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Lyka Labs Ltd.

BSE: 500259 Sector: Health care
NSE: LYKALABS ISIN Code: INE933A01014
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OPEN 30.00
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VOLUME 1370
52-Week high 52.20
52-Week low 21.25
P/E
Mkt Cap.(Rs cr) 85
Buy Price 29.40
Buy Qty 1.00
Sell Price 30.80
Sell Qty 400.00
OPEN 30.00
CLOSE 30.20
VOLUME 1370
52-Week high 52.20
52-Week low 21.25
P/E
Mkt Cap.(Rs cr) 85
Buy Price 29.40
Buy Qty 1.00
Sell Price 30.80
Sell Qty 400.00

Lyka Labs Ltd. (LYKALABS) - Auditors Report

Company auditors report

To the Members of LYKA LABS LIMITED

Report on the Standalone Ind AS Financial Statements

We have audited the accompanying Standalone Ind AS Financial Statements of LYKA LABSLIMITED ("the Company") which comprise the Balance Sheet as at 31st March 2018the Statement of Profit and Loss (including other comprehensive income) the Statement ofChanges in Equity and the Cash Flow Statement for the year then ended (in which areincorporated the accounts of the Company’s branch at Ankleshwar audited by anotherauditor after making such changes as were considered necessary for the purpose ofincorporation) and a summary of significant accounting policies and other explanatoryinformation.

Management’s Responsibility for the Ind AS Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section134 (5) of the Companies Act 2013 ("the Act") with respect to the preparationof these Ind AS Standalone Financial Statements that give a true and fair view of thefinancial position financial performance including other comprehensive income changes inequity and cash flows of the Company in accordance with the accounting principlesgenerally accepted in India including the Indian Accounting Standards (Ind AS) prescribedunder Section 133 of the Act.

This responsibility also includes maintenance of adequate accounting records inaccordance 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 Ind AS Standalone Financial Statements that give a true and fair view and are freefrom material misstatement whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these Ind AS Standalone FinancialStatements based on our audit. In conducting our audit we have taken into account theprovisions of the Act the accounting and auditing standards and matters which arerequired to be included in the audit report under the provisions of the Act and the Rulesmade thereunder.

We conducted our audit of the Ind AS financials in accordance with the Standards onAuditing specified under Section 143 (10) of the Act. Those Standards require that wecomply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the Ind AS Standalone Financial Statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the Ind AS Standalone Financial Statements. The procedures selecteddepend on the auditor’s judgment including the assessment of the risks of materialmisstatement of the Ind AS Standalone Financial Statements whether due to fraud or error.In making those risk assessments the auditor considers internal financial controlrelevant to the Company’s preparation of the Ind AS Standalone Financial Statementsthat give a true and fair view in order to design audit procedures that are appropriate inthe circumstances. An audit also includes evaluating the appropriateness of the accountingpolicies used and the reasonableness of the accounting estimates made by theCompany’s Directors as well as evaluating the overall presentation of the Ind ASStandalone Financial Statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Ind AS Standalone Financial Statements.

Basis for Qualified Opinion

1. Interest on Borrowings:

Attention is drawn to Note no. 47 of the Ind AS Standalone Financial Statementsregarding reversal of interest on term loan from two banks provided for the period fromApril 2017 to September 2017 amounting to Rs 469.92 Lakhs and non- provision of intereston term loan from said two banks for the period from October 2017 to March 2018 amountingto Rs 471.64 Lakhs aggregating to Rs 941.56 Lakhs.

Further the company has reversed Interest expenses for earlier years for the periodfrom February 2016 to March 2017 amounting to Rs 344.35 Lakhs.

Further there is non-provision of penal interest on term loan from two banks andworking capital limit from one bank amounting to Rs 80.04 Lakhs.

These non-provisions/reversals of provision for interest is not in compliance with IndAS 109 Financial Instruments.

Accordingly loss for the year is understated by Rs. 1365.95 Lakhs.

2. Inventories:

Inventories include slow/non-moving raw material and packing materials procured duringthe earlier years amounting to Rs. 174.06 Lakhs as on 31st March 2018 which are valued atcost (Refer Note no. 44 of Ind AS Standalone Financial Statements). This is not inaccordance with Ind AS 2 Inventories which requires such inventories to be valued atlower of cost or net realizable value. Accordingly we are unable to quantify the impactof increase in the loss for the year ended 31st March 2018.

