(m) Provisions and contingent liabilities
i. General
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. 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.
ii. Contingent liabilities
A disclosure for contingent liabilities is made where there is a possible obligation or a present obligation that may probably not require an outflow of resources. When there is a possible or a present obligation where the
likelihood of outflow of resources is remote, no provision or disclosure is made.
iii. Onerous contracts
Provision for onerous contracts. i.e. contracts where the expected unavoidable cost of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognised when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event based on a reliable estimate of such obligation.
(n) Leases
The Company has applied Ind AS 116 with effect from April 1, 2019 using the modified retrospective approach. At inception of the contract, the Company determines whether the contract is a lease or contains a lease arrangement. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
As a lessee
The Company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, in Statement of profit and loss and adjusted for certain re-measurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the its incremental borrowing rate as the discount rate.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if Company changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in statement of profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
The Company presents right-of-use assets that do not meet the definition of investment property separately in the balance sheet and lease liabilities separately within ‘Financial Liabilities’.
Short-term leases and leases of low-value assets The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months. The Company recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
(o) Segment reporting
Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). The Managing Director of the Company is responsible for allocating resources and assessing performance of the operating segments and accordingly is identified as the CODM. The Company publishes the standalone financial statements of the Company along with the consolidated financial statements. In accordance with Ind AS 108, Operating Segments, the Company has disclosed the segment information in the consolidated financial statements.
(p) Cash and cash equivalents
The Company considers all highly liquid investments, which are readily convertible into known amounts of cash that are subject to an
insignificant risk of change in value to be cash equivalents. Cash and cash equivalents consist of balances with banks which are unrestricted for withdrawal and usage.
(q) Earnings per share
Basic Earnings Per Share (‘EPS’) is computed by dividing the net profit attributable to the equity shareholders by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit/ loss for the period attributable to the equity shareholders and the weighted average number of shares outstanding during the period is adjusted for the effects of all dilutive potential equity shares.
(r) Cash flow statement
Cash flows are reported using indirect method, whereby net profits before tax is adjusted for
the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating (operating activities), investing and financing activities of the Company are segregated.
(s) Government grants
The Company recognises an unconditional government grant related to PSI scheme in profit or loss as other income when the grant becomes receivable.
(t) Recent Indian Accounting Standards :
Ministry of Corporate Affairs (“MCA”) notifies new standards or amendments to the existing standards under companies (Indian Accounting Standards) Rules as issued from time to time. For the year ended March 31, 2024, MCA has not notified any new standards or amendments to existing standards applicable to the Company.
28 INTER COMPANY AGREEMENTS AND ARRANGEMENTS
a) Intellectual property agreement (Royalty expenses) - The Company has entered into Intellectual Property agreement with 3M Innovative Properties Company and 3M Company, USA effective July 1, 2006 for the payment of license fees in the form of royalties. Payments were waived off for a period of 3 years effective from July 1, 2006 to June 30, 2009. The Intellectual Property Agreement with 3M Innovative Properties Company and 3M Company, USA has been revised effective April 1, 2023. Accordingly, the Company has incurred an expenditure of ' 7,675.99 lakhs for the year ended March 31, 2024 (March 31, 2023: ' 5,744.66 lakhs) and disclosed as Royalty under other expenses (refer note 26).
b) Corporate management fees - In order to avail economies of scale , the Company has entered into inter-company services support services agreement with 3M Global Service Center Management Company, USA (having expertise in establishing, operating and managing international business and incurring costs in developing, manufacturing, marketing and selling a diverse portfolio of products) with effect from April 1, 2019. The Company is charged with comprehensive support services charges by 3M Global Service Center Management Company for the services received from all the 3M group companies in the areas of Laboratory, Technical assistance and Manufacturing, Selling and Marketing, Strategic and Managerial, Information Technology, Routine Administration and Foreign Services Employees Expenses and Outsourced Services of Transaction Processing on competitive conditions. Accordingly, the Company has incurred an expenditure of ' 11,843.30 lakhs for the year ended March 31, 2024 (March 31, 2023: ' 11,711.22 lakhs) and disclosed as Corporate management fees under other expenses (refer note 26).
c) Contract research agreement - The Company has entered into contract research agreement with 3M Innovative Properties Company and 3M Company, USA effective July 1, 2006 for carrying out contract research activities. During the year, Company has recognized an income of ' 1,249.60 lakhs (March 31, 2023 : ' 1,457.76 lakhs).
29 EMPLOYEE STOCK OPTION PLAN
A. Description of share based payment arrangements
Stock appreciation rights and Restricted stock units (cash-settled)
3M Company, USA has established 3M Company Long Term Incentive Plan (LTIP). As a part of the plan, eligible employees of the Company are entitled to acquire shares of 3M Company, USA via via stock options i.e., stock appreciation rights (SARs) and restricted stock units (RSUs). The eligible employees are granted stock options i.e., stock appreciation rights (SARs) and restricted stock units (RSUs) which will vest with the employees over a period of 3 years from the date of the grant and they can exercise the stock option within a stipulated period mentioned in the plan. The exercise price of SARs will be based on the grant letter and RSUs will be Nil. As of the year end a sum of ' 967.42 lakhs (2023: ' 1,314.36 lakhs) is liability and the same is included as ‘Employee benefit obligation’ under Other financial liabilities (refer note 17).
B. Measurement of fair values
The Company measures compensation expense for stock appreciation rights (SARs) at their fair value determined using Black - Scholes Model and restricted stock units (RSUs) based on fair market value of shares of 3M Company, USA as on March 31, 2024.
30 EMPLOYEE BENEFITS
(a) Defined contribution plan
The Company offers its employees defined contribution plans in the form of Provident Fund (PF), Superannuation Fund (SF) and Contribution to SF is made to 3M India Ltd Employees Superannuation Fund Trust. Other contributions are made to the Government’s funds. While both the employees and the Company pay predetermined contributions into the Provident Fund and the ESI Scheme, contributions into superannuation fund are made only by the Company. The contributions are normally based on a certain proportion of the employee’s salary.
During the year, the Company has recognised the following amounts in the Statement of profit and loss, which are included in contribution to provident and other funds:
(' in lakhs)
(b) Defined benefit plan
The Company provides for gratuity, a defined benefit plan (the Gratuity Plan), to its employees. The Gratuity Plan provides a lump sum payment to vested employees, at retirement or termination of employment, of an amount based on the respective employee’s last drawn salary and years of employment with the Company. The Company contributes all ascertained liabilities towards gratuity to the 3M India Ltd Employees Gratuity Fund Trust. Trustees administer contributions made to the trust. As of March 31, 2024 and March 31, 2023, the plan assets have been primarily invested in insurer managed funds.
Notes:
(i) Income tax matters mainly relate to transfer pricing adjustments made by the Income tax authorities with respect to disallowance of intercompany charges related to corporate management fees.
(ii) The Company during the year 2012-13 had received an order from The Commissioner of Customs demanding differential duty, interest and penalty of '1,961.50 lakhs, contending the availment of concessional import duty in respect of some of its products for which a demand notice was served on the Company for payment of the above amount. The Company has filed an appeal against the order including for obtaining a stay against any recovery proceedings that may be initiated and accordingly no liability has been recognised in the books.
(iii) The Company was issued a Show Cause Notice dated December 8, 2016 by the Directorate of Revenue Intelligence (DRI) in relation to levy of customs duty on inter-company transactions for import of goods and services and hence proposing to demand differential duty of customs covering the transactions during the period December 8, 2011 to February 7, 2014. The Company has received an order in original on October 1, 2017 from Additional Director General - DRI (Adjudication), Mumbai confirming the demand raised for custom duty in show cause notice amounting to '7,693.52 lakhs, penalty equivalent to the custom duty amount and additional penalty and interest of '1,000 lakhs. The Company has executed a bank guarantee of ' 1,000 lakhs. The Company has filed an appeal against this order with CESTAT, Mumbai after making payment of deposit of '577 lakhs which is not included in the amount above.
(iv) Sales tax cases primarily pertains to Maharashtra Value Added Tax Act, 2002 and Karnataka Value Added Tax Act, 2003. These are pertaining to the years from 2006-07 to 2017-18. These cases are with respect to the applicable rate of tax for various products and matters pertaining to declaration forms.
(v) Service tax matters relates to cases with respect to manner of apportionment of credit availed by the Company without registering as an Input service distributor.
(vi) Excise matters relates to penalty for allegedly dealing in goods liable to confiscation under Rule 26 of the Central Excise Act.
(vii) The Goods and service tax matter relates to classification of handrubs for the period July 2017 to March 2021, based on notices received upon GST Audits for year 2017-18 to 2019-20 and transition of credit through TRAN-1 for year 2016-17 and 2017-18.
38 FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
A. Accounting classification and fair values
a) Fair value through other comprehensive income (FVTOCI) - Where the financial assets are held not only for collection of cash flows arising from payments of principal and interest but also from the sale of such assets. Such assets are subsequently measured at fair value, with unrealised gains and losses arising from changes in the fair value being recognised in other comprehensive income
b) Fair value through profit or loss (FVTPL) - Where the assets are managed in accordance with an approved investment strategy that triggers purchase and sale decisions based on the fair value of such assets. Such assets are subsequently measured at fair value, with unrealised gains and losses arising from changes in the fair value being recognised in the Statement of Profit and Loss in the period in which they arise.
c) Amortised cost - Where the financial assets are held solely for collection of cash flows arising from payments of principal and/or interest.
B. Financial Risk Management
The company has exposure to the following risk arising from financial instruments:
- Credit risk
- Liquidity risk
- Market risk
i. Risk management framework
The Company’s principal financial liabilities comprise finance lease obligations, trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include trade and other receivables, cash and cash equivalents and other bank balances that are derived directly from its operations.
ii. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers.
(a) Financial assets that are not credit impaired
The Company has financial assets which are in the nature of cash and cash equivalents, loans to employees, unbilled revenue from related party, interest accrued on fixed deposits and receivables from related parties which are not credit impaired. These are contractually agreed with either banks, related parties or employees where the probability of default is negligible.
(b) Financial assets that are credit impaired Trade receivables
The Credit services team has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, if they are available. Sale limits are established for each customer and reviewed yearly.
The Company establishes an allowance for impairment that represents its estimate of expected losses in respect of trade receivables.
Expected credit loss assessment for the Company as at March 31, 2023 and 2024.
The Company has divided all the debtors outstanding for the last twelve quarters into age brackets of not due, 0-90 days, 91-180 days, 181-270 days, 271-365 days and amounts outstanding for more than one year.
The Company has calculated the impairment loss arising on account of past trends in the default rate for time bucket.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward looking information. Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive).
Out of the total trade receivables of ' 71,880.49 lakhs (March 31, 2023: 63,492.65 lakhs), the exposure considered for expected credit loss is ' 66,459.85 lakhs (March 31, 2023: ' 60,532.21). The balance which is not considered for impairment primarily pertains to intercompany receivables and secured debtors.
The following table provides information about the exposure to credit risk and expected credit loss for trade and other receivables -
iii. Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
The Company believes that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived.
The table below provides details regarding the contractual maturities of significant financial liabilities:
iv. Market risk
Market risk is the risk that changes in market prices - such as foreign exchange rates will affect the Company’s income or the value of its holdings of financial instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables. The Company is exposed to market risk primarily related to foreign exchange rate risk. Thus, the exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currency. The objective of market risk management is to avoid excessive exposure in our foreign currency revenues and costs.
43 No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”) with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in party identified by or on behalf of the Company (Ultimate Beneficiaries). The Company has not received any fund from any party(s) (Funding Party) with the understanding that the Company shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
44 OTHER STATUTORY INFORMATION:
i) The Company does not have any Benami property or any proceeding is pending against the Company for holding any Benami property.
ii) The Company do not have any charges or satisfaction which is yet to be registered with Registrar of Companies beyond the statutory period.
iii) The Company has not traded or invested in crypto currency or virtual currency during the financial year.
iv) The Company is not classified as wilful defaulter.
v) The Company doesn’t have 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.
vi) The Company has no transactions with the struck off companies.
vii) The Company has complied with the number of layers prescribed under the Companies Act, 2013.
viii) The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous financial year.
45 The Holding Company 3M Company, USA on July 26, 2022 had announced its intent to spin off Health Care business. The Board of Directors in the earlier quarters had approved the proposal of 3M Company, USA for not to spin off the healthcare business of the Company in India and propose it to be operated under a licensed manufacturing, reselling and distributorship arrangements (herein after referred to as “agreements’) . Pursuant to the completion of the planned spin-off of the Healthcare business by 3M Company USA globally into Solventum with effect from April 1, 2024, the Company has entered into the agreements dated March 31, 2024 to conduct the business operation with Solventum and its affiliates.
46 For the year 2023-24, the Board recommended a dividend of ' 685 per equity share (final dividend of ' 160 per equity share and special dividend of ' 525 per equity share) at its meeting held on May 28, 2024. This payment is subject to the approval of the shareholders in the ensuing Annual General Meeting of the Company.
47 SUBSEQUENT EVENTS
There are no material subsequent events after the balance sheet date upto the date of adoption of these financial statements which may have significant impact on these financial statements.
As per our report of even date attached
for B S R & Co. LLP for and on behalf of the Board of Directors
Chartered Accountants
Firm Registration Number: 101248W/W-100022
Umang Banka Ramesh Ramadurai Vidya Sarathy Pratap Rudra Bhuvanagiri
Partner Managing Director Whole-time Director & Company Secretary
Membership No.: 223018 DIN: 07109252 Chief Financial Officer Membership No.: A22297
DIN: 01689378
Place: Bengaluru Place: Bengaluru
Date: May 28, 2024 Date: May 28, 2024
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