You should read the following discussion in conjunction with our Restated Consolidated Financial Information included herein as of and for the Financial Years 2024, 2023 and 2022, including the related notes, and schedules. Our Restated Consolidated Financial Information have been prepared in accordance with Ind AS and restated in accordance with the requirements of Section 26 of the Companies Act, 2013, the SEBIICDR Regulations and the Guidance Note. Ind AS differs in certain material respects from IFRS and US GAAP. See "Risk Factors - External Risk Factors - Significant differences exist between Ind AS used to prepare our financial information and other accounting principles, such as IFRS and U.S. GAAP, with which investors may be more familiar. " on page 70.
Our Companys Financial Year commences on April 1 and ends on March 31 of the immediately subsequent year, and references to a particular Financial Year are to the 12 months ended March 31 of that particular year. Unless otherwise indicated or the context otherwise requires, the financial information for Financial Years ended March 31 , 2024, 2023 and 2022, included herein is derived from the Restated Consolidated Financial Information included in this Red Herring Prospectus. For further information, see "Restated Consolidated Financial Information " on page 289. Unless otherwise indicated or the context otherwise requires, in this section, references to "we", "us" and "our" are to the Company together with its Subsidiaries and erstwhile associate on a consolidated basis.
Unless otherwise indicated, industry and market related data used in this section have been derived from the report titled "Independent Market Research on the Overview of the Global and Indian Contract Development & Manufacturing Organization Industry" dated July 5, 2024 (the "F&S Report"), prepared and released by Frost & Sullivan (India) Private Limited ("F&S"), which has been exclusively paid and commissioned for by our Company pursuant to an engagement letter dated October 7, 2023, for the purpose of confirming our understanding of the industry we operate in, in connection with the Offer. F&S is not related to our Company, our Promoters or our Directors. The F&S Report will be available on the website of our Company at https://www. akums.in/investors/. The data included herein includes excerpts from the F&S Report and may have been re-ordered by us for the purposes ofpresentation. There are no parts, data or information (which may be relevant for the Offer), that has been left out or changed in any manner. See "Certain Conventions, Use of Financial Information and Market Data and Currency of Presentation - Industry and Market Data " and "Risk Factors — Internal Risk Factors — This Red Herring Prospectus contains information from third parties, including an industry report prepared by an independent third-party research agency, Frost & Sullivan (India) Private Limited, which we have commissioned and paid for, for the purpose of confirming our understanding of the industry we operate in, exclusively in connection with the Offer" on pages 16 and 72, respectively.
This discussion contains forward-looking statements that involve risks and uncertainties and reflects our current view with respect to future events and financial performance. Actual results may differ from those anticipated in these forward-looking statements as a result offactors such as those set forth under "Forward-looking Statements" and "Risk Factors" on pages 19 and 28, respectively.
Overview
Established in 2004, we are a pharmaceutical contract development and manufacturing organization ("CDMO") offering a comprehensive range of pharmaceutical products and services in India and overseas. As one of the leading CDMOs in India, we own the intellectual property for the manufacturing processes of several of our formulations, and our core business is focused on providing end-to-end product development and manufacturing solutions to our clients. Some of our other services include formulation research and development ("R&D"), preparation and filing of regulatory dossiers in the Indian and global markets, and other testing services. In addition to our core CDMO business, we are also engaged in the manufacturing and sale of branded pharmaceutical formulations and active pharmaceutical ingredients ("APIs").
We are the largest India-focused CDMO in terms of revenue, production capacity and clients served during the Financial Year 2023 (among CDMOs assessed by F&S) (Source: F&S Report). As a CDMO, we produce an extensive range of dosage forms including tablets, capsules, liquid orals, vials, ampoules, blow-filled seals, topical preparations, eye drops, dry powder injections, and gummies, among others (Source: F&S Report). During the Financial Year 2024, we had a market share of 30.2% of the Indian domestic CDMO market by value, which increased from 26.7% during the Financial Year 2021 (Source: F&S Report). The Indian domestic CDMO market is forecasted to grow at a CAGR of 14.3% between Financial Year 2024 and Financial Year 2028, nearly doubling its historical growth rate (Source: F&S Report). Moreover, the market size of Indian domestic CDMO market is forecasted to grow to USD 2.8 billion during Financial Year 2028 (Source: F&S Report).
Since our inception, we have manufactured 4,146 commercialised formulations across over 60 dosage forms. During the Financial Year 2024, we manufactured formulations for 26 of the leading 30 pharmaceutical companies in terms of sales in India (Source: F&S Report). For our CDMO business, we operate 10 manufacturing units, with a cumulative formulations manufacturing capacity of 49.23 billion units annually, as of March 31, 2024. Further, we expect our new injectable facility to be operational in Financial Year 2025. Some of our manufacturing units have been accredited by various global regulatory agencies such as the European Good Manufacturing Practice ("EU-GMP"), the World Health Organization Good
Manufacturing Practice ("WHO-GMP") and the United States National Sanitation Foundation ("US NSF"). During the Financial Years 2024, 2023 and 2022, our manufacturing units were subject to 58 inspections by regulators and 527 audits by our clients (Source: F&S Report). For key details of our manufacturing units, including accreditations and certifications received from Indian and foreign government agencies, see "— Our Manufacturing Units" on page 219.
Our longstanding relationships with our clients are characterized by a commitment to consistency and trust. As of March 31, 2024, key clients for our CDMO business include Alembic Pharmaceuticals, Alkem Laboratories, Blue Cross Laboratories, Cipla, Dabur India, Dr. Reddys Laboratories, Hetero Healthcare, Ipca Laboratories, Mankind Pharma, MedPlus Health Services, Micro Labs, Mylan Pharmaceuticals, Natco Pharma, Sun Pharmaceutical Industries, UCB, and Amishi Consumer Technologies (The Moms Co), among others. The image below includes some of our key clients for our CDMO business.
For our CDMO business, we have benefitted from repeat orders in the past five years from 38 of our 50 largest clients in terms of revenue, as of March 31, 2024. This reflects the quality of our products and services and our commitment to meeting the evolving needs of our clients. Our client relationships have matured over time. As of March 31, 2024, 26 of our 50 largest clients in terms of revenue have a legacy of more than ten years with us, and their revenue contribution has grown from Rs 13,548.50 million during Financial Year 2022 to Rs 14,415.38 million during Financial Year 2024. This demonstrates consistency, reliability, expertise and cost efficiencies that we believe we bring to our clients.
The table below sets out the composition of our client base for our CDMO business and revenue contributions from our five and ten largest clients by revenue in our CDMO business, for the Financial Years 2024, 2023 and 2022:
| Particulars | Financial Year 2024 | Financial Year 2023 | Financial Year 2022 |
| Client base for CDMO business1 | 1,524 | 1,543 | 1,386 |
| Revenue contributions from our five largest clients by revenue in our CDMO business (in Rs million) | 8,408.43 | 7,176.37 | 7,729.58 |
| Revenue contributions from our five largest clients by revenue in our CDMO business (in %) | 25.74 | 26.35 | 29.05 |
| Revenue contributions from our ten largest clients by revenue in our CDMO business (in Rs million) | 12,841.14 | 10,597.55 | 10,982.66 |
| Revenue contributions from our ten largest clients by revenue in our CDMO business (in %) | 39.31 | 38.92 | 41.27 |
Our commitment to innovation and continuous improvement has enabled us to remain at the forefront of pharmaceutical advancement in India. Our R&D teams are dedicated to developing an expansive product portfolio with differentiated dosages,
and further enhancing manufacturing processes. Our focus on R&D has resulted in the development of 222 innovative formulations since the commencement of our operations. As of March 31, 2024, we operate four dedicated R&D units, of which two are approved by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India, and a team of 406 R&D scientists. As of March 31, 2024, we have secured approval from the Drug Controller General of India ("DCGI") for 927 formulations and have been granted approval for five patents (Source: F&SReport). Further, as on the date of this Red Herring Prospectus, we have received approval from the Food Safety and Standards Authority of India ("FSSAI") for 923 formulations. We also received approvals from the DCGI for 45 formulations during the Financial Year 2024 (Source: F&S Report).
In addition to our core CDMO business, we actively engage in marketing our own branded formulations in India and across global markets, and have established a domestic and international presence through our Subsidiaries, Akumentis and Unosource, respectively. Through Akumentis, we focus on therapy areas such as gynaecology, cardiology, orthopaedic and paediatric. Utilizing our field force of 1,532 individuals, as of March 31, 2024, we have established a domestic marketing and distribution network of medical representatives, field managers, distributors and retailers and sell over 140 brands, as of March 31, 2024. Through Unosource, we focus on therapy areas such as anti-infectives, analgesics, central nervous system, and gynaecology. As of March 31, 2024, our international presence extends across 65 countries, and our key clients include Allegens (Vietnam), Ambica International (Philippines), Caferma SAC (Peru), JDS (Myanmar), Master Pharma (Cambodia), Olainfarm (Latvia), Pharma Apex (Myanmar), Planet Pharmaceutical (Tanzania), and Unisel (Kenya), among others. The image below includes some of our key international clients.
Significant Factors Affecting our Results of Operations
Our Manufacturing Capabilities
Our manufacturing capacities across dosage forms are a key driver for the growth of our revenue from operations. As of March 31, 2024, for our CDMO business, we operate 10 manufacturing units, with a cumulative formulations manufacturing capacity of 49.23 billion units annually. See "Our Business - Description of Our Business — Our Manufacturing Units on page 219 for our production capacities and capacity utilization. In order to continue to grow our manufacturing capabilities for our CDMO business, it is essential for us to increase our formulations manufacturing capacity across multiple dosage forms by pursuing strategic acquisitions, building additional manufacturing units and driving efficiencies in our existing production lines by leveraging technology and improving human intervention.
