1. General information
Sun Pharmaceutical Industries Limited (“the Company”) is a public limited company incorporated and domiciled in India and has its listing on the BSE Limited and National Stock Exchange of India Limited. The addresses of its registered office and principal place of business are disclosed in the introduction to the annual report. The Company is in the business of manufacturing, producing, developing and marketing a wide range of branded and generic formulations and Active Pharmaceutical Ingredients (APIs). The Company has various manufacturing locations spread across the country with trading and other incidental and related activities extending to the global markets.
2 SHARE CAPITAL
(i) 1,035,581,955 (upto March 31, 2016: 1,035,581,955; upto April 01, 2015: 1,035,581,955) equity shares of Rs.1 each have been allotted as fully paid up bonus shares during the period of five years immediately preceding the date at which the Balance Sheet is prepared.
(ii) 334,956,764 (upto March 31, 2016: 334,956,764; upto April 01, 2015: Nil) equity shares of Rs.1 each have been allotted, pursuant to scheme of amalgamation, without payment being received in cash during the period of five years immediately preceding the date at which the Balance Sheet is prepared. [Refer Note 59(4)]
(iii) 7,500,000 (upto March 31, 2016: Nil, upto April 01, 2015: Nil) equity shares of Rs.1 each have been bought back during the period of five years immediately preceding the date at which the Balance Sheet is prepared. The shares bought back in the current year were cancelled immediately. [Refer Note 59 (13)]
(iv) Rights, Preference and Restrictions attached to equity shares: The Equity Shares of the Company, having par value of Rs.1 per share, rank pari passu in all respects including voting rights and entitlement to dividend.
(v) Refer Note 50 for number of employee stock options against which equity shares are to be issued by the Company / ESOP Trust upon vesting and exercise of those stock options.
Nature and purpose of each reserve
Capital reserve - During amalgamation / merger / acquisition, the excess of net assets taken, over the consideration paid, if any, is treated as capital reserve.
Securities premium reserve - The amount received in excess of face value of the equity shares is recognised in Securities Premium Reserve.
In case of equity-settled share based payment transactions, the difference between fair value on grant date and nominal value of share is accounted as securities premium reserve. This reserve is utilised in accordance with the provisions of the Companies Act 2013.
Debenture redemption reserve - The Company is required to create a debenture redemption reserve out of the profits which is available for payment of dividend. This reserve was transferred to general reserve on redemption of debentures.
Share options outstanding account - The fair value of the equity settled share based payment transactions is recognised to share options outstanding account.
Amaglamation reserve - The reserve was created pursuant to scheme of amalgamation in earlier years.
Capital redemption reserve - The Company has recognised Capital Redemption Reserve on buy-back of equity shares from its retained earnings. The amount in Capital Redemption Reserve is equal to nominal amount of the equity shares bought back.
General reserve - The reserve arises on transfer portion of the net profit pursuant to the earlier provisions of Companies Act 1956. Mandatory transfer to general reserve is not required under the Companies Act 2013.
Equity instrument through OCI - The Company has elected to recognise changes in the fair value of certain investment in equity instrument in other comprehensive income. This amount will be reclassified to retained earnings on derecognition of equity instrument.
Effective portion of cash flow hedges - The cash flow hedging 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 the changes of the fair value of the designated portion of the hedging instruments that are recognised and accumulated under the cash flow hedge reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or included as a basis adjustment to the non-financial hedged item.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.
The investments included in Level 3 of fair value hierarchy have been valued using the cost approach to arrive at their fair value. The cost of unquoted investments approximates the fair value because there is wide range of possible fair value measurements and the costs represents estimate of fair value within that range.
# These investments in equity instruments are not held for trading. Instead, they are held for medium or long-term strategic purpose. Upon the application of Ind AS 109, the Company has chosen to designate these investments in equity instruments as at fair value through other comprehensive income as the management believes that this provides a more meaningful presentation for medium or long-term strategic investments, than reflecting changes in fair value immediately in profit or loss.
There were no transfers between Level 1 and 2 in the periods.
The management considers that the carrying amount of financial assets and financial liabilities carried as amortised cost approximates their fair value.
Reconciliation of Level 3 fair value measurements
3 CAPITAL MANAGEMENT
The Company’s capital management objectives are:
- to ensure the Company’s ability to continue as a going concern; and
- to provide an adequate return to shareholders through optimisation of debts and equity balance.
The Company monitors capital on the basis of the carrying amount of debt less cash and cash equivalents as presented on the face of the financial statements. The Company’s objective for capital management is to maintain an optimum overall financial structure.
4 CIAL RISK MANAGEMENT
The Company’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company’s risk management assessment and policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company’s activities.
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, loans and investments. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of counterparty to which the Company grants credit terms in the normal course of business.
