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Cipla

BSE: 500087|NSE: CIPLA|ISIN: INE059A01026|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Mar '19

Corporate information

Cipla Limited (Corporate identification number: L24239MRS.1935PLC002380) (“Cipla” or “the Company”) having registered office at Cipla house, Peninsula Business Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400013, is a public company domiciled in India and is incorporated under the provisions of the Companies Act, 2013 (“the Act”) applicable in India. Cipla is a global pharmaceutical company which uses cutting edge technology and innovation to meet the everyday needs of all patients. The Company has its wide network of operations in India and International markets. Equity Shares of the Company are listed on BSE Limited and National Stock Exchange of India Limited Global Depository Receipts are listed on Luxembourg Stock Exchange.

o Full retrospective - Retrospectively to each prior period presented applying Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors

o Modified retrospective - Retrospectively, with the cumulative effect of initially applying the standard recognised at the date of initial application

Under modified retrospective approach, the lessee records the lease liability as the present value of the remaining lease payments, discounted at the incremental borrowing rate and the right of use asset either as:

o Its carrying amount as if the standard had been applied since the commencement date, but discounted at the lessee’s incremental borrowing rate at the date of initial application, or

o An amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments related to that lease recognised under Ind AS 17 immediately before the date of initial application.

Certain practical expedients are available under both the methods. The Company is evaluating the requirement of the amendment and the impact on the financial statements.

(ii) Ind AS 12: Taxes

(a) Appendix C, Uncertainty over Income Tax Treatments:

On 30th March, 2019, the Ministry of Corporate Affairs has notified Ind AS 12, Appendix C, Uncertainty over Income Tax Treatments which is to be applied while performing the determination of taxable profit (or loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under Ind AS 12. According to the appendix, companies need to determine the probability of the relevant tax authority accepting each tax treatment, or group of tax treatments, that the companies have used or plan to use in their income tax filing which has to be considered to compute the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The standard permits two possible methods of transition:

o Full retrospective approach - Under this approach, Appendix C will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, without using hindsight; and

o Retrospectively with cumulative effect of initially applying Appendix C recognised by adjusting equity on initial application, without adjusting comparatives.

(b) Dividend distribution tax:

On 30th March, 2019, the Ministry of Corporate Affairs issued amendments to the guidance in Ind AS 12, Income Taxes, in connection with accounting for dividend distribution taxes. The amendment clarifies that an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events.

The effective date for adoption of Ind AS 12 is annual periods beginning on or after April 1, 2019.

The Company will adopt the standard on 1st April, 2019. The Company is currently evaluating the effect of these amendments on the financial statements.

(iii) Amendment to Ind AS 19, plan amendment, curtailment or settlement:

On 30th March, 2019, the Ministry of Corporate Affairs issued amendments to Ind AS 19, Employee Benefits, in connection with accounting for plan amendments, curtailments and settlements. The amendments require an entity:

o To use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement; and

o To recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling.

Effective date for application of this amendment is annual period beginning on or after 1st April, 2019. The Company does not have any impact on account of this amendment.

Rental income recognised in profit or loss for investment properties aggregates to RS.3.77 Crore (previous year RS.0.09 Crore)

Estimation of fair value

The fair valuation of the assets is based on the perception about the macro and micro economic factors presently governing the construction industry, location of property, existing market conditions, degree of development of infrastructure in the area, demand supply conditions, internal amenities, common amenities, etc.

This value is based on valuation conducted by an independent valuer. The fair value measurement is categorised in level 3 fair value hierarchy.

o Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method, less loss allowance.

o Trade receivables are interest and non-interest bearing and are generally due upto 180 days.

o For ageing analysis of trade receivables, refer note 45.

o There are no trade receivables which have significant increase in credit risk and trade receivables which are credit impaired.

Terms and rights attached to equity shares

The Company has only one class of equity shares having a par value of RS.2 per share. Each holder of equity share is entitled to one vote per share. The Company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholder.

Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date

The Company has not issued any bonus shares, shares for consideration other than cash or bought back any shares during five years immediately preceding the reporting date.

