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Neuland Laboratories Ltd.

BSE: 524558 Sector: Health care
NSE: NEULANDLAB ISIN Code: INE794A01010
BSE 00:00 | 27 Mar 261.25 -19.45
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NSE 00:00 | 27 Mar 261.40 -15.05
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OPEN 280.00
PREVIOUS CLOSE 280.70
VOLUME 1943
52-Week high 753.60
52-Week low 247.30
P/E 10.49
Mkt Cap.(Rs cr) 335
Buy Price 261.25
Buy Qty 89.00
Sell Price 275.00
Sell Qty 5.00
OPEN 280.00
CLOSE 280.70
VOLUME 1943
52-Week high 753.60
52-Week low 247.30
P/E 10.49
Mkt Cap.(Rs cr) 335
Buy Price 261.25
Buy Qty 89.00
Sell Price 275.00
Sell Qty 5.00

Neuland Laboratories Ltd. (NEULANDLAB) - Auditors Report

Company auditors report

To the Members of Neuland Laboratories Limited

Report on the Audit of the Standalone Financial Statements

Opinion

1. We have audited the accompanying standalone financial statements ofNeuland Laboratories Limited (‘the Company') which comprise the Balance Sheetas at March 31 2019 the Statement of Profit and Loss (including Other ComprehensiveIncome) the Cash Flow Statement and the Statement of Changes in Equity for the year thenended and a summary of the significant accounting policies and other explanatoryinformation.

2. In our opinion and to the best of our information and according tothe explanations given to us the aforesaid standalone financial statements give theinformation required by the Companies Act 2013 (‘Act') in the manner sorequired and give a true and fair view in conformity with the accounting principlesgenerally accepted in India including Indian Accounting Standards (‘Ind AS')specified under section 133 of the Act of the state of affairs (financial position) ofthe Company as at March 31 2019 and its profit (financial performance including othercomprehensive income) its cash flows and the changes in equity for the year ended on thatdate.

Basis for Opinion

3. We conducted our audit in accordance with the Standards on Auditingspecified under section 143(10) of the Act. Our responsibilities under those standards arefurther described in the Auditor's Responsibilities for the Audit of the 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(‘ICAI') together with the ethical requirements that are relevant to our auditof the financial statements under the provisions of the Act and the rules thereunder andwe have fulfilled our other ethical responsibilities in accordance with these requirementsand the Code of Ethics. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinion.

Key Audit Matters

4. Key audit matters are those matters that in our professionaljudgment were of most significance in our audit of the standalone financial statements ofthe current period. These matters were addressed in the context of our audit of thefinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters.

5. We have determined the matters described below to be the key auditmatters to be communicated in our report.

Key audit matter How our audit addressed the key audit matter
Carrying value of goodwill Our audit procedures in relation to testing of impairment of goodwill included but were not limited to the following:
Refer note 2 (ii)(g) for the accounting policy and note 37 for the financial disclosures in the standalone financial statements.
As at March 31 2019 the Company's assets include goodwill aggregating to र27946.10 lacs in accordance with the Scheme of Amalgamation and Arrangement on account of acquisition of businesses of Neuland Health Sciences Private Limited and Neuland Pharma Research Private Limited which were engaged in the business of peptides and contract research services respectively. • Assessed and tested the design and operating effectiveness of the Company's controls over recognition of impairment assessment process.
• Obtained the impairment analyses and tested the appropriateness of the impairment model and reasonableness of the key assumptions used including earnings before interest depreciation and amortization terminal value selection of discount rate and benchmarking the market-related assumptions used against the external data with the help of valuation experts;
Goodwill is carried at cost and is tested for impairment if any in accordance with Ind AS 36 "Impairment of Assets". As at March 31 2019 the management has assessed that the value of goodwill will be recovered through future cash flows from the acquired businesses. However there is potentially a risk that the goodwill will be impaired if the projected cash flows are not met. • Challenged the judgements exercised by the management in respect of the above key assumptions based on our knowledge of the industry and market factors;
The impairment review performed by the Company based on the projected future cash flow involves use of various significant judgements and estimates such as revenue growth profit margins terminal values and the discount rate. Changes in these assumptions could lead to an impairment to the carrying value of goodwill. • Compared the prior year budgets with the actual results to determine the efficacy of the management's budgeting process. Further compared the cash flow forecasts to the latest budgets approved by the Board of Directors;
• 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 carrying value; and
We identified this as key audit matter for current year audit owing to the materiality of the amounts involved and inherent subjectivity involved in the determination of recoverable value through estimation of future cash flows. • Assessed the appropriateness and adequacy of the related disclosures in the financial statements in accordance with the applicable accounting standards.
Recoverability of Minimum Alternate Tax (MAT) credit asset Our audit procedures in relation to assessment of MAT credit recognised as at reporting date included but were not limited to the following:
Refer to note 2(ii)(q) for the accounting policy and note 18 for the financial disclosures in the standalone financial statements.
• Assessed and tested the design and operating effectiveness of the Company's controls over recognition of the MAT credit.
As at March 31 2019 the Company has recognized deferred tax asset in the nature of MAT credit aggregating to र2672.26 lacs. • Obtained the Company's analyses for MAT credit realisability involving future projections of taxable profits and tested the reasonableness of the key assumptions used including growth in profit gross margins and tax adjustments;
Recognition of MAT credit asset requires significant judgement regarding the likelihood of its realization with-in the utilization period through estimate of future taxable profits of the Company and consequently there is a risk that the MAT credit asset may not be realised within the utilization period if these projections are not met.
• Challenged the judgements exercised by the management in respect of the above key assumptions based on our knowledge of the industry;
• Compared the prior year expected tax profits with the actual results to determine the efficacy of the management's budgeting process;
Management's assessment of recoverability of the MAT credit asset requires estimation of future taxable profits as per the prevalent provisions under the Income Tax Act 1961 ("IT Act") which involves key assumptions such as revenue growth profit margins tax adjustments. These future taxable profits are computed based on the business plan prepared by the management and projected post-tax cash flows of the Company. • Tested the appropriateness of the forecasted tax liability computation as per the provisions of the IT Act including assessment of the eligibility of various tax exemptions availed and MAT liability computation as per Section 115JB of the IT Act;
• 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 future taxable profits; and
We identified this as key audit matter for current year audit owing to the materiality of the amounts involved and inherent subjectivity involved in the determination of utilization of MAT credit through estimation of future taxable profits. • Assessed the appropriateness and adequacy of the related disclosures in the financial statements in accordance with the applicable accounting standards.

