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Granules India

BSE: 532482|NSE: GRANULES|ISIN: INE101D01020|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Mar '17

1.Earning per equity share

Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the company by the weighted average number of Equity shares outstanding during the year. Diluted EPS amounts are calculated by dividing the profit attributable to equity holders of the company by the weighted average number of Equity shares outstanding during the year plus the weighted average number of Equity shares that would be issued on conversion of all the dilutive potential Equity shares into Equity shares.

2. Commitments and Contingencies A. Leases

Operating lease commitments - Company as lessee

Operating leases are mainly in the nature of lease of office premises with no restrictions and are renewable / cancellable at the option of either of the parties.

There are no sub-leases. There are no restrictions imposed by lease arrangements. The aggregate amount of operating lease payments recognized in the Statement of Profit and Loss is RS,251.97 lakhs (March 31, 2016: RS, 241.12 lakhs).

The Company has not recognized any contingent rent as expense in the Statement of Profit and Loss.

* in respect of above matters, future cash outflows in respect of contingent liabilities are determinable only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the Company.

**Business requirement in respective of Joint Venture.

3. Share based payments

Granules India Limited - Employee Stock Option Scheme 2009 (“ES0S-2009'')

Pursuant to the decision of the shareholders at their meeting held on 25th September, 2009, the Company has formulated an Employee Stock Option Scheme 2009 to be administered by the Compensation & Remuneration Committee of the Board of Directors. This scheme has been formulated in accordance with the Securities Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

Under the Plan, options not exceeding 1,00,48,070 have been reserved to be issued to the eligible directors and employees (Employees under permanent employment of the Company and its subsidiary company(ies), including Directors of the Company and its subsidiary, whether whole time or not, whether working in India or abroad or otherwise, except the Promoter Directors and Promoter group employees) with each option conferring a right upon the Optioned to apply for one equity share.

The exercise price of the options is the closing market price of the shares on that stock exchange where there is highest trading volume prior to the date of the grant i.e. the date of the Compensation & Remuneration Committee / Board meeting at which the grant of options is approved.

Under the above Scheme till date, options were granted in five tranches viz. Grant I, Grant II, Grant III , Grant IV & Grant V. The options granted under the Plan shall start vesting in tranches after one year from the date of grant and not more than two, three and five years (differs from optionee to optionee) under Grant I, five years under Grant II & III and four years under Grant IV & V from the respective date of grant of the options.

The exercise price being equal to the closing market price prevailing on the date prior to the date of grant, there is no defered compensation cost to be amortized over the vesting period.

For options exercised during the year, the weighted average share price at the exercise date under ESOS 2009 scheme was H 24.01 per share (March 31, 2016: 17.51, April 01, 2015: H 9.53) The Black Scholes valuation model has been used for computing the weighted average fair value considering the following inputs:

b) Disclosures related to defined benefit plan

The Company has a defined benefit gratuity plan and governed by Payment of Gratuity Act, 1972. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days last drawn salary for each completed year of service. The scheme is funded with Life Insurance Corporation in the form of a qualifying insurance policy. The following tables summarise the components of net benefit expense recognized in the statement of profit and loss, the fund status and balance sheet position:

4. Related party disclosures

Names of related parties and description of relationship

Name of the related party Relationship

1 Granules USA, Inc. Wholly owned subsidiary company

2 GIL Life sciences Private Limited Wholly owned subsidiary company (Amalgamated with Granules India Limited - refer note 47)

3 Granules Pharmaceuticals, Inc. Wholly owned subsidiary company

4 Granules Europe Limited Wholly owned subsidiary company

5 Granules-Biocause Pharmaceutical Co. Ltd Joint venture

6 Granules Omnichem Private Limited Joint venture

7 Karvy Computershare Private Limited Enterprises over which key management personnel or their relatives exercise significant influence

8 Tyche Technologies Private Limited Enterprises over which key management personnel or their relatives exercise significant influence Key managerial personnel

1 Mr.Krishna Prasad Chigurupati Chairman & Managing Director

2 Mr.Harsha Chigurupati (Upto Oct 30, 2015) Executive Director

3 Mrs. Uma Devi Chigurupati Executive Director

4 Dr. V.V.N.K.V. Prasad Raju (w.e.f Jan 4, 2017) Executive Director

5 Mr. V.V.S.Murthy Chief Financial Officer

6 Mrs. Chaitanya Tummala Company Secretary Relatives to key managerial personnel

1 Ms.Priyanka Chigurupati Manager-Marketing

2 Mrs.V.V.N.Chandrika (Upto Mar 01, 2016) Executive

As the future liability for gratuity and leave encashment is provided on an actuarial basis for the Company as a whole, the amount pertaining to the Key Management personnel and their relatives is not ascertainable and, therefore, not included above.

