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Company Information

Home » Market » Company Information

Lupin Ltd.

Aug 03, 04:00
1142.80 +18.85 (+ 1.68 %)
VOLUME : 50242
Prev. Close 1123.95
Open Price 1138.00
Bid PRICE (QTY.) 0.00 (0)
Offer PRICE (Qty.) 0.00 (0)
Aug 03, 03:55
1144.20 +19.95 (+ 1.77 %)
VOLUME : 1528382
Prev. Close 1124.25
Open Price 1132.00
Bid PRICE (QTY.) 0.00 (0)
Offer PRICE (Qty.) 1144.20 (42)
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Market Cap. ( ₹ ) 51942.49 Cr. P/BV 3.76 Book Value ( ₹ ) 304.06
52 Week High/Low ( ₹ ) 1268/855 FV/ML 2/1 P/E(X) 42.70
Bookclosure 28/07/2021 TTM EPS ( ₹ ) 26.80 Div Yield (%) 0.57
You can view the entire text of Notes to accounts of the company for the latest year
Year End :2019-03 

IA. Overview:

Lupin Limited, (‘the Company’) incorporated in 1983, is an innovation led Transnational Pharmaceutical Company producing, developing and marketing a wide range of branded and generic formulations, biotechnology products and active pharmaceutical ingredients (APIs) globally. The Company has significant presence in the Cardiovascular, Diabetology, Asthama, Pediatrics, Central Nervous System, Gastro-Intestinal, Anti-Infectives and Nonsteroidal Anti Inflammatory Drug therapy segments and is a global leader in the Anti-TB and Cephalosporins segments. The Company along with its subsidiaries has manufacturing locations spread across India, Japan, USA, Mexico and Brazil with trading and other incidental and related activities extending to the global markets.

a) Cost of Buildings includes cost of shares in co-operative societies of Rs.1,000/- (previous year Rs.1,000/-).

b) Additions to Property, Plant and Equipment include items aggregating Rs.1,094.9 million (previous year Rs.963.2 million) located at Research and Development Centers of the Company.

c) Previous year figures are given in italics below current year figures in each class of assets.

* Disposals of previous year are inclusive of Assets classified as held for sale (Refer note 1B (d) and 59).

[There are no other trade receivables which have significant increase in credit risk. Refer note 52 (C) for information about credit risk and market risk of trade receivables]

Trade receivables include debts due from subsidiary companies Rs.29,281.6 million (31.03.2018 Rs.41,182.5 million) [Refer note 56 (C)]

d) Rights attached to Equity Shares

The Company has only one class of equity shares with voting rights having a par value of Rs.2 per share. The Company declares and pays dividends in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders at the ensuing Annual General Meeting.

During the year ended March 31, 2019, the amount of dividend per equity share distributed to equity shareholders is Rs.5.0 (previous year ended March 31, 2018, Rs.7.5).

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

Nature of Reserves

a) Capital Reserve

The Capital reserve is created on receipts of government grants for setting up the factories in backward areas, for performing research on critical medicines for the betterment of the society and on restructuring of the Capital of the Company under various schemes of Amalgmation.

b) Capital Redemption Reserve

This reserve represents redemption of redeemable cumulative preference shares in earlier years.

c) Securities Premium

Securities premium account comprises of premium on issue of shares. The reserve is utilised in accordance with the specific provision of the Companies Act, 2013.

d) General Reserve

The General reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the General reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the General reserve will not be reclassified subsequently to the statement of profit and loss.

e) Amalgamation Reserve

This reserve represents creation of amalgamation reserve pursuant to the scheme of amalgamation between erstwhile Lupin Laboratories Ltd. and the Company.

f) Cash Flow Hedge Reserve

The cash flow hedge reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of designated portion of hedging instruments entered into for Cash flow hedges. The cumulative gain or loss arising on changes in fair value of the designated portion of the hedging instruments that are recognised and accumulated under the heading of cash flow reserve will be reclassfied to statement of profit and loss only when the hedged items affect the profit or loss.

a) Deferred Sales Tax Loan is interest free and payable in 5 annual installments after expiry of initial 10 years moratorium period from each such year of deferral period beginning from 1998-99 to 2009-10 and ending from 2013-14 to 2024-25.

b) Term Loans from CSIR carry interest oRs.3% p.a. and is payable in 1 annual installment of Rs.30.9 million alongwith interest.

c) The Company has not defaulted on repayment of loans and interest during the year.

a) Loans comprise of Cash Credit and Working Capital Demand Loan and are secured by hypothecation of inventories and book debts carrying interest rate at MCLR plus market driven margins.

b) The Company has not defaulted on repayment of loans and interest during the year.

