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Shilpa Medicare

BSE: 530549|NSE: SHILPAMED|ISIN: INE790G01031|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Mar '18

CORPORATE INFORMATION

Shilpa Medicare Limited (SML) is a listed Company engaged in the manufacturing of API, Formulation and Development service, Shilpa Medicare Limited (SML) started its operations as API manufacturer way back in 1987 at Raichur, Karnataka-India. The Company started its commercial production in November 1989. In November 1993, Shilpa Medicare Limited was converted into a Public Limited Company. The Company was listed on Bombay Stock Exchange on June 19, 1995 and National Stock Exchange (NSE) on Dec 03, 2009. Subsequently Shilpa Medicare has gained World Health Organization-Good Manufacturing Practices (GMP) Certificate recognition SML is presently dealing in high-quality Active Pharmaceutical Ingredients (APIs), Bulk drug, Intermediates, Formulations, New Drug Delivery Systems, Peptides / Biotech products and Specialty Chemicals etc. using sophisticated technology meticulously in order to comply with laid down international standards/specifications. Today SML is among the world’s leading suppliers of Oncology/Non-Oncology APIs and intermediates.

1. Basis of Preparation of Financial Statements

I. The financial statements of the Company have been prepared in accordance with the Indian Accounting Standards (Ind AS) as specified under section 133 of the Companies Act 2013 read together with the Rule 4 of Companies (Indian Accounting Standards) Rules, 2015 as amended by Companies (Indian Accounting Standards) Amendment Rules 2016 to the extent applicable and the other relevant provisions of the Act, pronouncements of the regulatory bodies applicable to the company. The accounting policies are applied consistently to all the years presented in the financial statements.

The financial statements have been prepared on the historical cost convention and on accrual basis, except for the following assets and liabilities which have been measured at fair value wherever applicable.

- Derivative financial instruments

- Certain financial assets / liabilities measured at fair value,

- Defined Benefit Plans at fair value.

The Standalone financial statements of the Company for the year ended March 31, 2018 were approved by the Board of Directors on 28/05/2018.

II. The financial statements are presented in Indian Rupees which is the functional currency for the Company. All amounts have been rounded-off to the nearest lakhs unless otherwise stated.

III. The financial statements have been prepared to comply in all material aspects with applicable accounting principles in India and as notified under the Companies Act 2013 and other relevant provisions of the Act.

IV Basis of measurement

Current Vs Non-current classification

The assets and liabilities in the balance sheet are presented based on current/non-current classification.

An asset is current when it satisfies the below mentioned criteria:

(i) Expected to be realised or intended to be sold or consumed in normal operating cycle, or

(ii) Held primarily for the purpose of trading, or

(iii) Expected to be realised within twelve months after the reporting period, or

(1V) 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 assets.

A liability is current when it satisfies the below mentioned criteria:

(i) Expected to be settled in normal operating cycle, or

(ii) Held primarily for the purpose of trading, or

(iii) Due to be settled within twelve months after the reporting period, or

(1V) There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

All other liabilities are classified as non-current.

1.1. Recent accounting pronouncements:

Ind AS 115: Revenue from Contract with Customers:

On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The standard permits two possible methods of transition:

Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch — up approach).

The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1, 2018. The Company is evaluating the requirement of the amendment and the impact on the financial statements.

Appendix B to Ind AS 21, Foreign currency transactions and advance consideration:

On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency.

The effective date for adoption of Ind AS 21 is financial periods beginning on or after April 1,2018. The Company is evaluating the requirement of the amendment and the impact on the financial statements.

2 (a) Rights, preference and restriction attached to each class of shares:

Equity shares:

The Company has only one class of equity shares having par value of Re. 1/- per share. Each holder of equity shares is entitle to one vote per share.

The Board of Directors have declared and paid interim dividend of Re. 0.70 (P.Y 0.60) per equity of face value of Re.l/- per share

In the event of liquidation, the holders of equity are entitled to receive the remaining assets of the Company, after distribution of all preferential amounts, if any. The distribution will be in proportion to the number of equity shares held by the shareholders.

2 (b) Details of Equity Shares allotted as fully paid-up pursuant to contracts without payment being received in cash during the period of five years immediately preceding the Balance Sheet date.

Actuarial gain / loss is recognized immediately. The estimates of salary increase, inflation, promotion, seniority etc taken in account. The Company has various schemes (funded/unfunded) for payment of gratuity to all eligible employees calculated at specific no. of days (ranging from 15 days to 1 month) of the last drawn salary depending upon tenure of service for each year of completed service subject to minimum of five years payable at the time of separation upon superannuation or on exit otherwise.

