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Notes to Accounts of Novartis India Ltd.

Mar 31, 2017

(ii) The company has only one class of shares i.e. Equity Shares having a face value of '' 5 each. Each shareholder is eligible for one vote per share held. The 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, the equity shareholders are eligible to receive the remaining assets of the company after distribution of all preferential amounts, in proportion to their shareholding.

Nature and Purpose of Other Equity General Reserve

general Reserve is created out of profits of the Company. The reserve is created in accordance with the provisions of the Companies Act, 2013.

Securities Premium Account

Securities Premium Reserve is created when shares are issued at premium. During the year the Company has utilized the entire Securities Premium Reserve towards buy back of shares. The reserve is utilized in accordance with the provisions of the Act.

Capital Redemption Reserve

Capital Redemption reserve was created for buy back of shares. As per Section 69 of the Companies Act, 2013, the Company has transferred a sum equal to nominal value of the shares bought back to Capital Redemption Reserve. The Reserve may be applied by the Company in paying up unissued shares of the Company to be issued to members of the Company as fully paid bonus shares.

Share Options Outstanding Account

The Share Options Outstanding Account is used to recognize the grant date fair value of tradeable options / Restricted shares issued to employees under group global equity incentive plan.

Change of Estimate in Leave Policy

The Company has changed the Leave policy effective 1st April 2017. The changes are with respect to maximum carry forward of leave balance, the changes in salary base and the formula to calculate per day salary. Consequently maximum carry forward of leave balances have been calculated as per new policy as at 31st March 2017.

This has resulted in an additional charge to the Statement of Profit and Loss amounting to Rs.31.2 million (Previous year Nil).

(i) Defined Contribution:

The Company has Defined Contribution Plans for post employment benefits in the form of Superannuation Fund and Employees'' Pension Scheme which are recognized by the Income-tax authorities and administered through trustees and/or Life Insurance Corporation of India (LIC). Superannuation Fund which constitutes an insured benefit and Employees'' Pension Scheme are classified as Defined Contribution Plans as the Company has no further obligation beyond making the contributions. The Company''s contributions to Defined Contribution Plans are charged to the Statement of Profit and Loss as incurred.

Amount of Rs.33.0 million (FY 2015-16 Rs.41.4 million, FY 2014-15 Rs.41.3 million) is recognized as expense and included in the Note 16(a).

(ii) Other Long Term Benefit Plans:

(a) Leave obligations

The leave obligations cover the Company''s liability for earned leave.

The amount of the provision of Rs.41.9 million (31 March 2016 - Rs.24.3 million, 1 April 2015 - Rs.41.3 million), is presented as current which is settled by the Company based on the past trend in next 12 months. This is settled on resignation or retirement of the employee. Liability for Leave Obligation is provided basis of Valuations, as at Balance Sheet date, carried out by independent an actuary.

(b) Other Long-term Employee Benefit

The employees of the Company are entitled to other long-term benefit in the form of Long Service Awards as per the policy of the Company Liability for such benefit is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary The actuarial valuation method used by independent actuary for measuring the liability is the Projected Unit Credit method.

(iii) Post Employment Obligations:

(a) Gratuity

The Company provides for gratuity for employees in India as per the Payment of gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service. The gratuity plan is a funded plan and it is recognized by the Income-tax authorities and administered through trustees and/or LIC. Liability for gratuity is provided basis of Valuations, as at Balance Sheet date, carried out by an independent actuary.

(b) Provident Fund

Provident fund is Defined Benefit Plan that provides for lump sum amount at separation from the Company. The benefits are accumulated value of contributions made by the employee and the Company at the minimum interest rate guarantee as declared by the EPFO for respective years.

(c) Non-Contractual Pension Plan

The Pension Scheme is a Defined Benefit Plan with a minimum pension guarantee that provides for an annuity in the form of pension amount at retirement. The benefits are defined on the basis of fixed monetary amount and final accumulation of Defined Contribution Fund.

(d) Post Retirement Medical Benefits (PRMB)

The PRMB scheme is a fixed monetary amount Defined Benefit Plan that provides for a lumpsum payment made after retirement when a retiree claims medical benefits. The benefits are defined on the basis of amount claimed under medical expenses (valued as premium paid by the Company to the Insurance Company) up to a maximum limit after retirement.

The above sensitivity analyses is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognized in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period. Expected contributions to post employment benefit plans for the year ending 31 March 2018 are Rs.75.8 million.

The weighted average duration of the Benefit Obligation is 9 years (2016 — 8 years, 2015 — 10 years).

Risk exposure

Through its defined benefit plans the Company is exposed to number of risks the most significant of which are detailed below:

Inherent rate risk — The defined benefit obligation calculated uses a discount rate based on Government bonds. If bond yields fall, the defined benefit plan will tend to increase.

Salary Inflation risk — Higher than expected increased in salary will increase the defined benefit obligation.

Demographic risk — This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligations is not straight forward and depends upon the combination of salary increase, discount rate and vesting criteria. It is important not to overstate withdrawals because in financial analysis the retirement benefit of the short career employee typically costs less per year as compared to a long service employee.

Change in leave balances — This is the risk of variability if the results due to significant variations form expected accumulations from leave balance. All other aspects remaining same, higher than expected increase in leave balances will increase the defined benefit obligations.

Medical Inflation risk — Higher than increase in premium will lead to increase in defined benefit obligations. Although the risk is mitigated by capping the benefit paid by insurance Company (limiting the premium amount for the Company).

1. (a) Salaries, Wages and Bonus include Rs.2.8 million (Previous year Rs.6.0 million) paid/payable to employees under the voluntary Retirement Schemes.

(b) voluntary Retirement Costs represent the actuarial value as at 31st March 2017 of compensation payable under the voluntary Retirement Schemes. [Refer Note 15(a)]

2. Disclosures as required under the Micro, Small and Medium Enterprises Development Act, 2006. This information and that given in Note 14(b) - Trade Payables regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company

3. Disclosure on Specified Bank Notes (SBNs)

During the year, the Company had specified bank notes and other denomination notes as defined in the MCA notification G.S.R. 308(E) dated March 30 2017. Details of Specified Bank Notes (SBN) held and transacted during the period from 8th November 2016 to 30th December 2016, as per the notification are given below:

* For the purposes of this clause, the term ‘Specified Bank Notes'' shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of economic Affairs number S.O. 3407(E), dated the 8th November 2016.

4. Segment Information

Description of segments and principal activities

Post divestment of OTC and Animal Healthcare businesses, the Chief Operating Decision Maker views erstwhile Pharmaceuticals and Generics divisions as a single operating segment, i.e. Pharmaceuticals Segment for the purpose of making decisions about allocating resources and assessing its performance.

(a) Pharmaceuticals:

The Pharmaceuticals segment comprises a portfolio of prescription medicines which are provided to patients through healthcare professionals and mainly products of original research of the Novartis Group and Generics products which primarily focuses on the therapeutic segments such as Anti-TB, Anti-DUB (Gynecology), Antihistamines, Antibiotics, Anti-ulcerants, Anti-diabetes and Cardiovascular.

(b) OTC:

The OTC segment was mainly in the vMS (vitamins, minerals and nutritional supplements) and CoCoA (cough, cold and allergy) market segments. This business unit has been divested on 30 September 2015. [Refer Note 41].