It is also important for us to focus on improving capacity utilization at our manufacturing units. Higher capacity utilization means higher volumes of products manufactured, which in turn drives our sales of products and revenue from operations. The following table sets out our installed capacity, production volume and capacity utilization by dosage forms over the Financial Years 2024, 2023 and 2022:
| Particulars | As of/for the year ended March 31, | ||||||||
| 2024 | 2023 | 2022 | |||||||
| Installed capacity (production volume in millions) | Production during the Financial Year (in millions) | Capacity utilization as % of installed capacity | Installed capacity (production volume in millions) | Production during the Financial Year (in millions) | Capacity utilization as % of installed capacity | Installed capacity (production volume in millions) | Production during the Financial Year (in millions) | Capacity utilization as % of installed capacity | |
| Oral solids | 47,888.78 | 18,254.50 | 38.12% | 47,878.78 | 15,399.05 | 32.16% | 44,138.20 | 18,306.30 | 41.47% |
| Sterile | 767.00 | 370.40 | 48.29% | 744.20 | 349.39 | 46.95% | 722.40 | 379.58 | 52.54% |
| Liquids | 417.60 | 111.20 | 26.63% | 417.60 | 129.67 | 31.05% | 283.20 | 148.70 | 52.51% |
| External | 158.40 | 49.20 | 31.06% | 158.40 | 39.94 | 25.21% | 158.40 | 36.83 | 23.25% |
Following the acquisition of Parabolic Drugs by our Company in 2021, we commenced API manufacturing. We acquired manufacturing units in Dera Bassi, Lalru and Barwala, and as of March 31, 2024, our API manufacturing units have a production capacity of 737.84 MT for APIs. We expect API manufacturing to be an important driver of our future growth and continue to explore opportunities to increase our API manufacturing capabilities. Manufacturing APIs over time will also assist us in vertical integration which would be a key factor in improving margins.
A slowdown or shutdown of our manufacturing units could have an adverse effect on our results of operations. See " Risk Factors - Internal Risk Factors - Risks relating to our business and operations - Any slowdown or shutdown in our manufacturing and research and development operations could have an adverse effect on our business, results of operations, financial condition and cash flows." on page 29.
Our Diverse and Longstanding Client Base
Our results of operations significantly depend upon our relationships with clients. Our core CDMO business services a large and diverse client base, both in India and overseas. By leveraging our understanding of the regulatory environment, we provide assistance to our clients through our dedicated team of experts, guiding our client base through the intricacies of evolving regulatory issues and requirements. Our client base includes pharmaceutical companies, nutraceutical companies, cosmo-derma companies, wellness companies, e-commerce companies, healthcare providers and central and state government entities.
Since our inception, we have manufactured 4,146 commercialised formulations across over 60 dosage forms. Moreover, during the Financial Year 2024, we manufactured formulations for 26 of the leading 30 pharmaceutical companies in terms of sales in India (Source: F&SReport). Our longstanding relationships with our clients are characterized by a commitment to consistency and trust. For our CDMO business, we have benefitted from repeat orders in the past five years from 38 of our 50 largest clients in terms of revenue, as of March 31, 2024. This reflects the quality of our products and services and our commitment to meeting the evolving needs of our clients.
We have low client concentration in our CDMO business, and the table below sets out the revenue contributions from our ten largest clients by revenue for the Financial Years 2024, 2023 and 2022:
| Particulars | For the Financial Year | ||
| 2024 | 2023 | 2022 | |
| Revenue contributions from our ten largest clients by revenue in our CDMO business (%) | 39.31 | 38.92 | 41.27 |
We continually look to onboard new clients and expand our client base which, for our CDMO business, has grown from 1,386 clients during Financial Year 2022 to 1,524 clients for the Financial Year 2024. To continue to increase our revenues from our existing clients, it is critical for us to maintain the quality of our products and services, effectively market our products and services, keep up with market trends, and ensure that our manufacturing capabilities are able to meet client demand.
Our CDMO Product Range and Expansion of our Formulations and API Businesses
As a CDMO, we produce an extensive range of dosage forms including tablets, capsules, liquid orals, vials, ampoules, blow- filled seals, topical preparations, eye drops, dry powder injections, and gummies, among others (Source: F&S Report). The diversity of our dosage forms is not only a key factor in our strong results of operations but it also helps us mitigate risk as the pharmaceutical landscape evolves. Since our inception, we have manufactured 4,146 commercialised formulations across over 60 dosage forms. A change in our range of dosage forms, SKUs and commercialized formulations will have a direct impact on our results of operations.
In addition to our core CDMO business, we actively engage in marketing our own branded formulations in India and across overseas markets. Operating through our subsidiary, Akumentis, our domestic branded formulations business spans across gynaecology, cardiology, orthopaedics, paediatrics, and dermatology, featuring a portfolio of over 140 brands. We continue to focus on expanding our brand presence in India, increasing our geographical reach in the country, encouraging deeper collaboration with the scientific community, and developing products in new therapeutic areas.
As part of our growth strategy, we aim to expand our global presence, enter new markets and further diversify our operations. Our geographies for growth cover countries in Latin America, Europe, Middle East, Africa and South East Asia. The table below sets forth our revenues from operations within and outside India:
| For the Financial Year | ||||||
| 2024 | 2023 | 2022 | ||||
| (f in millions) | (% of Total Revenue from Operations) | (f in millions) | (% of Total Revenue from Operations) | (f in millions) | (% of Total Revenue from Operations) | |
| Revenue from operations - within India | 39,085.74 | 93.55% | 34,231.47 | 93.66% | 35,726.30 | 97.30% |
| Revenue from operations - outside India | 2,696.08 | 6.45% | 2,316.73 | 6.34% | 992.63 | 2.70% |
As a manufacturer of APIs, we plan to develop a comprehensive portfolio of complex APIs for both captive consumption and third-party contract manufacturing within India. It is also important for us to develop APIs while achieving process and cost efficiencies. By continuing to invest in R&D, we strive to optimize manufacturing processes, ensuring competitiveness in the market and long-term sustainability.
See "Our Business - Our Strategies" and "Risk Factors - Internal Risk Factors - Risks relating to our business and operations - Our inability to successfully implement our business plan and growth strategy could have an adverse effect on our business, results of operations, financial condition and cash flows." on pages 214 and 41, respectively.
Our R&D Initiatives
Innovation and new product development is critical to our growth of revenue from operations and profitability, and our commitment to innovation and continuous improvement has enabled us to remain at the forefront of pharmaceutical advancement in India. Our R&D teams are dedicated to developing an expansive product portfolio with differentiated dosages, and further enhancing manufacturing processes. Our R&D capabilities and significant manufacturing operations enable us to discover, develop and manufacture our CDMO products in a cost-efficient and timely manner. Through our R&D initiatives, we have developed over 222 innovative formulations since the commencement of our operations. As of March 31, 2024, we operate four dedicated R&D units and engaged 406 R&D scientists across our businesses. Two of our R&D units are approved by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India.
We continue to prioritize R&D across a wide range of therapy areas and dosage forms. This includes a commitment to develop dossiers for our formulations for expansion into global regulated markets. Our objective is to market products under our own brand in overseas markets, as well as provide an avenue for co-operation with other global manufacturers in developing products and transferring technologies. Moreover, we continue to ensure that our R&D team collaborates with our wider teams to understand the evolving needs of our client base and ensure we develop and produce products that meet their demands.
See "Risk Factors - Internal Risk Factors - Risks relating to our business and operations - Our success depends on our ability to successfully develop and commercialize new products in a timely manner. Any failure to do so could adversely affect our business, results of operations and financial condition." on page 36 for risks associated with our failure to leverage our R&D initiatives.
Our Quality Control Standards
We believe that maintaining adequate control of the quality of our products is critical to our success and continued growth. We have formulated and adopted a quality control policy prescribing stringent quality control practices to ensure optimal quality standards are maintained. Our manufacturing units are accredited by a number of global regulatory agencies, who regularly carry out quality control inspections to ensure we meet these standards. We are also subject to regular audits from our clients.
To ensure operational efficiency and quality optimization, our manufacturing units are specialized and customised to produce specific product types. For instance, we have established a specialized penem plant that adheres to global standards, producing oral, dry syrup, and injectable dosage forms, ensuring the highest quality and prevention of cross-contamination. We also have a dedicated facility for hormonal products across tablets, capsules, sterile and topical dosage forms.
We have incurred significant expense to ensure that we have the adequate human capital to meet prescribed quality control standards. As of March 31, 2024, we have 2,181 employees in our quality assurance and quality control departments. We also leverage technology to ensure quality control and compliance across our operations, through the use of e-QMS and LIMS. Moreover, during the Financial Years 2024, 2023 and 2022, we conducted 321 audits at our suppliers facilities.
We have also made investments towards infrastructure and technology to support our quality assurance and quality control teams. For instance, in 2010, we have established a stability centre and testing lab at Upadhrish, Haridwar, to conduct stability studies for our manufacturing operations. Our stability centre is in compliance with ICH Q1A (R2) - Stability testing of new drug substances and drug products guidelines issued by the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use. If we are unable to maintain our quality control standards, our results of operations could be adversely affected. During the Financial Years 2024, 2023 and 2022, we have faced instances where our products were either voluntarily recalled by us or returned by our clients due to quality control issues. The table below sets out details of our sales returns on a segment-wise basis for the Financial Years 2024, 2023 and 2022:
| For the Financial Year | ||||||
| 2024 | 2023 | 2022 | ||||
| Sales Returns (f in millions) | % of segment revenue from operations | Sales Returns (f in millions) | % of segment revenue from operations | Sales Returns (f in millions) | % of segment revenue from operations | |
| CDMO | 273.48 | 0.84 | 153.41 | 0.56 | 101.53 | 0.38 |
| Branded and generic formulations | 782.30 | 11.19 | 881.32 | 11.68 | 633.02 | 7.02 |
| API | 70.00 | 3.29 | 145.16 | 8.19 | 1.26 | 0.12 |
Availability of Raw Materials at Competitive Prices
We rely on a number of suppliers for the raw materials required for our manufacturing operations. The cost of raw materials, which we source from India and overseas, makes up a significant proportion of our total operating expenses. Our cost of materials consumed for the Financial Years 2024, 2023 and 2022 was Rs 22,783.70 million, Rs 20,280.85 million and Rs 20,385.94 million, respectively, constituting 53.84%, 58.35% and 52.61% of our total expenses, respectively.