Information other than the Financial Statements and Auditor'sReport thereon

6. The Company's Board of Directors is responsible for the otherinformation. The other information comprises the information included in the AnnualReport but does not include the financial statements and our auditor's reportthereon.

Our opinion on the financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated. If basedon the work we have performed we conclude that there is a material misstatement of thisother information we are required to report that fact. We have nothing to report in thisregard.

Responsibilities of Management and Those Charged with Governance forthe Standalone Financial Statements

7. The Company's Board of Directors is responsible for the mattersstated in section 134(5) of the Act with respect to the preparation of these standalonefinancial statements that give a true and fair view of the state of affairs (financialposition) profit or loss (financial performance including 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 forassessing the Company's ability to continue as a going concern disclosing asapplicable matters related to going concern and using the going concern basis ofaccounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so.

9. Those Board of Directors are also responsible for overseeing theCompany's financial reporting process.

Auditor's Responsibilities for the Audit of the FinancialStatements

10. Our objectives are to obtain reasonable assurance about whether thefinancial 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. Reasonableassurance is a high level of assurance but is not a guarantee that an audit conducted inaccordance with Standards on Auditing will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these financial statements.

11. As part of an audit in accordance with Standards on Auditing weexercise professional judgment and maintain professional skepticism throughout the audit.We also:

• Identify and assess the risks of material misstatement of thefinancial 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 theaudit in order to design audit procedures that are appropriate in the circumstances. Undersection 143(3)(i) of the Act we are also responsible for explaining our opinion onwhether the company has adequate internal financial controls system in place and theoperating effectiveness of such controls.

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

• Conclude on the appropriateness of management's use of thegoing concern basis of accounting and based on the audit evidence obtained whether amaterial uncertainty exists related to events or conditions that may cast significantdoubt on the Company's ability to continue as a going concern. If we conclude that amaterial uncertainty exists we are required to draw attention in our auditor'sreport to the related disclosures in the financial statements or if such disclosures areinadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditionsmay cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.

12. We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.

13. We also provide those charged with governance with a statement thatwe have complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.

14. From the matters communicated with those charged with governancewe determine those matters that were of most significance in the audit of the 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 publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.

