(ii) Leasing arrangements
Certain investment properties located at M139-140 MIDC Waluj Aurangabad are sub-leased to tenants under longterm cancellable operating leases with rentals payable monthly. There is escalation of 5% in lease rentals during the lease terms.
(iii) Fair value
Fair value of the investment property as on March 31,2024 is H 139.47 million (March 31,2023 H 138.70 million). Estimation of fair value
These valuations are based on valuations performed by Mr N G Karkhane Consulting Civil Engineers and Structural Designers, an accredited independent valuer. Valuer is a specialist in valuing these types of investment properties and is a registered valuer as defined under rule 2 of Companies (Registered Valuers and Valuation) Rules, 2017. Fair value of investment property is based on the replacement cost method. The best evidence of fair value is current prices in an active market for similar properties.
Note 6 - Right of use assets
TheCompany has lease contractfor plant and machinerywith lease term of 2 -10 years, premises/building used for its operations with lease terms of 2-10 years, and for lease hold land with lease term of 95-99 years The Company's obligations under its leases are secured by the lessor's title to the leased assets. The Company is restricted from assigning and subleasing the leased assets. The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (mainly Laptops) (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option)
The Company had total cash outflows for leases of H 353.51 million for the year ended March 31,2024 (previous year : H 203 million). The company does not have non-cash additions to right-of-use assets and lease liabilities for the year ended March 31,2024
(iii) Extension and termination options
As at March 31,2024, the Company has no potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term
Credit risk
There are no trade receivables which have significant increase in credit risk as at March 31,2024 and March 31,2023 other than disclosed above
Credit period
Trade receivables are non-interest bearing and are generally on payment terms of 30 to 120 days.
No trade or other receivable are due from directors or other officers of the Company either severally or jointly with any other person. Nor any trade or other receivable are due from firms or private companies respectively in which any director is a partner, a director or a member, except as disclosed in note 47
(b) Rights, preferences and restrictions attached to equity shares
The Company has equity shares having a par value of Re. 1 per share (previous year Re.1 per share). In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend.
Nature and purpose of reserves General reserve
General reserve is the retained earning of the Company which is kept aside out of the Company's profits to meet future (known or unknown) obligations
Capital reserve
Capital reserve is not available for distribution as dividend.
Securities premium
Securities premium is used to record the premium on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013.
Nature of Security
1) Rupee Term Loans from Banks are secured by:
(a) Kotak Mahindra Bank Limited, Rupee Term Loan 2 outstanding Balance of H 175 million secured by exclusive first charge by way of hypothecation on movable fixed assets of the following plants :
(1) Varroc Engineering Limited, Plant VIII, Plot No. M-191/3, MIDC Industrial Area, Waluj, Aurangabad -431136, Maharashtra
(2) Varroc Engineering Limited, Exhaust Plant, Plot No. B-14, MIDC Industrial Area, Chakan, Tal. Khed, Dist. Pune - 410501, Maharashtra
(b) HSBC BANK
(i) Working Capital Term Loan (WCTL) of H 400 Million and INR 435 Million having outstanding balance of H 200.00 Million and H 398.75 Million respectively, by way of Guaranteed Emergency Credit Line (GECL) under ECLGS scheme of National Credit Guarantee Trustee Company Ltd. (NCGTC) are secured by way of second pari-passu charge on current assets of the Company along with other banks. Further secured by second charge on movable fixed assets of the Company situated at:
(1) Varroc Engineering Limited, Plant IV - Plot No. M-140-141, MIDC Industrial Area, Waluj, Aurangabad 431 136, Maharashtra
(2) Varroc Engineering Limited, Corporate Office, Plot No. L-4, MIDC Industrial Area, Waluj, Aurangabad 431 136, Maharashtra
(3) Varroc Engineering Limited, Pant Nagar - Plot No.20 Sector 9, Integrated Industrial Area, Pant Nagar, Dist. Udhamsingh Nagar, Uttarakhand
(4) Varroc Engineering Limited, Plant V - Plot No. L-6/2, MIDC Industrial Area, Waluj Aurangabad - 431136
(5) Varroc Engineering Limited, Plant V - R&D, Plot No. L-6/2, MIDC Industrial Area, Waluj Aurangabad - 431136
(ii) Term Loan of H 1,000 Million availed in November 2023 has security creation in process.
