To the Members of NATCO Pharma Limited
Report on the Audit of the Standalone Financial Statements
1. We have audited the accompanying standalone financial statementsof NATCO Pharma Limited (`the Company') which comprise the Standalone Balance Sheet as at 31st March 2019 the Standalone Statement of Profit and Loss (including Other Comprehensive Income) the Standalone Cash Flow Statement and the Standalone Statement of Changes in Equity for the year then ended and a summary of significant accounting policies and other explanatory information. and
2. In our opinion and to the best of our information and according to the explanations given to us the aforesaid standalone financial statements give the information required by the Companies Act 2013 (`Act') in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including Indian Accounting Standards (`Ind AS') specified under section 133 of the Act of the state of affairs (financial position) of the Company as at 31st March 2019 and its profit (financial performance including other comprehensive income)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 under section 143(10) of the Act. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (`ICAI') together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the rules thereunder and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have sufficient appropriate to provide a obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matter
4. Key audit matters are those matters that in our professional judgment were of most significance 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 a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters.
5. We have determined the matter described below to be the key audit matters to be communicated in our report.
|Key audit matter||How our audit addressed the key audit matter|
|Carrying value of investment in a group entity|
|Refer note 4 (l) for the accounting policy and note 8 for the financial disclosures in the standalone financial statements.||Our audit procedures in relation to assessing the carrying value of investments included but were not limited to the following: |
|The Company through its subsidiary Timecap Overseas Limited (Timecap) has made investments in NATCO farma Do Brasil Ltda. (`NATCO Brazil') which is engaged in marketing of pharmaceutical products in Brazil. 90.90% of NATCO Brazil's stake is indirectly held through Timecap and NATCO Pharma Inc. by the Company as at 31st March 2019.||Obtained an understanding of management's processes and controls for determining the value-in- use of investments;|
|Evaluated the design of and tested the operating effectiveness of the key controls around determining the value-in-use;|
|During the year ended 31st March 2019 NATCO Brazil has reported loss ofRs. 226 million and as at that date its accumulated losses aggregatingRs. 817 million have significantly eroded its capital.||Evaluated the appropriateness of the valuation methodology used to arrive at the estimated fair value of the investments using an auditor's expert;|
|Equity investments in subsidiaries are measured at cost less impairment. As at 31 March 2019 management has assessed that the recoverable amount computed using value in use method is higher than the carrying value of the investment in Timecap. However there is a risk that the investment in Timecap may be impaired if the projections used in computation of value in use method are not met.||Tested the accuracy of the input data provided by the management to the valuation specialist by reconciling the projected cash flows to approved business plans of the investee entity;|
|The aforesaid investments were valued as at 31 March 2019 by an independent valuation specialist in the capacity of a management's expert using Discounted Cash Flow (DCF) valuation method.||Evaluated the reasonableness of the key assumptions used in the cash flow projections such as growth rates discount rate etc. considering our understanding of the business industry and relevant market factors. |
|Management's assessment of value in use requires estimation and judgement around assumptions used. The key assumptions underpinning management's assessment include but are not limited to projections of future cash flows growth rates discounts rates estimated future operating expenditure.||Obtained and evaluated sensitivity analysis performed by the management on aforesaid key assumptions and performed further independent sensitivity analysis to determine impact of estimation uncertainty on the valuation;|
|Accordingly considering the materiality complexity and significance of judgement involved the valuation of aforesaid investment has been considered as a key audit matter for the current year's audit.||Tested the mathematical accuracy of the cash flow projections and fair valuation computation; and Evaluated the appropriateness and adequacy of the related disclosures made in the standalone financial statements in accordance with the applicable accounting standards.|
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 other information comprises the information included in the Annual Report but does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. for ensuring the accuracy
In connection with our audit of the financial statements our responsibility is to read the other information and in doing so consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed we conclude that there is a material misstatement of this other information we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management for the Standalone Financial Statements
7. The Company's Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs (financial position) profit or loss (financial performance including other comprehensive income) cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India including the Ind AS specified under section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design implementation and maintenance of adequate internal financial controls that were and operating effectively completeness of the accounting records relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement whether due to fraud or error.
8. In preparing the financial statements management is responsible for assessing the Company's ability to continue as a going concern disclosing as applicable matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations or has no realistic alternative but to do so.
9. Those Board of Directors are also responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
10. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due 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 audit conducted in accordance with Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
11. As part of an audit in accordance with Standards on Auditing we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements whether due to fraud or error design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion forgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act we are also responsible for explaining our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists we are required to draw attention in our auditor's report to the related disclosures in the 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's report. However future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation structure and content of the financial statements including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
12. We communicate with those charged with governance regarding among other matters the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit.
13. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable related safeguards.
14. From the matters communicated with those charged with governance we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when in extremely rare circumstances we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
15. As required by section 197(16) of the Act we report that the Company has paid remuneration to its directors during the year in accordance with the provisions of and limits laid down under section 197 read with Schedule V to the Act.
16. As required by the Companies (Auditor's Report) Order 2016 (`the Order') issued by the Central Government of India in terms of section 143(11) of the Act we give in the Annexure 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 Act we report that:
a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;
b) in our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;
c) the standalone financial statements dealt with by this report are in agreement with the books of account;
d) in our opinion the aforesaid standalone financial statements comply with Ind AS specified under section 133 of the Act;
e) on the basis of the written representations received from the directors and taken on record by the Board of Directors none of the directors is disqualified as on 31 March 2019 from being appointed as a director in terms of section 164(2) of the Act;
f) we have also audited the internal financial controls over financial reporting (IFCoFR) of the Company as on 31 March 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date and our report as per Annexure B expressed unmodified opinion; and
g) with respect to the other matters to be included in the Auditor's Report in accordance with rule 11 of the Companies (Audit and Auditors) Rules 2014 (as amended) in our opinion and 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 financial position as at 31 March 2019;
ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses as at 31 March 2019;
iii. there has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the Company during the year ended 31 March 2019; and
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 reporting under this clause is not applicable.
For Walker Chandiok & Co LLP
Firm's Registration No.: 001076N/N500013
Adi P. Sethna
Membership No.: 108840
Date: 27th May 2019
Annexure A to the Independent Auditor's Report of even date to the members of NATCO Pharma Limited on the standalone financial statements for the year ended 31 March 2019
Based on the audit procedures performed for the purpose of reporting a true and fair view on the standalone financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit and to the best of our knowledge and belief we report that:
(i) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets.
(b) The Company has a regular program of physical verification of its fixed assets under which fixed assets are verified in purchased manner over a period of three years which in our opinion is reasonable having regard to the size of the Company and the nature of its assets. In accordance with this program certain fixed assets were verified during the year and no material discrepancies were 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 except for the following properties which according to the information and explanation given to us pertains to a land parcel which shall be registered in the name of the Company subsequent to fulfilment of certain conditions laid out by the Andhra Pradesh Industrial Infrastructure Corporation.
|Nature of property||Total Number of Cases||Whether leasehold / freehold||Gross block as on 31 March 2019 (Rs.) in millions||Net block on 31 March 2019 (Rs.) in millions||Remarks |
|Land||One||Freehold||66||66||Land parcel which shall be registered in the name of the Company subsequent to fulfilment of certain conditions laid out by the Andhra Pradesh Industrial Infrastructure Corporation Limited.|
(ii) In our opinion the management has conducted physical verification of inventory at reasonable intervals during the year except for goods-in-transit and stocks lying with third parties. For stocks lying with third parties at the year-end written confirmations have been obtained by the management. No material discrepancies were noticed on the aforesaid verification.
(iii) The Company has granted unsecured loans to parties (foreign subsidiaries) covered in the register 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 prima facie prejudicial to the company's interest.
b. the schedule of repayment of principal and payment of interest has been stipulated and the principal and interest amount is not due;
c. there is no overdue amount in respect of loans granted to such party.
(iv) In our opinion the Company has complied with the provisions of Section 186 in respect of investments and loans. Further in our opinion the Company has not entered into any transaction covered under Section 185 and Section 186 of the Act in respect of guarantees and security.
(v) In our opinion the Company has not accepted any deposits within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules 2014 (as amended). 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 pursuant to the Rules made by the Central Government for the maintenance of cost records under sub-section (1) of Section 148 of the Act in respect of Company's products and are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However we have not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.
(vii) (a) Undisputed statutory dues including provident fund employees' state insurance income-tax goods and service tax duty of customs cess and other material statutory dues as applicable have generally been regularly deposited with the appropriate authorities though there has been a slight delay in a few cases. Further no undisputed amounts payable in respect thereof were outstanding at the year-end for a period of more than six months from the date they became payable.