Qualified Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us and based on the consideration of report of the branch auditor provided tous except for the effects of the matter described in the Basis for Qualified Opinionparagraph the aforesaid Ind AS Standalone Financial Statements give the informationrequired by the Act in the manner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India of the state of affairs of theCompany as at 31st March 2018 its loss its changes in equity and its cash flows for theyear then ended.

Emphasis of Matters

1. Pledged shares of a Director encashed by a Lender

We draw attention to Note No 41 regarding claims from a Director aggregating to Rs.128.25 Lakhs being the value of equity shares of the Company pledged as security.

2. Scheme of Arrangements

We draw attention to Note No.42 (a) & (b) regarding the status of the schemes ofarrangement with Lyka Exports Limited and Lyka Healthcare Limited.

3. Capital Expenditure:

We draw attention to Note No.43 (ii) regarding the review of the portfolio of productsunder development and applied research.

Our opinion is not qualified in respect of all these matters.

Other Matters

We did not audit the Ind AS Standalone Financial Statements of a Branch included in theInd AS Standalone Financial Statements of the Company whose financial statements reflecttotal assets of Rs. 8575.88 Lakhs as at 31st March 2018 as well as total revenues of Rs.3669.48 Lakhs for the year ended on that date as considered in the Ind AS StandaloneFinancial Statements. These financial statements and other financial information have beenaudited by another auditor whose report has been furnished to us by the Management andour opinion on these Ind AS Standalone Financial Statements in so far as it relates tothe amounts and disclosures included in respect of this branch is based solely on thereport of such auditor.

The audit of Financial Statements for the year ended 31st March 2017 was carried outand reported by predecessor auditor vide their modified audit report dated 29th May2017 whose report has been furnished to us by the management and which has been reliedupon by us for the purpose of our audit of the standalone IndAS Financial Statements.

Our audit report is not qualified in respect of this matters.

Report on Other Legal and Regulatory Requirements

1. 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 "A" a statement on the mattersspecified in paragraphs 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 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 reports on the accounts of the branch office of the Company audited underSection 143(8) of the Act by branch auditor has been sent to us and has been properlydealt with by us in preparing this report (Refer Other Matters);

(d) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome the Statement of Changes in Equity and the Cash Flow Statement dealt with by thisReport are in agreement with the books of account;

(e) Subject to our observations in "Basis of Qualified Opinion" para abovein our opinion the aforesaid Ind AS Standalone Financial Statements comply with the IndAS specified under Section 133 of the Act ;

(f) On the basis of the written representations received from the Directors as on 31stMarch 2018 and taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2018 from being appointed as a director in terms of Section164(2) of the Act;

(g) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in Annexure "B"; Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company’s internal financial controlsover financial reporting; and

(h) With respect to the other matters to be included in the Auditor’s Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Amendment Rules 2017 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 on its financialposition in its financial statements - Refer to Note No. 36(i) to (vii) of other notes tothe Standalone Ind AS Financial Statements.

(ii) The Company does not have any long-term contracts including derivative contractsand hence there are no material foreseeable losses.

(iii) There were no amounts which were required to be transferred to the InvestorEducation and Protection Fund by the Company.

(iv) The disclosures regarding details of specified bank notes held and transactedduring 8th November 2016 to 30th December 2016 has not been made since the requirementdoes not pertain to financial year ended 31st March 2018.

For MEHTA CHOKSHI & SHAH
CHARTERED ACCOUNTANTS
Firm Registration No: 106201W
Abhay R. Mehta
Place: Mumbai PARTNER
Date: 29th May 2018 MEMBERSHIP NO. 046088

Annexure - A to the Auditors’ Report

Annexure referred to in paragraph 1 of our report on Other Legal and RegulatoryRequirements of even date

(i) In respect of its fixed assets:

(a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.

(b) The fixed assets were physically verified during the year by the Management inaccordance with a regular program of verification which in our opinion provides forphysical verification of all the fixed assets at reasonable intervals. According to theinformation and explanations given to us no material discrepancies were noticed on suchverification.

(c) The title deeds of immovable properties including leasehold land as disclosed inNote 3 on property plant and equipment to the financial statements are held in the nameof the company.