5. Significant accounting judgments, estimates and assumptions

The preparation of the Company''s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

(A) Judgments

In the process of applying the Company''s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements.

(i) Lease commitments - the Company as lessee

The Company has entered into leases for office premises . The Company has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of the land and office premises and the fair value of the asset, that it does not retain significant risks and rewards of ownership of the land and the office premises and accounts for the contracts as operating leases.

(B) Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

(i) Share-based payments

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimation requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The Black Scholes valuation model has been used by the Management for share-based payment transactions. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 29.

(ii) Defined employee benefit plans (Gratuity)

The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation.

The mortality rate is based on publicly available mortality tables. Future salary increases and gratuity increases are based on expected future inflation rates. Further details about gratuity obligations are given in Note 30.

6. Fair Values

The management assessed that loans, cash and cash equivalents, trade receivables, borrowings, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

7. Financial risk management objectives and policies Financial Risk Management Framework

The Company is exposed primarily to Credit Risk, Liquidity Risk and Market risk (fluctuations in foreign currency exchange rates and interest rate), which may adversely impact the fair value of its financial instruments. The Company assesses the unpredictability of the financial environment and seeks to mitigate potential adverse effects on the financial performance of the Company.

Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration of risks. Credit risk is controlled by analyzing credit limits and creditworthiness of customers on a continuous basis to whom the credit has been granted after obtaining necessary approvals for credit. Financial instruments that are subject to concentrations of credit risk principally consist of trade receivables, investments, loans, cash and cash equivalents, bank deposits and other financial assets. None of the financial instruments of the Company result in material concentration of credit risk, except for trade receivables.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk was RS, 46,831.27 lakhs, RS, 44,416.29 lakhs and RS, 41,059.12 lakhs as of March 31, 2017, March 31, 2016 and April 1, 2015 respectively, being the total of the carrying amount of balances with trade receivables.

Trade receivables

Ind AS requires expected credit losses to be measured through a loss allowance. The Company assesses at each date of statements of financial position whether a financial asset or a group of financial assets is impaired. Expected credit losses are measured at an amount equal to the 12 month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition.. The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward-looking information. Company''s exposure to customers is diversified and some customer contributes around 30% of outstanding trade receivable as of March 31, 2017, March 31, 2016 and April 01, 2015, however there was no default on account of those customer in the past.

Before accepting any new customer, the Company uses an external/internal credit scoring system to assess the potential customer''s credit quality and defines credit limits of customer. Limits and scoring attributed to customers are reviewed at periodic intervals. The expected credit loss allowance is based on the ageing of the days the receivables are due and the rates as given in the provision matrix.

Liquidity Risk

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Such changes in the values of financial instruments may result from changes in the foreign currency exchange rates, interest rates, credit, liquidity and other market changes. The Company''s exposure to market risk is primarily on account of foreign currency exchange rate risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of change in market interest rates. As the Company''s debt obligation with floating interest rates are in USD which is subject to insignificant change, exposure to the risk of changes in market interest rates are substantially independent of changes in market interest rates.

As the company has no significant interest bearing assets, the income and operating cash flows are substantially independent of changes in market interest rates.

Foreign Currency exchange rate risk

The fluctuation in foreign currency exchange rates may have potential impact on the statement of profit or loss and other comprehensive income and equity, where any transaction references more than one currency or where assets / liabilities are denominated in a currency other than the functional currency of the respective entities. Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in US Dollar against the functional currencies of the Company.

For the year ended March 31, 2017 and March 31, 2016, every percentage point depreciation / appreciation in the exchange rate between Indian rupees and U.S. dollar will affect the Company''s profit by approximately 0.33 % and 0.85% respectively.

8. Capital management

For the purpose of the Company''s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders. The primary objective of the Company''s capital management is to maximize the shareholder value.

The Company manages its capital structure in consideration to the changes in economic conditions and the requirements of the financial covenants. The Company monitors capital using a gearing ratio, which is net debt divided by Equity plus net debt. Net debt consists of borrowings including interest accrued on borrowings, trade and other payables, less cash and short-term deposits.

In order to achieve this overall objective, the Company''s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period. No changes were made in the objectives, policies or processes for managing capital during the year ended March 31, 2017.

