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Alembic Pharmaceuticals

BSE: 533573|NSE: APLLTD|ISIN: INE901L01018|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Mar '19

1. General information

Alembic Pharmaceuticals Limited is principally engaged in the manufacturing and selling of Pharmaceuticals products i.e. Formulations and Active Pharmaceutical Ingredients. The Company is the public limited Company domiciled in India and is incorporated under the provision of the Companies Act applicable in India. Its shares are listed on the two recognised Stock Exchanges in India. The registered office of the Company is located at Alembic Road, Vadodara -390 003, India.

The Financial Statements are approved by the Company’s Board of Directors on 8th May, 2019

The rights, preferences and restrictions including restrictions on the distribution of dividends and the repayment of capital

The Company is having only one class of shares i.e. Equity carrying a nominal value of Rs. 2/ - per share Every holder of the equity share of the Company is entitled to one vote per share held. In the event of liquidation of the Company, the equity shareholders will be entitled to receive remaining assets of the Company after the distribution / repayment of all creditors. The distribution to the equity shareholders will be in proportion of the number of shares held by each shareholder.

The Company declares and pays dividend on the equity shares in Indian Rupees. Dividend proposed by the Board of Directors is subject to approval of the shareholders at the ensuing Annual General Meeting.

Nature and purpose of each Reserve

Capital Reserve: Capital Reserve is created on receipt of Government subsidy for setting up factory in backward area. General Reserve: The reserve is created by transfer of a portion of the net profit.

Debenture redemption reserve: The Company is required to create a debenture redemption reserve out of the profits in accordance with Companies Act, 2013.

iii Contingent Asset

Interest on Investments made in 10% Secured Redeemable Non-Convertible Debentures of Rs. 300.00 Crores, 10% Unsecured Redeemable Non-Convertible Debentures of Rs.172.50 Crores of the 60% Subsidiary Company Aleor Dermaceuticals Limited which are carried at cost as per para 10 of Ind AS 27 ‘Separate Financial Statements’.

As per terms of the JV agreement and securities subscription agreement entered into between the Company and Aleor Dermaceuticals Limited “no interest shall accrue and be payable unless the subsidiary company earns cash profits”. There is a long gestation period involved in the construction and commissioning of manufacturing facility, technology transfer and scale up of R&D projects, filing of ANDA application with USFDA and approval of ANDA’s by USFDA before the said subsidiary company can start manufacturing and marketing the products on commercial basis. Even thereafter, as projected, there will be some time before the company can start making cash profits. During the intervening period, there will be many uncertainties which may delay the entire process and start yielding financial and economic benefits that are as intended by the management.

Further, in terms of the said agreements, the tenure of NCD shall be of 9 years from the date of allotment of first tranche and in the event of default, i.e., if Subsidiary Company fails to redeem the NCD, the Company has a right to exercise the warrants held by it and to receive Equity shares of the subsidiary company.

As at the Balance Sheet date, no operational profits have been earned by the subsidiary company. As per the cash flows and profitability projections made by the subsidiary company, no operational profits are envisaged to be earned in a near future of say up to 3 years. Accordingly, there is no certainty of the date of the realization of interest and principal amounts and the net present value of the said receivables cannot be determined with reasonable accuracy.

In view of the aforesaid reasons and on the grounds of prudence, the Company has not recognized the interest income on the said investment. However since Company has a conditional right to receive interest on the above investments at the specified coupon rate amounting to Rs. 40.35 Crores for the year and accumulated till the year-end of Rs.61.63 Crores is considered as Contingent asset.

2. Disclosure required under Micro, Small and Medium Enterprise Development Act, 2006

On the basis of confirmation obtained from the supplier who have registered themselves under the Micro, Small and Medium Enterprise Development Act, 2006 (MSMED Act, 2006), details are as below

3. Segment Reporting

Segment information as required under Ind AS 108 i.e. Operating Segments is given in the Consolidated financial statements of the Company

4. Defined benefit plans / compensated absences - As per actuarial valuation

The following table sets out the funded status of the gratuity plan and the amounts recognised in the Company’s financial statements as at 31st March, 2019

A description of methods used for sensitivity analysis and its Limitations:

Sensitivity analysis is performed by varying single parameter while keeping all the other parameters unchanged. Sensitivity analysis fails to focus on the interrelationship between underlying parameters. Hence, the results may vary if two or more variables are changed simultaneously. The method used does not indicate anything about the likelihood of change in any parameter and the extent of the change if any

5. Provident Fund

The Company is liable for any shortfall in the fund assets based on the Government specified rate of return. Such shortfall, if any, is recognised in the Statement of Profit and Loss as an exprense in the year of incurring the same. There is no interest short fall as at 31 March, 2019 and 31st March, 2018.

