INTRODUCTION

Fortis Healthcare Limited is a leading integrated healthcare delivery service provider in India. The healthcare verticals of the company primarily comprise hospitals, diagnostics and day care speciality facilities. Currently, the company operates its healthcare delivery services in India, Singapore, Dubai, Mauritius and Sri Lanka with 55 healthcare facilities (including projects under development), approximately 10,000 potential beds and 270 diagnostic centres. In a global study of the 30 most technologically advanced hospitals in the world, its flagship, the Fortis Memorial Research Institute' (FMRI), was ranked No.2, by 'topmastersinhealthcare.com, and placed ahead of many other outstanding medical institutions in the world.

VISIONSaving & Enriching Lives.

MISSIONTo be a globally respected healthcare organisation known for Clinical Excellence and Distinctive Patient Care.

HEALTH CARE SECTOR

The health care industry, or medical industry, is an aggregation of sectors within the economic system that provides goods and services to treat patients with curative, preventive, rehabilitative, and palliative care. The modern health care industry is divided into many sectors and depends on interdisciplinary teams of trained professionals and paraprofessionals to meet health needs of individuals and populations.

The health care industry is one of the world's largest and fastest-growing industries. Consuming over 10 percent of gross domestic product (GDP) of most developed nations, health care can form an enormous part of a country's economy.

For purpose of finance and management, the health care industry is typically divided into several areas. As a basic framework for defining the sector, the United Nations International Standard Industrial Classification (ISIC) categorizes the health care industry as generally consisting of:

1. hospital activities;

2. medical and dental practice activities;

3. "Other human health activities".

This third class involves activities of, or under the supervision of, nurses, midwives, physiotherapists, scientific or diagnostic laboratories, pathology clinics, residential health facilities, or other allied health professions, e.g. in the field of optometry, hydrotherapy, medical massage, yoga therapy, music therapy, occupational therapy, speech therapy, chiropody, homeopathy, chiropractics, acupuncture, etc.

The Global Industry Classification Standard and the Industry Classification Benchmark further distinguish the industry as two main groups:

1. health care equipment and services; and

2. Pharmaceuticals, biotechnology and related life sciences.

The health care equipment and services group consists of companies and entities that provide medical equipment, medical supplies, and health care services, such as hospitals, home health care providers, and nursing homes. The latter listed industry group includes companies that produce biotechnology, pharmaceuticals, and miscellaneous scientific services.

Other approaches to defining the scope of the health care industry tend to adopt a broader definition, also including other key actions related to health, such as education and training of

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health professionals, regulation and management of health services delivery, provision of traditional and complementary medicines, and administration of health insurance.

A health care provider is an institution (such as a hospital or clinic) or person (such as a physician, nurse, allied health professional or community health worker) that provides preventive, curative, promotional, rehabilitative or palliative care services in a systematic way to individuals, families or communities.

The World Health Organization estimates there are 9.2 million physicians, 19.4 million nurses and midwives, 1.9 million dentists and other dentistry personnel, 2.6 million pharmacists and other pharmaceutical personnel, and over 1.3 million community health workers worldwide, making the health care industry one of the largest segments of the workforce.

The medical industry is also supported by many professions that do not directly provide health care itself, but are part of the management and support of the health care system. The incomes of managers and administrators, underwriters and medical malpractice attorneys, marketers, investors and shareholders of for-profit services, all are attributable to health care costs.

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WORKING CAPITAL MANAGEMENT POLICY

Use of estimatesThe preparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period.Although these estimates are based on the management’s best knowledge of current events andactions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.

InventoriesInventory of Medical consumables and drugs, Stores and spares are valued at lower of cost and net realizable value. Cost is determined on Weighted Average basis.Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.The inventories of medical consumables in OPD business are expensed off on purchase.

Cash and cash equivalentsCash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short term investments with an original maturity of three months or less.

InvestmentsInvestments that are readily realizable and intended to be held for not more than a year from the date of the acquisition of such investments are classified as current investments. All other investments are classified as long-term investments. Current investments are carried at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of such long term investments.On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss.

ProvisionsA provision is recognized when an enterprise has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and

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are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Income TaxesTax expense comprises current and deferred tax. Current income-tax is measured at the amountexpected to be paid to the tax authorities in accordance with the Income-tax Act, 1961 enacted inIndia and tax laws prevailing in the respective tax jurisdictions where the Company operates. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss.Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years.Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit and loss.Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets arerecognized for deductible timing differences only to the extent that there is reasonable certaintythat sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.At each reporting date, the Company re-assesses unrecognized deferred tax assets. It recognizesunrecognized deferred tax asset to the extent that it has become reasonably certain or virtuallycertain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized.The carrying amount of deferred tax assets are reviewed at each reporting date. The Companywrites-down the carrying amount of deferred tax asset to the extent that it is no longer reasonablycertain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be availableDeferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxable entity and the same taxation authority.Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax. The Company recognizes MAT credit available as an asset only to the extent that there is convincing evidence that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward. In the year in

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which the Company recognizes MAT credit as an asset in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961, the said asset is created by way of credit to the statement of profit and loss and shown as “MAT Credit Entitlement.”The Company reviews the “MAT credit entitlement” asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.

