Notes to Accounts of Procter & Gamble Health Ltd.
Jun 30, 2023
Terms/ rights attached to equity shares
The Company has only one class of equity shares having par value of '' 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
No shares are bought back by the Company during the period of 5 years immediately preceding the Balance Sheet date.
No shares are allotted as fully paid up by way of bonus shares during the period of 5 years immediately preceeding the Balance Sheet date.
No shares are reserved for issue under options and contracts/commitments for the sale of shares/ disinvestment.
No shares are allotted as fully paid up pursuant to contracts without being payment received in cash during the period of 5 years immediately preceeding the Balance Sheet date.
This reserve represents the cumulative profits / (Losses) of the Company and effects of remeasurement of defined benefit obligations. This reserve can be utilised in accordance with the provisions of the Act.
In November 2022, final dividend of '' 11.5 per share (total dividend '' 1 909 lakhs) for the year ended June 30, 2022 was paid to holders of fully paid equity shares. In February 2023, interim dividend of '' 45 per share (total dividend '' 7 470 lakhs).
In November 2021, final dividend of '' 130 per share (total dividend '' 21 579 lakhs) for the year ended June 30, 2021 was paid to holders of fully paid equity shares. In May 2022, a special interim dividend of '' 41 per share (total dividend '' 6 806 lakhs was paid to holders of fully paid equity shares.
33 Segment information33.1 General Information
The Companyâs chief operating decision maker (CODM) examined the Companyâs performance based on its business unit âPharmaceuticalsâ
The Company will now operate under only one segment i.e. Pharmaceuticals.
33.2 Geographical segment information
In respect of secondary segment information, the Company has identified its geographical segment as (i) India and (ii) Outside India.
34 Financial instruments & related disclosures34.1 Capital management
The Company manages its capital to ensure that it will be able to continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. Equity share capital and other equity are considered for the purpose of Company''s capital management.
The Company is not subject to any externally imposed capital requirements.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders if any, return on capital to shareholders or issue new shares.
The carrying amount of financial assets and financial Liabilities measured at amortised cost in the financial statements are a reasonable approximation of their fair values since the Company does not anticipate that the carrying amounts would be significantly different from the values that would eventually be received or settled.
34.4 Financial risk management objectives
The Companyâs activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Companyâs primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Companyâs risk management assessment, policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Companyâs activities. The Board of Directors and the Audit Committee is responsible for overseeing the Companyâs risk assessment and management policies and processes.The Company has exposure to the following risks arising from financial instruments:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companyâs receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.
Trade and other receivables
The Companyâs exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.
Companyâs exposure to credit risk by age of the outstanding from various customers is as per note 13.
Expected credit loss assessment
Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. The impairment loss at 30 June 2023 related to several customers that have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.
The movement in the allowance for impairment in respect of trade receivables during the year is as per note 13.
Cash and cash equivalents
The Company held cash and cash equivalents and other bank balances with credit worthy banks and financial institutions of ? 43 505 lakhs (30 June 2022 ? 31 940 lakhs). The credit
worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be good.
34.4.2 Liquidity risk management
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Companyâs reputation.
As of 30 June 2023 the Company has working capital of ? 49 220 lakhs (30 June 2022: ? 37 614 lakhs) including cash and cash equivalents and other bank balances of ? 43 505 lakhs (30 June 2022: ? 31 940 lakhs). Working capital is calculated as current assets less current liabilities.
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and longterm debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Companyâs exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.
The fluctuation in foreign currency exchange rates may have potential impact on the profit and loss account, where any transaction references more than one currency or where assets/ liabilities are denominated in a currency other than the functional currency of the entity.
Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in EURO and USD against the respective functional currency of the Company.
The Company does not use any derivative financial instruments to hedge foreign exchange and interest rate exposure.
34.4.5 Foreign currency sensitivity analysis
The Company is mainly exposed to the currencies stated above.
The following table details impact to profit or loss of the Company by sensitivity analysis of a 10% increase and decrease in the respective currencies against the functional currency of the Company. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management''s assessment of the reasonably possible changes in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change on foreign currency rates.
34.4.6 Interest rate risk management
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Interest rate sensitivity - fixed rate instruments
The Company does not account for any fixed-rate financial assets or financial liabilities at fair value through profit and loss, and the Company does not have any designated derivatives. Therefore, a change in interest rates at the reporting date would not affect profit and loss for any of these fixed interest bearing financial instruments.
35 Share-based paymentsa) International Stock Ownership Plan (Stocks of the Ultimate Holding Company)
The Procter & Gamble Company, USA has an âInternational Stock Ownership Planâ (employee share purchase plan) whereby specified employees of its subsidiaries have been given a right to purchase shares of the Ultimate Holding Company i.e. The Procter & Gamble Company, USA. Every employee who opts for the scheme contributes by way of payroll deduction up to a specified percentage (upto 15%) of base salary towards purchase of shares on a monthly basis. The Company contributes 50% of employee''s contribution (restricted to 2.5% of his base salary). Such contribution is charged under employee benefits expense.
The shares of The Procter & Gamble Company, USA are listed with New York Stock Exchange and are purchased on behalf of the employees at market price on the date of purchase. During the year ended June 30, 2023, 2 506.10 (Previous period ended June 30, 2022: 2 043.58) shares excluding dividend were purchased by employees at weighted average fair value of '' 11 896.54 (Previous period ended June 30, 2022: '' 11 655.75) per share. The Companyâs contribution during the year on such purchase of shares amounts to '' 77.21 Lakhs (Previous period ended June 30, 2022: '' 60.97 lakhs) has been charged under employee benefits expense under Note 28.
b) Employees Stock Options Plan (Stocks of the Ultimate Holding Company)
The Procter & Gamble Company, USA has an âEmployee Stock Option Planâ whereby specified employees of its subsidiaries covered by the plan are granted an option to purchase shares of the Ultimate Holding Company i.e. The Procter & Gamble Company, USA at a fixed price (grant price) for a fixed year of time. The shares of The Procter & Gamble Company, USA are listed with New York Stock Exchange. The Options Exercise price equal to the market price of the underlying shares on the date of the grant. The Grants issued are vested after 3 years and have a 5/10 years life cycle.
The weighted average share price at the date of exercise of these options was $ 131.49 (June 30, 2022: $ 158.22).
The weighted average remaining contractual Life for the share options outstanding as at June 30, 2023 was 6.47 years (June 30, 2022: 6.92 years).
The weighted fair value of options granted during the year was '' 3 788 (June 30, 2022: '' 4 931).
These fair values for share options granted during the year were calculated using binomial lattice-based model. The following tables list the inputs to the models used for the plans for the years ended June 30, 2023 and June 30, 2022, respectively:
36 Employee benefit plans36.1 Defined Benefit plans / long term benefit plan
The Company operates two post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half monthâs salary for each year of completed service at the time of retirement/ exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.
a) Gratuity Plan (Funded)
The Company sponsors funded defined benefit gratuity plan for all eligible employees of the Company. The Company''s defined benefit gratuity plan is a final salary plan for India employees, which requires contributions to be made to a separately administered trust, which is administered through trustees and/or Life Insurance Corporation of India. The gratuity plan is governed by the Payment of Gratulty Act, 1972. Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the member''s length of service and salary at retirement age.
b) Post Retirement Medical Benefit (PRMB) (Unfunded)
The Company provides certain post-employment medical benefits to employees. Under the scheme, employees get medical benefits subject to certain limits of amount, periods after retirement and types of benefits, depending on their grade at the time of retirement. Employees separated from the Company as part of early separation scheme are also covered under the scheme. The liability for post retirement medical scheme is based on an independent actuarial valuation.
c) Compensated absences (Unfunded)
The Company also provides for compensated absences as per its policies, which allows for encashment of leave on termination / retirement of service or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits for future encashment / availment. The Company makes provision for compensated absences based on an actuarial valuation carried out at the end of the year/ period.
d) Long term service award (Unfunded)
Long term service award is given on completion of minimum 10 years of service.
These plans typically expose the Company to actuarial risks such as: Investment risk, interest rate risk, longevity risk and salary risk.
In respect of the plan, the most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at June 30, 2023. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.
Significant actuarial assumptions of the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
G. Sensitivity analysis Gratuity Plan (Funded)
If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by '' 134 lakhs (increase by '' 141 lakhs) (as at June 30, 2022: decrease by '' 129 lakhs (increase by '' 135 lakhs)).
If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by '' 145 lakhs (decrease by '' 139 lakhs) (as at June 30, 2022: increase by '' 140 lakhs (decrease by '' 135 lakhs)).
Compensated absence plan (Unfunded)
If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by '' 7.5 lakhs (increase by '' 7.9 lakhs) (as at June 30, 2022: decrease by '' 4.5 lakhs (increase by '' 4.7 lakhs)).
If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by '' 7.8 lakhs (decrease by '' 7.5 lakhs) (as at June 30, 2022: increase by '' 4.8 lakhs (decrease by '' 4.7 lakhs)).
Post retirement medical benefit (PRMB) (Unfunded)
If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by '' 1.0 lakhs (increase by '' 1.1 lakhs).
If the medical inflation rate is 50 basis points higher (lower), the defined benefit obligation would increase by '' 1.10 lakhs (decrease by '' 1.05 lakhs)
The sensitivity analysis presented above may not be representative of the actual change of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method as the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the Balance Sheet.
If the discount rate is 50 basis points higher (Lower), the defined benefit obligation would decrease by '' 11.9 lakhs (increase by '' 12.6 lakhs).
If the gold inflation rate is 50 basis points higher (lower), the defined benefit obligation would increase by '' 12.5 lakhs (decrease by '' 12.0 lakhs)
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
e) Contribution to Provident fund, Superannuation fund and others
Amount of '' 991 lakhs (2022: '' 905 lakhs) is recognised as an expense and included in âEmployee costsâ (refer note 28) in the Statement of Profit and Loss.
In respect of provident fund set up by employer which requires interest shortfall to be met by the employer, it needs to be treated as defined benefit plan.
The Institute of Actuaries of India has issued guidance for measurement of provident fund liabilities on actuarial basis. Based on this guidance note, the actuary has provided an actuarial valuation of the provident fund liability of the Company as at 30 June 2023.
The sales to and purchases from related parties are made on terms equivalent to those that prevail in armâs length transactions.
Outstanding balances at the year-end are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. The Company has not recorded any impairment of receivables relating to amounts owed by related parties in the current year or prior years. (Except general provision coming in accordance with ECL Model). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
# Remuneration does not include charge for gratuity, compensated absences and share based payments, as employee-wise break-up is not available.
Amounts are inclusive of GST wherever applicable.
The Company does not face a significant Liquidity risk with regard to its Lease LiabiLities as the current assets are sufficient to meet the obligations related to lease liabilities as and when they fall due.
The Company has taken on lease certain warehouses with an option of renewal at the end of the lease term and escalation clause in some of the cases. These leases can be terminated with a prior notice as per terms and conditions of the respective lease agreements. The cost of lease for the warehouses are disclosed under rent expense.
38.2 Company as a lessor38.2.1 Leasing arrangements
The Company has leased out certain office premises which have been classified as investment property. The lease term is 60 months with non cancellable period of 48 months. There is escalation clause in the lease agreement. The carrying amount of property given on operating lease and depreciation thereon for the year are:
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39 Commitments |
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As at June 30, 2023 '' in lakhs |
As at June 30, 2022 '' in lakhs |
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Estimated amount of contracts remaining to be executed on capital account and not provided for [net of capital advance ? 20 lakhs (30 June 2022: ? Nil)] |
897 |
2 322 |
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897 |
2 322 |
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40 Contingent liabilities |
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As at June 30, 2023 '' in lakhs |
As at June 30, 2022 '' in lakhs |
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a) Claims against company not acknowledged as debts |
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Income tax matters |
9 403 |
10 020 |
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Sales tax matters |
2 067 |
3 611 |
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Excise duty, GST, Service tax and custom duty matters |
4 181 |
4 488 |
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15 651 |
18 119 |
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Future cash flow in respect of the above, if any, is determinable only on receipt of judgements/decisions pending with the relevant authorities.
b) In June 2016, National Pharmaceutical Pricing Authority (NPPA) served a demand notice on the Company alleging that during the period from January 2006 to June 2009 the Company sold Polybion 100ml syrup at a price higher than the ceiling price fixed by it on 05 June 2008. Pursuant to orders passed by Kolkata High Court, NPPA gave another opportunity of hearing to the Company. NPPA did not accede to any of the Companyâs contention and issued a fresh demand notice demanding a sum of ? 3 307 lakhs (? 1 168 lakhs on account of overcharge during the said period and ? 2 138 lakhs for interest thereon) for sales made by the Company during the period May 2006 to June 2009. The Company has challenged the said demand by way of writ petition, which is pending before Honâble Delhi High Court. In a separate proceedings filed by the manufacturer of the said drug, Cradel Pharmaceutical Private Limited, Honâble Kolkata High Court stayed the demand provided it deposits a sum of ? 225 lakhs with the NPPA. The Company has been legally advised that the Company has a defendable case before Delhi High Court. The Company holds provision of ? 580 lakhs in its books towards possible liability.
c) During the year 2014, the Company had made a provision of ? 699 lakhs towards a possible liability which may accrue to the Company due to a judgment passed by the Supreme Court in the year 2014 impacting the Pharmaceutical industry in India including the Company. The provision of ?108 lakhs was transferred as a part of BPL Business transferred to Merck Life Science Private Limited. The Company holds provision of ? 591 lakhs in its books towards possible liability.
d) National Pharmaceutical Pricing Authority (NPPA) issued the price fixation orders for about 350 drugs on 21 June 2013 including Metformin, a formulation used by the Company in Companyâs product Carbophage 500 SR. The orders did not clarify whether the prices so fixed are applicable only for plain tablet or innovative dosages as well. The Company sought clarification from NPPA, however, no clear response has been received. Pending this clarification NPPA had sent a notice dated June 06, 2014, claiming the differential pricing charged by the Company for Carbophage 500 SR over the prices notified. On the basis of a recent judgement passed by the High Court of Bombay, the Company made a provision of ? 320 lakhs towards a possible liability which may accrue to the Company. Since Carbophage was part of the BPL business transferred to Merck Life Science Private Limited, the underlying provision was transferred out.
