FUTURE BIOCON Notes to Accounts

1. Shares reserved for issue under options


For details of shares reserved for issue under the employee stock option plan (ESOP) of the Company, refer note 31.


2. Other equity Securities premium reserve


Securities premium is used to record the premium received on issue of shares. It is utilized in accordance with the provisions of the Companies Act, 2013. General reserve


General, reserve is used from time to time to transfer profits from retained earnings for appropriation purposes.


Retained earnings


The amount that can be distributed by the Company as dividends to its equity shareholders.


SEZ re-investment reserve


The SEZ re-investment reserve has been created out of profit of eligible SEZ units in terms of the provisions of section 10AA(l)(ii) of the Income-tax Act, 1961. The reserve has been utilized for acquiring new plant and machinery for the purpose of its business in terms of section 10AA(2) of the Income-tax Act, 1961.


Share based payment reserve


The Company has established various equity settled share based payment plans for certain categories of employees of the Company. Also refer note 31 for further details on these plans.


Treasury shares


Own equity instruments that are reacquired [treasury shares] are recognized at cost and deducted from equity.


Cash flow hedging reserves


The cash flow hedging reserve represents the cumulative effective portion of gains or losses (net of taxes, if any) arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges.


3. On February 9, 2000, the Company obtained an order from the Karnataka Sales Tax Authority for avowing an interest free deferment of sales tax (including turnover tax) for a period up to 12 years with respect to sales from its Hebbagodi manufacturing facility for an amount not exceeding Rs. 649. This is an interest free liability. The amount is repayable in 10 equal half yearly installments of Rs. 65 each starting from February 2012. The loan was repaid during the year.


4. During the year ended March 31, 2016, the Company had obtained an external commercial borrowing facility of USD 20 million from a bank. The term Loan facility is secured by first priority pari-passu charge on the plant and machinery of the proposed expanded facility Line in the existing facility with a carrying amount of Rs. 1,410. The long-term loan is repayable in 4 equal quarterly installments of USD 5 million each commencing from December 31, 2018 and carries an interest rate of LIBOR 0.95% p.a. During the year ended March 31, 2016, the Company had entered into interest rate swap to convert floating rate to fixed rate.


5. 0 n March 31, 2005, the Company entered into an agreement with the Council of Scientific and Industrial Research (''''CSIR''''), for an unsecured Loan of Rs.3 for carrying out part of the research and development project under the New Millennium Indian Technology Leadership Initiative (''''NMITLI'''') Scheme. The loan is repayable over 10 equal Annual installments of Rs. 0.3 starting from April 2009 and carry an interest rate of 3% p.a.


6. On March 31, 2009, the Department of Scientific and Industrial Research (RDSIR'''') sanctioned financial assistance for a sum of Rs. 17 to the Company for part financing one of its research projects. The assistance is repayable in the form of royalty payments for three years post commercialization of the project in five equal Annual installments of Rs. 3 each, starting from April 1, 2013.


7. On August 25, 2010, the Department of Science and Technology (''''DST'''') under the Drugs and Pharmaceutical Research Programme (''''DPRP'''') has sanctioned financial assistance for a sum of rs. 70 to the Company for financing one of its research projects. The Loan is repayable over 10 Annual installments of Rs. 7 each starting from July 1, 2012, and carries an interest rate of 3% p.a.


8. I n respect of the financial assistance received under the aforesaid programmes (refer note (c) to (e) above), the Company is required to utilize the funds for the specified projects and is required to obtain prior approvals from the said authorities for disposal of assets/Intellectual property rights acquired/ developed under the above programmes.


The Company''''s exposure to Liquidity, interest rate and currency risks are disclosed in note 39.


9. Employee stock compensation


10. Biocon ESOP Plan


0n September 27, 2001, Biocon''''s Board of Directors approved the Biocon Employee Stock Option Plan (''''ESOP Plan 2000'''') for the grant of stock options to the employees of the Company and its subsidiaries/joint venture company. The Nomination and Remuneration Committee (''''Remuneration Committee'''') administers the plan through a trust established specifically for this purpose, called the Biocon India Limited Employee Welfare Trust (ESOP Trust).