The raw materials required for our CDMO business include those necessary for the production of APIs, excipients, and various packaging materials. We also source raw materials utilized in the creation and distribution of finished pharmaceutical formulations, and the manufacturing of key starting materials, intermediates, and solvents. The availability and cost of the raw materials required by us can fluctuate based on a number of factors including changes in government policy, currency fluctuations, customer demand, large disease outbreaks such as the COVID-19 pandemic and the geopolitical environment. We source most of our raw materials from a small group of suppliers with whom we have developed successful and long-term relationships, and we believe that using the same group of suppliers helps drive cost efficiencies and ensures consistent quality standards. See also "Our Business - Description of our Business - Raw Materials" and "Risk Factors - We import some of our raw materials from China and other countries and source our remaining raw materials domestically. Any delay, interruption or reduction in the supply of such raw materials could adversely affect our business, financial condition and results of operations"" on pages 227 and 35, respectively.
We enter into master agreements with our suppliers and procure raw materials on a purchase order basis, with the price negotiated for each purchase order. We also only source materials after receiving client orders. While this approach helps us maintain flexibility, reduce wastage, and ensure access to raw materials in a cost-efficient manner, it could expose us to potential delays in developing products in the event of a shortage of key raw materials required for our businesses. Our cost of raw materials has fluctuated over the last three financial years, and may increase rapidly due to increased customer demand. We seek to reduce such risk by diversifying our procurement base, while also relying more heavily on Indian suppliers. While we are able to pass on the risk to our customers in some instances based on the price negotiated per purchase order, an inability to do so could have an adverse effect on our results of operations.
The table below sets out purchases of raw materials from our ten largest suppliers of raw materials, purchases from domestic suppliers and imports, including as a percentage of our total cost of raw material purchased:
| For the Financial Year | ||||||
| 2024 | 2023 | 2022 | ||||
| (f in millions) | % of Total Cost of Raw Material Purchased | (f in millions) | % of Total Cost of Raw Material Purchased | (f in millions) | % of Total Cost of Raw Material Purchased | |
| CDMO business | ||||||
| Purchases of raw materials from our ten largest suppliers | 4709.84 | 29.51 | 3,557.73 | 24.30 | 3,601.25 | 21.96 |
| Purchases of raw materials from domestic suppliers | 13,866.09 | 86.87 | 12,728.44 | 86.92 | 14,746.92 | 89.92 |
| Direct imports of raw materials | 2,096.20 | 13.13 | 1,914.90 | 13.08 | 1,653.31 | 10.08 |
| Branded and generic formulations business* | ||||||
| Purchases of raw materials from our ten largest suppliers | 2,782.09 | 73.89 | 3,042.41 | 75.94 | 3,768.70 | 59.92 |
| Purchases of raw materials from domestic suppliers | 3,765.14 | 100.00 | 3,963.20 | 98.93 | 6,079.39 | 96.65 |
| Direct imports of raw materials | - | - | 42.98 | 1.07 | 210.46 | 3.35 |
| API business | ||||||
| Purchases of raw materials from our ten largest suppliers | 627.38 | 58.23 | 412.17 | 51.77 | 978.62 | 68.45 |
| Purchases of raw materials from domestic suppliers | 700.48 | 65.02 | 765.21 | 96.12 | 635.39 | 44.44 |
| Direct imports of raw materials | 376.88 | 34.98 | 30.92 | 3.88 | 794.27 | 55.56 |
Employee Costs and Availability
Our results of operations and growth also depend on our ability to attract and retain qualified employees. Our operations are labour intensive, making managing employee benefit expense a key factor towards driving profitability. As of March 31, 2024, we employed a total of 16,127 personnel, including 7,388 full-time employees and 8,739 personnel on a contractual-basis across our business. For more details, see"Our Business -Employees"" on page 231.
For the Financial Years 2024, 2023 and 2022, our employee benefit expense aggregated to Rs 6,468.64 million, Rs 5,901.33 million and Rs 5,077.58 million, respectively, constituting 15.29%, 16.98% and 13.10% of our total expenses, respectively. As our business and operations have grown, due to the nature of our business, our employee benefits expense has also increase in absolute terms. However, our focus on cost efficiencies has led to such expense as a percentage of revenue from operations being limited within the range of 13.83% to 16.15% for the periods presented.
Summary of Material Accounting Policies
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
• in the principal market for the asset or liability, or
• in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to our Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a nonfinancial asset takes into account a market participants ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. We use valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial results are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the Restated Consolidated Financial Information on a recurring basis, we determine whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period or each case. For the purpose of fair value disclosures, we have determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Revenue Recognition
The five step model of Ind AS 115 - ‘Revenue from Contracts from Customers used to determine whether revenue should be recognised at a point in time or over time, and at what amount is as below:
• Step 1: Identify the contract with the customer
• Step 2: Identify the performance obligations in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations
• Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
Revenue from sale of goods is recognised upon transfer of control of promised goods to customers in an amount that reflects the consideration which we expect to receive in exchange for those products, and which coincides with the dispatch of goods. Revenue from services is recognised in accordance with the terms of contract when the services are rendered and the related costs are incurred. Revenue is measured based on the transaction price, which is the consideration, adjusted for discounts, price
concessions and incentives, if any, as specified in the contract with the customer. Revenue also excludes goods and service tax ("GST") collected from customers, since GST is not received by us on our own account. Rather, it is the collected tax on value added to the commodity/services by the seller, on behalf of the Government and, therefore, these are not economic benefits flowing to us. Accordingly, it is excluded from revenue. Revenue from the sale of goods is net of returns.
We account 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 our estimate of expected sales returns. We deal in various products and operate in various markets. Accordingly, the estimate of sales returns is determined primarily by our historical experience in the markets in which we operate. With respect to established products, we consider our 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 our business and markets. We recognise an asset i.e., right to recover products from customer (included in other current assets) for the products expected to be returned. We initially measure this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with remeasuring the refund liability at the end of each reporting period, we update the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.
Other Income
Other income comprises primarily of interest income, exchange gain/loss on translation of monetary assets and liabilities, etc.
Interest
Interest income is recognised as and when due on the time proportion basis by using effective interest method (" EIR"). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial assets. Interest income is included under the head ‘other income.
Inventories
Inventories include raw material, stores and spares, finished goods, work in progress, stock-in-trade and packing material. Inventories are stated at lower of cost or net realisable value. The cost in respect of the various items of inventory is computed as under:
• Raw materials and packing materials are valued at lower of cost or net realisable value. However, these items are considered to be realisable at cost if the finished products, in which they will be used, are expected to be sold at or above cost. The cost includes direct expenses and is determined on the basis of weighted average method.
• Stores and spares are valued at cost or net realisable value, whichever is less. Cost is computed on weighted average basis.
• Work in progress is valued at estimated cost. The cost includes the cost of raw materials, packing materials, an appropriate share of fixed and variable production overheads as applicable and other costs incurred in bringing the inventories to their present location and condition.
• Finished goods are valued at estimated cost or net realisable value, whichever is less. The cost includes the cost of raw materials, packing materials, an appropriate share of fixed and variable production overheads, as applicable and other costs incurred in bringing the inventories to their present location and condition.
• Stock-in-trade is valued at cost or net realisable value, whichever is less. Cost includes cost of purchase, other costs incurred in bringing the inventories to their present location and condition and taxes which are not eligible for setoff. Cost is determined on weighted average basis.
Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Provision for expired stock and slow moving inventory, if required, is made based on our managements best estimates of net realisable value of such inventories.
Property, Plant and Equipment
Recognition and initial measurement
Property, plant and equipment are stated at their cost of acquisition. The cost comprises the purchase price and any attributable costs of bringing the asset to its working condition for its intended use. Any trade discount and rebates are deducted in arriving
at the purchase price. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits attributable to such subsequent cost associated with the item will flow to us. All other repair and maintenance costs are recognised in the Restated Consolidated Statement of Profit and Loss as incurred.
Subsequent measurement (depreciation and useful lives)
Depreciation on property, plant and equipment is provided on the straight line method. The following useful life of assets has been taken by us:
| Asset class | Useful lives |
| (in years) | |
| Buildings | 30 |
| Plant and equipment | 15 |
| Furniture and fittings | 10 |
| Vehicles | 8 to 10 |
| Office equipment | 5 |
| Computers | 3/6 |
| Research and development laboratory equipment | 10 |
| Electrical installation | 10 |
Leasehold improvements are amortised over a period of ten years. The residual values, useful lives and method of depreciation are reviewed at each reporting period end and adjusted prospectively, if appropriate. Where, during any year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, or significant components replaced; depreciation on such assets is calculated on a pro rata basis as individual assets with specific useful life from the month of such addition or, as the case may be, up to the month on which such asset has been sold, discarded, demolished or destroyed or replaced. Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is classified as capital advances under other non-current assets and the cost of assets not put to use before such date are disclosed under ‘capital work-in-progress.
De-recognition
An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Restated Consolidated Statement of Profit and Loss when the asset is derecognised.
Intangible Assets
Recognition and initial measurement
Intangible assets (including brands/ trademarks) that are acquired are recognised only if it is probable that the expected future economic benefits that are attributable to the asset will flow to us and the cost of assets can be measured reliably. The intangible assets are recorded at cost of acquisition including incidental costs related to acquisition and installation, and are carried at cost less accumulated amortisation and impairment losses, if any.
Subsequent measurement (amortisation)
All intangible assets are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives. The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
The cost thereof is amortised over a period of 4-5 years. The amortisation period and the amortisation method for intangible assets are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Restated Consolidated Statement of Profit and Loss when the asset is derecognised.
Borrowing Costs
Borrowing costs include interest, amortisation of ancillary costs incurred in connection with the arrangement of borrowings and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs, if any, directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised, if any. All other borrowing costs are expensed to the Restated Consolidated Statement of Profit and Loss in the year in which they occur.
Employee Benefits
We provide post-employment benefits through various defined contribution and defined benefit plans:
Defined contribution plans
Our contribution to provident fund and employee state insurance fund is considered as defined contribution plan and is charged as an expense as they fall due based on the amount of contribution required to be made and when services are rendered by the employees. We have no legal or constructive obligation to pay contribution in addition to our fixed contribution.
