Notes forming part of Financial Statements for the year ended 31 March 2015

1. CORPORATE INFORMATION

Hester Biosciences Limited is a public limited company domiciled in India and listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The company is engaged in manufacturing of Poultry vaccines and Large Animal Vaccines and trading of Large animal health products having its manufacturing set up at Merda Adraj village, Mehsana District, Gujarat.

2. SIGNIFICANT ACCOUNTING POLICIES

a) BASIS OF brPARATION:

The financial statements are brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP), accounting standards notified under section 133 of the Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules, 2014 to the extent applicable under historical cost convention on accrual basis.

b) USE OF ESTIMATES:

The brparation of financial statements in conformity with GAAP requires the management to ake estimates and assumption that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Difference between the actual results and the estimates are recognised in the periods in which the results are known/ materialised.

c) CHANGE IN ACCOUNTING POLICY:

During the year ended 31 March 2015, the company has retrospectively changed its method of providing debrciation on fixed assets from the written down value (WDV) method to Straight Line Method (SLM) at the rates higher than the rates brscribed in schedule XIV to the Companies Act, 1956 as duly certified by chartered engineer. The management believes that this change will result in a more appropriate brsentation of the financial statements of the Company and will give a systematic basis of debrciation charge, more rebrsentative of the time pattern in which the economic benefits will be derived from the use of these assets. Accordingly, company has charged debrciation of H52.91 million to statement of profit and loss or the year ended on 31 March 2015.The net credit of H19.03 million being the difference of written down value of assets as per WDV method and SLM method as on 31 March 2014 has been shown as an 'Exceptional Item' in the Statement of Profit & Loss for the year ended on 31 March 2015.

d) REVENUE RECOGNITION:

Revenue is recognised to the extent it is probable that the economic benefits will flow to the company and can be reliably measured.

Revenue from sale of products is recognised on dispatch or appropriation of goods in accordance with the terms of sale and rewards of ownership have passed to the buyer and Revenue from services are recognised as the related services are performed. Sale of goods is recorded net of returns, trade discounts, rebates, VAT/Sales Tax, Service Tax but inclusive excise duty.

Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable.

e) FIXED ASSETS & DEbrCIATION / AMORTISATION:

Tangible Assets are stated at cost net of recoverable taxes / duties and rebates less accumulated debrciation and impairment loss, if any. Borrowing costs directly attributable to the construction or production of qualifying assets during the period of construction / acquisition are capitalised as part of the cost. Subsequent expenditures related to an item of tangible assets are added to its book value only if it increases the future benefits from the existing assets beyond its brviously assessed standards of performance. Exchange differences arising out of fluctuation in exchange rate on settlement / period end in foreign currency monetary liabilities in respect of acquisition of fixed assets are adjusted to the cost of the fixed assets.

Intangible assets are stated at the consideration paid for acquisition less accumulated amortisation and impairment loss, if any. Cost of fixed assets not ready for their intended use before the balance sheet date is disclosed as capital work-in-progress and is carried at cost, comprising direct cost, related incidental expenses and directly attributable interest. Advances paid towards the acquisition of fixed assets outstanding as of each balance sheet date is disclosed under long term loans and advances.

Debrciation on Fixed Assets is provided on Straight Line method (SLM) method based on useful life of the assets as brscribed under Part-C of Schedule II to the companies Act, 2013 except in respect of the following assets of 'New Project', where useful

f) IMPAIRMENT OF ASSETS:

The carrying values of assets are reviewed at each balance sheet for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount of these assets exceeds their recoverable amount. The recoverable amount is measured as the higher of the net selling price and the value in use determined by the brsent value of estimated cash flows.

g) INVESTMENTS:

Non-current investments are stated at cost. However, provision for diminution is made to recognise a decline, other than temporary, in the value of investment, if any.

