Mar 31, 2023
The fair value of the Companyâs investment properties as at March 31, 2023 has been arrived at H 950.60 Million (as at March 31, 2022: H 949 Million) on the basis of a valuation carried out by independent valuers. The valuation is done by valuers as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017 and have appropriate qualifications and relevant experience in the valuation of properties in the relevant locations.
The fair value has been categorised as level 3 hierarchy based on the inputs used in valuation technique. The inputs used are as follows:
⢠Monthly market rent, taking into account the differences in location, and individual factors, such as frontage and size, between the comparables and the property; and
⢠Capitalisation rate, taking into account the capitalisation of rental income potential, nature of the property, and prevailing market condition.
(iv) Investment properties are pledged as security
⢠towards term loan (first pari passu charge) and working capital borrowings (second pari passu charge) by the Company.
⢠towards borrowings by subsidiary
(v) During the previous year the Company has sold an investments property with a net book value of H 525.03 Million for a total consideration of H 630.00 Million (Refer note 42).
(vi) Amounts recognised in profit or loss for investment properties.
a) 11,087,706 (As at March 31, 2022: 5,979,370) equity shares are pledged against borrowings taken by Stelis Biopharma Limited from a financial institution.
b) During the year ended March 31, 2023, Stelis Biopharma Limited (âthe Associateâ) has incurred loss of H 7,998 Million and has a net negative working capital position amounting to H 6,368 Million, which includes the current maturities of non-current borrowings of H 3,079 Million as of March 31, 2023. The significant loss for the current year has been on account of continuing operating losses, impairment of certain intangibles under development, provisions recorded for write down of certain inventories and advances.
During the year, the Associate had inventories relating to Sputnik V, which remained unsold due to geopolitical situation between Russia and Ukraine and sanctions on Russia and Russian Direct Investment Fund (RDIF) and accordingly has recorded a provision for these inventories towards obsolescence.
The Associate is expected to grow the business of Contract Development and Manufacturing Operations (CDMO) further during the year. During the current financial year, Associateâs facility in Bengaluru has successfully
completed inspection by several regulators including EMA and USFDA and one of its customer has also recently received approval from USFDA for a product filed from the site.
The Associate has requested for temporary relaxations for compliance with the financial covenants from the lenders for fiscal 2022 and 2023 as these have not been met as of the date of these financial results. However, during the year ended March 31, 2023, the shareholders have infused H 7,102 Million by subscribing towards call against the partly paid-up shares, rights issues and as intercorporate debt.
The Associate has received letter of support from one of its shareholders who have committed to extend the necessary financial support. The Associate is exploring various fund raising options including refinancing of debts and currently has received certain term sheets from investors / lenders which are being negotiated. The Associate is also exploring options to monetise some of its assets. The Associate management believes they will be able to finalise these arrangements over the next two quarters to enable it to repay the borrowings due and meet all its other obligations as they fall due. Given the mitigating factors discussed above, the Associate has concluded that it will be able to generate/raise adequate resources to continue operating for the foreseeable future and that the going concern basis for the preparation of its financial statements remains appropriate.
Nature and purpose of other reserve
(a) Capital reserve
Capital reserve is created on account of FCCBâs, Mergers and acquisitions and Demergers. It is utilised in accordance with the provisions of the Companies Act, 2013.
(b) Securities premium
Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013.
(c) Reserve for Business Restructure
The Scheme of restructuring approved by the shareholders on April 13, 2009 included a Scheme of Arrangement that envisaged the creation of a Reserve for Business Restructure(BRR) as set out in the Scheme. The Reserve was to be utilised by December 31, 2012 for specified purposes by either the Company or its subsidiaries. The balance of H 3,846.38 Million identified under the Securities Premium Account represents amounts utilised by the subsidiaries of the Company from the Reserve prior to December 31, 2012 and have been earmarked for set off on consolidation.
(d) Capital redemption reserve
Capital redemption reserve is a statutory, non-distributable reserve into which the amounts are transferred following the redemption or purchase of Companyâs own shares. It is utilised in accordance with the provisions of the Companies Act, 2013.
The fair value of the equity-settled share based payment transactions with employees is recognised in statement of profit and loss with corresponding credit to employee stock options outstanding account. The amount of cost recognised is transferred to share premium on exercise of the related stock options.
General reserves are the retained earnings of a Company which are apportioned out of Companyâs profits. General reserve is a free reserve which can be utilised for any purpose after fulfilling certain conditions in accordance with the provisions of the Companies Act, 2013.
(g) Retained earnings
Retained earnings are the profits that the Company has earned till date, less any transfers to other reserves, dividends or other distributions paid to its equity shareholders.
The cash flow hedging reserve represents the cumulative effective portion of gains or losses (net of taxes, if any) arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges.
The cumulative balances of actuarial gain or loss arising on remeasurements of defined benefit plan is accumulated and recognised with in this component of other comprehensive income. Items included in actuarial gain or loss reserve will not be reclassified subsequently to statement of profit and loss.
Board of Directors of the Company on March 14, 2022 approved the issuance of upto 2,000,000 Equity Warrants at a price of H 442/- per warrant, to Karuna Business Solutions LLP, a promoter group entity, with a right to apply for and get allotted, within a period of 18 (Eighteen) months from the date of allotment of Warrants, 1 (one) Equity Share of face value of H 10/- (Rupee Ten Only) each for each Warrant, for cash. The issue was approved by the shareholders of the Company at the Extra Ordinary General Meeting held on April 7,2022 and has also received requisite listing approvals.
An amount of H 221 Million equivalent to 25% of the Warrant Price was paid to the Company at the time of subscription and the balance 75% of the Warrant Price was payable by the Warrant holder against each Warrant at the time of allotment of Equity Shares pursuant to exercise of the options.
During the year ended March 31, 2023, on exercise of options by Karuna Business Solutions LLP and on receipt of balance subscription money of H150 Million, the Company has fully converted 452,490 convertible warrants into equity shares. Equity warrants of 1,547,510 are pending to be allotted as on March 31.2023.
The Company has fully utilised the amounts of H 371 Million towards capital resources and operations.
(a) Details of security for the secured loans repayable on demand: Working capital and short term loans from banks are secured by first pari passu charge over current assets of the Company and second pari passu charge on movable and immovable fixed assets of the Company (other than land and building situated at Navi Mumbai).
Rate of interest ranges from 1.50% to 10.4%.
(b) Rate of interest ranges from 6% to 10% for unsecured loans from banks.
(c) The returns and statements filed by the Company with the banks for its working capital loans, are in line with books of accounts of the Company.
(d) Information about Companyâs exposure to interest rate, foreign currency exposure and liquidity risk are included in note 45.
The Company is eligible for various tax incentives / exemptions with respect to taxability of income received in India including repatriation of any profits as dividends from subsidiaries and associates, which may result in possible tax litigations/assessments. Assessing the applicability of tax for such repatriations involve complexities with respect to various tax positions on availability of tax incentives / exemptions resulting in possible tax litigations/assessments. Judgment is required in assessing the availability of tax incentives / exemptions. These judgments could change over time as each of the matter progresses with the relevant tax authorities and accordingly may impact the accounting treatment followed by the Company. The Company based on its assessments believes that appropriate accruals have been recorded for all these matters, to the extent necessary.
Based on the âmanagement approachâ as defined in Ind AS 108, the Chief Operating Decision Maker (âCODMâ) evaluates the Companyâs performance based on an analysis of various performance indicators. The accounting principles used in the preparation of these financial results are consistently applied to record revenue and expenditure in individual segments.
The Company pursuant to its assessment that the business has now evolved from its incubation stage and to align to the decision to demerge certain parts of its business, implemented operational changes in how its CODM evaluates its businesses, including resource allocation and performance assessment. As a result of the aforesaid change, the Company has two operating segments, representing the individual businesses that are managed separately. The Companyâs reportable segment are as follows; âPharmaceuticalâ and âBio-pharmaceuticalâ.
Note No. 38 Commitments H In Million |
||
Particulars |
31-Mar-23 |
31-Mar-22 |
Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) |
279.74 141.20 |
|
Total |
279.74 141.20 |
|
Note No. 39 Contingent liabilities (to the extent not provided for) H In Million |
||
Particulars |
31-Mar-23 |
31-Mar-22 |
a) Corporate guarantees The Corporate has given guarantees given corporate guarantees to financial institutions and other parties, including on behalf of its subsidiaries in the ordinary course of business (to the extent of outstanding borrowing of the underlying Guarantee)* b) Claims against the Company not acknowledged as debt - Disputed tax liabilities arising from assessment proceedings relating to earlier years from the income tax authorities. The outflow, if any, on account of disputed taxes is dependent on completion of assessments/ disposal of appeals and adjustments for payment made under protest. - Disputed excise, custom, service tax and sales tax liabilities arising from assessment proceedings relating to prior years. The outflow, if any, on account of disputed liabilities is dependent on completion of assessments/ disposal of appeals and adjustments for payment made under protest. |
11,843.37 14,728.57 699.02 1,740.14 588.01 588.01 |
* Refer note 42
As per the judgment of Honourable Supreme Court dated February 28, 2019 on the definition of âBasic Wagesâ under the Employees Provident Funds & Misc. Provisions Act, 1952 and based on Companyâs evaluation, there are significant uncertainties and numerous interpretative issues relating to the judgement and hence it is unclear as to whether the clarified definition of Basic Wages would be applicable prospectively or retrospectively. The amount of the obligation therefore cannot be measured with sufficient reliability for past periods and hence has currently been considered to be a contingent liability.
Other than the matters disclosed above, the Company is also involved in other disputes including patent and commercial matters that arise from time to time in the ordinary course of business. Management is of the view that the resolution of these disputes will not have any material adverse effect on the Companyâs financial position or results of operations.
Note No. 40 Share-based paymentsa. Details of the employee share option plan of the Company:
(a) The ESOP titled âStrides ESOP 2016â (formerly known as Strides Shasun ESOP 2016) (ESOP 2016) was approved by the shareholders on April 21, 2016. 3,000,000 options are covered under the Plan which are convertible into equal number of equity shares of the Company. The vesting period of these options range over a period of three years. The options must be exercised within a period of one year from the date of vesting. Company has granted 442,500 options (Previous year: 67,500) under this scheme during the current year.
(b) During the current year, Employee compensation costs of H 12.68 Million (for the year ended March 31, 2022: H 10.90 Million) relating to the above referred Employee Stock Option Plans have been recognised in the Statement of Profit and Loss.
Fair value of share options granted during the year
The fair value of the share options granted during the year under ESOP 2016 Lot XII, ESOP 2016 Lot XIII, ESOP Lot XIV and ESOP 2016 Lot XV are H154.79, 163.72, 126.76, and H161.52 respectively. Options were priced using a Black- Scholes method of valuation at grant date. Expected volatility is based on the historical share price volatility over the past 3 years.
b. Details of the cash settled share based payment plan of the Company:
On May 20, 2020, the Board approved âStrides Long Term Incentive Plan 2020â titled the LTIP 2020 (âthe Planâ). The Plan shall be in the form of Phantom Units. Each Phantom Unit, upon exercise, entitles the awardee a cash benefit equal to the Share Price on the date of exercise minus exercise price to be paid to the Company.
The vesting period of these units is one year. The units must be exercised within a period of twelve months from the date of vesting. The Company has granted Nil options (Previous year: Nil) under this scheme during the current year.
During the current year, Employee compensation cost reversal of H 3 Million (cost reversal for the year ended March 31, 2022: H 19.80 Million) relating to the plan have been recorded in the statement of Profit and Loss on account of final settlement of the Phantom units granted previous year.
Note No. 41 Employee Benefits Plans Defined contribution plan
The Company makes contributions to provident fund and employee state insurance schemes which are defined contribution plans, for qualifying employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll cost to fund the benefits. The Company recognised H 137.69 Million for provident fund contributions, H 1.95 Million for employee state insurance scheme contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.
The Company offers gratuity benefits, a defined employee benefit scheme to its employees.
Composition of the plan assets
The fund is managed by LIC, the fund manager. The details of composition of plan assets managed by the fund manager is not available with the Company. However, the said funds are subject to Market risk (such as interest risk, investment risk, etc.).
Significant actuarial assumptions for the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
If the discount rate increases (decrease) by 1%, the defined benefit obligation would be H 407.14 Million (H 448.87 Million) as at March 31, 2023.
If the expected salary growth increases (decrease) by 1%, the defined benefit obligation would be H 466.72 Million (H 408.18 Million) as at March 31, 2023.
The sensitivity analysis presented above may not be representative of the actual change in 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 at 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.
There has been no change in the process used by the Company to manage its risks from prior periods.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consist of the following three levels:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
Some of the Companyâs financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).
45.3 Financial risk management
The Companyâs activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Companyâs primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivatives financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Companyâs policy that no trading in derivatives for speculative purposes maybe undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Foreign currency risk management
The Company is exposed to foreign exchange risk due to:
⢠debt availed in foreign currency
⢠net investments in subsidiaries and joint ventures that are in foreign currencies
⢠exposure arising from transactions relating to purchases, revenues, expenses, etc., to be settled (within and outside the group) in currencies other than the functional currency (i.e Indian rupees)
Exchange rate exposures are managed within approved policy parameters by utilising forward foreign exchange contracts.
It is the policy of the Company to enter into forward foreign exchange contracts to cover the forecast sales transactions
The impact on profit has been arrived at by applying the effects of appreciation / deprecation effects of currency on the net position (Assets in foreign currency - Liabilities in foreign currency) in the respective currencies.
For the purposes of the above table, it is assumed that the carrying value of the financial assets and liabilities as at the end of the respective financial years remains constant thereafter. The exchange rate considered for the sensitivity analysis is the exchange rate prevalent as at each year end.
The sensitivity analysis might not be representative of inherent foreign exchange risk due to the fact that the foreign exposure at the end of the reporting period might not reflect the exposure during the year.
45.4 Interest rate risk management
Interest rate risk arises from borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued at fixed rate exposes the Company to fair value risk.
Financial instruments affected by interest rate changes include secured long term loans from banks and secured long term loans from others. The impact of a 1% change in interest rates on the profit of an annual period will be H 135.55 Million (March 31, 2022: 124.65 Million) assuming the loans at each year end remain constant during the respective years. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk to the company primarily arises from trade receivables. Credit risk also arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions and other financial assets.
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company has an internal mechanism of determining the credit rating of the customers and setting credit limits. Credit risk is controlled by analysing the credit limits and credit worthiness of customers on a continuous basis to whom credit has been given after obtaining necessary approvals.
The Company was not significantly exposed to geographical credit risk as the counterparties operate across various countries across the globe.
Credit risk on cash and cash equivalent and derivatives is limited as the Company generally transacts with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.
45.6 Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of directors, which has established an appropriate liquidity risk management framework for the management of the Companyâs short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual short term and long term cash flows, and by matching the maturity profiles of financial assets and liabilities. A portion of the companyâs surplus cash is retained as investments in liquid mutual funds or fixed deposits to fund short term requirements.
The following table details the Companyâs remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted contractual cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Company may be required to pay.
Note No. 46 Capital management
The Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of net debt (borrowings as detailed in notes 20 offset by cash and bank balances) and total equity.
The Company reviews the capital structure on a quarterly basis to ensure that it is in compliance with the required covenants. As of the date of the issue of financial results, the management of the Company have not complied with certain financial covenants related to their respective borrowings and have obtained temporary relaxations for compliance with those financial covenants from the lenders . The Company has a target gearing ratio of 1:1 determined as the proportion of net debt to total equity. The gearing ratio is as follows
The Company is not subject to any externally imposed capital requirements.
1. Reduction in profits and increase in interest payments during the year leading to decrease in the ratio
2. Reduction in profits during the year leading to decrease in the ratio
3. Decrease in net capital turnover ratio is on account of increase in networking capital position without a corresponding decrease in turnover
4. Reduction in profits during the year leading to decrease in the ratio
5. In the current year, the Company did not invest in any mutual funds.
Note No. 48 Other Statutory Information
(a) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Company for holding any Benami property.
(b) The Company does not have any transactions with struck off companies.
(c) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period (excluding the charge with respect to Debentures mentioned in note 20 (i), as the Company is awaiting no objection certificate from the other lenders.
(d) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(e) 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:
(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.
(f) 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,
(g) The Company has not done any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961.
(i) The Company has complied with the number of layers prescribed under the Companies Act, 2013.
(j) The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or both during the current or previous year.
(k) The Company has borrowings from banks and financial institutions on the basis of security of current assets. The quarterly returns or statements of current assets filed by the Company with banks and financial institutions are in agreement with the books of accounts.
(l) The Company have not been declared as wilful defaulter by any bank or financial institution or government or any government authority.
The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under Sections 92-92F of the Income-tax Act, 1961. Since the law required existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the international as well as domestic transactions entered into with the associated enterprise during the financial year and expects such records to be in existence as required by law. The Management is of the opinion that its international as well as domestic transactions are at armâs length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for tax.
Note No. 50 During the year ended March 31, 2023, no material foreseeable loss (March 31, 2022: Nil) was incurred for any long-term contract including derivative contracts.
Note No. 51 The Board of Directors of the Company on February 10, 2022 have approved the Scheme of Amalgamation u/s 230 to 232 of the Companies Act, 2013, between Strides Pharma Science Limited and Vivimed Lifesciences Private Limited with an appointed date of April 1, 2022. The Scheme of Amalgamation is yet to be filed with National Company Law Tribunal (NCLT) for approval. The Scheme was originally approved by the Board of Directors at their meeting held on October 29, 2020. However, the Company did not proceed with the Scheme at that time and the current Scheme supersedes the original Scheme.
Note No. 52 The Board of Directors have proposed a final dividend of H 1.5 per share, which is subject to approval by the shareholders in the Annual General Meeting.
Note No. 53 The previous yearâs figures in the notes to accounts have been re-grouped/ reclassified, where necessary to confirm to current yearâs classification.
The accompanying notes are an integral part of the standalone financial statements As per our report of even date attached
Mar 31, 2018
Note:
a) Subsequent to the balance sheet date, the Board of Directors proposed to sell the entire investments in Strides Chemicals Private Limited to Solara Active Pharma Sciences Limited for a consideration of not less than ''1,310 Million. Accordingly, impairment loss to the extent of ''179.99 Million has been recognized in the Statement of Profit and Loss and is included under Exceptional Items.
b) During the year, Shasun NBI, LLC, USA has been wound up and accordingly the investments and the provision for diminution in value of investments has been written off in the books of accounts.
c) During the previous year, the Company acquired the business of its wholly owned subsidiary Fagris Medica Private Limited (Fagris), on slump sale, as per the terms of business transfer agreement dated February 7, 2017. The difference between the assets acquired and consideration paid has been debited to Capital reserve. Pursuant to the business acquisition, the investment in Fagris has been fully impaired and the resulting impairment loss has been recognized in the Statement of Profit and Loss under Exceptional Items.
d) Stelis Biopharma Private Limited (Stelis) until March 31, 2016 was assessed to be a subsidiary of the Company ("Strides") had control over its operations. The shareholding pattern as at March 31, 2016 was Strides 74.9% and GMS 25.1%. However on March 31, 2017, Stelis, in order to meet its funding requirements, entered into an agreement with the Company, Tenshi Life Sciences Private Limited (Tenshi), (a promoter group company), and the GMS group, under which the parties agreed that any further funding that Stelis needs for its growth, would be funded by Tenshi and GMS group and that Strides would not be required to make any further investments into Stelis. The arrangement also envisaged that, over a period of time, the Company will eventually hold a significant non controlling interest only in Stelis. Tenshi and GMS will have the rights to appoint majority of the directors and the Company shall have right to appoint only one director. As the Company does not have majority representation on the board, where decisions with respect to relevant activities will be taken, the directors have concluded that the Company no longer holds control over Stelis. However, as Strides has representation on the board and holds more than 20% share capital with voting rights, Stelis is assessed to be associate of the Company pursuant to the above arrangement.
e) Pursuant to The Scheme of demerger (Refer note 39.2) the original investment of 3,91,185 fully paid up equity shares made in Beta Wind Farm Private Limited by Strides Shasun Limited has been split between the demerged and resulting entities as on March 31, 2018. Below are the shares held by respective entities in proportion of consumption to comply with the Electricity rules.
Strides Shasun Limited (for HTSC No. 443 of Chengalput EDC) - 56,909 shares
Solara Active Pharma Sciences Limited (for HTSC No. 64 of Cuddalore EDC) - 334,276 shares
Under the Indian Income Tax Act, 1961, the Company is liable to pay Minimum Alternate Tax (MAT). MAT paid can be carried forward for a certain period and can be set off against the future tax liabilities. MAT is recognized as deferred tax asset only when the asset can be measured reliably and it is probable that the future economic benefits associated with the asset will be realized.
In determining the allowance for doubtful trade receivables, the Company has used a practical expedient by computing the expected credit allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and is adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the receivables that are due and rates used in the provision matrix.
The Company has availed bill discounting facilities from the banks which do not meet the derecognition criteria for transfer of contractual rights to receive cash flows from the respective trade receivables since they are with recourse to the Company. Accordingly as at March 31, 2018, trade receivables balances include ''484.92 Million (As at March 31, 2017: ''264.56 Million) and the corresponding financial liability to the banks is included as part of working capital loan under short-term borrowings.
(ii) Detail of the rights, preferences and restrictions attaching to each class of shares outstanding equity shares of ''10/- each:
The Company has only one class of equity shares, having a par value of ''10/-. The 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 approval by the shareholders at the ensuing annual general meeting. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution to all preferential amounts. The distribution will be in proportion to number of equity shares held by the shareholders.
(v) Buy back of shares, issue of bonus shares and shares allotted as fully paid up pursuant to contract(s) without payment being received in cash.
There have been no buy back of shares, issue of shares by way of bonus shares or issue of shares pursuant to contract without payment being received in cash for the period of five years immediately preceding the Balance sheet date.
Nature and purpose of other reserve
(a) Capital reserve
Capital reserve is created in the earlier years on account of FCCB''s, Mergers and acquisitions and Demergers. It is utilized in accordance with the provisions of the Companies Act, 2013.
(b) Securities premium
Securities premium is used to record the premium received on issue of shares. It is utilized in accordance with the provisions of the Companies Act, 2013.
(c) Reserve for Business Restructure
The Scheme of restructuring approved by the shareholders on April 13, 2009 included a Scheme of Arrangement that envisaged the creation of a Reserve for Business Restructure (BRR) as set out in the Scheme. The Reserve was to be utilized by December 31, 2012 for specified purposes by either the Company or its subsidiaries. The balance of ''3,846.38 Million identified under the Securities Premium Account represents amounts utilized by the subsidiaries of the Company from the Reserve prior to December 31, 2012 and have been earmarked for set off on consolidation.
(d) Capital redemption reserve
Capital redemption reserve is a statutory, non-distributable reserve into which the amounts are transferred following the redemption or purchase of Company''s own shares. It is utilized in accordance with the provisions of the Companies Act, 2013.
(e) Share options outstanding account
The fair value of the equity-settled share based payment transactions with employees is recognized in statement of profit and loss with corresponding credit to employee stock options outstanding account. The amount of cost recognized is transferred to share premium on exercise of the related stock options.
(f) General reserve
General reserves are the retained earnings of a Company which are appropriated out of Company''s profits. General reserve is a free reserve which can be utilized for any purpose after fulfilling certain conditions in accordance with the provisions of the Companies Act, 2013.
(g) Retained earnings
Retained earnings are the profits that the Company has earned till date, less any transfers to other reserves, dividends or other distributions paid to its equity shareholders.
(g) Cash flow hedging reserve
The cash flow hedging reserve represents the cumulative effective portion of gains or losses (net of taxes, if any) arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges.
(h) Remeasurement of the defined benefit liabilities / (asset)
The cumulative balances of actuarial gain or loss arising on remeasurements of defined benefit plan is accumulated and recognized within this component of other comprehensive income. Items included in actuarial gain or loss reserve will not be reclassified subsequently to statement of profit and loss.
Note:
Details of security for the secured loans repayable on demand: Working capital and short term loans from banks are secured by first pari passu charge over current assets of the Company and second pari passu charge on movable and immovable fixed assets of the Company (other than land and building situated at Navi Mumbai and Hosur).
Short-term loans are secured by pledge over current investments in mutual funds to the extent of '' Nil (As at March 31, 2017: ''318.86 Million).
(i) Disclosure required under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006
There are no material dues owed by the Company to Micro and Small enterprises, which are outstanding for more than 45 days during the year and as at March 31, 2018. This information as required under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company and has been relied upon by the auditors.
The above disclosures are provided by the Company based on the information available with the Company in respect of the registration status of its vendors/suppliers.
All trade payables are current. The Company exposure to currency and liquidity risks related to trade payables is disclosed in note no 48.
Note A:
The Company entered into an agreement to acquire business of Fagris Medica Private Limited (""Fagris"") on February 7, 2017 and the transaction was completed on March 31, 2017. Fagris is the wholly owned subsidiary of the Company as on the date of transfer. This being a common control transaction, the assets and liabilities of Fagris has been transferred at book value, and the difference between the consideration and book value of assets transferred has been debited to Capital reserve. The operations in this entity is not significant as compared to the operations of the Company.
Disposal of investments / business Note No. 39 // / assets held for sale accounted as discontinued operations
39.1 Sale of investments in entities manufacturing specialty products
The Company and its wholly owned subsidiary Strides Pharma Asia Pte Limited (âStrides Singapore") entered into definitive agreements on February 27, 2013 with Mylan Inc. for sale of the Specialty products business. The transactions under the respective agreements were by way of (i) sale of investment held in Agila Specialties Private Limited (âASPL", an erstwhile wholly owned subsidiary of the Company), to Mylan Laboratories Limited (âMLL"), a Mylan group company and (ii) the sale of investment held in Agila Specialties Global Pte Limited (âAgila Global", an erstwhile wholly owned subsidiary of Strides Singapore) to Mylan Institutional Inc., another Mylan group company. MLL and Mylan Institutional Inc. together are referred to below as Mylan.
The sale of shares of ASPL was recorded by the Company in terms of the Sale and Purchase Agreement dated December 4, 2013 (the âIndia SPA"). The sale of shares of Agila Global was recorded by Strides Singapore in terms of another Sale and Purchase Agreement dated December 4, 2013 (the âGlobal SPA").
The Company as part of the sale has provided a corporate guarantee to Mylan Inc. for USD 200 Million (valid up to December 4, 2020) on behalf of Strides Singapore which can be used for discharging specified financial obligations, if any, of Strides Singapore to Mylan, which has been included under contingent liabilities as at March 31, 2018 and March 31, 2017 in Note 42.
Further, in accordance with the terms of the India SPA and the Global SPA (together the âSPA"s), certain amounts were set aside under separate deposit / escrow accounts which were required to be utilised for specified expenses during the specified period. These included separate escrow / deposit of USD 100 Million in respect of potential claims under the SPAs in relation to certain regulatory concerns ("Regulatory escrow") and USD 100 Million in respect of potential claims in relation to the warranties and indemnities, including in relation to tax, as per the terms of SPAs and other transaction amounts ("General claims escrow"). Further, ''850 Million was set aside in separate Escrow for payment to certain specified senior management personnel of ASPL and its subsidiary. Any unutilized amounts from the deposit / escrow accounts after the specified period were payable to the respective entities of the Group. Given the uncertainties involved and in the absence of a right to receive, the amounts under the deposit / escrow arrangements were not included in the consideration accounted as income by the Company at the time of disposal of the investments. Receipts from these deposit / escrow accounts were recognized subsequently (net of related expenses incurred) in the period in which such amounts were received by the Company.
During the current and earlier years, the Company received notifications of claims from Mylan under the terms of the SPAs. These included claims against the regulatory escrows, tax claims, warranty and indemnity claims, and third party claims. Under the terms of the SPAs, claims against the Company / Strides Singapore can only be made under specific provisions contained in the SPAs which include the procedures and timelines for submission of notifications of claims and actual claims and commencing arbitration proceedings.
During the previous year, all claims towards regulatory expenses have been settled and Strides Singapore received USD 28.33 Million as full and final settlement from out of the Regulatory Escrow deposit. The Company and Mylan also agreed on full and final settlement of warranty and indemnity claims which were adjusted against the General Claims escrow.
As at March 31, 2018, the outstanding claims relate to certain tax claims and third party claims. Considering the terms of the SPAs, the nature of the pending claims that are in arbitration currently and the balance available in the General Claims Escrow account, the Company believes that any further outflow of resources is not probable.
39.2 Demerger of Commodity API business
The Board of Directors in their meeting held on March 20, 2017 approved the proposal to demerge the Commodity API Business, into Solara Active Pharma Sciences Limited (âSolara"), a wholly owned subsidiary of the Company.
As part of the Scheme of Arrangement (the ''Scheme'') of Demerger, the Human API business of SeQuent Scientific Limited (a promoter owned listed company) was also proposed to be carved out into Solara, providing critical size to this business.
The Scheme has an Appointed date of October 1, 2017.
The share entitlement ratio for the Scheme of Demerger is as under:
"1) For demerger of Commodity API business: 1 equity share of ''10/- each of Solara for every 6 fully paid up equity shares of ''10/- each held in Strides Shasun Limited.
2) For demerger of Human API business: 1 equity share of ''10/- each of Solara for every 25 fully paid up equity shares of ''2/- each held in SeQuent Scientific Limited."
Pursuant to the Scheme, duly sanctioned by the National Company Law Tribunal, Mumbai, vide Order dated March 9, 2018, (''Order'') with effect from the Appointed Date i.e. October 1, 2017, the "Commodity API business" of the Company was transferred to Solara Active Pharma Sciences Limited (Solara). In accordance with Section 230 of Companies Act, 2013, the Company filed the NCLT order with Ministry of Company Affairs (Registrar of Companies) on March 31, 2018. Consequent to the filing, the Scheme became effective from March 31, 2018.
Pursuant to the Scheme, the Company has transferred the assets and liabilities pertaining to the Commodity API business with effect from the Appointed Date to Solara. In line with the accounting prescribed in the Scheme, the net assets transferred amounting to ''1,971.57 Million have been derecognized with a corresponding debit to the securities premium.
In accordance with the above, the Company fair valued the Commodity API business as on the appointed date and the excess of the fair value of the Commodity API business and the net assets transferred has been credited to the statement of profit and loss.
The fair valuation of the Commodity API business was carried out by independent valuers who valued it at ''9,010.00 Million.
The excess of the fair value over the net assets amounting to ''7,038.43 Million was recognized as a non cash gain in the statement of profit and loss as ''Gain on disposal of assets attributable to discontinued operations'', in accordance with Appendix A to Ind AS 10.
" On completion of the demerger of the Commodity API business, the following entities and investments ceased to be part of the Company:
a. Solara Active Pharma Sciences Limited, India
b. Shasun USA Inc., USA
c. Chemsynth Laboratories Private Limited, India
d. Clarion Wind Farm Private Limited, India
e. Tulsyan Lec Limited, India
f. SIPCOT Industrial Common Utilities Limited, India"
Pursuant to the Scheme, eligible employees were given option to accelerate their Employees Stock options under ESOP 2015 Scheme and subsequently 8,878 equity shares have been allotted to the employees who exercised their options.
The accounting prescribed under the Scheme as approved by NCLT is in accordance with Ind AS except that the accounting standard would have required to account for this transaction on date of filing the NCLT approval with Registrar of Companies and not effective October 1, 2017. Accordingly, had this not been an NCLT approved Scheme, the API business would have continued to be part of the Company for the six months period ended March 31, 2018 with a revenue of approx. ''3,592.4 Million and expenses of approx. ''3,528.2 Million as determined by the Management.
The demerger of this business was accounted for as a distribution to owners in accordance with Appendix A (''Distribution of Non-cash Assets to Owners'') to Ind AS 10: Events after the Reporting Period.
39.5. Sale of pharma generics business in Africa :
Pursuant to the terms of Shareholders agreement entered on March 30, 2017, the Company disposed-off its Pharma Generics business in Africa. Consequently, Pharma Generics Manufacturing division of the Company in Palghar, Maharashtra ceased to be part of the Company.
39.6. Strides API Research Centre ("SRC") - Held for sale:
The Board of directors of the Company approved the sale of SRC to Solara Active Pharma Sciences Limited on March 31, 2018. Subsequently, on April 20, 2018, the Company entered into Business Purchase Agreement with Solara Active Pharma Sciences Limited, India (''Solara'') to sell the assets (consisting of Plant & machinery, equipment, computer software and other related capital work in progress) and business conducted by the Company at Strides API Research Centre ("SRC") along with the employees for a consideration of ''357.28 Million and working capital subject to adjustment and finalisation for ''8.26 Million.
The Company has classified the assets of the SRC unit as "Assets Held for Sale" as on March 31, 2018. Accordingly, the results of the SRC unit are included in the discontinued operations.
Other than the matters disclosed above, the Company is also involved in other disputes including patent and commercial matters that arise from time to time in the ordinary course of business. Management is of the view that the resolution of these disputes will not have any material adverse effect on the Company''s financial position or results of operations.
Note No. 1 // Share-based payments
Details of the employee share option plan of the
Company:
(a) The ESOP titled âStrides Arcolab ESOP 2011" (ESOP 2011) was approved by the shareholders on May 30, 2011 for 1,500,000 options. Each option comprises one underlying equity share of the Company. The vesting period of these options range over a period of three years. The options must be exercised within a period of 30 days from the date of vesting. No options were granted under this plan during the current year.
(b) The ESOP titled âStrides Arcolab ESOP 2015" (ESOP 2015) was approved by the shareholders on November 6, 2015 for 70,000 options. Each option comprises one underlying equity share of the Company. The vesting period of these options range over a period of four years. The options must be exercised within a period of 180 days from the date of vesting. No options were granted under this plan during the current year.
Pursuant to the Scheme of demerger (refer note 39.2), eligible employees were given option to accelerate their Employees Stock options under ESOP 2015 Scheme, subsequently 8,878 equity shares have been allotted on April 6, 2018 for the employees who exercised their options. The Company recognized expenses of ''2.39 Million during the year ended March 31, 2018 on account of acceleration.
As at March 31, 2016, additional 6,813 options were reserved for issue to the eligible employees of Shasun Pharma Solutions Limited, UK. Pursuant to the accelerated vesting of such options on account of disposal of this entity during the year ended March 31, 2017 , the Company recognized expenses of ''3.77 Million during the year ended March 31, 2017.
(c) The ESOP titled âStrides Shasun ESOP 2016" (ESOP 2016) was approved by the shareholders on April 21, 2016. 3,000,000 options are covered under the Plan which are convertible into equal number of equity shares of the Company. The vesting period of these options range over a period of three years. The options must be exercised within a period of one year from the date of vesting. Company has granted 200,000 options under this scheme during the current year.
(d) During the current year, Employee compensation costs of ''24.52 Million (for the year ended March 31, 2017: ''54.71 Million) (including costs debited to discontinued operations) relating to the above referred various Employee Stock Option Plans have been charged to the Statement of Profit and Loss.
Fair value of share options granted during the year
The fair value of the share options granted under ESOP 2016 Lot II and ESOP 2016 Lot III are Rs,435.06 and Rs,374.59 respectively. Options were priced using a Black- Scholes method of valuation at grant date. Expected volatility is based on the historical share price volatility over the past 3 years.
Note No. 2 // Employee Benefits Plans Defined contribution plan
The Company makes contributions to provident fund and employee state insurance schemes which are defined contribution plans, for qualifying employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll cost to fund the benefits. The Company recognized Rs,159.99 Million (previous year: Rs,177.14 Million) (including costs debited to discontinued operations) for provident fund contributions, Rs,9.20 Million (previous year: Rs,7.99 Million) (including costs debited to discontinued operations) for employee state insurance scheme contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.
