Windlas Biotech Ltd Management Discussions.

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our Restated Consolidated Financial Information on page 194.

This Red Herring Prospectus may include forward-looking statements that involve risks and uncertainties, and our actual financial performance may materially vary from the conditions contemplated in such forward-looking statements as a result of various factors, including those described below and elsewhere in this Red Herring Prospectus. For further information, see

"Forward-Looking Statements" on page 18. Also read "Risk Factors" and "- Significant Factors Affecting our Results of

Operations" on pages 19 and 249, respectively, for a discussion of certain factors that may affect our business, financial condition or results of operations.

Unless otherwise indicated or the context otherwise requires, the financial information for Fiscals 2019, 2020 and 2021 included herein is derived from the Restated Consolidated Financial Information, included in this Red Herring Prospectus, which have been derived from our audited financial statements and restated in accordance with the SEBI ICDR Regulations and the Guidance Note on Reports in Company Prospectuses (Revised 2019) issued by the ICAI, as amended from time to time, which differ in certain material respects from IFRS, U.S. GAAP and GAAP in other countries. For further information, see

"Financial Statements" on page 194.

Unless otherwise indicated or the context otherwise requires, in this section, references to "the Company" or "our Company" are to Windlas Biotech Limited on a standalone basis, and references to "the Group", "we", "us", "our", are to Windlas Biotech Limited, its Subsidiary and Joint Venture on a consolidated basis.

Unless otherwise indicated, industry and market data used in this section has been derived from industry publications, in particular, the report titled "Assessment of the Global and Indian pharmaceuticals industry" dated July 2021 ("CRISIL Report"), exclusively prepared and issued by CRISIL Research, a division of CRISIL Limited, commissioned and paid for by us. Unless otherwise indicated, all financial information of the Company derived from the CRISIL Report and included herein is based on the Indian GAAP audited financial information of the Company for the relevant periods and are therefore not comparable to our Restated Consolidated Financial Information. Also see, "Certain Conventions, Use of Financial Information and Market Data and Currency of Presentation Industry and Market Data" on page 16.

OVERVIEW

We are amongst the top five players in the domestic pharmaceutical formulations contract development and manufacturing organization ("CDMO") industry in India in terms of revenue (Source: CRISIL Report). With over two decades of experience in manufacturing both solid and liquid pharmaceutical dosage forms and significant experience in providing specialized capabilities, including, high potency, controlled substances and low-solubility, we provide a comprehensive range of CDMO services ranging from product discovery, product development, licensing and commercial manufacturing of generic products, including complex generics, in compliance with current Good Manufacturing Practices ("GMP") with a focus on improved safety, efficacy and cost. In Fiscal 2020, our market share was approximately 1.5% in terms of revenue in the domestic formulations CDMO industry (Source: CRISIL Report). In addition to providing services and products in the CDMO market, we also sell our own branded products in the trade generics and OTC markets as well as export generic products to several countries.

The prevalence of chronic diseases in India has been increasing in the last few years, specifically in certain key therapeutic categories, such as, anti-diabetic, cardiovascular, neuropsychiatry and respiratory therapies, that are treated with ‘multi-drug therapy by physicians, i.e. the specific use of two or more drugs for single or multiple chronic conditions in an individual. Moreover, multi-drug therapy has gained importance over the past few years in the healthcare sector and is expected to aid the growth of pharmaceutical consumption. (Source: CRISIL Report). We have significant experience in developing and manufacturing generic fixed dose combinations. Our focus has currently been on launching new complex generic products in the chronic therapeutic category linked to lifestyle related disorders. Our complex generic products portfolio primarily comprises fixed dosage combinations, fixed dosage plus modified release combinations, customized generics and chewable or dispersible, which was 69.44% in Fiscal 2019 and was 68.98% in Fiscal 2020 and was 68.48% in Fiscal 2021 of our total product portfolio. Our revenue from the sale of complex generic products amounted to 2,048.43 million, 2,297.28 million and 2,905.61 million in Fiscals 2019, 2020 and 2021, respectively. The complex generic products market has a high barrier to entry as these products are generally difficult to develop and require special know-how from the development and manufacturing perspective compared to conventional generic products (Source: CRISIL Report).

We have three distinct strategic business verticals ("SBVs"):

(i) CDMO Services and Products;

(ii) Domestic Trade Generics and over-the-counter ("OTC") Brands; and

(iii) Exports.

CDMO Services and Products. Our CDMO Services and Products SBV is focused on providing products and services across a diverse range of pharmaceutical and nutraceutical generic products for Indian and multinational pharmaceutical companies who market such products under their own brand names to the end users. In Fiscal 2019, 2020 and 2021, our CDMO Services and Products SBV accounted for 83.73%, 87.36% and 84.66% of our total revenue from operations. Revenues from CDMO

Services and Products SBV increased from 2,572.62 million in Fiscal 2019 to 2,872.94 million in Fiscal 2020 and further to 3,620.16 million in Fiscal 2021.

We believe our CDMO customers rely on our customized formulation, development and manufacturing expertise to address the growing drug and therapy complexity, cost pressures and regulatory scrutiny. We partner with many of our CDMO customers early in the drug development process, providing us the opportunity to continue to expand our relationship as molecules progress through the clinical phase and into commercial manufacturing. This results in long-term relationships with our customers and a recurring revenue stream. We believe our range of products and services, reliability and scale addresses our CDMO customers increasing need to outsource and desire to reduce the number of supply chain partners while maintaining a high quality of product and service. Accordingly, we have developed relationships with various leading Indian pharmaceutical companies, including Pfizer Limited, Sanofi India Limited, Cadila Healthcare Limited/ Zydus Healthcare Limited, Emcure Pharmaceuticals Limited, Eris Lifesciences Limited, Intas Pharmaceuticals Limited and Systopic Laboratories Private Limited. In Fiscal 2020, we provided CDMO services to seven of the top 10 Indian formulations pharmaceutical companies (Source: CRISIL Report).

Domestic Trade Generics and OTC Brands. Our Domestic Trade Generics and OTC Brands SBV consists of (i) trade generic products; and (ii) OTC brands, which include nutraceutical and health supplement products that do not require prescription and are marketed, distributed and promoted in India under our own brand names through online and offline channels and majorly manufactured by us. Trade generic products are generic medicines, i.e. drugs for which the patents have expired, which are sold directly to the distributor and not marketed through medical representatives, and are typically used as a substitute for more expensive branded generic medicines in order to offer affordable medicines to patients by the retailers and pharmacies (Source: CRISIL Report). Our Domestic Trade Generics and OTC Brands SBV accounted for 8.84%, 9.20% and 10.22% of our total revenue from operations in Fiscal 2019, 2020 and 2021, respectively. Our Domestic Trade Generics and OTC Brands SBV has grown from 271.66 million in Fiscal 2019 to 302.50 million in Fiscal 2020 and to 437.17 million in Fiscal 2021.

Exports. Our Exports SBV is engaged in identifying high growth markets and opportunities in semi-regulated international markets as well as selected regulated markets, for developing and registering product applications to obtain marketing authorizations for generic medicines and health supplements and subsequently, sell such products to pharmaceutical companies and pharmacies in the respective markets. In Fiscal 2019, 2020 and 2021, our Exports SBV accounted for 5.93%, 3.25% and 4.45% of our total revenue from operations, respectively. Revenues from Export SBV were 182.25 million, 106.88 million and 189.95 million in Fiscal 2019, 2020 2021, respectively.

Each of our SBVs is supported by a network of R&D laboratories and manufacturing facilities which in turn are supported by various functions, including supply chain, inventory, finance and human resources.

We currently own and operate four manufacturing facilities located at Dehradun in Uttarakhand. As of March 31, 2021, our manufacturing facilities had an aggregate installed operating capacity of 7,063.83 million tablets/ capsules, 54.46 million pouch/ sachet and 61.08 million liquid bottles. In addition, we have recently received a license to manufacture certain APIs at our Dehradun Plant I, which will help us with backward integration. Our manufacturing facilities are regularly inspected for compliance with current GMP and all of our manufacturing facilities are Schedule M compliant, while our Dehradun Plant I, Dehradun Plant II and Dehradun Plant IV are compliant with standards set by WHO GMP. Our R&D laboratories (which include formulation development, analytical development and chemical research areas) are located at Dehradun Plant - I, and are recognized as an in-house R&D unit by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India.

We are led by professional and experienced Promoters and a senior management team with significant expertise in the pharmaceutical industry. Our Promoter, and Whole-time Director, Ashok Kumar Windlass, has over 20 years of experience in the manufacturing and pharmaceutical business in India, while Hitesh Windlass, our Promoter and Managing Director, helped with regards to the strategic, corporate and technical operations, and Manoj Kumar Windlass, our Promoter and Joint Managing Director, helped in the commercial operations of our Company. We leverage the experience of our Individual Promoters and senior management team to anticipate and address market trends, manage and grow our operations, maintain and leverage customer relationships and respond to changes in customer preferences.

Our business has grown organically, as reflected in a consistent increase in revenues and profitability, and our long-term CDMO service agreements with customers results in predictable and stable cash flows. Our revenue from operations was 3,072.67 million, 3,288.52 million and 4,276.02 million in Fiscals 2019, 2020 and 2021, respectively, while our PAT margin (i.e. profit for the period/ year before exceptional items divided by revenue from operations) was 4.65%, 4.93% and 8.70%, respectively, in the same periods. In Fiscals 2019, 2020 and 2021, our EBITDA amounted to 377.41 million, 340.00 million and 545.19 million, respectively. As of March 31, 2019, 2020, and 2021, our ROCE was 15.86%, 12.04% and 20.23%, respectively. Although the ongoing COVID-19 pandemic has significantly affected the global economy, as we are engaged in production of essential goods in the form of pharmaceutical products, we were not required to cease our operations during the COVID-19 pandemic. Despite limited availability of labour, logistics and supply chain constraints, compelling us to operate at limited capacity levels in April and May 2020, our revenue from operations increased by 30.03% from 3,288.52 million in Fiscal 2020 to 4,276.02 million in Fiscal 2021, while our PAT margin (i.e. profit for the period/ year before exceptional items divided by revenue from operations) increased from 4.93% in Fiscal 2020 to 8.70% in Fiscal 2021. In addition, our EBITDA increased by 60.35% from 340.00 million in Fiscal 2020 to 545.19 million in Fiscal 2021.

PRESENTATION OF FINANCIAL INFORMATION

Our restated consolidated statement of assets and liabilities as at March 31, 2021, March 31, 2020 and March 31, 2019 (proforma), and the restated consolidated statement of profit and loss (including other comprehensive income), cash flows and changes in equity for the years ended March 31, 2021, March 31, 2020 and March 31, 2019 (proforma), together with the summary statement of significant accounting policies and other explanatory information thereon (collectively, the "Restated Consolidated Financial Information"), have been derived from our audited consolidated financial statements as at and for the year ended March 31, 2021 prepared in accordance with Ind AS, read with the Companies (Indian Accounting Standards) Rules, 2015, and our audited consolidated financial statements as at and for the years ended March 31, 2020 and March 31, 2019 prepared in accordance with Indian GAAP and read together with paragraph 7 of the Companies (Accounts) Rules, 2014, and restated in accordance with the SEBI ICDR Regulations and the Guidance Note on "Reports in Company Prospectuses (Revised 2019)" issued by ICAI and the circular no. SEBI/HO/CFD/DIL/CIR/P/2016/47 dated March 31, 2016 issued by SEBI.

For further information, see "Financial Statements Summary of Significant Accounting Policies" on page 251.

Transition from Indian GAAP to Ind AS Financial Statements

The financial statements for Fiscal 2021, were the first financial statements of our Company that have been prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2020, our Company prepared its financial statements in accordance with Indian GAAP. Accordingly, we have prepared financial statements which comply with Ind AS applicable for the years ended March 31, 2020 and March 31, 2019. In preparing these financial statements, our Companys opening balance sheet was prepared as at April 1, 2019, our Companys date of transition to Ind AS. The Restated Consolidated Financial Information for the year ended March 31, 2019 has been prepared on proforma basis. For the purpose of proforma Ind AS financial statements for the year ended March 31, 2019, our Company has followed the same accounting policy and accounting policy choices (both mandatory exceptions and optional exemptions availed as per Ind AS 101) as initially adopted on the transition date, i.e. April 1, 2019. For further information in relation to exemptions and exceptions availed, see "Financial Statements Note 43 First time adoption of Ind AS" on page 237.

