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Kovai Medical Center and Hospital

BSE: 523323|NSE: KOVAI|ISIN: INE177F01017|SECTOR: Hospitals & Medical Services
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Kovai Medical Center and Hospital is not traded in the last 30 days
Mar 17
Notes to Accounts Year End : Mar '18

Note No.1 A. CORPORATE INFORMATION

Kovai Medical Center and Hospital Limited (“the Company”) is a Public Company incorporated in the year 1985 and commenced its hospital operation in the year 1990 with the flagship of Multi-Speciality Hospital at Coimbatore and has thereafter set up the satellite centers at Coimbatore (in the name of City center, Sulur Hospital and Kovilpalayam Hospital) and Erode (in the name of Erode Center and Erode Speciality Hospital). The company’s equity shares are listed in Bombay Stock Exchange (BSE).

The Company’s financial statements were authorized for issue in accordance with the resolution of the Board of Directors on 29th May, 2018 in accordance with the provisions of Companies Act, 2013 and are subject to the approval of the shareholders at the AGM.

The Company’s financial statements are reported in Indian Rupees which is also the company’s functional currency.

Application of new and revised Indian Accounting Standards

The Company has applied all the Indian Accounting Standards (hereinafter referred to as ‘Ind AS’) notified by the Ministry of Corporate Affairs (MCA) to the extent applicable to the Company.

A) The company has elected to use the exemption available under Ind AS 101 to continue the carrying value for all its Property, Plant and Equipment as recognised in the financial statements as at the date of transition to Ind AS(s), measured as per previous GAAP and use that as its deemed cost as at the date of transition (April 1, 2016) as per the following details:-

Note 3 - Capital work-in-progress

Capital work-in-progress of Rs. 1287.57 Lakhs (Rs. 564.86 Lakhs as at 31st March 2017) comprises amount spent on assets under construction. During the year, the company has capitalized Rs.108.61 Lakhs (Previous year - Nil) as borrowing cost as per provision of Ind AS 23 - Borrowing Cost

The company has elected to use the exemption available under Ind AS 101 to continue the carrying value for all its intangible assets as recognised in the financial statements as at the date of transition to Ind AS(s), measured as per previous GAAP and use that as its deemed cost as at the date of transition (April 1, 2016) as per the following details:-

(i) For method of valuation of inventories, Refer Note No. 1 (B) (XIV).

(ii) There has been no write down of inventories in current and previous years.

(iii) Inventories with the above mentioned carrying amount have been pledged as security against certain bank

b. Terms/ Rights attached to the Equity Shares

The Company has only one class of equity shares having a par value of Rs. 10/-. Each holder of equity shares is entitled to one vote per share. The dividend Proposed by the Board of Directors, if any, is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of Company, the holders of the Equity shares will be entitled to receive remaining assets of the Company after distribution of all Preferential amount. The distribution will be in proportion to be number of equity shares held by the Shareholders.

c. Shares held by Holding Company or Ultimate Holding Company - NIL

The Company has availed working capital facility from Indian Bank which is secured by:

a.First Charge on current assets by way of hypothecation of present and future current assets including book debts and receivables.

b.The above working capital facility is collaterally secured by all fixed assets mentioned in item No. A & B in Note No.16 long term borrowings.

c.The working capital facility carries interest rates varying from 9.5% to 10.15%.

The information in relation to dues to Micro and Small Enterprises have been determined to the extent such parties have been identified on the basis of information available with the Company, which has been relied upon by the auditors.

2. First Time adoption of Ind AS

1. Explanation of transition to Ind AS

These are the Company’s first financial statements prepared in accordance with Ind AS. The accounting policies have been applied consistently in preparing the financial statements for the year ended 31 March 2018, the comparative information presented in these financial statements for the year ended 31 March 2017 and in the preparation of an opening Ind AS balance sheet at 1 April 2016 (the Company’s date of transition). An explanation of how the transition from financial statements prepared in accordance with accounting standards notified under the Section 133 of the Act, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP) to Ind AS has affected the Company’s financial position, financial performance and cash flows is set-out in the following tables and notes:

2. Ind AS optional exemptions

Ind-AS 101, ‘First-time Adoption of Indian Accounting Standards’, allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind-AS. The Company has accordingly applied the following exemptions.

a) Deemed cost for Property, plant and equipment and Intangible assets

Ind AS 101 ‘First-time Adoption of Indian Accounting Standards’ permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38, ‘Intangible Assets’. Accordingly, the Company has elected to measure all of its property, plant and equipment & intangible assets at their previous GAAP carrying value.

b) Designation of previously recognized financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments at Fair Value through Other Comprehensive Income (FVOCI) on the basis of the facts and circumstances at the date of transition to Ind AS. The Company has elected to apply this exemption for its investment in equity instruments other than investments in subsidiaries, associates and joint ventures

c) Investment in subsidiaries, associates and joint ventures

Ind AS 101, ‘First-time Adoption of Indian Accounting Standards’ allows a Company to measure investments in subsidiaries, associates and joint ventures at the deemed cost. The Company has considered the carrying amount under previous GAAP as the deemed cost for Investment in Subsidiary.

