We have audited the standalone financial statements of Biocon Limited (the "Company"), its Employee Welfare Trusts ("Trust") which comprise the standalone balance sheet as at 31 March 2024, and the standalone statement of profit and loss (including other comprehensive income), standalone statement of changes in equity and standalone statement of cash flows for the year then ended, and notes to the standalone financial statements, including material accounting policies and other explanatory information (herein referred to as the "standalone financial statements").
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 ("Act") in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2024, and its profit and other comprehensive income, changes in equity and its cash flows for the year ended on that date.
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Act. Our responsibilities under those SAs are further described in the Auditor's Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Impairment assessment of long term investments in subsidiaries
See Note 6 and 2(a) to standalone financial statements
The key audit matter
How the matter was addressed in our audit
The Company has long term investments in subsidiaries aggregating to Rs. 92,232 million as at 31 March 2024. The Company accounts for these investments at cost less any provision for impairment loss. Changes in the business environment, including market or economic environment and general inflationary trend could have significant impact on the valuation of these investments. Investments where an indication based on these factors exist, are tested for impairment at the end of the reporting period.
Our audit procedures to obtain sufficient audit evidence included:
• Assessed the design, implementation and operating effectiveness of the relevant key controls in respect of company's impairment assessment process, including approval of forecasts and valuation models;
• Performed a retrospective analysis to assess the reasonableness of Company's projections by comparing historical forecast to actual results;
The Company determines the recoverable value of such investments and compares it to the carrying value if there are indicators of impairment. The recoverable value is the higher of the market value or the Value in Use (VIU). The recoverable value is determined using the following assumptions:
•projected future cash inflows
•expected growth rate, discount rate, terminalgrowth rate
•comparison of price and market multiples
The assessment of discount rate and terminal growth rate requires specialized skills and knowledge. Changes in these assumptions, could impact the recoverable value of the investments Further, these significant assumptions are forward looking and could be affected by future economic and market conditions. The impairment testing is significant to our audit, because of the materiality of the investments as well as the involvement of estimates and judgements.
• Evaluated the reasonableness of the overall impairment model including assumptions by involving valuation specialist and comparing these inputs with externally available data, consistency with Board approved forecasts and knowledge of the industry and verified overall mathematical accuracy of calculations;
• Performed sensitivity analysis of key assumptions. These include future revenue growth rates, terminal growth rate and discount rate applied in the valuation.
Going concern
See Note 1.2 to standalone financial statements
In respect of agreements entered into by the Company with certain financial investors for acquisition of biosimilar business by its subsidiary, there are put option obligations on the Company to provide exit to the investors. The Company also has certain long-term borrowings that carry drag along rights which require the Company to repay the debts if the put options, as mentioned above, are triggered. As at 31 March 2024, these contractual agreements indicate possible obligations as described in note 34(ii) to the financial statements.
Management assessed its financial position as at 31 March 2024, its forecasts for the period of fifteen months from the date of these financial statements, its ability to re-negotiate the exit terms with
Our audit procedures to assess the going concern assumption included the following:
• Obtained the forecasted cashflows prepared by the Management for the next 15 months and examined the basis and details supporting the estimations considered therein;
• Evaluated the reasonability of the cash flow forecast including assumptions by comparing these inputs with available data, consistency with Board approved forecasts and knowledge of the industry and verified overall mathematical accuracy of calculations;
• Performed sensitivity analysis on the forecasted cash flows by considering plausible changes to the key assumptions;
investors, ability to raise funds and support liquidity from its noncurrent assets
These factors involve subjectivity considering the fact that some of these are driven by external environment and hence outcomes could be different from those factored by the Company. Considering the significance of this issue it is considered as a Key Audit Matter.
• Discussed with Audit Committee and key senior management personnel regarding the Company's plan to meet the obligations;
• Assessed the adequacy of the disclosures - refer note 1.2 to the financial statements.
Taxation
See Note 2(m), 33 and 34 to standalone financial statements
The Company's tax provision involves complexities and judgements with respect to various tax positions including the following:
-deductibility of transactions
-availability of tax incentives and exemptionsfor earlier years,
-Uncertainty in a tax position that may arise as tax laws are subject to interpretation.
Judgment is required in assessing the range of possible outcomes for some of these tax matters. These judgments could change over time as each of the matters progresses depending on experience on actual assessment proceedings by tax authorities and other judicial precedents.
The Company makes an assessment (including obtaining opinion from external legal experts) to determine the outcome of these uncertain tax positions and decides to make an accrual or consider it to be a possible contingent liability. Where the amount of tax liabilities are uncertain, the Company recognizes accruals which reflect its best estimate of the outcome based on the facts known. Accordingly, this was an area of focus for the engagement team during the audit for the year ended 31 March 2024.