Equity shares reserved for issue under employee stock options

Refer note 42 for number of stock options against which equity shares to be issued by the Company upon vesting and exercise of those stock options by the option holders as per the relevant schemes.

Nature and purpose of reserve:-

Capital reserve

The Company recognised profit or loss on sale, issue, purchase or cancellation of the Company’s own equity instruments to capital reserve. Capital reserve may be used by the Company only for some specific purpose.

Securities premium reserve

Securities premium reserve is used to record the premium on issue of shares. This reserve is utilised in accordance with the provisions of the Act.

General reserve

The General reserve is used from time to time to transfer profit from retained earnings for appropriation purpose.

Employee stock options reserve

Employee stock options reserve is used to record the share based payments expense under the various ESOS schemes as per SEBI regulations. The reserve is used for the settlement of ESOS payments. (refer note 42)

Cash flow hedge reserve

For the forward contracts designated as cash flow hedges, the effective portion of the fair value of forward contracts are recognised in cash flow hedging reserve under other equity. (refer note 45)

o These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 0-90 days of recognition based on the credit terms. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

o There are no micro and small enterprises, to whom the company owes dues, which are outstanding for more than 45 days as at 31st March, 2019, and no interest payment made during the year to any Micro and Small Enterprises. This information as required to be disclosed under the Micro, Small and Medium Enterprises Deveolpment Act, 2006, has been determined to the extent such parties have been identified on the basis of information available with the Company.

(i) After applicability of Goods and Services Tax (GST) w.e.f. 1st July, 2017, sales are required to be disclosed net of GST. Accordingly, the figures of income from operations for the year ended 31st March, 2019 are not comparable with the corresponding previous period.

(ii) Disaggregation of revenue

The Company’s revenue disaggregated by business unit is as follows:

Contract liabilities from contracts with customers

The Company records a contract liability when cash payments are received or due in advance of its performance.

Note 2: Lease accounting Where the Company is a lessee

The Company has obtained certain premises for its business operations (including furniture and fixtures, therein as applicable) under cancellable operating lease or leave and license agreements ranging from 11 months to 5 years or longer which are subject to renewal at mutual consent. The cancellable lease arrangements can be terminated by either party after giving due notice. Lease payments are recognised in the profit or loss under ‘Rent’ in Note 36- Other expenses.

Where the Company is a lessor

The Company has given certain premises under operating lease or leave and license agreement. The Company retains substantially all risks and benefits of ownership of the leased asset and hence classified as Operating lease. Lease income on such operating lease is recognised in Profit or Loss under ‘Rent’ in Note 29- Other income.

Note:

i. Claims against the Company not acknowledged as debt includes claim relating to pricing, commission, etc.

ii. It is not practicable for the Company to estimate the timing of cash outflow, if any, in respect of our pending resolution of the respective proceedings as it is determined only on receipt of judgements/ decisions pending with various forum/authorities.

iii. The Company does not expect any reimbursements in respect of the above contingent liabilities.

iv. The Company’s pending litigations comprise of proceedings pending with various direct tax, indirect tax and other authorities. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial statements.

v. There has been a Supreme Court (SC) judgement dated 28th February, 2019, relating to components of salary structure that need to be taken into account while computing the contribution to provident fund under the EPF Act. In view of the interpretative aspects related to the judgement including the effective date of application, the Company has been advised to await further developments in this matter. The Company will continue to assess any further developments in this matter for the implications on financial statements, if any.

B. Details of other litigations:

(i) The Government of India has served demand notices in MarcRs.1995 and May 1995 on the Company in respect of six bulk drugs, claiming that an amount of RS.5.46 Crore along with interest due thereon is payable into the DPEA under the Drugs (Prices Control) Order, 1979 on account of alleged unintended benefit enjoyed by the Company. The Company has filed its replies to the notices and has contended that no amount is payable into the DPEA under the Drugs (Prices Control) Order, 1979.

(ii) The Company had received various notices of demand from the National Pharmaceutical Pricing Authority (NPPA), Government of India, on account of alleged overcharging in respect of certain drugs under the Drugs (Prices Control) Orders. The total demand against the Company as stated in NPPA public disclosure amounts to RS.2,655.09 Crore.