The ESOP Trust shall make additional purchase of equity shares of the Company using the proceeds from the Loan obtained from the Company, other cash inflows from allotment of shares to employees under the ESOP Plan and shall subscribe, when allotted to such number of shares as is necessary for transferring to the employees. The ESOP Trust may also receive shares from the promoters for the purpose of issuance to the employees under the ESOP Plan. The Remuneration Committee shall determine the exercise price which will not be Less than the face value of the shares.


Grant IV


In July 2006, the Company approved the grant of 3,478,200 options (face value of shares - Rs. 5 each) to its employees under the existing ESOP Plan 2000. The options under this grant would vest to the employees as 25%, 35% and 40% of the total grant at the end of first, second and third year from the date of grant for existing employees and at the end of 3rd, 4th and 5th year from the date of grant for new employees. Exercise period is 3 years for each grant. The conditions for number of options granted include service terms and performance grade of the employees. These options are exercisable at a discount of 20% to the market price of Company''''s shares on the date of grant.


Grant V


In April 2008, the Company approved the grant to its employees under the existing ESOP Plan 2000. The options under this grant would vest to the employees as 25%, 35% and 40% of the total grant at the end of first, second and third year from the date of grant for existing employees and at the end of 3rd, 4th and 5th year from the date of grant for new employees. Exercise period is 3 years for each grant. The conditions for number of options granted include service terms and performance grade of the employees. These options are exercisable at the market price of Company''''s shares on the date of grant.


11. RSU Plan 2015


On March 11, 2015, Biocon''''s Remuneration Committee approved the Biocon - Restricted Stock Units (RSUs) of Syngene (''''RSU Plan 2015'''') for the grant of RSUs to the employees of the Company and its subsidiaries other than Syngene. The Remuneration Committee administers the plan through a trust established specifically for this purpose, called the Biocon Limited Employee Welfare Trust (''''RSU Trust''''). For this purpose, on March 31, 2015, the Company transferred 2,000,000 equity shares of Syngene to RSU Trust.


In April 2015, the Company approved the grant to its employees under the RSU Plan 2015. The RSUs under this grant would vest to the employees as 10%, 20%, 30% and 40% of the total grant at the end of first, second, third and fourth year from the date of grant, respectively, with an exercise period ending one year from the end of Last vesting. The vesting conditions include service terms and performance grade of the employees. Exercise price of RSUs will be Nil.


12. During the year ended March 31, 2016, the Company sold its investment in the equity shares of Biocon Sdn. Bhd., a wholly owned subsidiary to Biocon Biologics Limited (UK) for a sum of Rs. 811. Gain arising from such sale of equity shares amounting to Rs. 99 [net of cost of such equity shares] is recorded as an exceptional gain in the standalone financial statements. Consequential tax of Rs. 21 is recorded on such gain.


13. During the year ended March 31, 2016, Syngene International Limited (''''Syngene'''') completed its Initial Public Offering (IPO), through an offer for sale of 22,000,000 equity shares of Rs. 10 each, by the Company. Gain arising from such sale of equity shares, net of related expenses and cost of equity shares, amounting to Rs. 962 is recorded as an exceptional gain in the standalone financial statements. Consequential tax of Rs. 1,042 is recorded on such gains is included within income tax expense.


MAT credit on above transaction was not recorded in the previous year due to uncertainty of utilization. During the current year, pursuant to change in the Income tax Law and other business restructuring, the Company believes that it will be able to utilize the MAT credit entitlement. Accordingly, during the year ended March 31, 2017, the Company has recorded MAT credit entitlement of Rs. 1,042 which is included within income tax expense of the current year.


14. Expenses incurred on behalf of the related party include recharge of software License fees and amount paid on behalf to vendors.


15. The Company''''s SEZ Developer division has entered into agreements to Lease Land and provide certain facilities such as power, utilities etc to SEZ units of Biocon Research Limited and Syngene International Limited, in respect of which the Company recovers rent and facilities usage charges.


16. The Company has purchased consumables from Mazumdar Farms, a proprietary firm of relative of Director which are not disclosed above since the amounts are rounded off to Rupees million.


17. During the year, there is no transaction with Biocon India Limited Employees Welfare Trust {trust in which key management personnel were the Board of Trustees).


18. The above disclosures include related parties as per Ind AS 24 on “Related Party Disclosures" and Companies Act, 2013.