Defined benefit plans - unfunded
We operate a gratuity plan wherein every employee is entitled to the benefit. Gratuity is payable to all eligible employees (who have completed five years or more of service) at our Company, on retirement, separation, death or permanent disablement, in terms of the provisions of the Payments of Gratuity Act, 1972.
Gratuity is post-employment benefit and is in the nature of a defined benefit plan. The liability recognised in the Restated Consolidated Financial Information in respect of gratuity is the present value of the defined benefit obligation at the reporting date, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated at or near the reporting date by an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes in actuarial assumptions are credited or charged to the Restated Consolidated Statement of Profit and Loss under other comprehensive income in the year in which such gains or losses are determined.
Other non-current employee benefits - compensated absences
Liability in respect of compensated absences becoming due or expected to be availed more than one year after the reporting date is estimated on the basis of an actuarial valuation performed by an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes in actuarial assumptions are credited or charged to the Restated Consolidated Statement of Profit and Loss in the year in which such gains or losses are determined.
Current employee benefits
All employee benefits payable wholly within twelve months of rendering services (such as, salaries, wages, short-term compensated absences, performance incentives, expected cost of bonus, ex-gratia, etc.) are classified as current employee benefits. Expense in respect of current employee benefits is recognised on the basis of the amount paid or payable for the period during which services are rendered by the employee.
Equity Settled Share based Payments
Our employees receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised, together with a corresponding increase in share-based payment reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and our best estimate of the number of equity instruments that will ultimately vest.
When the terms of an equity-settled award are modified, the minimum expense recognised is such that would arise had the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through the Restated Consolidated Statement of Profit and Loss. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.
Foreign Currency Transactions and Translations
The Restated Consolidated Financial Information are presented in Rs , which is also the our Companys functional currency. Transactions in foreign currencies are initially recorded by our entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.
Exchange differences arising on the settlement of monetary items or on restatement of our monetary items at rates different from those at which they were initially recorded during the year, or reported in previous years, are recognised as income or as expenses in the year in which they arise.
Government Grants
Grants from the Government are recognised when there is reasonable assurance that all underlying conditions will be complied with and that the grant will be received.
When loans or similar assistance are provided by the Government or related institutions, with an interest rate below the current applicable market rate, the effect of this favorable interest is regarded as a government grant and is recognised under ‘o ther operating revenue.
Grants related to depreciable assets are treated as deferred income which is recognised in the Restated Consolidated Statement of Profit and Loss on a systematic and rational basis over the useful life of the asset. Such allocation to income is usually made over the periods and in the proportions in which depreciation on related assets is charged.
Grants related to income are recognised as income on a systematic basis in the Restated Consolidated Statement of Profit and Loss over the periods necessary to match them with the related costs, which they are intended to compensate and are presented as ‘other income.
Taxes
Tax expense is the aggregate amount included in the determination of profit or loss for the period in respect of current and deferred tax.
Current income tax
Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 and respective local jurisdictions where we operate.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where we operate and generate taxable income. Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity).
Current tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Our management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which they can be used. The existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, in case of a history of recent losses, we recognise a deferred tax asset only to the extent that it has sufficient taxable temporary
differences or there is convincing other evidence that sufficient taxable profit will be available against which such deferred tax asset can be realised.
Our ability to recover the deferred tax assets is assessed by our management at the close of each reporting period which depends upon the forecasts of the future results and taxable profits that we expect to earn within the period by which such brought forward losses may be adjusted against the taxable profits as governed by the Income Tax Act, 1961. Deferred tax assets - unrecognised or recognised, are reviewed at each reporting date and are recognised/ reduced to the extent that it is probable or no longer probable, respectively, that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the laws that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which we expect, at the reporting date, to recover or settle the carrying amount of our assets and liabilities.
Minimum alternate tax credit is recognised as an asset only when and to the extent there is convincing evidence that we will pay normal income tax during the specified period. Such asset is reviewed at the close of each reporting period end and the adjusted based on circumstances then prevailing.
Deferred tax assets are recognised on the unrealised profit for all the inter-company sale/ purchase eliminations of property, plant and equipment and inventories.
Deferred tax on business combination when a liability assumed is recognised at the acquisition date but the related costs are not deducted in determining taxable profits until a later period, a deductible temporary difference arises which results in a deferred tax asset. a deferred tax asset also arises when the fair value of an identifiable asset acquired is less than its tax base. In both cases, the resulting deferred tax asset affects goodwill.
We offset deferred tax assets and deferred tax liabilities if and only if we have a legally enforceable right to set off current tax assets and current tax liabilities, and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. We operate in various segments and relevant disclosure requirements as per Ind AS 108 "Operating Segments" have been disclosed us under Note 50 of the Restated Consolidated Financial Information. Our Board of Directors has been identified as being the chief operating decision maker by our management.
Financial Instruments
Financial instruments are recognised when we become a party to the contractual provisions of the instrument and are measured initially at fair value adjusted for transaction costs, except for those carried at fair value through profit or loss which are measured initially at fair value.
If we determine that the fair value at initial recognition differs from the transaction price, we account for that instrument at that date as follows:
• at the measurement basis mentioned above if that fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e. a Level 1 input) or based on a valuation technique that uses only data from observable markets. We recognise the difference between the fair value at initial recognition and the transaction price as a gain or loss.
• in all other cases, at the measurement basis mentioned above, adjusted to defer the difference between the fair value at initial recognition and the transaction price. After initial recognition, we recognise that deferred difference as a gain or loss only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability.
Subsequent measurement of financial assets and financial liabilities is described below.
Non-derivative financial assets Classification and subsequent measurement
For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition:
• Financial assets at amortised cost - a financial instrument is measured at amortised cost if both the following conditions are met:
- The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
- Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest method.
• Financial assets at fair value
Investments in equity instruments - All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified as at fair value through profit and loss ("FVTPL"). For all other equity instruments, we decide to classify the same either as at fair value through other comprehensive income ("FVOCI") or FVTPL. We make such election on an instrument by instrument basis. The classification is made on initial recognition and is irrevocable.
If we decide to classify an equity instrument as at FVOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the other comprehensive income ("OCI"). There is no recycling of the amounts from OCI to profit or loss, even on sale of investment. However, we may transfer the cumulative gain or loss within equity. Dividends on such investments are recognised in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the profit or loss.
De-recognition of financial assets
Financial assets (or where applicable, a part of financial asset or part of a group of similar financial assets) are derecognised from the Restated Consolidated Statement of Assets and Liabilities when the contractual rights to receive the cash flows from the financial asset have expired, or when the financial asset and substantially all the risks and rewards are transferred. We also derecognise the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition.
Non-derivative financial liabilities
Initial recognition
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held for trading. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in the Restated Consolidated Statement of Profit and Loss.
Subsequent measurement
After initial recognition, the financial liabilities are subsequently measured at amortised cost using the effective interest rate ("EIR") method.
Amortised cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The effect of EIR amortisation is included as finance costs in the Restated Consolidated Statement of Profit and Loss.
De-recognition of financial liabilities
A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Restated Consolidated Statement of Profit and Loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
Cash and Cash Equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and 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.
For the purpose of the Restated Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and shortterm deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of our cash management.
Impairment of Financial Assets
All financial assets except for those at FVTPL are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets.
In accordance with Ind-AS 109, we apply expected credit loss ("ECL") model for measurement and recognition of impairment loss for financial assets carried at amortised cost.
ECL is the weighted average of difference between all contractual cash flows that are due to us in accordance with the contract and all the cash flows that we expect to receive, discounted at the original effective interest rate, with the respective risks of default occurring as the weights. When estimating the cash flows, we are required to consider:
• all contractual terms of the financial assets (including prepayment and extension) over the expected life of the assets.
• cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
Trade receivables
We assess impairment based on the ECL model for measurement and recognition of impairment loss, the calculation of which is based on historical data, on the financial assets that are trade receivables or contract revenue receivables and all lease receivables. We write off trade receivables after it is established beyond doubt that the account is uncollectible. Financial assets that are written-off are still subject to enforcement activity by our Company.
Other financial assets
For recognition of impairment loss on other financial assets and risk exposure, we determine whether there has been a significant increase in the credit risk since initial recognition. If the credit risk has not increased significantly since initial recognition, we measure the loss allowance at an amount equal to 12-month expected credit losses, else at an amount equal to the lifetime expected credit losses.
When making this assessment, we use the change in the risk of a default occurring over the expected life of the financial asset. To make that assessment, we compare the risk of a default occurring on the financial asset as at the reporting date with the risk of a default occurring on the financial asset as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition. We assume that the credit risk on a financial asset has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the balance sheet date.
Impairment of Non-Financial Assets
For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cashgenerating unit level.
Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of a related business combination and represent the lowest level within our Company at which our management monitors goodwill. Cash-generating units to which goodwill and intangible asset that has an indefinite useful life or is not yet available for use has been allocated (determined by our management as equivalent to operating segments) are tested for impairment at least annually.
At each reporting date, we assess whether there is any indication based on internal/external factors, that an asset may be impaired. If any such indication exists, we estimate the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash-generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount and the reduction is treated as an impairment loss and is recognised in the Restated Consolidated Statement of Profit and Loss. If, at the reporting date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed which is the higher of fair value less costs of disposal and value-inuse and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. Impairment losses previously recognised are accordingly reversed in the Restated Consolidated Statement of Profit and Loss.
To determine value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to our latest approved budget, adjusted as necessary to exclude the effects of future re-organisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect current market assessment of the time value of money and asset-specific risk factors.
Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised only when there is a present obligation, as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount of obligation can be made at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates. If the effect of the time value of money is material, provisions are discounted to reflect its present value using a current pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When provisions are discounted, the increase in the provision due to the passage of time is recognised as a finance cost.
Contingent liability is disclosed for:
• possible obligations which will be confirmed only by future events not wholly within our control; or
• present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.
Contingent assets are not recognised. However, when inflow of economic benefits is probable, related asset is disclosed.
Earnings per Share
Basic earnings/ (loss) per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events, other than conversion of potential equity shares, that have changed the number of equity shares outstanding without a corresponding change in resources.