Further, NPPA has also issued a demand order dated May 10, 2017 of ? 52 Lakhs to the Company under the provisions of Drug Prices (Control) Order, 2013 (âDPCOâ) for overcharging in respect of Concor 5 mg Tablets (containing the bulk drug Bisoprolol 5 mg) with interest thereon @15% on the said amount.
The Company has challenged both the above matters by writ petition which are pending adjudication in the Bombay High Court. In the view of the management, future course of action in relation to both these matters, including any liabilities thereof will be managed directly by Merck Life Science Private Limited. Managements of the Company and Merck Life Science Private Limited are aligning this understanding basis business transfer agreements and hence, these matters are disclosed as contingent liabilities.
e) During the year 2014, Central Excise issued a show cause cum demand notice on the Company covering a period of five years for alleged wrong classification of the products, Vitamin E Acetate min. 92% for Poultry/ Cattle/Pig-feed, Vitamin E Liquid for Animal Nutrition (for Pig/Cattle/Poultry) and Vitamin E Dry Powder 50% for Animal Nutrition. The value of total demand was ? 2 178 lakhs including penalty and interest.
Further, for same classification matter, the Company has received VAT/CST assessment orders of ? 2 178 lakhs and notices covering a period of five years disallowing VAT exemption claimed for Vitamin E Acetate, Vitamin E dry powder, Vitamin E liquid for Animal nutrition classified as Animal feed. For the orders received, the Company has contested before the respective state appellate authorities.
The Central Excise had issued show cause cum demand on similar matter in the past as well. This was contested by the Company before the lower authorities. On the representation made by the Company the demand was dropped after considering various decisions pronounced by judicial and quasi-judicial authorities at the relevant time.
The Company based on legal opinion believes that it has a good case on merits as well as on limitations. The aforesaid amounts have already been included under contingent liability at note 40 (a) to the financial statements.
Dues to Micro and Small Enterprises have been determined to the extent such parties have been identified on the basis of information collected by the Management. This has been relied upon by the auditors.
43 (a) Reimbursement / (recovery) of expenses cross charged to related parties include payments / recoveries on account of finance, personnel, secretarial, administration and planning services rendered under common services agreements with Procter & Gamble Hygiene & Health Care Limited, Procter & Gamble Home Products Private Limited, Gillette Diversified Operations Pvt Ltd and Gillette India Limited.
43 (b) Certain expenses in the nature of employee costs, relocation costs and other expenses are cross charged by the Company to its fellow subsidiaries at actual. Similar expenses incurred by fellow subsidiaries are cross charged to the Company at actual.
The Board of Directors at its meeting held on August 23, 2023 have recommended a payment of final dividend of '' 50 per equity share of face value of '' 10 each for the financial year ended June 30, 2023 resulting in a dividend payout of '' 8 299.7 lakhs.
45 As per the MCA notification dated August 5, 2022, and the Companies (Accounts) Fourth Amendment Rules, 2022, the Company is required to maintain backups of books of account on servers physically located in India on a daily basis. The Company has maintained periodic backups of certain part of their books of accounts and other relevant books and papers maintained in electronic mode on servers physically located in India. This is in addition to regular backups on the Companyâs Global Servers. The Company is in process of implementing a system to perform daily backups to comply with the requirements of the relevant Rules
Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Companyâs transactions with related parties are at armâs length as per the independent accountants report for the year ended 31 March 2022. Management believes that the Companyâs transactions with related parties post March 2022 continue to be at armâs length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
47 There are no significant subsequent events that would require adjustments or disclosures in the financial statements as on the balance sheet date.
48 (a) No transactions to report against the following disclosure requirements as notified by MCA pursuant
to amended Schedule III:
i) Crypto Currency or Virtual Currency
ii) Benami Property held under Benami Transactions (Prohibition) Act, 1988 (45 of 1988)
iii) Registration of charges or satisfaction with Registrar of Companies
iv) Relating to borrowed funds:
a) Wilful defaulter
b) Borrowings obtained on the basis of security of current assets
c) Discrepancy in utilisation of borrowings
d) Current maturity of long term borrowings
48 (b) The Company has not entered into any such transaction which is not recorded in the books of account that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).
48 (d). Utilization of borrowed funds and share premium:
The company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
(i) Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or
(ii) Provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries.
The company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the company shall:
(i) Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
(ii) Provide any guarantee, security or the like on behalf of the ultimate beneficiaries.
49 During the earlier year, Company had impaired plant and machinary related to product oxynex whose supply terms were completed as at March 31, 2022.
The Company no longer plants for future manufacture and supply of the said product.
The impairment has been reversed during the year on actual sale of the said plant.
50 Figures for the previous year have been re-grouped/re-arranged wherever necessary to conform current periodâs classification.
51 Approval of financial statements
The financial statements were approved for issue by the board of directors on August 23, 2023.
Jun 30, 2022
Contractual Obligations
The Company has no contractual obligations to purchase, construct or develop investment property. However, the responsibility for its repairs, maintenance or enhancements is with the Company.
Based on Independent valuation report as on 25 August 2022, for one of the property located in the same premises, the management has estimated fair value of '' 2 970 lakhs for the investment properties. The aforesaid estimated amount will not be materially different from the fair value of the property as on June 30, 2022.
Policy for Estimation of Fair Value
Market Approach / Direct Comparison Approach
The Direct Comparison Approach involves a comparison of the subject property to similar properties that have actually sold in arms - length transactions or are offered for sale. This approach demonstrates what buyers have historically been willing to pay (and sellers willing to accept) for similar properties in an open and competitive market and is particularly useful in estimating the value of the land and properties that are typically traded on a unit basis.
(a) Loans given to employees as per the Companyâs policy are not considered for the purposes of disclosure under Section 186 (4) of the Act.
(b) There are no loans or advances in the nature of loans granted to Promoters, Directors, KMPs and their
related parties (as defined under Companies Act, 2013), either severally or jointly with any other person, that are:
(i) repayable on demand; or
(ii) without specifying any terms or period of repayment
(a) Includes amounts deposited with Excise, Sales Tax and other authorities pending resolution of disputes.
(b) Advances given to employees as per the Companyâs policy are not considered for the purposes of disclosure under Section 186 (4) of the Companies Act, 2013.
The Company has used a practical expedient by computing the expected credit Loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward-looking information. The expected credit loss allowance is based on the ageing of the days the receivables are due and the rates as per the provision matrix.
Terms/ rights attached to equity shares
The Company has only one class of equity shares having par value of '' 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
No shares are bought back by the Company during the period of 5 years immediately preceding the Balance Sheet date.
No shares are allotted as fully paid up by way of bonus shares during the period of 5 years immediately preceeding the Balance Sheet date.
No shares are reserved for issue under options and contracts/commitments for the sale of shares/ disinvestment.
No shares are allotted as fully paid up pursuant to contracts without being payment received in cash during the period of 5 years immediately preceeding the Balance Sheet date.
This reserve represents the cumulative profits / (Losses) of the Company and effects of remeasurement of defined benefit obligations. This reserve can be utilised in accordance with the provisions of the Act.
In November 2021, final dividend of '' 130 per share (total dividend '' 21 579 lakhs) for the year ended June 30, 2021 was paid to holders of fully paid equity shares. In November 2020, the final dividend paid was '' 230 per share (total dividend '' 38 178 lakhs) for the year ended June 30, 2020.
In May 2022, a special interim dividend of '' 41 per share (total dividend '' 6 806 lakhs was paid to holders of fully paid equity shares.
The Companyâs chief operating decision maker (CODM) examined the Companyâs performance based on its business unit âPharmaceuticalsâ
The Company will now operate under only one segment i.e. Pharmaceuticals.
In respect of secondary segment information, the Company has identified its geographical segment as (i) India and (ii) Outside India.
34 Financial instruments & related disclosures34.1 Capital management
The Company manages its capital to ensure that it will be able to continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. Equity share capital and other equity are considered for the purpose of Company''s capital management.
The Company is not subject to any externally imposed capital requirements.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders if any, return on capital to shareholders or issue new shares.
The carrying amount of financial assets and financial Liabilities measured at amortised cost in the financial statements are a reasonable approximation of their fair values since the Company does not anticipate that the carrying amounts would be significantly different from the values that would eventually be received or settled.
34.4 Financial risk management objectives
The Companyâs activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Companyâs primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Companyâs risk management assessment, policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Companyâs activities. The Board of Directors and the Audit Committee is responsible for overseeing the Companyâs risk assessment and management policies and processes.The Company has exposure to the following risks arising from financial instruments:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companyâs receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.
Trade and other receivables
The Companyâs exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.
Companyâs exposure to credit risk by age of the outstanding from various customers is as per note 13.
Expected credit loss assessment
Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit Losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. The impairment loss at 30 June 2022 related to several customers that have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.
The movement in the allowance for impairment in respect of trade receivables during the year is as per note 13.
Cash and cash equivalents
The Company held cash and cash equivalents and other bank balances with credit worthy banks and financial institutions of ? 31 940 lakhs (30 June 2021: ? 46 412 lakhs). The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be good.
34.4.2 Liquidity risk management
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Companyâs reputation.
As of 30 June 2022 the Company has working capital of ? 37 781 lakhs (30 June 2021: ? 48 817 lakhs) including cash and cash equivalents and other bank balances of ? 31 940 lakhs (30 June 2021: ? 46 412 lakhs). Working capital is calculated as current assets less current liabilities.
The table below analyse financial liabilities of the Company into relevant maturity groupings based on the reporting period from the reporting date to the contractual maturity date:
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and Longterm debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Companyâs exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.
The fluctuation in foreign currency exchange rates may have potential impact on the profit and loss account, where any transaction references more than one currency or where assets/ liabilities are denominated in a currency other than the functional currency of the entity.
Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in EURO and USD against the respective functional currency of the Company.
The Company does not use any derivative financial instruments to hedge foreign exchange and interest rate exposure.
34.4.5 Foreign currency sensitivity analysis
The Company is mainly exposed to the currencies stated above.
The following table details impact to profit or loss of the Company by sensitivity analysis of a 10% increase and decrease in the respective currencies against the functional currency of the Company. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management''s assessment of the reasonably possible changes in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change on foreign currency rates.
34.4.6 Interest rate risk management
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Interest rate sensitivity - fixed rate instruments
The Company does not account for any fixed-rate financial assets or financial liabilities at fair value through profit and loss, and the Company does not have any designated derivatives. Therefore, a change in interest rates at the reporting date would not affect profit and loss for any of these fixed interest bearing financial instruments.
35 Share-based paymentsa) International Stock Ownership Plan (Stocks of the Ultimate Holding Company)
The Procter & Gamble Company, USA has an âInternational Stock Ownership Planâ (employee share purchase plan) whereby specified employees of its subsidiaries have been given a right to purchase shares of the Ultimate Holding Company i.e. The Procter & Gamble Company, USA. Every employee who opts for the scheme contributes by way of payroll deduction up to a specified percentage (upto 15%) of base salary towards purchase of shares on a monthly basis. The Company contributes 50% of employee''s contribution (restricted to 2.5% of his base salary). Such contribution is charged under employee benefits expense.
The shares of The Procter & Gamble Company, USA are listed with New York Stock Exchange and are purchased on behalf of the employees at market price on the date of purchase. During the year ended June 30, 2022, 2 043.58 (Previous period ended June 30, 2021: 1 350.97) shares excluding dividend were purchased by employees at weighted average fair value of '' 11 655.75 (Previous period ended June 30, 2021: '' 10 557.23) per share. The Companyâs contribution during the year on such purchase of shares amounts to '' 60.97 Lakhs (Previous period ended June 30, 2021: '' 32.6 lakhs) has been charged under employee benefits expense under Note 28.
b) Employees Stock Options Plan (Stocks of the Ultimate Holding Company)
The Procter & Gamble Company, USA has an âEmployee Stock Option Planâ whereby specified employees of its subsidiaries covered by the plan are granted an option to purchase shares of the Ultimate Holding Company i.e. The Procter & Gamble Company, USA at a fixed price (grant price) for a fixed year of time. The shares of The Procter & Gamble Company, USA are listed with New York Stock Exchange. The Options Exercise price equal to the market price of the underlying shares on the date of the grant. The Grants issued are vested after 3 years and have a 5/10 years life cycle.
The weighted average share price at the date of exercise of these options was $ 158.22 (June 30, 2021: $ 140.42).
The weighted average remaining contractual Life for the share options outstanding as at June 30, 2022 was 6.92 years (June 30, 2021: 6.51 years).
The weighted fair value of options granted during the year was '' 4 931 (June 30, 2021: '' 2 765).
These fair values for share options granted during the year were calculated using binomial lattice-based model. The following tables list the inputs to the models used for the plans for the years ended June 30, 2022 and June 30, 2021, respectively:
36 Employee benefit plans 36.1 Defined Benefit plans
The Company operates post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half monthâs salary for each year of completed service at the time of retirement/exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.
a) Gratuity Plan (Funded)
The Company sponsors funded defined benefit gratuity plan for all eligible employees of the Company. The Companyâs defined benefit gratuity plan is a final salary plan for India employees, which requires
contributions to be made to a separately administered trust. The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the memberâs length of service and salary at retirement age. The gratuity plan is administered by a separate trust that is legally separated from the Company. The board of the trust is composed of representatives from both employer and employees. The board of the trust is required by law and by its articles of association to act in the interest of the trust and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees, employer. The board of the trust is responsible for the investment policy with regard to the assets of the trust.
b) Post Retirement Medical Benefit (PRMB) (Unfunded)
The Company provides certain post-employment medical benefits to employees. Under the scheme, employees get medical benefits subject to certain limits of amount, periods after retirement and types of benefits, depending on their grade at the time of retirement. Employees separated from the Company as part of early separation scheme are also covered under the scheme. The liability for post retirement medical scheme is based on an independent actuarial valuation.
c) Compensated absences (Unfunded)
The Company also provides for compensated absences as per it''s policies, which allows for encashment of leave on termination / retirement of service or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits for future encashment / availment. The Company makes provision for compensated absences based on an actuarial valuation carried out at the end of the year.
These plans typically expose the Company to actuarial risks such as: Investment risk, interest rate risk, longevity risk and salary risk.
Investment risk The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds.
Interest risk A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan investments.
Longevity risk The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality rate of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plans liability.
