To the Members of Glenmark Pharmaceuticals Limited
Report on the Audit of the standalone Financial statements
1. We have audited the accompanying standalone financial statements of GlenmarkPharmaceuticals Limited ('the Company') which comprise the Balance Sheet as at 31 March2020 the Statement of Profit and Loss (including Other Comprehensive Income) theStatement of Cash Flows and the Statement of Changes in Equity for the year then endedand a summary of the significant accounting policies and other explanatory information.
2. In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 ('Act') in the manner so required and give a true and fair viewin conformity with the accounting principles generally accepted in India including IndianAccounting Standards ('Ind AS') specified under Section 133 of the Act of the state ofaffairs of the Company as at 31 March 2020 and its profit (including other comprehensiveincome) its cash flows and the changes in equity for the year ended on that date.
Basis for opinion
3. We conducted our audit in accordance with the Standards on Auditing specified underSection 143(10) of the Act. Our responsibilities under those standards are furtherdescribed in the Auditor's Responsibilities for the Audit of the Financial StatementsSection of our report. We are independent of the Company in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India ('ICAI') together withthe ethical requirements that are relevant to our audit of the financial statements underthe 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 financial statements as awhole and in forming our opinion thereon and we do not provide a separate opinion onthese matters.
5. We have determined the matters described below to be the key audit matters to becommunicated in our report.
|Key audit matter ||How our audit addressed the key audit matter |
|Impairment of investments in and loans to subsidiaries ||Our audit included but was not limited to the following procedures: |
|The Company has investments in subsidiaries of Rs 46894.15 million as at 31 March 2020 being carried at cost in accordance with Ind AS 27 Separate Financial Statements. Refer note 5(i)A to the standalone financial statements. Further the Company has loans receivable of Rs 71155.46 million from subsidiaries outstanding as at 31 March 2020. Refer note 5(ii) to the standalone financial statements. The Company has not recorded any impairment loss on the above investments and loans receivable during the year ended 31 March 2020. The Company assesses the recoverable amount of each investment and loan when impairment indicators exist by comparing the Value in Use and carrying amounts of each investment and loan as on the reporting date and reviewing the business plans to determine if there would be sufficient cash flows to repay the loans. The recoverable amount of the aforesaid investment in and loan receivable from each subsidiary has been determined by the management using discounted cash flow ('DCF') valuation method. This assessment is complex and requires estimation and judgment around the assumptions used therein. The key assumptions underpinning management's assessment of the recoverable amounts include but are not limited to projections of future cash flows revenue growth rates terminal values operating profit margins estimated future operating and capital expenditure external market conditions and the discount rates. Changes to these assumptions could lead to material changes in estimated recoverable amounts which might result in impairment of investments and/or loans given to these subsidiaries owing to underlying estimation as derived above we determined investments in and loans to subsidiaries as a key audit matter in the current period audit || Obtained understanding of management's process for identification of indicators of impairment and tested the design and operating effectiveness of internal controls over such identification and impairment measurement of identified investments and loans; |
| || Reconciled the cash flows to the business plans approved by the respective Board of Directors of each of the subsidiaries; |
| || Assessed the appropriateness of valuation methodologies used by the management and evaluated and challenged management's assumptions such as implied growth rates during explicit period terminal growth rate targeted savings and discount rate and operating margins for their appropriateness based on our understanding of the business of the respective subsidiaries past results and external factors such as industry trends probability of success of molecules and industry forecasts; |
| || Obtained and evaluated sensitivity analysis performed by the management on key assumptions of implied growth rates during explicit period terminal growth rate and discount rate; |
| || Tested the mathematical accuracy of the management computations with regard to cash flows and sensitivity analysis; |
| || Performed independent sensitivity analysis of aforesaid key assumptions to assess the effect of reasonably possible variations on the current estimated recoverable amounts of investments in and loans receivable from respective subsidiaries to evaluate sufficiency of headroom between recoverable values and carrying amounts; |
| || Compared the estimate made in the prior year to the actual performance for the current year; |
| || Involved auditor's experts to assess the appropriateness of the valuation methodologies used by the management to determine the recoverable values; |
| || Evaluated the adequacy and appropriateness of disclosures given in the standalone financial statements in accordance with applicable accounting standards. |
|Inventory existence ||Our audit of existence of inventory included but was not limited to the following procedures: |
|As at 31 March 2020 the Company held inventories of Rs 8375.02 million. Refer note 8 to the standalone financial statements. Inventories mainly consist of raw material packing material work in process stores and spares stock in trade and finished goods. Due to inherent nature of the business and its widespread reach geographically inventories are maintained at a number of locations which include plants loan licensing facilities and warehouses. || |
| || Obtained an understanding of the management's process for inventory counts including the changes required thereto as a result of COVID-19 related restrictions and evaluated the design and tested the operating effectiveness of key controls with respect to physical verification of inventory; |
| || Inspected the instructions given by supervisory teams to the management count teams; |