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.
The Company has used expected credit loss (ECL) model for assessing the impairment loss. For the purpose, the Company uses a provision matrix to compute the expected credit loss amount. The provision matrix takes into account external and internal risk factors and historical data of credit losses from various customers.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company’s reputation.
The Company has unutilised working capital lines from banks of Rs.32,128.0 Million as on March 31, 2017, Rs.27,718.7 Million as on March 31, 2016, Rs.30,177.9 Million as on April 01, 2015
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.
Foreign exchange risk
The Company’s foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in US Dollars, Euros, South African Rand and Russian Rouble) and foreign currency borrowings (primarily in US Dollars). As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company’s revenues and expenses measured in Indian rupees may decrease or increase and vice-versa. The exchange rate between the Indian rupee and these foreign currencies have changed substantially in recent periods and may continue to fluctuate substantially in the future. Consequently, the Company uses both derivative and non-derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecasted transactions and recognized assets and liabilities.
a) Significant foreign currency risk exposure relating to trade receivables, cash and cash equivalents, borrowings and trade payables
For the years ended March 31, 2017, March 31, 2016 and April 01, 2015, every 5% strengthening in the exchange rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would decrease the Company’s loss and increase the Company’s equity by approximately Rs.1,760.6 Million, Rs.2,720.8 Million and Rs.2,360.9 Million respectively. A 5% weakening of the Indian rupee and the respective currencies would lead to an equal but opposite effect.
In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
c) Derivative contracts
The Company is exposed to exchange rate risk that arises from its foreign exchange revenues and expenses, primarily in US Dollars, Euros, South African Rand and Russian Rouble, and foreign currency debt in primarily in US Dollars. The Company uses foreign currency forward contracts, foreign currency option contracts and currency swap contracts (collectively, “derivatives”) to mitigate its risk of changes in foreign currency exchange rates. The counterparty for these contracts is generally a bank or a financial institution.
Hedges of highly probable forecasted transactions
The Company designates its derivative contracts that hedge foreign exchange risk associated with its highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded as in other comprehensive income, and re-classified in the income statement as revenue in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is immediately recorded in the statement of profit and loss.
In respect of the aforesaid hedges of highly probable forecasted transactions, the Company has recorded a loss of Rs.26.6 Million for the year ended March 31, 2017 and Rs.Nil for the year ended March 31, 2016 in other comprehensive income. The Company also recorded hedges as a component of revenue, loss of Rs.521.5 Million for the year ended March 31, 2017 and Rs.Nil for the year ended March 31, 2016 on occurrence of forecasted sale transaction.
Changes in the fair value of forward contracts and option contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognised in the statement of profit and loss. The changes in fair value of the forward contracts and option contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognised in the statement of profit and loss.
Interest rate risk
The Company has loan facilities on floating interest rate, which exposes the Company to risk of changes in interest rates. The Company’s Treasury Department monitors the interest rate movement and manages the interest rate risk by evaluating interest rate swaps etc. based on the market / risk perception.
For the years ended March 31, 2017 and March 31, 2016, every 50 basis point decrease in the floating interest rate component applicable to its loans and borrowings would decrease the Company’s loss by approximately Rs.160.5 Million and Rs.221.5 Million respectively. A 50 basis point increase in floating interest rate would have led to an equal but opposite effect.
Commodity rate risk
Exposure to market risk with respect to commodity prices primarily arises from the Company’s purchases and sales of active pharmaceutical ingredients, including the raw material components for such active pharmaceutical ingredients. These are commodity products, whose prices may fluctuate significantly over short periods of time. The prices of the Company’s raw materials generally fluctuate in line with commodity cycles, although the prices of raw materials used in the Company’s active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of the Company’s cost of revenues. Commodity price risk exposure is evaluated and managed through operating procedures and sourcing policies. As of March 31, 2017, the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.
5 SURES UNDER THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
The information regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.
6 YEE BENEFIT PLANS
Defined contribution plan
Contributions are made to Regional Provident Fund (RPF), Family Pension Fund, Employees State Insurance Scheme (ESIC) and other Funds which covers all regular employees. While both the employees and the Company make predetermined contributions to the Provident Fund and ESIC, contribution to the Family Pension Fund and other Statutory Funds are made only by the Company. The contributions are normally based on a certain percentage of the employee’s salary. Amount recognised as expense in respect of these defined contribution plans, aggregate to Rs.608.1 Million (Previous year Rs.587.9 Million).
The Company has an obligation towards provident fund with respect to certain employees upto March 31, 2015 which was recognised as defined benefit plan. From the previous year the contribution for the same is made to RPF and the Company does not have any obligation apart from such contribution. Accordingly, from previous year, the provident fund is recognised as defined contribution plan.