Divestment, Reacquisition and Amalgamation of Windlas Healthcare

Until October 28, 2018, Windlas Healthcare Private Limited ("Windlas Healthcare") was a wholly owned subsidiary of our

Company. Pursuant to a share purchase agreement dated August 13, 2018 with Cadila Healthcare Limited ("Cadila"), our Companys shareholding in Windlas Healthcare was reduced to 49.00%, with effect from October 29, 2018. Consequently, with effect from such date, Windlas Healthcare was reflected as an associate of our Company and its financial results were accordingly consolidated as those of an associate company in our audited consolidated financial statements. Subsequently, we reacquired Cadilas shareholding in Windlas Healthcare for an aggregate purchase consideration of 1,035.00 million in two tranches, initially 2.00% of the outstanding share capital of Windlas Healthcare (with effect from April 16, 2020), and the remaining 49.00% (with effect from April 30, 2020). Accordingly, in our consolidated financial statements for Fiscal 2021, Windlas Healthcare is reflected as

(i) an associate company for the period beginning from April 1, 2020 to April 15, 2020;

(ii) a 51.00% subsidiary for the period beginning from April 16, 2020 to April 29, 2020;

(iii) as a 100.00% subsidiary from April 30, 2020; and

(iv) subsequently, pursuant to a scheme of amalgamation, as a merged entity into our Company with effect from May 1, 2020; and the financial condition and results of operations of Windlas Healthcare are accordingly reflected in such manner in our consolidated financial statements for Fiscal 2021. Since Windlas Healthcare was merged with our Company with effect from May 1, 2020, our audited standalone financial statements for Fiscal 2021 will not be comparable to our historical audited standalone financial statements.

 

Divestment of Windlas Healthcare: On October 29, 2018, Windlas Healthcare issued 24,077,950 equity shares at face value 10 each along with premium of 54.60 (total value, including premium, amounting to 64.60) to Cadila for a consideration of

1,555.50 million. As a result, Cadila acquired 51.00% of the total equity share capital of Windlas Healthcare. The purpose of the divestment was to enter into a strategic partnership to help develop abbreviated new drug applications (‘ANDAs) and utilize our excess capacities to export to the United States market.

 

Reacquisition of Windlas Healthcare: Pursuant to a share purchase agreement dated April 16, 2020, our Company acquired 944,233 equity shares of 10 each of Windlas Healthcare from Cadila for a consideration of 40.59 million. As a consequence, our Companys shareholding in Windlas Healthcare increased from 49.00% to 51.00%, with effect from April 16, 2020.

Subsequently, pursuant to another share purchase agreement dated April 30, 2020, our Company acquired an additional 23,133,717 equity shares of 10 each of Windlas Healthcare from Cadila for a consideration of 994.41 million. As a consequence, our Companys shareholding in Windlas Healthcare increased from 51.00% to 100.00%, with effect from April 30, 2020. Our Company had undertaken a borrowing of 1,020.00 million from Windlas Healthcare, in order to fund this acquisition of 51.00% shareholding in Windlas Healthcare from Cadila. The purpose of the re-acquisition by our Company was to utilize the manufacturing capacity of the Dehradun Plant IV, which was operated by Windlas Healthcare, in order to cater to the growth in the CDMO Services and Products SBV. In addition, Cadila was focused on developing the export business, which was delayed on account of the import alert 66-40 on January 21, 2020 and warning letter 320-20-28 dated March 10, 2020 issued by the US FDA in relation to the Dehradun Plant 4, rather than the domestic CDMO business.

 

Merger of Windlas Healthcare with our Company: Pursuant to a scheme of amalgamation, Windlas Healthcare was merged into our Company with effect from May 1, 2020, and consequently the financial condition and results of operations of Windlas Healthcare are accordingly reflected in such manner in our standalone and consolidated financial statements for Fiscal 2021.

For further details, see "Financial Statements Note 44: Business Combinations" and "History and Certain Corporate Matters - Details regarding material acquisitions or divestments of business/ undertakings, mergers, amalgamations or any revaluation of assets, in the last 10 years" on pages 237 and 164, respectively.

As a result of the divestment and subsequent re-acquistion of the shareholding in Windlas Healthcare as well as the merger of Windlas Healthcare into our Company, our consolidated financial statements for Fiscals 2019, 2020 and 2021 are not comparable to each other.

In this Red Herring Prospectus, we have not included any proforma financial information with respect to the divestment, re-acquisition and the subsequent merger of Windlas Healthcare into our Company as discussed above, prepared in accordance with the laws and regulations of the United States, India or any other jurisdiction, which would have shown the effect of such events. Investors are therefore cautioned against relying on our Restated Consolidated Financial Information included in this Red Herring Prospectus or our audited standalone and consoldiated financial statements to the extent that they may not be comparable as a result of such divetsment and reacquisiton of Windlas Healthcare in the relevant periods, and the subsequent merger of Windlas Healthcare into our Company with effect from May 1, 2020.

SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION

 

Efficiency in production capabilities and ability to maintain quality

Our ability to increase our cost efficiency is dependent on the efficient management of our production costs. The availability of key raw materials at competitive prices is critical. We purchase APIs and other materials such as, excipients and impurities, and primary and secondary packaging materials from third party suppliers domestically. In addition, we purchase certain APIs from a third party international supplier. In Fiscals 2019, 2020 and 2021, our material margin percentage, i.e. calculated by dividing margin (which is calculated by deducting cost of goods sold from revenue from operations) by revenue from operations, was 37.54%, 35.66% and 35.83%, respectively. We do not have any long term contracts with our third-party suppliers. Prices are negotiated for each purchase order and we generally have more than one supplier for each raw material. The terms and conditions on including the return policy are set forth in the purchase orders. We seek to source our materials from reputed suppliers and typically seek quotations from multiple suppliers. Historically, we have sourced raw materials from vendors in India, China, Germany and Belgium. Our imported raw materials as a percentage of total raw materials purchases was 3.65% in Fiscal 2021 compared to 3.50% in Fiscal 2019. Arrangements with raw material and packing material suppliers are subject to, among other things, regulatory requirements, various import duties and other government clearances. For further information on procurement of our raw materials, see "Business Procurement and Raw Materials" on page 147.

Further, in order to maximize our profits, we must maintain adequate capacity utilization at our manufacturing facilities and an appropriate standard of quality in our manufacturing facilities equipment and machinery. We are also subject to strict technical specifications, quality requirements, regular inspections and audits by our CDMO customers including leading Indian pharmaceutical companies and multinational companies. Our failure to comply with the quality standards and technical specifications prescribed by such customers may lead to loss of business from such customers and could negatively impact our reputation, which would have an adverse impact on our business prospects and results of operations, including cancellation of existing and future orders which may expose us to warranty claims. Further, our manufacturing facilities are regularly inspected for compliance with current GMP and all of our manufacturing facilities are Schedule M compliant, while our Dehradun Plant

I, Dehradun Plant II and Dehradun Plant IV are also compliant with standards set by WHO GMP. For further information, see "Our Business - Quality Control, Testing and Certifications" on page 150. Attaining and maintaining an adequate level of capacity utilization and quality requires considerable expense and planning. If we are unable to achieve and preserve the necessary level of quality in our manufacturing processes and facilities in the future, our financial condition and results of operations may be adversely affected.

Ability to grow our domestic formulations business, particularly in chronic therapeutic category

The chronic therapeutic category, i.e. drugs used for treatment of such diseases for an extended treatment as opposed to acute therapeutic category for which the drug is consumed for a shorter or a limited period (typically less than three weeks), has been growing at a CAGR of approximately 10% between Fiscal 2016 and Fiscal 2020, and has outperformed overall domestic formulations market (in terms of consumption), which grew at a CAGR of approximately 8.6% during the same periods. Further, chronic therapeutic segments are expected to see a higher growth compared to acute therapeutic segment, with chronic segment projected to grow at a CAGR of 16% to 18%, while the acute segment is projected to grow at a CAGR of 11% to 13% between Fiscal 2020 to Fiscal 2025. (Source: CRISIL Report) Accordingly, we are focused on developing, manufacturing and commercializing complex generic pharmaceutical products in in the chronic therapeutic category linked to lifestyle related disorders market. Our revenue from the sale of products in the chronic segment (including sub-chronic) amounted to 1,573.12 million, 1,540.02 million and 2,546.30 million in Fiscals 2019, 2020 and 2021, respectively.

Our strategy for expansion in the chronic therapeutic category includes developing and manufacturing generic fixed dose combinations, identifying gaps in existing interventions, analyzing patient compliance, and working with customers, doctors and patients through active engagement to develop, manufacture and market new indications which fulfil an unmet need or are clinically differentiated. If we are unable to expand and strengthen our domestic formulations business, it may affect our business, results of operations and financial condition.

Maintaining and enhancing relationships with key CDMO customers

Our revenue from CDMO services and products SBV has historically been derived from a small customer base. In Fiscals 2019, 2020 and 2021, our top 10 customers represented 57.01%, 57.14% and 57.87%, respectively, of our total revenues from operations in such periods. Our largest customer represented 12.33%, 11.65% and 10.97%, respectively, of our total revenues from operations in Fiscals 2019, 2020 and 2021, respectively. Any reduction in orders from our key CDMO customers would adversely affect our income. The demand from our CDMO customers, in particular our top 10 customers, determines our revenue levels and results of operations, and our sales are directly affected by the production and inventory levels of our customers. Our customers in turn are dependent on demand from their customers, as well as general trends in the pharmaceuticals industry.

Although we have various long-term agreements with our CDMO customers, the volume under each contract is subject to change, some-times significantly based on the expected forecast volume required by our customers. As a result, the quantity of the products which we manufacture are dependent upon the demand from our customers for our products. Further, our CDMO agreements impose several contractual obligations upon us and if we are unable to meet these contractual obligations and/ or our customers perceive any deficiency in our service we may face legal liabilities and consequent damage to our reputation which may in-turn adversely impact our business, financial condition and results of operations. In addition, the profit margin for each type of products manufactured by us varies and our production lines will continue to be readjusted according to customers orders.

Ability to conduct research and development ("R&D")

Our business depends to a significant degree on our ability to successfully conduct R&D with respect to our products. We have invested substantial effort, funds and other resources towards our R&D activities. Our R&D laboratories (which include formulation development, analytical development and chemical research areas) are located at Dehradun Plant - I, and are recognized as an in-house R&D unit by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India. The R&D processes are both time consuming and costly, and involve a high degree of business risk. In Fiscals 2019, 2020 and 2021, our research and development expenses were 41.87 million, 38.74 million and 36.06 million, respectively. Our business, financial and operating results have therefore been and will continue to be affected by our ability to continue to launch new complex generic products.

Due to the time it takes to develop a complex generic product and obtain approvals from customers and regulators, the competitive landscape for such products may change or differ significantly from what was anticipated, and our products may not hold the competitive advantages in pricing or efficacy that we had anticipated during development. Our investment in R&D could result in higher costs without a proportionate increase in revenues. In addition, we must adapt to rapid changes in our industry due to technological advances and scientific discoveries. The cost of implementing new technologies, upgrading our manufacturing facilities and retaining our research staff could be significant and could adversely affect our profitability. As of March 31, 2021, we have a team of 45 experts in medical affairs, regulatory affairs, pharmacology and chemical research that works to identify ideas of complex generic products that create value at the end users level by improving the efficacy, safety and cost of existing generics.

We also intend to foray in the high growth injectables business and propose to utilize 500.00 million of our Net Proceeds towards purchase of equipment towards capacity expansion of our existing manufacturing facility at Dehradun Plant IV and setting up of an injectables dosage capability at our existing facility at Dehradun Plant-II. For further information, see "Our Business Strategy - Foray into high growth injectables segment" and "Objects of the Offer" on pages 141 and 78, respectively.

