1. Company Overview
Mawana Sugars Limited (‘the Company') is a public limited Company domiciled and incorporated in India under the provisions of the Companies Act, 2013. Its shares are listed on two recognized stock exchanges in India. The registered office of the Company is situated at 5th floor, Kirti Mahal, 19 Rajendra Place, New Delhi 110008. As at March 31, 2018, Mr. Siddharth Shriram (including shares held as trustee of Enterprise Trust) owns 63.49% of equity share capital of the Company.
The standalone financial statements were approved by the Board of Directors and authorised for issue on 23rd May 2018.
Notes :
1. Refer note 42
2. Refer note 13 for information on property, plant and equipment pledged as security.
3. The Company has reassessed and made downward revision in the useful life of certain plant and equipment of Sugar units of the Company, in view of this change, the depreciation for the year is higher by Rs 4.26 million. However there is no impact on the results of the Company since these assets have already been sold/are held for sale.
No trade or other receivables are due from directors of the Company.
Trade receivables except Mawana Foods Private Limited are non interest bearing during normal credit periods and are generally on terms of 30 days.
* The Company had changed its Authorised Share Capital from 175,000,000 Equity Shares of Rs. 10/- each to 100,000,000 Equity shares of Rs. 10/- each aggregating to Rs.1,000 million and 7,500,000 Preference Shares of Rs. 100/- each aggregating to Rs.750 million in AGM held on 13.06.2016.
b) Terms/ rights attached to equity shares:
The Company has only one class of equity shares having a par value of Rs. 10 per share. Each share holder of equity shares is entitled to one vote per share except 1,192 equity shares held by Siel Infrastructure & Estate Developers Private Limited, a subsidiary which pursuant to second proviso of Section 19(1) of the Companies Act, 2013, has no right to vote at meeting of the Company. Each holder of equity shares have a right to receive per share dividend declared by the Company. In event of liquidation of the Company, holder of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amount. The distribution will be in proportion to the number of equity shares held by the shareholders.
During the year, no interim/ final dividend has been paid or proposed by the Company.
#a The Company has completely resolved the debts availed from all the lender banks, with the One Time Settlement (OTS) concluded with the last lender bank and paid entire OTS amount during the period. The Company has recognized reversal of loan and interest liabilities with net gain of Rs. 190.87 million under exceptional items in the Statement of Profit and Loss.
#b During the period ended March 2016, pursuant to an assignment of all rights, titles and interest in the financial assistance i.e Long term borrowings, Short term borrowing, cash credit, Funded Interest Term Loan and interest thereon outstanding with two term lenders assigned to an Asset Reconstruction Company, an amount of Rs. 2,210.00 million which was earlier restructured for repayment till March 2023 resulted in NPV gain of Rs. 1520.77 million, same was credited to retained earnings as on April 01,2016. This loan has been rescheduled for repayment till March 2021 in the previous year ended March 31, 2017 resulted in NPV loss of Rs. 287.60 million which has been reflected as a loss under exceptional item in the Statement of Profit and Loss.
The Company has resolved its debt liability with one more lender during the previous year ended March 31, 2017, by way of one time settlement (OTS), which resulted in the waiver of principal and interest amounting to Rs. 405.32 million and has been reflected as a gain under exceptional item in the Statement of Profit and Loss. In terms of the settlement, the OTS amount is payable till 30th June, 2018.
#c During the year ended March 31, 2017, The Company had effected one time settlement agreements with three lenders and paid the entire agreed amount, which resulted in the waiver of principal and interest amounting to Rs. 1028.23 million and has been reflected as a gain under exceptional item in the Statement of Profit and Loss.
