NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
1. Reporting entity
Dr. Reddys Laboratories Limited (DRL or the parent company), together with its subsidiaries,
associates and joint ventures (collectively, the Company), is a leading India-based pharmaceutical company headquartered in Hyderabad, Telangana, India. Through its three businessesPharmaceutical Services and Active Ingredients,
Global Generics and Proprietary Products the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (APIs), Custom Pharmaceutical Services (CPS), generics, biosimilars and
differentiated formulations. The Companys principal research and development facilities are located in Telangana, India, Cambridge, United Kingdom and Leiden, the Netherlands; its principal manufacturing facilities are located in Telangana,
India, Andhra Pradesh, India, Himachal Pradesh, India, Cuernavaca-Cuautla, Mexico, Mirfield, United Kingdom, Louisiana, United States, and Tennessee, United States; and its principal markets are in India, Russia, the United States, the United
Kingdom, Venezuela and Germany. The Companys shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and also on the New York Stock Exchange in the United States.
2. Basis of preparation of financial statements
a.
Statement of compliance
These consolidated financial statements as at and for the year ended March 31, 2017
have been prepared in accordance with the International Financial Reporting Standards and its interpretations (IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements have been prepared for the Company as a going concern on the basis of relevant IFRS
that are effective or elected for early adoption at the Companys annual reporting date, March 31, 2017. These consolidated financial statements were authorized for issuance by the Companys Board of Directors on June 19, 2017.
b. Basis of measurement
These consolidated financial statements have been prepared on the historical cost convention and on an accrual basis, except
for the following material items in the statement of financial position:
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derivative financial instruments are measured at fair value;
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available-for-sale
financial
assets are measured at fair value;
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employee defined benefit assets/(liability) are recognized as the net total of the fair value of plan assets,
plus actuarial losses, less actuarial gains and the present value of the defined benefit obligation;
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long term borrowings, except obligations under finance leases, are measured at amortized cost using the
effective interest rate method; and
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investments in joint ventures are accounted for using the equity method.
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c. Functional and presentation currency
These consolidated financial statements are presented in Indian rupees, which is the functional currency of the parent company.
All financial information presented in Indian rupees has been rounded to the nearest million.
In respect of certain
non-Indian
subsidiaries that operate as marketing arms of the parent company in their respective countries/regions, the functional currency has been determined to be the functional currency of the parent company
(i.e., the Indian rupee). The operations of these entities are largely restricted to importing of finished goods from the parent company in India, sales of these products in the foreign country and making of import payments to the parent company.
The cash flows realized from sales of goods are available for making import payments to the parent company and cash is paid to the parent company on a regular basis. The costs incurred by these entities are primarily the cost of goods imported from
the parent company. The financing of these subsidiaries is done directly or indirectly by the parent company.
In respect
of subsidiaries whose operations are self-contained and integrated within their respective countries/regions, the functional currency has been generally determined to be the local currency of those countries/regions, unless use of a different
currency is considered appropriate.
d. Convenience translation (unaudited)
These consolidated financial statements have been prepared in Indian rupees. Solely for the convenience of the reader, these
consolidated financial statements as of and for the year ended March 31, 2017 have been translated into U.S. dollars at the certified foreign exchange rate of U.S.$1.00 = Rs.64.85, as published by the Federal Reserve Board of Governors on
March 31, 2017. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. Such convenience translation is not subject to audit by the
Companys independent auditors.
F-10
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
2. Basis of preparation of financial statements (continued)
e. Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized 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 recognized in the financial statements is included in the following notes:
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Note 3(a) Evaluation of joint arrangements;
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Note 3(b) Assessment of functional currency;
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Note 3(c) and 30 Financial instruments;
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Notes 3(d) Business combinations;
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Notes 3(e) and (f) Useful lives of property, plant and equipment and intangible assets;
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Note 3(h) Valuation of inventories;
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Notes 3(i), 7, 8 and 9 Measurement of recoverable amounts of cash-generating units;
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Note 3 (j) and 19 Assets and obligations relating to employee benefits;
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Note 3 (j) Share based payments;
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Note 3(k) Provisions and other accruals;
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Note 3(l) Sales returns, rebates and chargeback provisions;
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Note 3(o) Evaluation of recoverability of deferred tax assets; and
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Note 44 Contingencies
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f. Change in the functional currency of a foreign operation
Until July 31, 2016, the functional currency of Dr. Reddys Laboratories, SA, one of the Companys
subsidiaries in Switzerland (the Swiss Subsidiary), was determined to be the Indian rupee. During the three months ended September 30, 2016, the Swiss Subsidiary borrowed U.S.$350 from certain institutional lenders to acquire eight
ANDAs in the United States (refer to Note 42 of these consolidated financial statements for further details). The Company believes that the aforesaid transactions have had significant impact on the primary economic environment of the Swiss
Subsidiary and, accordingly, the Swiss Subsidiarys operating, investing and financing activities will have a greater reliance on the United States dollar.
Accordingly, effective August 1, 2016, the functional currency of the Swiss Subsidiary was changed to the United States
dollar. The change in functional currency of the Swiss subsidiary was applied prospectively from date of change in accordance with IAS 21, The Effect of Changes in Foreign Exchange Rate.
3. Significant accounting policies
a. Basis of
consolidation
Subsidiaries
Subsidiaries are all entities (including special purpose entities) that are controlled by the Company. Control exists when the
Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights
are substantive. The financial statements of subsidiaries are included in these consolidated financial statements from the date that control commences until the date that control ceases. For the purpose of preparing these consolidated financial
statements, the accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Company.
Associates and joint arrangements (equity accounted investees)
Joint arrangements are those arrangements over which the Company has joint control, established by contractual agreement and
requiring unanimous consent for strategic financial and operating decisions.
A joint arrangement is either a joint
operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a
joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Associates are those entities over which the Company has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the entities but is not control or joint control of those policies. Significant influence is generally presumed to exist when the Company holds between 20% and 50% of the voting power of
another entity.
F-11
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
a. Basis of consolidation (continued)
Investments in associates and joint ventures are accounted for using the
equity method (equity accounted investees) and are initially recognized at cost. The carrying value of the Companys investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The Company does not
consolidate entities where the
non-controlling
interest (NCI) holders have certain significant participating rights that provide for effective involvement in significant decisions in the ordinary
course of business of such entities. Investments in such entities are accounted by the equity method of accounting. When the Companys share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest
(including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are
eliminated in full while preparing these consolidated financial statements. Unrealized gains or losses arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Companys interest in
the investee.
Acquisition of
non-controlling
interests
Acquisition of some or all of the NCI is accounted for as a transaction with equity holders in their capacity as equity
holders. Consequently, the difference arising between the fair value of the purchase consideration paid and the carrying value of the NCI is recorded as an adjustment to retained earnings that is attributable to the parent company. The associated
cash flows are classified as financing activities. No goodwill is recognized as a result of such transactions.
Loss of Control
Upon loss of control, the Company derecognizes the assets and liabilities of the subsidiary, any NCIs and the other components
of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in the consolidated income statement. If the Company retains any interest in the previous subsidiary, then such interest is measured at fair
value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an
available-for-sale
financial asset, depending on the
level of influence retained.
b. Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at
exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date.
Non-monetary
items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction.
Non-monetary
items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the date when the fair value was measured.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from
those at which they were translated on initial recognition during the period or in previous financial statements are recognized in the consolidated income statement in the period in which they arise.
However, foreign currency differences arising from the translation of the following items are recognized in other
comprehensive income (OCI):
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available for sale equity investments (except on impairment, in which case foreign currency differences that
have been recognized in OCI are reclassified to the consolidated income statement);
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a financial liability designated as a hedge of the net investment in a foreign operation, to the extent that
the hedge is effective; and
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qualifying cash flow hedges, to the extent that the hedges are effective.
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F-12
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
b. Foreign currency (continued)
When several exchange rates are available, the rate used is that at which the
future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
Foreign
operations
Foreign exchange gains and losses arising from a monetary item receivable from a foreign operation, the
settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of the net investment in the foreign operation and are recognized in OCI and presented within equity as a part of foreign currency translation
reserve (FCTR).
In case of foreign operations whose functional currency is different from the parent
companys functional currency, the assets and liabilities of such foreign operations, including goodwill and fair value adjustments arising upon acquisition, are translated to the reporting currency at exchange rates at the reporting date. The
income and expenses of such foreign operations are translated to the reporting currency at the monthly average exchange rates prevailing during the year. Resulting foreign currency differences are recognized in OCI and presented within equity as
part of FCTR. When a foreign operation is disposed of, in part or in full, such that control, significant influence or joint control is lost, the relevant amount in the FCTR is transferred to the consolidated income statement.
c. Financial instruments
Non-derivative
financial instruments
Non-derivative
financial instruments consist of investments in mutual funds, equity
securities, trade and other receivables, cash and cash equivalents, loans and borrowings, trade and other payables and certain other assets and liabilities.
Non-derivative
financial instruments are recognized initially at fair value plus any
directly attributable transaction costs, except for those instruments that are designated as being fair value through profit and loss upon initial recognition. Subsequent to initial recognition,
non-derivative
financial instruments are measured as described below.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily
convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, short-term means investments having maturity of three months or less from the date of investment. Bank overdrafts
that are repayable on demand form an integral part of the Companys cash management and are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows.
Other investments
Other
investments consist of term deposits with original maturities of more than three months, and investments in mutual funds and equity securities.
Investments in mutual funds and equity securities are classified as
available-for-sale
financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognized in OCI and presented within equity
under fair value reserve. When an investment is derecognized, the cumulative gain or loss in equity is transferred to the consolidated income statement.
Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Trade payables are classified as current liabilities if payment is expected within one year or within the normal operating cycle of the business.
Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business.
Trade receivables are classified as current assets if the collection is expected within one year or within the normal operating cycle of the business.
F-13
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
c. Financial instruments (continued)
Debt instruments and other financial liabilities
The Company initially recognizes debt instruments issued on the date that they originate. All other financial liabilities are
recognized initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument. These are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
Other
non-derivative
financial instruments
Other
non-derivative
financial instruments are initially recognized at fair value. Subsequent to initial recognition, these assets are measured at amortized cost using the effective interest method, less any
impairment losses.
De-recognition
of financial assets and liabilities
The Company derecognizes a financial asset when the contractual right to the cash flows from that asset expires, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Company retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing, at amortized cost, for the proceeds received.
The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired. The
difference between the carrying amount of the derecognized financial liability and the consideration paid is recognized as profit or loss.
Offsetting
financial assets and liabilities
Financial assets and liabilities are offset and the net amount presented in the
statement of financial position when, and only when, the Company has a legal right and ability to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
Derivative financial instruments
The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in U.S.
dollars, U.K. pounds sterling, Russian roubles, Romanian new leus (RON), Venezuelan bolivars and Euros, and foreign currency debt in U.S. dollars, Russian roubles and Euros.
The Company uses foreign exchange forward contracts, option contracts and swap contracts (derivative financial instruments) to
mitigate its risk of changes in foreign currency exchange rates. The Company also uses
non-derivative
financial instruments as part of its foreign currency exposure risk mitigation strategy.
Hedges of highly probable forecasted transactions
The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable
forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Companys hedging reserve as a component of equity and
re-classified
to the consolidated income statement as revenue in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the
consolidated income statement as finance costs immediately.
The Company also designates certain
non-derivative
financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly,
the Company applies cash flow hedge accounting to such relationships. Remeasurement gain/loss on such
non-derivative
financial liabilities is recorded in the Companys hedging reserve as a component of
equity and reclassified to the consolidated income statement as revenue in the period corresponding to the occurrence of the forecasted transactions.
F-14
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
c. Financial instruments (continued)
Upon initial designation of a hedging instrument, the Company formally
documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the
effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be highly effective in
offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of
80%-125%
relative to
the gain or loss on the hedged items. For cash flow hedges to be highly effective, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could
ultimately affect profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or
is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in OCI, remains there until the forecast transaction occurs. If the forecast transaction is no longer expected
to occur, then the balance in OCI is recognized immediately in the consolidated income statement.
Hedges of recognized assets and liabilities
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign
currencies, and for which no hedge accounting is applied, are recognized in the consolidated income statement. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items,
are recognized as part of net finance income/(expense) in the consolidated income statement.
Hedges of changes in the interest rates
Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in
interest rates. The Company does not use them for trading or speculative purposes.
d. Business combinations
The Company uses the acquisition method of accounting to account for business combinations that occurred on or after
April 1, 2009. The acquisition date is the date on which control is transferred to the acquirer. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control
exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered
only if the rights are substantive. The Company measures goodwill as of the applicable acquisition date at the fair value of the consideration transferred, including the recognized amount of any
non-controlling
interest in the acquiree, less the net recognized amount of the identifiable assets acquired and liabilities assumed. When the fair value of the net identifiable assets acquired and liabilities
assumed exceeds the consideration transferred, a bargain purchase gain is recognized immediately in the consolidated income statement. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Company
to the previous owners of the acquiree, and equity interests issued by the Company. Consideration transferred also includes the fair value of any contingent consideration. Consideration transferred does not include amounts related to the settlement
of
pre-existing
relationships. Any goodwill that arises on account of such business combination is tested annually for impairment.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent
consideration that meets the definition of a financial instrument is classified as equity, then it is not
re-measured
and the settlement is accounted for within equity. Otherwise, other contingent
consideration is
re-measured
at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recorded in the consolidated income statement.
A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present
obligation and arises from a past event, and its fair value can be measured reliably.
On an
acquisition-by-acquisition
basis, the Company recognizes any
non-controlling
interest in the acquiree either at fair value or at the
non-controlling
interests proportionate share of the acquirees identifiable net assets. Transaction costs that the Company incurs in connection with a business combination, such as finders fees,
legal fees, due diligence fees and other professional and consulting fees, are expensed as incurred.
Acquisitions of
non-controlling
interests are accounted for as transactions with equity holders in their capacity as equity holders. The difference between any consideration paid and the relevant share acquired of the carrying
value of net assets of the subsidiary is recorded in equity.
F-15
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
e. Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if
any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for
its intended use. Borrowing costs that are directly attributable to the construction or production of a qualifying asset are capitalized as part of the cost of that asset.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items
(major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and
equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized net within Other (income)/expense, net in the consolidated income statement.
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it
is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognized in the consolidated income statement as incurred.
Items of property, plant and equipment acquired through exchange of
non-monetary
assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying
amount of the asset given up.
Depreciation
Depreciation is recognized in the consolidated income statement on a straight line basis over the estimated useful lives of
property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. The depreciation expense is included in the costs of the functions using the asset. Land is not depreciated.
Leasehold improvements are depreciated over the period of the lease agreement or the useful life, whichever is shorter.
Depreciation methods, useful lives and residual values are reviewed at each reporting date. The estimated useful lives are as
follows:
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Buildings
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- Factory and administrative buildings
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20 - 50 years
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- Ancillary structures
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3 - 15 years
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Plant and equipment
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3 - 15 years
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Furniture, fixtures and office equipment
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4 - 10 years
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Vehicles
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4 - 5 years
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Computer equipment
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3 - 5 years
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Software for internal use, which is primarily acquired from third-party vendors and which is
an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalized as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognized as expense as
incurred. The capitalized costs are amortized over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.
Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of
property, plant and equipment not ready to use before such date are disclosed under capital
work-in-progress.
Assets not ready for use are not depreciated.
f. Goodwill and other intangible assets
Goodwill
Goodwill
represents the excess of consideration transferred, together with the amount of
non-controlling
interest in the acquiree, over the fair value of the Companys share of identifiable net assets acquired.
Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying
amount of goodwill is included in the carrying amount of the investment, and any impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying value of the equity accounted investee.
F-16
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
f. Goodwill and other intangible assets (continued)
Other intangible assets
Other intangible assets that are acquired by the Company and that have finite useful lives are measured at cost less
accumulated amortization and accumulated impairment losses.
Subsequent expenditures are capitalized only when they
increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, is recognized in the consolidated income statement as incurred.
Research and development
Expenditures on research activities undertaken with the prospect of gaining new scientific or technical knowledge and
understanding are recognized in the consolidated income statement when incurred.
Development activities involve a plan or
design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if:
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development costs can be measured reliably;
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the product or process is technically and commercially feasible;
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future economic benefits are probable; and
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the Company intends to and has sufficient resources to complete development and to use or sell the asset.
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The expenditures to be capitalized include the cost of materials and other costs directly attributable
to preparing the asset for its intended use. Other development expenditures are recognized in the consolidated income statement as incurred.
Payments to third parties that generally take the form of
up-front
payments and
milestones for
in-licensed
products, compounds and intellectual property are capitalized. The Companys criteria for capitalization of such assets are consistent with the guidance given in paragraph 25 of
International Accounting Standard 38 (IAS 38) (i.e., receipt of economic benefits out of the separately purchased transaction is considered to be probable).
Acquired research and development intangible assets that are under development are recognized as
In-Process
Research and Development assets (IPR&D). IPR&D assets are not amortized, but evaluated for potential impairment on an annual basis or when there are indications that the carrying value
may not be recoverable. Any impairment charge on such IPR&D assets is recorded in the consolidated income statement under Research and Development expenses.
Subsequent expenditure on an
in-process
research or development project acquired
separately or in a business combination and recognized as an intangible asset is:
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recognized as an expense when incurred, if it is research expenditure;
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b)
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recognized as an expense when incurred, if it is development expenditure that does not satisfy the criteria
for recognition as an intangible asset in paragraph 57 of IAS 38; and
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c)
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added to the carrying amount of the acquired
in-process
research or
development project, if it is development expenditure that satisfies the recognition criteria in paragraph 57 of IAS 38.
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Intangible assets relating to products in development, other intangible assets not available for use and intangible assets
having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are
recognized immediately in the consolidated income statement.
Amortization
Amortization is recognized in the consolidated income statement on a straight-line basis over the estimated useful lives of
intangible assets. Intangible assets that are not available for use are amortized from the date they are available for use.
The estimated
useful lives are as follows:
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Trademarks
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3 - 12 years
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Product related intangibles
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5 - 15 years
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Customer-related intangibles
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1 - 11 years
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Technology related intangibles
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3 - 13 years
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Other intangibles
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3 - 15 years
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F-17
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
f. Goodwill and other intangible assets (continued)
The amortization period and the amortization method for intangible assets with a finite
useful life are reviewed at each reporting date.
De-recognition
of intangible assets
Intangible assets are
de-recognized
either on their disposal or where no future
economic benefits are expected from their use. Losses arising on such
de-recognition
are recorded in the consolidated income statement, and are measured as the difference between the net disposal proceeds, if
any, and the carrying amount of respective intangible assets as on the date of
de-recognition.
g. Leases
At the inception of each lease, the lease arrangement is classified as either a finance lease or an operating
lease, based on the substance of the lease arrangement.
Finance leases
A finance lease is recognized as an asset and a liability at the commencement of the lease, at the lower of the fair value of
the asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalized and, subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
Operating leases
Other leases are operating leases, and the leased assets are not recognized on the Companys statements of financial
position. Payments made under operating leases are recognized in the consolidated income statement on a straight-line basis over the term of the lease.
Operating lease incentives received from the landlord are recognized as a reduction of rental expense on a straight line basis
over the lease term.
h. Inventories
Inventories consist of raw materials, stores and spares, work in progress and finished goods and are measured at the lower of
cost and net realizable value. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case of finished goods and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering
spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and selling expenses.
The factors that the Company considers in determining the allowance for slow moving, obsolete and
other
non-saleable
inventory include estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors
impact the Companys business and markets. The Company considers all these factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
i. Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired.
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its
carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an
available-for-sale
financial asset is calculated by reference to its fair value.
Significant financial assets are tested for impairment on an individual basis. All impairment losses/(reversals of impairment
losses) are recognized in the consolidated income statement.
F-18
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
i. Impairment (continued)
When the fair value of
available-for-sale
financial assets declines below acquisition cost and there is objective evidence that the asset is impaired, the cumulative loss that has been recognized in OCI is transferred to the
consolidated income statement. An impairment loss may be reversed in subsequent periods, if the indicators for the impairment no longer exist. Such reversals are recognized in OCI.
Non-financial
assets
The carrying amounts of the Companys
non-financial
assets, other than inventories
and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. For goodwill and intangible assets that
have indefinite lives or that are not yet available for use, an impairment test is performed each year at March 31.
The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of its value in use and its fair
value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the cash-generating unit).
The goodwill
acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognized in the consolidated income statement if the estimated recoverable amount of an asset or its
cash-generating unit is lower than its carrying amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount
of the other assets in the unit on a
pro-rata
basis.
An impairment loss in
respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been recognized. Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and therefore is not tested for impairment separately. Instead,
the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.
An impairment loss in respect of equity accounted investee is measured by comparing the recoverable amount of investment with
its carrying amount. An impairment loss is recognized in the consolidated income statement, and reversed if there has been a favorable change in the estimates used to determine the recoverable amount.
j. Employee benefits
Short-term employee
benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for
the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Defined contribution plans
The Companys contributions to defined contribution plans are charged to the consolidated income statement as and when the
services are received from the employees.
F-19
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
j. Employee benefits (continued)
Defined benefit plans
The liability in respect of defined benefit plans and other post-employment benefits is calculated using the projected unit
credit method consistent with the advice of qualified actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit obligation. In countries where there is no deep market in such bonds, the market rates on
government bonds are used. The current service cost of the defined benefit plan, recognized in the consolidated income statement in employee benefit expense, reflects the increase in the defined benefit obligation resulting from employee service in
the current year, benefit changes, curtailments and settlements. Past service costs are recognized immediately in the consolidated income statement. The net interest cost is calculated by applying the discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the consolidated income statement. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to equity in OCI in the period in which they arise.
When the benefits under a plan are changed or
when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in the consolidated income statement. The Company recognizes gains or losses on the settlement of a
defined benefit plan obligation when the settlement occurs.
Termination benefits
Termination benefits are recognized as an expense in the consolidated income statement when the Company is demonstrably
committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.
Termination benefits for voluntary redundancies are recognized as an expense in the consolidated income statement if the Company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of
acceptances can be estimated reliably.
Other long-term employee benefits
The Companys net obligation in respect of other long term employee benefits is the amount of future benefit that
employees have earned in return for their service in the current and previous periods. That benefit is discounted to determine its present value.
Re-measurements
are recognized in the consolidated income
statement in the period in which they arise.
Compensated absences
The Companys current policies permit certain categories of its employees to accumulate and carry forward a portion of
their unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof in accordance with the terms of such policies. The Company measures the expected cost of accumulating compensated absences as the additional
amount that the Company incurs as a result of the unused entitlement that has accumulated at the statements of financial position date. Such measurement is based on actuarial valuation as at the statements of financial position date carried out by a
qualified actuary.
Share-based payment transactions
The grant date fair value of options granted to employees is recognized as an employee expense in the consolidated income
statement, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and
non-market
performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and
non-market
performance conditions at the vesting date. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity
recognized in connection with share based payment transaction is presented as a separate component in equity under share based payment reserve. The amount recognized as an expense is adjusted to reflect the actual number of stock options
that vest.
The fair value of the amount payable to employees in respect of share based payment transactions which are
settled in cash is recognized as an expense in the consolidated income statement, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is
re-measured
at each reporting date and at the settlement date based on the fair value of the share based payment transaction. Any changes in the liability are recognized in the consolidated income statement.
F-20
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
k. Provisions
A provision is recognized in the consolidated income statement if, as a result of a past event, the Company has a present legal
or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a
pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognized as a finance cost.
Restructuring
A provision for restructuring is recognized in the consolidated income statement when the Company has approved a detailed and
formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided.
Onerous
contracts
A provision for onerous contracts is recognized in the consolidated income statement when the expected
benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and
the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.
Reimbursement rights
Expected reimbursements for expenditures required to settle a provision are recognized in the consolidated income statement
only when receipt of such reimbursements is virtually certain. Such reimbursements are recognized as a separate asset in the statement of financial position, with a corresponding credit to the specific expense for which the provision has been made.
l. Revenue
Sale of goods
Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the
consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods
includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer.
Revenue from sales of generic products in India is recognized upon delivery of products to distributors by clearing and
forwarding agents of the Company. Significant risks and rewards in respect of ownership of generic products are transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding
agents are generally compensated on a commission basis as a percentage of sales made by them. Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognized on delivery of products to customers (generally
formulation manufacturers), from the factories of the Company.
Revenue from export sales and other sales outside of India
is recognized when the significant risks and rewards of ownership of products are transferred to the customers, which occurs upon delivery of the products to the customers unless the terms of the applicable contract provide for specific revenue
generating activities to be completed, in which case revenue is recognized once all such activities are completed.
Profit share revenues
The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in
certain markets. Under such arrangements, the Company sells its products to the business partners at a
non-refundable
base purchase price agreed upon in the arrangement and is also entitled to a profit share
which is over and above the base purchase price. The profit share is typically dependent on the business partners ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the
arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.
