1) Nature of operations

Fortis Malar Hospitals Limited (the ‘Company’) was incorporated in the year 1989 to set up, manage and operate a multi-specialty hospital and the Company is a subsidiary of Fortis Hospitals Limited and Fortis Healthcare Limited is the Ultimate Holding Company. The Company has its state of the art Hospital facility in Chennai. Also Refer Note 51.

2) Statement of Compliance

The financial statements of the Company have been prepared in accordance with IND AS notified under the Companies (Indian Accounting Standards) Rules, 2015 to comply with the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (to the extent notified and applicable). The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year.

2.1 Standards issued but not yet effective:

In March 2018, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2018, notifying Ind AS 115, ‘Revenue from Contracts’ and amendments to Ind AS 21, Foreign currency transactions and advance consideration.

a) Amendment to Ind AS 21:

On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from April 1, 2018. The Company has evaluated the effect of this on the financial statements and the impact is not material.

b) Notification of Ind AS 115:

On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognize 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 or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The effect on adoption of Ind AS 115 is expected to be insignificant.

5(b) Intangible Assets Under Development

Intangible Assets Under Development includes cost of development of software paid to M/s.Healthfore Technologies Rs. 72,15,569 (Previous year Rs. 60,15,570). Also Refer Note 33.

The average credit period is 30 days. No overdue interest is charged. Of the trade receivables balance as at March 31, 2018, '5,01,52,236 is due from 3 third party service providers, 2 Government customers and 1 international customer. There are no other customer dues that represent more than 5% of the total balance of trade receivables.

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 given in the provision matrix. The provision matrix at the end of the reporting period is as follows.

During the year ended 31 March 2018, 20,000 Equity Shares of Rs. 10 each at a premium of Rs. 16.20 each were allotted to eligible employees under the Company's Employees Stock Option Scheme (ESOP). The balance outstanding employee stock options as at 31 March 2018 is 140,000. (Refer Note (e) below)

(b) Terms/rights attached to equity shares

The Company has only one class of equity shares having par value of Rs. 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, except in the case of interim dividend.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

(e) As at 31 March 2018, 140,000 equity shares (As at 31 March 2017 160,000 equity shares) of Rs. 10 each were reserved towards outstanding employee stock options granted / available for grant. (Refer Note 37).

(f) Refer Note 51 for equity shares that are issuable upon the Composite scheme of Arrangement and Amalgamation becoming effective.

Discounts and deductions amounting to Rs. 63,45,264 (Year Ended March 31, 2017- Rs. 1,30,16,710) are netted against Sale of In-Patient and Out-Patient Services.

3. Represents amount paid towards various services such as providing, maintaining and operating the Clinical Establishment (including infrastructure, fixtures and fittings etc.), out-patient department services, radio diagnostic services and other ancillary services provided by Fortis Health Management Limited to the Company in accordance with the agreement. Also refer Note 33

1. The Company accounts for costs incurred by / on behalf of the Related Parties based on the actual invoices / debit notes raised and accruals as confirmed by such related parties. The Related Parties have confirmed to the Management that as at 31 March 2018 and 31 March 2017 there are no further amounts payable to / receivable from them, other than as disclosed above.

2. Also Refer Note 43 for transactions entered with RWL Healthworld Limited and Note 51 for proposed scheme of Composite scheme of Arrangement and Amalgamation with SRL Limited.

4. Leases

Assets taken on Operating Lease:

The Group has operating lease agreements primarily for medical equipments and office/nursing accommodation etc., the lease terms of which are for a period ranging between 11 months to 15 years. During the year ended March 31, 2018, an amount of Rs. 16,111,453 (March 31, 2017 - Rs. 15,117,086) was paid towards lease rentals and other charges for the office space/nursing accommodation and Rs. 212,013,065 (March 31, 2017 - Rs. 200,316,786) towards Clinical Establishment Fee (including variable fee).

The above claims are pending with various Consumer Disputes Redressal Commissions and the Company has been advised by the legal counsel that there may not be any likely liability in respect of these matters and accordingly no provision has been recognized in these financial statements.

5. Employee Stock Option Plan

Employees (including senior executives) of the Company and its Subsidiary receive remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions).