1. Commitments:

a) Estimated amount of contracts remaining to be executed on capital account and not provided for, net of advances, Rs.2825.7 million (previous year Rs.1824.7 million).

b) Letter of comfort for support in respect of its subsidiaries. The Company considers its investments in subsidiaries as strategic and long-term in nature. The Company is committed to operationally, technically and financially support the operations of its subsidiaries.

c) Other commitments - Non-cancellable operating leases (Refer note 42).

d) Dividends proposed of Rs.5/- (previous year Rs.5/-) per equity share before the financial statements approved for issue, but not recognised as a liability in the financial statements is Rs.2262.7 million (previous year Rs.2260.5 million)

e) There are product supply committments pursuant to contracts with customers under dossier agreements.

Future cash outflows in respect of the above, if any, is determinable only on receipt of judgement / decisions pending with the relevant authorities. The Company does not expect the outcome of the matters stated above to have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

The Company does not envisage any likely reimbursements in respect of the above.

The Company is involved in various legal proceedings, including claims against the Company pertaining to Income tax, Excise, Customs, Sales/VAT tax, product liability related claims, employment claims and other regulatory matters relating to conduct of its business. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liability where applicable, in the financial statements. The Company carries product liability insurance policy with an amount it believes is sufficient for its needs.

In respect of other claims, the Company believes, these claims do not constitute material litigation matters and with its meritorious defences, the ultimate disposition of these matters will not have material adverse effect on its financial statements.

2 a) During the year, the Company, through its wholly owned subsidiary Lupin Holdings B.V., Netherlands (LHBV), acquired/subscribed to the equity stake in Generic Health SDN. BHD., Malaysia at a total cost of Rs.1.1 million (previous year Rs.0.8 million).

b) During the year, Gavis Pharmaceuticals, LLC, USA (Gavis), wholly owned subsidiary of Lupin Inc., USA (LINC) got dissolved on March 26, 2019. LINC has written off its investment of Rs. nil in Gavis.

c) During the year, Lupin Ukraine LLC, Ukraine (Lupin Ukraine), step-down subsidiary got dissolved on February 7, 2019. Investment of Rs.0.3 million in Lupin Ukraine has been written-off.

d) During the year, Lupin Pharma LLC, Russia (Lupin Russia) step-down subsidiary had filed for dissolution on March 18, 2019 and got dissolved on April 9, 2019. Investment of f33.8 million in Lupin Russia has been written-off.

e) During the year, the Company has made additional Capital Contribution of f nil (previous year Rs.3283.5 million) in LAHSA, a wholly owned subsidiary.

f) During the year, the Company, through its wholly owned subsidiary LAHSA acquired/subscribed to the equity stake of the following subsidiaries:

i) Additional investment in Lupin Inc., USA at a total cost of Rs.4843.8 million (previous year Rs.3294.3 million) as additional paid-in capital - securities premium.

ii) Additional investment in Lupin Latam, Inc., USA at a total cost of f nil as capital contribution (previous year Rs.12.9 million).

iii) 100% equity stake in Lupin Europe GmbH at total cost of f nil (previous year Rs.2.0 million).

g) During the year, Lupin Inc., USA (LINC), a wholly owned subsidiary of LAHSA, has made additional investment as capital contribution in Lupin Research Inc., USA at a total cost of f nil (previous year Rs.769.1 million).

h) During the previous year, Novel Clinical Research (India) Private Limited, India (Novel India), wholly owned subsidiary of the Company had applied for removal of its name from the Register of Companies w.e.f. March 27, 2018 with the Registrar of Companies, Bangalore, and the order pursuant to such application has been received in current year. The Company had written-off its investment of Rs.0.1 million in Novel India in previous year.