|Due to outbreak of the COVID-19 there has been a lockdown enforced in various geographies near year end and several restrictions were imposed by the respective state governments across the country on travel and movement considering public health and safety measures which resulted into complexities for us to observe the physical verification of inventory conducted by the management. This necessitated using alternate audit techniques as further described in our audit procedures. || Reviewed the management's process for ensuring that there was no movement of stock during the physical verification of inventory; |
| || Appointed independent auditor's experts for observing inventory counts at certain locations; |
| || Reviewed the inventory roll back reconciliation statement prepared by the management and performed tests on sample basis by reviewing the supporting documents and records to substantiate the existence of inventory as at the reporting date; |
|As a result of the above-mentioned complexities and due to the size number of locations and geographical spread of the inventories as at year end we determined the existence of inventory to be a key audit matter for the current period audit. || |
| || Obtained direct confirmations from loan licensing units with respect to the existence of the inventories; |
| || Tested that the differences noted in management's physical verification of inventory from book records were adequately adjusted in books of account. |
Information other than the Financial Statements and Auditor's Report thereon
6. The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Annual Report but does not includethe standalone financial 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
knowledge obtained in the audit or otherwise appears to be materially misstated. Ifbased on the work we have performed we conclude that there is a material misstatement ofthis other information we are required to report that fact. We have nothing to report inthis regard.
Responsibilities of Management and Those Charged with Governance for the standaloneFinancial statements
7. The accompanying standalone financial statements have been approved by the Company'sBoard of Directors. The Company's Board of Directors is responsible for the matters statedin Section 134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the financial position financial performanceincluding other comprehensive income
changes in equity and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Ind AS specified under Section 133of the Act. This responsibility also includes maintenance of adequate accounting recordsin accordance with the provisions of the Act for safeguarding of the assets of the Companyand 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 financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
8. In preparing the financial statements management is responsible for assessing theCompany's ability to continue as a going concern disclosing as applicable mattersrelated to going concern and using the going concern basis of accounting unless managementeither intends to liquidate the Company or to cease operations or has no realisticalternative but to do so.
9. The Board of Directors is also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
10. Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance withStandards on Auditing will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if individuallyor in the aggregate they could reasonably be expected to influence the economic decisionsof users taken on the basis of these financial statements.
11. As part of an audit in accordance with Standards on Auditing we exerciseprofessional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control;
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 Company hasadequate internal financial controls with reference to financial statements in place andthe 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 financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Company to cease to continue asa going concern;
Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
12. 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.
13. 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.
14. From the matters communicated with those charged with governance we determinethose matters that were of most significance in the audit of the financial statements ofthe current period and are therefore the key audit matters. We describe these matters inour auditor's report unless law or regulation precludes public disclosure about the matteror when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
15. Based on our audit we report that the Company has paid remuneration to itsdirectors during the year in accordance with the provisions of and limits laid down underSection 197 read with Schedule V to the Act.
16. As required by the Companies (Auditor's Report) Order 2016 ('the Order') issued bythe Central Government of India in terms of Section 143(11) of the Act we give in theAnnexure A a statement on the matters specified in paragraphs 3 and 4 of the Order.
17. Further to our comments in Annexure A as required by Section 143(3) of the Actbased on our audit we report to the extent applicable that:
a) we have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit of theaccompanying standalone financial statements;
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 standalone financial statements dealt with by this report are in agreement withthe books of account;
d) in our opinion the aforesaid standalone financial statements comply with Ind ASspecified under Section 133 of the Act;
e) on the basis of the written representations received from the directors and taken onrecord by the Board of Directors none of the directors is disqualified as on 31 March2020 from being appointed as a director in terms of Section 164(2) of the Act;
f) we have also audited the internal financial controls with reference to financialstatements of the Company as on 31 March 2020 in conjunction with our audit of thestandalone financial statements of the Company for the year ended on that date and ourreport dated 26 June 2020 as per Annexure B expressed unmodified opinion; and
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 (as amended) inour opinion and to the best of our information and according to the explanations given tous:
i. the Company as detailed in note 30 to the standalone financial statements hasdisclosed the impact of pending litigations on its financial position as at 31 March 2020;
ii. the Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses as at 31 March 2020;
iii. there has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company during the year ended 31 March2020;
iv. the disclosure requirements relating to holdings as well as dealings in specifiedbank notes were applicable for the period from 8 November 2016 to 30 December
2016 which are not relevant to these standalone financial statements. Hence reportingunder this clause is not applicable.