During the development period of such new products, we will incur costs for raw material related to the development of the product and bio-equivalence studies. We also incur some cost in familiarizing the partners with new products and in educating them on their uses and benefits and provide samples of our new products to the partners. The R&D costs could adversely affect our operating results for a particular period leading to shortfall in resulting revenue. Our investment in R&D for future products could result in higher costs without a proportionate increase in revenues.

Ability to develop generic versions of pharmaceutical formulation going ‘off-patent

We seek to launch generic pharmaceutical products, subject to approval from concerned regulatory authority, either where patent protection or other regulatory exclusivity of equivalent branded products have expired, where patents have been declared invalid or where products do not infringe on the patents of others. Accordingly, our operations are directly related to the expiry of patents for pharmaceutical products. However, the manufacture, use and sale of generic versions of products has been subject to substantial litigation in the pharmaceutical industry which mostly relate to the validity and infringement of patents or proprietary rights of third parties. Our ability to develop marketable generic versions of pharmaceutical formulation going ‘off-patent in a cost effective, efficient and timely manner, and to protect such generic versions from legal challenges, may affect our results of operations.

Regulatory restrictions, including on pricing our products

The development, testing, manufacturing, marketing and sale of pharmaceutical products are subject to extensive regulation in India and other countries. We are required to comply with the regulatory requirements of various local, state, provincial and national regulatory authorities, such as, the state level food and drug administrations ("FDA"), the Drugs Controller General of India ("DCGI") and Central Drugs Standard Control Organization of India ("CDSCO"), and for certain facilities involved in producing products for exports, international regulatory authorities, such as, United States Food and Drug Administration ("US FDA"), Food and Drug Administration, Department of Health, Republic of Philippines and Food, Medicine and Healthcare Administration and Control Authority of Ethiopia. We are subject to international and national guidelines and regulations concerning development, testing, manufacturing processes, equipment and facilities, including the WHO GMP as well as the

Schedule M of the Drugs and Cosmetic Act, 1940 ("Schedule M").

Regulatory authorities impose pricing controls on pharmaceutical products that apply to some of our products as well. For example, the Government of India has been taking various steps in order to control the prices of drugs and make it more affordable to consumers. Currently, prices for approximately 900 to 1,000 scheduled formulations have been fixed so far. The Governments firm stance on pricing even in future might have a negative impact on the profitability for some pharmaceutical players, which are selling branded generics at a high premium price. Due to the drop in realizations of formulations players, margins of contract manufacturing players are reduced as well. Therefore, both the formulation players as well as contract manufacturing players are equally impacted due to the price ceiling imposed by the Government. Further, most of the major drugs under the National List of Essential Medicines ("NLEM") 2015 account for approximately 20% of the market and belong to the chronic segment. (Source: CRISIL Report) Our or our CDMO customers ability to freely set prices for products is restricted by government regulation, healthcare legislation and/or pressure from third parties, it could have an adverse effect on our business and results of operations. Also, for our Exports SBV products, the destination countries and markets may impose varying duties and other levies on our products, which may affect our ability to compete with local manufacturers and other competitors with more widespread operations that may enable them to coordinate delivery and supplies from strategically located production facilities in a more cost competitive manner. In addition, due to rising healthcare costs, there may be additional proposals by legislators and regulators to keep costs down in India, which may affect our revenues and have an adverse effect on our business.

Industry competition and consolidation

We are a formulations focused CDMO player in India and our competition in the pharmaceutical manufacturing services market or CDMO services, includes full-service pharmaceutical outsourcing companies; contract manufacturers focusing on a limited number of dosage forms; contract manufacturers providing multiple dosage forms; and large pharmaceutical companies offering third-party manufacturing services to fill their excess capacity. For our Domestic Trade Generics and OTC Brands SBV, we compete with companies in the Indian market based on therapeutic and product categories, and within each category, upon dosage strengths and drug delivery. Further, in global markets, we compete with local companies, multinational corporations and companies from other emerging markets that are engaged in manufacturing and marketing generic pharmaceuticals. In addition, as we grow our Exports SBV, we expect competition from major international generic manufacturers. As a result, our products are exposed to intense competition from products commercialized or under development by competitors in all our therapeutic areas. The increase or decrease of our market share in therapeutic areas on which we focus, changes in our, and our competitors, financial, manufacturing, R&D, marketing and other resources and launch of new products by us, or our competitors, may affect our business, prospects, results of operations and financial condition.

The domestic formulations industry is highly fragmented in terms of both, number of manufacturers and products, with 300 to 400 organised players and approximately 15,000 unorganised players. Contract manufacturing is also characterized by high fragmentation and competition, with large number of organized and unorganized players. As a result, the bargaining power of contract manufacturing players is lowered owing to high competition. Further, consolidation in the CDMO fragmented industry is expected to gain traction due to the need to provide better and wider portfolio of services. (Source: CRISIL Report) Accordingly, our competitors may consolidate, and the strength of the combined companies could affect our competitive position in our business areas.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the global novel coronavirus disease ("COVID-19") outbreak a pandemic. While, the COVID-19 pandemic has not had a significant impact on our operations, as we have been able to continue to operate our manufacturing facilities and provide essential services to our customers, the global impact of the outbreak has been rapidly evolving. Additionally, in an effort to protect the health and safety of our employees and in compliance with state regulations, we have instituted a work-from-home policy for employees who can perform their job functions offsite, implemented social distancing requirements and other measures to allow manufacturing and other personnel essential to production to continue work within our manufacturing facilities.

The full extent to which COVID-19 will directly or indirectly impact our business, financial condition, and results of operations will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We will continue to assess the potential impact of the COVID-19 pandemic on our business, financial condition, and results of operations.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The Restated Consolidated Financial Information include the consolidated financial statement of our Company including the following companies:

Name Country of Proportion of Ownership of Interest
Incorporation As at March 31, 2021 As at March 31, 2020 As at March 31, 2019 (proforma)
Windlas Healthcare Private Limited* India - 49.00% 49.00%
Windlas, Inc.** United States 100.00% 49.00% 49.00%
USpharma Windlas LLC*** United States 50.00% 25.00% 25.00%

 

* Subsidiary until October 29, 2018 and with effect from April 16, 2020 until April 30, 2020. Thereafter, merged with our Company pursuant to the Scheme of Amalgamation, with effect from May 1, 2020. ** Subsidiary until October 29, 2018 and became an Associate with effect from October 30, 2018. Thereafter, became a Subsidiary with effect from April 16, 2020. *** Joint Venture until October 29, 2018 and with effect from April 16, 2020.

For further information, see "Financial Statements Significant Accounting Policies Basis of Preparation and Presentation of Consolidated Financial Statement (ii) Basis of Consolidation" on page 205.

Significant accounting judgements, estimates and assumptions

The preparation of our Companys financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Judgements

In the process of applying our Companys accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the Restated Consolidated Financial Information.

 

Recognition of deferred taxes

The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the future taxable income against which the deferred tax assets can be utilized.

 

Impairment of Financial assets

The impairment provisions of financial assets are based on assumptions about risk of default and expected loss rates. Our Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on Companys past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

 

Recognition of revenue

The price charged from the customer is treated as stand alone selling price of the goods transferred to the customer. At each balance sheet date, basis the past trends and management judgment, our Company assesses the requirement of recognising provision against the sales returns for its products and in case, such provision is considered necessary, the management make adjustment in the revenue. However, the actual future outcome may be different from this judgement.

 

Impairment of non-financial assets

Our Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, our Company estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets CGUS fair value less cost of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Companys of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, or other fair value indicators.

 

Leases

Ind AS 116 requires lessees to determine the lease term as the non-cancellable period of a lease adjusted with any option to extend or terminate the lease, if the use of such option is reasonably certain. Our Company makes an assessment on the expected lease term on a lease-by-lease basis and there by assesses whether it is reasonably certain that any options to extend or terminate the contract will be exercised. In evaluating the lease term, our Company considers factors such as significant leasehold improvements undertaken over the lease term, costs relating to the termination of the lease etc. The lease term in future periods is reassessed to ensure that the lease term reflects the current economic circumstances.

 

Government grants

Our Company assesses whether the government grant received is for purchase of capital assets or for meeting expenses as per the conditions attached to the grant and recognises the same as either deduction from cost of assets or income in statement of profit and loss.

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. Our Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of our Company. Such changes are reflected in the assumptions when they occur.

 

Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. Our Company establishes provisions, based on reasonable estimates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority

 

Gratuity benefit

The cost of defined benefit plans (i.e. Gratuity benefit) is determined using actuarial valuations. An actuarial valuation involves making various assumptions which 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. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rates of long term government bonds with extrapolated maturity corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables for the specific countries. Future salary increases and pension increases are based on expected future inflation rates for the respective countries.

 

Fair value measurement of financial instrument

When the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the Discounted Cash Flow (DCF) 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. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

 

Property, plant and equipment and intangible assets

The charge in respect of periodic depreciation is derived after determining an estimate of an assets expected useful life and the expected residual value at the end of its life. The useful lives and residual values of our Companys assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end.

Significant Accounting Policies

Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which our Company expects to be entitled in exchange for those goods or services. Our Company collects Goods and Service Tax on behalf of government, and therefore, these are not consideration to which our Company is entitled, hence, these are excluded from revenue. Our Company has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods or services before transferring them to the customer.

Revenue from sale of goods

Revenue from sale of goods is recognised at the point in time when significant risk and rewards of ownership of the goods is transferred to the customer, generally ex-factory.

Our Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of goods, our Company considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).

Revenue from sale of services

Revenue from sale of services is recognised over a period of time because the customer simultaneously receives and consumes the benefits provided by our Company and accounted revenue as and when services are rendered on cost plus basis where cost is determined on principles mutually agreed with customers.

Consideration of significant financing component in a contract

Our Company receives short-term advances from its customers. Using the practical expedient in Ind AS 115, our Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less.

Trade Receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current. Where the settlement is due after one year, they are classified as non-current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. Our Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method.

Contract Assets

A contract asset is the entitys right to consideration in exchange for goods or services that the entity has transferred to the customer. A contract asset becomes a receivable when the entitys right to consideration is unconditional, which is the case when only the passage of time is required before payment of the consideration is due. The impairment of contract assets is measured, presented and disclosed on the same basis as trade receivables.

Contract Liabilities

A contract liability is the obligation to transfer goods or services to a customer for which our Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before our Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when our Company performs under the contract.

Impairment

An impairment is recognised to the extent that the carrying amount of receivable or asset relating to contracts with customers (a) the remaining amount of consideration that our Company expects to receive in exchange for the goods or services to which such asset relates; less (b) the costs that relate directly to providing those goods or services and that have not been recognised as expenses.

Other Income

 

Export incentives

Revenue from export benefits arising from duty drawback scheme, merchandise export incentive scheme are recognised on export of goods in accordance with their respective underlying scheme at fair value of consideration received or receivable.

Interest Income

For all debt instruments measured either at amortised cost or at fair value through other comprehensive income, interest income is recorded using the effective interest rate (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 asset or to the amortised cost of a financial liability. When calculating the effective interest rate, our Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.

Property, plant and equipment

Property, Plant and equipment including capital work in progress are stated at cost, less accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, taxes, duties, freight and other incidental expenses directly attributable and related to acquisition and installation of the concerned assets and are further adjusted by the amount of input tax credit availed wherever applicable. Subsequent costs are included in assets carrying amount or recognised as separate assets, as appropriate, only when it is probable that future economic benefit associated with the item will flow to our Company and the cost of item can be measured reliably. When significant parts of plant and equipment are required to be replaced at intervals, our Company depreciates them separately based on their respective useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.

Capital work-in-progress includes cost of property, plant and equipment under installation / under development as at the balance sheet date.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

Depreciation on property, plant and equipment is provided on prorata basis on written-down value method using the useful lives of the assets estimated by management and in the manner prescribed in Schedule II of the Companies Act 2013. The useful life is as follows:

Assets Useful life (in years)
Building 30
Plant and machinery 15
Furniture and fixtures 10
Vehicles 8
Office equipment 5
Computers and servers 3-6
Exceptions to above
Plant and machinery (Continuous Process plant)* 15
(Including second hand Purchase) *
Lab Equipment * 15

 

*Based on internal assessment the management believes that the useful life given above best represent the period over which management expects to use these assets

Intangible assets

 

Separately acquired intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangibles, excluding capitalized development cost, are not capitalized and the related expenditure is reflected in statement of Profit and Loss in the period in which the expenditure is incurred. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.

