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Granules India

BSE: 532482|NSE: GRANULES|ISIN: INE101D01020|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Mar '18

1 Company overview

1.1 Reporting entity

Granules India Limited (“Granules” or “the Company”) is a company domiciled in India, with its registered office situated at Hyderabad, Telangana. The company has been incorporated under the provisions of Indian Companies Act and its shares are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The company is primarily involved in the manufacturing and selling of Active Pharmaceutical Ingredients (APIs), Pharmaceutical Formulation intermediates (PFIs) and Finished Dosages (FDs)

1.2 Basis of preparation

a) Statement of compliance

The standalone financial statements have been prepared m accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013 (the ‘Act’) and other relevant provisions of the Act

These standalone financial statements have been prepared for the Company as a going concern on the basis of relevant Ind AS that are effective at the Company’s annual reporting date, March 31, 2018. These standalone financial statements were authorised for issuance by the Company’s Board of Directors on May 24, 2018.

The financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments)

The financial statements are presented in INR and all values are rounded to the nearest lakhs, except when otherwise indicated.

Details of the Company’s accounting policies are included in Note 2.

b) Current versus non-current classification

The Company presents assets and liabilities in the balance sheet based on current/ non-current classification

An asset is treated as current when it is

- Expected to be realised or intended to be sold or consumed in normal operating cycle

- Held primarily for the purpose of trading

- Expected to be realised within twelve months after the reporting period or

- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non-current A liability is current when

- It is expected to be settled in normal operating cycle

- It is due to be settled within twelve months after the reporting period, or

- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

The Company classifies all other liabilities as non-current

Deferred tax assets and liabilities are classified as non-current assets and liabilities

The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle

c) Functional and presentation currency

These standalone financial statements are presented in Indian rupees (INR), which is also the functional currency of the Company. All amounts have been rounded-off to the nearest lakh, unless otherwise indicated.

d) Basis of measurement

These standalone financial statements have been prepared on the historical cost basis, except for the following items:

- Certain financial assets and liabilities are measured at fair value;

- Net defined benefit assets/(liability) are measured at fair value of plan assets, less present value of defined benefit obligations

e) Use of estimates and judgements

The preparation of the financial statements in conformity with Ind AS requires management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the standalone financial statements

Judgements

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes

- Note 1.2(c) - Assessment of functional currency;

- Note 2(a) and 32 - Financial instruments;

- Note 3A - Useful lives of property, plant and equipment;

- Note 28 - Assets and obligations relating to employee benefits;

- Note 27 - Share based payments;

- Note 24 & 26 (i) - Provision for income taxes, duties/ tax contingencies and evaluation of recoverability of deferred tax assets.

Assumptions and estimation uncertainities

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending March 31, 2018 is included in the following notes:

- Note 26 (i) - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources

- Note 27 - Share based payments

- Note 28 - measurement of defined benefit obligations key actuarial assumptions;

f) Measurement of fair values

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement

The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred

Further information about the assumptions made in measuring fair values is included in the following notes

- Note 27 - share based payment; and

- Note 32 - financial instruments

Note:

(i) The term loan of RS.22,143.73 lakhs to Granules Pharmaceuticals Inc. and RS.170.58 lakhs to Granules Europe Limited, provided during the financial year ended March 31, 2018, carries fixed interest rate of 4%. These loans are given for the purpose of setting up, modernisation and general corporate purpose of the subsidiaries outside India

i) For details of inventories hypothecated against current borrowings Refer Note 10

ii) Write-down of inventories to net realisable value amounted to RS.50.76 lakhs (March 31, 2017 - H Nil). These were recognised as an expense during the year and included in “changes in finished goods and work-in-progress” in statement of profit and loss.

Refer note 31 for trade receivables due from private companies/partnership firm in which Company’s director is a director/partner. The Company’s exposure to credit and currency risks, and loss allowances related to trade receivables are disclosed in Note 33. For receivables secured against borrowings, refer Note 10 & 13A.

