Neuland Laboratories Ltd Auditors Report.
To the Members of Neuland Laboratories Limited
Report on the Audit of the Standalone Financial Statements
1. We have audited the accompanying standalone financial statements of Neuland Laboratories Limited (the Company), which comprise the Balance Sheet as at March 31, 2019, the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information.
2. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 (Act) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including Indian Accounting Standards (Ind AS) specified under section 133 of the Act, of the state of affairs (financial position) of the Company as at March 31, 2019, and its profit (financial performance including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.
Basis for Opinion
3. We conducted our audit in accordance with the Standards on Auditing specified under section 143(10) of the Act. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
5. We have determined the matters described below to be the key audit matters to be communicated in our report.
|Key audit matter||How our audit addressed the key audit matter|
|Carrying value of goodwill||Our audit procedures in relation to testing of impairment of goodwill, included, but were not limited to the following:|
|Refer note 2 (ii)(g) for the accounting policy and note 37 for the financial disclosures in the standalone financial statements.|
|As at March 31, 2019, the Companys assets include goodwill aggregating to र27,946.10 lacs, in accordance with the Scheme of Amalgamation and Arrangement, on account of acquisition of businesses of Neuland Health Sciences Private Limited and Neuland Pharma Research Private Limited which were engaged in the business of peptides and contract research services respectively.|| Assessed and tested the design and operating effectiveness of the Companys controls over recognition of impairment assessment process.|
| Obtained the impairment analyses and tested the appropriateness of the impairment model and reasonableness of the key assumptions used, including earnings before interest depreciation and amortization, terminal value, selection of discount rate and benchmarking the market-related assumptions used against the external data with the help of valuation experts;|
|Goodwill is carried at cost and is tested for impairment, if any, in accordance with Ind AS 36 "Impairment of Assets". As at March 31, 2019, the management has assessed that the value of goodwill will be recovered through future cash flows from the acquired businesses. However, there is potentially a risk that the goodwill will be impaired if the projected cash flows are not met.|| Challenged the judgements exercised by the management in respect of the above key assumptions based on our knowledge of the industry and market factors;|
|The impairment review performed by the Company, based on the projected future cash flow, involves use of various significant judgements and estimates such as revenue growth, profit margins, terminal values and the discount rate. Changes in these assumptions could lead to an impairment to the carrying value of goodwill.|| Compared the prior year budgets with the actual results to determine the efficacy of the managements budgeting process. Further, compared the cash flow forecasts to the latest budgets approved by the Board of Directors;|
| Obtained and evaluated sensitivity analysis performed by the management on aforesaid key assumptions and performed further independent sensitivity analysis to determine impact of estimation uncertainty on the carrying value; and|
|We identified this as key audit matter for current year audit owing to the materiality of the amounts involved and inherent subjectivity involved in the determination of recoverable value through estimation of future cash flows.|| Assessed the appropriateness and adequacy of the related disclosures in the financial statements in accordance with the applicable accounting standards.|
|Recoverability of Minimum Alternate Tax (MAT) credit asset||Our audit procedures in relation to assessment of MAT credit recognised as at reporting date, included, but were not limited to the following:|
|Refer to note 2(ii)(q) for the accounting policy and note 18 for the financial disclosures in the standalone financial statements.|
| Assessed and tested the design and operating effectiveness of the Companys controls over recognition of the MAT credit.|
|As at March 31, 2019, the Company has recognized deferred tax asset in the nature of MAT credit aggregating to र2,672.26 lacs.|| Obtained the Companys analyses for MAT credit realisability involving future projections of taxable profits and tested the reasonableness of the key assumptions used, including growth in profit, gross margins and tax adjustments;|
|Recognition of MAT credit asset requires significant judgement regarding the likelihood of its realization with-in the utilization period through estimate of future taxable profits of the Company and consequently there is a risk that the MAT credit asset may not be realised within the utilization period, if these projections are not met.|
| Challenged the judgements exercised by the management in respect of the above key assumptions based on our knowledge of the industry;|
| Compared the prior year expected tax profits with the actual results to determine the efficacy of the managements budgeting process;|
|Managements assessment of recoverability of the MAT credit asset requires estimation of future taxable profits as per the prevalent provisions under the Income Tax Act, 1961 ("IT Act") which involves key assumptions such as revenue growth, profit margins, tax adjustments. These future taxable profits are computed based on the business plan prepared by the management and projected post-tax cash flows of the Company.|| Tested the appropriateness of the forecasted tax liability computation as per the provisions of the IT Act, including assessment of the eligibility of various tax exemptions availed and MAT liability computation as per Section 115JB of the IT Act;|
| Obtained and evaluated sensitivity analysis performed by the management on aforesaid key assumptions and performed further independent sensitivity analysis to determine impact of estimation uncertainty on the future taxable profits; and|
|We identified this as key audit matter for current year audit owing to the materiality of the amounts involved and inherent subjectivity involved in the determination of utilization of MAT credit through estimation of future taxable profits.|| Assessed the appropriateness and adequacy of the related disclosures in the financial statements in accordance with the applicable accounting standards.|
Information other than the Financial Statements and Auditors Report thereon
6. The Companys Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our auditors report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
7. The Companys Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs (financial position), profit or loss (financial performance including other comprehensive income), changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Ind AS specified under section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
8. In preparing the financial statements, management is responsible for assessing the Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
