SMS PHARMA Notes to Accounts

1. During the year 2013-14, Company has brought back 15,50,000 Equity
shares of Rs, 10/- each.

The face valule of equity share of Rs, 10/- each of the Company was
sub-divided into 10 equity shares of Rs, I/- each w.e.f 05-12-2015 in
terms of the approval of the shareholders of the Company through Postal
Ballot.

2. Term Loans availed from State Bank of India, Export-Import Bank
of India and IDBI Bank are secured by first charge on pari-passu basis
of all movable and immovable fixed assets both present and future and
second charge on pari-passu basis of all current assets both present
and future and guaranteed by Sri P Ramesh Babu, Chairman and Managing
Director and Sri TWSN Murthy Vice Chairman and Joint Managing Director
of the Company in their personal capacities.

3. Term Loans along with working capital facilities sanctioned by
State Bank of India are having the following additional security apart
from the details of security mentioned supra.

i) Equitable mortgage of commercial flat No 416 admeasuring 618 Sq.ft,
situated in Nilgiri Block, Aditya Enclave, Ameerpet, Hyderabad, along
with undivided share of land of 25 sq. yds,, belonging to M/s.Potluri
Laboratories Pvt Ltd (formally Known as Hima Farms Pvt Ltd) in which
Spouse of Sri P Ramesh Babu, Chairman and Managing Director of the
Company, is a Director.

ii) Equitable mortgage of Agricultural land admeasuring 3.65 acres
situated in Yalamanchili Village of West Godavari district, Andhra
Pradesh belonging to Sri TWSN Murthy Vice Chairman and Joint Managing
Director of the Company.

iii) Corporate Guarantee by M/s.Potluri Laboratories Pvt Ltd (formally
Known as Hima Farms Pvt Ltd.) to the extent of collateral security
extended by them.

iv) Personal Guarantee by Smt.T Annapurna, spouse of Sri TWSN Murthy,
Vice Chairman and Joint Managing Director of the Company.

4. Hire Purchase Loans availed from ICICI Bank Ltd, BMW India
Financial Services Pvt Ltd and Daimler Financial Services FVt Ltd are
secured by the respective vehicles.

5. Terms of Repayment

a) Term Loan-ll availed from State Bank of India for an amount of Rs,
4,250.00 Lakhs is repayable in 20 Quarterly Installments ofRs, 212.50
Lakhs each, commenced from June, 2014. The loan carries interest rate
of 12.5% p.a.

b) Term loan availed from Export Import Bank of India amounting to Rs,
3,000.00 Lakhs for funding the Expansion Project of Kazipally unit. The
loan is repayable in 20 Quarterly Installments of Rs, 150.00 Lakhs
each, commencing from December, 2015. The loan carries interest rate of
12.20% p.a.

c) Term loan availed from IDBI Bank amounting to Rs, 7,500.00 Lakhs for
funding the Expansion Project of Kandivalasa unit. The loan carries
interest rate of 12.75% p.a The loan is repayable in 24 Quarterly
Installments commencing from December, 2016, as mentioned below.

First 4 Quarters t 100.00 Lakhs each

Next 4 Quarters t 200.00 Lakhs each

Next 4 Quarters t 300.00 Lakhs each

Next 4 Quarters t 400.00 Lakhs each

Next 4 Quarters t 425.00 Lakhs each

Next 4 Quarters t 450.00 Lakhs each

6. Current Maturities of Long Term borrowings have been disclosed
separately under the head other current liabilities (Refer Note No.3)

7. Financial assistance received from Department of Scientific and
Industrial Research (DSIR) of Rs, 120.00 Lakhs (previous year Rs,
120.00 Lakhs) sanctioned under PATSER Scheme of TPDU program for
development of catalysts or Fine Chemicals apart from Active
Pharmaceutical Ingredients (APIs), and their intermediates viz. Metal
Acetylacetonates, Diltiazem Hydrochloride and Taxol C-1 3 Side Chain.

As per the terms of agreement entered with DSIR, 1.3 times of the above
amount is payable in 5 equal annual installments after commencement of
commercial operations of the product(s) developed under PATSER scheme.
However the Company has not yet commenced commercial operations of the
said products.

