2.14. Provisions and Contingencies
Provisions are recognized when the Company has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation, and
the amount can be reliably estimated. Provisions are not recognized for future operating losses.
Provisions are measured at the present value of management’s best estimate of the expenditure required
to settle the present obligation at the end of the reporting period. The discount rate used to determine the
present value is a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the liability. The increase in the provision due to the passage of time is recognized
as interest expense.
A disclosure for contingent liabilities is made when there is a possible obligation arising from past
events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the Company or a present obligation that
arises from past events where it is either not probable that an outflow of resources embodying economic
benefits will be required to settle or a reliable estimate of the amount cannot be made.
2.15. Dividend Distributions
The Company recognizes a liability to make the payment of dividend to owners of equity, when the
distribution is authorised, and the distribution is no longer at the discretion of the Company. As per the
corporate laws in India, a distribution is authorised when it is approved by the shareholders. A
corresponding amount is recognised directly in equity.
2.16. Cash Flows
Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects
of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts
or payment and items of income or expenses associated with investing or financing cash flows. The cash
flows from operating, investing and financing activities of the Company are segregated.
2.17. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks, cash on hand and short-term
deposits with an original maturity of three months or less, which are subject to an insignificant risk of
changes in value.
2.18. Earnings Per Share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by
the weighted average number of equity shares outstanding during the financial year.
Diluted earnings per share
Diluted earnings per share is computed by dividing the profit after tax as adjusted for dividend, interest
and other charges to expense or income (net of any attributable taxes) relating to the dilutive potential
equity shares by the weighted average number of equity shares considered for deriving basic earnings
per share and also the weighted average number of equity shares that could have been issued upon
conversion of all dilutive potential equity shares.
2.19. Segment Reporting
The management has assessed the identification of reportable segments in accordance with the
requirements of Ind AS 108 ‘ Operating Segment’ and believes that the Company has only one reportable
segment namely “Contract, Research, Development and Manufacturing Services”.
2.20. Estimates and assumptions
The preparation of financial statements in conformity with Ind AS requires management to make
judgements, estimates and assumptions, that affect the application of accounting policies and the
reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and
liabilities at the date of these financial statements and the reported amounts of revenues and expenses
for the years presented. Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed at each Balance Sheet date. Revisions to accounting estimates are recognized
in the period in which the estimate is revised, and future periods affected. This note provides an overview
of the areas that involved a higher degree of judgement or complexity, and of items which are more
likely to be materially adjusted due to estimates and assumptions turning out to be different than those
originally assessed. Detailed information about each of these estimates and judgements is included in
relevant notes together with information about the basis of calculation for each affected line item in the
financial statements.
The areas involving critical estimates or judgements are:
• Leases
The Company determines the lease term as the non-cancellable term of the lease, together with any
periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods
covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Company
applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to
renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive
for it to exercise either the renewal or termination. After the commencement date, the Company
reassesses the lease term if there is a significant event or change in circumstances that is within its
control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g.,
construction of significant leasehold improvements or significant customisation to the leased asset).
• Employee benefits (estimation of defined benefit obligation)
Post-employment benefits represent obligations that will be settled in the future and require assumptions
to project benefit obligations. Post-employment benefit accounting is intended to reflect the recognition
of future benefit costs over the employee’s approximate service period, based on the terms of the plans
and the investment and funding decisions made. The accounting requires the Company to make
assumptions regarding variables such as discount rate and salary growth rate. Changes in these key
assumptions can have a significant impact on the defined benefit obligations.
• Impairment of trade receivables
The risk of collectability of trade receivables is primarily estimated based on prior experience with, and
the past due status of, doubtful debtors, based on factors that include ability to pay, bankruptcy and
payment history. The assumptions and estimates applied for determining the provision for impairment
are reviewed periodically.
• Estimation of expected useful lives of property, plant and equipment
Management reviews its estimate of the useful lives of property, plant and equipment at each reporting
date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and
economic obsolescence that may change the utility of property, plant and equipment.
• Contingencies
Legal proceedings covering a range of matters are pending against the Company. Due to the uncertainty
inherent in such matters, it is often difficult to predict the final outcome. The cases and claims against
the Company often raise difficult and complex factual and legal issues that are subject to many
uncertainties and complexities, including but not limited to the facts and circumstances of each
case/claim, the jurisdiction and the differences in applicable law. In the normal course of business, the
Company consults with legal counsel and other experts on matters related to litigations. The Company
accrues a liability when it is determined that an adverse outcome is probable, and the amount of the loss
can be reasonably estimated. In the event an adverse outcome is possible, or an estimate is not
determinable, the matter is disclosed.
• Valuation of deferred tax assets
Deferred income tax expense is calculated based on the differences between the carrying value of assets
and liabilities for financial reporting purposes and their respective tax bases that are considered
temporary in nature. Valuation of deferred tax assets is dependent on management’s assessment of future
recoverability of the deferred benefit. Expected recoverability may result from expected taxable income
in the future, planned transactions or planned optimizing measures. Economic conditions may change
and lead to a different conclusion regarding recoverability.
• Fair value measurements
When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be
measured based on quoted prices in active markets, their fair values are measured using valuation
techniques, including the discounted cash flow model, which involve various judgements and
assumptions.
The Company’s principal financial liabilities comprise borrowings, trade and other payables. The main
purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal
financial assets include loans, trade and other receivables, cash and cash equivalents and other bank
balances that derive directly from its operations. The Company also holds investment in its subsidiaries.