Revenue in an amount equal to the base purchase price is recognized in these transactions upon delivery of products to the
business partners. An additional amount representing the profit share component is recognized as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profit share
becomes probable and a reliable measurement of the profit share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profit
share revenue to be recognized for each period, the Company uses all available information and evidence, including any confirmations from the business partner of the profit share amount owed to the Company, to the extent made available before the
date the Companys Board of Directors authorizes the issuance of its financial statements for the applicable period.
F-21
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
l. Revenue (continued)
Milestone payments and out licensing arrangements
Revenues include amounts derived from product
out-licensing
agreements. These
arrangements typically consist of an initial
up-front
payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the
agreement.
Non-refundable
up-front
license fees received in connection with product
out-licensing
agreements are deferred and
recognized over the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognized as revenues either on achievement of such milestones, if the
milestones are considered substantive, or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are
deferred and released over the period in which the royalties are anticipated to be paid.
Provision for chargeback, rebates and discounts
Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and
recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the difference between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the
Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers/other customers and estimated inventory holding by the
wholesaler.
Shelf stock adjustments
Shelf stock adjustments are credits issued to customers to reflect decreases in the selling price of products sold by the
Company, and are accrued when the prices of certain products decline as a result of increased competition upon the expiration of limited competition or exclusivity periods. These credits are customary in the pharmaceutical industry, and are intended
to reduce the customer inventory cost to better reflect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifically limit the age of
the stock on which a credit would be offered.
Sales Returns
The Company accounts for sales returns accrual by recording an allowance for sales returns concurrent with the recognition of
revenue at the time of a product sale. This allowance is based on the Companys estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined
primarily by the Companys historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution
channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Companys business and markets. With respect to new
products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either
by the Company or the Companys competitors.
Services
Revenue from services rendered, which primarily relate to contract research, is recognized in the consolidated income statement
as the underlying services are performed. Upfront
non-refundable
payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are
expected to be performed.
Export entitlements
Export entitlements from government authorities are recognized in the consolidated income statement as a reduction from
Cost of Revenues when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the
relevant export proceeds.
m. Shipping and handling costs
Shipping and handling costs incurred to transport products to customers, and internal transfer costs incurred to transport the
products from the Companys factories to its various points of sale, are included in selling, general and administrative expenses.
F-22
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
n. Finance income and expense
Finance income consists of interest income on funds invested (including
available-for-sale
financial assets), dividend income and gains on the disposal of
available-for-sale
financial assets. Interest
income is recognized in the consolidated income statement as it accrues, using the effective interest method. Dividend income is recognized in the consolidated income statement on the date that the Companys right to receive payment is
established. The associated cash flows are classified as investing activities in the statement of cash flows. Finance expenses consist of interest expense on loans and borrowings.
Borrowing costs are recognized in the consolidated income statement using the effective interest method. The associated cash
flows are classified as financing activities in the statement of cash flows.
Foreign currency gains and losses are
reported on a net basis within finance income and expense. These primarily include: exchange differences arising on the settlement or translation of monetary items; changes in the fair value of derivative contracts that economically hedge monetary
assets and liabilities in foreign currencies and for which no hedge accounting is applied; and the ineffective portion of cash flow hedges.
o.
Income tax
Income tax expense consists of current and deferred tax. Income tax expense is recognized in the
consolidated income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred
tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized
for the following temporary differences:
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temporary differences on the initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit;
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temporary differences relating to investments in subsidiaries and jointly controlled entities to the extent
that it is probable that they will not reverse in the foreseeable future; and
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taxable temporary differences arising upon the initial recognition of goodwill.
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Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income
taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against
which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Any deferred tax asset or liability arising from deductible or taxable temporary differences in respect of unrealized
inter-company profit or loss on inventories held by the Company in different tax jurisdictions is recognized using the tax rate of the jurisdiction in which such inventories are held. Withholding tax arising out of payment of dividends to
shareholders under the Indian Income tax regulations is not considered as tax expense for the Company and all such taxes are recognized in the statement of changes in equity as part of the associated dividend payment.
p. Earnings per share
The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is
calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which includes all stock options granted to employees.
q. Government grants
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them will be
complied with, and the grants will be received. Government grants received in relation to assets are presented as a reduction to the carrying amount of the related asset. Grants related to income are deducted in reporting the related expense in the
consolidated income statement.
F-23
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
r. Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief executive officer of the Company is responsible for allocating resources and assessing performance of the operating segments and accordingly is identified as the chief operating decision maker.
s
.
Recent accounting pronouncements
Standards issued but not yet effective and not early adopted by the Company
IFRS 9, Financial instruments
In July 2014, the IASB issued the final version of IFRS 9, Financial instruments. IFRS 9 significantly differs from
IAS 39, Financial Instruments: Recognition and Measurement, and includes a logical model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially-reformed approach to
hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. The Company believes that the new Standard will materially impact the classification and measurement of the
Companys financial instruments, documentation relating to hedging financial exposures and recognition of certain fair value changes.
IFRS 15, Revenue from Contracts with Customers.
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The core principle of the guidance is
that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new
standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element
arrangements.
The new revenue recognition standard was issued with an effective date of January 1, 2017. However, in
April 2015, the IASB voted to defer the effective date of the new revenue recognition standard to January 1, 2018. Early application of the new standard is permitted. The Company is in the process of evaluating the impact of the new standard on
its consolidated financial statements.
IFRS 16, Leases
In January 2016, the IASB issued a new standard, IFRS 16, Leases. The new standard brings most leases
on-balance
sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the distinction between operating and
finance leases is retained. IFRS 16 supersedes IAS 17, Leases, and related interpretations and is effective for periods beginning on or after January 1, 2019. Earlier adoption of IFRS 16 is permitted if IFRS 15, Revenue from
Contracts with Customers, has also been applied.
The Company is currently in the process of evaluating the impact
of this new accounting standard on its consolidated financial statements.
IFRIC 22, Foreign Currency Transactions and Advance Consideration
In December 2016, the IASB issued IFRIC Interpretation 22, Foreign Currency Transactions and Advance Consideration,
which addresses the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. IFRIC Interpretation 22 is effective for annual reporting periods beginning on or after January 1, 2018. Earlier
application is permitted. The Company is currently in the process of evaluating the impact of this change in the accounting standard on its consolidated financial statements.
IFRIC 23, Uncertainty over Income Tax treatments
On June 7, 2017, the IFRS Interpretations Committee issued IFRIC 23, which clarifies how the recognition and measurement
requirements of IAS 12 Income taxes, are applied where there is uncertainty over income tax treatments.
IFRIC
23 explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over
whether that treatment will be accepted by the applicable tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of income in a tax return is an uncertain tax treatment if its
acceptability is uncertain under applicable tax law. The interpretation provides specific guidance in several areas where previously IAS 12 was silent. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty regarding
the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.
F-24
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
3. Significant accounting policies (continued)
s. Recent accounting pronouncements (continued)
The interpretation is effective for annual periods beginning on or after
January 1, 2019. Earlier application is permitted. An entity can, on initial application, elect to apply this interpretation either:
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retrospectively applying IAS 8, if possible without the use of hindsight; or
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retrospectively, with the cumulative effect of initially applying the interpretation recognized at the date of
initial application as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate).
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The Company is in the process of evaluating the impact of IFRIC 23 on the consolidated financial statements and the period of
adoption.
t. Share capital
Ordinary
shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares and stock options are recognized as a deduction from equity, net of any tax effects.
When shares recognized as
equity are repurchased, the amount of consideration paid, which includes costs that are directly attributable, is recognized as a deduction from equity.
4. Determination of fair values
The Companys accounting policies and disclosures require the determination of fair value, for certain financial and
non-financial
assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to that asset or liability.
(i) Property, plant and equipment
Property, plant and equipment, if acquired in a business combination or through an exchange of
non-monetary
assets, is measured at fair value on the acquisition date. For this purpose, fair value is based on appraised market values and replacement cost.
(ii) Intangible assets
The fair value of brands, technology related intangibles, and patents and trademarks acquired in a business combination is
based on the discounted estimated royalty payments that have been avoided as a result of these brands, technology related intangibles, patents or trademarks being owned (the relief of royalty method). The fair value of customer related,
product related and other intangibles acquired in a business combination has been determined using the multi-period excess earnings method after deduction of a fair return on other assets that are part of creating the related cash flows.
(iii) Inventories
The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the
ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
(iv) Investments in equity and debt securities and units of mutual funds
The fair value of
available-for-sale
marketable
equity and debt securities is determined by reference to their quoted market price at the reporting date. For debt securities where quoted market prices are not available, fair value is determined using pricing techniques such as discounted cash
flow analysis.
In respect of investments in mutual funds, the fair values represent net asset value as stated by the
issuers of these mutual fund units in the published statements. Net asset values represent the price at which the issuer will issue further units in the mutual fund and the price at which issuers will redeem such units from the investors.
Accordingly, such net asset values are analogous to fair market value with respect to these investments, as transactions of
these mutual funds are carried out at such prices between investors and the issuers of these units of mutual funds.
F-25
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
4. Determination of fair values (continued)
(v) Derivatives
The fair value of foreign exchange forward contracts is estimated by discounting the difference between the contractual forward
price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of foreign currency option and swap contracts and interest rate swap contracts is determined
based on the appropriate valuation techniques, considering the terms of the contract.
(vi)
Non-derivative
financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present
value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. In respect of the
Companys borrowings that have floating rates of interest, their fair value approximates carrying value.
(vii) Share-based payment
transactions
The fair value of employee stock options is measured using the Black-Scholes-Merton valuation model.
Measurement inputs include share price on grant date, exercise price of the instrument, expected volatility (based on weighted average historical volatility), expected life of the instrument (based on historical experience), expected dividends, and
the risk free interest rate (based on government bonds).
F-26
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
5. Segment reporting
The Chief Operating Decision Maker (CODM) evaluates the Companys performance and allocates resources based on
an analysis of various performance indicators by operating segments. The CODM reviews revenue and gross profit as the performance indicator for all of the operating segments, and does not review the total assets and liabilities of an operating
segment. The Chief Executive Officer is the CODM of the Company.
The Companys reportable operating segments are as
follows:
|
|
|
Pharmaceutical Services and Active Ingredients (PSAI); and
|
Global Generics.
This segment consists of the Companys business of manufacturing and marketing
prescription and
over-the-counter
finished pharmaceutical products ready for consumption by the patient, marketed under a brand name (branded formulations) or as generic
finished dosages with therapeutic equivalence to branded formulations (generics). This segment includes the operations of the Companys biologics business.
Pharmaceutical Services and Active Ingredients
. This segment consists of the Companys business of
manufacturing and marketing active pharmaceutical ingredients and intermediates, also known as API or bulk drugs, which are the principal ingredients for finished pharmaceutical products. Active pharmaceutical ingredients and
intermediates become finished pharmaceutical products when the dosages are fixed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes the Companys contract
research services business and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the specific customer requirements.
Proprietary Products.
This segment consists of the Companys business that focuses on the research,
development, and manufacture of differentiated formulations. These products fall within the dermatology and neurology therapeutic areas and are marketed and sold through Promius
®
Pharma, LLC.
Others.
This includes the
operations of the Companys wholly-owned subsidiary, Aurigene
Discovery Technologies Limited, a discovery stage biotechnology company developing novel and
best-in-class
therapies in the fields of oncology and inflammation and which
works with established pharmaceutical and biotechnology companies in early-stage collaborations, bringing drug candidates from hit generation to
pre-clinical
development.
The measurement of each segments revenues, expenses and assets is consistent with the accounting policies that are used
in preparation of the Companys consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
about segments:
|
|
For the Year Ended March 31,
|
|
Reportable
|
|
Global Generics
|
|
|
PSAI
|
|
|
Proprietary Products
|
|
segments
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Revenues
(1) (2)
|
|
Rs.
|
115,409
|
|
|
Rs.
|
128,062
|
|
|
Rs.
|
119,397
|
|
|
Rs.
|
21,277
|
|
|
Rs.
|
22,379
|
|
|
Rs.
|
25,456
|
|
|
Rs.
|
2,363
|
|
|
Rs.
|
2,659
|
|
|
Rs.
|
2,172
|
|
Gross profit
|
|
Rs.
|
71,079
|
|
|
Rs.
|
84,427
|
|
|
Rs.
|
77,569
|
|
|
Rs.
|
4,473
|
|
|
Rs.
|
4,931
|
|
|
Rs.
|
5,709
|
|
|
Rs.
|
1,951
|
|
|
Rs.
|
2,217
|
|
|
Rs.
|
1,796
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income)/expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance (expense)/income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Continued on next page]
F-27
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
5. Segment reporting (continued)
[Continued from above table, first column repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about segments:
|
|
For the Year Ended March 31,
|
|
Reportable segments
|
|
Others
|
|
|
Total
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Revenues
(1) (2)
|
|
Rs.
|
1,760
|
|
|
Rs.
|
1,608
|
|
|
Rs.
|
1,164
|
|
|
Rs.
|
140,809
|
|
|
Rs.
|
154,708
|
|
|
Rs.
|
148,189
|
|
Gross profit
|
|
Rs.
|
853
|
|
|
Rs.
|
706
|
|
|
Rs.
|
329
|
|
|
Rs.
|
78,356
|
|
|
Rs.
|
92,281
|
|
|
Rs.
|
85,403
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,372
|
|
|
|
45,702
|
|
|
|
42,585
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,551
|
|
|
|
17,834
|
|
|
|
17,449
|
|
Other (income)/expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,065
|
)
|
|
|
(874
|
)
|
|
|
(917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
13,498
|
|
|
Rs.
|
29,619
|
|
|
Rs.
|
26,286
|
|
Finance (expense)/income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
806
|
|
|
|
(2,708
|
)
|
|
|
1,682
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349
|
|
|
|
229
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
14,653
|
|
|
Rs.
|
27,140
|
|
|
Rs.
|
28,163
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,614
|
|
|
|
7,127
|
|
|
|
5,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
12,039
|
|
|
Rs.
|
20,013
|
|
|
Rs.
|
22,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Revenues for the year ended March 31, 2017 do not include inter-segment revenues from PSAI to Global
Generics which is accounted for at a cost of Rs.6,181 (as compared to Rs.5,447 and Rs.6,904 for the years ended March 31, 2016 and 2015, respectively).
|
(2)
|
During the three months ended June 30, 2015, there
was a change in the monitoring of performance of one product from the Global Generics segment to the Proprietary Products segment. Consequently, revenues and gross profit from such product for the year ended March 31, 2015 have been
reclassified to conform to the change.
|
Analysis of revenues by geography:
The following table shows the distribution of the Companys revenues by country, based on the location of the customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
Country
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
India
|
|
Rs.
|
24,927
|
|
|
Rs.
|
23,913
|
|
|
Rs.
|
21,158
|
|
United States
|
|
|
69,816
|
|
|
|
81,154
|
|
|
|
69,840
|
|
Russia
|
|
|
11,547
|
|
|
|
10,640
|
|
|
|
14,922
|
|
Others
|
|
|
34,519
|
|
|
|
39,001
|
|
|
|
42,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
140,809
|
|
|
Rs.
|
154,708
|
|
|
Rs.
|
148,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of revenues within the Global Generics segment:
An analysis of revenues by therapeutic areas in the Companys Global Generics segment is given below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Gastrointestinal
|
|
Rs.
|
21,190
|
|
|
Rs.
|
21,253
|
|
|
Rs.
|
21,524
|
|
Oncology
|
|
|
17,054
|
|
|
|
19,410
|
|
|
|
19,459
|
|
Cardiovascular
|
|
|
15,553
|
|
|
|
19,009
|
|
|
|
17,569
|
|
Pain Management
|
|
|
14,323
|
|
|
|
16,240
|
|
|
|
16,591
|
|
Central Nervous System
|
|
|
12,749
|
|
|
|
14,739
|
|
|
|
14,935
|
|
Anti-Infective
|
|
|
7,189
|
|
|
|
12,711
|
|
|
|
8,393
|
|
Others
|
|
|
27,351
|
|
|
|
24,700
|
|
|
|
20,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
115,409
|
|
|
Rs.
|
128,062
|
|
|
Rs.
|
119,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
5. Segment reporting (continued)
Analysis of revenues within the PSAI segment:
An analysis of revenues by therapeutic areas in the Companys PSAI segment is given below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Cardiovascular
|
|
Rs.
|
5,078
|
|
|
Rs.
|
5,077
|
|
|
Rs.
|
4,695
|
|
Pain Management
|
|
|
3,290
|
|
|
|
4,085
|
|
|
|
3,793
|
|
Central Nervous System
|
|
|
2,758
|
|
|
|
3,021
|
|
|
|
2,800
|
|
Anti-Infective
|
|
|
1,859
|
|
|
|
2,015
|
|
|
|
2,338
|
|
Dermatology
|
|
|
1,606
|
|
|
|
1,485
|
|
|
|
1,234
|
|
Oncology
|
|
|
1,534
|
|
|
|
2,570
|
|
|
|
4,274
|
|
Others
|
|
|
5,152
|
|
|
|
4,126
|
|
|
|
6,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
21,277
|
|
|
Rs.
|
22,379
|
|
|
Rs.
|
25,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of assets by geography:
The following table shows the distribution of the Companys
non-current
assets
(other than financial instruments and deferred tax assets) by country, based on the location of assets:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
Country
|
|
2017
|
|
|
2016
|
|
India
|
|
Rs.
|
57,997
|
|
|
Rs.
|
54,987
|
|
Switzerland
|
|
|
31,543
|
|
|
|
6,576
|
|
United States
|
|
|
8,660
|
|
|
|
7,519
|
|
Germany
|
|
|
3,220
|
|
|
|
4,200
|
|
Others
|
|
|
6,213
|
|
|
|
6,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
107,633
|
|
|
Rs.
|
79,914
|
|
|
|
|
|
|
|
|
|
|
The following table shows the distribution of the Companys property, plant and equipment
including capital work in progress and intangible assets acquired during the year (other than goodwill arising on business combination) by country, based on the location of assets:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
March 31,
|
|
Country
|
|
2017
|
|
|
2016
|
|
India
|
|
Rs.
|
10,545
|
|
|
Rs.
|
19,389
|
|
Switzerland
|
|
|
26,639
|
|
|
|
2,325
|
|
United States
|
|
|
2,657
|
|
|
|
1,019
|
|
Others
|
|
|
728
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
40,569
|
|
|
Rs.
|
23,319
|
|
|
|
|
|
|
|
|
|
|
Analysis of depreciation and amortization, included in cost of revenues, by reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Global Generics
|
|
Rs.
|
3,381
|
|
|
Rs.
|
2,742
|
|
|
Rs.
|
2,044
|
|
PSAI
|
|
|
2,674
|
|
|
|
2,437
|
|
|
|
2,034
|
|
Proprietary Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
62
|
|
|
|
62
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
6,117
|
|
|
Rs.
|
5,241
|
|
|
Rs.
|
4,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about major customers
Revenues from one of the customers of the Companys Global Generics segment were Rs.22,760, representing 16% of the
Companys total revenues, for the year ended March 31, 2017.
Revenues from two of the customers of the
Companys Global Generics segment were Rs.21,600 and Rs.15,998, representing 14% and 10%, respectively, of the Companys total revenues, for the year ended March 31, 2016.
F-29
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
6.
|
Acquisition of select products portfolio of UCB
|
On April 1, 2015, the Company entered into a definitive agreement with UCB India Private Limited and other UCB group
companies (together referred to as UCB) to acquire a select portfolio of products business in the territories of India, Nepal, Sri Lanka and Maldives. The transaction included approximately 350 employees engaged in operations of the
acquired India business. The acquisition was expected to strengthen the Companys presence in the areas of dermatology, respiratory and pediatric products.
The total purchase consideration was Rs.8,000, payable in cash. The acquisition was closed on June 16, 2015. The Company
has accounted for the transaction under IFRS 3, Business Combinations, and allocated the aggregate purchase consideration as follows:
|
|
|
|
|
Particulars
|
|
Amount
|
|
Total consideration
|
|
Rs.
|
8,000
|
|
Identifiable assets acquired
|
|
|
|
|
Property, plant and equipment
|
|
|
6
|
|
Other intangible assets:
|
|
|
|
|
Product related intangibles
|
|
|
6,734
|
|
Marketing rights
|
|
|
743
|
|
Current assets, net of current liabilities assumed
|
|
|
194
|
|
|
|
|
|
|
Total identifiable net assets
|
|
Rs.
|
7,677
|
|
Goodwill
|
|
Rs.
|
323
|
|
The total goodwill of Rs.323 is attributable primarily to the acquired employee workforce,
intangible assets that do not qualify for separate recognition and the expected synergies. The entire amount of goodwill is deductible for tax purposes.
Acquisition related costs of Rs.9 were excluded from the consideration transferred and were recognized as expense under
Selling, general and administrative expenses in the consolidated income statement for the year ended March 31, 2016.
Current assets, net of current liabilities assumed, includes trade receivables of Rs.118, which were expected to be fully
recoverable.
Out of the total purchase consideration of Rs.8,000, the Company has paid Rs.7,936 to UCB as of
March 31, 2017.
F-30
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
7. Property, plant and equipment
The following is a summary of the changes in carrying value of property, plant and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Land
|
|
|
Buildings
|
|
|
Plant and
equipment
|
|
|
Computer
equipment
|
|
|
Furniture,
fixtures and
office
equipment
|
|
|
Vehicles
|
|
|
Total
|
|
Gross carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2015
|
|
Rs.
|
3,789
|
|
|
Rs.
|
16,505
|
|
|
Rs.
|
46,940
|
|
|
Rs.
|
2,003
|
|
|
Rs.
|
2,148
|
|
|
Rs.
|
626
|
|
|
Rs.
|
72,011
|
|
Acquisitions through business
combinations
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Other additions
|
|
|
24
|
|
|
|
2,402
|
|
|
|
7,890
|
|
|
|
372
|
|
|
|
208
|
|
|
|
186
|
|
|
|
11,082
|
|
Disposals
|
|
|
(7
|
)
|
|
|
(3
|
)
|
|
|
(651
|
)
|
|
|
(144
|
)
|
|
|
(105
|
)
|
|
|
(33
|
)
|
|
|
(943
|
)
|
Effect of changes in foreign exchange rates
|
|
|
8
|
|
|
|
191
|
|
|
|
214
|
|
|
|
9
|
|
|
|
14
|
|
|
|
(2
|
)
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2016
|
|
Rs.
|
3,814
|
|
|
Rs.
|
19,095
|
|
|
Rs.
|
54,393
|
|
|
Rs.
|
2,246
|
|
|
Rs.
|
2,265
|
|
|
Rs.
|
777
|
|
|
Rs.
|
82,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2016
|
|
Rs.
|
3,814
|
|
|
Rs.
|
19,095
|
|
|
Rs.
|
54,393
|
|
|
Rs.
|
2,246
|
|
|
Rs.
|
2,265
|
|
|
Rs.
|
777
|
|
|
Rs.
|
82,590
|
|
Acquisitions through business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other additions
|
|
|
98
|
|
|
|
2,395
|
|
|
|
9,090
|
|
|
|
566
|
|
|
|
205
|
|
|
|
96
|
|
|
|
12,450
|
|
Disposals
|
|
|
|
|
|
|
(34
|
)
|
|
|
(521
|
)
|
|
|
(70
|
)
|
|
|
(19
|
)
|
|
|
(120
|
)
|
|
|
(764
|
)
|
Effect of changes in foreign exchange rates
|
|
|
(44
|
)
|
|
|
(165
|
)
|
|
|
(533
|
)
|
|
|
(15
|
)
|
|
|
(23
|
)
|
|
|
(2
|
)
|
|
|
(782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
Rs.
|
3,868
|
|
|
Rs.
|
21,291
|
|
|
Rs.
|
62,429
|
|
|
Rs.
|
2,727
|
|
|
Rs.
|
2,428
|
|
|
Rs.
|
751
|
|
|
Rs.
|
93,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2015
|
|
Rs.
|
|
|
|
Rs.
|
3,472
|
|
|
Rs.
|
23,158
|
|
|
Rs.
|
1,308
|
|
|
Rs.
|
1,796
|
|
|
Rs.
|
306
|
|
|
Rs.
|
30,040
|
|
Depreciation for the year
|
|
|
|
|
|
|
763
|
|
|
|
5,341
|
|
|
|
325
|
|
|
|
243
|
|
|
|
108
|
|
|
|
6,780
|
|
Impairment loss
(2)
|
|
|
|
|
|
|
20
|
|
|
|
46
|
|
|
|
23
|
|
|
|
4
|
|
|
|
1
|
|
|
|
94
|
|
Disposals
|
|
|
|
|
|
|
(0
|
)
|
|
|
(615
|
)
|
|
|
(108
|
)
|
|
|
(100
|
)
|
|
|
(25
|
)
|
|
|
(848
|
)
|
Effect of changes in foreign exchange rates
|
|
|
|
|
|
|
47
|
|
|
|
52
|
|
|
|
5
|
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2016
|
|
Rs.
|
|
|
|
Rs.
|
4,302
|
|
|
Rs.
|
27,982
|
|
|
Rs.
|
1,553
|
|
|
Rs.
|
1,953
|
|
|
Rs.
|
389
|
|
|
Rs.
|
36,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2016
|
|
Rs.
|
|
|
|
Rs.
|
4,302
|
|
|
Rs.
|
27,982
|
|
|
Rs.
|
1,553
|
|
|
Rs.
|
1,953
|
|
|
Rs.
|
389
|
|
|
Rs.
|
36,179
|
|
Depreciation for the year
|
|
|
|
|
|
|
896
|
|
|
|
5,971
|
|
|
|
378
|
|
|
|
231
|
|
|
|
120
|
|
|
|
7,596
|
|
Impairment loss
|
|
|
38
|
|
|
|
214
|
|
|
|
69
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
331
|
|
Disposals
|
|
|
|
|
|
|
(23
|
)
|
|
|
(499
|
)
|
|
|
(67
|
)
|
|
|
(14
|
)
|
|
|
(116
|
)
|
|
|
(719
|
)
|
Effect of changes in foreign exchange rates
|
|
|
|
|
|
|
(71
|
)
|
|
|
(298
|
)
|
|
|
(13
|
)
|
|
|
(24
|
)
|
|
|
(1
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
Rs.
|
38
|
|
|
Rs.
|
5,318
|
|
|
Rs.
|
33,225
|
|
|
Rs.
|
1,861
|
|
|
Rs.
|
2,146
|
|
|
Rs.
|
392
|
|
|
Rs.
|
42,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at April 1, 2015
|
|
Rs.
|
3,789
|
|
|
Rs.
|
13,033
|
|
|
Rs.
|
23,782
|
|
|
Rs.
|
695
|
|
|
Rs.
|
352
|
|
|
Rs.
|
320
|
|
|
Rs.
|
41,971
|
|
As at March 31, 2016
|
|
Rs.
|
3,814
|
|
|
Rs.
|
14,793
|
|
|
Rs.
|
26,411
|
|
|
Rs.
|
693
|
|
|
Rs.
|
312
|
|
|
Rs.
|
388
|
|
|
Rs.
|
46,411
|
|
Add: Capital-work-in-progress
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
7,550
|
|
Total as at March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
53,961
|
|
As at March 31, 2017
|
|
Rs.
|
3,830
|
|
|
Rs.
|
15,973
|
|
|
Rs.
|
29,204
|
|
|
Rs.
|
866
|
|
|
Rs.
|
282
|
|
|
Rs.
|
359
|
|
|
Rs.
|
50,514
|
|
Add:
Capital-work-in-progress
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
6,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as at March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
57,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Acquisitions through business combinations were on
account of the Companys acquisition of a select portfolio of products from UCB. Refer to Note 6 of these consolidated financial statements for further details.
|
(2)
|
Impairment loss pertains to the assets forming part of
the Companys Venezuelan subsidiary. Refer to Note 39 of these consolidated financial statements for further details.
|
Impairment losses recorded for the year ended March 31, 2017
During the three months ended March 31, 2017, the Company witnessed a significant decline in the expected cash flows of
some of the products forming part of a cash generating unit (CGU) under its Global Generics segment. Consequently, the Company, following the guidance under IAS 36 Impairment of assets, determined that the estimated
recoverable amount of the CGU is lower than its carrying cost. Accordingly, an amount of Rs.335 (including Rs.4 towards
capital-work-in-progress)
was recorded as an
impairment during the quarter ended March 31, 2017. Such impairment charge was recorded under cost of revenues.