For the purpose of calculating diluted earnings/ (loss) per share, the net profit or loss during the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
Restated Consolidated Statement of Cash Flows
Cash flows are reported using the indirect method, whereby profit during the year is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of our Company are segregated. Cash and cash equivalents for the purposes of Restated Consolidated Statement ff Cash Flows comprise cash at bank and on hand, and bank deposit with banks where original maturity is three months or less.
Leases
Our Company as a lessee
Our lease asset classes primarily consist of leases for land and buildings. We assess whether a contract contains a lease, at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assess whether: (i) the contract involves the use of an identified asset (ii) we have substantially all of the economic benefits from use of the asset through the period of the lease and (iii) we have the right to direct the use of the asset.
At the date of commencement of the lease, we recognise a right-of-use asset ("ROU") and a corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less (short-term leases) and low value leases. For these short-term and low value leases, we recognise the lease payments as an operating expense on a straightline basis over the term of the lease.
Certain lease arrangements includes the options to extend or terminate the lease before the end of the lease term. ROU assets and lease liabilities includes these options when it is reasonably certain that they will be exercised.
The ROU are initially recognised at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. T hey are subsequently measured at cost less accumulated amortisation and impairment losses.
ROU are amortised from the commencement date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset. ROU are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
The lease liability is initially measured at amortised cost at the present value of the future lease payments. The lease payments are discounted using the incremental borrowing rates. Lease liabilities are remeasured with a corresponding adjustment to the related right of use asset if our Company changes its assessment as to whether it will exercise an extension or a termination option.
Lease liability and ROU asset have been separately presented in the Restated Consolidated Statement of Assets and Liabilities and lease payments have been classified as financing cash flows.
Material Accounting Judgments, Estimates and Assumptions
The preparation of Restated Consolidated Financial Information requires our management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Estimates and assumptions are continuously evaluated and are based on our managements experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected.
In particular, we have identified the following areas where significant judgements, estimates and assumptions are required. Further information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the Restated Consolidated Financial Information. Changes in estimates are accounted for prospectively.
• Judgements
In the process of applying our accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Restated Consolidated Financial Information:
- Contingencies
Contingent liabilities may arise from the ordinary course of business in relation to claims against our Company, including legal, contractor, land access and other claims. By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence, and potential quantum, of contingencies inherently involves the exercise of significant judgments and the use of estimates regarding the outcome of future events.
- Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the future taxable income against which the deferred tax assets can be utilised.
• Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. We base our assumptions and estimates on parameters available when the Restated Consolidated Financial Information was prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond our control. Such changes are reflected in the assumptions when they occur.
- Useful lives of property, plant and equipment/ intangible assets
We review our estimate of the useful lives of tangible/intangible assets at each reporting date, based on the
expected utility of the assets.
- Employee benefits
The cost of the employee benefit and other post-employment benefits and the present value of such obligation are determined using actuarial valuations. an actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. In view of the complexities involved in the valuation and its long-term nature, employee benefit is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
- Inventories
We estimate the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.
- Business combinations
We use valuation techniques when determining the fair values of certain assets and liabilities acquired in a business combination.
- Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of assets and liabilities cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported assumptions about these factors which could affect the reported fair value of financial instruments.
- Impairment of goodwill
The assessment of goodwill value for impairment purposes in based on estimated of future cashflows. Operating Expenses
Operating expenses are recognised in the Restated Consolidated Statement of Profit and Loss upon utilisation of the service or as incurred.
Share Issue Expenses
Share issue expenses are adjusted against the securities premium account as permissible under Section 52 of the Companies Act, 2013, to the extent any balance is available for utilisation in the securities premium account. Share issue expenses in excess of the balance in the securities premium account is expensed in the Restated Consolidated Statement of Profit and Loss.
Assets heldfor Sale
We classify assets as held for sale if their carrying amount will be recovered principally through a sale rather than through continuing use of the assets and actions required to complete such sale indicate that it is unlikely that significant changes to the plan to sell will be made or that the decision to sell will be withdrawn. Also, such assets are classified as held for sale, if our management expects to complete the sale within one year from the date of classification. Assets classified as held for sale are measured at the lower of their carrying amount and the fair value less cost to sell.
Principal Components of Profit and Loss Statement
Total Income
Our total income comprises revenue from operations and other income.
Revenue from operations. Revenue from operations comprises revenue from sale of products and other operating revenue. Sale of products comprises income from sale of manufactured and traded formulation and API products. Other operating revenue comprises job work income, testing and other charges, and scrap sales.
Other income. Other income primarily comprises interest income on items at amortised cost, gain on foreign currency transactions and translations, and miscellaneous income.
Expenses
Expenses primarily consist of cost of materials consumed, employee benefits expense and other expenses.
Cost of materials consumed. Cost of materials consumed comprises consumption of raw materials and packing materials, used in the manufacturing of formulations and APIs.
Purchases of stock-in-trade. Purchases of stock-in-trade comprises the purchase cost of traded goods.
Changes in inventories of finished goods, work-in-progress and stock-in-trade. Changes in inventories of finished goods, work- in-progress and stock-in-trade comprises net increase or decrease in inventories of finished goods, work-in-progress and stock- in-trade of formulations and APIs.
Employee benefits expense. Employee benefits expense comprise salaries, wages and bonus, contribution to provident and other funds and staff welfare expenses.
Finance costs. Finance costs comprises interest expense on our borrowings, security deposits from customers and suppliers, lease liabilities, and other borrowing costs.
Depreciation and amortization expense. Depreciation and amortization expense comprises depreciation on property, plant and equipment, right of use assets and amortization of intangible assets.
Fair value changes to financial instruments. Fair value changes to financial instruments comprise the changes in the value of the financial instruments at the end of each financial period.
Other expenses. Other expenses primarily comprise expenses pertaining to power and fuel, business promotion, travelling and conveyance, and legal and professional expenses.
Our Results of Operations
The following tables set out select financial data derived from our Restated Consolidated Statement of Profit and Loss for the Financial Years 2024, 2023 and 2022, the components of which are also expressed as a percentage of total income for such years:
| Particulars | For the Financial Year | |||||
| 2024 | 2023 | 2022 | ||||
| (f in millions) | (% of Total Income) | (f in millions) | (% of Total Income) | (f in millions) | (% of Total Income) | |
| Revenue from operations | 41,781.82 | 99.19% | 36,548.20 | 98.75% | 36,718.93 | 99.39% |
| Other income | 340.25 | 0.81% | 461.05 | 1.25% | 226.30 | 0.61% |
| Total income | 42,122.07 | 100.00% | 37,009.25 | 100.00% | 36,945.23 | 100.00% |
| Expenses | ||||||
| Cost of materials consumed | 22,783.70 | 54.09% | 20,280.85 | 54.80% | 20,385.94 | 55.18% |
| Purchase of stock-in-trade | 2,595.27 | 6.16% | 2,217.88 | 5.99% | 3,942.07 | 10.67% |
| Change in inventories of finished goods, stock-in-trade and work-in-progress | 123.40 | 0.29% | 240.35 | 0.65% | (877.42) | (2.37)% |
| Employee benefits expense | 6,468.64 | 15.36% | 5,901.33 | 15.95% | 5,077.58 | 13.74% |
| Finance costs | 506.14 | 1.20% | 462.46 | 1.25% | 166.55 | 0.45% |
| Depreciation and amortisation expense | 1,256.40 | 2.98% | 1,128.09 | 3.05% | 946.79 | 2.56% |
| Fair value changes to financial instruments | 3,577.74 | 8.49% | (439.69) | (1.19)% | 4,941.74 | 13.38% |
| Other expenses | 5,003.22 | 11.88% | 4,967.98 | 13.42% | 4,166.21 | 11.28% |
| Total expenses | 42,314.51 | 100.46% | 34,759.25 | 93.92% | 38,749.46 | 104.88% |
| Profit / (loss) before share of profit / (loss) of an associate, exceptional items and tax | (192.44) | (0.46)% | 2,250.00 | 6.08% | (1,804.23) | (4.88)% |
| Particulars | For the Financial Year | |||||
| 2024 | 2023 | 2022 | ||||
| ( in millions) | (% of Total Income) | ( in millions) | (% of Total Income) | ( in millions) | (% of Total Income) | |
| Share of profit / (loss) of an associate | - | 0.00% | (2.03) | (0.01)% | 2.03 | 0.01% |
| Profit / (loss) before exceptional items and tax | (192.44) | (0.46)% | 2,247.97 | 6.07% | (1,802.20) | (4.88)% |
| Exceptional items | 260.34 | 0.62% | 745.00 | 2.01% | 129.77 | 0.35% |
| Profit / (loss) before tax | (452.78) | (1.07)% | 1,502.97 | 4.06% | (1,931.97) | (5.23)% |
| Tax Expense: | ||||||
| Current tax | 740.25 | 1.76% | 781.30 | 2.11% | 690.45 | 1.87% |
| Tax for earlier years | 15.18 | 0.04% | 16.09 | 0.04% | (53.26) | (0.14)% |
| Deferred tax charge / (reversal) | 166.67 | 0.40% | (272.59) | (0.74)% | (60.42) | (0.16)% |
| Adjustment on account of merger | ||||||
| Income-tax for earlier years | (182.90) | (0.43)% | - |
- |
- |
- |
| Deferred tax charge / (reversal) | (1,199.88) | (2.85)% | - | - | - | - |
| Total Tax Expense | (460.68) | (1.09)% | 524.80 | 1.42% | 576.77 | 1.56% |
| Profit / (Loss) for the year | 7.90 | 0.02% | 978.17 | 2.64% | (2,508.74) | (6.79)% |
Financial Year 2024 as compared to Financial Year 2023 Total Income
Our total income increased by 13.81% to Rs 42,122.07 million for the Financial Year 2024 from Rs 37,009.25 million for the Financial Year 2023, primarily due to an increase in revenue from operations, and partially offset by a marginal decrease in other income.
