1.19 Provisions and Contingent Liabilities
Provisions are recognised when the company has a present obligation (legal or constructive) because of a past event, for which it is probable that a cash outflow will be required, and a reliable estimate can be made of the amount of the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, it's carrying amount is the present value of those cash flows (when the effect of time value of money is material). These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
When the Company expects some or all the provision to be reimbursed, 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.
Contingent liabilities are disclosed when the company has a possible obligation, or a present obligation and it is probable that an outflow of resources will not be required to settle the obligation, or the amount of obligation cannot be measured with sufficient reliability.
1.20 Significant Accounting Judgments, Estimates and Assumptions
The preparation of standalone financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. 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 years.
(i) Useful lives of property, plant and equipment and intangible assets:
As described in the significant accounting policies, the Company reviews the estimated useful lives of
property, plant and equipment and intangible assets at the end of each reporting period.
(ii) Actuarial valuation:
The determination of Company's liability towards defined benefit obligation to employees is made through independent actuarial valuation including determination of amounts to be recognised in the Statement of Profit and Loss and in other comprehensive income. Such valuation depends upon assumptions determined after considering inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market. Information about such valuation is provided in notes to the standalone financial statements.
(iii) Impairment of assets:
The evaluation of applicability of indicators of impairment of assets requires assessment of several external and internal factors which could result in deterioration of recoverable amount of the assets.
(iv) Recoverability of advances/receivables:
Management reviews its receivables for objective evidence of impairment at least quarterly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgement as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.
Where there is objective evidence of impairment, management makes judgements as to whether an impairment loss should be recorded as an expense. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics.
1.21 Recent Pronouncements
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 the existing standards applicable to the Company.
2.02.1 The Company holds an investment in an Associate, Kitex USA LLC, which amounts to H2,776.24 lakhs as on March 31,2024 (March 31,2023: H 2,776.24 lakhs). Further, the Associate has been reporting continuous losses and this has fully eroded its net worth as on March 31, 2024. However, the management of the Company has assessed and evaluated the fair valuation of the investments by considering various factors like change in business plan, due to business deal entered with major customers, who are leaders in market, and with whom the Associate have already started shipping test orders to the targeted customers for their distribution to selected stores.Further, the management of the Company believes the store expansion of above customer in United States, Mexico and Europe will add value to the business of the Associate, which would result in increased projected revenue and higher contribution margin. Hence, based on their assessment and the above business plans, the management of the Company considers that the fair value of the investment in Associate is higher than the carrying value as on March 31,2024. Accordingly, the management of the Company is confident that no material adjustments would be required to be made to the carrying value of the investments in the associate in the standalone financial statements of the Company for the year ended March 31, 2024.
2.02.2 In terms of loan agreement executed by subsidiary company Kitex Apparel Parks Limited, Company has issued unconditional corporate guarantee to consortium bankers for seventy percentage of loan amount granted to subsidiary company. Company measured and recognised fair valued guarantee provided to subsidiary in accordance with IND AS in standalone financial statements.
2.08 Trade Receivables (Contd..)
2.08.2 During 2017-18, TOYS "R" US, Inc., a customer of the Company had filed a petition in the Bankruptcy Court in the United States to wind down its US operation. Provision of H 347.03 lakhs was made for the receivables towards loss, if any on recovery of receivables in the same year. After the hearings at the US Bankruptcy court on September 6, 2018 and November 13, 2018, Plan submitted under Chapter 11 was confirmed. The Claim allowed to the company aggregates to 7,539.29 lakhs. Consequently, the provision carried in the books of H 347.03 lakhs was written back during 2018-19. Later,Company has received interim disbursement of H 13.21 lakhs during the year and H 1,890.92 lakhs in earlier years from the liquidator of TOY"R" US, Inc. Trade receivables includes H399.77 lakhs (March 31,2023: H407.26 lakhs) receivable from TOYS R US as on March 31,2024.
2.08.03 Company has accounted receivable denominated in Foreign currency to the tune of H8,832.07 lakhs which is outstanding for more than one year. Company has taken active measures to regularise the delay with AD Bank for compliance with the provision of Foreign Exchange Management Act, 1999 (FEMA) read with rules notified therewith.
2.14.1 Description of nature and purpose of each reserve
(i) Capital reserve : Capital reserve denotes investment subsidy received by the Company amounting to H 22.10 lakhs (31.03.2023: H 22.10 lakhs).
(ii) General reserve : General reserve is created from time to time by way of transfer of profits from retained earnings for appropriation purposes. General Reserve is created by a transfer from one component of equity to another and is not an item of comprehensive income.
(iii) Equity instruments through other comprehensive income : This represents the cumulative gains and losses arising on the revaluation of equity instruments measured at fair value through other comprehensive income, under an irrevocable option, net of amounts reclassified to retained earnings when such assets are disposed off.
(iv) Exchange differences on translating the share of accumulated reserves of the Associate : The exchange differences arising on translation of the share of accumulated reserve of the Associate from functional currency to presentation currency in accordance with Ind AS 21, the effects of changes in Foreign Exchange Rates
2.26.1 The Company is in receipt of the Government Grant/Assistance as defined under Ind AS 20 - 'Accounting for Government
Grants and Disclosure of Government Assistance' as under:
(i) Grants in the nature of Merchandise Export Incentive Scheme, Rebate of State & Central Taxes and Levies, Remission on Duties and Taxes on Exported Products and Duty Drawback are disclosed under the head ’Export Entitlements’ in other operating revenue.
(ii) Grants in the nature of re-imbursement of cost towards capital asset under the Technology Upgradation Fund Scheme (TUFS) and Integrated Skill Development Scheme (ISDS) Project which is disclosed as deferred grant. The amount is disclosed under the head 'Other Income' in the proportions in which depreciation expense on those assets is recognised.