Salary risk The present value of the defined benefit plan liability is calculated by reference to
the future salaries of plan participants. As such, an increase on the salary of plan participants will increase the plans liability.
In respect of the plan, the most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at June 30, 2022. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.
Significant actuarial assumptions of the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonable possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
G. Sensitivity analysis Gratuity Plan (Funded)
If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by '' 129 lakhs (increase by '' 135 lakhs) (as at June 30, 2021: decrease by '' 133 lakhs (increase by '' 140 lakhs)).
If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by '' 140 lakhs (decrease by '' 135 lakhs) (as at June 30, 2021: increase by '' 129 lakhs (decrease by '' 124 lakhs)).
Compensated absence plan (Unfunded)
If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by '' 4.5 lakhs (increase by '' 4.7 lakhs) (as at June 30, 2021: decrease by '' 5.1 lakhs (increase by '' 5.4 lakhs)).
If the expected salary growth increases (decreases) by 0.5%, the defined benefit obligation would increase by '' 4.8 lakhs (decrease by '' 4.7 lakhs) (as at June 30, 2021: increase by '' 4.9 lakhs (decrease by '' 4.7 lakhs)).
Post retirement medical benefit (PRMB)
If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by '' 1.0 lakhs (increase by '' 1.1 lakhs).
If the medical inflation rate is 50 basis points higher (Lower), the defined benefit obligation would increase by '' 1.09 (decrease by '' 1.05 lakhs)
The sensitivity analysis presented above may not be representative of the actual change of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method as the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the Balance Sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
Long term service award (unfunded)
Long term service award is given on completion of minimum 10 years of service.
Contribution to Provident fund, Superannuation fund and others
Amount of '' 905 lakhs (2021: '' 774 lakhs) is recognised as an expense and included in âEmployee costsâ (refer note 28) in the Statement of Profit and Loss.
In respect of provident fund set up by employer which requires interest shortfall to be met by the employer, it needs to be treated as defined benefit plan.
The Institute of Actuaries of India has issued guidance for measurement of provident fund liabilities on actuarial basis. Based on this guidance note, the actuary has provided an actuarial valuation of the provident fund liability of the Company as at 30 June 2022.
The sales to and purchases from related parties are made on terms equivalent to those that prevail in armâs length transactions.
Outstanding balances at the year-end are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. The Company has not recorded any impairment of receivables relating to amounts owed by related parties in the current year or prior years. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
# Remuneration does not include charge for gratuity, compensated absences and share based payments, as employee-wise break-up is not available.
As referred in note 2.3 (b) of the accounting policy the company has adopted Ind AS 116 using modified retrospective approach whereby Right-of-use assets (ROU) and Lease Liabilities of '' 1 166 Lakhs was recognised on transition date. Also, in accordance with IND AS 116 the ROU asset has been adjusted towards the fair value of security deposit of '' 61 Lakhs.
The Company does not face a significant liquidity risk with regard to its lease liabilities as the current assets are sufficient to meet the obligations related to lease liabilities as and when they fall due.
The Company has taken on lease certain warehouses with an option of renewal at the end of the lease term and escalation clause in some of the cases. These leases can be terminated with a prior notice as per terms and conditions of the respective lease agreements. The cost of lease for the warehouses are disclosed under rent expense.
b) In June 2016, National Pharmaceutical Pricing Authority (NPPA) served a demand notice on the Company alleging that during the period from January 2006 to June 2009 the Company sold Polybion 100ml syrup at a price higher than the ceiling price fixed by it on 05 June 2008. Pursuant to orders passed by Kolkata High Court, NPPA gave another opportunity of hearing to the Company. NPPA did not accede to any of the Companyâs contention and issued a fresh demand notice demanding a sum of ? 3 307 lakhs (? 1 168 lakhs on account of overcharge during the said period and ? 2 138 lakhs for interest thereon) for sales made by the Company during the period May 2006 to June 2009. The Company has challenged the said demand by way of writ petition, which is pending before Honâble Delhi High Court. In a separate proceedings filed by the manufacturer of the said drug, Cradel Pharmaceutical Private Limited, Honâble Kolkata High Court stayed the demand provided it deposits a sum of ? 225 lakhs with the NPPA. The Company has been legally advised that the Company has a defendable case before Delhi High Court. The Company holds provision of ? 580 lakhs in its books towards possible liability.
c) During the year 2014, the Company had made a provision of ? 699 lakhs towards a possible liability which may accrue to the Company due to a judgment passed by the Supreme Court in the year 2014 impacting the Pharmaceutical industry in India including the Company. The provision of ? 108 lakhs was transferred as a part of BPL Business transferred to Merck Life Science Private Limited. The Company holds provision of ? 591 lakhs in its books towards possible liability.
d) National Pharmaceutical Pricing Authority (NPPA) issued the price fixation orders for about 350 drugs on 21 June 2013 including Metformin, a formulation used by the Company in Companyâs product Carbophage 500 SR. The orders did not clarify whether the prices so fixed are applicable only for plain tablet or innovative dosages as well. The Company sought clarification from NPPA,however, no clear response has been received. Pending this clarification NPPA had sent a notice dated June 06, 2014, claiming the differential pricing charged by the Company for Carbophage 500 SR over the prices notified. On the basis of a recent judgement passed by the High Court of Bombay, the Company made a provision of ? 320 lakhs towards a possible liability which may accrue to the Company. Since Carbophage was part of the BPL business transferred to Merck Life Science Private Limited, the underlying provision was transferred out.
Further, NPPA has also issued a demand order dated May 10, 2017 of ? 52 lakhs to the Company under the provisions of Drug Prices (Control) Order, 2013 (âDPCOâ) for overcharging in respect of Concor 5 mg Tablets (containing the bulk drug Bisoprolol 5 mg) with interest thereon @15% on the said amount.
The Company has challenged both the above matters by writ petition which are pending adjudication in the Bombay High Court. In the view of the management, future course of action in relation to both these matters, including any liabilities thereof will be managed directly by Merck Life Science Private Limited. Managements of the Company and Merck Life Science Private Limited are aligning this understanding basis business transfer agreements and hence, these matters are disclosed as contingent liabilities.
e) During the year 2014, Central Excise issued a show cause cum demand notice on the Company covering a period of five years for alleged wrong classification of the products, Vitamin E Acetate min.92% for Poultry/ Cattle/Pig-feed, Vitamin E Liquid for Animal Nutrition (for Pig/Cattle/Poultry) and Vitamin E Dry Powder 50% for Animal Nutrition. The value of total demand was ? 2 241 lakhs including penalty and interest.
Further, for same classification matter, the Company has received VAT/CST assessment orders of ? 2 240 lakhs and notices covering a period of five years disallowing VAT exemption claimed for Vitamin E Acetate, Vitamin E dry powder, Vitamin E liquid for Animal nutrition classified as Animal feed. For the orders received, the Company has contested before the respective state appellate authorities.
The Central Excise had issued show cause cum demand on similar matter in the past as well. This was contested by the Company before the lower authorities. On the representation made by the Company the demand was dropped after considering various decisions pronounced by judicial and quasi-judicial authorities at the relevant time.
The Company based on legal opinion believes that it has a good case on merits as well as on limitations.
Accordingly, no provision has been created in the books of accounts.The aforesaid amounts have already been included under contingent liability at note 40 (a) to the financial statements.
Dues to Micro and Small Enterprises have been determined to the extent such parties have been identified on the basis of information collected by the Management. This has been relied upon by the auditors.
43 (a) Reimbursement / (recovery) of expenses cross charged to related parties include payments / recoveries on account of finance, personnel, secretarial, administration and planning services rendered under common services agreements with Procter & Gamble Hygiene & Health Care Limited, Procter & Gamble Home Products Private Limited and Gillette India Limited.
43 (b) Certain expenses in the nature of employee costs, relocation costs and other expenses are cross charged by the Company to its fellow subsidiaries at actual. Similar expenses incurred by fellow subsidiaries are cross charged to the Company at actual.
The Board of Directors at its meeting held on August 29, 2022 have recommended a payment of final dividend of '' 11.5 per equity share of face value of '' 10 each for the financial year ended June 30, 2022 resulting in a dividend payout of '' 1 908.9 lakhs.
Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Companyâs transactions with related parties are at armâs length as per the independent accountants report for the year ended 31 March 2021. Management believes that the Companyâs transactions with related parties post March 2021 continue to be at armâs length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
46 There are no significant subsequent events that would require adjustments or disclosures in the financial statements as on the balance sheet date.
47 (d). Utilization of borrowed funds and share premium:
The company has not advanced or Loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
(i) Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or
(ii) Provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries.
The company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the company shall:
(i) Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
(ii) Provide any guarantee, security or the like on behalf of the ultimate beneficiaries.
48 During the year, Company has impaired plant and machinary related to product oxynex whose supply terms have been completed as at March 31, 2022. The Company no longer plans for future manufacture and supply of the said product.
49 Figures for the previous year have been re-grouped/re-arranged wherever necessary to conform current periodâs classification.
50 Approval of financial statements
The financial statements were approved for issue by the board of directors on August 29, 2022.
Jun 30, 2021
b) Contractual Obligations
The Company has no contractual obligations to purchase, construct or develop investment property. However, the responsibility for its repairs, maintenance or enhancements is with the Company.
c) Fair Value
Based on Independent valuation report as on 21 July 2021, for one of the property located in the same premises, the management has estimated fair value of '' 2 817 lakhs for the investment properties. The aforesaid estimated amount will not be materially different from the fair value of the property as on June 30, 2021.
d) Policy for Estimation of Fair Value
Market Approach/ Direct Comparison Approach
The Direct Comparison Approach involves a comparison of the subject property to similar properties that have actually sold in arms - length transactions or are offered for sale. This approach demonstrates what buyers have historically been willing to pay (and sellers willing to accept) for similar properties in an open and competitive market and is particularly useful in estimating the value of the land and properties that are typically traded on a unit basis.
Terms/ rights attached to equity shares
The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Companyâs residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company. Voting rights cannot be exercised in respect of shares on which any call or other sums presently payable have not been paid. Failure to pay any amount called up on shares may lead to forfeiture of the shares. On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.
No shares are bought back by the Company during the period of 5 years immediately preceding the Balance Sheet date.
No shares are allotted as fully paid up by way of bonus shares during the period of 5 years immediately preceding the Balance Sheet date.
Subject to approval of shareholders at the annual general meeting, Board of Directors have recommended dividend of 1300% (at the rate of ? 130/- per share of ? 10 each) on 16,599,382 equity shares for the year ended 30 June 2021.
The above is subject to approval at the ensuing Annual General Meeting of the Company and hence is not recognised as a liability.
33 Financial instruments & related disclosures33.1 Capital management
The Company manages its capital to ensure that it will be able to continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. Equity share capital and other equity are considered for the purpose of Company''s capital management.
The Company is not subject to any externally imposed capital requirements.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders if any, return on capital to shareholders or issue new shares.
The carrying amount of financial assets and financial Liabilities measured at amortised cost in the financial statements are a reasonable approximation of their fair values since the Company does not anticipate that the carrying amounts would be significantly different from the values that would eventually be received or settled.
33.4 Financial risk management objectives
The Companyâs activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Companyâs primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Companyâs risk management assessment, policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Companyâs activities. The Board of Directors and the Audit Committee is responsible for overseeing the Companyâs risk assessment and management policies and processes. The Company has exposure to the following risks arising from financial instruments:
33.4.1 Credit risk management
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companyâs receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.
Trade and other receivables
The Companyâs exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.
Expected credit loss assessment
Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. The impairment loss at 30 June 2021 related to several customers that have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.
The Company held cash and cash equivalents and other bank balances with credit worthy banks and financial institutions of ? 46,412 lakhs (30 June 2020: ? 63,569 lakhs). The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be good.
33.4.2 Liquidity risk management
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Companyâs reputation.
As of 30 June 2021 the Company has working capital of ? 49,980 lakhs (30 June 2020: ? 72,662 lakhs) including cash and cash equivalents and other bank balances of ? 46,412 lakhs (30 June 2020: ? 63,569 lakhs). Working capital is calculated as current assets less current liabilities.
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and longterm debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Companyâs exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.
The fluctuation in foreign currency exchange rates may have potential impact on the profit and Loss account, where any transaction references more than one currency or where assets/ Liabilities are denominated in a currency other than the functional currency of the entity.
Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in EURO and USD against the respective functional currency of the Company.
The Company does not use any derivative financial instruments to hedge foreign exchange and interest rate exposure.
33.4.5 Foreign currency sensitivity analysis
The Company is mainly exposed to the currencies stated above.
The following table details impact to profit or loss of the Company by sensitivity analysis of a 10% increase and decrease in the respective currencies against the functional currency of the Company. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management''s assessment of the reasonably possible changes in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change on foreign currency rates.
34 Share-based paymentsa) International Stock Ownership Plan (Stocks of the Ultimate Holding Company)
The Procter & Gamble Company, USA has an âInternational Stock Ownership Planâ (employee share purchase plan) whereby specified employees of its subsidiaries have been given a right to purchase shares of the Ultimate Holding Company i.e. The Procter & Gamble Company, USA. Every employee who opts for the scheme contributes by way of payroll deduction up to a specified percentage (upto 15%) of base salary towards purchase of shares on a monthly basis. The Company contributes 50% of employee''s contribution (restricted to 2.5% of his base salary). Such contribution is charged under employee benefits expense.
The shares of The Procter & Gamble Company, USA are listed with New York Stock Exchange and are purchased on behalf of the employees at market price on the date of purchase. During the year ended June 30, 2021, 1 350.97 (Previous period ended June 30, 2020: Nil) shares excluding dividend were purchased by employees at weighted average fair value of '' 10,557.23 (Previous period ended June 30, 2020: Nil) per share. The Companyâs contribution during the year on such purchase of shares amounts to '' 32.6 Lakhs (Previous period ended June 30, 2020: Nil) has been charged under employee benefits expense under Note 27.
b) Employees Stock Options Plan (Stocks of the Ultimate Holding Company)
The Procter & Gamble Company, USA has an âEmployee Stock Option Planâ whereby specified employees of its subsidiaries covered by the plan are granted an option to purchase shares of the Ultimate Holding Company i.e. The Procter & Gamble Company, USA at a fixed price (grant price) for a fixed year of time. The shares of The Procter & Gamble Company, USA are listed with New York Stock Exchange. The Options Exercise price equal to the market price of the underlying shares on the date of the grant. The Grants issued are vested after 3 years and have a 5/10 years life cycle.
