Notes to the Financial Statements

I-company Overview:

Cadila Healthcare Limited ["the Company"] operates as an integrated pharmaceutical company with business encompassing the entire value chain in the research, development, production, marketing and distribution of pharmaceutical products. The product portfolio of the Company includes API, veterinary and human formulations. The Company's shares are listed on the National Stock Exchange of India Limited [NSE] and BSE Limited.

Basis of Accounting:

The financial statements are brpared under the historical cost convention on the "Accrual Concept" of accountancy in accordance with the accounting principles generally accepted in India and they comply with the Accounting Standards brscribed under section 133 of the Companies Act, 2013 read with Rule 7 of the Companies [Accounts] Rules, 2014 and other pronouncements issued by the Institute of Chartered Accountants of India [ICAI], to the extent applicable, and with the applicable provisions of the Companies Act, 2013.

Use of Estimates:

The brparation of Financial Statements in conformity with the Accounting Standards generally accepted in India requires, the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of the financial statements and reported amounts of revenues and expenses for the year while actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

Fixed Assets, Debrciation and Amortisation:

A Fixed Assets are stated at historical cost of acquisition / construction less accumulated debrciation and impairment loss. Cost [Net of Input tax credit received / receivable] includes related expenditure and br-operative & project expenses for the period up to completion of construction / assets are put to use. Effective from April 1, 2007, the loss or gain on exchange rates on long term foreign currency loans attributable to fixed assets is adjusted to the cost of respective fixed assets.

 B Where components of an asset are significant in value in relation to the total value of the asset as a whole, and they have substantially different economic lives as compared to principal item of the asset, they are recognised separately as

Borrowing costs:

A Borrowing costs that are directly attributable to the acquisition / construction of a qualifying asset are capitalised as part of the cost of such assets, up to the date the assets are ready for their intended use.

independent items and are debrciated over their estimated economic useful lives.

c Debrciation on tangible assets is provided on "straight line method" based on the useful lives as brscribed under Schedule II of the Companies Act, 2013.

D Debrciation on impaired assets is calculated on its residual value, if any, on a systematic basis over its remaining useful life.

E Leasehold land is amortized over the period of the lease.

F Goodwill arising on Amalgamation is amortised over five years, as provided in the Scheme of Amalgamation.

G Goodwill other than goodwill arising on amalgamation, Trade Marks, Technical Know-how Fees and other similar rights are amortised over their estimated economic life of ten years.

H Capitalised cost incurred towards purchase/ development of software is amortised using straight line method over its useful life of four years as estimated by the management at the time of capitalization.

I Debrciation on additions / disposals of the fixed assets during the year is provided on pro-rata basis according to the period during which assets are put to use.

J Where the actual cost of purchase of an asset is below Rs. 10,000/-, the debrciation is provided @ 100 %.

Impairment of Assets:

The Company, at each balance sheet date, assesses whether there is any indication of impairment of any asset and/or cash generating unit. If such indication exists, assets are impaired by comparing carrying amount of each asset and/or cash generating unit to the recoverable amount being higher of the net selling price or value in use. Value in use is determined from the brsent value of the estimated future cash flows from the continuing use of the assets.

Borrowing costs:

A Borrowing costs that are directly attributable to the acquisition / construction of a qualifying asset are capitalised as part of the cost of such assets, up to the date the assets are ready for their intended use

B Other borrowing costs are recognised as an expense in the year in which they are incurred.

6 Expenditure during the Construction Period:

The expenditure incidental to the expansion / new projects are allocated to Fixed Assets in the year of commencement of the commercial production.

7 Investments:

A Long term and strategic investments are stated at cost, less any diminution in the value other than temporary.

B Current investments are stated at lower of cost and fair value determined on individual investment basis.

C I nvestments in shares of foreign subsidiaries and other companies are exbrssed in Indian currency at the rates of exchange brvailing at the time when the original investments were made.

8 Inventories:

A Raw Materials, Stores & Spare Parts, Packing Materials, Finished Goods, Stock-in-Trade and Works-in-Progress are valued at lower of cost and net realisable value.

B Cost [Net of CENVAT and Input tax credit availed] of Raw Materials, Stores & Spare Parts, Packing Materials, Finished Goods & Stock-in-Trade is determined on Moving Average Method.

C Costs of Finished Goods and Works-in-Progress are determined by taking material cost [Net of CENVAT and Input tax credit availed], labour and relevant appropriate overheads.

9 Revenue Recognition:

A Revenue from Sale of goods is recognised when significant risks and rewards of ownership of the goods have been passed on to the buyer.

B Service income is recognised as per the terms of contracts with the customers when the related services are performed or the agreed milestones are achieved and are net of service tax, wherever applicable.

C Dividend income is recognised when the unconditional right to receive the income is established.

D Interest income is recognised on time proportionate method.

E Revenue in respect of other income is recognised when no significant uncertainty as to its determination or realisation exists.

Foreign Currency Transactions:

A The transactions in foreign currencies are stated at the rates of exchange brvailing on the dates of transactions.

B The net gain or loss on account of exchange rate differences either on settlement or on translation of short term monetary items is recognised in the statement of Profit and Loss.

C The net gain or loss on account of exchange rate differences either on settlement or on translation of long term foreign currency monetary items including long term forward contracts is recognised under "Foreign Currency Monetary Items Translation Difference Account" [FCMITDA], except in case of foreign currency loans taken for funding of fixed assets, where such difference is adjusted to the cost of respective fixed assets. The FCMITDA is amortised during the tenure of loans but not beyond March 31, 2020.

D Investments in foreign subsidiaries and other companies are recorded in Indian currency at the rates of exchange brvailing at the time when the investments were made.

