NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31 2016 1 Background and Nature of Operation Dr. Lal Pathlabs Limited (the Company) is a public company domiciled in India and incorporated on February 14, 1995 under the provisions of the Companies Act, 1956. The Company is engaged in the business of running laboratories for carrying out pathological investigations of various branches of Bio-chemistry, Hematology, Histopathology, Microbiology, Electrophoresis, Immuno-chemistry, Immunology, Virology, Cytology, other pathological and radiological investigations. The Company has become a Public Limited Company w.e.f 19th August 2015 and consequently the name of the Company has changed from Dr. Lal PathLabs Private Limited to Dr. Lal PathLabs Limited. The equity shares of the Company were listed on The National Stock Exchange of India and Bombay Stock Exchange on December 23, 2015. 2 Basis of brparation The financial statements of the Company have been brpared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014.The financial statements have been brpared on an accrual basis and under the historical cost convention. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year. 2.1 Summary of significant accounting policies (a) Use of estimates The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future years. (b) Tangible fixed assets Fixed assets are stated at cost, net of accumulated debrciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred. Gains or losses arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. (c) Debrciation on tangible fixed assets Leasehold Improvements are debrciated over the useful lives of the assets or the unexpired lease period, whichever, is lower. Based on the same, leasehold improvements are being debrciated over a period of 4 - 10 years. Leasehold land at Kolkata is being debrciated over the lease period of 99 years. Debrciation on second hand plant and machinery has been provided over their balance useful life of 5-6 years and on second hand computers (excluding server and networks) has been provided over their balance useful life of 3 years on WDV basis as estimated by the management. Debrciation on Furniture and Fixtures is provided using the Straight Line Method at the rate of 20% based on technical estimate of useful life. Debrciation on all other fixed assets is provided using the Written Down Value (WDV) Method at the rates computed based on the useful lives of the assets estimated by the management. The Company has considered following useful lives to provide debrciation on its fixed assets: (d) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired at purchase of business is recorded at their fair value as at the date of purchase of business. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the statement of profit and loss in the year in which the expenditure is incurred. Computer software is being amortized using the straight line method over its useful life, not exceeding five years. Goodwill and Trademarks are amortized using the straight line method over a period of five years starting from the date of acquisition of respective laboratory. Goodwill arising on scheme of amalgamation is amortized on straight line basis over a period of five years. (e) Leases Where the Company is lessee Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term. (f) Borrowing costs Borrowing cost includes interest, amortization of ancillary costs incurred in connection with the arrangement of borrowings and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur. (g) Impairment of tangible and intangible assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. (h) Government grants and subsidies Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the Company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received. When the grant or subsidy relates to revenue, it is recognized as income on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs, which they are intended to compensate. Where the grants or subsidy received from the government relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset. (i) Investments Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments. On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss. (j) Inventories Inventories comprise of reagents, chemicals, surgical and laboratory supplies and stores and others and are valued at lower of cost and net realizable value. Cost is determined on moving weighted average basis. (k) Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria is also met before revenue is recognized: Laboratory Income Revenue comprises of amount billed (net of discounts) in respect of tests conducted and is recognized as and when the samples are registered for the purpose of conducting the tests which usually take not more than 48 hours. Interest Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest income is shown separately in the statement of profit and loss. Income from units in Mutual Funds / Dividend from Subsidiary Companies Dividend from units in mutual funds / dividend from subsidiary companies is recognised when the Company's right to receive payment is established by the reporting date. Income on investment made in the units of fixed maturity plans of mutual funds is recognised based on the yield earned and to the extent of reasonable certainty (l) Foreign currency translation Foreign currency transactions and balances (i) Initial recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. (ii) Conversion Foreign currency monetary items are retranslated using the exchange rate brvailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined. (iii) Exchange Differences Exchange differences arising on the settlement of monetary items or on reporting Company's monetary items at rates different from those at which they were initially recorded during the year, or reported in brvious financial statements, are recognized as income or as expenses in the year in which they arise. (m) Retirement and other employee benefits Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund scheme as an expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the br payment will lead to, for example, a reduction in future payment or a cash refund. The Company operates a defined benefit plan for its employees, viz., gratuity. The costs of providing benefits under this plan are determined on the basis of actuarial valuation at each year-end. Actuarial valuation is carried out for plan using the projected unit credit method. Actuarial gains and losses for defined benefit plan are recognized in full in the year in which they occur in the statement of profit and loss. Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The Company brsents the entire leave as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date. (n) Income Taxes Tax expense comprises of current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act 1961 enacted in India. Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income originating during the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities Deferred tax assets are recognized for deductible timing difference only to extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed debrciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets are reviewed at each balance reporting date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax assets can be realized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. (o) Employee stock compensation cost Measurement and disclosure of the employee share based payment plans are done in accordance with the Guidance Note on Accounting for Employee Share-based payments, issued by the Institute of Chartered Accountants of India. The Company measures compensation cost relating to employee stock options using the fair value method. Such compensation cost is charged off to the statement of profit and loss in the year of grant of options. Fair value of ESOP Liability arising under the cash settled plan is remeasured at each reporting date and at the date of settlement with any change in the fair value recognized in the statement of profit and loss. Compensation expense resulting due to cash settled scheme is amortised over the vesting period of the options on graded basis. (p) Expenditure On New Projects Expenditure directly relating to construction activity is capitalized. Expenditure incurred during construction period is capitalized as part of the construction cost to the extent to which the expenditure is specifically attributable to construction of the project. Other expenditure (including borrowing costs) incurred during the construction period which is not related to the construction activity nor is incidental thereto is charged to the statement of Profit and Loss. (q) Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting brference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. (r) provisions A provision is recognized when the Company has a brsent obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates. (s) Contingent liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the financial statements. (t) Cash and cash equivalents Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less. (u) Segment reporting policy The Company brpares its segment information in conformity with the accounting policies adopted for brparing and brsenting the financial statements of the Company as a whole. (v) Measurement of EBITDA As permitted by the Guidance Note on the Revised Schedule VI to the Companies Act, 1956, the Company has elected to brsent earnings before interest, tax, debrciation, amortization and exceptional item (EBITDA) as a separate line item on the face of the statement of profit and loss. The Company measures EBITDA on the basis of profit/ (loss) from continuing operations. In its measurement, the Company does not include debrciation and amortization expense, finance costs, interest income, tax expense and exceptional item. 2 Segment Information Primary segments: Business Segment The Company is solely engaged in the business of running laboratories for carrying out Pathological investigations of various branches of Bio-chemistry, Hematology, Histopathology, Microbiology, Electrophoresis, Immuno-chemistry, Immunology, Virology, Cytology, other pathological and radiological investigations. The entire operations are governed by the same set of risks and returns and hence have been considered as rebrsenting a single business segment. The said treatment is in accordance with the guiding principles enunciated in the Accounting Standard 17 on Segment Reporting as notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013. 3 (a) Employee Stock Option Plan In terms of approval of shareholders accorded at the Annual General Meeting held on August 20, 2010 the Company formulated Dr. Lal PathLabs Pvt. Ltd. Employee Stock Option Plan 2010 ("Plan") for specified categories of employees of the Company. As per the Plan, 38,08,960 Stock Options (after considering bonus shares issued during the brvious year and subdivision of shares of Rs. 100 each into 10 shares of Rs. 10 each) can be issued to specified categories of employees of the Company. Each option, upon vesting, shall entitle the holder to acquire 1 equity share of Rs. 10. As per resolution passed by the Company on August 21, 2015 there would not be any further grant under the ESOP Plan 2010. Details of the scheme are as under Note 1 : Prior to listing of the Company's equity shares, the options granted under the Plan were considered as cash settled as per the provision of the said Plan. As per the Plan, upon listing of the Company's shares, there is no obligation on the Company to provide liquidity to employees. Accordingly, the Plan has been considered as Equity Settled post the listing of the Company's shares on December 23, 2015 Stock Options granted: The weighted average fair value of the Company's shares under the stock option plan granted to the employees as at 31.03.2016 is Rs. 923.30. The same has been taken based on the closing price as reported by www.nseindia.com In FY 2011-12, Dr. Lal PathLabs Pvt. Ltd. Employee Welfare Trust" ("Trust") was constituted, inter alia, for the purpose of acquiring equity shares of the Company, to hold the shares and to allocate/ transfer these shares to eligible employees of the Company from time to time on the terms and conditions specified under the Plan. The Company has given interest free loans of Rs. 43,29,03,732 (March 31, 2015: Rs. 34,44,20,478) to the said Trust which in turn has purchased 19,15,331 equity shares (March 31, 2015: 16,03,200 equity shares) of Rs. 10 each from employees of the Company. The Company has not consolidated the financial statements of the Trust in the standalone financial statements of the Company. 