(c) Animal Health:

The Animal Health segment had a presence primarily in the cattle and poultry market segments. This business unit has been divested on 31 December 2015. [Refer Note 41].

Significant customers

Revenues of approximately '' 1,049.3 million (Previous year '' 1,039.8 million) are derived from a single external customer (from entities under common control).

5. Earnings Per Share

Basic earnings per share has been calculated by dividing profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The Company has not issued any potential equity shares and accordingly, the basic earnings per share and diluted earnings per share are the same. Earnings per share has been computed as under:

6. Disclosures for Employee Share Based Payments

The Company offers its employees, share based payments in the form of a “Select” plan. The Equity Plan “Select” is a global equity incentive plan for eligible employees. This plan allows its participants to choose the form of their equity compensation in ‘Restricted Shares'' or ‘Tradable Options'' of the ultimate holding company, Novartis AG, Basel. The “Select” plan of the ultimate holding company is being managed and administered by the group company, Befico Limited, Bermuda and the Company is compensating Befico Limited for the grants made to the employees with effect from January 2013 and accordingly, these costs are being reflected in the financial statements. The information given below, in respect of the “Select” plan has been determined and provided by the ultimate holding company.

There are two schemes under which employees are granted stock options:

(A) Tradable Stock Options, as per which the employee can sell the options to market maker once it is vested. Tradable Options have a contractual life of 10 years from the date of grant.

* The Fair value at the grant date is determined using Option Pricing valuation Model which takes into account exercise price, the term of the options, the price at the grant date and expected price volatility of the underlying shares, the expected dividend yield and the risk free interest rate for the term of the options.

(B) Restricted Shares are the shares of its ultimate holding company. These do not have voting rights until vested to employees. There is no time limit to sell the Restricted Shares once these are vested.

Fair Value of the Restricted Stock Units

The Fair value of Restricted Stock Unit is equivalent to the market price of traded stock of Novartis AG as on date of grant.

Expenses Arising from share based payment transactions

Total expenses arising from share-based payment transactions recognized in profit or loss as part of employee benefit expense were as follows:

7. The Company has filed a Writ Petition on 8th May 2014 before the Hon''ble Delhi High Court challenging the move of the National Pharmaceuticals Pricing Authority (“NPPA”) to include voveran 50 GE Tablets, marketed by the Company, under price control in terms of the Drug Price Control Order 2013 (“DPCO 2013”).

During the pendency of the Writ Petition the NPPA issued a Show Cause Notice dated 24th September 2014 to the Company alleging over charge on sales of voveran 50 GE Tablets by the Company. The Company responded to the show cause notice vide its letters dated 13th October 2014 and 27th October 2014. The NPPA issued a Demand Notice dated 31st October 2014 directing the Company to pay '' 281.8 million (including interest) by 15th November 2014. This demand has been challenged before the Hon''ble Delhi High Court which granted a stay on the demand. The matter is posted for further hearing on 15th September 2017.

8. Note on Discontinued Operations and Assets held for sale

On 22nd April 2014, Novartis AG, Basel, Switzerland (Novartis) entered into the following agreements with GlaxoSmithKline plc, UK (GSK) and Em Lilly and Company, USA (Lilly):

(a) Combination of Novartis OTC with GSK Consumer Healthcare in a Joint Venture

Description

Novartis and GSK agreed to create a consumer healthcare business through a Joint venture between Novartis OTC and GSK Consumer Healthcare.

In connection with the divestment of the Novartis OTC business to GSK, the Board of Directors of Novartis India Limited (the “Company”) in its meeting held on 13 January 2015 approved the slump sale of the Company''s OTC Division to GlaxoSmithKline Consumer Private Limited (“GSK CPL”), a private unlisted company incorporated under the Companies Act, 2013 or another affiliate of GSK for a consideration of '' 1,097.3 million. Closing of this slump sale was subject to the receipt of all applicable legal and regulatory approvals, consents, permissions and sanctions as may be necessary from concerned authorities. On the basis of the approval received from the Foreign Investment Promotion Board, Government of India and the Competition Commission of India, the transaction for the transfer of the Company''s OTC Division to GSK CPL was completed on 30 September 2015. The Company made separate announcements on 13 January 2015, 28 August 2015 and 1 October 2015 to BSE Limited in this regard.

Financial performance and cash flow information

(i) The amount of revenue and expenses in respect of the ordinary activities attributable to the discontinued operation - OTC Division

(b) Divestment of Novartis Animal Health business to Lilly Description

As part of its global portfolio transformation, Novartis agreed on 22 April 2014 to divest its global Animal Health business to Lilly.

I n connection with the Global Animal Health Transaction, the Board of Directors of Novartis India Limited (the “Company”) considered and approved on 7 November 2014, the transfer of the Company''s Animal Health Division as a going concern by way of a ‘slump sale'' to Elanco India Private Limited (“Elanco India”), or another affiliate of Lilly, for a consideration of Rs.866.8 million. Closing of this slump sale was subject to the receipt of all applicable legal and regulatory approvals, consents, permissions and sanctions as may be necessary from concerned authorities. On the basis of the approval received from the Foreign Investment Promotion Board, Government of India and the Competition Commission of India, the transaction for the transfer of the Company''s Animal Health Division to Elanco India was completed on 31st December 2015. The Company made separate announcements on 7 November 2014, 27 May 2015, 10 July 2015, 16 September 2015 and 10 December 2015 to BSE Limited in this regard.

(i) Financial performance and cash flow information

The amount of revenue and expenses in respect of the ordinary activities attributable to the discontinued operation - Animal Health Division

9. First-time adoption of Ind AS

These are the Company''s first financial statements prepared in accordance with Ind AS.

The Company has adopted Indian Accounting Standards (Ind AS) as notified by the Ministry of Corporate Affairs with effect from 1st April 2016, with a transition date of 1st April 2015. These financial statements for the year ended 31st March 2017 are the first the Company has prepared under Ind AS. For all periods up to and including the year ended 31st March, 2016, the Company prepared its financial statements in accordance with the previously applicable Indian GAAP (previous GAAP).

The adoption of Ind AS has been carried out in accordance with Ind AS 101, First-time Adoption of Indian Accounting Standards. Ind AS 101 requires that all Ind AS standards and interpretations that are issued and effective for the first Ind As financial statements be applied retrospectively and consistently for all financial years presented. Accordingly, the Company has prepared financial statements which comply with Ind AS for year ended 31st March 2017, together with the comparative information as at and for the year ended 31st March 2016. The Company''s opening Ind AS Balance Sheet has been prepared as at 1st April 2015, the date of transition to Ind AS.

I n preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act. 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. Exemptions and exceptions availed

I n preparing these Ind AS financial statements, the Company has availed certain exemptions and exceptions in accordance with Ind AS 101, as explained below. The resulting difference between the carrying values of the assets and liabilities in the financial statements as at the transition date under Ind AS and previous GAAP have been recognized directly in equity. This note explains the adjustments made by the Company in restating its previous GAAP financial statements, including the Balance Sheet as at 1st April 2015 and the financial statements as at and for the year ended 31st March 2016.

A.1 Ind AS optional exemptions

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

(a) 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.

(b) Share based payment transactions

Ind AS 101 provides an exemption that a first-time adopter is not required to apply Ind AS 102 Share-based Payment to equity instruments that were vested on or before the date of transition to Ind AS. Accordingly, the Company has elected to apply this exemption.