3. Ind AS mandatory exceptions Estimates

An entity’s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were an error.

Ind AS estimates as at 01 April 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP.

Classification and measurement of Financial assets and liabilities

The classification and measurement of financial assets will be made considering whether the conditions as per Ind AS 109, ‘Financial Instruments’ are met based on facts and circumstances existing at the date of transition.

Financial assets can be measured using effective interest method by assessing its contractual cash flow characteristics only on the basis of facts and circumstances existing at the date of transition and if it is impracticable to assess elements of modified time value of money i.e. the use of effective interest method, fair value of financial asset at the date of transition shall be the new carrying amount of that asset. Measurement of Financial assets at amortised cost using effective interest rate method, wherever applicable, has been made retrospectively.

The measurement exemption applies for financial liabilities as well.

De-recognition of Financial assets and liabilities

Ind AS 101, ‘First-time Adoption of Indian Accounting Standards’ requires a first-time adopter to apply the derecognition provisions of Ind AS 109,’Financial Instruments’ prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101, ‘First-time Adoption of Indian Accounting Standards’ allows a first-time adopter to apply the de-recognition requirements in Ind AS 109,’Financial Instruments’ retrospectively from a date of the entity’s choosing, provided that the information needed to apply Ind AS 109,’Financial Instruments’ to financial assets and financial liabilities derecognized as a result of past transactions was obtained at the time of initially accounting for those transactions. The Company has elected to apply the de-recognition provisions of Ind As 109,’Financial Instruments’ prospectively from the date of transition to Ind AS.

Reconciliations between previous GAAP and Ind AS

Ind AS 101, ‘First-time Adoption of Indian Accounting Standards’ requires an entity to reconcile equity, total comprehensive income and cash flows for prior years/periods. The following tables represent the reconciliations from previous GAAP to Ind AS.

Notes to the reconciliation

I. Financial Assets at Amortised cost

Under previous GAAP, the security deposits were carried at nominal value. Ind AS requires these assets to be measured at fair value and subsequently these assets are measured at amortized cost. At the initial recognition, the company has recognised the difference between deposit fair value and nominal value as prepaid rental expenses and same is being recognised as rental expenses on straight line basis over the lease period. Further, Company recognises notional interest income on these deposit over the lease term.

II. Fair valuation of Investment

Certain equity instruments (other than investments in subsidiaries) have been measured at fair value through other comprehensive income. The difference between the fair value and previous GAAP carrying value as on the date of transition has been recognised as an adjustment to the opening retained earnings/ seperate component of other equity

III. Dividend

Prior to 1.4.2016, dividend proposed by the Board of Directors, but before the approval of the financial statements were considered as adjusting events, under previous GAAP. However under IND AS, such dividend are recognised when the same is approved by the shareholders at Annual General Meeting (AGM). Accordingly, the liability for proposed dividend recognised as on transition date has been reversed with corresponding adjustment to opening retained earnings and recognised in the year of approval in the AGM.

IV. Defined Benefit liabilities

Under IND AS, actuarial gain/ losses and the return on plan assets are recognised in the Other Comprehensive Income (OCI) instead of profit and loss

V. Deferred Tax

Under previous GAAP, deferred tax was accounted using the income statement approach on timing difference between taxable profit and accounting profit. Under IND AS, deferred tax is recognised following Balance sheet approach on temporary differences between the carrying amount of asset or liability and its tax base.

VI. Other comprehensive income

Under previous GAAP, there was no concept of ‘Other Comprehensive income’ (OCI). Under Ind AS, certain items of incomes and expenses needs to be recognised under the Other Comprehensive Income, such as remeasurement gains/losses of defined employee benefits, fair valuation gains /losses of financial assets designated through OCI etc. A reconciliation of the profit/loss as per previous GAAP to profit/loss as per Ind AS has been presented.

VII. Tax impact on adjustments

Retained earnings and statement of profit and loss has been adjusted consequent to the Ind AS transition adjustments with corresponding impact to deferred tax, wherever applicable.

VIII. Reclassifications under Ind AS

Assets and Liabilities have been regrouped/ reclassified where ever required to conform to the requirements of Ind ASs.

IX. Depreciation on Leased Building

Under previous GAAP, depreciation on lease hold improvements were provided for based on the useful lives estimated by the management. This is now depreciated over the primary period of lease, with appropriate adjustments to retained earnings as at the transition date.

