Notes to Accounts of Varun Beverages Ltd.

Dec 31, 2024

3.20 Provisions

Provisions are recognised when the Company has
a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow
of resources embodying economic benefits will
be required to settle the obligation and a reliable
estimate can be made of the amount of the
obligation. When the Company expects some or
all of a provision to be reimbursed, for example,
under an insurance contract, the reimbursement is
recognised as a separate asset, but only when the
reimbursement is virtually certain. The expense
relating to a provision is presented in the Statement
of Profit and Loss, net of any reimbursement.

If the effect of the time value of money is material,
provisions are discounted using a current pre-tax
rate that reflects, when appropriate, the risks
specific to the liability. When discounting is used, the
increase in the provision due to the passage of time
is recognised as a finance cost.

3.21 Contract liabilities

A contract liability is the obligation to transfer goods
or services to a customer for which the Company has
received consideration or is due from the customer. If
a customer pays consideration before the Company
transfers goods or services to the customer, a
contract liability is recognised when the payment is
made or the payment is due (whichever is earlier).
Contract liabilities are recognised as revenue when
the Company performs under the contract.

3.22 Contingent liabilities

A contingent liability is a possible obligation that
arises from past events whose existence will be
confirmed by the occurrence or non-occurrence
of one or more uncertain future events beyond the
control of the Company or a present obligation that
is not recognised because it is not probable that
an outflow of resources will be required to settle
the obligation. A contingent liability also arises
in extremely rare cases where there is a liability
that cannot be recognised because it cannot be
measured reliably. The Company does not recognize
a contingent liability but discloses its existence in
the financial statements. Contingent assets are only
disclosed when it is probable that the economic
benefits will flow to the entity.

3.23 Earnings per share

Basic earnings/ (loss) per share are calculated by
dividing the net profit or loss for the year attributable
to equity shareholders by the weighted average
number of equity shares outstanding during the
year. The weighted average number of equity shares
outstanding during the year is adjusted for events,
other than conversion of potential equity shares,
that have changed the number of equity shares
outstanding without a corresponding change in
resources.

In case of a bonus issue and sub-divison/split, the
number of ordinary shares outstanding is increased
by number of shares issued as bonus shares and
sub-divison/split respectively in current year and
comparative period presented as if the event
had occurred at the beginning of the earliest year
presented.

For the purpose of calculating diluted earnings/
(loss) per share, the net profit or loss for the period
attributable to equity shareholders and the weighted
average number of shares outstanding during the
period are adjusted for the effects of all dilutive
potential equity shares.

3.24 Significant management judgement in applying
accounting policies and estimation uncertainty

The preparation of the Company''s financial
statements requires management to make
judgements, estimates and assumptions that affect
the reported amounts of revenues, expenses, assets
and liabilities, and the accompanying disclosures, and
the disclosure of contingent liabilities at the date of
the financial statements. Estimates and assumptions
are continuously evaluated and are based on
management''s experience and other factors,
including expectations of future events that are
believed to be reasonable under the circumstances.

Uncertainty about these assumptions and estimates
could result in outcomes that require a material
adjustment to the carrying amount of assets or
liabilities affected in future periods.

In particular, the Company has identified the
following areas where significant judgements,
estimates and assumptions are required. Further
information on each of these areas and how they

impact the various accounting policies are described
below and also in the relevant notes to the financial
statements. Changes in estimates are accounted for
prospectively.

i) Judgements

In the process of applying the Company''s
accounting policies, management has made
the following judgements, which have the most
significant effect on the amounts recognised in
the financial statements:

a) Contingencies

Contingent liabilities may arise from the
ordinary course of business in relation to
claims against the Company, including legal,
contractor, land access and other claims. By
their nature, contingencies will be resolved
only when one or more uncertain future
events occur or fail to occur. The assessment
of the existence, and potential quantum,
of contingencies inherently involves the
exercise of significant judgments and the
use of estimates regarding the outcome of
future events.

b) Recognition of deferred tax assets

The extent to which deferred tax assets can
be recognised is based on an assessment
of the probability that future taxable
income will be available against which
the deductible temporary differences and
tax loss carry-forward can be utilised. In
addition, significant judgement is required
in assessing the impact of any legal or
economic limits or uncertainties in various
tax jurisdictions.

ii) Estimates and assumptions

The key assumptions concerning the future and
other key sources of estimation uncertainty
at the reporting date that have a significant
risk of causing a material adjustment to the
carrying amounts of assets and liabilities within
the next financial year, are described below.
The Company based its assumptions and
estimates on parameters available when the
financial statements were prepared. Existing
circumstances and assumptions about future

developments, however, may change due to
market change or circumstances arising beyond
the control of the Company. Such changes are
reflected in the assumptions when they occur.

a) Useful lives of tangible/intangible assets

The Company reviews its estimate of the
useful lives of tangible/intangible assets at
each reporting date, based on the expected
utility of the assets.

b) Defined benefit obligation

The cost of the defined benefit plan and
other post-employment benefits and
the present value of such obligation are
determined using actuarial valuations.
An actuarial valuation involves making
various assumptions that may differ from
actual developments in the future. These
include the determination of the discount
rate, future salary increases, mortality rates
and future pension increases. In view of
the complexities involved in the valuation
and its long-term nature, a defined benefit
obligation is highly sensitive to changes
in these assumptions. All assumptions are
reviewed at each reporting date.

c) Inventories

The Company estimates the net realisable
values of inventories, taking into account
the most reliable evidence available at each
reporting date. The future realisation of
these inventories may be affected by future
technology or other market-driven changes
that may reduce future selling prices.

d) Business combinations

The Company uses valuation techniques
when determining the fair values of certain
assets and liabilities acquired in a business
combination.

e) Impairment of non-financial assets and
goodwill

In assessing impairment, Company
estimates the recoverable amount of each
asset or cash-generating units based on
expected future cash flows and uses an
interest rate to discount them. Estimation
uncertainty relates to assumptions
about future operating results and the
determination of a suitable discount rate.

f) Fair value measurement of financial
instruments

When the fair values of financial assets
and financial liabilities recorded in the
Balance Sheet cannot be measured based
on quoted prices in active markets, their
fair value is measured using valuation
techniques including the DCF model. The
inputs to these models are taken from
observable markets where possible, but
where this is not feasible, a degree of
judgment is required in establishing fair
values. Judgements include considerations
of inputs such as liquidity risk, credit risk
and volatility. Changes in assumptions
about these factors could affect the
reported fair value of financial instruments.

i. Goodwill and franchise rights/trade marks with indefinite useful lives are tested for impairment annually, or
more frequently if the events and circumstances indicate that the carrying value may be impaired. The useful
life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful
life assessment continues to be supportable.

The Company has considered the relevant provisions of Ind AS 38 on ''Intangibles Assets'' which provides factors to
determine the life of intangible assets and accordingly the carrying value of franchisee rights have been considered
to have an indefinite life. These franchisee rights meet the prescribed criteria of renewal at nominal cost, renewal
with no specific conditions attached, are sustainable and the same is supported by evidences of being renewed.
Management is of the opinion that, based on an analysis of all the relevant factors, there is no foreseeable limit to
the period over which the franchise rights are expected to generate net cash inflows for the Company.

The assumptions used in this impairment assessment are most sensitive to following:

a) Weighted average cost of capital "WACC” of 16.45% (Previous year - 13.33%) for the explicit period and
16.45% (Previous year - 13.33%) for the terminal year.

b) For arriving at the terminal value, approximate growth rate of 6% (Previous year - 5%) is considered.

5B. Other intangible assets [Cont’d]

c) Number of years for which cash flows were considered are 5 years.

d) The approximate rate of growth in sales is estimated at 8%-10% (Previous year - 8%-10%) in the discrete
period.

No impairment loss was identified on the above assessment.

ii. The amount of contractual commitments for the acquisitions of intangible assets are disclosed in Note 41.

iii. Refer Note 50 for information on other intangible assets pledged as security by the Company.

5C. Intangible assets under development:

The changes in the carrying value of intangible assets under development for the year ended 31 December 2024
and 31 December 2023 are as follows :

6. Investments [Cont’d]

**Rounded off to Nil.

* The Company had subscribed 370,370 equity shares of Varun Beverages (Nepal) Private Limited amounting to '' 625.00 million
on 18 May 2023 and Varun Beverages (Nepal) Private Limited on 24 December 2023 allotted 551,130 equity shares as bonus
shares of NPR 1,000 each to its existing shareholder.

#The Company had acquired 50,000 equity shares of Lunarmech Technologies Private Limited amounting to '' 100.00 million on
16 October 2023. Further on 16 December 2024 Company has acquired 39.93% of the issued and paid-up Equity Share Capital
and accordingly, it has become wholly-owned subsidiary.

$The Company had made equity investment in Varun Beverages South Africa (PTY) Ltd. amounting to '' 0.05 million on 23
May 2023.

-The Company had subscribed the equity investment of IDVB Recycling Operations Private Limited amounting to '' 369.93 (31
December 2023: '' 120.00 million) and loan given amounting to '' 10.00 million were converted into equity investment on 25
September 2023.

@The Company had made investment in Clean Max Tav Private Limited amounting to '' 3.28 million and '' 29.54 million on 27
January 2023 and 13 March 2023 respectively.

""The Company had made equity investment in Huoban Energy 7 Private Limited amounting to '' 21.24 million on 09 May 2023.

@@The Company had made equity investment in Lone Cypress Ventures Private Limited amounting to '' 31.50 million on 13
March 2023.

"% The Company had incorporated VBL Mozambique, SA, a subsidiary on 21 November 2023, and consideration for 99% share
capital has been transferred on 31 January 2024

"""The Company has incorporated Varun Foods Zimbabwe (Private ) Limited, a wholly owned subsidiary on 22 May 2024.

## The Company acquired 95% stake of The Beverage Company Proprietary Limited amounting to '' 4,037.26 million on 26
March 2024

^PThe Company has made equity investment in Huoban Energy 11 Private Limited amounting to '' 29.04 million on 28
August 2024.

"These investments were tested for impairment in accordance with Ind AS 36 "Impairment of Assets” concluding no impairment
to the carrying values.

Refer note 51 for information required under Section 186 (4) of the Companies Act, 2013.

The Company has only one class of equity shares having a par value of '' 2 each. Each holder of equity share
is entitled to one vote per share. In the event of liquidation of the Company, holders of equity shares will be
entitled to receive any of the 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. The dividend,
if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual
General Meeting.

d) Aggregate number of bonus shares issued, shares issued for consideration other than cash and
shares bought back during the period of five years immediately preceding the reporting date

(i) During the year ended 31 December 2019, the Company has issued 91,327,613 equity shares of '' 10
each as fully paid-up bonus shares in the ratio of 1 (One) equity share for every 2 (Two) equity share
outstanding on record date.

(ii) During the year ended 31 December 2021, the Company has issued 144,344,360 equity shares of ''10
each as fully paid-up bonus shares in the ratio of 1 (One) equity share for every 2 (Two) equity share
outstanding on record date.

(iii) During the year ended 31 December 2022, the Company has issued 216,516,540 equity shares of ''10
each as fully paid-up bonus shares in the ratio of 1 (One) equity share for every 2 (Two) equity share
outstanding on record date.

For the period of five years of the date of the immediately preceding the reporting date, there was no
share allotment made for consideration other than cash except as disclosed above. Further, there has been
no buy back of shares during the period of five years immediately preceding 31 December 2024 and 31
December 2023.

i) During the year ended 31 December 2024,the Board of Directors of the Company in their meeting held on
30 July 2024 recommended the sub-division/split of existing Equity Shares of the Company from 1 (One)
Equity Share having face value of '' 5/- (Rupees Five only) each fully paid-up, into such number Equity
Shares having face value of '' 2/- (Rupees Two only) each fully paid-up. The above sub-division/split has
been approved by the equity shareholders of the Company dated 30 August 2024 through postal ballot.
Pursuant to sub-division/split of shares effective 12 September 2024 ("Record Date”), the paid up equity
share capital of the Company is '' 6,497.24 consisting of 3,248,621,030 equity shares having face value of
'' 2/- (Rupees two only) each fully paid-up.

ii) During the year ended 31 December 2023, the Board of Directors of the Company in their meeting held on
02 May 2023 recommended the sub-division/split of existing Equity Shares of the Company from 1 (One)
Equity Share having face value of '' 10/- (Rupees Ten only) each fully paid-up, into 2 (Two) Equity Shares
having face value of '' 5/- (Rupees Five only) each fully paid-up. The above sub-division/split has been
approved by the equity shareholders of the Company dated 02 June 2023 through postal ballot. Pursuant
to sub-division/split of shares effective 15 June 2023 ("Record Date”), the paid up equity share capital of
the Company is '' 6,495.58 consisting of 1,299,116,064 equity shares having face value of '' 5/- (Rupees
Five only) each fully paid-up.

Description of nature and purpose of each reserve:

Capital reserve - Created on merger of Varun Beverages (International) Limited with the Company pursuant to
and in accordance with the Court approved scheme of amalgamation. Includes gain from bargain purchases.

General reserve - Created by way of transfer from debenture redemption reserve on redemption of debentures.

Securities premium - Created to record the premium on issue of shares. The reserve is utilised in accordance with
the provisions of the Act.

Retained earnings - Created from the profit of the Company, as adjusted for distributions to owners, transfers to other
reserves, etc.

Share option outstanding account - Created to recognise the grant date fair value of options issued to employees
under the employee stock option schemes and is adjusted on exercise / forfeiture of options.

Share application money pending allotment - Created to record the amount of money received for the purpose
of allotment of equity share of the company pending at the reporting date. It will be utilised in accordance with
the provisions of the Companies Act, 2013 upon issuance of equity shares.

D. Contract asset is the right to consideration in exchange for goods or services transferred to the customer.
Contract liabilities are on account of the advance payment received from customer for which performance
obligation has not yet been completed.

The performance obligation is satisfied when control of the goods or services are transferred to the customers
based on the contractual terms. The Company does not have any remaining performance obligation as
contracts entered for sale of goods are for a shorter duration. Further, there are no contracts for sale of
services wherein, performance obligation is unsatisfied to which transaction price has been allocated.
Payment terms with customers vary depending upon the contractual terms of each contract and generally
falls in the range of 0 to 120 days from the completion of performance obligation.

There is no significant financing component in any transaction with the customers.

E. Government grant recognised under the head ''Other operating revenue'' amounts to '' 4,829.26 million
(31 December 2023: '' 3,462.98 million) under different industrial promotion tax exemption schemes.

42. Pursuant to transfer pricing legislations under the Income-tax Act, 1961, the Company is required to use specified
methods for computing arm''s length price in relation to specified international and domestic transactions with its
associated enterprises. Further, the Company is required to maintain prescribed information and documents in
relation to such transactions. The appropriate method to be adopted will depend on the nature of transactions/
class of transactions, class of associated persons, functions performed and other factors, which have been
prescribed. The Company is in the process of updating its transfer pricing documentation for the current financial
year. Based on the preliminary assessment, the management is of the view that the update would not have a
material impact on the tax expense recorded in these financial statements. Accordingly, these financial statements
do not include any adjustments for the transfer pricing implications, if any.

44. Disclosure on lease transactions pursuant to Ind AS 116 - Leases

The Company''s lease asset class primarily consists of leases for land, buildings and plant and equipment. With the
exception of short-term leases, leases of low-value and cancellable long-term leases underlying assets, each lease
is reflected on the balance sheet as a right of use asset and a lease liability.

Lease liabilities are measured at the present value of the remaining lease payments, discounted using the weighted
average borrowing rate ranging 5.44-8.22% (31 December 2023: 5.44-8.22% ).

Each lease generally imposes a restriction that, unless there is a contractual right for the Company to sublet the
asset to another party, the right of use asset can only be used by the Company. Leases are either non-cancellable
or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to extend
the lease for a further term. The Company is prohibited from selling or pledging the underlying leased assets
otherthan leasehold lands as security against the Company''s other debts and liabilities.

iv. Lease payments not recognised as a liability

The Company has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12
months or less), cancellable long-term leases and for leases of low value assets. Payments made under such leases
are expensed on a straight-line basis. The expense relating to payments not included in the measurement of the
lease liability for short term leases is '' 782.07 million (31 December 2023''711.51 millon).

v. Refer Standalone Cash Flow Statement for total cash outflow for leases.

48. Share-based payments

a. Description of share based payment arrangements
i) Share Options Schemes (equity settled)

Employees Stock Option Scheme 2016 (“ESOS 2016 or scheme”)

The ESOS 2016 was approved by the Board of Directors and the shareholders on 27 April 2016 and further ratified
and amended by the shareholders in their meetings held on 17 April 2017 and 07 April 2022 respectively. Further,
National Stock Exchange of India Limited and BSE Limited have accorded their in principle approvals for issue
and allotment of upto 41,737,880 equity shares ("Ceiling Limit”). The scheme was formulated with the objective to
enable the Company to grant Options for equity shares of the Company to certain eligible employees as defined

Also refer note 17(g) on sub-division/split of equity shares of the Company during the year. The outstanding stock
options (whether vested or unvested as on the Record Date) and exercise prices as above has been adjusted to
ensure fair and reasonable adjustment to the entitlement of the Eligible Employees under the Schemes due to the
sub-division/split of equity shares.

49. Capital management

For the purpose of the Company''s capital management, capital includes issued equity share capital, securities
premium and all other equity reserves attributable to the equity shareholders of the Company.

The Company''s capital management objectives are:

- to ensure the Company''s ability to continue as a going concern

- to provide an adequate return to shareholders by pricing products and services commensurately with the level
of risk.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and
the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust
the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors
capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within
net debt, non-current and current borrowings,current maturity of long-term debts and lease liabilities, less cash
and cash equivalents, excluding discontinued operations, if any..

52. Financial instruments risk

Financials risk management objectives and policies

The Company is exposed to various risks in relation to financial instruments. The main types of financial risks are
market risk, credit risk and liquidity risk.

The management of the Company monitors and manages the financial risks relating to the operations of the
Company on a continuous basis. The Company''s risk management is coordinated at its head office, in close
cooperation with the management, and focuses on actively securing the Company''s short to medium-term cash
flows and simultaneously minimising the exposure to volatile financial markets. Long-term financial investments
are managed to generate lasting returns.

The Company does not engage in the trading of financial assets for speculative purposes. The most significant
financial risks to which the Company is exposed are described below.

52.1 Market risk analysis

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market prices. The Company is exposed to market risk through its use of financial instruments and
specifically to foreign currency risk, interest rate risk and commodity price risk which result from its operating,
investing and financing activities. Contracts to hedge exposures in foreign currencies, interest rates etc. are
entered into wherever considered necessary by the management.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of
changes in foreign exchange rates. The functional currency of the Company is Indian Rupees (''INR'' or ''?''). Most of
the Company''s transactions are carried out in Indian Rupees. Exposures to currency exchange rates mainly arise
from the Company''s overseas sales and purchases, lending to overseas subsidiary companies, external commercial
borrowings etc. which are primarily denominated in US Dollars (''USD''), Pound Sterling (''GBP''), Australian Dollars
(''AUD''), Euro (''EUR''), Emirati Dirham (''AED'') and South African Rand (''ZAR'').

The Company has limited exposure to foreign currency risk and thereby it mainly relies on natural hedge. To
further mitigate the Company''s exposure to foreign currency risk, non-INR cash flows are continuously monitored
and derivative contracts are entered into wherever considered necessary.

The following table illustrates the foreign currency sensitivity of profit and equity with regards to the Company''s
financial assets and financial liabilities considering ''all other things being equal'' and ignoring the impact of taxation.
It assumes a /- 1% change of the INR/USD, INR/AUD, INR/GBP, INR/EUR, INR/AED and INR/ZAR exchange rate
for the year ended at 31 December 2024 (31 December 2023: 1%). These are the sensitivity rates used when
reporting foreign currency exposures internally to the key management personnel and represents management''s
assessment of the reasonably possible changes in the foreign exchange rates. The sensitivity analysis includes
only outstanding foreign currency denominated monetary items at end of each period reported upon. A positive
number indicates an increase in profit or equity and vice-versa.

Exposures to foreign exchange rates vary during the year depending on the volume of the overseas transactions.
Nonetheless, the analysis above is considered to be representative of the Company''s exposure to currency risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. The Company''s policy is to minimise interest rate cash flow risk exposures on
long-term financing. The Company is exposed to changes in market interest rates as some of the bank and other
borrowings are at variable interest rates and also loans have been advanced to subsidiary companies at variable
interest rates. All the Company''s term deposits are at fixed interest rates.

The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest
rates of /- 1% (31 December 2023: /- 1%). These changes are considered to be reasonably possible based on
management''s assessment. The calculations are based on a change in the average market interest rate for each
period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All
other variables are held constant.

Other price sensitivity

The Company is not exposed to any listed equity or listed debt price risk as it does not hold any investments in
listed entities.

52.2 Credit risk analysis

Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Company is operating
through a network of distributors and other distribution partners based at different locations. The Company is
exposed to this risk for various financial instruments, for example loans granted, receivables from customers,
deposits placed etc. The Company''s maximum exposure to credit risk is limited to the carrying amount of financial
assets recognised at end of each reporting period, as summarised below:

The Company continuously monitors receivables and defaults of customers and other counterparties, and
incorporates this information into its credit risk controls. Appropriate security deposits are kept against the
supplies to customers and balances are reconciled at regular intervals. The Company''s policy is to deal only with
creditworthy counterparties.

In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to
any single counterparty. Trade receivables consist of a large number of customers of various scales and in different
geographical areas. Based on historical information about customer default rates, management considers the
credit quality of trade receivables. In case the receivables are not recovered even after regular follow up, measures
are taken to stop further supplies to the concerned customer. The expected credit loss is based on the five years
historically observed default rates over the expected life of the trade receivables and is adjusted for forward
looking estimates. Further, the Company has assessed the recoverability of grants receivable classified under
other current financial assets and accordingly provided for balance overdue for more than three years, amounting
to '' 236.45 million (31 December 2023: Nil).

The credit risk for cash and cash equivalents, bank deposits including interest accrued thereon and Government
grant receivables is considered negligible, since the counterparties are reputable banks with high quality external
credit ratings and State Government bodies. The credit risk for loans advanced to subsidiary companies including
interest accrued thereon is also considered negligible since operations of these entities are regularly monitored by
the Company and these companies have shown considerable growth.

In respect of financial guarantees provided by the Company, the maximum exposure which the Company is
exposed to is the maximum amount which the Company would have to pay if the guarantee is called upon. Based
on the expectation at the end of each reporting period, the Company considers that it is more likely than not that
such an amount will not be payable under the guarantees provided.

52.3 Liquidity risk analysis

Liquidity risk is that the Company might be unable to meet its obligations. The Company manages its liquidity needs by
monitoring scheduled debt servicing payments for long-term financial liabilities and considering the maturity profiles
of financial assets and other financial liabilities as well as forecast of operational cash inflows and outflows. Liquidity
needs are monitored in various time bands, on a day-to-day basis, a week-to-week basis and a month-to-month basis.
Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly. Net cash requirements
are compared to available borrowing facilities in order to determine headroom or any shortfalls.

Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities
and the Company''s ability to avail further credit facilities subject to creation of requisite charge on its assets. The
Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low.

As at 31 December 2024, the Company''s non-derivative financial liabilities have contractual undiscounted maturities
as summarised below:

Valuation technique to determine fair value

"Cash and cash equivalents, other bank balances, trade receivables, loans, other current financial assets, trade
payables, current borrowings and other current financial liabilities approximate their carrying amounts largely due
to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is the amount
at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced
or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

• The fair values of the long term borrowings, loans and other deferred payments are determined by using
discounted cash flow method using the appropriate discount rate. The discount rate is determined using
other similar instruments incorporating the risk associated.

Fair value hierarchy

The financial assets measured at fair value are grouped into the fair value hierarchy as on 31 December 2024 and
31 December 2023 as follows: (also refer note 3.1)

Notes:

i. This provision represent estimates made mainly for probable claim arising out of dispute pending with
authority. The probability and the timing of the outflow with regard to the matter depend on the final
outcome of the dispute. Hence, the Company is not able to reasonably ascertain the timing of the outflow.

ii. Discounting obligation has not been considered as the dispute relates to Government Authority.

57. Additional regulatory information not disclosed elsewhere in the financial information during
current and previous financial year.

a) The Company does not have any Benami property and no proceedings have been initiated or pending against
the Company for holding any Benami property, under the Benami Transactions (Prohibitions) Act, 1988 (45
of 1988) and the rules made thereunder.

b) The Company does not have any transactions with struck off companies under section 248 of the Companies
Act, 2013 or section 560 of the Companies Act, 1956, except for the parties mentioned below:

c) The Company does not have any charges which is yet to be registered with ROC beyond the statutory period.

d) The Company has not traded or invested in Crypto currency or Virtual Currency.

e) The Company has not advanced or provided loan to or invested funds in any entity(ies) including foreign
entities (Intermediaries) or to any other person(s), with the understanding that the Intermediary shall:

(a) 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

(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries

f) The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding
Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or
on behalf of the Funding Party (Ultimate Beneficiaries) or

(b) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries,

g) The Company has not undertaken any transaction which is not recorded in the books of accounts that has
been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act,
1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).

h) The Company has not been declared a ‘Wilful Defaulter'' by any bank (as defined under the Companies Act,
2013) or consortium thereof, in accordance with the guidelines on wilful defaulters issued by the Reserve
Bank of India.

i) The Company has complied with the number of layers prescribed under clause (87) of section 2 of the Act
read with Companies (Restriction on number of Layers) Rules, 2017.

j) The borrowings obtained by the company from banks have been applied for the purposes for which such
loans were taken.

k) The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible
assets or both.

l) The Company has borrowings from banks on the basis of security of current assets. The quarterly returns
or statements of current assets filed by the Company with banks are in agreement with the books of
accounts.

58. a) On 13 November 2024, the Company has entered into a binding agreement to acquire 100% stake in the

business conducted by SBC Beverages Tanzania Limited, Tanzania (SBCT), subject to approvals from PepsiCo
Inc., Fair Competition Commission (FCC) Tanzania and other regulatory approvals (if any) for a proposed
purchase consideration amounting to USD 154.50 million. The indicative time period for completion of the
acquisition is on or before 31 March 2025.

SBCT is engaged in the business of manufacturing and distribution of licensed (PepsiCo Inc.) branded
non-alcoholic beverages in Tanzania. SBCT has five manufacturing facilities located at one each in
Dar-es-Salaam, Mbeya, Arusha and two in Mwanza.

b) On 13 November 2024, the Company has entered into a binding agreement to acquire 100% stake in the
business conducted by SBC Beverages Ghana Limited, Ghana (SBCG), subject to approvals from PepsiCo
Inc. and other regulatory approvals (if any) for a proposed purchase consideration amounting to USD 15.06
million. The indicative time period for completion of the acquisition is on or before 28 February 2025.

SBCG is engaged in the business of manufacturing and distribution of licensed (PepsiCo Inc.) branded
non-alcoholic beverages in Ghana. SBCG has one manufacturing facility located at Accra, Ghana.

59. During the year ended 31 December 2024, pursuant to Qualified institutions placement (QIP), the Company has
raised '' 75,000 million through fresh issue of 132,743,362 equity shares of '' 2 each at a premium of '' 563 per share
on 19 November 2024. The Audit, Risk Management and Ethics Committee and the Board of Directors noted the
utilisation of funds raised through such fresh issue of equity shares to be in line with the object of the issue, the
details of which are as follows:

60. Audit Trail

The Ministry of Corporate Affairs (MCA) has prescribed a new requirement for companies under the
proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014, inserted by the Companies (Accounts)
Amendment Rules 2021 requiring companies covered under the Act, which uses accounting software for
maintaining its books of accounts, shall only use such accounting software which has a feature of recording
audit trail of each and every transaction, creating an edit log of each change made in the books of account
along with the date when such changes were made and ensuring that the audit trail cannot be disabled.
The Company uses two accounting software''s , which includes an accounting software for payroll processing
which is operated by the third party software service provider, for maintaining its books of account.

During the year, the audit trail (edit log) feature at the application level was operating for all relevant transactions
recorded in such softwares. However, the audit trail (edit log) feature was not enabled at the database level to log any
direct data changes for one accounting software operated by Company, used for maintenance of books of account.

61. Subsequent events occurred after the balance sheet date:

i The Board of Directors in their meeting held on 10 February 2025 have approved a payment of final dividend
of '' 0.50 (Rupee fifty paisa only) per equity share of the face value of '' 2 each, subject to the approval of
equity shareholders in ensuing annual general meeting of the Company.

ii The Company has invested in the equity shares of one of its subsidiaries named The Beverage Company
Proprietary Limited amounting to '' 4,128.04 million as on 02 January 2025.

62. The amounts of previous reported period have been regrouped/reclassified wherever considered necessary in
order to comply with financial reporting requirements.

The accompanying notes 1 to 62 are an integral part of the standalone financial statements.

As per our report of even date attached.

For J C Bhalla & Co For O P Bagla & Co LLP For and on behalf of the Board of Directors of

Chartered Accountants Chartered Accountants Varun Beverages Limited

Firm’s Registration No.: 001111N Firm’s Registration No.: 000018N/N500091

Akhil Bhalla Neeraj Kumar Agarwal Varun Jaipuria Raj Pal Gandhi

Partner Partner Whole Time Director Whole Time Director

Membership No.: 505002 Membership No.: 094155 DIN 02465412 DIN 00003649

Rajesh Chawla Ravi Batra

Chief Financial Officer Chief Risk Officer and

Place : Gurugram Group Company Secretary

Dated : 10 February 2025 Membership No. F- 5746

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Dec 31, 2022

i. Goodwill and franchise rights with indefinite useful lives are tested for impairment annually, or more frequently if the events and circumstances indicate that the carrying value may be impaired. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable.

The Company has considered the related provisions of Ind AS 38 on ''Intangibles Assets'' which permit certain intangible assets to have an indefinite life and accordingly the carrying value of franchisee rights have been considered to have an indefinite life. These franchisee rights meet the prescribed criteria of renewal at nominal cost, renewal with no specific conditions attached, are sustainable and the same is supported by evidences of being renewed. Management is of the opinion that, based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the franchise rights are expected to generate net cash inflows for the Company.

The assumptions used in this impairment assessment are most sensitive to following:

a) Weighted average cost of capital "WACC” of 13.52% (Previous year - 12.04%) for the explicit period and 13.52% (Previous year - 12.45%) for the terminal year.

b) For arriving at the terminal value, approximate growth rate of 5% (Previous year - 5%) is considered.

c) Number of years for which cash flows were considered are 5 years.

d) The approximate rate of growth in sales is estimated at 8%-10% (Previous year - 8%-15%) in the discrete period.

No impairment loss was identified on the above assessment.

ii. The amount of contractual commitments for the acquisitions of intangible assets are disclosed in Note 42.

iii. Refer Note 51 for information on other intangible assets pledged as security by the Company.

* The Company has subscribed equity shares of Varun Beverages International DMCC amounting to '' 2.05 million and '' 18.63 million (31 December 2021: Nil) on 31 January 2022 and 11 April 2022 respectively.

~ The Company has subscribed the equity investment of IDVB Recycling Operations Private Limited amounting to '' 0.03 million and '' 0.04 million (31 December 2021: Nil) on 01 July 2022 and 01 November 2022 respectively.

@ On 23 November 2022, the Company has subscribed the equity investment of Clean Max Tav Private Limited amounting to '' 0.03 million (31 December 2021:Nil)

* On 31 December 2021, the Company had subscribed the equity investment of Varun Beverages RDC SAS ("VBL RDC”) amounting to '' 0.74 million.

" These investments were tested for impairment in accordance with Ind AS 36 "Impairment of Assets” concluding no impairment to the carrying values.

Refer note 52 for information required under Section 186 (4) of the Companies Act, 2013.

* The loans granted were tested for impairment in accordance with Ind AS 109 concluding no impairment to the carrying values. Refer note 52 for information required under Section 186 (4) of the Companies Act, 2013.

There are no loans and advances in the nature of loans granted to promoters, directors, key managerial personnel and related parties (as defined under Companies Act, 2013) that are either repayable on demand or without specifying any terms or period of repayment.

Terms/rights attached to shares

The Company has only one class of equity shares having a par value of '' 10 each. Each holder of equity share is entitled to one vote per share. In the event of liquidation of the Company, holders of equity shares will be entitled to receive any of the 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. The dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

* on 19 February 2021, a memorandum of family settlement was executed between members of Ravi Kant Jaipuria & Sons (HUF) for partition of all its assets and liabilities. Pursuant to the terms thereof, all equity shares held by Ravi Kant Jaipuria & Sons (HUF) were transferred to Mr. Ravi Kant Jaipuria on 26 February 2021.

As per records of the Company, including its register of shareholders/members and other declaration received from the shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

d) Aggregate number of equity shares issued as bonus during the period of five years immediately preceding the reporting date:

(i) During the year ended 31 December 2019, the Company has issued 91,327,613 equity shares of '' 10 each as fully paid-up bonus shares in the ratio of 1 (One) equity share for every 2 (Two) equity share outstanding on record date.

(ii) During the year ended 31 December 2021, the Company has issued 144,344,360 equity shares of '' 10 each as fully paid-up bonus shares in the ratio of 1 (One) equity share for every 2 (Two) equity share outstanding on record date.

(iii) During the year ended 31 December 2022, the Company has issued 216,516,540 equity shares of '' 10 each as fully paid-up bonus shares in the ratio of 1 (One) equity share for every 2 (Two) equity share outstanding on record date.

For the period of five years of the date of the immediately preceding the reporting date, there was no share allotment made for consideration other than cash. Further, there has been no buy back of shares during the period of five years immediately preceding 31 December 2022 and 31 December 2021.

Description of nature and purpose of each reserve:

Capital reserve - Created on merger of Varun Beverages (International) Limited with the Company pursuant to and in accordance with the Court approved scheme of amalgamation. Includes gain from bargain purchases.

General reserve - Created by way of transfer from debenture redemption reserve on redemption of debentures.

Securities premium - Created to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Act.

Retained earnings - Created from the profit of the Company, as adjusted for distributions to owners, transfers to other reserves, etc.

Share option outstanding account - Created to recognise the grant date fair value of options issued to employees under the employee stock option schemes and is adjusted on exercise / forfeiture of options.

(a) Working capital facilities from banks are secured by first charge on entire current assets of the Company ranking pari-passu amongst the banks and second charge on the movable and immovable assets of the Company pertaining to specific manufacturing units and two facilities from banks were secured by subservient charge over entire current assets and movable fixed assets (both present and future) of the Company. During the previous year, two facilities from bank were secured by subservient charge over entire current assets and movable fixed assets (both present and future) of the Company. These facilities carry interest rates ranging between 7.05% to 7.45% (31 December 2021: 4.25% to 4.40%).

(b) Working capital facility from a bank carrying interest rate 7.10% per annum and is repayable within 30 days from the date of disbursement and buyers credit carrying interest rates ranging between 3.70% to 3.86% per annum and is repayable in June 2023. During the previous year ended on 31 December 2021, working capital facilitates from banks carrying interest rates ranging between 4.40% to 4.65% per annum and was repaid during the current year.

There are no defaults in repayment of principal borrowings or interest there on.

**The amounts recognised in other comprehensive income relate to the re-measurement of net defined retirement benefit liability. Refer note 36 for the amount of the income tax relating to these components of other comprehensive income.

All significant deferred tax assets have been recognised in the balance sheet.

On 20 September 2019, vide the Taxation Laws (Amendment) Ordinance 2019, the Government of India inserted Section 115BAA in the Income Tax Act, 1961 which provides domestic companies a non-reversible option to pay corporate tax at reduced rates effective 01 April 2019 subject to certain conditions.

During the year ended 31 December 2022, the Company has decided to opt for the new tax regime u/s 115 BAA of the Income Tax Act,1961 w.e.f. Assessment year 2023-24 after utilisation of all unutilised Minimum Alternate Tax credit and other tax benefits/holidays available.

D. Contract asset is the right to consideration in exchange for goods or services transferred to the customer. Contract liabilities are on account of the advance payment received from customer for which performance obligation has not yet been completed.

The performance obligation is satisfied when control of the goods or services are transferred to the customers based on the contractual terms. The Company does not have any remaining performance obligation as contracts entered for sale of goods are for a shorter duration. Further, there are no contracts for sale of services wherein, performance obligation is unsatisfied to which transaction price has been allocated.

Payment terms with customers vary depending upon the contractual terms of each contract and generally falls in the range of 0 to 120 days from the completion of performance obligation.

37. The Board of Directors in their meeting dated 06 February 2023 have approved a payment of final dividend of '' 1.00 (Rupees One only) per equity share of the face value of '' 10 each, subject to the approval of equity shareholders in ensuing annual general meeting of the Company. With this, total dividend declared for the year ended 31 December 2022 stands at '' 3.50 (Rupees three and paise fifty only) per equity share of the face value of '' 10 each.

38. Gratuity and other post-employment benefit plans Gratuity:

The Company has a defined benefit gratuity plan governed by the Payments of Gratuity Act, 1972. Every employee who has completed five years or more of services is eligible for gratuity on separation at 15 days salary (last drawn salary) for each completed year of service. The Company has formed a Gratuity Trust to which contribution is made and an insurance policy is taken by the trust, which is a year-on-year cash accumulation plan in which the interest rate is declared on yearly basis and is guaranteed for a period of one year. The insurance company, as

part of the policy rules, makes payment of all gratuity outflow during the year (subject to sufficiency of funds under the policy). The policy, thus, mitigates the liquidity risk. However, being a cash accumulation plan, the duration of assets is shorter compared to the duration of liabilities. Thus, the Company is exposed to movement in interest rate (particularly, the significant fall in interest rates, which should result in a increase in liability without corresponding increase in the asset. The Company makes a provision of unfunded liability based on actuarial valuation in the Balance Sheet as part of employee cost.

Compensated absences:

The Company recognises the compensated absences expenses in the Statement of Profit and Loss based on actuarial valuation.

Effect of the defined benefit plan on the Company’s future cash flows:

Funding arrangements and funding policy:

The Company has purchased an insurance policy to provide for payment of gratuity to the employees. Every year, the insurance company carries out a funding valuation based on the latest employee data provided by the Company. Any deficit in the assets arising as a result of such valuation is funded by the Company.

Expected contribution during the next annual reporting period:

The Company''s best estimate of contribution during the next financial year approximates to '' 1,566.90 million (31 December 2021: '' 1,847.68 million).

Defined contribution plan:

Contribution to defined contribution plans, recognised as expense for the year is as under:

Employer''s contribution to provident and other funds '' 397.98 million (31 December 2021''354.88 million) (Refer note 32)

41.	Contingent liabilities ('' in million)
		As at 31 December 2022	As at 31 December 2021
	Claims against the Company not acknowledged as debts (being contested):-
	(i) Goods and service tax	26.70	6.78
	(ii) For excise and service tax	67.47	70.86
	(iii) For customs	90.75	90.75
	(iv) For sales tax / entry tax	629.06	626.22
	(v) For income tax	144.36	145.92
	(vi) For mandi tax and others*	400.04	375.31
42.	’excludes pending matters where amount of liability is not ascertainable. Commitments ('' in million)
		As at 31 December 2022	As at 31 December 2021
	a. Guarantees issued on behalf of subsidiaries for business purposes	3,221.21	1,083.46
	b. Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances of '' 3,879.81 (31 December 2021: '' 1,399.00)).	15,932.53	4,605.37

43. Pursuant to transfer pricing legislations under the Income-tax Act, 1961, the Company is required to use specified methods for computing arm''s length price in relation to specified international and domestic transactions with its associated enterprises. Further, the Company is required to maintain prescribed information and documents in relation to such transactions. The appropriate method to be adopted will depend on the nature of transactions/ class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Company is in the process of updating its transfer pricing documentation for the current financial year. Based on the preliminary assessment, the management is of the view that the update would not have a material impact on the tax expense recorded in these financial statements. Accordingly, these financial statements do not include any adjustments for the transfer pricing implications, if any.

45. Disclosure on lease transactions pursuant to Ind AS 116 - Leases

The Company''s lease asset class primarily consists of leases for land, buildings and plant and equipment. With the exception of short-term leases, leases of low-value and cancellable long-term leases underlying assets, each lease is reflected on the balance sheet as a right of use asset and a lease liability.

Lease liabilities are measured at the present value of the remaining lease payments, discounted using the weighted average borrowing rate 5.44-8.22% (31 December 2021: 5.44-8.22% ).

Each lease generally imposes a restriction that, unless there is a contractual right for the Company to sublet the asset to another party, the right of use asset can only be used by the Company. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to extend the lease for a further term. The Company is prohibited from selling or pledging the underlying leased assets as security against the Company''s other debts and liabilities.

iv. Lease payments not recognised as a liability

The Company has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12 months or less), cancellable long-term leases and for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. The expense relating to payments not included in the measurement of the lease liability for short term leases is '' 569.90 million (31 December 2021''533.90 millons).

46. The business activities of the Company predominantly fall within a single reportable business segment, i.e., manufacturing and sale of beverages within India. There are no separately reportable business or geographical segments that meet the criteria prescribed in Ind AS 108 on Operating Segments. The aforesaid is in line with review of operating results by the chief operating decision maker. The sale of products of the Company is seasonal.

49. Share-based payments

a. Description of share based payment arrangements i) Share Options Schemes (equity settled)

Employees Stock Option Scheme 2016 (“ESOP 2016 or scheme”)

The ESOP 2016 was approved by the Board of Directors and the shareholders on 27 April 2016 and further ratified and amended by the shareholders in their meetings held on 17 April 2017 and 07 April 2022 respectively. Further, National Stock Exchange of India Limited and BSE Limited have accorded their in principle approvals for issue and allotment of upto 8,347,576 equity shares (’’Ceiling Limit”). The scheme was formulated with the objective to enable the Company to grant Options for equity shares of the Company to certain eligible employees as defined in the Scheme at a pre-determined price.

The risk-free interest rate (continuous compounding) being considered for the calculation is the interest rate applicable for maturity equal to the expected life of the options on the date of grant of options based on the zero-coupon yield curve for Government Securities available as on Valuation date taken from www.ccilindia.com.

The measure of volatility used in the Option-Pricing Model is the annualised standard deviation of the continuous rates of return on the stock over a period of time.

50. Capital management

For the purpose of the Company''s capital management, capital includes issued equity share capital, securities premium and all other equity reserves attributable to the equity shareholders of the Company.

The Company''s capital management objectives are:

- to ensure the Company''s ability to continue as a going concern

- to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, non-current and current borrowings, deferred payment liabilities, current maturity of long-term debts and lease liabilities, less cash and cash equivalents, excluding discontinued operations, if any.

In order to achieve this overall objective, the Company''s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2022 and 31 December 2021.

There''s no breaches in the financial covenants of the borrowing that would permit the banks to immediately call loans and borrowings in the reporting periods.

53. Financial instruments risk

Financials risk management objectives and policies

The Company is exposed to various risks in relation to financial instruments. The main types of financial risks are market risk, credit risk and liquidity risk.

The management of the Company monitors and manages the financial risks relating to the operations of the Company on a continuous basis. The Company''s risk management is coordinated at its head office, in close cooperation with the management, and focuses on actively securing the Company''s short to medium-term cash flows and simultaneously minimising the exposure to volatile financial markets. Long-term financial investments are managed to generate lasting returns.

The Company does not engage in the trading of financial assets for speculative purposes. The most significant financial risks to which the Company is exposed are described below.

53.1 Market risk analysis

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company is exposed to market risk through its use of financial instruments and specifically to foreign currency risk, interest rate risk and commodity price risk which result from its operating, investing and financing activities. Contracts to hedge exposures in foreign currencies, interest rates etc. are entered into wherever considered necessary by the management.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The functional currency of the Company is Indian Rupees (''INR'' or ''?''). Most of the Company''s transactions are carried out in Indian Rupees. Exposures to currency exchange rates mainly arise from the Company''s overseas sales and purchases, lending to overseas subsidiary companies, external commercial borrowings etc. which are primarily denominated in US Dollars (''USD''), Australian Dollars (AUD), Pound Sterling (''GBP''), Singapore Dollars (''SGD''), Euro and Emirati Dirham (''AED'').

The Company has limited exposure to foreign currency risk and thereby it mainly relies on natural hedge. To further mitigate the Company''s exposure to foreign currency risk, non-INR cash flows are continuously monitored and derivative contracts are entered into wherever considered necessary.

The following table illustrates the foreign currency sensitivity of profit and equity with regards to the Company''s financial assets and financial liabilities considering ''all other things being equal'' and ignoring the impact of taxation. It assumes a /- 1% change of the INR/USD, INR/AUD, INR/GBP, INR/SGD, INR/Euro and INR/AED exchange rate for the year ended at 31 December 2022 (31 December 2021: 1%). These are the sensitivity rates used when reporting foreign currency exposures internally to the key management personnel and represents management''s assessment of the reasonably possible changes in the foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items at end of each period reported upon. A positive number indicates an increase in profit or equity and vice-versa.

If the INR had strengthened against the USD by 1% (31 December 2021: 1%), AUD by 1% (31 December 2021: Nil), GBP by 1% (31 December 2021: 1%), SGD by 1% (31 December 2021: 1%), Euro by 1% (31 December 2021: 1%) and AED by 1% (31 December 2021: Nil), the following would have been the impact:

Exposures to foreign exchange rates vary during the year depending on the volume of the overseas transactions. Nonetheless, the analysis above is considered to be representative of the Company''s exposure to currency risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company''s policy is to minimise interest rate cash flow risk exposures on long-term financing. The Company is exposed to changes in market interest rates as some of the bank and other borrowings are at variable interest rates and also loans have been advanced to subsidiary companies at variable interest rates. All the Company''s term deposits are at fixed interest rates.

The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of /- 1% (31 December 2021: /- 1%). These changes are considered to be reasonably possible based on management''s assessment. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant.

Commodity price risk

The Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase of pet chips and sugar and therefore require a continuous supply. In view of volatility of pet chips and sugar prices, the Company also executes into various advance purchase contracts.

Other price sensitivity

The Company is not exposed to any listed equity or listed debt price risk as it does not hold any investments in listed entities.

53.2 Credit risk analysis

Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Company is operating through a network of distributors and other distribution partners based at different locations. The Company is exposed to this risk for various financial instruments, for example loans granted, receivables from customers, deposits placed etc. The Company''s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at end of each reporting period, as summarised below:

The Company continuously monitors receivables and defaults of customers and other counterparties, and incorporates this information into its credit risk controls. Appropriate security deposits are kept against the supplies to customers and balances are reconciled at regular intervals. The Company''s policy is to deal only with creditworthy counterparties.

In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty. Trade receivables consist of a large number of customers of various scales and in different geographical areas. Based on historical information about customer default rates, management considers the credit quality of trade receivables. In case the receivables are not recovered even after regular follow up, measures are taken to stop further supplies to the concerned customer. The expected credit loss is based on the five years historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates.

The credit risk for cash and cash equivalents, bank deposits including interest accrued thereon and Government grant receivables is considered negligible, since the counterparties are reputable banks with high quality external credit ratings and State Government bodies. The credit risk for loans advanced to subsidiary companies including interest accrued thereon is also considered negligible since operations of these entities are regularly monitored by the Company and these companies have shown considerable growth.

In respect of financial guarantees provided by the Company, the maximum exposure which the Company is exposed to is the maximum amount which the Company would have to pay if the guarantee is called upon. Based on the expectation at the end of each reporting period, the Company considers that it is more likely than not that such an amount will not be payable under the guarantees provided.

53.3 Liquidity risk analysis

Liquidity risk is that the Company might be unable to meet its obligations. The Company manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities and considering the maturity profiles of financial assets and other financial liabilities as well as forecast of operational cash inflows and outflows. Liquidity needs are monitored in various time bands, on a day-to-day basis, a week-to-week basis and a month-to-month basis. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly. Net cash requirements are compared to available borrowing facilities in order to determine headroom or any shortfalls.

Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the Company''s ability to avail further credit facilities subject to creation of requisite charge on its assets. The Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low.

Valuation technique to determine fair value

Cash and cash equivalents, other bank balances, trade receivables, loans, other current financial assets, trade payables, current borrowings and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

- The fair values of the long term borrowings, loans and other deferred payments are determined by using discounted cash flow method using the appropriate discount rate. The discount rate is determined using other similar instruments incorporating the risk associated.

- The Company executed derivative financial instruments such as cross currency interest rate swap being valued using valuation techniques, which employs use of market observable inputs. The Company uses mark to market valuation provided by bank for its valuation.

i. Increased in earnings during the current year compared to previous year, previous year earnings impacted due to COVID-19 pandemic in seasonal months.

ii. I ncreased in revenue from operations during the current year compared to previous year, previous year revenue impacted due to COVID-19 pandemic in seasonal months.

iii. Decreased primarily due to increase in inventory, other assets and current borrowings.

c) The Company does not have any charges which is yet to be registered with ROC beyond the statutory period. The Company had obtained loans from banks in earlier years which have been fully repaid. However pending NOCs from banks, the satisfaction of charges is yet to be registered with ROC in some of the cases.

d) The Company has not traded or invested in Crypto currency or Virtual Currency during the current and previous financial year.

e) The Company has not advanced or provided loan to or invested funds in any entity(ies) including foreign entities (Intermediaries) or to any other person(s), with the understanding that the Intermediary shall:

(a) 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

(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries

f) The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:

(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or

(b) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries,

g) The Company has not undertaken any transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).

h) The Company has not been declared a ''Wilful Defaulter'' by any bank or financial institution (as defined under the Companies Act, 2013) or consortium thereof, in accordance with the guidelines on wilful defaulters issued by the Reserve Bank of India.

i) The company has complied with the number of layers prescribed under clause (87) of section 2 of the Act read with Companies (Restriction on number of Layers) Rules, 2017.

j) The borrowings obtained by the company from banks have been applied for the purposes for which such loans were taken.

k) The title deeds of all the immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favour of the lessee) are held in the name of the company.

l) The Company has not revalued its property, plant and equipment (including right-of-use assets) or intangible assets or both during the current or previous year.

m) The Company has borrowings from banks on the basis of security of current assets. The quarterly returns or statements of current assets filed by the Company with banks are in agreement with the books of accounts.

58. The amounts of previous reported period have been regrouped/reclassified pursuant to changes notified in Schedule-III wherever considered necessary in order to comply with financial reporting requirements.

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Dec 31, 2018

1 Corporate information

Varun Beverages Limited (the ‘Company’) is a public limited Company domiciled in India. Its registered office is at F-2/7, Okhla Industrial Area, Phase-I, New Delhi- 110 020. The Company’s equity shares are listed on Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India (NSE). The Company was incorporated on 16 June 1995 under the provision of the Companies Act, 1956. The Company is engaged in manufacturing, selling, bottling and distribution of beverages of PepsiCo’s brand in geographically pre-defined territories as per franchisee agreement with PepsiCo India Holdings Private Limited (“PepsiCo India”).

2 Basis for preparation

These standalone financial statements (‘financial statements’) of the Company have been prepared in accordance with Indian Accounting Standard (‘Ind AS’) and comply with requirements of Ind AS, stipulations contained in Schedule III (revised) as applicable under Section 133 of the Companies Act, 2013 (“the Act”), the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and other pronouncements/ provisions of applicable laws. These financial statements are authorised for issue on 20 February 2019 in accordance with a resolution of the Board of Directors. Board of Directors permits the revision to the standalone financial statements after obtaining necessary approvals or at the instance of regulatory authorities as per provisions of the Companies Act, 2013.

The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value:

i. Derivative financial instruments;

ii. Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments);

iii. Defined benefit plans- plan assets measured at fair value; and

iv. Share based payments;

The Company presents assets and liabilities in the balance sheet based on current/non-current classification. An asset is treated as current if it satisfies any of the following conditions:

i. Expected to be realised or intended to sold or consumed in normal operating cycle;

ii. Held primarily for the purpose of trading;

iii. Expected to be realised within twelve months after the reporting period;

iv. Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current if it satisfies any of the following conditions:

i. It is expected to be settled in normal operating cycle;

ii. It is held primarily for the purpose of trading;

iii. It is due to be settled within twelve months after the reporting period; or

iv. There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

All other liabilities are classified as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

The operating cycle is the time between the acquisition of assets for processing and its realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle.

The Company follows calendar year as its financial year as approved by the Company Law Board, New Delhi.

The financial statements of the Company are presented in Indian Rupees (‘), which is also its functional currency and all amounts disclosed in the financial statements and notes have been rounded off to the nearest million as per the requirement of Schedule III to the Act, unless otherwise stated.

Footnotes to Note 5A and 5B:

i. The Company has considered the related provisions of Ind AS 38 on ‘Intangibles Assets’ which permit certain intangible assets to have an indefinite life and accordingly the carrying value of these franchisee rights have been considered to have an indefinite life. These franchisee rights meet the prescribed criteria of renewal at nominal cost, renewal at no specific conditions attached and is supported by evidences of being renewed. Management is of the opinion that, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the franchise rights are expected to generate net cash inflows for the Company.

Goodwill and franchise rights with indefinite useful lives are tested for impairment annually, or more frequently if the events and circumstances indicate that the carrying value may be impaired. The useful life of an intangible asset with an indefinite useful life is reviewed annually to determine whether the useful life assessment continues to be supportable.

The assumptions used in this impairment assessment are most sensitive to following:

a) Weighted average cost of capital ‘‘WACC’’ of 13.82%.

b) For arriving at the terminal value, approximate growth rate of 5% is considered.

c) Number of years for which cash flows were considered are 5 years.

No impairment loss was identified on the above assessment.

ii. The amount of contractual commitments for the acquisitions of intangible assets are disclosed in Note 43.

*During the year ended on 31 December 2018, loans given to Varun Beverages Morocco SA (“VBL Morocco”) amounting to Rs. 649.73 (31 December 2017: Rs. 547.54) was converted into equity investment.

**During the year ended on 31 December 2018, loans given to Varun Beverages (Zambia) Limited (“VBL Zambia”) amounting to Rs. 196.02 (31 December 2017: ‘ Nil) was converted into equity investment.

Refer note 55 for information required under Section 186 (4) of the Companies Act, 2013.

The Company manufactures as well as purchases the same product from market for sale. In the absence of demarcation between manufactured and purchased goods, stock in trade values, which are not significant, are not separately ascertainable.

The cost of inventories recognised as an expense during the year is disclosed in Note 31, Note 32 and Note 33.

*In June 2017, in view of set-up of new production unit at Goa, the Company decided to sell certain land and building situated at Goa which was originally acquired with acquisition of Goa territory and land situated at Gonda (Uttar Pradesh).

During the year ended on 31 December 2018, these assets have been re-classified back to Property, Plant and Equipment on account of conditions mentioned in Ind AS 105.

Given the nature of assets, such reclassification or change in plan has no effect on result of operations for this year or prior period. **The plant and equipment has been disposed off to one of the subsidiary during the year ended 31 December 2018. The gain on sale of plant and equipment was recognised in the Statement of Profit and Loss under the head ‘Other Income’ during the year.

b) Terms/rights attached to shares

The Company has only one class of equity shares having a par value of Rs. 10 each. Each holder of equity share is entitled to one vote per share. In the event of liquidation of the Company, holders of equity shares will be entitled to receive any of the 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. The dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

As per records of the Company, including its register of shareholders/members and other declaration received from the shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

d) Aggregate number of equity shares issued as bonus, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:

During the year 2013, the Company issued 26,752,733 equity shares of Rs. 10 each for a consideration other than cash. The Company cancelled 7,999,500 equity shares of Rs. 10 each pursuant to the scheme of amalgamation of Varun Beverages (International) Limited with Varun Beverages Limited approved by Hon’ble High Court of Delhi on 12 March 2013. Also, 107,012,932 equity shares of Rs. 10 each have been issued in the ratio of 4:1 as bonus shares during the year 2013.

g) Preference share capital

The Company also has authorised preference share capital of 50,000,000 (31 December 2017: 50,000,000) preference shares of ‘100 each. The Company does not have any outstanding issued preference shares.

* The disaggregation of changes in OCI by each type of reserves in equity is disclosed in Note 38.

Description of nature and purpose of each reserve:

Capital reserve - Created on merger of Varun Beverages International Limited with the Company pursuant to and in accordance with the Court approved scheme of amalgamation, prior to the transition date.

General reserve - Created by way of transfer from debenture redemption reserve on redemption of debentures and is not an item of other comprehensive income.

Debenture redemption reserve - Created as per provisions of the Act out of the distributable profits and can only be utilised for redemption of debentures.

Securities premium - Created to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Act.

Retained earnings - Created from the profit / loss of the Company, as adjusted for distributions to owners, transfers to other reserves, etc.

Share option outstanding account - Created for recording the grant date fair value of options issued to employees under employee stock option schemes and is adjusted on exercise/ forfeiture of options.

Foreign currency monetary item translation difference account - Created for recording exchange differences arising on restatement of long term foreign currency monetary items, other than for acquisition of fixed assets, and is being amortised over the maturity period of such monetary items.

Loans and borrowing above are recognised at amortised cost/ fair value taking into account any discount or premium on acquisition and fee or costs that are part of effective interest rate, accordingly the outstanding balances above may not necessarily agree with repayment amounts.

a) Terms and conditions of issue and redemption of Listed Non-convertible debentures (NCDs) to Kotak Mahindra Bank Limited and RBL Bank Limited are as under:

During the year ended 31 December 2017, the Company had issued 1,500 NCDs each to Kotak Mahindra Bank Limited and RBL Bank Limited. The NCDs were repaid during the year. There were no NCDs outstanding as at 31 December 2018 and details of NCDs as at 31 December 2017 are as under:

The Rated Secured Listed Redeemable Rupee Denominated NCDs (3000) were redeemable at par in 5 years and 4 months from the deemed date of allotment and carried a coupon rate of 7.70% per annum. The NCDs were redeemable 10%, 25%, 30% and 35% at 30 June 2019, 2020, 2021 and 2022 respectively unless redeemed earlier at the option of holder. During the year ended on 31 December 2018, the holders of NCDs exercised the option of early redemption and these were redeemed. These NCDs were secured by way of first pari-passu charge on the moveable and immoveable fixed assets of the Company providing a security cover of 1.30 times.

The Audit Committee and Board of Directors of the Company noted the utilisation of the proceeds of NCDs for the year ended 31 December 2017, which was in line with utilisation schedule approved by the Board of Directors.

(a) Working capital facilities from banks are secured by first charge on entire current assets of the Company ranking pari-passu amongst the banks and second charge on the movable and immovable assets of the Company pertaining to specific manufacturing units. One facility is secured by subservient charge over entire current assets and movalbel fixed assets (both present and future) of the Company. These facilities carries interest rates ranging between 8.50 to 9.70% (31 December 2017: 8.50 to 9.70%).

(b) Working capital facilities from a bank are secured by first charge on entire current assets of the Company ranking pari-passu amongst the banks. The facilities carries interest rates ranging between 8.55 to 8.60% (31 December 2017: Nil).

(c) LC payable to a bank carries rate of interest of 8.65 % for 120 days.

*The Company has complied with all the loan covenants of non-current and current borrowings.

There is no default in repayment of principal borrowings or interest there on. (Refer note 52)

The amounts recognised in other comprehensive income relate to the re-measurement of net defined retirement benefit liability. Refer note 38 for the amount of the income tax relating to these components of other comprehensive income.

All significant deferred tax assets (including tax losses and other tax credits) have been recognised in the balance sheet.

During the year ended 31 December 2018 and 31 December 2017, the Company has paid dividend to its shareholders. This has resulted in payment of Dividend Distribution Tax to the taxation authorities. The Company believes that Dividend Distribution Tax represents additional payment to taxation authority on behalf of the shareholders. Hence, Dividend Distribution Tax paid is charged to equity.

*The Company manufactures plastic shells at one of its manufacturing facilities at Alwar. The shells manufactured are used for beverages operations of the Company as property, plant and equipment (under the head “Containers”). These containers are also sold to third parties. The cost of manufacturing of plastic shells is being shown here separately with a corresponding debit to property, plant and equipment.

3. Gratuity and other post-employment benefit plans

Gratuity:

The Company has a defined benefit gratuity plan governed by the Payments of Gratuity Act, 1972. Every employee who has completed five years or more of services is eligible for gratuity on separation at 15 days salary (last drawn salary) for each completed year of service. The Company has formed a Gratuity Trust to which contribution is made and an insurance policy is taken by the trust, which is a year-on-year cash accumulation plan in which the interest rate is declared on yearly basis and is guaranteed for a period of one year. The insurance company, as part of the policy rules, makes payment of all gratuity outflow during the year (subject to sufficiency of funds under the policy). The policy, thus, mitigates the liquidity risk. However, being a cash accumulation plan, the duration of assets is shorter compared to the duration of liabilities. Thus, the Company is exposed to movement in interest rate (particularly, the significant fall in interest rates, which should result in a increase in liability without corresponding increase in the asset. The Company makes a provision of unfunded liability based on actuarial valuation in the Balance Sheet as part of employee cost.

Compensated absences:

The Company recognises the compensated absences expenses in the Statement of Profit and Loss based on actuarial valuation.

Defined contribution plan:

Contribution to defined contribution plans, recognised as expense for the year is as under: Employer’s contribution to provident and other funds Rs. 201.90 (31 December 2017 Rs. 165.23)

4. Pursuant to transfer pricing legislations under the Income-tax Act, 1961, the Company is required to use specified methods for computing arm’s length price in relation to specified international and domestic transactions with its associated enterprises. Further, the Company is required to maintain prescribed information and documents in relation to such transactions. The appropriate method to be adopted will depend on the nature of transactions/ class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Company is in the process of updating its transfer pricing documentation for the current financial year. Based on the preliminary assessment, the management is of the view that the update would not have a material impact on the tax expense recorded in these financial statements. Accordingly, these financial statements do not include any adjustments for the transfer pricing implications, if any.

5. The Company has taken various premises and other fixed assets on operating leases. The lease agreements generally have a lock-in-period of 1-5 years and are cancellable at the option of the lessee thereafter. Majority of the leases have escalation terms after certain years and are extendable by mutual consent on expiry of the lease. There are no sub-leases. During the year, lease payments under operating leases amounting to Rs. 308.21 (31 December 2017 Rs. 321.93) have been recognised as an expense in the Statement of Profit and Loss.

6. The business activities of the Company predominantly fall within a single reportable business segment, i.e., manufacturing and sale of beverages within India. There are no separately reportable business or geographical segments that meet the criteria prescribed in Ind AS 108 on Operating Segments. The aforesaid is in line with review of operating results by the chief operating decision maker. The sale of products of the Company is seasonal.

7. Dues to Micro and Small Enterprises

The dues to Micro and Small Enterprises as required under the Micro, Small and Medium Enterprises Development Act, 2006 to the extent information available with the Company is given below:

8. Details of Corporate Social Responsibility (CSR) expenditure

In accordance with the provisions of section 135 of the Companies Act, 2013, the Board of Directors of the Company had constituted CSR Committee. The details for CSR activities is as follows.

Refer note 45B for amounts paid to Champa Devi Jaipuria Charitable Trust towards contribution for ‘‘Shiksha Kendra’’ for the education of poor and under privileged children and to Diagno Labs Private Limited for free health check-up camps.

9. Acquisitions and disposals

Acquisitions and disposals during the year ended 31 December 2018: A. Acquisitions under business combination

The Company acquired PepsiCo India’s previously franchised territory in the of State of Jharkhand in India along with manufacturing unit at Jamshedpur for a total purchase consideration of Rs. 552.13 on a slump sale basis, excluding net payable of Rs. 60.33 on account of net working capital adjustment taken over as part of business.

B. Assets acquisitions

i. On 11 January 2018, the Company has acquired PepsiCo India’s previously franchised territory in the State of Chhattisgarh along with certain property, plant and equipment and other intangible assets for a total purchase consideration of Rs. 150.00 from SMV Beverages Private Limited.

ii On 17 January 2018, PepsiCo India has transferred franchise territory in the State of Bihar to the Company. Subsequently on 12 December 2018, the Company has paid an amount of Rs. 450.00 to Lumbini Beverages Private Limited for acquiring certain property, plant and equipment and other intangible assets for the State of Bihar.

iii On 18 January 2018, the Company has acquired a manufacturing unit at Cuttack, Odisha along with certain assets for a total purchase consideration of Rs. 437.50 from SMV Beverages Private Limited.

iv On 05 April 2018, the Company has acquired a manufacturing unit at Jamshedpur, Jharkhand along with certain assets for a total purchase consideration of Rs. 101.49 from Steel City Beverages Private Limited.

Acquisitions and disposals during the year ended 31 December 2017

C. Acquisitions under business combination

The Company acquired PepsiCo India’s previously franchised territories in the parts of Madhya Pradesh and State of Odisha along with two manufacturing units at Bargarh and Bhopal (Mandideep) for a total purchase consideration of Rs. 470.00 and Rs. 832.00 respectively on a slump sale basis. The aforesaid purchase consideration excludes adjustment for working capital taken over as part of business.

Goodwill

Goodwill of Rs. 19.40 primarily relates to growth expectations, expected future profitability. Goodwill has been allocated to the beverages segment and is deductible for tax purposes.

D. Acquisition of 30% stake in Varun Beverages (Zambia) Limited

The Company increased its controlling stake in its existing subsidiary company namely, Varun Beverages (Zambia) Limited from existing 60% up to 90% by acquiring further 15,000 shares from the existing shareholders (Multi Treasure Ltd.: 9,200 shares and Africa Bottling Company Ltd.: 5,800 shares) for a consideration of Rs. 719.16 million on 20 February 2017.

E. Disposal of 41% stake in Varun Beverages Mozambique Limitada

The Company sold 41% equity quota of Varun Beverages Mozambique Limitada to reduce its stake from 51% down to 10% for a consideration of Rs. 0.11 on 02 March 2017. This transaction did not have any material impact on these financial statements.

During the year ended 31 December 2018, the Company sold its 10% stake in Varun Beverages Mozambique Limitada to other shareholder for a consideration of Rs. 0.03.

10. Share-based payments

Description of share based payments arrangements

During the year ended 31 December 2013, the Company granted stock options to certain employees of the Company and its subsidiaries. The Company has the following share-based payment arrangements for employees.

A. Employee Stock Option Plan 2013 (ESOP 2013)

The ESOP 2013 (“the Plan”) was approved by the Board of Directors and the shareholders on 13 May 2013 and further amended by Board of Directors on 01 December 2015. The plan entitles key managerial personnel and employees of the Company and its subsidiaries to purchase shares in the Company at the stipulated exercise price, subject to compliance with vesting conditions. Stock options can be settled by issue of equity shares. As per the Plan, holders of vested options are entitled to purchase one equity share for every option at an exercise price of Rs. 149.51, which is 1.14 % above the stock price at the date of grant, i.e., 13 May 2013.

The expense recognised for employee services received during the respective years is ‘ Nil.

Movements during the year

The following table illustrates the number and weighted average exercise prices (WAEP) of, and changes in, share options during the year:

The fair values of options granted under new plan were determined using a variation of the binomial option pricing model that takes into account factors specific to the share incentive plans, such as the vesting period. The following principal assumptions were used in the valuation:

B. Employee Stock Option Plan 2016 (“ESOS 2016”)

The ESOS 2016 (“the Scheme”) was approved by the Board of Directors and the shareholders on 27 April 2016. The Scheme entitles key managerial personnel and employees of the Company and its subsidiaries to purchase shares in the Company at the stipulated exercise price, subject to compliance with vesting conditions. Stock options can be settled by issue of equity shares. No options under this Scheme have been granted in the financial year ended 31 December 2018.

11. Capital management

For the purpose of the Company’s capital management, capital includes issued equity share capital, securities premium and all other equity reserves attributable to the equity shareholders of the Company. The Company’ s capital management objectives are:

- to ensure the Company’s ability to continue as a going concern

- to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, non-current and current borrowings, deferred payment liabilities, less cash and cash equivalents, excluding discontinued operations, if any.

The amounts managed as capital by the Company for the reporting periods are summarised as follows:

In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2018 and 31 December 2017.

Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any borrowing in the reporting periods.

12. Assets pledged as security

The carrying amount of assets pledged as security are:

13. Recent accounting pronouncements (Ind AS issued but not yet effective)

The Ministry of Corporate Affairs (“MCA”) issued the Companies (Indian Accounting Standards) Amendments Rules, 2018 and Companies (Indian Accounting Standards) Second Amendments Rules, 2018, notifying Ind AS 115, ‘Revenue from Contract with Customers’, Appendix B to Ind AS 21, Foreign currency transactions and advance consideration and amendments to Ind AS 20, Government grants. These amendments are in line with recent amendments made by International Accounting Standards Board (“IASB”). These amendments are applicable to the Company from accounting periods beginning on or after 01 January 2019, i.e., from financial year 2019.

Ind AS 115, Revenue from Contract with Customers:

Ind AS 115 supersedes Ind AS 11, Construction Contracts and Ind AS 18, Revenue. Ind AS 115 requires an entity to report information regarding nature, amount, timing and uncertainty of revenue and cash flows arising from contract with customers. The principle of Ind AS 115 is that entity should recognize revenue that demonstrates the transfer of promised goods and services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The standard can be applied either retrospectively to each prior reporting period presented or can be applied retrospectively with recognition of cumulative effects of contracts that are not completed contacts at the date of initial application of the standard.

The Company is evaluating the requirements of the standard and the effect on the financial statements. Appendix B to Ind AS 21, Foreign currency transactions and advance consideration:

The appendix clarifies that the date of transaction for the purpose of determining the exchange rate to use an initial recognition of the asset, expense or income ( or part of it) is the date on which an entity initially recognizes the non- monetary asset or non-monetary liability arising from the payment or receipt of advance consideration towards such assets, expense or income. If there are multiple payments or receipts of advance, then an entity must determine transaction date for each payment or receipts of advance consideration.

The Company is evaluating the requirements of the amendment and the effect on the financial statements.

Ind AS 20, Government grant:

The amendment provides alternative to recognition of government grants related to assets and non-monetary grant. Government grant related to assets can also be presented by deducting the grant from the carrying amount of the asset and non-monetary grant can be recognised at a nominal amount.

The Company has evaluated the requirements of the amendment and is not expecting to use such options.

The above financial guarantees are given on behalf of subsidiaries for business purposes.

All transactions are in the ordinary course of business.

14. Financial instruments risk

Financials risk management objectives and policies

The Company is exposed to various risks in relation to financial instruments. The main types of financial risks are market risk, credit risk and liquidity risk.

The management of the Company monitors and manages the financial risks relating to the operations of the Company on a continuous basis. The Company’s risk management is coordinated at its head office, in close cooperation with the management, and focuses on actively securing the Company’s short to medium-term cash flows and simultaneously minimising the exposure to volatile financial markets. Long-term financial investments are managed to generate lasting returns.

The Company does not engage in the trading of financial assets for speculative purposes. The most significant financial risks to which the Company is exposed are described below.

14.1Market risk analysis

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company is exposed to market risk through its use of financial instruments and specifically to currency risk and interest rate risk, which result from its operating, investing and financing activities. Contracts to hedge exposures in foreign currencies, interest rates etc. are entered into wherever considered necessary by the management.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The functional currency of the Company is Indian Rupees (‘INR’ or T). Most of the Company’s transactions are carried out in Indian Rupees. Exposures to currency exchange rates mainly arise from the Company’s overseas sales and purchases, lending to overseas subsidiary companies, external commercial borrowings etc. which are primarily denominated in US Dollars (‘USD’), Euro, Singapore Dollars (‘SGD’) and Pound Sterling (‘GBP’).

The Company has limited exposure to foreign currency risk and thereby it mainly relies on natural hedge. To further mitigate the Company’s exposure to foreign currency risk, non-INR cash flows are continuously monitored and derivative contracts are entered into wherever considered necessary.

The carrying amounts of the Company’s foreign currency denominated monetary items are restated at the end of each reporting period. Foreign currency denominated financial assets and liabilities which expose the Company to currency risk are as follows:

The following table illustrates the foreign currency sensitivity of profit and equity with regards to the Company’s financial assets and financial liabilities considering ‘all other things being equal’ and ignoring the impact of taxation. It assumes a /- 1% change of the INR/USD, INR/GBP, INR/SGD and INR/Euro exchange rate for the year ended at 31 December 2018 (31 December 2017: 1%). These are the sensitivity rates used when reporting foreign currency exposures internally to the key management personnel and represents management’s assessment of the reasonably possible changes in the foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items at end of each period reported upon. A positive number indicates an increase in profit or equity and vice-versa.

If the INR had strengthened against the USD by 1% (31 December 2017: 1%), Euro by 1% (31 December 2017: 1%), SGD by 1% (31 December 2017: Nil) and GBP by 1% (31 December 2017: 1%), the following would have been the impact:

If the INR had weakened against the USD by 1% (31 December 2017: 1%), Euro by 1% (31 December 2017: 1%), SGD by 1% (31 December 2017: Nil)and GBP by 1% (31 December 2017: 1%), the following would have been the impact:

Exposures to foreign exchange rates vary during the year depending on the volume of the overseas transactions. Nonetheless, the analysis above is considered to be representative of the Company’s exposure to currency risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s policy is to minimise interest rate cash flow risk exposures on long-term financing. The Company is exposed to changes in market interest rates as some of the bank and other borrowings are at variable interest rates and also loans have been advanced to subsidiary companies at variable interest rates. All the Company’s term deposits are at fixed interest rates.

The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of /- 1% (31 December 2017: /- 1%). These changes are considered to be reasonably possible based on management’s assessment. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant.

Commodity price risk

The Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase of pet chips and sugar and therefore require a continuous supply. In view of volatility of pet chips and sugar prices, the Company also executes into various purchase contracts.

14.2 Credit risk analysis

Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Company is operating through a network of distributors and other distribution partners based at different locations. The Company is exposed to this risk for various financial instruments, for example loans granted, receivables from customers, deposits placed etc. The Company’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at end of each reporting period, as summarised below:

The Company continuously monitors receivables and defaults of customers and other counterparties, and incorporates this information into its credit risk controls. Appropriate security deposits are kept against the supplies to customers and balances are reconciled at regular intervals. The Company’s policy is to deal only with creditworthy counterparties.

In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty. Trade receivables consist of a large number of customers of various scales and in different geographical areas. Based on historical information about customer default rates, management considers the credit quality of trade receivables. In case the receivables are not recovered even after regular follow up, measures are taken to stop further supplies to the concerned customer. The expected credit loss is based on the five years historically observed default rates over the expected life of the trade receivables and is adjusted for forward looking estimates.

The credit risk for cash and cash equivalents, bank deposits including interest accrued thereon and Government grant receivables is considered negligible, since the counterparties are reputable banks with high quality external credit ratings and State Government bodies. The credit risk for loans advanced to subsidiary companies including interest accrued thereon is also considered negligible since operations of these entities are regularly monitored by the Company and these companies have shown considerable growth.

In respect of financial guarantees provided by the Company, the maximum exposure which the Company is exposed to is the maximum amount which the Company would have to pay if the guarantee is called upon. Based on the expectation at the end of each reporting period, the Company considers that it is more likely than not that such an amount will not be payable under the guarantees provided.

14.3 Liquidity risk analysis

Liquidity risk is that the Company might be unable to meet its obligations. The Company manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities and considering the maturity profiles of financial assets and other financial liabilities as well as forecast of operational cash inflows and outflows. Liquidity needs are monitored in various time bands, on a day-to-day basis, a week-to-week basis and a month-to-month basis. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly. Net cash requirements are compared to available borrowing facilities in order to determine headroom or any shortfalls.

Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the Company’s ability to avail further credit facilities subject to creation of requisite charge on its assets. The Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low.

As at 31 December 2018, the Company’s non-derivative financial liabilities have contractual maturities as summarised below:

Valuation technique to determine fair value

Cash and cash equivalents, other bank balances, trade receivables, loans, other current financial assets, trade payables, current borrowings and other current financial liabilities approximate their carrying amounts largely due to the shortterm maturities of these instruments. The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

- The fair values of the long term borrowings, loans and other deferred payments are determined by using discounted cash flow method using the appropriate discount rate. The discount rate is determined using other similar instruments incorporating the risk associated.

- The Company executed derivative financial instruments such as cross currency interest rate swap being valued using valuation techniques, which employs use of market observable inputs. The Company uses mark to market valuation provided by bank for its valuation.

Fair value hierarchy

The financial assets measured at fair value are grouped into the fair value hierarchy as on 31 December 2018 and 31 December 2017 as follows: (also refer note 3.1)

15. Details of hedged and unhedged exposure in foreign currency denominated monetary items

A. Exposure in foreign currency - hedged

The Company executes cross currency and interest rate swap contracts to hedge against its foreign currency exposures relating to the underlying transactions and firm commitments. The Company does not enter into any derivative instruments for trading or speculative purposes.

16. Event occurring after the reporting period

A. Subsequent to year end, on 18 February 2019, the Board of Director at their meeting considered and approved, its intent to enter into a binding agreement with PepsiCo India to acquire franchisee rights in South and West regions of India for a national bottling, sales and distribution footprint in 7 states and 5 Union Territories (subject to receipt of necessary statutory approvals). Upon completion of the acquisitions and related formalities, the Company will be a franchise of PepsiCo India’s beverages business across 27 states and 7 Union Territories of India.

B. Subsequent to year ended 31 December 2018, on 14 February 2019, the Company concluded acquisition of franchise rights for a total purchase consideration of Rs. 150.00 from SMV Beverages Private Limited and Nectar Beverages Private Limited (together referred as ‘SMV Group’) to sell and distribute PepsiCo India’s beverage brands in 13 districts in State of Karnataka, 14 districts in State of Maharashtra and 3 districts in State of Madhya Pradesh.

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Dec 31, 2017

b) Terms/rights attached to shares

The Company has only one class of equity shares having a par value of '' 10 each. Each holder of equity share is entitled to one vote per share. In the event of liquidation of the Company, holders of equity shares will be entitled to receive any of the 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. The dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

As per records of the Company, including its register of shareholders/members and other declaration received from the shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

d) Aggregate number of equity shares issued as bonus, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:

During the year 2013, the Company issued 26,752,733 equity shares of '' 10 each for a consideration other than cash. The Company cancelled 7,999,500 equity shares of ''10 each pursuant to the scheme of amalgamation of Varun Beverages (International) Limited with Varun Beverages Limited approved by Hon''ble High Court of Delhi on 12 March 2013. Also, 107,012,932 equity shares of ''10 each have been issued in the ratio of 4:1 as bonus shares during the year 2013.

h) Preference share capital

The Company also has authorized preference share capital of 50,000,000 (31 December 2016: 50,000,000, 01 January 2016:

50,000,000) preference shares of Rs, 100 each. The Company does not have any outstanding issued preference shares.

Description of nature and purpose of each reserve:

Capital reserve - Created on merger of Varun Beverages International Limited with the Company pursuant to and in accordance with the Court approved scheme of amalgamation, prior to the transition date.

General reserve - Created by way of transfer from debenture redemption reserve on redemption of debentures and is not an item of other comprehensive income.

Debenture redemption reserve - Created as per provisions of the Act out of the distributable profits and can only be utilised for redemption of debentures.

Securities premium reserve - Created to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Act.

Retained earnings - Created from the profit / loss of the Company, as adjusted for distributions to owners, transfers to other reserves, etc.

Share based payment reserve - Created for recording the grant date fair value of options issued to employees under employee stock option schemes and is adjusted on exercise/ forfeiture of options.

Foreign currency monetary item translation difference account - Created for recording exchange differences arising on restatement of long term foreign currency monetary items, other than for acquisition of fixed assets, and is being amortized over the maturity period of such monetary items.

Loans and borrowing above are recognized at amortized cost/ fair value taking into account any discount or premium on acquisition and fee or costs that are part of effective interest rate, accordingly the outstanding balances above may not necessarily agree with repayment amounts.

a) Terms and conditions of issue and conversion/redemption of compulsorily convertible debentures (CCDs) are as under:

All the CCDs have been converted to equity share capital during the year ended 31 December 2016 and hence there are no CCDs outstanding as at 31 December 2016. The particulars as at 01 January 2016 are as under and were recorded at face value of Rs, 4,198.98 as per erstwhile Indian GAAP.

The Company was required to conduct a qualified initial public offer (''QIPO'') not later than 48 months from the date of issue of first tranche. If a QIPO by the Company could not be completed prior to the QIPO deadline date on account of the market conditions or non-receipt of internal or external approvals that may be required for such initial public offering, the Company and the promoters (as defined in the subscription agreement) shall ensure that such QIPO occurs within six years from the first completion date. The CCDs shall be converted into such number of equity shares based on the lower-end of the price band at which the QIPO is proposed to enable the debenture holders to realise the agreed return of 18.5% from the equity shares resulting from such conversion. CCDs were compulsorily convertible into equity shares in an initial public offer (IPO). In the event the Company had not filed a Draft Red Herring Prospectus for QIPO with the Securities and Exchange Board of India on or before 31 May 2017, the debenture holders had various exit options including 14% per annum coupon and put option on promoters at an agreed return. The coupon in that case was payable as per the terms of underlying agreement.

The Rated Secured Listed Redeemable Rupee Denominated NCDs (3000) are redeemable at par in 5 years and 4 months from the deemed date of allotment and carry a coupon rate of 7.70% per annum. The NCDs are redeemable 10%, 25%,30% and 35% at 30 June 2019, 2020, 2021 and 2022 respectively unless redeemed earlier. These NCDs are secured by way of first pari-passu charge on the moveable and immoveable fixed assets of the Company providing a security cover of 1.30 times.

The Audit Committee and Board of Directors of the Company noted the utilization of the proceeds of NCDs for the year ended 31 December 2017, which was in line with utilization schedule approved by the Board of Directors.

ii) Issued to RBL Bank Limited

During the year ended 31 December 2016, the Company had called-up the balance amount of Rs, 1,800 in single installment, i.e. 90 percent of the face value of debenture, as per the terms of the underlying agreement. The NCDs were repaid during the previous year from the proceeds of IPO. There were no NCDs outstanding as at 31 December 2016 and details of NCDs as at

01 January 2016 are as under and were recorded at cost of Rs, 2,000 as per Indian GAAP.

The Rated Secured Listed Redeemable Rupee Denominated NCD (2000) were redeemable at par in 5 years from the deemed date of allotment and carried a coupon rate of SBI base rate plus 60 basis points. The NCDs were redeemable 30%, 30% and 40% at the end of year third, fourth and fifth years respectively unless redeemed earlier. These NCDs were secured by way of first pari-passu charge on the specified fixed assets of the Company to the extent of 1.25 times of NCDs outstanding.

The Audit Committee and Board of Directors of the Company noted the utilisation of the proceeds of NCDs for the year ended 31 December 2016, which was in line with utilisation schedule approved by the Board of Directors.

iii) Issued to AION Investments II Singapore PTE Ltd

During the year ended 31 December 2016, the Company had redeemed all the NCDs issued to AION Investments II Singapore PTE Ltd and there were no NCDs outstanding as at 31 December 2016. Details of NCDs as at 01 January 2016 are as under and were recorded at cost of Rs, 3000 as per Indian GAAP.

NCDs were rated unsecured and carried a coupon rate of 14% for the first eighteen months and 17% thereafter. NCDs were redeemable by the Company on the tenth anniversary from the date of allotment (''Final Redemption Date''). The Company and its affiliates (as defined in the underlying agreement) had right to redeem the NCDs, prior to the final redemption date, under the circumstances and subject to the conditions stated in the underlying agreement.

c) Terms and conditions of issue and conversion of Compulsorily convertible preference shares (CCPS) are as under:

All the CCPS have been converted to equity share capital during the year ended 31 December 2016 and hence there are no CCPS outstanding as at 31 December 2016. The particulars as at 01 January 2016 are as under and were recorded at face value of '' 4,500 as per Indian GAAP. CCPS were compulsorily convertible into equity shares upon expiry of five years from allotment date at a price which was to be calculated at the valuation of the Company computed by an independent valuer or at a price not lower than breakup value (as defined in share subscription agreement), whichever was higher.

CCPS were to be mandatorily converted into equity shares prior to a) filing of the red herring prospectus or, b) a third party private equity investment or, c) the conversion of Compulsorily Convertible Debentures. The holders of preference shares had no rights to receive notices of, attend or vote at general meetings except in certain limited circumstances.

Each CCPS was entitled to receive dividend at the rate of 10% in the fourth year and at the rate of 20% in the fifth year from the date of issue. There is no dividend for the first three years from the date of issue.

d) The Company has complied with all the loan covenants. (Refer note 53)

Working capital facilities from banks are secured by first charge on entire current assets of the Company ranking pari passu amongst the banks and second charge on the movable and immovable assets of the Company pertaining to specific manufacturing units. The working capital facilities carry interest rates ranging between 8.50 to 9.70% (31 December 2016: 9.50 to 10.90% and 01 January 2016: 11 to 12%).

At 31 December 2017, the Company had available '' 1,559.12 (31 December 2016: '' 2,102.45 and 01 January 2016: '' 2,404.00) of undrawn committed borrowing facilities.

The Company has complied with all the loan covenants. (Refer note 53)

During the year ended 31 December 2017, the Company has paid dividend to its shareholders. This has resulted in payment of Dividend Distribution Tax to the taxation authorities. The Company believes that Dividend Distribution Tax represents additional payment to taxation authority on behalf of the shareholders. Hence, Dividend Distribution Tax paid is charged to equity.

Gratuity:

The Company has a defined benefit gratuity plan governed by the Payments of Gratuity Act, 1972. Every employee who has completed five years or more of services is eligible for gratuity on separation at 15 days salary (last drawn salary) for each completed year of service. The Company has formed a Gratuity Trust to which contribution is made and an insurance policy is taken by the trust, which is a year-on-year cash accumulation plan in which the interest rate is declared on yearly basis and is guaranteed for a period of one year. The insurance Company, as part of the policy rules, makes payment of all gratuity outgoes happening during the year (subject to sufficiency of funds under the policy). The policy, thus, mitigates the liquidity risk. However, being a cash accumulation plan, the duration of assets is shorter compared to the duration of liabilities. Thus, the Company is exposed to movement in interest rate ( particular, the significant fall in interest rates, which should result in a increase in liability without corresponding increase in the asset. The Company makes a provision of unfunded liability based on actuarial valuation in the Balance Sheet as part of employee cost.

Compensated absences:

The Company recognizes the compensated absences expenses in the Statement of Profit and Loss based on actuarial valuation.

1. Pursuant to transfer pricing legislations under the Income-tax Act, 1961, the Company is required to use specified methods for computing arm''s length price in relation to specified international and domestic transactions with its associated enterprises. Further, the Company is required to maintain prescribed information and documents in relation to such transactions. The appropriate method to be adopted will depend on the nature of transactions/ class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Company is in the process of updating its transfer pricing documentation for the current financial year. Based on the preliminary assessment, the management is of the view that the update would not have a material impact on the tax expense recorded in these financial statements. Accordingly, these financial statements do not include any adjustments for the transfer pricing implications, if any.

2. Related party transactions

Following are the related parties and transactions entered with related parties for the relevant financial year:

i. List of related parties and relationships:-

I. Key managerial personnel (KMPs)

Mr. Ravi Kant Jaipuria Director and KMP of ultimate parent namely Ravi Kant

Jaipuria & Sons (HUF)

Mr. Varun Jaipuria Whole-time Director

Mr. Raj Pal Gandhi Whole-time Director

Mr. Kapil Agarwal Whole-time Director

Mr. Kamlesh Kumar Jain Whole-time Director and Chief Financial Officer

Mr. Christopher White (till 28 March 2016) Whole-time Director

Dr. Girish Ahuja Non-executive independent director

Mr. Pradeep Sardana Non-executive independent director

Mr. Ravindra Dhariwal Non-executive independent director

Ms. Geeta Kapoor Non-executive independent director

Mr. Rajesh Chopra KMP of parent namely RJ Corp Limited

Mr. S.V. Singh KMP of parent namely RJ Corp Limited

Mr. Ravi Batra (from 12 May 2017) Company Secretary

Mr. Mahavir Prasad Garg (till 12 May 2017) Company Secretary

Mrs. Monika Bhardwaj Company Secretary of parent namely RJ Corp Limited

II. Parent and ultimate parent

RJ Corp Limited

Ravi Kant Jaipuria & Sons (HUF)

III. Subsidiaries/step down subsidiaries

Varun Beverages Morocco SA Subsidiary

Varun Beverages (Nepal) Private Limited Subsidiary

Varun Beverages Lanka (Private) Limited Subsidiary

Varun Beverages (Zambia) Limited Subsidiary (with effect from 01 January 2016)

Varun Beverages Mozambique Limitada Subsidiary (with effect from 01 January 2016 to

02 March 2017)

Varun Beverages (Zimbabwe) (Private) Limited Subsidiary (with effect from 01 January 2016)

Ole Spring Bottlers (Private) Limited Step down subsidiary

IV. Fellow subsidiaries and entities controlled by parent*

Parkview City Limited Devyani International Limited Devyani Food Industries Limited Alisha Retail Private Limited

Varun Food and Beverages Zambia Limited

Arctic International Private Limited

Wellness Holdings Limited

SVS India Private Limited

Devyani Food Street Private Limited

V. Associate (or an associate of any member of the Company)

Lunarmech Technologies Private Limited Angelica Technologies Private Limited

VI. Relatives of KMPs*

Mrs. Dhara Jaipuria Mrs. Asha Chopra Mrs. Shashi Jain Mrs. Rachna Batra

VII. Entities in which a director or his/her relative is a member or director*

Champa Devi Jaipuria Charitable Trust

Diagno Labs Private Limited

SMV Beverages Private Limited

SMV Agencies Private Limited

Alisha Torrent Closure Private Limited

Nector Beverages Private Limited

Steel City Beverages Private Limited

Pearl Drinks Private Limited

Jai Beverages Private Limited

VIII. Entities which are post employment benefits plans

VBL Employees Gratuity Trust

*With whom the Company had transactions during the current year and previous year.

ii. Transactions with KMP (Refer note 44A)

iii. Terms and conditions of transactions with related parties

The sales to and purchases from related parties are made in the ordinary business and on terms equivalent to those that prevail in arm''s length transactions. Outstanding balances at the year-end are unsecured and settlement occurs in cash. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

iv. Transactions with related parties (Refer note 44B)

4. The Company has taken various premises and other fixed assets on operating leases. The lease agreements generally have a lock-in-period of 1-5 years and are cancellable at the option of the lessee thereafter. Majority of the leases have escalation terms after certain years and are extendable by mutual consent on expiry of the lease. During the year, lease payments under operating leases amounting to '' 321.93 (31 December 2016 '' 377.66) have been recognized as an expense in the Statement of Profit and Loss.

5. The business activities of the Company predominantly fall within a single reportable business segment, i.e., manufacturing and sale of beverages within India. There are no separately reportable business or geographical segments that meet the criteria prescribed in Ind AS 108 on Operating Segments. The aforesaid is in line with review of operating results by the chief operating decision maker. The sale of products of the Company is seasonal.

Refer note 44B for amounts paid to Champa Devi Jaipuria Charitable Trust towards contribution for ''''Shiksha Kendra'''' for the education of poor and under privileged children and to Diagno Labs Private Limited for free health check-up camps.

6. During the year ended 31 December 2016, the amount utilised for share issue expenses primarily includes payment made for merchant banker fees, legal counsel fees, brokerage and selling commission, auditors fees, registrar to the issue, printing and stationary expenses, advertising and marketing expenses, statutory fees to regulator and stock exchanges and other incidental expenses towards Initial Public Offering (''IPO''). Of the total share issue expenses, expenses aggregating to '' 222.1 5 have been adjusted towards the securities premium reserve and expenses aggregating to '' 127.26 have been reimbursed by the selling shareholders in the proportion of shares offered for sale by the selling shareholders to total shares offered for IPO for all expenses except for expenses exclusively related to the Company.

7. Acquisitions and disposals

Acquisitions and disposals during the year ended 31 December 2017

A. Acquisition of business

The Company acquired PepsiCo India''s previously franchised territories in the parts of Madhya Pradesh and State of Odisha along with two manufacturing units at Bargarh and Bhopal (Mandideep) from other franchisees for a total purchase consideration of Rs, 470.00 and Rs, 832.00 respectively on a slump sale basis. The aforesaid purchase consideration excludes adjustment for working capital taken over as part of business.

Goodwill

Goodwill of Rs, 19.40 is primarily relates to growth expectations, expected future profitability, Goodwill has been allocated to the beverages segment and is deductible for tax purposes.

B. Acquisition of 30% stake in Varun Beverages (Zambia) Limited

The Company increased its controlling stake in its existing subsidiary company namely, Varun Beverages (Zambia) Limited from existing 60% up to 90% by acquiring further 15,000 shares from the existing shareholders (Multi Treasure Ltd.: 9,200 shares and Africa Bottling Company Ltd.: 5,800 shares) for a consideration of Rs, 719.16 million on 20 February 2017.

C. Disposal of 41% stake in Varun Beverages Mozambique Limitada

The Company sold 41% equity quota of Varun Beverages Mozambique Limitada to reduce its stake from 51% down to 10% for a consideration of Rs, 0.11 on 02 March 2017. This transaction did not have any material impact on these financial statements.

Acquisitions during the year ended 31 December 2016 D. Acquisition of business

The Company had acquired two beverages manufacturing units located at Phillaur (Punjab) and Satharia (Uttar Pradesh) for a total consideration of Rs, 574.00 and Rs, 500.00 respectively on a slump sale basis.

Company and its subsidiaries to purchase shares in the Company at the stipulated exercise price, subject to compliance with vesting conditions. Stock options can be settled by issue of equity shares. As per the Plan, holders of vested options are entitled to purchase one equity share for every option at an exercise price of Rs, 149.51, which is 1.14 % above the stock price at the date of grant, i.e., 13 May 2013.

The fair values of options granted under new plan were determined using a variation of the binomial option pricing model that takes into account factors specific to the share incentive plans, such as the vesting period. The following principal assumptions were used in the valuation:

B. Employee Stock Option Plan 2016 ("ESOS 2016")

The ESOS 2016 ("the Scheme") was approved by the Board of Directors and the shareholders on 27 April 2016. The Scheme entitles key managerial personnel and employees of the Company and its subsidiaries to purchase shares in the Company at the stipulated exercise price, subject to compliance with vesting conditions. Stock options can be settled by issue of equity shares. No options under this Scheme have been granted in the financial year ended 31 December 2017.

8. Capital management

For the purpose of the Company''s capital management, capital includes issued equity share capital, instruments compulsorily convertible into equity, share premium and all other equity reserves. The primary objective of the Company''s capital management is to maximize the shareholder value and provide adequate returns to shareholders.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions, the requirements of the financial covenants and the risk characteristics of the underlying assets.

In order to achieve this overall objective, the Company''s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any borrowing in the reporting periods.

55. Recent accounting pronouncements (Ind AS issued but not yet effective)

In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ''Statement of cash flows'' and Ind AS 102, ''Share-based payment.'' These amendments are applicable to the Company from accounting periods beginning on or after 01 April 2017, i.e., from financial year 2018.

Amendment to Ind AS 7:

The amendments to Ind AS 7 inter-alia require the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.

The Company is evaluating the requirements of the amendment and the effect on the financial statements.

Amendment to Ind AS 102:

The amendments to Ind AS 102 inter-alia provide specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes. The requirements of the amendment have no material impact on these financial statements.

9. Information under Section 186 (4) of the Companies Act, 2013 and Regulation 34 of the SEBI (Listing Obligations and Disclosure Requirements), 2015

The above financial guarantees are given on behalf of subsidiaries for business purposes. All transactions are in the ordinary course of business.

10. Financial instruments risk

Financials risk management objectives and policies

The Company is exposed to various risks in relation to financial instruments. The main types of financial risks are market risk, credit risk and liquidity risk.

The management of the Company monitors and manages the financial risks relating to the operations of the Company on a continuous basis. The Company''s risk management is coordinated at its head office, in close cooperation with the management, and focuses on actively securing the Company''s short to medium-term cash flows and simultaneously minimizing the exposure to volatile financial markets. Long-term financial investments are managed to generate lasting returns.

The Company does not engage in the trading of financial assets for speculative purposes. The most significant financial risks to which the Company is exposed are described below.

57.1. Market risk analysis

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company is exposed to market risk through its use of financial instruments and specifically to currency risk and interest rate risk, which result from both its operating, investing and financing activities. Contracts to hedge exposures in foreign currencies, interest rates etc. are entered into wherever considered necessary by the management.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The functional currency of the Company is Indian Rupees (''INR'' or ''?''). Most of the Company''s transactions are carried out in Indian Rupees. Exposures to currency exchange rates mainly arise from the Company''s overseas sales and purchases, lending to overseas subsidiary companies, external commercial borrowings etc. which are primarily denominated in US Dollars (''USD''), Euro and Pound Sterling (''GBP'').

The Company has limited exposure to foreign currency risk and thereby it mainly relies on natural hedge. To further mitigate the Company''s exposure to foreign currency risk, non-INR cash flows are continuously monitored and hedging contracts are entered into wherever considered necessary.

‘Rounded off to Nil

The following table illustrates the foreign currency sensitivity of profit and equity in regards to the Company''s financial assets and financial liabilities considering ''all other things being equal'' and ignoring the impact of taxation. It assumes a /- 1% change of the INR/USD exchange rate for the year ended at 31 December 2017 (31 December 2016: 1%) and a /- 1% change is considered for the INR/GBP and INR/Euro exchange rates (31 December 2016: 1%). These are the sensitivity rates used when reporting foreign currency exposures internally to the key management personnel and represents management''s assessment of the reasonably possible changes in the foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items at end of each period reported upon. A positive number indicates an increase in profit or equity and vice-versa.

If the INR had strengthened against the USD by 1% (31 December 2016: 1%) Euro by 1% (31 December 2016: 1%), and GBP by 1% (31 December 2016: 1%), the following would have been the impact:

Exposures to foreign exchange rates vary during the year depending on the volume of the overseas transactions. Nonetheless, the analysis above is considered to be representative of the Company''s exposure to currency risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company''s policy is to minimize interest rate cash flow risk exposures on long-term financing. The Company is exposed to changes in market interest rates as some of the bank and other borrowings are at variable interest rates and also loans have been advanced to subsidiary companies at variable interest rates. All the Company''s term deposits are at fixed interest rates.

The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of /- 1% (31 December 2016: /- 1%). These changes are considered to be reasonably possible based on management''s assessment. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant.

Commodity price risk

The Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase of pet chips and sugar and therefore require a continuous supply. In view of volatility of pet chips and sugar prices, the Company also executes into various purchase contracts.

Commodity price sensitivity

The following tables shows the effect of price change in sugar and pet chips

Other price sensitivity

The Company is not exposed to any listed equity or listed debt price risk as it does not hold any investments in listed entities..

The Company continuously monitors receivables and defaults of customers and other counterparties, and incorporates this information into its credit risk controls. Appropriate security deposits are kept against the supplies to customers and balances are reconciled at regular intervals. The Company''s policy is to deal only with creditworthy counterparties.

In respect of trade and other receivables, the Company is not exposed to any significant credit risk exposure to any single counterparty. Trade receivables consist of a large number of customers of various scales and in different geographical areas. Based on historical information about customer default rates, management considers the credit quality of trade receivables. In case the receivables are not recovered even after regular follow up, measures are taken to stop further supplies to the concerned customer.

The credit risk for cash and cash equivalents, bank deposits including interest accrued thereon and Government grant receivables is considered negligible, since the counterparties are reputable banks with high quality external credit ratings and State Government bodies. The credit risk for loans advanced to subsidiary companies including interest accrued thereon is also considered negligible since operations of these entities are regularly monitored by the Company and these companies have shown considerable growth.

In respect of financial guarantees provided by the Company, the maximum exposure which the Company is exposed to is the maximum amount which the Company would have to pay if the guarantee is called upon. Based on the expectation at the end of each reporting period, the Company considers that it is more likely than not that such an amount will not be payable under the guarantees provided.

57.3. Liquidity risk analysis

Liquidity risk is that the Company might be unable to meet its obligations. The Company manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities and considering the maturity profiles of financial assets and other financial liabilities as well as forecast of operational cash inflows and outflows. Liquidity needs are monitored in various time bands, on a day-to-day basis, a week-to-week basis and a month-to-month basis. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly. Net cash requirements are compared to available borrowing facilities in order to determine headroom or any shortfalls.

Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the Company''s ability to avail further credit facilities subject to creation of requisite charge on its assets. The Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low.

Valuation technique to determine fair value

Cash and cash equivalents, other bank balances, trade receivables, other current financial assets, trade payables, current borrowings and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

- The fair values of the long term borrowings, loans and other deferred payments are determined by using discounted cash flow method using the appropriate discount rate. The discount rate is determined using other similar instruments incorporating the risk associated.

- The fair values of the unquoted instruments and other financial assets and liabilities have been estimated using a discounted cash flow method using the appropriate discount rate. The discount rate is determined using other similar instruments incorporating the risk associated.

- The fair values of Compulsorily convertible debentures have been estimated by using discounted cash flow method by discounting the expected cash flows using the appropriate discount rate under different conversion events. Probabilities are then attached to each conversion event to derive final valuation. The discount rate is determined using other similar instruments incorporating the risk associated and probabilities are based on management''s expectations.

- The fair values of Compulsorily convertible preference shares have been estimated by using discounted cash flow method by discounting the expected cash flows using the appropriate discount rate under different conversion events. Probabilities are then attached to each conversion event to derive final valuation. The discount rate is determined using other similar instruments incorporating the risk associated and probabilities are based on management''s expectations.

11. First-time adoption of Ind ASs

1. These financial statements, for the year ended 31 December 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended 31 December 2016, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Company''s (Accounts) Rules, 2014 (Indian GAAP).

Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ended on 31 December 2017, together with the comparative period data as at and for the year ended 31 December 2016 and in the preparation of opening Ind AS balance sheet as at 01 January 2016, as described in the summary of significant accounting policies. Further to explanations in Note 2, this Note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at 01 January 2016 and the financial statements as at and for the year ended 31 December 2016. (Also refer Note 60 for reconciliations).

2. Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from Indian GAAP to Ind AS.

A. Ind AS optional exemptions

I. Deemed cost

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition to Ind AS, measured as per the Indian GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for decommissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets. Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their Indian GAAP carrying value except where the adjustments to carrying value are only consequential and arising because of application of the transition requirements of Ind AS 101.

II. Investments in subsidiaries and associates

I nd AS 101 permits the first time adopter to measure investment in subsidiaries and associates in accordance with Ind AS 27 "Separate Financial Statements". The Company has elected to consider Indian GAAP carrying amount of its investments in subsidiaries and associates on the date of transition to Ind AS as its deemed cost for the purpose of determining cost in accordance with the principles of Ind AS 27.

III. Share based payment transactions

The Company has availed exemption under Ind AS 101 in respect of share-based payments that had been vested before the transition date and accordingly, vested options at the transition date have been measured at intrinsic value. For unvested options at the transition date, the Company has applied the requirements of Ind AS 102 retrospectively.

IV. Long-term foreign currency monetary items

Ind AS 101 permits a first-time adopter to continue the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognized in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per Indian GAAP. Accordingly, the Company has elected to continue to adjust exchange differences arising on translation/ settlement of long-term foreign currency monetary items, pertaining to the acquisition of a depreciable asset, to the cost of such asset and depreciate the same over the remaining life of the asset and in other cases, is recorded under the head ''Foreign Currency Monetary Item Translation Difference Account'' and is amortized over the period of maturity of underlying long term foreign currency monetary items.

V. Business combinations

Ind AS 101, allows a first-time adopter to elect not to apply Ind AS 103 retrospectively to past business combinations (business combinations that occurred before the date of transition to Ind AS). However, if a first-time adopter restates any business combination to comply with Ind AS 103, it shall restate all later business combinations and shall also apply Ind AS 110 ''Consolidated Financial Statements'' from that same date. The Company has chosen this exemption and accordingly none of the business combinations that have occurred prior to date of transition is restated. Accordingly, carrying amounts of assets and liabilities under business combinations, that are required to be recognized under Ind AS, is their deemed cost at the date of acquisition. After the date of acquisition, the measurement is in accordance with the respective Ind AS.

VI. Leases

The Company has also been applied the transitional provision in Appendix C of Ind AS 17 "Determining whether an arrangement contains a Lease" and has assessed all arrangements based upon the conditions in place as at the date of transition .

VII. Government grant

Government loans below market rate of interest

Para B11 of Ind AS 101, allows an entity to apply the requirements in Ind AS 109 and Ind AS 20 retrospectively to any government loan originated before the date of transition to Ind ASs, provided that the information needed to do so had been obtained at the time of initially accounting for that loan. The Company has adopted the guidance and accordingly, the requirements in Ind AS 109 and Ind AS 20 ''Accounting for Government Grants and Disclosure of Government Assistance'' have been applied retrospectively to all government loans received at below market rate of interest and existing on the date of transition.

B. Ind AS mandatory exemptions Estimates

I. The Company''s estimates in accordance with Ind AS at the date of transition to Ind AS are consistent with estimates made for the same date in accordance with Indian GAAP (after adjustments to reflect any difference in accounting policies) except for impairment of financial assets based on lifetime expected credit loss model where application of Indian GAAP did not require estimation.

The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions as at the transition date and as of 31 December 2016.

Ind AS 101 treats the information received after the date of transition to Ind AS as non-adjusting events. The entity shall not reflect that new information in its opening Ind AS Balance Sheet (unless the estimates need adjustment for any differences in accounting policies or there is objective evidence that the estimates were in error).

II. Classification of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of facts and circumstances that exist on the date of transition to Ind AS. Accordingly, the Company has applied the above requirement prospectively.

The presentation requirements under Indian GAAP differs from Ind AS, and hence, Indian GAAP information has been regrouped for ease of reconciliation with Ind AS. The regrouped Indian GAAP information is derived from the Audited Financial Statements of the Company prepared in accordance with Indian GAAP.

I. Tangible and intangible assets acquired as part of business combination on deferred payment terms

Under Indian GAAP, the purchase consideration for tangible and intangible assets acquired as part of a business included deferred payment terms, which was recorded at gross amount with a corresponding credit to capital creditors. However, as per Ind AS 16 ''Property, Plant and Equipment'' the cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest over the period of credit unless such interest is capitalized in accordance with Ind AS 23 ''Borrowing Cost''. Accordingly, the deferred payment liabilities outstanding on the transition date are present valued at the weighted average borrowing rate. The difference between the present value and carrying value of such deferred payment liabilities is adjusted from the carrying value of property, plant and equipment at the transition date. Subsequently, interest is recorded at the discounting rate to the Statement of Profit and Loss with corresponding credit to the capital creditors. The above has resulted in adjustment of '' 694.33 to tangible assets and '' 208.76 to intangible assets on the date of transition and '' 627.93 and '' 226.48 respectively as on 31 December 2016. Consequently, an amount of '' 555.53 has been recorded as finance costs for the year ended 31 December 2016.

II. Amortization of franchise rights

Under Indian GAAP, the Company had adopted an accounting policy of amortizing franchise rights acquired as part of business combination over a period of ten years. With effect from the date of transition, the Company has evaluated franchise rights to have an indefinite life as per Ind AS 38 as explained in Note 5 (iii). Hence, the franchise rights are not amortized now but tested for impairment annually. Accordingly, amortization recorded as per Indian GAAP amounting to '' 435.01 for financial year 2016 has been derecognized in the Ind AS Financial Statements for the year ended 31 December 2016.

III. Investment in subsidiary

Under the Indian GAAP, the Company''s investment in Zero Coupon Redeemable Preference Shares (''RPS'') of a subsidiary are recorded at transaction value and reported as part of non current investment. Under Ind AS, the investments in RPS are accounted as loan given in financial assets and accordingly on the date of transition, the Company has fair valued RPS issued using effective interest method. On the date of transition, the present value of RPS has been recorded as loan to subsidiary amounting to Rs, 502.29 and the difference between transaction value and the present value of RPS amounting to Rs, 136.46 has been recognized as ''deemed equity'' in investments. Subsequent to the date of transition, interest income on loan given is recognized using the effective interest method with corresponding adjustment in loan outstanding, which has resulted in recognition of ''other income'' of Rs, 28.64.

IV. Investment in associate

Under Indian GAAP, no financial impact was considered on corporate guarantee issued on behalf of an associate. Under Ind AS, the amount is fair valued and the difference is recorded as an equity contribution, amounting to Rs, 12.20.

V. Security deposits

Under Indian GAAP, the security deposits paid for leases were recorded at the transaction value, whereas, under Ind AS, these are initially discounted and subsequently recorded at amortized cost at the end of every financial reporting period. Accordingly, the difference between the transaction and discounted value of the security deposits paid for leases is recognized as deferred lease expense of Rs, 12.71 and is amortized over the period of the lease term. Further, interest is accreted on the present value of the security deposits paid for leases.

VI. Straight lining of lease payment escalations

Indian GAAP required straight lining of lease payment escalations in case of non cancellable leases. However, Ind AS 17 does not mandate straight-lining of lease escalation, if they are in line with the expected general inflation compensating the lessor for expected inflationary cost. Accordingly, the Company has reversed lease equalisation reserve amounting to Rs, 1.92 outstanding in the books on the transition date.

VII. Government grants

Under Indian GAAP, interest free loan from the government has been presented in the Balance Sheet by including it as a part of borrowings. Under Ind AS, the benefit of a government loan at a below-market rate of interest is treated as a government grant and is measured as the difference between the present value of the loan and the proceeds received /receivable. The Company has fair valued all such loans outstanding on the date of transition retrospectively from the original date of such loans. Further, unlike Indian GAAP, Ind AS 20 requires the grant to be classified as either a capital or an income grant and does not permit recognition of government grants in the nature of promoter''s contribution directly to shareholders'' funds. Accordingly, contributions previously recognized in the Capital Reserve amounting to Rs, 259.17 are transferred to ''Other Equity'' at the date of transition. For interest free loans previously recorded, the difference amounting to Rs, 343.97 between present value of loan and proceeds are recorded in retained earnings. The loan balance is subsequently re-measured using EIR which has led to a consequent increase of Rs, 97.51 to the finance costs for the year ended 31 December 2016. The grant value of all such loans received/ receivable subsequent to date of transition amounting to Rs, 73.55 is recognized in the Statement of Profit and Loss under the head ''other operating income''.

VIII. Deferred tax

Indian GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.

The various transitional adjustments have resulted in temporary differences which has led to recognition of deferred taxes.

IX. Defined benefit liabilities

Both under Indian GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, were charged to Statement of Profit and Loss. Under Ind AS, remeasurements (comprising actuarial gains and losses, excluding amounts included in net interest on the net defined benefit liability) are recognized immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI. Thus, the employee benefits expense is reduced by such amount and a corresponding adjustment to the defined benefit plans has been recognized in OCI (net of tax) in "Other Equity".

X. Expected credit losses (ECL) for trade receivables

Under the Indian GAAP, provision for bad debt was recognized for doubtful debtors on a case to case basis. However, under Ind AS, the Company assesses impairment based on the ECL model for measurement and recognition of impairment loss on the financial assets that are trade receivables, accounting for both non-payment and delay in payment of the receivables. Based past estimates, the Company has determined additional provisions under the ECL model. This has resulted in recognition of an additional provision of Rs, 16.45 on the date of transition and Rs, 15.25 for the year ended 31 December 2016.

XI. Compulsorily convertible preference shares (CCPS)

Under Indian GAAP, the CCPS were classified as equity. Under Ind AS, CCPS are classified as financial liability based on the terms of the contract. Interest on such financial liability is recognized using fair values determined by an independent valuer on the date of transition, leading to recognition of an adjustment amounting to Rs, 372.07 to the retained earnings as at the transition date with subsequent unwinding as finance costs for the year ended 31 December 2016.

XII. Compulsory Convertible Debentures (CCDs)

Under Indian GAAP, the CCDs were classified as borrowings. The CCDs issued by the Company had to be converted into a variable number of equity shares with a definite rate of return from the date of issue till the date of conversion. Accordingly, the CCDs are classified as financial liability as per Ind AS 32. Interest on financial liability is recognized using fair values determined by an independent valuer on the date of transition leading to increase in borrowings by Rs, 4,024.72 with a corresponding impact to the retained earnings (Impact in retained earnings, net of deferred tax impact Rs, 2,631.76). The fair value impact of Rs, 1,107.26 (net of deferred tax impact Rs, 724.03) between the date of transition and date of conversion is recognized as finance costs during the year ended 31 December 2016. On the date of conversion, the entire fair value impact recognized in retained earnings on date transition and aforesaid interest costs is recognized in Rs,Security premium reserve'' Rs, 3,355.80 (Net of tax).

XIII. Sale of goods

Under Indian GAAP, sale of goods was presented after netting off excise duty. However, under Ind AS, sale of goods includes excise duty and separately presented on the face of Statement of Profit and Loss. Thus, sale of goods under Ind AS has increased with a corresponding increase in total expenses. This change has resulted in an increase in total income and total expenses for the year ended 31 December 2016 by Rs, 5,957.10.

XIV. Finance costs

Finance cost includes-

1. Under Indian GAAP, the transaction cost incurred in connection with borrowings were amortized and charged to Statement of Profit and Loss on the term of the related borrowing. Under Ind AS, transaction cost are included in the initial recognition amount of financial liability and charged to Statement of Profit and Loss using the effective interest method amounting to Rs, 3.21.

2. Interest expense amounting to Rs, 97.51 on interest free government loans has been recognized at the weighted average borrowing rate of the Company (also see note VII above).

3. Amortized cost of deferred payment liabilities related to business combination (Referred to in footnote I above) Rs, 555.53.

4. Interest expenses on account of fair valuation of financial instruments (CCPS and CCDs referred in notes XI and XII above) Rs, 1,479.33.

XV. Share-based payments

Under Indian GAAP, the Company recognized only the intrinsic value for the long-term incentive plan as an expense. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model recognized over the vesting period. The Company has used the exemption of fair valuing only those options which remained unvested on the date of transition. Fair value impact on unvested options relatable to vesting period before the date of transition amounting to Rs, 44.39 is adjusted in the retained earnings by creating the corresponding ''Share Based Payment Reserve'' which is re-classified to ''Security premium reserve'' on exercise of the options. However, this has no impact on the Statement of Profit and Loss.

XVI. Other comprehensive income

Under Indian GAAP, the concept of OCI did not exist. Under Ind AS, certain items of income and expense such as re-measurements of defined benefit plans are required to be presented as ''Other Comprehensive Income''.

61. Event occurring after the reporting period A. Acquisitions after the reporting period:

Subsequent to the year ended 31 December 2017, the Company has completed the acquisition of Chhattisgarh territory on a slump sale basis for a total purchase consideration of Rs, 150 million. This acquisition has been executed primarily to obtain franchise rights and marketing assets of the territory, to facilitate further expansion.

B. During December 2017, the Company executed agreements with Steel City Beverages Private Limited and SMV Agencies Private Limited to acquire certain businesses including franchisee rights for the State of Jharkhand and specified manufacturing facilities and other assets on a slump sale basis for a total consideration of Rs, 653.62. The closing conditions for the business transfers have not yet been met.

C. On 17 January 2018, the Board of Directors of the Company have approved acquisition of PepsiCo India''s franchisee rights for the State of Bihar and subsequently, the Company has started trading operations in the State of Bihar.

D. On 18 January 2018, the Company has concluded acquisition of a manufacturing facility situated in Cuttack, Odisha along with certain specific assets from SMV Beverages Private Limited for a total consideration of '' 437.50 million.

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Dec 31, 2016

1. Terms/rights attached to shares Equity shares

The Company has only one class of equity shares having a par value of Rs.10 each. Each holder of equity share is entitled to one vote per share. In the event of liquidation of the Company, holders of equity shares will be entitled to receive any of the 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. The dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

Compulsorily convertible preference shares

CCPS were compulsorily convertible into equity shares upon expiry of five years from allotment date at a price which was to be calculated at the valuation of the Company computed by an independent valuer or at a price not lower than breakup value (as defined in share subscription agreement), whichever was higher. CCPS were to be mandatorily converted into equity shares prior to a) filing of the red herring prospectus or, b) a third party private equity investment or, c) the conversion of Compulsorily Convertible Debentures. The holders of preference shares had no rights to receive notices of, attend or vote at general meetings except in certain limited circumstances.

Each CCPS was entitled to receive dividend at the rate of 10% in the fourth year and at the rate of 20% in the fifth year from the date of issue. There is no dividend for the first three years from the date of issue.

2. Details of shares issued pursuant to contract without payment being received in cash, allotted as fully paid up by way of bonus issues and brought back during the last 5 years to be given for each class of shares:

During the year 2013, the Company issued 26,752,733 equity shares of Rs.10 each for a consideration other than cash. The Company cancelled 7,999,500 equity shares of Rs.10 each pursuant to the scheme of amalgamation of Varun Beverages (International) Limited with Varun Beverages Limited approved by Hon''ble High Court of Delhi on March 12, 2013. Also, 107,012,932 equity shares of Rs.10 each have been issued in the ratio of 4:1 as bonus shares during the year 2013.

3. Terms and conditions of issue and conversion/redemption of Compulsorily convertible debentures (CCDs) are as under:

Since all the CCDs have been converted to equity share capital as at year end, there are no CCDs outstanding as at December 31, 2016. The particulars as at December 31, 2015 are as under:

The Company was required to conduct a qualified initial public offer (''QIPO'') not later than 48 months from the date of issue of first tranche. If a QIPO by the Company had not been completed prior to the QIPO deadline date on account of the market conditions or non-receipt of internal or external approvals that were required for such QIPO, the Company and the promoters (as defined in the subscription agreement) had to ensure that such QIPO occurred within six years from the first completion date. The CCDs were to be converted into such number of equity shares based on the lower-end of the price band at which the QIPO was proposed, to enable the debenture holders to realize the agreed return of 18.5% from the equity shares resulting from such conversion. CCDs were compulsorily convertible into equity shares in an initial public offer (IPO). In the event the Company had not filed a Draft Red Herring Prospectus for QIPO with the Securities and Exchange Board of India on or before May 31, 2017, the debenture holders had various exit options including 14% per annum coupon and put option on promoters at an agreed return. The coupon in that case would have been payable as per the terms of underlying agreement.

4. Terms and conditions of issue and redemption of Non-convertible debentures (NCDs) are as under:

5. Issued to RBL Bank Limited

During the year ended December 31, 2016, the Company has called-up the balance amount of Rs.1,800 in single installment, i.e. 90 percent of the face value of debenture, as per the terms of the underlying agreement. The NCDs were repaid during the year from the proceeds of IPO. There were no NCDs outstanding as at December 31, 2016 and details of NCDs as at December 31, 2015 are as under:

The Rated Secured Listed Redeemable Rupee Denominated NCD (2000) were redeemable at par in 5 years from the deemed date of allotment and carried a coupon rate of SBI base rate plus 60 basis points. The NCDs were redeemable 30%, 30% and 40% at the end of year third, fourth and fifth years unless redeemed earlier. These NCDs were secured by way of first pari-passu charge on the specified fixed assets of the Company to the extent of 1.25 times of NCDs outstanding.

The Audit Committee and Board of Directors of the Company noted the utilization of the proceeds of NCDs for the year ended December 31, 2016 and December 31, 2015, which was in line with utilization schedule approved by the Board of Directors. The unutilized amount from the proceeds of NCDs as on December 31, 2016 and December 31, 2015 was Rs. Nil.

6. Issued to AION Investments II Singapore PTE Ltd

During the year ended December 31, 2016, the Company has redeemed all the NCDs issued to AION Investments II Singapore PTE Ltd, there were no NCDs outstanding as at December 31, 2016. Details of NCDs as at December 31, 2015 are as under:

NCDs were rated unsecured and carried a coupon rate of 14% for the first eighteen months and 17% thereafter. NCDs were redeemable by the Company on the tenth anniversary from the date of allotment (''Final Redemption Date''). The Company and its affiliates (as defined in the underlying agreement) had right to redeem the NCDs, prior to the final redemption date, under the circumstances and subject to the conditions stated in the underlying agreement.

7. Details of securities is as under:

Banks-working capital facilities (secured)

Working capital facilities from banks are secured by first charge on entire current assets of the Company ranking pari passu amongst the banks and second charge on the movable and immovable assets of the Company pertaining to specific manufacturing units. The working capital facilities carry interest rates ranging between 9.5 to 10.90% (Previous year 11 to 12%).

8: The Company manufactures as well as purchase the same product from market for sale. In the absence of demarcation between manufactured and purchased goods, stock in trade values are not separately ascertainable. Further, the Company uses both imported and indigenous raw materials and stores and spares in its manufacturing operations and in absence of separate records for imported and indigenous materials, the disclosures for consumption of imported and indigenous materials is not available.

9. In accordance with the Guidance Note on "Accounting Treatment of Excise Duty" issued by the Institute of Chartered Accountants of India, excise duty amounting to Rs.104.75 (previous year Rs.80.63) has been included in the value of inventories and the corresponding amount of excise duty provided for has been included in other liabilities. However, this has no impact on the profit for the current year and previous year.

10. The Company has taken various premises and other fixed assets on operating leases. The lease agreements generally have a lock-in-period of 1-5 years and are cancellable at the option of the lessee thereafter. Majority of the leases have escalation terms after certain years and are extendable by mutual consent on expiry of the lease. During the year, lease payments under operating leases amounting to Rs.376.09 (previous year Rs.340.46) have been recognized as an expense in the Statement of Profit and Loss.

Defined contribution plan:

Contribution to defined contribution plans, recognized as expense for the year is as under: Employer''s contribution to provident and other funds Rs.140.29 (previous year Rs.116.77)

11. RELATED PARTY TRANSACTIONS A. Relationships

12. Key managerial personnel (KMP):

Mr. Ravi Kant Jaipuria Director

Mr. Varun Jaipuria Whole time Director

Mr. Raj Pal Gandhi Whole time Director

Mr. Kamlesh Kumar Jain Whole time Director

Mr. Christopher White (till March 28, 2016) Whole time Director

Mr. Kapil Agarwal Whole time Director

13. Subsidiaries/step down subsidiaries and associates

Varun Beverages Morocco SA Subsidiary

Varun Beverages (Nepal) Private Limited Subsidiary

Varun Beverages Lanka (Private) Limited Subsidiary

Varun Beverages (Zambia) Limited Subsidiary (with effect from January 1, 2016)

Varun Beverages Mozambique Limitada Subsidiary (with effect from January 1, 2016)

Varun Beverages (Zimbabwe) (Private) Limited Subsidiary (with effect from April 5, 2016)

Ole Spring Bottlers (Private) Limited Step down subsidiary

Angelica Technologies Private Limited Associate

14. Individuals/enterprises having significant influence:

RJ Corp Limited

Ravi Kant Jaipuria & Sons (HUF)

Mr. Varun Jaipuria

15. Relatives of KMP":

Mrs. Dhara Jaipuria Mrs. Shashi Jain

16. Entities where KMPs or relatives of KMPs exercise significant influence**:

Devyani International Limited Devyani Food Industries Limited SVS India Private Limited Alisha Retail Private Limited Champa Devi Jaipuria Charitable Trust Wellness Holdings Limited

** With whom the Company had transactions during the current year and previous year.

17. The business activities of the Company predominantly fall within a single primary business segment, i.e., manufacturing and sale of beverages within India. There are no separate reportable businesses or geographical segments that meet the criteria prescribed in Accounting Standard (AS-17) on Segment Reporting.

18. EMPLOYEE SHARE-BASED PAYMENT

Description of share based payments arrangements

During the year ended December 31, 2013, the Company granted stock options to certain employees of the Company and its subsidiaries. The Company has the following share-based payment arrangements for employees.

Employee Stock Option Plan 2013 (ESOP 2013)

The ESOP 2013 ("the Plan") was approved by the Board of Directors and the shareholders on May 13, 2013 and further amended by Board of Directors on 01 December 2015. The plan entitles key managerial personnel and employees of the Company and its subsidiaries to purchase shares in the Company at the stipulated exercise price, subject to compliance with vesting conditions. Stock options can be settled by issue of equity shares. As per the Plan, holders of vested options are entitled to purchase one equity share for every option at an exercise price of ''149.51, which is 1.14 % above the stock price at the date of grant, i.e., May 13, 2013.

Had the compensation cost for employee stock options been determined on the basis of the fair value method as described in the said Guidance Note, the Company''s net profit after tax would have been lower by Nil (previous year Rs.101.36) and basic earnings per share would have been Rs.12.86 (previous year Rs.10.58) and diluted earnings per share would have been Rs.11.04 (previous year Rs.10.51) (Earnings per share information is expressed as '').

For purposes of the above proforma disclosures, the fair values are measured based on the Black-Scholes-Merton formula. Expected volatility, an input in this formula, is estimated by considering historic average share price volatility. The inputs used in the measurement of grant-date fair values are as follows:

Employee Stock Option Plan 2016

The ESOS 2016 ("the Scheme") was approved by the Board of Directors and the shareholders on April 27, 2016 . The scheme entitles key managerial personnel and employees of the Company and its subsidiaries to purchase shares in the Company at the stipulated exercise price, subject to compliance with vesting conditions. Stock options can be settled by issue of equity shares. No options under this scheme have been granted upto year ended December 31, 2016.

19. Pursuant to transfer pricing legislations under the Income-tax Act, 1961, the Company is required to use specified methods for computing arm''s length price in relation to specified international and domestic transactions with its associated enterprises. Further, the Company is required to maintain prescribed information and documents in relation to such transactions. The appropriate method to be adopted will depend on the nature of transactions/ class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Company is in the process of updating its transfer pricing documentation for the current financial year. Based on the preliminary assessment, the management is of the view that the update would not have a material impact on the tax expense recorded in these financial statements. Accordingly, these standalone financial statements do not include any adjustments for the transfer pricing implications, if any.

Provision for income tax is net of taxes paid of Rs.273.97 (previous year Rs.234.33) for current year tax and Rs.564.66 (previous year Rs.160.05) related to earlier assessment years for which assessment are not concluded."

20. During the previous year ended December 31, 2015, the Company has acquired beverages manufacturing units in Satharia (Uttar Pradesh), Panipat (Haryana), Bazpur (Uttrakhand) and Jainpur (Uttar Pradesh) including franchise rights for Punjab, Chandigarh, Himachal Pradesh, part of Haryana, part of Uttrakhand and eastern and central Uttar Pradesh territory from PepsiCo India Holdings Private Limited and Aradhana Drinks and Beverages Private Limited for a total consideration of Rs.12,685.00* as per the terms of business transfer agreement.

Fixed assets acquired under the aforesaid acquisition have been recorded based on the fair valuation of respective assets as assessed by the independent valuers as on the date of the acquisition and the current assets and liabilities taken over have been recorded at carrying value.

21. During the year ended December 31, 2016, the Company had acquired two beverages manufacturing units in Phillaur (Punjab) and Satharia (Uttar Pradesh) under slump sale for a total consideration of Rs.574.00 and Rs.500.00 respectively as per the terms of business transfer agreements.

Fixed assets acquired under the aforesaid acquisitions have been recorded based on the fair valuation of respective assets as assessed by the independent valuer as on the date of the respective acquisitions and the current assets and liabilities taken over have been recorded at carrying value.

22. In accordance with the provisions of section 135 of the Companies Act, 2013, the Board of Directors of the Company had constituted a Corporate Social Responsibility (''CSR'') Committee. The Company has incurred expenses aggregating to Rs.10.69 (previous year Rs.0.92) for CSR activities.

23. The Company follows calendar year as its financial year as approved by the Company Law Board, New Delhi.

24. Amount utilised for share issue expenses primarily includes payment made for merchant banker fees, legal counsel fees, brokerage and selling commission, auditors fees, registrar to the issue, printing and stationary expenses, advertising and marketing expenses, statutory fees to regulator and stock exchanges and other incidental expenses towards Initial Public Offering (''IPO''). Of the total share issue expenses, expenses aggregating to Rs.222.1 5 have been adjusted towards the securities premium reserve and expenses aggregating to Rs.127.26 have been recovered from the selling shareholders. The recovery of expenses is in the proportion of shares offered for sale by the selling shareholders to total shares offered for IPO for all expenses except for expenses exclusively related to the Company.

25. During the year ended December 31, 2016, pursuant to Initial Public Offering (IPO), 25,000,000 equity shares of Rs.10 each were allotted at a premium of Rs.435 per share consisting of fresh issue of 1 5,000,000 equity shares and offer for sale of 10,000,000 equity shares by the selling shareholders for the purpose of repayment of debts and general corporate purposes. The Audit Committee and the Board of Directors noted the utilization of funds raised through fresh issue of equity shares pursuant to IPO to be in line with the objects of the issue, the details of which are as follows:

26. Subsequent to December 31, 2016, the Board of Directors of the Company have authorized the management to increase the Company''s controlling stake in Varun Beverages (Zambia) Limited from existing 60% up to 90% by acquiring further 15,000 shares and to reduce its stake in Varun Beverages Mozambique Limitada from existing 51% to 10% stake by selling its shares, subject to necessary approvals.

27. Previous year amounts have been regrouped/ reclassified wherever considered necessary.

This is the summary of significant accounting policies and other explanatory information referred to in our report of even date.

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Dec 31, 2015

b) Terms and conditions of issue and redemption of Non-Convertible Debentures (NCDs) are as under:

i) Issued to RBL Bank Limited

The Rated Secured Listed Redeemable Rupee Denominated NCD (2000) are redeemeable at par in 5 years from the deemed date of allotment and carries a coupon rate of SBI base rate plus 60 basis points. The NCDs are redeemable 30%, 30% and 40% at the end of year third, fourth and fifth year unless redeemed earlier. The amount uncalled is to be paid on or before 29 Febuary 2016. These NCDs are secured by way of first pari-passu charge on the specified fixed assets of the Company to the extent of 1.25 times of NCDs outstanding.

Non-Convertible Debentures (NCDs) shall be rated unsecured and carry a coupon rate of 14% for the first eighteen months and 17% thereafter. NCDs are redeemable by the Company on the tenth anniversary from the date of allotment (‘Final Redemption Date’). The Company and its affiliates (as defined in the underlying agreement) have right to redeem the NCDs, prior to the Final Redemption Date, under the circumstances and subject to the conditions started in the underlying agreement.

a) Details of securities is as under:

Working capital facilities from banks are secured by first charge on entire current assets of the Company ranking pari passu amongst the banks and second charge on the movable and immovable assets of the Company pertaining to specific manufacturing units. In the previous year, short term loans included above in the working capital facility were also secured by way of second charge on the movable and immovable assets of the Company pertaining to specific manufacturing units. The working capital facilities carry interest rates ranging between 11 to 12 %.

* Loan repayable on demand from a body corporate has an interest rate of 12% per annum.

Note: The Company manufactures as well as purchases the same product from market for sale. In the absence of demarcation between manufactured and purchased goods, stock in trade values are not separately ascertainable. Further, the Company uses both imported and indigenous raw materials and stores and spares in its manufacturing operations and in absence of separate records for imported and indigenous materials, the disclosures for consumption of imported and indigenous materials is not available.

** excluding '' 5.40 (previous year '' 5.40) already considered as contingent ilability in 34 (c) above.

# includes guarantees for loans given on behalf of Varun Beverages Lanka (Private) Limited and Lunarmech Technologies Private Limited for business purposes.

1..To comply with the Guidance Note on “Accounting Treatment of Excise Duty” issued by the Institute of Chartered Accountants of India, excise duty amounting to '' 80.63 (previous year '' 76.99) has been included in the value of inventories and the corresponding amount of Excise Duty provided for has been included in other liabilities. However, this has no impact on the profit of the year.

2. The Company has taken various premises and other fixed assets on operating leases. The lease agreements generally have a lock-in-period of 1-5 years and are cancellable at the option of the lessee thereafter. Majority of the leases have escalation terms after certain years and are extendable by mutual consent on expiry of the lease. During the year, lease payments under operating leases amounting to '' 298.10 (previous year '' 170.65) have been recognized as an expense in the Statement of Profit and Loss.

The diluted earnings per share do not include the potential impact of conversion of the compulsorily convertible debentures and compulsorily convertible preference shares, since the conversion is dependent on future events which are currently uncertain. Accordingly, the potential dilutive equity shares cannot be estimated reliably as at the end of current and previous years.

44. Related party transactions A. Relationships I. Key managerial personnel (KMP):

Mr. Ravi Kant Jaipuria Director

Mr. Varun Jaipuria Whole-time Director

Mr. Raj P. Gandhi Whole-time Director

Mr. Kamlesh Kumar Jain Whole-time Director

Mr. Christopher White Whole-time Director

Mr. Kapil Agarwal Whole-time Director

II. Subsidiaries/step down subsidiary and associate

Varun Beverages Morocco SA - Subsidiary

Varun Beverages (Nepal) Private Limited - Subsidiary

Varun Beverages Lanka (Private) Limited - Subsidiary

Ole Spring Bottlers (Private) Limited - Step down subsidiary

Angelica Technologies Private Limited - Associate

III. Individuals/enterprises having significant influence:

RJ Corp Limited

Ravi Kant Jaipuria & Sons (HUF)

Mr. Varun Jaipuria

IV. Relatives of KMP**:

Mrs. Dhara Jaipuria Mrs. Shashi Jain

V. Entities where KMPs or relatives of KMPs exercise significant influence**:

Devyani International Limited Devyani Food Industries Limited SVS India Private Limited Alisha Retail Private Limited AbInbev India Private Limited#

Champa Devi Jaipuria Charitable Trust

** With whom the Company had transactions during the current and previous year.

# Till 31 December 2014

3. Unhedged foreign currency exposure (cont’d)

* Closing rate as at 31 December, 2015 (1 USD = '' 66.33 (31 December, 2014: 1 USD = '' 63.33))

* Closing rate as at 31 December, 2015 (1 Euro = '' 72.50 (31 December, 2014: 1 Euro = '' 77.01))

* Closing rate as at 31 December, 2015 (1 GBP = '' 98.35 (31 December, 2014: 1 GBP = '' 98.58))

The Management closely monitors the un-hedged foreign currency exposures and is of the opinion that these exposures are significantly hedged naturally.

4. Employee share-based payment Description of share based payments arrangements

During the year ended 31 December 2013, the Company granted stock options to certain employees of the Company and its subsidiaries. The Company has the following share-based payment arrangements for employees.

Employee Stock Option Plan 2013 (ESOP 2013)

The ESOP 2013 (the ‘Plan’) was approved by the Board of Directors and the shareholders on 13 May 2013 and further amended by Board of Directors on 01 December 2015. The plan entitles key managerial personnel and employees of the Company and its subsidiaries to purchase shares in the Company at the stipulated exercise price, subject to compliance with vesting conditions. Stock options can be settled by issue of equity shares. As per the Plan, holders of vested options are entitled to purchase one equity share for every option at an exercise price of'' '' 149.51, which is 1.14 % above the stock price at the date of grant, i.e., 13 May 2013.

As the exercise price of the option is higher than the fair value of the Company’s stock as of grant date, no expense has been recorded in the current year and previous year.

Particulars Employee Stock Option Plan 2013

Vesting Conditions 668,850 options on the date of grant (‘ First vesting’)

668.850 options on first day of January of the calendar year following the first vesting (‘Second vesting’)

668.850 options on first day of January of the calendar year following the second vesting (‘Third vesting’)

668.850 options on first day of January of the calendar year following the third vesting (‘Fourth vesting’)

Notwithstanding any other clause of this plan, no vesting shall occur until 01 December 2015 or fourth vesting whichever is earlier.

Exercise period Stock options can be exercised within a period of 5 years from the date of vesting.

As permitted by the Guidance Note on accounting for Employee Share - based Payment, issued by the Institute of Chartered Accounts of India, the Company has elected to account for stock options based on their intrinsic value (i.e., the excess of fair market value of the underlying share over the exercise price) at the grant date rather than their fair value at that date. Had the compensation cost for employee stock options been determined on the basis of the fair value method as described in the said Guidance Note, the Company’s net profit after tax would have been lower by '' 101.36 million (previous year '' 46.07 million), and basic earnings per share would have been '' 10.58 (previous year '' 2.90) and diluted earnings per share would have been '' 10.51 (previous year '' 2.90).

5. Pursuant to transfer pricing legislations under the Income-tax Act, 1961, the Company is required to use specified methods for computing arm’s length price in relation to specified international and domestic transactions with its associated enterprises. Further, the Company is required to maintain prescribed information and documents in relation to such transactions. The appropriate method to be adopted will depend on the nature of transactions/ class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Company is in the process of updating its transfer pricing documentation for the current financial year. Based on the preliminary assement, the management is of the view that the update would not have a material impact on the tax expenses recorded in these financial statements. Accordingly, these financial statements do not include any adjustments for the transfer pricing implications, if any.

6. During the year ended 31 December 2015, the Company acquired beverages manufacturing units in Sathariya (Uttar Pradesh), Panipat (Haryana), Bazpur (Uttrakhand) and Jainpur (Uttar Pradesh) including franchisee rights for Punjab, Chandigarh, Himachal Pradesh, part of Haryana, part of Uttrakhand and eastern and central Uttar Pradesh territory from PepsiCo India Holdings Private Limited and Aradhana Drinks and Beverages Private Limited for a total consideration of '' 12,685 million¹ as per the terms of business transfer agreements.

Fixed assets acquired under the aforesaid acquisition have been recorded based on the fair valuation of respective assets as assessed by the independent valuers as on the date of the acquisition and the current assets and liabilities taken over have been recorded at carrying value.

approximately USD 25 million. Certain closing terms / regulatory approvals of the SPAs executed during the current year were pending for completion as at 31 December 2015.

7. In accordance with the provisions of Section 135 of the Companies Act, 2013, the Board of Directors of the Company had constituted a Corporate Social Responsibility (‘CSR’) Committee. In terms with the provisions of the said Act, the Company has spent whole of the amount required to be spent amounting to '' 0.92 million towards CSR activities during the year ended 31 December 2015.

8. Previous year amounts have been regrouped/ reclassified wherever considered necessary.