Current investments are carried at lower of cost and fair value determined on an individual investment basis

h) INVENTORIES:

Inventories are valued at the lower of cost and net realisable value after providing for obsolence / expiry, if any. Work in progress and finished goods include appropriate proportion of overheads and excise duty, where applicable.

i) BORROWING COSTS:

Cost of borrowed funds directly attributable to the acquisition or construction of qualifying assets has been capitalised and included in the cost of fixed assets till such assets are ready to be put to use. Other borrowing costs are recognised as expenses in the period in which they are incurred.

j) FOREIGN CURRENCY TRANSACTIONS:

i) Foreign currency transactions are recorded at the exchange rates brvailing at the time of transaction.

ii) Monetary items rebrsenting assets and liabilities denominated in foreign currencies at the balance sheet date are translated at rates brvailing on balance sheet date.

iii) Investments in equity capital of company registered outside India are carried in the Balance Sheet at the rates brvailing on the date of transaction.

iv) Any income or expenses on account of exchange difference either on settlement or on transaction other than that arising in long term foreign currency items is recognised in the Statement of Profit and Loss, for the period in which the difference takes place.

k) RESEARCH AND DEVELOPMENT:

Revenue expenditure on Research and Development is charged to the Statement of Profit and Loss for the year in which it is incurred. Capital expenditure on Research and Development is shown as an addition to the fixed assets and is debrciated on the same basis as other fixed assets.

l) PROVISION FOR RETIREMENT BENEFITS:

(i) Short-Term Employee Benefits:-

Short term employee benefits such as salaries, wages, leave encashment, bonus etc. are recognised as an expense and are charged to the statement of Profit and Loss for the year in which the related services is rendered.

(ii) Post- employment benefit plans:-

i) Defined Contribution Plan:

Contribution for provident fund are accrued in accordance with applicable Statutes and deposited with the Regional Provident Fund Commissioner.

ii) Defined Benefit Plan:

The liabilities in respect of gratuity and leave encashment are determined Using Projected Unit Credit Method with actuarial valuation carried out as at Balance Sheet date. Actuarial gains and losses are recognised in full in the Statement of Profit & loss for the period in which they occur.

Contributions in respect of gratuity are made to the Group Gratuity Scheme with Life Insurance Corporation of India. Employee benefits recognised in the Balance Sheet rebrsents the brsent value of the defined benefit obligation as adjusted for Unrecognised past service cost and as reduced by the fair value of respective fund.

m) SEGMENT REPORTING:

The company identifies primary segments based on the nature of products and market catered by each segments for which separate financial information is available and for which operating profit/loss amounts are evaluated by the company.

The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for brparing and brsenting the financial statements of the company as a whole. Segment-wise revenue, expenses, assets and liabilities have been identified to segment on the basis of their relationship to the operating activities of the segment.

Revenue, expenses, assets and liabilities which relate to the company as a whole and are not allocable to specific segment on reasonable basis have been included under unallocated revenue/ expenses/ assets/ liabilities.

n) EARNING PER SHARE:

Basic earnings per share are calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

o) CASH AND CASH EQUIVALENTS:

Cash and cash equivalents for the purpose of cash flow statement comprise cash on hand and balance at Bank including fixed deposits with an original maturity period of less than three months and short term investments with an original maturity of three months or less.

p) TAXATION:

i. Current Tax:

Provision for Income Tax is determined in accordance with the provisions of Income Tax Act, 1961.

ii. Deferred Tax Provision:

Deferred Tax charge or credit is recognised on timing differences; being the difference between the taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. It is calculated using the applicable tax rates and tax laws that have been enacted by the balance sheet date. The deferred tax assets is recognised and carried forward only to the extent that there is virtual certainty that there will be sufficient future taxable income available to realise the assets. At each Balance sheet date, recognised and unrecognised Deferred Tax Assets are reviewed.

iii. Minimum Alternative Tax (MAT):

Minimum Alternative Tax (MAT) paid in accordance with the tax laws in India which gives rise to future economic benefit in the form of MAT credit entitlement for adjustment of future income tax liability, is considered as an asset only when there is convincing evidence that the company will pay normal income tax within the specified period. Accordingly MAT is recognised as an asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with it will fructify. Such assets are revised at each balance sheet date.

q) GRANTS

Government grants are recognised when there is reasonable assurance that the Company will comply with the conditions attached to them and the grants will be received. Government grants receivable are recognised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis.

r) PROVISION AND CONTINGENCIES:

The Company creates a provision when there is brsent obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of obligation. A disclosure for a contingent liability is made when there is possible obligation or a brsent obligation that probably will not require an outflow of resources or where a reliable estimate of the obligation cannot be made.