(c) (i) ICICI BANK Rupee Term loan of H 1,000 Million having outstanding balance of H600.00 million is secured by
way of mortgage of immovable properties situated at:
(1) Gut No. 390, Takve Bk, Tal. Maval, Dist. Pune, Maharashtra
(2) Plot No. B-14, MIDC, Chakan, Tal. Khed, Dist. Pune, Maharashtra
(3) Plot Nos. K-101-102, M-140-141 and M-191/3, MIDC Industrial Area, Waluj, Aurangabad, Maharashtra
(4) B-3010, 3rd Floor, Marvel Edge, Village Vadagaonsheri Taluka Haveli Dist. Pune, Maharashtra
(5) A-7010 & 7020, B-7010, 7020, 7030 & 7040 at 7th Floor, Marvel Edge, Village Vadagaonsheri Taluka Haveli Dist. Pune, Maharashtra
(ii) ICICI BANK Rupee Term Loan of of H 1250 Million having outstanding balance of H 1,111.11 million is secured on exclusive charge basis by way of mortgage of immovable properties of subsidiary company Varroc Polymers Ltd. situated at:
(1) B-3020 & 3040, Marvel Edge, Viman Nagar, Pune, Maharashtra
(2) Plot No. 35-A, Udyog Vihar, Greater Noida, Uttar Pradesh
(3) 58th Mile Stone, Opp. Mittal Orchards, Village Binola, Dist. Gurgaon, Haryana State
(4) Plot No. 136-B, Harohalli Industrial Area, Kanakapura Taluk, Ramanagara Distt. Karnataka
(5) Plot No. 271 & 272(P), Nara Sapura Industrial Area, Nara Sapura, Dist. Kolar - 563133 Karnataka State
(d) IndusInd Bank Ltd Rupee Term loan of H 1,000 Million (partially availed of H 500.00 million) is secured on exclusive first charge by way of Hypothecation on Movable Fixed Assets of the following plants of Company situated at :
(1) Plot No. E-4, MIDC, Waluj, Aurangabad - 431136 (M.S.)
(2) Plot No. B-24 & 25, MIDC, Chakan, Pune - 410501 (M.S.)
(3) Gat No. 12/1 and Gat No. 12/2 situated at Village Shivaji Nagar , Tal. Sakri, Dist. Dhule (M.S
(4) Plot No. 103/4, Maswad, GIDC, Expansion Estate, Halol-II, Dist. Panchmahal, Gujarat - 389 350
(5) Gut No. 390, Takve Bk, Tal. Maval, Dist. Pune
2) Rupee Term Loans from Financial Institution are secured by:
(a) Rupee Term loan of H 1,000 Million availed from Bajaj Finance Limited having outstanding balance of H536.39 million as on March 31, 2024 is secured by way of mortgage on specific immovable properties on exclusive charge basis located at Plot Nos. E-4, L-6/2 and L-4, MIDC, Waluj, Aurangabad - 431136, Maharashtra State
(b) Rupee Term loan of H 650 Million having outstanding balance as on March 31, 2024 H84.09 million availed from Bajaj Finance Limited is secured by way of mortgage on specific immovable properties on exclusive charge basis located at Plot No. B-24/25, MIDC, Chakan, Pune - 410501, Maharashtra State and extension of charge on specific immovable properties located at E-4, L-6/2 and L-4, MIDC, Waluj, Aurangabad - 431136, Maharashtra State.