Defined benefit plan
The Company offers gratuity benefits, a defined employee benefit scheme to its employees.
Composition of the plan assets
The fund is managed by LIC , the fund manager. The details of composition of plan assets managed by the fund manager is not available with the Company. However, the said funds are subject to Market risk (such as interest risk, investment risk, etc.).
Significant actuarial assumptions for the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
If the discount rate increases / (decreases) by 1%, the defined benefit obligation would be Rs,278.74 Million (Rs,306.81 Million) as at March 31, 2018.
If the expected salary growth increases / (decreases) by 1%, the defined benefit obligation would be Rs,304.60 Million (Rs,280.27 Million) as at March 31, 2018.
The sensitivity analysis presented above may not be representative of the actual change in 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 at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognized in the balance sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
There has been no change in the process used by the Company to manage its risks from prior periods.
Note No. 3 // Related party transactions : List of related parties
Relationship Name
Wholly owned subsidiaries Direct Holding
Arrow Remedies Private Limited (with effect from October 30, 2017)
Fagris Medica Private Limited
Shasun USA Inc, USA (upto September 30, 2017)
Solara Active Pharma Sciences Limited (formerly, SSL Pharma Sciences Limited, upto September 30, 2017)
Strides Arcolab International Limited, UK
Strides Chemicals Private Limited (formerly, Perrigo API India Private limited, with effect from April 6, 2017)
Strides Consumer Private Limited, India
Strides Healthcare Private Limited (with effect from November 23, 2017, up to December 1, 2017)
Strides Pharma Asia Pte Limited, Singapore
Strides Pharma International Limited, Cyprus
SVADS Holdings SA, Switzerland
Step down subsidiaries
Altima Innovations Inc, USA
Arrow Life Sciences (Malaysia) Sdn. Bhd.Malaysia (with effect from May 11, 2017)
Arrow Pharma (Private) Limited, Sri Lanka
Relationship Name
Arrow Pharma Life Inc., Philippines Arrow Pharma Pte Limited, Singapore
Arrow Pharma Pty Limited, Australia (upto February 28, 2018)
Arrow Pharmaceuticals Pty Limited, Australia (upto February 28, 2018)
Arrow Remedies Private Limited, India (upto October 29, 2017)
Pharmacy Alliance Investments Pty Limited, Australia (upto February 28, 2018)
Shasun Pharma Solutions Inc, USA
Stabilis Pharma Inc, USA
Stelis Biopharma (Malaysia) Sdn Bhd, Malaysia
Strides Africa Limited, BVI (liquidated effective March 7, 2018)
Strides Arcolab (Australia) Pty Limited, Australia (upto February 28, 2018)
Strides CIS Limited, Cyprus
Strides Emerging Markets Limited, India (formerly, Strides Emerging Markets Private Limited)
Strides Pharma (Cyprus) Limited, Cyprus Strides Pharma (SA) Pty Limited, South Africa
Strides Pharma Global (UK) Limited, UK (formerly, Strides Pharma (UK) Limited)
Strides Pharma Global Pte Limited, Singapore Strides Pharma Inc, USA
Strides Pharma Limited, Cyprus (upto December 11, 2017. With effect from December 12, 2017 the company is merged with Strides Pharma International Limited, Cyprus)
Strides Pharma (UK) Limited, UK (formerly, Strides Shasun (UK) Limited)
Strides Specialties (Holdings) Limited, Mauritius
Strides LifeSciences Limited, Nigeria (with effect from April 10, 2017)
Other Subsidiaries: Direct Holding:
Chemsynth Laboratories Private Limited, India (49%) (up to September 30, 2017)
Stelis Biopharma Private Limited, India (74.90%) (up to March 31, 2017)
Strides Biologix Private Limited (51%) (upto March 31, 2017)
Strides Healthcare Private Limited (74%) (upto November 22, 2017)
Step down subsidiaries
Alliance Pharmacy Pty Limited, Australia (51%)
Apollo Life Sciences Holdings Proprietary Limited (with effect from January 1, 2018)
Amneal Pharma Australia Pty Ltd., Australia (with effect from August 31, 2017)
Amneal Pharmaceuticals Pty Ltd., Australia (with effect from August 31, 2017)
Arrow Pharma (Private) Limited, Sri Lanka (95%) (upto February 26, 2017)
Arrow Pharma Life Inc., Philippines (95%) (upto February 26, 2017)
Arrow Pharma Pte. Limited, Singapore (upto February 26, 2017) (95%)
Arrow Pharma Pty Limited, Australia (with effect from March 1, 2018)
Arrow Pharmaceuticals Pty Limited, Australia (with effect from March 1, 2018)
Arrow Remedies Private Limited, India (95%) (upto February 26, 2017)
Beltapharm, SpA, Italy (97.94%)
Generic Partners (Canada) Inc., Canada (with effect from August 11, 2016) (51%)
Generic Partners (International) Pte Limited, Singapore (with effect from August 11, 2016) (51%) Generic Partners (M) Sdn Bhd, Malaysia (with effect from August 11, 2016) (51%)
Generic Partners (NZ) Limited, New Zealand (with effect from August 11, 2016) (51%)
Generic Partners (South Africa) Pty Limited, South Africa (with effect from August 11, 2016) (51%) Generic Partners Holding Co Pty Limited, Australia (with effect from August 11, 2016) (51%)
Generic Partners Pty Limited, Australia (with effect from August 11, 2016) (51%)
Generic Partners UK Limited, UK (with effect from August 11, 2016) (51%)
Pharmacy Alliance Group Holdings Pty Limited, Australia (51%)
Pharmacy Alliance Investments Pty Limited, Australia Pharmacy Alliance Pty Limited., Australia (51%)
Smarterpharm Pty Limited (with effect from January 23, 2017) (51%)
Stelis Biopharma (Malaysia) SDN BHD, Malaysia (74.90%) (upto February 28, 2017)
Strides Shasun Latina Sa De Cv, Mexico (80%)
Strides Arcolab (Australia) Pty Limited, Australia (with effect from March 1, 2018)
Relationship Name
Strides Pharma Canada Inc, Canada (with effect from May 11, 2017)
Trinity Pharma Proprietary Limited, South Africa (with effect from January 1, 2018)
Strides Vivimed Pte Limited, Singapore (formerly, Vivimed global generics Pte Limited) (with effect from May 18, 2017)
Universal Corporation Limited, Kenya (51%) (with effect from May 1, 2016)
Indirect Holding -Hived off effective March 31, 2017
African Pharmaceutical Development S.A, Cameroon (85%)
Congo Pharma SPRL, Congo (85%)
Societe De Repartition Pharmaceutique, Burkinofaso (80%)
Strides Pharma Botswana (Proprietary) Limited (70%)
Strides Pharma Cameroon Limited (85%)
Strides Pharma Mozambique, SA (51%)
Strides Pharma Namibia Pty Limited (70%)
Strides Vital Nigeria Limited, Nigeria (74%)
Trusts:
Strides Foundation Trust, India
Shasun Foundation Trust, India (upto September 30, 2017)
Joint Ventures (JV) Akorn Strides LLC, USA (50%) (liquidated effective August 4, 2017)
Shasun NBI LLC, USA (50%) (liquidated effective October 25, 2017)
SPC Co. Limited, Sudan (51%) (upto March 31, 2017)
Strides Shasun Latina Sa De Cv, Mexico (80%) (with effect from August 23, 2016)
MyPak Solutions Australia Pty Ltd, Australia (formerly, MyPak Solutions Pty Ltd with effect from March 29, 2018)
Oraderm Pharmaceuticals Pty Limited, Australia (50%) (with effect from June 6, 2016)
Associates Aponia Laboratories Inc, USA
Generic Partners (R&D) Pte Limited, Singapore (with effect from August 1, 2017)
Regional Bio Equivalence Centre S.C., Ethiopia (with effect from May 1, 2016)
Vivimed Life Sciences Private Limited (with effect from May 18, 2017)
Stelis Biopharma Private Limited (with effect from March 31, 2017)
Key Management Personnel Arun Kumar, Chairman (with effect from May 18, 2017)
(KMP): Abhaya Kumar, Executive Director (Resigned on May 18, 2017)
Shashank Sinha, Managing Director (with effect from May 18, 2017)
Badree Komandur, Executive Director (with effect from May 18, 2017)
Manjula Ramamurthy, Company Secretary (with effect from February 3, 2017)
Deepak Vaidya, Chairman (Upto May 18, 2017), Non-Executive Director_
M.R.Umarji, Non-Executive Director (Resigned on May 18, 2017)_
A.K.Nair, Non-Executive Director (Resigned on May 18, 2017)_
P.M.Thampi, Non-Executive Director (Resigned on May 18, 2017)_
S.Sridhar, Non-Executive Director_
Sangita Reddy, Non-Executive Director_
Bharat Shah, Non-Executive Director_
_Homi R Khusrokhan, Non-Executive Director (date of appointment May 18, 2017)_
Relatives of KMP Aditya Arun Kumar, son of Arun Kumar
Enterprises owned or Atma Projects, India
significantly influenced by key Chayadeep Properties Private Limited, India
management personnel and Devendra Estates LLP, India (up to May 18, 2017)
relative of key management Nutra Specialities Private Limited, India (up to May 18, 2017)
personnel Tenshi Kaizen Private Limited (formerly, Higher Pharmatech Private Limited)
Tenshi Life Sciences Private Limited (formerly, Strides Biologix Private Limited, India (51%) (with effect from March 31, 2017))
SeQuent Scientific Limited, India SeQuent Research Limited, India
Sterling Pharma Solutions Limited, UK (formerly, Shasun Pharma Solutions Limited) - (with effect from September 30, 2016)
Solara Active Pharma Sciences Limited (formerly SSL Pharma Sciences Limited, with effect from October 1, 2017)
Shasun Leasing and Finance Limited, India (up to May 18, 2017)
Note No. 4 // Lease arrangements
A. The Company as lessee:
Leasing arrangement
The Company''s significant leasing arrangements are mainly in respect of factory land and buildings, residential and office premises. The aggregate lease rentals payable on these leasing arrangements charged to the Statement of Profit and Loss (including charge on lease rentals related to discontinued operations) is ''152.81 Million (March 31, 2017: ''154.59 Million)
Sensitivity of unobservable inputs used in Level 3 fair value measurements
1) Put option liability
Change in volatility of the stock price: 5% change in the volatility of the stock price doesn''t significantly affect option liability. Change in discount rate:
If the discount rate increases / (decreases) by 1%, the Put option liability would be
Rs, Nil (Rs, Nil) as at March 31, 2018 and
Rs,171.11 Million (Rs,179.24 Million) as at March 31, 2017;
2) Equity investments unquoted
No disclosure has been given since the amount is not material.
The above gain / loss on fair valuation of options is recognized in Statement of Profit and Loss under "Exceptional items".
48.2 Fair value of financial assets and financial liabilities that are not measured at fair value (but fair value disclosures are required)
Except as detailed in the following table, the Company considers that the carrying amounts of financial assets and financial liabilities recognized in the financial statements at amortized cost will reasonably approximate their fair values.
Foreign currency risk management
The Company is exposed to foreign exchange risk due to:
- debt availed in foreign currency
- net investments in subsidiaries and joint ventures that are in foreign currencies
- exposure arising from transactions relating to purchases, revenues, expenses, etc., to be settled (within and outside the group) in currencies other than the functional currency of the respective entities
Exchange rate exposures are managed within approved policy parameters by utilising forward foreign exchange contracts.
48.3.1 Forward foreign exchange contracts
It is the policy of the Company to enter into forward foreign exchange contracts to cover the following:
a. repayments of specific foreign currency borrowings.
b. forecast sales transactions
The following table details the forward foreign currency contracts outstanding at the end of the reporting period:
The impact on profit has been arrived at by applying the effects of appreciation / deprecation effects of currency on the net position (Assets in foreign currency - Liabilities in foreign currency) in the respective currencies.
For the purposes of the above table, it is assumed that the carrying value of the financial assets and liabilities as at the end of the respective financial years remains constant thereafter. The exchange rate considered for the sensitivity analysis is the exchange rate prevalent as at each year end.
The sensitivity analysis might not be representative of inherent foreign exchange risk due to the fact that the foreign exposure at the end of the reporting period might not reflect the exposure during the year.
48.4 Interest rate risk management
Interest rate risk arises from borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued at fixed rate exposes the Company to fair value risk. The Company mitigates its interest rate risk by entering into interest rate Swap contracts.
48.4.1 Interest rate sensitivity analysis
Financial instruments affected by interest rate changes include secured long term loans from banks, secured long term loans from others, secured short term loans from banks and unsecured short term loans from banks and others. The impact of a 1% change in interest rates on the profit of an annual period will be Rs,60.22 Million (March 31, 2017: Rs,161.78 Million) assuming the loans at each year end remain constant during the respective years. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.
The change in sensitivity to interest rate is attributed to the following:
a. new acquisitions in the current year.
b. hedging instruments taken to fix certain variable interest loans
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as FVTPL.
The line-item in the balance sheet that includes the above instruments is "Other financial liabilities (Refer note 21(ii))".
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the local interbank rate in the currency of the loan. The Company will settle the difference between the fixed and floating interest rate on a net basis.
48.4.2 Interest rate swap contracts
Under interest rate swap contracts, the Company agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Company to mitigate the risk of cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the reporting period.
The following tables detail the nominal amounts and remaining terms of interest rate swap contracts outstanding at the end of the reporting period.
The Company cancelled the interest rate swap contract during the year ended March 31, 2018 as the underlying borrowing has been preclosed during the year.
48.5 Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk to the company primarily arises from trade receivables. Credit risk also arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions and other financial assets.
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company has an internal mechanism of determining the credit rating of the customers and setting credit limits. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
The credit risk arising from receivables is subject to currency risk in that the receivables are predominantly denominated in USD, AUD and GBP and any appreciation in the Rupee will affect the credit risk. Further, the Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks.
Also refer note 15.
48.6 Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Company''s short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual short term and long term cash flows, and by matching the maturity profiles of financial assets and liabilities. A portion of the company''s surplus cash is retained as investments in Liquid Mutual Funds to fund short term requirements.
48.6.1 Liquidity analysis for non-derivative liabilities
The following table details the Company''s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Company may be required to pay.
48.6.2 Liquidity analysis for derivative financial instruments
The following table details the Company''s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on
Note No. 5 // Capital management
The Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Company consists of net debt (borrowings as detailed in notes 20 and 21(ii) offset by cash and bank balances) and total equity.
The Company reviews the capital structure on a semi-annual basis to ensure that it in compliance with the required covenants. The Company has a target gearing ratio of 1:1 determined as the proportion of net debt to total equity. The gearing ratio at March 31, 2018 is 0.07.
The Company is not subject to any externally imposed capital requirements.
Note No. 6// Segment Information
In accordance with Ind AS 108 - Operating segments, segment information has been provided in the consolidated financial statements of the Company and therefore no separate disclosure on segment information is given in these standalone financial statements.
Note No. 7// Other Matters
(a) In respect of freehold land to the extent of 5.44 acres (as at March 31, 2018 gross block and net block amounting to Rs,201.42 Million) capitalized in the books of the Company, the title deeds are under dispute. The Company based on its internal assessment believes that it has title deed in its name and it will be able to defend any counter claims on such parcel of land under dispute.
(b) The title deeds of freehold land and building admeasuring 20.43 acres (as at March 31, 2018 gross block Rs,630.69 Million and net block of Rs,468.96 Million) capitalized in the books of the Company are in the name of erstwhile Companies which were merged with the Company under Section 391 to 394 of the Companies Act, 1956 in terms of the approval of the Honorable High Courts of judicature. The Company is in the process transferring the title deeds of such properties in its name.
(c) In respect of freehold land admeasuring 0.6 acres (as at March 31, 2018 gross block and net block amounting to Rs,0.81 Million) capitalized in the books of the Company, the title deeds are not in the name of the Company. The Company is in the process of transferring the title deeds of such land in its name.
(d) I n respect of building admeasuring 750 sq. ft. (as at March 31, 2018 gross block of Rs,3.55 Million and net block Rs,1.28 Million) capitalized in the books of the Company, the title deeds are not in the name of the Company. The Company is in the process of transferring the title deeds of such building in its name.
Note No. 8// Transfer Pricing
The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under Sections 92-92F of the Income Tax Act, 1961. Since the law required existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the international as well as domestic transactions entered into with the associated enterprise during the financial year and expects such records to be in existence as required by law. The Management is of the opinion that its international as well as domestic transactions are at arm''s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for tax.
Note No. 9 // Events after reporting period
(a) On May 18, 2018, the Board of Directors of the Company has proposed a final dividend of ''2 per equity share. The proposed dividend is subject to the approval of the shareholders in the annual general meeting.
(b) On May 18, 2018, the Board of Directors of the Company has proposed change of name of the Company from Strides Shasun Limited to Strides Pharma Science Limited. The proposed change is subject to the approval of the shareholders.
Note No. 10
During the year ended March 31, 2018, no material foreseeable loss (March 31, 2017: Nil) was incurred for any long-term contract including derivative contracts.
Note No.11
The previous year''s figures have been re-grouped/ reclassified, where necessary to conform to current year''s classification.
Note No. 12
Previous year audit was carried out by a firm other than B S R & Co. LLP.
Mar 31, 2017
I First-time adoption - mandatory | exceptions, optional exemptions
3.1 Overall principle
The Company has prepared the opening standalone balance sheet as per Ind AS as of April 1, 2015 (the transition date) by recognising all assets and liabilities whose recognition is required by Ind AS, not recognizing items of assets or liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognized assets and liabilities. However, this principle is subject to the certain exception and certain optional exemptions availed by the Company as detailed below.
3.2 Derecognition of financial assets and financial liabilities
The Company has applied the derecognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after April 1, 2015 (the transition date).
3.3 Impairment of financial assets
The Company has applied the impairment requirements of Ind AS 109 retrospectively; however, as permitted by Ind AS 101, it has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognized in order to compare it with the credit risk at the transition date. Further, the Company has not undertaken an exhaustive search for information when determining, at the date of transition to Ind ASs, whether there have been significant increases in credit risk since initial recognition, as permitted by Ind AS 101.
3.4 Share-based payment transactions
Ind AS 101 encourages, but does not require, first time adopters to apply Ind AS 102 Share based Payment to equity instruments that were vested before the date of transition to Ind AS. The Company has elected not to apply Ind AS 102 to options that vested prior to April 1,
2015.
3.5 Past business combinations
The Company has elected not to apply Ind AS 103 Business Combinations retrospectively to past business combinations that occurred before the transition date of April 1, 2015. Consequently,
f The Company has kept the same classification for the past business combinations as in its previous GAAP financial statements;
- The Company has not recognized assets and liabilities that were not recognized in accordance with previous GAAP in the standalone balance sheet of the acquirer and would also not qualify for recognition in accordance with Ind AS in the standalone balance sheet of the acquiree;
- The Company has excluded from its opening balance sheet those items recognized in accordance with previous GAAP that do not qualify for recognition as an asset or liability under Ind AS;
- The Company has tested the goodwill for impairment at the transition date based on the conditions as of the transition date;
The effects of the above adjustments have been given to the measurement of non-controlling interests and deferred tax.
3.6 Deemed cost for property, plant and equipment, investment property, and intangible assets
The Company has elected to continue with the carrying value of all items of its plant and equipment, investment property, and intangible assets recognized as of April 1, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
3.7 Determining whether an arrangement contains a lease
The Company has applied Appendix C of Ind AS 17 Determining whether an Arrangement contains a Lease to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.
Explanation of material adjustments to Statement of Cash Flows:
There are no material differences between the statement of cash flows presented under Ind AS and the previous GAAP except due to various re-classification adjustments recorded under Ind AS and difference in the definition of cash and cash equivalents under these two GAAPs.
Notes to the reconciliations
a) Under previous GAAP, current investments were measured at lower of cost or fair value. Under Ind AS, these financial assets have been classified as FVTPL on the date of transition. The fair value changes are recognized in the the statement of profit and loss
On transitioning to Ind AS, these financial assets have been measured at their fair values which is higher than cost as per previous GAAP, resulting in an increase in carrying amount by '' 61.51 Million as at March 31, 2016 and by '' 382.29 Million as at April 1, 2015.
Accordingly, there is increase in total equity as at March 31, 2016 of '' 61.51 Million (As at April 01, 2015: '' 382.29 Million) and decrease in profit for the year ended March 31, 2016 of '' 320.78 Million.
b) Under previous GAAP, dividends on equity shares recommended by the board of directors after the end of the reporting period but before the financial statements were approved for issue were recognized in the financial statements as a liability. Under Ind AS, such dividends are recognized when authorized by the members in a general meeting. Accordingly, the liability for proposed dividend of '' 432.18 million as at March 31, 2016 ('' 178.85 million as at March 31, 2015) included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by an equivalent amount.
c) As per Ind AS 109, the company needs to account for the derivative over shares of another entity at it''s fair value. The company had issued written put option to a third party with respect to the shares held by such party in one of the subsidiaries of the company Complying with the Ind AS requirement, the company has fair valued such put option and recognized liability of '' 149.67 million ('' 133.44 million as at April 1, 2015) towards the same. Consequently, the equity has decreased by '' 149.67 million as at March 31, 2016 ('' 133.44 million as at April 1, 2015) and profit for the year ended March 31, 2016 decreased by '' 16.23 million.
d) Under Ind AS, deferred taxes are computed for temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Consequently, the deferred tax impact on hedging reserves has been recognized in Other comprehensive Income. Accordingly, there is a decrease in total equity as at March 31, 2016 of '' 48.42 million ('' 31.20 million as at April 1, 2015), and decrease in total profit for the year ended March 31, 2016 of '' 17.22 million.
f) Under previous GAAP, actuarial gains and losses were recognized in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurernent of the net defined benefit liability / asset which is recognized in other comprehensive income. Consequently, the tax effect of the same has also been recognized in other comprehensive income under lnd AS instead of the statement of profit and loss.
The actuarial loss for the year ended March 31, 2016 were '' 4.95 Million and the tax effect thereon is '' 1.61 Million. This change does not affect total equity, but there is a increase in profit before tax of '' 4.95 Million and in total profit of '' 3.34 Million for the year ended March 31, 2016.
g) Under previous GAAP, there was no concept of other comprehensive income. Under Ind AS, specified items of income, expense, gains, or losses are required to be presented in other comprehensive income.
(vi) In the previous year, the Company had complied with provision on componentization of fixed assets prescribed by Schedule II of the Companies Act, 2013. In accordance with transition provision prescribed by Schedule II of the Companies Act, 2013, the Company has debited a sum of '' 8.67 Million (net of deferred tax of '' 4.27 Million) against the opening Surplus balance in the Statement of Profit and Loss under Reserves and Surplus.
(vii) Disposals include disposal of assets relating to discontinued operations referred to in Note 39.2 for amount of Rs, 42.90 Million(net).
(viii) Refer note 20(i) for properties pledged as security towards borrowings.
(iv) Fair Value of investment properties
"The Company obtains independent valuations for its investment properties once in three years. Accordingly, the fair value of the Company''s investment properties as at March 31, 2017 has been arrived at Rs, 830.53 Million on the basis of a valuation carried out by independent valuers not related to the Company. The said valuers are registered with the authority which governs the valuers in India and have appropriate qualifications and relevant experience in the valuation of properties in the relevant locations. The inputs used are as follows:
- Monthly market rent, taking into account the differences in location, and individual factors, such as frontage and size, between the comparables and the property; and
* Capitalization rate, taking into account the capitalization of rental income potential, nature of the property, and prevailing market condition.
(v) Refer note 20(i) for properties pledged as security towards borrowings.
Notes:
(i) Figures in brackets relate to previous year.
(ii) Allocation of goodwill to cash generating units:
Goodwill has been allocated for impairment testing purposes to the following cash-generating units:
- Regulated Markets
- Emerging Markets
The recoverable amount of this cash-generating unit is determined based on a value in use calculation which use cash flow projections based on financial budgets covering a five year period and a discount rate of 15.77 % per annum (as at March 31. 2016: 15.77% per annum). The cash flows beyond five-year period have been extrapolated using a steady 2% per annum growth rate.
There is no change in the above said assumptions as compared to that of previous years''.
The management believes that the projections used by the management for determining the "Value in use" of cash generating units reflect past experience and external sources of information and any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.
Note (ii) :- Stelis Biopharma Private Limited (Stelis) until March 31, 2016 was assessed to be a subsidiary of the Company, as the Company ("Strides") had control over its operations. The shareholding pattern as at March 31, 2016 was Strides 74.9% and GMS 25.1%. However on March 31, 2017 Stelis, in order to meet its funding requirements, entered into an agreement with the Company, Tenshi Life Sciences Private Limited (Tenshi), (a promoter group company), and the GMS group, under which the parties agreed that any further funding that Stelis needs for its growth, would be funded by Tenshi and GMS group and that Strides would not be required to make any further investments into Stelis. The arrangement also envisaged that, over a period of time, the Company will eventually hold a significant non controlling interest only in Stelis. Tenshi and GMS will have the rights to appoint majority of the directors and the Company shall have right to appoint only one director. As the Company does not have majority representation on the board, where decisions with respect to relevant activities will be taken, the directors have concluded that the Company has no longer holds control over Stelis. However, as Strides has representation on the board and holds more than 20% share capital with voting rights, Stelis is assessed to be associate of the Company pursuant to the above arrangement.
Note (iii) : In the current year , the Company sold its investment in Aponia Laboratories Inc, USA having a carrying value of Rs, 221.07 Million to Strides Acrolab International Limited, UK, a wholly-owned subsidiary of the Company, for a consideration of USD 3.45 Million (Rs, 230.06 Million). Profit arising on such sale of investment amounting to Rs, 8.99 Million has been recognized in the Statement of Profit and Loss under Exceptional Items.
Note (iv) : During the previous year ended March 31, 2016, the Company invested Rs, 52.30 Million in Strides Biologix Private Limited (Biologix), India, for 51% stake in its equity shares. Biologix was set-up as an SPV which acquired the domestic Branded Business of Medispan Limited which is engaged in sales and marketing of niche Probiotics products. In the current year, the Company sold its investment in Biologix along with the put option liability attached thereto having a carrying value of Rs, 52.30 Million, for a consideration of Rs, 27.00 Million (net of loss amounting Rs, 24.00 Million on account of disposal of put option). Loss arising on such sale of investment amounting to Rs, 25.30 Million which also includes the loss arising on account of disposal of the aforesaid put option of Rs, 24.00 Million have been recognized in the Statement of Profit and Loss under Exceptional Items.
In determining the allowance for doubtful trade receivables, the Company has used a practical expedient by computing the expected credit allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and is adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the receivables that are due and rates used in the provision matrix.
The company has availed bill discounting facilities from the banks which do not meet the derecognition criteria for transfer of contractual rights to receive cash flows from the respective trade receivables since they are with recourse to the Company. Accordingly as at March 31, 2017, trade receivables balances include Rs, 264.56 Million (As at March 31, 2016: Rs, 473.28 Million and As at April 1, 2015: Rs, 270.69 Million) and the corresponding financial liability to the banks is included as part of working capital loan under short- term borrowings.
(ii) Detail of the rights, preferences and restrictions attaching to each class of outstanding equity shares of Rs, 10/- each:
The Company has only one class of equity shares, having a par value of Rs, 10/- each. The 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 approval by the shareholders at the ensuing annual general meeting. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution to all preferential amounts. The distribution will be in proportion to number of equity shares held by the shareholders.
38.1 Merger of Shasun Pharmaceuticals Limited:
In accordance with the terms of the Scheme of Amalgamation (the Rs,Scheme'') between the Shasun Pharmaceuticals Limited (Transferor Company) and the Company (Transferee Company) which was approved by the Honourable High Courts of Judicature, the Transferor Company was merged with the Company from an appointed date of April 01, 2015. The effective date of the Scheme (being the date on which all the requirements under the Companies Act, 2013 and as per the Scheme have been completed) was November 19, 2015 (the ''Effective Date''). As per the requirements of the Scheme, the merger was accounted under the âpooling of interest method" and accordingly the assets and liabilities acquired have been incorporated at their carrying amounts as of the appointed date.
Pursuant to the Scheme, the Company allotted 21,017,329 equity shares to shareholders of Transferor Company in the ratio of 5 equity shares of Rs, 10/- each of the Company for every 16 shares of Rs, 2/- each held by shareholders of erstwhile Shasun as at November 19, 2015, being the record date for issue of equity shares by the Company. These shares have been considered for the purpose of calculation of earnings per share accordingly. An amount of Rs, 75.66 Million being the excess of the share capital issued by the Company over the share capital of the Transferor Company has been debited to Capital Reserves in accordance with the accounting treatment specified in the Scheme.
Further, in accordance with the Scheme, the authorized share capital of the Transferor Company, as on the effective date is added to the authorized share capital of the Company and the preference share capital of the Company is reclassified into the equity share capital. Accordingly, the authorized share capital of the Company increased to 176.75 Million equity shares of Rs, 10 each, totaling to Rs, 1,767.50 Million.
On re-measurement of the above balances under Ind AS on the appointed date of the Scheme (after considering the adjustment made as explained in the below paragraph, to align with the accounting policies of the Transferee Company), the resulting differences have been adjusted in the equity during the previous year ended March 31, 2016. There were no material differences on account of remeasurement in Ind AS.
The Transferor Company had adopted the provisions of para 46 / 46A of AS 11 âThe Effects of Changes in Foreign Exchange Rates" under the previous GAAP. Accordingly, the exchange fluctuations on all long term monetary items so far as they related to the acquisition of a depreciable capital asset, were added to or deducted from the cost of the asset and were depreciated over the balance life of such assets. In cases other than those falling under above, exchange fluctuations on long term monetary items were accumulated in ''Foreign Currency Monetary Item Translation Difference Account'' (FCMITDA), grouped under Reserves and Surplus, and amortized over the balance period of long-term monetary asset/liability but not beyond March 31, 2020. In order to align with the Company''s policy, the carrying value of such exchange differences included in the tangible fixed assets (now called as property, plant and equipment) amounting '' 163.94 Million and the accumulated balance in the FCMITDA '' 4.22 Million in the books of the Transferor Company as at the appointed date of the Scheme of merger have been charged-off to the Statement of Profit and Loss under exceptional items.
On completion of the merger of the Transferor Company with the Company, the following entities of the erstwhile Transferor Company became part of the Company:
- Aponia Laboratories Inc., USA
- Chemsynth Laboratories Private. Limited, India
- Shasun NBI LLC, USA
- Shasun Pharma Solutions Inc., USA
- Shasun Pharma Solutions Limited, UK
- Shasun USA Inc., USA
- Stabilis Pharma Inc., USA
- SVADS Holdings SA, Switzerland
Further, the following investments of the Transferor Company became part of the Company:
- Clarion Wind Farm Private Limited, India
- Beta Wind Farm Private Limited, India
- SIPCOT Industrial Common Utilities Limited, India
- Tulysan Lec Limited, India
In accordance with the terms of the Scheme, the Company was required to issue stock options in the Company to the employees holding options issued by the Transferor Company aggregating to 156,400 as at the effective date of the Scheme in the ratio of 5 options in the Company for every 16 options held in Transferor Company. The terms and conditions applicable to new options in the Company shall be no less favorable than those provided under erstwhile Shasun ESOP scheme. However, as at March 31, 2016, pending certain regulatory approvals, such options were not issued by the Company and hence 48,875 options were reserved for issue in respect of the above as at the March 31, 2016. In the current year ended March 31, 2017, 37,438 options were issued to the eligible option holders.
With effect from November 18, 2015, the name of the Company has been changed from Strides Arcolab Limited to Strides Shasun Limited.
As the effect of merger was recorded on April 1, 2015 being the appointed date of the Scheme, the opening balance sheet as at the transition date (which also happens to be April 1, 2015) in these financial statements do not include the balances relating to Transferor company and accordingly the figures of April 1, 2015 are not comparable with the other two balance sheet dates.
Note A:
The Company entered into an agreement to acquire business of Fagris Medica Private Limited (""Fagris"") on February 7,2017 and the transaction was completed on March 31,2017. Fagris is the wholly owned subsidiary of the Company as on the date of transfer. This being a common control transaction, the assets and liabilities of Fagris has been transferred at book value, and the difference between the consideration and book value of assets transferred has been debited to Capital reserve. The operations in this entity is not significant as compared to the operations of the Company.
calculated borrowing costs on the funding levels, credit ratings and debt/equity position of the Group after the business combination; and excluded takeover defence costs of the acquire as a one-off pre-acquisition transaction.
Disposal of investments \ business
39.1 Sale of investments in entities manufacturing specialty products
The Company and its wholly owned subsidiary Strides Pharma Asia Pte Limited (âStrides Singapore") entered into definitive agreements on February 27, 2013 with Mylan Inc for sale of the Specialty products business. The transactions under the respective agreements were by way of (i) sale of investment held in Agila Specialties Private Limited (âASPL", an erstwhile wholly owned subsidiary of the Company), to Mylan Laboratories Limited (âMLL"), a Mylan group company and (ii) the sale of investment held in Agila Specialties Global Pte Limited (âAgila Global", an erstwhile wholly owned subsidiary of Strides Singapore) to Mylan Institutional Inc, another Mylan group company. MLL and Mylan Institutional Inc together are referred to below as Mylan.
The sale of shares of ASPL was recorded by the Company in terms of the Sale and Purchase Agreement dated December 4, 2013 (the âIndia SPA"). The sale of shares of Agila Global was recorded by Strides Singapore in terms of another Sale and Purchase Agreement dated December 4, 2013 (the âGlobal SPA").
The Company has provided a corporate guarantee to Mylan Inc for USD 200 Million (valid up to December 4, 2020) on behalf of Strides Singapore which can be used for discharging specified financial obligations, if any, of Strides Singapore to Mylan, which has been included under contingent liabilities as at March 31, 2017, March 31, 2016 and April 1, 2015 in Note 42.
Further, in accordance with the terms of the India SPA and the Global SPA (together the âSPA"s), certain amounts were set aside under separate deposit / escrow accounts which were required to be utilized for specified expenses during the specified period. These included separate escrow / deposit of USD 100 Million in respect of potential claims under the SPAs in relation to certain regulatory concerns ("Regulatory escrow") and USD 100 Million in respect of potential claims in relation to the warranties and indemnities, including in relation to tax, as per the terms of SPAs and other transaction amounts ("General claims escrow"). Further, '' 850 Million was set aside in separate Escrow for payment to certain specified senior management personnel of ASPL and its subsidiary. Any unutilized amounts from the deposit / escrow accounts after the specified period were payable to the respective entities of the Group. Given the uncertainties involved and in the absence of a right to receive, the amounts under the deposit / escrow arrangements were not included in the consideration accounted as income by the Company at the time of disposal of the investments. Receipts from these deposit / escrow accounts were recognized subsequently (net of related expenses incurred) in the period in which such amounts were received by the company.
During the year ended March 31, 2016, the Company received '' 129.50 Million out of the escrow amount set aside under the India SPA for payment to senior management personnel of ASPL and its affiliates. This has been recognized as gain under exceptional items after adjusting related expenses of '' 3.29 Million.
During the current and earlier years, the company received notifications of claims from Mylan under the terms of the SPAs. These included third party claims, tax claims, warranty and indemnity claims, claims against the regulatory escrows and general claims. Under the terms of the SPAs, claims against the Company / Strides Singapore can only be made under specific provisions contained in the SPAs which include the procedures and timelines for submission of notifications of claims and actual claims and commencing arbitration proceedings.
In the current year, all claims towards regulatory expenses have been settled and Strides Singapore received USD 28.33 Million as full and final settlement from out of the Regulatory Escrow account. The Company and Mylan also agreed on full and final settlement of warranty and indemnity claims which were adjusted against the General Claims Escrow. The balance available in the General Claims Escrow as at March 31, 2017 in respect of all claims is USD 62 Million.