Revenue from operations: Revenue from operations increased by 14.32% to ^41,781.82 million for the Financial Year 2024 from Rs 36,548.20 million for the Financial Year 2023, primarily due to increases in (i) sale of products to Rs 39,712.07 million for the Financial Year 2024 from Rs 34,422.13 million for the Financial Year 2023, and (ii) job work income to Rs 484.75 million for the Financial Year 2024 from Rs 325.51 million for the Financial Year 2023. This was on account of (i) an increase in the revenue generated from our CDMO business to Rs 32,663.48 million for the Financial Year 2024 from Rs 27,230.08 million for the Financial Year 2023, due to increases in the volume of sales of oral solids, oral liquids and topicals, and (ii) an increase in the revenue generated from our API business to Rs 2,125.16 million for the Financial Year 2024 from Rs 1,772.49 million for the Financial Year 2023, due to an increase in the manufacturing and sales of APIs during Financial Year 2024. This was partially offset by a decrease in revenues generated from our branded and generic formulations business to Rs 6,993.18 million for the Financial Year 2024 from Rs 7,545.63 million for the Financial Year 2023.
Other income: Other income decreased by 26.20% to Rs 340.25 million for the Financial Year 2024 from Rs 461.05 million for the Financial Year 2023, primarily due to decreases in (i) liabilities no longer required, written back to Rs 55.53 million for the Financial Year 2024 from Rs 216.81 million for the Financial Year 2023 on account of income accounted due to reversal of central sales tax provisions made following the setting aside of demand orders by the High Court of Uttarakhand at Nainital during the Financial Year 2023, and (ii) profit on disposal of property, plant and equipment (net) to Rs 0.17 million for the Financial Year 2024 from Rs 47.30 million for the Financial Year 2023 on account of the sale of a manufacturing unit in Haridwar for a consideration of Rs 101.50 million by our Company during Financial Year 2023. This was partially offset by increases in (i) interest income on items at amortised cost - term deposits to ^113.20 million for the Financial Year 2024 from Rs 49.03 million for the Financial Year 2023 on account of an increase in the term deposits to Rs 1,660.03 million during the Financial Year 2024 from Rs 983.81 million during the Financial Year 2023, and (ii) profit on foreign currency transactions and translations to Rs 72.93 million for the Financial Year 2024 from Rs 18.79 million for the Financial Year 2023 on account of favourable foreig n currency exchange rate trends during the Financial Year 2024.
Expenses
Our total expenses increased by 21.74% to Rs 42,314.51 million for the Financial Year 2024 from Rs 34,759.25 million for the Financial Year 2023, primarily due to increases in our cost of materials consumed, purchase of stock-in-trade, employee benefits expense, finance costs, depreciation and amortisation expense, fair value changes to financial instruments and other expenses. This was partially offset by decreases in change in inventories of finished goods, stock-in-trade and work-in-progress.
Cost of materials consumed: Cost of materials consumed increased by 12.34% to Rs 22,783.70 million for the Financial Year 2024 from Rs 20,280.85 million for the Financial Year 2023, primarily due to increases in (i) the manufacturing and sales of oral solids, oral liquids and topicals, and (ii) the manufacturing and sales of APIs.
Purchase of stock-in-trade: Purchase of stock-in-trade increased by 17.02% to Rs 2,595.27 million for the Financial Year 2024 from Rs 2,217.88 million for the Financial Year 2023, primarily due to an increase in our operations.
Change in inventories of finished goods, stock-in-trade and work-in-progress: Changes in inventories of finished goods, stock- in-trade and work-in progress aggregated to Rs.123.40 million for the Financial Year 2024 as compared to Rs.240.35 million for the Financial Year 2023. During the Financial Year 2024, our opening stock aggregated to Rs.2,443.95 million as compared to Rs.2,685.93 million during the Financial Year 2023. Similarly, during the Financial Year 2024, our closing stock aggregated to Rs.2,227.61 million as compared to Rs.2,443.95 million during the Financial Year 2023. This was primarily on account of increased consumption of materials due to an increase in our operating activities, which led to lower closing stock at the end of the Financial Year 2024.
Employee benefits expenses: Employee benefits expenses increased by 9.61% to Rs.6,468.64 million for the Financial Year 2024 from Rs.5,901.33 million for the Financial Year 2023, primarily due to increases in (i) salaries, wages and bonus to Rs.5,914.13 million for the Financial Year 2024 from Rs.5,407.59 million for the Financial Year 2023, (ii) contributions to provident and other funds to Rs.211.27 million for the Financial Year 2024 from Rs.202.87 million for the Financial Year 2023, and (iii) staff welfare expenses to Rs.343.24 million for the Financial Year 2024 from Rs.290.87 million for the Financial Year 2023. This was on account of (i) an increase in the number of our employees to 16,127 as of March 31, 2024 from 14,531 as of March 31, 2023, and (ii) annual increments in salaries.
Finance costs: Finance costs increased by 9.45% to Rs.506.14 million for the Financial Year 2024 from Rs.462.46 million for the Financial Year 2023, primarily due to increases in (i) interest on borrowings to Rs.430.05 million for the Financial Year 2024 from Rs.400.70 million for the Financial Year 2023, on account of an increase in the rate of interest payable on our borrowings and an increase in the working capital facilities availed by us for our CDMO and API businesses, and (ii) interest on lease liability to Rs 69.76 million for the Financial Year 2024 from Rs 51.23 million for the Financial Year 2023, on account of additional lease facility availed by our Company.
Depreciation and amortization expense: Depreciation and amortization expense increased by 11.37% to Rs 1,256.40 million for the Financial Year 2024 from Rs 1,128.09 million for the Financial Year 2023, primarily due to increases in (i) depreciation of property, plant and equipment to Rs 1,141.64 million for the Financial Year 2024 from Rs 1,010.55 million for the Financial Year
2023, on account of acquisition of a manufacturing unit in Baddi, Himachal Pradesh, and other property, plant and equipment, during the Financial Year 2024, leading to an increase in the depreciation of fixed assets, and (ii) amortisation of intangible assets to Rs 22.05 million for the Financial Year 2024 from Rs 18.52 million for the Financial Year 2023, on account of an increase in our intangible assets, including operational management software at our warehouse in Haridwar, Uttarakhand.
Fair value changes to financial instruments: Fair value changes to financial instruments increased significantly to Rs 3,577.74 million for the Financial Year 2024 from a credit of Rs 439.69 million for the Financial Year 2023, primarily due to an increase in the valuation of our Company to Rs 90,496.70 million in the Financial Year 2024 from Rs 66,783.58 million for the Financial Year 2023, on account of computation of the put option liability as on the reporting date as per Ind-AS 109, resulting in a increase in the put option liability to Rs 13,653.78 million in the Financial Year 2024 from Rs 10,076.04 million for the Financial Year 2023.
Other expenses: Other expenses increased by 0.71% to Rs 5,003.22 million for the Financial Year 2024 from Rs 4,967.98 million for the Financial Year 2023, primarily due to increases in (i) power and fuel expense to Rs 1,608 million for the Financial Year 2024 from Rs 1,474.08 million for the Financial Year 2023 on account of increased production at our manufacturing units during the Financial Year 2024, (ii) provision for allowances for expected credit losses to ^115.27 million for the Financial Year 2024 from Rs 18.65 million for the Financial Year 2023 on account of an increase in provisions made for trade receivables during the Financial Year 2024, (iii) business promotion expenses to Rs 389.87 million for the Financial Year 2024 from Rs 354.65 million for the Financial Year 2023 on account of an increase in our operations and promotion initiatives during the Financial Year
2024, and (v) miscellaneous expense to Rs 592.23 million for the Financial Year 2024 from Rs 578.26 million for the Financial Year 2023 on account of an increase in expenses undertaken by us in relation to applications for registrations taken for our export business, commensurate with an increase in our sales and operations. This was partially offset by decreases in (i) legal and professional expenses to Rs 447.05 million for the Financial Year 2024 from Rs 474.61 million for the Financial Year 2023 on account of engagement of a major accounting firm to conduct a debottlenecking study for us during the Financial Year 2023, (ii) provision for demand raised by statutory authorities to nil for the Financial Year 2024 from Rs 55.00 million for the Financial Year 2023 on account of creation of provision for demand raised by the Directorate General of Foreign Trade in relation to duty-free imports during the Financial Year 2023, and (iii) loss on foreign currency transactions and translations to Rs 0.88 million for the Financial Year 2024 from Rs 57.72 million for the Financial Year 2023, on account of favourable foreign currency exchange rate trends during the Financial Year 2024.
Tax expense: Tax credit for the Financial Year 2024 was Rs 460.68 million, as compared to tax expense of Rs 524.80 million for the Financial Year 2023. During the Financial Year 2024, we incurred a current tax liability of Rs 740.25 million, tax for earlier periods of Rs 15.18 million, deferred tax charge of Rs 166.67 million, income-tax credit for earlier periods on account of merger of Rs 182.90 million and a deferred tax credit of Rs 1,199.88 million. During Financial Year 2023, we incurred a current tax liability of Rs 781.30 million, tax for earlier periods of Rs 16.09 million and a deferred tax credit of Rs 272.59 million. The decrease in our tax expense was primarily due to creation of deferred tax assets on brought forward losses in API business.
Profit/loss for the year: Due to the foregoing, we incurred a profit of Rs 7.90 million during the Financial Year 2024, as compared to a profit of Rs 978.17 million during the Financial Year 2023. Not taking into account the changes in put option liability, our profit would have increased significantly.
Financial Year 2023 as compared to Financial Year 2022
Total Income
Our total income increased by 0.17% to Rs 37,009.25 million for the Financial Year 2023 from Rs 36,945.23 million for the Financial Year 2022, primarily due to an increase in other income, and partially offset by a marginal decrease in our revenue from operations.