B. Loans repayable on demand - Cash credit/overdrafts from banks
i. Cash credit / overdraft amounting to Nil (31 March, 2017 Nil; 1 April, 2016 Rs. 422.10 million) were secured by first pari-passu charge on the current assets of the Company and third pari-passu charge on the property, plant and equipments of sugar units of the Company. This limit was also secured by second pari-passu charge on the property, plant and equipments of chemical division of the Company. Further, these loans were also secured by corporate guarantee issued by Siel Industrial Estate Limited and equitable mortgage of its industrial estate land measuring 455.23 acres at Rajpura in the state of Punjab and personal guarantee of the erstwhile Chairman and Managing Director of the Company.
ii. Cash credit amounting to Nil (31 March, 2017 Nil, 1 April, 2016 Rs. 46.34 million) were secured by first pari-passu charge on the current assets of the Company and property, plant and equipments (other than cylinder on finance lease) of chemical division of the Company situated at Rajpura in the state of Punjab.
iii The outstanding amount of the cash credit facility availed from one of the lender bank which was assigned to an Asset Restructuring Company has been merged with the total restructured debt with them and in the case of other lender bank, the same is merged with the settled amount under One Time settlement as agreed with them.
1 For maturity profile of trade payable and other financial liabilities refer note 38.
2 For explanation on the Company's credit risk management processes, Refer note 38
3 Including interest Rs. 0.10 million (March 31, 2017 : Rs. 8.60 million, April 01,2016: Rs. 11.98 million) interest outstanding due to Micro and Small enterprises.
2. Income Tax:
The major components of income tax expense for the years ended March 31, 2018 and March 31, 2017:
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
The Company has till date recognised Rs. 230.34 million (March 31, 2017 Rs. 137.79 million: April 01, 2016: Rs. Nil million) as Minimum Alternate Tax (MAT) credit entitlement which represents that portion of the MAT Liability, the credit of which would be available based on the provision of Section 115JAA of the Income Tax Act, 1961. The management based on the future profitability projections is confident that there would be sufficient taxable profits in future which will enable the Company to utilize the above MAT credit entitlement.
The Company has till date recognised Rs. 1944.04 million (March 31, 2017 Rs. 1790.03 million: April 01, 2016: Rs. 2845.47 million) as deferred tax assets on unabsorbed depreciation and carried forward tax loss, which the management based on the future profitability projections is confident that there would be sufficient taxable profits in future which will enable the Company to utilize the above deferred tax assets.
3. Earnings per share (EPS)
a) Basic and Diluted EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.
b) The following reflects the income and share data used in the basic and diluted EPS computations:
4. Commitments and Contingencies
(a) Leases Operating Lease — as lessee
The Company has entered into the operating leases on properties with lease term upto one year. The Company has the option to renew the lease at the end of each year. There are no restrictions imposed by the lease arrangements. There are no subleases.
Finance Lease - as lessee
The Company has finance lease for chlorine cylinder. The Company's obligation under finance leases are secured by the lessor ‘s title to the leased assets. Future minimum lease payments under finance leases with the present value of the net minimum lease payments are as follows.
* A sum of Rs. 30.28 million has been deposited with Income Tax Authorities and is appearing under income tax assets in the balance sheet.
# Period in respect of Income Tax represents Assessment Year
** the matter have been decided in favour of the Company but the department has preferred appeal at higher level.
(iv) The Company has provided bank guarantees aggregating Rs. 72.01 million (31 March, 2017 Rs. 72.01 million, 1 April, 2016 Rs. 72.01 million) to Tecumseh Products India Limited (TPIL), to whom it had sold the compressor business in a previous period, for any loss, damage, claim, action, suit etc., arising from various representations /breach of representations including for contingent liabilities existing as at March 31, 1997, or prior to March 31, 1997, which TPIL may eventually be liable to pay, against which demands in respect of sales tax, income tax and central excise matters aggregating Rs. 43.68 million (31 March, 2017 Rs. 43.68 million, 1 April, 2016 Rs. 43.68 million) have been received. These demands are presently under various stages of appeal.
