Mar 31, 2023
1.1 DESCRIPTION OF THE COMPANY
Dr. Reddyâs Laboratories Limited (âDr. Reddyâsâ or âthe Companyâ) is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products - the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (âAPIsâ), generics, biosimilars and differentiated formulations.
The Companyâs principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India and its principal markets are in India, Russia, the United States, the United Kingdom and Germany. The Companyâs shares trade on the Bombay Stock Exchange, the National Stock Exchange, the NSE IFSC Limited in India and on the New York Stock Exchange in the United States.
1.2 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
a) Statement of compliance
These financial statements as of and for the year ended 31 March 2023 comply in all material aspects with the Indian Accounting Standards (âInd ASâ) notified under the Companies (Indian Accounting Standards) Rules, 2015, and presentation requirements of Division II of Schedule III to the Companies Act, 2013, and as amended from time to time together with the comparative period data as at and for the year ended 31 March 2022.
These financial statements have been prepared by the Company as a going concern on the basis of relevant Ind AS that are effective or elected for early adoption at the Companyâs annual reporting date, 31 March 2023. These financial statements were authorised for issuance by the Companyâs Board of Directors on 10 May 2023.
b) Basis of measurement
These financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:
⢠derivative financial instruments are measured at fair value;
⢠financial assets are measured either at fair value or at amortised cost depending on the classification;
⢠employee defined benefit assets/(liabilities) are recognised as the net total of the fair value of plan
assets, adjusted for actuarial gains/(losses) and the present value of the defined benefit obligation;
⢠long-term borrowings are measured at amortised cost using the effective interest rate method;
⢠share-based payments are measured at fair value;
⢠assets held for sale are measured at fair value;
⢠assets acquired and liabilities assumed as part of business combinations are measured at fair value;
⢠Contingent consideration arising out of business combination are measured at fair value; and
⢠right-of-use the assets are recognised at the present value of lease payments that are not paid at that date. This amount is adjusted for any lease payments made at or before the commencement date, lease incentives received and initial direct costs, incurred, if any.
c) Use of estimates and judgements
The preparation of financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
⢠Note 1.3 (b) â Assessment of functional currency;
⢠Note 1.3 (c) â Financial instruments;
⢠Note 1.3 (d) â Business combinations and goodwill;
⢠Notes 1.3 (e) and 1.3 (f) â Useful lives of property, plant and equipment and intangible assets;
⢠Notes 1.3(g) - Determination of cost for right-of-use assets and lease term;
⢠Note 1.3 (h) â Valuation of inventories;
⢠Note 1.3 (i) â Measurement of recoverable amounts of cash-generating units;
⢠Note 1.3 (j) â Assets and obligations relating to employee benefits;
⢠Note 1.3 (k) â Share-based payments;
⢠Note 1.3 (l) â Provisions and other accruals;
⢠Note 1.3 (m) âMeasurement of transaction price in a revenue transaction;
⢠Note 1.3 (p) â Evaluation of recoverability of deferred tax assets, and estimation of income tax payable and income tax expense in relation to uncertain tax positions; and
⢠Note 1.3 (l) â Contingencies
d) Current and non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ noncurrent classification.
All assets and liabilities have been classified as current or non-current as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS 1, Presentation of Financial Statements.
ASSETS:
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realised in, or is intended for sale or consumption in, the Companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realised within twelve months after the reporting date; or
d) it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.
LIABILITIES:
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the Companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within twelve months after the reporting date; or
d) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current assets and liabilities include the current portion of non-current assets and liabilities respectively. All other assets and liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
1.3 SIGNIFICANT ACCOUNTING POLICIES:
a) New standards adopted by the company:
Ind AS 37 - Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts - Costs of Fulfilling a Contract
The amendments specify that that the âcost of fulfillingâ a contract comprises the âcosts that relate directly to the contract. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts.
This amendment is essentially clarification and had there is no significant impact on the standalone financial statements of the company
Amendments to Ind AS 16- Property, Plant and Equipment: Proceeds before Intended Use
The amendments modified paragraph 17(e) of Ind AS 16 to clarify that excess of net sale proceeds of items produced over the cost of testing, if any, shall not be recognised in the profit or loss but deducted from the directly attributable costs considered as part of cost of an item of property, plant, and equipment.
The amendments are effective for annual reporting periods beginning on or after 1 April 2022. These amendments had no impact on the standalone financial statements of the company.
Amendments to Ind AS 103, Business Combinations: Reference to the Conceptual Framework
This amendment added an exception to the recognition principle of Ind AS 103 Business Combinations to avoid the issue of potential âday 2â gains or losses arising for liabilities and contingent liabilities that would be within the scope of Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets or Appendix C, Levies, of Ind AS 37, if incurred separately. The exception requires entities to apply the criteria in Ind AS 37 or Appendix C, Levies, of Ind AS 37, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date.
The amendments also add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date.
i n accordance with the transitional provisions, the company applies the amendments prospectively, i.e., to business combinations occurring after the beginning of the annual reporting period in which it first applies the amendments (the date of initial application).
These amendments had no impact on the standalone financial statements of the company as there were no transactions within the scope of these amendments that arose during the period.
RECENT PRONOUNCEMENTS
Ministry of Corporate Affairs (âMCAâ) notifies new standard or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On 31 March 2023, MCA amended the Companies (Indian Accounting Standards) Rules, 2015 by issuing the Companies (Indian Accounting Standards) Amendment Rules, 2023, applicable from 01 April 2023, as below:
IND AS 1 - PRESENTATION OF FINANCIAL STATEMENTS
The amendments require companies to disclose their material accounting policies rather than their significant accounting policies. Accounting policy information, together with other information, is material when it can reasonably be expected to influence decisions of primary users of general purpose financial statements. The Company does not expect this amendment to have any significant impact in its standalone financial statements.
IND AS 12 - INCOME TAXES
The amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. The amendments narrowed the scope of the recognition exemption in paragraphs 15 and 24 of Ind AS 12 (recognition exemption) so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The Company does not expect this amendment to have any significant impact in its standalone financial statements.
IND AS 8 - ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
The amendments will help entities to distinguish between accounting policies and accounting estimates. The definition of a change in accounting estimates has been replaced with a definition of accounting estimates. Under the new definition, accounting estimates are âmonetary amounts in financial statements that are subject to measurement uncertaintyâ. Entities develop accounting estimates if accounting policies require
items in financial statements to be measured in a way that involves measurement uncertainty. The Company does not expect this amendment to have any significant impact in its standalone financial statements.
b) Foreign currency
FUNCTIONAL AND PRESENTATION CURRENCY
These financial statements are presented in Indian rupees, which is the functional currency of Dr. Reddyâs Laboratories Limited. All financial information presented in Indian rupees has been rounded to the nearest million.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognised in the statement of profit and loss in the period in which they arise.
However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income (âOCIâ):
⢠certain debt instruments classified as measured at FVTOCI;
⢠certain equity instruments where the Company had made an irrevocable election to present in OCI subsequent changes in the fair value;
⢠a financial liability designated as a hedge of the net investment in a foreign operation, to the extent that the hedge is effective; and
⢠qualifying cash flow hedges, to the extent that the hedges are effective.
When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
c) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
FINANCIAL ASSETS
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (e.g., regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, in which case they are recognised at fair value. The Companyâs trade receivables do not contain any significant financing component and hence are measured at the transaction price measured under Ind AS 115 âRevenue from Contracts with Customersâ.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
⢠Debt instruments at amortised cost;
⢠Debt instruments at FVTOCI;
⢠Debt instruments, derivatives and equity instruments at FVTPL; and
⢠Equity instruments measured at FVTOCI.
DEBT INSTRUMENTS AT AMORTISED COST
A âdebt instrumentâ is measured at the amortised cost if both the following conditions are met:
a) the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (âSPPIâ) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method and are subject to impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the effective interest rate.
Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in statement of profit and loss and presented in other income. The losses arising from impairment are recognised in the statement of profit and loss. This category generally applies to trade and other receivables.
DEBT INSTRUMENT AT FVTOCI
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met:
a) the objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets; and
b) the assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the OCI. However, the Company recognises interest income, impairment losses and reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified to the statement of profit and loss. Interest earned while holding a FVTOCI debt instrument is reported as interest income using the effective interest rate method.
DEBT INSTRUMENT AT FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as an âaccounting mismatchâ).
Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
EQUITY INVESTMENTS
All equity investments within the scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination
to which Ind AS 103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made upon initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the statement of profit and loss, even on sale of investment.
However, on sale the Company may transfer the cumulative gain or loss within equity. Equity investments designated as FVTOCI are not subject to impairment assessment.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURE:
Investments in subsidiaries and joint venture are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the difference between net disposal proceeds and the carrying amounts are recognised in the statement of profit and loss.
Upon first-time adoption of Ind AS, the Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 April 2015.
DERECOGNITION
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Companyâs balance sheet) when:
⢠the rights to receive cash flows from the asset have expired; or
⢠Both (1) the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement; and (2) either (a) the Company has transferred substantially all the risks
and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Companyâs continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
IMPAIRMENT OF TRADE RECEIVABLES AND OTHER FINANCIAL ASSETS
I n accordance with Ind AS 109, the Company applies the expected credit loss (âECLâ) model for measurement and recognition of impairment loss on trade receivables or any contractual right to receive cash or another financial asset.
For this purpose, the Company follows a âsimplified approachâ for recognition of impairment loss allowance on the trade receivable balances. The application of this simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
FINANCIAL LIABILITIES
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
FINANCIAL LIABILITIES AT FVTPL
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVTPL. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition at FVTPL are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains or losses attributable to changes in own credit risk are recognised in OCI. These gains or losses are not subsequently transferred to the statement of profit and loss.
However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit and loss. The Company has not designated any financial liability as FVTPL.
LOANS AND BORROWINGS
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit and loss over the period of the borrowings using the effective interest method.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of profit and loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of profit and loss.
DERECOGNITION
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles Brazilian reals, South African rands (âZARâ), Romanian new leus (âRONâ) and Euros, and foreign currency debt in US dollars, Russian roubles, Ukrainian hryvnias and Euros.
The Company uses derivative financial instruments such as foreign exchange forward contracts, option contracts and swap contracts to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy. Derivatives are classified as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
HEDGES OF HIGHLY PROBABLE FORECASTED TRANSACTIONS
The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Companyâs hedging reserve as a component of equity and re-classified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the statement of profit and loss as finance costs immediately.
The Company also designates certain non-derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the
Company applies cash flow hedge accounting to such relationships. Remeasurement gain or loss on such non-derivative financial liabilities is recorded in the Companyâs hedging reserve as a component of equity and reclassified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in OCI, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in OCI is recognised immediately in the statement of profit and loss.
HEDGES OF RECOGNISED ASSETS AND LIABILITIES
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognised in the statement of profit and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognised in the statement of profit and loss. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the statement of profit and loss.
HEDGES OF CHANGES IN THE INTEREST RATES
Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, âshorttermâ means investments having original maturities of three months or less from the date of investment. Bank overdrafts that are repayable on demand form an integral part of the Companyâs cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
d) Business combinations and goodwill
Business combinations are accounted for using the acquisition method regardless of whether equity instruments or other assets are acquired. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive.
The Company determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.
The consideration transferred for the acquisition of a subsidiary is comprised of:
⢠fair values of the assets transferred;
⢠liabilities incurred to the former owners of the acquired business;
⢠equity interests issued by the Company;
⢠fair value of any asset or liability resulting from a contingent consideration arrangement; and
⢠fair value of any pre-existing equity interest in the subsidiary.
At the acquisition date, the identifiable assets acquired and liabilities and contingent liabilities assumed are, with limited exceptions, measured initially at their fair values.
For each business combination, the Company elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquireeâs identifiable net assets.
Acquisition-related costs are expensed as incurred.
I f the business combination is achieved in stages, the acquisition date carrying value of the acquirerâs previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognised in the statement of profit and loss.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entityâs incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Contingent consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of:
⢠the consideration transferred;
⢠the amount of any non-controlling interest in the acquired entity; and
⢠the acquisition-date fair value of any previous equity interest in the acquired entity.
over the fair value of the net identifiable assets acquired.
If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Company re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in OCI and accumulated in equity as capital reserve. However, if there is no clear evidence of bargain purchase, the entity recognises the gain directly in equity as capital reserve, without routing the same through OCI.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
e) Property, plant and equipment
RECOGNITION AND MEASUREMENT
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Capital work in progress is stated at cost, net of accumulated impairment loss, if any.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within âOther income/ Selling and other expenseâ in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognised in the statement of profit and loss as incurred.
I tems of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably
measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up.
DEPRECIATION
Depreciation is recognised in the statement of profit and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Land is not depreciated but subject to impairment.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and any changes are considered prospectively.
The estimated useful lives are as follows: |
|
Particulars |
Years |
Buildings |
|
- Factory and administrative buildings |
20 to 30 |
- Ancillary structures |
3 to 10 |
Plant and equipment |
3 to 15 |
Furniture, fixtures and office equipment |
3 to 8 |
Vehicles |
4 to 5 |
Schedule II to the Companies Act, 2013 (âScheduleâ) prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are different from those prescribed in the Schedule.
Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalised as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognised as expense as incurred. The capitalised costs are amortised over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.
Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of property, plant and equipment not ready to use before such date are disclosed under other non-current assets. Assets not ready for use are not depreciated but are tested for impairment.
f) Goodwill and other intangible assets |
|
RECOGNITION AND MEASUREMENT |
|
Goodwill represents the excess of consideration transferred, together with the amount of non-controlling interest in the acquiree, over the fair value of the Companyâs share of identifiable net assets acquired. |
|
Goodwill |
Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying value of the equity accounted investee. |
Other intangible assets |
Other intangible assets that are acquired by the Company and that have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. |
Expenditures on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are recognised in the statement of profit and loss when incurred. |
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Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalised only if |
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⢠development costs can be measured reliably; |
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Research and devel- |
⢠the product or process is technically and commercially feasible; |
opment |
⢠future economic benefits are probable and ⢠the Company intends to, and has sufficient resources to complete development and to use or sell the asset. |
The expenditures to be capitalised include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognised in the statement of profit and loss as incurred. As at 31 March 2023, none of the development expenditure amounts has met the aforesaid recognition criteria. |
Separate acquisition of intangible assets |
Payments to third parties that generally take the form of up-front payments and milestones for in-licensed products, compounds and intellectual property are capitalised. The Companyâs criteria for capitalisation of such assets are consistent with the guidance given in paragraph 25 of Indian Accounting Standard 38 (âInd AS 38â) (i.e., the receipt of economic benefits embodied in each intangible asset separately purchased or licensed in the transaction is considered to be probable). |
In-Process Research and Development assets (âIPR&Dâ) or Intangible assets under development |
Acquired research and development intangible assets that are under development are recognised as In-Process Research and Development assets (âIPR&Dâ) or Intangible assets under development. IPR&D assets are not amortised, but evaluated for potential impairment on an annual basis or when there are indications that the carrying value may not be recoverable. Any impairment charge on such IPR&D assets is recorded in the statement of profit and loss under âImpairment of non-current assetsâ. |
SUBSEQUENT EXPENDITURE |
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Other intangible assets |
Subsequent expenditures are capitalised only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, is recognised in the statement of profit and loss as incurred. |
In-Process Research and Development |
Subsequent expenditure on an IPR&D asset acquired separately or in a business combination and recognised as an intangible asset is: a) recognised as an expense when incurred, if it is a research expenditure; |
assets (âIPR&Dâ) or Intangible assets under development |
b) recognised as an expense when incurred, if it is a development expenditure that does not satisfy the criteria for recognition as an intangible asset in paragraph 57 of Ind AS 38; and c) added to the carrying amount of the acquired IPR&D asset, if it is a development expenditure that satisfies the recognition criteria in paragraph 57 of Ind AS 38. |
AMORTISATION
Amortisation is recognised in the statement of profit and loss on a straight-line basis over the estimated useful lives of intangible assets. The amortisation expense is recognised in the statement of profit and loss account in the expense category that is consistent with the function of the intangible asset. Intangible assets that are not available for use are amortised from the date they are available for use.
The estimated useful lives are as follows::
Particulars Years
Product related intangibles 3 to 25
Other intangibles 3 to 5
The amortisation period and the amortisation method for intangible assets with a finite useful life are reviewed at each reporting date. Changes in the expected useful lives or expected pattern of consumption of future economic benefits embodied in the assets are considered to modify the amortisation period or method, as appropriate and are treated as change in accounting estimate.
Goodwill, intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognised immediately in the statement of profit and loss under âImpairment of noncurrent assetsâ.
DE-RECOGNITION OF INTANGIBLE ASSETS
Intangible assets are de-recognised either on their disposal or where no future economic benefits are expected from their use. Losses arising on such de-recognition are recorded in the statement of profit and loss, and are measured as the difference between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as at the date of de-recognition.
The Company assesses at contract inception whether a contract is or contains a lease, which applies if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. The Company recognises a right-of-use asset at the commencement date of the lease, i.e. the date the underlying asset is available for use. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments to be made over the lease term:
⢠fixed payments (including in-substance fixed payments), less any lease incentives receivable
⢠variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
⢠amounts expected to be payable by the Company under residual value guarantees
⢠the exercise price of a purchase option if the Company is reasonably certain to exercise that option, and
⢠payments of penalties for terminating the lease, if the lease term reflects the Company exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Company, then the lesseeâs incremental borrowing rate is used. Such borrowing rate is calculated as the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The Companyâs lease liabilities are included in borrowings.
Lease payments are allocated between principal and interest cost. The interest cost is charged to statement of profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost less accumulated depreciation and accumulated impairment comprised of the following:
⢠the amount of the initial measurement of lease liability
⢠any lease payments made at or before the commencement date less any lease incentives received
⢠any initial direct costs, and
⢠restoration costs.
Right-of-use assets are generally depreciated over the shorter of the assetâs useful life and the lease term on a straight-line basis.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in the statement of profit and loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
The right-of-use assets are initially recognised on the balance sheet at cost, which is calculated as the amount of the initial measurement of the corresponding lease liability, adjusted for any lease payments made at or prior to the commencement date of the lease, any lease incentive received and any initial direct costs incurred by the Company.
I nventories are valued at the lower of cost and net realisable value.
Inventories consist of raw materials, stores and spares, work-in-progress and finished goods and are measured at the lower of cost and net realisable value.
The cost of all categories of inventories is based on the weighted average method.
Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
I n the case of finished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The factors that the Company considers in determining the provision for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Companyâs business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
NON-FINANCIAL ASSETS
The carrying amounts of the Companyâs non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assetâs recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, an impairment test is performed each year at 31 March.
The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset or the cashgenerating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the âcash-generating unitâ).
The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cashgenerating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised in the statement of profit and loss if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assetâs carrying amount does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Goodwill that forms part of the carrying amount of an investment in joint venture is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in joint venture is tested for impairment as a single asset when there is objective evidence that the investment in joint venture may be impaired.
SHORT-TERM EMPLOYEE BENEFITS
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
DEFINED CONTRIBUTION PLANS
The Companyâs contributions to defined contribution plans are charged to the statement of profit and loss as and when the services are received from the employees.
DEFINED BENEFIT PLANS
The liability in respect of defined benefit plans and other post-employment benefits is calculated using the projected unit credit method consistent with the advice of qualified actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the r
Mar 31, 2022
NOTE 1 DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
1.1 DESCRIPTION OF THE COMPANY
Dr. Reddyâs Laboratories Limited (âDr. Reddyâsâ or âthe Companyâ) is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products - the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (âAPIsâ), Custom Pharmaceutical Services (âCPSâ), generics, biosimilars and differentiated formulations.
The Companyâs principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India and its principal markets are in India, Russia, the United States, the United Kingdom and Germany. The Companyâs shares trade on the Bombay Stock Exchange, the National Stock Exchange, the NSE IFSC Limited in India and on the New York Stock Exchange in the United States.