The recoverable amounts of the above cash generating units have been assessed using a
value-in-use
model. Key assumptions upon which the Company has based its determinations of
value-in-use
include:
|
a)
|
Estimated cash flows for the remaining useful life, based on managements budgets.
|
|
b)
|
the terminal value is considered to be zero.
|
|
c)
|
The
post-tax
discount rates used are based on the Companys
weighted average cost of capital. The
post-tax
discount rates used was 6.68%. The
pre-tax
discount rates was 9.02%.
|
Capital commitments
As
of March 31, 2017 and 2016, the Company was committed to spend Rs.5,256 and Rs.5,065, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.
F-31
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
7. Property, plant and equipment (continued)
Interest capitalization
During the years ended March 31, 2017 and 2016, the Company capitalized interest cost of Rs.65 and Rs.51, respectively,
with respect to qualifying assets. The rate for capitalization of interest cost for the years ended March 31, 2017 and 2016 was approximately 2.14% and 2.07%, respectively.
Assets acquired under finance leases
Property, plant and equipment include Rs.511 and Rs.637 of assets acquired (net of accumulated depreciation) under finance
leases as of March 31, 2017 and 2016, respectively.
8. Goodwill
Goodwill arising upon business acquisitions is not amortized but tested for impairment at least annually or more frequently if
there is any indication that the cash generating unit to which goodwill is allocated is impaired.
The following table
presents the changes in goodwill during the years ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Opening balance, gross
(1)
|
|
Rs.
|
20,122
|
|
|
Rs.
|
19,654
|
|
Goodwill arising on business combinations during the year
(2) (3)
|
|
|
10
|
|
|
|
323
|
|
Effect of translation adjustments
|
|
|
(106
|
)
|
|
|
145
|
|
Impairment loss
(4)
|
|
|
(16,274
|
)
|
|
|
(16,274
|
)
|
|
|
|
|
|
|
|
|
|
Closing balance
(1)
|
|
Rs.
|
3,752
|
|
|
Rs.
|
3,848
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This does not include goodwill arising upon investment in an associate of Rs.181, which is included in the
carrying value of the investment in equity accounted investees.
|
(2)
|
Rs.10 as of March 31, 2017 represents goodwill arising from the acquisition of Imperial Credit Private
Limited.
|
(3)
|
Rs.323 as of March 31, 2016 represents goodwill arising from the acquisition of a select portfolio of
products business from UCB during the three months ended June 30, 2015. Refer to Note 6 of these consolidated financial statements for further details.
|
(4)
|
The impairment loss of Rs.16,274 includes Rs.16,003 pertaining to the Companys German subsidiary,
betapharm Arzneimittel GmbH, which is part of the Companys Global Generics segment. This impairment loss was recorded during the years ended March 31, 2009 and 2010.
|
For the purpose of impairment testing, goodwill is allocated to a cash generating unit, representing the lowest level within
the Company at which goodwill is monitored for internal management purposes and which is not higher than the Companys operating segment.
The carrying amount of goodwill (other than those arising upon investment in an associate) was allocated to cash generating
units as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
PSAI-Active Pharmaceutical Operations
|
|
Rs.
|
997
|
|
|
Rs.
|
997
|
|
Global Generics-Complex Injectables
|
|
|
1,148
|
|
|
|
1,249
|
|
Global Generics-North America Operations
|
|
|
995
|
|
|
|
998
|
|
Global Generics-Branded Formulations
|
|
|
491
|
|
|
|
491
|
|
Others
|
|
|
121
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,752
|
|
|
Rs.
|
3,848
|
|
|
|
|
|
|
|
|
|
|
The recoverable amounts of the above cash generating units have been assessed using a
value-in-use
model. Value in use is generally calculated as the net present value of the projected
post-tax
cash flows plus a terminal
value of the cash generating unit to which the goodwill is allocated. Initially a
post-tax
discount rate is applied to calculate the net present value of the
post-tax
cash flows. Key assumptions upon which the Company has based its determinations of
value-in-use
include:
|
a)
|
Estimated cash flows for five years, based on managements budgets.
|
|
b)
|
A terminal value arrived at by extrapolating the last forecasted year cash flows to perpetuity, using a
constant long-term growth rate of 0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector.
|
F-32
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
8. Goodwill (continued)
|
c)
|
The after tax discount rates used are based on the Companys weighted average cost of capital.
|
|
d)
|
The after tax discount rates used range from 6.68% to 12.76% for various cash generating units. The
pre-tax
discount rates range from 9.02% to 22.29%.
|
The Company
believes that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.
9. Other intangible assets
The following is a summary of changes in the carrying value of intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
with finite
useful life
|
|
|
Product
related
intangibles
|
|
|
Technology
related
intangibles
|
|
|
Customer
related
intangibles
|
|
|
Others
|
|
|
Total
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2015
|
|
Rs.
|
9,349
|
|
|
Rs.
|
27,623
|
|
|
Rs.
|
1,593
|
|
|
Rs.
|
1,165
|
|
|
Rs.
|
952
|
|
|
Rs.
|
40,682
|
|
Acquisitions through business combinations
(1)
|
|
|
|
|
|
|
6,734
|
|
|
|
|
|
|
|
|
|
|
|
743
|
|
|
|
7,477
|
|
Other additions
|
|
|
|
|
|
|
1,554
|
|
|
|
1,158
|
|
|
|
|
|
|
|
596
|
|
|
|
3,308
|
|
De-recognitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
(132
|
)
|
Effect of changes in foreign exchange rates
|
|
|
829
|
|
|
|
1,829
|
|
|
|
96
|
|
|
|
67
|
|
|
|
4
|
|
|
|
2,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2016
|
|
Rs.
|
10,178
|
|
|
Rs.
|
37,740
|
|
|
Rs.
|
2,847
|
|
|
Rs.
|
1,100
|
|
|
Rs.
|
2,295
|
|
|
Rs.
|
54,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2016
|
|
Rs.
|
10,178
|
|
|
Rs.
|
37,740
|
|
|
Rs.
|
2,847
|
|
|
Rs.
|
1,100
|
|
|
Rs.
|
2,295
|
|
|
Rs.
|
54,160
|
|
Acquisitions through business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other additions
(2)
|
|
|
1,148
|
|
|
|
27,419
|
|
|
|
27
|
|
|
|
|
|
|
|
611
|
|
|
|
29,205
|
|
De-recognitions
(3)
|
|
|
(32
|
)
|
|
|
(269
|
)
|
|
|
|
|
|
|
(706
|
)
|
|
|
(124
|
)
|
|
|
(1,131
|
)
|
Effect of changes in foreign exchange rates
|
|
|
(617
|
)
|
|
|
(2,265
|
)
|
|
|
(230
|
)
|
|
|
(37
|
)
|
|
|
(19
|
)
|
|
|
(3,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
Rs.
|
10,677
|
|
|
Rs.
|
62,625
|
|
|
Rs.
|
2,644
|
|
|
Rs.
|
357
|
|
|
Rs.
|
2,763
|
|
|
Rs.
|
79,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization/impairment loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2015
|
|
Rs.
|
6,688
|
|
|
Rs.
|
18,413
|
|
|
Rs.
|
960
|
|
|
Rs.
|
1,118
|
|
|
Rs.
|
453
|
|
|
Rs.
|
27,632
|
|
Amortization for the year
|
|
|
504
|
|
|
|
2,414
|
|
|
|
254
|
|
|
|
11
|
|
|
|
287
|
|
|
|
3,470
|
|
Impairment loss
|
|
|
|
|
|
|
174
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
194
|
|
De-recognitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
(132
|
)
|
Effect of changes in foreign exchange rates
|
|
|
494
|
|
|
|
1,598
|
|
|
|
39
|
|
|
|
68
|
|
|
|
1
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2016
|
|
Rs.
|
7,686
|
|
|
Rs.
|
22,599
|
|
|
Rs.
|
1,253
|
|
|
Rs.
|
1,085
|
|
|
Rs.
|
741
|
|
|
Rs.
|
33,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2016
|
|
Rs.
|
7,686
|
|
|
Rs.
|
22,599
|
|
|
Rs.
|
1,253
|
|
|
Rs.
|
1,085
|
|
|
Rs.
|
741
|
|
|
Rs.
|
33,364
|
|
Amortization for the year
|
|
|
578
|
|
|
|
2,304
|
|
|
|
443
|
|
|
|
15
|
|
|
|
341
|
|
|
|
3,681
|
|
Impairment loss
|
|
|
32
|
|
|
|
40
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
De-recognitions
(3)
|
|
|
(32
|
)
|
|
|
(269
|
)
|
|
|
|
|
|
|
(706
|
)
|
|
|
(124
|
)
|
|
|
(1,131
|
)
|
Effect of changes in foreign exchange rates
|
|
|
(457
|
)
|
|
|
(1,215
|
)
|
|
|
(159
|
)
|
|
|
(37
|
)
|
|
|
(15
|
)
|
|
|
(1,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
Rs.
|
7,807
|
|
|
Rs.
|
23,459
|
|
|
Rs.
|
1,575
|
|
|
Rs.
|
357
|
|
|
Rs.
|
943
|
|
|
Rs.
|
34,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at April 1, 2015
|
|
Rs.
|
2,661
|
|
|
Rs.
|
9,210
|
|
|
Rs.
|
633
|
|
|
Rs.
|
47
|
|
|
Rs.
|
499
|
|
|
Rs.
|
13,050
|
|
As at March 31, 2016
|
|
Rs.
|
2,492
|
|
|
Rs.
|
15,141
|
|
|
Rs.
|
1,594
|
|
|
Rs.
|
15
|
|
|
Rs.
|
1,554
|
|
|
Rs.
|
20,796
|
|
As at March 31, 2017
|
|
Rs.
|
2,870
|
|
|
Rs.
|
39,166
|
|
|
Rs.
|
1,069
|
|
|
Rs.
|
|
|
|
Rs.
|
1,820
|
|
|
Rs.
|
44,925
|
|
(1)
|
Acquisitions through business combinations were on account of the Companys acquisition of a select
portfolio of products from UCB. Refer to Note 6 of these consolidated financial statements for further details.
|
(2)
|
Other additions during the year ended March 31, 2017 primarily consists of: (a) Rs.23,366,
representing the consideration paid to Teva Pharmaceutical Industries Limited to acquire eight Abbreviated New Drug Applications (ANDAs) in the United States (refer to Note 42 of these consolidated financial statements for further
details); and (b) Rs.3,159, representing the consideration for the acquisition from XenoPort, Inc. of exclusive U.S. rights for the development and commercialization of a clinical stage oral new chemical entity (refer to Note 40 of these
consolidated financial statements for further details).
|
(3)
|
During the year ended March 31, 2017, the Company
derecognized certain intangible assets which were fully amortized and from which no future economic benefits were expected, either from use or from their disposal. Accordingly, an amount of Rs.1,131 was reduced both from gross carrying amount and
accumulated amortization.
|
F-33
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
9. Other intangible assets (continued)
In-process
research and development assets:
Tabulated below is the reconciliation of amounts relating to
in-process
research and
development assets as at the beginning and at the end of the year:
|
|
|
|
|
|
|
|
|
Particulars
|
|
Year Ended
March 31, 2017
|
|
|
Year Ended
March 31, 2016
|
|
Opening balance at the beginning of the year
|
|
Rs.
|
1,096
|
|
|
Rs.
|
203
|
|
Add
: Additions during the
year
(1)
|
|
|
26,858
|
|
|
|
1,035
|
|
Less
: Capitalizations during the year
|
|
|
|
|
|
|
(102
|
)
|
Less
: Impairments during the
year
(2)
|
|
|
(38
|
)
|
|
|
(100
|
)
|
Effect of changes in exchange rates
|
|
|
(766
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
Closing balance at the year end
|
|
Rs.
|
27,150
|
|
|
Rs.
|
1,096
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Additions during the year ended March 31, 2017
primarily consists of:
|
|
a.
|
Rs.23,366, representing the consideration paid to Teva Pharmaceutical Industries Limited to acquire eight
Abbreviated New Drug Applications (ANDAs) in the United States (refer to Note 42 of these consolidated financial statements for further details); and
|
|
b.
|
Rs.3,159, representing the consideration for the acquisition from XenoPort, Inc. of exclusive U.S. rights for
the development and commercialization of a clinical stage oral new chemical entity (refer to Note 40 of these consolidated financial statements for further details).
|
(2)
|
Refer to Impairment losses recorded for the year
ended March 31, 2017 in this Note 9 for further details
|
Asset held for sale
During the three months ended December 31, 2016, the management of the Company decided to and committed to a plan to sell
certain intangible assets forming part of the Companys Global Generics business. Accordingly, these assets have been disclosed as Assets held for sale as on December 31, 2016.
However, during the three months ended March 31, 2017, the proposed arrangement to sell the intangible assets did not
take place and, subsequently, the Company discontinued its plans to sell these intangible assets. Accordingly, the aforesaid intangible assets cease to be classified as held for sale.
Amortization of other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Selling, general and administrative expenses
|
|
Rs.
|
3,198
|
|
|
Rs.
|
3,262
|
|
|
Rs.
|
2,326
|
|
Cost of revenues
|
|
|
300
|
|
|
|
110
|
|
|
|
|
|
Research and development expenses
|
|
|
183
|
|
|
|
98
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,681
|
|
|
Rs.
|
3,470
|
|
|
Rs.
|
2,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining useful life of intangibles was 8.6 years as at March 31, 2017.
Interest capitalization
During the year ended March 31, 2017, the Company capitalized interest cost of Rs.258 with respect to certain qualifying
assets. The rate for capitalization of interest cost ranged from 0.91% to 2.14%.
F-34
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
9. Other intangibles (continued)
Impairment loss on other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Selling, general and administrative expenses
|
|
Rs.
|
72
|
|
|
Rs.
|
61
|
|
|
Rs.
|
509
|
|
Research and development expenses
|
|
|
38
|
|
|
|
133
|
|
|
|
120
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
110
|
|
|
Rs.
|
194
|
|
|
Rs.
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses recorded for the year ended March 31, 2017
In-process
research and development (IPR&D) intangibles
As a result of the Companys decision to discontinue further development of certain IPR&D assets pertaining to its
Proprietary Products segment and PSAI segment, Rs.27 and Rs.11, respectively, were recorded as impairment loss for the year ended March 31, 2017 under Research and development expenses in the consolidated income statement.
Others
The balance impairment loss of Rs.72 pertains to a write down of certain brands and product related intangibles forming part
of the Companys Global Generics segment. The same was recorded under Selling, general and administrative expenses in the consolidated income statement.
Impairment losses recorded for the year ended March 31, 2016
In-process
research and development (IPR&D) intangibles
As a result of the Companys decision to discontinue further development of certain IPR&D assets pertaining to its
Proprietary Products segment and Global Generics segment, Rs.100 and Rs.33, respectively, was recorded as impairment loss for the year ended March 31, 2016 under Research and development expenses in the consolidated income
statement.
Others
The balance impairment loss of Rs.61 pertains to a write down of certain customer and product related intangibles forming part
of the Companys Global Generics segment, which was recorded under Selling, general and administrative expenses in the consolidated income statement.
Impairment losses recorded for the year ended March 31, 2015
For the year ended March 31, 2015, the Company recorded impairment losses of Rs.629 in the consolidated income statement,
primarily relating to the following:
Customer related intangibles
Since its acquisition during the year ended March 31, 2013, OctoPlus B.V., a wholly owned subsidiary of the Company, has
been engaged in the Companys internal drug development projects as well as providing pharmaceutical development services to external customers.
During the year ended March 31, 2015, the Company decided to significantly increase the utilization of OctoPlus
B.V.s technical
know-how,
its time and effort on internal drug development projects and scale-down its external pharmaceutical development services. As a result of such decision, the Company reassessed
the recoverable amounts of associated customer related intangibles and determined that the carrying amount of such customer related intangibles was higher than their recoverable amount. Accordingly, Rs.249 was recorded as an impairment loss for the
year ended March 31, 2015 under Selling, general and administrative expenses in the consolidated income statement.
The above impairment loss relate to the Companys PSAI segment. As at March 31, 2015, the carrying amount of such
customer related intangibles after impairment loss was Rs.0.
Product related intangibles
Based on the performance of and expected cash flows from some of the Companys product related intangibles pertaining to
its Global Generics segment, the Company reassessed the recoverable amounts of such product related intangibles and determined that the carrying amount of such product-related intangibles was higher than their recoverable amount. Accordingly, Rs.201
was recorded as an impairment loss for the year ended March 31, 2015 under Selling, general and administrative expenses in the consolidated income statement. As at March 31, 2015, the carrying amount of such product related
intangibles after impairment loss was Rs.0.
In-process
research and
development (IPR&D) intangibles
Due to the Companys decision to discontinue further development
of certain IPR&D assets pertaining to its Proprietary Products segment, Rs.95 was recorded as impairment loss for the year ended March 31, 2015 under research and development expenses in the consolidated income statement.
F-35
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
10. Investment in equity accounted investees
Kunshan Rotam Reddy Pharmaceuticals Co. Limited (Reddy Kunshan) is engaged in manufacturing and marketing of
formulations in China. The Companys interest in Reddy Kunshan was 51.3% as of March 31, 2017 and 2016. Three directors of the Company are on the board of Reddy Kunshan, which consists of seven directors. Under the terms of the joint
venture agreement, all major decisions with respect to operating activities, significant financing and other activities are taken by the approval of at least five of the seven directors of Reddy Kunshans board. As the Company does not control
Reddy Kunshans board and the other partners have significant participation rights, the Companys interest in Reddy Kunshan has been accounted for under the equity method of accounting under IFRS 11.
Summary financial information of Reddy Kunshan, as translated into the reporting currency of the Company and not adjusted for
the percentage ownership held by the Company, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of/for the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Ownership
|
|
|
51.3
|
%
|
|
|
51.3
|
%
|
|
|
51.3
|
%
|
Total current assets
|
|
Rs.
|
3,385
|
|
|
Rs.
|
2,876
|
|
|
Rs.
|
2,090
|
|
Total
non-current
assets
|
|
|
296
|
|
|
|
377
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
Rs.
|
3,681
|
|
|
Rs.
|
3,253
|
|
|
Rs.
|
2,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Rs.
|
2,603
|
|
|
Rs.
|
2,129
|
|
|
Rs.
|
1,656
|
|
Total current liabilities
|
|
|
1,078
|
|
|
|
1,124
|
|
|
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities
|
|
Rs.
|
3,681
|
|
|
Rs.
|
3,253
|
|
|
Rs.
|
2,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
Rs.
|
4,980
|
|
|
Rs.
|
4,246
|
|
|
Rs.
|
3,377
|
|
Expenses
|
|
|
4,295
|
|
|
|
3,800
|
|
|
|
2,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
Rs.
|
685
|
|
|
Rs.
|
446
|
|
|
Rs.
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys share of profits in Reddy Kunshan for the years ended March 31, 2017,
2016 and 2015 was Rs.351, Rs.229 and Rs.195, respectively. The carrying value of the Companys investment in Reddy Kunshan as of March 31, 2017 and 2016 was Rs.1,519 and Rs.1,309, respectively. The translation adjustment arising out of
translation of foreign currency balances amounted to Rs.97 and Rs.239 as of March 31, 2017 and 2016, respectively.
11. Other investments
Other investments consist of investments in units of mutual funds, equity securities and term deposits (i.e., certificates of
deposit having an original maturity period exceeding 3 months) with banks. The details of such investments as of March 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Gain recognized
directly in equity
|
|
|
Fair value
|
|
Investment in units of mutual funds
|
|
Rs.
|
9,677
|
|
|
Rs.
|
1,464
|
|
|
Rs.
|
11,141
|
|
Investment in equity securities
(1)
|
|
|
2,703
|
|
|
|
2,260
|
|
|
|
4,963
|
|
Term deposits with banks
|
|
|
3,403
|
|
|
|
|
|
|
|
3,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
15,783
|
|
|
Rs.
|
3,724
|
|
|
Rs.
|
19,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
9,464
|
|
|
Rs.
|
1,417
|
|
|
Rs.
|
10,881
|
|
Term deposits with banks
|
|
|
3,389
|
|
|
|
|
|
|
|
3,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
12,853
|
|
|
Rs.
|
1,417
|
|
|
Rs.
|
14,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
213
|
|
|
Rs.
|
47
|
|
|
Rs.
|
260
|
|
Investment in equity securities
(1)
|
|
|
2,703
|
|
|
|
2,260
|
|
|
|
4,963
|
|
Term deposits with banks
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
2,930
|
|
|
Rs.
|
2,307
|
|
|
Rs.
|
5,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily represents the shares of Curis, Inc. Refer to
Note 32 of these consolidated financial statements for further details.
|
F-36
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
11. Other investments (continued)
As of March 31, 2016, the details of such investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Gain recognized
directly in equity
|
|
|
Fair value
|
|
Investment in units of mutual funds
|
|
Rs.
|
21,335
|
|
|
Rs.
|
1,223
|
|
|
Rs.
|
22,558
|
|
Investment in equity securities
(1)
|
|
|
1,458
|
|
|
|
293
|
|
|
|
1,751
|
|
Term deposits with banks
|
|
|
12,713
|
|
|
|
|
|
|
|
12,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
35,506
|
|
|
Rs.
|
1,516
|
|
|
Rs.
|
37,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
21,122
|
|
|
Rs.
|
1,199
|
|
|
Rs.
|
22,321
|
|
Term deposits with banks
|
|
|
12,713
|
|
|
|
|
|
|
|
12,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
33,835
|
|
|
Rs.
|
1,199
|
|
|
Rs.
|
35,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
213
|
|
|
Rs.
|
24
|
|
|
Rs.
|
237
|
|
Investment in equity securities
(1)
|
|
|
1,458
|
|
|
|
293
|
|
|
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
1,671
|
|
|
Rs.
|
317
|
|
|
Rs.