(c) Rupee Term loan of H 600 Million availed from Tata Capital and Financial Services Limited having outstanding balance as on March 31,2024 H 400.00 million is secured by way of mortgage on immovable properties on exclusive charge basis located at Plot No. 20, Sector 9, SIDCUL Industrial area, Pant Nagar, Rudrapur, Uttarakhand 263153
3) 8.60% Non-convertible debentures of J100,000 each are Secured by:
Exclusive charge by way of Hypothecation on the specific identified movable properties of the Company situated at
(1) Varroc Engineering Limited, VEL III, Plot No. B-24 & 25, MIDC, Chakan, Pune - 410501, Maharashtra
(2) Varroc Engineering Limited, VEL VII (Valves), Plot No. L-4, MIDC, Waluj, Aurangabad - 431136, Maharashtra
(3) Varroc Engineering Limited, VEL VII (Forging), Plot No. L-4, MIDC, Waluj, Aurangabad - 431136, Maharashtra
(4) Varroc Engineering Limited, Lighting Plant, Plot No. B-14, MIDC, Chakan, Pune - 410501, Maharashtra
(5) Varroc Engineering Limited, Lighting Plant, Plot No. 1(P), Gut No. 51 to 59, Village Bhambholi, Tal. Khed, Dist. Pune- 410501, Maharashtra
4) 8.25 % Non convertible debentures of J1,000,000 each were Secured by:
Exclusive charge by way of Hypothecation on the specific identified movable properties of the Company situated at:
(1) Varroc Engineering Limited, VEL III, Plot No. B-24 & 25, MIDC, Chakan, Pune - 410501, Maharashtra
(2) Varroc Engineering Limited, VEL III (R&D), Plot No. B-24 & 25, MIDC, Chakan, Pune - 410501, Maharashtra
(3) Varroc Engineering Limited, VEL VII (Valves), Plot No. L-4, MIDC, Waluj, Aurangabad - 431136, Maharashtra
(4) Varroc Engineering Limited, VEL VII (Forging), Plot No. L-4, MIDC, Waluj, Aurangabad - 431136, Maharashtra
(5) Varroc Engineering Limited, VEL Chennai, Survey No. 128-1B & 129/1B, Ezhichur Village, Taluka Sriperumbudur, Dist. Kancheepuram, Chennai - 603204, Tamil Nadu
(6) Varroc Engineering Limited, VEL Windmill Satara, 2.10 MW Wind Mills installed at village Vankusawade & Kusawade, Dist. Satara, Maharashtra
(7) Varroc Engineering Limited, VEL Windmill Supa, 4 MW Wind Mills installed at Village Shahajapur, Pimpalgaon & Jamner (Supa), Dist. Ahmednagar, Maharashtra
(8) Varroc Engineering Limited, VEL Windmill Jaisalmer, 2.25 MW Wind Mills installed at Village Badabaugh, Baramsar, Dist. Jaisalmer, Rajasthan
(9) Varroc Engineering Limited, VEL Chakan Lighting Plant, Plot No. B-14, MIDC, Chakan, Pune - 410501, Maharashtra
(10) Varroc Engineering Limited, VEL I, Plot No. E-4, MIDC, Waluj, Aurangabad - 431136, Maharashtra
(11) Varroc Engineering Limited, VEL II, Plot No. K-101-102, MIDC, Waluj, Aurangabad - 431136, Maharashtra
(12) Varroc Engineering Limited, VEL Halol, Plot No. 103/4, Maswad, GIDC Expansion Estate, Halol-II, Dist. Panchmahal - 389 350, Gujarat
5) Debt covenants :
Bank loans contain certain debt covenants relating to limitation on indebtedness, debt-equity ratio, net borrowings to EBITDA ratio and debt service coverage ratio. Some of the debt covenants in respect of non-current borrowings of H 175.00 million were not complied as at March 31,2024, which are due for repayment with in the next 12 months and are already classified as current.
The asset cover in respect of the Non-Convertible Debentures of the Company as on March 31,2024 is 1.38 times of the total due amount which is greater than the requirement of 1.1 times of the said Secured Non-Convertible Debentures.
Cash credit facilities have been sanctioned from Standard Chartered Bank, HDFC Bank Limited, ICICI Bank Limited, IDBI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited, The Hongkong and Shanghai Banking Corporation Ltd. and IDFC First Bank Ltd. and are secured by first paripassu charge by way of hypothecation of stocks of raw materials, work in progress, finished goods, consumable, stores and spares, packing materials and receivables of the Company both present and future. However, there is no outstanding cash credit balance as at March 31,2024 and March 31,2023
The Company has borrowings from banks or financial institutions on the basis of security of current assets, and quarterly returns or statements of current assets filed by the Company during the current and previous year with banks or financial institutions are in agreement with the books of accounts except as mentioned in Note 22(a) & 22(b).
* In the previous year The Company had obtained unsecured Buyer’s credit of Euro 3,033,187.65 on 13.07.2021 from IDFC First Bank Ltd. for a period of 1 year against capex import LC payment. The Buyer’s credit was due and was paid on 03.07.2023 and carried the interest rate of Euribor 33 BPS, i.e. 0.33% pa.
