(m) Provisions and Contingent liabilities:
(A) Provisions
- Provisions are recognized if, as a result of past event, the company has a present obligation (legal or constructive), and it is probable that a cash outflow will be required to settle the obligation in respect of where a reliable estimate can be made.
- As the timing of outflows of resources is uncertain, being dependent upon the outcome of the future proceedings, these provisions are not discounted to their present value.
- When some or all of economics benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as on asset if it is virtually certain that reimbursements will be received and amount of the receivable can be measured reliably.
(B) Contingent liability
- A disclosure for contingent liability is made when is a possible obligation or a present obligation that may, but probably will not require an outflow of resources.
- When there is possible obligation or a present obligation where the like hood of an outflow of resources is remote no provision or disclosure is made.
Commitments include the amount of purchase
order (net of advances) issued to parties for
completion of assets.
Contingent assets are neither recognized nor
disclosed in the financial statements
Provisions, contingent liabilities, and commitments are reviewed at each balance sheet date.
2.4 Other Accounting Policies
(a) Borrowing Costs
Borrowing costs that are directly attributable to the acquisition or construction of items of Property, plant and equipment which necessarily takes substantial period of time to get ready for their intended use are capitalized as part of the cost of the asset. Other borrowing costs are recognized as an expense in the period in which they are incurred. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
(b) Government Grants
i. The government grants are recognized only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received.
ii. Government grants in relation to fixed assets are treated as deferred income and are recognized in the statement of profit and loss on a systematic and rational basis over the useful life of the asset.
iii. Government grants related to revenue are recognized on a systematic basis in the statement of profit and loss over the periods necessary to match them with the related costs which they are intended to compensate.
iv. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the company with no future related costs are recognized in profit or loss in the period in which they becoming receivable.
v. Export benefits are accounted for in the year of exports based on eligibility and when there is no uncertainty in receiving the same.
(C) Intangible Assets
Intangible assets are stated at cost less accumulated amortization and impairment if any. Intangible
assets are amortized over their respective individual estimated useful lives on a straight-line basis, from the date that they are available for use. The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence etc. Amortization method and useful lives and residual values are reviewed periodically, including at each financial year end.
(D) Segment reporting
An operating segment is a component of the company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the company's other components, and for which discrete financial information is available.
2.5 Use of accounting judgements and estimates
The preparation of the financial statements in conformity with Indian Accounting Standards (Ind AS) require management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the date of the financial statement and reported amount of revenue and expense during the period.
Although these estimates are based upon management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcome requiring a material adjustment to the carrying amount of assets or liabilities in future period.
The following are the areas of estimation uncertainty and critical judgements that the management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements:
i. Useful lives of property, plant and equipment
The estimated useful lives of property, plant and equipment are based on a number of factors including the effects of obsolescence, internal assessment of user experience and other economic factors (such as the stability of the industry, and known technological advances) and the level of
maintenance expenditure required to obtain the expected future cash flows from the asset.
The Company reviews the useful life of property, plant and equipment at the end of each reporting date.
ii. Recoverable amount of property, plant and equipment
The recoverable amount of property plant and equipment is based on estimates and assumptions regarding the expected market outlook and expected future cash flows. Any changes in these assumptions may have a material impact on the measurement of the recoverable amount and could result in impairment.
iii. Defined benefit plans
Employee benefit obligations are measured on the basis of actuarial assumptions including any changes in these assumptions that may have a material impact on the resulting calculations.
iv. Recognition of deferred tax assets
Management Judgement is required for the calculation of provision for income taxes and deferred tax assets and liabilities. The company reviews at each balance sheet date the carrying amount of deferred tax assets. The factors used in estimates may differ from actual outcome which could lead to signification adJustment to the amounts reported in financial statement.
v. Income Tax
The Company's tax Jurisdiction is India. Significant Judgements are involved in determining the provision for income taxes including Judgement on whether tax positions are probable of being sustained in tax assessments. A tax assessment can involve complex issues, which can only be resolved over extended time periods.
vi. Inventory
Management has carefully estimated the net realizable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by market driven changes.
vii. Contingencies
Management Judgement is required for estimating the possible outflow of resources, if any, in respect of contingencies/claims/litigations against the Company as it is not possible to predict the outcome of pending matters with accuracy. The Company annually assesses such claims and monitors the legal environment on an ongoing basis, with the assistance of external legal counsel, wherever necessary.
viii. Fair value measurement
Some of the company's assets and liabilities are measured at fair value for financial reporting process. In estimating the fair value of an asset or liability, the company uses market-observable data to the extent is available.