(b) The dues outstanding in respect of sales-tax service-tax duty of customs on account of disputes are as follows:
|Amount (` in millions)|
|Name of the statute||Nature of dues||Total Claim||Amount paid under protest||Period to which the amount relates||Forum where dispute is pending|
|The Central Sales Tax 1956||Central Sales Tax||9||3||Financial Year (FY) 1997-98||High Court for the State of Telangana|
|The Customs Act 1962||Customs Duty||2||-||July 2006 to 2010||The Customs Excise and Service Tax Appellate Tribunal|
|The Finance Act 1994||Service Tax||2||1||FY 2011-12||The Customs Excise and Service Tax Appellate Tribunal|
|The Finance Act 1994||Service Tax||15||1||FY 2007-11||The Customs Excise and Service Tax Appellate Tribunal|
There were no disputed dues in respect of income-tax duty of excise and value added taxes
(viii) The Company has not defaulted in repayment of loans or borrowings to any bank during the year. The Company has no loans or borrowings payable to financial institutions or government and does not have any outstanding debentures during the year.
(ix) The Company did not raise moneys by way of initial public offer or further public offer (including debt instruments) and did not have any term loans outstanding during the year. Accordingly the provisions of lause 3(ix) of the Order are not applicable.
(x) No fraud by the Company or on the Company by its officers or employees has been noticed or reported during the period covered by our audit.
(xi) Managerial remuneration has been paid / provided by the Company in accordance with the requisite approvals mandated by the provisions of Section 197 of the Act read with Schedule V to the Act.
(xii) In our opinion the Company is not a Nidhi Company. Accordingly provisions of clause 3(xii) of the Order are not applicable.
(xiii) In our opinion all transactions with the related parties are in compliance with Sections 177 and 188 of Act where applicable and the requisite details have been disclosed in the standalone financial statements etc. as required by the applicable Ind AS.
(xiv) During the year the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures. Accordingly provisions of the clause 3(xiv) of the order are not applicable.
(xv) In our opinion the Company has not entered into any non-cash transactions with the directors or persons connected with them covered under Section 192 of the Act. Accordingly the provisions of clause 3(xv) of the order are not applicable.
(xvi) The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act 1934.
For Walker Chandiok & Co LLP
Firm's Registration No.: 001076N/N500013
Adi P. Sethna
Membership No.: 108840
Date: 27 st May 2019
Annexure B to the Independent Auditor's Report of even date to the members of NATCO Pharma Limited on the standalone financial statements for the year ended 31 March 2019
Independent Auditor's Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 (`the Act')
1. In conjunction with our audit of the standalone financial statements of NATCO Pharma Limited (`the Company') as at and for the year ended 31 March 2019 we have audited the internal financial controls over financial reporting (`IFCoFR') of the Company as at that date.
Management's Responsibility for Internal Financial Controls
2. The Company's Board of Directors is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (`the Guidance Note') issued by the Institute of Chartered Accountants of India (`ICAI'). These responsibilities include the design implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of the Company's business including adherence to the Company's policies the safeguarding of its assets the prevention and detection of frauds and errors the accuracy and completeness of the accounting records and the timely preparation of reliable financial information as required under the Act.
3. Our responsibility is to express an opinion on the Company's IFCoFR based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the ICAI and deemed to be prescribed under Section 143(10) of the Act to the extent applicable to an audit of IFCoFR and the Guidance Note issued by the ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate IFCoFR were established and maintained and if such controls operated effectively all material respects.
4. Our audit involves performing procedures to obtain audit evidence about the adequacy of the IFCoFR and their operating effectiveness. Our audit of IFCoFR includes obtaining an understanding of IFCoFR assessing the risk that a material weakness exists and testing and evaluating the design and operating effectivenessof internal control based on the assessed risk. The procedures selected depend on the auditor's judgement including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error.
5. We believe that the audit evidence we have obtained is to provide a basis for our audit opinion on the Company's IFCoFR.
Meaning of Internal Financial Controls over Financial Reporting
6. A company's IFCoFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's IFCoFR include those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition use or disposition of the company's assets that could have a material effect on the financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting
7. Because of the inherent limitations of IFCoFR including the possibility of collusion or improper management override of controls material misstatements due to error or fraud may occur and not be detected. Also projections of any evaluation of the IFCoFR to future periods are subject to the risk that the IFCoFR may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
8. In our opinion the Company has in all material respects adequate internal financial controls over financial reporting and such controls were operating effectively as at 31 March 2019 based on the internal control over financial reporting criteria established by the company considering the essential components of internal control in stated in the Guidance Note issued by the ICAI.
For Walker Chandiok & Co LLP
Firm's Registration No.: 001076N/N500013
Adi P. Sethna
Membership No.: 108840
Date: 27th May 2019