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NOTES TO ACCOUNTS

KMC Speciality Hospitals (India) Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 234.03 Cr. P/BV 5.99 Book Value (₹) 2.40
52 Week High/Low (₹) 18/9 FV/ML 1/1 P/E(X) 27.19
Bookclosure 28/09/2018 EPS (₹) 0.53 Div Yield (%) 0.00
Year End :2018-03 

1. Company information

KMC Speciality Hospitals (India) Limited (“the Company”) was originally incorporated as Advanced Medical Care Private Limited on December 31, 1982 under the Companies Act, 1956 and was converted into a Public Limited Company on July 15, 1988. The name of the Company was changed to Seahorse Hospitals Limited on March 21, 1995 and to its current name with effect from October 24, 2008. The Company is a super speciality hospital based in Trichy, belonging to the Kauvery Hospitals group. The Company is primarily engaged in the business of rendering medical and healthcare services.

2. Basis of preparation

A. Statement of compliance

The Company has prepared the financial statements (‘financial statements’) under Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act.

The Company’s financial statements up to and for the year ended March 31, 2017 were prepared in accordance with the Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act and other relevant provisions of the Act.

As these are the Company’s first financial statements prepared in accordance with Indian Accounting Standards (Ind AS), Ind AS 101, First-time Adoption of Indian Accounting Standards has been applied. An explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance of the Company is provided in Note 40.

The financial statements were authorised for issue by the Company’s Board of Directors on May 29, 2018.

Details of the Company’s accounting policies are included in Note 3.

B. Functional and presentation currency

The Company’s fimctional currency is Indian Rupees (INR) and the financial statements are presented in Indian Rupees. All amounts have been presented in rounded off to the nearest thousands, unless otherwise indicated.

C. Basis of measurement

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

Items Measurement basis

Certain financial assets and liabilities Fair value

Net defined benefit (asset)/ liability Fair value of plan assets less present value of defined benefit obligations

D. Use of estimates and judgements

In preparing these financial statements, management 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.

Assumptions and estimation uncertainties

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

- Note 10 - recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;

- Note 14 - impairment of financials assets

- Note 24 — measurement of defined benefit obligations: key actuarial assumptions;

- Notes 38 - recognition and measurement of provisions and contingencies: key assumptions about likelihood and magnitude of an outflow of resources;

E. Measurement of fair values

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

Fair values arc 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.

Management uses various valuation techniques to determine fair value of financial instruments (where activemarket quotes are not available). This involves developing estimates and assumptions consistent with how markctparticipants would price the instrument. Management based on its assumptions on observable data as far aspossiblc but where it not available, the management uses the best information available.

The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

- Note 36 - financial instruments;

b. Right], prcfcrcnccj and restrictions attached te shtrcs

The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company’s residual assets. The equity shares are entitled to receive dividend as declared from time to time subject to payment of dividend to preference shareholders. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the company. Voting rights cannot be exercised in rcspcct of shares on which any call or other sums presently payable have not been paid.

On winding up of the company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.

Terms of repayment or term loans and the nature of security

a) Term Loans outstanding as on March 31,2018 of INR 29,036 (March 31,2017: INR 63,410) availed fr om State Bank of India:

(i) Term loan -1 was availed initially for INR 50 million during the financial year 2010-11 from Axis Bank and is repayable in 60 monthly installments of INR 833,334/- commencing from November 30,2012, being 24 months from the date of sanction. During the previous year, the said loan was taken over by State Bank of India The term loan is repayable in 14 installments of INR 833,334/-cach commcncing from November 28,2016. The loan was repaid during the current year.

(ii) Tern loan -11 was availed initially for INR 50 million during financial year 2011-12 from Axis Bank and is repayable in 60 monthly installments of INR 833,334/- commencing from January 31,2014, being 24 months from the date of sanction. During the previous year, the said loan was taken over by Slate Bank of India The term loan is repayable in 28 installments of INR 833,334/each commencing from November 28,2016.

(iii) Term loan - in was availed initially for INR 30 million during the financial year 2013-14 from Axis Bank and is repayable in 60 monthly installments of INR 500,000/- commencing from April 30,2014, being 10 months from the date of sanction. During the previous year, the said loan was taken over by State Bank of India. The tenn loan is repayable in 24 instalments of INR 500,000/- each commencing from November 28,2016.