(v) During the previous periods, the Company had given a counter indemnity/guarantee in favor of existing directors of Transiel India Limited to protect their interest against any loss/ future liabilities that may arise after the name of the said subsidiary that has been struck off under the Easy Exit Scheme, 2011.
5. Research and development costs
Research and development expenses included under relevant heads in the Statement of Profit and Loss amounting to Rs. 6.98 million (31 March, 2017 Rs. 6.00 million).
*provided for as doubtful advances
Siel Industrial Estate Limited (Siel IE) and erstwhile Chairman and Managing Director of the Company has given Corporate/personal Guarantees Rs. 5,243.00 million (March 31, 2017 Rs. 5,295.00 million, April 01, 2016 Rs. 5,295.00 million) as collateral security in favour of lenders of the Company on its behalf. Siel IE has mortgaged its industrial land measuring 455.23 acres (March 31, 2017 455.23 acres) as a collateral security in favour of lenders of the Company to secure the repayment of all debt due to Company's lenders upto Rs. 7,869.85 million (March 31, 2017 Rs. 7,869.85 million).
6. Segment Information
A. Operating Segment
As per Ind AS 108 identification of segment is based on the manner in which the entity's Chief Operating decision makers' (CODM) review the business components regularly to make decisions about allocating resources to segment and in assessing its performance.
The Operating segments of the Company is identified to be sugar, power , chemicals and distillery as the Chief Operating decision maker reviews business performance of the Company on the basis of these segments.
B. Geographical Segment
Since the Company's activities/operations are primarily within the country and considering the nature of products/ services it deals in, the risks and returns are same and as such there is only one geographical segment.
C. Segment accounting policies:
In addition to the significant accounting policies applicable to the business segments as set out in note 2 above, the accounting policies in relation to segment accounting are as under:
i) Segment revenue and expenses:
Segment revenue and expenses are directly attributable to the segments.
ii) Segment assets and liabilities:
Segment assets include all operating assets used by a segment and consist principally of operating cash, debtors, inventories and fixed assets, net of allowances and provisions which are reported as direct offsets in the balance sheet. Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities. While most of the assets/ liabilities can be directly attributed to individual segment, the carrying amount of certain assets/ liabilities pertaining to two or more segments are allocated to the segments on a reasonable basis.
iii) Inter segment revenues:
Inter segment revenues between operating segments are accounted for at market price. These transactions are eliminated in consolidation.
Set out below, is a comparison by class of the carrying amounts and fair value of the Company's financial instruments, other than those with carrying amounts that are reasonable approximations of fair values.
The management assessed that cash and cash equivalents, other bank balances, unbilled revenue, fixed deposits, trade receivables, trade payables and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
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.
7. A. Fair Value Hierarchy
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is insignificant to the fair value measurements as a whole.
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level inputs that has a significant effect on the fair value measurement are observable, either directly or indirectly.
Level 3: Valuation techniques for which the lowest level input which has a significant effect on fair value measurement is not based on observable market data.
The Company's principal financial liabilities comprise of trade payables, other payables, security deposits received, capital creditors and employee related payables. The main purpose of these financial liabilities is to finance the Company's operations and to provide guarantees to support its operations. The Company's principal financial assets include trade and other receivables, and cash and cash equivalent that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The Company's senior management oversees the management of these risks. The Company's senior management is responsible to ensure that Company's financial risk activities which are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company's policies and risk objectives. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of change in market price. Market risk comprise of interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. However, as the Company does not have any outstanding floating rate interest bearing long term and short term debts at the balance sheet date. Therefore, a change in interest rates on the reporting date would neither affect profit or loss nor affect equity.
Fair value sensitivity analysis for fixed rate instruments
The Company does not have any fixed rate financial assets and liabilities at fair value through profit and loss. Therefore, a change in interest rates at the reporting date would neither affect profit or loss not affect equity.