Independent Auditor's Report of even date to the members of Glenmark PharmaceuticalsLimited on the standalone financial statements for the year ended 31 March 2020
Based on the audit procedures performed for the purpose of reporting a true and fairview on the standalone financial statements of the Company and taking into considerationthe information and explanations given to us and the books of account and other recordsexamined by us in the normal course of audit and to the best of our knowledge and beliefwe report that:
(i) (a) The Company has maintained proper
records showing full particulars including quantitative details and situation ofproperty plant and equipment.
(b) The Company has a regular program of physical verification of its property plantand equipment under which property plant and equipment are verified in a phased mannerover a period of three years which in our opinion is reasonable having regard to thesize of the Company and the nature of its assets. In accordance with this program certainproperty plant and equipment were verified during the year and no material discrepancieswere noticed on such verification.
(c) The title deeds of all the immovable properties (which are included under the head'property plant and equipment') are held in the name of the Company.
(ii) In our opinion the management has conducted physical verification of inventory atreasonable intervals during the year and no material discrepancies between physicalinventory and book records were noticed on physical verification
(iii) The Company has granted loans to wholly owned subsidiaries covered in theregister maintained under Section 189 of the Act; and with respect to the same:
(a) in our opinion the terms and conditions of grant of such loans are not primafacie prejudicial to the Company's interest.
(b) the schedule of repayment of principal and interest has been stipulated wherein the
principal amounts are repayable on demand and since the repayment of such loans has notbeen demanded in our opinion repayment of the principal amount and interest is regular;
(c) there is no overdue amount in respect of loans granted to such companies.
(iv) In our opinion the Company has complied with the provisions of Sections 185 and186 of the Act in respect of loans investments guarantees and security.
(v) In our opinion the Company has not accepted any deposits within the meaning ofSections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules 2014 (asamended). Accordingly the provisions of clause 3(v) of the Order are not applicable.
(vi) We have broadly reviewed the books of account maintained by the Company pursuantto the Rules made by the Central Government for the maintenance of cost records undersub-section (1) of Section 148 of the Act in respect of Company's products and are of theopinion that prima facie the prescribed accounts and records have been made andmaintained. However we have not made a detailed examination of the cost records with aview to determine whether they are accurate or complete.
(vii) (a) The Company is regular in depositing
undisputed statutory dues including provident fund employees' state insuranceincome-tax goods and service tax sales- tax service tax duty of customs duty ofexcise value added tax cess and other material statutory dues as applicable to theappropriate authorities. Further no undisputed amounts payable in respect thereof wereoutstanding at the year-end for a period of more than six months from the date they becomepayable.