1. Figures are rounded off to nearest rupee.

2. Certain balances of receivables, payables, loans and advances and deposits are subject to confirmations. Any adjustments, if required would be made at the time of reconciliation or settlement of accounts

3. Disclosure of amount payable to enterprises defined under the Micro, Small and Medium Enterprises Development Act, 2006 is based on the information available with the company regarding the status of registration of such enterprises under this Act. Accordingly, Disclosure in respect of the amounts payable to such enterprises outstanding as on 31 March 2015 has been made in the financial statements based on information received and such amount outstanding as on 31 March 2015 from Micro and Small Enterprises is NIL, which the auditors have relied upon. Further, in the view of the management, the impact of interest, if any, that may be payable in accordance with the provision of the Act is not expected to be material.

4. Pursuant to the enactment of the Companies Act, 2013 (the Act) and its applicability for the accounting periods commencing after 01 April 2014, the company has applied the estimated lives of the assets as specified in Schedule - II except in respect of certain assets of "New Project" as disclosed in accounting policy on Fixed Assets and Debrciation/Amortisation. Accordingly the unamortised carrying value of tangible and non tangible assets is being debrciated / amortised over the remaining / revised useful life of each asset. Written down value of the fixed assets whose useful life has already exhausted on 01 April 2014 amounting to Rs.13.51 million has been charged to General Reserve.

5. In order to simplify corporate structure, reduce multiplicity of legal and regulatory compliances, eliminate duplication in administrative costs and achieve operational efficiencies, during the year Board of Directors has approved a Composite Scheme of Amalgamation and Arrangement ('the Scheme') to merge Gujarat Agrofarm Limited, Diavetra Lifesciences Private Limited and Hester Biosciences (Mauritius) Limited with the company in addition to demerger of Trading undertaking of Innoves Animal Health Private Limited into Hester Biosciences Limited pursuant to Sections 391 to 394 of the Companies Act, 1956 read with other applicable provisions of the Companies Act, 1956, the Companies Act, 2013 ('the Act') and Mauritius Companies Act, 2001.

The Appointed Date of the Scheme was 01 April 2014. The Scheme is subject to necessary approvals inter alia from Stock Exchanges, shareholders and creditors of the company and sanction from Hon'ble High Court of Gujarat, which is under process.

The Company, upon the scheme being effective, shall account for said amalgamation and arrangement in line with the provisions of the scheme as may be approved by the Gujarat High Court.

6. In-house Research and Development facility established by the company for "Manufacturing veternity vaccines for Poultry" was approved by Ministry of Science and Technology, Government of India under section 35(2AB) of the Income Tax Act, 1961 in F.Y. 2013-14.

 7. DISCLOSURE AS PER AS-15 (REVISED) ON " EMPLOYEE BENEFIT " FOR THE YEAR ENDED 31 MARCH 2015

a) Defined Contribution Plans

The company made contribution towards provident fund to defined contribution retirement benefit plans for qualifying employees. The provident fund plan is operated by the regional provident fund commissioner, the company required to contribute a specified percentage of payroll cost to the retirement benefit scheme to fund the benefit.

The company recognised H2.62 million (P.Y. H2.15 million) for provident fund contribution in the profit and loss account. The contributions payable to this plan by the company are at rates specified in the rules of the scheme.

b) Defined benefit Plan

The company made annual contribution to the employee's Group Gratuity Cash Accumulation Scheme of the Life Insurance Corporation of India, a funded benefit plan for qualifying employees. The scheme provides for lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days salary payable for each completed year of service or a part thereof in excess of six months. Vesting occurs upon completion of five years of service.

The brsent value of define benefit obligation and the related current service cost were measured using the projected unit credit method as per actuarial valuation carried out at balance sheet date.

8. The Ministry of Corporate Affairs, Government of India, vide General Circular No. 2 and 3 dated 8 February 2011 and 21 February 2011 respectively has granted a general exemption from compliance with section 212 of the Companies Act, 1956, subject to fulfillment of conditions stipulated in the circular. The Company has satisfied the conditions stipulated in the circular and hence is entitled to the exemption. Necessary information relating to the subsidiaries has been included in the Consolidated Financial Statements.

9. Previous year's figures have been regrouped/ reclassified wherever necessary to confirm to current year's classification/disclosure.

For Shah Narielwala & Co.

Chartered Accountants

FRN: 109708W

For & on behalf of the Board of Directors

Naishadh H. Shah

Partner

Membership No.: 042323

Rajiv Gandhi

CEO & Managing Director

Jigar Shah

CFO

Sanjiv Gandhi

Director

Amala Parikh

Company Secretary

Place: Ahmedabad

Date: 28 May 2015