a) Basis of preparation
The nancial statements of Dr. Reddy’s Laboratories Limited (DR L or t
he Company) have been prepared and presented in accordance with Indian
Generally Accepted Accounting Principles (IGAAP) under historical cost
convention on an accrual basis. Pursuant to circular 15/2013 dated
13HSeptemberff2013 read with circular 08/2014 dated 4BApril2014 issued
by the Ministry of Corporate Affairs, the existing accounting standards
noti ed under the Companies Act, 1956 shall apply till the standards of
accounting or any addendum thereto are prescribed by the Central
Government in consultation and recommendation of the National Financial
Reporting Authority. Consequently, these nancial statements have been
prepared to comply in all material aspects with accounting standards
noti ed by the Central Government of India under Section 211 (3C) of
the Companies Act, 1956, other pronouncements of the Institute of
Chartered Accountants of India, the relevant provisions of the
Companies Act, 1956 and guidelines issued by the Securities and
Exchange Board of India (SEBI) (Collectively referred to as I GAAP).
The nancial statements are presented in Indian rupees rounded off to
the nearest million
b) Use of estimates
The preparation of the nancial statements in conformity with IGAAP
requires the Company’s management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities on the date of the nancial
statements and reported amounts of revenues and expenses for the year.
Examples of such estimates include estimation of useful life of
tangible and intangible assets, assessment of recoverable amounts of
deferred tax assets, provision for obligations relating to employees,
provisions against litigations and impairment of assets. Actual results
could differ from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis. Any revision to accounting estimates
is recognised prospectively in the current and future periods.
c) Current and non current classifi cation
All the assets and liabilities have been classi ed as current or non
current as per the Company’s normal operating cycle and other criteria
set out in the Revised Schedule VI to the Companies Act, 1956.
An asset is classi ed as current when it satis es any of the following
a) it is expected to be realised in, or is intended for sale or
consumption in, the Company’s normal operating cycle;
b) it is held primarily for the purpose of being traded
c) it is expected to be realised within 12 months after the reporting
d) it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting date. Liabilities:
A liability is classi ed as current when it satis es any of the
a) it is expected to be settled in the Company’s normal operating
b) it is held primarily for the purpose of being traded
c) it is due to be settled within 12 months after the reporting date;
d) the Company does not have an unconditional right to defer settlement
of the liability for at least 12 months after the reporting date. Terms
of a liability that could, at the option of the counterparty, result in
its settlement by the issue of eBuity instruments do not affect its
Current assets / liabilities include the current portion of non current
nancial assets / liabilities respectively. All other assets /
liabilities are classi ed as non current.
d) Tangible fi xed assets and depreciation
Fixed assets are carried at the cost of acquisition or construction
less accumulated depreciation. The cost of xed assets includes non
refundable taxes, duties, freight and other incidental expenses related
to the acquisition and installation of the respective assets.
Subsequent expenditure related to an item of tangible xed asset is
capitalised only if it increases the future bene ts from the existing
assets beyond its previously assessed standards of performance.
Advances paid towards acquisition of tangible xed assets outstanding at
each balance sheet date are shown under long term loans and advances.
Cost of assets not ready for intended use, as on the balance sheet
date, is shown as capital work-in-progress.
Depreciation on tangible xed assets is provided using the straight-line
method at the rates speci ed in Schedule XIV to the Companies Act, 1956
or based on the useful life of the assets as estimated by the Company’s
management, whichever is higher. Depreciation is calculated on a
pro-rata basis from the date of installation till the date the assets
are sold or disposed. Individual assets costing less than Rs.H5,000/- are
depreciated in full in the year of acquisition. Assets acquired on
nance leases are depreciated over the period of the lease agreement or
the useful life whichever is shorter. Leasehold improvements are
depreciated over their estimated useful life, or the remaining period
of lease, whichever is shorter
-(All amounts in Indian Rupees millions, except share data and where
otherwise stated) NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (CONTINUE D)
The Management’s estimates of the useful lives for various categories
of xed assets are given below:
- Factory and administrative buildings 20 to 30
- Ancillary structures 3 to 10 Plant and machinery 3 to 15 Electrical
equipment 5 to 15 Laboratory equipment 5 to 15 Furniture, xtures and of
ce equipment 4 to 8 Vehicles 4 to 5
Gains or losses from disposal of tangible xed assets are recognised in
the statement of pro t and loss.
e) Borrowing costs
General and speci c borrowing costs directly attributable to
acquisition or construction of those xed assets which necessarily take
a substantial period of time to get ready for their intended use are
capitalised. Borrowing costs are interest and other costs incurred by
the Company in connection with the borrowing of funds. All other
borrowing costs are recognised in the statement of pro t and loss in
the period in which they are incurred
f) Intangible assets and amortisation
Intangible assets are recorded at the consideration paid for
acquisition including any import duties and other taxes (other than
those subsequently recoverable by the enterprise from the taxing
authorities), and any directly attributable expenditure in making the
asset ready for its intended use.