The carrying amounts of trade receivables, trade payables and cash and bank balances are considered to
be the same as their fair values, due to their short-term nature. The difference between carrying amounts
and fair values of bank deposits, other financial assets, other financial liabilities and borrowings
subsequently measured at amortised cost is not significant in each of the years presented.
30. Financial risk management objectives and policies
The possible risk to the Company is financial risk such as Market Risk (Interest Rate Risk, fluctuation
in foreign exchange rates and price risk), credit risk and liquidity risk. The general risk management
program of the Company focuses on the unpredictability of the financial markets and attempts to
minimize their potential negative influence on the financial performance of the Company. The Company
continuously reviews its risk exposures and takes measures to limit it to acceptable levels. The Board of
Directors have the overall responsibility for the establishment and oversight of the Company’s risk
management framework.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in market prices. Market risk comprises three types of risk i.e. interest rate risk,
foreign currency risk and other price risk. Financial instruments of the Company affected by market risk
include borrowings and deposits. The company does not hold any financial instruments which have
market risk.
Price risk
The Company does not have any investments which are classified in the balance sheet either as fair
value through OCI or at fair value through profit or loss. Hence, the Company is not exposed to any
price risk.
Credit risk
Credit risk is the risk arising from credit exposure to customers and the counterparty will default on its
contractual obligations.
The Company has adopted a policy of only dealing with creditworthy customers/ corporates to minimise
collection losses. Credit Control team assesses the credit quality of the customers, their financial
position, past experience in payments and other relevant factors. Advance payments are obtained from
customers in banquets, as a means of mitigating the risk of financial loss from defaults.
The carrying amount of trade and other receivables, advances to suppliers, cash and short-term deposits
and interest receivable on deposits represents company’s maximum exposure to the credit risk. No other
financial asset carries a significant exposure with respect to the credit risk. Deposits and cash balances
are placed with Schedule Commercial banks.
An impairment analysis is performed at each reporting date on an individual basis for major clients. In
addition, a large number of minor receivables are assessed for impairment collectively. The maximum
exposure to credit risk at the reporting date is the carrying value of each class of financial assets.
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company’s finance
department in accordance with the Company’s policy.
Liquidity risk
Liquidity risk is the risk that the Company will have difficulty in raising the financial resources required
to fulfil its commitments.
Liquidity risk is held at low levels through effective cash flow management. Cash flow forecasting is
performed internally by rolling forecasts of the Company’s liquidity requirements to ensure that it has
sufficient cash to meet operational requirements, to fund scheduled capex and debt repayments and to
comply with the terms of financing documents.
Defined benefit plans
The Company provides for gratuity to employees as per the Payment of Gratuity Act, 1972. Under the
gratuity plan, every employee who has completed at least five years of service gets a gratuity on
departure @ 15 days of last drawn salary for each completed year of service. The level of benefits
provided depends on the member’s length of service and salary at retirement age.
Risk exposure
These defined benefit plans typically expose the Company to actuarial risks as under:
Actuarial Risk:
It is the risk that benefits will cost more than expected. This can arise due to one of the following reasons:
Adverse Salary Growth Experience: Salary hikes that are higher than the assumed salary escalation will
result into an increase in Obligation at a rate that is higher than expected.
Variability in mortality rates: If actual mortality rates are higher than assumed mortality rate assumption
than the Gratuity Benefits will be paid earlier than expected. Since there is no condition of vesting on
the death benefit, the acceleration of cashflow will lead to an actuarial loss or gain depending on the
relative values of the assumed salary growth and discount rate.
Variability in withdrawal rates: If actual withdrawal rates are higher than assumed withdrawal rate
assumption than the Gratuity Benefits will be paid earlier than expected. The impact of this will depend
on whether the benefits are vested as at the resignation date.
Investment Risk:
For funded plans that rely on insurers for managing the assets, the value of assets certified by the insurer
may not be the fair value of instruments backing the liability. In such cases, the present value of the
assets is independent of the future discount rate. This can result in wide fluctuations in the net liability
or the funded status if there are significant changes in the discount rate during the inter-valuation period.
Liquidity Risk:
Employees with high salaries and long durations or those higher in hierarchy, accumulate significant
level of benefits. If some of such employees resign/retire from the company, there can be strain on the
cashflows.
Market Risk:
Market risk is a collective term for risks that are related to the changes and fluctuations of the financial
markets. One actuarial assumption that has a material effect is the discount rate. The discount rate
reflects the time value of money. An increase in discount rate leads to decrease in Defined Benefit
Obligation of the plan benefits & vice versa. This assumption depends on the yields on the
corporate/government bonds and hence the valuation of liability is exposed to fluctuations in the yields
as at the valuation date.
Legislative Risk:
Legislative risk is the risk of increase in the plan liabilities or reduction in the plan assets due to change
in the legislation/regulation. The government may amend the Payment of Gratuity Act thus requiring
the companies to pay higher benefits to the employees. This will directly affect the present value of the
Defined Benefit Obligation and the same will have to be recognized immediately in the year when any
such amendment is effective.
33. Segment Reporting
The management has assessed the identification of reportable segments in accordance with the
requirements of Ind AS 108 ‘Operating Segment’ and believes that the Company has only one reportable
segment namely “Contract Research and Manufacturing Services”.
34. Capital management
The Company’s policy is to maintain strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of business.
The Company manages its Capital structure through a balanced mix of debt and equity. The Company’s
capital structure is influenced by the changes in the regulatory frameworks, government policies,
available options of financing and impact of the same on liquidity position.
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