Out of the above, demand notices pertaining to a set of products being Norfloxacin, Ciprofloxacin, Salbutamol and Theophylline were challenged by the Company (i) in the Hon’ble Bombay High Court on the ground that bulk drugs contained in the said formulations are not amenable to price control, as they cannot be included in the ambit of price control based on the parameters contained in the Drug Policy, 1994 on which the DPCO, 1995 is based and (ii) in the Hon’ble Allahabad High Court on process followed for fixation of pricing norms. These Petitions were decided in favour of the Company and the matters were carried in appeal by the Union of India to the Supreme Court of India. The Supreme Court in its judgement of 1st August, 2003 restored the said writ petitions to the Bombay High Court with directions that the Court will have to consider the petitions afresh, having due regard to the observations made by the Supreme Court in its judgement. On the Union of India filing transfer petitions, the Supreme Court ordered transfer of the said petitions to the Bombay High Court to it for being heard with the appeal filed against the Allahabad High Court order. Subsequently, in its order of 20th July, 2016 the Supreme Court recalled its transfer order and remanded the petitions to Bombay High Court for hearing. While remanding the matter to Bombay High Court, the Hon’ble Supreme Court directed Cipla to deposit 50% of the overcharged amount with the NPPA as stated in its order of 1st August, 2003 which at that point of time was RS.350.15 Crore. Complying with the directions passed by the Hon’ble Supreme Court, Cipla has deposited an amount of RS.175.08 Crore which has been received and acknowledged by NPPA. Furthermore, the Company has not received any further notices post such transfer of cases to Bombay High Court. Meanwhile, the Hon’ble Supreme Court of India vide its Order and Judgement dated 21st October, 2016, allowed the Appeals filed by the Government against the Judgement and Order of the Hon’ble Allahabad High Court regarding basis of fixation of retail prices. The said order was specific to fixation of retail prices without adhering to the formula/process laid down in DPCO, 1995. However, the grounds relating to inclusion of certain drugs within the span of price control continues to be sub-judice with the Hon’ble Bombay High Court.

The Bombay High Court had, in expectation of NPPA filing its counter-statement on status of each petitioner’s compliance with the 2003 and 2016 Hon’ble Supreme Court orders (on deposit 50% of amount demanded), rescheduled the hearing on 8th April, 2019; but as all the connected matters were not listed on this date, the case has now been listed on 5th June, 2019.

The Company has been legally advised that it has a substantially strong case on the merits of the matter, especially under the guidelines/principles of interpretation of the Drug Policy enunciated by the Hon’ble Supreme Court of India. Although, the decision of Hon’ble Supreme Court dated 21st October, 2016 referred above was in favour of Union of India with respect to the appeals preferred by the Government challenging the Hon’ble Allahabad High Court order, basis the facts and legal advice on the matter sub-judice with the Hon’ble Bombay High Court, no provision is considered necessary in respect of the notices of demand received till date aggregating to RS.1,736.00 Crore. It may be noted that NPPA in its public disclosure has stated the total demand amount against the Company in relation to the above said molecules to be RS.2,272.32 Crore (after adjusting deposit of RS.175.08 Crore), however, the Company has not received any further notices beyond an aggregate amount of RS.1,736.00 Crore.

For the balance demand aggregating to RS.197.62 Crore (pertaining to set of products not part of the above mentioned writ proceedings in the Hon’ble Bombay High Court), basis the facts and legal advice, the Company carries a total provision of RS.98.49 Crore as of 31st March, 2019.

(iii) During the year ended 31st March, 2019, the Group has launched gSensipar (Cinacalcet hydrochloride) at risk (“LAR”) as second US generic of Sensipar.® in the US market. On considering the various factors such as district court opinion, terms of settlement with Amgen and the opinions from both internal and external legal counsels, the management is of the view that there are remote chances to pay damages following the LAR. Also, following Cipla’s LAR of its gSenispar product, the District Court denied Amgen’s motion for a Preliminary Injunction (PI) on 2nd May, 2019.