1.2 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
a) Statement of compliance
These financial statements as of and for the year ended 31 March 2022 comply in all material aspects with the Indian Accounting Standards (âInd ASâ) notified under the Companies (Indian Accounting Standards) Rules, 2015, and presentation requirements of Division II of Schedule III to the Companies Act, 2013, and as amended from time to time together with the comparative period data as at and for the year ended 31 March 2021.
These financial statements have been prepared by the Company as a going concern on the basis of relevant Ind AS that are effective or elected for early adoption at the Companyâs annual reporting date, 31 March 2022. These financial statements were authorised for issuance by the Companyâs Board of Directors on 19 May 2022.
b) Basis of measurement
These financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:
⢠derivative financial instruments are measured at fair value;
⢠financial assets are measured either at fair value or at amortised cost depending on the classification;
⢠employee defined benefit assets/(liabilities) are recognised as the net total of the fair value of plan assets, adjusted for actuarial gains/(losses) and the present value of the defined benefit obligation;
⢠long-term borrowings are measured at amortised cost using the effective interest rate method;
⢠share-based payments are measured at fair value;
⢠assets held for sale are measured at fair value;
⢠assets acquired and liabilities assumed as part of business combinations are measured at fair value;
⢠Contingent consideration arising out of business combination are measured at fair value; and
⢠right-of-use the assets are recognised at the present value of lease payments that are not paid at that date. This amount is adjusted for any lease payments made at or before the commencement date, lease incentives received and initial direct costs, incurred, if any.
c) Use of estimates and judgements
The preparation of financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
⢠Note 1.3 (b) â Assessment of functional currency;
⢠Note 1.3 (c) â Financial instruments;
⢠Note 1.3 (d) â Business combinations and goodwill;
⢠Notes 1.3 (e) and 1.3 (f) â Useful lives of property, plant and equipment and intangible assets;
⢠Notes 1.3(g) - Determination of cost for right-of-use assets and lease term;
⢠Note 1.3 (h) â Valuation of inventories;
⢠Note 1.3 (i) â Measurement of recoverable amounts of cash-generating units;
⢠Note 1.3 (j) â Assets and obligations relating to employee benefits;
⢠Note 1.3 (k) â Share-based payments;
⢠Note 1.3 (l) â Provisions and other accruals;
⢠Note 1.3 (m) âMeasurement of transaction price in a revenue transaction (sales returns, rebates and chargeback provisions);
⢠Note 1.3 (p) â Evaluation of recoverability of deferred tax assets, and estimation of income tax payable and income tax expense in relation to uncertain tax positions; and
⢠Note 1.3 (l) â Contingencies
d) Current and non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.
All assets and liabilities have been classified as current or non-current as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS 1, Presentation of Financial Statements.
Assets:
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realised in, or is intended for sale or consumption in, the Companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realised within twelve months after the reporting date; or
d) it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.
Liabilities:
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the Companyâs normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within twelve months after the reporting date; or
d) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current assets and liabilities include the current portion of non-current assets and liabilities respectively. All other assets and liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
Prior period amounts have been reclassified to conform to the current year classification.
On 24 July 2020, the Ministry of Corporate Affairs (MCA) has issued amendments to certain Ind AS as summarised below:
Amendments to Ind AS 1 and Ind AS 8: Definition of Material
The amendments provided a new definition to the word material as follows:
âInformation is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.â
The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users.
An information is considered to be obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The amendments provided examples of circumstances that may result in information being obscured.
An entity should apply the amendments prospectively for annual periods beginning on or after 1 April 2020.
The amendments to the definition of material had no impact on the financial statements of the Company.
Amendments to Ind AS 103: Definition of a Business
The amendments clarified the definition of a business for the purpose of identifying a business combination under Ind AS 103-âBusiness Combinationsâ. As per the revised definition, business is âan integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activitiesâ.
A related amendment has been made to the definition of âoutputâ as an element of business.
The amendments include an election to use a âconcentration testâ. This is a simplified assessment that would cause in an acquisition to qualify as an asset acquisition. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.
An entity is required to apply the amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after the 1 April 2020 and to asset acquisitions that occur on or after the beginning of that period.
This amendment had no impact on the financial statements of the Company but may impact future periods should the Company enter into any business combinations.
The amendments to Ind AS 109 âFinancial Instruments" provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument.
The amendments to Ind AS 107 âFinancial Instruments: Disclosuresâ prescribe the disclosures which entities are required to make for hedging relationships to which the reliefs as per the amendments in Ind AS 109 are applied.
These amendments are applicable for annual periods beginning on or after the 1 April 2020.
These amendments had no impact on the financial statements of the Company as it does not have any interest rate hedge relationships.
Amendments Ind AS 116: COVID-19 related rent concessions
Ind AS 116 has been amended to provide limited relief to lessees in respect of rent concessions arising due to COVID-19 pandemic. No relief has been allowed to the lessors.
The amendments provide a practical expedient that lessees may elect to not treat any rent concessions, provided by lessors as a direct consequence of COVID-19 pandemic, as lease modifications. However, to be eligible for this relief:
⢠the revised consideration for the lease should be less than or equal to the lease consideration immediately before the change, the rent concession should be for a period that does not extend beyond 30 June 2021
(for example, lease rents are reduced for a period upto 30 June 2021 and increased for periods thereafter); and
⢠there should be no substantial modification to the other terms and conditions of the lease.
Lessee should apply the amendments for annual reporting periods beginning on or after 1 April 2020. In case a lessee has not yet approved the financial statements for issue before the issuance of the amendments, then the same may be applied for annual reporting periods beginning on or after the 1 April 2019.
The aforesaid amendments had no impact on the financial statements of the Company.
These financial statements are presented in Indian rupees, which is the functional currency of Dr. Reddyâs Laboratories Limited. All financial information presented in Indian rupees has been rounded to the nearest million.
Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognised in the statement of profit and loss in the period in which they arise.
However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income (âOCIâ):
⢠certain debt instruments classified as measured at FVTOCI;
⢠certain equity instruments where the Company had made an irrevocable election to present in OCI subsequent changes in the fair value;
⢠a financial liability designated as a hedge of the net investment in a foreign operation, to the extent that the hedge is effective; and
⢠qualifying cash flow hedges, to the extent that the hedges are effective.
When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (e.g., regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, in which case they are recognised at fair value. The Companyâs trade receivables do not contain any significant financing component and hence are measured at the transaction price measured under Ind AS 115 âRevenue from Contracts with Customersâ.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
⢠Debt instruments at amortised cost;
⢠Debt instruments at FVTOCI;
⢠Debt instruments, derivatives and equity instruments at FVTPL; and
⢠Equity instruments measured at FVTOCI.
A âdebt instrumentâ is measured at the amortised cost if both the following conditions are met:
a) the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (âSPPIâ) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method and are subject to impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate.
Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in statement of profit and loss and presented in other income. The losses arising from impairment are recognised in the statement of profit and loss. This category generally applies to trade and other receivables.
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met:
a) the objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets; and
b) the assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the OCI. However, the Company recognises interest income, impairment losses and reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified to the statement of profit and loss. Interest earned while holding a FVTOCI debt instrument is reported as interest income using the effective interest rate method.
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as an âaccounting mismatchâ).
Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
All equity investments within the scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made upon initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the statement of profit and loss, even on sale of investment.
However, on sale the Company may transfer the cumulative gain or loss within equity. Equity investments designated as FVTOCI are not subject to impairment assessment.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
Investments in subsidiaries and joint venture are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the difference between net disposal proceeds and the carrying amounts are recognised in the statement of profit and loss.
Upon first-time adoption of Ind AS, the Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 April 2015.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Companyâs balance sheet) when:
⢠the rights to receive cash flows from the asset have expired; or
⢠Both (1) the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ
arrangements and (2) either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Companyâs continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
In accordance with Ind AS 109, the Company applies the expected credit loss (âECLâ) model for measurement and recognition of impairment loss on trade receivables or any contractual right to receive cash or another financial asset.
For this purpose, the Company follows a âsimplified approachâ for recognition of impairment loss allowance on the trade receivable balances. The application of this simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVTPL. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition at FVTPL are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains or losses attributable to changes in own credit risk are recognised in OCI. These gains or losses are not subsequently transferred to the statement of profit and loss.
However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit and loss. The Company has not designated any financial liability as FVTPL.
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit and loss over the period of the borrowings using the effective interest method.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of profit and loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of profit and loss.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles Brazilian reals, South African rands (âZARâ), Romanian new leus (âRONâ) and Euros, and foreign currency debt in US dollars, Russian roubles, Ukrainian hryvnias and Euros.
The Company uses derivative financial instruments such as foreign exchange forward contracts, option contracts and swap contracts to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy. Derivatives are classified as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Companyâs hedging reserve as a component of equity and re-classified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the statement of profit and loss as finance costs immediately.
The Company also designates certain non-derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash flow hedge accounting to such relationships. Remeasurement gain or loss on such non-derivative financial liabilities is recorded in the Companyâs hedging reserve as a component of equity and reclassified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in OCI, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in OCI is recognised immediately in the statement of profit and loss.
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognised in the statement of profit and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognised in the statement of profit and loss. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the statement of profit and loss.
Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, âshort-termâ means investments having original maturities of three months or less from the date of investment. Bank overdrafts that are repayable on demand form an integral part of the Companyâs cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Business combinations are accounted for using the acquisition method regardless of whether equity instruments or other assets are acquired. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive.
The Company determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organized workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.
The consideration transferred for the acquisition of a subsidiary is comprised of:
⢠fair values of the assets transferred;
⢠liabilities incurred to the former owners of the acquired business;
⢠equity interests issued by the Company;
⢠fair value of any asset or liability resulting from a contingent consideration arrangement; and
⢠fair value of any pre-existing equity interest in the subsidiary.
At the acquisition date, the identifiable assets acquired and liabilities and contingent liabilities assumed are, with limited exceptions, measured initially at their fair values.
For each business combination, the Company elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquireeâs identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirerâs previously held equity interest in the acquiree is re-measured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognised in the statement of profit and loss.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entityâs incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Contingent consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Amounts classified as a financial liability are subsequently re-measured to fair value, with changes in fair value recognised in the statement of profit and loss.
⢠the consideration transferred;
⢠the amount of any non-controlling interest in the acquired entity; and
⢠the acquisition-date fair value of any previous equity interest in the acquired entity.
over the fair value of the net identifiable assets acquired.
If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Company re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in OCI and accumulated in equity as capital reserve. However, if there is no clear evidence of bargain purchase, the entity recognises the gain directly in equity as capital reserve, without routing the same through OCI.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Groupâs cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Capital work in progress is stated at cost, net of accumulated impairment loss, if any.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within âOther income/ Selling and other expenseâ in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognised in the statement of profit and loss as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up.
Depreciation
Depreciation is recognised in the statement of profit and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Land is not depreciated but subject to impairment.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and any changes are considered prospectively.
The estimated useful lives are as follows:
Particulars |
Years |
Buildings |
|
- Factory and administrative buildings |
20 to 30 |
- Ancillary structures |
3 to 10 |
Plant and equipment |
3 to 15 |
Furniture, fixtures and office equipment |
3 to 8 |
Vehicles |
4 to 5 |
Schedule II to the Companies Act, 2013 (âScheduleâ) prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are different from those prescribed in the Schedule.
Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalised as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognised as expense as incurred. The capitalised costs are amortised over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.
Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of property, plant and equipment not ready to use before such date are disclosed under other non-current assets. Assets not ready for use are not depreciated but are tested for impairment.
f) Goodwill and other intangible assets Recognition and measurement |
|
Goodwill |
Goodwill represents the excess of consideration transferred, together with the amount of noncontrolling interest in the acquiree, over the fair value of the Company''s share of identifiable net assets acquired. Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying value of the equity accounted investee. |
Other intangible assets |
Other intangible assets that are acquired by the Company and that have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. |
Research and development |
Expenditures on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are recognised in the statement of profit and loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalised only if ⢠development costs can be measured reliably; ⢠the product or process is technically and commercially feasible; ⢠future economic benefits are probable and ⢠the Company intends to, and has sufficient resources to complete development and to use or sell the asset. The expenditures to be capitalised include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognised in the statement of profit and loss as incurred. As at 31 March 2022, none of the development expenditure amounts has met the aforesaid recognition criteria. |
Separate acquisition of intangible |
Payments to third parties that generally take the form of up-front payments and milestones for in- |
assets |
licensed products, compounds and intellectual property are capitalised. The Company''s criteria for capitalisation of such assets are consistent with the guidance given in paragraph 25 of Indian Accounting Standard 38 (âInd AS 38â) (i.e., the receipt of economic benefits embodied in each intangible asset separately purchased or licensed in the transaction is considered to be probable). |
In-Process Research and |
Acquired research and development intangible assets that are under development are recognised |
Development assets (âIPR&Dâ) |
as In-Process Research and Development assets (âIPR&Dâ) or Intangible assets under development. |
or Intangible assets under |
IPR&D assets are not amortised, but evaluated for potential impairment on an annual basis or when |
development |
there are indications that the carrying value may not be recoverable. Any impairment charge on such IPR&D assets is recorded in the statement of profit and loss under âImpairment of non-current assetsâ. |
Subsequent expenditure |
|||
Other intangible assets |
Subsequent expenditures are capitalised only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, is recognised in the statement of profit and loss as incurred. |
||
In-Process Development or Intangible development |
Research and assets (âIPR&Dâ) assets under |
Subsequent expenditure on an IPR&D asset acquired separately or in a business combination and recognised as an intangible asset is: a) recognised as an expense when incurred, if it is a research expenditure; |
|
b) |
recognised as an expense when incurred, if it is a development expenditure that does not satisfy the criteria for recognition as an intangible asset in paragraph 57 of Ind AS 38; and |
||
c) |
added to the carrying amount of the acquired IPR&D asset, if it is a development expenditure that satisfies the recognition criteria in paragraph 57 of Ind AS 38. |
Amortisation is recognised in the statement of profit and loss on a straight-line basis over the estimated useful lives of intangible assets. The amortisation expense is recognised in the statement of profit and loss account in the expense category that is consistent with the function of the intangible asset. Intangible assets that are not available for use are amortised from the date they are available for use.
Particulars |
Years |
Product related intangibles |
3 to 15 |
Other intangibles |
3 to 5 |
The amortisation period and the amortisation method for intangible assets with a finite useful life are reviewed at each reporting date. Changes in the expected useful lives or expected pattern of consumption of future economic benefits embodied in the assets are considered to modify the amortization period or method, as appropriate and are treated as change in accounting estimate.
Goodwill, intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognised immediately in the statement of profit and loss under âImpairment of non-current assetsâ.
Intangible assets are derecognised either on their disposal or where no future economic benefits are expected from their use. Losses arising on such derecognition are recorded in the statement of profit and loss, and are measured as the difference between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as at the date of derecognition.
The Company assesses at contract inception whether a contract is or contains a lease, which applies if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. The Company recognises a right-of-use asset at the commencement date of the lease, i.e. the date the underlying asset is available for use. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments to be made over the lease term:
⢠fixed payments (including in-substance fixed payments), less any lease incentives receivable
⢠variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
⢠amounts expected to be payable by the Company under residual value guarantees
⢠the exercise price of a purchase option if the Company is reasonably certain to exercise that option, and
⢠payments of penalties for terminating the lease, if the lease term reflects the Company exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Company, then the lesseeâs incremental borrowing rate is used. Such borrowing rate is calculated as the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The Companyâs lease liabilities are included in borrowings.
Lease payments are allocated between principal and interest cost. The interest cost is charged to statement of profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost less accumulated depreciation and accumulated impairment comprised of the following:
⢠the amount of the initial measurement of lease liability
⢠any lease payments made at or before the commencement date less any lease incentives received
⢠any initial direct costs, and
⢠restoration costs.
Right-of-use assets are generally depreciated over the shorter of the assetâs useful life and the lease term on a straight-line basis.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in the statement of profit and loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
The right-of-use assets are initially recognised on the balance sheet at cost, which is calculated as the amount of the initial measurement of the corresponding lease liability, adjusted for any lease payments made at or prior to the commencement date of the lease, any lease incentive received and any initial direct costs incurred by the Company.
Inventories are valued at the lower of cost and net realisable value.
Inventories consist of raw materials, stores and spares, work-in-progress and finished goods and are measured at the lower of cost and net realisable value.
The cost of all categories of inventories is based on the weighted average method.
Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
In the case of finished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The factors that the Company considers in determining the provision for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Companyâs business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
The carrying amounts of the Companyâs non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assetâs recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, an impairment test is performed each year at 31 March.
The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the âcash-generating unitâ).
The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised in the statement of profit and loss if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not rever
Mar 31, 2021
1.1 DESCRIPTION OF THE COMPANY
Dr. Reddyâs Laboratories Limited (âDr. Reddyâsâ or âthe Companyâ) is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products - the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (âAPIsâ), Custom Pharmaceutical Services (âCPSâ), generics, biosimilars and differentiated formulations.
The Companyâs principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India; and its principal markets are in India, Russia, the United States, the United Kingdom and Germany. The Company''s shares trade on the Bombay Stock Exchange, the National Stock Exchange, the NSE IFSC Limited in India and on the New York Stock Exchange in the United States.
1.2 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
a) Statement of compliance
These financial statements as of and for the year ended 31 March 2021 comply in all material aspects with the Indian Accounting Standards ("Ind AS") notified under the Companies (Indian Accounting Standards) Rules, 2015, and presentation requirements of Division II of Schedule III to the Companies Act, 2013, and as amended from time to time together with the comparative period data as at and for the year ended 31 March 2020.
These financial statements have been prepared by the Company as a going concern on the basis of relevant Ind AS that are effective or elected for early adoption at the Companyâs annual reporting date, 31 March 2021. These financial statements were authorised for issuance by the Companyâs Board of Directors on 14 May 2021.
b) Basis of measurement
These financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:
⢠derivative financial instruments are measured at fair value;
⢠financial assets are measured either at fair value or at amortised cost depending on the classification;
⢠employee defined benefit assets/(liabilities) are recognised as the net total of the fair value of plan assets, adjusted for actuarial gains/(losses) and the present value of the defined benefit obligation;
⢠long-term borrowings are measured at amortised cost using the effective interest rate method;
⢠share-based payments are measured at fair value;
⢠assets held for sale are measured at fair value;
⢠assets acquired and liabilities assumed as part of business combinations are measured at fair value; and
⢠right-of-use the assets are recognised at the present value of lease payments that are not paid at that date. This amount is adjusted for any lease payments made at or before the commencement date, lease incentives received and initial direct costs, incurred, if any.
c) Functional and presentation currency
These financial statements are presented in Indian rupees, which is the functional currency of Dr. Reddyâs Laboratories Limited. All financial information presented in Indian rupees has been rounded to the nearest million.
d) Use of estimates and judgements
The preparation of financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
⢠Note 1.2 (c) â Assessment of functional currency;
⢠Note 1.3 (c) â Financial instruments;
⢠Note 1.3 (d) â Business combinations;
⢠Notes 1.3 (e) and 1.3 (f) â Useful lives of property, plant and equipment and intangible assets;
⢠Notes 1.3(g) â Determinationof cost for right-of-use assets and lease term;
⢠Note 1.3 (h) â Valuation of inventories;
⢠Note 1.3 (i) â Measurement of recoverable amounts of cash-generating units;
⢠Note 1.3 (j) â Assets and obligations relating to employee benefits;
⢠Note 1.3 (j) â Share-based payments;
⢠Note 1.3 (k) â Provisions and other accruals;
⢠Note 1.3 (l) âMeasurement of transaction price in a revenue transaction (sales returns, rebates and chargeback provisions);
⢠Note 1.3 (n) â Evaluation of recoverability of deferred tax assets, and estimation of income tax payable and income tax expense in relation to an uncertain tax position; and
⢠Note 1.3 (k) â Contingencies
All assets and liabilities have been classified as current or non-current as per the Companyâs normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS1, Presentation of Financial Statements.
Assets:
An asset is classified as current when it satisfies any of the following criteria:
⢠it is expected to be realised in, oris intended for sale or consumption in, the Companyâs normal operating cycle;
⢠it is held primarily forthe purposeof being traded;
⢠it is expected to be realised within twelve months after the reporting date; or
⢠it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.