As at March 31, 2017, the outstanding claims relate to certain tax claims and third party claims. Considering the nature of the pending claims, terms of the SPAs and the balance available in Escrow, the management believes that any further outflow of resources is not probable.
During the year ended March 31, 2016, the Company had raised Rs, 11,026.62 Million on issue of 8,628,028 equity shares of Rs, 10 each at a premium of Rs, 1,268 per equity share to Qualified Institutional Buyers (QIP) in terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. The Company completed the allotment of equity shares on December 23, 2015 and expenses incurred in relation to QIP to the extent of Rs, 326.66 Million were debited to Securities Premium Account.
IN95IN9nJ Share-based payments
Details of the employee share option plan of the Company:
(a) The ESOP titled âStrides Arcolab ESOP 2011" (ESOP 2011) was approved by the shareholders on May 30, 2011 for 1,500,000 options. Each option comprises one underlying equity share of the Company. The vesting period of these options range over a period of three years. The options must be exercised within a period of 30 days from the date of vesting. No options were granted under this plan during the current year.
(b) The ESOP titled âStrides Arcolab ESOP 2015" (ESOP
2015) was approved by the shareholders on November 6, 2015 for 70,000 options. Each option comprises one underlying equity share of the Company. The vesting period of these options range over a period of four years. The options must be exercised within a period of 180 days from the date of vesting. Out of these options, 42,062 options were reserved for issue as at March 31, 2016 to employees of erstwhile Shasun Pharmaceuticals Limited pursuant to the Scheme of Amalgamation, as explained in Note 38.1. During the year ended March 31, 2017, the Company issued 37,438 options to the eligible option holders.
As at March 31, 2016, additional 6,813 options were reserved for issue to the elibile employees of Shasun Pharma Solutions Limited, UK. Pursuant to the accelerated vesting of such options on account of disposal of this entity during the year ended March 31, 2017 (refer Note 38.1), the Company recognized expenses of Rs, 3.77 Million during the year ended March 31, 2017.
(c) The ESOP titled âStrides Shasun ESOP 2016" (ESOP 2016) was approved by the shareholders on April 21, 2016. 3,000,000 options are covered under the Plan which are convertible into equal number of equity shares of the Company. The vesting period of these options range over a period of three years. The options must be exercised within a period of one year from the date of vesting. Company has granted 100,000 options under the scheme during the current year.
(d) During the current year, Employee compensation costs of Rs, 54.71 Million (for the year ended March 31, 2016: Rs, 44.83 Million) relating to the above referred various Employee Stock Option Plans have been charged to the Statement of Profit and Loss.
Fair value of share options granted in the year The fair value of the share options granted under ESOP 2015 and ESOP 2016 are Rs, 1,058.38 and Rs, 611.33 respectively. Options were priced using a Black-Scholes method of valuation as at grant date. Expected volatility is based on the historical share price volatility over the past 3 years.
INBBHN94^ Employee Benefits Plans Defined contribution plan
The Company makes contributions to provident fund and employee state insurance schemes which are defined contribution plans, for qualifying employees. Under the schemes, the company is required to contribute a specified percentage of the payroll cost to fund the benefits. The company recognized Rs, 177.14 Million (previous year: Rs, 119.45 Million) for provident fund contributions, Rs, 7.99 Million (previous year: Rs, 4.95 Million) for employee state insurance scheme contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.
Defined benefit plan
The Company offers gratuity benefits, a defined employee benefit scheme to its employees.
Composition of the plan assets
The fund is managed by LIC , the fund manager. The details of composition of plan assets managed by the fund manager is not available with the company. However, the said funds are subject to Market risk (such as interest risk, investment risk, etc).
The said benefit plan is exposed to actuarial risks such as longevity risk and salary risk.
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the Longevity risk mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan''s 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 in the salary of the plan participants will increase the plan''s liability.
The current service cost and the net interest expense for the year are included in the ''Employee benefits expense'' line item in the statement of profit and loss. The remeasurernent of the net defined benefit liability is included in other comprehensive income.
The sensitivity analysis presented above may not be representative of the actual change in 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 at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognized in the balance sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years. There has been no change in the process used by the Company to manage its risks from prior periods.
IN3teiNW4M Related party transactions : List of related parties
Relationship Name
Wholly owned subsidiaries Direct Holding
Fagris Medica Private Limited (with effect from February 15, 2017)
Shasun USA Inc, USA
Solara Active Pharma Sciences Limited (formerly, SSL Pharma Sciences Limited, incorporated on 23 February 2017)
Strides Arcolab International Limited, UK
Strides Consumer Private Limited, India (incorporated on 06 March 2017)
Strides Pharma Asia Pte Limited, Singapore Strides Pharma International Limited, Cyprus SVADS Holdings SA, Switzerland Indirect Holding Altima Innovations Inc, USA
Arrow Pharma (Private) Limited,Srilanka (with effect from February 27, 2017)
Arrow Pharma Life Inc., Philippines (with effect from February 27, 2017)
Arrow Pharma Pte Limited, Singapore (with effect from February 27, 2017)
Arrow Pharma Pty Limited, Australia Arrow Pharmaceuticals Pty Limited, Australia
Arrow Remedies Private Limited, India (with effect from February 27, 2017)
Pharmacy Alliance Investments Pty Limited, Australia Shasun Pharma Solutions Inc, USA Stabilis Pharma Inc, USA
Stelis Biopharma (Malaysia) Sdn Bhd, Malaysia (with effect from March 1, 2017)
Sterling Pharma Solutions Limited, UK (formerly, Shasun Pharma Solutions Limited - Up to September 30, 2016)
Strides Africa Limited, BVI
Strides Arcolab (Australia) Pty Limited, Australia
Strides CIS Limited, Cyprus
Strides Emerging Markets Private Limited, India
Strides Pharma (Cyprus) Limited, Cyprus
Strides Pharma (SA) Pty Limited, South Africa
Relationship Name
Strides Pharma Global (UK) Limited, UK (formerly, Strides Pharma (UK) Limited)
Strides Pharma Global Pte Limited, Singapore Strides Pharma Inc, USA Strides Pharma Limited, Cyprus
Strides Pharma (UK) Limited, UK (formerly, Strides Shasun (UK) Limited)
Strides Specialties (Holdings) Limited, Mauritius
Strides Pharmaceuticals (Holdings) Limited, Cyprus (merged with Strides Pharma International Limited,Cyprus with effect from October 16,2015)
Other Subsidiaries: Direct Holding:
Chemsynth Laboratories Private Limited, India (49%)
Fagris Medica Private Limited (90%) (up to February 14, 2017)
Stelis Biopharma Private Limited, India (74.90%) (up to March 31, 2017)
Strides Biologix Private Limited (51%) (up to March 31, 2017)
Strides Healthcare Private Limited (74%)
Indirect Holding
Alliance Pharmacy Pty Limited, Australia (51%)
Arrow Pharma (Private) Limited, Sri Lanka (95%) (up to February 26, 2017)
Arrow Pharma Life Inc., Philippines (95%) (up to February 26, 2017)
Arrow Pharma Pte. Limited, Singapore (up to February 26, 2017) (95%)
Arrow Remedies Private Limited, India (95%) (up to February 26, 2017)
Beltapharm SpA, Italy (97.94%)
Generic Partners (Canada) Inc., Canada (with effect from August 11, 2016) (51%)
Generic Partners (International) Pte Limited, Singapore (with effect from August 11, 2016) (51%) Generic Partners (M) Sdn Bhd, Malaysia (with effect from August 11, 2016) (51%)
Generic Partners (NZ) Limited, New Zealand (with effect from August 11, 2016) (51%)
Generic Partners (South Africa) Pty Limited, South Africa (with effect from August 11, 2016) (51%) Generic Partners Holding Co Pty Limited, Australia (with effect from August 11, 2016) (51%) Generic Partners Pty Limited, Australia (with effect from August 11, 2016) (51%)
Generic Partners UK Limited, UK (with effect from August 11, 2016) (51%)
Pharmacy Alliance Group Holdings Pty Limited., Australia (51%)
Pharmacy Alliance Pty Limited, Australia (51%)
Smarterpharm Pty Limited (with effect from January 23,2017) (51%)
Stelis Biopharma (Malaysia) SDN BHD, Malaysia (74.90%) (up to February 28, 2017)
Universal Corporation Limited, Kenya (51%) (with effect from May 1, 2016)
Indirect Holding -Hived off effective March 31, 2017 African Pharmaceutical Development S.A, Cameroon (85%)
Congo Pharma SPRL, Congo (85%)
Societe De Repartition Pharmaceutique, Burkinofaso (80%)
Strides Pharma Botswana (Proprietary) Limited (70%)
Strides Pharma Cameroon Limited (85%)
Strides Pharma Mozambique, SA (51%)
Strides Pharma Namibia Pty Limited (70%)
Strides Vital Nigeria Limited, Nigeria (74%)
Trusts:
Strides Foundation Trust, India Shasun Foundation Trust, India
Relationship Name
Joint Ventures (JV) Akorn Strides LLC, USA (50%)
Shasun NBI LLC, USA (50%)
SPC Co. Limited, Sudan (51%) (up to March 31, 2017)
Strides Shasun Latina Sa De Cv, Mexico (80%) (with effect from August 23, 2016)
Oraderm Pharmaceuticals Pty Limited, Australia (50%) (with effect from June 6, 2016)
Associates Aponia Laboratories Inc, USA
Regional Bio Equivalence Centre S.C., Ethiopia (with effect from May 1, 2016)
Stelis Biopharma Private Limited (with effect from March 31, 2017)
Key Management Arun Kumar, Chairman (with effect from May 18,2017) (Executive Vice Chairman and Managing Director,
Personnel (KMP) up to May 18, 2017)
Abhaya Kumar, Executive Director (Resigned on May 18, 2017)
Shashank Sinha, Managing Director (Appointed on May 18, 2017) (Group Chief Executive Officer (with effect from October 28, 2016 and up to May18,2017)
Badree Komandur, Executive Director (Appointed on May 18, 2017) (Group Chief Financial Officer up to May 18, 2017 & Company Secretary up to February 3, 2017)
Manjula Ramamurthy, Company Secretary (with effect from February 3, 2017)
Deepak Vaidya, Non-Executive Director (with effect from May 18, 2017) (Chairman up to May 18, 2017)
A K Nair, Non-Executive Director (Resigned on May 18, 2017)
Bharat Shah, Non-Executive Director
Homi R Khusrokhan, Non-Executive Director (Appointed on May 18, 2017)
M R Umarji, Non-Executive Director (Resigned on May 18, 2017)
PMThampi, Non-Executive Director (Resigned on May 18, 2017)
S Sridhar, Non-Executive Director Sangita Reddy, Non-Executive Director Relatives of KMP Aditya Arun Kumar, son of Arun Kumar
Enterprises owned or Atma Projects, India
significantly influenced Chayadeep Properties Private Limited, India by key management Devendra Estates LLP, India
personnel and relative LifeCell International Private Limited, India
of key management Nutra Specialities Private Limited, India
personnel Tenshi Kaizen Private Limited (formerly, Higher Pharmatech Private Limited)
Strides Biologix Private Limited, India (51%) (with effect from March 31, 2017)
Sequent Scientific Limited, India Sequent Research Limited, India
Sterling Pharma Solutions Limited, UK (formerly, Shasun Pharma Solutions Limited - (with effect from September 30, 2016)
Shasun Leasing and Finance Limited, India
Fair value hierarchy
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consist of the following three levels:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
Fair value of the Company''s financial assets and financial liabilities that are measured at fair value on a recurring basis Some of the Company''s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).
48.3.2 Foreign currency sensitivity analysis
Financial instruments affected by changes in foreign exchange rates include External Commercial Borrowings (ECBs), loans in foreign currencies to subsidiaries and joint ventures. The Company considers US Dollar and the Euro to be principal currencies which require monitoring and risk mitigation. The Company is exposed to volatility in other currencies including the Great Britain Pounds (GBP) and the Australian Dollar (AUD). The impact on account of 5% appreciation / depreciation in the exchange rate of the above foreign currencies against INR is given below:
The impact on profit has been arrived at by applying the effects of appreciation / deprecation effects of currency on the net position (Assets in foreign currency
- Liabilities in foreign currency) in the respective currencies.
For the purposes of the above table, it is assumed that the carrying value of the financial assets and liabilities as at the end of the respective financial years remains constant thereafter. The exchange rate considered for the sensitivity analysis is the exchange rate prevalent as at each year end.
The sensitivity analysis might not be representative of inherent foreign exchange risk due to the fact that the foreign exposure at the end of the reporting period might not reflect the exposure during the year.
48.4 Interest rate risk management
Interest rate risk arises from borrowings. Debt issued at variable rates exposes the company to cash flow risk. Debt issued at fixed rate exposes the company to fair value risk. The company mitigates its interest rate risk by entering into interest rate Swap contracts.
48.4.1 Interest rate sensitivity analysis
Financial instruments affected by interest rate changes include Secured Long term loans from banks, Secured Long term loans from others, Unsecured Long term loans, Secured Short term loans from banks and Unsecured Short term loans from banks and others. The impact of a 1% change in interest rates on the profit of an annual period will be Rs, 161.78 Million (March 31, 2016: Rs, 156.91 Million) assuming the loans as at each year end remain constant during the respective years.
This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.
"The change in sensitivity to interest rate is attributed to the following:
a. new acquisitions in the current year.
b. hedging instruments taken to fix certain variable interest loans
48.4.2 Interest rate swap contracts
Under interest rate swap contracts, the Company agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Company to mitigate the risk of cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the reporting period.
The following tables detail the nominal amounts and remaining terms of interest rate swap contracts outstanding at the end of the reporting period.
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as FVTPL.
The line-item in the balance sheet that includes the above instruments is "Other financial liabilities (Refer note 21(ii)".
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the local interbank rate in the currency of the loan. The Company will settle the difference between the fixed and floating interest rate on a net basis.
48.5 Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit Risk to the company primarily arises from trade receivables. Credit risk also arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions and other financial assets.
The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade and above. The Company has an internal mechanism of determining the credit rating of the customers and setting credit limits. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
The credit risk arising from receivables is subject to currency risk in that the receivables are predominantly denominated in USD, AUD and GBP and any appreciation in the INR will affect the credit risk. Further, the Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
48.6 Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Company''s short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual short term and long term cash flows, and by matching the maturity profiles of financial assets and liabilities. A portion of the company''s surplus cash is retained as investments in Liquid Mutual Funds to fund short term requirements.
48.6.1 Liquidity analysis for Non-Derivative Liabilities
The following table details the Company''s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Company may be required to pay.
Liquidity analysis for derivative financial instruments-
The following table details the Company''s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. Outflows are represented in brackets in table below:
IN33S9B3 Capital management
The Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Company consists of net debt (borrowings as detailed in notes 20 and 21(ii) offset by cash and bank balances) and total equity.
The Company reviews the capital structure on a semi-annual basis to ensure that it in compliance with the required covenants. The Company has a target gearing ratio of 1:1 determined as the proportion of net debt to total equity. The gearing ratio at March 31, 2017 is 0.07.
The Company is not subject to any externally imposed capital requirements.
0333359Segment Information
Since the Company prepares consolidated financial statements, segment information has not been provided in these standalone financial statements.
- Scheme of Arrangement under I Section 391 - 394 of the Companies |Act, 1956
The Scheme of Restructuring approved by the shareholders on April 13, 2009 included a Scheme of Arrangement that envisaged the creation of a Reserve for Business Restructuring as set out in the Scheme. The Reserve was to be utilized by December 31, 2012 for specified purposes by either the Company or its subsidiaries. The balance of Rs, 3,846.38 Million identified under the Securities Premium Account represents amounts utilized by the subsidiaries of the Company from the Reserve prior to December 31, 2012 and have been earmarked for set off on consolidation.
1390939153 Other Matters
(a) In respect of freehold land to the extent of 7.20 acres (as at March 31, 2017 gross block and net block amounting to Rs, 257.67 Million) capitalized in the books of the Company, the title deeds are under dispute. The Company has been legally advised that it has title deed in its name and that it will be able defend any counter claims to such parcel of land under dispute.
(b) The title deeds of freehold land and building admeasuring 52.01 acres (as at March 31, 2017 gross block Rs, 1,302.05 Million and net block of Rs, 1,052.40 Million) capitalized in the books of the Company are in the name of erstwhile Companies which were merged with the Company under Section 391 to 394 of the Companies Act, 1956 in terms of the approval of the Honorable High Courts of judicature. The Company is in the process transferring the title deeds of such properties in its name.
(c) In respect of freehold land admeasuring 0.6 acres (as at March 31, 2017 gross block and net block amounting to Rs, 0.81 Million) capitalized in the books of the Company, the title deeds are not in the name of the Company. The Company is in the process of transferring the title deeds of such land in its name.
(d) In respect of building admeasuring 750 sq. ft. (as at March 31, 2017 gross block of Rs, 3.55 Million and net block Rs, 1.30 Million) capitalized in the books of the Company, the title deeds are not in the name of the Company. The Company is in the process of transferring the title deeds of such building in its name
[N333S59Transfer Pricing
The detailed Transfer Pricing regulations (''regulations'') for computing the income from âdomestic transactions" with specified parties and international transactions between ''associated enterprises'' on an ''arm''s length'' basis is applicable to the Company. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant which is to be filed with the Income tax authorities.
The Company has undertaken necessary steps to comply with the Transfer Pricing regulations. The Management is of the opinion that the transactions with associated enterprises and domestic transactions are at arm''s length, and hence the aforesaid legislation will not have any material impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
IN95IN9E^ Proposed dividend
In respect of the current year, the directors propose that a dividend of Rs, 4.50 per share be paid on equity shares. This equity dividend is subject to approval by shareholders at the Annual General Meeting (AGM) and has not been included as a liability in these financial statements. The proposed equity dividend is payable to all shareholders on the Register of Members on the date of AGM. The total estimated equity dividend to be paid is Rs, 402.40 Million. The payment of this dividend is estimated to result in payment of dividend tax @ 20.36% on the amount of dividends grossed up for the related dividend distribution tax.
Mar 31, 2015
CORPORATE INFORMATION
Strides Arcolab Limited (the 'Company' or 'Strides') is a
pharmaceutical company headquartered in Bengaluru, India. Strides
develops and manufactures a wide range of IP-led niche pharmaceutical
products. The Company is listed on the Bombay Stock Exchange Limited
and the National Stock Exchange of India Limited.
1(b) Detail of the rights, preferences and restrictions attaching to
each class of shares outstanding Equity shares of Rs. 10/- each:
The Company has only one class of equity shares, having a par value of
Rs.10/-. The 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 approval by the
shareholders at the ensuing Annual General Meeting. In the event of
liquidation of the Company, the holders of the equity shares will be
entitled to receive any of the remaining assets of the Company, after
distribution to all other parties concerned. The distribution will be
in proportion to number of equity shares held by the shareholders.
1(d) Details of aggregate number of equity shares allotted as fully
paid-up pursuant to contract without payment being received in cash for
the period of five years immediately preceding the balance sheet date:
Equity shares of Rs. 10/- issued pursuant to a scheme of amalgamation
in 2009 - 13,524 shares
Pursuant to the transition provisions prescribed in Schedule II to the
Companies Act, 2013, the Company has fully depreciated the carrying
value of assets net of residual value, where the remaining useful life
of the asset was determined to be nil as on April 1, 2014, and has
adjusted an amount of Rs. 28.79 Million (net of deferred tax of Rs.
14.83 Million) against the opening Surplus balance in the Statement of
Profit and Loss under Reserves and Surplus. The depreciation expense in
the Statement of Profit and Loss for the year is higher by Rs. 28.49
Million consequent to the change in the useful life of the assets.
In accordance with the notification No. 496 dated August 29, 2014 from
Ministry of Corporate Affairs, the Company has opted to comply with the
requirement under sub-paragraph (a) of paragraph 4 of part 'C' of
Schedule II of the Act from the financial year commencing on April 1,
2015.
(viii) During the previous period ended March 31, 2014, as part of the
hive off of the entities into the manufacture of Specialties products
business (refer Note 40.B), the Company also entered into a long term
lease arrangement with Agila Specialties Private Limited for certain
land and buildings (along with the related infrastructure). Consequent
to the above, the difference between the present value of the lease
rentals under the lease and the carrying value of the said assets has
been adjusted against the Profit on sale of investments, as a
transaction related expenditure, in the period then ended.
2. SCHEME of arrangement UNDER SECTION 391 - 394 OF THE COMPANIES ACT
1956
The Scheme of Restructuring approved by the shareholders on April 13,
2009 included a Scheme of Arrangement that envisaged the creation of a
Reserve for Business Restructuring as set out in the Scheme. The
Reserve was to be utilized by December 31, 2012 for specified purposes
by either the Company or its subsidiaries. The balance of Rs. 3,846.38
Million identified under the Securities Premium Account represents
amounts utilized by the subsidiaries of the Company from the Reserve
prior to December 31, 2012 and have been earmarked for set off on
consolidation.
3. SALE OF NON-CURRENT INVESTMENTS:
A. Sale of investment in Strides Pharmaceuticals (Holdings) Limited,
Cyprus
In the current year, the Company has sold its investment in Strides
Pharmaceuticals (Holdings) Limited, Cyprus ("SPHL'), a wholly owned
subsidiary of the Company, having a carrying value of Rs. 2,956.98
Million to Strides Pharma Asia Pte Limited, Singapore, a wholly-owned
subsidiary of the Company, for a consideration of USD 63.79 Million
(Rs. 3,920.99 Million). Profit arising on such sale of investment
amounting to Rs. 964.01 Million has been recognised in the Statement of
Profit and Loss under Exceptional Items.
B. Sale of investments in Agila Specialties Private Limited
(i) In February 2013, the Company and its subsidiary Strides Pharma
Asia Pte Limited ("Strides Pharma Asia") had entered into separate
definitive agreements with Mylan Inc for hiving off the Specialty
products business subject to receipt of regulatory approvals. The hive
off of the Specialty products business by the Company and Strides
Pharma Asia was by way of (i) sale of investments in Agila Specialties
Private Limited ("ASPL"), which was then a wholly owned subsidiary of
the Company, to Mylan Laboratories Limited ("MLL'), a subsidiary of
Mylan Inc and (ii) sale of investments held by Strides Pharma Asia in
Agila Specialties Global Pte Limited ("Agila Global") to Mylan
Institutional Inc, a Mylan Group Company, respectively.
(ii) The sale of the investment in ASPL was recorded in terms of Share
Purchase Agreement dated December 4, 2013 with MLL (the India SPA), for
the sale of shares of ASPL for a consideration of USD 693.03 Million
(Rs. 43,010.04 Million) as computed under the India SPA which was
received in full by the Company on that date. The India SPA envisaged
that an amount of Rs. 850.00 Million and USD 60.00 Million be
transferred by MLL to two separate Escrow accounts (which are jointly
controlled by both MLL and the Company for administrative purposes) for
payment to certain specified senior management personnel of ASPL and
its subsidiary, and for incurring certain regulatory expenses
pertaining to ASPL respectively, as defined under the agreements
entered into between the Company and MLL. Unutilized amounts in these
Escrow accounts, if any, would be payable to the Company from the
Escrow accounts in accordance with the terms of the agreements with
MLL.
Exceptional items in the Statement of Profit and Loss for the period
ended March 31, 2014, includes profit from sale of investments in ASPL
to the extent of Rs. 31,600.28 Million net of transaction related
expenditure.
(iii) The sale of investments in Agila Global by Strides Pharma Asia,
was recorded in terms of another Share Purchase Agreement dated
December 04, 2013, entered with Mylan Institutional Inc., (the "Global
SPA").
(iv) As at March 31, 2014, Mylan Inc., USA was in discussions with the
Company and Strides Pharma Asia with regard to matters relating to the
assets and liabilities of the Specialties products business taken over
and had raised certain claims on the Company under the India SPA and
Strides Pharma Asia under the Global SPA. The Company and Strides
Pharma Asia had also counter claimed certain additional amounts from
Mylan Inc.
During the current year, the concerned parties have reached a
settlement under which all the claims raised by Mylan Inc on the
Company under the India SPA stand cancelled.
As stated in Note (ii) above, MLL had held back an amount of USD 60
Million which were due to be received by the Company in December 2014,
net off any Regulatory expenses incurred by MLL. As at March 31, 2015,
the Company had received details of Regulatory expenses incurred by MLL
which it intended to adjust against the amount of USD 60 Million, which
has been disputed by the Company. Pending resolution of the dispute,
no amounts relating to the above have been received by the Company.
(v) The Company has given a corporate guarantee for USD 200 Million
(Rs. 12,499 Million) to the Mylan Inc towards claims / liabilities, if
any, relating to the period prior to December 4, 2013. As at March 31,
2015, the Company has evaluated the possible exposure on the guarantee
and believes that it is more likely that there is no present obligation
under the Guarantee. The said guarantee has been included in the amount
quantified in note 43.1 as 'Contingent liability and Commitments'.
C. Sale of investments in Stelis Biopharma Private Limited
During the previous period ended March 31, 2014, the Company had sold
its investment in Stelis Biopharma Private Limited, a wholly owned
subsidiary of the Company having a carrying value of Rs. 10.13 Million
to Inbiopro Solutions Private Limited, a wholly owned subsidiary of the
Company for a consideration of Rs.17.77 Million. Profit arising on such
sale of investment of Rs. 7.64 Million had been recognised in the
Statement of Profit and Loss under Exceptional Items in the period
ended March 31, 2014.
4. PURCHASE OF NON-CURRENT INVESTMENTS:
(a) In the current year, the Company has acquired 90% equity in Fagris
Medica Private Limited, India (the "Fagris"), for total purchase
consideration of Rs. 9.20 Million. As at March 31, 2015, an amount of
Rs. 1.70 Million is payable towards the above.
(b) In the current year, the Company has invested Rs. 481.06 Million in
Strides Healthcare Private Limited, India (formerly Strides Actives
Private Limited, referred to as "Special Purpose Vehicle / SPV"), for
74% equity shares in SPV, to acquire the India Branded Generics
Business of Bafna Pharmaceuticals Limited ("the Business") which is
engaged in sales and marketing of branded pharmaceuticals products in
certain niche therapeutic segments.
5. The Board of Directors in their meeting held on September 29, 2014
had approved a Scheme of Amalgamation between the Company and Shasun
Pharmaceuticals Limited ('Shasun'). The Scheme of Amalgamation is
under the framework of the Companies Act 1956 / 2013 and the relevant
SEBI regulations, wherein Shasun will be amalgamated with and into the
Company.
Pursuant to the Scheme of Amalgamation, each equity shareholder of
Shasun will be entitled to receive 5 (five) equity shares of the
Company in lieu of 16 (sixteen) equity shares held in Shasun.
The appointed date for the Scheme of Amalgamation is April 1, 2015. The
approval for the Scheme of Amalgamation has been received from SEBI,
the shareholders of both the Companies and Competition Commission of
India. As on date of approval of the financial statements, approvals
from the creditors of the Companies, FIPB, RBI and the Hon'ble High
Courts of Bombay and Madras are awaited.
5. CONTINGENT LIABILITIES AND COMMITMENTS
5.1 The Company has given corporate guarantees upto Rs. 37,174.85
Million (As at March 31, 2014: Rs. 36,446.06 Million) to financial
institutions and other parties, including on behalf of its
subsidiaries. As at March 31, 2015, the subsidiaries have availed
facilities from such financial institutions / were obligated to the
parties referred above for an aggregate amount of Rs. 4,595.53 Million
(As at March 31, 2014: Rs. 580.67 Million).
5.2 The Company has disputed income tax liabilities arising from
assessment proceedings relating to earlier years amounting to Rs.
1,278.27 Million (Previous year Rs. 1,276.50 Million). The outflow, if
any, on account of disputed taxes is dependent on completion of
assessments.
5.3 The Company had preferred an appeal with the CESTAT against the
order of the Commissioner of Central Excise disallowing transfer of
CENVAT credit of Rs. 5.65 Million (Previous year Rs. 5.65 Million) as
on the date of conversion of one of the units of the Company into a
100% EOU.
5.4 Other claims against the Company disputed by the Company Rs. Nil
(Previous year Rs. 872.63 Million). Refer Note 40 B(iv) for more
details.
6. EMPLOYEE STOCK OPTION PLAN (ESOP)
(a) In the extraordinary general meeting held on January 25, 2007, the
shareholders approved the issue of 1,000,000 options under the Plan
titled "Strides Arcolab ESOP 2006" (ESOP 2006). The ESOP 2006 allows
the issue of options to employees of the Company and its subsidiaries
(whether in India or abroad). Each option comprises one underlying
equity share. As per the Plan, the Compensation committee grants the
options to the employees deemed eligible. The exercise price of each
option shall not be less than 85 per cent of the "Market Price" as
defined in the Plan. The options granted vest over a period of 3 years
from the date of the grant in proportions specified in the Plan.
Options should be exercised within 30 days of vesting. No options were
granted under this Plan during the current year.
(b) The ESOP titled "Strides Arcolab ESOP 2008" (ESOP 2008) was
approved by the shareholders through postal ballot on June 18, 2008.
1,500,000 options are covered under the Plan for 1,500,000 equity
shares. The options allotted under ESOP 2008 are convertible into equal
number of equity shares. The vesting period of these options range over
a period of three years. The options must be exercised with in a period
of 30 days from the date of vesting. No options were granted under this
Plan during the current year.
(c) The ESOP titled "Strides Arcolab ESOP 2008 (Directors)" (ESOP 2008
Directors Plan) was approved by the shareholders through postal ballot
on January 12, 2009. 500,000 options are covered under the Plan for
500,000 equity shares. The options allotted under ESOP 2008 are
convertible into equal number of equity shares. The vesting period of
these options range over a period of three years. The options must be
exercised with in a period of 30 days from the date of vesting. No
options were granted under this plan during the current year.
(d) The ESOP titled "Strides Arcolab ESOP 2011" (ESOP 2011) was
approved by the shareholders on May 30, 2011. 1,500,000 options are
covered under the Plan for 1,500,000 equity shares. The options
allotted under ESOP 2011 are convertible into equal number of equity
shares. The vesting period of these options range over a period of
three years. The options must be exercised with in a period of 30 days
from the date of vesting. During the current year, the Remuneration
Committee in its meetings held on February 2, 2015 has granted 100,000
options under the ESOP 2011 to eligible employees of the Company.
(e) In respect of the ESOP 2006 and all the other Employee Stock Option
Plans detailed above, (i) the difference between the fair price of the
share underlying the options granted, on the date of grant of option
and the exercise price of the option, (being the intrinsic value of the
option) representing stock compensation expense, is expensed over the
vesting period, (ii) all unvested options will vest immediately in the
case of merger, dissolution or change in management of the Company.
Accordingly during the period ended March 31, 2014, due to sale of
investments in Agila Specialties Private Limited, the Remuneration
Committee in its meeting held on November 20, 2013 had approved for
early vesting of all options outstanding prior November 20, 2013. Upon
early vesting of these options, the balance unrecognised expense of the
intrinsic value of option in respect of these outstanding options had
been recognised in the Statement of Profit and Loss during the period
then ended.
7. EMPLOYEE BENEFITS PLANS:
Defined contribution plan
The Company makes contributions to Provident Fund and Employee State
Insurance Schemes which are defined contribution plans, for qualifying
employees. Under the schemes, the Company is required to contribute a
specified percentage of the payroll cost to fund the benefits. The
Company recognised Rs. 54.72 Million (for the period ended March 31,
2014: Rs. 54.70 Million) for provident fund contributions and Rs. 1.79
Million (for the period ended March 31, 2014: Rs. 3.64 Million) for
Employee State Insurance Scheme contributions in the Statement of
Profit and Loss. The contributions payable to these plans by the
Company are at rates specified in the rules of the schemes.
(a) The discount rate is based on the prevailing market yields of
Government of India securities as at the balance sheet date for the
estimated term of the obligations.
(b) The estimate of future salary increases considered, takes into
account the inflation, seniority, promotion and other relevant factors
such as supply and demand in the employment market.
(c) The above disclosure on gratuity and compensated absences is to the
extent of information available with the Company and as per the
actuarial valuation reports for gratuity and compensated absences.
(d) Composition of the plan assets as at March 31, 2015 is not made
available by the fund manager. Hence, the same has not been disclosed.
8. Since the Company prepares consolidated financial statements,
segment information has not been provided in these standalone financial
statements.
9. RELATED PARTY TRANSACTIONS : LIST OF THE RELATED PARTIES
Wholly owned subsidiaries:
Direct Holding
Stelis Biopharma Private Limited, India (formerly Inbiopro Solutions
Private Limited, India)
Strides Arcolab International Limited, U.K
Strides Pharma Asia Pte Limited, Singapore
Strides Pharma International Limited, Cyprus
Strides Pharmaceuticals (Holdings) Limited, Cyprus (upto October 6,
2014)
Strides Healthcare Private Limited (formerly known as Strides Actives
Private Limited, India) (from June 19, 2014 upto September 30, 2014)
Indirect Holding
Altima Innovations Inc., USA (w.e.f. December 18, 2014)
Co-Pharma Limited, UK
Plus Farma ehf. Iceland (wound up on February 18, 2015)
Stelis Biopharma Private Limited, India (Court order dated November 10,
2014 and merged with Inbiopro
Solutions Private Limited, India Appointed date from April 1, 2014)
Stelis Biopharma (Malaysia) SDN BHD, Malaysia
Strides Africa Limited, British Virgin Islands
Strides Australia Pty Limited, Australia (wound up on November 23,
2014)
Strides CIS Limited, Cyprus (w.e.f. October 29, 2014)
Strides Emerging Markets Private Limited, India (w.e.f. July 24, 2014)
Strides Pharma (Cyprus) Limited, Cyprus (w.e.f. July 24, 2014)
Strides Pharma Global Pte Limited, Singapore
Strides Pharma Inc, USA
Strides Pharma Limited, Cyprus
Strides Pharmaceuticals (Holdings) Limited, Cyprus (w.e.f. October 6,
2014)
Strides S.A. Pharmaceuticals Pty. Limited, South Africa (wound up on
October 28, 2014)
Strides Specialties (Holdings) Limited, Mauritius
Other Subsidiaries:
Direct Holding:
Fagris Medica Private Limited, India (w.e.f September 11, 2014)
Strides Healthcare Private Limited, India (formerly Strides Actives
Private Limited) (w.e.f September 30, 2014)
Indirect Holding:
African Pharmaceuticals Development Company, Cameroon
Beltapharm S.p.A., Italy Congo Pharma SPRL, Congo
Societe De Repartition Pharmaceutique, Burkinofaso
SPC Co. Limited, Sudan
Strides CIS Limited, Cyprus (upto October 29, 2014)
Strides Emerging Markets Private Limited, India (upto July 24, 2014)
Strides Pharma (Cyprus) Limited, Cyprus (upto July 24, 2014)
Strides Pharma Botswana (Proprietary) Limited, Botswana
Strides Pharma Cameroon Limited, Cameroon
Strides Pharma Mozambique, SA
Strides Pharma Namibia Pty Limited, Namibia
Strides Vital Nigeria Limited, Nigeria
Joint venture: Akorn Strides LLC, USA
Associates:
Strides Healthcare Private Limited, India (formerly Strides
Actives Private Limited) (upto June 19, 2014)
Key Management Personnel (KMP):
Arun Kumar (Executive Vice Chairman & Managing Director)
Badree Komandur (Chief Financial Officer & Company Secretary)
Relatives of KMP:
Aditya Arun Kumar
Anuradha Komandur
Deepalakshmi
Arun Kumar
Hemalatha Pillai
Padmakumar Karunakaran Pillai
Rajeshwari Amma
Rajitha Gopalkrishnan
Sajitha Pillai
Tarini Arun Kumar
Vineetha Mohana Kumar
Enterprises owned or significantly influenced by KMP and relative of
KMP:
Agnus Capital LLP, India
Agnus Global Holdings Pte Limited, Singapore
Agnus Holdings Private Limited, India
Alivira Animal Health Limited, India
Amara Health Services Private Limited, India
Atma Enterprises LLP, India
Atma Projects, India
Chayadeep Properties Private Limited, India
Chayadeep Ventures LLP, India
Deesha Properties, India
Emerge Learning Services Private Limited, India
Karuna Ventures Private Limited, India
Latitude Projects Private Limited, India
Paradime Infrastructure Development Company, India
Patsys Consulting Private Limited, India
Pronomz Ventures LLP, India
Qualichem Remedies LLP, India
QuantMD LLC, US
Santo Properties Private Limited, India
Sequent Penems Private Limited, India
Sequent Scientific Limited, India
Skanray Healthcare Private Limited, India
Skanray Technologies Private Limited, India
Spire Technologies and Solutions Private Limited, India
Tenshi Assisted Living Private Limited, India
Triumph Venture Holdings LLP, India
Tulip Foods Private Limited, India
10 TRANSFER PRICING
The detailed Transfer Pricing regulations ('regulations') for computing
the income from "domestic transactions" with specified parties and
international transactions between 'associated enterprises' on an
'arm's length' basis is applicable to the Company. These regulations,
inter alia, also require the maintenance of prescribed documents and
information including furnishing a report from an Accountant which is
to be filed with the Income tax authorities.