Foreign currency risk
The Company is exposed to foreign exchange risk arising from foreign currency transactions primarily with respect to USD. Foreign exchange risk arises from future commercial transactions and recognised asset and liabilities denominated in a currency that is not the Company's function currency. The Company imports certain materials which exposes it to foreign currency risk.
Commodity price risk
Sugar industry being cyclical in nature, realisations get adversely affected during downturn. Higher cane price or higher production than the demand ultimately affect profitability. The Company has mitigated this risk to some extant by well integrated business model by diversifying into co-generation and distillation, thereby utilizing the by-products. The Company also deals in Chlor Alkali products viz Caustic Soda, Chlorine etc, their prices are led by global as well as domestic demand and supply. The Company focuses on being amongst the lowest cost producers in these businesses.
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) and from its financing activities, including deposits with banks. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.
(i) Trade receivables
Customer credit risk is managed as per 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 scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.
An impairment analysis is performed at each reporting date on an individual basis for major clients. The calculation is based on exchange losses historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed below. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low on the basis of past default rates of its customers.
Based on the historical data, loss on collection of receivable is not material hence no additional provision considered.
(ii) Financial instruments and cash deposits
Credit risk from balances with banks is managed by the Company's treasury department in accordance with the Company's policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Company's Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Company's finance committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty's potential failure to make payments.
Liquidity risk
The Company manages its liquidity for working capital requirement to ensure smooth operation of the business. The Company also ensures the long term funds requirement like capex or otherwise are met through adequate availability of long term capital (debt/equity).
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 objective of the Company's capital management is to maximise the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents.
In order to achieve this overall objective, the Company's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been breach in the financial covenants (non payment of term loan installment) of one interest-bearing borrowing in the current year. However, the Company had made one time settlement with the said lender during the year. (Please refer note 13).
No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2018 and March 31, 2017.
8. The Company has applied to Central Government for approval of remuneration paid of Rs 54.20 millions to former Managing Director (MD)/Whole Time Director (WTD)/existing Whole Time Director. In respect of application of former MD/WTD, the department has declined the request of the Company, and therefore an application is being filed for reopening.
9. Pursuant to judgment dated 10.5.1996 passed by the Hon'ble Supreme Court of India in a public interest litigation the Company surrendered 46.58 acres of land to the Delhi Development Authority (‘DDA') and dedicated it exclusively for the development of green belt and open spaces. Consequently, the Company is no longer in physical possession of 46.58 acres owned by it.
The Company had filed a Review Petition in the Hon'ble Supreme Court of India challenging the order of surrender of land to the DDA. During the pendency of this Review Petition, the DDA leased out some portion of the land surrendered by the Company to Delhi Metro Rail Corporation (‘DMRC'). The Company filed an application before the Hon'ble Supreme Court of India in the pending Review Petition against the leasing of land by DDA to DMRC as this was contrary to the purpose for which the Company has surrendered and dedicated the land.
Although the Hon'ble Supreme Court of India dismissed the aforesaid Review Petition by order dated 25.3.2010 but on the Company's application against the leasing of land by DDA to DMRC, It has stated and directed as follows : “...the DDA which holds the surrendered and dedicated land in Trust cannot use it for any purpose other than as green belt or other spaces for the benefit of the community.In the event of any acquisition or development of surrendered land, the owner - dedicator will have the benefit of compensation on account of land ceasing to be ‘land dedicated to the community purpose of lung/open space.' when such acquisition/alienation takes place, DDA and the land owner will be entitled to share the compensation at 50% each.”
In view of the aforesaid judgment, benefits earned by DDA from the surrendered land are to be shared equally with the Company.
Pending determination of the benefits amount, the credit thereof for the period from July 17 onwards has not been taken in these financial statements.
10. The Company executed a Business Transfer Agreement on November 18, 2016 with Indian Potash Limited (IPL) to sell off its Agreed Assets and Liabilities excluding contingent liabilities of Titawi Sugar Complex (unit) as a going concern on an ‘AS IS WHERE IS WHAT IS' basis by way of a slump sale.The sale is governed by a Business Transfer Agreement (BTA) which stipulates completion of these activities within a certain time frame.
