r) Provision, contingent liabilities and contingent assets:
A provision is recognised if as a result of a past event the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation Contingent Liabilities are not recognised but are disclosed in the notes. Contingent Assets are not recognised but disclosed in the Financial Statements when economic inflow is probable.
34 Business Segment Reporting
a) The Company is engaged in the production of defence equipment and was exempted from ‘Segment Reporting’ vide notification S.O. 802(E) dtd. 23rd February, 2018 by amending notification no G.S.R. 463(E) dated 5th June, 2015. In view of the above, no disclosure is made separately by the Company on operating segments under Ind AS 108.
b) For management purposes, the Company is organized into two major segments - Shipbuilding (New Construction and Ship Repairs) and Submarine.
c) There are no geographical segments within the business segments.
36.1 Letters seeking confirmation of balances in the accounts of sundry creditors were sent to vendors. But confirmation letters from all vendors are not received. On the basis of replies received from certain vendors, adjustments wherever necessary have been made in the accounts.
36.2 Balances due to/from Indian Navy (Debtors) included in current assets/current liabilities/advances are subject to reconciliation and confirmation. Consequent adjustments thereof,if any, will be given effect to in the books of account in the year of completion of the reconciliation process.
37 Normal Operating Cycle
The classification of current and non-current balances of assets and liabilities are made in accordance with the normal operating cycle defined as follows -
The Normal Operating Cycle in respect of different business activities is defined as under-
a) In case of Ship/Submarine building and Ship/Submarine repair and refit activities, normal operating cycle is considered as the time period from the effective date of the Contract/Letter of Intent (LOI) to the date of expiry of guarantee period.
b) In case of other business activities, normal operating cycle will be the time period from the effective date of the contract/order to the date of expiry of guarantee period.
42 Russian (USSR) deferred State Credit
An intergovernmental agreement between Russian Federation and Government of India was reached for reconstructing of Russian Deferred State Credit in Rouble in connection with procurement of equipment for certain Ships built and delivered by the company to India Navy in earlier years. The deferred payment liability (non-interest bearing) of 7 9,628 Lakhs, payable over 45 years from 1992-93, in equal annual installments of 7 214 Lakhs was converted from Rouble to units of Special Drawings Rights (SDR) and stated in Rupees. The amount payable within a year of 7 474 lakhs (Previous year - 7 474 lakhs) includes yearly installment of 7 214 lakhs (Previous year - 7 214 lakhs) and 7 260 lakhs (Previous year - 7 260 lakhs) towards exchange variation fluctuation. The balance loan amount has been reinstated at the present rate of SDR as on 31st March 2024. These payments are reimbursable by Indian Navy. Accordingly, 7 6,165 lakhs (amortised costs of 7 2,236 lakhs) held at foreign supplier deferred credit as on 31st March 2024.
43 Pursuant to notification S.O. 2437(E) dated 4th September, 2015, following information on the exemption granted under section 129 of the Companies Act, 2013 has not been disclosed in the Financial Statements.
i) Goods purchased under broad heads
ii) Value of import on CIF basis
iii) Expenditure on foreign currency
iv) Total value of imported raw material
v) Earning in foreign currency
47 Fair Value Measurement (Contd..)
Fair Value Hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are
(a) recognised and measured at fair value
(b) measured at amortised cost and for which fair values are disclosed in the Financial Statements.
To provide an indication about the reliability of input used in determining fair value, the company has classified the financial instruments in three levels prescribed under the Ind AS.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
48 Financial risk management
a) Credit Risk
Credit Risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
i) Trade Receivables and contract asset
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. Trade receivables are non-interest bearing and are generally carrying no credit terms. Outstanding customer receivables are regularly monitored. Trade receivables are primarily from Navy (being department of Government of India), hence the credit risk is considered low. Further the Company receives advance against orders which also mitigates the credit risk.
ii) Financial Instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Management in accordance with the company’s investment policy. Investment of surplus funds are made only in accordance with the Department of Public Enterprises (DPE) guidelines on investement of surplus funds, with the approved banks and within credit limits assigned to each bank. The limits applicable to single bank and public/private sectors as per the DPE guidelines minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to repay the principal and interest.
b) Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.