E The foreign currency monetary assets and liabilities including forward contracts are restated at the brvailing exchange rates at the year end. The brmium in respect of forward contracts is accounted over the period of the contract.

Derivative Instruments and Hedge Accounting:

A Pursuant to ICAI Announcement "Accounting for Derivatives" on the early adoption of Accounting Standard 30 "Financial Instruments: Recognition and Measurement", the Company has voluntarily adopted the Standard with effect from October 1, 2011, to the extent that the adoption does not conflict with existing mandatory accounting standards and other authoritative pronouncements, Company law and other regulatory requirements in respect of accounting for derivatives and hedge accounting.

B The Company uses appropriate instruments to hedge its foreign currency risks associated with probable forecasted sales, foreign currency trade receivables and interest rate fluctuations. The Company designates hedging instruments as "cash flow hedge/fair value hedge" depending on nature of transactions in applying the recognition and measurement principles set out in the Accounting Standard 30.

c Hedging instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognised directly in "Hedge Reserves" [under "Reserves & Surplus"] and the ineffective portion is recognised immediately in the Statement of Profit and Loss.

D Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Statement of Profit and Loss as and when they arise.

E Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time for forecasted transactions, any cumulative gain or loss on the hedging instrument recognised in Hedge Reserve is retained until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in Hedge Reserve is transferred to the Statement of Profit and Loss for the year.

12 Research and Development cost:

A Expenditure on research and development is charged to the Statement of Profit and Loss of the year in which it is incurred.

B Capital expenditure on research and development is given the same treatment as Fixed Assets.

13 Excise Duty:

Excise Duty is accounted gross of CENVAT benefit availed on inputs, capital goods and eligible services.

14 Employee Benefits:

A Defined contribution Plans:

The Company contributes on a defined contribution basis to Employees' Provident Fund towards post employment benefits which is expensed in the year to which it pertains.

B Defined Benefit Plans:

The gratuity scheme is administered through the Life Insurance Corporation of India [LIC]. The liability for the defined benefit plan of Gratuity is determined on the basis of an actuarial valuation by an independent actuary at the year end, which is calculated using projected unit credit method.

Actuarial gains and losses which comprise experience adjustment and the effect of changes in actuarial assumptions are recognised in the Statement of Profit and Loss.

c Leave Liability:

The leave encashment scheme is administered through Life Insurance Corporation of India's Employees' Group Leave Encashment cum Life Assurance [Cash Accumulation] Scheme. The employees of the Company are entitled to leave as per the leave policy of the Company. The liability on account of accumulated leaves as on last day of the accounting year is recognised [net of the fair value of plan assets as at the balance sheet date] at brsent value of the defined obligation at the balance sheet date based on the actuarial valuation carried out by an independent actuary using projected unit credit method.

D Employee Separation costs:

The compensation paid to the employees under Voluntary Retirement Scheme is expensed in the year of payment.

15 Provision for Bad and Doubtful Debts / Advances:

Provision is made in accounts for bad and doubtful debts / advances which in the opinion of the management are considered doubtful of recovery.

16 Taxes on Income:

A Tax expenses comprise of current and deferred tax.

B Current tax is measured at the amount expected to be paid on the basis of reliefs and deductions available in accordance with the provisions of the Income Tax Act, 1961.

c Deferred tax reflects the impact of current year timing differences between accounting and taxable income and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and laws that have been enacted or substantively enacted as of the balance sheet date. Deferred tax assets are recognised only to the extent there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised and are reviewed at each balance sheet date.

17 Provision for Product Expiry claims:

Provision for product expiry claims in respect of products sold during the year is made based on the management's estimates.

Leases are classified as operating leases where the lessor effectively retains substantially all the risks and benefits of the ownership of the leased assets. Operating lease payments are recognised as expenses in the statement of Profit and Loss as and when paid.

19 Government Grants:

A Government grants are recognised in accordance with the terms of the respective grant on accrual basis considering the status of compliance of brscribed conditions and ascertainment that the grant will be received.

B Government grants related to revenue are recognised on a systematic and gross basis in the Statement of Profit and Loss over the period during which the related costs intended to be compensated are incurred.

C Government grants in the nature of incentive provided by the Government without related costs are treated as promoters' contributions and are credited to Capital Reserve.

20 Provisions, Contingent Liabilities and Contingent

Assets:

Provision is recognised when the Company has a brsent obligation as a result of past events and it is probable that the outflow of resources will be required to settle the obligation and in respect of which reliable estimates can be made. A disclosure for contingent liability is made when there is a possible obligation, that may, but probably will not require an outflow of resources. When there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision / disclosure is made. Contingent assets are not recognised in the financial statements. Provisions and contingencies are reviewed at each balance sheet date and adjusted to reflect the correct management estimates.

1 Effective from April 1, 2014, the Company had started providing debrciation on tangible assets on "straight line method" over the revised remaining useful lives of the tangible assets in alignment with useful lives brscribed in Schedule II to the Companies Act, 2013. Consequently, the debrciation charge for the year ended March 31, 2015 was higher by Rs. 645 Millions. Further, an amount of Rs. 249 Millions had been recognised in the opening balance of retained earnings which relate to the carrying amount of tangible assets whose revised remaining useful life was Nil as at April 1, 2014.

Note: 2 Previous year's figures have been regrouped / reclassified wherever necessary to correspond with the current year's classifications/ disclosure.

As per our report of even date

for Mukesh M. Shah & co.,

Chartered Accountants

Firm Registration Number: 106625W

For and on behalf of the Board

Pankaj R. Patel Chairman and Managing Director

Sharvil P. Patel Deputy Managing Director

Mukesh M. Shah

Partner

Membership Number: 030190

Nitin D. Parekh

Chief Financial Officer

Upen H. Shah

Company Secretary

Place: Ahmadabad

Date: May 13, 2016