9. Those Board of Directors are also responsible for overseeing the Companys financial reporting process.
Auditors Responsibilities for the Audit of the Financial Statements
10. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
11. As part of an audit in accordance with Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for explaining our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
12. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
13. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
14. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
15. As required by section 197(16) of the Act, we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
16. As required by the Companies (Auditors Report) Order, 2016 (the Order) issued by the Central Government of India in terms of section 143(11) of the Act, we give in the Annexure I a statement on the matters specified in paragraphs 3 and 4 of the Order. 17. Further to our comments in Annexure I, as required by section 143(3) of the Act, we report that:
a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;
c) the standalone financial statements dealt with by this report are in agreement with the books of account;
d) in our opinion, the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) on the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2019 from being appointed as a director in terms of section 164(2) of the Act;
f) we have also audited the internal financial controls over financial reporting (IFCoFR) of the Company as on March 31, 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date and our report dated May 16, 2019 as per Annexure II expressed unmodified opinion;
g) with respect to the other matters to be included in the Auditors Report in accordance with rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), in our opinion and to the best of our information and according to the explanations given to us:
i. the Company, as detailed in note 40 to the standalone financial statements, has disclosed the impact of pending litigations on its financial position as at March 31, 2019;
ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at March 31, 2019;
iii. there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company during the year ended March 31, 2019; and
iv. the disclosure requirements relating to holdings as well as dealings in specified bank notes were applicable for the period from November 8, 2016 to December 30, 2016, which are not relevant to these standalone financial statements. Hence, reporting under this clause is not applicable.
For Walker Chandiok & Co LLP
Firms Registration No: 001076N/N500013
Sanjay Kumar Jain
Membership No: 207660
Date: May 16, 2019
Annexure I to the Independent Auditors Report
of even date to the members of Neuland Laboratories Limited, on the standalone financial statements for the year ended March 31, 2019
Based on the audit procedures performed for the purpose of reporting a true and fair view on the standalone financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, and to the best of our knowledge and belief, we report that:
(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.
(b) The fixed assets have been physically verified by the management during the year and no material discrepancies were noticed on such verification. In our opinion, the frequency of verification of the fixed assets is reasonable having regard to the size of the Company and the nature of its assets.
(c) The title deeds of all the immovable properties (which are included under the head Property, plant and equipment) are held in the name of the Company except for the following property which according to the information and explanation given to us, are under dispute pending with Honorable High Court of Telangana as to the ownership of the property, as stated in note 40(h) to the financial statements.
|( र in lacs)|
|Nature of property||Whether leasehold /freehold||Gross block as on March 31, 2019||Net block on March 31, 2019||Remarks|
|Land||Freehold||3.30||3.30||The title deeds of the land are in the name of Neuland Health Sciences Private Limited, erstwhile Company that was merged with the Company. Further, the title of the land is under dispute in respect of which we have been informed by the management of the Company that they have filed a writ petition with Honorable High Court of Telangana.|
(ii) In our opinion, the management has conducted physical verification of inventory at reasonable intervals during the year, except for goods-in-transit. No material discrepancies were noticed on the aforesaid verification.
(iii) The Company has not granted any loan, secured or unsecured to companies, firms, Limited Liability Partnerships (LLPs) or other parties covered in the register maintained under Section 189 of the Act. Accordingly, the provisions of clauses 3(iii)(a), 3(iii) (b) and 3(iii)(c) of the Order are not applicable.
(iv) In our opinion, the Company has complied with the provisions of Section 186 in respect of investments. Further, in our opinion, the Company has not entered into any transaction covered under Section 185 and Section 186 of the Act in respect of loans, guarantees and security.
(v) In our opinion, the Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Accordingly, the provisions of clause 3(v) of the Order are not applicable.