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CAPITAL BUDGETING POLICY

Tangible fixed assetsFixed assets are stated at cost less accumulated depreciation and impairment loss, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use.Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance.All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred.Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.

Depreciation on tangible fixed assetsi. Depreciation on fixed assets is calculated on a straight-line basis using the rates arrived at based on the useful lives estimated by the management, or those prescribed under the Schedule XIV to the Companies Act, 1956, whichever is higher. The Company has used the following rates to provide depreciation on its fixed assets:-

S. No. Assets Rates (SLM)

1. Plant & machinery 10.34%

2. Medical equipments 7.07%

3. Furniture and fittings 6.33%

4. Computers 16.21%

5. Office equipments 4.75%

6. Vehicles 9.50%

ii. Depreciation on Leasehold improvements is provided over the primary period of lease of10 years or over the useful lives of the respective fixed assets, whichever is shorter.iii. Individual assets not exceeding ` 5,000 are depreciated fully in the year of purchase in accordance with Companies Act, 1956.

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Intangible assetsIntangible assets acquired separately are measured on initial recognition at cost. Following initialrecognition, intangible assets are carried at cost less accumulated amortization and accumulatedimpairment losses, if any. Internally generated intangible assets, excluding capitalized development costs which meet capitalization criteria, are not capitalized and expenditure is reflected in the statement of profit and loss in the year in which the expenditure is incurred.Intangible assets are amortized on a straight line basis over the estimated useful economic life.Gains or losses arising from de-recognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and are recognized in thestatement of profit and loss when the asset is derecognized.Technical Know-how Fees-Technical know-how fees are amortized over a period of 3 years.Software-Cost of software is amortized over a period of 6 years, being the estimated useful life as per themanagement estimates.

LeasesWhere the Company is the lesseeLeases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.Where the Company is the lessorLeases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Assets subject to operating leases are included in fixed assets. Lease income on an operating lease is recognized in the statement of profit and loss on a straight-line basis over the lease term. Costs, including depreciation, are recognized as an expense in the statement of profit and loss. Initial direct costs such as legal costs, brokerage costs, etc. are recognized immediately in the statement of profit and loss.

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CAPITAL STRUCTURE

Borrowing costsBorrowing cost includes interest, amortization of ancillary costs incurred in connection with thearrangement of borrowings.Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily take substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.

Equity sharesThe Company has only one class of equity shares having par value of ` 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after

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distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

Preference sharesDuring the year ended March 31, 2009, the Company issued 1,450,000 Class ‘C’ Zero Percent Cumulative Redeemable Preference Shares of ` 10 each at a premium of ` 90 per share. Preference shares were redeemable at a premium of ` 117.69 per preference share, on October 18, 2010, however, the date of redemption of October 18, 2010 has been deferred to October 18, 2014 at the redemption premium of ` 198.20 per share. Both the Company and the subscriber had an option for early redemption of the Preference Shares. In case the early redemption option would have been exercised, the premium on redemption shall be adjusted proportionately. Preference shares were redeemed on October 28, 2013 at a redemption price of ` 184.96 including redemption premium of ` 174.96 per share. During the year ended March 31, 2008, the Company issued 11,500,000 Class ‘C’ zero percent cumulative redeemable preference shares of `10 each at a premium of ` 90 per share, out of which 3,196,000 zero percent cumulative redeemable preference shares were still pending for redemption at the beginning of the year. These shares were redeemable at ` 175 per share, including premium, on October 18 of 2008, 2009, 2010, 2011 and 2012 respectively in installment of ` 1,437.50 lacs each and installment of ` 12,937.50 lacs on October 18, 2013. The Company had the option to make voluntary premature redemption of the Shares in part or in full in which event the redemption premium would have been computed @ 12% compounded annually on the subscription amount from the subscription date till the redemption date. However, the due date of redemption in 2009, 2010, 2011, 2012 and 2013 respectively has been postponed to October 18, 2014 and due to this, the Company has agreed to pay additional redemption premium calculated at 12%, 12.5%, 13%, 13% and 13% respectively on the redemption amounts due in respective years. In the event of liquidation of the Company before redemption of preference shares, the holder of preference shares will have priority over equity shares in the repayment of capital. Preference shares were redeemed on October 28, 2013 at a redemption price of ` 181.36 including redemption premium of ` 172.36 per share.

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Bibliography

http://www.fortishealthcare.com/ http://www.moneycontrol.com/

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Annexure

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