A.2 Ind AS mandatory exceptions

(a) 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 has made estimates for Impairment of financial assets based on expected credit loss model in accordance with Ind AS at the date of transition as these were not required under previous GAAP

(b) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets (debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS. Consequently, the Company has applied the above assessment based on facts and circumstances existing at the transition date.

B. Reconciliations between previous GAAP and Ind AS

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.

Reconciliation of Equity as at date of transition (1st April 2015)

Cash flow statement

There were no reconciliation items between cash flows prepared under previous GAAP and those prepared under Ind AS.

Notes to the Reconciliations

Note 10: Security Deposits

Under the previous GAAP interest free lease deposits (that are refundable in cash on completion of the lease term) are recorded at their transaction value. Under Ind AS, all financial assets are required to be recognized at fair value. Accordingly, the Company has fair valued these security deposits under Ind AS. Difference between the fair value and transaction value of the security deposit has been recognized as prepaid rent. Consequent to this change, the amount of security deposits decreased by Rs.9.9 million as at 31 March 2016 (1 April 2015 - Rs.14.6 million). The prepaid rent increased by Rs.9.3 million as at 31 March 2016 (1 April 2015 - Rs.14.3 million). Total equity decreased by Rs.0.3 million as on 1 April 2015. The profit for the year and total equity as at 31 March 2016 decreased by Rs.0.3 million due to amortization of the prepaid rent of Rs.4.9 million which is partially off-set by the notional interest income of Rs.4.6 million recognized on security deposits.

Note 11: Impairment of Trade Receivables - Expected Credit Loss

As per Ind AS 109, the Company is required to apply expected credit loss model for recognizing the allowance for doubtful debts. As a result, the allowance for doubtful debts increased by Rs.0.2 million as at 31 March 2016 (1 April 2015 - Rs.0.2 million). Consequently, the total equity as at 31 March 2016 decreased by Rs.0.2 million (1 April 2015 - Rs.0.2 million) and profit for the year ended 31 March 2016 decreased by Nil.

Note 12: Employee Stock Option Expense

Under the previous GAAP the cost of equity-settled employee share-based plan were recognized using the intrinsic value method. Under Ind AS, the cost of equity settled share-based plan is recognized based on the fair value of the options as at the grant date. Consequently, the amount recognized in share option outstanding account decreased by Rs.69.4 million as at 31 March 2016 (1 April 2015 - Rs.72.7 million). No profit impact on the Statement of Profit and Loss.

Note 13: Excise Duty

Under the previous GAAP revenue from sale of products was presented exclusive of excise duty. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. The excise duty paid is presented on the face of the statement of profit and loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended 31 March 2016 by Rs.1.3 million. There is no impact on the total equity and profit.

Note 14: Remeasurements 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 March 31 2016 decreased by Rs.2.9 million. There is no impact on the total equity as at March 31, 2016.

Note 15: Provision for Cash Discount

Under Ind AS, cash discount is recorded net of revenue. Provision has been made for cash discount taking into consideration future estimates and based on past trends. Consequently, the total equity as at 31 March 2016 increased by Rs.0.1 million (1 April 2015 - decreased by Rs.0.1 million) and profit for the year ended 31 March 2016 increased by Rs.0.2 million.

Note 16: Assets classified as held for sale and discontinued operations

The Board of Directors of the Company at its meeting held on January 13, 2015 approved the slump sale of the Company''s OTC Division to GlaxoSmithKline Consumer Private Limited (“GSK CPL”), a private unlisted company incorporated under the Companies Act, 2013. On the basis of the approval received from the Foreign Investment Promotion Board, Government of India and the Competition Commission of India the slump sale transaction was completed on 30th September 2015.

The Board of Directors of the Company at its meeting held on November 7, 2014 approved the slump sale of the Company''s Animal Health Division to Elanco India. On the basis of the approval received from the Foreign Investment Promotion Board, Government of India and the Competition Commission of India the slump sale transaction was completed on 31st December 2015.

The concept of disposal group held for sale does not exist under previous GAAP Accordingly, assets and liabilities of disposal group have not been presented as held for sale and appropriately disclosed under respective assets & liabilities held in accordance with previous GAAP

Ind AS 105 “Non-current Assets Held for Sale and Discontinued Operations” requires disposal group to be identified as held for sale, if the carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable.

Based on Ind AS 105, in the opening balance sheet as on 1st April 2015 the assets and liabilities of OTC and Animal health businesses have been reported as held for sale. Consequently, the assets and liabilities of disposal group held for sale have been presented separately from the other assets and other liabilities respectively in the balance sheet. There is no impact on the total equity or profit as a result of this adjustment. Further, the operations of these businesses have been presented as discontinued operation under Ind AS and previous GAAP in the statement of profit and loss.

Based on above, the following assets and liabilities were classified as held for sale as at 31st March 2015:

Note 17: Proposed Dividend

Under previous GAAP proposed dividend was considered as an adjusting event, under Ind AS the same is considered as an non adjusting event.

Note 18: 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 remeasurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP

Note 19: Retained Earnings

Retained earnings as at 1st April 2015 have been adjusted consequent to the above Ind AS transition adjustment.

(i) Fair Value Hierarchy

This section explains the judgments and estimates made in determining the fair values of the financial instruments that are (a) recognized and measured at fair value and (b) measured at amortized cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices.

Level 2: valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

(ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

For the purpose of Fair valuation of Security Deposits the Company has used general bank borrowing rate prevalent in the market.

Security deposits is classified as Level 3 category item under the fair value hierarchy based on the valuation technique used to calculate the Fair value.

The carrying amounts of Other Financial Assets, Deposits with Banks, Unpaid Dividend Accounts, Recoverable from Related Parties, Cash and cash equivalents, Receivable under TDSA agreement, Trade Receivable, Payable to Related Parties, Payables for Property, Plant and Equipment, Trade Payables, Payables under TDSA Agreement and Unpaid dividend account are considered to be the same as their fair values, as they are current in nature.

The amount of Fair value of Security deposits given and accepted is considered to be insignificant in value and hence carrying value and fair value is considered as same.

20. Financial risk management

The Company''s activities expose it to market risk, liquidity risk and credit risk.

The Company''s financial risk management is an integral part of how to plan and execute its business strategies. The Company''s financial risk management policy is carried out by the treasury team under policies approved by the Board of Directors.

Market risk is the loss of future earnings, fair values or future cash flows that may result from the change of a price of a financial instrument. The value of a financial instrument may change as a result of changes in the foreign currency exchange rates and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables.

The Company manages market risk through a treasury department, which evaluates and exercises independent control over the entire process of market risk management. The activities of this department include management of cash resources & ensuring compliance with market risk limits and policies.

(A) Credit Risk

The Company is exposed to credit risk, which is the risk that counterparty will default on its contractual obligation resulting in a financial loss to the Company. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers including outstanding receivables.

Credit Risk Management

Credit risk is the risk of financial loss to the Company if a customer or counter-party fails to meet its contractual obligations, and arises principally from the Companies receivables from customers.

Trade and other receivables

Credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. To manage this risk, the Company periodically assesses the financial reliability of customers, taking into account their financial position, past experience and other factors. The Company manages credit risk 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.

I n furtherance to above, the Company has assessed the impact of the simplified approach permitted by Ind AS 109 Financial Instruments, which requires expected lifetime losses to be recognized in respect of Trade Receivables.

Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue.

(B) Liquidity Risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding to meet obligations when due and to close out market positions. Company''s treasury maintains flexibility in funding by maintaining sufficient cash and bank balances available to meet the working capital requirements. Management monitors rolling forecasts of the Company''s liquidity position (comprising the unused cash and bank balances along with temporary investments in fixed deposits) on the basis of expected cash flows. This is generally carried out at Company level in accordance with practice and limits set by the Company. These limits vary to take into account the liquidity of the market in which the Company operates.

Maturities of financial liabilities

The tables below analyze the Company''s financial liabilities into relevant maturity 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 not significant.

(C) Market Risk - Foreign Exchange

The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD, CHF and EUR. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities denominated in a currency that is not the Company''s functional currency (''). The risk is measured through a forecast of highly probable foreign currency cash flows. The objective of the Company is to minimize the volatility of the '' cash flows of highly probable forecast transactions. The Company actively monitors and seeks to reduce, where it deems it appropriate to do so, fluctuations in these exposures.

(i) Foreign Currency Risk Exposure:

The Company has not entered into any derivative transactions during the year and there were no derivative transactions outstanding as on March 31, 2016 and 1st April 2015.

The Company''s exposure to foreign currency risk at the end of the reporting period expressed in '', is as follows

*Amount is below the rounding off norm adopted by the Company.

(ii) Sensitivity:

The sensitivity of profit or loss to changes in the exchange rates arises mainly from foreign currency denominated financial instruments.

21. Capital management

(a) Risk management

The Company''s objectives when managing capital are to safeguard the Company''s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure.

22. The Company has entered into Consignment Sales Agency Agreements (CSA) and Transitional Distribution Service Agreements (TDSA) with various parties. Pursuant to the above agreements, amounts collected on behalf of such parties and payable (net of deductibles and receivables) as at March 31, 2017 aggregating Rs.343.5 million (as at March 2016 Rs.637.2 million) have been included in ‘Cash and Bank balances'' [Refer Note 10(a) and 10(b)], ‘Other Current Financial Liabilities'' [Refer Note 14(a)] and ‘Other Financial Assets'' [Refer Note 4]. Out of net payables, Rs.330.3 million is payable towards related parties (Previous year Rs.335.4 million).

23. Buyback of Shares

In accordance with Sec 68, 69, 70 and other applicable provisions of the Companies Act, 2013 and SEBI regulations and pursuant to the public announcement for buy back made by the Company, the Company initiated a buy back by way of tender offer through stock exchange mechanism for cash at price of Rs.760/- per equity share for an aggregate maximum amount of Rs.2,903.2 million.

Pursuant to buyback the Company has adjusted premium on buyback of Rs.755 per share aggregating Rs.2,884.1 million, out of Securities Premium Account Rs.228.8 million and from General Reserve Rs.2,655.3 million. Further, an amount of Rs.19.1 million (equivalent to the face value of shares) has been transferred to Capital Redemption Reserve. Buy-back expenses of Rs.23.8 million have also been debited to the General Reserve.

24. Previous year figures have been regrouped/restated where necessary.

Notes:

25. The above Cash Flow Statement has been prepared under the ‘Indirect Method'' as set out in the Accounting Standard (Ind AS) 7 Statement of Cash Flows.

26. For the additional information in relation to discontinued operations refer notes 41(a)(iii) & 41(b)(iii).

27. Previous year figures have been regrouped where necessary.


Mar 31, 2016

1. (a) Salaries, Wages and Bonus include Rs, 6.0 million (Previous year Rs, 18.7 million) paid/payable to employees under the Voluntary Retirement Schemes.

(b) Voluntary Retirement Costs represent the actuarial value as at 31st March, 2016 of compensation payable under the Voluntary Retirement Schemes. [Refer Note 4 and 7].

2. Disclosures as required under the Micro, Small and Medium Enterprises Development Act, 2006. This information and that given in Note 6 – Trade Payables regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company.

Notes:

(a) Business Segments

The businesses comprise Pharmaceuticals, Generics, OTC and Animal Health. The operational performance of the business is reviewed by the management based on such segmentation.

(i) The Pharmaceuticals segment comprises a portfolio of prescription medicines which are provided to patients through healthcare professionals. These are mainly products of original research of the Novartis Group.

(ii) The Generics segment comprises Retail Generics products. The business unit primarily focuses on the therapeutic segments such as Anti-TB, Anti-DUB (Gynaecology), Anti- histamines, Antibiotics, Anti-ulcer ants, Anti-diabetes and Cardiovascular.

(iii) The Animal Health segment has a presence primarily in the cattle and poultry market segments. This business unit has been divested on 31 December 2015. [Refer Note 51].

(iv) The OTC segment is mainly in the VMS (vitamins, minerals and nutritional supplements) and CoCoA (cough, cold and allergy) market segments. This business unit has been divested on 30 September 2015. [Refer Note 51].

(b) Geographical Segments

Revenue is segregated into two segments namely India (sales to customers within India) and Other Countries (sales to customers outside India) on the basis of geographical location of customers for the purpose of reporting geographical segments.

(c) The accounting policies adopted for segment reporting are in line with the accounting policies adopted for the preparation of financial statements as disclosed in Note 1 above.

3. Related Party Disclosures

(A) Enterprise where control exists Holding Company Novartis AG, Basel, Switzerland

(B) Other Related Parties with whom the company had transactions during the year and/or the previous year

(a) Fellow Subsidiaries Alcon Laboratories (India) Private Limited, India

Alcon Pharmaceuticals Limited, Switzerland

Befico Limited, Bermuda

Novartis (Bangladesh) Limited, Bangladesh

Novartis (Singapore) Pte Ltd, Singapore

Novartis (Thailand) Limited, Thailand

Novartis Animal Health Inc, Switzerland

Novartis Asia Pacific Pharmaceuticals Pte. Limited, Singapore

Novartis Consumer Health Inc., USA

Novartis Consumer Health SA, Switzerland

Novartis Corporation (Malaysia) Sdn Bhd, Malaysia

Novartis Healthcare Private Limited, India

Novartis International AG, Switzerland

Novartis Korea Limited, South Korea

Novartis Pharma AG, Switzerland

Novartis Pharmaceuticals Corporation Inc., USA

Novartis South Africa (Pty) Ltd., South Africa

PT Novartis Indonesia, Indonesia

Sandoz International GmbH, Germany

Sandoz Private Limited, India

Shanghai Novartis Animal Health Co. Limited, China

Novartis Pharma Services Inc., Kenya

Novartis Pharmaceuticals East Hanover, USA

Novartis Singapore Pharmaceutical Manufacturing Pte. Ltd,

Singapore

Novartis Pharma K.K., Japan

Novartis Healthcare Philippines Inc., Philippines

(b) Entity under common

control Novartis Comprehensive Leprosy Care Association, India

(c) Key Management

Personnel R. Shahani

M. Patil

A. Matai (Up to 31st August, 2014) J. Zia (From 1st June, 2014) V. Singhal (Up to 30th September, 2015) Dr. V. A. Kumar (Up to 31st December, 2015) D. Charak M. Noble G. Tekchandani 46. Basic earnings per share has been calculated by dividing profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The company has not issued any potential equity shares and accordingly, the basic earnings per share and diluted earnings per share are the same. Earnings per share has been computed as under:

4. Disclosures for Employee Share based Payments

The Institute of Chartered Accountants of India has issued a Guidance Note on "Accounting for Employee Share based Payments" (''the Guidance Note''), which is applicable to employee share based payment plans, the grant date in respect of which falls on or after 1st April, 2005. The company offers its employees, share based payments in the form of a "Select" plan. The Equity Plan "Select" is a global equity incentive plan for eligible employees. This plan allows it participants to choose the form of their equity compensation in ''Restricted Shares'' or ''Tradable Options'' of the ultimate holding company, Novartis AG, Basel. The "Select" plan of the ultimate holding company is being managed and administered by the group company, Befico Limited, Bermuda and the company is compensating Befico Limited for the grants made to the employees with effect from January 2013 and accordingly, these costs are being reflected in the financial statements. The information given below, in respect of the "Select" plan has been determined and provided by the ultimate holding company.

