To the Members of Aurobindo Pharma Limited
REPORT ON THE AUDIT OF THE STANDALONE FINANCIAL STATEMENTS
We have audited the standalone financial statements of Aurobindo PharmaLimited ("the Company") which comprise the standalone balance sheet as at 31March 2019 the standalone statement of profit and loss (including other comprehensiveincome) standalone statement of changes in equity and standalone statement of cash flowsfor the year then ended and notes to the standalone financial statements including asummary of the significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to theexplanations given to us the aforesaid standalone financial statements give theinformation required by the Companies Act 2013 ("Act") in the manner sorequired and give a true and fair view in conformity with the accounting principlesgenerally accepted in India of the state of affairs of the Company as at 31 March 2019and profit and other comprehensive income changes in equity and its cash flows for theyear ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing(SAs) specified under Section 143(10) of the Act. Our responsibilities under those SAs arefurther described in the Auditor's Responsibilities for the Audit of theStandalone Financial Statements section of our report. We are independent of theCompany in accordance with the Code of Ethics issued by the Institute of CharteredAccountants of India together with the ethical requirements that are relevant to our auditof the standalone financial statements under the provisions of the Act and the Rulesthereunder and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements of thecurrent period. These matters were addressed in the context of our audit of the standalonefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.
|Key audit matters ||How the matter was addressed in our audit |
|Impairment of investment in subsidiaries || |
|Refer note 2.1(d)(vi) of the summary of significant accounting Policies and note 4 to the standalone financial statements. ||Our key audit procedures included the following: |
|The Company has made investments in its subsidiaries and joint venture entities. The carrying value of these investments as at 31 March 2019 is ' 23390.2 million. || |
|Determining whether there is objective evidence of impairment which includes a significant shortfall in the investee's actual business performance compared with budgets and significant changes in the technological market economic or legal environment that have an adverse effect on the fair value of the investment for investments which do not have a quoted prices in an active market involves the exercise of significant management judgement. || Discussing with management whether there was any objective evidence of impairment of individual investment and challenging management's assertions and conclusions with reference to the guidance in the prevailing accounting standards and by (i) obtaining the latest available budgets and comparing the actual performance of the investees with management expectations (ii) obtaining and reviewing the latest financial statements of the respective investee companies and (iii) comparing the carrying amount of the investments with audited net worth of these investee companies which have been audited by the respective component auditor. |
|We identified assessing potential impairment of investments in subsidiaries and joint ventures as a key audit matter because of the significance of investments to the financial statements and because of the degree of judgement exercised by management in determining whether there was objective evidence of impairment of investments. || Assessing the appropriateness of the valuation methodology used by management and tested the mathematical accuracy of the impairment models. |
| || Assessing the reasonableness of the valuation assumptions such as discount rates growth rate projected/ forecasted cash flow used by management. |
| || Performing a sensitivity analysis around the key assumptions in particular discount rates and long term growth rates. |
| || Assessed the appropriateness of the disclosure made in the standalone financial statements. |
|Key audit matters ||How the matter was addressed in our audit |
|Contingencies and litigations || |
|Refer note 2.2(m) of the summary of significant accounting policies and note 30(C) to the standalone financial statements. || |
| ||Evaluating the design and testing the operating effectiveness of controls in respect of the recognition and measurement of provisions towards litigation and claims; |
|The Company operates in multiple jurisdictions in the pharmaceutical industry which is heavily regulated resulting in increased exposure to litigation risk. The Company is involved in a number of litigations/ legal actions. ||Corroborating management's assessment by: |
| || making enquiries with the in-house legal counsel of the Company; |
|These provisions are based on judgements and accounting estimates made by management reflect in determining the likelihood and magnitude of an unfavorable outcome on the claims Accordingly unexpected adverse outcomes could significantly impact the Company's reported profit and balance sheet position. || verifying correspondence orders and appeals in respect of open litigation; |
| || Obtaining confirmations from internal legal counsel where relevant and/ or evaluating legal opinions obtained by the management; |
| || Evaluating significant adjustments to legal provisions recorded during the year to determine if they were indicative of management bias; and |
| || Evaluating adequacy of disclosures given in Note 30(C) to standalone financial statements |
|Revenue Recognition ||In view of the significance of the matter we applied the following audit procedures in this area among others to obtain sufficient appropriate audit evidence: |
|Refer to Note 2.2(c) of the summary of significant accounting policies to the standalone financial statements. || |
