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Ipca Laboratories

BSE: 524494|NSE: IPCALAB|ISIN: INE571A01020|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Mar '19

c) Details of securities and repayment terms of secured loans stated above

(i) Foreign Currency Term Loans

1 BNP PARIBAS, Singapore Branch

Secured by first pari passu charge by way of hypothecation of movable fixed assets both present and future Including Pithampur Plant(Indore).

Repayable in 13 equal quarterly instalments from 30th June, 2017.

2 DBS BANK, Singapore Branch

Secured by first pari passu charge by way of hypothecation of all the movable fixed assets both present and future. Repayable in 17 equal quarterly instalments from September 16, 2014.

3 Citibank N.A., Jersey

Secured by first pari passu charge over movable assets of the company except assets at Unit II at Sikkim plant and specific machines at Athal and Ratlam which are financed under buyers credit.

Repayable in 16 equal quarterly instalments from June 15, 2019.

4 HSBC Bank Mauritius Ltd.

a. Secured by first pari-passu charge over current and future movable fixed assets of the Company except assets at Pithampur, Indore and at Baroda.

Repayable in 9 equal quarterly instalments from September 26, 2016.

b. Secured by first pari-passu charge over current and future movable fixed assets of the Company except assets at Pithampur, Indore and at Baroda.

Repayable in 16 equal quarterly instalments from September 30, 2015.

c. Secured by first pari-passu charge over current and future movable fixed assets of the Company except assets at Baroda.

Repayable in 11 half yearly un-equal instalments from December 08, 2016.

5 Standard Chartered Bank- London

Secured by first pari-passu charge on movable fixed assets at Company''s API plant at Baroda and Formulation plant at SEZ Pithampur and the specific and exclusive charge on the unit II at Sikkim.

Repayable in 16 quarterly equal instalments from February 15, 2018.

6 United Overseas Bank Ltd.

Secured by first pari passu charge by way of hypothecation of movable fixed assets both present and future Including Pithampur plant (Indore).

Repayable in 4 equal half yearly instalments from June 29, 2018.

(ii) Buyer''s credit - Standard Chartered Bank

Exclusive Charge by way of hypothecation of specific movable fixed assets financed through this Buyers'' Credit.

Repayable 10% at end of 12 months, 45% at end of 24 months and balance 45% at end of 36 months from the date of drawdown.

14.1(i) Disclosure in accordance with Ind AS - 19 Employee Benefits'', of the Companies (Indian Accounting Standards) Rules, 2015.

Gratuity

The company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement / termination is the employee''s last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service. The gratuity plan is a funded plan and the company makes contributions to recognized funds in India. The company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

These plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.

Investment risk

For funded plans that rely on insurers for managing the assets, the value of assets certified by the insurer may not be the fair value of instruments backing the liability. In such cases, the present value of the assets is independent of the future discount rate. This can result in wide fluctuations in the net liability or the funded status if there are significant changes in the discount rate during the inter-valuation period.

Market risk (discount risk)

Market risk is a collective term for risks that are related to the changes and fluctuations of the financial markets. The discount rate reflects the time value of money. An increase in discount rate leads to decrease in Defined Benefit Obligation of the plan benefits & vice versa. This assumption depends on the yields on the corporate/government bonds and hence the valuation of liability is exposed to fluctuations in the yields as at the valuation date.

Longevity risk

The impact of longevity risk will depend on whether the benefits are paid before retirement age or after . Typically for the benefits paid on or before the retirement age , the longevity risk is not very material.

Actuarial risk

Salary Increase Assumption: Actual Salary increase that are higher than the assumed salary escalation , will result in increase to the obligation at a rate that is higher than expected.

The following table summarizes the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet :

The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on government bonds.

Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and mortality.

The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of reporting period, while holding all other assumptions constant.

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would clear in isolation of one another as some of the assumptions may be correlated.

Further more, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognized in the balance sheet.

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

(ii) Employee stock option plans

The Company has a stock option plan that provides for the granting of stock options to qualifying permanent employees including Whole time Non- Promoter Director of the Company. The option plan is summarized below:

The Board of Directors at the meeting held on 25th April, 2017 had granted 1,65,000 (One Lakh Sixty Five Thousand) option under Ipca Laboratories Limited -Employees Stock Option Scheme- 2014 (ESOS). The Option granted got vested on completion of 1 year from the date of grant of the option.