Malar Employee Stock Option Plan 2008 (Scheme) was approved by the board of directors of the Company on 31st July 2008/28th May 2009 and by shareholders in the annual general meeting held on 29th September, 2008 /21st August 2009. The following are some of the important conditions to the scheme: The details of activity under the Plan have been summarized below:

Vesting Plan:

- 25% of the option shall vest on the completion of 12 months from the grant date.

- 25% of the option shall vest on the completion of 24 months from the grant date.

- 25% of the option shall vest on the completion of 36 months from the grant date.

- 25% of the option shall vest on the completion of 48 months from the grant date.

Exercise Plan:

There shall be no lock in period after the options have vested. The vested options will be eligible to be exercised on the vesting date itself. Notwithstanding any provisions to the contrary in this plan the options must be exercised before the end of the tenure of the plan.

The expected life of the stock is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

*Expected volatility has been determined considering the daily volatility of the stock prices on Bombay Stock Exchange, over a period prior to the date of grant, corresponding with the expected life of the options.

6 Employee benefits

(I) Defined Contribution Plan

The Company makes Provident Fund contributions to defined contribution plans for qualifying employees. Under the Scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The contributions payable to these plans by the Company are at rates specified in the rules of the scheme. The Company’s contribution to Provident Fund aggregating ' 91,92,358 (Previous Year: ' 84,59,699) has been recognised in the Statement of Profit and Loss under the head Employee Benefits Expense.

(II) Defined Benefit Plans

The Company has a defined benefit gratuity plan, where under employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn basic salary) for each completed year of service subject to a maximum limit of Rs. 1,000,000 in terms of the provisions of Payment of Gratuity Act, 1972. Vesting occurs upon completion of 5 years of service.

(i) The current service cost and interest expense for the year are included in the "Employee Benefit Expenses" in the statement of profit & loss under the line item "Contribution to Provident and Other Funds"

(ii) The remeasurement of the net defined benefit liability is included in other comprehensive income.

* Based on India's standard mortality table with modification to reflect the expected changes in mortality/others

Significant actuarial assumptions for the determination of defined obligation are discount rate, expected salary increase rate and mortality. The sensitivity analysis 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:

(i) If the discount rate is 50 basis point higher (lower) the defined benefit obligation would decrease by Rs. 1,365,000 (increase by Rs. 1,471,000) (As at March 31, 2017 ; decrease by Rs. 1,412,000 (increase by Rs. 1,307,000).

(ii) If the expected salary growth rate increase/(decreases) by 1% the defined benefit obligation would increase by Rs. 3,029,000 (decrease by Rs. 2,657,000) (As at March 31, 2017 ; increase by Rs. 2,904,000 (decrease by Rs. 2,537,000).

(iii) If the withdrawal rate increases/(decreases) by 5% the defined benefit obligation would decrease by Rs. 291,000 (increase by Rs. 307,000) (As at March 31, 2017 ; decrease by Rs. 470,000 (increase by Rs. 502,000).

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligations 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 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.

(III) Financial Risk Management Framework

The Company manages financial risk relating to the operations through internal risk reports which analyse exposure by degree and magnitude of risk. These risks include market risk (including interest rate risk and other price risk), credit risk and liquidity risk. The focus of the chief operating decision maker (CODM) is to assess the unpredictability of the financial environment and to mitigate potential adverse effects, if any, on the financial performance of the Company.

The Company does not enter into or trade financial instruments including derivative financial instruments for speculative purpose.

(IV) Liquidity Risk Management

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company consistently generated sufficient cash flows from operations to meet its financial obligations as and when they fall due.

The following table details the Company's expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted contractual maturities of the financial assets. The inclusion of information on non-derivative financial assets is necessary in order to understand the Company's liquidity risk management as the liquidity is managed on a net asset and liability basis.

7. Fair Value Measurement

This note provides information about how the Company determines fair value of various financial assets and liabilities

(i) There are no financial assets and financial liabilities that are measured at fair value on a recurring basis.

(ii) Fair value of financial assets and financial liabilities that are not measured at fair value (Non-recurring):

# The tax rate used for the 2017-2018 and 2016-2017 reconciliations above is the Corporate tax rate of 30%, applicable surcharge and cess payable by corporate entities in India on taxable profits under the Indian Law.

8. During the previous year, the Company had transferred its outpatient pharmacy inventories to RWL Healthworld Limited (a group entity under common control) based on carrying value of inventories as on date of transfer (i.e. January 3, 2017).

9. Details of dues to Micro and Small Enterprises as per MSMED Act, 2006

During the period ended December 31, 2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises Development Act, 2006 which comes into force with effect from October 2, 2006. As per the Act, the Company is required to identify the Micro, Small and Medium suppliers and pay them interest on overdue beyond the specified period irrespective of the terms agreed with the suppliers.

*Dues to Micro and Small Enterprises have been determined to the extent such parties have been identified on the basis of information collected by the Management and relied upon by the auditors.

10. Corporate social responsibility

During the year, the Company incurred an aggregate amount of Rs. 18,76,333/- (Previous year : 49,24,462) towards corporate social responsibility in compliance of Section 135 of the Companies Act 2013 read with relevant schedule and rules made thereunder.

The details of the CSR spend are given below:

Gross amount required to be spent by the Company during the year: Rs. 19,09,163/-

11. Order / Notice Received from CMDA

The Company had earlier applied to the Chennai Metropolitan Development Authority (CMDA) for regularization of certain deviations in the construction of the Hospital. During the previous year ended March 31, 2016, CMDA has issued an Order stating that the regularization application made by the Company has not been allowed. The Company had preferred an appeal before the Secretary to the Government of Tamil Nadu, Housing and Urban Development Authority against the said Order.

On 3 May 2016 CMDA has also served a Locking & Sealing and De-occupation Notice to the Company stating that in view of CMDA's Order dated 18 March 2016 referred above, the construction at the site of the Hospital premises is unauthorized and has called upon the Company to restore the land to its original position within 30 days from the date of the Notice. The Company appealed to the High Court of Judicature at Madras and obtained a stay order on 02 June 2016 directing CMDA not to proceed further, till the matter is disposed. As directed by the Hon’ble High Court, CMDA Officials inspected the hospital premises and directed the Company to provide ramp facility for easy evacuation of patients. The Company has ramped up its fire detection and safety measures, constructed horizontal walkways and also obtained a Certificate from an independent agency on the adequacy of measures taken for fire prevention and safety.

The Company, based on legal advice, believes that the above Order / Notices issued by CMDA are contestable and the same prima facie would not result in adverse impact on it’s operations as the Company has fair chance of success in the aforesaid Appeal / writ petition.

12. Status of Composite Scheme of Arrangement and Amalgamation

The Board of Directors of the Company at its meeting held on August 19, 2016 approved the proposal for the sale of its hospital business by way of a slump sale to Fortis Healthcare Limited (FHL) pursuant to a Composite scheme of Arrangement and Amalgamation (the Scheme) between the Company, FHL and SRL Limited (“SRL”). Further, pursuant to the said Scheme, the diagnostic business of FHL (including investments held in SRL) shall get demerged into the Company in lieu of equity shares to be issued by the Company to the shareholders of FHL. The demerger shall be followed by SRL being merged with the Company as an integral part of the same Scheme and shares of the Company to be issued to the eligible shareholders of SRL. The Board of Directors of the Company, on December 14, 2017 by way of Resolution Passed by Circulation, approved the extension of the Long Stop Date to June 30, 2018 as per the Clause 61 of the Scheme. The Court heard the matter thrice since January 2018 and the next hearing is listed on May 25, 2018. The Scheme is subject to various judicial / regulatory and other required approvals. Pending such approvals, no effect of the proposed Scheme has been given in the Standalone Financial Statements.

13. Segment Reporting

The Company has a single operating segment, namely, health care services and the information reported to the chief operating decision maker (CODM) for the purposes of resource allocation and assessment of performance focusses on this operating segment. Further the company does not have any separate geographic segment other than India. Accordingly, the amounts appearing in these financial statements relate to this operating segment.

14. Approval of Financial Statements

The financial statements were approved by the Board of Directors on May 15, 2018.