|Revenue from sale of goods is recognised when a promise in a customer contract (performance obligation) has been satisfied by transferring control over the promised goods to the customer. Control is usually transferred upon shipment delivery to upon receipt of goods by the customer in accordance with the delivery and acceptance terms agreed with the customers. The amount of revenue to be recognised is based on the consideration expected to be received in exchange for goods excluding trade discounts volume discounts sales returns and any taxes or duties collected on behalf of the government which are levied on sales such as sales tax value added tax goods and services tax etc. where applicable. || Assessed the appropriateness of the Company's revenue recognition accounting policies including those relating to discounts and sales return and assessed compliance with the policies in terms of applicable accounting standards. |
| || Tested the effectiveness of the Company's controls over measurement and recognition of revenue in accordance with customer contracts which includes control over transaction pricing including discounts and correct timing of revenue recognition. |
|Revenue is one of the key performance indicators of the Company and there could be a risk that revenue is recognized in the incorrect period or before the control has been transferred to the customer. || Assessed sales transactions taking place at either side of the balance sheet date as well as credit notes issued after the year end date to assess whether that revenue was recognised in the correct period. |
| || Other audit procedures specifically designed to address risk of Management override of controls included journal entry testing. |
The Company's management and Board of Directors are responsible for theother information. The other information comprises the information included in theCompany's annual report but does not include the financial statements and our auditors'report thereon. The Company's annual report is expected to be made available to us afterthe date of this auditor's report
Our opinion on the standalone financial statements does not cover theother information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statementsour responsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated.
When we read the annual report if we conclude that there is a materialmisstatement therein we are required to communicate the matter to those charged withgovernance.
Management's Responsibility for the Standalone FinancialStatements
The Company's management and Board of Directors are responsible for thematters stated in Section 134(5) of the Act with respect to the preparation of thesestandalone financial statements that give a true and fair view of the state of affairsprofit/loss and other comprehensive income changes in equity and cash flows of theCompany in accordance with the accounting principles generally accepted in Indiaincluding the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act.This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding of the assets of the Company and forpreventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness of theaccounting records relevant to the preparation and presentation of the standalonefinancial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the standalone financial statements management and Boardof Directors are responsible for assessing the Company's ability to continue as a goingconcern disclosing as applicable matters related to going concern and using the goingconcern basis of accounting unless management either intends to liquidate the Company orto cease operations or has no realistic alternative but to do so.
Board of Directors is also responsible for overseeing the Company'sfinancial reporting process.
Auditor's Responsibilities for the Audit of the StandaloneFinancial Statements
Our objectives are to obtain reasonable assurance about whether thestandalone financial statements as a whole are free from material misstatement whetherdue to fraud or error and to issue an auditor's report that includes our opinion.Reasonable assurance is a high level of assurance but is not a guarantee that an auditconducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of thestandalone financial statements whether due to fraud or error design and perform auditprocedures responsive to those risks and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error as fraudmay involve collusion forgery intentional omissions misrepresentations or the overrideof internal control.
Obtain an understanding of internal control relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. UnderSection 143(3)(i) of the Act we are also responsible for expressing our opinion onwhether the Company has adequate internal financial controls with reference to financialstatements in place and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the standalone financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditions maycause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of thestandalone financial statements including the disclosures and whether the standalonefinancial statements represent the underlying transactions and events in a manner thatachieves fair presentation.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standalonefinancial statements of the current period and are therefore the key audit matters.
We describe these matters in our auditors' report unless law orregulation precludes public disclosure about the matter or when in extremely rarecircumstances we determine that a matter should not be communicated in our report becausethe adverse consequences of doing so would reasonably be expected to outweigh the publicinterest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditors' Report) Order 2016("the Order") issued by the Central Government in terms of Section 143 (11) ofthe Act we give in the "Annexure A" a statement on the matters specified inparagraphs 3 and 4 of the Order to the extent applicable.