Revenue from operations: Revenue from operations decreased by 0.46% to Rs 36,548.20 million for the Financial Year 2023 from Rs 36,718.93 million for the Financial Year 2022, primarily due to decreases in (i) sale of products to Rs 34,422.13 million for the Financial Year 2023 from Rs 35,815.96 million for the Financial Year 2022, and (ii) job work income to Rs 325.51 million for the Financial Year 2023 from Rs 652.38 million for the Financial Year 2022. This was on account of a decrease in the revenue generated from our branded and generic formulations business to Rs 7,545.63 million for the Financial Year 2023 from Rs 9,014.76 million for the Financial Year 2022, primarily due to lower sales of formulations on account of the reduced impact of the COVID-19 pandemic as a result of a lower number of active COVID-19 cases during the Financial Year 2023 as compared to Financial Year 2022. This was partially offset by an increase in revenues generated from our API business to Rs 1,772.49 millio n for the Financial Year 2023 from Rs 1,093.21 million for the Financial Year 2022, on account of an increase in the manufacturing and sales of APIs .
Other income: Other income increased significantly to Rs 461.05 million for the Financial Year 2023 from Rs 226.30 million for the Financial Year 2022, primarily due to increases in (i) liabilities no longer required, written back to Rs 216.81 million for the Financial Year 2023 from Rs 21.00 million for the Financial Year 2022 on account of income accounted due to reversal of central sales tax provisions made following the setting aside of demand orders by the High Court of Uttarakhand at Nainital, (ii) profit on disposal of property, plant and equipment (net) to Rs 47.30 million for the Financial Year 2023 from Rs 10.22 million for the Financial Year 2022 on account of the sale of a manufacturing unit in Haridwar for a consideration of Rs 101.50 million by our Company, and (iii) interest income on items at amortised cost - others to Rs 25.50 million for the Financial Year 2023 from Rs 2.35 million for the Financial Year 2022 on account of an increase in the term deposits to Rs 983.81 million during the Financial Year 2023 from Rs 477.08 million during the Financial Year 2022. This was partially offset by decreases in (i) profit on foreign currency transactions and translations to Rs 18.79 million for the Financial Year 2023 from Rs 31.20 million for the Financial Year 2022 on account of unfavourable foreign currency exchange rate trends during the Financial Year 2023, and (ii) subsidy income to Rs 17.48 million for the Financial Year 2023 from Rs 29.58 million for the Financial Year 2022 on account of a lower amount of subsidy availed under the Merchandise Export from India Scheme.
Expenses
Our total expenses decreased by 10.30% to Rs 34,759.25 million for the Financial Year 2023 from Rs 38,749.46 million for the Financial Year 2022, primarily due to decreases in our cost of materials consumed, purchase of stock-in-trade, and fair value changes to financial instruments. This was partially offset by increases in change in inventories of finished goods, stock-intrade and work-in-progress, employee benefits expense, finance costs, depreciation and amortisation expense and other expenses.
Cost of materials consumed: Cost of materials consumed decreased by 0.52% to Rs 20,280.85 million for the Financial Year 2023 from Rs 20,385.94 million for the Financial Year 2022, primarily on account of purchases of raw materials required to manufacture formulations to address the impact of the COVID-19 pandemic.
Purchase of stock-in-trade: Purchase of stock-in-trade decreased by 43.74% to Rs 2,217.88 million for the Financial Year 2023 from Rs 3,942.07 million for the Financial Year 2022, primarily due to higher inventory levels on April 1, 2022.
Change in inventories of finished goods, stock-in-trade and work-in-progress: Changes in inventories of finished goods, stock- in-trade and work-in progress aggregated to Rs 240.35 million for the Financial Year 2023 as compared to a credit of Rs 877.42 million for the Financial Year 2022. During the Financial Year 2023, our opening stock aggregated to Rs 2,685.93 million as compared to Rs 1,810.83 million during the Financial Year 2022. Similarly, during the Financial Year 2023, our closing stock aggregated to Rs 2,443.95 million as compared to Rs 2,685.93 million during the Financial Year 2022. This was primarily on account of sale of opening stock during the Financial Year 2023.
Employee benefits expenses: Employee benefits expenses increased by 16.22% to Rs 5,901.33 million for the Financial Year 2023 from Rs 5,077.58 million for the Financial Year 2022, primarily due to increases in (i) salaries, wages and bonus to Rs 5,407.59 million for the Financial Year 2023 from Rs 4,676.02 million for the Financial Year 2022, (ii) contributions to provident and other funds to Rs 202.87 million for the Financial Year 2023 from Rs 168.55 million for the Financial Year 2022, and (iii) staff
welfare expenses to Rs 290.87 million for the Financial Year 2023 from Rs 233.01 million for the Financial Year 2022. This was on account of (i) an increase in the number of our employees to 14,531 as of March 31, 2023 from 14,417 as of March 31, 2022, and (ii) annual increments in salaries, and (iii) an increase in minimum wages payable to certain employees pursuant to regulatory amendments in the Minimum Wages Act, 1948.
Finance costs. Finance costs increased significantly to Rs 462.46 million for the Financial Year 2023 from Rs 166.55 million for the Financial Year 2022, primarily due to increases in (i) interest on borrowings to Rs 400.70 million for the Financial Year 2023 from Rs 84.46 million for the Financial Year 2022, and (ii) interest on lease liability to Rs 51.23 million for the Financial Year 2023 from Rs 29.68 million for the Financial Year 2022. This was on account of additional borrowings undertaken by us for the expansion of our API business, the acquisition of a formulations manufacturing unit in, Himachal Pradesh and to address increased working capital requirements. This was partially offset by a decrease in interest on income tax to Rs 6.80 million for the Financial Year 2023 from Rs 47.77 million for the Financial Year 2022, primarily due to a delay in the merger of PCHL and ALL, which led to delayed payment of income tax of Rs 469.43 million during the Financial Year 2022.
Depreciation and amortization expense: Depreciation and amortization expense increased by 19.15% to Rs 1,128.09 million for the Financial Year 2023 from Rs 946.79 million for the Financial Year 2022, primarily due to increases in (i) depreciation of property, plant and equipment to Rs 1,010.55 million for the Financial Year 2023 from Rs 839.78 million for the Financial Year 2022, on account of an increase in the capital expenditure undertaken by us towards our API business and on property, plant and equipment during the Financial Year 2022, leading to an increase in the depreciation of fixed assets, and (ii) amortisation on right-of-use assets to Rs 99.02 million for the Financial Year 2023 from Rs 77.15 million for the Financial Year 2022, on account of creation of right-of-use on the lease facility availed by our Company.
Fair value changes to financial instruments: Fair value changes to financial instruments decreased significantly to a credit of Rs 439.69 million for the Financial Year 2023 from Rs 4,941.74 million for the Financial Year 2022, primarily due to a decrease in the valuation of our Company to Rs 66,783.58 million in the Financial Year 2023 from Rs 69,697.90 million for the Financial Year 2022, on account of computation of the put option liability as on the reporting date as per Ind-AS 109, resulting in a decrease in the put option liability to Rs 10,076.04 million in the Financial Year 2023 from Rs 10,515.74 million for the Financial Year 2022.
Other expenses: Other expenses increased by 19.24% to Rs 4,967.98 million for the Financial Year 2023 from Rs 4,166.21 million for the Financial Year 2022, primarily due to increases in (i) power and fuel expense to Rs 1,474.08 million for the Financial Year 2023 from Rs 1,102.17 million for the Financial Year 2022 on account of increased production at our manufacturing units during the Financial Year 2023, (ii) travelling and conveyance expenses to Rs 503.50 million for the Financial Year 2023 from Rs 365.06 million for the Financial Year 2022 on account of reopening of our manufacturing units in Financial Year 2023 pursuant to lifting of restrictions imposed by the Government of India in response to COVID-19, (iii) legal and professional expenses to Rs 474.61 million for the Financial Year 2023 from Rs 321.60 million for the Financial Year 2022 on account of engagement of a major accounting firm to conduct a debottlenecking study for us during the Financial Year 2023, (iv) business promotion expenses to Rs 354.65 million for the Financial Year 2023 from Rs 294.51 million for the Financial Year 2022 on account of increased commissions paid during the Financial Year 2023, commensurate with the increase in our manufacturing capabilities, (v) provision for demand raised by statutory authorities to Rs 55.00 million for the Financial Year 2023 from nil for the Financial Year 2022 on account of creation of provision for demand raised by the Directorate General of Foreign Trade in relation to duty-free imports during the Financial Year 2023, and (vi) miscellaneous expense to Rs 578.26 million for the Financial Year 2023 from Rs 482.88 million for the Financial Year 2022 on account of expenses undertaken by our Subsidiary in relation to certain liquidated damages, festivity expenses and donations. This was partially offset by decreases in (i) provision for allowances for expected credit losses to Rs 18.65 million for the Financial Year 2023 from Rs 132.27 million for the Financial Year
2022 on account of decrease in provisions made for trade receivables during the Financial Year 2023, (ii) repairs and maintenance - plants and equipment to Rs 282.08 million for the Financial Year 2023 from Rs 302.98 million for the Financial Year 2022 on account of increased maintenance costs incurred by us during the Financial Year 2022 for the manufacturing units acquired by us during the Financial Year 2021, (iii) freight and cartage - outward to Rs 94.20 million for the Financial Year
2023 from Rs 142.11 million for the Financial Year 2022 on account of a decrease in the sales for our branded and generic formulations business, and (iv) loss on sale of property, plant and equipment to Rs 1.55 million for the Financial Year 2023 from Rs 30.88 million for the Financial Year 2022 on account of losses on sales of obsolete assets from our API manufacturing units during the Financial Year 2022.
Tax expense: Tax expense decreased by 9.01% to Rs 524.80 million for the Financial Year 2023 from Rs 576.77 million for the Financial Year 2022. During the Financial Year 2023, we incurred a current tax liability of Rs 781.30 million, tax for earlier periods of Rs 16.09 million and a deferred tax reversal of Rs 272.59 million. During Financial Year 2022, we incurred a current tax liability of Rs 690.45 million, tax reversal for earlier periods of Rs 53.26 million and a deferred tax reversal of Rs 60.42 millio n. The increase in our tax expense was primarily due to increases in our other operating income during the Financial Year 2023.
Profit/loss for the year: Due to the foregoing, we incurred a profit of Rs 978.17 million during the Financial Year 2023, as compared to a loss of Rs 2,508.74 million during the Financial Year 2022. Not taking into account the changes in put option liability, we would have had profit for the year for both Financial Years 2023 and 2022.