The Company has undertaken necessary steps to comply with the Transfer
Pricing regulations. The Management is of the opinion that the
transactions with associated enterprises and domestic transactions are
at arm's length, and hence the aforesaid legislation will not have any
impact on the financial statements, particularly on the amount of tax
expense and that of provision for taxation.
11 EARLY ADOPTION OF AS-30:
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT,ISSUED BY INSTITUTE
OF CHARTERED ACCOUNTANTS OF INDIA
The Company has chosen to early adopt AS 30: 'Financial Instruments:
Recognition and Measurement', (as announced by the Institute of
Chartered Accountants of India (ICAI)) during the year ended December
31, 2008, with effect from January 1, 2008. However, pursuant to a
notification issued by the ICAI on February 11, 2011, the Company has
adopted AS 30 only to the extent they do not conflict with the other
mandatory accounting standards notified under Section 133 of the
Companies Act, 2013.
The impact of adoption of AS30 as mentioned above is as follows:
11.1 The financial assets and liabilities arising out of issue of
corporate financial guarantees to third parties are accounted at fair
values on initial recognition. Financial assets continue to be carried
at fair values. Financial liabilities are subsequently measured at the
higher of
the amounts determined under AS 29 or the fair values on the
measurement date. At March 31, 2015 and March 31, 2014, the fair values
of such financial assets and financial liabilities amount to Rs. Nil.
11.2 There are no open derivative positions as on March 31, 2015 not
designated as hedging instruments and accordingly there is no gain /
loss on fair valuation of such derivatives recognized in the Statement
of Profit and Loss for the current period.
11.3 The Company has availed bill discounting facilities from Banks
which do not meet the de-recognition criteria for transfer of
contractual rights to receive cash flows from the respective trade
receivables since they are with recourse to the Company. Accordingly,
as at March 31, 2015, trade receivables balances include Rs. 270.69
Million (As at March 31, 2014: Rs. 792.56 Million) and the
corresponding financial liability to the Banks is included as part of
working capital loans under short-term borrowings (secured).
11.4 The Company has designated certain highly probable forecasted US
dollar denominated sales transactions and certain forward contracts to
sell US dollars as hedged items and hedging instruments respectively,
in a Cash Flow Hedge to hedge the foreign exchange risk arising out of
fluctuations between the India rupee and the US dollar. The exchange
fluctuations arising from marking to market of the hedging instruments,
to the extent relatable to the hedge being effective has been
recognised in a Hedge reserve account in the Balance sheet. Accordingly
exchange fluctuations gains/ (losses) amounting to Rs. 90.40 Million as
at March 31, 2015 (At March 31, 2014: Rs. (81.18 Million)) have been
recognized in the Hedge Reserve account. These exchange differences are
considered in Statement of Profit and Loss as and when the forecasted
transactions occur.
12 Details on Derivatives Instruments & Un-hedged Foreign Currency
Exposures:
The following derivative positions are open as at March 31, 2015. These
transactions have been undertaken to act as economic hedges for the
Company's exposures to various risks in foreign exchange markets. These
instruments are therefore classified as held for trading and gains/
losses recognized in the Statement of Profit and Loss except to the
extent they qualified as Cashflow hedges in the context of the rigour
of such classification under Accounting Standard 30.
I. The Company has entered into the following derivative instruments:
(a) Forward Exchange Contracts [being a derivative instrument], which
are not intended for trading or speculative purposes, but for hedge
purposes, to establish the amount of reporting currency required or
available at the settlement date of certain payables and receivables.
(c) Financial assets / liabilities held for trading are as follows:
Provisions / receivable carried towards mark to market losses / gains
on forward exchange contracts Rs. 90.40 Million gain as at March 31,
2015 (Rs. 81.18 Million gain as at March 31, 2014).
(d) There are no other financial assets / liabilities in the following
categories:
* Financial assets:
* Carried at fair value through profit and loss designated as such at
initial recognition.
* Held to maturity
* Available for sale (other than investment in Subsidiaries & Joint
Ventures)
* Financial liabilities:
* Carried at fair value through profit and loss designated as such at
initial recognition.
12.5 Nature and extent of risks arising from financial instruments
The main financial risks faced by the Company relate to fluctuations in
interest and foreign exchange rates, the risk of default by
counterparties to financial transactions, and the availability of funds
to meet business needs. The Balance Sheet as at March 31, 2015 is
representative of the position through the period. Risk management is
carried out by a central treasury department under the guidance of the
Management.
Interest rate risk
Interest rate risk arises from long term borrowings. Debt issued at
variable rates exposes the Company to cash flow risk. Debt issued at
fixed rate exposes the company to fair value risk. In the opinion of
the management, interest rate risk during the year under report was not
substantial enough to require intervention or hedging through
derivatives or other financial instruments. For the purposes of
exposure to interest risk, the Company considers its net debt position
evaluated as the difference between financial assets and financial
liabilities held at fixed rates and floating rates respectively as the
measure of exposure of notional amounts to interest rate risk. This net
debt position is quantified as under:
Credit risk
Credit risk arises from cash and cash equivalents, financial
instruments and deposits with banks and financial institutions. Credit
risk also arises from trade receivables and other financial assets.
The credit risk arising from receivables is subject to concentration
risk in that the receivables are predominantly denominated in USD and
any appreciation in the INR will affect the credit risk. Further, the
Company is not significantly exposed to geographical distribution risk
as the counterparties operate across various countries across the
Globe.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. The Company's approach to
managing liquidity is to ensure, 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 risking damage to Company's reputation.
Liquidity risk is managed using short term and long term cash flow
forecasts.
Foreign exchange risk
The Company is exposed to foreign exchange risk principally via:
* Debt availed in foreign currency
* Net investments in subsidiaries and joint ventures in foreign
currencies
* Exposure arising from transactions relating to purchases, revenues,
expenses etc. to be settled in currencies other than Indian Rupees, the
functional currency of the Company.
12.3 Sensitivity analysis as at March 31, 2015
Financial instruments affected by interest rate changes include Secured
Long term loans from banks, Secured Long term loans from others,
Secured Short term loans from banks and Unsecured Short term loans from
banks. The impact of a 1% change in interest rates on the profit of an
annual period will be Rs. 40.48 Million (for the year ended March 31,
2014 Rs.47.18 Million) assuming the loans as of March 31, 2015 continue
to be constant during the annual period. This computation does not
involve a revaluation of the fair value of loans as a consequence of
changes in interest rates. The computation also assumes that an
increase in interest rates on floating rate liabilities will not
necessarily involve an increase in interest rates on floating rate
financial assets.
Financial instruments affected by changes in foreign exchange rates
include External Commercial Borrowings (ECBs), investments in
subsidiaries, and loans to subsidiaries and joint ventures. The Company
considers US Dollar (USD) to be principal currency which requires
monitoring and risk mitigation. The Company is exposed to volatility in
other currencies including the Great Britain Pounds (GBP) and the
Australian Dollar (AUD).
13 The Board of Directors of the Company in the Meeting held on
December 10, 2013 had approved change of financial year of the Company
from January-December to that of April-March. Consequently, the previous
financial period is for a period of 15 months i.e., from January 1,
2013 to March 31, 2014 and the figures for the current year are not
strictly comparable with that of the previous period ended March 31,
2014.
14 Previous period's figures have been regrouped / reclassified
wherever necessary to correspond with the current period's
classification / disclosure.
Mar 31, 2014
CORPORATE INFORMATION
Strides Arcolab Limited (the ''Company'' or ''Strides'') is a
pharmaceutical company headquartered in Bangalore, India. Strides
develops and manufactures a wide range of IP-led niche pharmaceutical
products. The Company is listed on the Bombay Stock Exchange Limited
and National Stock Exchange of India Limited.
2.1 Service tax input credit
Service tax input credit is accounted for in the books in the period in
which the underlying service received is accounted and when there is no
uncertainty in availing / utilising the credits.
2.2 Operating cycle
As mentioned in para 1 above under ''Corporate information'', the Company
is into development and manufacture of pharmaceutical products. Based
on the normal time between acquisition of assets and their realisation
in cash or cash equivalents, the Company has determined its operating
cycle as 3 years to 5 years and 12 months for the purpose of
classification of its assets and liabilities as current and non-current
for development and manufacturing of pharmaceutical products
respectively.
3(a) Detail of the rights, preferences and restrictions attaching to
each class of shares outstanding Equity shares of Rs. 10/- each:
The Company has only one class of equity shares, having a par value of
Rs. 10/-. The 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 approval by the
shareholders at the ensuing Annual General Meeting. In the event of
liquidation of the Company, the holders of the equity shares will be
entitled to receive any of the remaining assets of the Company, after
distribution to all other parties concerned. The distribution will be
in proportion to number of equity shares held by the shareholders.
(iii) In 2008, the Company had entered into a lease cum sale agreement
with Karnataka Industrial Area Development Board for purchase of land
under a lease cum sale agreement where the lease period extended till
year 2018. On completion of the lease period, the leasehold land will
be transferred in the name of the Company.
(iv) The above assets are owned and used by the Company and the
employees of the Company other than those assets which are given on
lease to a step subsidiary of the Company. (Refer note (viii) below).
(v) Details of sums added on revaluation of assets during the preceding
5 years:
In 2009, pursuant to a court approved Scheme of Arrangement, the
Company fair valued land and plant and machinery (refer note 40). The
excess of fair value over the carrying values of the respective assets
on December 31, 2009 were as follows:
- Land Rs. 754.32 Million
- Plant and machinery Rs. 281.25 Million
There were no other sums added to fixed assets on account of
revaluation during the preceding 5 years.
(x) As part of the hive off of the entities into the manufacture of
Specialties products business (refer Note 40.A), the Company also
entered into a long term lease arrangement with Agila Specialties
Private Limited for certain land and buildings (along with the related
infrastructure). Consequent to the above, the difference between the
present value of the lease rentals under the lease and the carrying
value of the said assets has been adjusted against the Profit on sale
of investments, as a transaction related expenditure.
FOREIGN CURRENCY CONVERTIBLE BONDS
The Company had issued zero coupon Foreign Currency Convertible Bonds
(FCCB''s) (listed in the Singapore Exchange Securities Trading Limited,
Singapore) to the extent of USD 100 Million (FCCB 100Million) during
the year ended December 31, 2007 which were redeemable on June 27,
2012. In 2009, as permitted by RBI, the Company had bought back FCCB''s
with a face value aggregating to USD 20 Million. During the year ended
December 31, 2012, the Company redeemed the balance zero coupon Foreign
Currency Convertible Bonds (FCCBs) of face value amounting USD 80
Million with an effective premium of USD 36.05 Million.
SCHEME OF ARRANGEMENT UNDER SECTION 391 - 394 OF The COMpANIES Act,
1956
3.1 The shareholders of the Company, in their meeting held on April
13, 2009 approved the Scheme of Restructuring that envisaged interalia
a Scheme of Arrangement (the ''Scheme'') to be filed under Sections 391
to 394 of the Companies Act, 1956 covering the merger of some of the
subsidiaries (Transferor companies) of the Company with itself
(Transferee company), fair valuation of some of the assets of the
Company and creation of a Reserve for Business Restructure (''BRR'') out
of any surpluses arising from these, to be utilized as specified in the
Scheme.
3.2 The Scheme filed by the Company had been approved by the High
Courts of Judicature with an appointed date of January 1, 2009 and an
effective date of December 31, 2009 (''the Effective Date''), being the
date on which requirements under the Companies Act, 1956 had been
completed.
In terms of the Scheme and upon the Scheme becoming effective, amongst
other things:
- expenses incurred by the Company or its subsidiaries in the nature
of impairment, diminution, loss, amortization and/ or write-off of
assets/ investments/ intangibles, interest on borrowings for
acquisitions, employee compensation expenses, additional depreciation
charged or suffered by the Transferee Company on account of fair
valuation, scheme expenses and other expenses or arising in the future
as may be determined by the Board of Directors of the Transferee
Company, shall be debited to the BRR.
The maximum amount that can be written off against the BRR instead of
being debited to the Statement of Profit and Loss on or at any time
after January 1, 2009 would be restricted to the balance in the BRR or
upto December 31, 2012 and not beyond that. Any unutilized balance in
the BRR is required to be transferred to Securities premium account by
December 31, 2012.
- the balance in the Securities premium account, as appearing in the
books of the Transferee Company may be transferred to BRR, to such
extent as determined by the Board.
Accordingly, the following accounting treatment was given effect:
(a) The fair value of net assets acquired from the Transferor Companies
in excess of the carrying value of investment in the subsidiaries and
the value of equity shares issued to minority shareholders, amounting
to Rs. 146.77 Million was credited to BRR during the year ended December
31, 2009.
(b) Upon the Scheme becoming effective, and based on legal advice
received, the assets and liabilities of the Transferee Company had been
fair valued as determined by the Board of Directors of the Company and
the net surplus arising out of such fair valuation (over the carrying
value of the respective assets and liabilities prior to the fair
valuation) was credited to the BRR as follows during the year ended
December 31, 2009.
Had the Scheme not prescribed the above accounting treatment, in terms
of the Company''s accounting policies, these assets would continue to
have been carried at cost.
(c) During the year ended December 31, 2012, in accordance with the
Scheme;
(i) an amount of Rs. 65.16 Million has been transferred from Securities
premium account to the BRR.
(ii) The following expenses have been adjusted against the BRR:
SALE OF NON-CURRENT INVESTMENTS
A. Sale of investments in Agila Specialties Private Limited
(a) In February 2013, the Company and its wholly owned subsidiary,
Strides Pharma Asia Pte. Limited (Strides Pharma Asia), had entered
into definitive agreements with Mylan Inc. ("Buyer") for hiving off the
entities carrying out Specialty products business subject to receipt of
regulatory approvals (''the Transaction''). The hive off of the
Specialty products business was by way of sale of shares of (a) Agila
Specialties Private Limited ("ASPL", which was then a wholly owned
subsidiary of the Company) and (b) Agila Specialties Global Pte Ltd,
("Agila Global", which was then a wholly owned subsidiary of Strides
Pharma Asia Pte. Limited, Singapore, a wholly owned subsidiary of the
Company).
(b) The sale of the investment in ASPL was recorded in terms of Share
Purchase Agreement (the India SPA) dated December 4, 2013 entered into
with Mylan Laboratories Limited, (''MLL, a subsidiary of Mylan Inc.),
India for a consideration of USD 693.03 Million ('' 43,010.04 Million)
as computed under the India SPA that was received in full on that date.
The India SPA envisages that an amount of Rs. 850.00 Million and USD
60.00 Million be transferred by MLL to two separate Escrow accounts
(which are jointly controlled by both MLL and the Company) respectively
for payment to certain specified senior management personnel of ASPL
and its subsidiary, and for incurring certain regulatory expenses
pertaining to ASPL as defined under the agreements entered into between
the Company and MLL. Unutilized amounts in these Escrow accounts, if
any, would be paid to the Company from the Escrow accounts in
accordance with the terms of the agreements with MLL.
(c) Exceptional items in the Statement of Profit and Loss include
profit from sale of investments in ASPL to the extent of Rs. 31,600.28
Million net of transaction related expenditure amounting to Rs. 1,393.68
Million and special transaction related bonus due to employees of the
Strides Group (including employees in the disposed entities and their
subsidiaries) amounting to Rs. 733.88 Million.
(d) Subsequent to the transaction, Mylan Inc., USA has been in
discussions with the Company with regard to matters relating to the
assets and liabilities of the Specialties business taken over and has
raised certain claims on the Company under the India SPA. The Company
has also claimed certain additional amounts from Mylan Inc., and as on
date, is in discussions with them to resolve these matters. Based on
the nature of the claims involved, the Company does not expect that the
profit recognised on the sale of the investment in ASPL would be
materially impacted and any adjustments required will be recorded on
conclusion of these discussions.
(e) The Company has given a corporate guarantee for USD 200 Million (Rs.
12,028 Million) to the Buyer towards future claims / liabilities, if
any, relating to the period prior to December 4, 2013.
(f) Consequent to the above, with effect from December 5, 2013,
following entities would also cease to be the subsidiaries of the
Strides Group:
a) Agila Jamp Canada Inc., Canada
b) Agila (NZ) Pty Ltd, New Zealand
c) Agila Australia Pty Limited, Australia
d) Agila Especialidades Farmaceuticas Ltda, Brazil
e) Agila Farmaceuticas Participacoes Ltda, Brazil
f) Agila Marketing e Distribuicao De Producos Hospitalares Ltda, Brazil
g) Agila Specialties (Holdings) Limited, Cyprus
h) Agila Specialties Americas Limited, Cyprus
i) Agila Specialties Global Pte Limited, Singapore
j) Agila Specialties Inc., USA
k) Agila Specialties Investments Limited, UK
l) Agila Specialties Polska Sp Zoo, Poland
m) Agila Specialties Pharma Corporation, Canada
n) Agila Specialties Private Limited, India,
o) Agila Specialties UK Limited, UK
p) Catalist Pty Limited, Australia
q) Farma Plus, Norway
r) Onco Laboratories Limited, Cyprus
s) Onco Therapies Limited, India
t) Sagent Agila LLC, USA
B. Sale of investments in Stelis Biopharma Private Limited
During the current period, the Company has sold its investment in
Stelis Biopharma Private Limited, a wholly owned subsidiary of the
Company having a carrying value of Rs. 10.13 Million to Inbiopro
Solutions Private Limited, a wholly owned subsidiary of the Company for
a consideration of Rs. 17.77 Million. Profit on sale arising on such sale
of investment of Rs. 7.64 Million has been recognised in the Statement of
Profit and Loss under the Exceptional Items.
C. During the year ended December 31, 2012:
a) The Company incorporated Strides Emerging Markets Private Limited
(SEMPL) and transferred shares in SEMPL to Strides Pharma (Cyprus)
Limited, Cyprus for total consideration of Rs. 0.47 Million. Profit on
sale of such investments aggregating to Rs. 0.35 Million is recognised in
the Statement of Profit and Loss under Exceptional Items as detailed in
Note 30.
b) The Company sold its investment in Strides Africa Limited to Strides
Pharmaceuticals (Holdings) Limited, Cyprus (formerly Agila Specialties
Limited, Cyprus), a wholly-owned subsidiary of the Company, at cost of
acquisition of USD 4.52 Million. Exchange gain arising on such sale of
investment amounting to Rs. 47.09 Million was recognised in the Statement
of Profit and Loss under Exceptional Items during the year ended
December 31, 2012, as detailed in Note 30.
CONTINGENT LIABILITIES
41.1 The Company has given corporate guarantees upto Rs. 36,446.06
Million (As at December 31, 2012: Rs. 29,635.75 Million) to financial
institutions and other parties, on behalf of its subsidiaries. As at
March 31, 2014, the subsidiaries have availed facilities from such
financial institutions/ were obligated to the parties referred above
for an aggregate amount of Rs. 580.67 Million (As at December 31, 2012: Rs.
4,068.85 Million).
4.1 The Company has disputed income tax liabilities arising from
assessment proceedings relating to earlier years amounting to Rs.
1,276.50 Million(Previous year Rs. 741.31 Million). The outflow, if any,
on account of disputed taxes is dependent on completion of assessments.
4.2 The Company had preferred an appeal with the CESTAT against the
order of the Commissioner of Central Excise disallowing transfer of
CENVAT credit of Rs. 5.65 Million (Previous year Rs. 3.86 Million) as on
the date of conversion of one of the units of the Company into a 100%
EOU.
4.3 Other claims against the Company disputed by the Company Rs. 872.63
Million (Previous year Rs. Nil).
Employee stock option plan (esop)
(a) In the extraordinary general meeting held on January 25, 2007, the
shareholders approved the issue of 1,000,000 options under the Plan
titled "Strides Arcolab ESOP 2006" (ESOP 2006). The ESOP 2006 allows
the issue of options to employees of the Company and its subsidiaries
(whether in India or abroad). Each option comprises one underlying
equity share. As per the Plan, the Compensation committee grants the
options to the employees deemed eligible. The exercise price of each
option shall not be less than 85 per cent of the "Market Price" as
defined in the Plan. The options granted vest over a period of 3 years
from the date of the grant in proportions specified in the Plan.
Options should be exercised within 30 days of vesting. No options were
granted under this Plan during the current period.
(b) The ESOP titled "Strides Arcolab ESOP 2008" (ESOP 2008) was
approved by the shareholders through postal ballot on June 18, 2008.
1,500,000 options are covered under the Plan for 1,500,000 equity
shares. The options allotted under ESOP 2008 are convertible into equal
number of equity shares. The vesting period of these options range over
a period of three years. The options must be exercised with in a period
of 30 days from the date of vesting. No options were granted under this
Plan during the current period.
(c) The ESOP titled "Strides Arcolab ESOP 2008 (Directors)" (ESOP 2008
Directors Plan) was approved by the shareholders through postal ballot
on January 12, 2009.
500.000 options are covered under the Plan for 500,000 equity shares.
The options allotted under ESOP 2008 are convertible into equal number
of equity shares. The vesting period of these options range over a
period of three years. The options must be exercised with in a period
of 30 days from the date of vesting. No options were granted under this
plan during the current period.
(d) The ESOP titled "Strides Arcolab ESOP 2011" (ESOP 2011) was
approved by the shareholders on May 30, 2011. 1,500,000 options are
covered under the Plan for
1.500.000 equity shares. The options allotted under ESOP 2011 are
convertible into equal number of equity shares. The vesting period of
these options range over a period of three years. The options must be
exercised with in a period of 30 days from the date of vesting. During
the current period, the Remuneration Committee in its meetings held on
November 20, 2013 has granted 400,000 options under the ESOP 2011 to
eligible employees of the Company.
(e) In respect of the ESOP 2006 and all the other Employee Stock Option
Plans detailed above, (i) the difference between the fair price of the
share underlying the options granted, on the date of grant of option
and the exercise price of the option, (being the intrinsic value of the
option) representing Stock compensation expense, is expensed over the
vesting period, (ii) all unvested options will vest immediately in the
case of merger, dissolution or change in management of the Company.
Accordingly, due to sale of investments in Agila Specialties Private
Limited, the Remuneration Committee in its meeting held on November 20,
2013 has approved for early vesting of all options outstanding prior to
that date. Upon early vesting of these options, the balance
unrecognised expense of the intrinsic value of option in respect of
these outstanding options has been recognised in the Statement of
Profit and Loss.
(f) Employee compensation costs of Rs. 12.77 Million relating to the
above referred various Employee Stock Option Plans have been charged to
the Statement of Profit and Loss. Such expense for the year ended
December 31, 2012 amounting to Rs. 20.87 Million had been debited to BRR
in accordance with the terms of the Scheme of arrangement (Refer note
39 for details).
EMPLOYEE BENEFITS PLANS:
Defined contribution plan
The Company makes contributions to Provident Fund and Employee State
Insurance Schemes which are defined contribution plans, for qualifying
employees. Under the schemes, the Company is required to contribute a
specified percentage of the payroll cost to fund the benefits. The
Company recognised Rs. 54.70 Million (for the year ended December 31,
2012: Rs. 35.56 Million) for provident fund contributions and Rs. 3.64
Million (for the year ended December 31, 2012: Rs. 3.84 Million) for
Employee State Insurance Scheme contributions in the Statement of
Profit and Loss. The contributions payable to these plans by the
Company are at rates specified in the rules of the schemes.
Defined benefit plan
The Company offers gratuity under its employee benefit scheme to its
employees. The following table sets out the funded status of the
defined benefit scheme and the amount recognised in the financial
statements:
Since the Company prepares consolidated financial statements, segment
information has not been provided in these financial statements.
RELATED PARTY TRANSACTIONS : LIST OF THE RELATED PARTIES
Wholly owned subsidiaries
Direct Holding
Inbiopro Solutions Private Limited (w.e.f June 14, 2013)
Stelis Biopharma Private Limited, India (formerly Agila Biotech Private
Limited, India)(upto March 21, 2014)
Strides Arcolab International Limited, U.K (SAIL)
Strides Pharma Asia Pte Limited, Singapore (formerly Agila Specialties
Asia Pte. Ltd., Singapore)
Strides Pharma International Limited, Cyprus
Strides Pharmaceuticals (Holdings) Limited, Cyprus (formerly Agila
Specialties Limited)
Strides Technology & Research Private Limited, India (wound up on June
03, 2013)
Agila Specialties Private Limited, India (upto December 04, 2013)
Arcolab Limited SA, Switzerland (wound up in October 2013) indirect
Holding Co-Pharma Limited, UK Plus Farma ehf. Iceland
Inbiopro Solutions Private Limited (From March 18, 2013 to June 13,
2013)
Stelis Biopharma Private Limited, India (formerly Agila Biotech Private
Limited, India)(w.e.f March 21, 2014)
Stelis Biopharma (Malaysia) SDN BHD, Malaysia (formerly Agila Biotech
(Malaysia) SDN BHD, Malaysia)
Strides Africa Limited, British Virgin Islands Strides Australia Pty
Limited, Australia
Strides Pharma Global Pte Limited, Singapore (w.e.f. August 21, 2013)
Strides Pharma Inc., USA (w.e.f. June 11, 2013)
Strides Pharma Limited, Cyprus (formerly Linkace Limited)
Strides Pharmaceuticals (Holdings) Limited, Mauritius (wound up as on
January 30, 2014)
Strides Pharmaceuticals (Mauritius) Limited, Mauritius (wound up as on
January 30, 2014)
Strides S.A. Pharmaceuticals Pty. Limited, South Africa Strides
Specialties (Holdings) Limited, Mauritius
Agila Pharma Canada Corporation, Canada (upto December 04, 2013)
Agila Specialties (Holdings) Cyprus Limited (formerly Strides
Specialties (Holdings) Cyprus Limited, Cyprus) (upto December 04, 2013)
Agila Specialties Americas Limited, Cyprus (upto December 04, 2013)
Agila Specialties Global Pte. Limited, Singapore (upto December 04,
2013)
Agila Specialties Inc., USA (previously known as Strides Inc., USA)
(upto December 04, 2013)
Agila Specialties Investments Limited, UK (upto December 04, 2013)
Agila Specialties UK Limited, UK (upto December 04, 2013)
Agila Specialties Polska Sp. Z.o.o, Poland (upto December 04, 2013)
Farma Plus AS, Norway (upto December 04, 2013)
Onco Laboratories Limited, Cyprus (upto December 04, 2013)
Onco Therapies Limited, India (upto December 04, 2013)
Scentia Pharmaceuticals Pty Limited, Australia (formerly Linkace
Investments PTY Limited)
Other Subsidiaries:
Indirect Holding:
Strides Pharma (Cyprus) Limited, Cyprus
African Pharmaceuticals Development Company, Cameroon
Congo Pharma SPRL, Congo
Sorepharm SA, Burkinofaso
SPC Co. Limited, Sudan
Strides Emerging Markets Private Limited, India Strides Pharma Cameroon
Limited, Cameroon Strides Pharma Namibia (Pty) Limited, Namibia Strides
Vital Nigeria Limited, Nigeria Beltapharm S.p.A., Italy
Inbiopro Solutions Private Limited, India (upto March 17, 2013) Strides
CIS Limited, Cyprus
Agila Australasia Pty Limited, Australia (upto December 04, 2013) Agila
(NZ) Pty Limited, New Zealand (upto December 04, 2013)
Catalist Pty Limited, (w.e.f. January 01, 2013 & upto December 04,
2013)
Agila Farmaceuticas Participacoes Ltda, Brazil (formerly Strides
Farmaceuticas Participacoes Ltda, Brazil) (upto December 04, 2013)
Agila Especialidades Farmaceuticas Ltda, Brazil (upto December 04,
2013)
Agila Marketing e distribicao de Productos Hospitalaries Ltda., Brazil
(upto December 04, 2013)
Joint Ventures (JV):
Akorn Strides LLC, USA
Sagent Agila LLC, USA (upto December 04, 2013)
Agila Jamp Canada Inc., Canada (upto December 04, 2013)
Associates Strides Actives Private Limited (w.e.f June 17, 2013)
Key Management Personnel (KMP): Arun Kumar (Executive Vice Chairman &
Managing Director)
Relatives of Key Management Personnel (KMP):
Rajeshwari Amma Deepalakshmi Arun Kumar Aditya Arun Kumar Tarini Arun
Kumar Padmakumar Karunakaran Pillai Hemalatha Pillai Sajitha Pillai
Rajitha Gopalkrishnan Vineetha Mohana Kumar Mohana Kumar Pillai
Enterprises owned or significantly influenced by key management
personnel and relative of key management personnel
Atma Enterprises LLP, India
Atma Projects, India
Agnus Capital LLP, India
Agnus Holdings Private Limited, India
Agnus Global Holdings Pte Limited, Singapore
Agnus IPCO Limited, BVI
Chayadeep Properties Private Limited, India (upto February 7, 2014)
Chayadeep Ventures LLP, India (upto February 7, 2014)
Mandala Valley Vineyards Private Limited, India
Mobme Wireless Solutions Limited
Nous Infosytems Private Limited, India
Patsys Consulting Private Limited, India
Santo Properties Private Limited, India
Sequent Scientific Limited, India
Sequent Research Limited, India
Sequent Penems Private Limited, India
Sequent Global Holdings Limited, Mauritius
Sequent Antibiotics (P) Limited, India
Sequent Oncolytics (P) Limited, India
Skanray Healthcare Private Limited, India
Karuna Ventures Private Limited, India
Paradime Infrastructure Development Company, India
Deesha Properties, India
Qualichem Remedies LLP, India
Triumph Venture Holdings LLP, India
Tulp Foods Private Limited, India
Keerthapathi Ravishankar - HUF
Pronomz Ventures LLP, India
DETAILS OF LEASING ARRANGEMENTS
The Company''s leasing arrangements are mainly in respect of factory
buildings, residential and office premises. The aggregate lease rentals
payable on these leasing arrangements charged to the Statement of
Profit and Loss is Rs. 19.25 Million (Previous year Rs. 26.25 Million).
The Company had given on an operating lease for an initial term of 5
years, certain plant and machinery to its step down wholly owned
subsidiary Agila Specialties Polska Sp. Z.o.o. Consequent to the sale
of Specialty business, such plant and machinery given on lease has been
sold during the current period.
TRANSFER PRICING
The detailed Transfer Pricing regulations (''regulations'') for computing
the income from "domestic transactions" with specified parties and
international transactions between ''associated enterprises'' on an
''arm''s length'' basis is applicable to the Company. These regulations,
inter alia, also require the maintenance of prescribed documents and
information including furnishing a report from an Accountant which is
to be filed with the Income tax authorities.
The Company has undertaken necessary steps to comply with the Transfer
Pricing regulations. The Management is of the opinion that the
transactions with associated enterprises and domestic transactions are
at arm''s length, and hence the aforesaid legislation will not have any
impact on the financial statements, particularly on the amount of tax
expense and that of provision for taxation.
EARLY ADOPTION OF AS-30: FINANCIAL INSTRUMENTS: RECOGNITION AND
MEASUREMENT, ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
The Company has chosen to early adopt AS 30: ''Financial Instruments:
Recognition and Measurement'', (as announced by the Institute of
Chartered Accountants of India (ICAI)) during the year ended December
31, 2008, with effect from January 1, 2008. However, pursuant to a
notification issued by the ICAI on February 11, 2011, the Company has
adopted AS30 only to the extent they do not conflict with the other
mandatory accounting standards notified under Section 211(3C) of the
Companies Act, 1956.
The impact of adoption of AS30 as mentioned above is as follows:
4.4 Foreign Currency Convertible Bonds (the ''FCCBs'' or the ''Bonds'')
which were redeemed during the year ended December 31, 2012:
The FCCBs were split into two components comprising
(a) option component which represents the value of the option in the
hands of the FCCB-holders to convert the bonds into equity shares of
the Company and (b) debt component which represents the debt to be
redeemed if the conversion option was not exercised by FCCB-holder, net
of issuance costs.
The debt component was recognized and measured at amortized cost while
the fair value of the option component was determined using a valuation
model using the following assumptions.
Assumptions used to determine fair value of the options:
Valuation and amortization method  The Company estimates the fair
value of stock options granted using the Black Scholes Merton Model and
the principles of the Roll-Geske-Whaley extension to the Black Scholes
Merton model. The Black Scholes Merton model along with the extensions
above requires the following inputs for valuation of options:
Stock price as at the date of valuation  The Company''s share prices
as quoted in the National Stock Exchange Limited (NSE), India have been
converted into equivalent share prices in US Dollar terms by applying
currency rates as at valuation dates. Further, stock prices have been
reduced by continuously compounded stream of dividends expected over
time to expiry as per the principles of the Black-Scholes Merton model
with Roll Geske Whaley extensions.
Strike price for the option  has been computed in dollar terms by
computing the redemption amount in US dollars on the date of redemption
(if not converted into equity shares) divided by the number of shares
which shall be allotted against such FCCBs.
Expected Term  The expected term represents time to expiry,
determined as number of days between the date of valuation of the
option and the date of redemption.
Expected Volatility  Management establishes volatility of the stock
by computing standard deviation of the simple exponential daily returns
on the stock. Stock prices for this purpose have been computed by
expressing daily closing prices as quoted on the NSE into equivalent US
dollar terms. For the purpose of computing volatility of stock prices,
daily prices for the last one year have been considered as on the
respective valuation dates.
Risk-Free interest Rate  The risk-free interest rate used in the
Black-Scholes valuation method is the risk free interest rate
applicable to the Company.
Expected Dividend  Dividends have been assumed to continue, for each
valuation rate, at the rate at which dividends were earned by
shareholders in the preceding twelve months before the date of
valuation.
Measurement of Amortized cost of debt component:
For the purpose of recognition and measurement of the debt component,
the effective yield has been computed considering the amount of the
debt component on initial recognition, origination costs of the FCCB
and the redemption amount if not converted into Equity Shares. To the
extent the effective yield pertains to redemption premium and the
origination costs, the effective yield has been amortized to the
Securities Premium Account (along with related exchange fluctuations)
as permitted under section 78 of the Companies Act, 1956. The balance
of the effective yield is charged to the Statement of Profit and Loss.
Consequent to the above method of accounting of FCCBs, the following
adjustments were made:
During the year ended December 31, 2012:
(a) Amortization of interest (net) Rs. 84.98 Million and redemption
premium (net) on FCCBs amounting to Rs. 164.13 Million have been recorded
in the Statement of Profit and Loss and in the Securities premium
account respectively.