2.1 Rights, prefernces and restrictions attached to equity shares

The Company has only one class of equity shares having a par value of RS.1 per share. Each holder of equity shares is entitled to one vote per share. The Company declares dividends in Indian rupees. During the year ended March 31, 2018, the amount of interim dividend per share distributed along with final dividend per share recommended by the board to equity shareholders was RS.1.00 (March 31, 2017: H0.90). 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. However, no such preferential amounts exist currently. The distribution will be in proportion to the number of equity shares held by the shareholders

As per records of the Company, including its register of shareholders/members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

2.2 Shares reserved for issue under options

For details of shares reserved for issue under Employee Stock Option Scheme (ESOS) of the Company, refer note 27

2.3 Shares issued through QIP

On September 26, 2017, the Company issued and allotted 2,47,54,792 Equity Shares of RS.1/- each at an issue price of RS.121.25 per share to raise RS.30,015.18 Lakhs by way of Qualified Institutional Placement (“QIP”) under Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 . Expenses related to the issue amounting to RS.79745 Lakhs have been adjusted against Securities Premium. Use of the net proceeds of the Qualified Institutional Placement is intended for business purposes such as meeting for expansion of business verticals by way of strategic investment in research and development, repayment or pre-payment of outstanding indebtedness, investment in subsidiaries, joint ventures, capital expenditure and other general corporate purposes.

3. Other equity

Attributable to owners Securities premium reserve

Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013.

General reserve

It represents the portion of the net profit which the Company has transferred, before declaring dividend pursuant to the earlier provision of companies Act 1956. Mandatory transfer to general reserve is not required under the Companies Act 2013

Retained earnings

The amount that can be distributed by the Company as dividends to its equity shareholders

Share based payment reserve

The Company has established various equity settled share based payment plans for certain categories of employees of the Company. Also refer note 27 for further details on these plans

Capital reserve

Capital reserve arising pursuant to scheme of amalgamation

Dividends

The following dividends were declared and paid by the Company during the year

Analysis of items of OCI, net of tax Remeasurements of defined benefit plans

Remeasurements of defined benefit plans comprises actuarial gains and losses and return on plan assets (Refer note - 28)

Cash flow hedge reserve

Cash flow hedge represents the cumulative effective portion of gains or losses (net of taxes) arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges

i) The term loan was prepaid in full on October 6, 2017.

ii) The term loans were closed during the year ended March 31, 2018 as the entire balance outstanding as at March 31, 2017 was due and paid during the current year

iii) All secured term loans are secured by a paripassu first charge on the fixed assets of present and future of the company except all monies in the banks with a carrying amount of RS.85,958.02 lakhs (March 31, 2017 - RS.65,058.95 lakhs) and a paripassu second charge of the current assets of present and future of the Company with a carrying amount of RS.1,13,841.52 lakhs (March 31, 2017 - RS.83,318.33 lakhs).

iv) The sales tax authority has sanctioned an interest free deferment of sales tax. The loan is to be paid at the end of 13 years from the respective deferment and the balance outstanding loan is due to be paid fully in the year ended March 31, 2019. Accordingly the balance outstanding is classified as part of other current liabilities

i) The Company has working capital facilities with various banks carrying interest rate ranging from 9.20% - 10.7% p.a and base rate plus 85 bps. These facilities are repayable on demand

ii) During the year ended March 31, 2018, the Company has outstanding secured foreign currency denominated loans carrying an interest rate of LIBOR 0.25% p.a. to 0.34% p.a. from a bank. The facility is repayable within 120 days from the date of its origination

iii) During the year ended March 31, 2018, the Company has outstanding secured foreign currency denominated loans carrying an interest rate of LIBOR 0.65% p.a. to 1.10% p.a. from a bank. The facility is repayable within 120 days from the date of its origination

iv) During the year ended March 31, 2018, the Company has outstanding secured foreign currency denominated loans carrying an interest rate of LIBOR 0.65% p.a. to 1% p.a. from a bank. The facility is repayable within 180 days from the date of its origination

v) All secured short term borrowings from banks are secured by a paripassu first charge on the current assets of present and future of the Company with a carrying amount of RS.1,14,516.24 lakhs (March 31, 2017 - RS.83,349.81 lakhs) and a paripassu second charge of the fixed assets of present and future of the company with a carrying amount of RS.85,958.02 lakhs (March 31, 2017 - RS.65,058.95 lakhs).

vi) During the year ended March 31, 2018, the Company has outstanding unsecured foreign currency denominated loans carrying an interest rate of LIBOR 0.65% p.a. from a bank. The facility is repayable within 120 days from the date of its origination

vii) The Company’s exposure to interest rate, foreign currency and liquidity risks is included in note 33.