Research and development cost

Research costs are expensed as incurred. Development expenditure incurred on an individual project is recognized as an intangible asset when our Company can demonstrate all the following:

i) The technical feasibility of completing the intangible asset so that it will be available for use or sale; ii) Its intention to complete the asset; iii) Its ability to use or sell the asset; iv) How the asset will generate future economic benefits; v) The availability of adequate resources to complete the development and to use or sell the asset; and vi) The ability to measure reliably the expenditure attributable to the intangible asset during development.

Following the initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized on straight line basis over the estimated useful life. During the period of development, the asset is tested for impairment annually.

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is 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 is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of profit and loss in the expense category consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from disposal of the intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the assets are disposed off.

Intangible assets with finite useful life are amortized on a straight line basis over the estimated useful economic life of 5 years, which represents the period over which our Company expects to derive economic benefits from the use of the assets.

Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, our Company elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquirees identifiable net assets. Acquisition-related costs are expensed as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their acquisition date fair values. For this purpose, the liabilities assumed include contingent liabilities representing present obligation and they are measured at their acquisition fair values irrespective of the fact that outflow of resources embodying economic benefits is not probable. However, the following assets and liabilities acquired in a business combination are measured at the basis indicated below:

Deferred tax assets or liabilities, and the assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with Ind AS 12 Income Tax and Ind AS 19 Employee Benefits respectively.

Liabilities or equity instruments related to share based payment arrangements of the acquiree or share based payments arrangements of our Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with Ind AS 102 Share-based Payments at the acquisition date.

Assets (or disposal Companys) that are classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

Reacquired rights are measured at a value determined on the basis of the remaining contractual term of the related contract. Such valuation does not consider potential renewal of the reacquired right.

When our Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss or OCI, as appropriate.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of Ind AS 109 Financial Instruments, is measured at fair value with changes in fair value recognised in profit or loss. If the contingent consideration is not within the scope of Ind AS 109, it is measured in accordance with the appropriate Ind AS. Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and subsequent its settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, our Company reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in OCI and accumulated in equity as capital reserve. However, if there is no clear evidence of bargain purchase, the entity recognises the gain directly in equity as capital reserve, without routing the same through OCI.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of our Companys cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Cash generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, our Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted through goodwill during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date. These adjustments are called as measurement period adjustments. The measurement period does not exceed one year from the acquisition date.

Common Control transactions

A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination and the control is not transitory. The transactions between entities under common control are specifically covered by Ind AS 103. Such transactions are accounted for using the pooling-of-interest method. The assets and liabilities of the acquired entity are recognised at their carrying amounts in our Companys consolidated financial statements with the exception of certain income tax and deferred tax assets. No adjustments are made to reflect fair values, or recognise any new assets or liabilities. The only adjustments that are made are to harmonise accounting policies. The components of equity of the acquired companies are added to the same components within our Companys equity. The difference, if any, between the amounts recorded as share capital issued plus any additional consideration in the form of cash or other assets and the amount of share capital of the transferor is transferred to capital reserve and is presented separately from other capital reserves. The acquiree companies shares issued in consideration for the acquired companies are recognized from the moment the acquired companies are included in these consolidated financial statements and the financial statements of the commonly controlled entities would be combined, retrospectively, as if the transaction had occurred at the beginning of the earliest reporting period presented. However, the prior year comparative information is only adjusted for periods during which entities were under common control.

Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

i) Financial Assets

Our Company classifies its financial assets in the following measurement categories:

- Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss);

- Those measured at amortized cost

The classification depends on entitys business model for managing the financial assets and the contractual terms of the cash flow.

 

Initial recognition and measurement

All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Transaction cost of financial assets carried at fair value through profit or loss are expensed in profit or loss.

 

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in following categories:

- Debt instruments at fair value through profit and loss (FVTPL)

- Debt instruments at fair value through other comprehensive income (FVTOCI)

- Debt instruments at amortized cost

- Equity instruments

Where assets are measured at fair value, gains and losses are either recognized entirely in the statement of profit and loss (i.e. fair value through profit or loss),or recognized in other comprehensive income( i.e. fair value through other comprehensive income). For investment in debt instruments, this will depend on the business model in which the investment is held. For investment in equity instruments, this will depend on whether our Company has made an irrevocable election at the time of initial recognition to account for equity instruments at FVTOCI.

 

Debt instruments at amortized cost

A debt instrument is measured at amortized cost if both the following conditions are met:

a) Business Model Test: The objective is to hold the financial asset to collect the contractual cash flows (rather than to sell the instrument prior to its contractual maturity to realize its fair value changes).

b) Cash flow characteristics test: The contractual terms of the Debt instrument give rise on specific dates to cash flows that are solely payments of principal and interest on principal amount outstanding.

This category is most relevant to our Company. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of EIR. EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset. When calculating the effective interest rate, our Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. The EIR amortization is included in other income in profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables.

 

Debt instruments at fair value through OCI

A Debt instrument is measured at fair value through other comprehensive income if following criteria are met:

a) Business Model Test: The objective of financial instrument is achieved by both collecting contractual cash flows and for selling financial assets.

b) Cash flow characteristics test: The contractual terms of the Debt instrument give rise on specific dates to cash flows that are solely payments of principal and interest on principal amount outstanding.

Debt instrument included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI), except for the recognition of interest income, impairment gains or losses and foreign exchange gains or losses which are recognized in statement of profit and loss. On derecognition of asset, cumulative gain or loss previously recognized in OCI is reclassified from the equity to statement of profit & loss. Interest earned whilst holding FVTOCI financial asset is reported as interest income using the EIR method.

 

Debt instruments at FVTPL

FVTPL is a residual category for financial instruments. Any financial instrument, which does not meet the criteria for amortized cost or FVTOCI, is classified as at FVTPL.A gain or loss on a Debt instrument that is subsequently measured at FVTPL and is not a part of a hedging relationship is recognized in statement of profit or loss and presented net in the statement of profit and loss within other gains or losses in the period in which it arises. Interest income from these Debt instruments is included in other income.

 

Equity investments of other entities

All equity investments in scope of IND AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which IND AS103 applies are classified as at FVTPL. For all other equity instruments, our Company may make an irrevocable election to present in other comprehensive income all subsequent changes in the fair value. Our Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable.

If our Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to profit and loss, even on sale of investment. However, our Company may transfer the cumulative gain or loss within equity. Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the Profit and loss.

 

Derecognition

A financial asset (or ,where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognized (i.e. removed from our Companys statement of financial position) when:

- The rights to receive cash flows from the asset have expired, or

- our Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass through" arrangement and either;

(a) our Company has transferred the rights to receive cash flows from the financial assets or

(b) our Company has retained the contractual right to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients.

Where our Company has transferred an asset, our Company evaluates whether it has transferred substantially all the risks and rewards of the ownership of the financial assets. In such cases, the financial asset is derecognized. Where the entity has not transferred substantially all the risks and rewards of the ownership of the financial assets, the financial asset is not derecognized.

Where our Company has neither transferred a financial asset nor retains substantially all risks and rewards of ownership of the financial asset, the financial asset is derecognized if our Company has not retained control of the financial asset. Where our Company retains control of the financial asset, the asset is continued to be recognized to the extent of continuing involvement in the financial asset.

 

Impairment of financial assets

In accordance with Ind AS 109, our Company applies expected credit losses (ECL) model for measurement and recognition of impairment loss on the following financial asset and credit risk exposure

- Financial assets measured at amortized cost;

- Financial assets measured at fair value through other comprehensive income(FVTOCI); Our Company follows "simplified approach" for recognition of impairment loss allowance on:

- Trade receivables or contract revenue receivables;

Under the simplified approach, our Company does not track changes in credit risk. Rather , it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. Our Company uses a provision matrix to determine impairment loss allowance on the portfolio of trade receivables. The provision matrix is based on its historically observed default rates over the expected life of trade receivable and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward looking estimates are analysed.

For recognition of impairment loss on other financial assets and risk exposure, our Company determines whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then our Company reverts to recognizing impairment loss allowance based on 12- months ECL.

Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.

ECL is the difference between all contractual cash flows that are due to our Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash flows, an entity is required to consider:

(i) All contractual terms of the financial instrument (including prepayment, extension, call and similar options) over the expected life of the financial instrument. However, in rare cases when the expected life of the financial instrument cannot be estimated reliably, then the entity is required to use the remaining contractual term of the financial instrument.

(ii) Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss. This amount is reflected under the head ‘other expenses in the statement of profit and loss. The balance sheet presentation for various financial instruments is described below:

(a) Financial assets measured as at amortized cost: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off criteria, our Company does not reduce impairment allowance from the gross carrying amount.

(b) Loan commitments and financial guarantee contracts: ECL is presented as a provision in the balance sheet, i.e. as a liability.

(c) Debt instruments measured at FVTOCI: For debt instruments measured at FVTOCI, the expected credit losses do not reduce the carrying amount in the balance sheet, which remains at fair value. Instead, an amount equal to the allowance that would arise if the asset was measured at amortised cost is recognised in other comprehensive income as the "accumulated impairment amount".

ii) Financial liabilities:

Initial recognition and measurement

Financial liabilities are classified at initial recognition as financial liabilities at fair value through profit or loss, loans and borrowings, and payables, net of directly attributable transaction costs. our Company financial liabilities include loans and borrowings including bank overdraft, trade payables, trade deposits, retention money, liabilities towards services, sales incentive and other payables.

 

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

 

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by our Company that are not designated as hedging instruments in hedge relationship as defined by Ind AS 109. The separated embedded derivate are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognized in the statement of profit and loss.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to profit and loss. However, our Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit or loss. Our Company has not designated any financial liability as at fair value through profit and loss.

 

Trade Payables

These amounts represents liabilities for goods and services provided to our Company prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 90 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognized initially at fair value and subsequently measured at amortized cost using Effective interest rate method.

 

Loans and borrowings

Borrowings are initially recognized at fair value, net of transaction cost incurred. After initial recognition, interest-bearing borrowings are subsequently measured at amortized cost using the Effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognised as well as through the Effective interest rate amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the Effective interest rate. The Effective interest rate amortization is included as finance costs in the statement of profit and loss.

Borrowing are classified as current liabilities unless our Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period."

 

Derecognition

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. 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 medication is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.

 

Offsetting of financial instruments

Financials 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 recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.

 

Reclassification of financial assets/ financial liabilities

Our Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. Our Companys senior management determines change in the business model as a result of external or internal changes which are significant to our Companys operations. Such changes are evident to external parties. A change in the business model occurs when our Company either begins or ceases to perform an activity that is significant to its operations. If our Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. Our Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.

Inventories

 

a) Basis of valuation:

i) Inventories are valued at lower of cost and net realizable value after providing cost of obsolescence, if any. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. The comparison of cost and net realizable value is made on an item-by-item basis.

b) Method of Valuation:

i) Cost of raw materials and components has been determined by using FIFO method and comprises all costs of purchase, duties, taxes (other than those subsequently recoverable from tax authorities) and all other costs incurred in bringing the inventories to their present location and condition.

ii) Cost of finished goods and work-in-progress includes direct labour and an appropriate share of fixed and variable production overheads and excise duty as applicable. Fixed production overheads are allocated on the basis of normal capacity of production facilities. Cost is determined on moving weighted average basis.

iii) Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.

Leases- Company as a lessee

Leases are accounted for using the principles of recognition, measurement, presentation and disclosures as set out in Ind AS 116 Leases.

On inception of a contract, our Company assesses whether it contains a lease. A contract contains a lease when it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to use the asset and the obligation under the lease to make payments are recognised in our Companys financial statements as a right-of-use asset and a lease liability.

