Good Health Can’t Wait.

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Good Health Can’t Wait. Dr. Reddy’s Laboratories Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in Indian Rupees millions, except share data and where otherwise stated) 2.37: FINANCIAL RISK MANAGEMENT (CONTINUED) b. 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, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company’s reputation. As at 31 March 2015 and 2014, the Company had unutilized credit limits from banks of `10,619 and ` 14,596, respectively. As at 31 March 2015, the Company had working capital (i.e. current assets less current liabilities) of ` 50,554 including cash and bank balances of ` 18,724 and current investments of ` 21,022. As at 31 March 2014, the Company had working capital of ` 45,354 including cash and bank balances of `23,006 and current investments of ` 10,664. The table below provides details regarding the contractual maturities of significant financial liabilities (other than obligations under finance leases which have been disclosed in Note 2.34) As at 31 March 2015 PARTICULARS 2015-16 2016-17 2017-18 2018-19 THEREAFTER TOTAL Trade payables 8,673 - - - - 8,673 Long term borrowings 6,875 4,177 1,875 7,500 - 20,427 Short term borrowings 21,857 - - - - 21,857 Other liabilities and provisions 21,433 30 29 28 - 21,520 As at 31 March 2014 PARTICULARS 2014-15 2015-16 2016-17 2017-18 THEREAFTER TOTAL Trade payables 8,932 - - - - 8,932 Long term borrowings 3,295 6,591 4,293 1,797 7,190 23,166 Short term borrowings 20,607 - - - - 20,607 Other liabilities and provisions 18,056 29 29 28 27 18,169 c. Market risk Market risk is the risk of loss of future earnings or fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates and other market changes that affect market risk-sensitive instruments. Market risk is attributable to all market risk-sensitive financial instruments including foreign currency receivables and payables and long term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies. Foreign exchange risk The Company’s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. dollars, British pounds sterling, Roubles, Venezuelan bolivars and Euros) and foreign currency borrowings (in U.S. dollars, Euros and Roubles). A significant portion of the Company’s revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company’s financial performance may get adversely impacted. 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. Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts, option contracts and swap contracts to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecasted transactions and recognized assets and liabilities. The details in respect of the outstanding derivative contracts are given in Note 2.36 above. In respect of the Company’s derivative contracts, a 10% decrease / increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately `1,308 / (631) increase / (decrease) in the Company’s hedging reserve and an approximately ` 1,601 / (1,791) increase / (decrease) in the Company’s net profit as at 31 March 2015. In respect of the Company’s derivative contracts, a 10% decrease / increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately ` 1,254 / (945) increase / (decrease) in the Company’s hedging reserve and an approximately ` 3,856 / (4,004) increase / (decrease) in the Company’s net profit as at 31 March 2014. 216
Consolidated Financial Statements Annual Report 2014 - 15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in Indian Rupees millions, except share data and where otherwise stated) 2.37: FINANCIAL RISK MANAGEMENT (CONTINUED) The following table analyzes foreign currency risk from non derivative financial instruments as at 31 March2015: (All figures in equivalent Rupees millions) PARTICULARS U.S. DOLLARS EURO ROUBLES OTHERS (1) TOTAL Assets: Cash and bank balances 3,575 409 249 2,462 6,695 Trade receivables 26,214 1,369 4,376 3,780 35,739 Loans and advances and other assets 92 1 61 181 335 Total 29,881 1,779 4,686 6,423 42,769 Liabilities: Trade payables 2,232 409 66 624 3,331 Long term borrowings 19,701 - 140 - 19,841 Short term borrowings 14,875 2,116 3,866 - 20,857 Other liabilities and provisions 7,809 191 1,598 870 10,468 Total 44,617 2,716 5,670 1,494 54,497 (1) Others include currencies such as British pounds sterling, Swiss franc, South African rand, Mexican pesos, Venezuelan bolivars, etc. The following table analyzes foreign currency risk from non derivative financial instruments as at 31 March 2014: (All figures in equivalent Rupees millions) PARTICULARS U.S. DOLLARS EURO ROUBLES OTHERS (1) TOTAL Assets: Cash and bank balances 4,341 109 345 1,283 6,078 Trade receivables 18,080 1,558 5,772 2,982 28,392 Loans and advances and other assets 221 1 212 181 615 Total 22,642 1,668 6,329 4,446 35,085 Liabilities: Trade payables 1,688 490 144 213 2,535 Long term borrowings 22,185 - 124 - 22,309 Short term borrowings 7,519 4,258 6,179 - 17,956 Other liabilities and provisions 5,694 252 1,497 905 8,348 Total 37,086 5,000 7,944 1,118 51,148 (1) Others include currencies such as British pounds sterling, Swiss franc, South African rand, Mexican pesos, Venezuelan bolivars, etc. For the year ended 31 March 2015 and 2014, every 10% depreciation / appreciation in the exchange rate between the Indian rupee and the respective currencies in the above mentioned financial assets / liabilities would affect the Company’s net profit by approximately ` 1,173 and ` 1,606, respectively, from such financial assets / liabilities. Further, the Company is exposed to a potential adverse devaluation risk on its monetary assets of VEF 245 million in Venezuela, which are currently recorded at the CENCOEX preferential rate of VEF 6.3 per U.S. dollar. Refer to Note 2.43 for further details. Interest rate risk As of 31 March 2015, the Company had foreign currency loans of ` 37,419 carrying a floating interest rate of LIBOR plus 7.5 -130 bps whereas as of 31 March 2014, the Company had foreign currency loans of ` 34,375 carrying a floating interest rate of LIBOR plus 20 - 179 bps and ` 846 carrying a floating interest rate of Moscow Prime Offered Rate plus 60 bps. These loans expose the Company to risk of changes in interest rates. The Company’s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary. An increase or decrease of 10% in the floating interest rate component applicable to its loans and borrowings would affect the Company’s net profit by approximately ` 6 and `13 for the years ended 31March2015 and 31March2014, respectively. The Company’s investments in term deposits with banks and short term liquid mutual funds are for short durations, and therefore do not expose the Company to significant interest rates risk. Commodity rate risk Exposure to market risk with respect to commodity prices primarily arises from the Company’s purchases and sales of active pharmaceutical ingredients, including the raw material components for such active pharmaceutical ingredients. These are commodity products, whose prices may fluctuate significantly over short periods of time. The prices of the Company’s raw materials generally fluctuate in line with commodity cycles, although the prices of raw materials used in the Company’s active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of the Company’s operating expenses. Commodity price risk exposure is evaluated and managed through operating procedures and sourcing policies. The Company has historically not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices. 217
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ANNUAL REPORT 2014-15 Good Health C
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