Defined benefit plan
In respect of Gratuity, a defined benefit plan, contributions are made to LIC’s Recognised Group Gratuity Fund Scheme. It is governed by the Payment of Gratuity Act, 1972. Under the Gratuity Act, employees are entitled to specific benefit at the time of retirement or termination of the employment on completion of five years or death while in employment. The level of benefit provided depends on the member’s length of service and salary at the time of retirement/termination age. Provision for Gratuity is based on actuarial valuation done by an independent actuary as at the year end. Each year, the Company reviews the level of funding in gratuity fund. The Company decides its contribution based on the results of its annual review. The Company aims to keep annual contributions relatively stable at a level such that the fund assets meets the requirements of gratuity payments in short to medium term.
b) Pension fund
The Company has an obligation towards pension, a defined benefit retirement plan, with respect to certain employees, who had already retired before March 01, 2013, will continue to receive the pension as per the pension plan.
These plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.
i) Investment risk - The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to the market yields on government bonds denominated in Indian Rupees. If the actual return on plan asset is below this rate, it will create a plan deficit. However, the risk is partially mitigated by investment in LIC managed fund.
ii) Interest rate risk - A decrease in the bond interest rate will increase the plan liability. However, this will be partially offset by an increase in the return on the plan’s debt investments.
iii) Longevity risk - The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.
iv) Salary risk - The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.
Other long term benefit plan
Actuarial Valuation for Compensated Absences is done as at the year end and the provision is made as per Company rules with corresponding charge to the Statement of Profit and Loss amounting to Rs.331.0 Million (Previous Year Rs.313.8 Million) and it covers all regular employees. Major drivers in actuarial assumptions, typically, are years of service and employee compensation.
Obligation in respect of defined benefit plan and other long term employee benefit plans are actuarially determined as at the year end using the ‘Projected Unit Credit’ method. Gains and losses on changes in actuarial assumptions relating to defined benefit obligation are recognised in other comprehensive income whereas gains and losses in respect of other long term employee benefit plans are recognised in the Statement of Profit and Loss.
(a) The Company has given certain premises and plant and equipment under operating lease or leave and license agreements. These are generally not non-cancellable and periods range between 11 months to 10 years under leave and licence / lease and are renewable by mutual consent on mutually agreeable terms. The Company has received refundable interest free security deposits where applicable in accordance with the agreed terms. (b) The Company has obtained certain premises for its business operations (including furniture and fittings, therein as applicable) under operating lease or leave and license agreements. These are generally not non-cancellable and periods range between 11 months to 10 years under leave and licence, or longer for other lease and are renewable by mutual consent on mutually agreeable terms. The Company has given refundable interest free security deposits in accordance with the agreed terms. These refundable security deposits have been valued at amortised cost under relevant Ind AS (c) Lease receipts / payments are recognised in the statement of profit and loss under “Lease rental and hire charges” & ”Rent” in Note 32 and 37 respectively. (d) The future minimum lease payments in respect of assets taken on non-cancellable operating leases are as under -
8 EMPLOYEE SHARE-BASED PAYMENT PLANS
Erstwhile Ranbaxy Laboratories Limited (RLL) had Employee Stock Option Schemes (“ESOSs”) namely, Employees Stock Option Scheme -II (ESOS-II), Employees Stock Option Scheme 2005 (ESOS 2005) and Employees Stock Option Plan 2011 (ESOP 2011) for the grant of stock options to the eligible employees and Directors of the Erstwhile RLL and its subsidiaries. ESOS-II had been discontinued from 17th January, 2015. The ESOSs are administered by the Compensation Committee (“Committee”). Options are granted at the discretion of the Committee to selected employees depending upon certain criterion. Each option comprises one underlying equity share.
ESOS 2005 provided that the grant price of options would be the latest available closing price on the stock exchange on which the shares of the erstwhile RLL were listed, prior to the date of the meeting of the Committee in which the options were granted. If the shares are listed on more than one stock exchange, then the stock exchange where there was highest trading volume on the said date were considered. The options vested evenly over a period of five years from the date of grant. Options lapse, if they are not exercised prior to the expiry date, which was ten years from the date of grant.
ESOP 2011 provided that the grant price of options would be the face value of the equity share i.e. Rs.5 per share. The options vested evenly over a period of three years from the date of grant. Options lapse, if they were not exercised prior to the expiry date, which was three months from the date of the vesting. An ESOP Trust had been formed to administer ESOP 2011. Shares issued to the ESOP Trust were allocated to the eligible employees upon exercise of stock options from time to time.
In accordance with the above approval of issuance of options, stock options have been granted from time to time.