The above acquisitions/subscriptions/disposals are based on the net asset values, the future projected revenues, operating profits, cash flows and independent valuation reports; as applicable, of the investee companies

3. Pre-operative expenses pending capitalisation included in Capital Work-In-Progress represent direct attributable expenditure for setting up of plants prior to the date of commencement of commercial production. The same will be capitalised on completion of projects and commencement of commercial operations. The details of pre-operative expenses are:

4. Revenue (Ind AS 115)

A. The operations of the Company are limited to only one segment viz. pharmaceuticals and related products. Revenue from contract with customers is from sale of manufactured goods and rendering of research services. Sale of goods are made at a point in time and revenue is recognised upon satisfaction of the performance obligations which is typically upon dispatch / delivery. The Company has a credit valuation policy based on which the credit limits for the trade receivables are established. There is no significant financing component as the credit period provided by the Company is not significant.

Variable components such as discounts, chargebacks, rebates, sales returns etc. continues to be recognised as deductions from revenue. in compliance with Ind AS 115.

5. Segment Reporting:

The Company has presented data relating to its segments based on its consolidated financial statements, which are presented in the same Annual Report. Accordingly, in terms of paragraph 4 of the Indian Accounting Standard (Ind AS 108) “Operating Segments”, no disclosures related to segments are presented in these standalone financial statements.

6. The Company procures equipments, vehicles and office premises under operating lease agreements that are renewable on a periodic basis at the option of both lessor and lessee. The initial tenure of the lease is generally between 12 months to 60 months. The lease rentals included in ‘Lease Rent and Hire Charges’ in the Statement of Profit and Loss (Refer note 34) for the year are Rs.783.9 million (previous year Rs.736.4 million). The contingent rent recognised in the Statement of Profit and Loss for the year is f nil (previous year f nil). The future minimum lease payments and payment profile of non-cancellable operating leases are as under:

7. Share-based payment arrangements:

Employee stock options - equity settled

The Company implemented “Lupin Employees Stock Option Plan 2003” (ESOP 2003), “Lupin Employees Stock Option Plan 2005” (ESOP 2005), “Lupin Subsidiary Companies Employees Stock Option Plan 2005” (SESOP 2005), “Lupin Employees Stock Option Plan 2011” (ESOP 2011), “Lupin Subsidiary Companies Employees Stock Option Plan 2011” (SESOP 2011), “Lupin Employees Stock Option Plan 2014” (ESOP 2014) and “Lupin Subsidiary Companies Employees Stock Option Plan 2014” (SESOP 2014) in earlier years, as approved by the Shareholders of the Company and the Nomination and Remuneration Committee of the Board of Directors (the Committee).

The Committee determines which eligible employees will receive options, the number of options to be granted, the vesting period and the exercise period. The options are granted at an exercise price, which is in accordance with the relevant SEBI guidelines in force, at the time of such grants. Each option entitles the holder to exercise the right to apply for and seek allotment of one equity share of Rs.2/- each. The options issued under the above schemes vest in a phased manner after completion of the minimum period of one year with an exercise period of ten years from the respective grant dates.

The weighted average grant date fair value of options granted under Category C during the years ended March 31, 2019 and 2018 was f nil and Rs.483.2 per option, respectively.

The weighted average share price during the year ended March 31, 2019 and 2018 was Rs.837.0 and Rs.1010.3 per share respectively.

Valuation of stock options

The fair value of stock options granted during the period has been measured using the Black-Scholes option pricing model at the date of the grant. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. The key inputs and assumptions used are as follows:

Share price: The closing price on NSE as on the date of grant has been considered for valuing the options granted.

Exercise Price: Exercise Price is the market price or face value or such other price as determined by the Remuneration and Compensation Committee.

Expected Volatility: The historical volatility of the stock till the date of grant has been considered to calculate the fair value of the options.

Expected Option Life: Expected Life of option is the period for which the Company expects the options to be live.

The minimum life of a stock option is the minimum period before which the options cannot be exercised and the maximum life is the period after which the options cannot be exercised.