Note 3: Employee benefits

a. Regulatory framework:

There are no minimum funding requirements for a gratuity plan in India. The trustees of the gratuity fund have a fiduciary responsibility to act according to the provisions of the trust deed and rules. Since the fund is Income tax approved, the Company and the trustees have to ensure that they are at all times fully compliant with the relevant provisions of the Income Tax Act and Rules. Besides this if the Company is covered by the Payment of Gratuity Act, 1972 then the Company is bound to pay the statutory minimum gratuity as prescribed under this Act.

b. Governance of the plan:

The Company has setup an income tax approved irrevocable trust fund to finance the plan liability. The trustees of the trust fund are responsible for the overall governance of the plan.

c. Inherent risks:

The plan is of a final salary defined benefit in nature which is sponsored by the Company and hence it underwrites all the risks pertaining to the plan. In particular, there is a risk for the Company that any adverse salary growth or demographic experience or inadequate returns on underlying plan assets can result in an increase in cost of providing these benefits to employees in future. Since the benefits are lump sum in nature the plan is not subject to any longevity risks.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in employment market.

The sensitivity analysis above has been determined based on reasonable possible changes of the respective assumption occurring at the end of the reporting period while holding all other assumptions constant.

The sensitivity analysis presented above may not be representative of the actual change in the projected 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 projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognised in the balance sheet.

There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

Note: 4 Related Party Disclosures

Information on related party transactions as required by Ind AS - 24 - Related Party Disclosures are given below:-

A. Subsidiary Companies including step-down subsidiaries and associate companies :

B. Key management personnel (KMP)

1 Ms. Samina Vaziralli - Executive ViceChairperson

2 Mr. Umang Vohra - Managing Director and Global Chief Executive Officer

3 Mr. S. Radhakrishnan - Whole-time Director (upto 11th November, 2017)

4 Mr. Kedar Upadhye - Global Chief Financial Officer

5 Dr. Raghunathan Ananthanarayanan - Global Chief Operating Officer (w.e.f. 08th August, 2018)

C. Non-executive Chairman & Non-executive Vice Chairman

1 Dr. Y.K. Hamied, Chairman

2 Mr. M.K. Hamied, Vice Chairman

D. Non-executive Directors

1 Mr. Ashok Sinha

2 Mr. Adil Zainulbhai

3 Ms. Punita Lal

4 Ms. Naina Lal Kidwai

5 Ms. Ireena Vittal (upto 31st March, 2019)

6 Mr. Peter Lankau

7 Dr. Peter Mugyenyi

8 Mr. S. Radhakrishnan - (w.e.f. 12th November, 2017)

E. Entities over which Key management personnel are able to exercise significant influence

1 Cipla Foundation

2 Hamied Foundation

3 Cipla Cancer and AIDS Foundation

F. Trust over which entity has control/significant influence

1 Cipla Limited Employees Provident Fund

2 Cipla Limited Employees Gratuity Fund

3 Cipla Employees Stock Option Trust

4 Cipla Health Employees Stock Option Trust

Note 5: Employee stock option scheme Employee stock option scheme

The Company has implemented “ESOS 2013”, “ESOS 2013 - A” and “ESOS 2013 - B” as approved by the Shareholders on 8th April 2013, 22nd August 2013 and 22nd August 2013 respectively. Details of the options granted during the year under the Scheme(s) are as given below:

The options are granted at an exercise price, which is in accordance with the relevant SEBI guidelines in force, at the time of such grants. Each option entitles the holder to exercise the right to apply for and seek allotment of one equity share of RS.2 each.

Note 6: Segment information

In accordance with Indian Accounting Standard (Ind AS) -108 “Operating Segments”, Segment information has been given in the consolidated financial statements of Cipla Limited and therefore, no separate disclosure on segment information is given in these standalone financial statements.

Note 7: Details of loans given, investment made and guarantee given

(a) Disclosure as per Regulations 34(3) and 53(f) of Securities Exchange Board of India - Listing Obligations and Disclosure Requirements (LODR)

Note 8:

Fair value measurement

The fair value of financial assets and liabilities are 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.

The following methods and assumptions were used to estimate the fair values:

The carrying amount of trade receivable, trade payable, capital creditors, loans, cash and cash equivalents and other bank balances as at 31st March, 2019 and 31st March, 2018 are considered to be the same as their fair values, due to their short term nature. Difference between carrying amounts and fair values of other financial assets, other financial liabilities and short term borrowings subsequently measured at amortised cost is not significant in each of the year presented.