The stock options outstanding as on June 30, 2005 are proportionately adjusted in view of the sub-division of equity shares of the Erstwhile RLL from the face value of Rs.10 each into 2 equity shares of Rs.5 each
Pursuant to the Scheme of Amalgamation, Sun Pharmaceutical Industries Limited (‘transferee company’) formulated two Employee Stock Option Schemes, namely, (i) SUN Employee Stock Option Scheme-2015 (SUN-ESOS 2015) to administer ESOS 2005 (ii) SUN Employee Stock Option Plan-2015 (SUN-ESOP 2015) to administer ESOP 2011. These scheme provide that the number of transferee options issued shall equal to the product of number of transferor options outstanding on effectiveness of Scheme multiplied by the Share exchange ratio (0.80) and each transferee option shall have an exercise price per equity share equal to transferor option exercise price per equity share divided by the share exchange ratio (0.80) and fractions rounded off to the next higher whole number. The terms and conditions of ESOS, of transferee company are not less favourable than those of ESOSs of erstwhile RLL. No new grants shall be made under these schemes and these schemes shall operate only for the purpose of administering the exercise of options already granted / vested on an employee pursuant to SUN-ESOS 2015 and SUN-ESOP 2015.
During the current year, the Company has recorded a Stock-based employee compensation expense of Rs.30.8 Million (March 31, 2016: Rs.90.6 Million). The amount has been determined under a fair value method wherein the grant date fair value of the options was calculated by using Black Scholes pricing model.
@@ Assumptions used are as applicable at the date of grant in the context of erstwhile RLL
The Black -Scholes option-pricing model was developed for estimating fair value of trade options that have no vesting restrictions and are fully transferable. Since options pricing models require use of subjective assumptions, changes therein can materially affect fair value of the options. The options pricing models do not necessary provide a reliable measurable of fair value of options. The volatility in the share price is based on volatility of historical stock price of the erstwhile RLL for last 60 months.
(A) Details of long term borrowings and current maturities of long term debt (included under other current financial liabilities)
(I) Unsecured External Commercial Borrowings (ECBs) has 6 loans aggregating of USD 256 Million (March 31, 2016 : USD 266 Million, April 01, 2015 : USD 288 Million) equivalent to Rs.16,602.9 Million (March 31, 2016 : Rs.17,625.2 Million, April 01, 2015 : Rs.18,001.4 Million) [(included in long term borrowings Rs.7,523.2 Million (March 31, 2016 : Rs.15,902.4 Million, April 01, 2015 : Rs.11,625.9 Million) and in current maturity of long term debt Rs.9,079.7 Million (March 31, 2016 : Rs.1,722.8 Million, April 01, 2015 : Rs.6,375.5 Million))]. For the ECB loans outstanding as at March 31, 2017, the terms of repayment for borrowings are as follows:
(a) USD Nil (March 31, 2016 : USD Nil, April 01, 2015 : USD 50 Million) equivalent to Rs.Nil (March 31, 2016 : Rs.Nil,
April 01, 2015 : Rs.3,125.2 Million). The loan was taken on August 12, 2010. The outstanding amount has been repaid in previous year.
(b) USD Nil (March 31, 2016 : USD Nil, April 01, 2015 : USD 30 Million) equivalent to Rs.Nil (March 31, 2016 : Rs.Nil, April 01, 2015 : Rs.1,875.2 Million). The loan was taken on September 9, 2010. The outstanding amount has been repaid in previous year.
(c) USD 10 Million (March 31, 2016 : USD 20 Million, April 01, 2015 : USD 30 Million) equivalent to Rs.648.6 Million (March 31, 2016 : Rs.1,325.2 Million, April 01, 2015 : Rs.1,875.2 Million). The loan was taken on June 30, 2011 and is repayable in 3 equal installments of USD 10 Million each at the end of 4th year, 5th year and 6th year. Second installment of USD 10 Million has been repaid in current year and first installment of USD 10 Million was repaid in previous year. The last installment is due on June 30, 2017.
(d) USD 50 Million (March 31, 2016 : USD 50 Million, April 01, 2015 : USD 50 Million) equivalent to Rs.3,242.8 Million (March 31, 2016 : Rs.3,313.0 Million, April 01, 2015 : Rs.3,125.2 Million). The loan was taken on September 20, 2012 and is repayable on September 19, 2017.
(e) USD 100 Million (March 31, 2016 : USD 100 Million, April 01, 2015 : USD 100 Million) equivalent to Rs.6,485.5 Million (March 31, 2016 : Rs.6,626.0 Million, April 01, 2015: Rs.6,250.5 Million). The loan was taken on June 4, 2013 and is repayable on June 3, 2018.
(f) USD Nil (March 31, 2016 : USD 16 Million, April 01, 2015 : USD 28 Million) equivalent to Rs.Nil (March 31, 2016 : Rs.1,060.2 Million, April 01, 2015 : Rs.1,750.1 Million).