(b) Change in the fair values of option component in the FCCBs, being a
gain of Rs. 2.09 Million has been recorded in the Statement of Profit &
Loss under exceptional items.
49.2 The financial assets and liabilities arising out of issue of
corporate financial guarantees to third parties are accounted at fair
values on initial recognition. Financial assets continue to be carried
at fair values. Financial liabilities are subsequently measured at the
higher of the amounts determined under AS 29 or the fair values on the
measurement date. At March 31, 2014 and December 31, 2012, the fair
values of such financial assets and financial liabilities amount to Rs.
Nil.
4.5 There are no open derivative positions as on March 31, 2014 not
designated as hedging instruments and accordingly there is no gain /
loss on fair valuation of such derivatives recognized in the Statement
of Profit and Loss for the current period.
4.6 The Company has availed bill discounting facilities from Banks
which do not meet the de-recognition criteria for transfer of
contractual rights to receive cash flows from the respective trade
receivables since they are with recourse to the Company. Accordingly,
as at March 31, 2014, trade receivables balances include Rs. 792.56
Million (As at December 31, 2012: Rs. 515.99 Million) and the
corresponding financial liability to the Banks is included as part of
working capital loans under short-term borrowings (secured).
4.7 The Company has designated certain highly probable forecasted US
dollar denominated sales transactions and certain forward contracts to
sell US dollars as hedged items and hedging instruments respectively,
in a Cash Flow Hedge to hedge the foreign exchange risk arising out of
fluctuations between the India rupee and the US dollar. The exchange
fluctuations arising from marking to market of the hedging instruments,
to the extent relatable to the hedge being effective has been
recognised in a Hedge reserve account in the Balance sheet. Accordingly
exchange fluctuations gains / (losses) amounting to Rs. 81.18 Million as
at March 31, 2014 (At December 31, 2012: Rs. (6.59 Million)) have been
recognized in the Hedge Reserve account. These exchange differences are
considered in Statement of Profit and Loss as and when the forecasted
transactions occur.
DISCLOSURES RELATING TO FINANCIAL INSTRUMENTS TO THE EXTENT NOT
DISCLOSED ELSEWHERE IN THE FINANCIAL STATEMENTS
5.1 Details on Derivatives Instruments & Un-hedged Foreign Currency
Exposures:
The following derivative positions are open as at March 31, 2014. These
transactions have been undertaken to act as economic hedges for the
Company''s exposures to various risks in foreign exchange markets. These
instruments are therefore classified as held for trading and gains/
losses recognized in the Statement of Profit and Loss except to the
extent they qualified as Cashflow hedges in the context of the rigour
of such classification under Accounting Standard 30.
I. The Company has entered into the following derivative instruments:
(a) Forward Exchange Contracts [being a derivative instrument], which
are not intended for trading or speculative purposes, but for hedge
purposes, to establish the amount of reporting currency required or
available at the settlement date of certain payables and receivables.
The following are the outstanding Forward Exchange Contracts entered
into by the Company which qualified as Cashflow hedging instruments.
(b) Interest Rate Swaps to hedge against fluctuations in interest rate
changes: No. of contracts: Nil (As at December 31, 2012: Nil)
(c) Currency Swaps (other than forward exchange contracts stated above)
to hedge against fluctuations in changes in exchange rate. No. of
contracts: Nil (As at December 31, 2012: Nil)
III. There were no outstanding option contracts as at March 31, 2014
and as at December 31, 2012.
5.2 Categories of Financial Instruments
(a) Loans and Receivables:
The following financial assets in the Balance Sheet have been
classified as Loans and Receivables as defined in Accounting Standard
30. These are carried at amortized cost less impairment if any.
(c) Financial assets / liabilities held for trading are as follows:
i. During the year ended December 31, 2012, the option component of
FCCBs has been classified as held for trading, being a derivative under
AS 30. The carrying amount of the option component was Rs. Nil as at
December 31, 2012 (since the FCCB''s were redeemed during 2012) and Rs.
2.09 Million as at December 31, 2011. The difference in carrying value
between the two dates, amounting to Rs. 2.09 Million was considered as a
gain in the Statement of Profit and Loss of the year ended December 31,
2012 in accordance with provisions of AS 30.
The fair value of the option component has been determined using a
valuation model. Refer to Note 49.1 above on FCCBs for detailed
disclosure on the valuation method.
ii. Provisions / receivable carried towards mark to market losses /
gains on forward exchange contracts Rs. 81.18 Million gain as at March
31, 2014 (Rs. 6.59 Million losses as at December 31, 2012).
(d) There are no other financial assets / liabilities in the following
categories:
- Financial assets:
- Carried at fair value through profit and loss designated as such at
initial recognition.
-Held to maturity
- Available for sale (other than investment in Subsidiaries & Joint
Ventures)
- Financial liabilities:
- Carried at fair value through profit and loss designated as such at
initial recognition.
5.3 Nature and extent of risks arising from financial instruments
The main financial risks faced by the Company relate to fluctuations in
interest and foreign exchange rates, the risk of default by
counterparties to financial transactions, and the availability of funds
to meet business needs. The Balance Sheet as at March 31, 2014 is
representative of the position through the period. Risk management is
carried out by a central treasury department under the guidance of the
Management.
Interest rate risk
Interest rate risk arises from long term borrowings. Debt issued at
variable rates exposes the Company to cash flow risk. Debt issued at
fixed rate exposes the company to fair value risk. In the opinion of
the management, interest rate risk during the year under report was not
substantial enough to require intervention or hedging through
derivatives or other financial instruments. For the purposes of
exposure to interest risk, the Company considers its net debt position
evaluated as the difference between financial assets and financial
liabilities held at fixed rates and floating rates respectively as the
measure of exposure of notional amounts to interest rate risk. This net
debt position is quantified as under:
Credit risk
Credit risk arises from cash and cash equivalents, financial
instruments and deposits with banks and financial institutions. Credit
risk also arises from trade receivables and other financial assets.
The credit risk arising from receivables is subject to concentration
risk in that the receivables are predominantly denominated in USD and
any appreciation in the INR will affect the credit risk. Further, the
Company is not significantly exposed to geographical distribution risk
as the counterparties operate across various countries across the
Globe.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. The Company''s approach to
managing liquidity is to ensure, 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 risking damage to Company''s reputation.
Liquidity risk is managed using short term and long term cash flow
forecasts.
Foreign exchange risk
The Company is exposed to foreign exchange risk principally via:
- Debt availed in foreign currency
- Net investments in subsidiaries and joint ventures in foreign
currencies
- Exposure arising from transactions relating to purchases, revenues,
expenses etc. to be settled in currencies other than Indian Rupees, the
functional currency of the Company.
5.4 Sensitivity analysis as at March 31, 2014
Financial instruments affected by interest rate changes include Secured
Long term loans from banks, Secured Long term loans from others,
Secured Short term loans from banks and Unsecured Short term loans from
banks. The impact of a 1% change in interest rates on the profit of an
annual period will be Rs. 47.18 Million (for the year ending December 31,
2012Rs.63.35 Million) assuming the loans as of March 31, 2014 continue to
be constant during the annual period. This computation does not involve
a revaluation of the fair value of loans as a consequence of changes in
interest rates. The computation also assumes that an increase in
interest rates on floating rate liabilities will not necessarily
involve an increase in interest rates on floating rate financial
assets.
Financial instruments affected by changes in foreign exchange rates
include FCCBs until redemption in 2012, External Commercial Borrowings
(ECBs), investments in subsidiaries, and loans to subsidiaries and
joint ventures. The Company considers US Dollar to be principal
currency which requires monitoring and risk mitigation. The Company is
exposed to volatility in other currencies including the Great Britain
Pounds (GBP) and the Australian Dollar (AUD).
For the purposes of the above table, it is assumed that the carrying
value of the financial assets and liabilities as at the end of the
respective financial years remains constant thereafter. The exchange
rate considered for the sensitivity analysis is the Exchange Rate
prevalent as at March 31, 2014.
The Board of Directors of the Company in the Meeting held on December
10, 2013 has approved change of financial year of the Company from
January-December to that of April-March. Consequently, the current
financial year is for a period of 15 months i.e., from January 1, 2013
to March 31, 2014 and the figures for the current period are not
strictly comparable with that of the previous year ended December 31,
2012.
Previous year''s figures have been regrouped / reclassified wherever
necessary to correspond with the current period''s classification /
disclosure.
Dec 31, 2012
CORPORATE INFORMATION
Strides Arcolab Limited (the ''Company'' or ''Strides'') is a
pharmaceutical Company headquartered in Bangalore, India and is listed
on the Bombay Stock Exchange Limited and National Stock Exchange of
India Limited.
Strides develops and manufactures a wide range of IP-led niche
pharmaceutical products. The Company has 13 manufacturing facilities
across 5 countries and has presence in a number of countries comprising
developed and emerging markets.
Note No 1
FOREIGN CURRENCY CONVERTIBLE BONDS
The Company had issued zero coupon Foreign Currency Convertible Bonds
(FCCB''s) (listed in the Singapore Exchange Securities Trading Limited,
Singapore) to the extent of USD 100 Million (FCCB 100 Million) during
the year ended December 31, 2007 which were redeemable on June 27,
2012. During the term the FCCBs were outstanding, they were convertible
at Rs. 461.55 per share with a fixed rate of exchange of Rs. 40.70 per
USD on conversion. In 2009, as permitted by RBI, the Company had bought
back FCCB''s with a face value aggregating to USD 20 Million. On the due
date for redemption, FCCBs with a face value of USD 80 million were
outstanding which were redeemed along with an effective premium of USD
36.05 million (net) in terms of the contract. The premium paid out to
the FCCB holders has been subjected to withholding taxes (Rs. 236.84
Million) under the provisions of the Income tax Act.
SCHEME OF ARRANGEMENT UNDER SECTION 391 - 394 OF THE COMPANIES ACT,
1956
40.1 The shareholders ofthe Company, in their meeting held on April 13,
2009 approved the Scheme of Restructuring that envisaged interalia a
Scheme of Arrangement (the ''Scheme'') to be filed under Sections 391 to
394 ofthe Companies Act, 1956 covering the merger of some of the
subsidiaries (Transferor companies) of the Company with itself
(Transferee company), fair valuation of some of the assets of the
Company and creation of a Reserve for Business Restructure (''BRR'') out
of any surpluses arising from these, to be utilised as specified in the
Scheme.
40.2 The Scheme filed by the Company had been approved by the High
Courts of Judicature with an appointed date of January 1, 2009 and an
effective date of December 31, 2009 (''the Effective Date''), being the
date on which the all requirements under the Companies Act had been
completed.
In terms ofthe Scheme and upon the Scheme becoming effective, amongst
other things:
- expenses incurred by the Company or its subsidiaries in the nature of
impairment, diminution, loss, amortisation and/ or write-off of assets/
investments/ intangibles, interest on borrowings for acquisitions,
employee compensation expenses, additional depreciation charged or
suffered by the Transferee Company on account of fair valuation, scheme
expenses and other expenses or arising in the future as may be
determined by the Board of Directors of the Transferee Company, shall
be debited to the BRR. The maximum amount that can be written off
against the BRR instead of being debited to the Statement of Profit and
Loss on or at anytime after January 1, 2009 would be restricted to the
balance in the BRR or upto December 31, 2012 and not beyond that. Any
unutilised balance in the BRR is required to be transferred to
Securities premium account by December 31, 2012.
- the balance in the Securities premium account, as appearing in the
books ofthe Transferee Company may be transferred to BRR, to such
extent as determined by the Board.
2.1 The accounting treatment effected for the Scheme is as follows:
(a) The fair value of net assets acquired from the Transferor Companies
in excess ofthe carrying value of investment in the subsidiaries and
the value of equity shares issued to minority shareholders, amounting
to Rs. 146.77 Million was credited to BRR during the year ended
December 31, 2009.
(b) Upon the Scheme becoming effective, and based on legal advice
received, the assets and liabilities of the Transferee Company had been
fair valued as determined by the Board of Directors of the Company and
the net surplus arising out of such fair valuation (over the carrying
value ofthe respective assets and liabilities prior to the fair
valuation) was credited to the BRR as follows during the year ended
December 31, 2009.
Had the Scheme not prescribed the above accounting treatment, in terms
ofthe Company''s accounting policies, these assets would continue to
have been carried at cost.
(c) In accordance with the Scheme:
(i) During the current year, an amount of Rs. 65.16 Million has been
transferred from Securities premium account to the BRR during 2012.
(ii) The following expenses have been adjusted against the BRR during
the year ended:
Had the Scheme not prescribed the above accounting treatment, these
expenses would have been included in the Statement of Profit & Loss for
the respective years.
(iii) Had the Scheme not provided for the above accounting treatment,
the effect of accounting as per the mandatory Accounting Standards
issued under the Companies (Accounting Standards) Rules, 2006, would
have been as under:
In 2011, the Company transferred its non-current investment in Onco
Therapies Limited (''OTL''), a wholly owned subsidiary of the Company, to
Agila Specialties Private Limited (''ASPL''), another wholly owned
subsidiary of the Company for a total consideration of Rs. 2,344.12
Million which was receivable as at December 31, 2011. In 2012, Rs.
2,300 Million out of the consideration has been settled through
allotment of equity shares in ASPL.
As of December 31,2011, the Company had remitted an amount of USD
162.83 Million in Agila Specialties Limited, Cyprus (''Agila Cyprus'',
formerly known as Starsmore Limited) and USD 114.42 Million in Strides
Arcolab International Limited (SAIL), both wholly owned subsidiaries of
the Company. These remittances were towards subscription of shares of
these entities and as at December 31, 2011, shares were pending
allotment. Out of the above, monies aggregating to USD 99.00 Million
(Rs. 5,273.70 Million) remitted to Agila Cyprus and USD 93.00 Million
(Rs. 4,954.11 Million) remitted to SAIL have been considered as
monetary items as the Company expected these to be refunded.
Accordingly, these were restated in accordance with the requirements of
Accounting Standard 11 ''The Effect of Changes in Foreign Exchange
Rates'' as at December 31, 2011 and an unrealised exchange gain of Rs.
1,564 Million was included under exceptional items in the Statement of
Profit and Loss. In 2012, the Company has received these monies and
exchange fluctuations arising thereon have also been included under
exceptional items in the Statement of Profit and Loss.
Note No. 3
CONTINGENT LIABILITIES
3.1 The Company has given corporate guarantees upto Rs. 26,298.57
Million (Previous year Rs. 4,572.94 Million) to financial institutions
and other parties, on behalf of its subsidiaries. At December 31, 2012,
the subsidiaries had availed facilities from such financial
institutions/ were obligated to the parties referred above for an
aggregate amount ofRs. 4,068.85 Million (Previous year Rs. 3,672.54
Million). The Company has additionally provided its fixed assets (under
a paripassu second charge) as security in respect ofsome ofthese
facilities.
3.2 The Company has disputed tax liabilities arising from assessment
proceedings relating to earlier years from the income tax authorities
amounting to Rs. 741.31 Million (Previous year Rs. 741.27). The outflow
on account of disputed taxes is dependent on completion of assessments.
3.3 The Company has preferred an appeal with the CESTAT against the
order of the Commissioner of Central Excise disallowing transfer of
CENVAT credit ofRs. 3.86 Million (Previous year Rs. 3.86 Million) as on
the date of conversion of one ofthe units ofthe Company into a 100%
EOU. The outflow on account of disputed taxes is dependent on
completion of assessments.
EMPLOYEE STOCK OPTION PLAN
(a) In the extraordinary general meeting held on January 25, 2007, the
shareholders approved the issue of 1,000,000 options under the Plan
titled "Strides Arcolab ESOP 2006" (ESOP 2006).
The ESOP 2005 allows the issue of options to employees of the Company
and its subsidiaries (whether in India or abroad). Each option
comprises one underlying equity share.
As per the Plan, the Compensation committee grants the options to the
employees deemed eligible. The exercise price of each option shall not
be less than 85 per cent of the "Market Price" as defined in the
Scheme. The options granted vest over a period of 3 years from the date
ofthe grant in proportions specified in the Plan. Options should be
exercised within 30 days ofvesting. No options are granted under this
plan in 2012.
In respect of the ESOP 2005 and all the other Employee Stock Option
Plans detailed in this note, (i) the difference between the fair price
of the share underlying the options granted, on the date of grant of
option and the exercise price of the option, (being the intrinsic value
of the option) representing Stock compensation expense, is expensed
over the vesting period, (ii) all unvested options will vest
immediately in the case of merger, dissolution or change in management
ofthe Company.
(b) The ESOP titled "Strides Arcolab ESOP 2008" (ESOP 2008) was
approved by the shareholders through postal ballot on June 18,
2008.1,500,000 options are covered under the scheme for 1,500,000
shares.
During the current year, the Remuneration Committee in its meetings
held on January 20, 2012 has granted 100,000 options under the ESOP
2008 to eligible employees of the Company. The options allotted under
ESOP 2008 are convertible into equal number of equity shares.
The vesting period of these options range over a period of three years.
The options must be exercised with in a period of 30 days from the date
of vesting.
(c) The ESOP titled "Strides Arcolab ESOP 2008 (Directors)" (ESOP
2008 Directors Plan) was approved by the shareholders through postal
ballot on January 12, 2009. 500,000 options are covered under the
scheme for 500,000 equity shares.
The Remuneration Committee of the Company, on July 27, 2012 has granted
50,000 options under the ESOP 2008 Directors Plan to some Directors
ofthe Company. The shares covered by such options were 50,000 equity
shares.
The vesting period of these options range over a period of three years.
The options must be exercised with in a period of 30 days from the date
of vesting.
(d) The ESOP titled "Strides Arcolab ESOP 2011" (ESOP 2011) was
approved by the shareholders on May 30, 2011.
1,500,000 options are covered under the scheme for 1,500,000 shares. No
options are granted under this plan in the current year.
(e) In terms of the Scheme of arrangement, employee compensation costs
under the above referred various Employee Stock Option Plans may be
recorded to BRR. Consequently, during the year, an amount ofRs. 20.87
Million (net) (Previous year Rs. 19.59 Million) as noted below has been
debited to BRR.
EMPLOYEE BENEFITS PLANS
Defined contribution plan
The Company makes contributions to provident fund (a defined
contribution plans) for qualifying employees. Under the schemes, the
Company is required to contribute a specified percentage of the payroll
cost to fund the benefits. The Company recognised Rs. 35.56 Million
(Previous year Rs. 33.68 Million) for provident fund contributions. The
contributions payable to these plans by the Company are at rates
specified in the rules ofthe schemes.
Defined benefit plan
The Company offers gratuity under its employee benefit scheme to its
employees. The following table sets out the funded status ofthe defined
benefit scheme and the amount recognised in the financial statements:
Note:
(a) The discount rate is based on the prevailing market yields of
Government of India securities as at the balance sheet date for the
estimated term of the obligations.
(b) The estimate of future salary increases considered, takes into
account the inflation, seniority, promotion and other relevant factors
such as supply and demand in the employment market.
(c) In the absence of information relating to category wise breakup of
plan assets, the same has not been disclosed.
(d) The above disclosure on gratuity and compensated absences is to the
extent of information available with the Company and as per the
actuarial valuation reports for gratuity and compensated absences.
Note No. 4
Since the Company prepares consolidated financial statements, segment
information has not been provided in these financial statements.
DETAILS OF LEASING ARRANGEMENTS
The Company''s significant leasing arrangements are mainly in respect
offactory buildings, residential and office premises. The aggregate
lease rentals payable on these leasing arrangements charged to the
Statement of Profit and Loss is Rs. 26.25 Million (Previous year Rs.
37.14 Million).
The Company has entered into non-cancellable lease agreements for its
facilities and office premises. The tenure of lease ranges from 3 years
to 15 years. The said lease arrangements have an escalation clause
wherein lease rental is subject to an increment ranging from 5% to 10%.
Details ofthe lease commitment at the year end are as follows:
Note: for the purpose of computing diluted earnings per share, the
existence of FCCB''s until the date of redemption has been considered in
accordance with AS 20 (''Earnings per Share''). The FCCB''s are anti
dilutive for 2011 and hence ignored for computing diluted EPS in 2011.
Note No.5
TRANSFER PRICING
The detailed Transfer Pricing regulations (''regulations'') for
computing the income from transactions between ''associated
enterprises'' on an ''arm''s length'' basis is applicable to the Company.
These regulations, inter alia, also require the maintenance of
prescribed documents and information including furnishing a report from
an Accountant which is to be filed with the Income tax authorities.
The Company has undertaken necessary steps to comply with the
regulations. The Management is of the opinion that the transactions are
at arm''s length, and hence the aforesaid legislation will not have any
impact on the financial statements, particularly on the amount of tax
expense and that of provision for taxation.
Note No.6
EARLY ADOPTION OF AS-30: FINANCIAL INSTRUMENTS: RECOGNITION AND
MEASUREMENT, ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
The Company has chosen to early adopt AS 30: ''Financial Instruments:
Recognition and Measurement'', (as announced by the Institute of
Chartered Accountants of India (ICAI)) during the year ended December
31, 2008, with effect from January 1, 2008. However, pursuant to a
notification issued by the ICAI on February 11, 2011, the Company has
adopted AS30 only to the extent they do not conflict with the other
mandatory accounting standards notified under Section 2H(3C) of the
Companies Act, 1956.
The impact of adoption of AS30 as above is as follows:
6.1 Foreign Currency Convertible Bonds (the ''FCCBs'' orthe ''Bonds''):
The FCCBs were split into two components comprising (a) option
componentwhich represents the value ofthe option in the hands of the
FCCB-holders to convert the bonds into equity shares of the Company and
(b) debt component which represents the debt to be redeemed if the
conversion option was not exercised by FCCB-holder, net of issuance
costs.
The debt component was recognised and measured at amortised cost while
the fair value of the option component was determined using a valuation
model using the following assumptions.
Assumptions used to determine fair value of the options:
Valuation and amortisation method The Company estimates the
fairvalue of stock options granted using the Black Scholes Merton Model
and the principles ofthe Roll-Geske-Whaley extension to the Black
Scholes Merton model. The Black Scholes Merton model along with the
extensions above requires the following inputs for valuation of
options:
Stock Price as at the date of valuation - The Company''s share prices as
quoted in the National Stock Exchange Limited (NSE), India have been
converted into equivalent share prices in US Dollar terms by applying
currency rates as at valuation dates. Further, stock prices have been
reduced by continuously compounded stream of dividends expected over
time to expiry as per the principles ofthe Black-Scholes Merton model
with Roll Geske Whaley extensions.
Strike price for the option has been computed in dollar terms by
computing the redemption amount in US dollars on the date of redemption
(if not converted into equity shares) divided by the number of shares
which shall be allotted against such FCCBs.
Expected Term The expected term represents time to expiry,
determined as number of days between the date of valuation of the
option and the date of redemption.
Expected Volatility Management establishes volatility of the stock
by computing standard deviation of the simple exponential daily returns
on the stock. Stock prices for this purpose have been computed by
expressing daily closing prices as quoted on the NSE into equivalent US
dollar terms. For the purpose of computing volatility of stock prices,
daily prices for the last one year have been considered as on the
respective valuation dates.
Risk-Free Interest Rate The risk-free interest rate used in the
Black-Scholes valuation method is the riskfree interest rate applicable
to the Company.
Expected Dividend Dividends have been assumed to continue, for each
valuation rate, at the rate at which dividends were earned by
shareholders in the last preceding twelve months before the date of
valuation.
Measurement of Amortised cost of debt component:
For the purpose of recognition and measurement of the debt component,
the effective yield has been computed considering the amount ofthe debt
component on initial recognition, origination costs ofthe FCCB and the
redemption amount if not converted into Equity Shares. To the extent
the effective yield pertains to redemption premium and the origination
costs, the effective yield has been amortised to the Securities Premium
Account (along with related exchange fluctuations) as permitted under
section 78 ofthe Companies Act, 1956. The balance ofthe effective yield
is charged to the Statement of Profit and Loss.
Consequent to the above method of accounting of FCCBs, the following
adjustments were made:
During the year ended December 31, 2011:
(a) Amortisation of interest of Rs. 147.48 Million (net) and redemption
premium (net) on FCCBs amounting to Rs. 676.23 Million had been
recorded in the Statement of Profit and Loss and in the Securities
premium account respectively.
(b) Change in the fair values of option component in the FCCBs, being a
gain ofRs. 188.85 Million had been recorded in the Statement of Profit
& Loss under exceptional items.
During the year ended December 31, 2012:
(a) Amortisation of interest (net) Rs. 84.98 Million and redemption
premium (net) on FCCBs amounting to Rs. 164.13 Million have been
recorded in the Statement of Profit and Loss and in the Securities
premium account respectively.
(b) Change in the fair values of option component in the FCCBs, being a
gain ofRs. 2.09 Million has been recorded in the Statement of Profit &
Loss under exceptional items.
6.2: The financial assets and liabilities arising out of issue of
corporate financial guarantees to third parties are accounted at fair
values on initial recognition. Financial assets continue to be carried
at fair values. Financial liabilities are subsequently measured at the
higher of the amounts determined under AS 29 or the fair values on the
measurement date. At December 31, 2012 and December 31, 2011, the fair
values of such financial assets and financial liabilities amount to Rs.
Nil.
6.3 Gains/ losses on fair valuation of all the open derivative
positions as on December 31, 2012 not designated as hedging instruments
have been recognised in the Statement of Profit and Loss.
6.4 The Company has availed bill discounting facilities from Banks
which do not meet the de-recognition criteria for transfer of
contractual rights to receive cash flows from the respective trade
receivables since they are with recourse to the Company. Accordingly,
as at December 31, 2012, trade receivables balances include Rs. 515.99
Million (Previous year Rs. 1,130.70 Million) and the corresponding
financial liability to the Banks is included as part of short-term
secured loans.
6.5 The Company has designated certain highly probable forecasted US
dollar denominated sales transactions and certain forward contracts to
sell US dollars as hedged items and hedging instruments respectively,
in a Cash Flow Hedge to hedge the foreign exchange risk arising out of
fluctuations between the India rupee and the US dollar. The exchange
fluctuations arising from marking to market ofthe hedging instruments,
to the extent relatable to the hedge being effective has been
recognised in a Hedge reserve account in the Balance sheet. Accordingly
exchange fluctuations losses amounting to Rs. 6.59 Million as at
December 31, 2012 (At December 31, 2011 Rs. 447.10 Million) have been
recognised in the Hedge Reserve account. These exchange differences are
considered in Statement of Profit and Loss as and when the forecasted
transactions occur.
6.7 Details on Derivatives Instruments & Un-hedged Foreign Currency
Exposures :
The following derivative positions are open as at December 31, 2012.
These transactions have been undertaken to act as economic hedges for
the Company''s exposures to various risks in foreign exchange markets.
These instruments are therefore classified as held for trading and
gains/ losses recognised in the Statement of Profit and Loss except to
the extent they qualified as Cash flow hedges in the context ofthe
rigour of such classification under Accounting Standard 30.
I. The Company has entered into the following derivative instruments:
(a) Forward Exchange Contracts [being a derivative instrument], which
are not intended for trading or speculative purposes, but for hedge
purposes, to establish the amount of reporting currency required or
available at the settlement date of certain payables and receivables.
(b) Interest Rate Swaps to hedge against fluctuations in interest rate
changes: No. of contracts: Nil (Previous year: Nil)
(c) Currency Swaps (other than forward exchange contracts stated above)
to hedge against fluctuations in changes in exchange rate. No. of
contracts: Nil (Previous Year: Nil)
6.7 Categories of Financial Instruments :
(a) Loans and Receivables:
The following financial assets in the Balance Sheet have been
classified as Loans and Receivables as defined in Accounting Standard
30. These are carried at amortised cost less impairment if any.
(c) Financial Liabilities Held for Trading are as follows:
i. The option component of FCCBs has been classified as held for
trading, being a derivative under AS 30. The carrying amount of the
option component was Rs. Nil as at December 31, 2012 (since the FCCB''s
were redeemed during 2012) and Rs.2.09 Million as at December 31, 2011.
The difference in carrying value between the two dates, amounting to
Rs. 2.09 Million is considered as a gain in the Statement of Profit and
Loss of the year in accordance with provisions of AS 30.
The fair value of the option component has been determined using a
valuation model. Refer to Note 51.1 above on FCCBs for detailed
disclosure on the valuation method.
ii. Provisions carried towards mark to market losses on forward
exchange contracts Rs. 6.59 Million as at December 31, 2012 and Rs.
447.10 Million as at December 31, 2011.
(d) There are no other financial assets / liabilities in the following
categories:
Financial assets:
- Carried at fair value through profit and loss designated as such at
initial recognition.
- Held to maturity.
- Available for sale (other than investment in Subsidiaries & Joint
Ventures).
Financial liabilities:
- Carried at fair value through profit and loss designated as such at
initial recognition.
6.8 Nature and extent of risks arising from financial instruments:
The main financial risks faced by the Company relate to fluctuations in
interest and foreign exchange rates, the risk of default by
counterparties to financial transactions, and the availability of funds
to meet business needs. The Balance Sheet as at December 31, 2012 is
representative of the position through the year. Risk management is
carried out by a central treasury department under the guidance of the
Management.
Interest rate risk
Interest rate risk arises from long term borrowings. Debt issued at
variable rates exposes the Company to cash flow risk. Debt issued
atfixed rate exposes the company to fairvalue risk. In the opinion
ofthe management, interest rate risk during the year under report was
not substantial enough to require intervention or hedging through
derivatives or other financial instruments. For the purposes of
exposure to interest risk, the Company considers its net debt position
evaluated as the difference between financial assets and financial
liabilities held at fixed rates and floating rates respectively as the
measure of exposure of notional amounts to interest rate risk. This net
debt position is quantified as under:
Credit risk
Credit risk arises from cash and cash equivalents, financial
instruments and deposits with banks and financial institutions. Credit
risk also arises from trade receivables and other financial assets.
The credit risk arising from receivables is subject to concentration
risk in that the receivables are predominantly denominated in USD and
any appreciation in the INR will affect the credit risk. Further, the
Company is not significantly exposed to geographical distribution risk
as the counterparties operate across various countries across the
Globe.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. The Company''s approach to
managing liquidity is to ensure, 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 risking damage to Company''s reputation.
Liquidity risk is managed using shortterm and long term cash flow
forecasts.
The following is an analysis of contractual cash flows payable under
financial liabilities and derivatives as at December 31, 2012. (Figures
in brackets relates to Previous Year)
Foreign exchange risk
The Company is exposed to foreign exchange risk principally via:
Debt availed in foreign currency
- Net investments in subsidiaries and joint ventures in foreign
currencies
Exposure arising from transactions relating to purchases, revenues,
expenses etc. to be settled in currencies other than Indian Rupees, the
functional currency of the Company.
6.9 Sensitivity analysis as at December 31, 2012 :
Financial instruments affected by interest rate changes include Secured
Long term loans from banks, Secured Long term loans from others,
Secured Short term loans from banks and Unsecured Short term loans from
banks. The impact of a 1% change in interest rates on the profit of an
annual period will be Rs. 83.14 Million (Previous year Rs. 99.55
Million) assuming the loans as of December 31, 2012 continue to be
constant during the annual period. This computation does not involve a
revaluation of the fair value of loans as a consequence of changes in
interest rates. The computation also assumes that an increase in
interest rates on floating rate liabilities will not necessarily
involve an increase in interest rates on floating rate financial
assets.
Financial instruments affected by changes in foreign exchange rates
include FCCBs untill redemption in 2012, External Commercial Borrowings
(ECBs), investments in subsidiaries, and loans to subsidiaries and
joint ventures. The Company considers US Dollar to be principal
currency which requires monitoring and risk mitigation. The Company is
exposed to volatility in other currencies including the Great Britain
Pounds (GBP) and the Australian Dollar (AUD).
For the purposes ofthe above table, it is assumed that the carrying
value ofthe financial assets and liabilities as at the end of the
respective financial years remains constant thereafter. The exchange
rate considered for the sensitivity analysis is the Exchange Rate
prevalent as at December 31, 2012.
7. The Company has not received a written representation from Mr. K.
R. Ravishankar, one ofthe directors ofthe Company as at December 31,
2012, confirming that he is not disqualified from being appointed as a
director of the Company in terms of Section 274(l)(g) of the Companies
Act, 1956.
8. The Revised Schedule VI (RSCH VI) has become effective from April
1,2011 for the preparation of financial statements and RSCH VI is
applicable to the Company from the current year. This has significantly
impacted the disclosure and presentation made in the financial
statements. Previous year''s figures have been regrouped / reclassified
wherever necessary to correspond with the current year''s classification
/ disclosure.
9. Post Balance Sheet Event :
The Company and its subsidiary, Agila Specialties Asia Pte. Ltd. (Agila
Asia), have entered into definitive agreements with Mylan Inc. on
February 27, 2013for the sale ofshares in the following subsidiaries
ofthe Company:
- Agila Specialties Private Limited, and
- Agila Specialties Global Pte. Limited, a step subsidiary.
In terms ofthe agreements, the consideration is subject to certain
retentions, post completion adjustments and deposit of escrow amounts
as set out in the agreements. The completion of the sale is subject to
various regulatory and corporate approvals as may be required and
fulfillment of other terms and conditions agreed between the parties
and set out in the agreements. Upon satisfaction of the terms and
conditions and receipt of all regulatory and corporate approvals, the
Company and its subsidiary will tender the shares to the buyer.
Dec 31, 2011
1. Capital Commitments
Estimated amount of contracts remaining to be executed on capital
account and not provided for (Net of advances) is Rs 88.63 Million
(Previous year Rs 168.45 Million).
2. Contingent Liabilities
2.1 As at December 31, 2011, the Company has given corporate guarantees
upto Rs 4,572.94 Million (Previous year Rs 3,516.27 Million) to financial
institutions and other parties, on behalf of its subsidiaries. At
December 31, 2011, the subsidiaries had availed facilities from such
financial institutions / were obligated to the parties referred above
for an aggregate amount of Rs 3,672.54 Million (Previous year Rs 3,143.66
Million). The Company's fixed assets (paripassu second charge) and
certain investments in the respective subsidiaries have been offered as
security in respect of some of these facilities.
2.2 As at December 31, 2011, the Company has disputed tax liabilities
arising from assessment proceedings relating to earlier years from the
income tax authorities amounting to Rs 741.27 Million (Previous year Rs
Nil)
2.3 The Company preferred appeal with the CESTAT against the order of
the Commissioner of Central Excise for disallowing transfer of CENVAT
credit of Rs 3.86 Million (Previous year Rs 3.86 Million) as on the date
of conversion of one of the units of the Company into a 100% EOU.
3. Foreign currency convertible bonds
(a) During the accounting year ending December 31, 2007, the Company
had issued Foreign Currency Convertible Bonds (FCCB), listed in the
Singapore Stock Exchange, amounting to USD 100 Million (Rs 4,070
Million) (FCCB 100 Million) on June 26, 2007. These bonds carry zero
coupon and are to be redeemed on June 27, 2012 (unless converted into
Equity Shares) at 145.058 per cent of the Principal amount.
The bonds may be redeemed in whole, but not in part at the option of
the Company at any time on or after July 18, 2010 and on and prior to
June 20, 2012 with a redemption premium of 7.575 per cent (which is
identical to the gross yield in case of redemption at maturity)
calculated on a semi-annual basis. Any tax cost that may arise on the
bond-holder on redemption is determinable on redemption and would need
to be absorbed by the Company.
The Bonds are convertible at any time on or after August 6, 2007 and up
to the close of business on June 20, 2012 by the holders of the Bonds
into shares at the option of the Bondholder, at an initial conversion
price of Rs 461.553 per share with a fixed rate of exchange of Rs 40.70
per USD on conversion. The bonds are listed on Singapore Exchange
Securities Trading Limited, Singapore.