The Company operates two post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half monthâs salary for each year of completed service at the time of retirement/ exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.
a) Gratuity Plan (Funded)
The Company sponsors funded defined benefit gratuity plan for all eligible employees of the Company. The Companyâs defined benefit gratuity plan is a final salary plan for India employees, which requires contributions to be made to a separately administered trust. The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the memberâs length of service and salary at retirement age. The gratuity plan is administered by a separate trust that is legally separated from the Company. The board of the trust is composed of representatives from both employer and employees. The board of the trust is required by law and by its articles of association to act in the interest of the trust and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees, employer. The board of the trust is responsible for the investment policy with regard to the assets of the trust.
b) Compensated absences (Unfunded)
The Company also provides for compensated absences as per it''s policies, which allows for encashment of leave on termination / retirement of service or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits for future encashment / availment. The Company makes provision for compensated absences based on an actuarial valuation carried out at the end of the year/ period.
These plans typically expose the Company to actuarial risks such as: Investment risk, interest rate risk, longevity risk and salary risk.
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Investment risk |
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. |
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Interest risk |
A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan investments. |
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Longevity risk |
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality rate of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plans liability. |
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Salary risk |
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase on the salary of plan participants will increase the plans liability. |
In respect of the plan, the most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at June 30, 2021. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.
The sales to and purchases from related parties are made on terms equivalent to those that prevail in armâs length transactions.
Outstanding balances at the year-end are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. The Company has not recorded any impairment of receivables relating to amounts owed by related parties in the current year or prior years. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
# Remuneration does not include charge for gratuity, compensated absences and share based payments, as employee-wise break-up is not available.
As referred in note 2.3 (b) of the accounting policy the company has adopted Ind AS 116 using modified retrospective approach whereby Right-of-use assets (ROU) and Lease Liabilities of '' 1 166 Lakhs was recognised on transition date. Also, in accordance with IND AS 116 the ROU asset has been adjusted towards the fair value of security deposit of '' 61 Lakhs.
The Company does not face a significant liquidity risk with regard to its lease liabilities as the current assets are sufficient to meet the obligations related to lease liabilities as and when they fall due.
The Company has taken on lease certain warehouses with an option of renewal at the end of the lease term and escalation clause in some of the cases. These leases can be terminated with a prior notice as per terms and conditions of the respective lease agreements. The cost of lease for the warehouses are disclosed under rent expense.
b) In June 2016, National Pharmaceutical Pricing Authority (NPPA) served a demand notice on the Company alleging that during the period from January 2006 to June 2009 the Company sold Polybion 100ml syrup at a price higher than the ceiling price fixed by it on 05 June 2008. Pursuant to orders passed by Kolkata High Court, NPPA gave another opportunity of hearing to the Company. NPPA did not accede to any of the Companyâs contention and issued a fresh demand notice demanding a sum of ? 3307 lakhs (? 1168 lakhs on account of overcharge during the said period and ? 2138 lakhs for interest thereon) for sales made by the Company during the period May 2006 to June 2009. The Company has challenged the said demand by way of writ petition, which is pending before Honâble Delhi High Court. In a separate proceedings filed by the manufacturer of the said drug, Cradel Pharmaceutical Private Limited, Honâble Kolkata High Court stayed the demand provided it deposits a sum of ? 225 lakhs with the NPPA. The Company has been legally advised that the Company has a defendable case before Delhi High Court. The Company holds provision of ? 580 lakhs in its books towards possible liability.
c) During the year 2014, the Company had made a provision of ? 699 lakhs towards a possible liability which may accrue to the Company due to a judgment passed by the Supreme Court in the year 2014 impacting the Pharmaceutical industry in India including the Company. The provision of ?108 lakhs was transferred as a part of BPL Business transferred to Merck Life Science Private Limited. The Company holds provision of ? 591 lakhs in its books towards possible liability.
d) National Pharmaceutical Pricing Authority (NPPA) issued the price fixation orders for about 350 drugs on 21 June 2013 including Metformin, a formulation used by the Company in Companyâs product Carbophage 500 SR. The orders did not clarify whether the prices so fixed are applicable only for plain tablet or innovative dosages as well. The Company sought clarification from NPPA,however, no clear response has been received. Pending this clarification NPPA had sent a notice dated June 06, 2014, claiming the differential pricing charged by the Company for Carbophage 500 SR over the prices notified. On the basis of a recent judgement passed by the High Court of Bombay, the Company made a provision of ? 320 lakhs towards a possible liability which may accrue to the Company. Since Carbophage was part of the BPL business transferred to Merck Life Science Private Limited, the underlying provision was transferred out.
Further, NPPA has also issued a demand order dated May 10, 2017 of ? 52 lakhs to the Company under the provisions of Drug Prices (Control) Order, 2013 (âDPCOâ) for overcharging in respect of Concor 5 mg Tablets (containing the bulk drug Bisoprolol 5 mg) with interest thereon @15% on the said amount.
The Company has challenged both the above matters by writ petition which are pending adjudication in the Bombay High Court. In the view of the management, future course of action in relation to both these matters, including any liabilities thereof will be managed directly by Merck Life Science Private Limited. Managements of the Company and Merck Life Science Private Limited are aligning this understanding basis business transfer agreements and hence, these matters are disclosed as contingent liabilities."
Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Companyâs transactions with related parties are at armâs length as per the independent accountants report for the year ended 31 March 2020. Management believes that the Companyâs transactions with related parties post March 2020 continue to be at armâs length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
43 There are no significant subsequent events that would require adjustments or disclosures in the financial statements as on the balance sheet date.
44 Figures for the previous period have been re-grouped/re-arranged wherever necessary to conform current periodâs classification. The Figures of the current year are for twelve months and hence are not comparable with previous period which were for eighteen months.
45 Approval of financial statements
The financial statements were approved for issue by the board of directors on August 26, 2021.
Dec 31, 2017
1. Background of the Company
Merck Limited (âthe Companyâ) is a public company domiciled and headquartered in India. It is incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The Company is in the business of manufacturing and marketing of pharmaceuticals and chemicals.
2. Basis of preparation
(a) Statement of compliance with Ind AS
The financial statements of the Company comply with all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.
The financial statements up to year ended 31 December 2016 were prepared in accordance with the accounting standards notified under Companies (Accounting Standard) Rules, 2006 (as amended) and other relevant provisions of the Act.
Accordingly, the transition to Ind AS has been carried out from the accounting principles generally accepted in India (âIndian GAAPâ) which is considered as the âPrevious GAAPâ for purposes of Ind AS 101. An explanation of how the transition to Ind AS has affected the Companyâs equity and its net profit or loss is provided in note 51. These financial statements are the first financial statements of the Company under Ind AS.
All assets and liabilities are classified as current or non-current as per the companyâs normal operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the company has ascertained its operating cycle as 12 months for the purpose of current/non-current classification of assets and liabilities.
(b) Historical cost convention
The financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities including defined benefit plans - plan assets measured at fair value.
(c) Use of estimates and judgements
The preparation of the 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.
The areas involving critical estimates and judgements are:
(i) Estimation of useful life of property, plant and equipment
(ii) Estimation of defined benefit obligation
(iii) Provision for inventories
(iv) Impairment of trade receivables
(b) Terms/ rights attached to equity shares
The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Companyâs residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company. Voting rights cannot be exercised in respect of shares on which any call or other sums presently payable have not been paid. Failure to pay any amount called up on shares may lead to forfeiture of the shares. On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.
Financial instruments - Fair values
A. Accounting classification and fair values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities if the carrying amount is a reasonable approximation of fair value.
Financial instruments - Risk management Risk management framework
The Companyâs activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Companyâs primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Companyâs risk management assessment, policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Companyâs activities. The Board of Directors and the Audit Committee is responsible for overseeing the Companyâs risk assessment and management policies and processes.
Financial risk management
The Company has exposure to the following risks arising from financial instruments:
- Credit risk;
- Liquidity risk and
- Market risk
i. Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companyâs receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.
Trade and other receivables
The Companyâs exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.
Expected credit loss assessment
Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. The impairment loss at 31 December 2017 related to several customers that have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.
Cash and cash equivalents
The Company held cash and cash equivalents and other bank balances with credit worthy banks and financial institutions of Rs. 2,781.8 million (31 December 2016: Rs. 2,792.7 million, 01 January 2016: Rs. 1,884.2 million). The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be good.
Other financial assets
Other financial assets are neither past due nor impaired.
ii. Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Companyâs reputation.
As of 31 December 2017 the Company has working capital of Rs. 5,270.7 million (31 December 2016: Rs. 4,496.8 million, 01 Janaury 2016: Rs. 4,139.7 million) including cash and cash equivalents and other bank balances of INR 2,781.8 million (31 December 2016: Rs. 2,792.7 million, 01 January 2016: Rs. 1,884.2 million). Working capital is calculated as current assets less current liabilities.
Note - 3
Financial instruments - Risk management Exposure to liquidity risk
The table below analyses the Companyâs financial liabilities into relevant maturity groupings based on their contractual maturities for:
iii. Market risk
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Companyâs exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.
(a) Currency risk
The fluctuation in foreign currency exchange rates may have potential impact on the profit and loss account, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the entity.
Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in EURO and USD against the respective functional currency of the Company.
The Company does not use any derivative financial instruments to hedge foreign exchange and interest rate exposure.
Exposure to currency risk
The currency profile of financial assets and financial liabilities in respect of major currencies is as follows:
Sensitivity analysis
A 10% strenghtening / weakening of the respective foreign currencies with respect to functional currency of Company would result in increase or decrease in profit or loss and equity as shown in table below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The following analysis has been worked out based on the exposures as of the date of statements of financial position.
(b) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Exposure to interest rate risk
The interest rate profile of the Companyâs interest-bearing financial instruments is as follows.
Interest rate sensitivity - fixed rate instruments
The Company does not account for any fixed-rate financial assets or financial liabilities at fair value through profit and loss, and the Company does not have any designated derivatives. Therefore, a change in interest rates at the reporting date would not affect profit and loss for any of these fixed interest bearing financial instruments.
Capital Management
The Companyâs policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
The Company is a debt free Company and its funding requirements based on business plans are met through a mixture of equity and free reserves. Note - 37
Related party relationships, transactions and balances
The table provides the information about the Groupâs structure including the details of the subsidiaries and the holding company. The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year:
Related parties and nature of relationship where control exists
Ultimate Holding Company:
Merck KGaA, Germany through its subsidiary listed below as investing associate holds 51.8% (31 December 2016: 51.8%; 01 January 2016: 51.8%) of equity share capital as at 31 December 2017.
Investing Associates:
Chemitra GmbH, Germany
Emedia Export Company GmbH, Germany
Merck International Beteiligungen GmbH, Germany
Other related parties with whom transactions have taken place during the year:
Fellow Subsidiaries:
Ares Trading S.A., Switzerland EMD Millipore Corporaton, USA Merck & Cie., Switzerland
Merck (Pvt.) Limited, Pakistan (ceased to be a fellow subsidiary w.e.f. December 2016)
Merck Chemicals (Shanghai) Company Ltd., China Merck Inc., Philippines Merck Limited, Japan
Merck Performance Materials Manufacturing G.K., Japan
Merck KGaA & Co. Werk Spittal, Austria
Merck Limited, Taiwan
Merck Limited, Thailand
Merck Pte Ltd, Singapore
Merck spol. s.r.o, Czech Republic
Merck SA, Brazil
Merck Sdn Bhd, Malaysia
Merck Selbstmedikation GmbH, Germany
Merck Serono Co., Limited, Japan
Merck Serono Middle East FZE-LLC
Merck Serono SA, Switzerland
Merck S. L. U., Spain
Merck Specialities Private Limited, India
Merck Life Science Private Limited (formerly known as Millipore (India) Private Limited, India)
P.T. Merck Chemicals and Lifesciences, Indonesia
P.T. Merck Tbk., Indonesia
Seven Seas Limited, United Kingdom
Suzhou Taizhu Technology Development Co. Ltd., China
Merck (Pty) Limited, South Africa
Heipha Dr. Muller GmbH, Germany
EMD Performance Materials Corporation, USA
Ares Trading Uruguay S.A., Uruguay
Merck Serono (Beijing) Pharmaceutical R&D Co., Ltd, China
Merck Performance Materials Private Limited, India, (Previously known as Chemtreat Composites Private Limited, India)
Merck Accounting Solutions & Services Europe GmbH
Merck Business Solutions Asia Inc., Philippines
Merck Ltd., South Korea
Merck (Pty) Ltd., South Africa
Merck Pharmaceutical (HK) Ltd, Hongkong
Sigma Aldrich India Private Limited, India
Merck Performance Materials Ltd., South Korea
Merck Pharmaceuticals Manufacturing (Jiangsu) Co., Ltd, China
Merck Pty. Ltd., Australia
Merck Sdn Bhd, Malaysia
Merck Serono Australia Pty. Ltd., Australia
Merck Vietnam Ltd, Vietnam
Sigma-Aldrich Pte. Ltd., Singapore
Sigma-Aldrich Pty. Ltd., Australia
Post Employment Benefit Plan Merck Provident Fund Trust, India Key Managerial Personnel:
Mr. Anand Nambiar (Managing Director)
Mr. Brijesh Kapil (Executive Director) (Resigned w.e.f. 04 October 2016)
Mr. Ali Sleiman (Executive Director) (Resigned w.e.f. 04 October 2016)
Mr. N Krishnan (Director)
Mr. S N Talwar (Chairman)
Mr. H.C.H Bhabha (Independent Director)
Mrs. Rani A. Jadhav (Independent Director)
Mrs. Zoe Tang (Nominee Director) (appointed w.e.f. 23 December 2016)
Mr. Bradley Simpson (Nominee Director) (resigned w.e.f. 04 October 2016)
Note - 4 Employee benefit Defined Benefit Plans
The Company operates two post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half monthâs salary for each year of completed service at the time of retirement/exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.
Note - 5
Employee benefit (continued)
Contribution to Provident and Superannuation fund
Amount of Rs. 80.9 million (2016: Rs 59.7 million) is recognised as an expense and included in âEmployee costsâ (refer note 31) in the Statement of Profit and Loss.
