KMP")

Durga Devi Nannapaneni Neelima Nannapaneni Dr. Ramakrishna Rao

Relative of KMP

(e) Transaction with related parties

In accordance with the applicable provisions of the Income Tax Act, 1961, the Company is required to use certain specified methods in assessing that the transactions with the related parties, are carried at an arm''s length price and is also required to maintain prescribed information and documents to support such assessment. The appropriate method to be adopted will depend on the nature of transactions / class of transactions, class of associated persons, functions performed and other factors as prescribed. Based on certain internal analysis carried out, management believes that transactions entered into with the related parties were carried out at arms length prices. The Company is in the process of updating the Transfer Pricing documentation for the financial year ended 31 March 2014. In opinion of the management, the same would not have an impact on these financial statements. Accordingly, these financial statements do not include the effect of the transfer pricing implications, if any.

3. Segment reporting

In accordance with AS 17 - Segment Reporting, segment information has been given in the consolidated financial statements of NATCO Pharma Limited and therefore no separate disclosure on segment information is given in these financial statements.

As at As at 31 March, 2014 31 March, 2013

4. Contingent liabilities and commitments

(a) Commitments

Estimated amount of contracts remaining to be executed on 17,84,85,937 13,51,07,882 capital account and not provided for (net of advances)

(b) Contingent liabilities

Claims against the company not acknowledged as debt 20,82,29,663 20,82,29,663

Disputed sales tax liabilities 86,90,000 86,90,000 Disputed income tax liabilities 2,99,52,680 2,60,28,878

Claims against the Company not acknowledged as debt, represents claim including interest lodged by M/s. SMS Pharmaceuticals Limited, against the Company. During the previous year, the Hon''ble City Civil Court, Hyderabad has passed the judgment against the Company. Based on a legal advice received, the Company has preferred an appeal before the Hon''ble High Court of Andhra Pradesh as the management is confident of favorable outcome.

Disputed tax liabilities primarily represents additional tax demanded by the Tax Authorities, challenging the Company''s basis of computing profits of units covered by the provisions of Section 80IC of the Income Tax Act, 1961. Pending final outcome of such matters and in view of the stand taken by the Assessing Officer while passing revised orders for the Assessment Year 2007-08 and 2008-09, management is confident of favorable outcome of the proceedings.

5. Additional information as required under paragraph 5 of the part II of the Schedule VI to the Act to the extent either "Nil" or "Not Applicable" has not been furnished.

6. Comparatives

Previous year figures have been reclassified / regrouped wherever necessary, to confirm to current year presentation.

The annual accounts of the subsidiary companies and the related detailed information will be made available to the investors seeking such information at any point of time. The annual accounts of the subsidiary companies will also be available for inspection by any investor at the Registered Office of the Company on all working days during business hours and is also available on the company''s website www.natcopharma.co.in

Mar 31, 2013

As at As at 31 March, 2013 31 March, 2012

1. Contingent liabilities and commitments

(a) Commitments

Estimated amount of contracts remaining to be executed capital account and not provided for (net of advances) 135,107,882 67,213,981

(b) Contingent liabilities

Claims against the company not acknowledged as debt 204,227,280 320,068,008

Disputed sales tax liabilities 8,690,000 8,690,000

Disputed income tax liabilities 26,028,878 169,259,702

Claims against the Company not acknowledged as debt, represents claim including interest lodged by M/s. SMS Pharmaceuticals Limited, against the Company. During the current year, the Hon''ble City Civil Court, Hyderabad has passed the judgement against the Company. Based on a legal advice received, the Company has preferred an appeal before the Hon''ble High Court of Andhra Pradesh as the management is confident of favorable outcome and has recorded an expense aggregating to Rs. 115,840,728 in the accompanying financial statements.

Disputed tax liabilities primarily represents additional tax demanded by the Tax Authorities, challenging the Company''s basis of computing profits of units covered by the provisions of Section 80IC of the Income Tax Act, 1961. Pending final outcome of such matters and in view of the order for Assessment Year 2007-08 and 2008-09 being set aside by appellate authorities, management is confident of favorable outcome of the proceedings.

2. Dues to Micro and small enterprises

The Micro and Small Enterprises have been identified on the basis of information available with the Company. This has been relied upon by the auditors. Details of dues to such parties are given below:

3. Additional information as required under paragraph 5 of the part II of the Schedule VI to the Act to the extent either "Nil" or "Not Applicable" has not been furnished.