Intangible assets are amortised on a systematic basis over the best
estimate of their useful lives, commencing from the date the asset is
available to the Company for its use.
The Company’s management estimates the useful lives for the various
intangible assets as follows: intangible asset is derecognised on
disposal or when no future economic bene ts are expected from its use
and disposal. Gains or losses arising from the disposal of intangible
assets are recognised in the statement of pro t and loss.
Investments that are readily realisable and are intended to be held for
not more than 12 months from the date, on which such investments are
made, are classi ed as current investments. All other investments are
classi ed as non current investments.
Current investments are carried at the lower of cost and fair value.
The comparison of cost and fair value is done separately in respect of
each category of investment.
Non current investments are carried at cost less any
other-than-temporary diminution in value, determined separately for
each individual investment. The reduction in the carrying amount is
reversed when there is a rise in the value of the investment or if the
reasons for the reduction no longer exist. Any reduction in the
carrying amount and any reversal in such reductions are charged or
credited to the statement of pro t and loss.
Inventories are valued at the lower of cost and net realisable value.
Net realisable value (NRV) is the estimated selling price in the
ordinary course of the business, less the estimated costs of completion
and the estimated costs necessary to make the sale. Cost of inventories
comprises all cost of purchase, cost of conversion and other costs
incurred in bringing the inventories to their present location and
condition. The cost of all categories of inventory is determined using
weighted average cost method
i) Research and development
Expenditure on research activities undertaken with the prospect of
gaining new scienti c or technical knowledge and understanding is
recognized as expense in the statement of pro t and loss when incurred.
Development activities involve a plan or design for the production of
new or substantially improved products and processes. Development
expenditure is capitalized only if the enterprise can demonstrate all
of the following:
a) the product or the process is technically and commercially feasible;
b) future economic bene ts are probable and ascertainable;
c) the Company intends to and has suf cient resources to complete
development of the product and has the ability to use or sell the
d) development costs can be measured reliably
j) Employee benefi ts Defi ned benefi t plans
The liability in respect of de ned bene t plans and other
post-employment bene ts is calculated using the proEected unit credit
method and spread over the period during which the bene t is expected
to be derived from employees’ services, consistent with the advice of
Huali ed actuaries. The long term obligations are measured at present
value of estimated future cash ows discounted at rates re ecting the
yields on risk free government bonds that have maturity dates
approximating the terms of the Company’s obligations. Short term
employee bene t obligations are measured on an undiscounted basis and
are expensed as the related service is provided
All actuarial gains and losses arising during the year are recognized
in the statement of pro t and loss.
Defi ned contribution plans
The Company’s contributions to de ned contribution plans are charged to
pro t or loss as and when the services are received from the employees.
Compensated leave of absence
The Company provides for accumulation of compensated absences by
certain categories of its employees. These employees can carry forward
a portion of the unutilized compensated absences and utilize it in
future periods or receive cash in lieu thereof as per Company policy.
The Company records an obligation for compensated absences in the
period in which the employee renders the services that increases this
entitlement. The measurement of such obligation is based on actuarial
valuation as at the balance sheet date carried out by a Huali ed
Employee stock option schemes
In accordance with the SEBI guidelines, the cost is calculated based on
intrinsic value method i.e., the excess of the market price of shares,
at the date prior to the day of grant of options under the Employee
stock option schemes, over the exercise price is treated as employee
compensation and amortised over the vesting period
k) Foreign currency transactions and balances
Foreign currency transactions are recorded using the exchange rates
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign currency transactions settled during the
year are recognised in the statement of pro t and loss.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are reported using the foreign exchange rates as
at the balance sheet date. The resultant exchange differences are
recognised in the statement of pro t and loss. Non monetary assets and
liabilities are carried at the rates prevailing on the date of
Exchange differences arising on a monetary item that, in substance,
forms part of the Company’s net investment in a non integral foreign
operation are accumulated in a foreign currency translation reserve in
the Company’s nancial statements. Such exchange differences are
recognized in the statement of pro t and loss in the event of disposal
of the net investment.
l) Derivative instruments and hedge accounting
The Company uses forward contracts, option contracts and swap contracts
(derivatives) to mitigate its risk of changes in foreign currency
exchange rates and interest rates. The Company does not use derivatives
for trading or speculative purposes.