Liabilities:
A liability is classified as current when it satisfies any of the following criteria:
⢠it is expected to be settled in the Companyâs normal operating cycle;
⢠it is held primarily forthe purposeof being traded;
⢠it is due to be settled within twelve months after the reporting date; or
⢠the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current assets and liabilities include the current portion of non-current assets and liabilities respectively. All other assets and liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current.
f) Prior period
Prior period amounts have been reclassified to conform to the current year classification.
1.3 SIGNIFICANT ACCOUNTING POLICIES
a) New Standards adopted by the Company
On 24 July 2020, the Ministry of Corporate Affairs (MCA) has issued amendments to certain Ind AS as summarised below:
The amendments provided a new definition to the word material as follows:
âInformation is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. â
The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users.
An information is considered to be obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The amendments provided examples of circumstances that may result in information being obscured.
An entity should apply the amendments prospectively for annual periods beginning on or after 1 April 2020.
The amendments to the definition of material had no impact on the financial statements of the Company.
The amendments clarified the definition of a business for the purposeof identifying a business combination under Ind AS 103. As per the revised definition, business isâan integrated set of activities and assets that is capable of being conducted and managed forthe purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activitiesâ.
A related amendment has been made to the definition ofâoutputâas an element of business.
The amendments include an election to use a âconcentration testâ. This is a simplified assessment that would cause an acquisition to qualify as an asset acquisition. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.
An entity is required to apply the amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after the 1 April 2020 and to asset acquisitions that occur on or after the beginning of that period.
This amendment had no impact on the financial statements of the Company but may impact future periods should the Company enter into any business combinations.
The amendments to Ind AS 109 "Financial Instruments" provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or a mount of bench mark-based cash flows of the hedged item or the hedging instrument.
The amendments to Ind AS 107 "Financial Instruments: Disclosures" prescribe the disclosures which entities are required to make for hedging relationships to which the reliefs as per the amendments in Ind AS 109 are applied.
These amendments are applicable for annual periods beginning on or after the 1 April 2020.
These amendments had no impact on the financial statements of the Company as it does not have any interest rate hedge relationships. Amendments Ind AS 116: COVID-19 related rent concessions
Ind AS 116 has been amended to provide limited relief to lessees in respect of rent concessions arising due to COVID-19 pandemic. No relief has been allowed to the lessors.
The amendments provide a practical expedient that lessees may elect to not treat any rent concessions, provided by lessors as a direct consequence of COVID-19 pandemic, as lease modifications. However, to be eligible for this relief:
⢠the revised consideration for the lease should be less than or equal to the lease consideration immediately before the change, the rent concession should be for a period that does not extend beyond 30 June 2021 (for example, lease rents are reduced for a period upto 30 June 2021 and increased for periods thereafter); and
⢠there should be no substantial modification to the other terms and conditions of the lease.
Lessee should apply the amendments for annual reporting periods beginning on or after 1 April 2020. In case a lessee has not yet approved the financial statements for issue before the issuance of the amendments, then the same may be applied for annual reporting periods beginning on or after the 1 April 2019.
The aforesaid amendments had no impact on the financial statements of the Company.
Ind AS 116, âLeasesâ
On 30 March 2019, the Ministry of Corporate Affairs (MCA) notified Ind AS 116, Leases as part of the Companies (Indian Accounting Standards (Ind AS)) Amendment Rules, 2019. Ind AS 116 replaces existing standard on leases i.e. Ind AS 17, Leases with effect from accounting periods beginning on or after 1 April 2019.
The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the distinction between operating and finance leases is retained.
Impact of the implementation of Ind AS 116 on the Company:
The Company adopted Ind AS 116 effective as of 01 April 2019. Ind AS 116, âLeasesâ changed the financial statements of the Company as the majority of leases for which the Company is the lessee became on-balance sheet liabilities with corresponding right-of-use assets also recognised on the Balance sheet. The lease liability reflects the net present value of the remaining lease payments adjusted for payments made before the commencement date, lease incentives and other items related to the lease agreement, and the right-of-use asset corresponds to the lease liability.
Upon adoption of the new standard, a portion of the annual operating lease costs, which was previously fully recognised as a rental / lease expense, is recorded as interest expense. In addition, the portion of the lease payments which represents the reduction of the lease liability is recognised in the statement of cash flows as an outflow from financing activities, which was previously fully recognised as an outflow from operating activities.
The Company implemented the new standard on 1 April 2019, and applied the modified retrospective method, with right-of-use assets measured at an amount equal to the lease liability, adjusted by the amount of the prepaid or accrued lease payments relating to those leases recognised in the balance sheet immediately before the date of initial application and will not restate prior years.
The Company elected to use the transition practical expedient that allows the standard to be applied only to contracts previously identified under Ind AS 17, âLeasesâ and the contracts assessed using the guidance available under Appendix - C to Ind AS 17, âDetermining Whether an Arrangement Contains a Leaseâ.
The Company also elected to use the recognition exemption for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (âshort-term leasesâ) and lease contracts for which the underlying asset is of low value (âlow value assetsâ).
On 1 April 2019, the Company recognised lease liabilities of ? 332 (presented as part of borrowings) and right-of-use assets of ? 332 (presented as part of Property, plant and equipment).
Consequently, the Company has recognised an amount of ? 173 in depreciation expense and ? 60 in finance costs for the year ended 31 March 2020.
Adoption of the new standard had no impact upon leases for which the Company is a lessor.
Appendix C to Ind AS 12, âUncertainty over Income Tax Treatmentsâ
On 30 March 2019, the Ministry of Corporate Affairs (MCA) made certain amendments to Ind AS 12, Income taxes by including Appendix C, Uncertainty over Income Tax Treatments. This appendix clarifies how the recognition and measurement requirements of Ind AS 12 are applied where there is uncertainty over income tax treatments. It does not apply to taxes or levies outside the scope of Ind AS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments.
Appendix C explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the applicable tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under applicable tax law. The interpretation provides specific guidance in several areas where previously Ind AS 12 was silent. Appendix C applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.
The Company applied the interpretation effective 1 April 2019 using the modified retrospective approach. The adoption of Appendix C did not have any material impact on the financial statements of the Company.
b) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognised in the statement of profit and loss in the period in which they arise.
However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income (âOCIâ):
⢠certain debt instruments classified as measured at FVTOCI;
⢠certain equity instruments where the Company had made an irrevocable election to present in OCI subsequent changes in the fair value;
⢠a financial liability designated as a hedge of the net investment in a foreign operation, to the extent that the hedge is effective; and
⢠qualifying cash flow hedges, to the extent that the hedges are effective.
When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
c) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (e.g., regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, in which case they are recognised at fair value. The Companyâs trade receivables do not contain any significant financing component and hence are measured at the transaction price measured under Ind AS 115 "Revenue from Contracts with Customers".
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
⢠Debt instruments at amortised cost;
⢠Debt instruments at FVTOCI;
⢠Debt instruments, derivatives and equity instruments at FVTPL; and
⢠Equity instruments measured at fair value through FVTOCI.
Debt instruments at amortised cost
A ''''debt instrument" is measured at the amortised cost if both the following conditions are met:
⢠the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
⢠contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method and are subject to impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate.
Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in statement of profit and loss and presented in other gains/(losses). The losses arising from impairment are recognised in the statement of profit and loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A ''''debt instrument" is classified as at the FVTOCI if both of the following criteria are met:
a) the objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets; and
b) the assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the OCI. However, the Company recognises interest income, impairment losses and reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified to the statement of profit and loss. Interest earned while holding a FVTOCI debt instrument is reported as interest income using the effective interest rate method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as an "accounting mismatch").
Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss. Equity investments
All equity investments within the scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI subsequent changes in the fair value. The Company makes such election on an instrument by-instrument basis. The classification is made upon initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the statement of profit and loss, even on sale of investment. However, on sale the Company may transfer the cumulative gain or loss within equity. Equity investments designated as FVTOCI are not subject to impairment assessment.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
Investments in subsidiaries and joint venture:
Investments in subsidiaries and joint venture are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the difference between net disposal proceeds and the carrying amounts are recognised in the statement of profit and loss.
Upon first-time adoption of Ind AS, the Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 April 2015.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Companyâs balance sheet) when:
⢠the rights to receive cash flows from the asset have expired; or
⢠Both (1) the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and (2) either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Companyâs continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of trade receivables and other financial assets
In accordance with Ind AS 109, the Company applies the expected credit loss (ECL) model for measurement and recognition of impairment loss on trade receivables or any contractual right to receive cash or another financial asset.
For this purpose, the Company follows a "simplified approach" for recognition of impairment loss allowance on the trade receivable balances. The application of this simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVTPL. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition at FVTPL are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains or losses attributable to changes in own credit risk are recognised in OCI. These gains or losses are not subsequently transferred to the statement of profit and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit and loss. The Company has not designated any financial liability as FVTPL.
Loans and borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit and loss over the period of the borrowings using the effective interest method.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of profit and loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
Derivative financial instruments
The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles Brazilian reals, South African rands (âZARâ), Romanian new leus (âRONâ) and Euros, and foreign currency debt in US dollars, Russian roubles, Ukrainian hryvnias and Euros.
The Company uses derivative financial instruments such as foreign exchange forward contracts, option contracts and swap contracts to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy. Derivatives are classified as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Hedges of highly probable forecasted transactions
The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Companyâs hedging reserve as a component of equity and re-classified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the statement of profit and loss as finance costs immediately.
The Company also designates certain non-derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash flow hedge accounting to such relationships. Remeasurement gain or loss on such non-derivative financial liabilities is recorded in the Companyâs hedging reserve as a component of equity and reclassified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in OCI, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in OCI is recognised immediately in the statement of profit and loss.
Hedges of recognised assets and liabilities
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognised in the statement of profit and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognised in the statement of profit and loss. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the statement of profit and loss.
Hedges of changes in the interest rates
Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates.
The Company does not use them for trading or speculative purposes.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, âshort-termâ means investments having original maturities of three months or less from the date of investment. Bank overdrafts that are repayable on demand form an integral part of the Companyâs cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
d) Business combinations
The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive.
The Company determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organized workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.
The consideration transferred for the acquisition of a subsidiary comprises the:
⢠fair values of the assets transferred;
⢠liabilities incurred to the former owners of the acquired business;
⢠equity interests issued by the Company;
⢠fair value of any asset or liability resulting from a contingent consideration arrangement; and
⢠fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Company recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interestâs proportionate share of the acquired entityâs net identifiable assets. Acquisition-related costs are expensed as incurred.
The excess of the sum of:
⢠the consideration transferred
⢠the amount of any non-controlling interest in the acquired entity; and
⢠the acquisition-date fair value of any previous equity interest in the acquired entity.
over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the statement of profit and loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entityâs incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Contingent consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Amounts classified as a financial liability are subsequently re-measured to fair value, with changes in fair value recognized in the statement of profit and loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer''s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognized in the statement of profit and loss.
e) Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use. Borrowing costs that are directly attributable to the construction or production of a qualifying asset are capitalised as part of the cost of that asset.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within âOther income/ Selling and other expense, netâ in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognised in the statement of profit and loss as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up.
Depreciation
Depreciation is recognised in the statement of profit and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Land is not depreciated but subject to impairment.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and any changes are considered prospectively. The estimated useful lives are as follows:
PARTICULARS |
YEARS |
Buildings |
|
-Factory and administrative buildings |
20 to 30 |
-Ancillary structures |
3 to 10 |
Plant and equipment |
5 to 10 |
Furniture, fixtures and office equipment |
3 to 8 |
Vehicles |
4 to 5 |
Schedule II to the Companies Act, 2013 (âScheduleâ) prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are different from those prescribed in the Schedule.
Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalised as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognised as expense as incurred. The capitalised costs are amortised over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.
Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of property, plant and equipment not ready to use before such date are disclosed under other non-current assets. Assets not ready for use are not depreciated but are tested for impairment.
f) Goodwill and other intangible assets
Recognition and measurement
Goodwill |
Goodwill represents the excess of consideration transferred, together with the amount of non-controlling interest in the acquiree, over the fair value of the Companyâs share of identifiable net assets acquired. Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying value of the equity accounted investee. |
Other intangible assets |
Other intangible assets that are acquired by the Company and that have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. |
Research and development |
Expenditures on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are recognised in the statement of profit and loss when incurred. |
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalised only if ⢠development costs can be measured reliably; ⢠the product or process is technically and commercially feasible; ⢠future economic benefits are probable and ⢠the Company intends to, and has sufficient resources to complete development and to use or sell the asset. |
|
The expenditures to be capitalised include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognised in the statement of profit and loss as incurred. As of 31 March 2021, none of the development expenditure amounts has met the aforesaid recognition criteria. |
|
Separate acquisition of intangible assets |
Payments to third parties that generally take the form of up-front payments and milestones for in-licensed products, compounds and intellectual property are capitalised. The Companyâs criteria for capitalisation of such assets are consistent with the guidance given in paragraph 25 of Indian Accounting Standard 38 (âInd AS 38â) (i.e., the receipt of economic benefits embodied in each intangible asset separately purchased or licensed in the transaction is considered to be probable). |
In-Process Research and Development assets (âIPR&Dâ) or Intangible assets under development |
Acquired research and development intangible assets that are under development are recognised as In-Process Research and Development assets (âIPR&Dâ) or Intangible assets under development. IPR&D assets are not amortised, but evaluated for potential impairment on an annual basis or when there are indications that the carrying value may not be recoverable. Any impairment charge on such IPR&D assets is recorded in the statement of profit and loss under "Impairment of non-current assets". |
Subsequent expenditure |
|
Other intangible assets |
Subsequent expenditures are capitalised only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, is recognised in the statement of profit and loss as incurred. |
In-Process Research and Development assets (âIPR&Dâ) or Intangible assets under development |
Subsequent expenditure on an IPR&D project acquired separately or in a business combination and recognised as an intangible asset is: ⢠recognised as an expense when incurred, if it is a research expenditure; ⢠recognised as an expense when incurred, if it is a development expenditure that does not satisfy the criteria for recognition as an intangible asset in paragraph 57 of Ind AS 38; and ⢠added to the carrying amount of the acquired in-process research or development project, if it is a development expenditure that satisfies the recognition criteria in paragraph 57 of Ind AS 38. |
Amortisation
Amortisation is recognised in the statement of profit and loss on a straight-line basis over the estimated useful lives of intangible assets. The amortisation expense is recognised in the statement of profit and loss account in the expense category that is consistent with the function of the intangible asset. Intangible assets that are not available for use are amortised from the date they are available for use.
The estimated useful lives are as follows:
PARTICULARS |
YEARS |
Product related intangibles |
3 to 15 |
Other intangibles |
3 to 5 |
The amortisation period and the amortisation method for intangible assets with a finite useful life are reviewed at each reporting date. Changes in the expected useful lives or expected pattern of consumption of future economic benefits embodied in the assets are considered to modify the amortization period or method, as appropriate and are treated as change in accounting estimate.
Goodwill, intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognised immediately in the statement of profit and loss under ''''Impairment of non-current assets".
De-recognition of intangible assets
Intangible assets are de-recognised either on their disposal or where no future economic benefits are expected from their use. Losses arising on such de-recognition are recorded in the statement of profit and loss, and are measured as the difference between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as at the date of de-recognition.
g) Leases
As explained in note 1.3(a) above, the Company has changed its accounting policy for leases where the Company is the lessee. The new policy is described below. Refer note 1.3(a) for the impact of the change in accounting policy.
The Company assesses at contract inception whether a contract is or contains a lease, which applies if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. The Company recognises a right-of-use asset at the commencement date of the lease, i.e. the date the underlying asset is available for use. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments to be made over the lease term:
⢠fixed payments (including in-substance fixed payments), less any lease incentives receivable
⢠variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
⢠amounts expected to be payable by the Company under residual value guarantees
⢠the exercise price of a purchase option if the Company is reasonably certain to exercise that option, and
⢠payments of penalties for terminating the lease, if the lease term reflects the Company exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Company, then the lesseeâs incremental borrowing rate is used. Such borrowing rate is calculated as the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The Companyâs lease liabilities are included in borrowings.
Lease payments are allocated between principal and interest cost. The interest cost is charged to statement of profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost less accumulated depreciation and accumulated impairment comprised of the following:
⢠the amount of the initial measurement of lease liability
⢠any lease payments made at or before the commencement date less any lease incentives received
⢠any initial direct costs, and
⢠restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset''s useful life and the lease term on a straight-line basis.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in the the statement of profit and loss.. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
The right-of-use assets are initially recognised on the balance sheet at cost, which is calculated as the amount of the initial measurement of the corresponding lease liability, adjusted for any lease payments made at or prior to the commencement date of the lease, any lease incentive received and any initial direct costs incurred by the Company.
h) Inventories
Inventories consist of raw materials, stores and spares, work-in-progress and finished goods and are measured at the lower of cost and net realisable value. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of finished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The factors that the Company considers in determining the provision for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Companyâs business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
The carrying amounts of the Companyâs non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assetâs recoverable amount is estimated. For goodwill and int
Mar 31, 2019
1.1 Significant accounting policies
a) New Standards adopted by the Company
Ind AS 115, Revenue from Contracts with Customers
In March 2018, the Ministry of Corporate Affairs (âMCAâ) has notified Ind AS 115, Revenue from Contracts with Customers, which is effective for accounting periods beginning on or after 1 April 2018. This comprehensive new standard supersedes Ind AS 18, Revenue, Ind AS 11, Construction contracts and related interpretations. The new standard amends revenue recognition requirements and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The Company adopted Ind AS 115 effective as of.1 April 2018.The impacts of the adoption of the new standard are summarised below: Revenue
The Companyâs revenue is derived from sale of goods, service income and income from licensing arrangements, each as more particularly described below. Most of such revenue (approximately 98.5%) is generated from the sale of goods.
Sale of goods
Revenue from sale of goods consists of the sale of generic and branded products and the sale of active pharmaceutical ingredients and intermediates. Revenue from sale of goods is recognised where control is transferred to the Companyâs customers at the time of shipment to or receipt of goods by the customers. There was no change in the point of recognition of revenue upon adoption of Ind AS 115.
Service income
Service income, which primarily relates to revenue from contract research, is recognised as and when the underlying services are performed. There was no change in the point of recognition of revenue upon adoption of Ind AS 115. Upfront non-refundable payments received under these arrangements continue to be deferred and are recognised over the expected period that related services are to be performed.
License fees
License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognised when control transfers to the third party and the Companyâs performance obligations are satisfied. The adoption of Ind AS 115 did not significantly change the timing or amount of revenue recognised by the Company from these arrangements, nor did it change accounting for these royalty arrangements, as the standardâs royalty exception is applied for intellectual property licenses. Upfront non-refundable payments received under these arrangements continue to be deferred and are recognised over the expected period that related services are to be performed.
Profit share revenues and milestone payments
Revenues from sale of goods also include revenues from profit sharing arrangements with business partners for sales of the Companyâs products in certain markets. Furthermore, the Company receives milestone payments related to out-licensing of the intellectual property. Under Ind AS 115, the profit share amount is recognised only to the extent that it is highly probable that a significant reversal in the amount of profit share will not occur when the uncertainty associated with the profit share is subsequently resolved. The adoption of Ind AS 115 did not significantly change the timing or amount of revenue recognised by the Company under these arrangements.
The Company applied the modified retrospective method upon adoption of Ind AS 115 on 1 April 2018. This method requires the recognition of the cumulative effect of initially applying Ind AS 115 to retained earnings and not to restate prior years.
Overall, the application of this standard did not have a material impact on the Companyâs revenue streams from the sale of goods, service income, license fees, profit share revenues and milestone payments, and associated rebates and sales returns provisions.
b) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognised in the statement of profit and loss in the period in which they arise.