4. Comparatives

Previous year figures have been reclassified / regrouped wherever necessary, to confirm to current year presentation.

Mar 31, 2012

1. RECOGNITION OF MINIMUM ALTERNATE TAX (MAT) CREDIT

The Company has not recognized MAT credit available to it as it opines that it would not be in a position to utilize such credit in view of the continued tax holiday being available for the profits arising out of manufacture and sales made from two of its manufacturing facilities. In the eventuality of the Company being made to pay tax on a regular basis, it would make suitable adjustments by taking credit for the MAT entitlement available at such point of time.

2. Segment reporting

In accordance with AS 17 - Segment Reporting, segment information has been given in the consolidated financial statements of NATCO Pharma Limited and therefore no separate disclosure on segment information is given in these financial statements. As at As at 31 March, 2012 31 March, 2011

3. Contingent liabilities and commitments

a. Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) 67,213,981 380,896,183

b. Contingent liabilities

Claims against the company not acknowledged as debt 275,572,800 156,290,615

Disputed sales tax liabilities 8,690,000 8,690,000

Disputed income tax liabilities 169,259,702 162,335,436

Claims against the Company not acknowledged as debt, represents claim including interest lodged by M/s. SMS Pharmaceuticals Limited, against the Company. During the current year, the Hon'ble City Civil Court, Hyderabad has passed the judgement against the Company. Based on a legal advice received, management is of the opinion that the Hon'ble City Civil Court has not taken due cognizance of certain material facts and is confident of favorable outcome of the proposed appeal before the Hon'ble High Court of Andhra Pradesh.

Disputed tax liabilities primarily represents additional tax demanded by the Tax Authorities, challenging the Company's basis of computing profits of units covered by the provisions of Section 80IC of the Income Tax Act, 1961. Pending final outcome of such matters and in view of the order for Assessment Year 2007-08 being set aside by appellate authorities, management is confident of favorable outcome of the proceedings.

4. Terms and conditions of loans and nature of security Secured term loans:

1) Exim Bank term loans, (a) outstanding Rs.328,647,059 (2011: Rs.410,000,000) is repayable in 17 equal quarterly installments (b) outstanding Rs.475,000,000 (2011: Rs.500,000,000) is repayable in 20 equal quarterly installments (c) outstanding Rs.Nil, (2011: Rs.15,000,000). All the above loans are secured by pari-passu first charge on the entire immovable properties and movable fixed assets both present and future of Mekaguda Unit along with Citibank and Barclays Bank for part of the loan and loans (a) and (b) are further secured by an exclusive charge on all the immovable properties and movable fixed assets of both the units (Plot No-19 and Plot NoA- 3) at Dehradun.

2) Axis Bank term loans (a) outstanding Rs.254,000,000 (2011: Rs.350,000,000), is repayable in 16 equal quarterly installments (b) outstanding Rs.150,000,000 (2011: Rs.Nil) is repayable in 48 equal monthly installments. Both the loans are secured by first charge on the entire fixed assets both present and future of Kothur Unit on pari- passu basis with SBI.

3) Citibank term loan, outstanding Rs.137,500,000 (2011: Rs.187,500,000) is repayable in 16 equal quarterly installments and is secured by a pari-passu first charge on the entire immovable properties and movable fixed assets both present and future of Mekaguda Unit along with Exim Bank and Barclays Bank for part of the loan.

4) State Bank of India (SBI), outstanding Rs.11,880,812 (2011: Rs.11,996,853) is repayable in 16 equal quarterly installments and is secured by a first charge on the entire fixed assets both present and future of Kothur Unit on pari-passu basis with Axis Bank.

5) Barclays Bank, External Commercial Borrowing outstanding of Rs.410,814,800 (2011: Rs.Nil) is repayable in 16 equal quarterly installments and a part of the loan is secured by an exclusive charge over all movable and immovable fixed assets of NATCO Research Center and a part of the loan is secured by first charge on the movable and immovable fixed assets of Mekaguda unit along with Exim Bank and Citibank.

6) All the above loans are guaranteed by Mr. V.C Nannapaneni, Chairman and Managing Director and have been granted with a moratorium of 12 months and carry interest linked to the respective Bank's / Institution's prime / base lending rate, and range from 3.53% per annum to 14% per annum.