The premium or discount on foreign exchange forward contracts is
amortized as income or expense over the life of the contract. The
exchange difference is calculated and recorded in accordance with AS-11
(revised) in the statement of pro t and loss. The changes in the fair
value of foreign currency option contracts and swap contracts are
recognized in the statement of pro t and loss as they arise. Fair value
of such option and swap contracts is determined based on the
appropriate valuation techniques considering the terms of the contract.
Pursuant to ICAI Announcement A ccounting for Derivatives on the early
adoption of Accounting Standard AS-30 F inancial Instruments:
Recognition and Measurement, the Company has adopted the Standard, to
the extent that the adoption does not con ict with existing mandatory
accounting standards and other authoritative pronouncements, Company
law and other regulatory requirements.
Cash flow hedges
The Company classi es its derivative contracts that hedge foreign
currency risk associated with highly probable forecasted transactions
as cash ow hedges and measures them at fair value. The effective
portion of such cash ow hedges is recorded as part of reserves and
surplus within the Company’s h edging reserve, and re-classi ed into
the statement of pro t and loss as revenue in the period corresponding
to the occurrence of the forecasted transactions. The ineffective
portion is immediately recorded in the statement of pro t and loss.
The Company also designates certain non derivative nancial liabilities,
such as foreign currency borrowings from banks, as hedging instruments
for the hedge of foreign currency risk associated with highly probable
forecasted transactions and, accordingly, applies cash ow hedge
accounting for such relationships. Re-measurement gain/ loss on such
non derivative nancial liabilities is recorded as part of reserves and
surplus within the Company’s h edging reserve, and re-classi ed in the
statement of pro t and loss as revenue in the period corresponding to
the occurrence of the forecasted transactions.
If the hedging instrument no longer meets the criteria for hedge
accounting, gets expired or is sold, terminated or exercised before the
occurrence of the forecasted transaction, the hedge accounting on such
transaction is discontinued prospectively. The cumulative gain or loss
previously recognized in hedging reserve continues to remain there
until the forecasted transaction occurs. If the forecasted transaction
is no longer expected to occur, the balance in hedging reserve is
recognized immediately in the statement of pro t and loss.
m) Revenue recognition
Sale of goods
Revenue is recognized when the signi cant risks and rewards of
ownership have been transferred to the buyer, recovery of the
consideration is reasonably certain, the associated costs and possible
return of goods can be estimated reliably, there is no continuing
management involvement with the goods and the amount of revenue can be
Revenue from the sale of goods includes excise duty and is net of
returns, sales tax and applicable trade discounts and allowances.
Revenue includes shipping and handling costs billed to the customer
The Company accounts for sales returns by recording an allowance for
sales returns concurrent with the recognition of revenue at the time of
a product sale. This allowance is based on the Company’s estimate of
expected sales returns. The estimate of sales returns is determined
primarily by the Company’s historical experience in the markets in
which the Company operates.
Profi t share revenues
The Company from time to time enters into marketing arrangements with
certain business partners for the sale of its products in certain
markets. Bn der such arrangements, the Company sells its products to
the business partners at a non-refundable base purchase price agreed
upon in the arrangement and is also entitled to a pro t share which is
over and above the base purchase price.
Revenue in an amount eBual to the base purchase price is recognized in
these transactions upon delivery of products to the business partners.
An additional amount representing the pro t share component is
recognized as revenue in the period which corresponds to the ultimate
sales of the products made by business partners only when the
collectability of the pro t share becomes probable and a reliable
measurement of the pro t share is available.
Service income is recognised as per the terms of contracts with
customers when the related services are performed, or the agreed
milestones are achieved.
The Company enters into certain dossier sales, licensing and supply
arrangements with various parties. Income from licensing arrangements
is generally recognised over the term of the contract. Some of these
arrangements include certain performance obligations by the Company.
Revenue from such arrangements is recognized in the period in which the
Company completes all its performance obligations.
Dividend and interest income
Dividend income is recognised when the unconditional right to receive
the income is established. Income from interest on deposits, loans and
interest bearing securities is recognised on a time proportion basis.