However, foreign currency differences arising from the translation of the following items are recognised in other comprehensive income (âOCIâ):
- certain debt instruments classified as measured at fair value through other comprehensive income;
- certain equity instruments where the Company had made an irrevocable election to present in other comprehensive income subsequent changes in the fair value;
- a financial liability designated as a hedge of the net investment in a foreign operation, to the extent that the hedge is effective; and
- qualifying cash flow hedges, to the extent that the hedges are effective.
When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
c) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, in which case they are recognised at fair value. The Companyâs trade receivables do not contain any significant financing component and hence are measured at the transaction price measured under Ind AS 115.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
- Debt instruments at amortised cost;
- Debt instruments at fair value through other comprehensive income (FVTOCI);
- Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL); and
- Equity instruments measured at fair value through other comprehensive income (FVTOCI).
Debt instruments at amortised cost
A âdebt instrumentâ is measured at the amortised cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income in the statement of profit and loss. The losses arising from impairment are recognised in the statement of profit and loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A âdebt instrumentâ is classified as at the FVTOCI if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets; and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the other comprehensive income (OCI). However, the Company recognises interest income, impairment losses & reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified to the statement of profit and loss. Interest earned while holding FVTOCI debt instrument is reported as interest income using the effective interest rate method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation as at amortised cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as âaccounting mismatchâ).
Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
Equity investments
All equity investments within the scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument by-instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the statement of profit and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity. Equity investments designated as FVTOCI are not subject to impairment assessment.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
Investments in subsidiaries and joint venture
Investments in subsidiaries and joint venture are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the difference between net disposal proceeds and the carrying amounts are recognised in the statement of profit and loss.
Upon first-time adoption of Ind AS, the Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 April 2015.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Companyâs balance sheet) when:
- The rights to receive cash flows from the asset have expired; or
- Both (1) the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a âpass-throughâ arrangement; and (2) either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Companyâs continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of trade receivables and other financial assets
In accordance with Ind AS 109, the Company applies the expected credit loss (ECL) model for measurement and recognition of impairment loss on trade receivables or any contractual right to receive cash or another financial asset.
For this purpose, the Company follows a âsimplified approachâ for recognition of impairment loss allowance on the trade receivable balances. The application of this simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognised in OCI. These gains/ losses are not subsequently transferred to the statement of profit and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit and loss. The Company has not designated any financial liability as fair value through profit and loss.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of profit and loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss.
Derivative financial instruments
The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles Brazilian reals, South African rands (âZARâ), Romanian new leus (âRONâ) and Euros, and foreign currency debt in US dollars, Russian roubles, Ukrainian hryvnias and Euros.
The Company uses derivative financial instruments such as foreign exchange forward contracts, option contracts and swap contracts to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy.
Hedges of highly probable forecasted transactions
The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Companyâs hedging reserve as a component of equity and re-classified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the statement of profit and loss as finance costs immediately.
The Company also designates certain non-derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash flow hedge accounting to such relationships. Remeasurement gain/ loss on such non-derivative financial liabilities is recorded in the Companyâs hedging reserve as a component of equity and reclassified to the statement of profit and loss as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in the statement of profit and loss.
Hedges of recognised assets and liabilities
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognised in the statement of profit and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognised in the statement of profit and loss. If the hedged item is derecognised, the unamortised fair value is recognised immediately in the statement of profit and loss.
Hedges of changes in the interest rates
Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, âshort-termâ means investments having original maturities of three months or less from the date of investment. Bank overdrafts that are repayable on demand form an integral part of the Companyâs cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
d) Business combinations
In accordance with the provisions of Ind AS 101, First time adoption of Indian Accounting Standards, the Company has elected to apply the accounting for business combinations prospectively from transition date i.e., 1 April 2015. As such, Indian GAAP balances relating to business combinations entered into before that date, including goodwill, have been carried forward.
The Company uses the acquisition method of accounting to account for business combinations. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive. The Company measures goodwill as of the applicable acquisition date at the fair value of the consideration transferred, including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount of the identifiable assets acquired and liabilities assumed.
When the fair value of the net identifiable assets acquired and liabilities assumed exceeds the consideration transferred, a bargain purchase gain is recognised immediately in the OCI and accumulates the same in equity as capital reserve where there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase else the gain is directly recognised in equity as capital reserve. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Company to the previous owners of the acquiree, and equity interests issued by the Company. Consideration transferred also includes the fair value of any contingent consideration. Consideration transferred does not include amounts related to the settlement of pre-existing relationships. Any goodwill that arises on account of such business combination is tested annually for impairment.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and the settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recorded in the statement of profit and loss.
A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.
e) Property, plant and equipment Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use. Borrowing costs that are directly attributable to the construction or production of a qualifying asset are capitalised as part of the cost of that asset.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognised in the statement of profit and loss as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up.
Depreciation
Depreciation is recognised in the statement of profit and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
Leasehold improvements are depreciated over the period of the lease agreement or the useful life, whichever is shorter.
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
The estimated useful lives are as follows:
Schedule II to the Companies Act, 2013 (âScheduleâ) prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are different from those prescribed in the Schedule.
Software for internal use, which is primarily acquired from third-party vendof and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalised as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognised as expense as incurred. The capitalised costs are amortised over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.
Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of property, plant and equipment not ready to use before such date are disclosed as such under other non-current assets. Assets not ready for use are not depreciated but are tested for impairment.
f) Goodwill and other intangible assets Recognition and measurement
The amortisation period and the amortisation method for intangible assets with a finite useful life are reviewed at each reporting date.
Goodwill, intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognised immediately in the statement of profit and loss.
De-recognition of intangible assets
Intangible assets are de-recognised either on their disposal or where no future economic benefits are expected from their use. Losses arising on such de-recognition are recorded in the statement of profit and loss, and are measured as the difference between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as at the date of de-recognition.
g) Leases
At the inception of each lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the substance of the lease arrangement.
Finance leases
A finance lease is recognised as an asset and a liability at the commencement of the lease, at the lower of the fair value of the asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalised and, subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding lease liability.
The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Operating leases
Other leases are operating leases, and the leased assets are not recognised on the Companyâs balance sheet. Payments made under operating leases are recognised in the statement of profit and loss on a straight-line basis over the term of the lease.
Operating lease incentives received from the landlord are recognised as a reduction of rental expense on a straight line basis over the lease term.
h) Inventories
Inventories consist of raw materials, stores and spares, work-in-progress and finished goods and are measured at the lower of cost and net realisable value. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of finished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The factors that the Company considers in determining the provision for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Companyâs business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
i) Impairment of non-financial assets
The carrying amounts of the Companyâs non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assetâs recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, an impairment test is performed each year at 31 March.
The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the âcash-generating unitâ).
The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised in the statement of profit and loss if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assetâs carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Goodwill that forms part of the carrying amount of an investment in an associate is not recognised separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.
j) Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Defined contribution plans
The Companyâs contributions to defined contribution plans are charged to the statement of profit and loss as and when the services are received from the employees.
Defined benefit plans
The liability in respect of defined benefit plans and other post-employment benefits is calculated using the projected unit credit method consistent with the advice of qualified actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit obligation.
In countries where there is no deep market in such bonds, the market interest rates on government bonds are used. The current service cost of the defined benefit plan, recognised in the statement of profit and loss in employee benefit expense, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements. Past service costs are recognised immediately in the statement of profit and loss. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the statement of profit and loss. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in OCI in the period in which they arise.
When the benefits under a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in the statement of profit and loss. The Company recognises gains or losses on the settlement of a defined benefit plan obligation when the settlement occurs.
Termination benefits
Termination benefits are recognised as an expense in the statement of profit and loss when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense in the statement of profit and loss if the Company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
Other long-term employee benefits
The Companyâs net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and previous periods. That benefit is discounted to determine its present value. Re-measurements are recognised in the statement of profit and loss in the period in which they arise.
Compensated absences
The Companyâs current policies permit certain categories of its employees to accumulate and carry forward a portion of their unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof in accordance with the terms of such policies. The Company measures the expected cost of accumulating compensated absences as the additional amount that the Company incurs as a result of the unused entitlement that has accumulated at the reporting date. Such measurement is based on actuarial valuation as at the reporting date carried out by a qualified actuary.
Equity settled share-based payment transactions
The grant date fair value of options granted to employees is recognised as an employee expense, in the statement of profit and loss, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and performance conditions at the vesting date. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognised in connection with share-based payment transaction is presented as a separate component in equity under âshare-based payment reserveâ. The amount recognised as an expense is adjusted to reflect the actual number of stock options that vest.
Cash settled share-based payment transactions
The fair value of the amount payable to employees in respect of share-based payment transactions which are settled in cash is recognised as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and at the settlement date based on the fair value of the share-based payment transaction. Any changes in the liability are recognised in the statement of profit and loss.
k) Provisions
A provision is recognised in the statement of profit and loss if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Restructuring
A provision for restructuring is recognised in the statement of profit and loss when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided.
Onerous contracts
A provision for onerous contracts is recognised in the statement of profit and loss when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.
Reimbursement rights
Expected reimbursements for expenditures required to settle a provision are recognised in the statement of profit and loss only when receipt of such reimbursements is virtually certain. Such reimbursements are recognised as a separate asset in the balance sheet, with a corresponding credit to the specific expense for which the provision has been made.
Contingent liabilities and contingent assets
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Contingent assets are not recognised in the financial statements. A contingent asset is disclosed where an inflow of economic benefits is probable. Contingent assets are assessed continually and, if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.
l) Revenue
The Companyâs revenue is derived from sales of goods, service income and income from licensing arrangements. Most of such revenue is generated from the sale of goods.
Accounting policies relating to revenue for the periods after 31 March 2018 are as follows:
Sale of goods
Revenue is recognised when the control of the goods has been transferred to a third party. This is usually when the title passes to the customer, either upon shipment or upon receipt of goods by the customer. At that point, the customer has full discretion over the channel and price to sell the products, and there are no unfulfilled obligations that could affect the customerâs acceptance of the product.
Revenue from the sale of goods is measured at the transaction price which is the consideration received or receivable, net of returns, taxes and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer.
In arriving at the transaction price, the Company considers the terms of the contract with the customers and its customary business practices. The transaction price is the amount of consideration the Company is entitled to receive in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties. The amount of consideration varies because of estimated rebates, returns and chargebacks, which are considered to be key estimates. Any amount of variable consideration is recognised as revenue only to the extent that it is highly probable that a significant reversal will not occur. The Company estimates the amount of variable consideration using the expected value method.
Presented below are the points of recognition of revenue with respect to the Companyâs sale of goods:
Profit share revenues
The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partnerâs ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.
Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profit share component is recognised as revenue only to the extent that it is highly probable that a significant reversal will not occur.
At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.
Out licensing arrangements, milestone payments and royalties
Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. In cases where the transaction has two or more components, the Company accounts for the delivered item (for example, the transfer of title to the intangible asset) as a separate unit of accounting and record revenue upon delivery of that component, provided that the Company can make a reasonable estimate of the fair value of the undelivered component. Otherwise, non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognised over the period in which the Company has pending performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, over the performance period depending on the terms of the contract. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.
Royalty income earned through a license is recognised when the underlying sales have occurred.
Provision for chargeback, rebates and discounts
Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the difference between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers/other customers and estimated inventory holding by the wholesaler.
Shelf stock adjustments
Shelf stock adjustments are credits issued to customers to reflect decreases in the selling price of products sold by the Company, and are accrued when the prices of certain products decline as a result of increased competition upon the expiration of limited competition or exclusivity periods. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better reflect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifically limit the age of the stock on which a credit would be offered.
Sales Returns
The Company accounts for sales returns accrual by recording refund liability concurrent with the recognition of revenue at the time of a product sale. This liability is based on the Companyâs estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Companyâs historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Companyâs business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Companyâs compititors. At the time of recognising the refund liability the Company also recognises an asset (i.e., right to the returned goods), which is included in inventories for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods.
Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.
Services
Revenue from services rendered, which primarily relate to contract research, is recognised in the statement of profit and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed.
License fees
License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognised when control transfers to the third party and the Companyâs performance obligations are satisfied. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations.
Accounting policies relating to revenue for period ending on or prior to 31 March 2018 are as follows:
Sale of goods
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes relevant taxes and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer.
Revenue from sales of generic products in India is recognised upon delivery of products to distributors by clearing and forwarding agents of the Company. Significant risks and rewards in respect of ownership of generic products are transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding agents are generally compensated on a commission basis as a percentage of sales made by them. Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognised on delivery of products to customers (generally formulation manufacturers), from the factories of the Company.
Revenue from export sales and other sales outside of India is recognised when the significant risks and rewards of ownership of products are transferred to the customers. Such transfer occurs upon delivery of the products to the customers unless the terms of the applicable contract provide for specific revenue generating activities to be completed, in which case revenue is recognised once all such activities are completed.
Profit share revenues
The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partnerâs ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.
Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profit share component is recognised as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profit share becomes probable and a reliable measurement of the profit share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profit share revenue to be recognised for each period, the Company uses all available information and evidence, including any confirmations from the business partner of the profit share amount owed to the Company, to the extent made available before the date the Companyâs Board of Directors authorises the issuance of its financial statements for the applicable period.
Milestone payments and out licensing arrangements
Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognised over the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.
Provision for chargeback, rebates and discounts
Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the difference between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers/other customers and estimated inventory holding by the wholesaler.
Shelf stock adjustments
Shelf stock adjustments are credits issued to customers to reflect decreases in the selling price of products sold by the Company, and are accrued when the prices of certain products decline as a result of increased competition upon the expiration of limited competition or exclusivity periods. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better reflect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifically limit the age of the stock on which a credit would be offered.
Sales Returns
The Company accounts for sales returns accrual by recording an allowance for sales returns concurrently with the recognition of revenue at the time of a product sale. This allowance is based on the Companyâs estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Companyâs historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Companyâs business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Companyâs competitors.
Services
Revenue from services rendered, which primarily relate to contract research, is recognised in the statement of profit and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed.
Export entitlements
Export entitlements from government authorities are recognised in the statement of profit and loss as a reduction from âCost of material consumedâ when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
License fee
The Company from time to time enters into certain dossier sales, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognised over the term of the contract. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations.
Shipping and handling costs
Shipping and handling costs incurred to transport products to customers, and internal transfer costs incurred to transport the products from the Companyâs factories to its various points of sale, are included in selling and other expenses.
m) Other income and finance cost
Other income consists of interest income on funds invested, dividend income and gains on the disposal of assets. Interest income is recognised in the statement of profit and loss as it accrues, using the effective interest method. Dividend income is recognised in the statement of profit and loss on the date that the Companyâs right to receive payment is established. The associated cash flows are classified as investing activities in the statement of cash flows. Finance expenses consist of interest expense on loans and borrowings.
Borrowing costs are recognised in the statement of profit and loss using the effective interest method. The associated cash flows are classified as financing activities in the statement of cash flows.
Foreign currency gains and losses are reported on a net basis within other income and / or selling and other expenses. These primarily include: exchange differences arising on the settlement or translation of monetary items; changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied; and the ineffective portion of cash flow hedges.
n) Income tax
Income tax expense consists of current and deferred tax. Income tax expense is recognised in the statement of profit and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences:
- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit;
- temporary differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and
- taxable temporary differences arising upon the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilise
Mar 31, 2018
NOTE 1 DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
1.1 Description of the Company
Dr. Reddy''s Laboratories Limited (âDr. Reddy''s" or âthe Company") is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products - the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (âAPIs"), Custom Pharmaceutical Services (âCPS"), generics, biosimilars, differentiated formulations and New Chemical Entities (âNCEs"). The Company''s principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India; and its principal markets are in India, Russia, the United States, the United Kingdom and Germany. The Company''s shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and also on the New York Stock Exchange in the United States.
1.2 Basis of preparation of financial statements
The financial statements of the Company have been prepared and presented in accordance with the Indian Accounting Standards (âInd AS") notified under the Companies (Indian Accounting Standards) Rules, 2015 and as amended from time to time.
These financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:
- derivative financial instruments are measured at fair value;
- certain financial assets are measured either at fair value or at amortized cost depending on the classification;
- employee defined benefit assets/(liability) are premeasured at the net total of the fair value of plan assets, plus actuarial losses, less actuarial gains and the present value of the defined benefit obligation;
- long-term borrowings, except obligations under finance leases, are measured at amortized cost using the effective interest rate method; and
- Share-based payments.
1.3 Use of estimates and judgments
The preparation of financial statements in conformity with Ind AS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:
- Note 1.4 (a) - Assessment of functional currency;
- Note 1.4 (q) â Financial instruments;
- Note 1.4 (b) â Business combinations;
- Notes 1.4 (j) and 1.4 (k) â Useful lives of property, plant and equipment and intangible assets;
- Note 1.4 (m) â Valuation of inventories;
- Note 1.4 (n) â Measurement of recoverable amounts of cash-generating units;
- Note 1.4 (o) â Assets and obligations relating to employee benefits;
- Note 1.4 (o) â Share-based payments;
- Note 1.4 (p) â Provisions and other accruals;
- Note 1.4 (e) â Sales returns and rebates;
- Note 1.4 (h) â Evaluation of recoverability of deferred tax assets; and
- Note 1.4 (p) â Contingencies
1.4 Significant accounting policies
a) Functional currency
These financial statements are presented in Indian rupees, which is also the functional currency of the Company. All financial information presented in Indian rupees has been rounded to the nearest million.
b) Business combinations and goodwill
In accordance with the provisions of Ind AS 101, First time adoption of Indian Accounting Standards, the Company has elected to apply the accounting for business combinations prospectively from transition date i.e., 1 April 2015. As such, Indian GAAP balances relating to business combinations entered into before that date, including goodwill, have been carried forward.
The Company uses the acquisition method of accounting to account for business combinations. The acquisition date is the date on which control is transferred to the acquirer. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive.
The Company measures goodwill as of the applicable acquisition date at the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquire, less the net recognized amount of the identifiable assets acquired and liabilities assumed.
When the fair value of the net identifiable assets acquired and liabilities assumed exceeds the consideration transferred, a bargain purchase gain is recognized immediately in the OCI and accumulates the same in equity as capital reserve where there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase else the gain is directly recognized in equity as capital reserve. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Company to the previous owners of the acquire, and equity interests issued by the Company. Consideration transferred also includes the fair value of any contingent consideration. Consideration transferred does not include amounts related to the settlement of pre-existing relationships and employee service related payments.
Any goodwill that arises on account of such business combination is tested annually for impairment.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and the settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recorded in the statement of profit and loss.
A contingent liability of the acquire is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably.
On an acquisition-by-acquisition basis, the Company recognizes any non-controlling interest in the acquire either at fair value or at the non-controlling interest''s proportionate share of the acquirerâs identifiable net assets. Transaction costs that the Company incurs in connection with a business combination, such as finder''s fees, legal fees, due diligence fees and other professional and consulting fees, are expensed as incurred.
However, the following assets and liabilities acquired in a business combination are measured at the basis indicated below:
- Deferred tax assets or liabilities, and the assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with Ind AS 12, Income Taxes and Ind AS 19, Employee Benefits respectively.
- Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share - based payments arrangements of the Group entered into to replace share-based payment arrangements of the acquire are measured in accordance with Ind AS 102, Share-based Payment at the acquisition date.
- Assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.
- Reacquired rights are measured at a value determined on the basis of the remaining contractual term of the related contract. Such valuation does not consider potential renewal of the reacquired right.
Acquisition of some or all of the NCI is accounted for as a transaction with equity holders in their capacity as equity holders. Consequently, the difference arising between the fair value of the purchase consideration paid and the carrying value of the NCI is recorded as an adjustment to retained earnings that is attributable to the parent company. The associated cash flows are classified as financing activities. No goodwill is recognized as a result of such transactions.
c) Current and non-current classification
All the assets and liabilities have been classified as current or non-current as per the Company''s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS 1, Presentation of Financial Statements.
Assets:
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realized in, or is intended for sale or consumption in, the Company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realized within twelve months after the reporting date; or
d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.
