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Divis Laboratories Ltd.

BSE: 532488 Sector: Health care
NSE: DIVISLAB ISIN Code: INE361B01024
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OPEN 4854.00
PREVIOUS CLOSE 4843.25
VOLUME 3288
52-Week high 4860.00
52-Week low 2180.05
P/E 65.52
Mkt Cap.(Rs cr) 128,052
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 4854.00
CLOSE 4843.25
VOLUME 3288
52-Week high 4860.00
52-Week low 2180.05
P/E 65.52
Mkt Cap.(Rs cr) 128,052
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Divis Laboratories Ltd. (DIVISLAB) - Auditors Report

Company auditors report

To the Members of Divi's Laboratories Limited

Report on the audit of the Standalone financial statements

Opinion

1. We have audited the accompanying standalone financial statements of Divi'sLaboratories Limited ("the Company") which comprise the balance sheet as atMarch 31 2020 the statement of Profit and Loss (including Other Comprehensive Income)statement of changes in equity and statement of cash flows for the year then ended andnotes to the standalone financial statements including a summary of significantaccounting policies and other explanatory information.

2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ("the Act") in the manner so required and give a trueand fair view in conformity with the accounting principles generally accepted in India ofthe state of affairs of the Company as at March 31 2020 total comprehensive income(comprising of profit and other comprehensive income) changes in equity and its cashflows for the year then ended.

Basis for Opinion

3. We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Standalone FinancialStatements section of our report. We are independent of the Company in accordance with theCode of Ethics issued by the Institute of Chartered Accountants of India together with theethical requirements that are relevant to our audit of the standalone financial statementsunder the provisions of the Act and the Rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.

Key Audit Matters

4. Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.

Appropriateness of capitalisation of costs as per Ind AS 16 Property Plant andEquipment

Refer to Note 3 to the standalone financial statements.

During the year the Company has incurred capital expenditure aggregating to Rs. 81908lakhs on property plant and equipment (representing Plant & Machinery and Roads &Buildings) and Rs. 130616 lakhs on Capital work in progress in respect of itsmanufacturing facilities at Choutuppal and Visakhapatnam.

With regard to the capitalisation of Plant and Machinery Roads & Buildings andCapital work in progress Management has identified specific expenditure includingemployee costs and other overheads relating to each of the assets and has appliedjudgement to assess if the costs incurred in relation to these assets meet the recognitioncriteria of Property Plant and Equipment in accordance with Ind AS 16.

This has been determined as a key audit matter due to the significance of the capitalexpenditure during the year and the risk that the elements of costs that are eligible forcapitalisation are not appropriately capitalised in accordance with the recognitioncriteria provided in Ind AS 16.

How our audit addressed the key audit matter

We have performed procedures including the following in relation to testing ofcapitalisation of costs relating to Road and Buildings Plant and Machinery and capitalwork-in-progress:

• Understood evaluated and tested the design and operating effectiveness of keycontrols relating to capitalisation of various costs incurred including in relation toRoad and Buildings Plant and Machinery and capital work-in-progress.

• Tested the direct and indirect costs capitalised on a sample basis with theunderlying supporting documents to ascertain nature of costs and basis for allocationwhere applicable and evaluated whether they meet the recognition criteria provided in theIndian Accounting Standard 16 Property Plant and Equipment.

• Tested on a sample basis the appropriateness of employee costs capitalised inrelation to Plant and Machinery and Roads and Buildings based on factors such as review oftheir timesheets.

• Tested other costs debited to Statement of Profit and Loss Account on a samplebasis to ascertain whether these meet the criteria for capitalisation.

• Ensured adequacy of disclosures in the standalone financial statements.

Our procedures as mentioned above did not identify any costs that had beeninappropriately capitalised.

Other Information

5. The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Management Discussion and AnalysisBoard's Report Business Responsibility Report performance highlights corporate socialresponsibility report and Corporate Governance Report but does not include the standalonefinancial statements and our auditor's report thereon.