(iii) Grants in the nature of re-imbursement of interest cost on borrowings under the TUFS is disclosed under the head 'Other Income'.
(iv) EPCG authorisation is obtained by the Company from Directorate General of Trade as import duty waiver over procurement of capital goods defined in Foreign Trade Policy 2015-20. The company has deferred the grant in the books and it will be amortised in the books as and when the conditions attached (export obligation) to authorisations are fulfilled.
2.36 Financial Risk Management - Objectives and Policies
The Company has a well managed risk management framework, anchored to policies and procedures and internal financial controls aimed at ensuring early identification, evaluation and management of key financial risks (such as liquidity risk, market risk, credit risk and foreign currency risk) that may arise as a consequence of its business operations as well as its investing and financing activities.
Accordingly, the Company's risk management framework has the objective of ensuring that such risks are managed within acceptable risk parameters in a disciplined and consistent manner and in compliance with applicable regulation.
1) Liquidity risk
Liquidity risk is the risk that the Company will encounter due to difficulty in raising funds to meet commitments associated with financial instruments that are settled by delivering cash or another financial asset. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value.
The Company has sound financial strength represented by its aggregate current assets as against aggregate current liabilities and its strong equity base and low working capital debt. In such circumstances, liquidity risk does not exist.
2) Market risk
As the Company is virtually debt-free and its deferred payment liabilities do not carry interest, the exposure to interest rate risk from the perspective of Financial Liabilities is negligible.
a) Foreign currency risk
The Company undertakes transactions denominated in foreign currency (mainly US Dollar) which are subject to the risk of exchange rate fluctuations. Financial assets and liabilities denominated in foreign currency, are also subject to reinstatement risks.
i) The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:
3) Credit risk
Credit risk refers to risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. Management considers that the demographics of the Company's customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of the customers (including related parties) to which the Company grants credit terms in the normal course of the business.
2.37 Capital Management
For the purpose of the Company's capital management, capital includes issued capital and all other equity reserves attributable to the equity shareholders of the Company. The primary objective of the Company when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value.
The Company's financial strategy aims to support its strategic priorities and provide adequate capital to its businesses for growth and creation of sustainable stakeholder value. The Company funds its operations through internal accruals. The Company aims at maintaining a strong capital base largely towards supporting the future growth of its businesses as a going concern.
As at March 31,2024, the Company has only one class of equity shares and is virtually debt-free. The company is not subject to any externally imposed capital requirements.
2.43 Capital & Other Commitments
Estimated amount of contract remaining to be executed on capital account (net of advances): H 578.66 lakhs (31.03.2023: H1306.48 lakhs).
2.44 In the opinion of the Directors, short term loans and advances and other current assets, have the value at which they are stated in the balance sheet, if realised in the ordinary course of business.
2.45 Subsequent event
Dividends declared by the Company are based on the profit available for distribution. Distribution of dividends out of general reserve and retained earnings is subject to applicable tax deducted at source (TDS). On May 20 ,2024 Board of Directors of the Company have proposed a final dividend of H1.50 per share in respect of the year ended March 31,2024 subject to the approval of shareholders at the Annual General Meeting. The proposal if approved, would result in a cash outflow of approximately H997.50 Lakhs.
2.46 Note on Ultimate Beneficiaries
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).
2.46 Note on Ultimate Beneficiaries (Contd..)
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.
2.47 Other Disclosures
(a) Relationship with Struck off Companies under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956. - The Company does not have any transactions or relationships with any struck off Companies
(b) Details of Benami Property held - The Company does not have any Benami property, where any proceeding has been initiated or pending against the company for holding any Benami property.
(c) Undisclosed income - The Company does not have any undisclosed income which is not recorded in the books of account that has been surrendered or disclosed as income during the year / previous 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).
(d) Registration of charges or satisfaction with Registrar of Companies - The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.
(e) Details of Crypto Currency or Virtual Currency - The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(f) Compliance with approved Scheme(s) of Arrangements - The Company has not entered into any scheme of arrangement which has an accounting impact on current or previous financial year.
(g) The Codeon Social Security2020-TheCode on Social Security 2020 ('the Code') relating to employee benefits, during theemployment and post-employment, has received Presidential assent on September28, 2020.TheCodehas been published in the Gazette of India. Further, the Ministry of Labour and Employment has released draft rules for the Code on November 13, 2020. However, the effective date from which the changes are applicable is yet to be notified and rules for quantifying the financial impact are also not yet issued. The Company will assess the impact of the Code and will give appropriate impact in the financial statements in the period in which, the Code becomes effective and the related rules to determine the financial impact are published. Based on a preliminary assessment, the entity believes the impact of the change will not be significant.
(h) Compliance with number of layers of companies - The Company has complied with the number of layers prescribed under clause (87) of section 2 of the Act read with the Companies (Restriction on number of Layers) Rules, 2017.
2.48 Previous year figures, unless otherwise stated are given within brackets and have been re-grouped and recast wherever necessary to be in conformity with current year’s disclosure.
As per our separate report of even date attached
For M S K A & Associates For and on behalf of the Board of Directors of
Chartered Accountants Kitex Garments Limited
Firm Registration No. 105047W CIN: L18101KL1992PLC006258
Geetha Jeyakumar Sabu M Jacob CA Benni Joseph
Partner Chairman & Managing Director Director
Membership No.029409 DIN:00046016 DIN: 01219476
CA Boby Michael CS Dayana Joseph
Chief Financial Officer Company Secretary
ICSI M.No.A61808
Place : Chennai Place : Kizhakkambalam
Date : July 15, 2024 Date : July 15, 2024
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