(ii) As explained to us inventories excluding inventories with third parties werephysically verified during the year by the management at reasonable intervals and nomaterial discrepancies were noticed on physical verification. In respect of inventorieslying with third parties these have substantially been confirmed by them.

(iii) During the year the Company has not granted loan to any party covered in theregister maintained under section 189 of the Act and hence clause 3(iii) of the Order isnot applicable.

(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of section 185 and 186 of the Companies Act 2013in respect of the loans and investments made and security provided by it.

(v) The Company had received an Order of Company Law Board (CLB) dated 22nd January2016 granting extension of time for repayment of Fixed Deposits. During the year theCompany has repaid deposits that were claimed aggregating to Rs. 17.85 Lakhs. As regardsthe balance of unclaimed Fixed Deposits Rs. 49.52 Lakhs the same shall be paid as andwhen claimed. Refer Note No. 37

(vi) We have broadly reviewed the books of accounts and records maintained by theCompany relating to the manufacture of Bulk Drugs and Formulations pursuant to the ordermade by the Central Government for the maintenance of cost records under Section 148(1) ofthe Companies Act 2013 and are of the opinion that prima facie the prescribed accountsand records have been so made and maintained. We have however not made a detailedexamination of the cost records with a view to determining whether they are accurate orcomplete.

(vii) According to the information and explanations given to us and as per relevantrecords produced before us in respect of statutory and other dues:

(a) During the year the Company has not been regular in depositing undisputedstatutory dues relating to Provident Fund Professional Tax E.S.I.C. Service TaxIncome-tax Value Added Tax and Sales Tax. The arrears of the said dues as at the last dayof the financial year and outstanding for more than six months from the date they becomepayable are as follows:

Amount
Sr. No. Nature of Dues (Rs. in Lakhs)
1 Professional Tax 1.81
2 Sales Tax deferral Scheme-SICOM 50.14

(b) Following disputed dues have not been deposited since the matters are pending withthe respective forums:

Sr. No. Nature of dues Amount (Rs In Lakhs)* Period to which the amount relates Name of Forum
1. Demand under Drugs Price Control Order 1061.96 Demands raised in 19871990 and 1995 Gujarat High Court
2. Purchase Tax 16.00 1991-96 Maharashtra Sales Tax Appellate Tribunal
3. Excise duty 11.22 2006-2007 Commissioner of Central Excise and Service Tax
60.15 2008-2013 Customs Excise & Service Tax Appellate Tribunal
83.75 Since September 1995 to February 2000 Customs Excise & Service Tax Appellate Tribunal
4. Bombay Sales Tax 61.86 1998-99 Bombay High Court
5. Maharashtra Value Added Tax 30.54 2005-06 Sales Tax Appellate Tribunal
34.14 2007-08 Deputy Commissioner of Sales Tax Appeals
6. Central Sales Tax 17.95 1998-99 Sales Tax Appellate Tribunal
46.68 2005-06
5.92 2006-07
59.45 2007-08 Deputy Commissioner of
16.18 2010-11 Sales Tax Appeal
38.12 2011-12 Joint Commissioner of Sales Tax Appeal
7. Service Tax 16.29 2011-12 Commissioner of Service Tax Appeal
8. Gujarat Sales Tax 39.60 2002-03 Commissioner of Sales Tax
57.87 2011-12 Appeal
143.02 2012-13
9. Income Tax 812.48 A.Y 2001-02 Commissioner of Income
264.18 44.63 A.Y 2002-03 Tax Appeals
717.50 150.01 A.Y. 2004-05
80.85 A.Y. 2010-11
155.40 A.Y. 2011-12
61.77 A.Y. 2014-15

(* net of amounts paid under protest)

(viii) Based on our audit procedures and according to the information and explanationsgiven by the management in respect of:

a. Loan from Banks: The Company has defaulted in repayment of dues to Banks thedefaults whereof are stated hereunder:

Period of Default

Principal Amount

Interest

Dena Bank Bank of Dena Bank Bank of Kapol
Maharashtra Maharashtra Bank
February2016 - - - 15.18 -
March 2016 - - - 16.30 -
April 2016 - - - 15.51 -
May2016 - - - 16.14 -
June 2016 - 3000 - 15.72 -
July 2016 - 40.00 - 13.09 -
August 2016 - - - 13.09 -
September 2016 - 30.00 - 13.09 -
October 2016 - 50.00 - 13.09 -
November 2016 - - - 13.09 -
December 2016 - 480.00 - 13.09 -
January 2017 - 50.00 49.77 12.66 -
February 2017 100000 - 49.77 12.66 -
March 2017 255.47 30.00 49.77 12.66 -
April 2017 50.00 64.45 12.80 -
May 2017 - 66.59 12.80 -
June 2017 255.47 30.00 64.45 12.80 -
July 2017 - 66.59 12.80 -
August 2017 - 66.59 12.80 -
September 2017 255.47 30.00 64.45 12.80 -
October 2017 - 50.02 12.94 -
November 2017 - 48.41 12.52 -
December 2017 355.47 30.00 50.02 12.94 -
January 2018 - 50.02 12.94 -
February 2018 - 50.02 12.94 -
March 2018 255.47 30.00 50.02 12.94 5.26
Total 2377.35 880.00 840.94 891.47 5.26

b. Debentures : The Company has received Order of National Company Law Tribunal(Ahmedabad Bench)

dated 22nd May 2017 granting extension of time for repayment of Debentures Refer NoteNo. 38.

(ix) Based on our audit procedures and according to the information and explanationsgiven by the management the Company has not raised money by way of initial public offeror further public offer during the year. The Company has availed the term loans from Banksin earlier years which were applied for the purpose for which those were raised.

(x) According to the information and explanations given to us no fraud by the Companyor on the Company by its officers or employees has been noticed or reported during theyear.

(xi) The Company has paid/provided managerial remuneration which is in accordance withthe provisions of section 197 read with Schedule V of the Act.

(xii) In our opinion and according to the information and explanations given to us theCompany is not a nidhi company and hence clause 3(xii) of the Order is not applicable.

(xiii) According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with related parties are incompliance with sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the financial statements as required by the applicableAccounting Standards (Refer Note No. 50)

(xiv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has made a preferential allotmentof equity shares during the year which is in accordance with the provisions of section 42and the amount raised is used for the purpose as stated in the objects of the issue.

(xv) According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with Directors or persons connected with them and hence clause 3(xv) of theOrder is not applicable.

(xvi) According to the information and explanations given to us the Company is notrequired to be registered under section 45-IA of the Reserve Bank of India Act 1934.

For MEHTA CHOKSHI & SHAH
CHARTERED ACCOUNTANTS
Firm Registration No: 106201W
Abhay R. Mehta
PARTNER
MEMBERSHIP NO. 046088
Place: Mumbai
Date: 29th May 2018

Annexure - B to the Auditor’s Report

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of LYKA LABSLIMITED ("the Company") as of 31st March 2018 in conjunction with our audit ofthe standalone Ind AS financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

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’). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to Company’s policies the safeguardingof its assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Act.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls over Financial Reporting(the "Guidance Note") and the Standards on Auditing issued by ICAI and 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 over financial reporting wasestablished and maintained and if such controls operated effectively in all materialrespects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor’s judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

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 controlssystem over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A Company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A Company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditure of the Company are being made only in accordance with authorisations ofmanagement and directors of the Company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of theCompany's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur

and not be detected. Also projections of any evaluation of the internal financialcontrols over financial reporting to future periods are subject to the risk that theinternal financial control over financial reporting may become inadequate because ofchanges in conditions or that the degree of compliance with the policies or proceduresmay deteriorate.

Opinion

In our opinion to the best of our information and according to the explanation givento us and based on consideration of report of another auditor as referred to in the OtherMatters paragraph the Company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31st March 2018 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the ICAI.

Other Matters

Our aforesaid report under section 143(3)(i) of the Act on the adequacy and operatingeffectiveness of the internal financial controls over financial reporting is so far as itrelates to financial statements of a branch of the Company is based on the correspondingreports of the auditor of such branch.

For MEHTA CHOKSHI & SHAH
CHARTERED ACCOUNTANTS
Firm Registration No: 106201W
Abhay R. Mehta
Place: Mumbai PARTNER
Date: 29th May 2018 MEMBERSHIP NO. 046088