Healthcare Global Enterprises Ltd.
You can view the entire text of Notes to accounts of the company for the latest year
ISIN No INE075I01017 52Wk High (Rs.) 323 BV (Rs.) 55.29 FV (Rs.) 10.00
Bookclosure 26/09/2018 52Wk Low (Rs.) 177 EPS (Rs.) 2.33 P/E (X) 83.16
Mkt Cap. (Rs. Cr.) 1,706.51 P/BV (X) 3.51 Div Yield (%) 0.00 Mkt Lot 1
2018-03

1 HealthCare Global Enterprises Limited (‘the Company’) is engaged in setting up and managing hospitals and medical diagnostic services including scientific testing and consultancy services in the pharmaceutical and medical sector. The Company is a public company incorporated and domiciled in India and has its registered office at #8, P. Kalinga Rao Road, Sampangi Ram Nagar, Bengaluru - 560 027.

The financial statements for the year ended 31 March 2018 were approved by the Board of Directors and authorised for issue on 22 May 2018.

2 Basis of preparation of the financial statements

(a) Statement of compliance

These financial statements have been prepared in accordance with Indian Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016, as applicable.

(b) Functional and presentation currency

These financial statements are presented in Indian Rupees O, which is also the Company’s functional currency. All amounts are in Indian Rupees million except share data and per share data, unless otherwise stated.

(c) Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following items:

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

(d) Use of estimates and judgements

In preparing these financial statements, management of the Company has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Judgements

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:

- Note 34 - Leasing arrangements

- Note 36 - Share-based payments

- Note 37 - Financial instruments

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 March 2018 is included in the following notes:

- Note 5 - Estimation of useful life of property, plant and equipment

- Note 43 - Acquisition of business: fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed, measured on provisional basis;

- Note 28.3 - Impairment of financial assets.

- Note 29.3 - Deferred tax balances (net)

- Note 30 - Recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources;

- Note 35 - Employee benefit plans: key actuarial assumptions;

(e) Measurement of fair values

The Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurement, including level 3 fair values, and reports directly to the chief financial officer.

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

(f) Business combinations

In accordance with Ind AS 103, “Business combinations” the Company accounts for the business combinations using the acquisition method when control is transferred to the Company. The consideration transferred for the business combination is generally measured at fair value as at the date the control is acquired (acquisition date), as are the net identifiable assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in Other comprehensive income (OCI) and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise the gain is recognised directly in equity as capital reserve. Transaction costs are expensed as incurred, except to the extent related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships with the acquiree. Such amounts are generally recognised in the Statement of Profit or Loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of financial instrument is classified as equity, then its not remeasured subsequently and settlement is accounted for within equity. Other contingent consideration is remeasured at fair value at each reporting date and changes in the fair value of the contingent consideration are recognised in profit or loss

3 New accounting standards not yet adopted

Ministry of Corporate Affairs (“MCA”) through Companies (Indian Accounting Standards) Amendment Rules, 2018 has notified the following new amendments to Ind ASs which the Company has not applied as they are effective for annual periods beginning on or after 01 April 2018:

(a) Ind AS 115 - Revenue from Contracts with Customers

On 28 March 2018, the MCA notified the Ind AS 115 Revenue from contract with customers. The core principle of the new standard is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and service. Further, the new standard requires enhanced disclosure about the nature, amount, timing and uncertainty of revenue and cash flow arising from the entity’s contract with customers. The effective date for adoption of Ind AS 115 is financial period beginning on or after 01 April 2018.

There is no material impact on account of adoption of Ind AS 115 to the Company’s current policy of revenue recognition.

(b) Ind AS 21 - The effect of changes in foreign Exchange rates

The amendment clarifies on the accounting of transactions that include the receipt or payment of advance consideration in a foreign currency. The appendix explains that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The Company is evaluating the impact of this amendment on its financial statements.

The values assigned to the key assumptions represent management’s assessment of future trends and based on historical data from both external and internal sources. Discount rate reflects the current market assessment of the risks specific to the Cash Generating Unit (CGU). The discount rate is estimated based on the capital asset pricing method for the CGU. The cash flow projections included specific estimates developed using internal forecasts. The planning horizon reflects the assumptions for short-to-midterm market developments. The Company believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU.

The estimated recoverable amount of the CGU exceeded its carrying amount, hence impairment is not triggered.