Accordingly, IPL had taken control of the Unit .The accounts for the year ended March 31,2017, reflected comprehensive sale of aforesaid assets/liabilities. The Company had recognised a net gain of Rs. 2347.04 million which had been reflected under exceptional item in the Statement of Profit and Loss for the previous year ended March 31,2017. During the current year, the Company has completed the above transaction of sale of Titawi Sugar Complex (TSC) Unit to IPL.Whilst effecting the final settlement, the Company had to bear an expenditure of Rs. 43.28 millions, thereby reducing the profit from said sale transaction envisaged in previous year. Accordingly, a loss of Rs. 43.28 millions is recognized under exceptional items in the Statement of Profit and Loss for the year ended March 31, 2018.
A sum of Rs. 20.00 million is recoverable from IPL, pending transfer of certain portion of freehold land in the name of IPL.
11. Dues to Micro, Small and Medium Enterprises
Disclosures required under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006
12. Earlier, the Company was having four PF Trusts for maintaining Provident Fund for its employees & workers. As per Clause 25 of Employees Provident Funds Scheme, 1952 “a Company reporting loss for three Consecutive Financial Years or erosion in their capital base shall have their exemption withdrawn from the first day of next / succeeding financial year.” The Company was incurring losses from the year 2010-11 to 2012-13 and net worth of the Company was also completely eroded during that period.
In terms of the above, it was obligatory on the Company to have its exemption withdrawn and transfer the PF accumulation balance to Employee Provident Fund Organisation (EPFO), Ministry of Labour, Govt. of India. Company has already transferred PF accumulations of two PF Trusts during the year 2015-16. However, accumulation of remaining PF Trusts i.e. SFFI Employees PF Trust and MSW Employees PF Trust are under transfer. Necessary approval in this respect has already been received from EPFO. These two trusts have been depositing Provident Fund dues with Regional Provident Fund Commissioner (RPFC) from January 2014 and October 2017 respectively. Hence no disclosure as required under Ind AS 19 employee benefits for provident fund trusts has been given.
13. During the year ended March 31, 2018, frauds pertaining to earlier years have been detected in Company's sugar units at Mawana Sugar Works and Nanglamal Sugar Complex where some employees (who have already left the service of the Company) have embezzled aggregate sum of Rs.29.78 million by forging documents and wrongfully withdrawing payment. FIR has been filed against these persons and necessary legal action in this regard has been initiated to recover the money. No credit for the above amount has been taken in the books, which will be taken once amount is recovered.
14. In view of Allahabad High Court order dated 21.12.2017 for stay on the retrospective operation of orders of UP State Government on reduction in rate of society commission pertaining to earlier years, Company has provided differential amount of Rs. 285.46 million in the accounts during the current year.
Although the Company has received the order of Allahabad High Court before finalizing the last quarter's results, however, the management was under discussion internally and with various sugar industry expert to get the waiver of above commission but could not get the success so far in the above matter. As a result, the amount has been provided during the current quarter. The major part of said liability was appearing under the contingent liability in last year's accounts.
15. In view of oversupply of sugar in the country and crash in sugar prices, Government of India issued the notification No. 1(4)/2018-S.P.-1 dated 9th May 2018 with allocating mill-wise Minimum Indicative Export Quota (MIEQ) of 20 lakh tonne for sugar season 2017-18. The Company has been allocated MIEQ of 19088 MT of sugar. Presently the international prices of sugar are much lower than the domestic prices.
Further, it has also issued notification No. 1(5)/2018-S.P.-1 dated 9th May 2018 with the scheme for assistance to sugar mills for payment of cane price dues to farmers against sugar cane crushed during the season 2017-18 @ Rs 5.50/qtl to offset the cost of cane purchased.