Report on Other Legal and Regulatory Requirements

15. As required by section 197(16) of the Act we report that theCompany has paid remuneration to its directors during the year in accordance with theprovisions 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 section143(11) of the Act we give in the Annexure I a statement on the matters specified inparagraphs 3 and 4 of the Order. 17. Further to our comments in Annexure I as required bysection 143(3) of the Act we report that:

a) we have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purpose of our audit;

b) in our opinion proper books of account as required by law have beenkept by the Company so far as it appears from our examination of those books;

c) the standalone financial statements dealt with by this report are inagreement with the books of account;

d) in our opinion the aforesaid standalone financial statements complywith Ind AS specified under section 133 of the Act;

e) on the basis of the written representations received from thedirectors and taken on record by the Board of Directors none of the directors isdisqualified as on March 31 2019 from being appointed as a director in terms of section164(2) of the Act;

f) we have also audited the internal financial controls over financialreporting (IFCoFR) of the Company as on March 31 2019 in conjunction with our audit ofthe standalone financial statements of the Company for the year ended on that date and ourreport dated May 16 2019 as per Annexure II expressed unmodified opinion;

g) with respect to the other matters to be included in theAuditor'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 accordingto the explanations given to us:

i. the Company as detailed in note 40 to the standalone financialstatements has disclosed the impact of pending litigations on its financial position asat March 31 2019;

ii. the Company did not have any long-term contracts includingderivative contracts for which there were any material foreseeable losses as at March 312019;

iii. there were no amounts which were required to be transferred to theInvestor Education and Protection Fund by the Company during the year ended March 312019; and

iv. the disclosure requirements relating to holdings as well asdealings in specified bank notes were applicable for the period from November 8 2016 toDecember 30 2016 which are not relevant to these standalone financial statements. Hencereporting under this clause is not applicable.

For Walker Chandiok & Co LLP

Chartered Accountants

Firm's Registration No: 001076N/N500013

Sanjay Kumar Jain

Partner

Membership No: 207660

Place: Hyderabad

Date: May 16 2019

Annexure I to the Independent Auditor's Report

of even date to the members of Neuland Laboratories Limited on thestandalone financial statements for the year ended March 31 2019

Annexure I

Based on the audit procedures performed for the purpose of reporting atrue and fair view on the standalone financial statements of the Company and taking intoconsideration the information and explanations given to us and the books of account andother records examined by us in the normal course of audit and to the best of ourknowledge and belief we report that:

(i) (a) The Company has maintained proper records showing fullparticulars including quantitative details and situation of fixed assets.

(b) The fixed assets have been physically verified by the managementduring the year and no material discrepancies were noticed on such verification. In ouropinion the frequency of verification of the fixed assets is reasonable having regard tothe size of the Company and the nature of its assets.

(c) The title deeds of all the immovable properties (which are includedunder the head ‘Property plant and equipment') are held in the name of theCompany except for the following property which according to the information andexplanation given to us are under dispute pending with Honorable High Court of Telanganaas to the ownership of the property as stated in note 40(h) to the financial statements.

( र in lacs)
Nature of property Whether leasehold /freehold Gross block as on March 31 2019 Net block on March 31 2019 Remarks
Land Freehold 3.30 3.30 The title deeds of the land are in the name of Neuland Health Sciences Private Limited erstwhile Company that was merged with the Company. Further the title of the land is under dispute in respect of which we have been informed by the management of the Company that they have filed a writ petition with Honorable High Court of Telangana.

(ii) In our opinion the management has conducted physical verificationof inventory at reasonable intervals during the year except for goods-in-transit. Nomaterial discrepancies were noticed on the aforesaid verification.

(iii) The Company has not granted any loan secured or unsecured tocompanies firms Limited Liability Partnerships (LLPs) or other parties covered in theregister maintained under Section 189 of the Act. Accordingly the provisions of clauses3(iii)(a) 3(iii) (b) and 3(iii)(c) of the Order are not applicable.

(iv) In our opinion the Company has complied with the provisions ofSection 186 in respect of investments. Further in our opinion the Company has notentered into any transaction covered under Section 185 and Section 186 of the Act inrespect of loans guarantees and security.

(v) In our opinion the Company has not accepted any deposits withinthe 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 notapplicable.

(vi) We have broadly reviewed the books of account maintained by theCompany pursuant to the Rules made by the Central Government for the maintenance of costrecords under sub-section (1) of Section 148 of the Act in respect of Company'sproducts and are of the opinion that prima facie the prescribed accounts and recordshave been made and maintained. However we have not made a detailed examination of thecost records with a view to determine whether they are accurate or complete.

(vii) (a) Undisputed statutory dues including provident fundemployees' state insurance income-tax sales-tax goods and service tax duty ofcustoms duty of excise cess and other material statutory dues as applicable havegenerally been regularly deposited with the appropriate authorities though there has beena slight delay in a few cases. Further no undisputed amounts payable in respect thereofwere outstanding at the year-end for a period of more than six months from the date theybecame payable.