Loan of USD 40 Million was taken on March 25, 2011 and was repayable in 3 installments viz., 30% each of the drawn amount at the end of 4th year and 5th year and 40% of the drawn amount at the end of the 6th year.
The last installment of USD 16 Million has been repaid in current year. First and Second installment of USD 12 Million each has been repaid in previous years.
(g) USD 50 Million (March 31, 2016 : USD 50 Million, April 01, 2015 : USD Nil) equivalent to Rs.3,242.8 Million (March 31, 2016 : Rs.3,313.0 Million, April 01, 2015 : Rs.Nil). The loan was taken on August 11, 2015 and is repayable on August 11, 2017.
(h) USD 30 Million (March 31, 2016 : USD 30 Million, April 01, 2015 : USD Nil) equivalent to Rs.1,945.7 Million (March 31, 2016 : Rs.1,987.8 Million, April 01, 2015 : Rs.Nil). The loan was taken on September 09, 2015 and is repayable on September 08, 2017.
(i) USD 16 Million (March 31, 2016 : USD Nil, April 01, 2015 : USD Nil) equivalent to Rs.1,037.7 Million (March 31, 2016 : Rs.Nil, April 01, 2015 : Rs.Nil). The loan was taken on March 24, 2017 and is repayable on March 22, 2019.
(II) Unsecured Loan under Foreign Currency Non Resident (FCNR B) Scheme of USD 50 Million (March 31, 2016 : USD 50 Million, April 01, 2015 : USD Nil) equivalent to Rs.3,242.8 Million (March 31, 2016 : Rs.3,313.0 Million, April 01, 2015 : Rs.Nil). The loan was taken on August 19, 2015 and is repayable on August 18, 2017.
(III) Redeemable non-convertible debentures of Rs.Nil (March 31, 2016 : Rs.Nil, April 01, 2015 : Rs.5,000.0 Million) issued on November 23, 2012 for a period of 36 months at a coupon rate of 9.20% p.a. Such debentures were secured by a pari-passu first ranking charge on the Company’s specified fixed assets so as to provide a fixed asset cover of 1.25x and were listed on the National Stock Exchange. The loan was taken on November 23, 2012 and has been repaid in previous year.
(IV) Unsecured term loan of Rs.Nil (March 31, 2016 : Rs.Nil, April 01, 2015 : Rs.2,500.0 Million) has been repaid in previous year.
(V) Secured term loan from department of biotechnology of Rs.108.2 Million (March 31, 2016 : Rs.77.3 Million, April 01, 2015 : Rs.77.3 Million) has been secured by hypothecation of assets and goods of the Company. The loan is repayable in 10 equal half yearly installments commencing from December 26, 2018, last installment is due on June 26, 2023.
The Company has not defaulted on repayment of loan and interest payment thereon during the year.
(B) Details of securities for Short term Borrowings are as follows:
First charge has been created on a pari-passu basis, by hypothecation of inventories and receivables, both present and future.
10 IME IND AS ADOPTION RECONCILIATION
Explanation to transition to Ind AS
Ind AS 101 -”First-time Adoption of Indian Accounting Standards” requires that all Ind AS and interpretations that are issued and effective for the first Ind AS financial statements which is for the year ended March 31, 2017 for the Company, be applied retrospectively and consistently for all financial years presented, except for the Company has availed certain exemptions and complied with the mandatory exceptions provided in Ind AS 101, as described below. The Company has recognised all assets and liabilities whose recognition is required by Ind AS and has not recognised items of assets or liabilities which are not permitted by Ind AS, reclassified items from previous GAAP to Ind AS as required under Ind AS and applied Ind AS in measurement of recognised assets and liabilities.
Set out below are the Ind AS 101 optional exemptions availed as applicable and mandatory exceptions applied in the transition from previous GAAP to Ind AS.
Derecognition of financial assets and financial liabilities
The Company has applied the derecognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after the transition date.
At the date of transition to Ind AS, the Company has measured all derivatives at fair value through profit or loss and eliminated all deferred losses and gains arising on derivatives that were reported in accordance with previous GAAP assets or liabilities.
Classification and measurement of financial assets
The Company has assessed conditions for classification of the financial assets on the basis of the facts and circumstances that were exist on the date of transition to Ind AS.
Determining whether an arrangement contains a lease
The Company has applied Appendix C of Ind AS 17 “Determining whether an Arrangement contains a Lease” to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date
Deemed cost of property, plant and equipment and intangible assets
On transition to Ind AS, the Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets recognised as at April 01, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of the property, plant and equipment and intangible assets.
Designation of previously recognised financial instruments
Ind AS 101 allows an entity to designate investments in equity instruments at FVOCI on the basis of the facts and circumstances as at the date of transition to Ind AS. The Company has elected to apply this exemption for its investments in certain equity instruments.