8. Working capital facilities sanctioned by State Bank of India,
IDBI Bank Ltd and Export-Import Bank of India are secured by first
charge on pari-passu basis of all current assets both present and
future. These facilities are further secured by way of second charge on
pari-passu basis of all movable and immovable fixed assets of the
Company both present and future and also guaranteed by Sri P Ramesh
Babu Chairman and Managing Director, and Sri TWSN Murthy, Vice Charman
and Joint Managing Director of the Company, in their personal
capacities.

9. Working Capital Facilities along with Term Loans extended by
State Bank of India are having the following additional security apart
from the details of security mentioned supra.

i) Equitable Mortgage of commercial flat No 416 admeasuring 618 Sq.ft,
situated in Nilgiri Block, Aditya Enclave, Ameerpet, Hyderabad, along
with undivided share of land of 25 sq. yds,, belonging to M/s.Potluri
Laboratories Pvt. Ltd (formally Known as Hima Farms FVt Ltd) in which
Spouse of Sri P Ramesh Babu, Chairman and Managing Director of the
Company, is a Director.

ii) Equitable mortgage of Agricultural land admeasuring 3.65 Acres
situated in Yalamanchili Village of West Godavari District, belonging
to Sri TWSN Murthy, Vice Chairman and Joint Managing Director of the
Company.

iii) Corporate Guarantee by M/s.Potluri Laboratories Pvt Ltd (formally
Known as Hima Farms Pvt Ltd.), to the extent of collateral security
extended by them.

iv) Personal Guarantee of Smt. T Annapurna spouse of Sri TWSN Murthy
Vice Chairman and Joint Managing Director of the Company.

I I.I During the year 2015-16 the Company has invested an amount of
Rs, 803.99 Lakhs towards 5,1 1,400 Equity Shares of Rs, 10/- each. (
4,06,000 Equity Shares at a premium of Rs, 140/- and 1,05,400 Equity
Shares at a premium of Rs, I 75/-) in M/s. VKT Pharma Private Limited,
an associated Companyas on 3 1.03.2016 the Company is holding 34.33 %
of the total Paid up Capital of the said associated Company. Sri P
Ramesh Babu, Chairman and Managing Director of the Company and his
spouse &son are Directors in the said Company.

10. Deposits recoverable consists of Rs, 259.64 Lakhs (Previous Year
Rs, 160.85 Lakhs) with Electricity Department, Rs, 30.60 (Previous Year
Rs, 24.00 Lakhs) Rent Deposit and Rs, 22.26 Lakhs (Previous Year Rs,
21.32 Lakhs) with Others.

11. Out of the above amount, cash and cash equivalents was Rs,
1,125.10 Lakhs (Previous Year Rs, 240.76 Lakhs).

12. Deposit against margin money amount ofRs, 373.37 Lakhs (Previous
YearRs, 373.37 Lakhs) have maturity period of more than 12 months.

13. Fixed Deposits amount ofRs, 0.80 Lakhs have maturity period of
more than 12 months.

14. Special Term Deposits amount of Rs, 1,000.00 Lakhs ( Previous
Year Rs, nil) have maturity period of less than three months.

15. Advances for Raw Materials includes Rs, 162.50 Lakhs (Previous
Year Rs, Nil) given to M/s. VKT Pharma (P) Ltd, and Rs, 93.25 Lakhs
(Prevous YearRs, 127.64 Lakhs) to M/s. Rchem (Somanahalli) Pvt Ltd,
related parties.

16. Advances to Others includes an amount of Rs, 44.31 Lakhs (Previous
Year Rs, 44.54 Lakhs) towards Staff Advances.

17. Advance to Others includes an amount of Rs, 1.16 Lakhs (Previous
Year Rs, I 1.26 Lakhs) which is outstanding for more than 3 years.
However the management is confident about the recovery of the said
amount.

18. Equity shares having face value of Rs, 10/-each has been
sub-divided into Rs, I/-each, accordingly earnings per share has been
restated for the previous year.

19. Note on CSR Liability

As per Section 135 (I) of the Companies Act, 2013 Corporate Social
Responsibility provisions are applicable to the Company and the
liability for the financial year 2015-16 was Rs, 18.47 Lakhs. During
the year 2015-16 the Company has initiated the following activities at
the surrounding of its manufacturing facilities and spent an amount of
Rs, 19.22 Lakhs:

20. Organized School Benches to Government Primary School of Mandal
Parishad Prathamika Patashala at Kazipally Villagejinnaram Mandal,
Medak District. The amount incurred for this activity was Rs, 0.78
Lakhs.