6. (i) Disclosures in respect of Related Parties transactions

(A) Controlling Companies: Nirayu Pvt. Limitec

(B) Subsidiaries including step down subsidiaries

1 Aleor Dermaceuticals Limited (Subsidiary of Alembic Pharmaceuticals Limited)

2 Alembic Global Holding SA (Subsidiary of Alembic Pharmaceuticals Limited)

3 AG Research Private Limited (Subsidiary of Alembic Pharmaceuticals Limited) (up to 22.01.2019)

4 Alembic Pharmaceuticals Australia Pty Ltd. (Subsidiary of Alembic Global Holding SA)

5 Alembic Pharmaceuticals Europe Ltd. (Subsidiary of Alembic Global Holding SA)

6 Alnova Pharmaceuticals SA (Subsidiary of Alembic Global Holding SA)

7 Alembic Pharmaceuticals Inc. (Subsidiary of Alembic Global Holding SA)

8 Alembic Pharmaceuticals Canada Ltd. (Subsidiary of Alembic Global Holding SA)

9 Genius LLC (Subsidiary of Alembic Global Holding SA)

10 Orit Laboratories LLC (Subsidiary of Alembic Pharmaceuticals Inc.)

11 Okner Realty LLC (Subsidiary of Alembic Pharmaceuticals Inc.)

(C) Associate Companies

1 Incozen Therapeutics Pvt. Limited (Associate of Alembic Pharmaceuticals Limited)

2 Rhizen Pharmaceuticals SA (Associate of Alembic Global Holding SA)

3 Dahlia Therapeutics SA (Subsidiary of Rhizen Pharmaceuticals SA)

4 Rhizen Pharmaceuticals Inc. (Subsidiary of Rhizen Pharmaceuticals SA)

(D) Joint Venture

1 Alembic Mami SPA (Joint venture of Alembic Global Holding SA)

(E) Other Related Parties

1 Alembic Limited 4 Viramya Packlight LLP

2 Shreno Limited 5 Shreno Publications Limited

3 Paushak Limited

(F) Key Management personnel

1 Mr. Chirayu Amin Chairman & CEO

2 Mr. Pranav Amin Managing Director

3 Mr. Shaunak Amin Managing Director

4 Mr. R. K. BahetiDirector Finance & CFO

5 Mr. K. G. Ramnathan Non-Executive Director

6 Mr. Pranav Parikh Non-Executive Director

7 Mr. Paresh Saraiya Non-Executive Director

8 Mr. Milin Mehta Non-Executive Director (upto 22nd January, 2019)

9 Ms. Archana HingoraniNon-Executive Director

10 Mr. Ajay Kumar DesaiSr. Vice President - Finance & Company Secretary (upto 31st May, 2018)

11 Mr. Charandeep Singh Saluja Company Secretary (From 1st June 2018)

(G) Relatives of Key Management Personnel

1 Mrs. Malika Amin 4 Mrs. Jyoti Patel

2 Mr. Udit Amin 5 Mrs. Ninochaka Kothari

3 Ms. Yera Amin 6 Mrs. Shreya Mukherjee

ii) Nirayu Private Limited has become holding company of Alembic Pharmaceuticals Limited during the financial year 2017-18 based on clarifications and advice received regarding direct and indirect holding through its subsidiaries and step down subsidiaries. The disclosures made in the financial statements in related party transactions and controlling entity information have been modified accordingly. This does not have any impact on the financials of the Company in any way

During the year ended 31st March, 2019, the Company did not recognise deferred tax assets of Rs. 280.59 Crores on MAT credit entitlement, as the Company believes that utilization of same is not probable. The above MAT credit expire at various dates ranginc from 2026 through 2035.

7. Expenses pending capitalisation included in Capital Work-in-Progress represent direct attributable expenditure for setting up of plants yet to commence of commercial operation, the detail of expenses are

8. Corporate Social Responsibility

As per section 135 of the Companies Act, 2013, a company, meeting the applicability threshold, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities A CSR Committee has been formed by the Company as per the Act. The company spent Rs. 14.28 crores on various projects during the year refer Annexure - A included in the Board’s Report.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

Level 2 inputs are inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly Level 3 inputs are unobservable inputs for the asset or liability.

9. Financial Risk management

The Company has exposure to the following risks arising from financial instruments:

- Credit risk;

- Liquidity risk; and

- Market risk

i) Credit risk:

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers, Deposit and other receivables.

Trade receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer, demographics of the customer, default risk of the industry and country in which the customer operates. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company has used expected credit loss model for assessing the impairment loss.

Cash and cash equivalents

As at the year end, the Company held cash and cash equivalents of Rs. 144.25 Crores (PY: Rs. 9.45 Crores). The cash and cash equivalents other bank balances and derivatives are held with bank with good credit rating.

Other financial assets

Other financial assets are neither past over due nor impaired.

ii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligation as they fall due. The Company ensures that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions. The Company has sufficient unutilised fund and non fund based working capital credit limit duly sanctioned by various banks.

The Company is rated by leading credit agency CRISIL, the rating “CRISIL A1 ” and “AA /Stable” has been assigned for short-term and long-term facility respectively, indicating high degree of safety regarding timely payment and servicing of financial obligation.