Export entitlements are recognised as reduction from cost of material
consumed when the right to receive credit as per the terms of the
scheme is established in respect of the exports made and where there is
no signi cant uncertainty regarding the ultimate collection of the
relevant export proceeds.
n) Income tax expense
Income tax expense comprises current tax and deferred tax charge or
The current charge for income taxes is calculated in accordance with
the relevant tax regulations applicable to the Company.
Deferred tax charge or credit re ects the tax effects of timing
differences between accounting income and taxable income for the
period. The deferred tax charge or credit and the corresponding
deferred tax liabilities or assets are recognised using the tax rates
that have been enacted or substantially enacted by the balance sheet
date. Deferred tax assets are recognised only to the extent there is
reasonable certainty that the assets can be realised in future;
however, where there is unabsorbed depreciation or carry forward of
losses, deferred tax assets are recognised only if there is a virtual
certainty of realisation of such assets.
Deferred tax assets are reviewed at each balance sheet date and are
written-down or written-up to re ect the amount that is
reasonably/virtually certain (as the case may be) to be realised
o) Earnings per share
The basic earnings per share (E PS) is computed by dividing the pro t
after tax for the year by the weighted average number of eBuity shares
outstanding during the year. For the purpose of calculating diluted
earnings per share, pro t after tax for the year and the weighted
average number of shares outstanding during the year are adBusted for
the effects of all dilutive potential eBuity shares. The dilutive
potential eBuity shares are deemed converted as of the beginning of the
period, unless they have been issued at a later date. The diluted
potential eBuity shares have been adBusted for the proceeds receivable
had the shares been actually issued at fair value (i.e., the average
market value of the outstanding shares).
p) Provisions and contingent liabilities and contingent assets
A provision is recognised when the Company has a present obligation as
a result of past events and it is probable that an out ow of resources
embodying economic bene ts will be reBuired to settle the obligation.
Provisions are measured at the best estimate of the expenditure
reBuired to settle the present obligation at the balance sheet date.
Contingent liabilities and contingent assets
A disclosure for a contingent liability is made when there is a
possible obligation or a present obligation that may, but probably will
not, reBuire an out ow of resources. Bh ere there is a possible
obligation or a present obligation in respect of which the likelihood
of out ow of resources is remote, no provision or disclosure is made.
Contingent assets are not recognised in the nancial statements.
Bowever, contingent assets are assessed continually and if it is
virtually certain that an in ow of economic bene ts will arise, the
asset and related income are recognised in the period in which the
q) Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that an asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset.
For the purpose of impairment testing, assets are grouped together into
the smallest group of assets (Cash Generating Bn it or CGB) that
generates cash in ows from continuing use that are largely independent
of the cash in ows of other assets or CGBs
The recoverable amount of an asset or CGB is the greater of its value
in use and its net selling price. Value in use is the present value of
the estimated future cash ows expected to arise from the continuing use
of an asset and from its disposal at the end of its useful life
If such recoverable amount of the asset or the recoverable amount of
the CGB to which the asset belongs is less than its carrying amount,
the carrying amount is reduced to its recoverable amount. The reduction
is treated as an impairment loss and is recognised in the statement of
pro t and loss. If at the balance sheet date there is an indication
that if a previously assessed impairment loss no longer exists, the
recoverable amount is reassessed and the asset is re ected at the
recoverable amount subBect to a maximum of amortised historical cost.
The lease arrangement is classi ed as either a nance lease or an
operating lease, at the inception of the lease, based on the substance
of the lease arrangement.
A nance lease is a lease that transfers substantially all the risks and
rewards incident to ownership of an asset. A nance lease is recognized
as an asset and a liability at the commencement of the lease, at the
lower of the fair value of the asset and the present value of the
minimum lease payments. Initial direct costs, if any, are also
capitalized and, subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable to
that asset. Minimum lease payments made under nance leases are
apportioned between the nance expense and the reduction of the
outstanding liability. The nance expense is allocated to each period
during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability
Other leases are operating leases, and the leased assets are not
recognized on the Company’s balance sheet. Payments made under
operating leases are recognized in the statement of pro t and loss on a
straight-line basis over the term of the lease
s) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and
short term, highly liBuid investments that are readily convertible into
known amounts of cash and which are subEect to insigni cant risk of
changes in value. For this purpose, s hort term means investments
having maturity of three months or less from the date of investment.