4.1 Rights, preferences and restrictions attached to equity shares

Fully paid equity shares, which have a par value of Rs.10, carry one vote per share and carry a right to dividends The Company has only one class of equity share having a par value of Rs.10/- each. Holder of equity shares is entitled to one vote per share. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amount. The distribution will be in proportion to number of equity shares held by the shareholders.

* Share issue expenses of Rs.1.08 million towards preferential allotment of 1,166,667 equity shares during the year has been debited to securities premium.

Share issue expenses of Rs.163.33 million towards Initial Public Offer of 11,600,000 shares had been debited to securities premium in financial year ended 31 March 2016. Unspent amount of Rs.8.34 million out of the same has been credited to securities premium during the financial year ended 31 March 2017.

Note: The Company imports medical equipments under Export Promotion Capital Goods (EPCG) scheme. Under the said Scheme, on the Company expected to meet the specified criteria, it is exempt from paying customs duty on imports which is recognised as a government grant. Fair value of the government grant is capitalised along with the equipment. Deferred income is amortised over the useful life of the equipment it has been procured for. The government grant recognised as at 31 March 2018 is Rs.102.02 million and EPCG income recognised during the year is Rs.6.41 million. The unfulfilled export obligation as on 31 March 2018 is Rs.343.32 million.

5.1 Corporate social responsibility

(a) Gross amount required to be spent by the Company during the year, as per Sec 135 of the Companies Act 2013, is Rs.1.45 million (2016-17: Not applicable) , the same is yet to be spent as on 31 March 2018.

6.1 During the year ended 31 March 2018, the Company has entered into a business transfer agreement with Strand Life

Sciences Private Limited (‘Strand’) dated 02 January 2018 for sale of its Triesta unit on slump sale basis for a lump sum consideration of Rs.240 million for which the consideration is received in the form of 9,140,342 equity shares and 101,193 Series 1 Preference Shares of Strand.

6.2 In accordance with the terms of share purchase agreement with Regency Hospital Limited dated 28 March 2018, the Company sold its non-current investments (subsidiary) in the form of equity shares held in HCG Regency Oncology HealthCare Private Limited (HCG Regency) for a total consideration of Rs.212.31 million resulting in a gain of Rs.44.44 million

6.3 During the year ended 31 March 2018, the Company decided to close the operations of Delhi unit. Net charge on account of write off of receivables is Rs.21.90 million and the charge due to write off of net fixed assets is Rs.54.56 million. The total charge due to unit closure is Rs.76.46 million.

Under the Income Tax Act, 1961, unabsorbed business losses expire 8 years after the year in which they originate. Further, the Company carry tax credit entitlement in respect of Minimum Alternate Tax (MAT) paid, which can be carried forward for certain period and can be set-off for 15 years (from AY 18 -19) against future tax liabilities to the extent income tax under normal tax provisions exceed the MAT for those years. Tax benefits on unabsorbed business losses and MAT credit entitlement have been recognised as deferred tax asset as it is more probable than not that the future economic benefits associated with the asset will be realised.

1. Excise Commissionerate-III, Bengaluru has passed Order against the Company adjudicating that the product Fluro-deoxy-glucose (‘FDG’) is excisable and levied excise duty for the period under scrutiny from April 2009 to March 2014 of Rs.6.80 million, interest on duty amount, penalty of Rs.6.80 million, redemption fine of Rs.0.6 million in lieu of confiscation of goods not available. The order also imposed a penalty of Rs.1 million on Dr. B.S.Ajaikumar, Chairman & CEO of the Company. The Company has filed an appeal before CESTAT by paying Central Excise Duty of Rs.0.6 million.

Additional Commissionerate of Central Excise, Chennai, has passed the Order confirming the excisability on sale of FDG for the period March 2013 to June 2015 levying excise duty of Rs.6.57 million, interest on duty amount and penalty of Rs.6.57 million.

The Company is positive of winning the case on the ground that FDG is not excisable as there is no specific entry in the Central Excise Tariff Act 1985. Further, even if it is excisable the same has to be classified under Chapter 30 which attracts excise duty at 6% and valuation of captively consumed FDG will reduce the demand.