9. First time adoption of Ind AS

These financial statements, for the year ended March 31, 2017, are the first set of financial statements, the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP or Previous GAAP).

Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on March 31, 2017, together with the comparative period data as at and for the year ended March 31, 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company''s opening balance sheet was prepared as at April 1, 2015, the Company''s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 1, 2015 and the financial statements as at and for the year ended March 31, 2016.

Exemptions applied

Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:

(a) Ind AS 103 Business Combinations has not been applied to acquisitions of subsidiaries, which are considered businesses under Ind AS that occurred before April 1, 2015. Use of this exemption means that the Indian GAAP carrying amounts of assets and liabilities, that are required to be recognized under Ind AS, is their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with respective Ind AS. The Company recognises all assets acquired and liabilities assumed in a past business combination. Assets and liabilities that do not qualify for recognition under Ind AS are excluded from the opening Ind AS balance sheet. The Company did not recognise or exclude any previously recognized amounts as a result of Ind AS recognition requirements.

(b) As per IND- AS 20, benefit of a government loan at nil or below-market rate of interest (e.g. interest free sales tax deferral scheme) is treated as a government grant. A first time adopter can apply requirements in IND- AS 109 prospectively or retrospectively to government loans existing at the date of transition to IND- AS. Accordingly, the Company has chosen to use Indian GAAP carrying values as its carrying value under IND-AS and apply principles of IND-AS 109 prospectively

(c) The Company has elected to regard carrying values for all of property, plant and equipment as deemed cost at the date of the transition.

(d) The Company applied Ind AS 102 Share-based payment to equity instruments that remain unvested as of transition date. The Company has elected to avail this exemption and apply the requirements of Ind AS 102 to all such grants .Accordingly, these options have been measured at fair value as against intrinsic value previously under IGAAP

(e) Ind AS 101 requires a first-time adopter to apply derecognition requirements in Ind AS 109 prospectively to transactions occurring on or after the date of transition to Ind AS. Accordingly, the Company continues to de-recognize the financial assets and financial liabilities for transactions which have occurred before the date of transition to Ind AS.

(f) The Company has elected to avail Ind AS 101 exemption with regard to Long Term Foreign Currency Monetary Items and may continue to adopt for accounting for exchange differences arising from translation of long-term foreign currency monetary items to be recognized in financial statements.

(g) Under Ind AS 109, at initial recognition of a financial asset, an entity may take irrevocable election to present subsequent changes in the fair value of an investment in an equity instrument in other comprehensive income. Ind AS 101 allows such designation of previously recognized financial asset as ''fair value through other comprehensive income'' on the basis of the facts and circumstances that existed at the date of transition to Ind AS. Accordingly, the Company has designated its investments in certain equity instruments at fair value through other comprehensive income on the basis of the facts and circumstances that existed at the date of transition to Ind AS.

(h) In the preparation of separate financial statements, Ind AS 27 Separate Financial Statements requires an entity to account for its investments in subsidiaries, jointly controlled entities and associates either:

a) At cost, or

b) In accordance with Ind AS 109.

If a first-time adopter measures such an investment at cost, it can measure that investment at one of the following amounts in its separate opening Ind AS balance sheet :

- Cost determined in accordance with Ind AS 27

- Deemed cost, defined as

Fair value determined in accordance with Ind AS 113 at the date of transition to Ind AS, or

Previous GAAP carrying amount at the transition date.

A first-time adopter may choose to use either of these bases to measure investment in each subsidiary, joint venture or associate where it elects to use a deemed cost.

Accordingly, the Company has opted to carry the investment in subsidiaries and associate at the Previous GAAP carrying amount at the transition date.

Estimates

The estimates as at April 01, 2015 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies) apart from impairment of financial assets based on expected credit loss model where application of Indian GAAP did not require estimation. The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at April 01, 2015 (transition date), March 31, 2016 and March 31, 2017.