Expected dividends: Expected dividend yield has been calculated as an average of dividend yields for four years preceding the date of the grant.

Risk free interest rate: The risk free interest rate on the date of grant considered for the calculation is the interest rate applicable for a maturity equal to the expected life of the options based on the zero coupon yield curve for Government Securities.

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. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock based compensation expense could be materially impacted in future years. The estimated fair value of stock options is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

8. Post-Employment Benefits:

(i) Defined Contribution Plans:

The Company makes contributions towards provident fund and superannuation fund to a defined contribution retirement benefit plan for qualifying employees.

The superannuation fund is administered by the Life Insurance Corporation of India (LIC). Under the plan, the Company is required to contribute a specified percentage of payroll cost to the retirement benefit plan to fund the benefits.

The Company recognised Rs.194.8 million (previous year Rs.203.8 million) for superannuation contribution and Rs.253.2 million (previous year Rs.243.0 million) for provident and pension fund contributions in the Statement of Profit and Loss.

(ii) Defined Benefit Plan:

A) The Company makes annual contributions to the Group Gratuity cum Life Assurance Schemes administered by the LIC, a funded defined benefit plan for qualifying employees. The scheme provides for payment as under:

a) On normal retirement / early retirement / withdrawal / resignation:

As per the provisions of the Payment of Gratuity Act, 1972 with vesting period oRs.5 years of service.

b) On death in service:

As per the provisions of the Payment of Gratuity Act, 1972 without any vesting period.

In addition to the above mentioned scheme, the Company also pays additional gratuity as an ex-gratia and the said amount is provided as non-funded liability based on actuarial valuation.

The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation for gratuity were carried out as at March 31, 2019. The present value of the defined benefit obligations and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.

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 the Balance Sheet date.

B) The provident fund plan of the Company, except at one plant, is operated by “Lupin Limited Employees Provident Fund Trust” (“Trust”), a separate legal entity. Eligible employees receive benefits from the said Provident Fund. Both the employees and the Company make monthly contributions to the Provident Fund Plans equal to a specified percentage of the covered employee’s salary.

The minimum interest rate payable by the Trust to the beneficiaries every year is being notified by the Government of India. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate. The Board of Trustees administer the contributions made by the Company to the schemes and also defines the investment strategy to act in the best interest of the plan participants.

The Company has an obligation to service the shortfall on account of interest generated by the fund and on maturity of fund investments and hence the same has been classified as Defined Benefit Plan in accordance with Ind AS 19 “Employee Benefits”. As per the Guidance Note from the Actuarial Society of India, the Company has obtained the actuarial valuation of interest rate obligation in respect of Provident Fund as at March 31, 2019 and based on the same, there is no shortfall towards interest rate obligation.

Significant management judgement is required in determining provision for income tax, deferred income tax assets and liabilities and recoverability of deferred income tax assets. The recoverability of deferred income tax assets is based on estimates of taxable income and the period over which deferred income tax assets will be recovered. Any changes in future taxable income would impact the recoverability of deferred tax assets.

As on March 31 2019, tax liability with respect to the dividends proposed before the financial statements approved for issue, but not recognised as a liability in the financial statements is Rs.465.1 million (previous year Rs.464.7 million).

9. The aggregate amount of revenue expenditure incurred during the year on Research and Development and shown in the respective heads of account is Rs.11496.7 million (previous year Rs.14105.8 million).

10. The aggregate amount of cash expenditure incurred during the year on Corporate Social Responsibility (CSR) is f379.5 million (previous year Rs.216.8 million) and is shown separately under note 34 based on Guidance Note on Accounting for Expenditure on CSR Activities issued by the ICAI.

The amount required to be spent by the Company during the year is Rs.656.7 million (previous year Rs.750.5 million). No amount was spent during the year towards construction/acquisition of any asset relating to CSR expenditure.

11 .The information regarding Micro Enterprises and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company.