2. HealthCare Global Vijay Oncology Private Limited which got merged with HCG effective from April 1, 2015, has undergone Departmental VAT audit for the period from 2011-12 to 2014-15 and noted that the Company has not charged & paid VAT on supply of food to patients and raised a AP-VAT demand of Rs.2 million. Further, the Deputy Commercial Tax Officer, Vijayawada has passed the Penalty Order for Rs.0.5 million against the above AP-VAT Audit Order. The Company has filed an writ petition before Andhra Pradesh High Court by paying Rs.0.4 million VAT amount to department.

The Company is positive of winning the case on the ground that various High Courts in India have ruled that the supply of food to patient is pursuant to provision of medical service and is not a sale of goods.

3. The Payment of Bonus (Amendment) Act, 2015 (hereinafter referred to as the Amendment Act, 2015) has been enacted on 31 December 2015, according to which the eligibility criteria of salary or wages has been increased from Rs.10,000 per month to Rs.21,000 per month (Section 2(13)) and the ceiling for computation of such salary or wages has been increased from Rs.3,500 per month to Rs.7,000 per month or the minimum wage for the scheduled employment, as fixed by the appropriate government, whichever is higher. The reference to scheduled employment has been linked to the provisions of the Minimum Wages Act, 1948. The Amendment Act, 2015 is effective retrospectively from 1 April 2014. Based on the same, the Company has computed the bonus for the year ended 31 March 2015 which amounts to Rs.9.98 million.

The Company has taken a position that the stay granted by the two High Courts of India on the retrospective application of the amendment would have a persuasive effect even outside the boundaries of the relevant states and accordingly no provision is currently required.

4. The Company is involved in other disputes, law suits and other claims including commercial matters which arise from time to time in the ordinary course of business. The Company believes that there are no such pending matters that are expected to have any material adverse effect on the financial statements.

5. The Company has given letter of support to its subsidiary companies, namely HealthCare Global Senthil-Multi Specialty Hospital Private Limited, Niruja Product Development and Healthcare Research Private Limited, HCG Oncology LLP and APEX HCG Oncology Hospitals LLP . Under the letter of support, the Company is committed to provide operational and financial assistance as is necessary for the subsidiary companies to enable them to operate as going concern for a period of at least one year from the balance sheet date i.e. till 31 March, 2019

7 Earnings per share (Rs. in million unless otherwise stated)

7.1 Basic earnings per share

The calculations of profit attributable to equity shareholders and weighted average number of equity shares outstanding for purposes of basic earnings and diluted earnings per share calculations are as follows:

8 Segment information

Ind AS 108 “Operating Segment” (“Ind AS 108”) establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. Based on the “management approach” as defined in Ind AS 108, Operating segments are to be reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM).The CODM evaluates the Company’s performance and allocates resources on overall basis. The Company’s sole operating segment is therefore ‘Medical services’. Accordingly, there are no additional disclosure to be provided under Ind AS 108, other than those already provided in the financial statements.

Geographical information

Geographical information analyses the company’s revenue and non-current assets by the Company’s country of domicile (i.e. India) and other countries. In presenting the geographical information, segment revenue has been presented based on the geographical location of the customers and segment assets has been presented based on the geographical location of the assets.

9 Leasing arrangements: The Company being a lessee

9.1 Finance lease arrangements

Finance leasing arrangements of the Company include lease of Hospital buildings for duration of 24 to 30 years and medical equipments for 6 years. Interest rates underlying all obligations under finance leases range between 10% to 12% p.a. The details of future minimum lease payment and reconciliation of gross investment in the lease and payment value of minimum lease payments are given below:

9.2 Operating lease arrangements

The Company has entered into cancellable and non cancellable lease arrangements for certain facilities and office premises. Non-cancellable lease arrangements are for a period of 5 to 30 years and may be renewed for a further period, based on mutual agreement of the parties. The escalation clause in these arrangements ranges from nil to 10%.

10 Employee benefit plans

10.1 Defined contribution plans

The Company has defined contribution plan in form of Provident Fund and Employee State Insurance Scheme for qualifying employees. Under the Schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The total expense recognised in the Statement of profit and loss under employee benefit expenses in respect of such schemes are given below:

10.2 Defined benefit plans

The Company offers gratuity plan for its qualified employees which is payable as per the requirements of Payment of Gratuity Act, 1972. The benefit vests upon completion of five years of continuous service and once vested it is payable to employees on retirement or on termination of employment. In case of death while in service, gratuity is payable irrespective of vesting.