Exposure to liquidity risk

The following are the remaining contractual maturities of undiscounted financial liabilities at the reporting date.

iii) Market risk

Currency Risk

The Company’s foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses. The Company uses foreign exchange option contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its budgeted business transactions and recognised assets and liabilities. The Company enters into foreign currency options contracts which are not intended for trading or speculative purposes but for hedge purposes.

Sensitivity analysis

For the years ended 31st March, 2019 and 31st March, 2018 every 5% weakening of Indian Rupee as compared to the respective major currencies for the above-mentioned financial assets/liabilities would increase Company’s profit and equity by approximately Rs. 22.15 Crores and Rs. 19.87 Crores respectively. A 5% strengthening of the Indian Rupee as compare to the respective major currencies would lead to an equal but opposite effect.

Interest rate risk and Exposure to interest rate risk

The Company has loan facilities on floating interest rate, which exposes the Company to risk of changes in interest rates.

For the years ended 31st March, 2019 and 31st March, 2018, every 50 basis point decrease in the floating interest rate component applicable to its loans and borrowings would decrease the Company’s interest cost by approximately Rs. 5.30 Crores and Rs. 3.11 Crores respectively. A 50 basis point increase in floating interest rate would have led to an equal but opposite effect.

Commodity rate risk

The Company’s operating activities involve purchase and sale of Active Pharmaceutical Ingredients (API), whose prices are exposed to the risk of fluctuation over short periods of time. Commodity price risk exposure is evaluated and managed through procurement and other related operating policies.

Since company has been significantly dealing in regulatory market, continues compliance of all manufacturing facilities is pre requisite. Any adverse action by regulatory authority of the company’s target market can adversely affect company’s operation.

10. Capital Management

The Company’s capital management objectives are:

* to ensure the Company’s ability to continue as a going concern; and

* to provide an adequate return to shareholders through optimisation of debts and equity balance.

The Company monitors capital on the basis of the carrying amount of debt less cash and cash equivalents as presented on the face of the financial statements. The Company’s objective for capital management is to maintain an optimum overall financial structure.

Dividend on equity shares paid during the year

The Board of Directors has recommended dividend on Equity Shares at Rs. 5.50 per share i.e. 275% for the year ended on 31st March, 2019. Dividend Proposed by the Board of Directors is subject to approval of the shareholders at the ensuing Annual General Meeting.

During the year dividend of Rs. 75.41 Crores (Rs. 4.00 Per Shares i.e. 200%) and corporate tax of Rs. 15.35 Crores paid to the equity shareholders after the AGM approval for financial year 2017-18.

11. Donation includes political contributions of Rs.0.50 Crores through Electoral Bond.

12. Govertment Grant

The Company is entitled to subsidy, on its investment in the property, plant and equipment on fulfilment of the conditions stated in those Scheme. During year company has received Rs. 17.15 Crores as subsidy on investment in property, plant and equipment and Rs.0.06 Crores as reimbursement of expense. The same is accounted as stated in accounting policy on Government Grant (Refer Note No. 2(25)).

13. Revenue Recognition

The company has applied Ind As 115 ‘Revenue from contracts with customers’ with effect from 1st April, 2018. Ind As 115 provides a single, principles-based approach to the recognition of revenue from all contracts with customers. It focuses on the identification of performance obligations in a contract and requires revenue to be recognised when or as those performance obligations are satisfied.

The company has adopted Ind As 115 applying the cumulative catch-up transaction approach. Ind As 115 did not have a material impact on the amount or timing of recognition of reported revenue.

The Company is engaged in Pharmaceuticals business considering nature of products, revenue can be disaggregated as API business and Formulation business Rs. 761.00 Crores and Rs. 2899.27 Crores respectively, and considering Geographical business, Revenue can be disaggregated as in India Rs. 1507.60 Crores and out side India Rs. 2152.67 Crores.

14. The Company has obtained and given certain premises for its business operations under operating lease or leave and licence agreements. These are generally not non-cancellable and are renewable by mutual consent on mutually agreeable terms.

Lease receipts / payments are recognised in the statement of profit and loss under “Lease Rent Income” & ”Rent” in Note 22 and 26 respectively.

15. Borrowing cost of Rs. 60.20 Crores (PY Rs. 22.61 Crores) capitalised @ rate of 7.45%.

16. Recent Accounting Pronouncements

Ind AS 116 Leases : On 30th March, 2019 Ministry of Corporate Affairs has notified Ind AS 116, Leases. Ind AS 116 will replace the existing leases Standard, Ind AS 17 Leases, and related Interpretations. The Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract i.e., the lessee and the lessor. Ind AS 116 introducing lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than twelve months, unless the underlying asset is of low value. Currently, operating lease expenses are charged to the statement of Profit & Loss. The Standard also contains enhanced disclosure requirements for lessees. Ind AS 116 substantially carries forward the lessor accounting requirements in Ind AS 17. The Company is in process of evaluating the impact of the same.

17. The previous year’s figures have been regrouped / rearranged wherever necessary to make it comparable with the current year.

Source : Dion Global Solutions Limited
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