19. The remuneration to key management personnel doesn''''t include the provisions made for gratuity and compensated absences, as they are obtained on an actuarial basis for the Company as a whole.


20. Share based compensation expense allocable to key management personnel is ^ 5 {March 31, 2016 – Rs. 10), which is not included in the remuneration disclosed above.


21. ALL transactions with these related parties are priced on an arm''''s Length basis and none of the balances are secured.


22. Employee benefit plans


23. The Company has a defined benefit gratuity plan as per the Payment of Gratuity Act, 1972. Under this Legislation, employee who has completed five years of service is entitled to specific benefit. The Level of benefit provided depends on the employee’s Length of service and salary at retirement/ termination age. The gratuity plan is a funded plan and the Company make contributions to a recognized fund in India.


Based on the actuarial valuation obtained in this respect, the following table sets out the status of the gratuity plan and the amounts recognized in the Company''''s financial statements as at balance sheet date:


24. Measurement of fair values


Fair value of Liquid mutual funds are based on quoted price. Derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the market place.


Sensitivity analysis


For the fair values of forward contracts of foreign currencies, reasonably possible changes at the reporting date to one of the significant observable inputs, holding other inputs constant, would have the following effects.


25. Financial risk management


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


- Credit risk


- Liquidity risk


- Market risk


Risk management framework


The Company''''s risk management is carried out by the treasury department under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative and non-derivative financial instruments and investment of excess Liquidity.


26. Credit risk


Credit risk is the risk that the counterparty will not meet its obligation under a financial instrument or customer contract, Leading to financial Loss. The credit risk arises principally from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions and other financial instruments.


Customer credit risk is managed by each business unit subject to Company''''s established policy, procedures and control relating to customer credit risk management. The Audit and Risk Management Committee has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company''''s standard payment and delivery terms and conditions are offered. The Company''''s review includes external ratings, where available, and other publicly available financial information. Outstanding customer receivables are regularly monitored and any shipments to major customers are generally covered by Letters of credit or other forms of credit insurance.


27. 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 believes that the working capital is sufficient to meet its current requirements. Accordingly, no Liquidity risk is perceived. In addition, the Company maintains the following Line of credit:


28. Cash credit facility from banks carrying interest rate ranging from 9.7% - 13% p.a. These facilities were repayable on demand and secured by pari-passu charge on inventories and trade receivables.


29. Unsecured foreign currency denominated loans from Banks amounting to Rs. Nil (March 31, 2016 - Rs. 2,253) carrying interest ranging from Nil (March 31, 2016 - LIBOR 0.10% to 0.20% p.a.). The facilities are repayable within 180 days from its origination.


30. Sensitivity


The Company policy is to maintain most of its borrowings at fixed rate using interest rate swaps to achieve this when necessary. They are therefore not subject to interest rate 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.


31. Capital management


The key objective of the Company''''s capital management is to ensure that it maintains a stable capital structure with the focus on total equity to uphold investor, creditor, and customer confidence and to ensure future development of its business. The Company focused on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required without impacting the risk profile of the Company.


The Company''''s goal is to continue to be able to return excess Liquidity to shareholders by continuing to distribute Annual dividends in future periods.


The amount of future dividends of equity shares will be balanced with efforts to continue to maintain an adequate Liquidity status.


32. First-time adoption of Ind AS


These standalone financial statements have been prepared in accordance with the Ind AS. For the purpose of transition from previous GAAP to Ind AS, the Company has followed the guidance prescribed under Ind AS 101 - First time adoption of Indian Accounting Standards (“Ind AS 101”), with effect from April 01, 2015 (“transition date”).


In preparing its Ind AS balance sheet as at April 1, 2015 and in presenting the comparative information for the year ended March 31, 2016, the Group has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains how the transition from previous GAAP to Ind AS has affected the Company''''s balance sheet, financial performance.


33. Optional exemptions availed and mandatory exceptions


In preparing these standalone financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions. Optional exemptions availed


34. Deemed cost Investment in subsidiaries


As per Ind AS 101, the entity may elect to use the fair value of investment in subsidiaries at the date of transition as the deemed cost. Accordingly, the Company has recognized the fair value of a subsidiary as the deemed cost at the date of transition.