Defined plan asset

Plan assets consist of assets held in a ‘long-term benefit fund’ for the sole purpose making future benefit payments when they fall due. Plan assets include qualifying insurance policies and not quoted in the market.

The actual return on plan assets was Rs.0.05 Million (for the year ended 31 March 2017: Rs.0.07 Million).

Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the balance sheet.

There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

The average duration of the defined benefit obligation as at 31 March 2018 is 4.66 years (as at 31 March 2017 1.44 years)

11 Share-based payments A Employee share option plan of the Company

(a) ESOP 2010

In the extraordinary general meeting held on 25 August, 2010, the shareholders had approved the issue of 1,800,000 options under the Scheme titled “ Employee Stock Option Scheme 2010 (ESOP 2010). The ESOP 2010 allows the issue of options to employees of the Company and its subsidiaries. Each option comprises one underlying equity share.

As per the Scheme, the Remuneration committee grants the options to the employees deemed eligible. The exercise price of each option shall be at a price not less than the face value per share.

The option holders may exercise those options vested based on passage of time commencing from the expiry of 4 years from the date of grant and those vested based on performance immediately after vesting, within the expiry of 10 years from the date of grant.

On 16 June, 2010, the Company granted options under said scheme for eligible personnel. In the extraordinary general meeting held on 31 March, 2015, the shareholders approved for accelerated vesting of options outstanding as at 31 March, 2015. Accordingly, all the options outstanding were vested in the hands of option holders as at 31 March, 2015. Further, the remaining options available for grant under ESOP 2010 were transferred to ESOP 2014 scheme.

(b) ESOP 2014

Pursuant to the shareholders’ approval in the extraordinary general meeting held on 28 March, 2014 and 25 August, 2010, the Board of Directors formulated the Scheme titled “Employee Stock Option Scheme 2014”“ (ESOP 2014). The ESOP 2014 allows the issue of options to employees of the Company and its subsidiaries. Each option comprises one underlying equity share.

As per the Scheme, the Remuneration Committee grants the options to the employees deemed eligible. The Exercise Price shall be a price that is not less than the face value per share per option. Options Granted under ESOS 2014 would vest not less than one year and not more than five years from the date of Grant of such Options. Vesting of Options would be a function of continued employment with the Company (passage of time) and achievement of performance criteria as specified by the Nomination and Remuneration Committee as communicated at the time of grant of options. The option holders may exercise those options vested within a period as specified which may range upto 10 years from the date of grant.

Employee stock options will be settled by delivery of shares

* Options available for grant under ESOP 2014 Scheme are 2,461,306 (previous year 2,675,306)

The weighted average share price at the date of exercise for share options exercised during the year ended 31 March 2018 is Rs.318.65 (previous year Rs.237.50)

The options outstanding at the end of the reporting period has exercise price in the range of Rs.10 to Rs.150 (Previous year Rs.10 to Rs.110.68) and weighted average remaining contractual life of 7.54 years (Previous year 6.75 years)

D For details of expense recognised in statement of profit and loss please refer note 24 and for details of movement in share options outstanding account refer note 15.2.

The management assessed that carrying value of above financial assets and liabilities approximates the fair value.

Refer note 16 for details related to charge on financial assets.

12 Fair value hierarchy

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

The following table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at 31 March 2018 and 31 March 2017.

13 Financial risk management

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risks which may adversely impact the fair value of its financial instruments.

(i) Risk management framework

The Company has a risk management committee which focuses on risks associated with the financial assets and liabilities. The focus of risk management committee is to assess the unpredictability of the financial environment and to mitigate potential adverse effects on the financial performance of the Company

(ii) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to the credit risk from its trade receivables, unbilled revenue, investments, bank deposits and loans. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets.

a) Trade and other receivables

Trade receivables comprise a widespread customer base. Management evaluate credit risk relating to customers on an ongoing basis. If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set for patients without medical aid insurance. Services to customers without medical aid insurance are settled in cash or using major credit cards on discharge date as far as possible. Credit Guarantees insurance is not purchased. The receivables are mainly unsecured, the Company does not hold any collateral or a guarantee as security.

The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the days the receivables are due and the rates as derived as per the trend of trade receivable ageing of previous years.

