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Notes to Accounts of Natco Pharma Ltd.

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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