Cash Flows
The following table sets forth our cash flows for the years indicated:
| Particulars | Financial Year | ||
| 2024 | 2023 | 2022 | |
| (Rs. in millions) | |||
| Net cash generated from operating activities | 4,982.59 | 1,766.31 | 318.54 |
| Net cash (used in) investing activities | (3,304.15) | (3,047.02) | (2,348.22) |
| Net cash (used in) / generated from financing activities | (1,080.21) | 1,245.40 | 2,360.40 |
| Net increase/ (decrease) in cash and cash equivalents | 598.23 | (35.31) | 330.72 |
Operating Activities
Net cash generated from operating activities was Rs 4,982.59 million for the Financial Year 2024. Our net loss before tax was Rs 452.78 million for the Financial Year 2024. We had an operating profit before working capital changes of Rs 5,108.12 million, which was primarily adjusted for fair value charges on financial instruments of Rs 3,577.74 million, depreciation and amortisation of Rs 1,256.40 million, provision for losses incurred due to floods of Rs 251.73 million, and finance costs of Rs 506.14 million. Working capital adjustments for the Financial Year 2024 primarily comprised decreases in inventories of Rs 837.29 mi llion and trade payables of Rs 291.96 million, and increases in other assets of Rs 333.70 million.
Net cash generated from operating activities was Rs 1,766.31 million for the Financial Year 2023. Our net profit before tax was Rs 1,502.97 million for the Financial Year 2023. We had an operating profit before working capital changes of Rs 3,080.28 million, which was primarily adjusted for depreciation and amortisation of Rs 1,128.09 million, fair value charges on financial instruments of Rs 439.69 million and liabilities no longer required, written back of Rs 216.81 million. Working capital adjustments for the Financial Year 2023 primarily comprised decreases in other liabilities of Rs 348.92 million, trade payables of Rs 183.69 million, and trade receivables of Rs 349.11 million, and an increase in other assets of ^183.14 million.
Net cash generated from operating activities was Rs 318.54 million for the Financial Year 2022. Our net loss before tax was Rs 1,931.97 million for the Financial Year 2022. We had an operating profit before working capital changes of Rs 4,382.27 million which was primarily adjusted for fair value charges on financial instruments of Rs 4,941.74 million and depreciation and amortisation of Rs 946.79 million. Working capital adjustments for the Financial Year 2022 primarily included increases in trade receivables of Rs 3,717.75 million, inventories of Rs 2,925.89 million, and trade payables of Rs 2,505.09 million, primarily on account of an increase in the operations of our Company. Other liabilities also increased by Rs 1,282.09 million on account of receipts of advances from customers.
Investing Activities
Net cash used in investing activities was Rs 3,304.15 million for the Financial Year 2024, primarily comprising purchase of property, plant and equipment, and intangible assets (including capital work-in-progress, capital advances and payable towards property, plant and equipment) of Rs 3,114.08 million and investment in deposits having original maturity of more than three months of Rs 634.75 million, which was partially offset by proceeds from sale of property, plant and equipment of Rs 249.93 million.
Net cash used in investing activities was Rs 3,047.02 million for the Financial Year 2023, primarily comprising purchase of property, plant and equipment, and intangible assets (including capital work-in-progress, capital advances and payable towards property, plant and equipment) of Rs 3,287.93 million and investment in deposits having original maturity of more than three months of Rs 449.93 million, which was partially offset by proceeds from sale of property, plant and equipment of Rs 421.47 million and advance received against assets held for sale of Rs 225.10 million.
Net cash used in investing activities was Rs 2,348.22 million for the Financial Year 2022, primarily comprising purchase of property, plant and equipment, and intangible assets (including capital work-in-progress, capital advances and payable towards property, plant and equipment) of Rs 2,575.82 million and consideration paid to NCI towards further acquisition of interest in subsidiaries of Rs 110.02 million, which was partially offset by proceeds from sale of current investments of Rs 190.09 million.
Financing Activities
Net cash used in financing activities was Rs 1,080.21 million for the Financial Year 2024, primarily comprising repayme nts of non-current borrowings of Rs 358.55 million, repayment of current borrowings (net) of Rs 236.30 million, interest payment of Rs 434.37 million and payment of lease liabilities of Rs 153.93 million, which was partially offset by proceeds from non -current borrowings of Rs 102.94 million.
Net cash generated from financing activities was Rs 1,245.40 million for the Financial Year 2023, primarily comprising proceeds from non-current borrowings of Rs 1,401.60 million and proceeds from current borrowings (net) of Rs 485.79 million. This was partially offset by interest paid of Rs 404.43 million primarily on account of increased borrowings to finance our API business, payment of lease liabilities of Rs 129.98 million and repayments of non-current borrowings of Rs 107.58 million.
Net cash generated from financing activities was Rs 2,360.40 million for the Financial Year 2022, primarily comprising proceeds from current borrowings (net) of Rs 2,524.23 million and proceeds from non-current borrowings of Rs 200.19 million, which was partially offset by payment of lease liabilities of Rs 163.73 million and repayments of non-current borrowings of ^111.19 million.
Financial Indebtedness
As of March 31, 2024, we have total borrowings of Rs 4,915.55 million, comprising non-current borrowings of Rs 782.97 million and current borrowings of Rs 4,132.58 million. See "Financial Indebtedness" on page 387.
Capital and Other Commitments
As of March 31, 2024, the estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) was Rs 929.28 million. These contracts related to acquisition of plant and machinery in Haridwar, Uttarakhand and Baddi, Himachal Pradesh.
The following table summarizes the maturity profile of our financial liabilities as of March 31, 2024:
| Particulars | As of March 31, 2024 | |||
| Payment due by period | ||||
| Less than 1 year | 1-5 years | More than 5 years | Total | |
| (in f millions) | ||||
| Borrowings | 4,132.58 | 782.97 | - | 4,915.55 |
| Trade Payables | 5,321.32 | - | - | 5,321.32 |
| Lease Liabilities | 57.65 | 145.30 | 533.75 | 736.70 |
| Other Financial Liabilities | 1,581.37 | 13,959.46 | - | 15,540.83 |
| Total | 11,092.92 | 14,887.73 | 533.75 | 26,514.40 |
Contingent Liabilities
As of March 31, 2024 our contingent liabilities and litigations were as follows:
| Particulars | As of March 31, 2024 |
| (in f millions) | |
| Income-tax matters | 776.67 |
| Product pricing related matters | 106.40 |
| Others | 3.15 |
Off-Balance Sheet Commitments and Arrangements
We do not have any off-balance sheet arrangements, derivative instruments, swap transactions or relationships with affiliates or other unconsolidated entities or financial partnerships that would have been established for the purpose of facilitating off- balance sheet arrangements.
Capital Expenditure
During the Financial Years 2024, 2023 and 2022, our capital expenditure incurred on purchase of property, plant and equipment and intangible assets (including capital work-in-progress, capital advances and payable towards property, plant and equipment) amounted to Rs 3,114.08 million, Rs 3,287.93 million and Rs 2,575.82 million, respectively for capacity and capability enhancement. For the Financial Year 2025, we expect to incur approximately Rs 3,150 million as capital expenditure towards the growth and maintenance of existing and new manufacturing units.
Related Party Transactions
We have engaged in the past, and may engage in the future, in transactions with related parties. For details of our related party transactions, see "Restated Consolidated Financial Information - Note 45 - Related Party Disclosures" on page 335.
Quantitative and Qualitative Disclosures about Market Risk
In the course of our business, we are exposed to certain financial risks such as market risk, credit risk and liquidity risk. Market Risk
Foreign currency risk
We have international transactions and are exposed to foreign exchange risk arising from foreign currency transactions. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not our functional currency. We do not use forward contracts and swaps for managing risks associated with foreign currency or for speculative purposes.
Interest rate risk
Our policy is to minimise interest rate cash flow risk exposures on long-term financing. At the end of each Financial Year, we are exposed to changes in market interest rates through bank borrowings at variable interest rates. Our investments in fixed deposits contractually carry fixed interest rates.
Credit Risk
Credit risk is the risk that a counterparty fails to discharge its obligation to our Company. Our exposure to credit risk is influenced mainly by investments in cash and cash equivalents, trade receivables and other financial assets measured at amortised cost. We continuously monitor defaults of customers and other counterparties and incorporate this information into our credit risk controls.
Liquidity Risk
Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled by delivering cash or other financial assets. Our approach to manage liquidity is to ensure that we have sufficient liquidity to meet our liabilities when they are due. Our management monitors rolling forecasts of our liquidity position and cash and cash equivalents on the basis of expected cash flows. We take into account the liquidity of the market in which we operate.
Known Trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations
Our business has been subject, and we expect it to continue to be subject, to significant economic changes arising from the trends identified in "— Significant Factors Affecting our Results of Operations"" on page 393 and the uncertainties described in "Risk Factors" on page 28. To our knowledge, except as disclosed in this Red Herring Prospectus, there are no known trends or uncertainties which we expect to have a material adverse effect on our income.
Future Relationship between Cost and Revenue
Other than as described elsewhere in this Red Herring Prospectus, to the knowledge of our management, there are no known factors that might affect the future relationship between costs and income.
Unusual or infrequent events or transactions
Except as disclosed in this Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.
New Products or Business Segments
Other than as disclosed in this section and in "Our Business"" on page 209 there are no new products or business segments that have or are expected to have a material impact on our business prospects, results of operations or financial condition.
Seasonality of Business
Our business is not seasonal in nature.
Competitive Conditions
We operate in a competitive environment. See "Our Business", "Industry Overview" and "Risk Factors" on pages 209, 156 and 28, respectively for further information on our industry and competition.
Future relationship between Cost and Income
Other than as described in "Risk Factors", "Our Business" and above in " — Significant Factors Affecting our Results of Operations" on pages 28, 209 and 393, respectively, to our knowledge, there are no known factors that may adversely affect our business prospects, results of operations and financial condition.
Significant developments subsequent to March 31, 2024
Except as disclosed in this Red Herring Prospectus, no circumstances have arisen since the date of the last financial statements disclosed in this Red Herring Prospectus, which materially and adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.
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