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily represents the shares of Curis, Inc. Refer to
Note 32 of these consolidated financial statements for further details.
|
12. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials
|
|
Rs.
|
7,226
|
|
|
Rs.
|
5,769
|
|
Packing materials, stores and spares
|
|
|
2,315
|
|
|
|
2,057
|
|
Work-in-progress
|
|
|
6,614
|
|
|
|
7,049
|
|
Finished goods
|
|
|
12,374
|
|
|
|
10,703
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
28,529
|
|
|
Rs.
|
25,578
|
|
|
|
|
|
|
|
|
|
|
The above table includes inventories of Rs.624 and Rs.730, which were carried at fair value
less cost to sell as at March 31, 2017 and 2016, respectively.
During the years ended March 31, 2017, 2016 and
2015, the Company recorded inventory write-downs of Rs.3,085, Rs.2,746 and Rs.3,635, respectively. These adjustments were included in cost of revenues.
Cost of revenues for the years ended March 31, 2017, 2016 and 2015 includes raw materials, consumables and changes in
finished goods and work in progress recognized in the income statement of Rs.30,250, Rs.33,051 and Rs.36,806, respectively. Cost of revenues for the years ended March 31, 2017, 2016 and 2015 includes other expenditures recognized in the income
statement of Rs.32,203 Rs.29,376 and Rs.25,980, respectively.
13. Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current
|
|
|
|
|
|
|
|
|
Trade and other receivables, gross
|
|
Rs.
|
38,926
|
|
|
Rs.
|
42,095
|
|
Less: Allowance for doubtful trade and other receivables
|
|
|
(861
|
)
|
|
|
(789
|
)
|
|
|
|
|
|
|
|
|
|
Trade and other receivables, net
|
|
Rs.
|
38,065
|
|
|
Rs.
|
41,306
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Trade and other receivables,
gross
(1)
|
|
Rs.
|
206
|
|
|
Rs.
|
|
|
Less: Allowance for doubtful trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables, net
|
|
Rs.
|
206
|
|
|
Rs.
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents amounts receivable pursuant to an
out-licensing
arrangement with a customer. As these amounts are not expected to be realized with in twelve months from the end of the reporting date, they are disclosed as
non-current.
|
F-37
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
13. Trade and other receivables (continued)
The Company maintains an allowance for impairment of doubtful accounts based
on financial condition of the customer, aging of the customer accounts receivable and historical experience of collections from customers. The activity in the allowance for impairment of trade account receivables is given below:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance at the beginning of the year
|
|
Rs.
|
789
|
|
|
Rs.
|
667
|
|
Provision for doubtful trade and other receivables, net
|
|
|
138
|
|
|
|
137
|
|
Trade and other receivables written off and exchange differences
|
|
|
(66
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
Rs.
|
861
|
|
|
Rs.
|
789
|
|
|
|
|
|
|
|
|
|
|
14. Other assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current
|
|
|
|
|
|
|
|
|
Balances and receivables from statutory authorities
(1)
|
|
Rs.
|
4,151
|
|
|
Rs.
|
4,059
|
|
Export benefits receivable
(2)
|
|
|
3,521
|
|
|
|
3,239
|
|
Prepaid expenses
|
|
|
712
|
|
|
|
679
|
|
Others
|
|
|
3,586
|
|
|
|
3,033
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
11,970
|
|
|
Rs.
|
11,010
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Deposits
|
|
Rs.
|
651
|
|
|
Rs.
|
620
|
|
Others
|
|
|
332
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
983
|
|
|
Rs.
|
1,063
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balances and receivables from statutory authorities
primarily consist of amounts receivable from the excise, value added tax and customs authorities of India and the unutilized excise input credits on purchases. These are regularly utilized to offset the Indian excise and service tax liability on
goods produced by and services provided by the Company. Accordingly, these balances have been classified as current assets.
|
(2)
|
Export benefits receivables primarily consist of amounts
receivable from various government authorities of India towards incentives on export sales made by the Company.
|
15. Cash and cash
equivalents
Cash and cash equivalents consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash balances
|
|
Rs.
|
3
|
|
|
Rs.
|
2
|
|
Balances with banks
|
|
|
1,131
|
|
|
|
1,642
|
|
Term deposits with banks (original maturities up to 3 months)
|
|
|
2,732
|
|
|
|
3,277
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents in the statement of financial position
|
|
|
3,866
|
|
|
|
4,921
|
|
Bank overdrafts used for cash management purposes
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents in the statement of cash flow
|
|
Rs.
|
3,779
|
|
|
Rs.
|
4,921
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents included restricted cash of Rs.177 and Rs.257 respectively, as of
March 31, 2017 and March 31, 2016, which consisted of:
|
|
|
Rs.64 as of March 31, 2017 and Rs.62 as of March 31, 2016, representing amounts in the
Companys unclaimed dividend and debenture interest accounts;
|
|
|
|
Rs.38 as of March 31, 2017 and Rs.124 as of March 31, 2016, representing cash and cash equivalents
of the Companys subsidiary in Venezuela, which are subject to foreign exchange controls (refer to Note 39 of these consolidated financial statements for further details);
|
|
|
|
Rs.49 as of March 31, 2017 and Rs.0 as of March 31, 2016, representing the portion of the purchase
consideration deposited in an escrow account, pursuant to an acquisition of an intangible asset; and
|
|
|
|
Rs.26 as of March 31, 2017 and Rs.71 as of March 31, 2016, representing other restricted cash
amounts.
|
F-38
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
16. Equity
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Par value per share
|
|
Rs.
|
5
|
|
|
Rs.
|
5
|
|
Authorized share capital
|
|
|
1,200
|
|
|
|
1,200
|
|
Fully paid up share capital
|
|
|
|
|
|
|
|
|
As at April 1
|
|
Rs.
|
853
|
|
|
Rs.
|
852
|
|
Add: Shares issued on exercise of stock options
|
|
|
1
|
|
|
|
1
|
|
Less: Buyback of equity shares
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31
|
|
Rs.
|
829
|
|
|
Rs.
|
853
|
|
|
|
|
|
|
|
|
|
|
The Company presently has only one class of equity shares. For all matters submitted to vote
in a shareholders meeting of the Company, every holder of an equity share, as reflected in the records of the Company as on the record date set for the shareholders meeting, shall have one vote in respect of each share held.
Should the Company declare and pay any dividends, such dividends will be paid in Indian rupees to each holder of equity shares
in proportion to the number of shares held to the total equity shares outstanding as on that date. Indian law on foreign exchange governs the remittance of dividends outside India.
In the event of liquidation of the Company, all preferential amounts, if any, shall be discharged by the Company. The
remaining assets of the Company shall be distributed to the holders of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date.
Final dividends on equity shares (including dividend tax on distribution of such dividends) are recorded as a liability on the
date of their approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Companys Board of Directors. The Company paid dividends of Rs.3,312, Rs.3,411 and Rs.3,067 and dividend distribution
tax thereon of Rs.78, Rs.695 and Rs.520 during the years ended March 31, 2017, 2016 and 2015, respectively. The dividend paid per share was Rs.20, Rs.20 and Rs.18 during the years ended March 31, 2017, 2016 and 2015, respectively.
Buyback of equity shares
The Board of Directors of the Company, in their meeting held on February 17, 2016, approved a proposal to buy back equity
shares of the Company, subject to approval by the Companys shareholders, for an aggregate amount not exceeding Rs.15,694 and at a price not exceeding Rs.3,500 per equity share. The plan involved the purchase of such shares from shareholders of
the Company (including persons who become shareholders by cancelling American Depository Shares and receiving underlying equity shares, and excluding the promoters and promoter group of the Company) under the open market route in accordance with the
provisions contained in the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made thereunder. The shares bought back under this plan were required to be extinguished in
accordance with the provisions of the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made thereunder.
The Companys shareholders approved the buyback plan on April 1, 2016, and implementation of the buyback plan
commenced on April 18, 2016 and ended on June 28, 2016.
Under this plan, the Company bought back and
extinguished 5,077,504 equity shares for an aggregate purchase price of Rs.15,694. The aggregate face value of the equity shares bought back was Rs.25.
Proposed dividend
At the
Companys Board of Directors meeting held on May 12, 2017, the Board proposed a dividend of Rs.20 per share and aggregating to Rs.3,315, which is subject to the approval of the Companys shareholders. Upon such approval, there
will be an additional cash outflow of Rs.675 for payment of dividend distribution tax thereon.
F-39
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
17. Earnings per share
The calculation of basic and diluted earnings per share for the years ended March 31, 2017, 2016 and 2015 was based on the
profit attributable to equity shareholders of Rs.12,039, Rs.20,013 and Rs.22,179, respectively.
The weighted average
number of equity shares outstanding, used for calculating the basic earnings per share, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Issued equity shares as on April 1
|
|
|
170,607,653
|
|
|
|
170,381,174
|
|
|
|
170,108,868
|
|
Effect of shares issued on exercise of stock options
|
|
|
126,277
|
|
|
|
166,469
|
|
|
|
205,638
|
|
Effect of buyback of equity shares
|
|
|
(4,084,987
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of equity shares at March 31
|
|
|
166,648,943
|
|
|
|
170,547,643
|
|
|
|
170,314,506
|
|
Earnings per share Basic
|
|
Rs.
|
72.24
|
|
|
Rs.
|
117.34
|
|
|
Rs.
|
130.22
|
|
The weighted average number of equity shares outstanding, used for calculating the diluted
earnings per share, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Weighted average number of equity shares (Basic)
|
|
|
166,648,943
|
|
|
|
170,547,643
|
|
|
|
170,314,506
|
|
Dilutive effect of stock options outstanding
|
|
|
348,733
|
|
|
|
525,137
|
|
|
|
618,927
|
|
Weighted average number of equity shares (Diluted)
|
|
|
166,997,675
|
|
|
|
171,072,780
|
|
|
|
170,933,433
|
|
Earnings per share Diluted
|
|
|
Rs. 72.09
|
|
|
|
Rs. 116.98
|
|
|
|
Rs. 129.75
|
|
18. Loans and borrowings
Short term borrowings
The Company had net short term borrowings of Rs.43,539 as of March 31, 2017, as compared to Rs.22,718 as of March 31,
2016. The borrowings primarily consist of packing credit loans drawn by the parent company and other unsecured loans drawn by Dr. Reddys Laboratories SA (one of the Companys subsidiaries in Switzerland) (the Swiss
Subsidiary) and OOO Dr. Reddys Laboratories Limited (one of the Companys subsidiaries in Russia).
Short term borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Packing credit borrowings
|
|
|
Rs. 18,699
|
|
|
|
Rs. 20,896
|
|
Other foreign currency borrowings
|
|
|
24,840
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs. 43,539
|
|
|
|
Rs. 22,718
|
|
|
|
|
|
|
|
|
|
|
The interest rate profile of short term borrowings from banks is given below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Currency
|
|
|
Interest Rate
|
|
|
Currency
|
|
|
Interest Rate
|
|
Packing credit borrowings
|
|
|
USD
|
|
|
|
LIBOR + (30) to 1 bps
|
|
|
|
USD
|
|
|
|
LIBOR + (5) to 15 bps
|
|
|
|
|
USD
|
|
|
|
0.01%
|
|
|
|
|
|
|
|
|
|
|
|
|
INR
|
|
|
|
T-Bill
+ 30bps
|
|
|
|
EURO
|
|
|
|
LIBOR + 5 to 7.5 bps
|
|
|
|
|
INR
|
|
|
|
6.92% to 6.95%
|
|
|
|
|
|
|
|
|
|
|
|
|
RUB
|
|
|
|
9.95%
|
|
|
|
RUB
|
|
|
|
10.65% to 11.57%
|
|
Other foreign currency borrowings
|
|
|
USD
|
|
|
|
LIBOR + 40 to 60 bps
|
|
|
|
USD
|
|
|
|
LIBOR + 40 bps
|
|
|
|
|
RUB
|
|
|
|
10.48%
|
|
|
|
|
|
|
|
|
|
Short-term borrowing by Swiss Subsidiary
During the three months ended September 30, 2016, the Swiss Subsidiary borrowed U.S.$350 from certain institutional
lenders at an interest rate ranging from Libor plus 0.45% to 0.60% per annum. The borrowing was solely for the purpose of the acquisition of eight Abbreviated New Drug Applications (ANDAs) from Teva Pharmaceutical Industries Limited in
the United States (refer to Note 42 of these consolidated financial statements for additional details).
F-40
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
18. Loans and borrowings (continued)
Long term borrowings
Long term borrowings, measured at amortized cost, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As at March 31
|
|
|
|
2017
|
|
|
2016
|
|
Foreign currency borrowing by the parent company
|
|
Rs.
|
4,852
|
|
|
Rs.
|
9,938
|
|
Obligations under finance leases
|
|
|
707
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
5,559
|
|
|
Rs.
|
10,795
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
|
|
Obligations under finance leases
|
|
Rs.
|
110
|
|
|
Rs.
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
110
|
|
|
Rs.
|
110
|
|
|
|
|
|
|
|
|
|
|
Non-current
portion
|
|
|
|
|
|
|
|
|
Foreign currency borrowing by the parent company
|
|
Rs.
|
4,852
|
|
|
Rs.
|
9,938
|
|
Obligations under finance leases
|
|
|
597
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
5,449
|
|
|
Rs.
|
10,685
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loan of the parent company
During the year ended March 31, 2014, the Company borrowed the sum of U.S.$150. The Company was required to repay the loan
in five equal quarterly installments commencing at the end of the 54th month and continuing until the end of the 66th month from August 12, 2013.
During the three months ended December 31, 2016, the Company entered into a financing arrangement with certain financial
institutions to refinance the aforementioned borrowing of U.S.$150.
The Company repaid U.S.$75 of this loan on
November 28, 2016, and is required to repay the U.S.$75 balance of the loan in 3 equal installments at the end of the 40th month, 43rd month and 46th month after the date the loan was made.
The loan agreement imposes various financial covenants on the Company. As of March 31, 2017, the Company was in compliance
with such financial covenants.
Undrawn lines of credit from bankers
The Company had undrawn lines of credit of Rs.21,156 and Rs.14,771 as of March 31, 2017 and 2016, respectively, from its
banks for working capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements.
Non-derivative
financial liabilities designated as cash flow hedges
The Company has
designated some of its foreign currency borrowings from banks
(non-derivative
financial liabilities) as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted
transactions and, accordingly, applies cash flow hedge accounting for such relationships.
Re-measurement
gain/loss on such
non-derivative
financial liabilities is
recorded in the Companys hedging reserve as a component of equity and
re-classified
to the consolidated income statement as revenue in the period corresponding to the occurrence of the forecasted
transactions. The carrying value of such
non-derivative
financial liabilities as of March 31, 2017 and March 31, 2016 was Rs.0 and Rs.3,644, respectively.
The interest rate profiles of long-term borrowings (other than obligations under finance leases) as at March 31, 2017 and
2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Currency
|
|
|
Interest Rate
|
|
|
Currency
|
|
|
Interest Rate
|
|
Foreign currency borrowings
|
|
|
USD
|
|
|
|
LIBOR + 82.7 bps
|
|
|
|
USD
|
|
|
|
LIBOR + 125 bps
|
|
The aggregate maturities of long term loans and borrowings, based on contractual maturities,
as of March 31, 2017 were as follows:
F-41
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
18. Loans and borrowings (continued)
Long term borrowings (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in the year ending
March 31,
|
|
Foreign
currency loan
|
|
|
Obligations under
finance leases
|
|
|
Total
|
|
2018
|
|
Rs.
|
|
|
|
Rs.
|
110
|
|
|
Rs.
|
110
|
|
2019
|
|
|
|
|
|
|
56
|
|
|
|
56
|
|
2020
|
|
|
1,610
|
|
|
|
51
|
|
|
|
1,661
|
|
2021
|
|
|
3,242
|
|
|
|
53
|
|
|
|
3,295
|
|
2022
|
|
|
|
|
|
|
57
|
|
|
|
57
|
|
Thereafter
|
|
|
|
|
|
|
380
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
4,852
|
|
|
Rs.
|
707
|
|
|
Rs.
|
5,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate maturities of long term loans and borrowings, based on contractual maturities,
as of March 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in the year ending
March 31,
|
|
Foreign
currency loan
|
|
|
Obligations under
finance leases
|
|
|
Total
|
|
2017
|
|
Rs.
|
|
|
|
Rs.
|
110
|
|
|
Rs.
|
110
|
|
2018
|
|
|
1,988
|
|
|
|
101
|
|
|
|
2,089
|
|
2019
|
|
|
7,950
|
|
|
|
59
|
|
|
|
8,009
|
|
2020
|
|
|
|
|
|
|
54
|
|
|
|
54
|
|
2021
|
|
|
|
|
|
|
58
|
|
|
|
58
|
|
Thereafter
|
|
|
|
|
|
|
475
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
9,938
|
|
|
Rs.
|
857
|
|
|
Rs.
|
10,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under finance leases
The Company has leased buildings, plant and machinery and vehicles under finance leases. Future minimum lease payments under
finance leases as at March 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Present value
of minimum lease
payments
|
|
|
Interest
|
|
|
Future minimum
lease payments
|
|
Not later than one year
|
|
Rs.
|
110
|
|
|
Rs.
|
77
|
|
|
Rs.
|
187
|
|
Between one and five years
|
|
|
217
|
|
|
|
149
|
|
|
|
366
|
|
More than five years
|
|
|
380
|
|
|
|
84
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
707
|
|
|
Rs.
|
310
|
|
|
Rs.
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments under finance leases as at March 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Present value of
minimum lease
payments
|
|
|
Interest
|
|
|
Future minimum
lease payments
|
|
Not later than one year
|
|
Rs.
|
110
|
|
|
Rs.
|
106
|
|
|
Rs.
|
216
|
|
Between one and five years
|
|
|
272
|
|
|
|
203
|
|
|
|
475
|
|
More than five years
|
|
|
475
|
|
|
|
125
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
857
|
|
|
Rs.
|
434
|
|
|
Rs.
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19. Employee benefits
Gratuity benefits provided by the parent company
In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the
Gratuity Plan) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the
respective employees last drawn salary and the years of employment with the Company. Effective September 1, 1999, the Company established the Dr. Reddys Laboratories Gratuity Fund (the Gratuity Fund) to fund the
Gratuity Plan. Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts
contributed to the Gratuity Fund are invested in bonds issued by the Government of India and in debt securities and equity securities of Indian companies.
F-42
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
19. Employee benefits (continued)
The components of gratuity cost recognized in the income statement for the
years ended March 31, 2017, 2016 and 2015 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current service cost
|
|
Rs.
|
221
|
|
|
Rs.
|
177
|
|
|
Rs.
|
148
|
|
Interest on net defined benefit liability/(asset)
|
|
|
14
|
|
|
|
2
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gratuity cost recognized in income statement
|
|
Rs.
|
235
|
|
|
Rs.
|
179
|
|
|
Rs.
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of the employee benefits obligations and plan assets are provided below:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Present value of funded obligations
|
|
Rs.
|
1,840
|
|
|
Rs.
|
1,540
|
|
Fair value of plan assets
|
|
|
(1,687
|
)
|
|
|
(1,303
|
)
|
|
|
|
|
|
|
|
|
|
Net defined benefit liability recognized
|
|
Rs.
|
153
|
|
|
Rs.
|
237
|
|
|
|
|
|
|
|
|
|
|
Details of changes in the present value of defined benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Defined benefit obligations at the beginning of the year
|
|
Rs.
|
1,540
|
|
|
Rs.
|
1,236
|
|
Current service cost
|
|
|
221
|
|
|
|
177
|
|
Interest on defined obligations
|
|
|
114
|
|
|
|
93
|
|
Re-measurements
due to:
|
|
|
|
|
|
|
|
|
Actuarial loss/(gain) due to change in financial assumptions
|
|
|
30
|
|
|
|
35
|
|
Actuarial loss/(gain) due to demographic assumptions
|
|
|
(12
|
)
|
|
|
11
|
|
Actuarial loss/(gain) due to experience changes
|
|
|
62
|
|
|
|
106
|
|
Benefits paid
|
|
|
(115
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
Defined benefit obligations at the end of the year
|
|
Rs.
|
1,840
|
|
|
Rs.
|
1,540
|
|
|
|
|
|
|
|
|
|
|
Details of changes in the fair value of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Fair value of plan assets at the beginning of the year
|
|
Rs.
|
1,303
|
|
|
Rs.
|
1,157
|
|
Employer contributions
|
|
|
348
|
|
|
|
190
|
|
Interest on plan assets
|
|
|
99
|
|
|
|
91
|
|
Re-measurements
due to:
|
|
|
|
|
|
|
|
|
Return on plan assets excluding interest on plan assets
|
|
|
52
|
|
|
|
(17
|
)
|
Benefits paid
|
|
|
(115
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
Plan assets at the end of the year
|
|
Rs.
|
1,687
|
|
|
Rs.
|
1,303
|
|
|
|
|
|
|
|
|
|
|
Sensitivity Analysis:
|
|
|
|
|
|
|
As of March 31, 2017
|
|
Defined benefit obligation without effect of projected salary growth
|
|
Rs.
|
1,054
|
|
Add: Effect of salary growth
|
|
|
786
|
|
Defined benefit obligation with projected salary growth
|
|
|
1,840
|
|
Defined benefit obligation, using discount rate minus 50 basis points
|
|
|
1,911
|
|
Defined benefit obligation, using discount rate plus 50 basis points
|
|
|
1,774
|
|
Defined benefit obligation, using salary growth rate plus 50 basis points
|
|
|
1,910
|
|
Defined benefit obligation, using salary growth rate minus 50 basis points
|
|
|
1,774
|
|
F-43
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
19. Employee benefits (continued)
Summary of the actuarial assumptions:
The actuarial assumptions used in accounting for
the Gratuity Plan are as follows:
The assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
|
7.20%
|
|
7.80%
|
|
8.00%
|
Rate of compensation increase
|
|
7% per annum for the first year and 9% per annum thereafter
|
|
10% per annum for the first 2 years and 9% per annum thereafter
|
|
10% per annum for the first 2 years and 9% per annum thereafter
|
The assumptions used to determine gratuity cost:
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
|
7.80%
|
|
8.00%
|
|
9.00%
|
Rate of compensation increase
|
|
10% per annum for the first 2 years and 9% per annum thereafter
|
|
10% per annum for the first 2 years and 9% per annum thereafter
|
|
11% per annum for the first 2 years and 10% per annum thereafter
|
Contributions:
The Company expects to contribute Rs.153 to the Gratuity Plan during the
year ending March 31, 2018.
Disaggregation of plan assets:
The Gratuity Plans weighted-average asset
allocation as of March 31, 2017 and 2016, by asset category, was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Funds managed by insurers
|
|
|
99
|
%
|
|
|
99
|
%
|
Others
|
|
|
1
|
%
|
|
|
1
|
%
|
The expected future cash flows in respect of gratuity as at March 31, 2017 were as
follows:
|
|
|
|
|
Expected contribution
|
|
Amount
|
|
During the year ended March 31, 2018 (estimated)
|
|
Rs.
|
153
|
|
|
|
Expected future benefit payments
|
|
|
|
March 31, 2018
|
|
|
209
|
|
March 31, 2019
|
|
|
196
|
|
March 31, 2020
|
|
|
192
|
|
March 31, 2021
|
|
|
188
|
|
March 31, 2022
|
|
|
176
|
|
Thereafter
|
|
|
2,581
|
|
Pension plan of the Companys subsidiary, Industrias Quimicas Falcon de Mexico
All employees of the Companys Mexican subsidiary, Industrias Quimicas Falcon de Mexico (Falcon), are entitled
to a pension benefit in the form of a defined benefit pension plan. The Falcon pension plan provides for payment to vested employees at retirement or termination of employment. Liabilities in respect of the pension plan are determined by an
actuarial valuation, based on which the Company makes contributions to the pension plan fund. This fund is administered by a third party, who is provided guidance by a technical committee formed by senior employees of Falcon.
The components of net pension cost recognized in the income statement for the years ended March 31, 2017, 2016 and 2015
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current service cost
|
|
Rs.
|
13
|
|
|
Rs.
|
14
|
|
|
Rs.
|
13
|
|
Interest on net defined benefit liability/(asset)
|
|
|
12
|
|
|
|
11
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost recognized in income statement
|
|
Rs.
|
25
|
|
|
Rs.
|
25
|
|
|
Rs.