There are two schemes under which employees are granted stock options:

(A) Tradable Stock Options, as per which the employee can sell the options to market maker once it is vested. Tradable Options have a contractual life of 10 years from the date of grant.

(B) Restricted Shares are the shares of its ultimate holding company. These do not have voting rights until vested to employees. There is no time limit to sell the Restricted Shares once these are vested.

5. The Company has filed a Writ Petition on 8th May 2014 before the Hon''ble Delhi High Court challenging the move of the National Pharmaceuticals Pricing Authority ("NPPA") to include Voveran 50 GE Tablets, marketed by the Company, under price control in terms of the Drug Price Control Order 2013 ("DPCO 2013").

During the pendency of the Writ Petition the NPPA issued a Show Cause Notice dated 24th September 2014 to the Company alleging over charge on sales of Voveran 50 GE Tablets by the Company. The Company responded to the show cause notice vide its letters dated 13th October 2014 and 27th October 2014. The NPPA issued a Demand Notice dated 31st October 2014 directing the company to pay Rs, 281.8 million (including interest) by 15th November 2014. This demand has been challenged before the Hon''ble Delhi High Court which granted a stay on the demand. The matter is posted for further hearing on 13th July 2016.

6. Transactions with GSK and Lilly

On 22nd April 2014, Novartis AG, Basel, Switzerland (Novar tis) entered into the following agreements with GlaxoSmithKline plc, UK (GSK) and Eli Lilly and Company, USA (Lilly):

(a) Combination of Novartis OTC with GSK Consumer Healthcare in a Joint Venture Novartis and GSK agreed to create a consumer healthcare business through a Joint Venture between Novartis OTC and GSK Consumer Healthcare.

In connection with the divestment of the Novartis OTC business to GSK, the Board of Directors of Novartis India Limited (the "Company") in its meeting held on 13th January 2015 approved the slump sale of the Company''s OTC Division to GlaxoSmithKline Consumer Private Limited ("GSK CPL"), a private unlisted company incorporated under the Companies Act, 2013 or another affiliate of GSK for a consideration of Rs, 1,097.3 million. Closing of this slump sale was subject to the receipt of all applicable legal and regulatory approvals, consents, permissions and sanctions as may be necessary from concerned authorities. On the basis of the approval received from the Foreign Investment Promotion Board, Government of India and the Competition Commission of India, the transaction for the transfer of the Company''s OTC Division to GSK CPL was completed on 30th September 2015. The Company made separate announcements on 13th January 2015, 28th August 2015 and 1st October 2015 to BSE Limited in this regard.

(i) The carrying amounts of the total assets and the total liabilities attributable to the discontinued operation — OTC Division * 1st April, 2015 to 30th September, 2015

(b) Divestment of Novartis Animal Health business to Lilly As part of its global portfolio transformation, Novartis agreed on 22nd April, 2014 to divest its global Animal Health business to Lilly.

In connection with the Global Animal Health Transaction, the Board of Directors of Novartis India Limited (the "Company") considered and approved on 7th November, 2014, the transfer of the Company''s Animal Health Division as a going concern by way of a ''slump sale'' to Elanco India Private Limited ("Elanco India"), or another affiliate of Lilly, for a consideration of Rs, 866.8 million. Closing of this slump sale was subject to the receipt of all applicable legal and regulatory approvals, consents, permissions and sanctions as may be necessary from concerned authorities. On the basis of the approval received from the Foreign Investment Promotion Board, Government of India and the Competition Commission of India, the transaction for the transfer of the Company''s Animal Health Division to Elanco India was completed on 31st December, 2015. The Company made separate announcements on 7th November, 2014, 27th May, 2015, 10th July, 2015, 16th September, 2015 and 10th December, 2015 to BSE Limited in this regard.

** 1st April, 2015 to 31st December, 2015

The differential between the total consideration and the net assets transferred in relation to slump sale of the OTC and Animal Health division''s net of cost in relation to these transactions have been disclosed as Extraordinary Item.

7. The Company has entered into Consignment Sales Agency Agreements (CSA) and Transitional Distribution Service Agreements (TDSA) with various parties.

Pursuant to the above agreements, amounts collected on behalf of such parties and payable (net of deductibles) as at 31st March, 2016 aggregating Rs, 637.2 million have been included in ''Cash and Bank balances'' [Refer Note 16] and ''Other Current Liabilities'' [Refer Note 7].

8. Previous year figures have been regrouped/restated where necessary. The figures for the year ended 31st March, 2016 are not comparable to those of the previous year ended 31st March, 2015 on account of the sale of OTC and Animal Health Divisions [Refer Note 51].


Mar 31, 2015

1. The company has only one class of shares i.e. Equity Shares having a face value of Rs. 5 each. Each shareholder is eligible for one vote per share held. The 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, the equity shareholders are eligible to receive the remaining assets of the company after distribution of all preferential amounts, in proportion to their shareholding.

2. Of the above, 23,970,597 (Previous year - 23,970,597) shares are held by Novartis AG, Basel, Switzerland, the holding company.

3. Contingent Liabilities

Claims against the company not acknowledged as debts Income-tax matters

(i) Matters decided in favour of the company but disputed further by the income-tax authorities 76.6 76.4

(ii) Matters decided against the company in respect of which the company has preferred an appeal 122.8 118.5

Sales tax matters 568.0 463.4

Service tax matters 4.5 4.5

Excise matters 3.0 3.0

Drug Price Control Order 2013 [Refer Note 51] 281.8 —

Claims from third party manufacturers in respect of Excise matters 39.0 38.0

Claims from Consumers 0.2 0.2

Others 2.1 2.1

Note:

Future cash outflows in respect of the above are determinable only on receipt of judgements/decisions pending with various authorities/forums and/or final outcome of the matters.

4. Estimated amount of contracts remaining to be executed on capital account and not provided for - Rs. 0.2 million (Previous year Rs. Nil).

5. (a) Salaries, Wages and Bonus include Rs. 18.7 million (Previous year Rs. 18.8 million) paid/payable to employees under the Voluntary Retirement Schemes.

(b) Voluntary Retirement Costs represent the actuarial value as at 31st March, 2015 of compensation payable under the Voluntary Retirement Schemes. [Refer Note 4 and 7].

6. Disclosures as required under the Micro, Small and Medium Enterprises Development Act, 2006. This information and that given in Note 6 - Trade Payables regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company.

7. Other Long-term Employee Benefit

The liability for Long Service Awards as at the year end Rs. 16.8 million (Previous year Rs. 15.1 million).