Financial Instruments with fixed and variable interest rates are evaluated by the company based on parameters such as interest rate and individual credit worthiness of the counterparty. Based on this evaluation, allowances are taken to account for the expected losses of these receivables.

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method at 31st March, 2019 and 31st March, 2018. The different levels have been defined as follows.

Level 1 - category includes financial assets and liabilities, that are measured in whole or in significant part by reference to published quotes in an active market.

Level 2 - category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions. These include assets and liabilities for which pricing is obtained via pricing services, but where prices have not been determined in an active market, financial assets with fair values based on broker quotes and assets that are valued using the Company’s own valuation models whereby the material assumptions are market observable. The majority of Company’s over-the-counter derivatives and several other instruments not traded in active markets fall within this category.

Level 3 - category includes financial assets and liabilities measured using valuation techniques based on non market observable inputs. This means that fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. However, the fair value measurement objective remains the same, that is, to estimate an exit price from the perspective of the Company. The main asset classes in this category are unlisted equity investments as well as unlisted funds.

Financial risk management objectives and policies

The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance.

The Company’s financial liabilities comprise of borrowings, trade payable and other liabilities to manage its operation and financial assets includes trade receivables, security deposit and loans and advances etc. arises from its operation.

The Company has constituted a Risk Management Committee consisting of majority of directors and senior managerial personnel. The Company has a robust Business Risk Management framework to identify, evaluate business risks and opportunities. This framework seeks to create transparency, minimize adverse impact on the business objectives and enhance Company’s competitive advantage. The business risk framework defines the risk management approach across the enterprise at various levels including documentation and reporting. The framework has different risk models which help in identifying risk trend, exposure and potential impact analysis at a Company level.

The Company has instituted a self governed risk management framework based on identification of potential risk areas, evaluation of risk intensity, and clear-cut risk mitigation policies, plans and procedures both at the enterprise and operating levels. The framework seeks to facilitate a common organisational understanding of the exposure to various risks and uncertainties at an early stage, followed by timely and effective mitigation. The Audit Committee of the Board reviews the risk management framework at periodic intervals.

Market risk

The Company operates internationally and a major portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk to the extent that there is mismatch between the currencies in which its sales and services and purchases from overseas suppliers in various foreign currencies. Market Risk is the risk that changes in market prices such as foreign exchange rates will effect groups income or value of its holding financial assets/ instruments. The Company also holds derivative financial instruments such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the Indian Rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Company’s operations are affected as the Indian Rupee appreciates/ depreciates against US dollar (USD), Euro (EUR), South African Rand (ZAR) and Great Britain Pound (GBP).

(c) Sensitivity analysis

A reasonably possible change in foreign exchange rates by 2% would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables in particular interest rates remain constant.

(d) Impact of hedging activities

The Company uses foreign exchange forward contracts to hedge against the foreign currency risk of highly probable USD and ZAR sales. Such derivative financial instruments are governed by the Company’s policies approved by the Board of Directors, which provide written principles on the use of such instruments consistent with the Company’s risk management strategy. As the value of the derivative instrument generally changes in response to the value of the hedged item, the economic relationship is established.

Hedge effectivenss is determined at the inception of hedge relationship, and through periodic prospective effectiveness assessment to ensure that an economic relationships exists between the hedged item and hedging instruments. It is calculated by comparing changes in fair value of the hedged item, with the changes in fair value of the hedging instrument.

If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in the profit or loss at the time of the hedge relationship rebalancing.

Interest rate risk

Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates, in cases where the borrowings are measured at fair value through profit or loss. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing investments will fluctuate because of fluctuations in the interest rates.

Exposure to interest rate risk

Company’s interest rate risk arises from borrowings. The Company adopts a policy of ensuring that maximum of its interest rate risk exposure is at a fixed rate. The interest rate profile of the Company’s interest-bearing financial instruments as reported to the management of the Company is as follows.

The Company does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss, and the Company does not designate derivatives as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit or loss.