The compensation cost for ESOS 2014 has been recognized based on the fair value at the date of grant in accordance with the Black-Scholes method determined by an independent merchant banker. The Black -Scholes option-pricing model was developed for estimating fair value of trade options that have no vesting restrictions and are fully transferable. Since options pricing models require use of subjective assumptions, changes therein can materially affect fair value of the options. The options pricing models do not necessarily provide a reliable measurement of fair value of options.

* Secured loans are secured by first charge by way of hypothecation of all the stocks, book debts and all other movable current assets of the Company and second charge by way of mortgage of the immovable properties of the Company and hypothecation of plant & machinery of the Company.

31. Disclosure in accordance with Ind AS 17 Leases'', of the Companies (Indian Accounting Standards) Rules, 2015.

The Company has taken various residential / god owns / offices premises (including furniture and fittings if any) under leave and license agreements. These generally range between 11 months to 3 years under leave and license basis. These arrangements are renewable by mutual consent on mutually agreed terms. Under some of these arrangements the Company has given refundable security deposits. The lease payments are recognized in the statement of profit and loss under rent.

The Company has given certain plant and equipment under operating lease and the same is shown separately in property, plant

& equipment.

32. Segment Reporting

Disclosure as required by Ind AS 108 Operating Segment'', of the Companies (Indian Accounting Standards) Rules, 2015.

Based on the management approach as defined in Ind AS 108, the Chief Operating Decision Maker (CODM) evaluates the Company''s performance in accordance with Ind AS Operating Segment, the Company has only one reportable operating segment i.e. Pharmaceuticals. The additional disclosure is being made in the consolidated financial statements.

*Note:- It includes Rs,4.38 crores (Previous year Rs,4.38 crores) towards interest and penalty demanded by excise department, Ankleshwar relating to erstwhile Tonira Pharma Limited since amalgamated with the Company and is not payable in accordance with the order passed by the Hon''ble Central Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad. The Department had moved the Hon''ble Gujarat High Court against the said CESTAT order and as per the order of the said Hon''ble High Court, the Company has furnished a Bank Guarantee of Rs,2.00 crores (Previous year Rs,2.00 crores) to the department.

ii. The Hon''ble Supreme Court of India by their order dated February 28, 2019, has clarified the principles based on which allowances paid to the employees should be identified for inclusion in basic wages for the purposes of computation of Provident Fund contribution. Pending directions or clarification from the EPFO, the quantification of impact, if any, is not ascertainable and consequently no effect has been given in the accounts.

37. Goods and Services Tax

In accordance with Ind AS 18 on Revenue and Schedule III to the Companies Act, 2013, for the quarter April 1, 2017 to June 30, 2017 were reported gross of Excise Duty and net of Value Added Tax (VAT) / Sales Tax. Excise duty was reported as a separate expense line item. Consequent to the introduction of Goods and Services Tax (GST) with effect from July 1, 2017, VAT / Central sales tax, excise duty etc. have been subsumed into GST and accordingly, the same is not recognized as part of revenue in terms of Ind AS 115. This has resulted in lower reported sales w.e.f. July 1,2017 in comparison to the sales reported under the pre-GST structure of indirect taxes. With the change in structure of indirect taxes, expenses are also being reported net of taxes.

39. Fair Value Hierarchy

This section explains the judgments and estimates made in determining the fair values of the financial instruments that are (a) recognized and measured at fair value and (b) measured at amortized cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

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

40. Financial Risk Factors

The Company''s business activities are exposed to a variety of financial risks: market/business risk, credit risk, exchange risk, etc. The Company''s focus is to foresee the unpredictability of financial and business risks and seek to minimize potential adverse effects of these risks on its business and financial performance.

i. Business/ Market Risk

The primary business/market risk to the Company is the price risk and its ability to pass on the same to its customers. The Company''s operations extend to a number of countries across the globe and its products pricing competitiveness is a primary factor for the acceptability of Company''s products in those markets. The Company has a robust procurement process, which ensures that its pricing power is not adversely affected by price changes in the market place for its raw materials. The backward integration into manufacturing of several APIs for its own use in the formulations manufacturing also works as a mitigating strategy for price risk faced by the Company.

The other business risk is regulatory risk and regulatory audits of its manufacturing facilities by the regulators to ensure that the manufacturing facilities meet the current Good Manufacturing Practices (cGMP) requirements. The Company is already exposed to certain audit observations from the US FDA for 3 of its manufacturing plants and has taken the necessary corrective measures to redress those US FDA audit observations so as to be able to market all its products once again in the US market. While the stringent regulatory requirements and audits works as a business risk, the successful audit of its facilities by regulators coupled with price competitiveness results in higher business and margins for the Company.