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
19. Employee benefits (continued)
Details of the employee benefits obligation and plan assets are provided
below:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Present value of funded obligations
|
|
Rs.
|
218
|
|
|
Rs.
|
249
|
|
Fair value of plan assets
|
|
|
(60
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
Net defined benefit liability recognized
|
|
Rs.
|
158
|
|
|
Rs.
|
188
|
|
|
|
|
|
|
|
|
|
|
Details of changes in the present value of defined benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Defined benefit obligations at the beginning of the year
|
|
Rs.
|
249
|
|
|
Rs.
|
252
|
|
Current service cost
|
|
|
13
|
|
|
|
14
|
|
Interest on defined obligations
|
|
|
17
|
|
|
|
17
|
|
Re-measurements
due to:
|
|
|
|
|
|
|
|
|
Actuarial loss/(gain) due to change in financial assumptions
|
|
|
(24
|
)
|
|
|
(7
|
)
|
Actuarial loss/(gain) due to demographic assumptions
|
|
|
0
|
|
|
|
7
|
|
Actuarial loss/(gain) due to experience changes
|
|
|
7
|
|
|
|
3
|
|
Benefits paid
|
|
|
(19
|
)
|
|
|
(22
|
)
|
Foreign exchange differences
|
|
|
(25
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Defined benefit obligations at the end of the year
|
|
Rs.
|
218
|
|
|
Rs.
|
249
|
|
|
|
|
|
|
|
|
|
|
Details of changes in the fair value of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Fair value of plan assets at the beginning of the year
|
|
Rs.
|
61
|
|
|
Rs.
|
68
|
|
Employer contributions
|
|
|
19
|
|
|
|
16
|
|
Interest on plan assets
|
|
|
6
|
|
|
|
6
|
|
Re-measurements
due to:
|
|
|
|
|
|
|
|
|
Return on plan assets excluding interest on plan assets
|
|
|
(0
|
)
|
|
|
(2
|
)
|
Benefits paid
|
|
|
(19
|
)
|
|
|
(22
|
)
|
Foreign exchange differences
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Plan assets at the end of the year
|
|
Rs.
|
60
|
|
|
Rs.
|
61
|
|
|
|
|
|
|
|
|
|
|
Sensitivity Analysis:
|
|
|
|
|
|
|
As of March 31, 2017
|
|
Defined benefit obligation without effect of projected salary growth
|
|
|
Rs. 139
|
|
Plus effect of salary growth
|
|
|
79
|
|
Defined benefit obligation with projected salary growth
|
|
|
218
|
|
Defined benefit obligation, using discount rate minus 50 basis points
|
|
|
229
|
|
Defined benefit obligation, using discount rate plus 50 basis points
|
|
|
208
|
|
Defined benefit obligation, using salary growth rate plus 50 basis points
|
|
|
230
|
|
Defined benefit obligation, using salary growth rate minus 50 basis points
|
|
|
207
|
|
Contributions:
The Company expects to contribute Rs.34 to the Falcon defined benefit plans during the
year ending March 31, 2018.
Summary of the actuarial assumptions:
The actuarial assumptions used in accounting for the Falcon
defined benefit plans are as follows:
Assumptions used to determine defined benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
8.75
|
%
|
|
|
7.75
|
%
|
|
|
7.50
|
%
|
Rate of compensation increase
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
F-45
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
19. Employee benefits (continued)
Assumptions used to determine defined benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
7.75
|
%
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
Rate of compensation increase
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
Plan assets:
The Falcon pension plans weighted-average asset allocation at March 31, 2017
and 2016, by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Corporate bonds
|
|
|
51
|
%
|
|
|
51
|
%
|
Others
|
|
|
49
|
%
|
|
|
49
|
%
|
The expected future cash flows in respect of post-employment benefit plans in Mexico as at March 31, 2017
were as follows:
|
|
|
|
|
Expected contribution
|
|
Amount
|
|
During the year ended March 31, 2018 (estimated)
|
|
|
Rs.34
|
|
|
|
Expected future benefit payments
|
|
|
|
March 31, 2018
|
|
|
2
|
|
March 31, 2019
|
|
|
4
|
|
March 31, 2020
|
|
|
6
|
|
March 31, 2021
|
|
|
8
|
|
March 31, 2022
|
|
|
11
|
|
Thereafter
|
|
|
572
|
|
Provident fund benefits
Certain categories of employees of the Company receive benefits from a provident fund, a defined contribution plan. Both the
employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employees qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The
Company contributed Rs.682, Rs.574 and Rs.492 to the provident fund plan during the years ended March 31, 2017, 2016 and 2015, respectively.
Superannuation benefits
Certain categories of employees of the Company participate in superannuation, a defined contribution plan administered by the
Life Insurance Corporation of India. The Company makes monthly contributions based on a specified percentage of each covered employees salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company
contributed Rs.79, Rs.71 and Rs.68 to the superannuation plan during the years ended March 31, 2017, 2016 and 2015, respectively.
Other
contribution plans
In the United States, the Company sponsors a defined contribution 401(k) retirement savings
plan for all eligible employees who meet minimum age and service requirements. The Company contributed Rs.231, Rs.204 and Rs.195 to the 401(k) retirement savings plan during the years ended March 31, 2017, 2016 and 2015, respectively. The
Company has no further obligations under the plan beyond its monthly matching contributions.
In the United Kingdom,
certain social security benefits (such as pension, unemployment and disability) are funded by employers and employees through mandatory National Insurance contributions. The contribution amounts are determined based upon the employees salary.
The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed Rs.134, Rs.156 and Rs.151 to the National Insurance during the years ended March 31, 2017, 2016 and 2015, respectively.
Compensated absences
The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry
forward a portion of the unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof as per the Companys policy. The Company records a liability for compensated absences in the period in which the
employee renders the services that increases this entitlement. The total liability recorded by the Company towards this obligation was Rs.855 and Rs.792 as at March 31, 2017 and 2016, respectively.
F-46
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
19. Employee benefits (continued)
Long term incentive plan
Certain senior management employees of the Company participate in a long term incentive plan which is aimed at rewarding the
individual, based on performance of such individual, their business unit/function and the Company as a whole, with significantly higher rewards for superior performances. The total liability recorded by the Company towards this benefit was Rs.622
and Rs.881 as at March 31, 2017 and 2016, respectively.
Total employee benefit expenses, including share based
payments, incurred during the years ended March 31, 2017, 2016 and 2015 amounted to Rs.31,069, Rs.31,174 and Rs.28,967, respectively.
20.
Employee stock incentive plans
Dr. Reddys Employees Stock Option Plan -2002 (the DRL 2002 Plan):
The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the
shareholders in the Annual General Meeting held on September 24, 2001. The DRL 2002 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, eligible
employees). The Nomination, Governance and Compensation Committee of the Board of DRL (the Committee) administers the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees
will receive options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2002 Plan vest
in periods ranging between one and four years and generally have a maximum contractual term of five years.
The DRL 2002
Plan, as amended at annual general meetings of shareholders held on July 28, 2004 and on July 27, 2005, provides for stock option grants in two categories:
Category A
: 300,000 stock options out of the total of 2,295,478 options reserved for grant having an exercise price
equal to the fair market value of the underlying equity shares on the date of grant; and
Category B
: 1,995,478
stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs.5 per option).
Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined
based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Committee may, after obtaining the approval of the shareholders in
the annual general meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.
After the stock split effected in the form of stock dividend issued by the Company in August 2006, the DRL 2002 Plan provides
for stock option grants in the above two categories as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Number of
options reserved
under category A
|
|
|
Number of
options reserved
under category B
|
|
|
Total
|
|
Options reserved under original Plan
|
|
|
300,000
|
|
|
|
1,995,478
|
|
|
|
2,295,478
|
|
Options exercised prior to stock dividend date (A)
|
|
|
94,061
|
|
|
|
147,793
|
|
|
|
241,854
|
|
Balance of shares that can be allotted on exercise of options (B)
|
|
|
205,939
|
|
|
|
1,847,685
|
|
|
|
2,053,624
|
|
Options arising from stock dividend (C)
|
|
|
205,939
|
|
|
|
1,847,685
|
|
|
|
2,053,624
|
|
Options reserved after stock dividend (A+B+C)
|
|
|
505,939
|
|
|
|
3,843,163
|
|
|
|
4,349,102
|
|
Stock option activity under the DRL 2002 Plan for the two categories of options during the
years ended March 31, 2017 and 2016 is as follows:
Category A Fair Market Value Options:
There were no options
outstanding under this category as of March 31, 2017 and March 31, 2016.
F-47
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
20. Employee stock incentive plans (continued)
Dr. Reddys Employees Stock Option Plan -2002 (the DRL 2002
Plan) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, 2017
|
|
Category B Par Value Options
|
|
Shares arising
out of options
|
|
|
Range of
exercise
prices
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
useful life
(months)
|
|
Outstanding at the beginning of the period
|
|
|
427,348
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
72
|
|
Granted during the period
|
|
|
103,136
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
90
|
|
Expired/forfeited during the period
|
|
|
(22,597
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
Exercised during the period
|
|
|
(177,745
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period
|
|
|
330,142
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period
|
|
|
40,882
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, 2016
|
|
Category B Par Value Options
|
|
Shares arising
out of options
|
|
|
Range of
exercise
prices
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
useful life
(months)
|
|
Outstanding at the beginning of the period
|
|
|
585,454
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
71
|
|
Granted during the period
|
|
|
102,224
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
90
|
|
Expired/forfeited during the period
|
|
|
(66,319
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
Exercised during the period
|
|
|
(194,011
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period
|
|
|
427,348
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period
|
|
|
53,801
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of par value options granted under category B above
of the DRL 2002 Plan during the years ended March 31, 2017 and 2016 was Rs.3,266 and Rs.3,350 per option, respectively. The weighted average share price on the date of exercise of options during the years ended March 31, 2017 and 2016 was
Rs.3,292 and Rs.3,504 per share, respectively.
The aggregate intrinsic value of options exercised under the DRL 2002 Plan
during the years ended March 31, 2017 and 2016 was Rs.584 and Rs.679, respectively. As of March 31, 2017, options outstanding under the DRL 2002 Plan had an aggregate intrinsic value of Rs.867 and options exercisable under the DRL 2002
Plan had an aggregate intrinsic value of Rs.107.
The term of the DRL 2002 plan was extended for a period of 10 years
effective as of January 29, 2012 by the shareholders at the Companys Annual General Meeting held on July 20, 2012.
Dr. Reddys Employees ADR Stock Option Plan, 2007 (the DRL 2007 Plan)
The Company instituted the DRL 2007 Plan for all eligible employees in pursuance of the special resolution approved by the
shareholders in the Annual General Meeting held on July 27, 2005. The DRL 2007 Plan became effective upon its approval by the Board of Directors on January 22, 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter
directors) of DRL and its subsidiaries (collectively, eligible employees). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive the
options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2007 Plan vest in periods
ranging between one and four years and generally have a maximum contractual term of five years.
The DRL 2007 Plan
provides for option grants in two categories:
Category A
: 382,695 stock options out of the total of 1,530,779 stock
options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and
Category B
: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise
price equal to the par value of the underlying equity shares (i.e., Rs.5 per option).
F-48
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
20. Employee stock incentive plans (continued)
Dr. Reddys Employees ADR Stock Option Plan, 2007 (the DRL 2007 Plan) (continued)
No options have been granted under Category A as of March 31, 2017. Stock options activity for category B
options under the DRL 2007 Plan during the years ended March 31, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, 2017
|
|
Category B Par Value Options
|
|
Shares
arising out of
options
|
|
|
Range of
exercise
prices
|
|
|
Weighted
average
exercise price
|
|
|
Weighted average
remaining useful
life (months)
|
|
Outstanding at the beginning of the period
|
|
|
92,043
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
79
|
|
Granted during the period
|
|
|
52,956
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
90
|
|
Expired/forfeited during the period
|
|
|
(23,039
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
Exercised during the period
|
|
|
(33,819
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period
|
|
|
88,141
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period
|
|
|
6,517
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, 2016
|
|
Category B Par Value Options
|
|
Shares
arising out of
options
|
|
|
Range of
exercise
prices
|
|
|
Weighted
average
exercise price
|
|
|
Weighted average
remaining useful
life (months)
|
|
Outstanding at the beginning of the period
|
|
|
98,350
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
72
|
|
Granted during the period
|
|
|
40,184
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
90
|
|
Expired/forfeited during the period
|
|
|
(14,023
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
Exercised during the period
|
|
|
(32,468
|
)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period
|
|
|
92,043
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period
|
|
|
7,141
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of par value options granted under category B of the DRL 2007 Plan
during the years ended March 31, 2017 and 2016 was Rs.3,266 and Rs.3,465, respectively. The weighted average share price on the date of exercise of options during the years ended March 31, 2017 and 2016 was Rs.3,268 and Rs.3,575,
respectively.
The aggregate intrinsic value of options exercised under the DRL 2007 Plan during the years ended
March 31, 2017 and 2016 was Rs.110 and Rs.116, respectively. As of March 31, 2017, options outstanding under the DRL 2007 Plan had an aggregate intrinsic value of Rs.232 and options exercisable under the DRL 2007 Plan had an aggregate
intrinsic value of Rs.17.
During the year ended March 31, 2015, the Company adopted a new program to grant performance
linked stock options to certain employees under the DRL 2002 Plan and the DRL 2007 Plan. Under this program, performance targets are measured each year against
pre-defined
interim targets over the three year
period ending on March 31, 2017 and eligible employees are granted stock options upon meeting such targets. The stock options so granted are ultimately vested with the employees who meet subsequent service vesting conditions which range from 1
to 4 years. After vesting, such stock options generally have a maximum contractual term of five years.
Valuation of stock options:
The fair value of stock options granted under the DRL 2002 Plan and the DRL 2007 Plan has been measured using the
BlackScholes-Merton model at the date of the grant.
The Black-Scholes-Merton model includes assumptions regarding
dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted under category B, the expected term of an option (or option life) is estimated based on the vesting term,
contractual term, as well as expected exercise behavior of the employees receiving the option. In respect of fair market value options granted under category A, the option life is estimated based on the simplified method. Expected volatility of the
option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Companys publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free
interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect managements best estimates, but these assumptions involve inherent market uncertainties based on market conditions
generally outside of the Companys 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.
F-49
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
20. Employee stock incentive plans (continued)
The estimated fair value of stock options is recognized in the consolidated
income statement 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.
The weighted average inputs used in computing the fair value of options granted were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants made on
|
|
|
|
November 15, 2016
|
|
|
September 20, 2016
|
|
|
July 26, 2016
|
|
|
May 11, 2015
|
|
Expected volatility
|
|
|
32.77
|
%
|
|
|
32.92
|
%
|
|
|
29.88
|
%
|
|
|
25.98
|
%
|
Exercise price
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
Option life
|
|
|
2.5 Years
|
|
|
|
2.5 Years
|
|
|
|
2.5 Years
|
|
|
|
2.5 Years
|
|
Risk-free interest rate
|
|
|
6.27
|
%
|
|
|
6.81
|
%
|
|
|
6.91
|
%
|
|
|
7.87
|
%
|
Expected dividends
|
|
|
0.60
|
%
|
|
|
0.60
|
%
|
|
|
0.60
|
%
|
|
|
0.60
|
%
|
Grant date share price
|
|
Rs.
|
3,310.70
|
|
|
Rs.
|
3,157.80
|
|
|
Rs.
|
3,319.65
|
|
|
Rs.
|
3,359.70
|
|
The fair value of services received in return for stock options granted to employees is
measured by reference to the fair value of stock options granted.
Equity settled share-based payment expense
For the years ended March 31, 2017, 2016 and 2015, the Company recorded employee share based payment expense of Rs.350,
Rs.442 and Rs.498, respectively. As of March 31, 2017, there was Rs.374 of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 2.94 years.
Cash settled share based payments
Certain of the Companys employees are eligible for share based payment awards that are settled in cash. These awards
entitle the employees to a cash payment, on the exercise date, subject to vesting upon satisfaction of certain service conditions which range from 1 to 4 years. The amount of cash payment is determined based on the price of the Companys ADSs
at the time of exercise. For the years ended March 31, 2017 and 2016, the Company recorded cash settled share based payment expense of Rs.48 and Rs.29, respectively. As of March 31, 2017, there was Rs.58 of total unrecognized compensation
cost related to unvested awards. This cost is expected to be recognized over a weighted-average period of 3.1 years. This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.
21. Provisions
The
details of changes in provisions during the year ended March 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Allowance for
sales return
(1)
|
|
|
Environmental
liability
(2)
|
|
|
Legal and
others
(3)
|
|
|
Total
|
|
Balance as at April 1, 2016
|
|
Rs.
|
4,421
|
|
|
Rs.
|
55
|
|
|
Rs.
|
338
|
|
|
Rs.
|
4,814
|
|
Provision made during the year
|
|
|
3,177
|
|
|
|
|
|
|
|
387
|
|
|
|
3,564
|
|
Provision used or reversed during the year
|
|
|
(3,746
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,746
|
)
|
Effect of changes in foreign exchange rates
|
|
|
(68
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2017
|
|
Rs.
|
3,784
|
|
|
Rs.
|
47
|
|
|
Rs.
|
725
|
|
|
Rs.
|
4,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Rs.
|
3,784
|
|
|
Rs.
|
|
|
|
Rs.
|
725
|
|
|
Rs.
|
4,509
|
|
Non-current
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,784
|
|
|
Rs.
|
47
|
|
|
Rs.
|
725
|
|
|
Rs.
|
4,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Provision for sales returns is accounted by recording a provision based on the Companys estimate of
expected sales returns. See Note 3(l) for the Companys accounting policy on sales returns.
|
(2)
|
As a result of the acquisition of a unit of The Dow
Chemical Company in April 2008, the Company assumed a liability for contamination of the Mirfield site acquired of Rs.39 (carrying value Rs.47). The seller is required to indemnify the Company for this liability. Accordingly, a corresponding asset
has also been recorded in the statements of financial position.
|
(3)
|
Of this Rs.387 provision, Rs.374 represents the potential
liability arising out of a litigation relating to cardiovascular and anti-diabetic formulations. Refer to Note 44 (Contingencies) of these consolidated financial statements under Product and patent related mattersMatters relating to
National Pharmaceutical Pricing AuthorityLitigation relating to Cardiovascular and Anti-diabetic formulations for further details.
|
F-50
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
22. Trade and other payables
Trade and other payables consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Due to related parties
|
|
Rs.
|
9
|
|
|
Rs.
|
0
|
|
Others
|
|
|
13,408
|
|
|
|
12,300
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
13,417
|
|
|
Rs.
|
12,300
|
|
|
|
|
|
|
|
|
|
|
23. Other liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current
|
|
|
|
|
|
|
|
|
Advance from customers
|
|
Rs.
|
310
|
|
|
Rs.
|
335
|
|
Statutory dues payable
|
|
|
558
|
|
|
|
535
|
|
Accrued expenses
|
|
|
13,963
|
|
|
|
14,245
|
|
Deferred revenue
|
|
|
509
|
|
|
|
324
|
|
Employee benefits payable
|
|
|
4,416
|
|
|
|
3,832
|
|
Others
|
|
|
2,089
|
|
|
|
2,799
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
21,845
|
|
|
Rs.
|
22,070
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Statutory dues payable
|
|
Rs.
|
0
|
|
|
Rs.
|
5
|
|
Deferred revenue
|
|
|
3,166
|
|
|
|
1,528
|
|
Others
|
|
|
911
|
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
4,077
|
|
|
Rs.
|
3,161
|
|
|
|
|
|
|
|
|
|
|
24. Revenue
Revenue consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Sales
|
|
Rs.
|
138,663
|
|
|
Rs.
|
152,476
|
|
|
Rs.
|
146,131
|
|
Services
|
|
|
1,536
|
|
|
|
1,466
|
|
|
|
1,689
|
|
License fees
|
|
|
610
|
|
|
|
766
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
140,809
|
|
|
Rs.
|
154,708
|
|
|
Rs.
|
148,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue includes excise duties of Rs.939, Rs.842 and Rs.829 for the years ended March 31, 2017, 2016 and
2015, respectively.
25. Other (income)/expense, net
Other (income)/expense, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Loss on sale/disposal of property, plant and equipment and other intangibles, net
|
|
Rs.
|
80
|
|
|
Rs.
|
112
|
|
|
Rs.
|
144
|
|
Sale of spent chemical
|
|
|
(206
|
)
|
|
|
(271
|
)
|
|
|
(521
|
)
|
Miscellaneous income, net
(1)
|
|
|
(939
|
)
|
|
|
(715
|
)
|
|
|
(540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
(1,065
|
)
|
|
Rs.
|
(874
|
)
|
|
Rs.
|
(917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During the three months ended March 31, 2017,
the Company entered into an agreement with Galderma Laboratories, LP to settle the ongoing litigation relating to the Companys launch of a generic product in the United States of America. Pursuant to the settlement, the Company recorded an
amount of Rs.417, representing the relevant consideration attributable to settlement of such litigation.
|
F-51
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
26. Finance (expense)/income, net
Finance (expense)/income, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest income
|
|
Rs.
|
558
|
|
|
Rs.
|
1,399
|
|
|
Rs.
|
1,061
|
|
Dividend and profit on sale of other investments
(1)
|
|
|
956
|
|
|
|
852
|
|
|
|
755
|
|
Foreign exchange gain/(loss), net
(2)
|
|
|
(74
|
)
|
|
|
(4,133
|
)
|
|
|
958
|
|
Interest expense
|
|
|
(634
|
)
|
|
|
(826
|
)
|
|
|
(1,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
806
|
|
|
Rs.
|
(2,708
|
)
|
|
Rs.
|
1,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Profit on sale of other investments primarily represents
amounts reclassified from other comprehensive income to the consolidated income statement on redemption of the Companys available for sale financial instruments.
|
(2)
|
Includes the foreign exchange losses related to the
Companys Venezuela operations of Rs.41, Rs.4,621 and Rs.843 for the year ended March 31, 2017, 2016 and 2015 respectively. Refer to Note 39 of these consolidated financial statements for further details.
|
27. Income taxes
a. Income tax (expense)/benefit
recognized in the income statement
Income tax (expense)/benefit recognized in the consolidated income statement
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
Rs.
|
(1,936
|
)
|
|
Rs.
|
(4,331
|
)
|
|
Rs.
|
(4,461
|
)
|
Foreign
|
|
|
(1,158
|
)
|
|
|
(3,046
|
)
|
|
|
(2,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
(3,094
|
)
|
|
Rs.
|
(7,377
|
)
|
|
Rs.
|
(7,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes (expense)/benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
Rs.
|
223
|
|
|
Rs.
|
132
|
|
|
Rs.
|
637
|
|
Foreign
|
|
|
257
|
|
|
|
118
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
480
|
|
|
Rs.
|
250
|
|
|
Rs.
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense recognized in the consolidated income statement
|
|
Rs.
|
(2,614
|
)
|
|
Rs.
|
(7,127
|
)
|
|
Rs.
|
(5,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b. Income tax (expense)/benefit recognized directly in equity
Income tax (expense)/benefit recognized directly in equity consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Tax effect on changes in fair value of other investments
|
|
Rs.
|
(499
|
)
|
|
Rs.
|
(88
|
)
|
|
Rs.
|
(366
|
)
|
Tax effect on foreign currency translation differences
|
|
|
148
|
|
|
|
(62
|
)
|
|
|
174
|
|
Tax effect on effective portion of change in fair value of cash flow hedges
|
|
|
(60
|
)
|
|
|
(23
|
)
|
|
|
96
|
|
Tax effect on actuarial gains/losses on defined benefit obligations
|
|
|
14
|
|
|
|
64
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
(397
|
)
|
|
Rs.
|
(109
|
)
|
|
Rs.
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
27. Income taxes (continued)
c.