(iv) Term loan - IV was availed initially for INR 50 million during the financial year 2013-14 from City Union Bank and is repayable in 84 equated monthly installments of INR 933,244/- commencing from August 01,2013, being 6 months after the date of sanction. During the previous year, the said loan was taken over by State Bank of India. The term loan is repayable in 45 instalments of INR 750,000/- each commencing from December 28,2016.

The above loans are secured by way of the following:

(i) Hypothecation of fixed assets created/ purchased out of bank finance.

(ii) Equitable mortgage over commercial building belonging to the Company with build up area 111,083 sq. ft built on land measuring 24,864 sq. ft situated at No. 5, Royal road (land belonging to Sri Kavery Medical Care (Trichy) Limited, the Holding Company,

(iii) Extension of equitable mortgage over commercial land measuring 14,500 sq. ft situated at No.6, Alexandria road, Cantonment, Trichy - 620 001 belonging to the Company (title deed no. 3942/1995 & 3943/1995), situated in Ward No.K, Block no. 17, New T.S. No. 2 & 3/2, in Trichy Jt. I&U, sub regn dt ofK Abhishekapuram, Trichy - 620 001.

(iv) Personal guarantees of Dr.S.Chandrakumar, Managing Director, Dr. S Manivannan, Director and Dr. D Senguttuvan, Executive Director of the Company.

(v) Corporate guarantee from Sri Kavery Medical Care (Trichy) Limited, the Holding Company.

b) Term loam outstanding ai on March 31,2018 of INR 48,155 (March 31,2017: Nil) availed from HDFC Bank:

(i) Term loan -1 from HDFC Bank for INR 43.77 million was availed on December 26,2017, principal is repayable in 66 installments of INR 663,174/- towards principal commencing from August 30,2018. Interest being serviced monthly.

The above loan is secured by way of the following:

(i) First and exclusive chargc for the land, building and equipment purchased with the loan amount The collateral value of the land, building and equipment amounting atlcast INR 250 million.

(ii) Letter of comfort from the bolding company, Sri Kavery Medical Care (Trichy) Limited

(ii) Term loan towards purchase of car from HDFC Bank for INR 5 million was availed in the previous year and is repayable in 60 equated monthly installments (EMIs) of INR 100,904/- commencing from March 7, 2017. The loan is secured by way of hypothecation of the asset procured.

c) Term loans outstanding as on March 31,2018 of INR 46.229 (March 31,2017: Nil) availed from Yes Bank Limited:

(i) Term loan towards purchase of MR1 Scan from Yes Bank Limited for INR 39.55 million was availed on November 21,2017 and is repayable in 78 equated monthly installments (EMIs) of INR 647,916/- commencing from December 2017.

(ii) Term loan towards purchase of CT Scan from Yes Bank Limited lor INR 11.16 million was availed on October 9, 2017 and is repayable in 78 equated monthly installments (EMIs) of INR 182,732/- commencing from November 2017.

The above loans are secured by way of first and exclusive charge on the equipments purchased against the loan.

The Company has a defined benefit gratuity plan in India, governed by the Payment of Gratuity Act, 1972. The plan entitles an employee, who has rendered at least five years of continuous scrvicc, to gratuity at the rate of fifteen days wages for every completed year of service or part thereof in excess of six months, based on the rate of wages last drawn by the employee concerned.

These defined benefit plans expose tbc Company to actuarial risks, such as interest rate risk, liquidity risk, salary escalation risk, demographic risk, regulatory risk and investment risk.

A. Funding

The finding requirements are based on the gratuity fund’s actuarial measurement framework set out in the funding policies of the plan. The funding of Plan is based on a separate actuarial valuation for funding purposes for which the assumptions may differ from tbc assumptions set out in (E). Employees do not contribute to the plan.

B. Reconciliation of He net defined benefit (asset) liability the following tabic shows a reconciliation from tic opening balances to the closing balances for the net defined benefit (asset) liability and its components.

Sensitivity of significant actuarial assumptions is computod by varying one actuarial assumption used for the valuation of defined benefit obligation by percentage indicated, keeping all other actuarial assumptions constant Although the analysis docs not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumption shows.