Lease contracts may contain both lease and non-lease components. Our Company allocates payments in the contract to the lease and non-lease components based on their relative stand-alone prices and applies the lease accounting model only to lease components.

The right-of-use asset recognised at lease commencement includes the amount of lease liabilities on initial measurement, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated to a residual value over the rights-of-use assets estimated useful life or the lease term, whichever is lower. Right-of-use assets are also adjusted for any re-measurement of lease liabilities and are subject to impairment testing. Residual value is reassessed at each reporting date.

The lease liability is initially measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments (including ‘in-substance fixed payments) and variable lease payments that depend on an index or a rate, less any lease incentives receivable. ‘In-substance fixed payments are payments that may, in form, contain variability but that, in substance, are unavoidable. In calculating the present value of lease payments, our Company uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

The lease term includes periods subject to extension options which our Company is reasonably certain to exercise and excludes the effect of early termination options where our Company is not reasonably certain that it will exercise the option. Minimum lease payments include the cost of a purchase option if our Company is reasonably certain it will purchase the underlying asset after the lease term.

After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest on lease liability and reduced for lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification e.g. a change in the lease term, a change in the ‘in-substance fixed lease payments or as a result of a rent review or change in the relevant index or rate.

Variable lease payments that do not depend on an index or a rate are recognised as an expense in the period over which the event or condition that triggers the payment occurs. In respect of variable leases which guarantee a minimum amount of rent over the lease term, the guaranteed amount is considered to be an ‘in-substance fixed lease payment and included in the initial calculation of the lease liability. Payments which are ‘in-substance fixed are charged against the lease liability.

Our Company has opted not to apply the lease accounting model to intangible assets, leases of low-value assets or leases which have a term of less than 12 months. Costs associated with these leases are recognised as an expense on a straight-line basis over the lease term.

Lease payments are presented as follows in our Companys statement of cash flows:

(i) short-term lease payments, payments for leases of low-value assets and variable lease payments that are not included in the measurement of the lease liabilities are presented within cash flows from operating activities;

(ii) payments for the interest element of recognised lease liabilities are presented within cash flows from financing activities; and

(iii) payments for the principal element of recognised lease liabilities are presented within cash flows from financing activities.

Government Grants

Government Grants are recognized at their fair value when there is reasonable assurance that the grant will be received and all the attached conditions will be complied with.

When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset.

When our Company receives grants of non-monetary assets, the asset and grant are recorded at fair value amounts and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset.

PRINCIPAL COMPONENTS OF INCOME AND EXPENDITURE

Income

Our total income comprises

(i) revenue from operations, and

(ii) other income.

Revenue from Operations

Revenue from operations comprises

(i) revenue from contract with customers, including sale of products and exports; and

(ii) other operating revenue, such as scrap sales, export incentives, other operating income and sale of services.

Other Income

Other income includes

(i) interest income on financial assets measured at amortised cost, others and fixed deposit;

(ii) net gain on foreign currency transactions and translation;

(iii) gain on investment measured at FVTPL;

(iv) miscellaneous income;

(v) provision/ miscellaneous balance written back; and (vi) gain on sale of property, plant and equipment.

Expenses

Our expenses comprise

(i) cost of materials consumed;

(ii) excise duty;

(iii) changes in inventories of finished goods, work-in-progress and stock-in-trade;

(iv) employee benefits expenses;

(v) finance costs;

(vi) depreciation, amortisation and impairment expenses; and

(vii) other expenses.

Costs of Materials Consumed

Cost of material consumed consists of opening stock, purchases during the year and closing stock. We utilize APIs, excipients, and packaging materials, for manufacture of pharmaceutical products at our manufacturing faciliites.

Changes in Inventories of Finished Goods and Work-In-Progress

Changes in inventories of finished goods, and work in progress comprise net increases or decreases in inventory levels of finished goods and work in progress which primarily consists of purchases of finished pharmaceutical products from our third party manufacturers.

Employee Benefits Expenses

Employee benefits expenses primarily comprises salaries and wages, gratuity expense, contribution to provident and other funds, staff welfare expenses, leave encashment; bonus payments, and Employee State Insurance Corporation expenses .

Finance Costs

Finance cost refers to

(i) interest expense on term loans and vehicle loans, working capital loans, lease liability and other borrowing cost; and

(ii) bank commission and other charges.

Depreciation, Amortisation and Impairment Expenses

Depreciation and amortization expenses comprises

(i) depreciation of property, plant and equipment;

(ii) depreciation on right-of-use asset; and

(iii) amortisation of intangible assets.

Other Expenses

Other expenses comprises, amongst other things,

(i) power and fuel;

(ii) commission on sales;

(iii) freight and carraige;

(iv) research and development expenses;

(v) legal and professional fees;

(vi) miscellaneous expenses;

(vii) assets written off;

(viii) repairs on building, machinery and others;

(ix) advertisement and publicity;

(x) balance written off;

(xi) security expenses;

(xii) lab testing expenses;

(xiii) statutory audit fees; and

(xiv) CSR expenses.

NON-GAAP MEASURES

 

Earnings before Interest, Taxes, Depreciation and Amortization Expenses ("EBITDA")/ EBITDA Margin

EBITDA presented in this Red Herring Prospectus is a supplemental measure of our performance and liquidity that is not required by, or presented in accordance with, Ind AS, Indian GAAP, IFRS or US GAAP. Further, EBITDA is not a measurement of our financial performance or liquidity under Ind AS, Indian GAAP, IFRS or US GAAP and should not be considered in isolation or construed as an alternative to cash flows, profit/ (loss) for the years/ period or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities derived in accordance with Ind AS, Indian GAAP, IFRS or US GAAP. In addition, EBITDA is not a standardised term, hence a direct comparison of EBITDA between companies may not be possible. Other companies may calculate EBITDA differently from us, limiting its usefulness as a comparative measure. Although EBITDA is not a measure of performance calculated in accordance with applicable accounting standards, our Companys management believes that it is useful to an investor in evaluating us because it is a widely used measure to evaluate a companys operating performance.

Reconciliation of EBITDA and EBITDA Margin to profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax

The table below reconciles profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax to EBITDA. EBITDA is calculated as profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax plus share of gain/ (loss) in joint venture and associate company, finance costs and depreciation and amortization expenses less other income, while EBITDA Margin is the percentage of EBITDA divided by revenue from operations.

Particulars Fiscal
2019 2020 ( million) 2021
Profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax 273.37 321.34 435.30
Adjustments:
Add: Share of gain/ (loss) in joint venture (3.17) - -
Add: Share of gain/ (loss) in associate company (4.50) (74.66) (1.73)
Add: Finance Costs 48.38 25.26 12.90
Add: Depreciation and Amortization expense 105.91 92.93 129.65
Less: Other Income 42.58 24.87 30.93
Earnings before interest, taxes, depreciation and amortization expenses 377.41 340.00 545.19
(EBITDA) (A)
Revenue from Operations (B) 3,072.67 3,288.52 4,276.02
EBITDA Margin (EBITDA as a percentage of revenue from operations) 12.28% 10.34% 12.75%
(A/B)

RESULTS OF OPERATIONS FISCALS 2019, 2020 AND 2021 Key Developments

Until October 28, 2018, Windlas Healthcare was a wholly owned subsidiary of our Company. Pursuant to a share purchase agreement dated August 13, 2018 with Cadila Healthcare Limited ("Cadila"), our Companys shareholding in Windlas

Healthcare was reduced to 49.00%, with effect from October 29, 2018. Consequently, with effect from such date, Windlas Healthcare was reflected as an associate of our Company and its financial results were accordingly consolidated as those of an associate company in our audited consolidated financial statements. Subsequently, we reacquired Cadilas shareholding in Windlas Healthcare for an aggregate purchase consideration of 1,035.00 million in two tranches, initially 2.00% of the outstanding share capital of Windlas Healthcare (with effect from April 16, 2020), and the remaining 49.00% (with effect from April 30, 2020). Accordingly, in our consolidated financial statements for Fiscal 2021, Windlas Healthcare is reflected as (i) an associate company for the period beginning from April 1, 2020 to April 15, 2020; (ii) a 51.00% subsidiary for the period beginning from April 16, 2020 to April 29, 2020; (iii) as a 100.00% subsidiary from April 30, 2020; and (iv) subsequently, pursuant to a scheme of amalgamation, as a merged entity into our Company with effect from May 1, 2020; and the financial condition and results of operations of Windlas Healthcare are accordingly reflected in such manner in our consolidated financial statements for Fiscal 2021. As a result of the divestment and subsequent re-acquistion of the shareholding in Windlas Healthcare as well as the merger of Windlas Healthcare into our Company, our results of operations and financial condition for for Fiscals 2019, 2020 and 2021 are not comparable to each other. For further information, see "- Presentation of Financial Information - Divestment, Reacquisition and Amalgamation of Windlas Healthcare" and "Financial Statements Note 44: Business Combinations" on pages 248 and 237, respectively.

The following table sets forth certain information with respect to our results of operations on a consolidated basis for Fiscal 2019, 2020 and 2021:

Particulars

Fiscal

2019 (proforma)

2020

2021

( million) Percentage of total income ( million) Percentage of total income ( million) Percentage of total income
Income
Revenue from operations 3,072.67 98.63% 3,288.52 99.25% 4,276.02 99.28%
Other income 42.58 1.37% 24.87 0.75% 30.93 0.72%
Total Income 3,115.25 100.00% 3,313.39 100.00% 4,306.95 100.00%
Expenses
Cost of materials consumed 1,882.69 60.43% 2,243.47 67.71% 2,707.37 62.86%
Changes in inventories of finished goods and work-in-progress 36.54 1.17% (127.50) -3.85% 36.68 0.85%
Employee benefit expenses 429.58 13.79% 435.73 13.15% 583.24 13.54%
Finance costs 48.38 1.55% 25.26 0.76% 12.90 0.30%
Depreciation and amortisation expense 105.91 3.40% 92.93 2.80% 129.65 3.01%
Other expenses 338.78 10.87% 322.16 9.72% 401.81 9.33%
Total expenses 2,841.88 91.22% 2,992.05 90.30% 3,871.65 89.89%
Profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax 273.37 8.78% 321.34 9.70% 435.30 10.11%
Share of gain/ (loss) in joint venture (3.17) (0.10)% - - - -
Share of gain/ (loss) in associate company (4.50) (0.14)% (74.66) -2.25% (1.73) (0.04)%
Exceptional Items
Gain on losing control in subsidiary company 495.45 15.90% - - - -
Impairment of goodwill - - - - (272.64) (6.33)%
Gain on fair valuation of previously held equity interest on acquisition of control in Windlas Healthcare - - - - 56.47 1.31%
Profit before tax 761.15 24.43% 246.68 7.44% 217.40 5.05%
Income tax expense
Current tax 120.08 3.85% 85.73 2.59% 48.42 1.12%
Deferred tax 2.85 0.09% (1.18) -0.04% 13.28 0.31%
Total tax expense 122.93 3.95% 84.55 2.55% 61.70 1.43%
Profit for the year 638.22 20.49% 162.13 4.89% 155.70 3.62%
Profit attributable to owners 638.22 20.49% 162.13 4.89% 158.32 3.68%
Profit attributable to non- controlling interest - - - - (2.62) (0.06)%
Other comprehensive income for the year (1.05) (0.03)% (2.12) (0.06)% 0.52 0.01%
Total comprehensive income for the year 637.17 20.45% 160.01 4.83% 156.22 3.63%
Total comprehensive income attributable to owners 637.17 20.45% 160.01 4.83% 158.84 3.69%
Total comprehensive income attributable to non-controlling interest - - - - (2.62) (0.06)%

FISCAL 2021 COMPARED TO FISCAL 2020

Income

Total income increased by 29.99% from 3,313.39 million in Fiscal 2020 to 4,306.95 million in Fiscal 2021 primarily due to an increase in revenue from operations.

Revenue from Operations

Revenue from contracts with customers

Revenues from operations increased by 30.03% from 3,288.52 million in Fiscal 2020 to 4,276.02 million in Fiscal 2021, primarily due to an increase in revenue from contracts with customers.

