29 PROVISIONS
Accounting Policy :
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Warranty provisions
Provisions for warranty-related costs are recognised on the basis of product sold or service provided to the customer. Initial recognition is based on historical experience and management’s decision based on technical advice. The initial estimate of warranty-related costs is revised annually.
Onerous contracts
If the Company has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision. However, before a separate provision for an onerous contract is established, the Company recognises any impairment loss that has occurred on assets dedicated to that contract.
An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Company cannot avoid because it has the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements, because it typically controls the goods or services before transferring them to the customer.
Sale of goods
Revenue from sale of goods is recognised at the point in time when control of the goods is transferred to the customer. The revenue is measured based on the consideration defined in the contract with a customer, net of variable consideration on account of various discounts and schemes offered by the Company as part of the contract. As the period between the date on which the Company transfers the promised goods to the customer and the date on which the customer pays for these goods is generally one year or less, no financing components are considered.
The Company typically provides warranties for general repairs on all its products sold, in line with the industry practice. These assurance-type warranties are accounted for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets. Refer to the accounting policy on warranty provisions in note 29 Provisions.
Export entitlements are recognised when the right to receive the credits as per the terms of the schemes is established in respect of the exports made by the Company and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
The Company recognises revenue on satisfaction of performance obligation to its customers. Revenue is measured based on consideration specified in a contract with a customer and excludes taxes collected on behalf of the government authorities.
Construction Contracts
Revenue on contracts is recognised using input method where revenue is accounted on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation (in accordance with Percentage of Completion method) as per Ind AS 115.
The amount of revenue and profit recognised in a year on projects is dependent, inter alia, on the actual costs incurred, the assessment of the percentage of completion of (long-term) contracts and the forecasted contract revenue and costs to complete of each project. Furthermore, the amount of revenue and profit is influenced by the valuation of variation orders and claims.
In cases, where the current estimates of the total contract cost and revenue indicate a loss, such loss is recognized as an expense.
Contract Balances
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.
A receivable represents the Company’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in note 4 Financial instruments - initial recognition and measurement.
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
Rendering of services
Revenue from sale of services is recognised upon the rendering of services and are recognised net of goods and services tax and other applicable taxes.
Interest income
Interest income is included in other income in the statement of profit and loss. Interest income is recognised on a time proportion basis taking into account the amount outstanding and the effective interest rate when there is a reasonable certainty as to realisation."
Dividends
Revenue is recognised when the Company’s right to receive the payment is established, it is probable that the economic benefits associated with the dividend will flow to the Company and the amount of dividend can be measured reliably.
Rental income
Performance Obligation Sale of goods
The performance obligation is recognised at the point in time when control of the goods - pumps, pumping systems and spares is transferred to the customer and the payment is generally due within 30 to 90 days from such delivery.
Sale of services
The performance obligation is satisfied over-time and payment is generally due upon completion of erectioning, commissioning and servicing services by the Company and its due acceptance by the customer.
Construction Contracts
The performance obligation is satisfied over-time and is calculated based on percentage completion method when the outcome of the contract can be estimated reliably. Payment is generally based on financial milestones as per terms set out in the contract and its due acceptance by the customer.
40 40.1 Significant accounting judgements, estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
40.2 Employee benefit plans
Gratuity: The cost of defined benefit gratuity plan and its present value of the obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, an employee benefit obligation is highly sensitive to changes in these assumptions particularly the discount rate and estimate of future salary increase. All assumptions are reviewed at each reporting date. The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds.The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases are based on expected future inflation rates.
Further details about gratuity obligations are given in Note 41.1.
Leave Encashment: The Company has a policy on Leave Encashment which is accumulating in nature. The Expected Cost of Accumulated Leave Encashment is determined by Actuarial Valuation performed by an independent actuary using Project Unit Credit Method as per Ind As 19 on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the Balance Sheet date.
Further details about leave encashment obligations are given in Note 41.2.
The Code on Social Security, 2020 has been enacted, which may impact the employee related contributions made by the Company. The effective date from which the changes are applicable is yet to be notified. The Ministry of Labour and Employment has released draft rules for the code on November 13, 2020. The Company will complete its evaluation and will give appropriate impact in its financial results in the period in which the code becomes effective and the related rules are published.