The Company has not disclosed fair values of financial instruments such as investments, loans, trade receivables, cash and cash equivalents, bank balances other than cash and cash equivalents, other financial assets, borrowings, trade payables and other financial liabilities, since their carrying amounts ate reasonable approximates of fair values. The Company docs not have any financial asset/liability which arc classified as FVTPLor FVTOCL

B. Financial risk management

The Company has exposure to the Mowing risks arising from financial instruments:

a) credit risk (see (B)(ii));

b) liquidity risk (see (B)(iii)); and

c) market risk (acc (B)(iv)).

L Risk management framework

The Company’s board of directors has overall responsibility for the establishment and oversight of flic Company’s risk management framework. The board of directors along with the top management am responsible for developing and monitoring the Company’s risk management policies.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems arc reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company’s audit committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company,

ii Credit risk

Credit risk is the risk that the counterparty will not meet its obligation under a financial instrument or customer contract, leading to financial loss. The credit risk arises principally from its operating activities (primarily trade receivables) and from its investing activities, including deposits with banks and financial institutions and other financial instruments.

Trade receivables

Credit risk is controlled by analysing credit limits and creditworthiness of customers on a continuons basis to whom credit has been granted after obtaining necessary approvals for credit. The collection from the trade receivables are monitored on a continuous basis by the receivables team.

The Company establishes an allowance for credit loss that represents its estimate of expected losses in respect of trade and other receivables based on the past and rcccnt collection trend. The maximum exposure to credit ri8k as at reporting date is primarily Iran trade receivables amounting to INR 17,394 (March31,2017 : INR 9,211; April 1,2016: INR 5,969). The Company’s exposure to crcdit risk for trade receivables and other receivables is as follows:

Loam

This balance primarily constitute of rcntai deposits given to lessors, employee advances and electricity deposit given to Tamil Nadu Electricity Board. The Company does not expect any losses fium non-performance by these counter parties.

Cash and calk equivalents

The Company held cash and cash equivalents with credit worthy banks and financial institutions as at the reporting dates which has been measured on the 12-month expected loss basis. The credit worthiness or such banks and financial institutions are evaluated by the management on an ongoing basis and is considered to be good with low crcdit risk.

Other financial assets

Other financial assets comprises of unbilled revenue, bank deposits (due to mature after 12 months from die reporting date) and interest accrued on fixed deposits. These fixed deposits are held with credit worthy banks and financial institutions. The credit worthiness of such banks and financial institutions are evaluated by the management on an ongoing basis and is considered to be good with low credit risk.

Hi Liquidity risks

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that arc settled by delivering cask or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to moot its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company has current financial assets of INR 71 -578 (March 31,2017: INR 33,679 and April 1,2016: INR 18.235), which the management believes is sufficient a- meet all its liabilities maturing during the next 12 months amounting to INR 97,216 (March 31,2017: INR 85,132 and April 1, 2016: INR 81,828).

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, including contractual interest.

Iv. Market risks

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 exchange rales 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. The Company is exposed to marke: risk primarily related to interest rate risk.

Cash flow and fair value interest rate risk

The Company’s mam interest rate risk arises from long-term borrowings with variable rates, which expose the Company to cash flow interest rate risk, a) Interest rate risk exposure

The exposure of the Company’s borrowing to interest rate changcs a: the end of the reporting period arc as follows:

3 Explanation of transition to Ind AS

As stated a Nate 2A, these arc the Company’s first financial statements prepared in accordance with Ind AS. For the year ended March 31,2017, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2006. notified under Section 133 of the Act and other relevant provisions of file Act (‘previous GAAP’).

The accounting policies set out in Note 3 have been applied in preparing these financial statements for (he year ended March 31,2018 including the comparative information for the year ended March 31,2017 and the opening Ind AS balance sheet on the date of transition i.e. April 1,2016.

In preparing its ind AS balance shed as at April 1,2016 and in presenting the comparative information for the year ended March 31,2017, die Company has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in rotating its financial statements prepared in accordancc with previous GAAP, and how the transition from previous GAAP to hid AS has affected the Company financial position, financial performance and cash flows.

Optional exemption! availed and mandatory exceptions

In preparing these financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.

A Optional exemptions availed

L Property plant and equipment, intangible assets and Investment properties

As per Ind AS 101 an entity may elect to:

(i) measure an Hem of property, plant and equipment at the date of transition at its fair value and use that fair value as its deemed coet at that dale

(ii) use a previous GAAP revaluation of an item of property, plant and equipment at or before the date of transition as deemed cost at the date of the revaluation, provided the revaluation was, at the date of the revaluation, broadly comparable to:

- fair value;

- or cost or depreciated cost under Ind AS adjusted to reflect, for example, changes in a general or specific price index.