(b) The dues outstanding in respect of sales-tax service-tax valueadded tax duty of customs on account of disputes are as follows:

Amount ( in lacs)
Name of the statute Nature of dues Total Claim Amount paid under protest Period to which the amount relates Forum where dispute is pending
Finance Act 1994 Service tax 119.32 55.45 2009-15 Hon'ble High Court of Telangana
5.70 - 2004-05 to 2008-09 CESTAT Bangalore
Income Tax Act 1961 Income Tax 18.13 - AY 1998-99 Hon'ble High Court of Telangana
81.64 - AY 2001-02
14.52 - AY 2002-03
693.33 - AY 2004-05
19.01 3.81 AY 2012-13 Commissioner of Income Tax (Appeals) Hyderabad
1357.45 273.49 AY 2012-13 to 2018-19
96.27 0.82 AY 2016-17

(viii) The Company has not defaulted in repayment of loans orborrowings to any financial institution or bank during the year. The Company has no loansor borrowings payable to government and does not have any outstanding debentures duringthe year.

(ix) The Company did not raise moneys by way of initial public offer orfurther public offer (including debt instruments) and did not have any term loansoutstanding during the year. Accordingly the provisions of clause 3(ix) of the Order arenot applicable.

(x) No fraud by the Company or on the Company by its officers oremployees has been noticed or reported during the period covered by our audit.

(xi) Managerial remuneration has been paid / provided by the Company inaccordance with the requisite approvals mandated by the provisions of Section 197 of theAct read with Schedule V to the Act.

(xii) In our opinion the Company is not a Nidhi Company. Accordinglyprovisions of clause 3(xii) of the Order are not applicable.

(xiii) In our opinion all transactions with the related parties are incompliance with Sections 177 and 188 of Act where applicable and the requisite detailshave been disclosed in the standalone financial statements etc. as required by theapplicable Ind AS.

(xiv) During the year the Company has made private placement ofshares. In respect of the same in our opinion the company has complied with therequirement of Section 42 of the Act and the Rules framed thereunder. Further in ouropinion the amounts so raised were applied for the purposes for which these securitieswere issued though idle funds which were not required for immediate utilisation have beeninvested in liquid investments payable on demand. During the year the company did notmake preferential allotment/private placement of fully/partly convertible debentures.

(xv) In our opinion the Company has not entered into any non-cashtransactions with the directors or persons connected with them covered under Section 192of 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-IAof the Reserve Bank of India Act 1934.

For Walker Chandiok & Co LLP

Chartered Accountants

Firm's Registration No: 001076N/N500013

Sanjay Kumar Jain

Partner

Membership No: 207660

Place: Hyderabad

Date: May 16 2019

Annexure II to the Independent Auditor's Report

of even date to the members of Neuland Laboratories Limited on thestandalone financial statements for the year ended March 31 2019 Annexure II

Independent Auditor's Report on the Internal Financial Controlsunder Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 (‘theAct')

1. In conjunction with our audit of the standalone financial statementsof Neuland Laboratories Limited (‘the Company') as at and for the year ended 31March 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 forestablishing and maintaining internal financial controls based on the internal controlover financial reporting criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls over Financial Reporting issued by the Institute of Chartered Accountants ofIndia. 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 offrauds and errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Act.

Auditor's Responsibility

3. Our responsibility is to express an opinion on the Company'sIFCoFR based on our audit. We conducted our audit in accordance with the Standards onAuditing issued by the Institute of Chartered Accountants of India (‘ICAI') anddeemed to be prescribed under Section 143(10) of the Act to the extent applicable to anaudit of IFCoFR and the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (‘the Guidance Note') issued by the ICAI. Those Standardsand the Guidance Note require that we comply with ethical requirements and plan andperform the audit to obtain reasonable assurance about whether adequate IFCoFR wereestablished and maintained and if such controls operated effectively in all materialrespects.

4. Our audit involves performing procedures to obtain audit evidenceabout the adequacy of the IFCoFR and their operating effectiveness. Our audit of IFCoFRincludes obtaining an understanding of IFCoFR 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 sufficientand appropriate 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 reasonableassurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally acceptedaccounting principles. A company's IFCoFR include those policies and procedures that(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect 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 thefinancial statements.

Inherent Limitations of Internal Financial Controls over FinancialReporting

7. Because of the inherent limitations of IFCoFR including thepossibility of collusion or improper management override of controls materialmisstatements due to error or fraud may occur and not be detected. Also projections ofany evaluation of the IFCoFR to future periods are subject to the risk that the IFCoFR maybecome inadequate because of changes in conditions or that the degree of compliance withthe policies or procedures may deteriorate.

Opinion

8. In our opinion the Company has in all material respects adequateinternal financial controls over financial reporting and such controls were operatingeffectively as at March 31 2019 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 issued by the Institute of Chartered Accountants of India.

For Walker Chandiok & Co LLP

Chartered Accountants

Firm's Registration No: 001076N/N500013

Sanjay Kumar Jain

Partner

Membership No: 207660

Place: Hyderabad

Date: May 16 2019