Reconciliation of effective tax rate
The following is a reconciliation of the Companys effective tax rates for the years ended March 31, 2017, 2016 and
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Profit before income taxes
|
|
Rs.
|
14,653
|
|
|
Rs.
|
27,140
|
|
|
Rs.
|
28,163
|
|
Enacted tax rate in India
|
|
|
34.61
|
%
|
|
|
34.61
|
%
|
|
|
33.99
|
%
|
Computed expected tax benefit/(expense)
|
|
Rs.
|
(5,071
|
)
|
|
Rs.
|
(9,393
|
)
|
|
Rs.
|
(9,572
|
)
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Differences between Indian and foreign tax rates
|
|
Rs.
|
98
|
|
|
Rs.
|
1,122
|
|
|
Rs.
|
566
|
|
(Unrecognized deferred tax assets)/recognition of previously unrecognized deferred tax assets,
net
|
|
|
(2,849
|
)
|
|
|
(1,600
|
)
|
|
|
18
|
|
Expenses not deductible for tax purposes
|
|
|
(219
|
)
|
|
|
(138
|
)
|
|
|
(110
|
)
|
Reversal of earlier years tax provisions
|
|
|
1,370
|
|
|
|
|
|
|
|
|
|
Income exempt from income taxes
|
|
|
280
|
|
|
|
731
|
|
|
|
794
|
|
Foreign exchange differences
|
|
|
439
|
|
|
|
(836
|
)
|
|
|
(380
|
)
|
Incremental deduction allowed for research and development costs
|
|
|
3,111
|
|
|
|
2,782
|
|
|
|
2,265
|
|
Tax expense on distributed/undistributed earnings of subsidiary outside India
|
|
|
(3
|
)
|
|
|
(519
|
)
|
|
|
|
|
Deduction for Qualified domestic production activities in the United States
|
|
|
|
|
|
|
38
|
|
|
|
4
|
|
Effect of change in tax rate
|
|
|
104
|
|
|
|
(30
|
)
|
|
|
(25
|
)
|
Investment allowance deduction
|
|
|
363
|
|
|
|
177
|
|
|
|
251
|
|
Others
|
|
|
(238
|
)
|
|
|
539
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit/(expense)
|
|
Rs.
|
(2,614
|
)
|
|
Rs.
|
(7,127
|
)
|
|
Rs.
|
(5,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
18
|
%
|
|
|
26
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys consolidated weighted average tax rates for the years ended March 31,
2017 and 2016 were 18% and 26%, respectively. Income tax expense was Rs.2,614 for the year ended March 31, 2017, as compared to income tax expense of Rs.7,127 for the year ended March 31, 2016. The effective tax rate for the year ended
March 31, 2017 was lower by 8% compared to the year ended March 31, 2016 primarily due to the resolution of a certain tax matter resulting in a reversal of Rs.1,370 in income tax expense pertaining to earlier years.
d. Unrecognized deferred tax assets and liabilities
The details of unrecognized deferred tax assets and liabilities are summarized below:
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Deductible temporary differences, net
|
|
Rs.
|
3,488
|
|
|
Rs.
|
1,157
|
|
Operating tax loss carry forward
|
|
|
3,027
|
|
|
|
3,166
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
6,515
|
|
|
Rs.
|
4,323
|
|
|
|
|
|
|
|
|
|
|
During the year ended March 31 2017, the Company, based on probable future taxable
profit, has recognized previously unrecognized deferred tax assets of Rs.128 pertaining to Octoplus N.V. Netherlands.
During the year ended March 31, 2017, the Company did not recognize deferred tax assets of Rs.2,331 on certain deductible
temporary differences, as the Company believes that it is not probable that there will be available taxable profits against which such temporary differences can be utilized.
Deferred income taxes are not provided on undistributed earnings of Rs.30,430 as at March 31, 2017, of subsidiaries
outside India, where it is expected that earnings of the subsidiaries will not be distributed in the foreseeable future. Generally, the Company indefinitely reinvests all the accumulated undistributed earnings of foreign subsidiaries, and
accordingly, has not recorded any deferred taxes in relation to such undistributed earnings of its foreign subsidiaries. It is impracticable to determine the taxes payable when these earnings are remitted.
F-53
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
27. Income taxes (continued)
e. Deferred tax assets and liabilities
The tax effects of significant temporary differences that resulted in deferred tax assets and liabilities and a description of
the items that created these differences is given below:
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets/(liabilities):
|
|
|
|
|
|
|
|
|
Inventory
|
|
Rs.
|
2,385
|
|
|
Rs.
|
2,579
|
|
Minimum Alternate Tax*
|
|
|
1,614
|
|
|
|
1,614
|
|
Trade and other receivables
|
|
|
424
|
|
|
|
412
|
|
Operating tax loss and interest loss carry-forward
|
|
|
1,329
|
|
|
|
548
|
|
Other current assets and other current liabilities, net
|
|
|
1,715
|
|
|
|
2,026
|
|
Property, plant and equipment
|
|
|
(2,142
|
)
|
|
|
(1,745
|
)
|
Other intangible assets
|
|
|
(370
|
)
|
|
|
(482
|
)
|
Others
|
|
|
(579
|
)
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
Rs.
|
4,376
|
|
|
Rs.
|
4,230
|
|
|
|
|
|
|
|
|
|
|
*
|
As per Indian tax laws, companies are liable for a Minimum Alternate Tax (MAT tax) when current
tax, as computed under the provisions of the Income Tax Act, 1961 (Tax Act), is determined to be below the MAT tax computed under section 115JB of the Tax Act. The excess of MAT tax over current tax is eligible to be carried forward and
set-off
in the future against the current tax liabilities over a period of 15 years.
|
In assessing whether the deferred income tax assets will be realized, management considers whether some portion or all of the
deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary differences
become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of
future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realize the benefits of those recognized deductible differences and tax loss carry forwards. Recoverability of deferred
tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets.
Operating loss carry forward consists of business losses, unabsorbed depreciation and unabsorbed interest carry-forwards. A
portion of this total loss can be carried indefinitely and the remaining amounts expire at various dates ranging from 2018 through 2038.
f.
Movement in deferred tax assets and liabilities during the years ended March
31, 2017 and
2016
.
The details of movement in deferred tax assets and liabilities are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March
31, 2016
|
|
|
Recognized
in income
statement
|
|
|
Recognized
in equity
|
|
|
Acquired in
business
combination
|
|
|
As at March
31, 2017
|
|
Deferred tax assets/(liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
Rs.
|
2,579
|
|
|
Rs.
|
(194
|
)
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
2,385
|
|
Minimum Alternate Tax
|
|
|
1,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,614
|
|
Trade and other receivables
|
|
|
412
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
Operating tax loss and interest loss carry-forward
|
|
|
548
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
1,329
|
|
Other current assets and other current liabilities, net
|
|
|
2,026
|
|
|
|
(231
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
1,715
|
|
Property, plant and equipment
|
|
|
(1,745
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,142
|
)
|
Intangible assets
|
|
|
(482
|
)
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
(370
|
)
|
Others
|
|
|
(722
|
)
|
|
|
424
|
|
|
|
(281
|
)
|
|
|
|
|
|
|
(579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities)
|
|
Rs.
|
4,230
|
|
|
Rs.
|
507
|
|
|
Rs.
|
(361
|
)
|
|
Rs.
|
|
|
|
Rs.
|
4,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
27. Income taxes (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March
31, 2015
|
|
|
Recognized
in income
statement
|
|
|
Recognized
in equity
|
|
|
Acquired in
business
combination
|
|
|
As at March
31, 2016
|
|
Deferred tax assets/(liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
Rs.
|
3,477
|
|
|
Rs.
|
(898)
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
2,579
|
|
Minimum Alternate Tax
|
|
|
644
|
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
1,614
|
|
Trade and other receivables
|
|
|
316
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
412
|
|
Operating tax loss and interest loss carry-forward
|
|
|
810
|
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
548
|
|
Other current assets and other current liabilities, net
|
|
|
1,267
|
|
|
|
1,036
|
|
|
|
(277
|
)
|
|
|
|
|
|
|
2,026
|
|
Property, plant and equipment
|
|
|
(1,230
|
)
|
|
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,745
|
)
|
Intangible assets
|
|
|
(1,145
|
)
|
|
|
663
|
|
|
|
|
|
|
|
|
|
|
|
(482
|
)
|
Others
|
|
|
(126
|
)
|
|
|
(872
|
)
|
|
|
276
|
|
|
|
|
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities)
|
|
Rs.
|
4,013
|
|
|
Rs.
|
218
|
|
|
Rs.
|
(1)
|
|
|
Rs.
|
|
|
|
Rs.
|
4,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts recognized in the income statement during the years ended March 31, 2017 and
2016 include Rs.27 and Rs.(32), respectively, which represent exchange differences arising due to foreign currency translations.
28. Operating leases
The Company has leased offices and vehicles under various operating lease agreements that are renewable on a periodic
basis at the option of both the lessor and the lessee. Rental expense under these leases was Rs.751, Rs.819 and Rs.822 for the years ended March 31, 2017, 2016 and 2015, respectively.
The schedule of future minimum rental payments in respect of
non-cancellable
operating
leases is set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Less than one year
|
|
Rs.
|
383
|
|
|
Rs.
|
396
|
|
|
Rs.
|
384
|
|
Between one and five years
|
|
|
961
|
|
|
|
1,185
|
|
|
|
1,259
|
|
More than five years
|
|
|
366
|
|
|
|
663
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
1,710
|
|
|
Rs.
|
2,244
|
|
|
Rs.
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended March 31, 2014, the Company entered into a
non-cancellable
operating lease for an office and laboratory facility in the United States. The future minimum rental payments in respect of this lease are Rs.904 (U.S.$14), Rs.1,394 (U.S.$21) and Rs.1,458 (U.S.$23)
as of March 31, 2017, 2016 and 2015, respectively.
29. Related parties
The Company has entered into transactions with the following related parties:
|
|
|
Green Park Hotel and Resorts Limited for hotel services;
|
|
|
|
Dr. Reddys Foundation towards contributions for social development;
|
|
|
|
Pudami Educational Society towards contributions for social development;
|
|
|
|
Dr. Reddys Institute of Life Sciences for research and development services
;
and
|
|
|
|
Stamlo Hotels Limited for hotel services.
|
These are enterprises over which key management personnel have control or significant influence. Key management
personnel consists of the Companys Directors and members of the Companys Management Council.
The Company
has also entered into cancellable operating lease transactions with key management personnel and their relatives.
Further, the Company contributes to the Dr. Reddys Laboratories Gratuity Fund, which maintains the plan assets of
the Companys Gratuity Plan for the benefit of its employees. See Note 19 of these consolidated financial statements for information on transactions between the Company and the Gratuity Fund. The following is a summary of significant related
party transactions:
F-55
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
29. Related parties (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Purchases of raw materials
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs. 5
|
|
Research and development services received
|
|
|
114
|
|
|
|
102
|
|
|
|
92
|
|
Contributions towards social development
|
|
|
318
|
|
|
|
249
|
|
|
|
237
|
|
Hotel expenses paid
|
|
|
44
|
|
|
|
51
|
|
|
|
41
|
|
Lease rentals paid under cancellable operating leases to key management personnel and their
relatives
|
|
|
39
|
|
|
|
37
|
|
|
|
36
|
|
The Company has the following amounts due from related parties:
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Key management personnel (towards rent deposits)
|
|
Rs.
|
8
|
|
|
Rs.
|
8
|
|
Other related parties
|
|
|
|
|
|
|
1
|
|
The Company has the following amounts due to related parties:
|
|
|
|
|
|
|
|
|
|
|
As at March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Due to related parties
|
|
Rs.
|
9
|
|
|
Rs.
|
0
|
|
The following table describes the components of compensation paid or payable to key management personnel for
the services rendered during the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Salaries and other benefits
(1)
|
|
Rs.
|
380
|
|
|
Rs.
|
336
|
|
|
Rs.
|
300
|
|
Contributions to defined contribution plans
|
|
|
28
|
|
|
|
19
|
|
|
|
16
|
|
Commission to directors
|
|
|
180
|
|
|
|
263
|
|
|
|
285
|
|
Share-based payments expense
|
|
|
75
|
|
|
|
76
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
663
|
|
|
Rs.
|
694
|
|
|
Rs.
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In addition to the above, the Company has accrued Rs.79
and Rs.169 towards a long term incentive plan for the services rendered by key management personnel during the years ended March 31, 2017 and 2016, respectively. Refer to Note 19 of these consolidated financial statements for further details.
|
Some of the key management personnel of the Company are also covered under the Companys Gratuity
Plan along with the other employees of the Company. Proportionate amounts of gratuity accrued under the Companys Gratuity Plan have not been separately computed or included in the above disclosure.
30. Financial instruments
Financial instruments by category
The carrying value and fair value of financial instruments by each category as at March 31, 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
Loans and
receivables
|
|
|
Available
for sale
|
|
|
Other
financial
liabilities
|
|
|
Derivative
financial
instruments
|
|
|
Total
carrying
value
|
|
|
Total fair
value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
15
|
|
|
|
Rs.3,866
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
3,866
|
|
|
Rs.
|
3,866
|
|
Other investments
|
|
|
11
|
|
|
|
3,403
|
|
|
|
16,104
|
|
|
|
|
|
|
|
|
|
|
|
19,507
|
|
|
|
19,507
|
|
Trade and other receivables
|
|
|
13
|
|
|
|
38,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,271
|
|
|
|
38,271
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
262
|
|
|
|
262
|
|
Other assets
(1)
|
|
|
14
|
|
|
|
1,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,916
|
|
|
|
1,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Rs.
|
47,456
|
|
|
Rs.
|
16,104
|
|
|
Rs.
|
|
|
|
Rs.
|
262
|
|
|
Rs.
|
63,822
|
|
|
Rs.
|
63,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
22
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
13,417
|
|
|
Rs.
|
|
|
|
Rs.
|
13,417
|
|
|
Rs.
|
13,417
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Long-term borrowings
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
5,571
|
|
|
|
|
|
|
|
5,571
|
|
|
|
5,571
|
|
Short-term borrowings
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
43,539
|
|
|
|
|
|
|
|
43,539
|
|
|
|
43,539
|
|
Bank overdraft
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
87
|
|
|
|
87
|
|
Other liabilities and provisions
(2)
|
|
|
21 & 23
|
|
|
|
|
|
|
|
|
|
|
|
20,391
|
|
|
|
|
|
|
|
20,391
|
|
|
|
20,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
83,005
|
|
|
Rs.
|
10
|
|
|
Rs.
|
83,015
|
|
|
Rs.
|
83,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
30. Financial instruments (continued)
The carrying value and fair value of financial instruments by each category as at
March 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
Loans and
receivables
|
|
|
Available
for sale
|
|
|
Other
financial
liabilities
|
|
|
Derivative
financial
instruments
|
|
|
Total
carrying
value
|
|
|
Total fair
value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
15
|
|
|
Rs.
|
4,921
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
4,921
|
|
|
Rs.
|
4,921
|
|
Other investments
|
|
|
11
|
|
|
|
12,713
|
|
|
|
24,309
|
|
|
|
|
|
|
|
|
|
|
|
37,022
|
|
|
|
37,022
|
|
Trade and other receivables
|
|
|
13
|
|
|
|
41,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,306
|
|
|
|
41,306
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
175
|
|
|
|
175
|
|
Other assets
(1)
|
|
|
14
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,270
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Rs.
|
61,210
|
|
|
Rs.
|
24,309
|
|
|
Rs.
|
|
|
|
Rs.
|
175
|
|
|
Rs.
|
85,694
|
|
|
Rs.
|
85,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
22
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
12,300
|
|
|
Rs.
|
|
|
|
Rs.
|
12,300
|
|
|
Rs.
|
12,300
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
108
|
|
|
|
108
|
|
Long-term borrowings
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
10,795
|
|
|
|
|
|
|
|
10,795
|
|
|
|
10,795
|
|
Short-term borrowings
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
22,718
|
|
|
|
|
|
|
|
22,718
|
|
|
|
22,718
|
|
Other liabilities and provisions
(2)
|
|
|
21 & 23
|
|
|
|
|
|
|
|
|
|
|
|
25,387
|
|
|
|
|
|
|
|
25,387
|
|
|
|
25,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
71,200
|
|
|
Rs.
|
108
|
|
|
Rs.
|
71,308
|
|
|
Rs.
|
71,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other assets that are not financial assets (such as
receivables from statutory authorities, export benefit receivables, prepaid expenses, advances paid and certain other receivables) of Rs.14,450 and Rs.11,467 as of March 31, 2017 and 2016, respectively, are not included.
|
(2)
|
Other liabilities that are not financial liabilities
(such as statutory dues payable, deferred revenue, advances from customers and certain other accruals) of Rs.11,570 and Rs.7,239 as of March 31, 2017 and 2016, respectively, are not included.
|
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).
The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as
of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Available for saleFinancial assetInvestments in units of mutual funds
|
|
Rs.
|
11,141
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
11,141
|
|
Available for saleFinancial assetInvestment in equity securities
|
|
|
4,962
|
|
|
|
|
|
|
|
|
|
|
|
4,962
|
|
Derivative financial instrumentsgain/(loss) on outstanding foreign exchange forward, option
and swap contracts and interest rate swap contracts
(1)
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
252
|
|
The following table presents the fair value hierarchy of assets and liabilities measured at
fair value on a recurring basis as of March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Available for saleFinancial assetInvestments in units of mutual funds
|
|
Rs.
|
22,558
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
22,558
|
|
Available for saleFinancial assetInvestment in equity securities
|
|
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
1,751
|
|
Derivative financial instrumentsgain/(loss) on outstanding foreign exchange forward, option
and swap contracts and interest rate swap contracts
(1)
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
67
|
|
(1)
|
The Company enters into derivative financial instruments with various counterparties, principally financial
institutions and banks. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward
pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations.
|
The models incorporate various inputs including foreign exchange spot and forward rates, interest rate curves and forward rate
curves. As at March 31, 2017, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.
F-57
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
30. Financial instruments (continued)
Derivative financial instruments
The Company is exposed to exchange rate risk that arises from its foreign exchange revenues and expenses, primarily in U.S.
dollars, U.K. pounds sterling, Russian roubles and Euros, and foreign currency debt in U.S. dollars, Russian roubles and Euros. The Company uses forward contracts, 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. The Company had a derivative financial asset and derivative financial liability of Rs.262 and Rs.10, respectively, as of March 31, 2017, as compared to derivative financial asset and derivative financial
liability of Rs.175 and Rs.108, respectively, as of March 31, 2016, towards these derivative financial instruments.
Further, in respect of these foreign exchange derivative contracts, the Company has recorded, as part of finance costs, a net
gain of Rs.699, Rs.231 and Rs.2,226, for the years ended March 31, 2017, 2016, and 2015, respectively.
Hedges of highly probable forecasted
transactions
|
|
|
The Company classifies 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 a component of equity within the Companys hedging reserve, and
re-classified
to the consolidated 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 consolidated income statement as a finance cost.
|
|
|
|
The Company also designates certain
non-derivative
financial
liabilities, such as foreign currency borrowings from banks, as hedging instruments for the hedge of foreign exchange risk associated with highly probable forecasted transactions and, accordingly, applies cash flow hedge accounting for such
relationships.
Re-measurement
gain/loss on such
non-derivative
financial liabilities is recorded as a component of equity within the Companys hedging
reserve, and
re-classified
in the consolidated income statement as revenue in the period corresponding to the occurrence of the forecasted transactions.
|
|
|
|
In respect of the aforesaid hedges of highly probable forecasted transactions, the Company recorded, as a
component of equity, a net gain of Rs.968, Rs.966 and Rs.99 for the years ended March 31, 2017, 2016 and 2015, respectively.
|
|
|
|
The Company also recorded, as a component of revenue, a net loss of Rs.683, a net loss of Rs.1,172 and a net
gain of Rs.300 during the years ended March 31, 2017, 2016 and 2015, respectively.
|
|
|
|
The net carrying amount of the Companys hedging reserve as a component of equity before
adjusting for tax impact was a gain of Rs.129 as at March 31, 2017, as compared to a loss of Rs.839 as at March 31, 2016.
|
Hedges of recognized assets and liabilities
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 recognized in the consolidated income statement. 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 recognized in the consolidated income statement as part of net finance costs.
Outstanding foreign exchange
derivative contracts
The following table gives details in respect of the notional amount of outstanding foreign
exchange derivative contracts as of March 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
Instrument
|
|
|
Currency
|
|
|
Cross
Currency
(1)
|
|
|
Amounts
|
|
|
Buy/
Sell
|
|
Hedges of recognized assets and liabilities
|
|
|
Forward contract
|
|
|
U.S.$
|
|
|
|
|
INR
|
|
|
U.S.$
|
193.5
|
|
|
|
Sell
|
|
|
|
|
Forward contract
|
|
|
U.S.$
|
|
|
|
|
RON
|
|
|
U.S.$
|
3.0
|
|
|
|
Buy
|
|
|
|
|
Forward contract
|
|
|
U.S.$
|
|
|
|
|
RUB
|
|
|
U.S.$
|
20.0
|
|
|
|
Buy
|
|
|
|
|
Forward contract
|
|
|
EUR
|
|
|
|
|
U.S.$
|
|
|
EUR
|
95.0
|
|
|
|
Sell
|
|
|
|
|
Forward contract
|
|
|
GBP
|
|
|
|
|
U.S.$
|
|
|
GBP
|
14.1
|
|
|
|
Buy
|
|
|
|
|
Option contract
|
|
|
U.S.$
|
|
|
|
|
INR
|
|
|
U.S.$
|
80.0
|
|
|
|
Sell
|
|
Hedges of highly probable forecasted transactions
|
|
|
Forward contract
|
|
|
RUB
|
|
|
|
|
INR
|
|
|
RUB
|
150.0
|
|
|
|
Sell
|
|
|
|
|
Option contract
|
|
|
U.S.$
|
|
|
|
|
INR
|
|
|
U.S.$
|
180.0
|
|
|
|
Sell
|
|
F-58
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
30. Financial instruments (continued)
The following table gives details in respect of the notional amount of
outstanding foreign exchange derivative contracts as of March 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
Instrument
|
|
|
Currency
|
|
Cross
Currency
(1)
|
|
Amounts
|
|
|
Buy/Sell
|
|
Hedges of recognized assets and liabilities
|
|
|
Forward contract
|
|
|
U.S.$
|
|
INR
|
|
U.S.$
|
97.0
|
|
|
|
Sell
|
|
|
|
|
Forward contract
|
|
|
U.S.$
|
|
RON
|
|
U.S.$
|
8.0
|
|
|
|
Buy
|
|
|
|
|
Forward contract
|
|
|
U.S.$
|
|
RUB
|
|
U.S.$
|
15.0
|
|
|
|
Buy
|
|
|
|
|
Forward contract
|
|
|
EUR
|
|
U.S.$
|
|
EUR
|
35.5
|
|
|
|
Sell
|
|
|
|
|
Option contract
|
|
|
U.S.$
|
|
INR
|
|
U.S.$
|
100.0
|
|
|
|
Sell
|
|
Hedges of highly probable forecasted transactions
|
|
|
Forward contract
|
|
|
RUB
|
|
INR
|
|
RUB
|
600.0
|
|
|
|
Sell
|
|
|
|
|
Option contract
|
|
|
EUR
|
|
INR
|
|
EUR
|
6.0
|
|
|
|
Sell
|
|
|
|
|
Option contract
|
|
|
U.S.$
|
|
INR
|
|
U.S.$
|
235.0
|
|
|
|
Sell
|
|
(1)
|
INR means Indian Rupees, RON means Romanian new leus, and RUB means
Russian roubles.
|
The table below summarizes the periods when the cash flows associated with highly
probable forecasted transactions that are classified as cash flow hedges are expected to occur:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows in U.S. Dollars
|
|
|
|
|
|
|
|
|
Not later than one month
|
|
Rs.
|
973
|
|
|
Rs.
|
2,816
|
|
Later than one month and not later than three months
|
|
|
1,946
|
|
|
|
5,300
|
|
Later than three months and not later than six months
|
|
|
2,918
|
|
|
|
7,123
|
|
Later than six
months and not later than one year
|
|
|
5,837
|
|
|
|
3,975
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
11,674
|
|
|
Rs.
|
19,214
|
|
|
|
|
|
|
|
|
|
|
Cash flows in Roubles
|
|
|
|
|
|
|
|
|
Not later than one month
|
|
Rs.
|
57
|
|
|
Rs.
|
123
|
|
Later than one month and not later than three months
|
|
|
115
|
|
|
|
246
|
|
Later than three months and not later than six months
|
|
|
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
172
|
|
|
Rs.
|
591
|
|
|
|
|
|
|
|
|
|
|
Cash flows in Euros
|
|
|
|
|
|
|
|
|
Not later than one month
|
|
Rs.
|
|
|
|
Rs.
|
38
|
|
Later than one month and not later than three months
|
|
|
|
|
|
|
75
|
|
Later than three months and not later than six months
|
|
|
|
|
|
|
113
|
|
Later than six months and not later than one year
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
|
|
|
Rs.
|
452
|
|
|
|
|
|
|
|
|
|
|
Hedges of changes in the interest rates:
Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps)
to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.
The
changes in fair value of such interest rate swaps (including cross currency interest rate swaps) are recognized as part of finance cost.
As on March 31, 2017, the Company had no outstanding interest rate swap arrangements.
F-59
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
31. Financial risk management
The Companys activities expose it to a variety of financial risks,
including market risk, credit risk and liquidity risk. The Companys primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Companys 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 Companys activities. The Board of Directors and the Audit Committee is responsible for overseeing the Companys risk assessment and management policies and processes.
a. 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 Companys 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 and other receivables
The Companys 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.
Investments
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.
Financial assets that are neither past due nor impaired
None of the Companys cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due
or impaired as at March 31, 2017. Of the total trade and other receivables, Rs.27,809 as at March 31, 2017 and Rs.34,840 as at March 31, 2016 consisted of customer balances that were neither past due nor impaired.
Financial assets that are past due but not impaired
The Companys credit period for customers generally ranges from 20180 days. The aging of trade and other receivables
that are past due but not impaired is given below:
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
Period (in days)
|
|
2017
|
|
|
2016
|
|
1 90
|
|
Rs.
|
8,380
|
|
|
Rs.
|
5,151
|
|
90 180
|
|
|
707
|
|
|
|
577
|
|
More than 180
|
|
|
1,376
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
10,463
|
|
|
Rs.
|
6,466
|
|
|
|
|
|
|
|
|
|
|
See Note 13 of these consolidated financial statements for the activity in the allowance for
impairment of trade and other receivables.