The elections under (i) and (ii) above are also available for intangible assets that meets the recognition criteria in hid AS 38, Intangible Assets, (including reliable measurement of original cost); and criteria in Ind AS 38 for revaluation (including tne existence of an active maitet).

(iii) use canying values of property, plant and equipment, intangible assets and investment properties as on the date of transition to ind AS (which are measured in accordance with previous GAAP and after malting adjustments relating to decommissioning liabilities prescribed under Ind AS 101) if there has been no change in its functional currency on the date of transition.

As permitted by Ind AS 101, the Company has elected to continue with the canying values under previous GAAP for all the items of property, plant and equipment. The same election has been made in respect of intangible assets and investment property also.

B. Mandatory exceptions 1. Estimates

As per Ind AS 101, an entity’s estimates in accordance with Ind AS at the date of transition to Ind AS at the end of the comparative period presented in the entity’s first Ind AS financial statements, as the case may be, should be consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error. However, file estimates should be adjusted to reflect any differences in accounting policies.

As per Ind AS 101, where application of Ind AS requires an entity to make certain estimates that were not required under previous GAAP, those estimates should be made to reflect conditions (hat existed at the date of transition (for preparing opening Ind AS balance sheet) or at file end of (he comparative period (for presenting comparative information as per Ind AS).

The Company’s estimates under Ind AS are consistent with the above requirement Key estimates considered in preparation of the financial statements that were not required under the previous GAAP are listed below:

- Impairment of financial assets based on the expected credit loss model.

- Determination of the discounted value for financial instruments tarried at amortised cost.

1 Clarification and meanremeat of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of the financial assets accounted at amortised cost has been done retrospectively except where the same is impracticable.

4 Transfer pricing

The Company has specified domestic transactions with related parties as provided for in the Income Tax Act, 1961. to the opinion of the management, the Company maintains documents as prescribed by the Income-tax Act to prove that these specified domestic transactions are at arm’s length and the aforesaid legislation will not have any material impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

5 Segment reporting

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 tod 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 and Healthcare Services’. The Company’s entire business operations is in India. Accordingly, there are no additional disclosure to be provided unde r Ind AS 108.

6 Dues to micro and small enterprises

The management has identified the enterprises which have provided goods and services to the Company and which qualify under the definition of micro and small enterprises, as defined under Micro, Small and Medium Enterprises Development Act, 2006. Such determination/ identification has been done on the basis of information received and available with the Company and relied upon by the auditors. Accordingly, the disclosure in respect of die amounts payable to such enterprises as at March 31, 2018 has been made in the financial statements based on information received and available with the Company.

7 Operating leases

(a) Ai leaiiee

The Company ha*s taken land for its hospital buikling and premises for staff accomodation, under cancellable and non -cancellable operating lease arrangements. The land lease was taken for a period of 42 years and premises for staff accomodation are, in general, taken for a period ranging between I - 2 years and the lease arrangements are subject to renewal at mutual consent thereafter. The lease rent expense recognised during the year amounts to INR 4,019 (Previous year: INR 2,017). The schedule for future minimum lease payments in respect of non-cancellable operating lease is set out below:

(b) As lessor

The Company had entered into an operating lease arrangement in respect of ccrtain office space with a lease term of 29 years, which arc subject to renewal at mutual consent thereafter. The cancellable arrangements can be terminated by either party afte giving due notice. The lease rent income recognised during the year amounts to INR 132 (Previous yean INR 132). The schedule for future minimum lease payments in respect of non-canccllable operating lease is set out below:

8 Disclosure of Specified Bank -otes (SBN)

During the previous year, the company had specified bank notes or other denomination notes as defined in the MCA Notification G.S.R. 308(E) dated March 31, 2017. The details of SBN held and transacted during the period November 8, 2016 to December 30, 2016, the denomination-wise SBNs and other notes as per the notification arc as follows:

For the purpose of this clause, the term specified bank note shall have the same meaning provided in the notification of the Government of India, the Ministry of Finance - Department of Economic Affairs No. S.0.3407 (E), dated November 8, 2016.

9. Previous Year figures have been reclassified wherever necessary to confirm with current year classification / Presentation.

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