40.3 Warranty
Warranty costs are accrued at the time the products are sold. The Company estimates the provision for warranty based on past trend of actual sale of pumps. As at 31 March 2024, the estimated liability towards warranty amounted to approximately Rs. 160.28 lacs (31 March 2023: Rs. 124.84 lacs.)
The provision towards warranty is not discounted as the management, based on past trend, expects to use the provision within twelve months after the Balance Sheet date.
40.4 Estimation of expected useful lives and residual values of property, plant and equipment
Property, plant and equipment are depreciated at historical cost using straight-line method based on the estimated useful life, taken into account at residual value. The asset’s residual value and useful life are based on the Company’s best estimates and reviewed, and adjusted if required, at each Balance Sheet date
40.5 Revenue from Construction Contracts
Contract Revenue is recognised under ‘percentage of completion method’. When the outcome of a construction contract can be estimated reliably contract revenue and contract costs associated with the construction contracts are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity.
Individual project budgets are reviewed regularly with project leaders to ensure that cost estimates are based upon up to date and as accurate information as possible, and take into account any relevant historic performance experience. Furthermore, all completed projects are reviewed to ensure that all relevant costs have been recorded/accrued at the time of project completion in the relevant period and that no further costs will be incurred in addition to the above costs.
Contract variations are recognized as revenues to the extent that it is probable that they will result in revenue which can be reliably measured, which requires the exercise of judgment by management based on prior experience, application of contract terms and relationship with the contract owners. Claims are recorded as revenue when negotiations have reached to an advance stage such that it is probable, the customer will accept the claim and amount can be measured reliably, which requires the exercise of judgment by management based on prior experience.
For further details, refer Note 53.
40.6 Provision for Expected Credit Losses
The Company measures Expected Credit Loss (ECL) for financial instruments based on historical trend, industry practices and the business environment in which the Company operates. The Company bases the estimates on the ageing and creditworthiness of the receivables and historical write-off experience and variation in the credit risk on year to year basis. The assumptions and estimates applied for determining the provision for impairment are reviewed periodically. For further details refer Note 48.
40.7 Impairment of Investments in Subsidiaries
Determining whether the investments in subsidiaries are impaired requires an estimate of the value in use of investments. In considering the value in use, the management anticipates the order book, operating margins, discount rates and other factors of the underlying businesses/operations of the subsidiaries.
40.8 Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be measured based on quoted prices in active markets, their fair values are measured using valuation techniques, including the discounted cash flow model, which involve various judgements and assumptions.
40.9 Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations require the use of estimates such as discount rates and growth rates.
41 Gratuity and other post-employment benefit plans
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service is entitled to gratuity on terms not less favourable than the provisions of The payment of Gratuity Act, 1972. The scheme is funded with an insurance company in the form of qualifying insurance policy.
41.1 The following table summarises the components of net benefit expenses recognised in the Statement of Profit and Loss and the funded status and amounts recognised in the Balance Sheet for the post retirement benefit plans (gratuity).
43 Contingent Liabilities
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. After making proper assessments, it has been concluded that the Company is not required to recognize contingent liabilities. However, the Company discloses its existence in the financial statements and makes such assessments regularly.
Following are the contingent liabilities of the Company as at the year end :
The company's financial liabilities comprise loans and borrowings, trade and other payables etc. The main purpose of these financial liabilities is to finance the Company's operations. The Company's financial assets include trade and other receivables, cash and cash equivalents, that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The company has a risk management policy, and its management is supported by a Risk management committee. The Risk management committee provides assurance to the company's management that the company's risk activities are governed by appropriate policies and procedures and that the financial risks are identified, measured and managed in accordance with company's policies and risk objectives. The Board of Directors review and agrees policies for managing each of these risks which are summarised below:
48.1 Market risks :
Market risk is the risk that the fair value of future cash flow of a future instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risks, currency risk, interest rate risk and other price risk such as commodity price risk and equity price risk. Financial instrument affected by market risk include trade payables, trade receivables, borrowings etc.
