Shilpa Medicare

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.