No single customer accounted for more than 10% of the revenue as of 31 March 2018 and 31 March 2017. There is no significant concentration of credit risk

Details of geographic concentration of revenue is included in note 33 to the financial statements

b) Investments and cash deposits

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors.

(iii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks.

The Company’s corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management.

(iv) Market risk:

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices, such as foreign exchange rates, interest rates and equity prices.

(a) Foreign currency risk

The Company’s exchange risk arises mainly from its foreign currency borrowings. As a result, depreciation of Indian rupee relative to these foreign currencies will have a significant impact on the financial performance of the Company. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future.

(i) The following table presents unhedged foreign currency risk from financial instruments as of 31 March 2018 and 31 March 2017.

(b) Cash flow and fair value interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt obligations with floating interest rates and investments. Such risks are overseen by the Company’s corporate treasury department as well as senior management.

(i) Interest rate risk exposure

The exposure of the Company’s borrowing to interest rate changes at the end of the reporting period are as follows:

14 Capital management

The Company manages its capital to ensure that entities in the Company will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of net debt (borrowings offset by cash and bank balances) and total equity of the Company.

The capital structure is as follows:

15 Due to Micro, Small and Medium Enterprises

The Ministry of Micro, Small and Medium Enterprises has issued an office memorandum dated 26 August 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum. Accordingly, the disclosure in respect of the amounts payable to such enterprises as at 31 March 2018 has been made in the financial statements based on information received and available with the Company. Further in view of the management, the impact of interest, if any, that may be payable in accordance with the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (‘The MSMED Act’) is not expected to be material. The Company has not received any claim for interest from any supplier

16 Goodwill on acquisition of City Cancer Centre (CCC) (refer note 6)

Acquisition

The Company entered into a business transfer agreement with Dr.Gopichand (‘Seller’) dated 28 February 2018 for purchase of business owned and operated by the Seller in the name of CCC located in Vijayawada. The Company has agreed to purchase the business on a slump sale basis for a lump sum consideration of Rs.520 million without values being assigned to individual assets and liabilities.

Consideration is payable in tranches as follows:

i) Issue of equity shares of the Company at Rs.321 per equity share for a value of Rs.299.75 million subject to shareholders approval

ii) First tranche cash payment of Rs.150.25 million

iii) Contingent consideration of Rs.70 million on achievement of the agreed Earnings Before Interest Taxes Depreciation and Amortisation (EBITDA) target.

As at the end of the year, the Company has obtained the approval of the shareholders for preferential allotment and on receipt of regulatory approvals subsequent to year end, equity shares for Rs.299.75 million have been allotted to Dr.Gopichand and the balance amount of cash consideration (after the payment of Rs.70 million during the year) including contingent consideration has been disclosed under other financial liabilities. As of the date of approval of financial statements, based on estimates available, the Seller is expected to achieve the agreed EBITDA target and the contingent consideration is fair valued.

Date of business combination - Considering the fact that the business transfer agreement has been entered into on 28 February 2018 and shareholders approval has been received on 29 March 2018, date of the business combination has been considered as 01 March 2018.

The acquisition is expected to provide the Company with an increased market share and also expects to reduce costs through economies of scale. Revenues included in the statement of profit and loss of this acquisition for the financial year ended 31 March 2018 is Rs.17.78 million and profit after tax is Rs.3.45 million. Had the business combination occurred on 01 April 2017, per management estimate, revenues for the financial year ended 31 March 2018 would have been higher by Rs.195.58 million and profit after tax would have been higher by Rs.37.96 million.

The Company’s share of costs incurred for this business combination has been charged off to statement of profit and loss.

a) Business combination

The above transaction qualifies as a business combination as per Ind AS 103 - “Business Combinations” and has been accounted by applying the acquisition method wherein identifiable assets acquired, liabilities assumed are fair valued against the fair value of the consideration transferred and the resultant goodwill recognised.

b) Measurement of fair values

* The equity shares to be issued to the seller is pursuant to the preferential allotment of shares as per the relevant regulations. Had the equity shares been accounted at its value as on the date of the approval by the shareholders, value of shares would have been lower by Rs.29.40 million.

# Goodwill is attributable to the increased market share and the synergies expected to be achieved from acquisition of CCC into the Company. Goodwill is tax deductible.