8. NOTES:

(a) Business Segments

The businesses comprise Pharmaceuticals, Generics, OTC and Animal Health. The operational performance of the business is reviewed by the management based on such segmentation.

(i) The Pharmaceuticals segment comprises a portfolio of prescription medicines which are provided to patients through healthcare professionals. These are mainly products of original research of the Novartis Group.

(ii) The Generics segment comprises Retail Generics products. The business unit primarily focuses on the therapeutic segments such as Anti-TB, Anti-DUB (Gynaecology), Anti- histamines, Antibiotics, Anti-ulcerants, Anti-diabetes and Cardiovascular.

(iii) The Animal Health segment has a presence primarily in the cattle and poultry market segments.

(iv) The OTC segment is mainly in the VMS (vitamins, minerals and nutritional supplements) and CoCoA (cough, cold and allergy) market segments.

(b) Geographical Segments

Revenue is segregated into two segments namely India (sales to customers within India) and Other Countries (sales to customers outside India) on the basis of geographical location of customers for the purpose of reporting geographical segments.

(c) The accounting policies adopted for segment reporting are in line with the accounting policies adopted for the preparation of financial statements as disclosed in Note 1 above.

9. Related Party Disclosures

(A) Enterprise where control exists

Holding Company Novartis AG, Basel, Switzerland

(B) Other Related Parties with whom the company had transactions during the year and/or the previous year

(a) Fellow Subsidiaries

Alcon Laboratories (India) Private Limited,India

Alcon Pharmaceuticals Limited, Switzerland

Befico Limited, Bermuda

Chiron Behring Vaccines Private Limited, India

Novartis (Bangladesh) Limited, Bangladesh

Novartis (Singapore) Pte Ltd, Singapore

Novartis (Taiwan) Co. Ltd, Taiwan

Novartis (Thailand) Limited, Thailand

Novartis Animal Health Inc, Switzerland

Novartis Asia Pacific Pharmaceuticals Pte. Limited, Singapore

Novartis Consumer Health Inc., USA

Novartis Consumer Health SA, Switzerland

Novartis Corporation (Malaysia) Sdn Bhd, Malaysia

Novartis Healthcare Private Limited, India

Novartis Holding AG, Switzerland

Novartis International AG, Switzerland

Novartis Korea Limited, South Korea

Novartis Pharma AG, Switzerland

Novartis Pharmaceuticals Australia Pty Limited, Australia

Novartis Pharma GmbH, Germany

Novartis Pharmaceuticals Corporation Inc., USA

Novartis South Africa (Pty) Ltd., South Africa

PT Novartis Indonesia, Indonesia

Sandoz International GmbH, Germany

Sandoz Private Limited, India

Shanghai Novartis Animal Health Co. Limited, China

(b) Entity under common control

Novartis Comprehensive Leprosy Care Association, India

(c) Key Management Personnel

R. Shahani

P Gupta (Up to 30th September, 2013)

A. Matai (Up to 31st August, 2014)

J. Zia (From 1st June, 2014)

V Singhal Dr V A. Kumar

M. Patil (From 1st October, 2013)

D. Charak (From 23rd July, 2013)

M. Noble (From 1st October, 2013)

G. Tekchandani

(C) Disclosure of transactions between the company and related parties and outstanding balances as at the year end:

10. Basic earnings per share has been calculated by dividing profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year The company has not issued any potential equity shares and accordingly, the basic earnings per share and diluted earnings per share are the same. Earnings per Share has been computed as under:

11. Disclosures for Employee Share based Payments

The Institute of Chartered Accountants of India has issued a Guidance Note on "Accounting for Employee Share based Payments" (''the Guidance Note''), which is applicable to employee share based payment plans, the grant date in respect of which falls on or after 1st April, 2005. The company offers its employees, share based payments in the form of a "Select" plan. The Equity Plan "Select" is a global equity incentive plan for eligible employees. This plan allows it participants to choose the form of their equity compensation in ''Restricted Shares'' or ''Tradable Options'' of the ultimate holding company, Novartis AG, Basel. The "Select" plan of the ultimate holding company is being managed and administered by the group company, Befico Limited, Bermuda and the company is compensating Befico Limited for the grants made to the employees with effect from January 2013 and accordingly, these costs are being reflected in the financial statements. The information given below, in respect of the Select plan has been determined and provided by the ultimate holding company

There are two schemes under which employees are granted stock options:

(A) A Tradable Stock Options, as per which the employee can sell the options to market maker once it is vested. Tradable Options have a contractual life of 10 years from the date of grant.

12. Current Tax (Net) for earlier years includes write back of provision for current tax for the Assessment Year 1995-1996 amounting to Rs. 139.3 million (previous year Rs. 387.7 million). The aforesaid write backs are on account of favourable Orders of the Income Tax Appellate Tribunal, received by the Company in the respective years, for non-taxability of consideration from sale of its Oral Hygiene Business.

13. The Company has filed a Writ Petition on 8th May, 2014 before the Hon''ble Delhi High Court challenging the move of the National Pharmaceuticals Pricing Authority ("NPPA") to include Voveran 50 GE Tablets, marketed by the Company, under price control in terms of the Drug Price Control Order 2013 ("DPCO 2013").

During the pendency of the Writ Petition the NPPA issued a Show Cause Notice dated 24th September, 2014 to the Company alleging over charge on sales of Voveran 50 GE Tablets by the Company. The Company responded to the show cause notice vide its letters dated 13th October, 2014 and 27th October, 2014. The NPPA issued a Demand Notice dated 31st October, 2014 directing the company to pay Rs. 281.8 million (including interest) by 15th November, 2014. This demand has been challenged before the Hon''ble Delhi High Court which granted a stay on the demand. The matter is posted for further hearing on 10th August, 2015.

14. Transactions with GSK and Lilly

On 22nd April 2014, Novartis AG, Basel, Switzerland (Novartis) entered into the following agreements with GlaxoSmithKline plc, UK (GSK) and Eli Lilly and Company, USA (Lilly):

(a) Combination of Novartis OTC with GSK Consumer Healthcare in a Joint Venture

Novartis and GSK have agreed to create a consumer healthcare business through a Joint Venture between Novartis OTC and GSK Consumer Healthcare. The transaction, except in respect of the Company''s OTC Division, closed on 2nd March, 2015.

In connection with the divestment of the Novartis OTC business to GSK, the Board of Directors (Board) of Novartis India Limited (Company) in its meeting held on 13th January, 2015 approved the slump sale of the Company''s OTC Division to GlaxoSmithKline Consumer Private Limited (GSK CPL), a private unlisted company incorporated under the Companies Act, 2013 (or another affiliate of GSK) for a consideration of Rs. 1,097.3 million. Closing of this slump sale is subject to the receipt of all applicable legal and regulatory approvals, consents, permissions and sanctions as may be necessary from concerned authorities. The Company had made a separate announcement on 13th January, 2015 to BSE Limited in this regard.

(b) Divestment of Novartis Animal Health business to Lilly

As part of its global portfolio transformation, Novartis AG, Basel, Switzerland ("Novartis AG") agreed on 22nd April 2014 to divest its global Animal Health business to Eli Lilly and Company ("Lilly"). Closing of this global transaction was subject to receipt of applicable anti-trust and regulatory approvals, as well as the satisfaction or waiver (as applicable) of various other conditions (the "Global Animal Health Transaction").