Our opinion on the standalone financial statements does not cover the other informationand we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the standalone financial statements or our knowledgeobtained in the audit or otherwise appears to be materially misstated. If based on thework we have performed we conclude that there is a material misstatement of this otherinformation we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the standalonefinancial statements

6. The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these standalone financial statementsthat give a true and fair view of the financial position financial performance changesin equity and cash flows of the Company in accordance with the accounting principlesgenerally accepted in India including the Accounting Standards specified under section133 of the Act. This responsibility also includes maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding of the assets of theCompany and for preventing and detecting frauds and other irregularities; selection andapplication of appropriate accounting policies; making judgments and estimates that arereasonable and prudent; and design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the accuracy andcompleteness of the accounting records relevant to the preparation and presentation ofthe standalone financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.

7. In preparing the standalone financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so. Those Board of Directors are also responsible foroverseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the standalone financial statements

8. Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.

9. As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.

• Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act we are also responsible for expressing our opinion on whether the companyhas adequate internal financial controls with reference to standalone financial statementsin place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Company to cease tocontinue as a going concern.

• Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.

10. We communicate with those charged with governance regarding among other mattersthe planned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.

11. We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence and to communicatewith them all relationships and other matters that may reasonably be thought to bear onour independence and where applicable related safeguards.

12. From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the standalone financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.

Report on other legal and regulatory requirements

13. As required by the Companies (Auditor's Report) Order 2016 ("theOrder") issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the Act we give in the "Annexure B" a statement on the mattersspecified in paragraphs 3 and 4 of the Order to the extent applicable.

14. As required by Section 143(3) of the Act we report that:

(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.

(c) The Balance Sheet the Statement of Profit and Loss (including other comprehensiveincome) the Statement of Changes in Equity and Cash Flow Statement dealt with by thisReport are in agreement with the books of account.

(d) In our opinion the aforesaid standalone financial statements comply with theAccounting Standards specified under Section 133 of the Act.

(e) On the basis of the written representations received from the directors as on March31 2020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2020 from being appointed as a director in terms of Section 164 (2) of theAct.

(f) With respect to the adequacy of the internal financial controls with reference tostandalone financial statements of the Company and the operating effectiveness of suchcontrols refer to our separate Report in "Annexure A".

(g) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements – Refer Note 40 to the standalonefinancial statements;

ii. The Company did not have any long-term contracts for which there were any materialforeseeable losses. The Company did not have any derivative contracts for the year endedMarch 31 2020.

iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company;

iv. The reporting on disclosures relating to Specified

Bank Notes is not applicable to the Company for the year ended March 31 2020.

15. The Company has paid/ provided for managerial remuneration in accordance with therequisite approvals mandated by the provisions of Section 197 read with Schedule V to theAct.

For Price Waterhouse Chartered Accountants LLP
Firm Registration Number: 012754N/N500016
Sunit Kumar Basu
Partner
Membership Number: 55000
Place: Hyderabad UDIN: 20055000AAAACU5617
Date: June 06 2020

Annexure A to Independent Auditors' Report

Referred to in paragraph 14 (f) of the Independent Auditors' Report of even date to themembers of Divi's Laboratories Limited on the standalone financial statements for the yearended March 31 2020

Report on the Internal Financial Controls with reference to financial statements underClause (i) of Sub-section 3 of Section 143 of the Act

1. We have audited the internal financial controls with reference to financialstatements of Divi's Laboratories Limited ("the Company") as of March 31 2020in conjunction with our audit of the standalone financial statements of the Company forthe year ended on that date.

Management's Responsibility for Internal Financial Controls

2. The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India (ICAI). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Act.

Auditors' Responsibility

3. Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") and the Standards on Auditing deemedto be prescribed under section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of internal financial controlsand both issued by the ICAI. Those Standards and the Guidance Note require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether adequate internal financial controls with reference to financial statementswas established and maintained and if such controls operated effectively in all materialrespects.