As permitted by the Reserve Bank of India (RBI), during the year 2009,
the Company bought back FCCB's with a face value aggregating to USD 20
Million from the outstanding bonds issued under FCCB 100 Million, at a
discount.
As at December 31, 2011, none of the outstanding bonds had been offered
for conversion.
(b) The Company had issued FCCB's (listed in the Singapore Exchange
Securities Trading Limited, Singapore) to the extent of USD 40 Million
(FCCB 40 Million) during the year ended December 31, 2005. In the year
2009, as permitted by RBI, the Company had bought back FCCB's with a
face value aggregating to USD 6 Million out of the FCCB's face value of
USD 40 Million. In the year 2010, as per the term and conditions agreed
with the holders of FCCB 40 Million, the Company had redeemed the
balance outstanding FCCB's aggregating to USD 34 Million. The Company
had paid in total USD 46.51 Million (Rs 2,062.50 Million) including USD
12.51 Million towards redemption premium. An amount of Rs 61.60 Million
paid towards withholding taxes on redemption premium had been debited
to Securities Premium Account in 2010.
4. Cumulative Redeemable Preference Shares
In May 2005, the Company had issued 491,606 6% Cumulative Redeemable
Preference Shares (CRPS) of Rs 1,000 each fully paid to K V
Pharmaceuticals, USA ('KV Pharma')(approximately USD 10.95 Million).
The Preference shares were redeemable at par along with accrued unpaid
dividend on or before December 31, 2012.
The Company, Strides Inc. (a step-subsidiary of the Company) and KV
Pharma had also entered into a License and Supply agreement ('LSA')
pursuant to which the Company and Strides Inc. had agreed to undertake
certain development work for developing certain pharmaceutical
products, subject to certain terms and conditions mentioned in LSA. In
March 2009 due to certain adverse developments at KV Pharma, the
Company terminated the said LSA. KV Pharma had approached the
International Court of Arbitration disputing the termination of the
LSA.
In the year 2010, pursuant to a negotiation for an out of court
settlement, the Company had entered into a Settlement Agreement &
Release (Settlement Agreement) with KV Pharma. In accordance with the
Settlement Agreement, the rights and obligations of all parties under
the LSA and those arising out of the subscription to the CRPS were
settled on a net basis. Pursuant to the Settlement Agreement, the
Company had paid out KV Pharma an amount of USD 7.25 Million in full
and final settlement. Consequent to the net settlement, the dividend on
the CRPS that were accrued for in 2005 through 2009 along with the
related dividend distribution taxes to the extent unpaid, had been
reversed in the year 2010 and the same had been credited under
appropriations in the Profit and Loss Account and an amount of Rs 165.86
Million had been credited to the Reserve for Business Restructure
('BRR') being the extent attributable to recoveries of receivables
under the LSA that were written off to the BRR in earlier years under a
Scheme of Arrangement approved by the Honorable High Courts of
Judicature (refer note 5 below).
Consequent to the redemption of the CRPS as referred above, the Company
in the year 2010 had credited Capital Redemption Reserve to the extent
of Rs 491.61 Million being the face value of CRPS redeemed.
5. Scheme of Arrangement under Section 391 - 394 of the Companies Act,
1956
5.1 During the year ending December 31, 2009, the shareholders of the
Company, in their meeting held on April 13, 2009 approved the Scheme of
Restructuring that envisaged interalia a Scheme of Arrangement (the
'Scheme') to be filed under Sections 391 to 394 of the Companies Act,
1956 covering the merger of some of the subsidiaries of the Company
(Transferor companies) with itself (Transferee company), fair valuation
of some of the assets of the Company and creation of a Reserve for
Business Restructure ('BRR') out of any surpluses arising from these,
to be utilised as specified in the Scheme.
5.2 The details of the Scheme are given below.
The Scheme filed by the Company had been approved by the High Courts of
Judicature with an appointed date of January 1, 2009 and an effective
date of December 31, 2009 ('the Effective Date'), being the date on
which the all requirements under the Companies Act had been completed.
In terms of the Scheme and upon the Scheme becoming effective, amongst
other things:
expenses incurred by the Company or its subsidiaries in the nature of
impairment, diminution, loss, amortisation and / or write-off of assets
/ investments / intangibles, interest on borrowings for acquisitions,
employee compensation expenses, additional depreciation charged or
suffered by the Transferee Company on account of fair valuation, scheme
expenses and other expenses or arising in the future as may be
determined by the Board of Directors of the Transferee Company, have
wwbeen / shall be debited to the BRR. The maximum amount that can be
written off against the BRR instead of being debited to the Profit and
Loss Account on or at any time after January 1, 2009 would be
restricted to the balance in the BRR or upto December 31, 2012 and not
beyond that.
the balance in the Securities Premium Account, as appearing in the
books of the Transferee Company may be transferred to BRR, to such
extent as determined by the Board.
5.3 The accounting treatment effected for the Scheme was as follows:
(a) The fair value of net assets acquired from the Transferor Companies
in excess of the carrying value of investment in the subsidiaries and
the value of equity shares issued to minority shares holders, amounting
to Rs 146.77 Million was credited to BRR.
Had the Scheme not prescribed the above accounting treatment of
crediting the excess of fair value of assets and liabilities over the
carrying value of the investment in the Transferor Companies and the
equity shares of the Transferee Company issued to the minority
shareholders of the Transferor Companies to the BRR, this surplus of
Rs146.77 Million would have been credited to Capital Reserve as required
under the AS 14 'Accounting for Amalgamations'.
(b) Upon the Scheme becoming effective, and based on legal advice
received, the assets and liabilities of the Transferee Company had been
fair valued as determined by the Board of Directors of the Company and
the net surplus arising out of such fair valuation (over the carrying
value of the respective assets and liabilities prior to the fair
valuation) was credited to the BRR as follows during the year ended
December 31, 2009.
6. Share Warrants
As authorised by the shareholders of the Company in the Extra Ordinary
General meeting held on May 13, 2009, 6,180,000 warrants were allotted
to Net Equity Ventures Private Limited, a Promoter Group company and
20,000 warrants to relatives of the Promoters, on preferential basis
which were convertible into an equivalent number of fully paid up
equity shares of Rs 10 each at a price of Rs 91.15 per warrant. In the
year 2010, the Company completed the allotment of equity shares against
the Warrants.
7. In the year 2010, the Company had received Rs 4,550 Million on issue
of 10,742,533 equity shares of Rs 10 each at a premium of Rs 413.55 per
equity share to Qualified Institutional Buyers (QIB) in terms of SEBI
(Issue of Capital and Disclosure Requirements) Regulations 2009. The
purpose of the mentioned issue was to finance overseas acquisitions,
repayment and prepayment of debt, investments and other uses, including
capital expenditure, as permitted by applicable rules and regulations.
The Company had completed the allotment of equity shares on October 1,
2010. Expense incurred in relation to QIP to the extent of Rs 108.96
Million had been debited to Securities Premium Account in 2010.
8. Early Adoption of AS-30: Financial Instruments: Recognition and
Measurement, issued by Institute of Chartered Accountants of India
(ICAI).
The Company had chosen to early adopt AS 30: 'Financial Instruments:
Recognition and Measurement' during the year ended December 31, 2008,
with effect from January 1, 2008. Contemporaneously with this, in the
spirit of complete adoption, the Company had also implemented the
consequential limited revisions in view of AS 30 to AS 2, 'Valuation of
Inventories', AS 11'The Effect of Changes in Foreign Exchange Rates',
AS 19 'Accounting for Leases', AS 21 'Consolidated Financial Statements
and Accounting for Investments in Subsidiaries in Separate Financial
Statements', AS 23 'Accounting for Investments in Associates in
Consolidated Financial Statements', AS 26 'Intangible Assets', AS 27
'Financial Reporting of Interests in Joint Ventures', AS 28 'Impairment
of Assets' and AS 29 'Provisions, Contingent Liabilities and Contingent
Assets' as had been announced by the Institute of Chartered Accountants
of India (ICAI).
On February 11, 2011, the ICAI had issued a notification stating that
AS 30 can be adopted only to the extent the Accounting Standard does
not conflict with other mandatory standards notified under section 211
(3C) of the Companies Act, 1956. In case of conflict, the mandatory
standards will prevail. Consequently, in the year 2010, the Company had
reversed an amount of Rs 695.68 Million being the cumulative gains
recognised upto December 31, 2009, on restatement at period end rates
of certain USD denominated investments in certain subsidiaries and a
joint venture (including advances towards shares) that were designated
as hedged items in a fair value hedge, since such restatement is not
permitted under AS 13 'Accounting for Investment', a mandatory
accounting standard. Such reversals have been classified under the head
exceptional items, being the same head under which the gains on
restatement were presented in the financial statements of earlier
years.
Consequent to adoption of AS 30 to the extent it is permitted, the
Company had changed the designation and measurement principles for all
its significant financial assets and liabilities. The impact on account
of the above measurement of these is as described below:
8.1 Foreign Currency Convertible Bonds (the 'FCCBs' or the 'Bonds')
The FCCBs are split into two components comprising (a) option component
which represents the value of the option in the hands of the
FCCB-holders to convert the bonds into equity shares of the Company and
(b) debt component which represents the debt to be redeemed in the
absence of conversion option being exercised by FCCB-holder, net of
issuance costs.
The debt component is recognised and measured at amortised cost while
the fair value of the option component is determined using a valuation
model with the below mentioned assumptions.
Assumptions used to determine fair value of the options:
Valuation and amortisation method - The Company estimates the fair
value of stock options granted using the Black Scholes Merton Model and
the principles of the Roll-Geske-Whaley extension to the Black Scholes
Merton model. The Black Scholes Merton model along with the extensions
above requires the following inputs for valuation of options:
Stock Price as at the date of valuation - The Company's share prices as
quoted in the National Stock Exchange Limited (NSE), India have been
converted into equivalent share prices in US Dollar terms by applying
currency rates as at valuation dates. Further, stock prices have been
reduced by continuously compounded stream of dividends expected over
time to expiry as per the principles of the Black-Scholes Merton model
with Roll Geske Whaley extensions.
Strike price for the option - has been computed in dollar terms by
computing the redemption amount in US dollars on the date of redemption
(if not converted into equity shares) divided by the number of shares
which shall be allotted against such FCCBs.
Expected Term - The expected term represents time to expiry, determined
as number of days between the date of valuation of the option and the
date of redemption.
Expected Volatility - Management establishes volatility of the stock by
computing standard deviation of the simple exponential daily returns on
the stock. Stock prices for this purpose have been computed by
expressing daily closing prices as quoted on the NSE into equivalent US
dollar terms. For the purpose of computing volatility of stock prices,
daily prices for the last one year have been considered as on the
respective valuation dates.
Risk-Free Interest Rate - The risk-free interest rate used in the
Black-Scholes valuation method is the risk free interest rate
applicable to the Company.
Expected Dividend - Dividends have been assumed to continue, for each
valuation rate, at the rate at which dividends were earned by
shareholders in the last preceding twelve months before the date of
valuation.
Measurement of Amortised cost of debt component:
For the purpose of recognition and measurement of the debt component,
the effective yield has been computed considering the amount of the
debt component on initial recognition, origination costs of the FCCB
and the redemption amount if not converted into Equity Shares. To the
extent the effective yield pertains to redemption premium and the
origination costs, the effective yield has been amortised to the
Securities Premium Account (along with related exchange fluctuations)
as permitted under section 78 of the Companies Act, 1956. The balance
of the effective yield is charged to the Profit and Loss Account.
Consequent to the above method of accounting of FCCBs, the following
adjustments were made:
For the year ended December 31, 2010:
(a) Amortisation of interest of Rs 146.81 (net) and redemption premium
(net) on FCCBs amounting to Rs 395.06 Million had been recorded in the
Profit and Loss Account and in the Securities Premium Account
respectively.
(b) Change in the fair values of option component in the FCCBs, being a
loss of Rs 15.63 Million had been recorded in the Profit & Loss Account.
for the year ended December 31, 2011:
(a) Amortisation of interest (net) Rs 147.48 Million and redemption
premium (net) on FCCBs amounting to Rs 676.23 Million have been recorded
in the Profit and Loss Account and in the Securities Premium Account
respectively.
(b) Change in the fair values of option component in the FCCBs, being a
gain of Rs 188.85 Million has been recorded in the Profit & Loss
Account.
8.2 The financial assets and liabilities arising out of issue of
corporate financial guarantees to third parties are accounted at fair
values on initial recognition. Financial assets continue to be carried
at fair values. Financial liabilities are subsequently measured at the
higher of the amounts determined under AS 29 or the fair values on the
measurement date.
8.3 Gains / losses on fair valuation of all the open derivative
positions as on December 31, 2011 not designated as hedging instruments
have been recognised in the Profit and Loss Account.
8.4 The Company has availed bill discounting facility from Banks which
do not meet the de-recognition criteria for transfer of contractual
rights to receive cash flows from the debtors since they are with
recourse to the Company. Accordingly, as at December 31, 2011, sundry
debtor balances include Rs 1,130.70 Million (Previous year Rs 480.35
Million) and the corresponding financial liability to the Banks is
included as part of short term secured loans.
8.5 The Company has designated certain highly probable forecasted US
dollar denominated sales transactions and certain forward contracts to
sell US dollars as hedged items and hedging instruments respectively,
in a Cash Flow Hedge ('CFH') to hedge the foreign exchange risk arising
out of fluctuations between the India rupee and the US dollar. The
exchange fluctuations arising from marking to market of the hedging
instruments, to the extent relatable to the CFH being effective has
been recognised in a Hedge reserve in the Balance sheet. Accordingly
exchange fluctuations losses amounting to Rs 447.10 Million for the year
ended December 31, 2011 have been recognised in the Hedge Reserve
account. These exchange difference would be considered in Profit and
Loss Account as and when the forecasted transactions is estimated to
occur (i.e., over a period from January 2012 to September 2012).
9. Employee Stock Option Scheme
(a) In the extraordinary general meeting held on January 25, 2007, the
shareholders approved the issue of 1,000,000 options under the Scheme
titled "Strides Arcolab ESOP 2006" (ESOP 2006).
The ESOP 2006 allows the issue of options to employees of the Company
and its subsidiaries (whether in India or abroad). Each option
comprises one underlying equity share.
During the current year, the Remuneration Committee in its meeting held
on February 24, 2011 has granted 500,000 options under the ESOP 2006 to
few eligible employees of the Company. The options allotted under ESOP
2006 are convertible into equal number of equity shares.
As per the Scheme, the Compensation committee grants the options to the
employees deemed eligible. The exercise price of each option shall not
be less than 85 per cent of the "Market Price" as defined in the
Scheme. The options granted vest over a period of 3 years from the date
of the grant in proportions specified in the Scheme. Options may be
exercised within 30 days of vesting.
In respect of the ESOP 2006 and all the other ESOP schemes detailed in
this note, the difference between the fair price of the share
underlying the options granted, on the date of grant of option and the
exercise price of the option, (being the intrinsic value of the option)
representing Stock compensation expense, is expensed over the vesting
period.
(b) The ESOP scheme titled "Strides Arcolab ESOP 2008" (ESOP 2008) was
approved by the shareholders through postal ballot on June 18, 2008.
1,500,000 options are covered under the scheme for 1,500,000 shares.
In the previous years, the Remuneration Committee of the Company had
granted 1,382,500 options under the ESOP 2008 to few eligible employees
of the Company. During the current year, the Remuneration Committee in
its meetings held on February 24, 2011 and July 25, 201 1 has granted
180,500 and 9,000 options respectively under the ESOP 2008 to few
eligible employees of the Company. The options allotted under ESOP 2008
are convertible into equal number of equity shares.
The vesting period of these options range over a period of three years.
The options may be exercised with in a period of 30 days from the date
of vesting.
(c) The ESOP scheme titled "Strides Arcolab ESOP 2008 (Directors)"
(ESOP 2008 Directors) was approved by the shareholders through postal
ballot on January 12, 2009. 500,000 options are covered under the
scheme for 500,000 equity shares.
The Remuneration Committee of the Company, on March 16, 2009 had
granted 300,000 options under the Strides Arcolab ESOP 2008 (Directors)
scheme to few Directors of the Company. The shares covered by such
options were 300,000 equity shares.
The vesting period of these options range over a period of three years.
The options may be exercised with in a period of 30 days from the date
of vesting.
(d) The ESOP scheme titled "Strides Arcolab ESOP 2011" (ESOP 2011) was
approved by the shareholders on May 30, 2011.
1,500,000 options are covered under the scheme for 1,500,000 shares. No
options are granted under this scheme in the current year.
10. The Company during 2009 had entered into a Subscription and
Shareholders agreement with Aspen Group (Aspen) under which Aspen
subscribed to 49% of the share capital of Onco Therapies Limited
(ONCO), a subsidiary of the Company. Onco was set up to operate in the
Oncology products line of business that the Company was in the process
of building up.
In the year 2010, the Company had entered into a binding agreement with
Aspen for purchase of their shares in ONCO for a consideration of USD
37.36 Million and had paid USD 36.95 Million (Rs1,649.04 Million) as
advance towards purchase of shares in ONCO.As per the contractual terms
the risk and economic benefit in the shares of ONCO held by Aspen has
been transferred to the Company with effect from January 1, 2010.
Pending completion of transfer of shares, purchase consideration paid
was classified as advance towards purchase of shares as at December 31,
2010. In 2011, the shares were transferred in favour of the Company.
Further in the current year, as part of corporate restructuring
initiatives of the Company, the investment in ONCO have been
transferred to Agila Specialties Private Limited ('ASPL'), a wholly
owned subsidiary of the Company at a consideration of Rs 2,344 Million,
being the carrying value of investment in ONCO in the books of the
Company.
11. In the year 2010, the Company had sold investment in equity shares
of Strides Inc. a subsidiary of the Company, to Strides Pharma Limited
(formerly Linkace Limited), a wholly owned step subsidiary of the
Company and recognised a profit of Rs 6.20 Million on sale of such
transfer.
Consequent to certain developments in Strides Inc. during 2010, the
Company reversed provision for impairment against Preference shares
issued by Strides Inc. amounting to Rs 183.87 Million. In the year 2011,
the preference shares have been redeemed by Strides Inc.
12. Interest in Joint ventures
In the year 2010, the Company had transferred the ownership interest in
Akorn Strides LLC, USA, a joint venture company with Akorn Inc., USA,
to Strides Pharma Limited ('SPL') (formerly Linkace Limited, a wholly
owned step subsidiary of the Company) for a consideration of USD 3.41
Million and a profit of Rs 88.20 Million on such transfer had been
recognised in the Profit & Loss account in the same year.
13. As of December 31, 2011, the Company has invested an amount of USD
162.82 Million in Agila Specialties Limited, Cyprus ('Agila Cyprus',
formerly known as Starsmore Limited) and USD 114.41 Million in Strides
Arcolab International Limited (SAIL), both wholly owned subsidiaries of
the Company. The investments were in the nature of subscriptions for
shares of these entities and as at December 31, 2011, shares were
pending to be allotted. Out of the above, monies aggregating to USD
99.00 Million (Rs 5,273.70 Million) invested in Agila Cyprus and USD
93.00 Million (Rs 4,954.11 Million) invested in SAIL have been
considered as monetary items and have been restated in accordance with
the requirements of Accounting Standard 11 'The Effect of Changes in
Foreign Exchange Rates' and have been classified under Loans and
advances to subsidiaries in these financial statements. The resultant
unrealised exchange gain of Rs 1,564.00 Million has been recognised
under Exceptional items in the Profit & Loss Account.
14. Unbilled revenue includes income recognised on development
services contracts and contracts for production of dossiers, against
which no invoices are raised, and are net of advances received against
the respective contracts. Development income recognised in the Profit &
Loss Account is net of unbilled revenue written off in the current year
against development income recognised in the previous years.
15. Particulars of materials consumed and percentage to total
consumption of Imported and Indigenous materials.
Since none of the individual items of raw materials and packing
materials constitute more than 10% of the consumption, quantitative
details in respect of the same have not been given.
*Note:
a) This includes purchases of dossiers of Rs 45 Million (Previous Year Rs
124.85 Million)
b) Consumption of Traded Items not included above is Rs 1,072.1 1
Million (Previous Year Rs 646.06 Million)
Note: Installed Capacities are as certified by the management and
relied upon by the Auditors. The installed capacities serve multiple
purposes and will vary according to product mix.
** Not applicable as the products have been de-licensed.
Note: The details of managerial remuneration stated in the above table
exclude leave encashment and gratuity costs (for which separate
actuarial valuation are not available).
Note:
Expenditure in foreign currency includes expenditure incurred by the
Company on behalf of and in trust to Agila Specialties Private Limited
(formerly known as Strides Specialties Private Limited), a wholly owned
subsidiary of the Company.
16 . Taxation
(a) Provision for deferred tax has been made in accordance with the
requirements of Accounting Standard 22 "Accounting for taxes on
income".
Recognition of Deferred tax assets with respect to unabsorbed
depreciation and tax losses has been done in cases where there is
corresponding timing differences creating deferred tax liabilities and
the amount of such assets recognised is restricted to the extent of
such liabilities. Deferred Tax assets in respect of business losses are
recognised based on the criteria of virtual certainty.
17. Equity dividend accrued in 2011 includes Rs 0.42 Million being
dividends relating to the year ended December 31, 2010 on the
incremental number of shares that were issued between December 31, 2010
and the date of the Annual General Meeting of the Company held on May
30, 201 1. Divided tax accrued in 2011 is net of excess provision made
for the 2010 to the extent of Rs 0.27 Million.
As on December 31, 2011, no amount was due for transfer to the Investor
Education and Protection Fund (IEPF) as required under Section 205(C)
of the Companies Act, 1956.
18. Leases
The Company's significant leasing arrangements are mainly in respect of
factory buildings, residential and office premises. The aggregate lease
rentals payable on these leasing arrangements charged to the Profit and
Loss Account is Rs 37.14 Million (Previous year Rs 43.73 Million).
The Company has entered in to non-cancelable lease agreements for its
facilities and office premises. The tenure of lease ranges from 3 years
to 15 years. The said lease arrangements have an escalation clause
wherein lease rental is subject to an increment ranging from 6% to 10%.
Details of the lease commitment at the yearend are as follows:
Note: The information regarding Micro and Small Enterprises and the
disclosure in Schedule H.A (a) has been determined to the extent such
parties have been identified on the basis of information available with
the Company. This has been relied upon by the auditors.
19. Transfer Pricing
The Finance Act, 2001, has introduced, with effect from assessment year
2002-03 (effective April 1, 2001), detailed Transfer Pricing
regulations ('regulations') for computing the income from
'international transactions' between 'associated enterprises' on an
'arm's length' basis. These regulations, inter alia, also require the
maintenance of prescribed documents and information including
furnishing a report from an Accountant which is to be filed with the
Income tax authorities.
The Company has undertaken necessary steps to comply with the Transfer
Pricing regulations. The Management is of the opinion that the
international transactions are at arm's length, and hence the aforesaid
legislation will not have any impact on the financial statements,
particularly on the amount of tax expense and that of provision for
taxation.
20. Since the Company prepares consolidated financial statements,
segment information has not been provided in these financial
statements.
Note:
1. During 2011, FCCB's outstanding were anti-dilutive and hence not
considered for computing diluted Earnings per Share.
2. In the year 2010, the Company had reversed the preference dividend
along with dividend tax thereon accrued in earlier years amounting to Rs
148.54 Million, since such dividend was no longer payable consequent to
the agreement with the preference shareholders. Consequent to reversal
such amount is also available for distribution to the equity
shareholders (refer Note B.4 above). The basic and diluted EPS for the
year ended December 31, 2010 after considering the reversal of
preference dividend and tax thereon was Rs 18.85 & Rs14.54 respectively.
21. Cash flow statement
(a) Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
Cash comprises of cash on hand and demand deposits with banks. Cash
equivalents are short term (with an original maturity of three months
or less from the date of acquisition), highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value. Cash equivalents
in the nature of investments are disclosed under Current investments.
(b) Interest paid is inclusive of and purchase of Fixed Assets
excludes, interest capitalised Rs 6.13 Million (Previous year Rs 12.46
Million).
(c) Direct tax paid and Others in the Cash Flow Statement includes
outflows on account of permitted utilisation from the BRR of Rs 34.45
Million (Previous Year Rs 69.80 Million) and Direct Taxes of Rs 189.41
Million (Previous Year Rs 102.23 Million)
(d) Reconciliation of Cash and Cash Equivalents to Cash and bank
balances included in Schedule G.A.4.
Note:
1. The 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.
2. In the absence of information relating to category wise breakup of
Plan Assets, the same has not been disclosed.
3. Disclosure on actuarial valuation experience adjustment is
disclosed to the extent the details are available with the Company.
332 Details on Derivatives Instruments & Un-hedged Foreign Currency
Exposures
The following derivative positions are open as at December 31, 2011.
These transactions have been undertaken to act as economic hedges for
the Company's exposures to various risks in foreign exchange markets.
These instruments are therefore classified as held for trading and
gains / losses recognised in the Profit and Loss Account except to the
extent they qualified as Cash flow hedges in the context of the rigour
of such classification under Accounting Standard 30.
I. The Company has entered into the following derivative instruments:
(a) Forward Exchange Contracts [being a derivative instrument], which
are not intended for trading or speculative purposes, but for hedge
purposes, to establish the amount of reporting currency required or
available at the settlement date of certain payables and receivables.
(b) Interest Rate Swaps to hedge against fluctuations in interest rate
changes: No. of contracts: Nil (Previous year : Nil)
(c) Currency Swaps (other than forward exchange contracts stated above)
to hedge against fluctuations in changes in exchange rate. No. of
contracts: Nil (Previous Year: Nil)
III. There were no outstanding option contracts as at December 31,
2011.
IV. Loss on Forward Exchange Derivative contracts (Net) included in
the Profit and Loss Account for year ended December 31, 2011 amounts to
Rs 27.83 Million (Previous Year: Loss (Net) Rs 72.12 Million).
33.3 Categories of Financial Instruments (a) Loans and Receivables:
The following financial assets in the Balance Sheet have been
classified as Loans and Receivables as defined in Accounting Standard
30. These are carried at amortised cost less impairment if any.
Note: Interest expense calculated using effective interest rate method
as prescribed in AS 30 for financial liabilities that are carried at
amortised cost is Rs 555.18 Million (Previous Year Rs 773.89 Million)
(a) Financial Liabilities Held for Trading
The option component of FCCBs has been classified as held for trading,
being a derivative under AS 30. The carrying amount of the option
component was Rs 2.09 Million as at December 31, 2011 and Rs190.95
Million as at December 31, 2010. The difference in carrying value
between the two dates, amounting to Rs188.85 Million is considered as a
gain in the Profit and Loss Account of the year in accordance with
provisions of AS 30.
The fair value of the option component has been determined using a
valuation model. Refer to Note B.8.1 above on FCCBs for detailed
disclosure on the valuation method.
(b) There are no other financial assets / liabilities in the following
categories:
Financial assets:
Carried at fair value through profit and loss designated as such at
initial recognition.
Held to maturity
Available for sale (other than investment in Subsidiaries & Joint
Venture)
Financial liabilities:
Carried at fair value through profit and loss designated as such at
initial recognition.
33.5 Nature and extent of risks arising from financial instrument
The main financial risks faced by the Company relate to fluctuations in
interest and foreign exchange rates, the risk of default by
counterparties to financial transactions, and the availability of funds
to meet business needs. The Balance Sheet as at December 31, 2011 is
representative of the position through the year. Risk management is
carried out by a central treasury department under the guidance of the
Management.
Interest rate risk
Interest rate risk arises from long term borrowings. Debt issued at
variable rates exposes the Company to cash flow risk. Debt issued at
fixed rate exposes the Company to fair value risk. In the opinion of
the management, interest rate risk during the year under report was not
substantial enough to require intervention or hedging through
derivatives or other financial instruments. For the purposes of
exposure to interest risk, the Company considers its net debt position
evaluated as the difference between financial assets and financial
liabilities held at fixed rates and floating rates respectively as the
measure of exposure of notional amounts to interest rate risk. This net
debt position is quantified as under:
Credit risk
Credit risk arises from cash and cash equivalents, financial
instruments and deposits with banks and financial institutions. Credit
risk also arises from trade receivables and other financial assets.
The credit risk arising from receivables is subject to concentration
risk in that the receivables are predominantly denominated in USD and
any appreciation in the INR will affect the credit risk. Further, the
Company is not significantly exposed to geographical distribution risk
as the counterparties operate across various countries across the
Globe.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. The Company's approach to
managing liquidity is to ensure, 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 risking damage to Company's reputation.
Liquidity risk is managed using short term and long term cash flow
forecasts.
Foreign exchange risk
The Company is exposed to foreign exchange risk principally via:
Debt availed in foreign currency
Net investments in subsidiaries and joint ventures in foreign
currencies
Exposure arising from transactions relating to purchases, revenues,
expenses etc. to be settled in currencies other than Indian Rupees, the
functional currency of the respective entities.
33.6 Sensitivity analysis as at December 31, 2011
Financial instruments affected by interest rate changes include Secured
Long term loans from banks, Secured Long term loans from others,
Secured Short term loans from banks and Unsecured Short term loans from
banks. The impact of a 1% change in interest rates on the profit of an
annual period will be Rs 99.55 Million (Previous year Rs 76.53 Million)
assuming the loans as of December 31, 2011 continue to be constant
during the annual period. This computation does not involve a
revaluation of the fair value of loans as a consequence of changes in
interest rates. The computation also assumes that an increase in
interest rates on floating rate liabilities will not necessarily
involve an increase in interest rates on floating rate financial
assets.
Financial instruments affected by changes in foreign exchange rates
include FCCBs, External Commercial Borrowings (ECBs), investments in
subsidiaries, and loans to subsidiaries and joint ventures. The Company
considers US Dollar and the Euro to be principal currencies which
require monitoring and risk mitigation. The Company is exposed to
volatility in other currencies including the Great Britain Pounds (GBP)
and the Australian Dollar (AUD).
22. The previous year's figures have been regrouped in line with the
current year.
Dec 31, 2010
1. Capital Commitments
Estimated amount of contracts remaining to be executed on capital
account and not provided for (Net of advances) - Rs.168.45 Million
(Previous year Rs.71.04 Million). Also refer Note 10.
2. Contingent Liabilities
2.1 As at December 31, 2010, the Company has given corporate guarantees
upto Rs.5,015.78 Million (Previous year Rs.1,354.29 Million) to
financial institutions and other parties, on behalf of its
subsidiaries. At December 31, 2010, the subsidiaries had availed
facilities from such financial institutions/were obligated to the
parties referred above for an aggregate amount of Rs.4,643.16 Million
(Previous year Rs.1,186.21 Million). The Companys fixed assets
(paripasu second charge) and certain investments in the respective
subsidiaries have been offered as security in respect of some of these
facilities. Subsequent to the balance sheet date, the corporate
guarantee has been reduced by Rs.1,499.13 Million.
2.2 As at the end of the year there are no disputed tax liabilities
arising from assessment proceedings relating to earlier years from the
Income Tax Authorities (previous year Rs.207.12 Million).
2.3 The Company preferred appeal with the CESTAT against the order of
the Commissioner of Central Excise for disallowing transfer of cenvat
credit of Rs.3.86 Million (Previous year Rs 3.86 Million) as on the
date of conversion of one of the units of the Company into a 100% EOU.
3. Foreign currency convertible bonds
(a) During the accounting year ending December 31, 2007, the Company
had issued Foreign Currency Convertible Bonds (FCCB) amounting to USD
100 Million (Rs.4,070 Million) (FCCB 100 Million) on June 26, 2007.
These bonds carry zero coupon and are to be redeemed on June 27, 2012
(unless converted into Equity Shares) at 145.058 per cent of the
Principal amount.
The bonds may be redeemed in whole, but not in part at the option of
the Company at any time on or after July 18, 2010 and on and prior to
June 20, 2012 with a redemption premium of 7.575 % (which is identical
to the gross yield in case of redemption at maturity) calculated on a
semiannual basis.
The Bonds are convertible at any time on or after August 6, 2007 and up
to the close of business on June 20, 2012 by the holders of the Bonds
into shares at the option of the Bondholder, at an initial conversion
price of Rs.461.553 per share with a fixed rate of exchange of Rs.40.70
per USD on conversion. The bonds are listed on Singapore Exchange
Securities Trading Limited, Singapore.
As permitted by the Reserve Bank of India (RBI), during the year 2009,
the Company bought back FCCBs with a face value aggregating to USD 20
Million from the outstanding bonds issued under FCCB 100 Million at a
discount.
As at December 31, 2010, none of the outstanding bonds had been offered
for conversion.
(b) The Company had issued FCCBs (listed in the Singapore Exchange
Securities Trading Limited, Singapore) to the extent of USD 40 Million
(FCCB 40 Million) during the year ended December 31, 2005. In the year
2009, as permitted by RBI, the Company had bought back FCCBs with a
face value aggregating to USD 6 Million out of the FCCBs face value of
USD 40 Million.
(c) During the year, as per the terms and conditions agreed with the
holders of FCCB 40 Million, the Company had redeemed the balance
outstanding FCCBs aggregating to USD 34 Million. The Company paid in
total USD 46.51 Million (Rs.2,062.50 Million) including USD 12.51
Million towards redemption premium. An amount of Rs.61.60 Million paid
towards withholding tax on payment of premium on FCCB redemption value
has been debited to Securities Premium Account.
4. Cumulative Redeemable Preference Shares
In May 2005, the Company had issued 491,606 6% Cumulative Redeemable
Preference Shares (CRPS) of Rs.1,000 each fully paid to K V
Pharmaceuticals, USA (`KV Pharma) (Approximately USD 10.95 Million).
The Preference shares were redeemable at par along with accrued unpaid
dividend on or before December 31, 2012.
The Company, Strides Inc. (a subsidiary of the Company) and KV Pharma
had also entered into a License and Supply Agreement (`LSA) pursuant
to which the Company and Strides Inc had agreed to undertake certain
development work for developing certain pharmaceutical products,
subject to certain terms and conditions mentioned in LSA. In March 2009
due to certain adverse developments at KV Pharma, the Company
terminated the said LSA. KV Pharma had approached the International
Court of Arbitration, disputing the termination of the LSA.
In the current year, pursuant to a negotiation for an out of court
settlement, the Company has entered into a Settlement Agreement &
Release (Settlement Agreement) with KV Pharma. In accordance with the
Settlement Agreement, the rights and obligations of all parties under
the LSA and those arising out of the subscription to the CRPS were
settled on a net basis. Pursuant to the Settlement Agreement, the
Company has paid out KV Pharma an amount of USD 7.25 Million in full
and final settlement as referred above. Consequent to the net
settlement:
- The dividend on the CRPS that were accrued for in 2005 through 2009
along with the related dividend distribution taxes to the extent
unpaid, were reversed in the current year and the same has been
credited under appropriations in the Profit and Loss account
- An amount of Rs.165.86 Million has been credited to the Reserve for
Business Restructure (`BRR) (refer Note B.5 below) being the extent
attributable to recoveries of receivables under the LSA that were
written off to the `BRR in earlier years.
Consequent to the redemption of the CRPS as referred above, the Company
has credited Capital Redemption Reserve to the extent of Rs.491.61
Million being the face value of CRPS redeemed.
5. Scheme of Arrangement under Section 391-394 of the Companies Act,
1956
5.1 During the year ending December 31, 2009, the shareholders of the
Company, in their meeting held on April 13, 2009 approved the Scheme of
Restructuring that envisaged, inter alia:
(a) A Scheme of Arrangement (`the scheme) to be filed under Sections
391 to 394 of the Companies Act, 1956 covering the merger of some of
the subsidiaries of the Company with itself, fair valuation of some of
the assets of the Company and creation of a Reserve for Business
Restructure (BRR) out of any surpluses arising from these, to be
utilized as specified in the Scheme.