Revenue from contracts with customers increased on account of an increase in sale of products in India by 27.77% from 3,175.45 million in Fiscal 2020 to 4,057.33 million in Fiscal 2021 primarily on account of increase in business driven by our business development team with existing CDMO customers, increase in new products, particularly in relation to COVID-19 prevention and immunity building, and CDMO customers as well as increase in sale of our products sold under our own brand name in the Domestic Trade Generics and OTC Brands SBV. In Fiscal 2021, we generated revenues of 355.80 million, which accounted for 8.32% of our total revenue from operations in the same period, from the sale of certain products relating to COVID-19 prevention and immunity building, such as, COVID-19 prevention kits containing Zinc Acetate, Doxycycline and Ivermectin dispersible tablets as well as Vitamin C combinations, antiseptic gargle and sanitizers. Revenue from sale of services also increased from 1.97 million in Fiscal 2020 to 19.84 million in Fiscal 2021, as a result of increase in job work done for

CDMO customers. The number of domestic CDMO customers that we provided CDMO services to increased from 143 in Fiscal 2020 to 204 in Fiscal 2021. Further, the number of products in the CDMO Services and Products SBV increased from 1,051 in Fiscal 2020 to 1,364 in Fiscal 2021 and the number of brands in the Domestic Trade Generics and OTC Brands SBV increased from 128 in Fiscal 2020 to 185 in Fiscal 2021. Revenues from CDMO Services and Products SBV increased by

26.01% from 2,872.94 million in Fiscal 2020 to 3,620.16 million in Fiscal 2021, while revenues from Domestic Trade Generics and OTC Brands SBV increased by 44.52% from 302.50 million in Fiscal 2020 to 437.17 million in Fiscal 2021.

In addition, our material margin percentage, i.e. calculated by dividing margin (which is calculated by deducting cost of goods sold from revenue from operations) by revenue from operations, was 35.66% and 35.83% in Fiscal 2020 and 2021, respectively.

In addition, export sales increased by 77.72% from 106.88 million in Fiscal 2020 to 189.95 million in Fiscal 2021 primarily on account of increase in demand from Vietnam, Thailand and Myanmar.

 

Other Operating Revenue

Other operating revenue increased from 4.22 million in Fiscal 2020 to 8.90 million in Fiscal 2021, primarily due to an increase in an increase in other operating income from 1.67 million in Fiscal 2020 to 4.42 million in Fiscal 2021, as a result of increase in contract development and testing services provided.

Other Income

Other income increased by 24.37% from 24.87 million in Fiscal 2020 to 30.93 million in Fiscal 2021, primarily due to an increase in provisions/ miscellaneous balance written back from nil in Fiscal 2020 to 2.87 million in Fiscal 2021 on account of no balances being written back of debtors and no balances being written off of creditors in Fiscal 2020.

Expenses

Total expenses increased by 29.40% from 2,992.05 million in Fiscal 2020 to 3,871.65 million in Fiscal 2021, primarily due to an increase in cost of materials consumed, employee benefits expenses, depreciation and amortisation expense, and other expenses.

Cost of Materials Consumed

Cost of materials consumed increased by 20.68% from 2,243.47 million in Fiscal 2020 to 2,707.37 million in Fiscal 2021 primarily due to increase in revenue from operations and changes in product mix.

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 was 36.68 million in Fiscal 2021 compared to

(127.50) million in Fiscal 2020 on account of higher opening stock for Fiscal 2021 due to the COVID-19 pandemic.

Employee Benefit Expenses

Employee benefit expenses increased by 33.85% from 435.73 million in Fiscal 2020 to 583.24 million in Fiscal 2021, primarily due to an increase in salaries and wages, by 37.07% from 404.42 million in Fiscal 2020 to 554.35 million in Fiscal 2021 on account of appointment of certain key positions including business development head and chief operating officer and increase in the number of additional sales personnel as well as increase in number of employees due to the acquisition of and subsequent merger with Windlas Healthcare.

Finance Costs

Finance costs decreased by 48.93% from 25.26 million in Fiscal 2020 to 12.90 million in Fiscal 2021 due to a decrease in interest on term loans and vehicle loans by 62.31% from 8.04 million in Fiscal 2020 to 3.03 million in Fiscal 2021, as a result of reduction in borrowings due to repayment of long-term loans and increased availability of internal accruals. Working capital interest also decreased by 30.64% from 12.01 million in Fiscal 2020 to 8.33 million in Fiscal 2021 on account of reduction in utilization of working capital, i.e. short term borrowings.

Depreciation and Amortisation Expenses

Depreciation and amortisation expenses increased by 39.51% from 92.93 million in Fiscal 2020 to 129.65 million in Fiscal 2021, primarily due to an increase in depreciation of property, plant and equipment, by 41.34% from 83.57 million in Fiscal

2020 to 118.12 million in Fiscal 2021 on account of increase in the number of assets due to the acquisition of and subsequent merger with Windlas Healthcare.

Other Expenses

Other expenses increased by 24.72% from 322.16 million in Fiscal 2020 to 401.81 million in Fiscal 2021, primarily due to:

Power and fuel increased by 43.36% from 80.44 million in Fiscal 2020 to 115.32 million in Fiscal 2021 on account of higher production levels and the acquisition of and subsequent merger with Windlas Healthcare.

Legal and professional fees increased by 45.94% from 18.74 million in Fiscal 2020 to 27.35 million in Fiscal 2021 primarily on account of due diligence and other related expenses in relation to the acquisition of and subsequent merger with Windlas Healthcare.

Freight and carriage increased by 32.47% from 27.47 million in Fiscal 2020 to 36.39 million in Fiscal 2021 on account of increase in overall logistics cost on account of the COVID-19 pandemic.

Repairs machinery increased from 7.32 million in Fiscal 2020 to 24.92 million in Fiscal 2021 on account of higher maintenance charges caused by higher production levels.

Rates and taxes increased from 0.33 million in Fiscal 2020 to 3.97 million in Fiscal 2021 on account of custom duty expenses and certain other government regulatory expenses.

These increases were partly offset by:

A decrease in travelling expenses by 65.66% from 13.51 million in Fiscal 2020 to 4.64 million in Fiscal 2021 on account of the operating restrictions/ lockdown imposed due to the COVID-19 pandemic.

A decrease in commission on sales by 32.68% from 51.59 million in Fiscal 2020 to 34.73 million in Fiscal 2021 on account of change in product mix.

A decrease in research and development expenses by 6.92% from 38.74 million in Fiscal 2020 to 36.06 million in Fiscal

2021 on account of change in product mix in developed products with lower development costs.

Profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax

For the reasons discussed above, profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax was 435.30 million in Fiscal 2021 compared to 321.34 million in Fiscal 2020.

Exceptional Items

Exceptional items included:

i) impairment of goodwill which was 272.64 million in Fiscal 2021 which was created on the acquisition of Windlas Healthcare by our Company with effect from April 16, 2020. The said acquisition was tested for impairment on March 31, 2021 and post such impairment testing, it was determined that the fair value of goodwill is less than the carrying amount.

Consequently, our Company recorded an impairment loss of the complete amount and hence, the carrying amount of goodwill has been reduced to nil as on March 31, 2021; and

ii) gain on fair valuation of previously held equity interest on acquisition of control in Windlas Healthcare which amounted to 56.47 million in Fiscal 2021. For further information, see "- Effect of Business Combinations" and "Financial Statements Note 44: Business Combinations" on pages 256 and 237, respectively.

Profit Before Tax

For the reasons discussed above, profit before tax was 217.40 million in Fiscal 2021 compared to 246.68 million in Fiscal 2020.

Income Tax Expense/ Credit

Current tax expenses decreased from 85.73 million in Fiscal 2020 to 48.42 million in Fiscal 2021, primarily on account of unabsorbed depreciation benefit from the acquisition of and subsequent merger with Windlas Healthcare amounting to 83.50 million. Deferred tax expenses increased from (1.18) million in Fiscal 2020 to 13.28 million in Fiscal 2021, due to merger with Windlas Healthcare. As a result, total tax expense amounted to 61.70 million in Fiscal 2021 compared to 84.55 million in Fiscal 2020.

Profit for the Year

For the various reasons discussed above, we recorded a profit for the year of 155.70 million in Fiscal 2021 compared to

162.13 million in Fiscal 2020.

Total Comprehensive Income for the Year

Total comprehensive income for the year was 156.22 million in Fiscal 2021 compared to 160.01 million in Fiscal 2020.

Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

EBITDA was 545.19 million in Fiscal 2021 compared to EBITDA of 340.00 million in Fiscal 2020, while EBITDA margin (EBITDA as a percentage of our revenue from operations) was 12.75% in Fiscal 2021 compared to 10.34% in Fiscal 2020.

FISCAL 2020 COMPARED TO FISCAL 2019

Income

Total income increased by 6.36% from 3,115.25 million in Fiscal 2019 to 3,313.39 million in Fiscal 2020 primarily due to an increase in revenue from operations.

Revenue from Operations

Revenue from contracts with customers

Revenues from operations increased by 7.02% from 3,072.67 million in Fiscal 2019 to 3,288.52 million in Fiscal 2020, primarily due to an increase in revenue from contracts with customers.

Revenue from contracts with customers increased on account of an increase in sale of products in India by 11.64% from 2,844.28 million in Fiscal 2019 to 3,175.45 million in Fiscal 2020 primarily on account of increase in business driven by our business development team with existing CDMO customers, increase in new products and CDMO customers as well as increase in sale of our products sold under our own brand name in the Domestic Trade Generics and OTC Brands SBV. Revenues from

CDMO Services and Products SBV increased by 11.67% from 2,572.62 million in Fiscal 2019 to 2,872.94 million in Fiscal 2020. In addition, revenues from Domestic Trade Generics and OTC Brands SBV increased by 11.35% from 271.66 million in Fiscal 2019 to 302.50 million in Fiscal 2020. In addition, our material margin percentage, i.e. calculated by dividing margin (which is calculated by deducting cost of goods sold from revenue from operations) by revenue from operations, was 37.54% and 35.66% in Fiscals 2019 and 2020, respectively.

This increase was offset by a decrease in export sales by 41.36% from 182.25 million in Fiscal 2019 to 106.88 million in Fiscal 2020, and in sale of services by 92.44% from 26.07 million in Fiscal 2019 to 1.97 million in Fiscal 2020 primarily on account of export sales and sale of services of Windlas Healthcare not being accounted for in Fiscal 2020 due to the acquisition by Cadila of 51% equity shareholding of Windlas Healthcare with effect from October 29, 2018 and Windlas Healthcare becoming an associate of our Company.

 

Other Operating Revenue

Other operating revenue significantly decreased by 78.97% from 20.07 million in Fiscal 2019 to 4.22 million in Fiscal 2020 primarily due to a decrease in other operating income by 86.40% from 12.28 million in Fiscal 2019 to 1.67 million in Fiscal

2020, as a result of reduction in contract development and testing services provided. Export incentive also decreased by 64.54% from 5.64 million in Fiscal 2019 to 2.00 million in Fiscal 2020, as a result of decrease in export sales.

Other Income

Other income significantly decreased by 41.59% from 42.58 million in Fiscal 2019 to 24.87 million in Fiscal 2020, primarily due to a decrease in provision/ miscellaneous balance written back from 16.87 million in Fiscal 2019 to nil in Fiscal 2020 on account of no balances being written back of debtors and no balances being written off of creditors. The decrease was offset by an increase in interest income on fixed deposit from 3.95 million in Fiscal 2019 to 9.31 million in Fiscal 2020 on account of availability of higher internal accruals which was invested in fixed deposits.

Expenses

Total expenses increased by 5.28% from 2,841.88 million in Fiscal 2019 to 2,992.05 million in Fiscal 2020, primarily due to an increase in cost of materials consumed.

Cost of Materials Consumed

Cost of materials consumed increased by 19.16% from 1,882.69 million in Fiscal 2019 to 2,243.47 million in Fiscal 2020 primarily due to increase in inventories at end of Fiscal 2020 due to the COVID-19 pandemic and changes in product mix.