Compound financial instruments
Under Ind AS 32, the Company should split compound financial instruments into separate equity and liability components. Ind AS 101 provides that if the liability component is no longer outstanding at the date of transition, a first-time adopter does not have to separate it from the component instrument. The Company has elected to apply this exemption for its compound financial instruments.
Fair value measurement of financial assets and financial liabilities at initial recognition
The Company has applied the requirements in paragraph B5.1.2A (b) of Ind AS 109 prospectively to transactions entered into on or after the date of transition to Ind AS. This exemption has been availed by the Company.
Non - current assets held for sale and discontinued operations
Ind As 105 requires that asset classified as non - current as per Ind AS 1 are not reclassified as current assets until they meet criteria to be classified as held for sale. The adopter can opt to either value those assets at carrying amount or fair value less cost of sale at the transition date and record any difference between such amount and carrying value directly to retained earnings. The Company has applied for this exemption.
Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date.
The Company elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.
Share-based payment transactions
As per previous GAAP, the Company had applied the fair value recognition and measurement principles similar to those prescribed under Ind AS 102 for all options granted before the Transition Date. Consequently, this exemption was not required to be applied.
Under the previous GAAP, excise duty was netted off against sale of products. However, under Ind AS, excise duty is included in sale of products and is separately presented as expense in the statement of profit and loss.
a) Derivative instruments at fair value through profit or loss
Under previous GAAP, derivative instruments entered into for hedging the foreign currency fluctuation risk were accounted for on the principles of prudence. Pursuant to this, losses, if any, on Mark to Market basis, were recognised and gains were not recognised. Under Ind AS, gains on derivative instruments have been measured at fair value through profit or loss and gains or losses are recognised in the statement of profit and loss.
b) Discounting / (unwinding of discount) of provisions
Under Ind AS, long term provisions are to be measured at present value at the date of transition.
c) Separately acquired intangible assets
Under Ind AS, separately acquired intangible assets shall be capitalised which were not eligible for capitalisation under previous GAAP.
d) Proposed dividend (including dividend distribution tax)
Under Ind AS, dividend to holders of equity instruments is recognised as a liability in the period in which the obligation to pay is established. Under previous GAAP, dividend proposed was recorded as a provision in the period to which it relates.
e) Expected credit loss
Under previous GAAP, the Group had created provision for doubtful debts based on specific amount for incurred losses. Under Ind AS, the allowance for doubtful debts has been determined based on expected credit loss model.
f) Employee benefits
Under previous GAAP, actuarial gains and losses were recognised in statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of net defined benefit liability / asset which is recognised in other comprehensive income in the respective periods.
g) Effect of transition to Ind AS on Standalone Cash Flow Statement for the year ended March 31, 2016
Net increase in cash and cash equivalents represents movement in cash credit facilities considered as a component of cash and cash equivalents under Ind AS which as per previous GAAP, was considered as financing activity. Other Ind AS adjustments are either non cash adjustments or are regrouping among the cash flows from operating, investing and financing activities and has no impact on the net cash flow for the year ended 31st March, 2016 as compared with the previous GAAP.
In respect of any present obligation as a result of past event that could lead to a probable outflow of resources, provisions has been made, which would be required to settle the obligation. The said provisions are made as per the best estimate of the management and disclosure as per Ind AS 37 - “Provisions, Contingent Liabilities and Contingent Assets” has been given below :
Expenditure related to Corporate Social Responsibility as per Section 135 of the Companies Act, 2013 read with Schedule VII thereof: Rs.24.1 Million (Previous Year Rs.116.5 Million).
11 ESTIMATES AND JUDGEMENTS
The preparation of the Company’s financial statements requires the management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
1 Fair value measurement of Financial Instruments
When the fair values of financials assets and financial liabilities recorded in the financial statements cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques which involve various judgements and assumptions.
2 Useful lives of property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation and amortisation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Company’s assets are determined by the management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technical or commercial obsolescence arising from changes or improvements in production or from a change in market demand of the product or service output of the asset.
3 Assets and obligations relating to employee benefits
The employment benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/ (income) include the discount rate, inflation and mortality assumptions. Any changes in these assumptions will impact upon the carrying amount of employment benefit obligations.
4 Tax expense [Refer Note 2(q)]
The Company’s tax jurisdiction is India. Significant judgements are involved in determining the provision for income taxes, if any, including amount expected to be paid/recovered for uncertain tax positions. Further, significant judgement is exercised to ascertain amount of deferred tax asset (DTA) that could be recognised based on the probability that future taxable profits will be available against which DTA can be utilized and amount of temporary difference in which DTA can not be recognised on want of probable taxable profits.