2. As required by Section 143(3) of the Act we report that:
a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit;
b) In our opinion proper books of account as required by law have beenkept by the Company so far as it appears from our examination of those books;
c) The standalone balance sheet the standalone statement of profit andloss (including other comprehensive income) the standalone statement of changes in equityand the standalone statement of cash flows dealt with by this Report are in agreement withthe books of account;
d) In our opinion the aforesaid standalone financial statements complywith the Ind AS specified under Section 133 of the Act;
e) On the basis of the written representations received from thedirectors as on 31 March 2019 taken on record by the Board of Directors none of thedirectors is disqualified as on 31 March 2019 from being appointed as a director in termsof Section 164(2) of the Act;
f) With respect to the adequacy of the internal financial controls withreference to financial statements of the Company and the operating effectiveness of suchcontrols refer to our separate Report in "Annexure B"; and
g) With respect to the other matters to be included in the Auditors'Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigations as at 31March 2019 on its financial position in its standalone financial statements - Refer Note30(C) to the standalone financial statements;
ii. The Company did not have any long-term contracts includingderivative contracts for which there were any material foreseeable losses;
iii. There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company; and
iv. The disclosures in the standalone financial statements regardingholdings as well as dealings in specified bank notes during the period from 8 November2016 to 30 December 2016 have not been made in these standalone financial statements sincethey do not pertain to the financial year ended 31 March 2019.
3. With respect to the matter to be included in the Auditors' Reportunder Section 197(16):
In our opinion and according to the information and explanations givento us the remuneration paid by the Company to its directors during the current year is inaccordance with the provisions of Section 197 of the Act. The remuneration paid to anydirector is not in excess of the limit laid down under Section 197 of the Act. TheMinistry of Corporate Affairs has not prescribed other details under Section 197(16) whichare required to be commented upon by us.
For B S R & Associates LLP
Firm's Registration Number: 116231W/W-100024
Membership Number: 049642
Date: 28 May 2019
ANNEXURE A TO THE INDEPENDENT AUDITOR'S REPORT ON THE AUDIT OFSTANDALONE FINANCIAL STATEMENTS
With reference to the "Annexure A" referred to in Report onOther Legal and Regulatory Requirements of the Independent Auditor's Report to the Membersof the Company on the audit of standalone financial statements for the year ended 31 March2019 we report that:
i. (a) The Company has maintained proper records showing fullparticulars including quantitative details and situation of property plant andequipment.
(b) The property plant and equipment are physically verified by theManagement according to a phased programme designed to cover all the items over a periodof three years which in our opinion is reasonable having regard to the size of theCompany and the nature of its assets. Pursuant to the Programme a portion of theproperty plant and equipment has been physically verified by the Management during theyear and no material discrepancies have been noticed on such verification.
(c) In our opinion and according to the information and explanationsgiven to us and on the basis of our examination of the records of the Company the titledeeds of immovable properties included in the property plant and equipment except forthe following are held in the name of the Company. As explained to us registration oftitle deeds is in progress in respect of these immovable properties:
|Category ||No. of instances ||Freehold / Leasehold ||Gross Block as at 31 March 2019 (र in Million) ||Net Block as at 31 March 2019 (र in Million) |
|Land ||5 ||Freehold land ||131.2 ||131.2 |
|Building ||1 ||Freehold building ||35.3 ||14.0 |
|Total || || ||166.5 ||145.2 |
ii. The inventories except goods-in-transit and stock lying with thirdparties has been physically verified by the Management during the year. In our opinionthe frequency of such verification is reasonable. The discrepancies noticed onverification between the physical stock and the book records were not material.Inventories lying with third parties as at 31 March 2019 have been confirmed by them andno material discrepancies were noticed in respect of such confirmations.
iii. According to information and explanations given to us the Companyhas not granted any loans secured or unsecured to companies firms Limited LiabilityPartnerships or other parties covered in the Register maintained under Section 189 of theCompanies Act 2013 ("the Act"). Accordingly the Provisions of clause3(iii)(a) (b) and (c) of the Order are not applicable to the Company and hence notcommented upon.
iv. In our opinion and according to the information and explanationsgiven to us the Company has not advanced loans to directors / to a Company in which thedirector is interested to which the provisions of Section 185 of the Act apply and hencenot commented upon. However in respect of loans given investments made and guaranteesgiven the Company is in compliance with the provisions of Section 186 of the Act.
v. The Company has not accepted any deposits within the meaning ofSections 73 to 76 of the Act and the Rules framed thereunder. Accordingly the provisionsof clause 3(v) of the Order are not applicable.
vi. We have broadly reviewed the books of account maintained by theCompany pursuant to the Rules made by the Central Government for the maintenance of costrecords under Section 148(1) of the Act related to the manufacture of ActivePharmaceutical Ingredients and Formulations and are of the opinion that prima facie theprescribed accounts and records have been made and maintained. We have not however madea detailed examination of the same.
vii. (a) According to the information and explanations given to
us and on the basis of our examination of the records of the Companyamounts deducted/accrued in the books of account in respect of undisputed statutory duesincluding Provident Fund Employees' State Insurance Income-tax Duty of Customs Goodsand Services tax Cess and other material statutory dues have generally been regularlydeposited during the year by the Company with the appropriate authorities.