Note:

All transactions with the related parties are priced at arm’s length basis and resulting outstanding balances are to be settled as per the terms agreed. None of the above balances are secured.

17 Managerial remuneration:

Dr. B.S. Ajaikumar was re-appointed as the Chairman & CEO of the Company for a period of 4 years with effect from 1 July 2015.

For the financial year ended 31 March 2018

In terms of the limits prescribed under Section 197 read with Schedule V to the Companies Act, 2013, the maximum amount of remuneration payable to the Chairman & CEO of the Company for the year ended March 31, 2018 amounts to Rs.24.52 Million. Based on the approval of the Nomination and Remuneration Committee of the Company, the Board of Directors have proposed and accrued an additional remuneration of Rs.0.93 Million to the Chairman & CEO of the Company in excess of the limits specified under the Companies Act, 2013, which is subject to the approval of the Central Government, for which the Company is in the process of filing the necessary application. This additional remuneration will be paid on receipt of the approval from the Central Government. Pending Central Government approval, such amount has not been paid and the corresponding amount has been disclosed as “advance”.

For the financial year ended 31 March 2017

In terms of the limits prescribed under Section 197 read with Schedule V to the Companies Act, 2013, the maximum amount of remuneration payable to the Chairman & CEO of the Company for the year ended March 31, 2017 amounts to Rs.24.37 Million . Based on the approval of the Nomination and Remuneration Committee of the Company, the Board of Directors have proposed and accrued an additional remuneration of Rs.3.61 Million to the Chairman & CEO of the Company in excess of the limits specified under the Companies Act, 2013, which is subject to the approval of the Central Government, for which the Company is in the process of filing the necessary application. This additional remuneration will be paid on receipt of the approval from the Central Government.

18 Transfer of cancer care center business of the Company in Nashik to its subsidiary - HCG Manavata Oncology LLP

Pursuant to the Business Transfer Agreement dated 14 March 2017, all business and commercial rights related to the Cancer Center operated by the Company from Nashik, has been transferred to its subsidiary, HCG Manavata Oncology LLP, as a going concern. Details of assets and liabilities of the Company which were transferred to HCG Manavata Oncology LLP in consideration of the Company’s investment in HCG Manavata Oncology LLP are given below:

19 Merger of HCG Pinnacle Oncology Private Limited

HCG Pinnacle Hospitals Private Limited (HCG Pinnacle) is engaged in providing healthcare services.

During the year ended 31 March 2018, the minority shareholder invested Rs.9.56 million.

During the year ended 31 March 2018, the Company acquired 49.9% in HCG Pinnacle for Rs.18.80 million pursuant to which HCG Pinnacle become the wholly owned subsidiary of the Company (refer note 15.4).

Regional Director, Ministry of Corporate affairs, Hyderabad approved the scheme of merger (‘the Scheme’) between HCG Pinnacle and the Company with 01 April 2016 as appointed date.

The entire share capital of HCG Pinnacle Oncology Hospitals Private Limited is held by the Company and its nominees i.e. HCG Pinnacle Oncology Hospitals Private Limited is a wholly owned subsidiary of the Company. Upon the scheme coming into effect, all the shares of HCG Pinnacle Oncology Hospitals Private Limited held by the Company (either directly or through nominees) have been cancelled .No new shares were issued or payment has been made in cash what so ever by the Company in lieu of cancellation of such shares of HCG Pinnacle Oncology Hospitals Private Limited.

The amalgamation of HCG Pinnacle with the Company was accounted for under the “Pooling of Interest” method as prescribed under the Appendix C of Indian Accounting Standard (Ind AS) 103 “Business combinations”. Pursuant to the Scheme, the assets and liabilities of the HCG Pinnacle as at 01 April 2016 have been incorporated in the financial statements of the Company at their respective book values as appearing in the financials statements of HCG Pinnacle.

The book value of assets and liabilities of HCG Pinnacle taken over as on 01 April 2016 are as follows

Pursuant to the scheme, all the assets and liabilities of HCG Pinnacle Hospitals Private Limited are transferred and vested into the Company from 01April 2016 i.e., the appointed date. Accordingly the comparative financial information for the year ended 31 March 2017 has been restated to include the assets and liabilities as at 31 March 2017 and operations for the year ended 31 March 2017 of HCG Pinnacle.

The accompanying notes are an integral part of these standalone Ind AS financial statements