Cash flow sensitivity analysis for variable-rate instruments

A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

The risk estimates provided assume a parallel shift of 50 basis points interest rate across all yield curves. This calculation also assumes that the change occurs at the balance sheet date and has been calculated based on risk exposures outstanding as at that date. The period end balances are not necessarily representative of the average debt outstanding during the period.

Credit risk

Credit risk refers to the risk of default on its obligation by the customer/ counter party resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is carrying value of trade receivables.

Trade receivables are typically unsecured and are derived from revenue earned from customers. Credit risk has always been managed by each business segment through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses Expected Credit Loss (ECL) model for assessing the impairment loss. For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account external and internal credit risk factors and historical data of credit losses from various customers.

Credit risk on cash and cash equivalents is limited as the Company generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in liquid mutual fund units and certificates of deposit which are funds deposited at a bank for a specified time period.

The ageing analysis of the receivable (gross of provision) has been considered from the date the invoice falls due.

Liquidity risk

The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company has no outstanding borrowings as at 31st March, 2019. The Company believes that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived.

Note 9: Corporate social responsibility (CSR) expenditure

The Company has incurred RS.33.42 Crore (previous year RS.32.20 Crore) towards CSR activities, as per Section 135 of the Companies Act, 2013 and Rules thereon. It is included in other expenses head in profit or loss. Amount spent on construction/aquisition of any assets is Nil during the year.

Gross amount required to be spent by the Company during the year RS.32.14 Crore (previous year RS.31.05 Crore.)

Note 10: Capital management A. Risk management

The Company’s objectives when managing capital are to safeguard their ability to continue as a going concern so that they can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amounts of dividends paid to shareholders, return capital to shareholders, issue new shares or sell new assets to reduce debt. Consistent with others in Industry, the Company monitors capital on the basis of the following gearing ratio : (net debt divided by total ‘equity’).

Net debt = Total borrowings less cash and cash equivalents including current investments.

Total ‘equity’ is as shown in the balance sheet.

Dividend not recognised at the end of the reporting period:

The Board of Directors of the Company at its meeting held on 22nd May, 2019 has recommended a final dividend of RS.3.00 per equity share (previous year RS.3.00 per equity share) for the financial year ended 31st March, 2019. The same amounts to RS.291.40 Crore including dividend distribution tax.

The above is subject to approval at the ensuing Annual General Meeting of the Company and hence is not recognised as a liability.

Note 11: Earnings per share (EPS)

Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.

For the purpose of calculating diluted earnings per share, the net profit attributable to equity shareholders and the weighted average number of shares outstanding are adjusted for the effect of all dilutive potential equity shares from the exercise of options on unissued share capital. The number of equity shares is the aggregate of the weighted average number of equity shares and the weighted average number of equity shares which are to be issued in the conversion of all dilutive potential equity shares into equity shares.

Disclosure as required by Indian Accounting Standard (Ind AS) 33-Earnings per share:

Note 12: Exceptional item

During the previous year ended, with respect to various notices of demand from the NPPA, Government of India on account of alleged overcharging in respect of products which are not part of the writ proceedings in the Hon’ble Bombay High Court (refer note 39 B), based on correspondence with NPPA and notices received, the Company performed a thorough legal evaluation. Of the total demand received for such products, basis the facts and legal advice, the Company had recorded an additional provision of RS.77.52 Crore in profit or loss for the year ended 31st March, 2018, disclosed as exceptional item. The total provision against these demands is RS.98.49 Crore (previous year RS.93.94 Crore) as of 31st March, 2019.

Note 13: Reclassification note

Certain prior year amounts have been reclassified for consistency with the current year presentation. As a result, certain line items have been amended in the financial statements. These reclassifications had no effect on the reported results of operations. Comparative figures have been adjusted to conform to the current year’s presentation. The figures for the corresponding previous year have been regrouped/reclassified wherever necessary, to make them comparable.

Note 14: Subsequent events

There are no subsequent events that occurred after the reporting date.

Note 15: Authorisation of financial statements

The financial statements for the year ended 31st March, 2019 were approved by the Board of Directors on 22nd May, 2019.

Source : Dion Global Solutions Limited
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