(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under sub-section (1) of Section 148 of the Act in respect of Companys products and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.
(vii) (a) Undisputed statutory dues including provident fund, employees state insurance, income-tax, sales-tax, goods and service tax, duty of customs, duty of excise, cess and other material statutory dues, as applicable, have generally been regularly deposited with the appropriate authorities, though there has been a slight delay in a few cases. Further, no undisputed amounts payable in respect thereof were outstanding at the year-end for a period of more than six months from the date they became payable.
(b) The dues outstanding in respect of sales-tax, service-tax, value added tax, duty of customs on account of disputes, are as follows:
|Amount ( र in lacs)|
|Name of the statute||Nature of dues||Total Claim||Amount paid under protest||Period to which the amount relates||Forum where dispute is pending|
|Finance Act, 1994||Service tax||119.32||55.45||2009-15||Honble High Court of Telangana|
|5.70||-||2004-05 to 2008-09||CESTAT, Bangalore|
|Income Tax Act, 1961||Income Tax||18.13||-||AY 1998-99||Honble High Court of Telangana|
|19.01||3.81||AY 2012-13||Commissioner of Income Tax (Appeals), Hyderabad|
|1,357.45||273.49||AY 2012-13 to 2018-19|
(viii) The Company has not defaulted in repayment of loans or borrowings to any financial institution or bank during the year. The Company has no loans or borrowings payable to government and does not have any outstanding debentures during the year.
(ix) The Company did not raise moneys by way of initial public offer or further public offer (including debt instruments) and did not have any term loans outstanding during the year. Accordingly, the provisions of clause 3(ix) of the Order are not applicable.
(x) No fraud by the Company or on the Company by its officers or employees has been noticed or reported during the period covered by our audit.
(xi) Managerial remuneration has been paid / provided by the Company in accordance with the requisite approvals mandated by the provisions of Section 197 of the Act read with Schedule V to the Act.
(xii) In our opinion, the Company is not a Nidhi Company. Accordingly, provisions of clause 3(xii) of the Order are not applicable.
(xiii) In our opinion all transactions with the related parties are in compliance with Sections 177 and 188 of Act, where applicable, and the requisite details have been disclosed in the standalone financial statements etc., as required by the applicable Ind AS.
(xiv) During the year, the Company has made private placement of shares. In respect of the same, in our opinion, the company has complied with the requirement of Section 42 of the Act and the Rules framed thereunder. Further, in our opinion, the amounts so raised were applied for the purposes for which these securities were issued, though idle funds which were not required for immediate utilisation have been invested in liquid investments, payable on demand. During the year, the company did not make preferential allotment/private placement of fully/partly convertible debentures.
(xv) In our opinion, the Company has not entered into any non-cash transactions with the directors or persons connected with them covered under Section 192 of the Act. Accordingly, the provisions of clause 3(xv) of the order are not applicable.
(xvi) The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.
For Walker Chandiok & Co LLP
Firms Registration No: 001076N/N500013
Sanjay Kumar Jain
Membership No: 207660
Date: May 16, 2019
Annexure II to the Independent Auditors Report
of even date to the members of Neuland Laboratories Limited, on the standalone financial statements for the year ended March 31, 2019 Annexure II
Independent Auditors Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (the Act)
1. In conjunction with our audit of the standalone financial statements of Neuland Laboratories Limited (the Company) as at and for the year ended 31 March 2019, we have audited the internal financial controls over financial reporting (IFCoFR) of the Company as at that date.
Managements Responsibility for Internal Financial Controls
2. The Companys Board of Directors is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of the Companys business, including adherence to the Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.
3. Our responsibility is to express an opinion on the Companys IFCoFR based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India (ICAI) and deemed to be prescribed under Section 143(10) of the Act, to the extent applicable to an audit of IFCoFR, and the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the Guidance Note) issued by the ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate IFCoFR were established and maintained and if such controls operated effectively in all material respects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacy of the IFCoFR and their operating effectiveness. Our audit of IFCoFR includes obtaining an understanding of IFCoFR, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Companys IFCoFR.
Meaning of Internal Financial Controls over Financial Reporting
6. A companys IFCoFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys IFCoFR include those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting
7. Because of the inherent limitations of IFCoFR, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the IFCoFR to future periods are subject to the risk that the IFCoFR may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
8. In our opinion, the Company has, in all material respects, adequate internal financial controls over financial reporting and such controls were operating effectively as at March 31, 2019, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India.
For Walker Chandiok & Co LLP
Firms Registration No: 001076N/N500013
Sanjay Kumar Jain
Membership No: 207660
Date: May 16, 2019