(b) Transfer of the Specialty Pharmaceuticals business along with
Research and Development (R&D) to Strides Specialties Private Limited
(SSPL), a wholly owned subsidiary of the Company;
5.2 The details of the Scheme are given below.
In terms of the Scheme, Global Remedies Limited (GRL), Quantum Remedies
Private Limited (QRPL), Grandix Pharmaceuticals Limited (GPL) and
Grandix Laboratories Limited (GLL), all subsidiaries of the Company
(referred to as Transferor Companies), were merged with the Company
(Transferee Company), upon which the undertaking and the entire
business, including all assets and liabilities of the Transferor
Companies stood transferred to and vested in the Transferee Company at
their fair value as determined by the Board of Directors of the
Transferee Company.
QRPL and GRL were engaged in the manufacture of Pharmaceutical
formulations and were predominantly acting as a captive manufacturer
for the Company and catering to the African Markets. Both GPL and GLL
were engaged in the marketing of Branded pharmaceutical products.
The Scheme filed by the Company had been approved by the High Courts of
Judicature with an appointed date of 1 January 2009 and an effective
date of December 31, 2009 (the Effective Date), being the date on
which the all requirements under the Companies Act had been completed.
In terms of the Scheme and upon the Scheme becoming effective:
- the assets and liabilities of the Transferor Companies and the
Transferee Company, whether recorded or not, have been recorded at
their fair values as determined by the Board of Directors of the
Transferee Company;
- the carrying amount of investments in the shares of the Transferor
Companies to the extent held by the Transferee Company and
Inter-Company balances stand cancelled;
- the face value of the equity shares of the Transferee Company issued
to the minority shareholders of GPL and GLL has been credited to the
equity share capital account in the books of the Transferee Company.
- the surplus arising out of the excess of assets over the liabilities
of the Transferor Companies acquired and recorded by the Transferee
Company over the aggregate of carrying amount of investments in the
shares of the Transferor Companies to the extent held by the Transferee
Company and the face value of the equity shares of the Transferee
Company issuable to the minority shareholders of GPL and GLL, and the
excess of the fair value of assets and liabilities of the Transferee
Company over their previously recorded carrying values, has been
credited to the BRR in the books of the Transferee Company.
- the balance in the Securities Premium Account, as appearing in the
books of the Transferee Company may be transferred to BRR, to such
extent as determined by the Board.
- expenses incurred by the Company or its subsidiaries in the nature of
impairment, diminution, loss, amortization and/or write-off of
assets/investments/intangibles, interest on borrowings for
acquisitions, employee compensation expenses, additional depreciation
charged or suffered by the Transferee Company on account of fair
valuation, scheme expenses and other expenses or arising in the future
as may be determined by the Board of Directors of the Transferee
Company, have been/shall be debited to the BRR. The maximum amount that
can be written off against the BRR instead of being debited to the
Profit and Loss Account on or at any time after January 1, 2009 would
be restricted to the balance in the BRR or upto December 31, 2012 and
not beyond that.
5.3 The accounting treatment effected for the Scheme was as follows:
(b) Upon the Scheme becoming effective, and based on legal advice
received, the assets and liabilities of the Transferee Company had been
fair valued as determined by the Board of Directors of the Company and
the net surplus arising out of such fair valuation (over the carrying
value of the respective assets and liabilities prior to the fair
valuation) was credited to the BRR as follows during the year ended
December 31, 2009.
5.4 Transfer of the Specialties Business along with R&D to Agila
Specialties Private Limited (ASPL) (formerly Strides Specialties
Private Limited (SSPL)), a wholly owned subsidiary of the Company.
During the year ended December 31, 2009, pursuant to the approval of
the shareholders and other authorities as required, the Company had
transferred the Specialties Business along with R&D to ASPL on a slump
sale basis with effect from the close of business on December 30, 2009
for a consideration of Rs.3,286.46 Million. Out of the mentioned
purchase consideration, a sum of Rs.1,000 Million was to be settled by
issue of shares of ASPL and the balance consideration of Rs.2,286.46
Million was included under the head Loans and Advances in Schedule G.
During the current year, the shares of ASPL to the extent of Rs.1,000
Million were issued to the Company and the balance considerations were
settled by ASPL.
6. Share warrants
As authorized by the shareholders of the Company in the Extra Ordinary
General meeting held on May 13, 2009, 6,180,000 warrants were alloted
to Net Equity Ventures Private Limited, a Promoter Group company and
20,000 warrants to relatives of the Promoters, on preferential basis
which are convertible into an equivalent number of fully paid up equity
shares of Rs.10 each at a price of Rs.91.15 per warrant. These warrants
are convertible, in one or more tranches, at any time within a period
of 18 months from the date of issue. During the year, the Company has
allotted 6,200,000 equity shares of Rs.10 each at a premium of Rs.81.15
per equity share upon conversion of equal number of warrants which was
allotted to Promoter Group Company and relatives of the Promoters.
7. During the year, the Company has received Rs.4,550 Million on issue
of 10,742,533 equity shares of Rs.10 each at a premium of Rs.413.55 per
equity share to Qualified Institutional Buyers (QIP) in terms of SEBI
(Issue of Capital and Disclosure Requirements) Regulations 2009. The
purpose of the mentioned issue is to finance overseas acquisitions,
repayment and prepayment of debt, investments and other uses, including
capital expenditure, as permitted by applicable rules and regulations.
The Company has completed the allotment of equity shares on October 1,
2010. Expense incurred in relation to QIP to the extent of Rs.108.96
Million has been debited to Securities Premium Account.
8. Early Adoption of AS-30: Financial Instruments: Recognition and
Measurement, issued by Institute of Chartered Accountants of India
The Company had chosen to early adopt AS 30: Financial Instruments:
Recognition and Measurement during the year ended December 31, 2008,
with effect from January 1, 2008. Contemporaneously with this, in the
spirit of complete adoption, the Company had also implemented the
consequential limited revisions in view of AS 30 to AS 2, Valuation of
Inventories, AS 11 The Effect of Changes in Foreign Exchange Rates,
AS 19 Accounting for Leases, AS 21 Consolidated Financial Statements
and Accounting for nvestments in Subsidiaries in Separate Financial
Statements, AS 23 Accounting for Investments in Associates in
Consolidated Financial Statements, AS 26 Intangible Assets, AS 27
Financial Reporting of Interests in Joint Ventures, AS 28 Impairment
of Assets and AS 29 Provisions, Contingent Liabilities and Contingent
Assets as had been announced by the Institute of Chartered Accountants
of India (ICAI).
On February 11, 2011, the ICAI has issued a notification stating that
AS 30 can be adopted only to the extent the Accounting Standards does
not conflict with other mandatory standards notified under section 211
(3C) of the Companies Act, 1956. In case of conflict, the mandatory
standards will prevail. Consequently, during the year, the Company has
reversed an amount of Rs.695.68 Million being the cumulative gains
recognized upto December 31, 2009, on restatement at period end rates
of certain USD denominated investments (including advances towards
shares) in certain subsidiaries and a joint venture that were
designated as hedged items in a fair value hedge, since such
restatement is not permitted under AS 13, Accounting for Investment: a
mandatory accounting standard. Such reversals have been classified
under the head exceptional items, being the same head under which the
gains on restatement were presented in the financial statements of
earlier years. In accordance with the provisions of AS 11, The effect
of changes in Foreign currency rates, the Company restated the
advances paid towards shares and recognised a net gain of Rs.680.02
Million and has included the same under Exceptional items.
Consequent to adoption of AS 30 to the extent it is permitted, the
Company has changed the designation and measurement principles for all
its significant financial assets and liabilities. The impact on account
of the above measurement of these is as described below:
8.1 Foreign Currency Convertible Bonds (the FCCBs or the Bonds)
The FCCBs are split into two components comprising (a) option component
which represents the value of the option in the hands of the
FCCB-holders to convert the bonds into equity shares of the Company and
(b) debt component which represents the debt to be redeemed in the
absence of conversion option being exercised by FCCB-holder, net of
issuance costs.
The debt component is recognized and measured at amortized cost while
the fair value of the option component is determined using a valuation
model with the below mentioned assumptions.
Assumptions used to determine fair value of the options:
Valuation and amortization method - The Company estimates the fair
value of stock options granted using the Black Scholes
Merton Model and the principles of the Roll-Geske-Whaley extension to
the Black Scholes Merton model. The Black Scholes Merton model along
with the extensions above requires the following inputs for valuation
of options:
Stock Price as at the date of valuation à The Companys share prices as
quoted in the National Stock Exchange Limited (NSE), India have been
converted into equivalent share prices in US Dollar terms by applying
currency rates as at valuation dates. Further, stock prices have been
reduced by continuously compounded stream of dividends expected over
time to expiry as per the principles of the Black-Scholes Merton model
with Roll Geske Whaley extensions.
Strike price for the option - has been computed in dollar terms by
computing the redemption amount in US dollars on the date of redemption
(if not converted into equity shares) divided by the number of shares
which shall be allotted against such FCCBs.
Expected Term - The expected term represents time to expiry, determined
as number of days between the date of valuation of the option and the
date of redemption.
Expected Volatility- Management establishes volatility of the stock by
computing standard deviation of the simple exponential daily returns on
the stock. Stock prices for this purpose have been computed by
expressing daily closing prices as quoted on the NSE into equivalent US
dollar terms. For the purpose of computing volatility of stock prices,
daily prices for the last one year have been considered as on the
respective valuation dates.
Risk-Free Interest Rate - The risk-free interest rate used in the
Black-Scholes valuation method is as applicable to the Company.
Expected Dividend - Dividends have been assumed to continue, for each
valuation rate, at the rate at which dividends were earned by
shareholders in the last preceding twelve months before the date of
valuation.
Measurement of Amortized cost of debt component:
For the purpose of recognition and measurement of the debt component,
the effective yield has been computed considering the amount of the
debt component on initial recognition, origination costs of the FCCB
and the redemption amount if not converted into Equity Shares. To the
extent the effective yield pertains to redemption premium and the
origination costs, the effective yield has been amortized to the
Securities Premium Account as permitted under section 78 of the
Companies Act, 1956. The balance of the effective yield is charged to
the Profit and Loss Account.
Consequent to the above method of accounting of FCCBs, the following
adjustments were made:
During the year ended December 31, 2009:
(a) Amortization of interest (net) and redemption premium (net) on
FCCBs amounting to Rs.168.10 Million and Rs.348.68 Million respectively
have been recorded in the Profit and Loss account and in the Securities
Premium Account.
(b) Change in the fair values of option component in the FCCBs, being a
loss of Rs.41.12 Million has been recorded in the Profit & Loss
Account.
During the year ended December 31, 2010:
(a) Amortization of interest (net) and redemption premium (net) on
FCCBs amounting to Rs.146.81 Million and Rs.395.06 Million respectively
have been respectively recorded in the Profit and Loss account and in
the Securities Premium Account.
(b) Change in the fair values of option component in the FCCBs, being a
loss of Rs.15.63 Million has been recorded in the Profit & Loss
Account.
8.2 The financial assets and liabilities arising out of issue of
corporate financial guarantees to third parties are accounted at fair
values on initial recognition. Financial assets continue to be carried
at fair values. Financial liabilities are subsequently measured at the
higher of the amounts determined under AS 29 or the fair values on the
measurement date. At December 31, 2010, the fair value of such
financial assets are equal to such liabilities and have been set off in
the financial statements.
8.3 As required under the Companies Act, 1956, Redeemable Preference
Shares are included as part of share capital and not as debt and
dividend on the preference shares is accounted as dividend as part of
appropriation of profits and have not been accrued as interest cost.
8.4 The Company has availed bill discounting facility from Banks which
do not meet the de-recognition criteria for transfer of contractual
rights to receive cash flows from the debtors since they are with
recourse to the Company. Accordingly, as at December 31, 2010, sundry
debtor balances include Rs.480.35 Million (Previous year Rs.1,044.46
Million) and the corresponding financial liability to the Banks is
included as part of short term secured loans.
8.5 Gains/losses on fair valuation of all the open derivative positions
as on December 31, 2010 not designated as hedging instruments have been
recognized in the Profit and Loss Account.
9. Employee Stock Option Scheme
(a) In the extraordinary general meeting held on January 25, 2007, the
shareholders approved the issue of 1,000,000 options under the Scheme
titled "Strides Arcolab ESOP 2006" (ESOP 2006).
The ESOP 2006 allows the issue of options to employees of the Company
and its subsidiaries (whether in India or abroad). Each option
comprises one underlying equity share.
As per the Scheme, the Compensation committee grants the options to the
employees deemed eligible. The exercise price of each option shall not
be less than 85 per cent of the "Market Priceà as defined in the
Scheme. The options granted vest over a period of 3 years from the date
of the grant in proportions specified in the Scheme. Options may be
exercised within 30 days of vesting.
The difference between the fair price of the share underlying the
options granted, on the date of grant of option and the exercise price
of the option (being the intrinsic value of the option) representing
Stock compensation expense, is expensed over the vesting period.
(b) The ESOP scheme titled "Strides Arcolab ESOP 2008Ã (ESOP 2008) was
approved by the shareholders through postal ballot on June 18, 2008.
1,500,000 options are covered under the scheme for 1,500,000 shares.
In the previous years, the Remuneration Committee of the Company had
granted 1,007,500 options under the ESOP 2008 to few eligible employees
of the Company. During the current year, the Remuneration Committee in
its meeting held on January 22, 2010, June 14, 2010 and September 03,
2010 has granted 137,500, 100,000 and 137,500 options respectively
under the ESOP 2008 to few eligible employees of the Company. The
options allotted under ESOP 2008 are convertible into equal number of
equity shares.
The vesting period of these options range over a period of three years.
The options may be exercised with in a period of 30 days from the date
of vesting.
(c) The ESOP scheme titled "Strides Arcolab ESOP 2008 (Directors)Ã
(ESOP 2008 Directors) was approved by the shareholders through postal
ballot on January 12, 2009. 500,000 options are covered under the
scheme for 500,000 equity shares.
The Remuneration Committee of the Company, on March 16, 2009 had
granted 300,000 options under the Strides Arcolab ESOP 2008 (Directors)
scheme to few Directors of the Company. The shares covered by such
options were 300,000 equity shares.
The vesting period of these options range over a period of three years.
The options may be exercised with in a period of 30 days from the date
of vesting.
10. The Company during the year ending 2009 had entered into a
Subscription and Shareholders agreement with Aspen Group (Aspen) under
which Aspen subscribed to 49% of the share capital of Onco Therapies
Limited (Onco), a subsidiary of the Company. Onco is set up to operate
in the Oncology products line of business that the Company was in the
process of building up.
In 2009, the Company has entered into another Agreement with Onco to
set up an Oncology manufacturing facility in Bangalore, for a
consideration of USD 32.50 Million (payable by Onco in equivalent
Indian Rupees). Under this agreement the Company had:
- transferred the moveable and immoveable assets relating to the
Oncology manufacturing facility and the contracts awarded to various
suppliers in connection with the facility; and
- undertaken the obligations of completing the facility, including all
financial obligations related thereto.
During the year ended December 31, 2010, the Company entered into a
binding agreement with Aspen for purchase of their shares in Onco for a
consideration of USD 37.36 Million. The Company has paid USD 36.95
Million (Rs.1,649.04 Million) during the year. Pending transfer of
shares in the name of the Company, the amount paid to Aspen has been
included in Loans & Advances in the financial statements. On completion
of the transfer of shares, the Onco will become a wholly owned
subsidiary of the Company. As per the contractual terms the risk and
economic benefit in the shares of Onco held by Aspen has been
transferred to the Company with effect from January 1, 2010.
11. During the year ended December 31, 2010, the Company sold
investment in equity shares of Strides Inc. a subsidiary of the
Company, to Linkace Limited, a wholly owned step subsidiary of the
Company and recognized a profit of Rs.6.20 Million on sale of such
transfer.
In the year 2008, the Company had provided for provision for impairment
of investment in Strides Inc. Considering the state of affairs of
Strides Inc. as at December 31, 2010 and its ability to redeem the
Preference Share Capital, the Company during the year, has reversed the
provision for impairment of investments in preference share capital to
the extent of Rs.183.87 Million.
12. Interest in Joint ventures
The Company, with effect from December 22, 2010, has transferred the
ownership interest in Akorn Strides LLC, USA, a joint venture company
with Akorn Inc, USA, to Linkace Limited (a wholly owned step subsidiary
of the Company) for a consideration of USD 3.41 Million. Consequently,
profit of Rs.88.20 Million on such transfer has been recognized in the
Profit & Loss account.
13. Unbilled revenue includes income recognised on development
services contracts and contracts for production of dossiers, against
which no invoices are raised, and are net of advances received against
the respective contracts.
14. Particulars of materials consumed and percentage to total
consumption of Imported and Indigenous materials.
Since none of the individual items of raw materials and packing
materials constitute more than 10% of the consumption, quantitative
details in respect of the same have not been given.
15. Particulars of Traded Goods
None of the items individually account for more than 10% of the total
value of the purchases, stock or turnover, hence quantitative details
have not been furnished.
16. Other information
16.1 Managerial remuneration
Note:
(a) During the year, the Company has got the approval of Central
Government for excess managerial remuneration to the extent of Rs.17.86
Million against total excess managerial remuneration paid in earlier
years of Rs.24.39 Million. Consequently, the amount of Rs.6.53 Million
has been returned by the managing director.
During the year ended December 31, 2009, the Company received the
approval of the Central Government in respect of excess managerial
remuneration relating to the year ended December 31, 2007 amounting to
Rs.27.05 Million, which was charged to the Profit & Loss Account for
the year ended December 31, 2009.
(b) The details of managerial remuneration stated in the above table
exclude leave encashment and gratuity costs (for which separate
actuarial valuation are not available).
16.3 Expenditure in foreign currency
Note:
(i) Expenditure in foreign currency includes expenditure incurred by
the Company on behalf of and in trust to Agila Specialties Private
Limited (formerly known as Strides Specialties Private Limited), a
wholly owned subsidiary of the Company.
(ii) Interest accrued on FCCBs has not been included in the above
disclosure.
17. Taxation
(a) Provision for deferred tax has been made in accordance with the
requirements of Accounting Standard 22 "Accounting for taxes on
incomeÃ.
(b) The net deferred tax liability comprises the tax impact arising
from timing differences on account of
Recognition of Deferred tax assets with respect to unabsorbed
depreciation and tax losses have been done only in cases where there
are corresponding timing differences creating deferred tax liabilities
and the amount of such assets recognised is restricted to the extent of
such liabilities. Deferred Tax assets in respect of business losses are
recognized based on the criteria of virtual certainty.
The Company has a MAT credit of Rs.154.58 Million during the year which
has not been recognised on grounds of prudence.
18. Related Party Transactions:
Name of the related parties:
wholly owned subsidiaries: Direct Holding
Arcolab Limited SA, Switzerland
Strides Technology & Research Pvt
Ltd, India
Agila Specialties Pvt Limited
(formerly Strides Specialties Pvt Ltd.),
India
Starsmore Limited, Cyprus
Strides Africa Limited, British
Virgin Islands
Strides Arcolab International
Limited, U.K. (SAIL)
Onco Therapies Ltd, India (w.e.f.
January 01, 2010) (Refer Note 10 above)*
Indirect Holding
Pharma Strides Canada Corporation,
Canada
Linkace Limited, Cyprus
Linkace Investments PTY Ltd,
Australia (w.e.f. December 14, 2010)
Plus Farma ehf, Iceland
Farma Plus AS , Norway (w.e.f.
July 01, 2010)
Strides Specialties (Holdings)
Limited, Mauritius
Strides Specialties (Holdings)
Cyprus Limited (formerly known as
Powercoast Limited), Cyprus
Strides Pharmaceuticals (Holdings)
Limited, Mauritius (w.e.f. January
27, 2010)
Strides Pharmaceuticals (Mauritius)
Limited, Mauritius (w.e.f. January
27, 2010)
Strides Specialty (Cyprus) Limited,
Cyprus
Co Pharma Ltd, U.K. (w.e.f. July 01,
2010)
Strides Arcolab Polska Sp.z o.o,
Poland
Strides Arcolab UK Limited, U.K.
Agila Specialties (Malaysia)
SDN BHD, Malaysia (w.e.f. September 22,
2010)
Agila Especialidades Farmaceuticas Ltda,
Brazil (w.e.f. June 11, 2010)*
Onco Laboratories Limited (formerly
Powercliff Ltd.), Cyprus ( w.e.f.
January 01, 2010)*
Strides Australia Pty Limited,
Australia
Strides Inc, USA (w.e.f.
December 21, 2010)
Strides Farmaceutica Participacoes
Ltda, Brazil (w.e.f. July 01, 2010)
Strides Pharma (Cyprus) Limited, Cyprus
Other Subsidiaries:
Direct Holding:
Strides Inc. USA (upto December 20,
2010)
Onco Therapies Ltd, India (upto
December 31, 2009)
Indirect Holding:
Ascent Pharmahealth Limited,
Australia
Ascent Pharmahealth Asia Pte
Limited, Singapore
Beltapharm S.p.A., Italy
Drug Houses of Australia (Asia) Pte.
Limited, Singapore
Co Pharma Ltd, UK (upto June
30, 2010)
Formule Naturelle (Pty) Limited ,
South Africa (up to June 30, 2010)
Ascent Pharma Pty Limited (formerly
known as Genepharm Pty Limited),
Australia
Pharmasave Australia Pty Ltd.,
Australia
Strides S.A. Pharmaceuticals Pty.
Limited, South Africa
Inbiopro Solutions Private Limited,
India (w.e.f. November 25, 2010)
Ascent Pharmacy Services Pty Limited,
Australia (w.e.f. January 29,2010)
Ascent Pharmaceuticals Limited
(formerly known as Genepharm (New
Zealand) Limited), New Zealand
African Pharmaceutical Development
Company, Cameroon (w.e.f. January
01, 2010)
Green Cross Pharma Pte Ltd.,
Singapore (up to 1st January 2010)
Ascent Pharmahealth Asia (Hong Kong)
Limited (formerly known as Strides
Arcolab Hong Kong Limited), Hong Kong
Ascent Pharmahealth Asia (Malaysia)
SDN BHD (formerly known as Strides
Arcolab Malaysia SDN. BHD), Malaysia
Ephos - 106 Produtos Hospitalaries
Ltda Me, Brazil (w.e.f. November
2010)*
Ascent Pharmahealth Asia (B)
SDN BHD (formerly known as Strides
Arcolab SDN BHD, Brunei)
Strides CIS Limited, Cyprus
(formerly known as Raycom Limited)
Strides Vital Nigeria Limited, Nigeria
Joint Ventures (JV): Akorn Strides LLC, USA
Onco Laboratories Limited (formerly
Powercliff Ltd.)- up to December
31, 2009
Sagent Strides LLC, USA
Key Management Personnel: Mr. Arun Kumar (Vice Chairman &
Managing Director)
Mr. V.S. Iyer (Executive Director)
w.e.f. January 19, 2010
Enterprises owned or
significantly influenced :
by key management
personnel and relatives
of key management
personnel
Agnus Global Holdings Pvt Limited, India
Arcolab (India) Private Limited
(merged with Agnus Holdings Pvt Ltd
w.e.f. March 24, 2010)
Atma Projects, India
Higher Pharmatech Private Limited, India
Caryl Pharma Private Limited
(merged with Agnus Holdings Pvt Ltd
w.e.f. March 24, 2010)
Chayadeep Properties Private
Limited, India
Agnus Global Holdings Pte
Limited, Singapore
Agnus Holdings Private Limited, India
Fraxis Life Sciences Limited, India
Atma Enterprises LLP, India
Chayadeep Ventures LLP, India
Qualichem Capital LLP, India
Agnus Capital LLP, India
Triumph Ventures LLP, India
Mrs. Deepa Arun Kumar
Net Equity Ventures Private
Limited (merged with Agnus Holdings
Pvt Ltd w.e.f. March 24, 2010)
Nous Infosytems Private Limited, India
Patsys Consulting Private Limited, India
Sequent Scientific Limited, India
Sequent Research Limited , India
Sequent Global Holdings Limited,
Mauritius
Sequent Scientific Limited
Vedic Elements Private Limited
Sequent Antibiotics (P) Limited, India
Sequent Oncolytics (P) Limited, India
Triumph Fincap Holdings Private
Limited, India
Agnus IPCO Limited, BVI
Santo Finco Ltda, Madeira
Strides Italia srl, Italy
Keerthapathi Ravishankar - HUF
Mrs. K. Saraswathi
Mr. G.P. Pillai
Mr. Mohana Kumar Pillai
Associates Aspen Venezuela CA
Aspen Pharma Industria Farmaceutica,
Brazil (formerly known as
Cellofarm Ltda)
Pharmalatina Holdings Limited, Cyprus
Solara SA De CV, Mexico
Strides Latina, SA, Uruguay
Aspen Labs SA De CV, Mexico
Note:
*Pending certain regulatory approvals, the transfer of shares in these
entities in favour of Strides group is yet to happen as at December 31,
2010.
**Related parties are as identified by the Company and relied upon by
the Auditors.
19. Equity dividend accrued in 2010 includes Rs.4.97 Million being
dividends relating to the year ended December 31, 2009 on the
incremental number of shares that were issued between December 31, 2009
and the date of the Annual General Meeting of the Company held on May
31, 2010.
As required under Section 205(C) of the Companies Act, 1956 the Company
has transferred Rs. NIL (Previous Year Rs.0.09 Million) to the Investor
Education and Protection Fund (IEPF) during the year. As on December
31, 2010, no amount was due for transfer to the IEPF.
20. Leases
The Companys significant leasing arrangements are mainly in respect of
factory buildings, residential and office premises. The aggregate lease
rentals payable on these leasing arrangements charged to the Profit and
Loss account is Rs.43.73 Million (Previous year Rs.88.70 Million).
21. The information disclosed in Schedule H.A (a) to the financial
statements with regard to Micro and Small enterprises is based on
information collected by the management based on enquiries made with
the creditors which have been relied upon by the auditors.
22. Transfer Pricing
The Finance Act, 2001, has introduced, with effect from assessment year
2002-03 (effective April 1, 2001), detailed Transfer Pricing
regulations (regulations) for computing the income from
international transactions between associated enterprises on an
arms length basis. These regulations, inter alia, also require the
maintenance of prescribed documents and information including
furnishing a report from an Accountant which is to be filed with the
Income tax authorities.
The Company has undertaken necessary steps to comply with the Transfer
Pricing regulations. The Management is of the opinion that the
international transactions are at arms length, and hence the aforesaid
legislation will not have any impact on the financial statements,
particularly on the amount of tax expense and that of provision for
taxation.
23. Since the Company prepares consolidated financial statements,
segment information has not been provided in these financial
statements.
24. Earnings per Share
Note:
(a) The amount of preference dividend for 2009 does not include the
amount of any preference dividend accrued in the Profit & Loss Account
during the year in respect of previous years since the same was
considered for determining Earning per share in respective years.
(b) During the year ending December 31, 2010 the Company has reversed
the preference dividend along with dividend tax thereon accrued in
earlier years amounting to Rs.148.54 Million, since such dividend is no
longer payable consequent to the agreement with the preference
shareholders. Consequent to reversal such amount is also available for
distribution to the equity shareholders. The basic and diluted EPS for
the year ended December 31, 2010 after considering the reversal of
preference dividend and tax thereon is Rs.18.85 & Rs.14.54
respectively.
25. Cash flow statement
(a) The Cash Flow Statement has been prepared under the indirect method
as set out in the Accounting Standard - 3 on "Cash Flow StatementsÃ
issued under Section 211(3C) of Companies Act, 1956.
(b) Interest paid is inclusive of and purchase of Fixed Assets
excludes, interest capitalised Rs.12.46 Million (Previous year
Rs.100.59 Million).
(c) Direct tax paid and Others in the Cash Flow Statement includes
outflows on account of permitted utilization from the BRR of Rs.69.80
Million (Previous Year Rs.49.03 Million) and Direct Taxes of Rs.102.23
Million (Previous Year Rs.49.47 Million)
(d) Reconciliation of Cash and Cash Equivalents to Cash and bank
balances included in Schedule G.A.4.
26. Employee Benefits (Gratuity):
Note:
1. The 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.
2. In the absence of information relating to category wise breakup of
Plan Assets, the same has not been disclosed.
26.2 Details on Derivatives Instruments & Un-hedged Foreign Currency
Exposures
The following derivative positions are open as at December 31, 2010.
While these transactions have been undertaken to act as economic hedges
for the Companys exposures to various risks in foreign exchange
markets, they have not qualified as hedging instruments in the context
of the rigour of such classification under Accounting Standard 30.
These instruments are therefore classified as held for trading and
gains/losses recognized in the Profit and Loss Account.
I. The Company has entered into the following derivative instruments
(a) Forward Exchange Contracts [being a derivative instrument], which
are not intended for trading or speculative purposes, but for hedge
purposes, to establish the amount of reporting currency required or
available at the settlement date of certain payables and receivables.
(b) Interest Rate Swaps to hedge against fluctuations in interest rate
changes: No. of contracts: Nil (Previous year : Nil)
(c) Currency Swaps (other than forward exchange contracts stated above)
to hedge against fluctuations in changes in exchange rate. No. of
contracts: Nil (Previous Year: Nil)
III. There were no outstanding option contracts as at December 31,
2010.
IV. Loss on Forward Exchange Derivative contracts (Net) included in
the Profit and Loss account for year ended December 31, 2010 amounts to
Rs.72.12 Million (Previous Year: Loss (Net) Rs.117.87 Million)
27 Categories of Financial Instruments
(c) Financial Liabilities Held for Trading
The option component of FCCBs has been classified as held for trading,
being a derivative under AS 30. The carrying amount of the option
component was Rs.190.95 Million as at December 31, 2010 and Rs.175.32
Million as at December 31, 2009. The difference in carrying value
between the two dates, amounting to Rs.15.63 Million is taken as oss to
the Profit and Loss Account of the year in accordance with provisions
of AS 30.
The fair value of the option component has been determined using a
valuation model. Refer to Note B.8.1 above on FCCBs for detailed
disclosure on the valuation method.
(d) There are no other financial assets/liabilities in the following
categories:
- Financial assets:
- Carried at fair value through profit and loss designated at such at
initial recognition.
- Held to maturity
- Available for sale (other than investment in Subsidiaries & Joint
Venture)
- Financial liabilities:
- Carried at fair value through profit and loss designated as such at
initial recognition.
31.5 Nature and extent of risks arising from financial instrument
The main financial risks faced by the Company relate to fluctuations in
interest and foreign exchange rates, the risk of default by
counterparties to financial transactions, and the availability of funds
to meet business needs. The Balance Sheet as at December 31, 2010 is
representative of the position through the year. Risk management is
carried out by a central treasury department under the guidance of the
Management.
Credit risk
Credit risk arises from cash and cash equivalents, financial
instruments and deposits with banks and financial institutions. Credit
risk also arises from trade receivables and other financial assets.
The credit risk arising from receivables is subject to concentration
risk in that the receivables are predominantly denominated in USD and
any appreciation in the INR will affect the credit risk. Further, the
Company is not significantly exposed to geographical distribution risk
as the counterparties operate across various countries across the
Globe.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. The Companys approach to
managing liquidity is to ensure, 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 risking damage to Companys reputation.
Liquidity risk is managed using short term and long term cash flow
forecasts.
The following is an analysis of undiscounted contractual cash flows
payable under financial liabilities and derivatives as at December 31,
2010. (Figures in brackets relates to Previous Year)
Foreign exchange risk
The Company is exposed to foreign exchange risk principally via:
- Debt availed in foreign currency
- Net investments in subsidiaries and joint ventures in foreign
currencies
- Exposure arising from transactions relating to purchases, revenues,
expenses etc to be settled in currencies other than ndian Rupees, the
functional currency of the respective entities.
31.6 Sensitivity analysis as at December 31, 2010
Financial instruments affected by interest rate changes include Secured
Long term loans from banks, Secured Long term loans from others,
Secured Short term loans from banks and Unsecured Short term loans from
banks. The impact of a 1% change in interest rates on the profit of an
annual period will be Rs.76.53 Million (Previous year Rs 80.69 Million)
assuming the loans as of December 31, 2010 continue to be constant
during the annual period. This computation does not involve a
revaluation of the fair value of loans as a consequence of changes in
interest rates. The computation also assumes that an increase in
interest rates on floating rate liabilities will not necessarily
involve an increase in interest rates on floating rate financial
assets.
Financial instruments affected by changes in foreign exchange rates
include FCCBs, External Commercial Borrowings (ECBs), investments in
subsidiaries, loans in foreign currencies to erstwhile subsidiaries and
loans to subsidiaries and joint ventures. The Company considers US
Dollar and the Euro to be principal currencies which require monitoring
and risk mitigation. The Company is exposed to volatility in other
currencies including the Great Britain Pounds (GBP) and the Australian
Dollar (AUD).
32. The previous years figures have been regrouped in line with the
current year.
Dec 31, 2009
1. The shareholders of the Company, in their meeting held on April 13,
2009 approved the Scheme of Restructuring that envisaged, inter alia:
(a) A Scheme of Arrangement to be fled under Sections 391 to 394 of the
Companies Act, 1956 covering the merger of some of the subsidiaries of
the Company with itself, fair valuation of some of the assets of the
Company and creation of a Reserve for Business Restructuring out of any
surpluses arising from these, to be utilised as specified in the
Scheme.
(b) Transfer of the Specialties business along with Research and
Development (R&D) to Strides Specialties Private Limited (SSPL), a
wholly owned subsidiary of the Company;
The details of the scheme of restructuring are given below.
2. Scheme of Arrangement under Sections 391- 394 of the Companies Act,
1956
2.1 In terms of the Scheme of Arrangement (the Scheme), Global Remedies
Limited (GRL), Quantum Remedies Private Limited (QRPL), Grandix
Pharmaceuticals Limited (GPL) and Grandix Laboratories Limited (GLL),
all subsidiaries of the Company (referred to as ÃTransferor
CompaniesÃ), have been merged with the Company (Transferee Company),
upon which the undertaking and the entire business, including all
assets and liabilities of the Transferor Companies stands transferred
to and vested in the Transferee Company at their fair value as
determined by the Board of Directors of the Transferee Company.
QRPL and GRL were engaged in the manufacture of Pharmaceutical
formulations and were predominantly acting as a captive manufacturer
for the Company and catering to the African Markets. Both GPL and GLL
were engaged in the marketing of Branded pharmaceutical products.
The Scheme of Arrangement fled by the Company has been approved by the
Honorable High Courts of Judicature at Mumbai, Chennai and Bangalore
with an appointed date of January 1, 2009 and an effective date of
December 31, 2009 (Ãthe Effective DateÃ), being the date on which all
the requirements under the Companies Act have been completed.
In terms of the Scheme and upon the Scheme becoming effective:
(a) the assets and liabilities of the Transferor Companies and the
Transferee Company, whether recorded or not, have been recorded at
their fair values as determined by the Board of Directors of the
Transferee Company;
(b) the carrying amount of investments in the shares of the Transferor
Companies to the extent held by the Transferee Company and
Inter-Company balances stand cancelled;
(c) the face value of the equity shares of the Transferee Company
(amounting to Rs.0.14 Million) issued to the minority shareholders of
GPL and GLL has been credited to the equity share capital account in
the books of the Transferee Company. Since such shares have been
allotted on January 19, 2010, such amount has been considered as Share
Application Money Pending Allotment in these financial statements.