Sensitivity of signification actuarial assumptions is computed by varying one actuarial assumption used for the valuation of defined benefit obligation by 100 basis points keeping all other actuarial assumption constant.

Level 1: Hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds, ETFs and mutual funds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period. The mutual funds are valued using the closing NAY

Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities, contingent consideration and indemnification asset included in level 3.

Valuation technique used to determine fair value:

1) The use of quoted market prices or dealer quotes for similar instruments

2) The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves

3) The fair value of forward foreign exchange contracts and principal swap is determined using forward exchange rates at the balance sheet date.

3. FINANCIAL RISK MANAGEMENT

The Company activities expose it to a variety of financial risks such as Market Risk, Credit Risk and Liquidity Risk. The Company’s focuses on minimizing potential adverse effect on its financial performance

A) 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. The changes in the values of financial assets/liabilities may result from change in the foreign currency exchange rates (Foreign Currency Risk), change in interest rates (Cash flow & interest rate risk), and change in price of investments (Price Risk).

(i) Foreign Currency Risk

The Company operates internationally and a major portion of the business is transacted in USD, EURO & GBP currencies and consequently, the Company is exposed to foreign exchange risk through operating and borrowing activities in foreign currency. The Company holds derivative instruments such as foreign exchange forward, interest rate swaps and option contracts to mitigate the risk of changes in exchange rates and foreign currency exposure.

(ii) Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market interest rates. In order to optimize the Company’s position with regards to interest expenses/income and to manage the interest rate risk, the Company weighted average balance manage its interest rate risk by having portfolio of fixed/variable interest rate on long/short term borrowings. The analysis is prepared assuming the amount of liability outstanding at the ending of the reporting period is the average weighted balance of the respective reporting period.

According to the Company interest rate risk exposure is only for floating rate borrowings, change in 0.5% in the interest rate component applicable to the short term borrowings would effect the Companies net profit before tax at the end of the reporting period year ended March 31, 2018 and March 31, 2017, respectively.

Note :

1. The Company has hedge ECB loan availed from Standard chartered bank. Therefore not subject to interest risk as defined under Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of change in market interest rates.

2. Interest on term loan from HSBC is not considered for interest rate risk as interest on such term loan is capitalized till the assets are put to use and are not charged to profit & loss account.

(iii) Price Risk

Company does not have any exposure to price risk, as there is no market based equity investment made by the Company.

(B) 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. The credit risk is arises from its operation activity primarily from trade receivable and from its financial activity. Customer credit risk is control by analysis of credit limit and credit worthiness of the customer on a continuous basis to whom the credit has been granted.

Long outstanding receivable from customer are regularly monitored and transaction with such customer are covered, under letter of credit the maximum exposure to credit risk at the reporting date is the carrying value of trade and other receivable. Two customer are accounted for more than 10% of the trade receivable as of March 31, 2018 and March 31, 2017. Since the Company is dealing with the said customers from past several years, hence there is no concordant risk in dealing with said customers.

Expected credit loss assessment

The Group reviewed customers outstanding at the end of each reporting period and determine incurred and expected credit losses. Past trend of impairment of trade receivables do not reflect any significant credit losses. The movement in allowance for impairment in respect of trade and other receivables during the year was as follows:

(C) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations of its financial liability. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for making liability when they are due, under normal and stressed condition without incurring losses and risk.

The present available working capital facility is sufficient to meet its current requirement. Accordingly no liquidity risk is perceived. In addition, the Company maintains the following line of credit facility

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

4. CAPITAL MANAGEMENT

The key objective of the Company’s capital management is to ensure that it maintains a stable capital structure with the focus of safeguard their ability to continue as a going concern, benefits for stakeholders, creditors and market confidence. Continue to maintain excess liquidity to shareholders by distributing dividends in future.

Company’s vision is to keep the ratio below 1.00 and its adjusted net debt to equity ratio was as follows

5. CORPORATE SOCIAL RESPONSIBILITY

As per Section 135 of the Companies Act, 2013, a Company, has to spend 2% of its average net profits of three immediate preceding financial year. The Company has formed trust by name ‘Shilpa Foundation’ to commit the expenditure, under the various activity like pure and safe drinking water, Orphanage home, Education promotion, Hospital /Medical facility, Swatch bharat, Green project with local bodies/NGO to make eco-friendly environment.

The Company has transferred Rs. 245.63 Lakhs (327.28) lakhs to “Shilpa Foundation”. The amount of earmarked fund is insufficient to kick start the project, the committee has set aside the fund to take up the project when sufficient fund are available for initiating the project.