Secured working capital:

The working capital Loans are re-payable on demand. The primary security is joint pari-passu first charge on all current assets of the Company. The collateral security is joint pari-passu first charge on the corporate Office and all fixed assets of Nagarjuna Sagar Unit apart from personal guarantees of Mr. V.C. Nannapaneni, Chairman and Managing Director and (a) Ms. Durga Devi Nannapaneni, promoter and (b) Dr. N. Ramakrishna Rao, relative of Chairman and Managing Director, in case of working capital limits availed from SBI, Corporation Bank, Oriental Bank of Commerce and Allahabad Bank

Unsecured Loans:

Unsecured loans are re-payable on demand and are personally guaranteed by Mr. V.C. Nannapaneni, Chairman and Managing Director.

5. Comparatives

Previous year comparatives have been reclassified and regrouped wherever necessary, to confirm to current years' presentation.

Mar 31, 2011

1. Company overview

NATCO Pharma Limited ("the Company" or "NATCO") incorporated on 19 September 1981 in accordance with the provisions of the Indian Companies Act, 1956 ("the Act") is a limited liability company. The Company was originally incorporated as Natco Fine Pharmaceuticals Private Limited changed its name to NATCO Pharma Limited, in 1994.

The Company is primarily engaged in manufacturing of active pharmaceuticals ingredients and finished dosage formulations.

2. Commitments and contingent liabilities

As at As at 31 March, 2011 31 March, 2010

Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) 380,896,183 95,245,770

Contingent liabilities

Disputed statutory liabilities 147,407,308 51,883,190

Claims against the Company not acknowledged as debts 156,290,615 157,052,546

3. The Company has not recognized MAT credit available to it as it opines that it would not be in a position to utilize such credit in view of the continued tax holiday being available for the profits arising out of manufacture and sales made from two of its manufacturing facilities. In the eventuality of the Company being made to pay tax on a regular basis, it would make suitable adjustments by taking credit for the MAT entitlement available at such point of time.

4. Secured loans

Loans availed from the financial institutions and banks are fully secured by way of hypothecation of fixed assets, capital work in progress and other assets of the Company. The term loans from banks are further guaranteed by Mr. V. C. Nannapaneni, Chairman and Managing Director in his personal capacity.

5. Unsecured loans

Unsecured loans represent loans taken from Citibank amounting to Rs.Nil (2010: Rs.50,000,000) and interest free sales tax deferment amounting to Rs.4,103,934 (2010: Rs.4,868,571), availed under the 'TARGET 2000' Scheme of the State Government of Andhra Pradesh. The unsecured loan from Citibank is guaranteed by Mr. V. C. Nannapaneni, Chairman and Managing Director in his personal capacity.

6. Government grants

The Company has received Rs.200,000 (2010: Rs.3,000,000) towards the investment subsidy for the purpose of setting up and expansion of an industrial unit in the State of Uttaranchal.

7. Employee stock options

The Company had instituted NATCO Stock Option Plan 2010 ("ESOP 2010"). The scheme was formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 ("SEBI Guidelines") issued by the Securities and Exchange Board of India ("SEBI") and pursuant to the provisions of Section 81 (1A) and all other applicable provisions of the Act, and was duly approved by way of a special resolution passed in the annual general meeting of the members held on 30 September 2010, authorizing the Board to issue employee stock options, that are exercisable into not more than 600,000 equity shares of the Company to eligible employees based on specific recommendations of the Remuneration Committee under the plan. Each option comprises of one underlying equity share of Rs.10 each, however, no options were granted under the said plan as of 31 March 2011.

8. Employee benefits

Provident fund

During year ended 31 March 2011 the Company contributed Rs.27,822,377 (2010: Rs.21,818,451) to the Provident Fund.

Employee state insurance

During year ended 31 March 2011 the Company contributed Rs.4,978,299 (2010: Rs.2,752,233) to the Employee's State Insurance Corporation.

Gratuity

The Company has obtained the actuarial valuation report in line with the requirements of Accounting Standard -15 'Employee Benefits', in respect of gratuity liability and the estimated liability as at 31 March 2011 is provided in the books of accounts. The details of present value of obligations, current service cost and actuarial assumptions are given hereunder:

The estimates of future salary increase, considered in actuarial valuation, take account of inflation, seniority, promotions and other relevant factors such as supply and demand in the employment market. The Company evaluates these assumptions annually based on its long term plans of growth and industry standards.