In connection with the Global Animal Health Transaction, the Board of Directors of Novartis India Limited (the "Company") considered and approved on 7th November 2014, the transfer of the Company''s Animal Health Division as a going concern by way of a ''slump sale'' to Elanco India Private Limited ("Elanco India"), or another affiliate of Lilly, for a consideration of Rs. 866.8 million, on or before 22nd July 2015, subject to the receipt of all applicable legal and regulatory approvals, consents, permissions and sanctions as may be necessary from concerned authorities, as well as the closing of the Global Animal Health Transaction (the "Animal Health Transaction"). This approval of the Company''s Board of Directors was disclosed to the Stock Exchange on 7th November 2014. The Global Animal Health Transaction closed globally (but not with respect to India, as explained below) on 1st January 2015.

Closing of the Animal Health Transaction in India is conditional upon the receipt by Elanco India of the written approval of the Foreign Investment and Promotion Board, Government of India (the "FIPB"). Further to the FIPB''s response to Elanco India''s application that it would not approve the Animal Health Transaction due to the existence of the restrictions on competition explained below, and at Elanco India''s request, the Company and Elanco India have executed a letter which records the parties'' agreement that the terms of the Global Animal Health Transaction agreed between Novartis AG and Lilly restricting the competition by the Novartis AG group of companies in connection with animal health activities, will not apply with respect to the Company vis-a-vis Elanco India in India (the "Non-Compete Amendment Letter"). The Non-Compete Amendment Letter will be submitted by Elanco India to the FIPB, together with a representation against the FIPB''s non-approval of Elanco India''s application for the Animal Health Transaction. The Company will continue to co-operate with Elanco India, to the extent necessary, and monitor the FIPB process in this matter and will provide further updates if and when required.

15. Previous year figures have been regrouped/restated where necessary.


Mar 31, 2013

1. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 0.8 million [Previous year Rs. 1.4 million].

2. (a) Salaries, Wages and Bonus include Rs. 8.2 million [Previous year Rs. 2.8 million] paid/payable to employees under the Voluntary Retirement Schemes.

(b) Voluntary Retirement Costs represent the actuarial value as at 31st March 2013 of compensation payable under the Voluntary Retirement Schemes.

3. Disclosures as required under the Micro, Small and Medium Enterprises Development Act, 2006. This information and that given in Note 7 - Trade Payables regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company. This has been relied upon by the auditors.

4. Basic earnings per share has been calculated by dividing profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The company has not issued any potential equity shares and accordingly, the basic earnings per share and diluted earnings per share are the same. Earnings per Share has been computed as under:

5. Disclosures for Employee Share based Payments

The Institute of Chartered Accountants of India has issued a Guidance Note on "Accounting for Employee Share based Payments" (''the Guidance Note''), which is applicable to employee share based payment plans, the grant date in respect of which falls on or after 1st April, 2005. The company offers its employees, share based payments in the form of a "Select" plan. The Equity Plan "Select" is a global equity incentive plan for eligible employees. This plan allows it participants to choose the form of their equity compensation in ''Restricted Shares'' or ''Tradable Options'' of the ultimate holding company, Novartis AG, Basel. The "Select" plan of the ultimate holding company is being managed and administered by the group company, Befico Limited, Bermuda, and the company is compensating Befico Limited for the grants made to the employees with effect from January 2013 and accordingly, these costs are being reflected in the financial statements. The information given below, in respect of the Select plan r-as peer* determined and provided by the ultimate holding company.

There are two schemes under which employees are granted stock options:

(A) A Tradable Stock Options, as per which the employee can sell it to market maker once its vested. Tradable Options have a contractual life of 10 years from the date of grant.

(B) Restricted Shares, which are the shares of its ultimate holding company. This does not have voting rights until vested to employees. Unlike Tradable Options, there is no time limit to sell the Restricted Shares once these are vested.

6. Previous year figures have been regrouped where necessary.


Mar 31, 2012

1. Contingent Liabilities

Claims against the company not acknowledged as debts

Income-tax matters

(i) Matters decided in favour of the company but disputed further by the income-tax authorities 300.4 301.6

(ii) Matters decided against the company in respect of which the company has preferred an appeal 135.7 147.1

Sales tax matters 282.7 252.5

Service tax matter 3.3 3.3

Excise matters 3.0 5.1

Claims from third party manufacturers in

respect of Excise matters 34.6 32.9

Claim from a third party in respect of

Property tax matter - 699.8

Claims from Consumers 0.2 1.8

Others 2.1 2.1

Notes:

Future cash outflows in respect of the above are determinable only on receipt of judgements/decisions pending with various authorities/forums and/or final outcome of the matters.

2. Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs 1.4 million [Previous year Rs 7.9 million].

3. (a) Salaries, Wages and Bonus include Rs 2.8 million [Previous year Rs 5.2 million] paid to employees under the Voluntary Retirement Schemes.

(b) Voluntary Retirement Costs represent the actuarial value as at 31st March 2012 of compensation payable under the Voluntary Retirement Schemes.

4. Disclosures as required under the Micro, Small and Medium Enterprises Development Act, 2006. This information and that given in Note 7 - Trade Payables regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company. This has been relied upon by the auditors.

Notes:

(a) Business Segments

The businesses comprise Pharmaceuticals, Generics, OTC and Animal Health. The operational performance of the business is reviewed by the management based on such segmentation.

(i) The Pharmaceuticals segment comprises a portfolio of prescription medicines which are provided to patients through healthcare professionals. These are mainly products of original research of the Novartis Group.

(ii) The Generics segment comprises Retail Generics products. The business unit primarily focuses on the therapeutic segments such as Anti-TB, Anti-DUB (Gynaecology), Anti-histamines, Antibiotics, Anti-ulcerants, Anti-diabetes and Cardiovascular.

(iii) The Animal Health segment has a presence primarily in the cattle and poultry market segments.

(iv) The OTC segment is mainly in the VMS (vitamins, minerals and nutritional supplements) and CoCoA (cough, cold and allergy) market segments.

(b) Geographical Segments

Revenue is segregated into two segments namely India (sales to customers within India) and Other Countries (sales to customers outside India) on the basis of geographical location of customers for the purpose of reporting geographical segments.

(c) The accounting policies adopted for segment reporting are in line with the accounting policies adopted for the preparation of financial statements as disclosed in Note 1 above.

5. Basic earnings per share has been calculated by dividing profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The company has not issued any potential equity shares and accordingly, the basic earnings per share and diluted earnings per share are the same. Earnings per Share has been computed as under:

6. The financial statements for the year ended 31st March, 2011 were prepared as per the then applicable, pre-revised Schedule VI to the Act. Consequent to the notification of Revised Schedule VI under the Act, the financial statements for the year ended 31st March, 2012 are prepared as per Revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year's classification. The adoption of Revised Schedule VI for previous year figures does not impact recognition and measurement principles followed for preparation of financial statements.


Mar 31, 2011

1. Contingent Liabilities As at As at 31st March 2011 31st March 2010 Rs'000 Rs'000 (a) Claims against the company not acknowledged as debts

Income tax matters

(i) Matters decided in favour of the company but disputed further by the income tax authorities 301,612 305,766

(ii) Matters decided against the company in respect of which the company has preferred an appeal 147,103 128,649

Sales tax matters 227,408 180,762

Service tax matter 3,291 3,291

Excise matters 5,110 5,110

Claims from a third party manufacturer in respect of Excise matter 32,943 31,162

Claims from Consumers 1,758 1,758 Others 701,927 2,100

(b) Uncalled liability on partly paid share in Hill Properties Limited 2 2

Notes:

(i) Future cash outflows in respect of (a) above are determinable only on receipt of judgements/ decisions pending with various authorities/forums and/or final outcome of the matters.