Other than trade and other receivables, the Company has no significant class
of financial assets that is past due but not impaired.
b. Liquidity risk
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
Companys reputation.
As of March 31, 2017 and 2016, the Company had unutilized credit limits from banks of
Rs.21,156 and Rs.14,771, respectively.
As of March 31, 2017, the Company had working capital of Rs.15,198, including
cash and cash equivalents of Rs.3,866, investments in term deposits (i.e., bank certificates of deposit having original maturities of more than 3 months) of Rs.3,389 and investments in
available-for-sale
financial assets of Rs.10,881. As of March 31, 2016, the Company had working capital of Rs.55,042, including cash and cash equivalents of
Rs.4,921, investments in term deposits (i.e., bank certificates of deposit having original maturities of more than 3 months) of Rs.12,713 and investments in
available-for-sale
financial assets of Rs.24,309.
F-60
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
31. Financial risk management (continued)
b. Liquidity risk (continued)
The table below provides details regarding the contractual maturities of
significant financial liabilities (other than long term loans, borrowings and obligations under finance leases, which have been disclosed in Note 18 to these consolidated financial statements) as at March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
Trade and other payables
|
|
Rs.
|
13,417
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
13,417
|
|
Bank overdraft, shortterm loans and borrowings
|
|
|
43,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,626
|
|
Other liabilities and provisions
|
|
|
19,564
|
|
|
|
88
|
|
|
|
7
|
|
|
|
9
|
|
|
|
723
|
|
|
|
20,391
|
|
Derivative financial instrumentsliabilities
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
The table below provides details regarding the contractual maturities of significant financial
liabilities (other than long term loans, borrowings and obligations under finance leases, which have been disclosed in Note 18 to these consolidated financial statements) as at March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
Total
|
|
Trade and other payables
|
|
Rs.
|
12,300
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
Rs.
|
|
|
|
|
Rs.12,300
|
|
Bank overdraft, short-term loans and borrowings
|
|
|
22,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,718
|
|
Other liabilities and provisions
|
|
|
23,861
|
|
|
|
702
|
|
|
|
40
|
|
|
|
14
|
|
|
|
770
|
|
|
|
25,387
|
|
Derivative financial instrumentsliabilities
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
c. Market risk
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 Companys 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 Companys foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily
in U.S. dollars, Russian roubles, U.K. pounds sterling and Euros) and foreign currency borrowings (in U.S. dollars, Russian roubles and Euros). A significant portion of the Companys revenues are in these foreign currencies, while a significant
portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Companys revenues measured in Indian rupees may decrease. The exchange rate between the Indian rupee
and these foreign currencies has 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.
The details in respect of the outstanding foreign exchange
forward and option contracts are given in Note 30 above.
In respect of the Companys forward contracts, option
contracts and currency swap contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
|
|
|
a Rs.1,154/(710) increase/(decrease) in the Companys hedging reserve and a Rs.2,143/(2,287)
increase/(decrease) in the Companys net profit from such contracts, as at March 31, 2017;
|
|
|
|
a Rs.1,511/(424) increase/(decrease) in the Companys hedging reserve and a Rs.1,277/(1,707)
increase/(decrease) in the Companys net profit from such contracts, as at March 31, 2016; and
|
|
|
|
a Rs.1,308/(631) increase/(decrease) in the Companys hedging reserve and a Rs.1,598/(1,790)
increase/(decrease) in the Companys net profit from such contracts, as at March 31, 2015.
|
The carrying value of the Companys foreign currency borrowings designated in a cash flow hedge as of March 31, 2017
was Rs.0. In respect of these borrowings, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such borrowings would have resulted in a Rs.364 and Rs.1,031 increase/decrease in the Companys hedging
reserve as at March 31, 2016 and 2015, respectively.
F-61
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
31. Financial risk management (continued)
c. Market risk (continued)
The following table analyzes foreign currency risk from non-derivative
financial instruments as at March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
Euro
|
|
|
Russian
roubles
|
|
|
Others
(1)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
Rs.
|
130
|
|
|
Rs.
|
87
|
|
|
Rs.
|
59
|
|
|
Rs.
|
840
|
|
|
Rs.
|
1,116
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
Trade and other receivables
|
|
|
24,581
|
|
|
|
567
|
|
|
|
6,259
|
|
|
|
2,121
|
|
|
|
33,528
|
|
Other assets
|
|
|
458
|
|
|
|
|
|
|
|
70
|
|
|
|
33
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
25,169
|
|
|
Rs.
|
654
|
|
|
Rs.
|
6,388
|
|
|
Rs.
|
3,008
|
|
|
Rs.
|
35,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
Rs.
|
2,323
|
|
|
Rs.
|
903
|
|
|
Rs.
|
|
|
|
Rs.
|
328
|
|
|
Rs.
|
3,554
|
|
Long-term borrowings
|
|
|
4,865
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
4,941
|
|
Short-term borrowings
|
|
|
12,970
|
|
|
|
|
|
|
|
4,023
|
|
|
|
|
|
|
|
16,993
|
|
Bank overdraft
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
Other liabilities and provisions
|
|
|
6,660
|
|
|
|
117
|
|
|
|
1,640
|
|
|
|
622
|
|
|
|
9,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
26,904
|
|
|
Rs.
|
1,020
|
|
|
Rs.
|
5,739
|
|
|
Rs.
|
950
|
|
|
Rs.
|
34,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table analyzes foreign currency risk from non-derivative financial instruments as at
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
Euro
|
|
|
Russian
roubles
|
|
|
Others
(1)
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
Rs.
|
1,378
|
|
|
Rs.
|
93
|
|
|
Rs.
|
258
|
|
|
Rs.
|
614
|
|
|
Rs.
|
2,343
|
|
Other investments
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
832
|
|
Trade and other receivables
|
|
|
30,518
|
|
|
|
891
|
|
|
|
4,125
|
|
|
|
1,816
|
|
|
|
37,350
|
|
Other assets
|
|
|
190
|
|
|
|
|
|
|
|
76
|
|
|
|
320
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
32,918
|
|
|
Rs.
|
984
|
|
|
Rs.
|
4,459
|
|
|
Rs.
|
2,750
|
|
|
Rs.
|
41,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
Rs.
|
2,681
|
|
|
Rs.
|
875
|
|
|
Rs.
|
|
|
|
Rs.
|
369
|
|
|
Rs.
|
3,925
|
|
Long-term borrowings
|
|
|
9,946
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
10,059
|
|
Short-term borrowings
|
|
|
13,846
|
|
|
|
5,768
|
|
|
|
3,104
|
|
|
|
|
|
|
|
22,718
|
|
Other liabilities and provisions
|
|
|
9,880
|
|
|
|
99
|
|
|
|
1,448
|
|
|
|
867
|
|
|
|
12,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
36,353
|
|
|
Rs.
|
6,742
|
|
|
Rs.
|
4,665
|
|
|
Rs.
|
1,236
|
|
|
Rs.
|
48,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Others include currencies such as U.K. pounds sterling, Swiss francs and Venezuelan bolivars.
|
For the years ended March 31, 2017 and 2016, every 10% depreciation/appreciation in the exchange
rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would affect the Companys net profit by Rs. 61 and Rs. 789, respectively.
Further, in February 2016, the Venezuelan government announced changes to its foreign currency exchange mechanisms, including
the devaluation of its official exchange rate. Refer to Note 39 of these consolidated financial statements for further details.
Interest rate risk
As of March 31, 2017, the Company had Rs. 41,407 of loans carrying a floating interest rate ranging from
LIBOR minus 30 bps to LIBOR plus 82.7 bps and the Treasury Bill plus 30 bps. As of March 31, 2016, the Company had Rs. 29,552 of foreign currency loans carrying a floating interest rate of LIBOR minus 5 bps to LIBOR plus 125 bps. These
loans expose the Company to risk of changes in interest rates. The Companys treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as
considered necessary.
For details of the Companys short-term and long term loans and borrowings, including interest
rate profiles, refer to Note 18 of these consolidated financial statements.
For the years ended March 31, 2017, 2016
and 2015, every 10% increase or decrease in the floating interest rate component (i.e., LIBOR) applicable to its loans and borrowings would affect the Companys net profit by Rs. 46, Rs. 12 and Rs. 6, respectively.
F- 62
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
31. Financial risk management (continued)
c. Market risk (continued)
The Companys investments in term deposits (i.e., certificates of
deposit) with banks and short term liquid mutual funds are for short durations, and therefore do not expose the Company to significant interest rates risk.
Commodity rate risk
Exposure to market risk with respect to commodity prices primarily arises from the Companys 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 Companys raw
materials generally fluctuate in line with commodity cycles, although the prices of raw materials used in the Companys active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of
the Companys 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.
32. Collaboration agreement with Curis, Inc.
On January 18, 2015, Aurigene Discovery Technologies Limited (Aurigene), a wholly-owned subsidiary of the
parent company, entered into a Collaboration, License and Option Agreement (the Collaboration Agreement) with Curis, Inc. (Curis) to discover, develop and commercialize small molecule antagonists for immuno-oncology and
precision oncology targets.
Under the Collaboration Agreement, Aurigene has the responsibility for conducting all
discovery and preclinical activities, including Investigational New Drug (IND) enabling studies and providing Phase 1 clinical trial supply, and Curis is responsible for all clinical development, regulatory and commercialization efforts
worldwide, excluding India and Russia. The Collaboration Agreement provides that the parties will collaborate exclusively in immuno-oncology for an initial period of approximately two years, with the option for Curis to extend the broad
immuno-oncology exclusivity.
As partial consideration for the collaboration, pursuant to a Stock Purchase Agreement dated
January 18, 2015, Curis issued to Aurigene 17.1 million shares of its common stock, representing 19.9% of its outstanding common stock immediately prior to the transaction (approximately 16.6% of its outstanding common stock immediately
after the transaction). Such shares were initially subject to a lock-up agreement. However, as of March 31, 2017, lock-up restrictions were released on all of the aforementioned 17.1 million shares. In connection with the issuance of such
shares, Curis and Aurigene entered into a Registration Rights Agreement dated January 18, 2015 which provides for certain registration rights with respect to resale of the shares. The common stock of Curis is listed for quotation on the NASDAQ
Global Market.
The fair value of the shares of Curis common stock on the date of the Stock Purchase Agreement was
Rs. 1,452 (U.S.$23.5).
Revenues under the Collaboration Agreement consist of upfront consideration (including the
shares of Curis common stock) and the development and commercial milestone payments described below, which are deferred and recognized as revenue over the period for which Aurigene has continuing performance obligations.
Under the Collaboration Agreement, Aurigene is entitled to development and commercial milestone payments as follows:
|
|
|
for the first two programs: up to U.S.$52.5 per program, including U.S.$42.5 for approval and commercial
milestones, plus pre-specified approval milestone payments for additional indications, if any;
|
|
|
|
for the third and fourth programs: up to U.S.$50 per program, including U.S.$42.5 for approval and commercial
milestones, plus pre-specified approval milestone payments for additional indications, if any; and
|
|
|
|
for any program thereafter: up to U.S.$140.5 per program, including U.S.$87.5 for approval and commercial
milestones, plus pre-specified approval milestone payments for additional indications, if any.
|
In
addition, Curis has agreed to pay Aurigene royalties, ranging between high single digits to 10%, on its net sales in territories where it commercializes products. Furthermore, Aurigene is entitled to receive a share of Curis revenues from
sublicenses, which share varies based upon specified factors such as the sublicensed territory, whether the sublicense revenue is royalty based or non-royalty based and, in some cases, the stage of the applicable molecule and product at the time the
sublicense is granted.
On September 7, 2016, the Collaboration Agreement was amended to provide for the issuance to
Aurigene of approximately 10.2 million additional shares of Curis common stock in lieu of receiving up to U.S.$24.5 of milestone and other payments from Curis that could have become due under the Collaboration Agreement. These shares of Curis
common stock are recorded at U.S.$1.84 per share, which is equal to the market price of such shares of common stock on the date of issuance, amounting to an aggregate market value of Rs. 1,247 (U.S.$18.8).
F-63
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
32. Collaboration agreement with Curis, Inc. (continued)
These additional shares are also subject to a
lock-up
agreement, which is similar to the
lock-up
for the original Curis shares the Company received. However, this
lock-up
remains effective until September 7, 2018, with shares being released from such
lock-up
in 25% increments on each of March 7, 2017, September 7, 2017, March 7, 2018 and September 7,
2018, subject to acceleration of release of all the shares in connection with a change of control of Curis. As of March 31, 2017,
lock-up
restrictions were released on an aggregate of 2.55 million of
such additional shares of Curis common stock, representing 25% of the shares which Aurigene received from Curis in 2016.
The Company has evaluated the transaction under IAS 28, Investments in associates and Joint Ventures, and believes
that the Company does not have any significant influence with respect to Curis. Accordingly, all of the shares of Curis common stock are classified as
available-for-sale
financial instruments and are
re-measured
at fair value at every reporting date. Accordingly, gain of Rs.2,228 arising from changes in the fair value of such shares of common stock was recorded in other
comprehensive income as of March 31, 2017.
This arrangement is accounted for as a joint operation under IFRS 11.
33. Agreement with Merck Serono
On June 6, 2012, the Company and the biosimilars division of Merck KGaA, Darmstadt, Germany, formerly known as Merck
Serono (hereinafter, Merck KGaA), entered into a collaboration agreement to
co-develop
a portfolio of biosimilar compounds in oncology, primarily focused on monoclonal antibodies. The arrangement
covers
co-development,
manufacturing and commercialization of the compounds around the globe, with some specific country exceptions. During the year ended March 31, 2016, the collaboration agreement was
amended to rearrange and realign the development of compounds, territory rights and royalty payments. Both parties will undertake commercialization based on their respective regional rights as defined in the agreement. The Company will lead and
support early product development towards or including Phase I development. Merck KGaA will carry out manufacturing of the compounds and will lead further development for its territories. In its exclusive and
co-exclusive
territories, the Company will carry out its own development, wherever applicable, for commercialization. As per the original collaboration agreement, the Company will continue to receive royalty
payments upon commercialization by Merck KGaA in its territories.
During the three months ended December 31, 2015,
the Company received from Merck KGaA certain amounts relating to its share of development costs and other amounts linked to the achievement of milestones for the development of compounds under the collaboration agreement, as amended.
Furthermore, during the three months ended December 31, 2016, the Company received from Merck KGaA payments of U.S.$1
towards achievement of a milestone for the development of a compound under the collaboration agreement.
On April 24,
2017, Fresenius SE & Co. KgaA and Merck KGaA announced that Fresenius Kabi will acquire Mercks Biosimilars business. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in
the second half of calendar year 2017. Upon completion of the transaction, the Companys collaboration will continue as planned, with Fresenius Kabi.
34. Agreement with Pierre Fabre
On February 11, 2014, Aurigene entered into a collaborative license, development and commercialization agreement with
Pierre Fabre, the third largest French pharmaceutical company. This agreement granted Pierre Fabre global worldwide rights (excluding India) to a new immune checkpoint modulator,
AUNP-12,
which was in
development for numerous cancer indications.
Under the terms of this agreement, Aurigene received a
non-refundable
upfront payment from Pierre Fabre, which was deferred and recognized as revenue over the period in which Aurigene had continuing performance obligations.
During the three months ended September 30, 2015, Aurigene entered into another agreement with Pierre Fabre to
transfer back to Aurigene the rights earlier
out-licensed
for the development and commercialization of
AUNP-12.
As a result of such arrangement, Aurigene paid to Pierre
Fabre a portion of the upfront consideration received and retained and recognized the remaining upfront consideration as revenue, as there are no pending performance obligations.
35. Asset purchase agreement with Hatchtech Pty Limited
On September 7, 2015, the Company entered into an asset purchase agreement with Hatchtech Pty Limited
(Hatchtech) for the purchase of intellectual property rights to an innovative prescription head lice product, Xeglyze Lotion. The exclusive rights for this product are applicable for the territories of the United States, Canada,
India, Russia and other countries of the former Soviet Union, Australia, New Zealand and Venezuela.
As partial
consideration for the purchase of these assets, the Company paid Hatchtech an upfront amount of Rs.606. In addition to the foregoing payments, the Company is also required to pay certain development and commercial milestone related payments to
Hatchtech for purchase of these assets.
As of March 31, 2017, the Company has paid Hatchtech development milestone
payments of Rs.390.
The transaction was recorded as an acquisition of a product related intangible asset. As the
intangible asset is not yet available for use, it is not subject to amortization.
The carrying amount of the intangible
asset as on March 31, 2017 was Rs.993.
F-64
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
36. Asset purchase agreement with Alchemia
In November 2015, the Company entered into an asset purchase agreement with Alchemia Limited (Alchemia) for the
purchase of worldwide, exclusive intellectual property rights to fondaparinux sodium. The closing conditions for the transaction included the approval of Alchemias shareholders, which was obtained on November 10, 2015. As per the terms of
the agreement, the Company paid net consideration of Rs.1,158 upon the closing of the transaction in exchange for the acquired intellectual property rights.
Prior to this asset purchase agreement, the Company had worldwide, exclusive rights from Alchemia to market fondaparinux
sodium in all territories in exchange for Alchemias right to an agreed share of the net profits generated from sales in those territories. As a result of the closing of the asset purchase agreement, Alchemia is not entitled to receive any
further profit share revenues from fondaparinux sales on or after July 1, 2015.
The transaction was recorded as an
acquisition of technology related intangible asset with an estimated useful life of 4 years.
The carrying amount of the
intangible asset as on March 31, 2017 was Rs.727.
37. Agreement with Novartis Consumer Health Inc.
On October 18, 2014, the Company, through its wholly owned subsidiary Dr. Reddys Laboratories SA, entered into
an asset purchase agreement with Novartis Consumer Health Inc. to acquire the title and rights to its Habitrol
®
brand (an
over-the-counter
nicotine replacement therapy transdermal patch) and to market the product in the United States.
After obtaining the necessary approvals from the U.S. Federal Trade Commission, the Company completed the acquisition of
Habitrol
®
on December 17, 2014. The total purchase consideration was Rs.5,097.
The transaction has been recorded as an acquisition of a product related intangible asset with a useful life of 8 years. The
carrying amount of the asset as at March 31, 2017 was Rs.3,470.
38. Receipt of warning letter from the U.S. FDA
The Company received a warning letter dated November 5, 2015 from the U.S. FDA relating to current Good Manufacturing
Practice (cGMP) deviations at its active pharmaceutical ingredient (API) manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as violations at its oncology formulation manufacturing
facility at Duvvada, Visakhapatnam, Andhra Pradesh. The contents of the warning letter emanated from Form 483 observations that followed inspections of these sites by the U.S. FDA in November 2014, January 2015 and February-March 2015, respectively.
The warning letter does not restrict production or shipment of the Companys products from these facilities.
However, unless and until the Company is able to correct outstanding issues to the U.S. FDAs satisfaction, the U.S. FDA may withhold approval of new products and new drug applications of the Company, refuse admission of products manufactured
at the facilities noted in the warning letter into the United States, and/or take additional regulatory or legal action against the Company. Any such further action could have a material and negative impact on the Companys ongoing business and
operations. During the years ended March 31, 2016 and 2017, the U.S. FDA withheld approval of new products from these facilities pending resolution of the issues identified in the warning letter. To minimize the business impact, the Company
transferred certain key products to alternate manufacturing facilities.
Subsequent to the issuance of the warning letter,
the Company promptly instituted corrective actions and preventive actions and submitted a comprehensive response to the warning letter to the U.S. FDA, followed by periodic written updates and
in-person
meetings with the U.S. FDA. The U.S. FDA completed the
re-inspection
of the aforementioned manufacturing facilities in the months of March and April 2017. During the
re-inspections,
the U.S. FDA issued three observations with respect to the API manufacturing facility at Miryalaguda, two observations with respect to the API manufacturing facility at Srikakulam and thirteen
observations with respect to the oncology formulation manufacturing facility. The Company has responded to these observations identified by the U.S. FDA, and believes that it can resolve them satisfactorily in a timely manner.
In June 2017, the U.S. FDA has issued an establishment inspection report which officially closed the audit of the
Companys API manufacturing facility at Miryalaguda.
39. Venezuela operations
Dr. Reddys Venezuela, C.A., a wholly-owned subsidiary of the Company, is primarily engaged in the import of
pharmaceutical products from the parent company and other subsidiaries of the Company and the sale of such products in Venezuela.
Overhaul of the
exchange rate system in Venezuela
In February 2015, the Venezuelan government launched an overhaul of its then
existing exchange rate system and introduced a new exchange rate mechanism. The Marginal Currency System (known as SIMADI) was the third tier in the new three-tier exchange rate regime and allowed for legal trading of the Venezuelan
bolivar for foreign currency with fewer restrictions than other mechanisms in Venezuela (CENCOEX and SICAD). The new second tier (known as SICAD) was introduced with an initial rate of approximately 12 VEF per U.S.$1.00. The first tier
(known as CENCOEX), the official exchange rate, was unchanged and sold dollars at 6.3 VEF per U.S.$1.00 for preferential goods.
F-65
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
39. Venezuela operations (continued)
In February 2016, the Venezuelan government announced further changes to its
foreign currency exchange mechanisms, including the devaluation of its official exchange rate. The following changes became effective as of March 10, 2016:
|
|
|
The CENCOEX preferential rate was replaced with a new DIPRO rate. The DIPRO rate is only available
for purchases and sales of essential items. Further, the preferential exchange rate was devalued from 6.3 VEF per U.S.$1.00 to 10 VEF per U.S.$1.00.
|
|
|
|
The SICAD exchange rate mechanism, which last auctioned USD for 13 VEF per U.S.$1.00, was eliminated.
|
|
|
|
The SIMADI exchange rate mechanism was replaced with a new DICOM rate, which governs all
transactions not subject to the DIPRO exchange rate and will fluctuate according to market supply and demand. As of March 31, 2016, the DICOM exchange rate was 272.5 VEF per U.S.$1.00.
|
During the year ended March 31, 2016, the Company received approvals from the Venezuelan government for remittance of
only U.S.$4 towards the importation of pharmaceutical products at the CENCOEX preferential rate.
The Company fully
considered all the aforesaid developments, facts and circumstances and, following the guidance available in IAS 21, determined that it was appropriate to use the SIMADI/DICOM rate for translating the monetary assets and liabilities of the Venezuelan
subsidiary as at various reporting dates. Tabulated below was the impact of the foregoing on the financial statements of the Company as at March 31, 2015 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
Particulars
|
|
March 31,
2015
|
|
|
March 31,
2016
|
|
Foreign exchange loss due to currency devaluation and translation of monetary assets and
liabilities using SIMADI/DICOM rate recorded under finance expense
|
|
Rs.
|
843
|
|
|
Rs.
|
4,621
|
|
Impact of inventory write down and reversal of export incentives recorded under cost of
revenues
|
|
|
|
|
|
|
341
|
|
Impairment of property, plant and equipment recorded under selling, general and administrative
expenses
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Rs.
|
843
|
|
|
Rs.
|
5,085
|
|
|
|
|
|
|
|
|
|
|
Update during the year ended March 31, 2017
Revenues for the year ended March 31, 2017 and 2016 were Rs.17 (VEF 162) and Rs.4,666 (VEF 457), respectively. During the
year ended March 31, 2017, the Company received approvals from the Venezuelan government to repatriate U.S.$0.4 at the preferential rate of 10 VEF per U.S.$1.00.
Consistent with the position taken as on March 31, 2016, the Company applied the DICOM rate for translating the financial
statements of the Venezuelan subsidiary for the year ended March 31, 2017. As a result, foreign exchange loss of Rs.41 was recognized for the year ended March 31, 2017. As of March 31, 2017, the DICOM rate was VEF 707.95 per
U.S.$1.00. Notwithstanding the ongoing uncertainty, the Company continues to actively engage with the Venezuelan Government and seek approval to repatriate funds at the preferential rate.
In May 2017, the Venezuelan government completed its first auction offering under DICOM, resulting in a DICOM rate of VEF
2,010 per U.S.$1.00. Also in May 2017, Venezuela announced its intent to launch a new currency exchange mechanism to replace the DICOM rate, but details have not yet been provided.
40. License agreement with Xenoport
On March 28, 2016, the Company and XenoPort, Inc. (XenoPort) entered into a license agreement pursuant to
which the Company was granted exclusive U.S. rights for the development and commercialization of XenoPorts clinical stage oral new chemical entity. The Company plans to develop the
in-licensed
compound
as a potential treatment for
moderate-to-severe
chronic plaque psoriasis and for relapsing forms of multiple sclerosis.
The transaction was subject to satisfaction of certain customary closing conditions, including among other things the
expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), following the Companys premerger notification filing under the HSR Act with
the applicable governmental authorities regarding its intention to acquire these rights.
Upon the completion of all
closing conditions, in May 2016, the Company paid Rs.3,159 as an
up-front
payment and an additional Rs.169 for the transfer of certain clinical trial materials, as per the terms of the agreement.