4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls system with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgement including the assessment of the risks of material misstatement of the financialstatements whether due to fraud or error.

5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemwith reference to financial statements.

Meaning of Internal Financial Controls with reference to financial statements

6. A company's internal financial controls with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial controlswith reference to financial statements includes those policies and procedures that (1)pertain to the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorisations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorised acquisition use ordisposition of the company's assets that could have a material effect on the financialstatements.

Inherent Limitations of Internal Financial Controls with reference to financialstatements

7. Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial control controls with reference to financial statements may becomeinadequate because of changes in conditions or that the degree of compliance with thepolicies or procedures may deteriorate.

Opinion

8. In our opinion the Company has in all material respects an adequate internalfinancial controls system with reference to financial statements and such internalfinancial controls with reference to financial statements were operating effectively as atMarch 31 2020 based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India.

For Price Waterhouse Chartered Accountants LLP
Firm Registration Number: 012754N/N500016
Sunit Kumar Basu
Partner
Place: Hyderabad Membership Number: 55000
Date: June 06 2020 UDIN: 20055000AAAACU5617

Annexure B to Independent Auditors' Report

Referred to in paragraph 13 of the Independent Auditors' Report of even date to themembers of Divi's Laboratories Limited on the standalone financial statements as of andfor the year ended March 31 2020

i.(a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.

(b) The fixed assets are physically verified by the Management according to a phasedprogramme designed to cover all the items over a period of 3 years which in our opinionis reasonable having regard to the size of the Company and the nature of its assets.Pursuant to the programme a portion of the fixed assets has been physically verified bythe Management during the year and no material discrepancies have been noticed on suchverification.

(c) The title deeds of immovable properties as disclosed in Note 3 on Propery Plantand Equipment to the standalone financial statements are held in the name of the Company.

ii. The physical verification of inventory have been conducted at reasonable intervalsby the Management during the year. The discrepancies noticed on physical verification ofinventory as compared to book records were not material.

iii. The Company has not granted any loans secured or unsecured to companies firmsLimited Liability Partnerships or other parties covered in the register maintained underSection 189 of the Act. Therefore the provisions of Clause 3(iii) (iii)(a) (iii)(b) and(iii)(c) of the said Order are not applicable to the Company.

iv. The Company has not granted any loans or made any investments or provided anyguarantees or security to the parties covered under Section 185 and 186.

Therefore the provisions of Clause 3(iv) of the said Order are not applicable to theCompany. v. The Company has not accepted any deposits from the public within the meaningof Sections 73 74 75 and 76 of the Act and the Rules framed there under to the extentnotified.

vi. Pursuant to the rules made by the Central Government of India the Company isrequired to maintain cost records as specified under Section 148(1) of the Act in respectof its products. We have broadly reviewed the same and are of the opinion that primafacie the prescribed accounts and records have been made and maintained. We have nothowever made a detailed examination of the records with a view to determine whether theyare accurate or complete.

vii.(a) According to the information and explanations given to us and the records ofthe Company examined by us in our opinion the Company is generally regular in depositingundisputed statutory dues in respect of income tax provident fund employee's stateinsurance goods and services taxes though there has been a slight delay in a few casesand is regular in depositing undisputed statutory dues including duty of customs andother material statutory dues as applicable with the appropriate authorities. Also refernote 40(b) to the standalone financial statements regarding management's assessment oncertain matters relating to provident fund.