Liabilities:
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the Company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within twelve months after the reporting date; or
d) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current assets/liabilities include the current portion of non-current assets/liabilities respectively. All other assets/liabilities are classified as non-current. Deferred tax assets and liabilities are always disclosed as non-current.
d) Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in the statement of profit and loss in the period in which they arise with the exception of the following:
- Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI; and
- Qualifying cash flow hedges, to the extent that the hedges are effective
When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
e) Revenue Sale of goods
Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts, allowances, goods and services tax (GST) and amounts collected on behalf of third parties. Revenue includes shipping and handling costs billed to the customer.
Revenue from sales of generic products in India is recognized upon delivery of products to distributors by clearing and forwarding agents of the Company. Significant risks and rewards in respect of ownership of generic products are transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding agents are generally compensated on a commission basis as a percentage of sales made by them. Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognized on delivery of products to customers (generally formulation manufacturers), from the factories of the Company, at which point all the significant risks and rewards of ownership of products are transferred.
Revenue from export sales and other sales outside of India is recognized when the significant risks and rewards of ownership of products are transferred to the customers, which occurs upon delivery of the products to the customers unless the terms of the applicable contract provide for specific revenue generating activities to be completed, in which case revenue is recognized once all such activities are completed.
Profit share revenues
The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partner''s ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.
Revenue in an amount equal to the base purchase price is recognized in these transactions upon delivery of products to the business partners. An additional amount representing the profit share component is recognized as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profit share becomes probable and a reliable measurement of the profit share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profit share revenue to be recognized for each period, the Company uses all available information and evidence, including any confirmations from the business partner of the profit share amount owed to the Company, to the extent made available before the date the Company''s Board of Directors authorizes the issuance of its financial statements for the applicable period.
Milestone payments and out licensing arrangements
Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognized over the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognized as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.
Sales Returns
The Company accounts for sales returns accrual by recording an allowance for sales returns concurrent with the recognition of revenue at the time of a product sale. This allowance is based on the Company''s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company''s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company''s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company''s competitors.
Services
Revenue from services rendered, which primarily relate to contract research, is recognized in the statement of profit and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are expected to be performed.
License fee
The Company enters into certain dossier sales, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognized over the term of the contract. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognized in the period in which the Company completes all its performance obligations.
f) Interest income and dividend
Interest income primarily comprises of interest from term deposits with banks and on loans to subsidiary companies. Interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset. Interest income is included in other income in the statement of profit and loss.
Dividend income is recognized when the Company''s right to receive the payment is established, which is generally when shareholders approve the dividend.
g) Government grants
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are presented in the balance sheet by setting up the grant as deferred income. Grants related to income are deducted in reporting the related expense in the statement of profit and loss.
Export entitlements from government authorities are recognized in the statement of profit and loss as a reduction from âCost of materials consumed" when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
h) Income tax
Income tax expense consists of current and deferred tax. Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences:
- the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit;
- differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and
- taxable temporary differences arising upon the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
The Company recognizes deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied:
a) When the Company is able to control the timing of the reversal of the temporary difference; and
b) it is probable that the temporary difference will not reverse in the foreseeable future.
Dividend distribution tax arising out of payment of dividends to shareholders under the Indian Income tax regulations is not considered as tax expense for the Company and all such taxes are recognized in the statement of changes in equity as part of the associated dividend payment.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
i) Earnings per share
The Company presents basic and diluted earnings per share (âEPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which includes all stock options granted to employees.
j) Property, plant and equipment Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use. General and specific borrowing costs that are directly attributable to the construction or production of a qualifying asset are capitalized as part of the cost of that asset during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognized in the statement of profit and loss as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up.
Depreciation
Depreciation is recognized in the statement of profit and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
Leasehold improvements are depreciated over the period of the lease agreement or the useful life, whichever is shorter.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and, if expectations differ from previous estimates, the change(s) are accounted for as a change in an accounting estimate in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
Schedule II to the Companies Act, 2013 (âSchedule") prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are different from those prescribed in the Schedule.
Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalized as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognized as expense as incurred. The capitalized costs are amortized over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.
Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date is disclosed as capital advances under other non-current assets. The cost of property, plant and equipment not ready to use before such date are disclosed under capital work-in-progress. Assets not ready for use are not depreciated.
The amortization period and the amortization method for intangible assets with a finite useful life are reviewed at each reporting date.
Intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognized immediately in the statement of profit and loss.
De-recognition of intangible assets
Intangible assets are de-recognized either on their disposal or where no future economic benefits are expected from their use. Losses arising on such de-recognition are recorded in the statement of profit and loss, and are measured as the difference between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as on the date of de-recognition.
l) Leases
At the inception of each lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the substance of the lease arrangement. A lease that transfers substantially all the risks and rewards incidental to ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases.
Finance leases
A finance lease is recognized as an asset and a liability at the commencement of the lease, at the lower of the fair value of the asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalized and, subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Operating leases
Other leases are operating leases, and the leased assets are not recognized on the Company''s balance sheet. Payments made under operating leases are recognized in the statement of profit and loss on a straight-line basis over the term of the lease unless the payments to the lesser are structured to increase in line with expected general inflation to compensate for the less orâs expected inflationary cost increases.
Operating lease incentives received from the landlord are recognized as a reduction of rental expense on a straight line basis over the lease term.
m) Inventories
Inventories consist of raw materials, stores and spares, work-in-progress and finished goods and are measured at the lower of cost and net realizable value. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of finished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares, that do not qualify to be recognized as property, plant and equipment, consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The factors that the Company considers in determining the allowance for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Company''s business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
n) Impairment of non-financial assets
The carrying amounts of the Company''s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset''s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, an impairment test is performed each year at 31 March.
The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the âcash-generating unit").
The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognized in the statement of profit and loss if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.
o) Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Defined contribution plans
The Company''s contributions to defined contribution plans are charged to the statement of profit and loss as and when the services are received from the employees.
Defined benefit plans
The liability in respect of defined benefit plans and other post-employment benefits is calculated using the projected unit credit method consistent with the advice of qualified actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used. The current service cost of the defined benefit plan, recognized in the statement of profit and loss in employee benefit expense, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements. Past service costs are recognized immediately in income. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the statement of profit and loss. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
Termination benefits
Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
Other long-term employee benefits
The Company''s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and previous periods. That benefit is discounted to determine its present value. Re-measurements are recognized in the statement of profit and loss in the period in which they arise.
Compensated absences
The Company''s current policies permit certain categories of its employees to accumulate and carry forward a portion of their unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof in accordance with the terms of such policies. The Company measures the expected cost of accumulating compensated absences as the additional amount that the Company incurs as a result of the unused entitlement that has accumulated at the balance sheet date. Such measurement is based on actuarial valuation as at the balance sheet date carried out by a qualified actuary Re-measurements are recognized in the statement of profit and loss in the period in which they arise.
Share-based payments
The grant date fair value of options granted to employees is recognized as an employee expense, in the statement of profit and loss, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognized in connection with share-based payment transaction is presented as a separate component in equity under âshare-based payment reserve". The amount recognized as an expense is adjusted to reflect the actual number of stock options that vest.
p) Provisions, contingent liabilities and contingent assets
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Restructuring
A provision for restructuring is recognized when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided.
Onerous contracts
A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.
Reimbursement rights
Expected reimbursements for expenditures required to settle a provision are recognized only when receipt of such reimbursements is virtually certain. Such reimbursements are recognized as a separate asset in the balance sheet, with a corresponding credit to the specific expense for which the provision has been made.
Contingent liabilities
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Contingent assets
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
q) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
- Debt instruments at amortized cost;
- Debt instruments at fair value through other comprehensive income (FVTOCI);
- Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL); and
- Equity instruments measured at fair value through other comprehensive income (FVTOCI).
Debt instruments at amortized cost
A ''debt instrument'' is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A ''debt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets; and
b) The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the Company recognizes interest income, impairment losses & reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified to the statement of profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument by-instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to the statement of profit and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
Investments in subsidiaries and joint venture:
Investments in subsidiaries and joint venture are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the difference between net disposal proceeds and the carrying amounts are recognized in the statement of profit and loss.
Upon first-time adoption of Ind AS, the Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 April 2015.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e. removed from the Company''s balance sheet) when:
- The rights to receive cash flows from the asset have expired; or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of trade receivables
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 18.
For this purpose, the Company follows ''simplified approach'' for recognition of impairment loss allowance on the trade receivable balances. The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/losses are not subsequently transferred to the statement of profit and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit and loss. The Company has not designated any financial liability as fair value through profit and loss.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.
Derivative financial instruments
The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles, Brazilian reals, South African rands (âZAR"), Romanian new leus (âRON") and Euros, and foreign currency debt in US dollars, Russian roubles, Ukrainian hryvnias and Euros.
The Company uses foreign exchange forward contracts, option contracts and swap contracts (derivative financial instruments) to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy.
Hedges of highly probable forecasted transactions
The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Company''s hedging reserve as a component of equity and re-classified to the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the statement of profit and loss as finance costs immediately.
The Company also designates certain non-derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash flow hedge accounting to such relationships. Remeasurement gain/loss on such non-derivative financial liabilities is recorded in the Company''s hedging reserve as a component of equity and reclassified to the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in the statement of profit and loss.
Hedges of recognized assets and liabilities
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognized in the statement of profit and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognized in the statement of profit and loss.
Hedges of changes in the interest rates
Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.
r) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, âshort-term" means investments having maturity of three months or less from the date of investment. Bank overdrafts that are repayable on demand and form an integral part of our cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
s) Trade receivables
Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using effective interest method, less provision for impairment.
t) Trade and other payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. The amounts are unsecured and are presented as current liabilities unless payment is not due within twelve months after the reporting period. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
1.5 Determination of fair values
The Company''s accounting policies and disclosures require the determination of fair value, for certain financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
a) Property, plant and equipment
Property, plant and equipment, if acquired in a business combination or through an exchange of non-monetary assets, is measured at fair value on the acquisition date. For this purpose, fair value is based on appraised market values and replacement cost.
b) Intangible assets
The fair value of brands, technology related intangibles, and patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of these brands, technology related intangibles, patents or trademarks being owned (the ârelief of royalty method"). The fair value of customer related, product related and other intangibles acquired in a business combination has been determined using the multi-period excess earnings method after deduction of a fair return on other assets that are part of creating the related cash flows.
c) Inventories
The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
d) Investments in equity and debt securities and units of mutual funds
The fair value of marketable equity and debt securities is determined by reference to their quoted market price at the reporting date. For debt securities where quoted market prices are not available, fair value is determined using pricing techniques such as discounted cash flow analysis.
In respect of investments in mutual funds, the fair values represent net asset value as stated by the issuers of these mutual fund units in the published statements. Net asset values represent the price at which the issuer will issue further units in the mutual fund and the price at which issuers will redeem such units from the investors.
Accordingly, such net asset values are analogous to fair market value with respect to these investments, as transactions of these mutual funds are carried out at such prices between investors and the issuers of these units of mutual funds.
e) Derivatives
The fair value of foreign exchange forward contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of foreign currency option and swap contracts and interest rate swap contracts is determined based on the appropriate valuation techniques, considering the terms of the contract.
f) Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. In respect of the Company''s borrowings that have floating rates of interest, their fair value approximates carrying value.
g) Share-based payment transactions
The fair value of empl
Mar 31, 2017
NOTE 1 DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
1.1 Description of the Company
Dr. Reddy''s Laboratories Limited ("Dr. Reddy''s" or "the Company") is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products - the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients ("APIs"), Custom Pharmaceutical Services ("CPS"), generics, biosimilars, differentiated formulations and New Chemical Entities ("NCEs"). The Company''s principal research and development facilities are located in Andhra Pradesh, India; its principal manufacturing facilities are located in Telangana, India; Andhra Pradesh, India; Himachal Pradesh, India; and its principal markets are in India, Russia, the United States, the United Kingdom, Venezuela and Germany. The Company''s shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and, since 11 April 2001, also on the New York Stock Exchange in the United States.
1.2 Basis of preparation of financial statements
The financial statements of Dr. Reddy''s Laboratories Limited ("Dr. Reddy''s" or "the Company") have been prepared and presented in accordance with the Indian Accounting Standards ("Ind AS") notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016. For all periods up to and including the year ended 31 March 2016, the Company prepared its financial statements in accordance with accounting standards notified under Section 133 of the Companies Act 2013, read with Rule 7 of Companies (Accounts) Rules, 2014. These financial statements for the year ended 31 March 2017 are the first the Company has prepared in accordance with Ind AS.
Refer note 2.19 for information on how the Company adopted Ind AS.
These financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:
- derivative financial instruments are measured at fair value;
- certain financial assets are measured either at fair value or at amortized cost depending on the classification;
- employee defined benefit assets/(liability) are recognized as the net total of the fair value of plan assets, plus actuarial losses, less actuarial gains and the present value of the defined benefit obligation; and
- long-term borrowings, except obligations under finance leases, are measured at amortized cost using the effective interest rate method.
1.3 Use of estimates and judgments
The preparation of financial statements in conformity with Ind AS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:
- Note 1.4 (a) â Assessment of functional currency;
- Note 1.4 (q) â Financial instruments;
- Note 1.4 (b) â Business combinations;
- Notes 1.4 (j) and 1.4 (k) â Useful lives of property, plant and equipment and intangible assets;
- Note 1.4 (m) â Valuation of inventories;
- Note 1.4 (n) â Measurement of recoverable amounts of cash-generating units;
- Note 1.4 (o) â Assets and obligations relating to employee benefits;
- Note 1.4 (o) â Share based payments;
- Note 1.4 (p) â Provisions and other accruals;
- Note 1.4 (e) â Sales returns provisions;
- Note 1.4 (h) â Evaluation of recoverability of deferred tax assets; and
- Note 1.4 (p) â Contingencies
1.4 Significant accounting policies
a) Functional currency
These financial statements are presented in Indian rupees, which is also the functional currency of the Company. All financial information presented in Indian rupees has been rounded to the nearest million.
b) Business combinations and goodwill
In accordance with Ind AS 101 provisions related to first time adoption, the Company has elected to apply Ind AS accounting for business combinations prospectively from transition date i.e., 1 April 2015. As such, Indian GAAP balances relating to business combinations entered into before that date, including goodwill, have been carried forward.
The Company uses the acquisition method of accounting to account for business combinations. The acquisition date is the date on which control is transferred to the acquirer. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive. The Company measures goodwill as of the applicable acquisition date at the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquire, less the net recognized amount of the identifiable assets acquired and liabilities assumed. When the fair value of the net identifiable assets acquired and liabilities assumed exceeds the consideration transferred, the excess is recognized in equity as capital reserve. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Company to the previous owners of the acquire, and equity interests issued by the Company. Consideration transferred also includes the fair value of any contingent consideration. Consideration transferred does not include amounts related to the settlement of pre-existing relationships. Any goodwill that arises on account of such business combination is tested annually for impairment.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and the settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recorded in the statement of profit and loss.
A contingent liability of the acquire is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. On an acquisition-by-acquisition basis, the Company recognizes any non-controlling interest in the acquire either at fair value or at the non-controlling interest''s proportionate share of the acquirerâs identifiable net assets. Transaction costs that the Company incurs in connection with a business combination, such as finder''s fees, legal fees, due diligence fees and other professional and consulting fees, are expensed as incurred.
c) Current and noncurrent classification
All the assets and liabilities have been classified as current or noncurrent as per the Company''s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013.
Assets:
An asset is classified as current when it satisfies any of the following criteria:
a) it is expected to be realized in, or is intended for sale or consumption in, the Company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realized within twelve months after the reporting date; or
d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.
Liabilities:
A liability is classified as current when it satisfies any of the following criteria:
a) it is expected to be settled in the Company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within twelve months after the reporting date; or
d) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
Current assets/ liabilities include the current portion of noncurrent assets/ liabilities respectively. All other assets/ liabilities are classified as noncurrent.
d) Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in the statement of profit and loss in the period in which they arise.
When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
e) Revenue Sale of goods
Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer.
Revenue from sales of generic products in India is recognized upon delivery of products to distributors by clearing and forwarding agents of the Company. Significant risks and rewards in respect of ownership of generic products are transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding agents are generally compensated on a commission basis as a percentage of sales made by them. Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognized on delivery of products to customers (generally formulation manufacturers), from the factories of the Company.
Revenue from export sales and other sales outside of India is recognized when the significant risks and rewards of ownership of products are transferred to the customers, which occurs upon delivery of the products to the customers unless the terms of the applicable contract provide for specific revenue generating activities to be completed, in which case revenue is recognized once all such activities are completed.
Profit share revenues
The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partner''s ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.
Revenue in an amount equal to the base purchase price is recognized in these transactions upon delivery of products to the business partners. An additional amount representing the profit share component is recognized as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profit share becomes probable and a reliable measurement of the profit share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profit share revenue to be recognized for each period, the Company uses all available information and evidence, including any confirmations from the business partner of the profit share amount owed to the Company, to the extent made available before the date the Company''s Board of Directors authorizes the issuance of its financial statements for the applicable period.
Milestone payments and out licensing arrangements
Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognized over the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognized as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.
Sales Returns
The Company accounts for sales returns accrual by recording an allowance for sales returns concurrent with the recognition of revenue at the time of a product sale. This allowance is based on the Company''s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company''s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company''s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company''s competitors.
Services
Revenue from services rendered, which primarily relate to contract research, is recognized in the statement of profit and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are expected to be performed.
License fee
The Company enters into certain dossier sales, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognized over the term of the contract. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognized in the period in which the Company completes all its performance obligations.
f) Government grants
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are presented in the balance sheet by setting up the grant as deferred income. Grants related to income are deducted in reporting the related expense in the statement of profit and loss.
Export entitlements from government authorities are recognized in the statement of profit and loss as a reduction from "Cost of materials consumed" when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
g) Interest income and dividend
Interest income primarily comprises of interest from term deposits with banks and on loans to subsidiary companies. Interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset. Interest income is included in other income in the statement of profit and loss.
Dividend income is recognized when the Company''s right to receive the payment is established, which is generally when shareholders approve the dividend.
h) Income tax
Income tax expense consists of current and deferred tax. Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and taxable temporary differences arising upon the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
The Company recognizes deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied:
a) When the Company is able to control the timing of the reversal of the temporary difference; and
b) it is probable that the temporary difference will not reverse in the foreseeable future.
Dividend distribution tax arising out of payment of dividends to shareholders under the Indian Income tax regulations is not considered as tax expense for the Company and all such taxes are recognized in the statement of changes in equity as part of the associated dividend payment.
i) Earnings per share
The Company presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which includes all stock options granted to employees.
j) Property, plant and equipment Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use. Borrowing costs that are directly attributable to the construction or production of a qualifying asset are capitalized as part of the cost of that asset.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognized in the statement of profit and loss as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up.
Depreciation
Depreciation is recognized in the statement of profit and loss on a straight line basis over the estimated useful lives of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
Leasehold improvements are depreciated over the period of the lease agreement or the useful life, whichever is shorter.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and, if expectations differ from previous estimates, the change(s) are accounted for as a change in an accounting estimate in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
Schedule II to the Companies Act, 2013 ("Schedule") prescribes the useful lives for various classes of tangible assets. For certain class of assets, based on the technical evaluation and assessment, the Company believes that the useful lives adopted by it best represent the period over which an asset is expected to be available for use. Accordingly, for these assets, the useful lives estimated by the Company are different from those prescribed in the Schedule.
Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalized as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognized as expense as incurred. The capitalized costs are amortized over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.
Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date is disclosed as capital advances under other noncurrent assets. The cost of property, plant and equipment not ready to use before such date are disclosed under capital work-in-progress. Assets not ready for use are not depreciated.
k) Goodwill and other intangible assets Goodwill
Goodwill represents the excess of consideration transferred, together with the amount of non-controlling interest in the acquire, over the fair value of the Company''s share of identifiable net assets acquired.
Goodwill is measured at cost less accumulated impairment losses.
Other intangible assets
Other intangible assets that are acquired by the Company and that have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses.
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate.
Research and development
Expenditures on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are recognized in the statement of profit and loss when incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if:
- development costs can be measured reliably;
- the product or process is technically and commercially feasible;
- future economic benefits are probable; and
- the Company intends to and has sufficient resources to complete development and to use or sell the asset.