In respect of provident fund set up by employer which requires interest shortfall to be met by the employer, it needs to be treated as defined benefit plan.
The Institute of Actuaries of India has issued guidance for measurement of provident fund liabilities on actuarial basis. Based on this guidance note, the actuary has provided an actuarial valuation of the provident fund liability of the Company as at 31 December 2017.
As per the report of the independent actuary, there is no shortfall as at 31 December 2017 (31 December 2016: Rs. Nil; 01 January 2016: Rs. Nil) that needs to be recorded by the Company.
Other long term employee benefits
Compensated absences are recognized when the employees render service that increase their entitlement to future compensated absence. Employees can carry forward and avail/ encash leave as per the policy of the Company. Compensated absences have been provided for, based on outstanding leave balance and the employeesâ gross pay.
The undiscounted amount of short term employee benefits of Rs. 9.4 million (2016: Rs. 6.0 million) is expected to be paid in the exchange for the services rendered by employees and is recognised as an expense during the year.
Note - 6
Segment Reporting
A. General Information
The Companyâs chief operating decision maker (CODM) examines the Companyâs performance based on its business units âPharmaceuticalsâ and âChemicalsâ. Segment revenue, results, assets and liabilities have been accounted for on the basis of their relationship to the operating activities of the segment and amounts allocated on reasonable basis as determined by the management.
Pharmaceutical business comprises of products used in the treatment of Cardiovascular and Metabolic diseases, Consumer Healthcare products and Vitamins-based formulations.
Chemicals business comprises Bulk drugs and Pigments. Segment Revenue relating to the Chemicals business segment includes income from services provided to customers of this segment.
Note - 7 Operating leases
The Company has entered into cancellable/ non-cancellable operating lease agreements for vehicles and office premises/godowns. The lease charges of Rs. 6.9 million (2016: Rs. 17.4 million) and Rs. 117.3 million (2016: Rs. 120.6 million) for vehicles and office premises/godowns respectively have been included under the sub-head Travelling, Conveyance and Vehicle Expenses and Rent respectively under the head âOther expensesâ in the Statement of Profit and Loss. There are no subleases.
Operating Lease as Lessor:
The Company had leased out its flat. The lease term was twenty-four months. There was no escalation or renewal clause in the lease agreement and sub-letting was not permitted. The lease has been terminated on 29 February 2016 and the asset has been sold on 30 December 2017. The carrying amount of flat given on operating lease and depreciation thereon for the period are:
Contingent liabilities and commitments
a) Contingent liabilities
Summary of disputed statutory demands not accepted by the Company are given below:
Management considers that the Excise duty/Value added tax/Sales tax/Income tax demands received from tax authorities are not tenable against the Company and hence no provision has been made.
b) Commitments
Estimated amount of contracts remaining to be executed on Capital Account (net of capital advances Rs. 33.2 million; 31 December 2016: Rs. 18.0 million) and not provided for Rs.138.0 million (31 December 2016: Rs. 48.9 million).
Note - 8
a) In June 2016, National Pharmaceutical Pricing Authority (NPPA) served a demand notice on the Company alleging that during the period from January 2006 to June 2009 the Company sold Polybion 100ml syrup at a price higher than the ceiling price fixed by it on 05 June 2008. Pursuant to orders passed by Kolkata High Court, NPPA gave another opportunity of hearing to the Company. NPPA did not accede to any of the Companyâs contention and issued a fresh demand notice dated 13 December 2016 demanding a sum of Rs. 292.2 million (Rs. 116.8 million on account of overcharge during the said period and Rs. 175.4 million for interest thereon) for sales made by the Company during the period May 2006 to June 2009. The Company has challenged the said demand by way of writ petition, which is pending before Honâble Delhi High Court. In a separate proceedings filed by the manufacturer of the said drug, Cradel Pharmaceutical Private Limited, Honâble Kolkata High Court stayed the demand provided it deposits a sum of Rs. 22.5 million with the NPPA. The Company has been legally advised that the Company has a defendable case before Delhi High Court. Accordingly, no provision has been created in the books.
b) During the year 2014, the Company had made a provision of Rs. 69.9 million towards a possible liability which may accrue to the Company due to a judgment passed by the Supreme Court in the year 2014 impacting the Pharmaceutical industry in India including the Company.
c) National Pharmaceutical Pricing Authority (NPPA) issued the price fixation orders for about 350 drugs on 21 June 2013 including Metformin, a formulation used by the Company in Companyâs product Carbophage 500 SR. The orders did not clarify whether the prices so fixed are applicable only for plain tablet or innovative dosages as well. The Company sought clarification from NPPA, however, no clear response has been received. Pending this clarification NPPA had sent a notice dated June 06, 2014, claiming the differential pricing charged by the Company for Carbophage 500 SR over the prices notified. On the basis of a recent judgement passed by the High Court of Bombay, the Company has made a provision of Rs. 32.0 million towards a possible liability on some pharma products which may accrue to the Company.
d) During the year 2014, Central Excise issued a show cause cum demand notice on the Company covering a period of five years for alleged wrong classification of the products, Vitamin E Acetate min.92% for Poultry/ Cattle/Pig-feed, Vitamin E Liquid for Animal Nutrition (for Pig/Cattle/ Poultry) and Vitamin E Dry Powder 50% for Animal Nutrition. The value of total demand was Rs. 188.7 million including penalty and interest.
The Central Excise had issued show cause cum demand on similar matter in the past as well. The value of such demand was Rs.18 million. This was contested by the Company before the lower authorities. On the representation made by the Company the demand was dropped after considering various decisions pronounced by judicial and quasi-judicial authorities at the relevant time.
The Company based on legal opinion believes that it has a good case on merits as well as on limitations. Accordingly, no provision has been created in the books of accounts. If the Company succeeds on merits the entire duty demand including penalty and interest would be dropped. However, if the Company does not succeed on merits the Company has still chances of succeeding on limitations as the matter was known to the authorities and there was no suppression or misdeclaration of facts by the Company. In such an eventuality the duty demand would be restricted to one year and interest and the penalty would be dropped.
Dues to micro and small enterprises:
Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from October 2, 2006 certain disclosures are required to be made relating to with Micro Small and Medium enterprises. On the basis of the information and records available with the Management, the following disclosures are made for the amounts due to the Micro Small and Medium enterprises, who have registered with the competent authorities:
Note - 9
Disclosure relating to provisions Personnel and other related provision
The Company has made provisions for performance-based incentives.
Provisions in respect of sales tax matters
The Company has made provisions for various sales tax / value added tax related matters, which will be settled on completion of the respective assessments.
Other provisions
The Company has also made provisions for matters related to National Pharmaceutical Pricing Authority (NPPA).
Summary of the movement in the provisions is given below:
The power plant in Goa faced continued cost pressures over last few years owing to which the cost of electricity generated from captive power plant is higher than cost of Government power and this is expected to continue to remain high in future also. Accordingly, it has been decided to shut down the captive power generation plant and switch to government power. Consequently, during the current year, the Company has made provision for impairment of Rs.172.3 million on its Power Plant assets used for captive consumption. This has been considered in the results of pharmaceuticals and chemicals segments.
Note - 10
Exceptional items comprise of profit from the sale of Office premises and residential flat located at Mumbai which were held for sale.
Note - 11 Transfer pricing
Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Companyâs transactions with related parties are at armâs length as per the independent accountants report for the year ended 31 March 2017. Management believes that the Companyâs transactions with related parties post March 2017 continue to be at armâs length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
Note - 12
Corporate social responsibility
As per Section 135 of the Companies Act, 2013, the Company has constituted a Corporate Social Responsibility (CSR) Committee. During the year, the Company has spent on eradicating hunger, poverty, malnutrition, promoting education/education including skill development, preventive healthcare and sanitation and making available safe drinking water. The total amount spent by the Company towards CSR activities during the year is Rs. 16.2 million (31 December 2016: Rs. 16.3 million)
(a) Gross amount required to be spent by Company during the year is Rs. 17.9 million (2016: Rs. 16.3 million)
(b) Amount spent during the year on: (Paid in Cash)
Disclosure on specified bank notes
As defined in the MCA notification G.S.R. 308(E) dated 31 March, 2017, the details of specified bank notes held and transacted during the period from 08 November, 2016 to 30 December, 2016, as per the notification is given below:
* For the purpose of this clause âspecified bank notesâ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 08 November 2016.
Note - 13
Transition to Ind AS:
For the purposes of reporting as set out in Note 2, we have transitioned our basis of accounting from Indian generally accepted accounting principles (âIGAAPâ) to Ind AS. The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended 31 December 2017, the comparative information presented in these financial statements for the year ended 31 December 2016 and in the preparation of an opening Ind AS balance sheet at 01 January 2016 (the âtransition dateâ).
In preparing our opening Ind AS balance sheet, we have adjusted amounts reported in financial statements prepared in accordance with IGAAP. An explanation of how the transition from IGAAP to Ind AS has affected our financial performance and financial position is set out in the following tables and the notes that accompany the tables. On transition, we did not revise estimates previously made under IGAAP except where required by Ind AS.
A. Exemptions and exceptions availed
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from IGAAP to Ind AS: Ind AS optional exemptions
(a) Deemed Cost
Ind AS 101 permits a first time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets. Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.
(b) Business Combination
Ind AS 101 Provides the option to apply Ind AS 103 âBusiness combinationsâ prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. Business combinations occurring prior to the transition date have not been restated.â
Ind AS mandatory exceptions
1) Estimates
An entityâs estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consitent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
Ind AS estimates as at 01 January 2016 are consitent with the estimates as at the same date made in conformity with previous GAAP.
2) Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS.
B. Reconciliations between previous GAAP and Ind AS
Ind AS 101 requires an enity to reconcile equity and total comprehensive income for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
1 Derecognition of physician samples from inventory:
Under Ind AS, inventory manufactured and identified for distribution as physicianâs samples is to be recognized as an expense in the period in which such inventory is manufactured.
2 Proposed dividend:
Under Indian GAAP, proposed dividends are recognised as a liability in the period to which they relate, irrespective of when they are declared. Under Ind-AS, a proposed dividend is recognised as a liability in the period in which it is declared by the Company (usually when approved by shareholders in a general meeting) or paid.
3 Trade receivable:
Under previous GAAP, the Company has created allowance for doubtful debts based on its estimation. Under Ind AS, the allowance for credit loss has been made based on Expected Credit Loss (ECL) provision matrix.
4 (a) Security deposit:
Under Indian GAAP, interest free security free lease security deposits (that are refundable in cash) are recorded at their transaction value. Under Ind AS, all financial instruments are required to be measured at their fair value on initial recognition. Accordingly, security deposits have been fair valued under Ind AS. Difference between transaction value and fair value has been recognised as prepaid rent. Prepaid rent is amortised over the lease term and notional interest income is recognised on unwinding of security deposits.
(b) Tax Adjustments:
Tax adjustments include the tax effects of certain pre-tax previous GAAP to Ind AS adjustments described above.
Note - 14
These financial statements are the Companyâs first Ind AS financial statements and accordingly previous year figures have been regrouped where necessary to conform to current yearâs classification.
Dec 31, 2016
Note:
1. The company has provided for accelerated depreciation of Rs. 27.3 million for its idle production line related to Vitamin E. Management considers that the idle production capacity would not be utilised in short term.
2 Lease accounting
The Company has entered into cancellable operating lease agreements for vehicles and office premises/god owns. The lease charges of Rs. 17.4 million (2015: Rs. 15.8 million) and Rs.120.6 million (2015: Rs. 138.5 million) for vehicles and office premises/go downs respectively have been included under the sub-head Travelling, Conveyance and Vehicle Expenses and Rent respectively under the head "Other expenses" (refer Note 25) in the Statement of Profit and Loss.
Operating Lease as Less or:
The Company had leased out its flat. The lease term is twenty-four months. There was no escalation or renewal clause in the lease agreement and sub-letting was not permitted. The lease has been terminated on 29/02/2016 and the asset has been held for sale. The carrying amount of flat given on operating lease and depreciation thereon for the period are:
During the year, an amount of Rs. 0.9 million (2015: Rs. 1.8 million) has been recognized as rental income and has been included in Other income under the head "Miscellaneous income" (refer note 19) in the Statement of Profit and Loss.
3 Employee Benefits :
(i) Defined Benefit Plans
The Company operates two post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half month''s salary for each year of completed service at the time of retirement/exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.
Note: Employer''s contribution includes payments made of Rs.19.5 million (2015 Rs.12.7 million) towards gratuity obligation by the Company directly to its past employees.
Estimate of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
Assumptions regarding future mortality are based on published statistics and mortality tables. The calculation of the defined benefit obligation is sensitive to the mortality assumptions.
(iii) Broad category of plan assets relating to Gratuity as a percentage of total plan assets
The Company''s gratuity fund is managed by its insurer, Life Insurance Corporation n of India. The plan assets under the fund are deposited under approved securities.
(iv) Disclosure for defined benefit plan (Provident fund)
(i) Contribution to Provident and Superannuation fund
Amount of Rs. 57.1 million (2015: Rs. 55.0 million) is recognized as an expense and included in "Employee costs" (Refer note 23) in the Statement of Profit and Loss.
The guidance issued by the Accounting Standard Board on implementing AS 15, Employee Benefits (revised 2005) states that provident fund set up by employer, which requires interest shortfall to be met by the employer, needs to be treated as defined benefit plan.
The Institute of Actuaries of India has issued guidance for measurement of provident fund liabilities on actuarial basis. Based on this guidance note, the actuary has provided an actuarial valuation of the provident fund liability of the Company as at 31 December 2016.
As per the report of the independent actuary, there is no shortfall as at 31 December 2016 (2015: shortfall of Rs. Nil) that needs to be recorded by the Company.
(v) Compensated absences
Compensated absences are recognized when the employees render service that increase their entitlement to future compensated absence. Employees can carry forward and avail/ encash leave as per the policy of the Company. Compensated absences have been provided for, based on outstanding leave balance and the employees'' gross pay.
The undiscounted amount of short term employee benefits of Rs.6.0 million (2015: Rs. 1.9 million) is expected to be paid in the exchange for the services rendered by employees and is recognized as an expense during the year.
a Business segment
For management reporting purposes, the Company is organized into two major operating divisions - Pharmaceuticals and Chemicals. The divisions are the basis on which the Company reports its primary segment information. The above segments have been identified taking into account the organization structure as well as the differing risks and returns of these segments.