48 Financial risk management (Contd..)
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the nature of the underlying business, the Company maintains sufficient cash and liquid investments available to meet its obligation. The Company’s liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements, if any.
c) Market Risk
i) Foreign currency risk and sensitivity
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 Company is exposed to foreign currency risk since it imports components from foriegn vendors. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the company’s functional currency (?). In most of the Contracts, the gains/losses from forex exchange fluctuations are passed on/borne by the customer of the Company. Therefore, the foreign exchange risk and sensitivity of the Company is Nil.
ii) Foreign Currency Risk Exposure
The company’s exposure to foreign currency risk at the end of the reporting period expressed in INR (foreign currency amount multiplied by closing rate), are as follows:
49 Capital management
For the purpose of the Company’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the Company. The primary objectives of the Company’s capital management are to
- maximise the shareholder value while providing stable capital structure that facilitate considered risk taking and pursuit of business growth
- safeguard the company’s ability to continue as a going concern, so that they can continue to provide returns for Shareholders and benefits for other stakeholders
- maintain an optimal capital structure to reduce the cost of capital.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and business opportunities. To maintain or adjust the capital structure, the Company may adjust the dividend payment to Shareholders, return capital to Shareholders or issue new shares.
51 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.
52 In FY 2016-17, the provision of 7 35,719 Lakhs was created for Liquidated Damages (LD) for second Submarine and the same was adjusted in retained earnings in the Reinstated Financials prepared from 01/04/2015. In FY 2023-24, the company received confirmation from customer regarding levy of LD of 7 5,260 Lakhs for delay of third & fourth Submarine against provision of 7 35,719 Lakhs. In view of , considering the finalisation of LD during the year company has accounted for 7 2,161 Lakhs as Liquidated Damages (LD) for third Submarine and adjusted the debtors to that extent & made provision towards LD for 7 3,099 for fourth submarine. Further, the provision created in earlier year is now reversed and shown as other operating income as per company’s accounting policy.
56 National Institute For R&D in Defence Ship Building (NIRDESH) was established on 20th November, 2010 as a society with objective of conducting research in defence Shipbuilding and related areas. Currently, the Members of NIRDESH include four PSU shipbuilding companies (MDL, GRSE, GSL & HSL) and co-opted Members of Indian Navy, Coast Guard and DRDO. The society is headed by CMD, MDL and Director (Shipbuilding) MDL is designated as Director (NIRDESH). The total capital contribution paid by MDL is 7 1,780.74 Lakhs and 2,098.76 Lakhs is contribution payable to NIRDESH as on 31-03-2024, which is reflected under head Trade Payable. The total amount of 7 3,878.50 Lakhs has already been charged to expenditure in earlier years. NIRDESH has not carried out any research activity in FY 2022-23 and FY 202324, as per Object of the Society.
57 Company is executing construction of Frigates for Ministry of Defence (MoD). The deliveries under this project are delayed due to Covid-19 pandemic, shortage of industrial oxygen etc. Therefore, company has approached MoD for revising the delivery dates for all the Frigates of the project. The company has received approval from MoD for partial extension of delivery dates. Management still anticipates that there will be probable delay in delivery of Frigates and the company will be liable for late delivery(LD) charges. Hence, as per accounting policy consistently followed by the company, LD for said delay of 7 91,552 Lakhs (PY 16,104 Lakhs) is reduced from revenue for FY 2023-24.
58 Company has entered into a new lease with Mumbai Port Authority (MbPA) for land admeasuring 14.55 Acres and building (Workshop land and Clarke Basin), adjacent to the company’s land. This lease agreement is for a duration of 29 years commencing from April 1, 2024. The total amount paid for said new lease is 7 34,141 lakhs in FY 2023-24 to MbPA. The amount paid to MbPA is recorded as advance for land in the company’s books of accounts in FY 2023-24 and the same will be accounted as Right to Use Asset (RoU) after execution of Lease agreement in FY 2024-25.
59 In the preparation of these Ind AS Financial Statements, figures for the previous year have been regrouped/reclassified, wherever considered necessary to conform to current year presentation.
As per our report of even date For and on behalf of the Board of Directors
Sd/- Sd/-
C. R. Sagdeo & Co. Sanjeev Singhal
Chartered Accountants Chairman and Managing Director (Additional Charge) & Director (Finance)
Firm Registration No. 108959W DIN - 07642358
Sd/- Sd/-
Sachin V. Luthra Biju George
Partner Director (Shipbuilding)
Membership No. 109127 DIN - 09343562
Sd/-
29th May, 2024 Madhavi Kulkarni
Place - Mumbai Company Secretary
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