The expenditures to be capitalized include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognized as expense in the statement of profit and loss as incurred.
Payments to third parties that generally take the form of up-front payments and milestones for in-licensed products, compounds and intellectual property are capitalized. The Company''s criteria for capitalization of such assets are consistent with the guidance given in paragraph 25 of Ind AS 38 (i.e., receipt of economic benefits out of the separately purchased transaction is considered to be probable).
Acquired research and development intangible assets that are under development are recognized as Intangible assets under development. These assets are not amortized, but evaluated for potential impairment on an annual basis or when there are indications that the carrying value may not be recoverable. Any impairment charge on such assets is recorded as an expense in the statement of profit and loss.
Subsequent expenditure on an in-process research or development project acquired separately or in a business combination and recognized as an intangible asset is:
- recognized as an expense when incurred, if it is research expenditure;
- recognized as an expense when incurred, if it is development expenditure that does not satisfy the criteria for recognition as an intangible asset; and
- added to the carrying amount of the acquired in-process research or development project, if it is development expenditure that satisfies the recognition criteria.
Intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognized immediately in the statement of profit and loss.
Amortization
Amortization is recognized in the statement of profit and loss on a straight-line basis over the estimated useful lives of intangible assets or on any other basis that reflects the pattern in which the asset''s future economic benefits are expected to be consumed by the entity. Intangible assets that are not available for use are amortized from the date they are available for use.
The amortization period and the amortization method for intangible assets with a finite useful life are reviewed at each reporting date. De-recognition of intangible assets
Intangible assets are de-recognized either on their disposal or where no future economic benefits are expected from their use. Losses arising on such de-recognition are recorded in the statement of profit and loss, and are measured as the difference between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as on the date of de-recognition.
l) Leases
At the inception of each lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the substance of the l ease arrangement.
Finance leases
A finance lease is recognized as an asset and a liability at the commencement of the lease, at the lower of the fair value of the asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalized and, subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Operating leases
Other leases are operating leases, and the leased assets are not recognized on the Company''s balance sheet. Payments made under operating leases are recognized in the statement of profit and loss on a straight-line basis over the term of the lease.
Operating lease incentives received from the landlord are recognized as a reduction of rental expense on a straight line basis over the lease term.
m) Inventories
Inventories consist of raw materials, stores and spares, work-in-progress and finished goods and are measured at the lower of cost and net realizable value. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of finished goods and work-in-progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares, that do not qualify to be recognized as property, plant and equipment, consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
The factors that the Company considers in determining the allowance for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Company''s business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
n) Impairment of non-financial assets
The carrying amounts of the Company''s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset''s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, an impairment test is performed each year at 31 March.
The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit").
The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognized in the statement of profit and loss if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.
An impairment loss in respect of equity accounted investee is measured by comparing the recoverable amount of investment with its carrying amount. An impairment loss is recognized in the statement of profit and loss, and reversed if there has been a favorable change in the estimates used to determine the recoverable amount.
o) Employee benefits
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Defined contribution plans
The Company''s contributions to defined contribution plans are charged to the statement of profit and loss as and when the services are received from the employees.
Defined benefit plans
The liability in respect of defined benefit plans and other post-employment benefits is calculated using the projected unit credit method consistent with the advice of qualified actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used. The current service cost of the defined benefit plan, recognized in the statement of profit and loss in employee benefit expense, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements. Past service costs are recognized immediately in income. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the statement of profit and loss. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
Termination benefits
Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
Other long-term employee benefits
The Company''s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and previous periods. That benefit is discounted to determine its present value. Remeasurements are recognized in the statement of profit and loss in the period in which they arise.
Compensated absences
The Company''s current policies permit certain categories of its employees to accumulate and carry forward a portion of their unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof in accordance with the terms of such policies. The Company measures the expected cost of accumulating compensated absences as the additional amount that the Company incurs as a result of the unused entitlement that has accumulated at the balance sheet date. Such measurement is based on actuarial valuation as at the balance sheet date carried out by a qualified actuary.
Share-based payments
The grant date fair value of options granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognized in connection with share-based payment transaction is presented as a separate component in equity under "share-based payment reserve". The amount recognized as an expense is adjusted to reflect the actual number of stock options that vest.
p) Provisions, contingent liabilities and contingent assets
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Restructuring
A provision for restructuring is recognized when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided.
Onerous contracts
A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.
Reimbursement rights
Expected reimbursements for expenditures required to settle a provision are recognized only when receipt of such reimbursements is virtually certain. Such reimbursements are recognized as a separate asset in the balance sheet, with a corresponding credit to the specific expense for which the provision has been made.
Contingent liabilities
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Contingent assets
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
q) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
- Debt instruments at amortized cost
- Debt instruments at fair value through other comprehensive income (FVTOCI)
- Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
- Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortized cost
A ''debt instrument'' is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A ''debt instrument'' is classified as at the FVTOCI if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The asset''s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified to the state ent of profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as ''accounting mismatch''). The Company has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument by-instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to the statement of profit and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
Investments in subsidiaries and joint venture
Investments in subsidiaries and joint venture are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries and joint venture, the difference between net disposal proceeds and the carrying amounts are recognized in the statement of profit and loss.
Upon first-time adoption of Ind AS, the Company has elected to measure its investments in subsidiaries and joint ventures at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS i.e., 1 April 2015.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company''s balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ''pass-through'' arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of trade receivables
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 18.
For this purpose, the Company follows ''simplified approach'' for recognition of impairment loss allowance on the trade receivable balances. The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company''s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ losses are not subsequently transferred to the statement of profit and loss. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit and loss. The company has not designated any financial liability as fair value through profit and loss.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.
Derivative financial instruments
The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles, Venezuelan bolivars and Euros, and foreign currency debt in US dollars, Russian rubles and Euros.
The Company uses foreign exchange forward contracts, option contracts and swap contracts (derivative financial instruments) to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non derivative financial instruments as part of its foreign currency exposure risk mitigation strategy.
Hedges of highly probable forecasted transactions
The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Company''s hedging reserve as a component of equity and re-classified to the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the statement of profit and loss as finance costs immediately.
The Company also designates certain non derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash flow hedge accounting to such relationships. Remeasurement gain / loss on such non derivative financial liabilities is recorded in the Company''s hedging reserve as a component of equity and reclassified to the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in the statement of profit and loss.
Hedges of recognized assets and liabilities
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognized in the statement of profit and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognized in the statement of profit and loss.
Hedges of changes in the interest rates
Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.
r) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, "short-term" means investments having maturity of three months or less from the date of investment. Bank overdrafts that are repayable on demand and form an integral part of our cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
1.5 Determination of fair values
The Company''s accounting policies and disclosures require the determination of fair value, for certain financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
a) Property, plant and equipment
Property, plant and equipment, if acquired in a business combination or through an exchange of non-monetary assets, is measured at fair value on the acquisition date. For this purpose, fair value is based on appraised market values and replacement cost.
b) Intangible assets
The fair value of brands, technology related intangibles, and patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of these brands, technology related intangibles, patents or trademarks being owned (the "relief of royalty method"). The fair value of customer related, product related and other intangibles acquired in a business combination has been determined using the multi-period excess earnings method after deduction of a fair return on other assets that are part of creating the related cash flows.
c) Inventories
The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
d) Investments in equity and debt securities and units of mutual funds
The fair value of marketable equity and debt securities is determined by reference to their quoted market price at the reporting date. For debt securities where quoted market prices are not available, fair value is determined using pricing techniques such as discounted cash flow analysis.
In respect of investments in mutual funds, the fair values represent net asset value as stated by the issuers of these mutual fund units in the published statements. Net asset values represent the price at which the issuer will issue further units in the mutual fund and the price at which issuers will redeem such units from the investors.
Accordingly, such net asset values are analogous to fair market value with respect to these investments, as transactions of these mutual funds are carried out at such prices between investors and the issuers of these units of mutual funds.
e) Derivatives
The fair value of foreign exchange forward contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of foreign currency option and swap contracts and interest rate swap contracts is determined based on the appropriate valuation techniques, considering the terms of the contract.
f) Non derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. In respect of the Company''s borrowings that have floating rates of interest, their fair value approximates carrying value.
g) Share-based payment transactions
The fair value of employee stock options is measured using the Black-Scholes-Merton valuation model. Measurement inputs include share price on grant date, exercise price of the instrument, expected volatility (based on weighted average historical volatility), expected life of the instrument (based on historical experience), expected dividends, and the risk free interest rate (based on government bonds).
(a) (i) The balance of long-term loan, outstanding as at 31 March 2017, comprises of External Commercial Borrowing, carrying interest rate of
LIBOR plus 82.7 bps and is repayable in three equal installments in the years ending 31 March 2020 and 31 March 2021.
(ii) External Commercial Borrowing, outstanding as at 31 March 2016, carrying interest rate of LIBOR plus 125 bps, was repaid in the current financial year. As part of the aforesaid loan arrangements, the Company is required to comply with certain financial covenants and the Company was in compliance with such covenants as at 31 March 2017, 31 March 2016 and 1 April 2015.
(b) Finance lease obligations are towards lease rentals payable for the vehicles leased by the Company. (Refer note 2.33)
(c) Packing credit loans for the year ended 31 March 2017, comprised of US$ denominated loans carrying interest rates of LIBOR minus 30 to plus 1 bps, RUB denominated loans carrying fixed interest rate of 9.95%, and INR denominated loans carrying fixed interest rate of 6.92% to 6.95% and Treasury bill plus 30 bps and are repayable within 6 to 12 months from the date of drawdown. Packing credit loans, for the year ended 31 March 2016, comprised of US$ and EUR denominated loans carrying interest rates of LIBOR minus 5 to plus 15 bps and RUB denominated loans carrying fixed interest rate of 10.65% to 11.57%, and are repayable within 6 to 12 months from the date of drawdown.
(a) The principal amount remaining unpaid as at 31 March 2017 in respect of enterprises covered under the "Micro, Small and Medium Enterprises Development Act, 2006" (MSMED) is '' 43 (31 March 2016: '' 20; 1 April 2015: '' 79). The interest amount computed based on the provisions under Section 16 of the MSMED is '' 0.02 (31 March 2016: '' 0.11; 1 April 2015: '' 0.09) is remaining unpaid as of 31 March 2017. The interest amount of '' 0.02 that remained unpaid as at 31 March 2016 was paid fully during the current year.
(b) The amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the ap
Mar 31, 2013
A) Basis of preparation
The financial statements of Dr. Reddy''s Laboratories Limited ("DRL" or
"the Company") have been prepared and presented in accordance with
Indian Generally Accepted Accounting Principles (IGAAP). IGAAP
comprises accounting standards notified by the Central Government of
India under Section 211 (3C) of the Companies Act, 1956, other
pronouncements of Institute of Chartered Accountants of India, the
relevant provisions of Companies Act, 1956 and guidelines issued by
Securities and Exchange Board of India (SEBI). The financial statements
are presented in Indian rupees rounded off to the nearest million.
b) Use of estimates
The preparation of the financial statements in conformity with IGAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities on the date of the financial statements and reported
amounts of revenues and expenses for the year. Examples of such
estimates include estimation of useful life of tangible and intangible
assets, assessment of recoverable amounts of deferred tax assets,
provision for obligations relating to employees, provisions against
litigations and impairment of assets. Actual results could differ from
these estimates. Estimates and underlying assumptions are reviewed on
an ongoing basis. Any revision to accounting estimates is recognised
prospectively in the current and future periods.
c) Current and non current classification
All the assets and liabilities have been classified as current or non
current as per the Company''s normal operating cycle and other criteria
set out in the Revised Schedule VI to the Companies Act, 1956.
Assets:
An asset is classified as current when it satisfies any of the
following criteria:
a) it is expected to be realised in, or is intended for sale or
consumption in, the Company''s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realised within 12 months after the reporting
date; or
d) it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting date.
Liabilities:
A liability is classified as current when it satisfies any of the
following criteria:
a) it is expected to be settled in the Company''s normal operating
cycle;
b) it is held primarily for the purpose of being traded;
c) it is due to be settled within 12 months after the reporting date;
or
d) the Company does not have an unconditional right to defer settlement
of the liability for at least 12 months after the reporting date.Terms
of a liability that could, at the option of the counterparty, result in
its settlement by the issue of equity instruments do not affect its
classification.
Current assets / liabilities include the current portion of non current
financial assets / liabilities respectively. All other assets /
liabilities are classified as non current.
d) Tangible fixed assets and depreciation
Fixed assets are carried at the cost of acquisition or construction
less accumulated depreciation. The cost of fixed assets includes non
refundable taxes, duties, freight and other incidental expenses related
to the acquisition and installation of the respective assets.
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use are capitalised. Borrowing costs
are interest and other costs incurred by the Company in connection with
the borrowing of funds.
Subsequent expenditure related to an item of tangible fixed asset is
capitalised only if it increases the future benefits from the existing
assets beyond its previously assessed standards of performance.
Advances paid towards acquisition of tangible fixed assets outstanding
at each balance sheet date are shown under long term loans and
advances. Cost of assets not ready for intended use, as on the balance
sheet date, is shown as capital work-in-progress.
Depreciation on tangible fixed assets is provided using the
straight-line method at the rates specified in Schedule XIV to the
Companies Act, 1956 or based on the useful life of the assets as
estimated by Management, whichever is higher. Depreciation is
calculated on a pro-rata basis from the date of installation till the
date the assets are sold or disposed. Individual assets costing less
than Rs. 5,000/- are depreciated in full in the year of acquisition.
Assets acquired on finance leases are depreciated over the period of
the lease agreement or the useful life whichever is shorter. Leasehold
improvements are depreciated over their estimated useful life, or the
remaining period of lease, whichever is shorter.
Gains or losses from disposal of tangible fixed assets are recognised
in the statement of profit and loss.
e) Intangible assets and amortisation
Intangible assets are recorded at the consideration paid for
acquisition including any import duties and other taxes (other than
those subsequently recoverable by the enterprise from the taxing
authorities), and any directly attributable expenditure in making the
asset ready for its intended use.
Intangible assets are amortised on a systematic basis over the best
estimate of their useful lives, commencing from the date the asset is
available to the Company for its use.
The Management estimates the useful lives for the various intangible
assets as follows:
An intangible asset is derecognised on disposal or when no future
economic benefits are expected from its use and disposal. Gains or
losses arising from the disposal of intangible assets are recognised in
the statement of profit and loss.
f) Investments
Investments that are readily realisable and intended to be held for not
more than 12 months from the date of acquisition are classified as
current investments. All other investments are classified as non
current investments.
Current investments are carried at the lower of cost and fair value.
The comparison of cost and fair value is done separately in respect of
each category of investment.
Non current investments are carried at cost less any
other-than-temporary diminution in value, determined separately for
each individual investment. The reduction in the carrying amount is
reversed when there is a rise in the value of the investment or if the
reasons for the reduction no longer exist. Any reduction in the
carrying amount and any reversal in such reductions are charged or
credited to the statement of profit and loss.
g) Inventories
Inventories are valued at the lower of cost and net realisable value.
Net realisable value (NRV) is the estimated selling price in the
ordinary course of the business, less the estimated costs of completion
and the estimated costs necessary to make the sale. Cost of inventories
comprises all cost of purchase, cost of conversion and other costs
incurred in bringing the inventories to their present location and
condition. The cost of all categories of inventory is determined using
weighted average cost method.
h) Research and development
Expenditure on research activities undertaken with the prospect of
gaining new scientific or technical knowledge and understanding is
recognized as expense in the statement of profit and loss when
incurred.
Development activities involve a plan or design for the production of
new or substantially improved products and processes. Development
expenditure is capitalized only if:
- development costs can be measured reliably;
- the product or process is technically and commercially feasible;
- future economic benefits are probable; and
- the Company intends to and has sufficient resources to complete
development and has the ability to use or sell the asset.
Expenditure incurred on fixed assets used for research and development
is capitalised and depreciated in accordance with the depreciation
policy of the Company.
i) Employee benefits Defined benefit plans
The liability in respect of defined benefit plans and other
post-employment benefits is calculated using the projected unit credit
method and spread over the period during which the benefit is expected
to be derived from employees'' services, consistent with the advice of
qualified actuaries. The long term obligations are measured at present
value of estimated future cash flows discounted at rates reflecting the
yields on risk free government bonds that have maturity dates
approximating the terms of the Company''s obligations. Short-term
employee benefit obligations are measured on an undiscounted basis and
are expensed as the related service is provided.
All actuarial gains and losses arising during the year are recognized
in the statement of profit and loss.
Defined contribution plans
The Company''s contributions to defined contribution plans are charged
to profit or loss as and when the services are received from the
employees.
Compensated leave of absence
The Company provides for accumulation of compensated absences by
certain categories of its employees. These employees can carry forward
a portion of the unutilized compensated absences and utilize it in
future periods or receive cash in lieu thereof as per Company policy.
The Company records an obligation for compensated absences in the
period in which the employee renders the services that increases this
entitlement. The measurement of such obligation is based on actuarial
valuation as at the balance sheet date carried out by a qualified
actuary.
Employee stock option schemes
In accordance with the SEBI guidelines, the cost is calculated based on
intrinsic value method i.e. the excess of the market price of shares,
at the date prior to the day of grant of options under the Employee
stock option schemes, over the exercise price is treated as employee
compensation and amortised over the vesting period.
j) Foreign currency transactions and balances
Foreign currency transactions are recorded using the exchange rates
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign currency transactions settled during the
year are recognised in the statement of profit and loss.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated using the foreign exchange rates
as at the balance sheet date. The resultant exchange differences are
recognised in the statement of profit and loss. Non monetary assets and
liabilities are carried at the rates prevailing on the date of
transaction.
Exchange differences arising on a monetary item that, in substance,
forms part of the Company''s net investment in a non integral foreign
operation are accumulated in a foreign currency translation reserve in
the Company''s financial statements. Such exchange differences are
recognized in the statement of profit and loss in the event of disposal
of the net investment.
k) Derivative instruments and hedge accounting
The Company uses foreign exchange forward contracts, option contracts
and swap contracts (derivatives) to mitigate its risk of changes in
foreign currency exchange rates and does not use them for trading or
speculative purposes.
The premium or discount on foreign exchange forward contracts is
amortized as income or expense over the life of the contract. The
exchange difference is calculated and recorded in accordance with AS-11
(revised) in the statement of profit and loss. The changes in the fair
value of foreign currency option and swap contracts are recognised in
the statement of profit and loss as they arise. Fair value of such
option and swap contracts is determined based on the appropriate
valuation techniques considering the terms of the contract.
Pursuant to ICAI Announcement "Accounting for Derivatives" on the early
adoption of Accounting Standard AS-30 "Financial Instruments:
Recognition and Measurement", the Company has adopted the Standard, to
the extent that the adoption does not conflict with existing mandatory
accounting standards and other authoritative pronouncements, Company
law and other regulatory requirements.
Cash flow hedges
The Company classifies its derivative contracts that hedge foreign
currency risk associated with highly probable forecasted transactions
as cash flow hedges and measures them at fair value. The effective
portion of such cash flow hedges is recorded as part of reserves and
surplus within the Company''s "hedging reserve", and re-classified into
the statement of profit and loss as revenue in the period corresponding
to the occurrence of the forecasted transactions. The ineffective
portion is immediately recorded in the statement of profit and loss.
The Company also designates certain non derivative financial
liabilities, such as foreign currency borrowings from banks, as hedging
instruments for the hedge of foreign currency risk associated with
highly probable forecasted transactions and, accordingly, applies cash
flow hedge accounting for such relationships. Re-measurement gain/loss
on such non derivative financial liabilities is recorded as part of
reserves and surplus within the Company''s "hedging reserve", and
re-classified in the statement of profit and loss as revenue in the
period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge
accounting, gets expired or is sold, terminated or exercised before the
occurrence of the forecasted transaction, the hedge accounting on such
transaction is discontinued prospectively. The cumulative gain or loss
previously recognized in hedging reserve continues to remain there
until the forecasted transaction occurs. If the forecasted transaction
is no longer expected to occur, the balance in hedging reserve is
recognized immediately in the statement of profit and loss.
l) Revenue recognition Sale of goods
Revenue from sale of goods is recognised when significant risks and
rewards in respect of ownership of products are transferred to
customers. Revenue from domestic sales of active pharmaceutical
ingredients and intermediates is recognized on delivery of products to
customers from the factories of the Company. Revenue from domestic
sales of formulation products is recognized upon delivery of products
to stockists by clearing and forwarding agents of the Company. Revenue
from export sales is recognized when the significant risks and rewards
of ownership of products are transferred to the customers, which is
based upon the terms of the applicable contract.