12. During the year, the General Court of the European Union delivered its judgement concerning Lupin’s appeal against the European Commission’s (EC) 2014 decision in the Perindopril litigation. The General Court upheld the EC’s decision holding the Company liable to pay a fine of EUR 40 million (Rs.3106.9 million). Considering that the matter was not settled in favour of the Company, provision of EUR 43.7 million (Rs.3399.8 million) has been made including interest and withholding tax thereon of EUR 3.7 million (Rs.292.9 million) which is disclosed as an exceptional item. The Company has filed appeal against this judgement in the Court of Justice of the European Union.

13 . As per best estimate of the management, provision has been made towards probable return of goods from customers, as per Indian Accounting Standard (Ind AS) 37.

14. Financial Instruments:

Financial instruments - Fair values and risk management:

A. Accounting classification and fair values:

Carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy, are presented below. It does not include the fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

Fair value hierarchy

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 assets or liabilities that are not based on observable market data (unobservable inputs).

C. Financial risk management:

The Company has exposure to the following risks arising from financial instruments:

- Credit risk;

- Liquidity risk; and

- Market risk

The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the Risk Management Committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports to the board of directors on its activities.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed periodically to reflect changes in market conditions and the Company’s activities. The Company, through its training, standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The audit committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

i. Credit risk:

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.

Trade receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

As at year end, the carrying amount of the Company’s largest customer (a Subsidiary based in North America) was Rs.27498.3 million (previous year Rs.39130.8 million).

Expected credit loss assessment

The Company allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of loss (e.g. timeliness of payments, available press information etc.) and applying experienced credit judgement.

Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macroeconomic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue.

The impairment loss at March 31, 2019 related to several customers that have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.

Cash and cash equivalents

As at the year end, the Company held cash and cash equivalents of Rs.559.4 million (previous year Rs.1056.7 million). The cash and cash equivalents are held with banks.

Other Bank Balances

Other bank balances are held with banks.


The derivatives are entered into with banks.

Investment in mutual funds, non-convertible debentures and commercial papers

The Company limits its exposure to credit risk by generally investing in liquid securities, non convertible debentures, commercial papers and only with counterparties that have a good credit rating.

The Company does not expect any losses from non-performance by these counter-parties.

Other financial assets

Other financial assets are neither past due nor impaired.

ii. Liquidity risk:

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company has obtained fund and non-fund based working capital lines from various banks.

The Company invests its surplus funds in bank fixed deposit and liquid and liquid plus schemes of mutual funds, non-convertible debentures, commercial papers which carry no/low mark to market risks. The Company monitors funding options available in the debt and capital markets with a view to maintaining financial flexibility.

Exposure to liquidity risk

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

* Guarantees issued by the Company on behalf of subsidiaries are with respect to borrowings raised by the respective subsidiary. These amounts will be payable on default by the concerned subsidiary. As of the reporting date, none of the subsidiary have defaulted and hence, the Company does not have any present obligation to third parties in relation to such guarantees (Refer note 56C).

iii. Market Risk:

Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices - will affect the Company’s income or the value of its holdings of financial instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables and long term debt. We are exposed to market risk primarily related to foreign exchange rate risk. Thus, our exposure to market risk is a function of revenue generating and operating activities in foreign currency. The objective of market risk management is to avoid excessive exposure in our foreign currency revenues and costs. The Company uses derivatives to manage market risk. Generally, the Company seeks to apply hedge accounting to manage volatility in profit or loss.

Currency risk

The Company is exposed to currency risk on account of its operations in other countries. The functional currency of the Company is Indian Rupee. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent periods and may continue to fluctuate in the future. Consequently, the Company uses both derivative instruments, i.e, foreign exchange forward contracts to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecasted transactions and recognized assets and liabilities.

The Company enters into foreign currency forward contracts which are not intended for trading or speculative purposes but for hedge purposes to establish the amount of reporting currency required or available at the settlement date of certain payables/receivables.

The Company also enters into derivative contracts in order to hedge and manage its foreign currency exposures towards future export earnings. Such derivatives contracts are entered into by the Company for hedging purposes only, and are accordingly classified as cash flow hedge.

The Company has not entered into foreign currency forward contract for purposes other than hedging. Exposure to Currency risk

Sensitivity analysis

A reasonably possible strengthening (weakening) of the Indian Rupee against US dollars at March 31 would have affected the measurement of financial instruments denominated in US dollars and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

Interest rate risk

Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing financial assets or borrowings because of fluctuations in the interest rates, if such assets/borrowings are measured at fair value through profit or loss. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing borrowings will fluctuate because of fluctuations in the interest rates.