5 Provisions [Refer Note 2(m)]
6 Write down in value of inventories (Refer Note 13)
7 Contingencies (Refer Note 40)
1 Consequent to the amalgamation of erstwhile Ranbaxy Laboratories Limited (RLL) into the Company as referred in Note 59(4), Zenotech Laboratories Limited (‘Zenotech’) had become an associate of the Company. The erstwhile RLL had granted certain loans to Zenotech which were outstanding and inherited by the Company. The Company has not granted any further loans to Zenotech post effective date of amalgamation i.e. March 24, 2015. The balance of this inherited outstanding loan is Rs.512.0 Million. The Company is in process of evaluating various options in relation to recovery of the outstanding loans and interest thereon of Rs.214.9 Million (March 31, 2016 : Rs.151.5 Million, April 01, 2015 : Rs.88.8 Million).
2 Intangible assets consisting of trademarks, designs, technical knowhow, non-compete fees and other intangible assets are available to the Company in perpetuity. The amortisable amount of intangible assets is arrived at based on the management’s best estimates of useful lives of such assets after due consideration as regards their expected usage, the product life cycles, technical and technological obsolescence, market demand for products, competition and their expected future benefits to the Company.
3 Exceptional item for previous year represents charge on account of impairment of certain Property, Plant and Equipment and Intangible assets. This charge had arisen on account of the integration and optimization exercise being carried out for certain manufacturing facilities. The recoverable amount of the said assets is its value in use which is determined for a period of less than one year.
4 Pursuant to the Scheme of Arrangement u/s 391 to 394 of the Companies Act 1956 for amalgamation of erstwhile RLL with the Company as sanctioned by the Hon’ble High Court of Gujarat and Hon’ble High Court of Punjab and Haryana on March 24, 2015 (effective date) all the assets, liabilities and reserves of erstwhile RLL were transferred to and vested in the Company with effect from April 1, 2014, the appointed date. Erstwhile RLL along with its subsidiaries and associates was operating as an integrated international pharmaceutical organisation with business encompassing the entire value chain in the production, marketing and distribution of pharmaceutical products. The scheme was accordingly been given effect to in the financial statements for the year ended March 31, 2015.
On April 10, 2015, in terms of the Scheme of Arrangement 0.80 equity share of Rs.1 each (Number of Shares 334,956,764 including 186,516 Shares held by ESOP trust) of the Company has been allotted to the shareholders of erstwhile RLL for every 1 share of Rs.5 each (Number of Shares 418,695,955 including 233,146 shares held by ESOP trust) held by them in the share capital of erstwhile RLL, after cancellation of 6,967,542 shares of erstwhile RLL. An amount of Rs.1,792.4 Million being the excess of share capital of erstwhile RLL over the amount recorded as the share capital (which was outstanding to be issued by the Company as on April 1, 2015 and disclosed as Share Suspense Account) was credited to Capital Reserve.
5 Out of a MAT credit entitlement of Rs.8,222.7 Million which was written down by the erstwhile RLL during the quarter ended December 31, 2014, an amount of Rs.7,517.0 Million was recognised by the Company in the year ended March 31, 2015, on a reassessment by the Management, based on convincing evidence that the combined amalgamated entity would pay normal income tax during the specified period and would therefore be able to utilize the MAT credit entitlement so recognised.
6 Since the US-FDA import alert at Karkhadi facility in March 2014, the Company remained fully committed to implement all corrective measures to address the observations made by the US-FDA with the help of third party consultant. Substantial progress has been made at the Karkhadi facility in terms of completing the action items to address the observations made by the US-FDA in its warning letter issued in May 2014. The Company is continuing to work closely and co-operatively with the US-FDA to resolve the matter. The contribution of this facility to Company’s revenues is not significant.
7 The US-FDA, on January 23, 2014, had prohibited using API manufactured at Toansa facility for manufacture of finished drug products intended for distribution in the U.S. market. Consequentially, the Toansa manufacturing facility was subject to certain provisions of the consent decree of permanent injunction entered in January 2012 by erstwhile Ranbaxy Laboratories Ltd (which was merged with Sun Pharmaceutical Industries Ltd in March 2015). In addition, the Department of Justice of the USA (‘US DOJ’), United States Attorney’s Office for the District of New Jersey had also issued an administrative subpoena dated March 13, 2014 seeking information primarily related to Toansa manufacturing facility for which a Form 483 containing findings of the US-FDA was issued in January 2014. The Company is continuing to fully cooperate and is in dialogue with the US DOJ, and continuing to provide requisite information.