As per one of the conditions of the notification, Company may find difficult to get cane subsidy. Without this, the export of sugar is not viable. Otherwise also, the cost of export obligation approximately offset with the amount of cane subsidy available under the scheme, hence Company has not given effect of above notifications in these accounts.
16. The Company at the year-end has an outstanding balance of Rs.150.27 million owed by a customer (Mawana Foods Private Limited), an erstwhile wholly owned subsidiary of the Company, towards supply of sugar . The Company is exploring the possibility for realizing the value of outstanding dues from the said customer in order to bring the level of outstanding amount at normal credit level.
17. The previous financial year ended March 31, 2017 includes the operations of Titawi Sugar Complex (Unit) upto October 31, 2016 after which it has been sold to IPL (refer note 42) . Therefore, the figures of the current financial year are not comparable with the figures of the previous year.
18. The comparative financial information of the Company for the year ended March 31, 2017 and the transition date opening balance sheet as at April 01, 2016 included in these standalone Ind AS financial statements, are based on the previously issued statutory financial statements prepared in accordance with the accounting principles generally accepted in India, including the Companies (Accounting Standards) Rules, 2006 (as amended) specified under Section 133 of the Act, read with the Companies (Accounts) Rules, 2014 audited by the predecessor auditor, as adjusted for the differences in the accounting principles adopted by the Company on transition to the Ind AS, which have been audited by current auditor.
19. First-time adoption of Ind AS
These financial statements, for the year ended March 31, 2018, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2017, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP). Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on March 31, 2018, together with the comparative period data as at and for the year ended March 31, 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Company's opening balance sheet was prepared as at April 01, 2016, the Company's date of transition to Ind AS. This note explains exemptions availed by the Company in restating its Previous GAAP financial statements, including the balance sheet as at April 01, 2016 and the financial statements as at and for the year ended March 31, 2017.
Exemptions applied:
1. Mandatory exemptions:
a) Estimates:
The estimates at April 01, 2016 and at March 31, 2017 are consistent with those made for the same dates in accordance with Previous GAAP (after adjustments to reflect any differences in accounting policies) apart from the following items where application of Previous GAAP did not require estimation:
- Impairment of financial assets based on expected credit loss model
The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at April 01, 2016, the date of transition to Ind AS and as of March 31, 2017.
b) Classification and measurement of financial assets: Financial Instruments: (Security deposits received and security deposits paid):
Financial assets like security deposits received and security deposits paid, has been classified and measured at amortised cost on the basis of the facts and circumstances that exist at the date of transition to Ind AS. Since, it is impracticable for the Company to apply retrospectively the effective interest method in Ind AS 109, the fair value of the financial asset or the financial liability at the date of transition to Ind AS by applying amortised cost method, has been considered as the new gross carrying amount of that financial asset or the financial liability at the date of transition to Ind AS.
c) Impairment of financial assets: (Trade receivables and other financial assets)
At the date of transition to Ind AS, the Company has determined that there is no increase in credit risk since the initial recognition of a financial instrument.
d) Government loan at below market rate of interest - Government grant
Ind AS 101 requires a first-time adopter to apply the requirements of Ind AS 109, Financial instruments and Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance, prospectively to government loans at below market rate of interest obtained after the date of transition to Ind AS. However, Ind AS 101 allows a first time adopter to apply the requirements of Ind AS retrospectively to any government loan originated before the date of transition to Ind AS provided that the information needed to do so had been obtained at the time of initially accounting for that loan. Consequently, if the Company did not, under its previous GAAP, recognise and measure the government loan at below market rate of interest on a basis consistent with Ind AS requirements, it shall use its previous GAAP carrying amount of the loan at the date of transition to Ind AS as the carrying amount of the loan in the opening Ind AS balance sheet. Accordingly, the Company has applied the above requirement prospectively.