Revenue from product sales is net of returns, sales tax and applicable
trade discounts and allowances.
Service Income
Service income is recognised as per the terms of contracts with
customers when the related services are performed, or the agreed
milestones are achieved.
License fee
The Company enters into certain dossier sales, licensing and supply
arrangements with various parties. Some of these arrangements include
certain performance obligations by the Company. Revenue from such
arrangements is recognized in the period in which the Company completes
all its performance obligations.
Dividend and interest income
Dividend income is recognised when the unconditional right to receive
the income is established. Income from interest on deposits, loans and
interest bearing securities is recognised on the time proportionate
method.
Export entitlements
Export entitlements are recognised as reduction from cost of material
consumed when the right to receive credit as per the terms of the
scheme is established in respect of the exports made and where there is
no significant uncertainty regarding the ultimate collection of the
relevant export proceeds.
m) Income tax expense
Income tax expense comprises current tax and deferred tax charge or
credit.
Current tax
The current charge for income taxes is calculated in accordance with
the relevant tax regulations applicable to the Company.
Deferred tax
Deferred tax charge or credit reflects the tax effects of timing
differences between accounting income and taxable income for the
period. The deferred tax charge or credit and the corresponding
deferred tax liabilities or assets are recognised using the tax rates
that have been enacted or substantially enacted by the balance sheet
date.
Deferred tax assets are recognised only to the extent there is
reasonable certainty that the assets can be realised in future;
however, where there is unabsorbed depreciation or carry forward of
losses, deferred tax assets are recognised only if there is a virtual
certainty of realisation of such assets. Deferred tax consequences of
timing differences that originate in the tax holiday period and reverse
after the tax holiday period are recognised in the period in which the
timing differences originate. Timing differences that originate and
reverse within the tax holiday period are not considered for deferred
tax purposes.
Deferred tax assets are reviewed at each balance sheet date and are
written-down or written-up to reflect the amount that is
reasonably/virtually certain (as the case may be) to be realised.
Deferred tax assets and liabilities are offset where the Company has a
legally enforceable right to set-off assets against liabilities
representing current tax.
n) Earnings per share
The basic earnings per share ("EPS") is computed by dividing the profit
after tax for the year by the weighted average number of equity shares
outstanding during the year. For the purpose of calculating diluted
earnings per share, profit after tax for the year and the weighted
average number of shares outstanding during the year are adjusted for
the effects of all dilutive potential equity shares. The dilutive
potential equity shares are deemed converted as of the beginning of the
period, unless they have been issued at a later date. The diluted
potential equity shares have been adjusted for the proceeds receivable
had the shares been actually issued at fair value (i.e. the average
market value of the outstanding shares).
o) provisions and contingent liabilities
A provision is recognised when the Company has a present obligation as
a result of past events and it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation.
Provisions are recognised at the best estimate of the expenditure
required to settle the present obligation at the balance sheet date.
Provisions are measured on an undiscounted basis.
Sales returns
The Company accounts for sales returns by recording an allowance for
sales returns concurrent with the recognition of revenue at the time of
a product sale. This allowance is based on the Company''s estimate of
expected sales returns. The estimate of sales returns is determined
primarily by the Company''s historical experience in the markets in
which the Company operates.
Contingencies
A disclosure for a contingent liability is made when there is a
possible obligation or a present obligation that may, but probably will
not, require an outflow of resources. Where there is a possible
obligation or a present obligation in respect of which the likelihood
of outflow of resources is remote, no provision or disclosure is made.
Contingent assets are not recognised in the financial statements.
However, contingent assets are assessed continually and if it is
virtually certain that an inflow of economic benefits will arise, the
asset and related income are recognised in the period in which the
change occurs.
p) Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset.
For the purpose of impairment testing, assets are grouped together into
the smallest group of assets (Cash Generating Unit or CGU) that
generates cash inflows from continuing use that are largely independent
of the cash inflows of other assets or CGUs.
The recoverable amount of an asset or CGU is the greater of its value
in use and its net selling price.
If such recoverable amount of the asset or the recoverable amount of
the cash generating unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced to its recoverable
amount. The reduction is treated as an impairment loss and is
recognised in the statement of profit and loss. If at the balance sheet
date there is an indication that if a previously assessed impairment
loss no longer exists, the recoverable amount is reassessed and the
asset is reflected at the recoverable amount subject to a maximum of
amortised historical cost.
q) Leases
The lease arrangement is classified as either a finance lease or an
operating lease, at the inception of the lease, based on the substance
of the lease arrangement.
Finance leases
A finance lease is a lease that transfers substantially all the risks
and rewards incident to ownership of an asset. A finance lease is
recognized as an asset and a liability at the commencement of the
lease, at the lower of the fair value of the asset and the present
value of the minimum lease payments. Initial direct costs, if any, are
also capitalized and, subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable to
that asset. Minimum lease payments made under finance leases are
apportioned between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each period
during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Operating leases
Other leases are operating leases, and the leased assets are not
recognized on the Company''s balance sheet. Payments made under
operating leases are recognized in the statement of profit and loss on
a straight-line basis over the term of the lease.
Mar 31, 2012
A) Basis of preparation
The financial statements of Dr. Reddy's Laboratories Limited ('DRL"
or "the Company") have been prepared and presented in accordance with
Indian Generally Accepted Accounting Principles (GAAP) under the
historical cost convention on the accrual basis. GAAP comprises
accounting standards notified by the Central Government of India under
Section 211 (3C) of the Companies Act, 1956, other pronouncements of
Institute of Chartered Accountants of India, the provisions of
Companies Act, 1956 and guidelines issued by Securities and Exchange
Board of India. The financial statements are rounded off to the nearest
million.
b) Use of estimates
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities on the date of the financial statements and reported
amounts of revenues and expenses for the year. Actual results could
differ from these estimates. Estimates and underlying assumptions are
reviewed on an ongoing basis. Any revision to accounting estimates is
recognised prospectively in the current and future periods.
c) fixed assets and depreciation
Fixed assets are carried at the cost of acquisition or construction
less accumulated depreciation. The cost of fixed assets includes
non-refundable taxes, duties, freight and other incidental expenses
related to the acquisition and installation of the respective assets.
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use are capitalised.
Depreciation on fixed assets is provided using the straight-line method
at the rates specified in Schedule XIV to the Companies Act, 1956 or
based on the useful life of the assets as estimated by Management,
whichever is higher. Depreciation is calculated on a pro-rata basis
from the date of installation till the date the assets are sold or
disposed. Individual assets costing less than Rs 5,000/- are depreciated
in full in the year of acquisition. Assets acquired on finance leases
are depreciated over the period of the lease agreement or the useful
life whichever is shorter.
d) Intangible assets and amortisation
Intangible assets are recorded at the consideration paid for
acquisition. Intangible assets are amortised over their estimated
useful lives on a straight-line basis, commencing from the date the
asset is available to the Company for its use. The management estimates
the useful lives for the various intangible assets as follows:
e) Investments
Non-current investments are carried at cost less any
other-than-temporary diminution in value, determined separately for
each individual investment. The reduction in the carrying amount is
reversed when there is a rise in the value of the investment or if the
reasons for the reduction no longer exist.
Current investments are carried at the lower of cost and fair value.
The comparison of cost and fair value is done separately in respect of
each category of investment.
f) Inventories
Inventories are valued at the lower of cost and net realisable value.
Cost of inventories comprises all cost of purchase, cost of conversion
and other costs incurred in bringing the inventories to their present
location and condition.
Effective as of 1 April 2011, the Company has changed its policy on
valuation of inventory from the first-in first-out method (FIFO) to the
weighted average cost method (WAC). Under the prior policy, the cost of
all categories of inventories, except stores and spares, had been based
on the first-in first-out method. Stores and spares consists of packing
materials, engineering spares (such as machinery spare parts) and
consumables (such as lubricants, cotton waste and oils), which are used
in operating machines or consumed as indirect materials in the
manufacturing process, had been valued at cost based on a weighted
average method. Effective as of 1 April 2011, the cost of all
categories of inventory is based on a weighted average cost method.
Using the weighted average method will produce more accurate,
reasonable and relevant information on the amounts of inventory
reported in the balance sheet and, in turn, more accurate material
consumption reported in the statement of profit and loss. The effect of
this change in the methodology of valuation of inventory is immaterial
and, accordingly, no further disclosures have been made in these
financial statements.
g) Research and development
Expenditures on research activities undertaken with the prospect of
gaining new scientific or technical knowledge and understanding are
recognized as expense in the statement of profit and loss when
incurred.
Development activities involve a plan or design for the production of
new or substantially improved products and processes. Development
expenditures are capitalized only if:
- development costs can be measured reliably,
- the product or process is technically and commercially feasible,
- future economic benefits are probable and ascertainable, and
- the Company intends to and has sufficient resources to complete
development and has the ability to use or sell the asset.
Expenditure incurred on fixed assets used for research and development
is capitalised and depreciated in accordance with the depreciation
policy of the Company.
h) Employee benefits Defined contribution plan
A defined contribution plan is a post-employment benefit plan under
which an entity pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to recognized provident funds and
approved superannuation schemes which are defined contribution plans
are recognized as an employee benefit expense in the statement of
profit and loss as and when the services are received from the
employees.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a
defined contribution plan. The Company's net obligation in respect of
an approved gratuity plan, which is a defined benefit plan, and certain
other defined benefit plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned in
return for their service in the current and prior periods; that benefit
is discounted to determine its present value. Any unrecognized past
service costs and the fair value of any plan assets are deducted. The
discount rate is the yield at the reporting date on risk free
government bonds that have maturity dates approximating the terms of
the Company's obligations and that are denominated in the same currency
in which the benefits are expected to be paid. The calculation is
performed annually by a qualified actuary using the projected unit
credit method.
Contributions payable to an approved gratuity fund determined by an
independent actuary at the balance sheet date are charged to the
statement of profit and loss. All actuarial gains and losses arising
during the year are recognized in the statement of profit and loss.
Provision for compensated absences is made on the basis of actuarial
valuation at the balance sheet date.
Employee stock option schemes
In accordance with the Securities and Exchange Board of India
guidelines, the excess of the market price of shares, at the date of
grant of options under the Employee stock option schemes, over the
exercise price is treated as employee compensation and amortised over
the vesting period.
i) Foreign currency transactions and balances
Foreign currency transactions are recorded using the exchange rates
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign currency transactions settled during the
year are recognised in the statement of profit and loss.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated using the foreign exchange rates
as at the balance sheet date. The resultant exchange differences are
recognised in the statement of profit and loss. Non-monetary assets and
liabilities are not translated.
Exchange differences arising on a monetary item that, in substance,
forms part of an enterprise's net investment in a non-integral foreign
operation are accumulated in a foreign currency translation reserve in
the enterprise's financial statements. Such exchange differences are
recognized in the statement of profit and loss in the event of disposal
of the net investment.
j) Derivative instruments and hedge accounting
The Company uses foreign exchange forward contracts and option
contracts (derivatives) to mitigate its risk of changes in foreign
currency exchange rates and does not use them for trading or
speculative purposes.
The premium or discount on foreign exchange forward contracts is
amortized as income or expense over the life of the contract. The
exchange difference is calculated and recorded in accordance with AS-11
(revised). The exchange difference on such a forward exchange contract
is calculated as the difference of the foreign currency amount of the
contract translated at the exchange rate at the reporting date, or the
settlement date where the transaction is settled during the reporting
period and the corresponding foreign currency amount translated at the
later of the date of inception of the forward exchange contract and the
last reporting date. Such exchange differences are recognized in the
statement of profit and loss in the reporting period in which the
exchange rates change. The changes in the fair value of foreign
currency option contracts are recognised in the statement of profit and
loss as they arise. Fair value of such option contracts is determined
based on the appropriate valuation techniques considering the terms of
the contract.
Pursuant to ICAI Announcement "Accounting for Derivatives" on the
early adoption of Accounting Standard AS-30 "Financial Instruments:
Recognition and Measurement", the Company has adopted the Standard,
to the extent that the adoption does not conflict with existing
mandatory accounting standards and other authoritative pronouncements,
Company law and other regulatory requirements.
Cashflow hedges
The Company classifies its option and forward contracts that hedge
highly probable forecasted transactions as cash flow hedges and
measures them at fair value. The effective portion of such cash flow
hedges is recorded as part of reserves and surplus within the Company's
"hedging reserve", and re-classified in the statement of profit and
loss as revenue in the period corresponding to the occurrence of the
forecasted transactions. The ineffective portion is immediately
recorded in the statement of profit and loss.
The Company also designates certain non-derivative financial
liabilities, such as foreign currency borrowings from banks, as hedging
instruments for the hedge of foreign currency risk associated with
highly probable forecasted transactions and, accordingly, applies cash
flow hedge accounting for such relationships. Re-measurement gain /
loss on such non-derivative financial liabilities is recorded as a part
of reserves and surplus within the Company's "hedging reserve", and
re-classified in the statement of profit and loss as revenue in the
period corresponding to the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge
accounting, gets expired or is sold, terminated or exercised before the
occurrence of the forecasted transaction, the hedge accounting on such
transaction is discontinued prospectively. The cumulative gain or loss
previously recognized in hedging reserve continues to remain there
until the forecasted transaction occurs. If the forecasted transaction
is no longer expected to occur, the balance in hedging reserve is
recognized immediately in the statement of profit and loss.
Fair value hedges
The Company uses derivative financial instruments to hedge its exposure
to changes in the fair value of firm commitment contracts and measures
them at fair value. Any amount representing changes in the fair value
of such derivative financial instruments is recorded in the statement
of profit and loss. The corresponding gain / loss representing the
changes in the fair value of the hedged item attributable to hedged
risk is also recognized in the statement of profit and loss.
k) Revenue recognition Sale of goods
Revenue from sale of goods is recognised when significant risks and
rewards in respect of ownership of products are transferred to
customers. Revenue from domestic sales of generic products is
recognized upon delivery of products to stockists by clearing and
forwarding agents of the Company. Revenue from domestic sales of active
pharmaceutical ingredients and intermediates is recognized on delivery
of products to customers, from the factories of the Company. Revenue
from export sales is recognized when the significant risks and rewards
of ownership of products are transferred to the customers, which is
based upon the terms of the applicable contract.
Revenue from product sales is stated exclusive of returns, sales tax
and applicable trade discounts and allowances.
Service Income
Service income is recognised as per the terms of contracts with
customers when the related services are performed, or the agreed
milestones are achieved.
License fee
The Company enters into certain dossier sales, licensing and supply
arrangements with certain third parties. These arrangements include
certain performance obligations by the Company. Revenue from such
arrangements is recognized in the period in which the Company completes
all its performance obligations.
Dividend and interest income
Dividend income is recognised when the unconditional right to receive
the income is established. Income from interest on deposits, loans and
interest bearing securities is recognised on the time proportionate
method.
Export entitlements
Export entitlements are recognised as reduction from material
consumption when the right to receive credit as per the terms of the
scheme is established in respect of the exports made and where there is
no significant uncertainty regarding the ultimate collection of the
relevant export proceeds.
l) Income tax expense
Income tax expense comprises current tax and deferred tax charge or
credit.
Current tax
The current charge for income taxes is calculated in accordance with
the relevant tax regulations applicable to the Company.
Deferred tax
Deferred tax charge or credit reflects the tax effects of timing
differences between accounting income and taxable income for the
period. The deferred tax charge or credit and the corresponding
deferred tax liabilities or assets are recognised using the tax rates
that have been enacted or substantially enacted by the balance sheet
date. Deferred tax assets are recognised only to the extent there is
reasonable certainty that the assets can be realised in future;
however, where there is unabsorbed depreciation or carry forward of
losses, deferred tax assets are recognised only if there is a virtual
certainty of realisation of such assets. Deferred tax assets are
reviewed at each balance sheet date and is written-down or written-up
to reflect the amount that is reasonably / virtually certain (as the
case may be) to be realised. The break-up of the major components of
the deferred tax assets and liabilities as at balance sheet date has
been arrived at after setting off deferred tax assets and liabilities
where the Company has a legally enforceable right to set-off assets
against liabilities and where such assets and liabilities relate to
taxes on income levied by the same governing taxation laws.
m) Earnings per share
The basic earnings per share ("EPS") is computed by dividing the net
profit after tax for the year by the weighted average number of equity
shares outstanding during the year. For the purpose of calculating
diluted earnings per share, net profit after tax for the year and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares. The
dilutive potential equity shares are deemed converted as of the
beginning of the period, unless they have been issued at a later date.
The diluted potential equity shares have been adjusted for the proceeds
receivable had the shares been actually issued at fair value (i.e. the
average market value of the outstanding shares).
n) provisions and contingent liabilities
The Company creates a provision when there is a present obligation as a
result of a past event that probably requires an outflow of resources
and a reliable estimate can be made of the amount of the obligation. A
disclosure for a contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not,
require an outflow of resources. Where there is possible obligation or
a present obligation in respect of which the likelihood of outflow of
resources is remote, no provision or disclosure is made.
o) Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. If
such recoverable amount of the asset or the recoverable amount of the
cash generating unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced to its recoverable
amount. The reduction is treated as an impairment loss and is
recognised in the statement of profit and loss. If at the balance sheet
date there is an indication that if a previously assessed impairment
loss no longer exists, the recoverable amount is reassessed and the
asset is reflected at the recoverable amount subject to a maximum of
amortised historical cost.
p) Leases
The lease arrangement is classified as either a finance lease or an
operating lease, at the inception of the lease, based on the substance
of the lease arrangement. Finance leases
Finance leases
A finance lease is recognized as an asset and a liability at the
commencement of the lease, at the lower of the fair value of the asset
and the present value of the minimum lease payments. Initial direct
costs, if any, are also capitalized and, subsequent to initial
recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset. Minimum lease payments made
under finance leases are apportioned between the finance expense and
the reduction of the outstanding liability. The finance expense is
allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the
liability.
Operating leases
Other leases are operating leases, and the leased assets are not
recognized on the Company's balance sheet. Payments made under
operating leases are recognized in statement of profit and loss on a
straight-line basis over the term of the lease.
Mar 31, 2011
A) Basis of preparation
The financial statements of Dr. Reddys Laboratories Limited ("DRL" or
"the Company") have been prepared and presented in accordance with
Indian Generally Accepted Accounting Principles (GAAP) under the
historical cost convention on the accrual basis. GAAP comprises
accounting standards notifed by the Central Government of India under
Section 211 (3C) of the Companies Act, 1956, other pronouncements of
Institute of Chartered Accountants of India, the provisions of
Companies Act, 1956 and guidelines issued by Securities and Exchange
Board of India. The financial statements are rounded off to the nearest
million.
b) use of estimates
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities on the date of the financial statements and reported amounts
of revenues and expenses for the year. Actual results could differ
from these estimates. Any revision to accounting estimates is
recognised prospectively in the current and future periods.
c) fixed assets and depreciation
Fixed assets are carried at the cost of acquisition or construction
less accumulated depreciation. The cost of fixed assets includes
non-refundable taxes, duties, freight and other incidental expenses
related to the acquisition and installation of the respective assets.
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use are capitalised.
Advances paid towards the acquisition of fixed assets outstanding at
each balance sheet date and the cost of fixed assets not ready for their
intended use before such date are disclosed under capital
work-in-progress.