48.2 Interest rate risk :
The Company's exposure to the risk of changes in market interest rates relate primarily to the company's debt.
Credit risk is the risk that counterparty will not meet its obligation under a financial instrument or a customer contract leading to a financial loss. The company is exposed to credit risk from its operating activities (primarily trade receivables).
Trade receivables :
Customers' credit risk is managed by the respective department subject to company's established policy, procedure and control relating to customer credit risk management. Credit quality of a customer is assessed based on individual credit limits as defined by the Company. Outstanding customers' receivables are regularly monitored.
An impairment analysis is performed at each reporting date on an individual basis. The calculation is based on historical data of credit losses.
The ageing analysis of receivables (gross of provisions) has been considered from the date the invoice falls due.
Liquidity risk is defined as the risk that the company will not be able to settle or meet its obligation or at a reasonable price. The Company's treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are monitored by company's senior management. Management monitors the company's net liquidity position through rolling forecast on the basis of company's expected cash flow.
The company's objective is to maintain a balance between the continuity of funding and flexibility through the use of cash credit, bank loans amongst others.
Maturity profile of Financial Liabilities :
The table below provides details regarding remaining contractual maturities of financial liabilities at the reporting date based on contractual undisclosed payments :
For the purpose of Company's capital management, capital includes issued equity capital and all other equity reserves attributable to equity holders. The primary objective of the Company's capital management is to maximise the shareholder value and keep the debt equity ratio within acceptable range.
The Company manages its capital structure and makes adjustment in the light of changes in economic conditions and the requirement of financial covenants. The Board of Directors seeks to maintain prudent balance between different components of the Company's capital. Net debt is defined as current and non current borrowings (including current maturities of long term debts and interest accrued) as reduced by cash and cash equivalents.
50 Categorization of Financial Instruments:
The fair value of the financial assets (excluding investments in subsidiaries and associate) and liabilities approximates their carrying amounts as at the Balance Sheet date.
51 Leases Company as Lessee
The Company has lease contracts for various properties used in its operations having lease terms of 5 years . The Company's obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Company is restricted from assigning and subleasing the leased assets.
The Company also has certain leases of properties with lease terms of 12 months or less and leases of properties with low value. The Company applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.
Set out below are the carrying amounts of lease liabilities and the movements during the year:
(i) Significant changes in contract assets and liabilities
Contract assets are initially recognised for revenue earned from designing, developing, manufacturing, erecting, commissioning and servicing of pumps & pumping systems since receipt of consideration is conditional on successful completion of prescribed milestones. Upon completion and acceptance by the customer, the amounts recognised as contract assets are reclassified to trade receivables.
The increase in contract assets in FY 2023-24 is the result of the increase in ongoing supply, erection and commissioning services at the end of the year.
Contract liabilities consist of advance billing in connection with supply, erection and commissioning services of pumps and pumping systems. The outstanding balances on these accounts increased in FY 2023-24 by Rs.3,158.43 lacs due to the increase in billing on achievement of financial milestones for which certain activities are yet to be provided by the Company.
Apart from above, there was a decrease in advances received from the customers during the year by Rs 24 lacs.
(ii) Revenue recognised in relation to contract liabilities
The following table shows the amount of revenue recognised in the current reporting period which relates to carried-forward contract liabilities :
(iii) Borrowings secured against Current Assets:-
The Company has been sanctioned working capital loans from banks on the basis of security of current assets and PPE. There are no material differences in quarterly returns filed with such banks and the books of accounts of the Company.
(iv) Relationship with Struck off Companies
There are no transactions outstanding of the Company with Companies struck off under Section 248 of the Companies Act, 2013/Section 560 of the Companies Act, 1956 as on the Balance Sheet date.
As per our Report of even date
For and on behalf of Board of Directors
For Salarpuria & Partners
Chartered Accountants P AGARWAL K. K. GANERIWALA
ICAI Firm Registration No. - 302113E Managing Director Executive Ktectof
DIN 00249468 DIN 00408722
Anand Prakash
Partner U. CHAKRAVARTY
Membership no. - 056485 General Manager (Finance) & Company Secretary
Place : Kolkata, Date : 25 May, 2024 (FCS F5127)
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