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 was (127.50) million in Fiscal 2020 compared to 36.54 million in Fiscal 2019 primarily due to inventories held at the end of Fiscal 2020 on account of the COVID-19 pandemic.

Employee Benefits Expenses

Employee benefits expenses marginally increased by 1.43% from 429.58 million in Fiscal 2019 to 435.73 million in Fiscal 2020, primarily due to increase in increments. Contribution to provident and other funds increased by 9.03% from 22.93 million in Fiscal 2019 to 25.00 million in Fiscal 2020. Gratuity expenses also increased by 22.10% from 2.85 million in Fiscal 2019 to 3.48 million in Fiscal 2020. Salaries and wages also marginally increased by 0.98% from 400.49 million in Fiscal 2019 to 404.42 million in Fiscal 2020. This increase was offset by a marginal decrease in staff welfare expenses by 14.50% from 3.31 million in Fiscal 2019 to 2.83 million in Fiscal 2020 primarily on account of the acquisition by Cadila of 51.00% equity shareholding of Windlas Healthcare with effect from October 29, 2018 and Windlas Healthcare becoming an associate of the Company. Further, the number of employees decreased from 728 as of March 31, 2019 to 720 as of March 31, 2020.

Finance Costs

Finance costs significantly decreased by 47.79% from 48.38 million in Fiscal 2019 to 25.26 million in Fiscal 2020 due to a decrease in interest on term loans and vehicle loans by 61.46% from 20.86 million in Fiscal 2019 to 8.04 million in Fiscal 2020 on account of repayment of loans through internal accruals. Interest on working capital loans also decreased by 31.10% from 17.43 million in Fiscal 2019 to 12.01 million in Fiscal 2020, due to relatively lower bank charges based on number of transactions and utilization of internal accruals for working capital requirements.

Depreciation and Amortisation Expenses

Depreciation and amortisation expenses decreased by 12.26% from 105.91 million in Fiscal 2019 to 92.93 million in Fiscal

2020, primarily due to a decrease in depreciation of property, plant and equipment, by 12.40% from 95.40 million in Fiscal 2019 to 83.57 million in Fiscal 2020 on account of depreciation of assets of Windlas Healthcare not being accounted for in Fiscal 2020 due to the acquisition by Cadila of 51% equity shareholding of Windlas Healthcare with effect from October 29, 2018 and Windlas Healthcare becoming an associate of our Company.

Other Expenses

Other expenses decreased by 4.91% from 338.78 million in Fiscal 2019 to 322.16 million in Fiscal 2020, primarily due to an decrease in:

Legal and professional fees that significantly decreased by 74.62% from 73.84 million in Fiscal 2019 to 18.74 million in Fiscal 2020 due to one-time payment to a consultant in relation to the acquisition of 51% of the total equity shares of Windlas Healthcare by Cadila in Fiscal 2019;

Repair - machinery expenses that decreased by 47.90% from 14.05 million in Fiscal 2019 to 7.32 million in Fiscal 2020 due to higher maintenance undertaken in Fiscal 2019 compared to Fiscal 2020; and

Research and development expenses that decreased by 7.48% from 41.87 million in Fiscal 2019 to 38.74 million in Fiscal 2020 due to changes in product mix for products developed.

These decreases were substantially offset by an increase in:

Commission on sales by 71.91% from 30.01 million in Fiscal 2019 to 51.59 million in Fiscal 2020 on account of increase in revenue from operations;

Power and fuel expenses by 10.51% from 72.79 million in Fiscal 2019 to 80.44 million in Fiscal 2020 on account of increase in production;

Lab testing expenses from 4.17 million in Fiscal 2019 to 11.24 million in Fiscal 2020 on account of increase in sale of products; and

Advertisement and publicity expenses from 1.06 million in Fiscal 2019 to 8.87 million in Fiscal 2020 on account of increase in marketing expenses for products sold under our own brands.

Profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax

For the reasons discussed above, profit before share of gain/ (loss) in joint venture and associates, exceptional items and tax was 321.34 million in Fiscal 2020 compared to 273.37 million in Fiscal 2019.

Exceptional Items

Exceptional items included gain on losing control in a subsidiary amounted to 495.45 million in Fiscal 2019 on account of the acquisition of 51% of the total equity shares of Windlas Healthcare by Cadila in Fiscal 2019, pursuant to which Windlas Healthcare became an associate of our Company. After considering the loss of Windlas Healthcare until October 29, 2018 amounting to 91.62 million, the net assets of Windlas Healthcare amounting to 523.02 million were derecognised and investment in associate to the extent of share of our Company representing 49% equity shareholding, amounting to 1,019.16 million has been recognised. Consequently, the gain on loss of control of 495.45 million has been recognised in statement of profit and loss as an exceptional item. For further information, see "- Effect of Business Combinations" and "Financial Statements Note 44: Business Combinations" on pages 256 and 237 respectively.

Profit Before Tax

For the reasons discussed above, profit before tax was 246.68 million in Fiscal 2020 compared to 761.15 million in Fiscal 2019.

Income Tax Expense/ Credit

Current tax expenses increased from 120.08 million in Fiscal 2019 to 85.73 million in Fiscal 2020, primarily on account of profit before tax. Deferred tax expenses decreased from 2.85 million in Fiscal 2019 to (1.18) million in Fiscal 2020, due to lower tax rate in Fiscal 2020. As a result, total tax expense amounted to 84.55 million in Fiscal 2020 compared to 122.93 million in Fiscal 2019.

Profit for the Year

For the various reasons discussed above, we recorded a restated profit for the year of 162.13 million in Fiscal 2020 compared to 638.22 million in Fiscal 2019.

Total Comprehensive Income for the Year

Total comprehensive income for the year was 160.01 million in Fiscal 2020 compared to 637.17 million in Fiscal 2019.

Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA)

EBITDA was 340.00 million in Fiscal 2020 compared to EBITDA of 377.41 million in Fiscal 2019, while EBITDA margin (EBITDA as a percentage of our revenue from operations) was 10.34% in Fiscal 2020 compared to 12.28% in Fiscal 2019.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed the expansion of our business and operations primarily through debt financing and funds generated from our operations. From time to time, we may obtain loan facilities to finance our short term working capital requirements.

CASH FLOWS

The following table sets forth certain information relating to our cash flows in the periods indicated:

Particulars Fiscal
2019 2020 2021
( million)
Net cash flow from operations (A) 186.54 250.06 114.54
Net cash used in investing activities (B) (52.74) (143.41) (201.98)
Net cash flow from/ (used in) financing activities (C) (62.26) (54.42) 7.76
Net increase/ (decrease) in cash and cash equivalents (A+B+C) 71.54 52.23 (79.67)
Cash and cash equivalents at the beginning of the period/ year 71.95 128.55 180.78
Cash acquired on acquisition of subsidiary - - 58.19
Cash and cash equivalents at the closing of the period/ year 128.55 180.78 159.30

Operating Activities

 

Fiscal 2021

In Fiscal 2021, net cash flow from operations was 114.54 million. Profit before tax was 217.40 million in Fiscal 2021 and the share of loss in associate amounted to 1.73 million in Fiscal 2021, and adjustments for primarily consisted of impairment of goodwill (exceptional items) of 272.64 million, depreciation and amortization expenses of 129.65 million, and gain on fair value of previously held equity interest on acquisition of control in Windlas Healthcare (exceptional items) of 56.47 million. Operating profit before working capital changes was 580.26 million in Fiscal 2021. The main working capital adjustments in Fiscal 2021, included an increase in other financial liabilities of 55.37 million, decrease in inventories of 100.70 million on account of higher inventories at the end of Fiscal 2020 on account of the COVID-19 pandemic, and decrease in other current assets of 45.05 million. This was significantly offset by an increase in trade receivables of 148.35 million on account of increase in sale of products and decrease in trade payables of 460.39 million on account of primarily due to payments to creditors from short term loan availed during Fiscal 2021. Cash generated from operations in Fiscal 2021 amounted to 179.86 million. Income taxes paid amounted to 65.32 million in Fiscal 2021.

Fiscal 2020

In Fiscal 2020, net cash flow from operations was 250.06 million. Profit before tax was 246.68 million in Fiscal 2020 and the share of loss in associate amounted to 74.50 million in Fiscal 2020, and adjustments for primarily consisted of depreciation and amortization expenses of 92.93 million, interest expense on borrowings of 23.68 million and gain on investments measured at FVTPL (net) of 13.80 million. Operating profit before working capital changes was 419.62 million in Fiscal 2020. The main working capital adjustments in Fiscal 2020, included an increase in trade payables of 252.00 million on account of increase in purchases made during the Fiscal for maintaining higher inventory levels and increase in sales, an increase in other financial liabilities of 82.62 million and a decrease in other non-current assets of 32.27 million. This was significantly offset by an increase in inventories of 302.90 million on account of supply chain related disruption due to the COVID-19 pandemic at the end of Fiscal 2020 and increase in other current assets of 76.68 million on account of increase in balances with Government authorities primarily in relation to GST input tax credit. Cash generated from operations in Fiscal

2020 amounted to 384.31 million. Income taxes paid amounted to 134.25 million in Fiscal 2020.

Fiscal 2019

In Fiscal 2019, net cash flow from operations was 186.54 million. Profit before tax was 761.15 million in Fiscal 2019 and the share of loss in associate amounted to 4.65 million and share of loss in joint venture of 3.17 million in Fiscal 2019, and adjustments for primarily consisted of gain on losing control in subsidiary company (exceptional item) of 495.45 million, depreciation and amortization expenses of 105.91 million and interest expense on borrowings of 46.42 million. Operating profit before working capital changes was 422.32 million in Fiscal 2019. The main working capital adjustments in Fiscal 2019, included a decrease in inventories of 104.85 million on account of inventories in Fiscal 2019 did not include inventories of Windlas Healthcare, a increase in other current liabilities of 67.28 million on account of decrease in advance from customer and amount payable to statutory authorities, and a decrease in other current assets of 52.59 million on account of decrease in balances with Government authorities primarily in relation to GST input tax credit. This was offset by a decrease in trade payables of 247.42 million on account of reduction in sales and trade payables of Windlas Healthcare not being accounted for the full year in Fiscal 2019 due to the acquisition by Cadila of 51% equity shareholding of Windlas Healthcare with effect from October 29, 2018 and Windlas Healthcare becoming an associate of our Company, increase in other financial assets of 52.55 million on account of interest accrued on fixed deposits and decrease in other financial liabilities of 14.15 million on account of reduction of current maturities of long-term debt. Cash generated from operations in Fiscal 2019 amounted to 307.16 million. Income taxes paid amounted to 120.62 million in Fiscal 2019.

Investing Activities

 

Fiscal 2021

Net cash used in investing activities was 201.98 million in Fiscal 2021, primarily due to purchase of non-controlling interest of subsidiary company of 994.41 million on account of requirement of additional manufacturing capacity for growth purposes and investments in fixed deposits of 147.43 million. This was significantly offset by proceeds from mutual funds (net) of 1,022.15 million in Fiscal 2021 due to redemption of mutual funds of Windlas Healthcare for providing loan to our Company to fund the acquisition of 51.00% shareholding of Cadila in Windlas Healthcare.

Fiscal 2020

Net cash used in investing activities was 143.41 million in Fiscal 2020, primarily on account of purchase of property, plant and equipment, intangible assets and capital work in progress of 153.10 million, which was marginally offset by interest received of 9.19 million.

Fiscal 2019

Net cash used in investing activities was 52.74 million in Fiscal 2019, primarily on account of purchase of property, plant and equipment, and intangible assets and capital work in progress of 89.54 million, which was offset by proceeds from mutual funds (net) of 30.01 million.

Financing Activities

 

Fiscal 2021

Net cash flow from financing activities was 7.76 million in Fiscal 2021, primarily on account of proceeds of short term borrowings of 84.60 million, which was offset by repayment of long-term borrowings of 45.75 million.

Fiscal 2020

Net cash used in financing activities was 54.42 million in Fiscal 2020, primarily on account of repayment of long-term borrowings of 63.47 million, interest paid of 25.31 million and repayment of lease liabilities of 4.30 million. This was partially offset by proceeds from short-term borrowings of 38.66 million.