Pharmaceutical business comprises of products used in the treatment of Cardiovascular and Metabolic diseases, Consumer Healthcare products and Vitamins-based formulations.
Chemicals business comprises Bulk drugs and Pigments. Segment Revenue relating to the Chemicals business segment includes income from services provided to customers of this segment.
b Geographical segment
In respect of secondary segment information, the company has identified its geographical segment as (i) Domestic and (ii) Exports. The secondary segment information has been disclosed accordingly.
c Accounting policies
The accounting policies adopted for segment reporting are in line with the accounting policies adopted by the Company for the purpose of these financial statements, except in respect of inter-segment revenues, which have been accounted on the basis of prevailing market rates.
Segment assets include all operating assets used by a segment and consist principally of debtors, inventories and fixed assets, net of allowances and provisions which are reported as direct offsets in the Balance Sheet. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two segments is allocated to the segments on a reasonable basis. Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities. Segment assets and liabilities do not include current and deferred income taxes.
Segment revenue: Segment revenue comprises the portion of company''s revenue that is directly attributable to a segment or that can be allocated on a reasonable basis to a segment, and intersegment transfer.
Segment Expense: Segment Expense comprises of the expense resulting from the operating activities of a segment that is directly attributable to the segment or that can be allocated on a reasonable basis to the segment and expense relating to transaction with other segments.
Inter-segment transfer''s: Segment Revenue, segment expense and segment result includes transfers between business segments and between geographical segments. Those transfers are eliminated in preparing company-wide results.
4 (a) Related party disclosures
Ultimate Holding Company:
Merck KGaA, Germany through its subsidiaries listed below as Investing Associates holds 51.8% (2015: 51.8%) of the equity share capital, as at 31 December 2016 Investing Associates:
- Chemitra GmbH, Germany
- Emedia Export Company GmbH, Germany
- Merck International Beteiligungen GmbH, Germany
Other related parties with whom transactions have taken place during the year:
Fellow Subsidiaries:
- Ares Trading S.A., Switzerland
- EMD Millipore Corporaton, USA
- Merck & Cie., Switzerland
- Merck (Pvt.) Limited, Pakistan
- Merck Chemicals (Shanghai) Company Ltd., China
- Merck Limited, Japan
- Merck KGaA & co. Wek Spittal, Austria
- Merck Limited, Taiwan
- Merck Limited, Thailand
- Merck Pte Ltd, Singapore
- Merck spol. S.R.O, Czech Republic
- Merck SA, Brazil
- Merck Sdn Bhd, Malaysia
- Merck Selbstmedikation GmbH, Germany
- Merck Serono Middle East FZE LLC
- Merck Serono S.A., Switzerland
- Merck Specialities Private Limited, India
- Merck Life Science Private Limited (formerly known as Millipore (India) Private Limited, India)
- P.T. Merck Indonesia, Indonesia
- Seven Seas Limited, United Kingdom
- EMD Performance Materials Corporation, USA
- Ares Trading, Uruguay
- Merck Serono (Beijing) Merck Pharmaceutical Consulting Ltd., China
- Merck Performance Materials Private Limited, India, (Previously known as Chemtreat Composites Private Limited, India)
- Sigma Aldrich India Private Limited, India Key Managerial Personnel:
- Mr. Anand Nambiar (Managing Director) (Appointed w.e.f. 05 February 2015)
- Dr. Claus Boedecker (Managing Director) (Resigned w.e.f. 31 January 2015)
- Mr. Brijesh Kapil (Executive Director) (Appointed w.e.f. 05 February 2015, Resigned w.e.f. 04 October 2016)
- Mr. Ali Sleiman (Executive Director) (Appointed w.e.f. 05 February 2015, Resigned w.e.f. 04 October 2016)
- Mr. N Krishnan (Director)
- Mr. P. H. Pimplikar (Director) (Resigned w.e.f. 13 January 2015)
Management considers that the Excise duty/Value added tax/Sales tax/Income tax demands received from tax authorities are not tenable against the Company and hence no provision has been made.
5 a) In June 2016, National Pharmaceutical Pricing Authority (NPPA) served a demand notice on the Company alleging that during the period from January 2006 to June 2009 the Company sold Polybion 100ml syrup at a price higher than the ceiling price fixed by it on June
05, 2008. Pursuant to orders passed by Kolkata High Court, NPPA gave another opportunity of hearing to the Company. NPPA did not accede to any of the Company''s contention and issued a fresh demand notice dated December 13, 2016 demanding a sum of Rs. 274.6 million (Rs. 116.8 million on account of overcharge during the staid period and Rs. 157.8 million for interest thereon) for sales made by the Company during the period May 2006 to June 2009. The Company has challenged the said demand by way of writ petition, which is pending before Hon''ble Delhi High Court. In a separate proceedings filed by the manufacturer of the said drug, Cradel Pharmaceutical Private Limited, Hon''ble Kolkata High Court stayed the demand provided it deposits a sum of Rs. 22.5 million with the NPPA. The Company has been legally advised that the Company has a defendable case before Delhi High Court. Accordingly, no provision has been created in the books.
b) During year 2014, the Company had made a provision of Rs. 69.8 million towards a possible liability which may accrue to the Company due to a judgment passed by the Supreme Court in the year 2014 impacting the Pharmaceutical industry in India including the Company.
c) National Pharmaceutical Pricing Authority (NPPA) issued the price fixation orders for about 350 drugs on June 21, 2013 including Metformin, a formulation used by the Company in Company''s product Carbophage 500 SR. The orders did not clarify whether the prices so fixed are applicable only for plain tablet or innovative dosages as well. The Company sought clarification from NPPA, however, no clear response has been received. Pending this clarification NPPA had sent a notice dated June 06, 2014, claiming the differential pricing charged by the Company for Carbophage 500 SR over the prices notified. On the basis of a recent judgement passed by the High Court of Bombay, the Company has made a provision of Rs.32.0 million towards a possible liability on some pharma products which may accrue to the Company.
d) During the year 2014, Central Excise issued a show cause cum demand notice on the Company covering a period of five years for alleged wrong classification of the products, Vitamin E Acetate min.92% for Poultry/ Cattle/Pig-feed, Vitamin E Liquid for Animal Nutrition (for Pig/Cattle/Poultry) and Vitamin E Dry Powder 50% for Animal Nutrition. The value of total demand was Rs. 188.7 million including penalty and interest.
The Central Excise had issued show cause cum demand on similar matter in the past as well. The value of such demand was Rs 18 million. This was contested by the Company before the lower authorities. On the representation made by the Company the demand was dropped after considering various decisions pronounced by judicial and quasi-judicial authorities at the relevant time.
The Company based on legal opinion believes that it has a good case on merits as well as on limitations. Accordingly, no provision has been created in the books of accounts. If the Company succeeds on merits the entire duty demand including penalty and interest would be dropped. However, if the Company does not succeed on merits the Company has still chances of succeeding on limitations as the matter was known to the authorities and there was no suppression or misdeclaration of facts by the Company. In such an eventuality the duty demand would be restricted to one year and interest and the penalty would be dropped.
6 Commitments
Estimated amount of contracts remaining to be executed on Capital Account (net of capital advance Rs. 18.0 million ; 2015: Rs. 6.2 million) and not provided for Rs.48.9 million (2015: Rs. 44.8 million).
7 Dues to micro, small and medium enterprises:
Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from October 2, 2006 certain disclosures are required to be made relating to with Micro Small and Medium enterprises. On the basis of the information and records available with the Management, the following disclosures are made for the amounts due to the Micro Small and Medium enterprises, who have registered with the competent authorities:
8. During the current year, the Company has impaired the fixed assets classified under oxynex plant on basis of determination of utilised production capacity of the plant. This plant is situated at the Company''s production facility at Goa. Management noted that there is an indication for impairment of the fixed asset for oxynex plant on account of significant reduction in market demand of the product and no alternate use of plant expected as at date. The amount of impairment loss aggregating Rs. 57.5 million has been debited to profit and loss account for the year ended 31 December 2016. The plant is a chemical plant and forms a part of the Chemicals segment of the Company.
9. Transfer pricing
Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Company''s international and domestic transactions with related parties are at arm''s length as per the independent accountants report for the year ended 31 March 2016. Management believes that the Company''s international and domestic transactions with related parties post March 2016 continue to be at arm''s length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
10. Corporate social responsibility
As per Section 135 of the Companies Act, 2013, the Company has constituted a Corporate Social Responsibility (CSR) Committee. During the year, the Company has spent on eradicating hunger, poverty, malnutrition, promoting preventive healthcare and sanitation and making available safe drinking water. The total amount spent by the Company towards CSR activities during the year is Rs. 16.3 million (2015: Rs. 5.8 million)
(a) Gross amount required to be spent by Company during the year is Rs. 16.3 million (2015: Rs.18.3 million)
(b) Amount spent during the year on:
11. Information with regard to other matter specified in schedule III of Companies Act, 2013 is either nil or not applicable to the Company for the year.
12. Prior year figures
Previous year''s figures have been regrouped/rearranged wherever necessary to conform to current year''s presentation.
Dec 31, 2014
1. Company overview
Merck Limited (''the Company'') is a public company domiciled and
headquartered in India. It is incorporated under the Companies Act,
1956 and its shares are listed on the National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE). The Company is in the business of
manufacturing and marketing of pharmaceuticals, bulk drugs, fine
chemicals and pigments. The Company is organized in two major divisions
 Pharmaceuticals and Chemicals.
2. (a) Related party disclosures
Related parties where control exists Ultimate Holding Company:
Merck KGaA, Germany through its subsidiaries listed below as Investing
Associates holds 51.8% (2013: 51.8%) of the equity share capital, as at
31 December 2014.
Investing Associates:
Chemitra GmbH, Germany
Emedia Export Company mbH, Germany
Merck Internationale Beteiligungen GmbH, Germany
Other related parties with whom transactions have taken place during
the year: Fellow Subsidiaries:
Ares Trading S.A., Switzerland
Ares Trading, Uruguay
EMD Millipore Corporation, USA
Heipha Dr. Müller GmbH, Germany
Merck & Cie., Switzerland
Merck (Private) Limited, Pakistan
Merck (Pty) Limited, South Africa
Merck Chemicals (Shanghai) Co., Limited, China
Merck Inc., Philippines
Merck KGaA & Co. Werk Spittal, Austria
Merck Limited, Japan
Merck Limited, Taiwan
Merck Limited, Thailand
Merck Pte Ltd, Singapore
Merck Sdn Bhd, Malaysia
Merck Selbstmedikation GmbH, Germany
Merck Serono (Beijing) Merck Pharmaceutical Consulting Ltd., China
Merck Serono Co., Limited, Japan
Merck Serono Middle East FZE, United Arab Emirates
Merck Serono S.A., Switzerland
Merck Specialities Private Limited, India
Merck spol. s r.o., Czech Republic
Millipore India Private Limited, India
P.T. Merck Indonesia, Indonesia
Seven Seas Limited, United Kingdom
Suzhou Taizhu Technology Development Co., China
Key Managerial Personnel:
Dr. Claus Boedecker (Managing Director)
Mr. N Krishnan (Director)
Mr. P.H. Pimplikar (Director)
3. Contingent liabilities
(to extent not provided for)
Summary of disputed statutory demands not accepted by the Company are
given below:
2014 2013
Income tax 504.2 554.1
State and Central Sales Tax, Entry Tax 62.0 35.8
Excise duty 5.7 5.7
571.9 595.6
4. (a) During previous year, the Company had received a show cause
notice from National Pharmaceutical Pricing Authority (NPPA) alleging
that the Company had sold product Polybion L Syrup 250ml without price
approval from the period January 2008 until June 2009. The notice
calculates Rs. 128.0 million as the value of over charge equivalent to
the entire sale value of said product for the referred period. The
Company, based on the legal opinion believes that no provision is
required to be made in the books of account.
(b) During the year, the Company has made a provision of Rs. 69.8
million towards a possible liability which may accrue to the Company
due to a recent judgement passed by the Supreme Court impacting the
Pharmaceutical industry in India including the Company.
(c) National Pharmaceutical Pricing Authority (NPPA) issued the price
fixation orders for about 350 drugs on June 21, 2013 including
Metformin, a formulation used by us in our product Carbophage 500 SR.
The orders do not clarify whether the prices so fixed are applicable
only for plain tablet or innovative dosages as well. The Company sought
clarification from NPPA, however, no clear response has been received.
Pending this clarification NPPA has sent us a notice dated June 6,
2014, claiming the differential pricing charged by the Company for
Carbophage 500 SR over the prices notified.
(d) Central Excise show cause cum demand raised on the Company covering
the period of five years for alleged wrong classification of the
products, Vitamin E Acetate min. 92% for Poultry/Cattle/Pig-feed,
Vitamin E Liquid for Animal Nutrition (for Pig/Cattle/Poultry) and
Vitamin E Dry Powder 50% for Animal Nutrition  total demand Rs. 276.0
million including penalty and interest. Earlier also on the same issue
the demand was raised on the Company to the tune of Rs. 18.0 million
which was then contested before the lower authorities. On the
representation made by the Company the demand was dropped after
considering various decisions pronounced by judicial and quasi-judicial
authorities at the relevant time.
Management feels that the Company has a good case on merits as well as
on limitations. If the Company succeeds on merits the entire duty
demand including penalty and interest would be dropped. However, if the
Company does not succeed on merits the Company has still chances of
succeeding on limitations as the matter was known to the authorities
and there was no suppression or mis-declaration of facts by the
Company. In such an eventuality the duty demand would be restricted to
one year with interest and the penalty would be dropped.
5. Commitments
Estimated amount of contracts remaining to be executed on Capital
Account (net of capital advance Rs. 5.3 million; 2013 Rs. 78.6 million)
and not provided for Rs. 72.1 million (2013: Rs. 50.2 million).
6. Dues to micro, small and medium enterprises
Under the Micro Small and Medium Enterprises Development Act, 2006,
(MSMED) which came into force from October 2, 2006 certain disclosures
are required to be made relating to with Micro Small and Medium
Enterprises. On the basis of the information and records available with
the Management, the following disclosures are made for the amounts due
to the Micro Small and Medium Enterprises, who have registered with the
competent authorities:
7. Disclosure relating to provisions
Personnel and other related provisions
The Company has made provisions for performance-based incentives which
are expected to be paid in the next financial year.