Exposure to interest rate risk

Company’s interest rate risk arises from borrowings and finance lease obligations. The interest rate profile of the Company’s interest-bearing borrowings is as follows:

Fair value sensitivity analysis for fixed-rate instruments

The Company does not account for any fixed-rate borrowings at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss.

Cash flow sensitivity analysis for variable-rate instruments

A reasonably possible change oRs.100 basis points in interest rates at the reporting date would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

The risk estimates provided assume a change oRs.100 basis points interest rate for the interest rate benchmark as applicable to the borrowings summarised above. This calculation also assumes that the change occurs at the balance sheet date and has been calculated based on risk exposures outstanding as at that date. The period end balances are not necessarily representative of the average debt outstanding during the period.

Commodity rate risk

The Company’s operating activities involve purchase and sale of Active Pharmaceutical Ingredients (API), whose prices are exposed to the risk of fluctuation over short periods of time. Commodity price risk exposure is evaluated and managed through procurement and other related operating policies. As of March 31, 2019 and March 31, 2018 the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

15. Capital Management:

The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders.

The board of directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.

The Company monitors capital using a ratio of ‘adjusted net debt’ to ‘total equity’. For this purpose, adjusted net debt is defined as total liabilities, comprising interest-bearing loans and borrowings, less cash and cash equivalents, other bank balances and current investments.

16. Hedge accounting:

The Company’s risk management policy is to hedge above 15% of its estimated net foreign currency exposure in respect of highly probable forecast sales over the following 12-18 months at any point in time. The Company uses forward exchange contracts to hedge its currency risk. Such contracts are generally designated as cash flow hedges.

The forward exchange forward contracts are denominated in the same currency as the highly probable forecast sales, therefore the hedge ratio is 1:1. Most of these contracts have a maturity oRs.12-18 months from the reporting date.

The Company’s policy is for the critical terms of the forward exchange contracts to align with the hedged item.

The Company determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency, amount and timing of their respective cash flows. The Company assesses whether the derivative designated in each hedging relationship is expected to be and has been effective in offsetting changes in the cash flows of the hedged item using the hypothetical derivative method.

In these hedge relationships, changes in timing of the hedged transactions is the main source of hedge ineffectiveness.

Offsetting arrangements

(i) Trade receivables and payables

The Company has certain customers which are also supplying materials. Under the terms of agreement, there are no amounts payable by the Company that are required to be offset against receivables.

(ii) Derivatives

The Company enters into derivative contracts for hedging future sales. In general, under such agreements, the amounts owed by each counterparty on a single day in respect of all the transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other.

Terms and conditions of transactions with related parties:

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash.

17. Excise duty (Refer note 34) includes nil (previous year Rs.165.8 million) credit being net impact of the excise duty provision on opening and closing stock.

18. Consequent to the introduction of Goods and Services Tax (GST) with effect from 1st July 2017, Central Excise has been subsumed into GST. In accordance with Ind AS 115 / Ind AS18 and Schedule Ill to the Companies Act, 2013, levies like GST, VAT etc. are not part of revenue, unlike Excise Duty, which was presented as part of revenue. Accordingly, the figures for the year ended March 31, 2019 are not comparable with the previous year, to that extent.

The following additional information is being provided to facilitate such understanding:

19. Assets classified as Held for Sale:

During the previous year, the Company had entered into a Memorandum of Understanding (MOU) to sell a parcel of land along with the related manufacturing facility (collectively referred to as “Facility”) in Ankleshwar, Gujarat for a consideration in excess of the carrying value of the Facility which got concluded in the current year.

20 . In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ‘Statement of Cash Flows’. These amendments are in accordance with the amendments made by International Accounting Standards Board (IASB) to IAS 7, ‘Statement of Cash Flows’. The below disclosure is in line with such amendments suggested:

21. Previous year’s figures have been regrouped/reclassified wherever necessary to correspond with the current year’s classification/disclosure.