2. Optional exemptions :
Ind AS 101 allows first time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
a) Deemed cost-Previous GAAP carrying amount: (Property, Plant and Equipment and Intangible)
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for De-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets and investment property covered by Ind AS 40 Investment Properties. Since there is no change in functional currency, the Company has elected to measure all of its property, plant and equipment and intangible assets, as recognised in its previous GAAP financials as deemed cost at the transaction date.
b) Fair value measurement of financial assets or financial liabilities:
First-time adopters may apply Ind AS 109 to day one gain or loss provisions prospectively to transactions occurring on or after the date of transition to Ind AS. Therefore, unless a first-time adopter elects to apply Ind AS 109 retrospectively to day one gain or loss transactions, transactions that occurred prior to the date of transition to Ind AS do not need to be retrospectively restated.
Notes to the reconciliations:
1. Property, plant and equipment (PPE): Finance lease
The Company has taken chlorine cylinders on lease for the purposes of its business requirement at its chemical plant. Under Previous GAAP such lease was classified as a operating lease whereas under Ind AS the same has been classified as finance lease. As a result, PPE was increased by Rs. 22.98 million on transition date. Correspondingly the Company has recognised a lease liability amounting to Rs 26.79 million (Non current borrowings: Rs. 14.16 million and Current financial liability : Rs.12.63 million) on the date of transition. The rent paid for such cylinders has been classified as principal and interest payment. Accordingly there is reduction in rental expense by Rs. 14.81 million with corresponding increase in interest expense amounting to Rs 2.19 million during the year ended March 31, 2017. Depreciation for the year ended March 31, 2017 on such cylinders amounted to Rs 11.44 million.
2. Investments in equity and preference shares
Under Previous GAAP, investment in equity shares of unrelated companies is shown at the cost, whereas under Ind AS, the same are fair valued. Accordingly, investments has been decreased by Rs. 0.01 million on the date of transition. The Company has invested in preference shares of its subsidiary - Siel Industrial Estate Limited aggregating to Rs. 400 million. The cumulative preference shares are mandatorily redeemable at par within 10 years from respective dates of issue and dividend is payable at the rate of 5% p.a. Under previous GAAP, investment in redeemable preference shares has been recognised at cost. Since there is mandatory dividend, it is classified as financial liability from the perspective of the issuer under Ind AS. The liability component is to be recorded at amortised costs and residual portion is recorded as deemed investment by the holder of shares. Interest on liability component is accrued by using Expected Interest Rate method. The investment in preference shares is reduced by Rs. 11.48 million on transition date with an increase in deemed investment by Rs 12.21 million and corresponding increase in retained earnings by Rs 0.72 million. Interest accretion amounts to Rs. 2.29 million during the year ended March 31, 2017.
3. Employee benefits
Under previous GAAP, actuarial gains and losses were recognised in Statement of Profit and Loss. Under Ind AS, the actuarial gains and losses form part of re-measurement of the net benefit liability/asset which is recognised in other comprehensive income. Thus the employee benefit cost for the year ended March 31, 2017 is decreased by Rs. 27.81 million and re-measurement loss on defined benefit plan has been recognized in other comprehensive income.