Note:

i) Post implementation of Goods and Service Tax (‘GST’) with effect from July 01, 2017, revenue from operations is disclosed net of GST. For the periods prior to July 01, 2017, the excise duty amount was recorded as part of revenue with a corresponding amount recorded as expense. Accordingly, revenue from operations for the year ended March 31, 2018 are not comparable with those of the previous period presented. Following additional information is being provided to facilitate such comparison

The Company is involved in taxation matters that arise from time to time in the ordinary course of business. Management is of the view that above claims are not tenable and will not have any material adverse effect on the Company’s financial position and results of operations.

(b) Operating Leases

Operating leases are mainly in the nature of lease of office premises with no restrictions and are renewable on a periodic basis 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 recognised in the Statement of Profit and Loss for cancellable lease is RS.34761 lakhs (March 31, 2016: RS.233.58 lakhs) and non-cancellable lease is RS.6752 lakhs (March 31, 2017 : RS.18.39 lakhs).

The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below

4. Share based payments

Granules India Limited - Employee Stock Option Scheme 2009 (“ESOS-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 eligible 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 Optionee 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 six tranches viz. Grant I, Grant II, Grant III , Grant IV, Grant V & Grant VI. 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 & VI from the respective date of grant of the options

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of exercise price of options granted, the expected term of an option (or “option life”) is estimated based on the vesting term, contractual term, as well as expected exercise behavior of the employees receiving the option. In respect of fair market value of the options granted, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control.

b) The Company has a defined benefit gratuity plan as per the Payment of Gratuity Act, 1972. Under this legislation, employee who has completed five years of service is entitled to specific benefit. The level of benefit provided depends on the employee’s length of service and salary at retirement/termination age. The gratuity plan is a funded plan and the Company make contributions to a recognised fund in India

Based on the actuarial valuation obtained in this respect, the following table sets out the status of the gratuity plan and the amounts recognised in the Company’s financial statements as at balance sheet date:

Assumptions regarding future mortality experience are set in accordance with published statistics and mortality tables

The weighted average duration of the defined benefit obligation was 6.78 years

The defined benefit plan expose the Company to actuarial risks, such as longevity and interest rate risk.

(iii) Sensitivity analysis

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions are as below

Sensitivity of significant actuarial assumptions is computed by varying one actuarial assumption used for the valuation of defined benefit obligation by one percentage, keeping all other actuarial assumptions constant. Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumption shown.

As of March 31, 2018 and March 31, 2017, the plan assets have been invested in Life Insurance Corporation

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.

*Foreign currency balances included above have been shown at restated values arrived by using the closing exchage rates

5. 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.

Fair Valuation measurement hierarchy

The following table shows the carrying amounts and fair values of financial assets and liabilities including their levels of fair value hierarchy:

6. 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.68,173.67 lakhs and RS.46,831.27 lakhs as of March 31, 2018 and March 31, 2017 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 23% and 30% of outstanding trade receivable as of March 31, 2018 and March 31, 2017.

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.

The table below provides details regarding the undiscounted contractual maturities of significant financial liabilities as of March 31, 2018:

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/EURO 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

Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of borrowings affected With all other variables held constant, the Company’s profit before tax is affected through the impact on borrowings, as follows:

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 USD/EURO against the functional currencies of the Company

For the year ended March 31, 2018 and March 31, 2017, every percentage point depreciation / appreciation in the exchange rate between Indian rupees and U.S. dollar/Euro will affect the Company’s profit by approximately 1.33 % and 0.24% respectively.

The Company designates certain non derivative financial liabilities, such as foreign currency borrowings from financial institutions, as hedging instruments for the hedge of foreign exchange risk associated with highly probable forecasted transactions and, accordingly, applies cash flow hedge accounting for such relationships. Re-measurement gain/loss on such non derivative financial liabilities is accumulated in other equity under the heading cash flow hedging reserve, and re-classified in the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions

Cash flow hedge reserve

The reconciliation of cash flow hedge reserve for the year ended March 31, 2018 is as follows:

7. Segment reporting

The Company is engaged in the manufacture of Pharmaceuticals, which in the context of Ind AS 108 is considered only business segment.

i) Non-current assets for this purpose consist of property, plant and equipment, capital work in progress and other non-current assets.

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 maximise 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, less cash and cash equivalents and other bank balances.

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

9. The disclosures regarding details of specified bank notes held and transacted during November 8, 2016 to December 30, 2016 has not been made since the requirement does not pertain to financial year ended March 31, 2018. Corresponding amounts as appearing in the audited Standalone financial statements for the year ended March 31, 2017 have been disclosed.

*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.

10. 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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