(d) the surplus arising out of the excess of assets over the
liabilities of the Transferor Companies acquired and recorded by the
Transferee Company over the aggregate of carrying amount of investments
in the shares of the Transferor Companies to the extent held by the
Transferee Company and the face value of the equity shares of the
Transferee Company issuable to the minority shareholders of GPL and
GLL, and the excess of the fair value of assets and liabilities of the
Transferee Company over their previously recorded carrying values, has
been credited to the Reserve for Business Restructure (BRR) in the
books of the Transferee Company.
(e) the balance in the Securities Premium Account, as appearing in the
books of the Transferee Company may be transferred to BRR, to such
extent as determined by the Board.
(f) expenses incurred by the Company or its subsidiaries in the nature
of impairment, diminution, loss, amortisation and/ or write-off of
assets/ investments/ intangibles, interest on borrowings for
acquisitions, employee compensation expenses, additional depreciation
charged or suffered by the Transferee Company on account of fair
valuation, scheme expenses and other expenses incurred or arising in
the future as may be determined by the Board of Directors of the
Transferee Company, have been/ shall be debited to the BRR. The maximum
amount that can be written off against the BRR instead of being debited
to the Profit and Loss Account on or at any time after January 1, 2009
would be restricted to the balance in the BRR or upto December 31, 2012
and not beyond that.
2.3 Had the Scheme not provided for recording fair value of assets and
liabilities of the Transferee Company and charging the expenses to the
BRR, the effect of accounting as per the Accounting Standards issued
under the Companies (Accounting Standards) Rules, 2006, would have been
as under:
1. Capital Commitments
Estimated amount of contracts remaining to be executed on capital
account and not provided for (Net of advances) - Rs.71.04 Million
(Previous year Rs.283.99 Million). Also refer Note 9.
2. Contingent Liabilities
2.1 The Company has given the corporate guarantees to financial
institutions and other parties towards credit facilities/ advances, on
behalf of subsidiaries up to Rs.1,354.29 Million (Previous Year
Rs.1,592.39 Million). However the subsidiaries have used facilities to
an extent of Rs.1,186.21 Million (Previous Year 1,296.52 Million) as at
the year end. The CompanyÃs fixed assets (pari-passu second charge)
and some of investments in the respective subsidiaries have been
offered as security in respect of some of these facilities.
2.2 The Company has, arising from the assessment proceedings relating
to earlier years, received demands totaling to Rs.207.12 Million
(Previous year Rs.245.49 Million) from the income tax authorities on
account of certain disallowances considered by them. The Company has
disputed the disallowances and has, preferred appeals against these
demands. Pending resolution of the same, no provision has been made in
the accounts for such disputed amounts.
2.3 The Company preferred appeal with the CESTAT against the order of
the Commissioner of Central Excise for disallowing transfer of cenvat
credit of Rs.3.86 Million (Previous year Rs 3.86 Million) as on the
date of conversion of one of the units of the Company into a 100% EOU.
3. Foreign currency convertible bonds
(a) During the accounting year ending December 31, 2007, the Company
had issued Foreign Currency Convertible Bonds (FCCB) amounting to USD
100 Million (Rs.4,070 Million) on June 26, 2007. These bonds carry zero
coupon and are to be redeemed on June 27, 2012 (unless converted into
Equity Shares) at 145.058% of the Principal amount.
The bonds may be redeemed in whole, but not in part at the option of
the Company at any time on or after July 18, 2010 and on and prior to
June 20, 2012 with a redemption premium of 7.575% (which is identical
to the gross yield in case of redemption at maturity) calculated on a
semiannual basis. Up to December 31, 2007, Premium payable on maturity
(along with related exchange fluctuation) was transferred from
Securities Premium on a pro-rata basis to Debenture Redemption Reserve
Account. However, consequent to the early adoption of AS 30 since 2008,
the amortisation of redemption premium have been included in the
carrying value of the FCCBÃs. Consequently the entire balance of
redemption premium carried in the Debenture Redemption Reserve was
transferred back to Securities Premium Account during the year ended
December 31, 2008.
The Bonds are convertible at any time on or after August 6, 2007 and up
to the close of business on June 20, 2012 by the holders of the Bonds
into Shares at the option of the Bondholder, at an initial conversion
price of Rs.461.553 per Share with a fixed rate of exchange of Rs.40.70
per USD on conversion. The bonds are listed on Singapore Exchange
Securities Trading Limited, Singapore.
(b) During the accounting year ending December 31, 2005, the Company
had issued Foreign Currency Convertible Bonds (listed in the Singapore
Exchange Securities Trading Limited, Singapore) to the extent of USD 40
Million. These bonds carry an interest rate of 0.5 % p.a. and are to be
redeemed on April 19, 2010 (unless converted into Equity Shares) at
136.78% of the Principal amount.
The Bonds may be redeemed in whole, but not in part, at the option of
the Company at any time on or after April 18, 2008 but prior to April
19, 2010 with a redemption premium of 6.8% p.a. (which is identical to
the gross yield in case of redemption at maturity), calculated on
bi-annual basis.
The Bonds are convertible by the Bond holders into shares at any time
on or after May 18, 2005 at an initial price of Rs.358.70 per share
with a fixed conversion rate of Rs.43.7767 = USD 1.00. The initial
conversion price will be subject to adjustment by the Company for Bonus
issue, division, consolidation and reclassification of shares etc., as
defined in the terms of issue of the Bonds.
In 2005, a reserve for the entire amount of premium payable on
redemption was created under Debenture Redemption Reserve with a
corresponding adjustment to Securities Premium Account. However,
consequent to the early adoption of AS 30 since 2008, the amortisation
of redemption premium has been included in the carrying value of the
FCCBÃs. Consequently the entire balance of redemption premium carried
under Debenture Redemption Reserve was transferred back to Securities
Premium Account during the year ended December 31, 2008.
(c) As permitted by the Reserve Bank of India (RBI), during the year
2009, the Company bought back FCCBÃs aggregating to USD 6.00 Million
and USD 20 Million from the outstanding bonds issued under FCCB 2005
and FCCB 2007 respectively, at a discount. In terms of such buyback and
cancellation / extinguishment of FCCBs, the Financial Statements for
the year ended December 31, 2009 include the following:
- A gain of Rs.291.17 Million (net of expenses associated with the
Buy-back) is recognised in the Profit & Loss account.
- Interest accrued from the beginning of the year 2009 till the buyback
date amounting to Rs.79.96 Million is reversed and credited to the
Profit and Loss Account.
- Consequential adjustments required to reverse the accrual for
redemption premium (including issue expenses) have been recorded in the
Securities premium account amounting to Rs.254.82 Million.
(d) As at December 31, 2009, none of the outstanding bonds had been
offered for conversion.
4. Cumulative Redeemable Preference Shares
During the year ending December 31, 2005, the Company had issued
491,606 Cumulative Redeemable Preference shares of Rs.1,000/- each
fully paid to K V Pharmaceuticals, USA (KV). The Cumulative Redeemable
Preference shares carry dividend of 6% (Rs.60 per share) p.a. The
Preference shares are redeemable at par along with accrued unpaid
dividend on or before December 31, 2012. If any of these shares are not
redeemed on the said date, the redemption price subsequent to December
31, 2012 shall contain an increasing default premium which shall be
10%, if redemption occurs in the year 2013 and an additional 10% per
each year thereafter in which the shares are redeemed. These shares are
entitled to dividends at the rate of 15%, (Rs.150 per share) after
2012.
During the year ended December 31, 2009, preference dividend pertaining
to 2007, 2008 and 2009 amounting to Rs.88.49 Million has been accrued.
Preference Dividend unpaid as at December 31, 2009 represents dividends
on these preference shares for the years 2005 to 2009. While these
dividends have been declared, in accordance with the Share Purchase
Agreement with KV, they are due and payable only on or after December
31, 2010, without interest thereon.
5. Share Warrants
As authorised by the share holders of the Company in the Extra Ordinary
General meeting held on May 13, 2009, the Board of Directors resolved
on May 27, 2009 to allot 6,180,000 warrants to Netequity Ventures
Private Limited, a Promoter Group company and 20,000 warrants to
relatives of the Promoters, on preferential basis which are convertible
into an equivalent number of fully paid up equity shares of Rs.10 each
at a price of Rs.91.15 per warrant. These warrants are convertible, in
one or more tranches, at any time within a period of 18 months from the
date of issue.
An amount of Rs.141.36 Million is included as Monies Pending Allotment
in the Balance Sheet as at December 31, 2009 for the upfront monies
received towards the allotment of 6,200,000 warrants.
During 2008, as authorised by the shareholders of the Company in the
Extra-Ordinary General meeting held on May 3, 2007,
the Company had issued 5,600,000 warrants convertible into an
equivalent number of fully paid up equity shares of Rs.10 each at a
price of Rs.342.10 per warrant, on preferential basis to Agnus Holdings
Private Limited, a promoter group company. These warrants were
convertible in one or more tranches, at any time within a period of 18
months from the date of issue. On July 5, 2007, the Company allotted
50,000 shares to Agnus Holdings Private Limited, pursuant to conversion
of an equivalent number of warrants. Agnus Holdings Private Limited had
not exercised its right for conversion of balance 5,550,000 warrants
within the time stipulated under the preferential allotment guidelines.
Accordingly, the aforesaid 5,550,000 warrants stood lapsed and upfront
money of Rs.189.87 Million received against these warrants were
forfeited and credited to Capital Reserve Account.
6. Early Adoption of Accounting Standard-30: Financial Instruments:
Recognition and Measurement, issued by Institute of Chartered
Accountants of India
Arising from the Announcement of the Institute of Chartered Accountants
of India (ICAI) on March 29, 2008, the Company had chosen to early
adopt Accounting Standard (AS) 30: ÃFinancial Instruments: Recognition
and Measurementà during the year ended December 31, 2008, with effect
from January 1, 2008. Coterminous with this, in the spirit of complete
adoption, the Company had also implemented the consequential limited
revisions in view of AS 30 to AS 2, ÃValuation of InventoriesÃ, AS
11ÃThe Effect of Changes in Foreign Exchange RatesÃ, AS 19, ÃLeasesÃ,
AS 21 ÃConsolidated Financial Statements and Accounting for Investments
in Subsidiaries in Separate Financial StatementsÃ, AS 23 ÃAccounting
for Investments in Associates in Consolidated Financial StatementsÃ, AS
26 ÃIntangible AssetsÃ, AS 27 ÃFinancial Reporting of Interests in
Joint VenturesÃ, AS 28 ÃImpairment of Assetsà and AS 29 ÃProvisions,
Contingent Liabilities and Contingent Assetsà as have been announced by
the ICAI.
Consequent to adoption of AS 30 and its transitional provisions from
the year ended December 31, 2008, the Company has changed the
designation and measurement principles for all its significant
financial assets and liabilities. The impact on account of the above
measurement of these is as described below:
6.1 Foreign Currency Convertible Bonds (the ÃFCCBsà or the ÃBondsÃ)
On adoption of AS 30, the FCCBs are split into two components
comprising (a) option component which represents the value of the
option in the hands of the FCCB-holders to convert the bonds into
equity shares of the Company and (b) debt component which represents
the debt to be redeemed in the absence of conversion option being
exercised by FCCB-holder, net of issuance costs.
The debt component is recognised and measured at amortised cost while
the fair value of the option component is determined using a valuation
model with the below mentioned assumptions.
Assumptions used to determine fair value of the options:
Valuation and amortisation method à The Company estimates the fair
value of stock options granted using the Black Scholes Merton Model and
the principles of the Roll-Geske-Whaley extension to the Black Scholes
Merton model. The Black Scholes Merton model along with the extensions
above requires the following inputs for valuation of options:
Stock Price as at the date of valuation à The CompanyÃs share prices as
quoted in the National Stock Exchange Limited (NSE), India have been
converted into equivalent share prices in US Dollar terms by applying
currency rates as at valuation dates. Further, stock prices have been
reduced by continuously compounded stream of dividends expected over
time to expiry as per the principles of the Black-Scholes Merton model
with Roll Geske Whaley extensions.
Strike price for the option - has been computed in dollar terms by
computing the redemption amount in US dollars on the date of redemption
(if not converted into equity shares) divided by the number of shares
which shall be allotted against such FCCBs.
Expected Term à The expected term represents time to expiry, determined
as number of days between the date of valuation of the option and the
date of redemption.
Expected Volatility à Management establishes volatility of the stock by
computing standard deviation of the simple exponential daily returns on
the stock. Stock prices for this purpose have been computed by
expressing daily closing prices as quoted on the NSE into equivalent US
dollar terms. For the purpose of computing volatility of stock prices,
daily prices for the last one year have been considered as on the
respective valuation dates.
Risk-Free Interest Rate à The risk-free interest rate used in the
Black-Scholes valuation method is assumed at 7%.
Expected Dividend à Dividends have been assumed to continue, for each
valuation rate, at the rate at which dividends were earned by
shareholders in the last preceding twelve months before the date of
valuation.
Measurement of Amortised cost of debt component:
For the purpose of recognition and measurement of the debt component,
the effective yield has been computed considering the amount of the
debt component on initial recognition, origination costs of the FCCB
and the redemption amount if not converted into Equity Shares. To the
extent the effective yield pertains to redemption premium and the
origination costs, the effective yield has been amortised to the
Securities Premium Account as permitted under section 78 of the
Companies Act, 1956. The balance of the effective yield is charged to
the Profit and Loss Account.
Consequent to the above method of accounting of FCCBs, the following
adjustments were made:
During the year ended December 31, 2008:
(a) Rs.934.71 Million being the previously accrued Debenture Redemption
Reserve out of the Securities Premium Account was credited back to
Securities Premium Account during the year ended December 31, 2008.
(b) a sum of Rs.124.68 Million being the amount of FCCB issue expenses
previously debited to Securities Premium Account were reversed.
(c) Rs.443.20 Million and Rs.546.41 Million were debited to Securities
Premium Account as at December 31, 2007 and during the year 2008
respectively, towards the amortised interest attributable to the
effective yield pertaining to the redemption premium and FCCB issue
expenses.
(d) Rs.202.00 Million being the excess of amortised interest chargeable
to Profit and Loss Account as per the policy adopted by the Company
over the previously recognised interest cost upto December 31, 2007 was
debited to General Reserve Account.
(e) The difference between the fair value of the option component on
the date of issue of the FCCBs and December 31, 2007 amounting to
Rs.427.10 Million was credited to the General Reserve Account.
(f) Rs.63.31 Million being the incremental exchange difference upto
December 31, 2007 arising out of the accounting treatment of FCCBs
described above was debited to General Reserve Account.
During the year ended December 31, 2009:
(a) Amortisation of interest (net) and redemption premium (net) on
FCCBs amounting to Rs.168.10 Million and Rs.348.68 Million have been
respectively recorded in the Profit and Loss account and in the
Securities Premium Account.
(b) Change in the fair values of option component in the FCCBs, being a
loss of Rs.41.12 Million has been recorded in the Proft and Loss
Account.
6.2 Hedge Accounting:
The Company has designated certain portion of its investments in
Starsmore Limited, Cyprus, Strides Africa Limited, British Virgin
islands and Akorn Strides LLC, USA, whose functional currency is US
dollars as hedged items in a fair value hedge and to the extent of the
hedge items, designated FCCBÃs availed in US dollars as hedging
instruments, to hedge the risk arising from fluctuations in the foreign
exchange rate between the Indian Rupee and the US dollar. The carrying
values of the designated hedged items and the hedging instruments as at
December 31, 2009 is USD 30.55 Million (Previous Year USD 100.55
Million).
Accordingly, applying the fair value hedge accounting principles, the
exchange gains/ losses on the hedging instrument is recognised in
Profit and Loss Account along with the associated exchange gains/
losses on the restatement of the designated portion of the investments,
to the extent the hedges are considered effective.
The exchange fluctuations on restatement of designated portion of the
USD denominated investments as referred above have been dealt with in
the Profit and Loss account of the respective years of 2009 and 2008 as
mentioned below:
- Exchange losses of Rs.107.01 Million during the year ended December
31, 2009
- Exchange gains of Rs.923.40 Million during the year ended December
31, 2008
Under the transitional provisions of the AS 30, the impact of exchange
loss arising on restatement of designated portion of the USD
denominated investments as of December 31, 2007 amounting to Rs.120.42
Million was debited to the General Reserve Account during year ended
December 31, 2008.
6.3 The financial assets and liabilities arising out of issue of
corporate financial guarantees to third parties are accounted at fair
values on initial recognition. Financial assets continue to be carried
at fair values. Financial liabilities are subsequently measured at the
higher of the amounts determined under AS 29 or the fair values on the
measurement date. At December 31, 2009, the fair values of such
financial assets are equal to such liabilities and have been set off in
the financial statements.
6.4 As required under the Companies Act, 1956, Redeemable Preference
Shares are included as part of share capital and not as debt and
dividend on the preference shares is accounted as dividend as part of
appropriation of profits and have not been accrued as interest cost.
Due to inadequate profits, preference dividends were not accrued for in
the years 2007 and 2008. During 2009, preference dividend pertaining to
2007, 2008 and 2009 amounting to Rs.88.49 Million has been accrued
along with the related Dividend distribution taxes.
6.5 The Company has availed Bill Discounting facility from Banks which
do not meet the de-recognition criteria for transfer of contractual
rights to receive cash flows from the Debtors since they are with
recourse to the Company. Accordingly, as at December 31, 2009, Sundry
Debtor balances include Rs.1,044.46 Million (Previous year Rs.974.61
Million) and the corresponding financial liability to the Banks is
included as part of short term secured loans.
6.6 Gains/ losses on all the open derivative positions as on December
31, 2009 not designated as hedging instruments have been recognised in
the Profit and Loss Account.
7. Employee Stock Option Scheme
(a) In the extraordinary general meeting held on January 25, 2007, the
shareholders approved the issue of 1,000,000 options under the scheme
titled ÃStrides Arcolab ESOP 2006Ã.
The Strides Arcolab ESOP 2006 allows the issue of options to employees
of the Company and its subsidiaries (whether in India or abroad). Each
option comprises one underlying equity share.
As per the Scheme, the Compensation committee grants the options to the
employees deemed eligible. The exercise price of each option shall not
be less than 85% of the ÃMarket Priceà as defined in the Scheme. The
options granted vest over a period of 3 years from the date of the
grant in proportions specified in the Scheme. Options may be exercised
within 30 days of vesting.
The difference between the fair price of the share underlying the
options granted, on the date of grant of option and the exercise price
of the option (being the intrinsic value of the option) representing
Stock compensation expense, is expensed over the vesting period.
(b) The ESOP scheme titled ÃStrides Arcolab ESOP 2008Ã was approved by
the shareholders through postal ballot on June 18, 2008. 1,500,000
options are covered under the scheme for 1,500,000 shares.
The Remuneration Committee of the Company, on July 22, 2008 has granted
665,000 options under the Strides Arcolab ESOP 2008 scheme to few
eligible employees of the Company. The shares covered by such options
were 665,000 equity shares.
During the current year, the Remuneration Committee in its meeting held
on March 16, 2009 and August 28, 2009 has granted 100,000 and 242,500
options respectively under the Strides Arcolab ESOP 2008 Scheme to few
eligible employees of the Company.
The vesting period of these options range over a period of three years.
The options may be exercised with in a period of 30 days from the date
of vesting.
(c) The ESOP scheme titled ÃStrides Arcolab ESOP 2008 (Directors)Ã was
approved by the shareholders through postal ballot on January 12, 2009.
500,000 options are covered under the scheme for 500,000 equity shares.
The Remuneration Committee of the Company, on March 16, 2009 has
granted 300,000 options under the Strides Arcolab ESOP 2008 (Directors)
scheme to few Directors of the Company. The shares covered by such
options were 300,000 equity shares.
The vesting period of these options range over a period of three years.
The options may be exercised with in a period of 30 days from the date
of vesting.
(d) During the year, the Shareholders of the Company through postal
ballot on June 23, 2009 have accorded to re-price the terms of the
unexercised Employee Stock Options (ESOPs) issued under the Strides
Arcolab ESOP 2006 and Strides Arcolab ESOP 2008 Schemes to the extent
that such re-price/ re-pricing formula is not less than 85% of the
closing market price of shares as on the date of re-pricing.
8. During the year, the Company received compensation amounting to
Rs.20 Million (included in Other Income) for breach of non-compete
arrangements entered into with the erstwhile promoter of Grandix
Pharmaceuticals Limited, an entity that was acquired by the Company in
2007 and merged into the Company in 2009.
9. During the year 2007, the Company entered into a Subscription and
Shareholders agreement with Aspen Pharmacare Holdings Limited (Aspen)
under which Aspen subscribed to 49% of the share capital of Onco
Therapies Limited (Onco), a subsidiary of the Company. Onco is set up
to operate in the Oncology products line of business that the Company
is in the process of building up.
In accordance with the agreement referred above, the Company has
assigned the voting rights relating to 1% of the share capital of Onco
to Aspen under a Voting Rights assignment agreement. Under this
agreement, the voting rights in respect of such 1% of the total issued
and outstanding share capital of Onco shall be exercised by Aspen from
the date of signing of such Voting Rights agreement, in a manner which
deem ft.
The Company had entered into another Agreement with Onco to set up an
Oncology manufacturing facility in Bangalore, for a consideration of
USD 32.50 Million (payable by Onco in equivalent Indian Rupees). Under
this agreement the Company had:
- transferred the moveable and immoveable assets relating to the
Oncology manufacturing facility and the contracts awarded to various
suppliers in connection with the facility; and
- undertaken the obligations of completing the facility, including all
financial obligations related thereto.
As at December 31, 2009, the Company has estimated the financial
commitment to complete the Oncology facility to be about Rs.228.35
Million (Previous year Rs.333.59 Million)
An amount of Rs.110.00 Million (Previous year Rs.10.00 Million)
representing Project management fees & profit recognised on partial
completion of the facility under the above arrangement has been accrued
under Other Income.
During the year ended December 31, 2009, the Company transferred
certain Product Dossiers to Onco in lieu of Preferred Supply Agreement
for certain products, entered between the Company and Onco.
10. Other Income (Item Ãcà under Schedule J) for the year ended
December 31, 2008 comprises the following:
a. Company transferred its shareholding in Strides Latina SA, Uruguay
to Lakerose Limited, Cyprus, then a step down subsidiary, for a
consideration of USD 30.10 Million (equivalent to Rs.1,193.55 Million)
and recorded a profit on sale of investment of Rs.2.21 Million.
b. Company sold certain supply contracts in respect of customers in
South East Asian markets to Ascent Pharmahealth Pte Limited, a step
down subsidiary, at a consideration of Rs.208.15 Million.
11. Interest in Joint ventures
In terms of the Joint Venture agreement entered into between the
Company and Akorn Inc., USA, the Company holds 50% of the total share
capital of the joint venture, Akorn Strides LLC, USA.
12. Unbilled revenue includes income recognised on development
services contracts and contracts for production of dossiers, against
which no invoices are raised, and are net of advances received against
the respective contracts. However, during the current year, pursuant to
hive off of Research & Development business to SSPL, unbilled revenue
balance as at December 30, 2009 is transferred to SSPL. Refer note A.2
of Schedule P.
13. Particulars of materials consumed and percentage to total
consumption of Imported and Indigenous materials.
Since none of the individual items of raw materials and packing
materials constitute more than 10% of the consumption, quantitative
details in respect of the same have not been given.
14. Particulars of Traded Goods
None of the items individually account for more than 10% of the total
value of the purchases, stock or turnover, hence quantitative details
have not been furnished.
15. Related Party Transactions :
Names of Related Parties:
Wholly owned subsidiaries :
Direct Holding:
Arcolab Limited SA, Switzerland
Global Remedies Limited, India (merged with the Company w.e.f January
1, 2009)
Strides Technology & Research Pvt Ltd.,
Strides Specialties Pvt Limited (formerly Quantum Life Sciences Pvt
Ltd.)
Starsmore Limited, Cyprus
Strides Africa Limited, British Virgin Islands
Strides Arcolab International Limited, U.K (SAIL)
Medgene Pharmaceuticals Pvt Ltd. India (Upto April 24, 2009)
Indirect Holding:
Pharma Strides Canada Corporation
Linkace Limited, Cyprus
Plus Farma ehf (w.e.f 30.12.2009)
Farma Plus AS (w.e.f 30.12.2009)
Quantum Remedies Private Limited (merged with the Company w.e.f January
1, 2009)
Strides Specialties (Holdings) Limited, Mauritius
Strides Specialties (Holdings) Cyprus Limited (previously known as
Powercoast Limited).
Strides Pharmaceuticals (Holdings) Limited, Mauritius
Strides Specialty (Cyprus) Limited
Strides Arcolab Polska Sp.z o.o, Poland
Strides Arcolab UK Limited, UK
Strides Australia Pty Limited, Australia
Medgene Pharmaceuticals Pvt Ltd. India ( From April 24, 2009)
Strides Pharma (Cyprus) Limited, Cyprus
Other Subsidiaries:
Direct Holding:
Strides Inc. USA
Onco Therapies Ltd, India
Grandix Pharmaceutical Limited, India (merged with the Company w.e.f
January 1, 2009)
Indirect Holding:
Ascent Pharmahealth Limited, Australia
Strides S.A. Pharmaceuticals Pty. Limited, South Africa
Ascent Pharmahealth Asia Pte Limited, Singapore
Beltapharm S.p.A., Italy
Drug Houses of Australia (Asia) Pte. Limited, Singapore
Co Pharma Ltd, UK
Formule Naturelle (Pty) Limited , South Africa
Genepharm Newzealand Limited, Newzealand
Genepharm Pty Limited, Australia
Grandix Laboratories Limited, India (merged with the Company w.e.f
January 1, 2009)
Pharmasava Australia Pty Ltd., Australia
Green Cross Pharma Pte Ltd., Singapore
Strides Arcolab Hong Kong Limited, Hong Kong
Strides Arcolab Malaysia SDN. BHD, Malaysia
Strides Arcolab SDN BHD, Brunei
Strides CIS Limited, Cyprus (Previously known as Raycom Limited)
Strides Vital Nigeria Limited, Nigeria
Joint Ventures (JV):
Akorn Strides LLC, USA
Farma Plus AS, Norway (Upto December 29, 2009)
Laboratorios Domac Spain (Upto December 30, 2009)
Plus Farma ehf, Iceland (Upto December 29, 2009)
Onco Laboratories Limited, Cyprus (formerly Powercliff Ltd.)
Sagent Strides LLC, USA
Key Management Personnel: Enterprises owned or significantly influenced
by key management personnel and relatives of key management personnel
Mr. Arun Kumar (Vice Chairman & Managing Director)
Agnus Global Holdings Pte Limited
Agnus Holdings Private Limited
Agnus IPCO Limited, BVI
Arcolab (India) Private Limited
Atma Projects
Caryl Pharma Private Limited
Chayadeep Properties Private Limited
Everron Systems (India) Limited
Fraxis Life Sciences Limited
Keerthapathi Ravishankar à HUF
Mrs. Deepa Arunkumar
Mrs. K Saraswathi
Netequity Ventures Private Limited
Nous Infosytems Private Limited
Patsys Consulting Private Limited
Sequent Scientifc Limited (previously PI Drugs & Pharmaceuticals
Limited ), India
Sequent Research Limited , India
Sequent European Holdings Limited
Sequent Global Holdings Limited, Mauritius
Sequent Scientifc Limited
Vedic Elements Private Limited
Mr. G.P Pillai
Mr. Mohan Kumar Pillai
Associates
Aspen Venezuela CA (formerly Casa de Representaciones Sumifarma CA),
Venezuela
Cellofarm Ltda, Brazil
Pharmalatina Holdings Limited (formerly Lakerose Ltd.), Cyprus
Solara SA De CV, Mexico
Strides Latina, SA, Uruguay
Aspen Labs SA De CV (formerly Strides Mexicana SA De CV), Mexico
Note: Related parties are as identified by the Company and relied upon
by the Auditors.
16. Leases
The CompanyÃs significant leasing arrangements are mainly in respect of
factory buildings, residential and office premises. The aggregate
lease rentals payable on these leasing arrangements charged to the
Profit and Loss account is Rs.88.69 Million (Previous year Rs.51.36
Million).
17. Loans and advances include amounts due from Directors, Rs.24.71
Million (Previous year Rs.51.76 Million). Maximum amount due during the
year Rs.51.76 Million (Previous year Rs.51.76 Million).
The above amount includes due from Directors of Rs.24.39 Million
(Previous year Rs.51.44 Million), being excess managerial remuneration
of earlier years, referred in clause 17.1 above.
18. The information disclosed in Schedule H.A (a) to the financial
statements with regard to Micro and Small enterprises is based on
information collected by the management based on enquiries made with
the creditors which have been relied upon by the auditors.
19. Transfer Pricing
The Finance Act, 2001, has introduced, with effect from assessment year
2002-03 (effective April 1, 2001), detailed Transfer Pricing
regulations (ÃregulationsÃ) for computing the income from
Ãinternational transactionsà between Ãassociated enterprisesà on an
ÃarmÃs lengthà basis. These regulations, inter alia, also require the
maintenance of prescribed documents and information including
furnishing a report from an Accountant which is to be fled with the
Income tax authorities.
The Company has undertaken necessary steps to comply with the Transfer
Pricing regulations. The Management is of the opinion that the
international transactions are at armÃs length, and hence the aforesaid
legislation will not have any impact on the financial statements,
particularly on the amount of tax expense and that of provision for
taxation.
20. Since the Company prepares consolidated financial statements,
segment information has not been provided in these financial
statements.
21. As required under Section 205(C) of the Companies Act, 1956 the
Company has transferred Rs.0.09 Million (Previous Year Rs.0.08 Million)
to the Investor Education and Protection Fund (IEPF) during the year.
As on December 31, 2009, no amount was due for transfer to the IEPF.
22. Cash flow statement
(a) The Cash Flow Statement has been prepared under the indirect method
as set out in the Accounting Standard à 3 on ÃCash Flow StatementsÃ
issued under Section 211(3C) of Companies Act, 1956.
(b) Interest paid is inclusive of and purchase of Fixed Assets
excludes, interest capitalised Rs.100.59 Million (Previous year
Rs.26.87 Million).
22.1 Details on Derivatives Instruments & Un-hedged Foreign Currency
Exposures
The following derivative positions are open as at December 31, 2009.
While these transactions have been undertaken to act as economic hedges
for the CompanyÃs exposures to various risks in foreign exchange
markets, they have not qualified as hedging instruments in the context
of the rigour of such classification under Accounting Standard 30.
These instruments are therefore classified as held for trading and
gains/ losses recognised in the Profit and Loss Account.
I. The Company has entered into the following derivative instruments
(a) Forward Exchange Contracts [being a derivative instrument], which
are not intended for trading or speculative purposes, but for hedge
purposes, to establish the amount of reporting currency required or
available at the settlement date of certain payables and receivables.
(b) Interest Rate Swaps to hedge against fluctuations in interest rate
changes: No. of contracts: Nil (Previous year : Nil )
(c) Currency Swaps (other than forward exchange contracts stated above)
to hedge against fluctuations in changes in exchange rate. No. of
contracts: Nil (Previous Year: Nil)
22.2 Categories of Financial Instruments (a) Loans and Receivables:
The following financial assets in the Balance Sheet have been
classified as Loans and Receivables as defined in Accounting Standard
30. These are carried at amortised cost less impairment if any.
(c) Financial Liabilities Held for Trading
The option component of Foreign Currency Convertible Bonds (FCCBs) has
been classified as held for trading, being a derivative under
Accounting Standard 30. Refer Note B.6 of Schedule P on FCCBs. The
carrying amount of the option component was Rs.175.32 Million as at
December 31, 2009 and Rs.134.20 Million as at December 31, 2008. The
difference in carrying value between the two dates, amounting to
Rs.41.12 Million is taken as loss to the Profit and Loss Account of the
year in accordance with provisions of Accounting Standard 30.
The fair value of the option component has been determined using a
valuation model. Refer to Note B.6 above on FCCBs for detailed
disclosure on the valuation method.
(d) There are no financial assets / liabilities in the following
categories:
- Financial assets:
o Carried at fair value through profit and loss designated at such at
initial recognition.
o Held to maturity
o Available for sale (other than investment in Subsidiaries & Joint
Venture)
- Financial liabilities:
o carried at fair value through profit and loss designated as such at
initial recognition.
22.3 Nature and extent of risks arising from financial instruments
The main financial risks faced by the Company relate to fluctuations in
interest and foreign exchange rates, the risk of default by
counterparties to financial transactions, and the availability of funds
to meet business needs. The Balance Sheet as at December 31, 2009 is
representative of the position through the year. Risk management is
carried out by a central treasury department under the guidance of the
Management.
Interest rate risk
Interest rate risk arises from long term borrowings. Debt issued at
variable rates exposes the Company to cash flow risk. Debt issued at
fixed rate exposes the Company to fair value risk. In the opinion of
the management, interest rate risk during the year under report was not
substantial enough to require intervention or hedging through
derivatives or other financial instruments. For the purposes of
exposure to interest risk, the Company considers its net debt position
evaluated as the difference between financial assets and financial
liabilities held at fixed rates and floating rates respectively as the
measure of exposure of notional amounts to interest rate risk. This net
debt position is quantified as under:
Foreign exchange risk
The Company is exposed to foreign exchange risk principally via:
- Debt availed in foreign currency
- Net investments in subsidiaries and joint ventures in foreign
currencies
- Exposure arising from transactions relating to purchases, revenues,
expenses etc to be settled in currencies other than Indian Rupees, the
functional currency of the respective entities.
22.4 The Company has designated its investments in certain subsidiaries
whose functional currency is US dollars as hedged items in a fair value
hedge and certain loans availed in US dollars as hedging instruments to
hedge the risk arising from fluctuations in the foreign exchange rate
between the Indian Rupee and the US dollar. The carrying values of the
financial liabilities designated as hedging instruments as at December
31, 2009 is Rs.1,421,19 Million (Previous year Rs.4,897.97 Million).
22.5 The (loss)/ gain arising on the dollar loans designated as hedging
instruments recognised in the Profit and Loss Account during the year
ended December 31, 2009 is Rs.107.01 Million [Previous year (Rs.923.40
Million)]. The (loss)/ gain arising from investments in certain
subsidiaries designated as hedged items as much as is attributable to
the hedged foreign exchange risk recognised in the Profit and Loss
Account for the year ended December 31, 2009 is Rs.(107.01) Million (
Previous year Rs.923.40 Million).
22.6 Sensitivity analysis as at December 31, 2009
Financial instruments affected by interest rate changes include Secured
Long term loans from banks, Secured Long term loans from others,
Secured Short term loans from banks and Unsecured Short term loans from
banks. The impact of a 1% change in interest rates on the profit of an
annual period will be Rs.121.35 Million ( Previous year Rs.108.29
Million) assuming the loans as of December 31, 2009 continue to be
constant during the annual period. This computation does not involve a
revaluation of the fair value of loans as a consequence of changes in
interest rates. The computation also assumes that an increase in
interest rates on floating rate liabilities will not necessarily
involve an increase in interest rates on floating rate financial
assets.
For the purposes of the above table, it is assumed that the carrying
value of the financial assets and liabilities as at the end of the
respective financial years remains constant thereafter. The exchange
rate considered for the sensitivity analysis is the Exchange Rate
prevalent as at December 31, 2009.
In the opinion of the management, impact arising from changes in the
values of trading assets (including derivative contracts, trade
receivables, trade payables, other current assets and liabilities) is
temporary and short term in nature and would vary depending on the
levels of these current assets and liabilities substantially from time
to time and even on day to day basis and hence are not useful in an
analysis of the long term risks which the Company is exposed to.
23. Consequent to the merger of certain subsidiaries into the Company
and the Hiveoff of certain business during the year (Refer Note A,
Schedule ÃPÃ), the figures for the current year are not comparable with
those of the previous year. To the extent relevant the previous yearÃs
figures have been regrouped in line with the current year.
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