Depreciation on fixed assets is provided using the straight-line method
at the rates specifed in Schedule XIV to the Companies Act, 1956 or
based on the useful life of the assets as estimated by Management,
whichever is higher. Depreciation is calculated on a pro-rata basis
from the date of installation till the date the assets are sold or
disposed. Individual assets costing less than Rs. 5,000/- are depreciated
in full in the year of acquisition. Assets acquired on fnance leases
are depreciated over the period of the lease agreement or the useful
life whichever is shorter.
e) investments
Long-term investments are carried at cost less any other-than-temporary
diminution in value, determined separately for each individual
investment. The reduction in the carrying amount is reversed when there
is a rise in the value of the investment or if the reasons for the
reduction no longer exist.
Current investments are carried at the lower of cost and fair value.
The comparison of cost and fair value is done separately in respect of
each category of investment.
f) inventories
Inventories are valued at the lower of cost and net realisable value.
Cost of inventories comprises all cost of purchase, cost of conversion
and other costs incurred in bringing the inventories to their present
location and condition.
The methods of determining cost of various categories of inventories
are as follows:
Raw materials First-in-first-out (FIFO) Stores and spares and packing
materials Weighted average method Work-in-process and fnished goods
(manufactured) FIFO and including an appropriate share of production
overheads Finished goods (traded) Specifc identifcation method
g) research and development
Revenue expenditure on research and development is expensed as
incurred. Capital expenditure incurred on research and development is
capitalised as fixed assets and depreciated in accordance with the
depreciation policy of the Company.
h) employee benefts
Contributions payable to an approved gratuity fund (a defned beneft
plan), determined by an independent actuary at the balance sheet date,
are charged to the Profit and loss account. Provision for compensated
absences is made on the basis of actuarial valuation at the balance
sheet date, carried out by an independent actuary. Contributions
payable to the recognised provident fund and approved superannuation
scheme, which are defned contribution schemes, are charged to the Profit
and loss account. All actuarial gains and losses arising during the
year are recognized in the Profit and loss account of the year.
i) foreign currency transactions and balances
Foreign currency transactions are recorded using the exchange rates
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign currency transactions settled during the
year are recognised in the Profit and loss account.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date, not covered by forward exchange contracts, are
translated at year-end rates. The resultant exchange differences are
recognised in the Profit and loss account. Non-monetary assets are
recorded at the rates prevailing on the date of the transaction.
Income and expenditure items at representative offces are translated at
the respective monthly average rates. Monetary assets at representative
offces at the balance sheet date are translated using the year-end
rates. Non-monetary assets are recorded at the rates prevailing on the
date of the transaction.
Forward contracts are entered into to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date. The premium or
discount on all such contracts is amortized as income or expense over
the life of the contract. Any Profit or loss arising on the cancellation
or renewal of forward contracts is recognised as income or expense for
the period.
In relation to the forward contracts entered into to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
AS-11 (revised). The exchange difference on such a forward exchange
contract is calculated as the difference of the foreign currency amount
of the contract translated at the exchange rate at the reporting date,
or the settlement date where the transaction is settled during the
reporting period and the corresponding foreign currency amount
translated at the later of the date of inception of the forward
exchange contract and the last reporting date. Such exchange
differences are recognized in the Profit and loss account in the
reporting period in which the exchange rates change.
Exchange differences arising on a monetary item that, in substance,
forms part of an enterprises net investment in a non-integral foreign
operation has been accumulated in a foreign currency translation
reserve in the enterprises financial statements until the disposal of
the net investment, at which time they should be recognised as income
or as expense.
j) derivative instruments and hedge accounting
The Company uses foreign exchange forward contracts and options to
hedge its movements in foreign exchange rates and does not use the
foreign exchange forward contracts and options for trading or
speculative purposes.
Pursuant to ICAI Announcement "Accounting for Derivatives" on the early
adoption of Accounting Standard AS-30 "Financial Instruments:
Recognition and Measurement", the Company has adopted the Standard, to
the extent that the adoption does not confict with existing mandatory
accounting standards and other authoritative pronouncements, Company
law and other regulatory requirements.
The Company classifes foreign currency options in respect of the
forecasted transactions at the inception of each contract meeting the
hedging criterion, as cash fow hedges. Changes in the fair value of
options classifed as cash fow hedges are recognised directly in
reserves and surplus (under the head "Hedging Reserves") and are
reclassifed into the Profit and loss account upon the occurrence of the
hedged transaction. The gains / losses on options designated as cash
fow hedges are included along with the underlying hedged forecasted
transactions. The exchange differences relating to options not
designated as cash fow hedges are recognised in the Profit and loss
account as they arise. Further, the changes in fair value relating to
the ineffective portion of the cash fow hedges are recognised in the
Profit and loss account as they arise.
Fair value of foreign currency option contracts is determined based on
the appropriate valuation techniques considering the terms of the
contract.
In addition to the use of derivative financial instruments to hedge
foreign currency exposure, the Company designates certain
non-derivative financial liabilities, denominated in foreign currencies,
as hedges against foreign currency exposures associated with forecasted
transactions. Accordingly, exchange differences arising on
re-measurement of such non-derivative liabilities are recognized
directly as part of hedging reserve included as part of reserves and
surplus, to the extent that the hedge is effective.
If the hedging instrument no longer meets the criteria for hedge
accounting, expires or is sold, terminated or exercised, then hedge
accounting is discontinued prospectively. The cumulative gain or loss
previously recognized in hedging reserve remains there until the
forecast transaction occurs. If the forecast transaction is no longer
expected to occur, then the balance in hedging reserve is recognized
immediately in Profit and loss account. In other cases the amount
recognized in hedging reserve is transferred to Profit and loss account
in the same period that the hedged item affects Profit and loss account.
k) revenue recognition
Revenue from sale of goods is recognised when significant risks and
rewards in respect of ownership of products are transferred to
customers. Revenue from domestic sales of generic products is
recognized upon delivery of products to stockists by clearing and
forwarding agents of the Company. Revenue from domestic sales of active
pharmaceutical ingredients and intermediates is recognized on delivery
of products to customers, from the factories of the Company. Revenue
from export sales is recognized when the significant risks and rewards
of ownership of products are transferred to the customers, which is
based upon the terms of the applicable contract.
Revenue from product sales is stated exclusive of returns, sales tax
and applicable trade discounts and allowances.
Service income is recognised as per the terms of contracts with
customers when the related services are performed, or the agreed
milestones are achieved.
Dividend income is recognised when the unconditional right to receive
the income is established. Income from interest on deposits, loans and
interest bearing securities is recognised on the time proportionate
method.
Export entitlements are recognised as income when the right to receive
credit as per the terms of the scheme is established in respect of the
exports made and where there is no significant uncertainty regarding the
ultimate collection of the relevant export proceeds.
The Company enters into certain dossier sales, licensing and supply
arrangements with certain third parties. These arrangements include
certain performance obligations by the Company. Revenue from such
arrangements is recognized in the period in which the Company completes
all its performance obligations.
l) income-tax expense
Income tax expense comprises current tax and deferred tax charge or
credit.
Current tax
The current charge for income taxes is calculated in accordance with
the relevant tax regulations applicable to the Company.
Deferred tax
Deferred tax charge or credit refects the tax effects of timing
differences between accounting income and taxable income for the
period. The deferred tax charge or credit and the corresponding
deferred tax liabilities or assets are recognised using the tax rates
that have been enacted or substantially enacted by the balance sheet
date. Deferred tax assets are recognised only to the extent there is
reasonable certainty that the assets can be realised in future;
however, where there is unabsorbed depreciation or carry forward of
losses, deferred tax assets are recognised only if there is a virtual
certainty of realisation of such assets. Deferred tax assets are
reviewed at each balance sheet date and is written-down or written-up
to refect the amount that is reasonably / virtually certain (as the
case may be) to be realised. The break-up of the major components of
the deferred tax assets and liabilities as at balance sheet date has
been arrived at after setting off deferred tax assets and liabilities
where the Company has a legally enforceable right to set-off assets
against liabilities and where such assets and liabilities relate to
taxes on income levied by the same governing taxation laws.
m) earnings per share
The basic earnings per share ("EPS") is computed by dividing the net
Profit after tax for the year by the weighted average number of equity
shares outstanding during the year. For the purpose of calculating
diluted earnings per share, net Profit after tax for the year and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares. The
dilutive potential equity shares are deemed converted as of the
beginning of the period, unless they have been issued at a later date.
The diluted potential equity shares have been adjusted for the proceeds
receivable had the shares been actually issued at fair value (i.e. the
average market value of the outstanding shares).
n) employee stock option schemes
In accordance with the Securities and Exchange Board of India
guidelines, the excess of the market price of shares, at the date of
grant of options under the Employee stock option schemes, over the
exercise price is treated as employee compensation and amortised over
the vesting period.
o) Provisions and contingent liabilities
The Company creates a provision when there is a present obligation as a
result of a past event that probably requires an outfow of resources
and a reliable estimate can be made of the amount of the obligation. A
disclosure for a contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not,
require an outfow of resources. Where there is possible obligation or a
present obligation in respect of which the likelihood of outfow of
resources is remote, no provision or disclosure is made.
p) impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. If
such recoverable amount of the asset or the recoverable amount of the
cash generating unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced to its recoverable
amount. The reduction is treated as an impairment loss and is
recognised in the Profit and loss account. If at the balance sheet date
there is an indication that if a previously assessed impairment loss no
longer exists, the recoverable amount is reassessed and the asset is
refected at the recoverable amount subject to a maximum of depreciated
historical cost.
q) leases
Assets taken on lease where the company acquires substantially the
entire risks and rewards incidental to ownership are classifed as
fnance leases. The amount recorded is the lesser of the present value
of minimum lease rental and other incidental expenses during the lease
term or the fair value of the assets taken on lease. The rental
obligations, net of interest charges, are refected as secured loans.
Leases that do not transfer substantially all the risks and rewards of
ownership are classifed as operating leases and recorded as expense as
and when the payments are made over the lease term.
Mar 31, 2010
A) Basis of preparation
The financial statements of Dr. ReddyÃs Laboratories Limited (ÃDRLÃ or
Ãthe CompanyÃ) have been prepared and presented in accordance with
Indian Generally Accepted Accounting Principles (GAAP) under the
historical cost convention on the accrual basis. GAAP comprises
accounting standards notified by the Central Government of India under
Section 211 (3C) of the Companies Act, 1956, other pronouncements of
Institute of Chartered Accountants of India, the provisions of
Companies Act, 1956 and guidelines issued by Securities and Exchange
Board of India. The financial statements are rounded off to the nearest
million.
b) Use of estimates
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities on the date of the financial statements and reported
amounts of revenues and expenses for the year. Actual results could
differ from these estimates. Any revision to accounting estimates is
recognised prospectively in the current and future periods.
c) Fixed assets and depreciation
Fixed assets are carried at the cost of acquisition or construction
less accumulated depreciation. The cost of fixed assets includes
non-refundable taxes, duties, freight and other incidental expenses
related to the acquisition and installation of the respective assets.
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use are capitalised.
Advances paid towards the acquisition of fixed assets outstanding at
each balance sheet date and the cost of fixed assets not ready for
their intended use before such date are disclosed under capital
work-in-progress.
Depreciation on fixed assets is provided using the straight-line method
at the rates specified in Schedule XIV to the Companies Act, 1956 or
based on the useful life of the assets as estimated by Management,
whichever is higher. Depreciation is calculated on a pro-rata basis
from the date of installation till the date the assets are sold or
disposed. Individual assets costing less than Rs. 5,000/- are
depreciated in full in the year of acquisition. Assets acquired on
finance leases are depreciated over the period of the lease agreement
or the useful life whichever is shorter.
e) Investments
Long-term investments are carried at cost less any other-than-temporary
diminution in value, determined separately for each individual
investment. The reduction in the carrying amount is reversed when there
is a rise in the value of the investment or if the reasons for the
reduction no longer exist.
Current investments are carried at the lower of cost and fair value.
The comparison of cost and fair value is done separately in respect of
each category of investment.
f) Inventories
Inventories are valued at the lower of cost and net realisable value.
Cost of inventories comprises all cost of purchase, cost of conversion
and other costs incurred in bringing the inventories to their present
location and condition
The methods of determining cost of various categories of inventories
are as follows:
Raw materials First-in-first-out (FIFO)
Stores and spares and packing materials Weighted average method
Work-in-process and finished goods (manufactured) FIFO and including an
appropriate share of production overheads
Finished goods (traded) Specific identification method
g) Research and development
Revenue expenditure on research and development is expensed as
incurred. Capital expenditure incurred on research and development is
capitalised as fixed assets and depreciated in accordance with the
depreciation policy of the Company.
h) Employee benefits
Contributions payable to an approved gratuity fund (a defined benefit
plan), determined by an independent actuary at the balance sheet date,
are charged to the Profit and Loss Account. Provision for compensated
absences is made on the basis of actuarial valuation at the balance
sheet date, carried out by an independent actuary. Contributions
payable to the recognised provident fund and approved superannuation
scheme, which are defined contribution schemes, are charged to the
Profit and Loss Account. All actuarial gains and losses arising during
the year are recognized in the Profit and Loss Account of the year
i) Foreign currency transactions and balances
Foreign currency transactions are recorded using the exchange rates
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign currency transactions settled during the
year are recognised in the Profit and Loss Account.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date, not covered by forward exchange contracts, are
translated at year- end rates. The resultant exchange differences are
recognised in the Profit and Loss Account. Non-monetary assets are
recorded at the rates prevailing on the date of the transaction
Income and expenditure items at representative offices are translated
at the respective monthly average rates. Monetary assets at
representative offices at the balance sheet date are translated using
the year-end rates. Non-monetary assets are recorded at the rates
prevailing on the date of the transaction
Forward contracts are entered into to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date. The premium or
discount on all such contracts is amortized as income or expense over
the life of the contract. Any profit or loss arising on the
cancellation or renewal of forward contracts is recognised as income or
expense for the period
In relation to the forward contracts entered into to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
AS-11 (revised). The exchange difference on such a forward exchange
contract is calculated as the difference of the foreign currency amount
of the contract translated at the exchange rate at the reporting date,
or the settlement date where the transaction is settled during the
reporting period and the corresponding foreign currency amount
translated at the later of the date of inception of the forward
exchange contract and the last reporting date. Such exchange
differences are recognized in the Profit and Loss Account in the
reporting period in which the exchange rates change
Exchange differences arising on a monetary item that, in substance,
forms part of an enterpriseÃs net investment in a non-integral foreign
operation has been accumulated in a foreign currency translation
reserve in the enterpriseÃs financial statements until the disposal of
the net investment, at which time they should be recognised as income
or as expense.
j) Derivative instruments and hedge accounting
The Company uses foreign exchange forward contracts and options to
hedge its movements in foreign exchange rates and does not use the
foreign exchange forward contracts and options for trading or
speculative purposes.
Pursuant to ICAI Announcement ÃAccounting for Derivativesà on the early
adoption of Accounting Standard AS-30 ÃFinancial Instruments:
Recognition and MeasurementÃ, the Company has adopted the Standard, to
the extent that the adoption does not conflict with existing mandatory
accounting standards and other authoritative pronouncements, Company
law and other regulatory requirements.
The Company classifies foreign currency options in respect of the
forecasted transactions at the inception of each contract meeting the
hedging criterion, as cash flow hedges. Changes in the fair value of
options classified as cash flow hedges are recognised directly in
shareholdersà funds (under the head ÃHedging ReservesÃ) and are
reclassified into the Profit and Loss Account upon the occurrence of
the hedged transaction. The gains / losses on options designated as
cash flow hedges are included along with the underlying hedged
forecasted transactions. The exchange differences relating to options
not designated as cash flow hedges are recognised in the Profit and
Loss Account as they arise. Further, the changes in fair value relating
to the ineffective portion of the cash flow hedges are recognised in
the Profit and Loss Account as they arise.
k) Revenue recognition
Revenue from sale of goods is recognised when significant risks and
rewards in respect of ownership of products are transferred to
customers. Revenue from domestic sales of generic products is
recognized upon delivery of products to stockists by clearing and
forwarding agents of the Company. Revenue from domestic sales of active
pharmaceutical ingredients and intermediates is recognized on delivery
of products to customers, from the factories of the Company. Revenue
from export sales is recognized when the significant risks and rewards
of ownership of products are transferred to the customers, which is
based upon the terms of the applicable contract.
Revenue from product sales is stated exclusive of returns, sales tax
and applicable trade discounts and allowances.
Service income is recognised as per the terms of contracts with
customers when the related services are performed, or the agreed
milestones are achieved.
Dividend income is recognised when the unconditional right to receive
the income is established. Income from interest on deposits, loans and
interest bearing securities is recognised on the time proportionate
method.
Export entitlements are recognised as income when the right to receive
credit as per the terms of the scheme is established in respect of the
exports made and where there is no significant uncertainty regarding
the ultimate collection of the relevant export proceeds.
The Company enters into certain dossier sales, licensing and supply
arrangements with certain third parties. These arrangements include
certain performance obligations by the Company. Revenue from such
arrangements is recognized in the period in which the Company completes
all its performance obligations.
l) Income-tax expense
Income tax expense comprises current tax and deferred tax charge or
credit.
Current tax
The current charge for income taxes is calculated in accordance with
the relevant tax regulations applicable to the Company.
Deferred tax
Deferred tax charge or credit reflects the tax effects of timing
differences between accounting income and taxable income for the
period. The deferred tax charge or credit and the corresponding
deferred tax liabilities or assets are recognised using the tax rates
that have been enacted or substantially enacted by the balance sheet
date. Deferred tax assets are recognised only to the extent there is
reasonable certainty that the assets can be realised in future;
however, where there is unabsorbed depreciation or carry forward of
losses, deferred tax assets are recognised only if there is a virtual
certainty of realisation of such assets. Deferred tax assets are
reviewed at each balance sheet date and is written-down or written-up
to reflect the amount that is reasonably / virtually certain (as the
case may be) to be realised. The break-up of the major components of
the deferred tax assets and liabilities as at balance sheet date has
been arrived at after setting off deferred tax assets and liabilities
where the Company has a legally enforceable right to set-off assets
against liabilities and where such assets and liabilities relate to
taxes on income levied by the same governing taxation laws.
m) Earnings per share
The basic earnings per share (ÃEPSÃ) is computed by dividing the net
profit after tax for the year by the weighted average number of equity
shares outstanding during the year. For the purpose of calculating
diluted earnings per share, net profit after tax for the year and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares. The
dilutive potential equity shares are deemed converted as of the
beginning of the period, unless they have been issued at a later date.
The diluted potential equity shares have been adjusted for the proceeds
receivable had the shares been actually issued at fair value (i.e. the
average market value of the outstanding shares).
n) Employee stock option schemes
In accordance with the Securities and Exchange Board of India
guidelines, the excess of the market price of shares, at the date of
grant of options under the Employee stock option schemes, over the
exercise price is treated as employee compensation and amortised over
the vesting period.
o) Provisions and contingent liabilities
The Company creates a provision when there is a present obligation as a
result of a past event that probably requires an outflow of resources
and a reliable estimate can be made of the amount of the obligation. A
disclosure for a contingent liability is made when there is a possible
obligation or a present obligation that may, but probably will not,
require an outflow of resources. Where there is possible obligation or
a present obligation in respect of which the likelihood of outflow of
resources is remote, no provision or disclosure is made.
p) Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. If
such recoverable amount of the asset or the recoverable amount of the
cash generating unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced to its recoverable
amount. The reduction is treated as an impairment loss and is
recognised in the Profit and Loss Account. If at the balance sheet date
there is an indication that if a previously assessed impairment loss no
longer exists, the recoverable amount is reassessed and the asset is
reflected at the recoverable amount subject to a maximum of depreciated
historical cost.
q) Leases
Assets taken on lease where the company acquires substantially the
entire risks and rewards incidental to ownership are classified as
finance leases. The amount recorded is the lesser of the present value
of minimum lease rental and other incidental expenses during the lease
term or the fair value of the assets taken on lease. The rental
obligations, net of interest charges, are reflected as secured loans.
Leases that do not transfer substantially all the risks and rewards of
ownership are classified as operating leases and recorded as expense as
and when the payments are made over the lease term.
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