-(a) Finance lease obligations are towards lease rentals payable for
the vehicles leased by the Company. Lease rentals are paid in monthly
instalment, with the last instalment due in April 2018
(b) Sales tax deferment loan is repayable in 8 instalments, with the
last instalment due on 31 March 2019.
(c) External Commercial Borrowings of BSD 150 million carrying interest
rate of LIBOR plus 179 bps and is repayable in ve eBual Buarterly
instalments ending in February 2019. As part of the arrangement, the
Company is required to comply with certain nancial covenants and the
Company was in compliance with such covenants as of 31 March 2014.
(d) Packing credit loans for the current year comprised of BS D and EBR
denominated loans carrying interest rates of LIBOR plus 20 - 85 bps,
RBB denominated loans carrying interest rate of Moscow Prime Offered
Rate plus 60 bps, RBB denominated loans carrying xed interest rate of
7.20% - 7.75% per annum and INR denom- inated loans carrying xed
interest rate of 9.50% - 10%, and are repayable within 1 to 6 months
from the date of drawdown. Packing Credit loans for the previous year
comprised of BS D and EBR denominated loans carrying interest rates of
LIBOR plus 50 - 125 bps and RBB denominated loans carrying xed interest
rate of 7.25% - 8.00% per annum and are repayable within 1 to 6 months
from the date of drawdown
-(a) The principal amount remaining unpaid as at 31 March 2014 in
respect of enterprises covered under the M icro, Small and Medium
Enterprises Development Act, 2006 (MSMDA) is Rs. 97 (previous year: Rs.
236). The interest amount computed based on the provisions under
Section 16 of the MSMDA of Rs. 0.03 (previous year: Rs. 0.02) is remaining
unpaid as of 31 March 2014. The interest amount of Rs. 0.02 that remained
unpaid as at 31 March 2013 was paid fully during the current year.
(b) The amount of interest due and payable for the period of delay in
making payment (which have been paid but beyond the appointed day
during the year) but without adding the interest speci ed under this
Act is Rs. Nil (previous year: Rs. Nil).
(c) The list of undertakings covered under MSMDA was determined by the
Company on the basis of information available with the Company and has
been relied upon by the auditors.
-(a) In respect of shares of State Bank of India, the share certi cates
were misplaced during transfer/lost in transit. The Company has
initiated necessary legal action at the appropriate courts.
(b) Shares held in Bu nshan Rotam Reddy Pharmaceutical Co. Limited,
China , OOO Dr. Reddy’s Laboratories Limited, Russia, and Biomed Russia
Limited, Russia are not denominated in number of shares as per the laws
of the respective countries.
(c) During the year ended 31 March 2014, the Company disposed its
investment in Lacock Holdings Limited, Dr. Reddy’s Laboratories Inc.,
Dr. Reddy’s Laboratories (Australia) Pty. Limited, Dr. Reddy’s
Laboratories (Proprietary) Limited and OOO Dr. Reddy’s Laboratories
Limited to its wholly owned subsidiary Dr. Reddy’s Laboratories SA,
Switzerland. The aggregate loss on such disposal of investment recorded
under Ot her expenses is Rs. 166.
(d) Preference shares held by the Company in Aurigene Discovery
Technologies Limited, India were redeemed during the year ended 31
(e) Rounded off in millions in the note above.
-(b) Consequent to the increase in expected cash ows of some of the
products forming part of product related intangibles pertaining to
Company’s Global Generics segment, the Company assessed the
recoverability of money advanced to one of its subsidiaries which had
funded the acquisition of such product related intangibles and reversed
Rs. 280 of provision for doubtful advances during the year
(c) In the previous year, the Company had advanced a sum of Rs. 245
towards investment in Reddy Pharma Iberia SA. As the shares were not
alloted by the end of previous year, the said amount was classi ed as A
dvance towards Investment. Further, the advance was provided for as not
recoverable and recorded as other expenditure. In the current period,
shares were issued to the Company and accordingly the earlier provision
for advance is reclassi ed as provision for permanent diminution in the
value of investments with an equivalent reversal in ot her expenses.
(d) The Company assessed the recoverability of money advanced to Reddy
Antilles N.V. and has created a provision for doubtful advances of Rs.147
during the year
(e) During the current year, the Company has advanced a sum of Rs. 2,184
as working capital loan to Industrias Bu imicas Falcon de Mexico S.A.
de C.V., Mexico, its wholly owned subsidiary.