(ii) Future cash outflow in respect of (b) above is dependent on the call to be made by Hill Properties Limited.

2. (a) Salaries, Wages and Bonus include Rs. 5,200(000) [Previous year Rs. 2,800(000)] paid to employees under the Voluntary Retirement Schemes.

(b) Voluntary Retirement Costs represent the actuarial value as at 31st March, 2011 of compensation payable under the Voluntary Retirement Schemes. Amount payable within one year approximately Rs. 2,468(000) [Previous year Rs. 3,124(000)].

3. Disclosures as required under the Micro, Small and Medium Enterprises Development Act, 2006. This information and that given in Schedule 11 - Liabilities regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company. This has been relied upon by the auditors.

(e) Included in (d) above is - Nil [Previous year - Nil] being interest on amounts outstanding as at the beginning of the accounting year.

(C) Other Long-term Employee Benefit

The liability for Long Service Awards as at the year end Rs. 6,859(000) [Previous year Rs. 7,230(000)].

(a) Business Segments

The businesses comprise Pharmaceuticals, Generics, OTC and Animal Health. The operational performance of the business is reviewed by the management based on such segmentation.

(i) The Pharmaceuticals segment comprises a portfolio of prescription medicines which are provided to patients through healthcare professionals. These are mainly products of original research of the Novartis Group.

(ii) The Generics segment comprises Retail Generics products. The business unit primarily focuses on the therapeutic segments such as Anti-TB, Anti-DUB (Gynaecology), Antihistamines,

Antibiotics, Anti-ulcerants, Anti-diabetes and Cardiovascular. (iii) The Animal Health segment has a presence primarily in the cattle and poultry market segments. (iv) The OTC segment is mainly in the VMS (vitamins, minerals and nutritional supplements) and CoCoA (cough, cold and allergy) market segments.

(b) Geographical Segments

Revenue is segregated into two segments namely India (sales to customers within India) and Other Countries (sales to customers outside India) on the basis of geographical location of customers for the purpose of reporting geographical segments.

(c) The accounting policies adopted for segment reporting are in line with the accounting policies adopted for the preparation of financial statements as disclosed in Note 1 above.

4. Related Party Disclosures

(A) Enterprise where control exists Hoiding Company

Novartis AG, Basel, Switzerland

(8) Other Related Parties with whom (a) Fellow Subsidiaries

the company had transactions during the year

Novartis (Bangladesh) Limited, Bangladesh

Novartis (Thailand) Limited, Thailand

Novartis Animal Health GmbH, Austria

Novartis Animal Health, USA

Novartis Asia Pacific Pharmaceuticals Pte. Ltd., Singapore

Novartis Healthcare Private Limited, India

Novartis International AG, Basel, Switzerland

Novartis Pharma AG, Basel, Switzerland

Novartis Pharmaceuticals (HK) Limited, Hong Kong

Novartis Pharmaceuticals Corporation Inc., USA

Sandoz Private Limited, India

Shanghai Novartis Animal Health Co. Limited, China

(b) Key Management Personnel

R. Shahani

R Gupta

A. Matai

V. Singhal

Dr R R. Rao

A. Sharma (From 6th January, 2010)

(b) Significant leasing arrangements

(i) Either party shall be entitled at any time during the term to terminate the agreement by giving three months' prior notice in writing.

(ii) There is no provision for renewal.

5. Previous year figures have been regrouped where necessary.


Mar 31, 2010

1. Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) - Nil [Previous year Rs. 943(000)].

As at As at 31st March 2010 31st March 2009 Rs 000 Rs 000

2. Contingent Liabilities

(a) Claims against the company not acknowledged as debts

Income tax matters

(i) Matters decided in favour of the company but disputed further by the income tax authorities 305,766 303,699

(ii) Matters decided against the company in respect of which the company has preferred an appeal 128,649 119,618

Sales tax matters 180,762 166,097

Service tax matter 3,291 -

Excise matters 5,110 5,110

Claims from a third party manufacturer in respect of Excise matter 31,162 667

Claims from Consumers 1,758 1,758

Others 2,100 2,100

(b) Uncalled liability on partly paid share in Hill Properties Limited 2 2



Notes:

(i) Future cash outflows in respect of (a) above are determinable only on receipt of judgements/ decisions pending with various authorities/forums and/or final outcome of the matters.

(ii) Future cash outflow in respect of (b) above is dependent on the call to be made by Hill Properties Limited.

Notes to the Financial Statements

3. (a) Salaries, Wages and Bonus include Rs. 2,800(000) [Previous year Rs. 5,253(000)] paid to employees under the Voluntary Retirement Schemes.

(b) Voluntary Retirement Costs represent the actuarial value as at 31st March, 2010 of compensation payable under the Voluntary Retirement Schemes. Amount payable within one year approximately Rs. 3,124(000) [Previous year Rs. 3,956(000)].

4. Disclosures as required under the Micro, Small and Medium Enterprises Development Act, 2006. This information and that given in Schedule 11 — Liabilities regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company. This has been relied upon by the auditors.

Notes to the Financial Statements

5. Related Party Disclosures

(A) Enterprise where control exists

Holding Company Novartis AG, Basel, Switzerland

(B) Other Related Parties with whom the company had transactions during the year

(a) Fellow Subsidiaries Hexal Pharma Private Limited

Novartis (Bangladesh) Limited, Bangladesh

Novartis (Thailand) Limited, Thailand

Novartis Animal Health GmbH, Austria

Novartis Asia Pacific Pharmaceuticals Pte. Ltd., Singapore

Novartis Consumer Health OTC, Hungary

Novartis Consumer Health, USA

Novartis Egypt S.A.E., Egypt

Novartis Farmaceutica S.A., Spain

Novartis Healthcare Philippines, Philippines

Novartis Healthcare Private Limited

Novartis International AG, Basel, Switzerland

Novartis Pharma (Pakistan) Limited, Pakistan

Novartis Pharma AG, Basel, Switzerland

Novartis Pharma Services Inc., Basel, Switzerland

Novartis Pharmaceuticals (HK) Limited, China

Novartis Pharmaceuticals Australia Pty. Ltd., Australia

Novartis Pharmaceuticals Corporation Inc., USA

Sandoz Phillipines Corporation, Phillipines

Sandoz Private Limited

Shanghai Novartis Animal Health Co. Limited, China

(b) Key Management Personnel R. Shahani

R Gupta

A. Matai

V. Singhal

Dr R R. Rao

A. Sharma (From 6th January, 2010)

Disclosure of transactions between the company and related parties and outstanding balances as at the year end:

Notes:

1. The above cash flow statement has been prepared under the Indirect Method as set out in the Accounting Standard - 3 on Cash Flow Statements, notified under sub-section (3C) of Section 211 of the Companies Act, 1956.

2. Cash and Cash Equivalents - Closing Balance include balances aggregating to Rs. 12,280(000) [Previous year Rs. 11,655(000)] with scheduled banks on current accounts in respect of unpaid dividend, which are not available for use by the company

3. Previous year figures have been regrouped where necessary.

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