(b) There are no dues in respect of sales tax and duty of customs that have not beendeposited with the appropriate authorities on account of any dispute. The dues outstandingin respect of income tax good and services tax service tax duty of excise and valueadded tax on account of any dispute are as follows:
|Name of the Statute ||Nature of Dues ||Amount (INR in million) ||Amount Paid under protest (INR in million) ||period to which the amount relates ||Forum where dispute is pending |
|Income Tax Act1961 ||Income Tax ||124.22 ||- ||FY 2004-05 to FY 2009-10 ||Hon'ble High Court Mumbai |
| || ||5.49 ||5.49 ||FY 2007-08 ||Hon'ble Supreme Court of India |
| || ||4.15 ||- ||FY 2013-14 ||Income Tax Appellate Tribunal |
| || ||666.46 ||- ||FY 2009-10 to FY 2015-16 ||Commissioner of Income Tax Appeal |
|Goa VAT Act 2005 Gujarat VAT Act 2005 West Bengal VAT Act 2005 ||Value Added Tax ||4.78 ||- ||FY 2012-13 to FY 2014-15 ||ACCT (A) Goa |
| || ||122.01 ||2.50 ||FY 2014-15 ||JCCT (A) Gujarat |
| || ||23.63 ||- ||FY 2017-18 ||ACCT (A) West Bengal |
|The Central Excise Act 1994 ||Duty of Excise ||15.75 ||15.75 ||FY 2013-14 to FY 2017-18 ||Jt Secretary GOI MOF Dept of Revenue |
| || ||1.58 ||1.58 ||FY 2012-13 to FY 2017-18 ||Commissioner of Central Excise (Appeal)-LTU |
| || ||10.86 ||10.86 ||FY 2004-2005 to FY 2005-2006 ||Customs Excise and Services Tax Appellate Tribunal (CESTAT) -Mumbai |
|The Finance Act 1994 ||Service Tax ||4.98 ||0.37 ||FY 2012-13 to FY 2014-15 ||Commissioner of Central Tax (Appeal) - Mumbai - BKC |
| || ||179.05 ||5.07 ||FY 2005-2006 to FY 2014-2015 ||Customs Excise and Services Tax Appellate Tribunal (CESTAT) - Mumbai |
|The Central Goods and Service Tax Act 2017 ||GST ||4.25 ||4.25 ||FY 2019-20 ||Hon'ble High Court Mumbai |
(viii) The Company has not defaulted in repayment of loans or borrowings to any bank orfinancial institution or government during the year. The Company did not have anyoutstanding debentures during the year.
(ix) The Company did not raise moneys by way of initial public offer or further publicoffer (including debt instruments). In our opinion the term loans were applied for thepurposes for which the loans were obtained.
(x) No fraud by the Company or on the Company by its officers or employees has beennoticed or reported during the period covered by our audit.
(xi) Managerial remuneration has been paid and provided by the Company in accordancewith the requisite approvals mandated by the provisions of Section 197 of the Act readwith Schedule V to the Act.
(xii) In our opinion the Company is not a Nidhi Company. Accordingly provisions ofclause 3(xii) of the Order are not applicable.
(xiii) In our opinion all transactions with the related parties are in compliance withSections 177 and 188
of Act where applicable and the requisite details have been disclosed in thefinancial statements etc. as required by the applicable Ind AS.
(xiv) During the year the Company has not made any preferential allotment or privateplacement of shares or fully or partly convertible debentures.
(xv) In our opinion the Company has not entered into any non-cash transactions withthe directors or persons connected with them covered under Section 192 of the Act.
(xvi) The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934.
Independent Auditor's Report on the internal financial controls under Clause (i) ofsub-section 3 of section 143 of the Companies Act 2013 (the Act')
1. In conjunction with our audit of the standalone financial statements of GlenmarkPharmaceuticals Limited ('the Company') as at and for the year ended 31 March 2020 wehave audited the internal financial controls with reference to financial statements of theCompany as at that date.
Responsibilities of Management and Those Charged with Governance for Internal FinancialControls
2. The Company's Board of Directors is responsible for establishing and maintaininginternal financial controls based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the guidance note on audit of Internal Financial Controls over FinancialReporting ('the Guidance Note') issued by the Institute of Chartered Accountants of India('the ICAI'). These responsibilities include the design implementation and maintenance ofadequate internal financial controls that were operating effectively for ensuring theorderly and efficient conduct of the Company's business including adherence to theCompany's policies the safeguarding of its assets the prevention and detection of fraudsand errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.
Auditor's Responsibility for the Audit of the Internal Financial Controls withReference to Financial statements
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 Standards on Auditing issued by the ICAI prescribed under Section143(10) of the Act to the extent applicable to an audit of internal financial controlswith reference to financial statements and the Guidance Note issued by the ICAI. Those
Standards and the Guidance Note require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls with reference to financial statements were established and maintainedand if such controls operated effectively in all material respects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacyof the internal financial controls with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements includes obtaining an understanding of such internal financialcontrols assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgement including the assessment of therisks of material misstatement of the financial statements whether due to fraud or error.
5. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls withreference 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 include 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 reasonable assuranceregarding prevention or timely detection of unauthorised acquisition use or dispositionof the company's assets that could have a material effect on the financial statements.
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 controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
8. In our opinion the Company has in all material respects adequate internalfinancial controls with reference to financial statements and such controls were operatingeffectively as at 31 March 2020 based on the internal control over financial reportingcriteria established by the Company considering the essential components of internalcontrol stated in the Guidance Note issued by the ICAI.
For Walker Chandiok & Co LLP
Firm's Registration No.: 001076N/N500013