8. Transfer pricing
Transactions with related parties are governed by transfer pricing
regulations of the Indian Income-tax Act, 1961. The Company''s
international and domestic transactions with related parties are at
arm''s length as per the independent accountants report for the year
ended 31 March 2014. Management believes that the Company''s
international transactions with related parties post March 2014
continue to be at arm''s length and that the transfer pricing
legislation will not have any impact on the financial statements,
particularly on the amount of tax expense and that of provision for
taxation.
9. Information with regard to other matter specified in schedule VI
to the Act is either nil or not applicable to the Company for the year.
10. Prior year figures
Previous year''s figures have been regrouped/rearranged wherever
necessary to conform to current year''s presentation.
Dec 31, 2013
1. Company overview
Merck Limited (''the Company'') is a public company domiciled and
headquartered in India. It is incorporated under the Companies Act,
1956 and its shares are listed on the National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE). The Company is in the business of
manufacturing and marketing of pharmaceuticals, bulk drugs, fine
chemicals and pigments. The Company is organized in two major divisions
 Pharmaceuticals and Chemicals.
2. Lease accounting
The Company has entered into cancellable operating lease agreements for
vehicles and office premises/godowns. The lease charges of Rs. 17.0
million (2012: Rs. 21.5 million) and Rs. 104.6 million (2012: Rs. 114.6
million) for vehicles and office premises/godowns respectively have
been included under the sub-head Travelling, Conveyance and Vehicle
Expenses and Rent respectively, which are shown under the head "Other
Expenses" [refer note 25] in the Statement of profit and loss.
3. Employee Benefits:
(i) Defined Benefit Plans
The Company operates two post employment defined benefit plans that
provide Gratuity and Provident fund benefits. The gratuity plan
entitles an employee, who has rendered at least five years of
continuous service, to receive one-half month''s salary for each year of
completed service at the time of retirement/exit. The Company also
makes specified monthly contributions towards employee provident fund
to the Merck Employees Provident Fund Trust. The interest rate payable
by the trust to the beneficiaries every year is being notified by the
Government. The Company has an obligation to make good the shortfall,
if any, between the return from the investments of the trust and the
interest payable at the notified rate.
Note: Employer''s contribution includes payments made of Rs. 10.6
million (2012: Rs. 23.3 million) towards Gratuity obligation by the
Company directly to its past employees.
Estimate of future salary increases, considered in actuarial valuation,
take account of inflation, seniority, promotion and other relevant
factors, such as supply and demand in the employment market.
Assumptions regarding future mortality are based on published
statistics and mortality tables. The calculation of the defined benefit
obligation is sensitive to the mortality assumptions.
(iii) Broad category of plan assets relating to Gratuity as a
percentage of total plan assets:
The Company''s gratuity fund is managed by its insurer, Life Insurance
Corporation of India. The plan assets under the fund are deposited
under approved securities.
(iv) Disclosure for defined benefit plan (Provident fund): (i)
Contribution to Provident and Superannuation fund
Amount of Rs. 36.2 million (2012: Rs. 31.0 million) is recognised as an
expense and included in "Personnel costs" (Refer note 23) in the
Statement of profit and loss.
The guidance issued by the Accounting Standard Board on implementing AS
15, Employee Benefits (revised 2005) states that provident fund set up
by employer, which requires interest shortfall to be met by the
employer, needs to be treated as defined benefit plan.
The Institute of Actuaries of India has issued guidance for measurement
of provident fund liabilities on actuarial basis. Based on this
guidance note, the actuary has provided an actuarial valuation of the
provident fund liability of the Company as at 31 December 2013.
As per the report of the independent actuary, there is no shortfall as
at 31 December 2013 (2012: shortfall of Rs. Nil) that needs to be
recorded by the Company.
(v) Compensated absences:
Compensated absences are recognised when the employees render service
that increase their entitlement to future compensated absence.
Employees can carry forward and avail/encash leave as per the policy of
the Company. Compensated absences have been provided for, based on
outstanding leave balance and the employees'' gross pay.
The undiscounted amount of short term employee benefits of Rs. 14.3
million (2012: Rs. 8.3 million) is expected to be paid in the exchange
for the services rendered by employees and is recognised as an expense
during the year.
(a) Business segment:
For Management reporting purposes, the Company is organised into two
major operating divisions - Pharmaceuticals and Chemicals. The
divisions are the basis on which the Company reports its primary
segment information. The above segments have been identified taking
into account the organisation structure as well as the differing risks
and returns of these segments.
Pharmaceutical business comprises of Ethicals used in the treatment of
Cardiovascular and Metabolic diseases, Consumer Healthcare products and
Vitamins-based formulations.
Chemicals business comprises Bulk drugs and Pigments. Segment Revenue
relating to the Chemicals business segment includes income from
services provided to customers of this segment.
(b) Geographical segment:
In respect of secondary segment information, the Company has identified
its geographical segment as (i) Domestic and (ii) Exports. The
secondary segment information has been disclosed accordingly.
(c) Accounting policies:
The accounting policies adopted for segment reporting are in line with
The accounting policies adopted by the Company for the purpose of these
financial statements, except in respect of inter-segment revenues,
which have been accounted on the basis of prevailing market rates.
Segment assets include all operating assets used by a segment and
consist principally of debtors, inventories and fixed assets, net of
allowances and provisions which are reported as direct offsets in the
Balance Sheet. While most such assets can be directly attributed to
individual segments, the carrying amount of certain assets used jointly
by two segments is allocated to the segments on a reasonable basis.
Segment liabilities include all operating liabilities and consist
principally of creditors and accrued liabilities. Segment assets and
liabilities do not include current and deferred income taxes.
Segment revenue: Segment revenue comprises the portion of company''s
revenue that is directly attributable to a segment or that can be
allocated on a reasonable basis to a segment, and intersegment
transfer.
Segment expense: Segment expense comprises of the expense resulting
from the operating activities of a segment that is directly
attributable to the segment or that can be allocated on a reasonable
basis to the segment and expense relating to transaction with other
segments.
Inter-segment transfers: Segment revenue, segment expense and segment
result include transfers between business segments and between
geographical segments. Those transfers are eliminated in preparing
company-wide results.
4. (a) Related party disclosures
Related parties where control exists Ultimate Holding Company:
Merck KGaA, Germany through its subsidiaries listed below as Investing
Associates holds 51.8% (2012: 51.8%) of the equity share capital, as at
31 December 2013.
Investing Associates:
- Chemitra GmbH, Germany
- Emedia Export Company mbh, Germany
- Merck Internationale Beteiligungen GmbH, Germany
Other related parties with whom transactions have taken place during
the year: Fellow Subsidiaries:
- Ares Trading S.A., Switzerland
- EMD Millipore Corporation, USA
- EMD Serono Inc., USA
- Heipha Dr. Müller GmbH, Germany
- Merck & Cie., Switzerland
- Merck (Private) Limited, Pakistan
- Merck Chemicals (Shanghai) Co., Limited, China
- Merck Chimie S.A.S., France
- Merck Inc., Philippines
- Merck KGaA & Co. Werk Spittal, Austria
- Merck Limited, Japan
- Merck Limited, South Korea
- Merck Limited, Taiwan
- Merck Limited, Thailand
- Merck Pte Ltd, Singapore
- Merck Sdn Bhd, Malaysia
- Merck Selbstmedikation GmbH, Germany
- Merck Serono Co., Limited, Japan
- Merck Serono S.A., Switzerland
- Merck Specialities Private Limited, India
- Merck spol. s r.o., Czech Republic
- Merck Vietnam Company, Vietnam
- Millipore India Private Limited, India
- Millipore S.A.S., France
- P.T. Merck Indonesia, Indonesia
- Seven Seas Limited, United Kingdom
- Suzhou Taizhu Technology Development Co., China
Key Managerial Personnel:
- Dr. Claus Boedecker (Managing Director) (Appointed on 1st August
2012) n Dr. M. Dziki (Managing Director) (Resigned on 31st July 2012) n
Mr. N. Krishnan (Director) (Appointed on 22nd October 2012) n Mr. R.L.
Shenoy (Director) (Retired on 30th September 2012) n Mr. P.H. Pimplikar
(Director)
5. Contingent liabilities
(to extent not provided for)
Summary of disputed statutory demands not accepted by the Company are
given below:
2013 2012
Income tax 554.1 719.0
State and Central Sales
Tax, Entry Tax 35.8 40.5
Excise duty 5.7 5.7
Custom duty 1.3
595.6 766.5
6. The Company has received a show cause notice from National
Pharmaceutical Pricing Authority (NPPA) alleging that the Company had
sold the product Polybion L Syrup 250ml without price approval for the
period January 2008 until June 2009. The notice calculates Rs.128.0
million as the value of over charge equivalent to the entire sale value
of said product for the referred period. The Company, based on the
legal opinion believes that no provision is required to be made in the
books of account.
7. Commitments
Estimated amount of contracts remaining to be executed on Capital
Account, (net of capital advance Rs. 78.6 million; 2012: Rs. 1.1
million) and not provided for Rs. 50.2 million (2012: Rs. 26.3
million).
8. Dues to micro, small and medium enterprises
Under the Micro Small and Medium Enterprises Development Act, 2006,
(MSMED) which came into force from October 2, 2006, certain disclosures
are required to be made relating to transactions with Micro Small and
Medium enterprises. On the basis of the information and records
available with the Management, the following disclosures are made for
the amounts due to the Micro Small and Medium enterprises, who have
registered with the competent authorities:
9. Disclosure relating to provisions Personnel and other related
provisions
The Company has made provisions for performance-based incentives which
are expected to be paid in the next financial year.
10. Transfer pricing
Transactions with related parties are governed by transfer pricing
regulations of the Indian Income-tax Act, 1961. The Company''s
international and domestic transactions with related parties are at
arm''s length as per the independent accountants report for the year
ended 31 March 2013. Management believes that the Company''s
transactions with related parties post March, 2013 continue to be at
arm''s length and that the transfer pricing legislation will not have
any impact on the financial statements, particularly on the amount of
tax expense and that of provision for taxation.
11. Information with regards to other matter specified in Schedule VI
to the Companies Act, 1956 is either nil or not applicable to the
Company for the year.
12. Prior year figures
Previous year''s figures have been regrouped/rearranged wherever
necessary to conform to current year''s presentation.
Dec 31, 2012
1. COMPANY OVERVIEW
Merck Limited (''the Company'') is a public company domiciled in India.
It is incorporated under the Companies Act, 1956 and its shares are
listed on the National Stock Exchange (NSE)''and Bombay Stock Exchange
(BSE). The Company is primarily engaged in manufacturing and marketing
of pharmaceuticals, bulk drugs, fine chemicals and pigments. The
Company is organized in two major divisions - Pharmaceuticals and
Chemicals.
A. Rights, preferences and restrictions attached to equity shares
The Company has a single class of equity shares. Accordingly, ali
equity shares rank equally with regard to dividends and share in the
Company''s residual assets. The equity shares are entitled to receive
dividend as declared from time to time. The voting rights of an .
equity shareholder on a poll (not on show of hands) are in proportion
to its share of the paid-up equity capital of the Company. Voting
rights cannot be exercised in respect of shares on which any call or
other sums presently payable have not been paid.
Failure to pay any amount called up on shares may lead to forfeiture of
the shares.
On winding up of the Company, the holders of equity shares will be
entitled to receive the residual assets of the Company, remaining after
distribution of all preferential amounts in proportion to the number of
equity shares held.
2. CONTINGENT LIABILITIES
(to extent not provided for)
Summary of disputed statutory demands not accepted by the Company are
given below:
2012 2011
Income tax 719.0 708.2
State and Central Sales Tax, Entry Tax 40.5 39.1
Excise duty 5.7 5.7
Custom duty 1.3 1.3
766.5 754.3
3. COMMITMENTS
Estimated amount of contracts remaining to be executed on Capital
Account, (net of capital advance Rs. 1.1 million; 2011: Rs. 5.8
million) and not provided for Rs. 26.3 million (2011: Rs. 15.7
million).
4. SHARE BUY-BACK
The Company has, during the year, incurred expenses of Rs. Nil (2011:
Rs. 0.2 million), towards the buy-back of shares, in terms of the share
buy-back scheme approved by the Board of Directors on 20th May 2009.
5. IMPAIRMENT OF ASSETS
The Company had impaired one of its Chemical plants on account of
significant reduction in the market demand of the product and no
identified alternate use of the Cash Generating Unit (CGU) during the
year ended 31 December 2010. The amount of impairment loss aggregating
Rs. 142.8 million was debited to statement of profit and loss and
formed part of the ''Chemicals'' segment of the Company. During the year
ended 31 December 2011, the Company identified alternate uses for the
said CGU and had modified and put to use the chemical plant to
manufacture alternate product. Accordingly, as at the end of the
previous year, based on the approved utilization plan for the CGU, the
Company reversed impairment loss of Rs. 142.8 million crediting
statement of profit and loss.
6. LEASE ACCOUNTING
The Company has entered into cancellable operating lease agreements for
vehicles and office premises/godowns. The lease charges of Rs. 21.5
million (2011: Rs. 21.6 million) and Rs. 114.6 million (2011: Rs. 100.5
million) for vehicles and office premises/godowns have been included
under the sub-head Travelling, Conveyance and Vehicle Expenses and Rent
respectively under the head "Other Expenses" (refer note 22) in the
statement of profit and loss.
7. DISCLOSURE RELATING TO PROVISIONS
Personnel and other related provisions:
The Company has made provisions for performance-based incentives which
are expected to be paid in the next financial year.
Provisions in respect of sales tax matters:
The Company has also made provisions for various sales tax/value added
tax related matters, which will be settled on completion of the
respective assessments.
8. EMPLOYEE BENEFITS
(i) Contribution to Provident and Superannuation Funds
Amount of Rs. 31.0 million (2011: Rs. 29.8 million) is recognised as an
expense and included in "Employee Benefits" (Refer note 21) in the
statement of Profit and Loss.
(ii) Defined benefit plan
The Company operates two post employment defined benefit plans that
provide Gratuity and Provident fund benefits. The gratuity plans
entitles an employee, who has rendered atleast five years of continious
service, to receive one-half month''s salary for each year of completed
service at the time of retirement/exit. The Company also makes
specified monthly contributions towards employee provident fund to the
Merck Employees Provident Fund Trust. The interest rate payable by the
trust to the beneficiaries every year is being notified by the
Government. The Company has an obligation to make good the shortfall,
if any, between the return from the investments of the trust and the
interest payable at the notified rate.