3 (b) Employee Share Purchase Scheme The Company, vide resolution dated May 11, 2015 approved the Dr. Lal PathLabs Private Limited Employee Share Purchase Scheme 2015 ("ESPS 2015") which is a performance based plan entitling eligible employees to seek transfer of Equity Shares from the Employee Welfare Trust ("EWT"), which is determined upon evaluation of their performance during the year and the fair market value of the Equity Shares as on April 1 of every year. The transfers from the EWT would be adjusted against a performance based amount which is determined in accordance with ESPS 2015 and transferred by the Company to the EWT. The shares purchased under the Scheme by the employees shall have a lock in period of 2 years from the end of the respective performance year. ESPS 2015 came into effect on April 1, 2014 and shall continue to remain in force unless terminated. Under ESPS 2015, for the performance year 2015-16, maximum number of equity shares of Rs. 10 each to be granted to eligible employees is 97,977 out of which 16,062 were forfeited. The Company has accounted for the liability proportionately for the period under Employee salaries. Further, for the performance year 2014-15, 37,412 equity shares of Rs. 10 each were transferred to eligible employees by the EWT under the Scheme. The Company accounted for the cost of Rs. 1,36,51,749 in the brvious year at the Fair Value of Rs. 311.30 per share on total number of 37,412 equity shares issued under the scheme in the current year (net of 6,442 equity shares adjusted towards TDS liability of certain employees)." 4. The Company has, during the current year, purchased business of "Dr.Bhanudas Yashwant Shinagare" engaged in the business of providing pathological diagnostics services in Pune, on a going concern basis for a purchase consideration of Rs. 1,25,00,000 .The Company has made payment of Rs. 62,50,000 against consideration payable for purchase of the business. The balance consideration of Rs. 62,50,000 has been shown as 'Creditors against purchase of business' in Note No. 6 under Trade Payables and Other Liabilities. The balance consideration is payable along with 9% interest per annum w.e.f. May'2015 after 12 months from the date of signing of the agreement. Further, if the gross turnover of the purchased business for the one year period commencing from May'2015 exceeds the amount specified in the agreement, the consideration will increase proportionately subject to a maximum increase of Rs. 25,00,000. The amount of Rs. 97,62,754 paid over and above the value of net assets acquired of Rs. 27,37,246 has been recognized as Goodwill. 5. The Company has, during the year, formed a wholly owned foreign subsidiary, Dr. Lal PathLabs Nepal Private Limited, Nepal, with an issued capital of NRS 4,00,00,000 consisting of 400,000 Shares of NRS 100. Further, during 2013-14, wholly owned foreign subsidiary Dr. Lal PathLabs International B.V., Amsterdam, with an issued capital of EUR 1,00,000 consisting of 10,000 shares of EUR 10 each was formed. However, no amount has been subscribed till the year end. 6. During the year, the Company completed its Initial Public Offering (IPO) comprising an Offer for Sale of 1,16,00,000 Equity Shares of face value of Rs. 10/- each for cash at a price of Rs. 550 per equity share including a share brmium of Rs. 540 per Equity Share (except for Retail Individual Bidders for whom the Offer Price was Rs. 535 per Equity Share pursuant to a discount of Rs. 15 offered on the Offer Price.) The equity shares of the Company were listed on The National Stock Exchange of India and Bombay Stock Exchange on December 23, 2015. The Company has incurred total offer expenses aggregating to Rs. 44,05,83,691 including Rs. 1,62,02,161 paid to statutory auditor for certification etc. The expenses of this Offer include, among others, underwriting and lead management fees, selling commissions, Syndicate Banks' commissions/ fees, printing and distribution expenses, legal fees, Offer related advertisements and publicity, registrar and depository fees and listing fees. Other than listing fees, which has been borne by the Company, all costs, fees and expenses with respect to the Offer has been shared between the Selling Shareholders, in proportion to their respective proportion of the Offered Shares. 7. Previous year Comparatives During the current year as well as during the brvious year, the Company has set up new/acquired laboratories at various locations in India and some new patient service centers at various locations. Hence, current year figures are not strictly comparable with those of the brvious year. Previous year's figures have been regrouped / rearranged wherever necessary to conform to current year classification. As per our report of even date For S.R. Batliboi & Co. LLP Chartered Accountants ICAI Firm's Registration No.: 301003E/E300005 For and on behalf of the Board of Directors of Dr. Lal PathLabs Limited (Formerly known as Dr. Lal PathLabs Private Limited) per Anil Gupta Partner Membership No. 87921 (Hony.) Brig. Dr. Arvind Lal [Chairman and Managing Director] Dr. Om Prakash Manchanda [CEO and Whole Time Director] Mr. Dilip Bidani [Chief Financial Officer] Mr. Rajat Kalra [Company Secretary] Place: New Delhi Date: 27th May, 2016 |