3.Employee benefits

a) Defined contribution plan:

The Company makes contributions towards provident fund and employees state insurance as a defined contribution retirement benefit fund for qualifying employees. The provident fund is operated by the regional provident fund commissioner. The Employees state insurance is operated by the Employees State Insurance Corporation. Under these schemes, the Company is required to contribute a specific percentage of the payroll cost as per the statue.

The total expenses recognized in the Statement of Profit and Loss of Rs. 629.87 Lakhs (for the year ended March 31, 2017: Rs. 595.55 Lakhs) represents contributions payable to these plans by the Company.

b) Defined benefit plans:

i) Gratuity

The company operates a defined benefit plan for payment of post-employment benefits in the form of Gratuity. Benefits under the plan are based on pay and years of service and are vested on completion of five years of service, as provided for in the Payment of Gratuity Act, 1972. The terms of benefits are common for all the employees of the company.

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

g) Sensitivity Analysis

Below is the sensitivity analysis determined for significant actuarial assumptions for the determination of defined benefit obligations and based on reasonably possible changes of the respective assumptions 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 defined 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

ii) Leave Encashment Benefits

Under the compensated absences plan, leave encashment is payable to all eligible employees on separation from the Company due to death, retirement, superannuation or resignation, at the rate of per day basic salary, as per current accumulation of leave days.

4. Financial instruments

a) Capital Management

The Company manages its capital with the objective to maximize the return to stakeholders through the optimisation of the debt and equity mix. The Company’s overall strategy remains unchanged from previous year.

The funding requirements are met through a mixture of equity, internal fund generation and other noncurrent borrowings. The Company’s policy is to use current and non-current borrowings to meet anticipated funding requirements.

The Company monitors capital on the basis of the gearing ratio which is net debt divided by total capital (equity plus net debt). Net debts are non-current and current debts as reduced by cash and cash equivalents, other bank balances and current investments. Equity comprises all components including other comprehensive income.

Note: i) Equity includes all ca nital and reserves of the company that are managed as cap tal.

ii) Debt is defined as long term and short term borrowings (excluding derivatives and financial guarantee contracts) as described in Note No 16 and Note No 21.

b) Fair Value Measurements

i. Financial instruments by category

The carrying values of financial instruments by categories as at March 31, 2018 were as follows:

ii. Fair Value Hierarchy

The Company has classified its financial instruments into three levels in order to provide an indication about the reliability of the inputs used in determining fair values.

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).

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

The carrying amounts of tr de receivables, cash and cas i equiva 3nts, other bank balances, loans, other financial assets, current bo rowings, trade payables and other cur ent financial I iabilities are a reaso nable approximation of their fair values. Accordingly, the fair values of such financial assets and financial liabilities have not been disclosed separately.

iii. Valuation technique used to determine fair value

The fair value of the financial assets and liabilities are at the amount that would be received to sell an asset and paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The carrying amounts of trade receivables, cash and cash equivalents, other bank balances, loans, other financial assets, current borrowings, trade payables and other current financial liabilities are a reasonable approximation of their fair values.

The investment included in Level 3 hierarchy have been valued at cost approach to arrive at the fair values as there is a wide range of possible fair value measurement and the cost represents estimate of fair value within that range considering the purpose and restriction on the transferability of the instruments.

The estimated fair value amounts as at March 31, 2018 have been measured as at that date. As such, the fair values of these financial instruments subsequent to reporting date may be different than the amounts reported at each year-end.

There were no transfers between Level 1, Level 2 and Level 3 during the year.

c) Financial Risk Management

In course of its business, the Company is exposed to certain financial risks that could have significant influence on the Company’s business and operational / financial performance. These include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial statements.

i) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration risks. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.

Credit risk management Credit risk rating

The Company assesses and manages credit risk of financial assets based on following categories arrived on the basis of assumptions, inputs and factors specific to the class of financial assets.

A: Low credit risk B: Moderate credit risk C: High credit risk

* Based on ast experience and historical t end, there have not been ny write off of trade receive bles and hence no allowance is made for expected credit on trade receivables.

Based on business environment in which the Company operates, a default on a financial asset is considered when the counterparty fails to make payments within the agreed time period as per contract. Loss rates reflecting defaults are based on actual credit loss experience and considering differences between current and historical economic conditions.

Assets are written off when there is no reasonable expectation of recovery, such as a debtor declaring bankruptcy or litigation decided against the Company. The Company continues to engage with parties whose balances are written off and attempts to enforce repayment. Any subsequent recoveries made are recognized in statement of profit and loss.