21.Construction of 600 Square Feet of RCC roof building for Public
Health Center at Kowada Vllage, Poosapatirega Mandal, Vizianagaram
District with an estimated cost of Rs, 10.00 Lakhs excluding medical
equipments. The Company has already incurred an amount of Rs, 9.22
Lakhs and the balance is mainly miscellaneous to be spent on completion
of the building.

22. Construction of 600 Square Feet of RCC roof building for Public
Health Center at Gumpam Vllage, Poosapatirega Mandal, Vizianagaram
District with an estimated cost of Rs, 10.00 Lakhs excluding medical
equipments. The Company has already incurred an amount of Rs, 9.22
Lakhs and the balance is mainly miscellaneous to be spent on completion
of the building.

23. (i) The Company has entered in to an agreement with M/s. Divya
Enterprises Limited for purchase of 918 sqm industrial plot and
buildings and structures situated at D-63, Phase - I, Jeedimetla, for a
consideration of Rs, 60.00 Lakhs. Pending registration of the same, the
Company has paid the entire amount to the vendor for the said property
and has taken the possession during the year 2002-03. The said
property was not yet registered in the name of the Company as on the
Balance Sheet date.

(ii) The Company has constructed/modified buildings and structures to
suit the requirement for carrying out its manufacturing activity in the
said premises. The Company has incurred an amount of Rs, 169.68 Lakhs
during the earlier years for modification of buildings and also for
acquiring required equipment and other assets. The said assets were
capitalized and the Company is claiming depreciation.

(iii) Central excise department has issued a demand for an amount of
Rs, 16.40 Lakhs towards interest for the period from 01-04-1995 to
18-03-201 I jointly in the name of Divya Enterprises Limited and SMS
Pharmaceuticals Limited for which M/s Divya Enterprises Limited has
obtained stay from the Honorable High court of Andhra Pradesh in the
year 2013. Presently the Company is not carrying out any manufacturing
activity at this location.

24. Disclosure Required by Micro. Small and Medium Enterprises
(Development) Act,2006.

Disclosure of Sundry Creditors under Current Liabilities is based on
the information available with the Company regarding the status of the
suppliers as defined under the "Micro, Small and Medium Enterprises
Development (Act, 2006)" and relied upon by the auditors.

During the year the Company has paid no interest in terms of Section 16
of the said Act. Particulars of amount due to the MSMED customers,
interest due and paid during the Year are as furnished below.

The above information regarding Micro Small and Medium 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.

25. Related Party Disclosures:

Disclosures as required by the Accounting Standard 18 of the Institute
of Chartered Accountants of India are given below:

(i) Key Managerial personnel (KMP)and their relatives

S.No. Name Relationship

1. Sri. R RameshBabu Chairman and Managing Director

2. Sri.TVVS.N. Murthy Vice Chairman and Joint Managing Director

3. Sri. TV Praveen Relative of the Key Managerial personnel

4. Sri. R Vamsikrishna Relative of the Key Managerial personnel

5. Smt. R HimaBindu Relative of the Key Managerial personnel

6. N. Rajendra Prasad Chief Financial Officer

7. R Prabhakara Rao Company Secretary (up to3 1.08.15)

8. Saurav Roy Company Secretary ( 04.08.15 onwards)

(ii) List of Related Parties

S.No. Name of the Company Relationship

1. Potluri Packing Industries Private Limited

2. Potluri Laboratories Private Limited.Enterprises over which
KMP are able to

3. Potluri Infra Projects Private Limited Exercise significant
influence.

4. Rchem (Somanahalli) Pvt Ltd

5. SMS Lifesciences (India) Pvt Ltd

6. VKT Pharma Pvt Ltd Associate Company


26. Segment Reporting:

As the Company''''s business during the reporting Year consists of single
reportable business segment of manufacturing and sale of Active
Pharmaceutical Ingredients and their intermediates, no separate
disclosure pertaining to segmental reporting is given. As part of
business segment, revenues are attributed to geographical areas based
on the location of the customers as detailed below:

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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