(b) According to the information and explanations given to us and the records of theCompany examined by us there are no dues of sales-tax service-tax value added tax whichhave not been deposited on account of any dispute. The particulars of dues of income taxentry tax duty of customs and duty of excise as at March 31 2020 which have not beendeposited on account of a dispute are as follows:

Name of the Statue Nature of Dues Disputed Amount (Rs.) Amount deposited (Rs.) Period to which the amount relates Forum where the dispute is pending Customs Excise and Service Tax
Customs Act 1962 Penalty 1000000 - January 2007 Appellate Tribunal South Zonal Bench Chennai.
Customs Act 1962 Penalty 15148315 336475 June 2006 to December 2008 High Court of Andhra Pradesh Amaravathi
Customs Act 1962 Custom duty and Penalty 3669894 - March 2012 Commissonmer of Customs Central Excise & Service tax Viskhapatnam
Customs Act 1962 Custom duty and Penalty 6314711 - November 2012 Commissonmer of Customs Excise & Service tax Viskhapatnam
Customs Act 1962 Penalty 859631 - June 2009 to March 2010 High Court of Andhra Pradesh Amaravathi
Customs Act 1962 Custom duty 4825958 4825958 May 2014 to February 2018 The commissioner of customs (Appeals)
Central Excise Act 1944 Penalty 24408690 - September 2006 to December 2008 Commissonmer of Customs Central Excise & Service tax Viskhapatnam
Central Excise Act 1944 Penalty 937500 - July 2009 to March 2010 High Court of Andhra Pradesh Amaravathi
Central Excise Act 1944 Excise duty and Penalty 1942840 97142 May2011 to December 2011 Excise Customs and Service Tax (Appeals) Vishakapatnam.
Central Excise Act 1944 Service tax and Penalty 4518106 376522 April 2010 to March 2011 Commissioner (Appeal-III) Customs Central Excise & Service Tax Hyderabad.
Entry of Goods in to Local areas Act 2001 Entry Tax 5373828 2059962 Financial years 2004- 05 to 2017-18 Sales Tax appellate tribunal Hyderabad
Entry of Goods in to Local areas Act 2001 Entry Tax 4319128 1079784 Financial years 20014- 15 to 2016-17 High Court of Andhra Pradesh Amaravathi
Income Tax Act 1961 Interest 40512 - Financial Year 2005-06 Additional Commissioner of Income Tax Range-I Hyderabad.

viii. According to the records of the Company examined by us and the information andexplanation given to us the Company has not defaulted in repayment of loans or borrowingsto any financial institution or bank or Government. The Company has not issued anydebentures as at the balance sheet date and accordingly to this extent the provisionsof Clause 3(xiii) of the Order are not applicable to the Company.

ix. The Company has not raised any moneys by way of initial public offer furtherpublic offer (including debt instruments) and term loans. Accordingly the provisions ofClause 3(ix) of the Order are not applicable to the Company.

x. During the course of our examination of the books and records of the Companycarried out in accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyinstance of material fraud by the Company or on the Company by its officers or employeesnoticed or reported during the year nor have we been informed of any such case by theManagement.

xi. The Company has paid/provided for managerial remuneration in accordance with therequisite approvals mandated by the provisions of Section 197 read with Schedule V to theAct. Also refer paragraph 15 of the Independent Auditor's report.

xii. As the Company is not a Nidhi Company and the Nidhi Rules 2014 are not applicableto it the provisions of Clause 3(xii) of the Order are not applicable to the Company.

xiii. The Company has entered into transactions with related parties in compliance withthe provisions of Sections 177 and 188 of the Act. The details of such related partytransactions have been disclosed in the standalone financial statements as required underIndian Accounting Standard (Ind AS) 24 Related Party Disclosures specified under Section133 of the Act.

xiv. The Company has not made any preferential allotment or private placement of sharesor fully or partly convertible debentures during the year under review. Accordingly theprovisions of Clause 3(xiv) of the Order are not applicable to the Company.

xv. The Company has not entered into any non cash transactions with its directors orpersons connected with him. Accordingly the provisions of Clause 3(xv) of the Order arenot applicable to the Company.

xvi. The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934.

Accordingly the provisions of Clause 3(xvi) of the Order are not applicable to theCompany.

For Price Waterhouse
Chartered Accountants LLP
Firm Registration Number: 012754N/N500016
Sunit Kumar Basu
Partner
Place: Hyderabad Membership Number: 55000
Date: June 06 2020 UDIN: 20055000AAAACU5617

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