D. Notes to reconciliation of equity as at April 01, 2015 and March 31, 2016 and profit or loss for the year ended March 31, 2016

i. Investments

Investments in equity instruments are carried at fair value through OCI as per IND-AS 109 as compared to being carried at cost under Previous GAAP

ii. Unamortized expenses

The Company carried unamortized VRS expenditure of RS, 168.67 lakhs (April 1, 2015: RS,290.72 lakhs) and certain preliminary expense of RS,15.00 lakhs (April

1, 2015: RS,15.00 lakhs) under Previous GAAP As the same do not meet the definition of assets, have been adjusted against in opening reserves.

iii. Bill discounting with Banks

The company had discounted certain export bills under recourse method. The Company was de-recognizing the same under Previous GAAP As per Ind AS 109, if the entity retains substantially all the risks and rewards of ownership of the financial asset, the entity shall continue to recognize the financial asset. As the bills were discounted under recourse method, the Company has recognized both receivable and borrowings.

iv. Compensated Absences

As per Ind AS 19,the Company recognized a liability in the books for accumulated sick leaves, net of related deferred taxes as per certified valuer to an extent of RS, 29.76 lakhs.

v. Deferred Tax Liabilities

Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires accounting for deferred taxes using the Balance sheet approach, which focuses on temporary difference between the carrying amount of an asset or liability in the Balance Sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under Previous GAAP In addition, the various transitional adjustments lead to temporary differences and the Company has accounted for such differences. Deferred tax adjustment are recognized in correlation to the underlying transaction in other equity.

vi. Proposed dividend:

Under Previous GAAP proposed dividends including DDT are recognized as a liability in the period to which they relate, irrespective of when they are declared. Under Ind AS, a proposed dividend is recognized as a liability in the period in which it is declared by the company (usually when approved by shareholders in a general meeting) or paid. In the case of the Company, the declaration of dividend occurs after period end. Therefore, the liability towards dividend for the year ended March 31, 2016 and April, 1, 2015 to an extent of RS,521.61 lakhs and RS,1,229.16 lakhs respectively, has been derecognized against retained earnings and adjusted as an appropriation for the year ended March 31, 2017 and March 31, 2016.

vii. Revenue

Trade discounts allowed to an extent of RS,75.88 lakhs shown as an expense in Previous GAAP is adjusted against revenue as per Ind -AS 18.

viii. Excise Duty on sale of Goods

As per Previous GAAP excise duty should be included and shown as reduction from the gross turnover on the statement of profit and loss. However, Ind AS 18 does not specifically prescribe any guidance for inclusive presentation of excise duty. Accordingly the Company has presented revenue gross of excise duty. This resulted in increase of revenue and increase of excise duty expense to an extent of RS, 2,575.51 lakhs. Further, amounts collected by the seller on behalf of the government are not be included as part of the revenue as per IND-AS 18.

ix. Share based payments:

The Company has granted employee stock options to certain employees of the Company or its subsidiaries. Under Previous GAAP as both intrinsic value or fair value method were allowed for the purpose of accounting of the compensation cost, the Company has accounted the same on intrinsic value method. However, as per IND- AS 102, the Company has to account for the same only on fair value method. Accordingly, for employee stock options not vested before date of transition, the Company has accounted for such options under fair value method. Thus, the employee benefit cost is increased by RS, 79.34 lakhs.

x. Remeasure of actuarial gains/ (losses):

Both under Previous GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Previous GAAP the entire cost, including actuarial gains and losses, are charged to profit or loss. Under Ind AS, remeasurements comprising of actuarial gains and losses are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI. Thus, the employee benefit cost is increased by RS, 28.27 lakhs and remeasurement gains/ losses on defined benefit plans has been recognized in the OCI.

xi. Foreign exchange loss

Foreign exchange loss re-grouped from finance cost to other expenses

xii. Other comprehensive income

As per Ind AS, the company translated Previous GAAP profit or loss to total comprehensive income .

xiii. Statement of cash flows

The transition from Indian GAAP to Ind AS has not had a material impact on the statement of cash flows.

10. During the year, the Hon''ble High Court of Judicature at Hyderabad for the States of Telangana and Andhra Pradesh has approved the scheme of amalgamation (''''Scheme'''') of GIL Lifesciences Private Limited, a wholly owned subsidiary of the Company and the Company by its order dated September 01, 2016 and the same has been filed with Registrar of Companies (''''ROC'''') on October 26, 2016. In terms of the scheme, with effect from April 01, 2016 (''''Appointed date''''), interalia, the following effect has been given as directed by the court;

a) The Company has recorded assets and liabilities of GIL Life sciences Private Limited at their respective fair values.

b) Intercompany investments, balances and transactions have been eliminated.

c) There is no impact on the profit on account of the above scheme.

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

11. Figures in Balance Sheet, Statement of Profit and Loss and Notes to audited financial statements have been rounded off to the nearest thousand and have been expressed in terms of decimals of thousands.

Source : Dion Global Solutions Limited
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