Note 1 Includes ‘Provision on Inventory' added back to the net inventory balance and ‘Material in transit' not considered as part of total stock.
Note 2 Difference primarily includes intercompany debtors, provision for customer rate increase/decrease and debtors of ageing more than 90 days, and export customer balance revaluation. Further, factoring balance has been disclosed separately in the statement which is netted off in the financial statements.
Note 3 Difference is on account of export cut off sales reversal as per Ind AS 115. Also includes some external customer which were identified as intercompany at the time of reporting to banks.
Note 4 Re-classification entry pertaining to netting off of receivables against payables.
Note 5 Mainly includes inter company creditors and provision for expenses and import vendor revaluation.
Note 6 Includes Post closure entries posted at the time of finalisation of quarterly financial statement.
Note 1 I ncludes ‘Provision on Inventory' added back to the net inventory balance and ‘Material in transit' not considered as part of total stock.
Note 2 Includes Post closure entries posted at the time of finalisation of quarterly financial statement.
Note 3 Primarily includes intercompany debtors, provision for customer rate increase/decrease and debtors of ageing more than 90 days. Further, factoring balance has been disclosed separately in the statement which is netted off in the financial statements.
Note 4 The net difference is on account of incorrect adjustments.
Note 5 Mainly includes inter company creditors and provision for expenses.
Note 6 Trade payable shown in stock statement is net of vendor advances outstanding as of that date.
Note 7 The balance difference is on account of incorrect adjustments which majorly pertains to:
i) The creditor balance outstanding for more than 90 days has not been considered for the plants in lighting division for the purpose of reporting in stock statement.
ii) For reporting in quarterly statement to banks, incorrect capital creditors amounts were considered for exclusion from total creditors balance.
i. Deferred tax assets and deferred tax liabilities have been offset as they relate to the same governing taxation laws.
ii. During the year, the Company has derecognised (written-off) loans given to VarrocCorp Holding BV ('VCHBV'), Netherlands including interest on such loans aggregating to H 11,796.44 million after making requisite submissions to AD Bank. The Company has claimed this write-off on loans as an allowable business loss, considering that these loans extended to VCHBV were in the nature of trade investments to derive benefits for the Company's businesses rather than for earning dividend/capital appreciation. The Company has obtained legal opinions from two independent senior counsels who have supported their view on claiming this write-off of loans as an allowable business loss. Accordingly,
the Company has considered this loss as tax deductible for computation of tax provision and recognised deferred tax asset of H 2,448.03 million (after adjusting other taxable income pertaining to current financial year). These loans pertained to funding of Varroc Lighting Systems ('VLS') entities (erstwhile subsidiaries of VCHBV) which were fully provided for during the period ended September 30, 2022 when the VLS business was sold to Compagnie Plastic Omnium SE, France.
Further, the Company has decided to shift to new tax regime under section 115BAA of Income Tax Act, 1961 from current financial year ended March 31,2024. As a result, MAT credit of H 265.34 million (opening MAT credit: H110.39 million and additional MAT credit as per return of income filed for AY 2023-24 of H154.95 million) has been written off and deferred tax liability to the extent of H 254.54 million has been reversed on account of lower tax rate under new regime, which has been included in the Income tax expense for the year ended March 31,2024.
** Provision for warranties - The Company provides warranties on applicable products, for their satisfactory performance during the warranty period as per the contracts with buyers. Provision for warranty claims arising out of such obligation is made based on such warranty period. The impact of discounting of these provisions is not material.
*** Provision for coupon scheme - Provision is made for supplies to other than OEMs on estimated cost of coupons redemption. These coupons are expected to be redeemed with in 2-3 years. Management estimates the provision based on historical claims information and any recent trends. The impact on discounting of the provision is not material.
"Deferred government grant
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.
Government grants relating to purchase of property, plant and equipment are included in current and non-current liabilities as deferred income and are credited to profit or loss on straight-line basis over the expected lives of the related assets and presented within other operating revenue.
Trade receivables are non-interest bearing and are generally on payment terms of 30 to 120 days.
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.
Contract liabilities include advances received from customers for delivery of goods, engineering design and development of tools
D Performance obligation
Revenue from contracts with customers include revenue from finished goods, tooling, engineering services and Job work.
Finished goods / tooling / engineering services
For the sale of finished goods the performance obligation is generally satisfied upon its delivery or as per the terms of the customer contract and payment is generally due within 30 to 120 days from delivery.