Note: Note: Employer''s contribution includes payments made of Rs. 23.3
million (2011: Rs. 5.4 million) towards Gratuity obligation by the
Company directly to its past employees.
Estimate of future salary increases, considered in actuarial valuation,
take account of inflation, seniority, increments and other relevant
factors, such as supply and demand in the employment market.
Assumptions regarding future mortality are based on published
statistics and mortality tables. The calculation of the defined benefit
obligation is sensitive to the mortality assumptions.
(v) Broad category of plan assets relating Gratuity as a percentage of
total plan assets:
The Company''s gratuity fund is managed by its insurer, Life Insurance
Corporation of India. The plan assets under the fund are deposited
under approved securities.
(vi) Disclosure for defined benefit plan (Provident Fund):
The guidance issued by the Accounting Standard Board on implementing AS
15, Employee Benefits (revised 2005) states that provident fund set up
by employer, which requires interest shortfall to be met by the
employer, needs to be treated as defined benefit plan. The Institute
of Actuaries of India has, during the year, issued the guidance for
measurement of provident fund liabilities on actuarial basis. Based on
this guidance note, the actuary has provided an actuarial valuation of
the provident fund liability of the Company as at 31 December 2012.
As per the report of the independent actuary, there is no shortfall as
at 31 December 2012 (2011: shortfall of Rs. 5.3 million) that needs to
be recorded by the Company.
(vii) Compensated absences:
Compensated absences are recognized when the employees render service
that increase their entitlement to future compensated absence.
Employees can carry forward and avail/ encash leave as per the policy
of the Company. Compensated absences have been provided for, based on
outstanding leave balance and the employees'' gross pay.
The undiscounted amount of short term employee benefits of Rs. 8.3
million (2011: Rs. 8.1 million) is expected to be paid in the exchange
for the services rendered by employees is recognised as an expense
during the year.
9. (a) RELATED PARTY DISCLOSURES
Related parties where control exists Ultimate Holding Company:
Merck KGaA, Germany through its subsidiaries listed below as Investing
Associates holds 51.8% (2011: 51.8%) of the equity share capital, as at
31 December 2012.
Investing Associates:
- Chemitra GmbH, Germany
- Emedia Export Company mbh, Germany
- Merck Internationale Beteiligungen GmbH, Germany ''
Other related parties with whom transactions have taken place during
the year:_
Fellow Subsidiaries:
- EMD Millipore Corporation, USA (Formerly known as EMD Chemicals
Inc., USA)
- EMD Serono Inc., USA
- Merck Et Cie., Switzerland
- Merck (Private) Limited, Pakistan
- Merck Consumer Health Care Holding GmbH, Germany
- Merck Inc., Philippines
- Merck KGaA Et Co. Werk Spittal, Austria
- Merck Limited, Japan
- Merck Limited, South Korea
- Merck Limited, Taiwan
- Merck Limited, Thailand
- Merck Patent GmbH, Germany
- Merck Pharmaceutical (HK) Limited, Hong Kong
- Merck Pte Ltd, Singapore
- Merck S.A., France
- Merck Sdn Bhd, Malaysia
- Merck Serono Co., Limited, Japan ''
- Merck Serono S.A., Switzerland
- Merck Specialities, Private Limited, India
- Merck Vietnam Company, Vietnam
- Millipore India Private Limited, India
- Millipore S.A.S., France
- P.T. Merck Indonesia, Indonesia
- Seven Seas Limited, United Kingdom
- Suzhou Taizhu Technology Development Co., China
Key Managerial Personnel:
- Dr. Claus Boedecker (Managing Director) (Appointed on 1st August
2012)
- Dr. M. Dziki (Managing Director) (Resigned on 31st July 2012)
- Mr. N. Krishnan (Appointed on 22nd October 2012)
- Mr. R.L. Shenoy (Retired on 30th September 2012)
- Mr. P.H. Pimplikar
- Mr. K. Shivkumar (Resigned on 24 May 2011)
(a) Business segment:
For Management reporting purposes, the Company is organised into two
major operating divisions - Pharmaceuticals and Chemicals. The
divisions are the basis on which the Company reports its primary
segment information. The above segments have been identified taking
into account the organisation structure as well as the differing risks
and returns of these segments.
Pharmaceutical business comprises of Ethicals used in the treatment of
Cardiovascular and Metabolic diseases, Consumer Healthcare products and
Vitamins-based formulations.
Chemicals business comprises Bulk drugs and Pigments. Segment Revenue
relating to the Chemicals business segment includes income from
services provided to customers of this segment.
(b) Geographical segment: -
In respect of secondary segment information, the Company has identified
its geographical segment as (i) Domestic and (ii) Exports. The
secondary segment information has been disclosed accordingly.
(c) Accounting policies: ,
The accounting policies adopted for segment reporting are in line with
the accounting policies adopted by the Company for the purpose of these
financial statements, except in respect of inter-segment revenues,
which have been accounted on the basis of prevailing market rates.
Segment assets include all operating assets used by a segment and
consist principally of debtors, inventories and fixed assets, net of
allowances and provisions which are reported as direct offsets in the
Balance Sheet. While most such assets can be directly attributed to
individual segments, the carrying amount of certain assets used jointly
by two segments is allocated to the segments on a reasonable basis.
Segment liabilities include all operating liabilities and consist
principally of creditors and accrued liabilities. Segment assets and
liabilities do not include current and deferred income taxes.
Segment revenue: Segment revenue comprises the portion of company''s
revenue that is directly attributable to a segment or that can be
allocated on a reasonable basis to a segment, and intersegment
transfer.
Segment expense: Segment expense comprises the expense resulting from
the operating activities of a segment that is directly attributable to
the segment or that can be allocated on a reasonable basis to the
segment and expense relating to transactions with other segments.
Inter-segment transfers: Segment revenue, segment expense and segment
result include transfers between business segments and between
geographical segments. Such transfers are accounted for at competitive
market prices charged to unaffiliated customers for similar goods.
Those transfers are eliminated in preparing company-wide results.
10. DUES TO MICRO, SMALL AND MEDIUM ENTERPRISES
Under the Micro Small and Medium Enterprises Development Act, 2006,
(MSMED) which came into force from October 2, 2006, certaip disclosures
are required to be made relating to transactions with Micro Small and
Medium enterprises. On the basis of the information and records
available with the Management, the following disclosures are made for
the amounts due to the Micro Small and Medium enterprises, who have
registered with the competent authorities:
11. TRANSFER PRICING
Transactions with overseas related parties are governed by transfer
pricing regulations of the Indian Income-tax Act, 1961. The Company''s
international transactions with related parties are at arm''s length as
per the independent accountants report for the year ended 31 March
2012. Management believes that the Company''s international
transactions with related parties post March 2012 continue to be at
arm''s length and that the transfer pricing legislation will not have
any impact on the financial statements, particularly on the amount of
tax expanse and that of provision for taxation.
12. Information with regard to other matter specified in Schedule VI
to the Act is either nil or not applicable to the Company for the year.
13. PRIOR YEAR FIGURES
Previous year''s figures have been regrouped/rearranged wherever
necessary to conform to current year''s presentation.
Dec 31, 2009
1. CONTINGENT LIABILITIES
Summary of disputed statutory demands not accepted by the Company are
given below:
2009 2008
Income tax 345.0 252.2
State and Central Sales Tax 11.7 20.2
Excise duty # 108.6 108.5
Service tax 5.4 5.4
Custom Duty 1.3 1.3
472.0 387.6
# Includes Rs. 89.9 million (2008: Rs. 89.9 million) in respect of a
guarantee given to a toll center, towards an excise duty demand.
2. CAPITAL COMMITMENTS
Estimated amount of contracts remaining to be executed on Capital
Account (net of advance) and not provided for: Rs. 17.4 million (2008:
Rs. 29.8 million).
3. SHARE BUY BACK
In terms of the share buy back scheme approved by the Board of
Directors on 20 May 2009, the Company has, during the year, bought back
261,842 (2008: Nil) shares for an aggregate consideration of Rs. 107.4
million (2008: Rs. Nil), including related expenses. The nominal value
of the shares bought back has been adjusted against the share capital.
In the above scheme, the approved maximum buy back price was Rs. 435
per share.
The nominal value of shares purchased i.e. Rs. 2.6 million has been
adjusted against the share capital. An equal amount has been reduced
from General Reserve and credited to Capital Redemption Reserve, as per
the provisions of the Companies Act, 1956.
The difference between consideration paid (including related expenses)
and nominal value of shares aggregating Rs. 2.6 million has been
adjusted against General Reserve.
(a) Business segment
For Management reporting purposes, the Company is organised into two
major operating divisions - Pharmaceuticals and Chemicals.
The divisions are the basis on which the Company reports its primary
segment information. The above segments have been identified taking
into account the organisation structure as well as the differing risks
and returns of these segments.
Pharmaceuticals business comprises of Ethicals used in the treatment of
Cardiovascular and Metabolic diseases, Consumer Healthcare products and
Vitamins-based formulations.
Chemicals business comprises of Bulk drugs and Pigments. Segment
revenue relating to the Chemicals business includes income from
services provided to customers of this segment.
(b) Geographical segment
In respect of secondary segment information, the Company has identified
its geographical segment as (i) Domestic and (ii) Exports. The
secondary segment information has been disclosed accordingly.
(c) Accounting policies
The accounting policies adopted for segment reporting are in line with
the accounting policies adopted by the Company for the purpose of these
financial statements, except in respect of inter-segment revenues,
which have been accounted on the basis of prevailing market rates.
Segment assets include all operating assets used by a segment and
consist principally of debtors, inventories and fixed assets, net of
allowances and provisions which are reported as direct offsets in the
Balance Sheet. While most such assets can be directly attributed to
individual segments, the carrying amount of certain assets used jointly
by two segments is allocated to the segments on a reasonable basis.
Segment liabilities include all operating liabilities and consist
principally of creditors and accrued liabilities. Segment assets and
liabilities do not include current and deferred income taxes.
4. (a) RELATED PARTY DISCLOSURES
Holding Company:
Merck KGaA, Germany through its subsidiaries listed below as Investing
Associates holds 51.8% (2008: 51.0ð/o) of the equity share capital, as
at 31 December 2009.
Investing Associates:
- Chemitra GmbH, Germany
- Emedia Export Company mbh, Germany
- Merck Internationale Beteiligungen GmbH, Germany
Other related parties with whom transactions have taken place during
the year:
Fellow Subsidiaries: Executive Directors:
- EMD Biosciences Inc., USA - Dr. M. Dziki (Managing Director)
- EMD Chemicals Inc., USA - Mr. R. L Shenoy
- Merck Et Cie KG, Switzerland - Mr. K. Shivkumar
- Merck Chemical (Shanghai) Pvt. Ltd., China
- Merck KGaA & Co. Werk Spittal, Austria
- Merck Ltd., Japan
- Merck Ltd., Thailand
- Merck Marker (Pvt.) Ltd., Pakistan
- Merck Pte. Ltd., Singapore
- Merck Pty. Ltd., Australia
- Merck Pty. Ltd., South Africa
- Merck Sante SAS, France
- Merck Serono International S.A., Switzerland
- Merck Specialities Pvt. Ltd., India
- PT Merck Tbk, Indonesia
- Seven Seas Ltd., UK
5. DISCLOSURE RELATING TO PROVISIONS Personnel and other related
provisions
The Company has made provisions for performance based incentives which
are expected to be paid in the first half of the next financial year.
6. EMPLOYEE BENEFITS
(i) Effective 1 January 2007, the Company adopted Accounting Standard
15 (AS-15) (revised 2005) on "Employee Benefits" prescribed in
Companies (Accounting Standard) Rules, 2006.
(ii) Contribution to Provident and Superannuation Funds Amount of Rs.
27.3 million (2008: Rs. 21.5 million) is recognised as an expense and
included in "Personnel costs" (Refer schedule 15) in the Profit and
Loss Account.
(iv) Broad category of plan assets relating to Gratuity as a percentage
of total plan assets
The Companys gratuity fund is managed by its insurer, Life Insurance
Corporation of India. The plan assets under the fund are deposited
under approved securities.
(v) Compensated absences
Compensated absences are recognised when the employee renders services
that increase their entitlement to future compensated absences. As per
the policy of the Company, all employees can carry forward and
avail/encash leave on superannuation, death, permanent disablement,
retirement and resignation subject to (a) maximum accumulation of 240
days. Compensated absence has been provided for based on outstanding
leave balance and the employees gross pay
The undiscounted amount of short term employee benefits of Rs. 4.5
million (2008 Rs. 2.1 million) is expected to be paid in exchange for
the services rendered by employee is recognised as an expense during
the year.
(vi) The guidance issued by the Accounting Standard Board (A5B) on
implementing AS 15, Employee Benefits (revised 2005) states that
provident fund set up by employer, which requires interest shortfall to
be met by the employer, needs to be treated as defined benefit plan.
The fund does not have any existing deficit or interest shortfall. In
regard to any future obligation due to interest shortfall (i.e.
government interest to be paid on provident fund scheme exceeds rate of
interest earned on investment), pending the issuance of guidance note
from the Actuarial Society of India, the Companys actuary has
confirmed no additional liability would arise as at the Balance Sheet
date.
7. Provision for current tax is based on the results for the year
ended December 31, 2009 and is determined in accordance with the
provisions of the Income Tax Act, 1961. The final tax liability will be
determined on the basis of the operations for the year April 1, 2009 to
March 31, 2010, being the tax year of the Company.
8. TRANSFER PRICING
The Companys Management has developed a system of maintenance of
information and documents as required by the Transfer Pricing
legislation under Section 92-92F of the Income tax Act, 1961. The
Companys international transactions with related parties are at arms
length as per the independent accountants report for the year ended 31
March, 2009. Management believes that the Companys international
transactions with related parties post 31st March, 2009 continue to be
at arms length and that the Transfer Pricing legislation will not have
any impact on these financial statements, particularly on amount of tax
expense and that of Provision of Taxation.
9. PREVIOUS YEAR COMPARATIVES
Previous years figures have been regrouped, wherever necessary, to
conform to the current years classification.
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