In addition to the
up-front
payment, XenoPort will also be eligible to receive up to
U.S.$190 upon the achievement by the Company of certain regulatory milestones, which could be achieved over a period of several years. Further, XenoPort will be eligible to receive up to U.S.$250 upon the achievement by the Company of certain
commercial milestones, and up to
mid-teens
percentage rate royalty payments based on the Companys net sales of the product in the United States.
F-66
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
40. License agreement with Xenoport (continued)
The upfront consideration has been recorded as an acquisition of a product
related intangible asset. As the intangible asset is not yet available for use, it is not subject to amortization. Consideration paid for the purchase of clinical trial materials is recognized as research and development expenditure in these
financial statements for the year ended March 31, 2017.
The carrying amount of the intangible asset as on
March 31, 2017 was Rs.3,108.
41. Asset purchase agreement with Ducere Pharma LLC
On May 23, 2016, the Company entered into and consummated an asset purchase agreement with Ducere Pharma LLC for the
purchase of certain pharmaceutical brands for a total consideration of Rs.1,148. The acquisition is expected to strengthen the Companys presence in the dermatology,
cough-and-cold
and pain therapeutic areas forming part of the Companys
over-the-counter
(OTC) business in the United States.
The Company recorded the acquisition of these brands as trademarks. The Company estimated that the useful life of these
brands is 15 years.
The carrying value of these intangibles as on March 31, 2017 was Rs.1,052.
42. Asset purchase agreement with Teva Pharmaceutical Industries Limited
On June 10, 2016, the Company entered into a definitive purchase agreement with Teva Pharmaceutical Industries Limited
(Teva) and an affiliate of Allergan plc (Allergan) to acquire eight Abbreviated New Drug Applications (ANDAs) in the United States for U.S.$350 in cash at closing. The acquired products were divested by Teva as a
precondition to the closing of its acquisition of Allergans generics business. The acquisition of these ANDAs was also contingent on the closing of the Teva/Allergan generics purchase transaction and approval by the U.S. Federal Trade
Commission.
The acquisition was consummated on August 3, 2016 upon the completion of all closing conditions, and the
Company paid U.S.$350 as the consideration for the acquired ANDAs.
Tabulated below are the details of products acquired
and the respective purchase prices:
|
|
|
|
|
|
|
|
|
Particulars of the ANDA
|
|
U.S.$
|
|
|
Rs.
|
|
Ethinyl estradiol/Ethonogestrel Vaginal Ring (a generic equivalent to NuvaRing
®
)
|
|
|
185
|
|
|
|
12,351
|
|
Buprenorphine HCl/Naloxone HCl Sublingual Film (a generic equivalent to Suboxone
®
sublingual film)
|
|
|
70
|
|
|
|
4,673
|
|
Ramelteon Tablets (a generic equivalent to
Rozerem
®
)
|
|
|
34
|
|
|
|
2,270
|
|
Others
|
|
|
61
|
|
|
|
4,072
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
350
|
|
|
|
23,366
|
|
|
|
|
|
|
|
|
|
|
The Company recorded the aforesaid acquisition of these ANDAs as product related
intangibles. As these ANDAs are not available for use yet, they are not subject to amortization. The aforesaid acquisition forms part of Companys Global Generics segment.
The carrying value of these intangibles as on March 31, 2017 was Rs.22,870.
43. Agreement with Gland Pharma Limited
On November 29, 2016, the Company entered into an agreement with Gland Pharma Limited (Gland) to license,
market and distribute eight injectable ANDAs. Pursuant to the arrangement, the Company will pay Gland U.S.$6.8 as consideration for
in-licensing
the aforesaid eight ANDAs upon completion of certain milestones
by Gland.
The carrying value of the intangible as on March 31, 2017 was Rs.212.
F-67
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
44. Contingencies
The Company is involved in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations
and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. The more significant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to
uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the
expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and
extent of
pre-trial
discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the
possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure of the
amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.
Although
there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this Note, the Company does not expect them to have a materially adverse effect on its financial position, as it believes that the
likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgments against the Company, such judgments could be material to its results of operations in a given period.
Product and patent related matters
Matters relating to National Pharmaceutical Pricing Authority
Norfloxacin, India litigation
The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active
pharmaceutical ingredient norfloxacin. Under the Drugs Prices Control Order (the DPCO), the National Pharmaceutical Pricing Authority (the NPPA) established by the Government of India had the authority to designate a
pharmaceutical product as a specified product and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a specified product and fixed the maximum selling price.
In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the High Court) challenging the validity of the designation on the
grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price. The High Court had previously granted an interim order in favor of the Company; however it subsequently dismissed the case in April 2004.
The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October
2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the Supreme Court) by filing a Special Leave Petition.
During the year ended March 31, 2006, the Company received a notice from the NPPA demanding the recovery of the price
charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was Rs.285 including interest. The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted
the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was Rs.77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court
directed the Company to deposit an additional amount of Rs.30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Companys application to include additional legal grounds that the Company believed
strengthened its defense against the demand. For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical
ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a specified
product under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On July 20, 2016, the Supreme Court
remanded the matters concerning the inclusion of Norfloxacin as a specified product under the DPCO back to the High Court for further proceedings. During the three months ended December 31, 2016, a writ petition pertaining to
Norfloxacin was filed by the Company with the Delhi High Court. Such writ petition is pending for admission.
During the
three months ended September 30, 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.
Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the
notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.
F-68
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
44. Contingencies (continued)
Product and patent related matters (continued)
Litigation relating to Cardiovascular and Anti-diabetic formulations
In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under
the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and antidiabetic therapeutic areas. The Indian Pharmaceutical Alliance (IPA), in which the Company is a
member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014.
On September 26, 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on October 25, 2016, the IPA filed a Special Leave
Petition with the Supreme Court, which was dismissed by the Supreme Court.
During the three months ended
December 31, 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum prices for 11 of its products. The Company has responded to these notices.
On March 20, 2017, the IPA filed an application before the Bombay High Court for the recall of the judgment of the High
Court dated September 26, 2016 on the grounds that certain information important for the determination of the issue was not disclosed by the counsel representing the Union of India during the proceedings before the Bombay High Court.
On April 26, 2017, the Bombay High Court heard the recall application and directed the matter to the same bench of judges
of the Bombay High Court which passed the original judgment on September 26, 2016. Further, it also directed the Union of India and others to file their reply.
During the three months ended March 31, 2017, the NPPA issued notices to the Company demanding payments relating to the
foregoing products for the allegedly overcharged amounts, along with interest. The Company has responded to these notices.
Based on its best estimate, the Company has recorded a provision of Rs.374 under Selling, general and administrative
expenses as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this
litigation is not probable.
In the event the Government of India pursues litigation against the Company on the
aforementioned NPPA matters for the excess sales proceeds and the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could
potentially include penalties, which amounts are not readily ascertainable.
Other Product and patent related matters
Nexium United States litigations
Five federal antitrust class action lawsuits were brought on behalf of direct purchasers of Nexium
®
, and ten federal class action lawsuits were brought under both state and federal law on behalf of
end-payors
of Nexium
®
. These actions were filed against various generic manufacturers, including the Company and its U.S. subsidiary Dr. Reddys Laboratories Inc. These actions were consolidated in the
United States District Court for the District of Massachusetts.
The complaints alleged that AstraZeneca and the involved
generic manufacturers settled patent litigation related to Nexium
®
capsules in a manner that violated antitrust laws. The Company consistently maintained that its conduct complied with all
applicable laws and that the complaints were without merit. In response to a motion for summary judgment made by the Company, the Court granted the motion in part and denied it in part, finding that the plaintiffs had failed to demonstrate that the
Companys settlement of patent litigation with AstraZeneca included any large or unjustified reverse payment, but preserving other claims for trial.
On October 20, 2014, the Company reached a settlement with all plaintiffs who had cases pending in the District of
Massachusetts. The settlement with the class plaintiffs was subject to the Courts approval. Under the terms of the settlement, the Company made no payment to the class plaintiffs. Other defendants went to trial and prevailed.
The Court granted preliminary approval of the Companys settlements with the class plaintiffs on January 28, 2015,
and granted final approval of such settlements on September 29, 2015.
On November 21, 2016, the First Circuit
Court of Appeals affirmed the judgment that had been entered in favor of the defendants who tried the case to a verdict. On January 10, 2017, the First Circuit Court of Appeals denied the motions for reconsideration.
In addition, two complaints, similar in nature to those referenced above, were filed in the Court of Common Pleas in
Philadelphia, Pennsylvania by plaintiffs who chose to opt out of the class action lawsuit. No dispositive motions have been filed in these actions.
The Company believes that the likelihood of any liability that may arise on account of lawsuits of the plaintiffs who opted
out of the class action is not probable. Accordingly, no provision has been made in these consolidated financial statements.
F-69
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
44. Contingencies (continued)
Product and patent related matters (continued)
Child resistant packaging matter
In May 2012, the Consumer Product Safety Commission (the CPSC) requested that Dr. Reddys Laboratories
Inc., a wholly-owned subsidiary of the Company in the United States, provide certain information with respect to compliance with requirements of special packaging for child resistant blister packs for 6 products sold by the Company in the United
States during the period commencing in 2002 through 2011. The Company provided the requested information. The CPSC subsequently alleged in a letter dated April 30, 2014 that the Company had violated the Consumer Product Safety Act (the
CPSA) and the Poison Prevention Packaging Act (the PPPA) and that the CPSC intended to seek civil penalties. Specifically, the CPSC asserted, among other things, that from or about August 14, 2008 through June 1,
2012, the Company sold prescription drugs having unit dose packaging that failed to comply with the CPSCs special child resistant packaging regulations under the PPPA and failed to issue general certificates of conformance. In addition, the
CPSC asserted that the Company violated the CPSA by failing to immediately advise the CPSC of the alleged violations. The Company disagrees with the CPSCs allegations.
Simultaneously, the U.S. Department of Justice (the DOJ) began to investigate a sealed complaint which was filed
in the United States District Court for the Eastern District of Pennsylvania under the Federal False Claims Act (FCA) related to these same issues (the FCA Complaint). The Company cooperated with the DOJ in its investigation.
The DOJ and all States involved in the investigation declined to intervene in the FCA Complaint. On November 10, 2015, the FCA Complaint was unsealed and the plaintiff whistleblowers, who are two former employees of the Company, have proceeded
without the DOJs and applicable States involvement. The unsealed FCA Complaint relates to the 6 blister pack products originally subject to the investigation and also 38 of the Companys generic prescription products sold in the
U.S. in various bottle and cap packaging. The Company filed its response to the FCA Complaint on February 23, 2016 in the form of a motion to dismiss for failure to state a claim upon which relief can be granted. On March 26, 2017, the
Court granted the Companys motion to dismiss, dismissing the FCA Complaint and allowing the plaintiffs one more chance to refile this complaint in an attempt to plead sustainable allegations. On March 29, 2017, the plaintiffs filed their
final amended FCA Complaint, which the Company intends to vigorously oppose and seek permanent dismissal of this amended FCA Complaint with prejudice.
Although the DOJ and applicable States have declined to intervene in the FCA Complaint filed by the plaintiffs, the parallel
investigation by the CPSC under the CPSA and the PPPA was referred by the CPSC to the DOJs office in Washington, D.C. in April 2016, with the recommendation that the DOJ initiate a civil penalty action against the Company. The CPSC matter
referred to the DOJ relates to five of the blister pack products. An unfavorable outcome in these matters could result in liabilities which could have a material adverse effect on the Company.
Namenda United States Litigations
In August 2015, Sergeants Benevolent Assoc. Health & Welfare Fund (Sergeants) filed suit against the
Company in the United States District Court for the Southern District of New York. Sergeants alleged that certain parties, including the Company, violated federal antitrust laws as a consequence of having settled patent litigation related to the
Alzheimers drug Namenda
®
(memantine) tablets during a period from about 2009 until 2010. Sergeants seeks to represent a class of
end-payor
purchasers of Namenda
®
tablets (i.e., insurers, other third-party payors and consumers).
Sergeants seeks damages based upon an allegation made in the complaint that the defendants entered into patent settlements
regarding Namenda
®
tablets for the purpose of delaying generic competition and facilitating the brand innovators attempt to shift sales from the original immediate release product to the
more recently introduced extended release product. The Company believes that the complaint lacks merit and that the Companys conduct complied with all applicable laws and regulations.
All defendants, including the Company, moved to dismiss the claims. On September 13, 2016, the Court denied these
motions. However, the Sergeants case is stayed pending resolution of similar claims in another case in which the Company is not a party (
JM Smith Corp. v. Actavis PLC
). The parties in the
JM Smith
case have served the Company with
subpoenas seeking specified documents, and the Company has produced documents in response to the subpoenas. The parties have also served the Company with subpoenas seeking deposition testimony.
Four other class action complaints, each containing similar allegations to the Sergeants complaint, have also been filed in
the Southern District of New York. However, two of those complaints were voluntarily dismissed, and the other two do not name the Company as a defendant.
In addition, the State of New York filed an antitrust case in the Southern District of New York. The case brought by the State
of New York contained some (but not all) of the allegations set forth in the class action complaints, but the Company was not named as a party.
The case brought by the State of New York was dismissed by stipulation on November 30, 2015.
The Company believes that the likelihood of any liability that may arise on account of alleged violation of federal
antitrust laws is not probable. Accordingly, no provision has been made in these consolidated financial statements.
F-70
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
44. Contingencies (continued)
Product and patent related matters (continued)
Class Action and Other Civil Litigation on Pricing/Reimbursement Matters
On December 30, 2015 and on February 4, 2016, respectively, a class action complaint and another complaint (not a
class action) were filed against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiffs allege that the Company and other defendants, individually or
in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifically, the plaintiffs allege that: (1) the Company provided false and misleading
pricing information to third party drug compendia companies for the Companys generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the
Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets). The Company disputes these
allegations and intends to vigorously defend against these allegations.
Further, on November 17, 2016, certain class
action complaints were filed against the Company and a number of other pharmaceutical companies as defendants in the United States District Court for the Eastern District of Pennsylvania. These complaints allege that the Company and the other named
defendants have engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States. The Company denies any wrongdoing and intends to
vigorously defend against these allegations.
The Company believes that the likelihood of any liability that may arise on
account of any of these complaints is not probable. Accordingly, no provision has been made in these consolidated financial statements.
Civil
litigation with Mezzion
On January 13, 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively,
Mezzion) filed a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient
(API) for udenafil (a patented compound) and an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDAs current Good Manufacturing
Practices (cGMP) at the time of manufacture of the API and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by Mezzion. The Company denies any wrongdoing or
liability in this regard, and intends to vigorously defend against the claims asserted in Mezzions complaint. Accordingly, no provision was made in the consolidated financial statements of the Company.
Environmental matters
Land pollution
The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against
the Union of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollarum areas of Medak district of the then existing undivided state of Andhra Pradesh. The Company has been named in the list of
polluting industries. In 1996, the Andhra Pradesh District Judge proposed that the polluting industries compensate farmers in the Patancheru, Bollarum and Jeedimetla areas for discharging effluents which damaged the farmers agricultural land.
The compensation was fixed at Rs.0.0013 per acre for dry land and Rs.0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of Rs.3. The Company believes that the likelihood of additional liability is remote. The Andhra
Pradesh High Court disposed of the writ petition on February 12, 2013 and transferred the case to the National Green Tribunal (NGT), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is
decided by the NGT. The NGT has, through its order dated October 30, 2015, constituted a Fact Finding Committee. The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee.
However, the Company along with the alleged polluting industries have challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the
Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation.
F-71
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
44. Contingencies (continued)
Environmental matters (continued)
Water pollution and air pollution
During the year ended March 31, 2012, the Company, along with 14 other companies, received a notice from the Andhra
Pradesh Pollution Control Board (the APP Control Board) to show cause as to why action should not be initiated against them for violations under the Indian Water Pollution Act and the Indian Air Pollution Act. Furthermore, the APP
Control Board issued orders to the Company to (i) stop production of all new products at the Companys manufacturing facilities in Hyderabad, India without obtaining a Consent for Establishment, (ii) cease manufacturing
products at such facilities in excess of certain quantities specified by the APP Control Board and (iii) furnish a bank guarantee to assure compliance with the APP Control Boards orders.
The Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (the APP Appellate
Board). The APP Appellate Board, on the basis of a report of a fact-finding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-Liquid Discharge (ZLD) facilities and
otherwise found no fault with the Company (on certain conditions). The APP Appellate Boards decision was challenged by one of the petitioners in the National Green Tribunal and the matter is currently pending before it.
Separately, the Andhra Pradesh Government, following recommendations of the APP Appellate Board, published a notification in
July 2013 that allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subject to the installation of ZLD facilities and the outcome of cases pending in the National Green Tribunal.
Importantly, the notification directed pollution load of industrial units to be assessed at the point of discharge (if any) as opposed to point of generation.
In September 2013, the Ministry of Environment and Forests, based on the revised Comprehensive Environment Pollution Index,
issued a notification that
re-imposed
a moratorium on expansion of industries in certain areas where some of the Companys manufacturing facilities are located. This notification overrides the Andhra
Pradesh Governments notification that conditionally permitted expansion.
Indirect taxes related matters
Distribution of input service tax credits
The Central Excise Authorities have issued various demand notices to the Company objecting to the Companys methodology of
distributing input service tax credits claimed for one of the Companys facilities. The below table shows the details of each such demand notice, the amount demanded and the current status of the Companys responsive actions.
|
|
|
|
|
Period covered under the notice
|
|
Amount demanded
|
|
Status
|
March 2008 to September 2009
|
|
Rs.102 plus penalties of Rs.102 and interest
|
|
The Company has filed an appeal before the CESTAT.
|
October 2009 to March 2011
|
|
Rs.125 plus penalties of Rs.100 and interest
|
|
The Company has filed an appeal before the CESTAT.
|
April 2011 to March 2012
|
|
Rs.51 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
April 2012 to March 2013
|
|
Rs.54 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
April 2013 to March 2014
|
|
Rs.69 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
April 2014 to March 2015
|
|
Rs.108 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
The Company believes that the likelihood of any liability that may arise on account of the
allegedly inappropriate distribution of input service tax credits is not probable. Accordingly, no provision relating to these claims has been made in these consolidated financial statements as of March 31, 2017.
Value Added Tax (VAT) matter
The Company has received various demand notices from the Government of Telanganas Commercial Taxes Department objecting
to the Companys methodology of calculation of VAT input credit. The below table shows the details of each of such demand notice, the amount demanded and the current status of the Companys responsive actions.
F-72
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
44. Contingencies (continued)
Indirect taxes related matters (continued)
|
|
|
|
|
Period covered under the notice
|
|
Amount demanded
|
|
Status
|
April 2006 to March 2009
|
|
Rs.66 plus 10% penalty
|
|
The Company has filed an appeal before the Sales Tax Appellate Tribunal.
|
April 2009 to March 2011
|
|
Rs.59 plus 10% penalty
|
|
The Company has filed an appeal before the Sales Tax Appellate Tribunal.
|
April 2011 to March 2013
|
|
Rs.16 plus 10% penalty
|
|
The Appellate Deputy Commissioner issued an order partially in favor of the Company.
|
The Company has recorded a provision of Rs.27 as of March 31, 2017, and believes that the
likelihood of any further liability that may arise on account of the allegedly inappropriate claims to VAT credits is not probable.
Others
Additionally, the Company is in receipt of various demand notices from the Indian Sales and Service Tax authorities. The
disputed amount is Rs.174. The Company has responded to such demand notices and believes that the chances of any liability arising from such notices are less than probable. Accordingly, no provision is made in these consolidated financial statements
as of March 31, 2017.
Fuel Surcharge Adjustments
The Andhra Pradesh Electricity Regulatory Commission (the APERC) passed various orders approving the levy of Fuel
Surcharge Adjustment (FSA) charges for the period from April 1, 2008 to March 31, 2013 by power distribution companies from all the consumers of electricity in the then existing undivided state of Andhra Pradesh, India where
the Companys headquarters and principal manufacturing facilities are located. Separate writ petitions filed by the Company for various periods, challenging and questioning the validity and legality of this levy of FSA charges by the APERC, are
pending before the High Court of Andhra Pradesh and the Supreme Court of India.
After taking into account all of the
available information and legal provisions, the Company has recorded Rs.219 as the potential liability towards FSA charges. The total amount approved by APERC for collection by the power distribution companies from the Company in respect of FSA
charges for the period from April 1, 2008 to March 31, 2013 is Rs.482. As of March 31, 2017, the Company has made payments under protest of Rs.354 as demanded by the power distribution companies as part of monthly
electricity bills. The Company remains exposed to additional financial liability should the orders passed by the APERC be upheld by the Courts.
During the three months ended June 30, 2016, the Supreme Court of India dismissed the Special Leave Petition filed by the
Company in this regard for the period from April 1, 2012 to March 31, 2013. As a result, for the quarter ended June 30, 2016, the Company recognized an expenditure of Rs.55 (by
de-recognizing
the payments under protest) representing the FSA charges for the period from April 1, 2012 to March 31, 2013.
Direct taxes related matters
During the year ended March 31, 2014, the Indian Income Tax authorities disallowed for tax purposes certain business
transactions entered into by the parent company with its wholly-owned subsidiaries. The associated tax impact is Rs.570. The Company believes that such business transactions are allowed for tax deduction under Indian Income Tax laws and accordingly
filed an appeal with the Income Tax Appellate Authorities. On April 28, 2017, the Income Tax Appellate Tribunal of Hyderabad issued a judgment in favor of the Company confirming the Companys position.
Additionally, the Company is contesting various other disallowances by the Indian Income Tax authorities. The associated tax
impact is Rs.1,555. The Company believes that the chances of an unfavorable outcome in each of such disallowances are less than probable and, accordingly, no provision is made in these consolidated financial statements as of March 31, 2017.
During the years ended March 31, 2014, 2015 and 2016, Industrias Quimicas Falcon de Mexico, S.A. de CV, a
wholly-owned subsidiary of the Company in Mexico, received a notice from Mexicos Tax Administration Service,
Servicio de Administracion Tributaria
(SAT), with respect to disallowance on account of transfer pricing
adjustments pertaining to the calendar years ended December 31, 2006, December 31, 2007 and December 31, 2008. The associated tax impact is Rs.647 (MXN 187.4) and company has filed administrative appeals with SAT by challenging these
disallowances. During February and March 2017, the Company received orders of the SAT confirming the said disallowance by disposing administrative appeals filed earlier. The Company disagrees with the SATs disallowance and filed an appeal with
the Tribunal Federal de Justicia Administrativa (Federal Tax and Administrative Court of Mexico) in March and April 2017. The Company believes that possibility of any liability that may arise on account of this litigation is not probable.
Accordingly, no provision has been made in these consolidated financial statements as of March 31, 2017.
F-73
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
44. Contingencies (continued)
Others
Additionally, the Company is involved in other disputes, lawsuits, claims, governmental and/or regulatory inspections,
inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. Except as discussed above, the Company does not believe that there are any such contingent
liabilities that are expected to have any material adverse effect on its financial statements.
45. Nature of Expense
The following table shows supplemental information related to certain nature of expense items for the years ended
March 31, 2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, 2017
|
|
Particulars
|
|
Cost of
revenues
|
|
|
Selling, general and
administrative
expenses
|
|
|
Research and
development
expenses
|
|
|
Total
|
|
Employee benefits
|
|
Rs.
|
10,515
|
|
|
Rs.
|
15,838
|
|
|
Rs.
|
4,716
|
|
|
Rs.
|
31,069
|
|
Depreciation and amortization
|
|
|
6,117
|
|
|
|
3,935
|
|
|
|
1,225
|
|
|
|
11,277
|
|
|
|
|
|
For the Year Ended March 31, 2016
|
|
Particulars
|
|
Cost of
revenues
|
|
|
Selling, general and
administrative
expenses
|
|
|
Research and
development
expenses
|
|
|
Total
|
|
Employee benefits
|
|
Rs.
|
9,574
|
|
|
Rs.
|
16,641
|
|
|
Rs.
|
4,959
|
|
|
Rs.
|
31,174
|
|
Depreciation and amortization
|
|
|
5,241
|
|
|
|
3,933
|
|
|
|
1,076
|
|
|
|
10,250
|
|
|
|
|
|
For the Year Ended March 31, 2015
|
|
Particulars
|
|
Cost of
revenues
|
|
|
Selling, general and
administrative
expenses
|
|
|
Research and
development
expenses
|
|
|
Total
|
|
Employee benefits
|
|
Rs.
|
9,469
|
|
|
Rs.
|
15,400
|
|
|
Rs.
|
4,098
|
|
|
Rs.
|
28,967
|
|
Depreciation and amortization
|
|
|
4,154
|
|
|
|
3,023
|
|
|
|
923
|
|
|
|
8,100
|
|
46. Subsequent events
None
F-74
DR. REDDYS LABORATORIES LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data and where otherwise stated)
47. Organizational structure
Dr. Reddys Laboratories Limited is the parent company. Tabulated below is the list of subsidiaries, associates and
joint ventures as of March 31, 2017: