1. COMPANY INFORMATION
JCT Limited (‘the Company’) is a public limited Company incorporated in India, with its registered office in Hoshiarpur (Punjab) and Corporate Office in New Delhi. The Company is listed on the Bombay Stock Exchange (BSE).
The Company is primarily a manufacturer of cloth and nylon filament yarn, with its manufacturing facilities at Phagwara and Hoshiarpur in Punjab.
The financial statements for the year ended March 31, 2018 were approved by the Board of Directors and authorized for issue on 30thMay, 2018.
2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION
a. Compliance with Indian Accounting Standards :
The financial statements have been prepared in accordance with the Indian Accounting Standards (‘Ind AS’) notified under Companies (Indian Accounting Standards) Rules, 2015, as amended by Companies (Indian Accounting Standards) Rules, 2017 and the other relevant provisions of the Companies Act, 2013. For all the periods upto and including year ended March 31, 2017, the Company prepared, its financial statements in accordance with the Accounting Standards notified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (‘Previous GAAP’). These financial statements are the first financial statements which have been prepared in accordance with the Ind AS. Reconciliation and explanations of the effect of the transition from Previous GAAP to Ind AS on the Company’s Balance Sheet, Statement of Profit & Loss and Statement of Cash Flows are provided in Note 39.12.
The financial statements have been prepared on accrual and going concern basis. The accounting policies are applied consistently to all the periods presented in the financial statements, including the preparation of the opening Ind AS Balance Sheet as at April 1, 2016 being the date of transition to Ind AS. All the assets and liabilities have been classified as current and non-current as per the Company’s normal operating cycle and other criteria as set out in Division II of Schedule III to the Companies Act, 2013.
b. Historical Cost Convention
The financial statements have been prepared on historical cost basis, except for the followings:
- Certain financial assets and liabilities that are measured at fair value,
- Assets held for sale - measured at fair value less cost to sell,
c. Functional and presentation currency
The financial statements are prepared in Indian Rupees (‘Rs.’), which is the Company’s functional and presentation currency. All financial information presented in Indian Rupees has been rounded to the nearest lakhs with two decimal places, unless stated otherwise.
d. Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current / non-current classification. An asset is classified as current when it is: -
- expected to be realized, or intended to be sold or consumed in normal operating cycle;
- held primarily for the purpose of trading;
- expected to be realized within 12 months after the reporting period; or
- cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
All other assets are classified as non-current.
A liability is classified as current when it is:
- expected to be settled in the normal operating cycle;
- held primarily for the purpose of trading;
- due to be settled within 12 months after the reporting date; or
- there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.
All other liabilities are classified as non-current.
Operating Cycle:
The operating cycle is the time between acquisition of assets for processing and their realization in cash and cash equivalent. The Company has identified twelve months as its operating cycle.
e. Use of estimates and judgments
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosure and the disclosure of contingent liabilities. Uncertainty about these estimates and assumptions could result in outcomes that requires material adjustments to the carrying amount of the assets and liabilities in future period/s.
These estimates and assumptions are based on the facts and events, that existed as at the date of Statement of Financial Position, or that occurred after that date but provide additional evidence about conditions existing as at the Statement of Financial Position date.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying values of assets and liabilities within the next financial year are discussed below.
i. Useful lives of Property Plant and Equipment
The Property, Plant and Equipment are depreciated, on a straight-line basis in the case of Plant & Machinery, Buildings and Data Processing Equipment and on written down value basis in the case of other assets, over their respective useful lives. Management estimates the useful lives of these assets as detailed in Note 3.1. Changes in the expected level of usage, technological developments, level of wear and tear could impact the economic useful lives and the residual values of these assets, therefore, future depreciation charges could be revised and could have an impact on the profit/loss in future years.
ii. Retirement benefit obligation
The cost of retirement benefits and present value of the retirement benefit obligations in respect of Gratuity and Leave Encashment is determined using actuarial valuations. An actuarial valuation involves making various assumptions which 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. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, these retirement benefit obligations are sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rates of long term government bonds with extrapolated maturity corresponding to the expected duration of the these obligations. The mortality rate is based on publically available mortality table for the specific countries. Future salary increases and pension increases are based on expected future inflation rates for the respective countries. Further details about the assumptions used, including a sensitivity analysis are given in Note 39.11.
iii. Fair value measurement of financial instrument
When the fair value 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 Discounted Cash Flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement 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.
iv. Impairment of Financial assets
The impairment provisions of financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
v. Impairment of non-Financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An assets recoverable amount is the higher of an assets’s fair value less cost of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, or other fair value indicators.
3. The above does not include the investment of 10,631,900 equity shares of face value of Re. 1 each of JCT Electronics Limited (an erstwhile Associate Company). The said investment though held by the Company has been fully impaired and written off in the financial statements of the earlier year/s. The Company has given an undertaking to a financial Institution and a bank of JCT Electronics Limited that the Company would not dispose off, pledge, charge, or create any lien, assign, 39,33,000 equity shares and also has pledged 42,87,000 equity share with a financial institution for financial facility availed by JCT Electronics Limited.
4. Includes Rs.Nil (Rs. NIL and Rs. 3.85 lakhs as at 31st March, 2017 and 1st April, 2016 respectively) earmarked for redemption of preference shares and Rs. 0.35 lakhs (Rs. 0.37 lakhs and Rs. 0.38 lakhs as at 31st March, 2017 and 1st April, 2016 respectively) against employees’ security deposits.
4.1 Under lien with banks for guarantee and letter of credit facilities.
5. Aggregate number of Equity Shares issued as fully paid without payment being received in cash during the period of five years immediately preceding the Balance Sheet date.
(a) 11,59,54,059 Equity Shares of Rs. 2.50 per share fully paid up at par aggregating Rs. 2,898.86 lakhs to Foreign Currency Convertible Bond (FCCBs) holders in settlement of their dues for FCcBs of US$ 12.93 million on preferential basis.
(b 4,08,80,000 Equity Shares of Rs. 2.50 per share fully paid up at par aggregating to Rs. 1,022 lakhs each to secured lenders and a promoter company on preferential basis in terms of the Corporate Debt Restructing (CDR) Scheme approved on 21.09.2012.
(c) 2,80,00,000 Equity Shares of Rs. 2.50 per share fully paid up aggregating Rs. 700 lakhs at a premium of Rs. 2.50 per share aggregating to another Rs. 700 lakhs. These shares related to 14,00,000 Optionally Convertible Preference Shares (OCPS) of Rs. 100 each.
(d) 1,33,33,333 Equity Shares of Rs. 2.50 per share fully paid up aggregating Rs. 333.33 lakhs at a premium of Rs. 5.00 per share aggregating to another Rs. 666.67 lakhs. These shares have a lock in period upto 30.05.2019. These shares related to 10,00,000 Optionally Convertible Preference Shares (OCPS) of Rs. 100 each.
5.1 The rights, powers and preferences relating to equity share and the qualifications, limitations and restrictions there of are contained in the Memorandum and Articles of Association of the Company. The Company has only one class of equity shares having a par value of Rs. 2.50 per share. The principle rights are as follows:
(a) Each holder of equity share is entitled to one vote per share.
(b) The Company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.
(c) In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholder.
6. Nature and purpose of reserves
(a) Capital Redemption Reserve: The Capital Redemption Reserve has been created, by appropriation of profit on Redemption of Cumulative Preference Shares.
(b) Share Premium Account: The amount received in excess of the face value of equity shares is recognized in Share Premium Account. This is net of amount appropriated against issue of Bonus Shares. Redemption premium payable to FCCB Holders at the time of maturity and gain/(loss) on such liability has also been adjusted against share premium account.
(c) Capital Reserve: The Reserve has been created from Capital Gain earned on settlement of (FCCBs) by issue of Equity Shares of Rs.2.50 each as fully paid up.
(d) Retained Earnings: Retained Earnings is net of the profits earned and losses suffered by the Company till date, less transfers to any Reserve, dividends or other distributions to shareholders.
6.1 Loss on exchange fluctuation of Rs 0.81 lakhs (Previous Year : Rs. 2.78 lakhs) on US$ 2.01 million payable towards redemption premium on matured 2.5% FCCBs of US$ 8.32 million has been adjusted against share premium account as the said premium had already been provided for and adjusted against share premium account in earlier years / periods.
7. Term Loans from Others:
Rs. 61.29 lakhs (Rs. 97.51 lakhs and Rs. 41.91 lakhs as at 31st March, 2017 & 1st April, 2016 respectively) Secured against hypothecation of specific vehicles etc.
7.1 Foreign Currency Convertible Bonds (FCCBs).
(a) The Company raised US$ 30 million through issue of unsecured FCCBs on 08.04.2006 out of which FCCBs of US$ 17.51 million were settled / converted into Equity Shares. The balance outstanding of US$ 12.49 million alongwith 20.075% redemption premium became due for redemption on 08.04.2011. As the Company could not pay on due date, the Trustees of FCCB holders filed a winding up petition in Punjab & Haryana High Court at Chandigarh on 29.09.2012. The winding up petition filed by the trustees, The Bank of New York Mellon, of Foreign Currency Convertible Bond Holders (FCCBs), was disposed off by the Hon’ble High Court on 27.01.2015,against which appeal was filed by the trustees and the Company with Sr.Bench of High Court where in consent term were allowed by the Hon’ble High Court on 05.06.2015, persuant to which the appeal is adjourned sine a die.
(b) The Company complied with all the conditions of consent terms and accordingly it became effective. The Company as per consent terms with FCCB holders has to pay US$ 19.19 million ( principal and redemption premium of US$ 15.0 million and defaulted interest of US$ 4.19 million) in 10 installments commencing from 05.10.2015 to 05.12.2017 alongwith interest @ 6% p.a. on reducing balance.
(c) Dues of Rs. 10,079.06 lakhs (including interest of Rs. 3,293.74 lakhs) having fallen due on 05.12.2017 to the FCCBs holders and the Company was making efforts to settle the dues. The Hon’ble High Court issued a notice on 12.01.2018 and on the date of its hearing on 08.05.2018, the Company and bond holders informed the Court of their ongoing settlement. Subsequent to Balance Sheet date, the settlement was reached on certain mutually agreed terms, subject to obtaining necessary approvals from statutory authorities including bankers to the company. The Company intends to settle these dues through refinancing of its existing term loans and availing fresh funds and the negotiations are going on with a reputed organisation. The impact of the settlement shall be taken in the accounts after necessary approvals have been received.
(d) As per the past practice, interest payable on FCCBs @ 6% p.a.for the period upto 31.03.2018 agregating to US$ 6.29 million equivalent Rs. 3,488.60 lakhs, will be accounted for when these unpaid amounts are paid by the Company, as such no provision has been made for interest in the accounts as on 31.03.2018.
7.2 Fixed Deposits from Public:
The Company discontinued the acceptance/renewal of public deposits from 29.09.2015 and is repaying the amounts as and when due.
8. Security deposits include Rs. 1,948 lakhs (Rs. 1,948 lakhs and Rs. 1,948 lakhs as at 31st March, 2017 and 1st April, 2016 respectively) against ‘Leave & License’ of certain properties with licensees’ option to buy at an agreed price in which eventuality the security deposit would be adjusted against the sale proceeds.
9. Secured Working Capital Loans availed from consortium of scheduled banks are secured by:
9.1 First Charge ranking pari-passu by way of hypothecation of entire Current Assets of the Company, namely, stocks of raw materials, stock in process, semi-finished and finished goods, stores & spares, bills receivable and books debts and all other movables, (both present & future) whether now lying loose or in cases or which are now lying or stored in or about or shall hereinafter from time to time during the continuance of the security of these presents be brought into or upon or be stored or be in or about of the Company’s factories, premises and godowns pertaining to Textile Unit at Phagwara and Filament Unit at Hoshiarpur, both in the state of Punjab or wherever-else the same may be or be held by any party to the order or disposition of the Company or in the course of transit or on high seas or on order or delivery, howsoever and wherever in the possession of the Company and either by way of substitution or addition.
9.2 Second Charge ranking pari-passu by way of equitable mortgage of all the immovable properties of the Company (both present & future) including land, buildings and tenements costructed/to be constructed thereon and hypothecation of entire moveable fixed assets.
9.3 Personal guarantees of Chairman and Managing Director and Shri M M Thapar.
9.4 Pledge of 23,61,01,790 Equity Shares of Rs.2.50 each of JCT Limited held by promoter and promoter companies.
10. There is no amount outstanding to suppliers under Micro, Small and Medium Enterprises Development Act, 2006 based on available information with the Company.
10.1 The trade payables are unsecured and usually non-interest bearing and are repayable within 60-90 days of its recognition.
11.a The Company is contesting these demands and the management including its advisors are of the view that these demands may not be sustainable at the appellate level. The management believes that the ultimate outcome of these proceedings will not have any material adverse effect on the Company’s financial position and results of its operations. The Company does not expect any reimbursement in respect of these contingent liabilities, and it is not practicable to estimate the timing of cash outflows, if any, in respect of these matters, pending resolution of the arbitration/appellant proceedings.
11.1 The Company had executed a Corporate guarantee of Rs. 400 lakhs towards Equipment Credit Scheme on 01.09.1993 and another towards foreign currency loan of DM 166,566,406 equivalant to Rs.3,580 lakhs as on 27.03.1998 for the term loan availed by JCT Electronics Ltd. (an erstwhile Associate Company) from IFCI Ltd. Subsequently, IFCI Ltd. assigned their debt to Asset Reconstruction Company (India) Limited (ARCIL) who had issued notice to the Company on 07.11.2015 for winding up under the then existing sections of the Companies Act, 1956. The Company has disputed the notice with ARCIL, thereafter no response has been received from ARCIL. Further, the Company has been legally advised that the demand raised by them is not sustainable.
11.2 The Company has not recorded cumulative deferred tax assets on account of timing differences as stipulated in Indian Accounting Standard 12 on “Income Taxes” issued by the Institute of Chartered Accountants of India in view of uncertainty of future taxable income.
11.3 Leases:
The Company has taken premises on lease under cancellable and non cancellable operating lease arrangements with lease terms ranging from 1 to 3 years, which are subject to renewal thereafter at mutual consent. The cancellable arrangements can be terminated by either party after giving due notice. The lease rent expense recognized during the year amounts to Rs. 219.52 lakhs (Previous year : Rs. 197.31 lakhs) and have been included in the Rent under Note 38 - Other Expenses. There is no future lease payments due in respect of the non-cancellable operating leases
11.4 Disclosure of Derivative Instruments :
(a) There are no outstanding forward exchange contracts used for hedge against currency exposures as at 31st March, 2018.
(b) Foreign currency exposures that have not been specifically hedged by a derivative instrument or otherwise as at 31 st March, 2018 are given below:
11.5 Going Concern:
Accumulated losses have resulted in erosion of substantial net worth of the Company. However, the financial statements have been prepared on a going concern basis on the strength of continued support from promoters, bankers / other lenders. Further, the Company is in the process of disposing off some of its non-core fixed assets to reduce its debt and improve its liquidity. The management, considering the future plans for operations and support of the promoters, lenders, business associates and workmen, is hopeful of improvement in its financial position.
11.6 The letters have been sent to most of the parties for confirmation of the balances under trade receivables, advances, trade payables and other parties. However, due to non receipt of the response from some of the parties, the balances from them are subject to confirmations / reconciliation. The impact, if any, subsequent to the confirmation / reconciliation, will be taken in the year of confirmation/ reconciliation, which in view of management, will be taken in the year of confirmation / reconciliation.
11.7 The Official Liquidator (OL) of CNLT Malaysia, (Company under liquidation) has during the year filed a recovery case in the High Court of Malaysia at Kuala Lumpur for US$ 1,250,000 towards alleged fraudulent payment by CNLT to the Company in 2006-07. The Company has filed objections for striking off the Case and asked for Security Cost. The Hon’ble High Court of Malaysia, has ordered OL to deposit security cost and the next date of hearing is fixed for 11th July, 2018. In view of the management, no liability will arise on this account to the Company.
11.8 Segment Reporting:
(a) Identification of segments
i) Primary Segment
Business segment: The Company’s operating business is organized and managed separately according to the nature of products, with each segment representing a strategic business unit that offers different products. Two identified segments are Textiles and Filament yarn. The products considered as a part of Textile segment are cloth and yarn. The products considered as a part of Filament segment are nylon yarn and chips.
ii) Secondary Segment
Geographical Segment: The analysis of geographical segment is based on the geographical location of the customers.
(b) Inter Segment transfers of goods, as marketable products produced by separate Segments of the Company, for captive consumption are made as if sales were made to third parties at current market prices and are included in turnover of the respective Segment.
(c) Unallocable Items:
Corporate income, corporate expenses, interest, capital and reserves are considered as part of unallocable items which are not identifiable to any business segment.
The Company has common property, plant and equipments for producing goods for domestic and overseas markets. Hence, separate figures for property, plant and equipments/additions to property, plant and equipments cannot be furnished.
11.9 Employee Benefits
(a) Defined Benefit plans:
Gratuity : Payable on separation as per the Payment of Gratuity Act, 1972 as amended, @ 15 days pay, for each completed year of service to eligible employees who render continuous service of 5 years or more, subject to maximum limit of Rs. 20 lakhs.
(b) Other Long Term Benefit:
Leave Encashment : Employees of the Company are entitled to accumulate their earned / privilege leave, which is payable / encashable as per the Company’s policy, while on service or on their separation.
(c) Defined Contribution plan:
Company’s employees are covered by Provident Fund, Pension Fund, Employees State Insurance Scheme/Fund and Employees’ Superannuation Scheme, to which the Company makes a defined contribution measured as a fixed percentage of salary. During the year, amount of Rs. 654.74 lakhs (Previous Year: Rs. 727.46 lakhs) has been charged to the Statement of Profit and Loss towards employer’s contribution to these schemes/funds as under:
The Company’s approved provident fund scheme, employees’ state insurance fund scheme, employees’ pension scheme and employees’ superannuation scheme are defined contribution plans. The Company has no obligation, other than the contribution paid/payable under such schemes. The contribution paid/payable under the schemes is recognized during the period in which the employee renders the related service.
11.10 First-time adoption of Ind AS
The Company w.e.f. 1st April, 2017 has adopted Indian Accounting Standards (Ind AS) notified under Companies (Indian Accounting Standards) Rules, 2015, as amended by Companies (Indian Accounting Standards) Rules, 2017 and the other relevant provisions of the Companies Act, 2013, with a transition date of 1st April, 2016. For all the periods upto and including year ended March 31, 2017, the Company prepared, its financial statements in accordance with the Accounting Standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (‘Previous GAAP’).
The adoption of Ind AS has been carried out in accordance with Ind AS 101 ‘First-time Adoption of Indian Accounting Standards’. Ind AS 101 requires that all Indian Accounting Standrads (Ind AS) and interpretations that are issued and effective for the first Ind AS financial statements be applied retrospectively and consistently for all financial years presented. Accordingly, the Company has prepared financial statements which comply with Ind AS for year ended 31st March, 2018, together with the comparative information as at and for the year ended 31st March, 2017 and the opening Ind AS Balance Sheet as at 1st April, 2016, the date of transition to Ind AS. The accounting policies as set out in Note 3 which are in accordance with Ind AS, have been applied in preparing these financial statements.
In preparing these Ind AS financial statements, the Company has availed certain exemptions and exceptions in accordance with Ind AS 101, as explained below. The resulting difference between the carrying values of the assets and liabilities in the financial statements as at the transition date under Ind AS and Previous GAAP have been recognised directly in Equity under Retained Earnings. This note explains the adjustments made by the Company in restating its financial statements prepared under Previous GAAP, including the Balance Sheet as at 1st April, 2016 and the financial statements as at and for the year ended 31st March, 2017.
Exemptions availed and mandatory exceptions
Ind AS 101 - First-time Adoption of Indian Accounting Standards permits first-time adopters certain exemptions from retrospective application of certain requirements under Ind AS. Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from Previous GAAP to Ind AS.
A. Ind AS optional exemptions
The Company has elected to apply the following optional exemptions from retrospective application:
i) Deemed cost for Property, Plant and Equipment and Intangible Assets
The Company has elected to measure all its property, plant and equipment and intangible assets at the Previous GAAP carrying amount as its deemed cost on the date of transition to Ind AS.
ii) Ind AS 17 “Leases’ requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS except where the effect is material. The Company has elected to apply this exemption for such contracts/arrangements.
iii) Long Term Foreign Currency Monetary Items
The Company has elected the option provided under Ind-AS 101 to continue the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognised in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per the Previous GAAP. Refer Note 4.3 and 21.2 regarding adjustment of the foreign currency exchange variation on amounts borrowed (FCCBs), for acquisition of property, plant and equipment, to the carrying cost of property, plant and equipment.
B. Ind AS mandatory exceptions
i) Estimates
On assessment of the estimates made under the Previous GAAP financial statements, the Company has concluded that there is no necessity to revise the estimates under Ind AS, as there is no objective evidence of an error in those estimates. However, estimates that were required under Ind AS but not required under Previous GAAP are made by the Company, wherever required for the relevant reporting dates reflecting conditions existing as at that date.
ii) Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition, if retrospective application is impracticable. Accordingly, the Company has determined the classification of financial assets bases on facts and circumstances that exist on the date of transition to Ind AS.
iii) De-recognition of financial assets and financial liabilities
Ind AS 101 requires an entity to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. Accordingly the Company has applied the de-recognition requirements for financial assets and financial liabilities in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS.
C. Transition to Ind AS - Reconciliations
The following reconciliations provide the explanations and quantification of the differences arising from the transition from Previous GAAP to Ind AS in accordance with Ind AS 101:
I. Reconciliation of Equity as at 1st April, 2016
II. A. Reconciliation of Equity as at 31st March, 2017
B. Reconciliation of Statement of Profit and Loss for the year ended 31st March, 2017 There is no material impact on the Cash Flow Statements of the transition from Previous GAAP to Ind AS. Previous GAAP figures have been reclassified / regrouped wherever necessary to conform to financial statements prepared under Ind AS.
Notes to the reconciliation of equity as at 1st April, 2016 and 31st March, 2017 and total comprehensive income for the year ended 31st March, 2017.
a) Government Grant
The government grant related to assets was netted off with the cost of respective Property, Plant and Equipment under Previous GAAP. Under Ind AS, Property, Plant and Equipment has been recognised at gross cost and government grant has been recognised as liability. The income from amortisation is recognised as other income in the Statement of Profit and Loss on a systematic basis over the useful life of the assets for which it was received.
b) Fair Valuation of Investments
In accordance with Ind AS 109 “Financial Instruments”, investments in unquoted equity shares recognised at fair value through the other comprehensive income at each reporting period.
c) Under previous GAAP, security deposits (that are refundable in cash on completion of lease term) are recorded at their transaction value. Under Ind AS, at initial recognition all financial instruments are required to be recognised at fair value. Accordingly, the Company has fair valued the security deposits and the difference between the transaction value and fair value is recognised as “Prepaid Rent” at the reporting date.
d) Revaluation Reserve
The Company has elected cost model for its Property, plant & Equipment and thus, the revaluation surplus existing as on the transition date under Indian GAAP has been transferred to the retained earnings on the date of transition.
Accordingly, the adjustment of proportionate share of revaluation surplus arising from adjustment on sale of assets and depreciation of revalued assets under previous GAAP have been reversed under Ind AS during the year ended 31st March, 2017.
e) Under Ind AS, at initial recognition all financial instruments are required to be recognised at fair value. Accordingly, the Company has fair valued the “Interest free Loan from promoters” which are in the nature of Promoter Equity resulting in increase in “Retained Earnings”.
f) Under previous GAAP, security deposits from dealers/customers/vendors (that are refundable in cash on completion of contractual term) are recorded at their transaction value. Under Ind AS, at initial recognition all financial instruments are required to be recognised at fair value. Accordingly, the Company has fair valued the security deposits and the difference between the transaction value and fair value is recognised as “Unearned Interest Income” at the reporting date.
g) Excise Duty
Under the Previous Indian GAAP, revenue from sale to goods was presented exclusive of excise duty. Under Ind AS revenue from sales of goods is presented inclusive of excise duty. Excise duty paid is presented as expenditure under Statement of profit and loss.
h) Revenue from Sale of Products
Under Previous Indian GAAP, revenue was recognised net of trade discounts and inclusive of sales taxes / VAT and excise duties. Under Ind AS, revenue is recognised at the fair value of the consideration received or receivable, after deduction of any trade discounts, cash discounts, volume rebates, rate/weight difference and any taxes or duties collected on behalf of the government such as sales tax/VAT/GST except excise duty. Credit notes given to the consumer/dealer/distributor includes cash discounts, volume rebates and rate/weight differences which have been reclassified from other expenses under Previous GAAP are netted from revenue under Ind AS.
i) Actuarial gain/(loss) on Defined Benefit Plans (Ind AS - 19)
Both under Previous Indian GAAP and Ind AS, the Company recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Previous Indian GAAP, the entire cost, including actuarial gains and losses, are charged to statement of profit or loss. Under Ind AS, re-measurements i.e. actuarial gains and losses are recognised in balance sheet through other comprehensive income. Thus, employee benefits expense is reduced with the corresponding impact under other comprehensive income.
j) Other comprehensive Income
Under Previous Indian GAAP, the Company has not presented Other Comprehensive Income (OCI) separately. Hence, it has reconciled Previous Indian GAAP profit to profit as per Ind AS. Further, Previous Indian GAAP profit is reconciled to Total Comprehensive Income as per Ind AS.
k) Previous Indian GAAP figures have been reclassified / regrouped wherever necessary to confirm to financial statements prepared under Ind AS.
D. Standard issued but not yet effective
The standard issued, but not yet effective (considering the applicability to the Company) upto the date of the issuance of the Company’s financial statements is disclosed below. The Company intends to adopt this standard when it becomes effective.
Ind AS 115 Revenue from Contracts with Customers
Ind AS 115 was issued in February, 2015 and establishes a five-step model to account for revenue arising from contracts with customers. Under Ind AS 115, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under Ind AS. This standard will come into force from accounting period commencing on or after April 01, 2018. The Company will adopt the new standard on the required effective date. During the current year, the Company performed a preliminary assessment of Ind AS 115, which is subject to changes arising from a more detailed ongoing analysis.
The fair value of the financial assets and liabilities is included at 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:
1. The Company has disclosed financial instruments such as trade receivables, current invesments, cash and cash equivalents, other bank balances, trade payables, other financial assets and liabilities at carrying value because their carrying amounts are a reasonable approximation of the fair values due to their short term nature.
2. Financial instruments with fixed and variable interest rates are evaluated by the Company based on parameters such as interest rates and individual credit worthiness of the counter party. Based on this evaluation, allowances are taken to the account for the expected losses of these receivables.
Fair value hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly
Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data
11.11 Capital Management
The Company’s capital management is intended to create value for shareholders by facilitating the meeting of long term and short term goals of the Company.
The Company determines the amount of capital required on the basis of annual business plan coupled with long term and short term strategic investment and expansion plans. The funding needs are met through equity, cash generated from operations, long term and short term bank borrowings and issue of securities.
The Company monitors the capital structure on the basis of net debt to equity ratio and maturity profile of the overall debt portfolio of the Company.
Net debt includes interest bearing borrowings less cash and cash equivalents, other bank balances (including non-current earmarked balances) and current investments.
11.12 Financial risk management objectives and policies
The Company’s principal financial liabilities, comprise of borrowings, security deposits and 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 investments, loans, trade and other receivables, cash and cash equivalents and other bank balances that are derived directly from its operations.
The Company’s financial risk management is an integral part of how to plan and execute its business strategies. The Company is exposed to market risk, credit risk and liquidity risk
The Company’s senior management oversees the management of these risks. The senior professionals working to manage the financial risks and the appropriate financial risk governance framework for the Company are accountable to the Board of Directors and Audit Committee. This process provides assurance to Company’s senior management that the Company’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risk are identified, measured and managed in accordance with Company policies and Company risk objective.
The management reviews and agrees policies for managing each of these risks which are summarized as below:
(a) Market Risk:
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. Market prices comprises three types of risk: currency rate risk, interest rate risk and other price risks, such as equity price risk and commodity price risk. Financial instruments affected by market risks include borrowings, security deposits and foreign currency receivables and payables. The sensitivity analyses in the following sections relate to the position as at March 31, 2018. The analyses exclude the impact of movements in market variables on; the carrying values of gratuity and other post-retirement obligations; provisions; and the non-financial assets and liabilities. The sensitivity of the relevant Profit and Loss item is the effect of the assumed changes in the respective market risks. This is based on the financial assets and financial liabilities held as of March 31, 2018.
(i) Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in foreign currency) and outstanding FCCBs.
Foreign currency risk sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in USD, EURO and others currency exchange rates, with all other variables held constant. The impact on the Company profit before tax is due to changes in the fair value of monetary assets and liabilities. Foreign currency exposures recognised by the Company that have not been hedged by a derivative instrument or otherwise are as under:
(i) Interest Rate Risk
Interest rate is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Company’s financial liabilities comprises of interest bearing vehicle loans, loan and advance from related party and security deposits; however these are not exposed to risk of fluctuation in market interest rate as the rates are fixed at the time of contract/agreement and do not change for any market fluctuation.
(ii) Commodity Price Risk
The Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing manufacture of yarn, fabric and garments therefore require a continuous supply of raw materials i.e. Caprolactum, Cotton and Dyes & Chemicals being the major input used in the manufacturing. Due to the significantly increased volatility of the price of the Caprolactum, Cotton and Dyes & Chemicals, the Company has entered into various purchase contracts for these material for which there is an active market. The Company’s management has developed and enacted a risk management strategy regarding commodity price risk and its mitigation. The Company partly mitigated the risk of price volatility by entering into the contract for the purchase of some of these materials and further the Company increases prices of its products as and when appropriate to minimize the impact of increase in raw material prices.
(b) Credit Risk
Credit Risk is the risk that the counter party will not meet its obligation under a financial instrument, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.
i) Trade Receivables
Customer credit risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive credit rating review and individual credit limits are defined in accordance with this assessment. The Company regularly monitors its outstanding customer receivables.
An impairment analysis is performed at each reporting date on trade receivables by lifetime expected credit loss method based on provision matrix. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets.
ii) Financial instruments and cash & bank deposits
Credit risk from balances with banks and financial institutions is managed by the Company’s management in accordance with the Company’s policy.
(c) Liquidity risk
Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at reasonable price. The Company’s objective is to at all times maintain optimum levels of liquidity to meet its cash and liquidity requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It maintains adequate source of financing through the use of short term bank deposits, short term investments and cash credit facility. Processes and policies related to such risks are overseen by senior management. Management monitors the Company’s liquidity position through rolling forecasts on the basis of expected cash flows.
12. Figures of the previous year/s have been rearranged and regrouped, wherever necessary, to confirm to current year classification.
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