For sale of toolings, the performance obligation is considered satisfied on billing after approval of the part(s) by the customer. The Company generally receives advance for toolings contracts ranging from 30 % to 50% of the contracted price. The revenue is recognised at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
Product development/engineering services are considered as related to sale of parts rather than a separate performance obligation. As a result, revenue from engineering services is recognised over the period of production from the date of start of production. Costs incurred in respect of providing engineering services are recognised as intangible assets and amortised over the period of production from the date of start of production. Payments received from customers in respect of product development/engineering services are presented as contract liabilities.
For supply of engineering services to group companies, performance obligation is generally satisfied on the basis of time/work completed as per the contract with the group companies and payment is generally due within 30-60 days.
The Company provides normal warranty provisions on some of its products sold, in line with the industry practice. The Company considers that the contractual promise made to the customer in the form of warranties for the parts supplied does not meet the definition of separate performance obligation as it does not give rise to additional service.
Job work revenue is recognised when the work is completed and billed to customer.
In the current year, the Company received eligibility certificates (ECs) in respect of three plants in Aurangabad/ Pune under the Maharashtra Electronic Policy 2016 effective from April 1, 2022 and valid for 10 years. Under these ECs, the Company is eligible to claim incentive in the form of taxes payable under SGST on finished goods eligible for incentives from the respective plants. The Company has considered these as grants related to income under Ind AS 20 by recognizing the same as income in profit and loss based on SGST collected for the period/year. The amount of income recognised in the current year in respect of the aforesaid ECs is H 989.71 million pertaining to the period April 1,2022 to March 31,2024.
Further, during the year, management has also changed the presentation of income from government grants in the statement of profit and loss and has re-classified it from other income to other operating income included within ‘Revenue from Operations'. Accordingly, income of H 1,249.54 million has been presented under other operating income. Further other income of comparative periods for year ended March 31, 2023 have also been reclassified by H223.06 million, Further cashflows have also been reclassified from investing activity to operating activity in the cashflow statement.
The revenue expenditure as above comprise of employee benefit costs relating to personnel engaged in R&D activities, consumption of raw materials, stores and spares, power and fuel and other expenses and depreciation directly related to R&D. These expenses have been booked under the respective heads in the statement of profit and loss. Capital expenditure comprises of expenditure on Plant & machinery, factory equipments and software pertaining to R&D.
B Defined benefit plan (Gratuity)
The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/ termination is the employees last drawn basic salary plus dearness allowance per month computed proportionately for 15 days salary multiplied for the number of years of service. The gratuity plan is a funded plan and the Company makes contributions to recognised funds in India. The Company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.
The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over the year are as follows:
Sensitivity for significant actuarial assumptions is computed by varying one actuarial assumption used for the valuation of the defined benefit obligation by 1%, keeping all other actuarial assumptions constant. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of defined benefit obligation calculated with the Projected Unit Credit method at the end of reporting period) has been applied while calculating the defined benefit liability recognised in the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
Expected contributions for the next year
The Company intends to contribute H 40 million towards its gratuity fund during the year ending March 31,2025. During the year ended March 31,2024, the Company has contributed H 67.77 million to its gratuity fund.
RISK EXPOSURE AND ASSET LIABILITY MATCHING
Provision of a defined benefit scheme poses certain risks, some of which are detailed here under as companies take on uncertain long-term obligations to make future benefit payments.
1) Liability Risks Asset-Liability mismatch risk-
Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the Company is successfully able to neutralize valuation swings caused by interest rate movements. Hence, companies are encouraged to adopt asset-liability management.
Discount rate risk-
Variations in the discount rate used to compute the present value of the liabilities may seem small, but in practice can have a significant impact on the defined benefit liabilities
Future salary escalation and inflation risk -
Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management's discretion may lead to uncertainties in estimating this increasing risk.
2) Asset risk
All plan assets are maintained in a trust fund managed by a public sector insurer viz. LIC of India. LIC has a sovereign guarantee and has been providing consistent and competitive returns over the years.
The Company has opted for a traditional fund wherein all assets are invested primarily in risk averse markets. The Company has no control over the management of funds but this option provides a high level of safety for the total corpus. A single account is maintained for both the investment and claim settlement and hence 100% liquidity is ensured. Also, interest rate and inflation risk are taken care of.
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