6. SEGMENT INFORMATION

The Company is mainly engage in the business of manufacturing of pharmaceutical product and wind power generation. The formulation and product development are inter related and integral part of business of “pharmaceutical products”. In accordance with the provision of Ind AS -108 power segment in not falling in the prescribed limits specified, hence segment reporting is not applicable

Note: Non-current assets excludes financial assets.

(a) Information about major customer

The Company has two customers who contributed more than 10% of the Company''s total revenue during the current and previous year

7. DISCLOSURE ON SPECIFIED BANK NOTES (SBNS)

The disclosures regarding details of specified bank notes held and transacted during 8th November 2016 to 30th December 2016 as defined in MCA notification G.S.R. 308 dated March 30, 2017, details of Specified Bank Notes (SBN) are as below;

# 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 November 8, 2016.

8. OPERATING LEASE

The Company has entered into lease agreements for use of land for its production and R&D facility which expires over a period. Future minimum lease payments and payment profile of non-cancellable operating leases are as under:

9. Related party transactions

Related parties where control exists and related parties with whom transactions have taken place during current year are listed below;

List of Related Parties

1. Associates

a) Reva Pharmachem Pvt. Ltd.

2. Subsidiaries

a) Zatortia Holdings Ltd. (Wholly- owned Subsidiary)

b) Loba Feinchemie GmbH- (Step-down Subsidiary)

c) Shilpa Therapeutics Pvt. Ltd. (Wholly- owned Subsidiary)

d) INM Technologies Pvt. Ltd. (Subsidiary)

e) INM Nuvent Paint Pvt Limited ((Step-down Subsidiary)

f) Koanna Healthcare Ltd. (Wholly- owned Subsidiary)

g) Koanna Healthcare Ltd. (Wholly- owned Subsidiary)

h) Makindus LLC. (Subsidiary)

3. Joint Venture (JV)

a) Maia Pharmaceuticlas INC.

b) Raichem Medicare Pvt. Ltd.

c) Reva Medicare Pvt. Ltd.

4. (i) Key Management Personnel-(KMP)

a) Omprakash Inani - Chairman

b) Vishnukant C. Bhutada - Managing Director

c) Vimal Kumar Shrawat - Chief Operating Officer

d) Rajendra Dugar - Chief Financial Officer (Resigned)

e) Sushil Bajaj - Chief Financial Officer

f) Madhusudhan Reddy - Company Secretary

(ii) Remuneration paid to other Directors

a) Ajeet Singh Karan-Independent Director

b) Carlton Felix Pereira-Independent Director c ) Pramod Kasat-Independent Director

d) Rajender Sunki Reddy-Independent Director

e) N.P.S Shinh-IndependentDirector

f) Namrata Bhutada-Non-Executive Director

5. Relatives

a) Deepak Kumar Inani

b) Keshav Bhutada

c) Madhav Bhutada

d) Triveni Inani

6. Enterprises having common Directors/ Board of Trustees a) Shilpa Foundation

b ) Mohini Infra (P) Ltd

10. Out of the sum of Rs 41.78 lakhs( P.Y 48.27) the Company is in the process of filing appeal before the Karnataka Appellate Tribunal for refund of input tax paid on Capital Goods amounting to Rs.26.48 lakhs (PY: Rs.26.48) lakhs and Rs. 2.43 Lakhs paid on regular consumable items which in its opinion are allowable under the Act, however disallowed by the assessing authority under Karnataka Value Added Tax Act, 2003 The same is shown under note 07b(ii)

11. Navya Biological Pvt. Ltd. Hubli has been merged with the Company with effect from 1 April 2016. A petition for sanctioning the scheme of merger has been filed with the “ National Company LawTribunal (NCLT), Bengaluru Bench, Bengaluru”. The scheme has been approved by NCLT vide their order dated 24/11/2017 with effective date 01.04.2016.The consideration of merger has been paid in the form of equity shares 1399994 at face value of Rs 1/- each.

The Purchase price allocation as per Ind AS 103 Business Combination has resulted into recognition of following assets and liabilities:

12. Equity shares allotted during Current Year 1,399,994 (Previous Year 3,025,000) are considered for computing weighted EPS.

13. Preference shares dividend from Subsidiaries andjoint ventures amounting to Rs.276.58 lakhs has not been recoginised in the earlier to previous financial year. Effect of such cumulative preference dividend has been shown as “Prior period error” under the head “Other Equity”.

14. Balances of trade receivables/trade payables/advances and security deposits are subject to confirmation.

15. Figures of the previous year have been regrouped/rearranged wherever necessary.

Source : Dion Global Solutions Limited
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