Fiscal 2019

Net cash from financing activities was 62.26 million in Fiscal 2019, primarily on account of repayment of short-term borrowings of 43.52 million, interest paid of 49.53 million and repayment of long term borrowings of 13.47 million. This was partially offset by proceeds by issue of equity shares of 48.15 million on account of conversion of optionally convertible preference shares into equity shares.

INDEBTEDNESS

As of March 31, 2021, we had total borrowings (consisting of long term borrowings and short term borrowings) of 313.16 million. Our Total Debt/ Equity ratio was 0.16 as of March 31, 2021. For further information on our indebtedness, see

" Financial Indebtedness" on page 277.

The following table sets forth certain information relating to our outstanding indebtedness as of March 31, 2021, and our repayment obligations in the periods indicated:

Particulars

As of March 31, 2021

Payment due by period

( million)
Total Not later than 1 year 1-3 years 3 -5 years More than 5 years
Long Term Borrowings
Term loans (secured) 19.11 10.79 7.23 1.09 -
Total long term borrowings (including current maturities) 19.11 10.79 7.23 1.09 -
Short Term Borrowings
Secured 294.05 294.05 - - -
Total Short Term Borrowings 294.05 294.05 - - -
Total Borrowings 313.16 304.84 7.23 1.09 -

CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2021, there were no contingent liabilities that have not been accounted for in our Restated Consolidated Financial Information.

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table sets forth certain information relating to future payments due under known contractual commitments as of March 31, 2021, aggregated by type of contractual obligation:

Particulars

As of March 31, 2021

Payment due by period

Total Less than 1 year 1-3 years ( million) 3-5 years More than 5 years
Contractual obligations
Long-term debt obligations 19.11 10.79 7.23 1.09 -
Purchase obligations 399.33 399.33 - - -
Other long-term liabilities 1.80 - 1.80 - -
Lease arrangements 10.33 5.16 5.17 - -
Total 430.57 415.28 13.58 - -

For further information on our capital and other commitments, see "Financial Statements" on page 194.

CAPITAL EXPENDITURES

In Fiscal 2019, Fiscal 2020, Fiscal 2021, our capital expenditure towards additions to fixed assets (property, plant and equipments and intangible assets) were 119.39 million, 152.04 million and 791.76 million (includes Windlas Healthcares acquired assets), respectively. The following table sets forth our fixed assets for the periods indicated:

Particulars Fiscal 2019 Fiscal 2020 Fiscal 2021
Property, plant and equipment 596.69 661.03 925.05
Intangible Assets* 4.42 5.52 4.82
Capital Work in Progress 45.79 Nil 0.37
Total 646.90 666.55 930.24

 

*Right of use not included in intangibles assets.

For further information, see "Financial Statements" on page 194.

RELATED PARTY TRANSACTIONS

We have entered into transactions with certain related parties, including our Promoters, certain members of our Promoter Group, certain current and former Directors and Key Managerial Personnel of our Company. In particular, we have entered into various transactions with such parties in relation to, amongst others, remuneration, professional fees, rent expense and reimbursement of expenses.

For details of related party transactions of our Company for the financial years ended March 31, 2021, 2020 and 2019, as per Ind AS 24 Related Party Disclosures, see "Offer Document Summary Summary of related party transactions" and "Financial Statements Note 41: Related Party Disclosures" on pages 12 and 231, respectively.

AUDITORS OBSERVATIONS

There have been no reservations/ qualifications/ adverse remarks/ matters of emphasis highlighted by our statutory auditors in their auditors reports on the audited financial statements as of and for the years ended March 31, 2019, 2020 and 2021.

In addition, the Statutory Auditors have included a statement on certain matters specified in the Companies (Auditors Report) Order 2016, as amended ("CARO"), in terms of sub-section (11) of section 143 of the Companies Act, in their reports included as an annexure to the auditors report on our audited financial statements as of and for the years ended March 31, 2019, 2020 and 2021, which do not require any corrective adjustments in the Restated Consolidated Financial Information. For further information, see "Financial Statements Annexure VI Part C: Non Adjusting Items" on page 243.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various types of market risks during the normal course of business. Market risk is the risk that the fair value or future cash ows of a nancial instrument will uctuate on account of changes in market prices. Market risk comprises interest rate risk, currency risk and other price risk such as equity price risk. Financial instruments a ected by market risk include loans and borrowings, deposits, and FVTPL investments. We have negligible exposure to foreign current risk.

Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate on account of changes in market prices. Market prices comprises two types of risk: (i) foreign currency risk; and (ii) interest rate risk. Financial instruments affected by market risks include loans and borrowings, deposits and foreign currency receivables and payables.

 

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate on account of changes in foreign exchange rates. Our Companys exposure to the risk of changes in foreign exchange rates relates primarily to our Companys operating activities (when revenue or expense is denominated in foreign currency). Our Company evaluates exchange rate exposure arising from foreign currency transactions and follows established risk management policies.

 

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate on account of changes in market interest rates. Our Companys exposure to the risk of changes in market interest rates relates primarily to our Companys long-term debt obligations with floating interest rates. Our Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. Our Company does not enter into any interest rate swaps.

Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Our Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, security deposits and other financial instruments.

 

Trade Receivables

Credit risk is managed by each business unit subject to our established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. The impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Group does not hold collateral as security. The Groups credit period generally ranges from 30 days to 60 days or as per agreed contractual terms and conditions. In Fiscals 2019, 2020 and 2021, our trade receivables were 617.35 million, 639.38 million and 794.13 million, respectively, while our receivable turnover day was 73 days, 71 days and 68 days, respectively, in the same periods. For further information on the ageing of trade receivables, see, "Financial Statements Note 43 Financial Risk Management Objectives and Policies" on page 234.

Financial instruments and other deposits

Credit risk from balances with banks and financial institutions is managed by our Companys treasury department in accordance with the Companys policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by our Companys Board of Directors on an annual basis, and may be updated throughout the year. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through a counterpartys potential failure to make payments. Our Companys maximum exposure to credit risk for the components of the statement of financial position at March 31, 2021, March 31, 2020 and March 31, 2019 is the carrying amounts.

Liquidity Risk

Liquidity risk is defined as the risk that our Company will not be able to settle or meet its obligations on time or at reasonable price. Our Companys objective at all times is to maintain optimum levels of liquidity to meet its cash and liquidity requirements. Our Company closely monitors its liquidity position and deploys a cash management system. It maintains sufficient source of financing through the use of short- term bank deposits and cash credit facility. Processes and policies related to such risks are overseen by our senior management. Our management monitors our Companys liquidity position through rolling forecasts on the basis of expected cash flows. For further information on contractual maturities of financial liabilities, see, "Financial Statements Note 43 Financial Risk Management Objectives and Policies" on page 234.

Inflation

In recent years, India has experienced relatively high rates of inflation. While we believe inflation has not had any material impact on our business and results of operations, inflation generally impacts the overall economy and business environment and hence could affect us.

CHANGES IN ACCOUNTING POLICIES

Other than as described in "Financial Statements", there have been no changes in our accounting policies during Fiscal 2019, 2020 and 2021.

UNUSUAL OR INFREQUENT EVENTS OR TRANSACTIONS

Except as described 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.

SIGNIFICANT ECONOMIC CHANGES THAT MATERIALLY AFFECT OR ARE LIKELY TO AFFECT INCOME FROM CONTINUING OPERATIONS

Our business has been subject, and we expect it to continue to be subject, to significant economic changes that materially affect or are likely to affect income from continuing operations identified above in "Managements Discussion and Analysis of

Financial Condition and Results of Operations Significant Factors Affecting our Results of Operations" and the uncertainties described in "Risk Factors" on pages 249 and 19, respectively.

KNOWN TRENDS OR UNCERTAINTIES

Our business has been subject, and we expect it to continue to be subject, to significant economic changes arising from the trends identified above in "Managements Discussion and Analysis of Financial Condition and Results of Operations Significant Factors Affecting our Results of Operations" and the uncertainties described in "Risk Factors" on pages 249 and 19, respectively. To our knowledge, except as discussed in this Red Herring Prospectus, there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on revenues or income of our Company from continuing operations.

FUTURE RELATIONSHIP BETWEEN COST AND INCOME

Other than as described in "Risk Factors", "Our Business" and "Managements Discussion and Analysis of Financial Condition and Results of Operations" on pages 19, 133 and 246, respectively, to our knowledge there are no known factors that may adversely affect our business prospects, results of operations and financial condition.

NEW PRODUCTS OR BUSINESS SEGMENTS

Except as set out in this Red Herring Prospectus, we have not announced and do not expect to announce in the near future any new business segments.

COMPETITIVE CONDITIONS

We operate in a competitive environment. See "Our Business", "Industry Overview" and "Risk Factors" on pages 133, 97 and 19, respectively, for further details on competitive conditions that we face across our various business segments.

EXTENT TO WHICH MATERIAL INCREASES IN NET SALES OR REVENUE ARE DUE TO INCREASED SALES VOLUME, INTRODUCTION OF NEW PRODUCTS OR SERVICES OR INCREASED SALES PRICES

Changes in revenue in the last three Fiscals are as described in "Managements Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2020 compared to Fiscal 2019" and "Managements Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 compared to Fiscal 2020" above on pages 267 and 265, respectively.

SEGMENT REPORTING

Segments are identified in line with Ind AS-108, "Operating Segment", as specified under the section 133 of the Companies

Act, 2013 read with Companies (Indian Accounting Standards) Rule 2015, as amended from time to time, and other relevant provision of the Companies Act, 2013, taking into consideration the internal organisation and management structure as well as differential risk and return of the segment. Based on above, we have identified "pharmaceutical" as the only primary reportable segment.

For further information, see "Financial Statements Note 37 Segment Information" on page 229.

SIGNIFICANT DEPENDENCE ON SINGLE OR FEW CUSTOMERS

Revenues from any particular customer may vary between financial reporting periods depending on the nature and term of ongoing contracts with such customer. Our revenue from CDMO services and products SBV has historically been derived from a small customer base. In Fiscals 2019, 2020 and 2021, our top 10 customers represented 57.01%, 57.14% and 57.87%, respectively, of our total revenues from operations in such periods. Our largest customer represented 12.33%, 11.65% and 10.97%, respectively, of our total revenues from operations in Fiscals 2019, 2020 and 2021, respectively. For further information, see "Risk Factors - We derive a significant portion of our revenue from certain CDMO customers, and the loss of one or more such customers, the deterioration of their financial condition or prospects, or a reduction in their demand for our products could adversely affect our business, results of operations, financial condition and cash flows" on page 27.

SEASONALITY/ CYCLICALITY OF BUSINESS

Our business is not subject to seasonality or cyclicality. For further information, see "Industry Overview" and "Our Business" on pages 97 and 133, respectively.

SIGNIFICANT DEVELOPMENTS AFTER MARCH 31, 2021 THAT MAY AFFECT OUR FUTURE RESULTS OF OPERATIONS

On April 17, 2021, Clause V of our MoA was amended to reflect the change in the authorised share capital of our Company from 775,000,000 divided into 54,000,000 equity sharesof 10 each, 300,000 preference shares of 100 each and 20,500,000 preference shares of 10 each to 775,000,000 divided into 108,000,000 Equity Shares of 5 each, 300,000 preference shares of 100 each and 20,500,000 preference shares of 10 each. In addition, on April 17, 2021, our

Companys equity shares of face value 10 each was sub-divided to Equity Shares of face value of 5 each. For further information, see "Capital Structure" and "History and Certain Corporate Matters" on pages 69 and 162, respectively.

On April 17, 2021, our Company approved the ‘Windlas Biotech Limited - Employee Stock Option Plan 2021. For further information, see "Capital Structure" on page 75.

On April 26, 2021, Our Company conducted a bonus issue in the ratio of 4.2 Equity Shares of face value of 5 each for every 10 Equity Shares of face value of 5 each held in our Company. For further information, see "Capital Structure" on page 69.

Except as disclosed above and elsewhere in this Red Herring Prospectus, to our knowledge no circumstances have arisen since March 31, 2021, that could 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.