8 In December 2015, the US-FDA issued a warning letter to the manufacturing facility at Halol. Subsequently, a re-inspection was carried out by the US-FDA in November 2016. At the conclusion of the inspection, FDA issued a Form 483 with nine observations. The Company has submitted its response documenting the corrective measures to resolve the 483 observations. The Company is providing regular updates to USFDA on the progress of the corrective actions. The Company is continuing to manufacture and distribute products to the U.S from Halol facility and at the same time working closely and co-operatively with the US-FDA to resolve the matter.
9 In September 2013, the US-FDA had put the Mohali facility under import alert and was also subjected to certain provisions of the consent decree of permanent injunction entered in January 2012 by erstwhile Ranbaxy Laboratories Ltd (which was merged with Sun Pharmaceutical Industries Ltd in March 2015). In November 2016, the US-FDA conducted a re-inspection of the Mohali facility post the completion of remediation work at the facility. As a result of this reinspection, in March 2017, the US-FDA lifted the import alert and indicated that the facility was in compliance with the requirements of cGMP provisions mentioned in the consent decree. The Mohali facility will continue to remain under consent decree under certain other provisions of the decree for a fixed period of time to demonstrate sustainable cGMP compliance.
10 In accordance with Ind AS 108 “Operating Segments”, segment information has been given in the consolidated Ind AS financial statements, and therefore, no separate disclosure on segment information is given in these financial statements.
11 Remuneration to the Managing Director and the Whole-time Director(s) of the Company for the years ended March 31, 2015, March 31, 2016 and March 31, 2017 are higher by Rs.49.6 Million, Rs.29.6 Million and Rs.44.7 Million respectively than the amounts approved by the Central Government of India (Ministry of Corporate Affairs) on applications made by the Company to approve the maximum remuneration as approved by the members of the Company for the three years ended March 31, 2017, in excess of the limits specified under Schedule V to the Companies Act, 2013, in case of inadequacy of profits. The Company has re-represented to the office of the Ministry of Corporate Affairs (MCA) for approval of remuneration within the overall limits approved by the members of the Company for the years ended March 31, 2015 and March 31, 2016, and that for the year ended March 31, 2017, applications for revision in the remuneration, as approved by the members of the Company, has been made to the MCA. The responses in respect of the foregoing rerepresentation / applications for revision are awaited from the MCA. On receipt of the requisite approvals, the balance amount of remuneration for the aforesaid years, if any, as per their entitlement, shall be paid to the Managing Director and the Whole-time Director(s), as applicable, and the same shall be given effect to in the year in which the approval is received.
Excess remuneration, if any, after final approval in respect of the re-representation/applications for revision is received, shall be refunded by the respective Managing Director and the Whole-time Director(s).
12 As at March 31, 2017, the Company has received an amount of Rs.0.0 Million (Rs.7,177) towards share application money for 1,148 equity shares of the Company. The Company will allot these equity shares during the next financial year.
The Company has sufficient authorised capital to cover the allotment of these shares. Pending allotment of shares, the amounts are maintained in a designated bank account and are not available for use by the Company.
13 The Company completed buy-back of 7,500,000 equity shares of Rs.1 each (representing 0.31% of total pre buy-back paid up equity capital) on October 18, 2016, from the shareholders on a proportionate basis by way of a tender offer at a price of Rs.900 per equity share for an aggregate amount of Rs.67,500 Lakhs in accordance with the provisions of the Companies Act, 2013 and the SEBI (Buy Back of Securities) Regulations, 1998. This buy-back of equity shares was approved by the Board of Directors of the Company at its meeting held on June 23, 2016.
1 Incorporated / Acquired during the year.
2 Merged with Sun Pharmaceutical Industries, Inc.
3 Dissolved / Liquidated during the year.
4 Merged with Sun Pharma Global FZE.
5 Investment sold during the previous year.
6 Taro Pharmaceutical India Private Limited is under liquidation.
7 Merged into Mutual Pharmaceutical Company, Inc. during the previous year .
8 Merged into URL Pharma Inc. during the previous year.
9 Thallion Pharmaceutical Inc., was acquired and merged with Taro Pharmaceuticals Inc. during the year.
10 Incorporated / Acquired during the year ended March 31, 2015.
11 Dissolved / Liquidated during the previous year.
12 Incorporated / Acquired during the previous year.
13 Thea Acquisition Corporation has been merged with Insite Vision Incorporated during the previous year.
14 Acquired and subsequently amalgamated in Taro Pharmaceuticals Inc. in the previous year.
15 Daiichi Sankyo (Thailand) Ltd.’s shares were sold during the year.
16 During the year Solrex Pharmaceuticals Company, a partnership firm has been converted into company which is known as Sun Pharma Medisales Private Limited.
17 Holds voting power of 81.87% (beneficial ownership 72.81%) [March 31, 2016 79.32% (beneficial ownership 68.98%)] [April 01, 2015 79.24% (beneficial ownership 68.87%)].