Expected credit loss for trade receivables

The Company’s trade receivables does not have any expected credit loss as healthcare services are generally provided once the Company receives the entire payment either before or during the course of treatment except in case of insurance claims. Moreover, company has almost recovered all the insurance claims in the past. During the periods presented, the Company made no write-offs of trade receivables and no recoveries from receivables previously written off.

ii) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the nature of the business, the Company maintains flexibility in funding by maintaining availability under committed facilities. Management monitors rolling forecasts of the Company’s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates. In addition, the Company’s liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

iii) Interest rate risk

The Company’s fixed rate borrowings are carried at amortized cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, ‘Financial Instruments - Disclosures’, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates. However, The company’s variable rate borrowings are subject to interest rate risk. Below is the overall exposure of the borrowings

Sensitivity

The following table demonstrates the sensitivity to a reasonably possible change (100 basis points) in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Company’s profit before tax and carrying amount of project work in progress (which will have subsequent impact on the profit or loss of future period depending upon the revenue which would recognised based on the percentage of completion as indicated in “Significant Accounting Policies” for revenue recognition) is affected through the impact on variable rate borrowings, as follows:

5. Operating lease arrangements Disclosure for company as lessee

The company has entered into operating lease, having a lease period ranging from 1- 28 years, with an option to renew the lease.

Disclosure for company as lessor

The company has entered into operating lease, having a lease period ranging from 1- 10 years, with an option to renew the lease.

6. Events after th reporting period

The Board of Directors of the company have recommended dividend of Rs. 3/- per fully paid up equity shares of Rs. 10/- each, aggregating to Rs. 395.74 Lakhs, including Rs. 67.47 Lakhs dividend distribution tax for the FY 2017-18, which is based on the share capital as on March 31, 2018. The actual dividend amount will be dependent on the relevant share capital outstanding as on the record date/ book closure

Guarantees given by Managing Director and Joint Managing Director are restricted to the amount of outstanding borrowings (Refer Note No.16).The remuneration to key management personnel does not include the provision made for Gratuity as they are determined on an actuarial basis for the company as a whole. Disclosure requirements under regulation 53(f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 - Nil (Previous Year: Nil)

7. Segment Reporting

The company is engaged in the business of Healthcare activities. Hence, there is only one reportable segment.

8. Corporate Social Responsibility (CSR) Activities:

a. Gross amount required to be spent by the company during the year : Rs. 142.42 Lakhs

b. Amount spent during the year : Rs. 157.35 Lakhs

9. Income tax assessments have been completed upto the Assessment year 2015-16

10. Disclosure of change in accounting estimates - Useful life of Property, Plant and Equipment

During the year the management has re-estimated the useful lives of medical equipments and buildings based on the assessment of technical life of the assets and the economic life of the assets.

Impact for,

a) Financial Year 2017-18 : Rs. 703.91 Lakhs

b) Future Periods : Rs. 8,848.21 Lakhs

11. Scheme of Amalgamation with Idhayam Hospitals Erode Limited

The Board at its meeting held on 03rd February 2017 approved the scheme of amalgamation of Idhayam Hospitals Erode Limited (Wholly Owned Subsidiary) with Kovai Medical Center and Hospital Limited effective 1st April 2016. Pursuant to an Order dated 21st November, 2017 passed by the National Company Law Tribunal, Chennai Bench, separate meetings of Unsecured Creditors and Equity Share holders of Kovai Medical Center and Hospital Limited was convened and held at the Registered Office of the Company, on 04th January, 2018, approving with or without modification(s), the proposed Scheme of Amalgamation and Arrangement between Idhayam Hospitals Erode Limited and Kovai Medical Center and Hospital Limited under Sections 230 to 232 of the Companies Act, 2013 and other applicable provisions of the Companies Act, 2013.The Company has already obtained no objections to the scheme from its secured creditors. The Company had filed the scheme with Bombay Stock Exchange Limited as per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Statutory Clearances from Regional Director, Company Law Board, Department of Income Tax, Government of India are awaited before the Tribunal issues the Final Order confirming the Scheme of Amalgamation.

12. The Government of Tamil Nadu wide G.O.(2D) No.24 dated 02-03-2018 has revised the minimum rates of wages for the employees working in the hospital. The Indian Medical Association (IMA), Tamilnadu branch, an apex body representing the medical institutions in the country and Tamilnadu, has represented to the government of Tamilnadu to review theG.O. The IMA, Tamilnadu branch has in turn informed all the medical institutions to keep the matter in abeyance pending such review from Government of Tamilnadu. Consequently the anticipated liability as per G.O. has not been provided for in the financial statement but has been disclosed as contingent liability.

13. Disclosure as required under section 186(4) of the Companies Act, 2013 : Loans and guarantees furnished by the Company: Nil (Previous year - Nil) Investments made are given under the respective head.

14. Figures of the previous year have been regrouped, reclassified and rearranged wherever necessary to conform to current year’s classification.

15. Figures have been rounded off to the nearest thousands. Figures are in Rs. in Lakhs, except otherwise stated.

Source : Dion Global Solutions Limited
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