4. Borrowings
The Company has taken term loans from banks, financial institutions and others. Under previous GAAP , the same is recognised at its transaction value. However, Ind AS requires such financial liabilities to be recognised on initial recognition at its fair value, as adjusted for the transaction cost. Further, interest is to be accredited on the fair value of the loan to reflect passage of time. This led to decrease in loan amount on the date of transition by Rs 1520.78 million (Non current borrowings : Rs. 703.40 million, Non current financial liability : Rs. 669.56 million and Current financial liability : Rs. 147.82 million) with a corresponding increase in equity. Further, loan amount has been increased on account of interest accretion by Rs.157.99 million during the year 2016-17 with a corresponding decrease in statement of profit and loss respectively. Under Ind AS, transaction cost incurred towards origination of borrowings needs to be deducted from the carrying value of borrowings. These costs are recognized in the Statement of Profit and Loss over the tenure of the borrowings as a part of interest expense by applying effective interest rate method. Under previous GAAP, the transaction cost was amortized to the Statement of Profit and Loss over the tenure of the borrowings. This led to decrease in loan amount on the date of transition by Rs. 0.65 million with a corresponding increase in retained earnings, which has been recognised as a finance cost amount to Rs. 0.52 million and Rs. 0.12 million as an exceptional item during the year ended March 31, 2017. The Company had loan outstanding to Edelweiss Asset Reconstruction Company (EARC) and Punjab National Bank (PNB) as on the date of transition. The terms of repayment of the loan were changed during the year ended March 31, 2017. Under Ind AS, debt instrument results in extinguishment of liability where the renegotiated terms are substantially different form the original terms. The renegotiated terms are substantially different where the present value of cash flow under the new terms are and discounted using the original effective interest rate is at least 10% different from the original liability. This resulted loss on extinguishment of EARC loan amounting to Rs 287.60 million and gain on extinguishment of PNB loan amounting to Rs 40.17 million and interest waiver of PNB loan amounting to Rs. 365.14 million had been recognized under exceptional items in the statement of Profit and Loss during the year ended March 31, 2017.
5. Deferred tax assets/Income tax
Indian GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12, “’’Income Taxes”” requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12, has resulted in recognition of deferred tax on new temporary differences, which was not required under Indian GAAP. In addition, the various transitional adjustments lead to additional temporary differences. According to the accounting policies, the Company has to account for such differences. Tax impact on Deferred tax adjustments are recognized in reserves for opening balance sheet and statement of profit and loss in subsequent years. As a result, the impact on deferred tax asset as on the date of transition is higher by Rs. 2072.05 million with a corresponding impact on retained earnings as on that date. (31 March 2017: reduction in deferred tax asset by Rs. 832.49 million with a corresponding decrease in Statement of Profit and loss).
Further, the Company has created additional provision for minimum alternate tax (including interest of Rs. 3.00 million) of Rs. 139.79 million, which was not made in last year.
6. Presentation of excise duty
Under previous GAAP, revenue from sales of goods was presented net off excise duty under revenue from operations. Whereas, under Ind AS, revenue from sales of goods include excise duty. The corresponding excise duty expense is presented separately on the face of profit & loss. Thus sale of goods under Ind AS has increased by Rs. 768.54 million with a corresponding increase in expense for the year ended March 31, 2017.
7. Commission to indenting and ordering agent
Under previous GAAP, commission to indenting and ordering agent amounting to Rs 22.69 million has been adjusted with revenue . The same has been regrouped as part of other expenses under Ind AS during the year ended March 31, 2017.
8. Other comprehensive income
Under previous GAAP, there was no concept of other comprehensive income. Under Ind AS, specified items of income, expense, gains, or losses are required to be presented in other comprehensive income.
9. Statement of cash flows
The transition from previous GAAP to Ind AS has not had a material impact on the statement of cash flows.
10. Prior Period Adjustments
Under Ind AS, the adjustments for prior period events needs to be made in the year to which they actually pertains. Therefore REC sale amounting to Rs. 6.25 million, interest received from Punjab State Power Corporation Limited (PSPCL) amounting to Rs. 8.24 million and share of rent received from DMRC (excess recognised in previous year) amounted to Rs. 88.09 million has been taken in the financial statements for the year ended March 31, 2017. Moreover Interest received from PSPCL pertaining to period prior to date of transition amounting to Rs. 10 million has been taken into retained earnings.
11. Molasses storage fund
Under previous GAAP, allocation towards molasses storage fund was charged in statement of profit & loss and shown as liabilities under non current liabilities. Under Ind AS such allocation is treated as appropriation of reserve and to be part of other equity. As a result, other expenses in statement of profit & loss is reduced by Rs. 0.31 million.
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