The Company''s products are also subjected to product liability claims/litigations. To mitigate these risks, the Company has obtained adequate Product Liability Insurance.

The Company, however, has a reduced risk from dependence on any single customer as no single customer or customer group accounts for more than 10% of Company''s annual revenue. The Company also continuously forays into different markets/countries to reduce its dependence on any particular country or customer group. The Company also has a diversified therapeutic product portfolio and therefore no single product account for more than 10% of Company''s annual revenue.

ii. Credit risk

The Company has exposure to credit risks associated with sales to various developing markets/countries. To mitigate these credit risks arising out of this, the Company obtains credit insurance on a regular basis after evaluating the credit risk associated with a country/customer. Country/customer where no credit insurance is available, the Company monitors such risk by continuously monitoring its exposure to such country/customer. There was no historically significant credit risk in the domestic market for the Company. Based on the historical data, the Company has made adequate provisions for expected loss because of credit risk, which is neither significant nor material.

iii. Interest risk

The Company has borrowings mainly in foreign currencies which is linked to Libor. The Company mitigates these risks associated with floating Libor rates by entering into interest rate swaps to move them to fixed Libor rates. The domestic interest risk is exposed to the changes in the RBI bank rate. The Company manages this risk by managing its working capital effectively.

iv. Foreign currency risk

The Company continuously manages its risks associated with foreign currency by adopting various hedging strategies in consultation with internal and external experts. The Company has a system of regularly monitoring its currency wise exposures. The significant part of Company''s receivables and borrowings are in US Dollars which operates as a natural hedge against each other. The Company has a policy not to borrow in a currency where it has no business exposure.

The Company has entered into various derivatives transactions, which are not intended for trading or speculative purpose but to hedge the export receivables including future receivables and foreign currency loan interest rate risks.

vi. The Company has entered into Interest Rate Swap (IRS) Contracts against the underlying of USD ECB loans. The actual net gain of Rs,3.88 crores upon unwinding of one of the IRS on ECB loan and gain on net settlement is credited to interest expenses under finance cost. (Refer note no.26).

vii. Other Price Risk

The Company is mainly exposed to the price risk due to its investment in mutual funds. However, the Company is investing only in debt funds. The price risk arises due to uncertainties about the future market values of these investments. At March 31 2019, the investments in mutual funds is '' 90.38 crores (Previous year : Rs,69.34 crores).These are exposed to price risk. In order to minimize price risk arising from investments in mutual funds, the Company predominately invest in liquid funds where price risk is minimum.

Price risk sensitivity:

0.10% increase or decrease in prices will have the following impact on profit/loss before tax and on other components of investment value :

1. Capital Management

For the purpose of the Company''s capital management, capital includes paid-up equity share 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 shareholders value.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust its dividend payment ratio to shareholders, return capital to shareholders or issue fresh shares. The Company monitors capital using a gearing ratio, which is net debt divided by its total capital. The Company includes within its net debt the interest bearing loans and borrowings, trade and other payables less cash and cash equivalents.

In order to achieve this overall objective, the Company''s capital management, amongst other things, aims to ensure that it meets the financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the lending institutions to immediately call back the 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 the capital during the years ended March 31, 2019 and March 31, 2018.

During the year ended March 31, 2019 the Company has designated certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. The related transactions for the balance in the cash flow hedging reserve are expected to occur and reclassified to revenue in the statement of profit and loss. However as at March 31,2019 there are no transactions in the hedge reserve that are required to be reclassified to the revenue in the statement of profit and loss.

Hedge effectiveness is determined at the inception of the hedge relationship and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and the hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.

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 hedged ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted in the statement of profit and loss at the time of hedge relationship re-balancing.

The Company offsets a financial asset and a financial liability when it currently has a legally enforceable right to set off the recognized amounts and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. During the year the Company has not settled any such transactions.

2. Figures for the previous year have been regrouped / reclassified / reinstated, wherever considered necessary.

3. The balance sheet, statement of profit and loss, cash flow statement, statement of changes in equity, statement of significant accounting policies and the other explanatory notes forms an integral part of the financial statements of the Company for the year ended March 31, 2019.

Source : Dion Global Solutions Limited
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