According to the information and explanations given to us noundisputed amounts payable in respect of Provident Fund Employees' State InsuranceIncome- tax Duty of Customs Goods and Services tax Cess and any other materialstatutory dues were in arrears as at 31 March 2019 for a period of more than six monthsfrom the date they became payable.
(b) According to the information and explanations given to us and basedon our examination of the records of the Company there are no dues of Goods and Servicestax and Cess. According to the information and explanations given to us the followingdues of Income-tax Service tax Duty of Customs Duty of Excise have not been depositedby the Company on account of disputes:
|Nature of the Statute ||Nature of dues ||Disputed amount (र in Million) ||Paid under protest (र in Million) ||Period to which the amount relates ||Forum where dispute is pending |
|Central Excise Act ||Central Excise ||6.3 ||6.1 ||F.Y 2004-2016 ||CESTAT* |
|1944 and Customs ||Central Excise ||2.6 ||2.3 ||F.Y 2007-2014 ||Revisionary Authority |
|Act 1962 ||Central Excise ||7.4 ||- ||F.Y 2013-2015 ||Commissioner (Appeals) |
| ||Central Excise-Interest ||0.5 ||0.2 ||F.Y 2006-2010 ||CESTAT* |
| ||Central Excise-Interest ||13.5 ||1.0 ||F.Y 2011-2012 ||Appellate Authority up to Commissioner's level |
| ||Customs ||9.8 ||1.4 ||F.Y 2002-2015 ||CESTAT* |
| ||Customs ||4.7 ||3.7 ||F.Y 2011-2012 ||Commissioner (Appeals) |
|Finance Act 1994 ||Service tax ||1.8 ||0.2 ||F.Y 2014-2015 ||Commissioner (Appeals) |
| ||Service tax ||508.9 ||34.5 ||F.Y 2005-2016 ||CESTAT* |
| ||Service tax ||0.3 ||- ||F.Y 2004-2005 ||Honorable AP High court |
|Income-tax Act 1961 ||Income-tax ||3.5 ||- ||A.Y 2013-2015 ||Commissioner (Appeals) |
*Customs Excise and Service Tax Appellate Tribunals
viii. In our opinion and according to the information and explanationsgiven to us the Company has not defaulted in repayment of loans or borrowings to bank.The Company did not have any dues to any financial institution government or debentureholder during the year.
ix. The Company has not raised any moneys by way of initial publicoffer or further public offer (including debt instruments). According to the informationand explanation given to us the monies raised by way of term loans have been applied onan overall basis for the purpose for which they are obtained.
x. Based on the audit procedures performed for the purpose of reportingthe true and fair view of the financial statements and according to the information andexplanations given by the Management we report that no fraud by the Company or no fraudon the Company by its officers and employees of the Company has been noticed or reportedduring the year.
xi. According to the information and explanations given to us and basedon examination of the records of the Company the Company has paid/ provided formanagerial remuneration in accordance with the requisite approvals mandated by theprovisions of Section 197 read with Schedule V to the Act.
xii. According to the information and explanations given to us in ouropinion the Company is not a Nidhi Company as prescribed under Section 406 of the Act.Accordingly provisions of clause 3(xii) of the Order are not applicable.
xiii. According to the information and explanations given to us andbased on our examination of the records of the Company transactions with related partiesare in compliance
with Sections 177 and 188 of the Act where applicable and the detailsof such transactions have been disclosed in the standalone financial statements asrequired by the applicable Indian Accounting Standards.
xiv. Based on our examination of the records of the Company andaccording to the information and explanations given to us the Company has not made anypreferential allotment or private placement of shares or fully or partly convertibledebentures during the year. Accordingly provisions of clause 3(xiv) of the Order are notapplicable.
xv. Based on our examination of the records of the Company andaccording to the information and explanations given to us the Company has not enteredinto any non-cash transactions with its directors or persons connected with him asreferred to in Section 192 of the Act.
xvi. According to the information and explanations given to us and inour opinion the Company is not required to be registered under Section 45-IA of theReserve Bank of India Act 1934.
For B S R & Associates LLP
Firm's Registration Number: 116231W/W-100024
Membership Number: 049642
Date: 28 May 2019