Our audit procedures in relation to Taxation include the following:
• We tested the design and operating effectiveness of the Company's controls around the tax computation and tax matters;
• We obtained an understanding of the key uncertain tax positions based on list of ongoing litigations and tax computations for the current year;
• We reviewed the tax demand / assessment orders and anlaysed the implications of observations in those orders to identify any additional uncertain tax positions;
• We analysed the Company's judgment regarding the eventual resolution of matters with various tax authorities. In this regard, we understood how the Company has considered past experience, where available, with the tax authorities in the respective jurisdictions;
• We also reviewed external legal opinions and consultations made by the Company for key tax matters during current and past periods; and
• We involved tax specialists to assist us in evaluating the technical merits of tax position to form a judgement and the key assumptions made by the Company in tax computations and assessing the adequacy of the Company's disclosures in respect of contingent liabilities and provision for tax matters.
The Company's Management and Board of Directors are responsible for the other information. The other information comprises the information included in the Management Board's Report, Management Discussion and Analysis, Corporate Governance Report and Business Responsibility Report, but does not include the financial statements and auditor's report thereon, which we obtained prior to the date of this auditor's report, and the remaining sections of the Company's Annual Report, which are expected to be made available to us after that date.
Our opinion on the standalone financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
When we read the other sections of the Annual Report (other than those mentioned above), if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and take necessary actions, as applicable under the applicable laws and regulations.
The Company's Management and Board of Directors are responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs, profit/ loss and other comprehensive income, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under Section 133 of the Act. The respective Management and Board of Directors of the company/Board of Trustees of the Trust are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company/Trust and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the respective Management and Board of Directors/Board of Trustees are responsible for assessing the ability of the Company/Trust to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the respective Board of Directors/ Board of Trustees either intends to liquidate the Company/Trust or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3X0 of the Act, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management and Board of Directors.
• Conclude on the appropriateness of the Management and Board of Directors use of the going concern basis of accounting in preparation of standalone financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However, future events or conditions may cause the Company to cease to continue as a goingconcern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance of the Company regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
1. As required by the Companies (Auditor's Report) Order, 2020 ("the Order") issued by the Central Government of India in terms of Section 143(11) of the Act, we give in the "Annexure A" a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2 A. As required by Section 143(3) of the Act, we report that:
a. We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
b. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for the matters stated in the paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
c. The standalone balance sheet, the standalone statement of profit and loss (including other comprehensive income), the standalone statement of changes in equity and the standalone statement of cash flows dealt with by this Report are in agreement with the books of account.
d. In our opinion, the aforesaid standalone financial statements comply with the Ind AS specified under Section 133 of the Act.
e. On the basis of the written representations received from the directors as on 01 April 2024 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2024 from being appointed as a director in terms of Section 164(2) of the Act.
f. the modification relating to the maintenance of accounts and other matters connected therewithare as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.
g. With respect to the adequacy of the internal financial controls with reference to financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B".
B. With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us
a. The Company has disclosed the impact of pending litigations as at 31 March 2024 on its financial position in its standalone financial statements - Refer Note 34 to the standalone financialstatements.
b. The Company has made provision, as required under the applicable law or accounting standardsfor material foreseeable losses, if any, on long-term contracts including derivative contracts -Refer Note 36 to the standalone financial statements.
c. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.
d. (i) The management of the Company represented to us
that, to the best of its knowledge and belief, other than as disclosed in the Note 43 and Note 15(b) to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(ii) The management of the Company represented to us that, to the best of its knowledge and belief, other than as disclosed in the Note 43 and Note 15(b) to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Parties ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(iii) Based on the audit procedures performed that have been considered reasonable and appropriatein the circumstances, nothing has come to our notice that has caused us to believe that there presentations under subclause (i) and (ii) of Rule 11(e), as provided under (i) and (ii) above, contain any material misstatement.
e. The final dividend paid by the Company during the year, in respect of the same declared for the previous year, is in accordance with Section 123 of the Act to the extent it applies to payment of dividend.
As stated in Note 47 to the standalone financial statements, the Board of Directors of the Company has proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The dividend declared is in accordance with Section 123 of the Act to the extent it applies to declaration of dividend.
f. Based on our examination which included test checks, the Company has used an accounting software for maintaining its books of account which has a feature of audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software except that the audit trail was not enabled (i) at the database level to log any direct data changes; (ii) at the application level for certain fields / tables relating to all the significant processes and (iii) for certain changes at the application level which were performed by users having privileged access rights.
Further, where audit trail (edit log) facility was enabled and operated throughout the year, we didnot come across any instance of audit trail feature
C. With respect to the matter to be included in the Auditor's Report under Section 197(16) of the Act:
In our opinion and according to the information and explanations given to us the remuneration paid by the Company to its directors during the current year is in accordance with the provisions of Section197 of the Act. The remuneration paid to any director by the Company is not in excess of the limit laid down under Section 197 of the Act. The Ministry of Corporate Affairs has not prescribed other details under Section 197(16) of the Act which are required to be commented upon by us.
for B S R & Co. LLP
Chartered Accountants
Firm's Registration No.:101248W/W-100022
Sudhir Soni
Partner
Membership No.: 041870
ICAI UDIN:24041870BKGDKU4511
Place: Bengaluru
Date: 16 May 2024