Information relating to amounts recognized in the profit and loss account, change in fair value of plan assets was not disclosed in the report issued by the Life Insurance Corporation of India, hence the comparative information could not be disclosed.

9. Segment reporting

In accordance with AS 17 - Segment Reporting, segment information has been given in the consolidated financial statements of NATCO Pharma Limited and therefore no separate disclosure on segment information is given in these financial statements.

10. Investments

Investment in Time Cap Overseas Limited, Mauritius

During the year ended 31 March 2011, the Company has entered into an arrangement with LevoMed Inc, ('LevoMed') New Jersey, USA and has established a company viz., Time Cap Overseas Limited ('Time Cap), in the Republic of Mauritius. Pursuant to the terms of arrangement, the Company has paid and / or incurred preliminary expenses aggregating of Rs.30,770,188 to be adjusted towards subscription to the common stock of Time Cap. Pending allotment of shares, investment, by way of share application money has been accounted as investment in subsidiaries and has been considered for the purposes of preparation of consolidated financial statements of the Company and its subsidiaries for the year ended 31 March 2011.

Investment in portfolio management services

As at 31 March 2011 the Company has made an investment, aggregating to Rs.15,000,000 in the private equity opportunities fund of Anand Rathi Financial Services Limited (ARFSL). By virtue of shareholders' agreement and share subscription agreement, both dated 29 November 2010, ARFSL has invested, among others, the investment made by the Company, in the Compulsorily Convertible Preference Shares of Ravindranath GE Medical Associates Private Limited. The company's investment in the private equity opportunities fund of ARFSL provides for a return of 20% in excess of 16% on a gross pre-tax IRR basis. In the absence of reasonable certainty of realization of return, no income was accrued on such investment for the year ended 31 March 2011.

Sale of partnership interest in K & C Pharmacy, United States of America

On 6 December 2010, K & C Pharmacy, USA, a general partnership firm, in which the Company has a substantial interest, has sold its only Drug Store to Crystal Drugs, Inc. Pending formal dissolution of the said firm, remaining investment in the firm is carried at cost based on the net assets of the firm as at 31 March 2011.

11. Payable to micro enterprises and small enterprises

On the basis of the information and records available with management, there are no dues/ overdue principal amounts payable to micro and small enterprises as at 31 March 2011 and there is no interest is paid / payable for the year ended 31 March 2011.

12. Prior year comparatives

The previous year figures are regrouped /rearranged to confirm to current period presentation.

Mar 31, 2010

1. Commitments and contingent liabilities

As at As at

31 March, 2010 31 March, 2009

Commitments

Guarantees and letters of

credit issued by banks 35,769,986 45,163,000

Estimated amount of contracts

remaining to be executed

on capital account and not

provided for (net of advances) 95,245,770 13,601,538

Contingent liabilities

Disputed statutory liabilities 51,883,190 92,522,843

Claims against the Company not

acknowledged as debts 157,052,546 157,052,546

Corporate guarantees - 100,000,000

2. Transactions with related party

Corporate guarantee, covered by the provisions of the Section 295 of the Act, issued to one of the banks on behalf of NATCO Organics Limited a company in which directors are interested was withdrawn on 19 June 2009. The Company is in the process of obtaining requisite approvals as required in accordance with the applicable provisions of the Act.

3. The Company has recognized a sum of Rs. 50,000,000 received from a customer as revenue, as it believes that a substantial portion of the deliverables against the payment have since been completed. In the opinion of the management, there is not likely to be any event or situation which would warrant repayment of this amount.

4. As per the Management estimates, the company will not be in a position to avail all the MAT credit available to it. The Company would review the position at the end of the Financial year ending on 31st March, 2011. Hence, on a prudent basis, no MAT Credit is recognized in the books of accounts. Accordingly, the company has recognized the deferred tax asset / liability after considering the tax holiday impact.

5. Secured loans

Loans availed from the financial institutions and banks are fully secured by way of hypothecation of fixed assets, capital work in progress and other assets of the Company. The term loans from banks are further guaranteed by Mr. V. C. Nannapaneni, Chairman and Managing Director in his personal capacity.

6. Unsecured loans

Unsecured loans represent loans taken from Citibank amounting to Rs.50,000,000 (2009: Rs.49,998,457) and interest free sales tax deferment availed from Andhra Pradesh State Government of Rs.4,868,571 (2009: Rs.5,259,947). The unsecured loan from Citibank is guaranteed by Mr. V. C. Nannapaneni, Chairman and Managing Director in his personal capacity.