35. Business combination


Ind AS 101, provides the option to apply Ind AS 103, Business Combinations prospectively from the transition date or from a specific date prior to the transition date.


The Company has elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date has not been restated.


36. Share based payments


Ind AS 102 Share based Payment has not been applied to equity instruments in share based payment transactions that vested before April 1, 2014. For cash settled share based payment transactions, the Company has not applied Ind AS 102 to Liabilities that were settled before April 1, 2014.


Mandatory exemptions availed


37. Estimates


As per Ind AS 101, an entity''''s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error.


The Company''''s estimates under Ind AS are consistent with the above requirement. Key estimates considered in preparation of the financial statements that were not required under the previous GAAP are Listed below:


- Fair valuation of financial instruments carried at FVTPL and/ or FVOCI.


- Impairment of financial assets based on the expected credit Loss model.


- Determination of the discounted value for financial instruments carried at amortized cost.


38. Classification and measurement of financial assets


Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortized cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.


Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of the financial assets accounted at amortized cost has been done retrospectively except where the same is impracticable.


39. Hedge accounting


Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in Ind AS 109, Financial Instruments, at the date of transition. Hedging relationships cannot be designated retrospectively, and the supporting documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as on the date of transition are reflected as hedges in the consolidated financial statements under Ind AS.


40. Difference on account of revenue recognition, net of related costs is primarily due to difference in timing of revenue recognition under Ind AS compared to previous GAAP and deferral of Licensing income on account of continuing obligations.


41. Impact due to derivative accounting in accordance with Ind AS 109.


42. Other adjustments on account of Employee benefit expenses (Share based payments, Actuarial gains/Losses), Mark to market adjustments on Mutual funds and Guarantee Income.


43. Represents income tax impact of Ind AS adjustments including corrections for earlier years.


44. Reduction in profit on sale of Syngene shares is primarily on account of fair valuation of investment in Syngene (a subsidiary) on the Ind AS transition date as deemed cost.


45. Actuarial Loss on defined benefit obligations (gratuity) taken to other comprehensive income under Ind AS as compared to the statement of profit and Loss under previous GAAP.


46. Impact on consolidation of ESOP Trust.


47. Business combination


During the year ended March 31, 2016, the Company acquired the business of pharmaceutical manufacturing unit of M/s Acacia Life sciences Private


Limited Located at Vishakhapatnam with effect from October 01, 2015 on a going concern basis for a consideration of Rs. 531 paid in cash. The transaction was accounted under Ind AS 103 “Business Combinations” as a business combination with the purchase price being allocated to identifiable assets and Liabilities at fair value.


48. Segmental information


In accordance with Ind AS 108 - Operating segments, segment information has been provided in the consolidated financial statements of the Company and therefore no separate disclosure on segment information is given in these standalone financial statements.


49. Other notes


50. The Company had entered into transactions of sale of products to a private company during the year ended March 31, 2013 and 2012 amounting to Rs. 28 and Rs. 17 respectively that required prior approval from Central Government under Section 297 of the Companies Act, 1956. These transactions, entered into at prevailing market prices were approved by the Board of Directors of the Company. During the year ended March 31, 2014, the Company had filed application with the Central Government for approval of such transactions and for compounding of such non-compliance and same is pending with Central Government as at March 31, 2017.


51. 0 he Company has paid the dividend distribution tax of Rs. Nil (March 31, 2016 - Rs. 107) on interim dividend after reducing the amount of dividend received by the Company from its subsidiaries.


52. Corporate Social Responsibility


As per Section 135 of the Companies Act, 2013, a company, meeting the applicability threshold, needs to spend at Least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities.


53 Gross amount required to be spent by the Company during the year is Rs. 90; and


54. Amount spent during the year on:


55. Events after reporting period


56. On April 27, 2017, the Board of Directors of the Company approved issue of bonus shares in the proportion of 2:1 i.e. 2 (two) bonus equity shares of Rs. 5 each for every 1 (one) fully paid-up equity shares held as on the record date, subject to the approval by the shareholders of the Company through postal ballot.


57. 0n April 27, 2017, the Board of Directors of the Company has proposed a final dividend of Rs. 3 per equity share on a pre-bonus share basis. The proposed dividend is subject to the approval of the shareholders in the Annual general meeting.


CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.
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