7. Government grants

The Company has received Rs.3,000,000 (2009: Nil) towards the investment subsidy for the purpose of setting up and expansion of an industrial unit in the State of Uttaranchal.

8. Employee stock options

The Company had instituted Employee Stock Option Plan 2004 ("NATSOP 2004"). The scheme was formulated in accordance with the provisions of Section 81(1A) and other applicable provision of the Act, and was duly approved by way of a special resolution passed in the annual general meeting of the members held on 4 September 2004, authorizing the Board to issue employee stock options, that are exercisable into not more than 600,000 equity shares of the Company to employees, with each such option conferring a right upon the employee to apply for one equity share of Rs.10 each of the Company.

Based on the recommendations of Compensation Committee, 596,300 equity shares of Rs. 10 each, fully paid- up were granted at an exercise price of Rs.10 each to the eligible employees of the Company subject to the exercise period of five years from the date of vesting. These options were granted at an exercise price lower than the market value per share of Rs. 144 and using the intrinsic value method as prescribed under the Guidance Note, the Company has recognized the excess of market value per share over the exercise price as compensation expense over the progressive vesting period.

9. Employee benefits

Provident fund

During year ended 31 March 2010 the Company contributed Rs.21,818,451 (2009: 19,358,401) to the Provident Fund.

Employee state insurance

During year ended 31 March 2010 the Company contributed Rs.2,752,233 (2009: Rs.3,029,222) to the Employees State Insurance Corporation.

Gratuity

The Company has obtained the actuarial valuation report in line with the requirements of Accounting Standard -15 Employee Benefits, in respect of gratuity liability and the estimated liability as at 31 March 2010 is provided in the books of accounts. The details of present value of obligations, current service cost and actuarial assumptions are given hereunder:

The estimates of future salary increase, considered in actuarial valuation, take account of inflation, seniority, promotions and other relevant factors such as supply and demand in the employment market. The Company evaluates these assumptions annually based on its long term plans of growth and industry standards.

Information relating to amounts recognised in the profit and loss account, change in fair value of plan assets was not disclosed in the report issued by the Life Insurance Corporation of Inida, hence the comparative information could not be disclosed.

10. The Company has pledged the share certificates of NATCO Pharma Inc. and the interest in K & C Pharmacy, in favor of Aceto Corporation, Germany towards the supply advance received by the Company amounting to $ 2,000,000. The relevant documents are deposited in an escrow account, as per the agreed arrangement. Advance outstanding in the books of accounts as of 31 March 2010 is Rs.52,638,740 (2009: Rs.94,860,000).

11. Related party disclosures

i. Names of related parties and nature of relationship

Names Nature of relationship

NATCO Pharma Inc., United States of America Subsidiary Company

K & C Pharmacy, United States of America Partnership firm in which the Company is a partner

NATCO Organics Limited, Chennai Entity in which directors are interested

Time Cap Pharma Labs Limited, Hyderabad Entity in which directors are interested

NATCO Trust, Hyderabad Entity in which directors are interested

NDL Infratech Private Limited, Hyderabad Entity in which directors are interested

V C Nannapaneni, Chairman and Managing Director Key management personnel

Rajeev Nannapaneni, Director and Chief Operating Officer Key management personnel

Durga Devi Nannapaneni Relatives of a key management personnel

A K S Bhujanga Rao (from 30 July 2009) Key management personnel

P Bhaskara Narayana, Director and Chief Financial Officer Key management personnel

15. Disclosure in respect of interest in K & C Pharmacy, partnership firm

Name of the partnership firm K & C Pharmacy

Proportion of ownership interest 75%

Country of residence United States of America

12. Segment reporting

In accordance with AS 17 - Segment Reporting, segment information has been given in the consolidated financial statements of NATCO Pharma Limited and therefore no separate disclosure on segment information is given in these financial statements.

Note: Actual production of formulation products excludes 789 (previous year: 833) million units produced on loan licensing basis from outside parties.

13. Payable to micro enterprises and small enterprises

On the basis of the information and records available with management, there are no dues/ overdue principal amounts payable to micro and small enterprises as at 31 March 2010 and there is no interest is paid / payable for the year ended 31 March 2010.

14. Prior year comparatives

The previous year figures are regrouped to confirm to current period presentation.

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