2.6 Applicability of new and revised Ind AS
Ministry of Corporate Affairs (“MCA") notifies new accounting standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. As at March 31, 2024, MCA has not notified any new standards or amendments to the existing standards applicable to the Company.
Nature and purpose of reserve
(i) Capital redemption reserve: Capital Redemption Reserve is a statutory , non-distributable reserve into which amounts are transferred following the redemption of capital or purchase of a company’s own shares.
(ii) General Reserve: General reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the general reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassified subsequently to profit or loss.
(iii) Retained earnings: Retained earnings represents amount that can be distributed by the Company to its equity shareholders is determined based on the financial statements of the Company and also considering the requirements of the Companies Act 2013.
(iv) Reserve for equity instruments through other comprehensive income : Reserve for equity instruments through other comprehensive income represents the cumulative gains and losses arising on the revaluation of equity instruments measured at fair value through other comprehensive income, net of amount reclassified to retained earnings when those assets have been disposed off.
(v) Reserve for other items of other comprehensive income : Other items of other comprehensive income comprises income/ (Expense) represent the acturial gain/(loss) recognised during the year (net of taxes)
35. Contingent Liabilities and Commitments: (Contd..)
c. The amounts shown above represents the best possible estimates arrived at on the basis of available information. The uncertainties and possible reimbursements are dependent on the outcome of the different legal processes which have been invoked by the Company or the claimants as the case may be and therefore cannot be predicted accurately or relate to a present obligations that arise from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate cannot be made. The Company has been advised that it has strong legal positions against such disputes.
d. The Hon'ble Supreme Court in a ruling during the year 2019 had passed a Judgment on the definition and scope of ‘Basic Wages' under the Employees' Provident Funds and Miscellaneous Provision Act, 1952. Pending issuance of guidelines by the regulatory authorities on the application of this ruling, the impact on the Company, if any, cannot be ascertained. The Company will update its provision, on receiving further clarity on this subject matter.
The expenses incurred on account of the above defined contribution plans have been included in Note No. 32 "Employee Benefits Expenses" under the head "Contribution to provident and other funds"
36.2 Defined Benefit Plan:
The Company sponsors funded defined benefit plan for qualifying employees. This defined benefit plan of gratuity is administered by a separate trust that is legally separate from the entity. The trustees are required by the law to act in the interest of the trust and all the relevant stakeholders i.e. active employees, inactive employees, retired employees and employers, etc. The trust is responsible for investment policy with regard to the assets of the trust. The Company has a gratuity plan wherein every employee is entitled to the benefit equivalent to 15 days salary last drawn for each completed year of service. Gratuity is payable to all eligible employees of the Company on retirement, separation, death or permanent disablement, in terms of the provisions of the Payment of Gratuity Act, 1972 or as per the Company's plan, whichever is more beneficial.
These plans typically expose the company to actuarial risks such as investment risk, interest rate risk, longevity risk and salary risk.
i. Salary Risk - Actual salary increases will increase the Plan's liability. Increase in salary increase rate assumption in future valuations will also increase the liability.
ii. Investment Risk - If Plan is funded then assets liabilities mismatch & actual investment return on assets lower than the discount rate assumed at the last valuation date can impact the liability.
iii. Interest Risk - A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the plan assets.
iv. Longevity risk - The present value of the defined benefit liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan's liability.
The following tables set out the funded status of the gratuity plan and the amounts recognized in the Company's financial statements as at 31 March 2024 and 31 March 2023.
37. Segment Information
The Company is primarily in the business of manufacturing, purchase and sale of “Acrylic Fibre and Tow. The Chairman and Managing Director of the Company, which has been identified as being the Chief Operating Decision Maker (CODM), evaluates the Company's performance, allocate resources based on the analysis of the various performance indicator of the Company as a single unit. Therefore, there is only one reportable segment for the Company.
38. Related Party transactions:
in accordance with the requirements of IND AS 24, on “Related Party Disclosures", name of the related party, related party relationship, transactions and outstanding balances including commitments where control exits and with whom transactions have taken place during reported periods, are:
42. Financial Instruments and Risk Management
42 (a) Capital Management
The Company manages its capital to ensure that it will be able to continue as going concern while maximizing the return to stakeholders through optimization of debt and equity balance. The 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 maintain optimum capital structure to reduce cost of capital and to maximize 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 which otherwise would permit the banks to immediately call loans and borrowings.
Level 3:
Valuation techniques with unobservable inputs. This level of hierarchy includes items measured using inputs that are not based on observable market data (unobservable inputs). Fair value determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instruments nor based on available market data.
Sensitivity of Level 3 financial instruments are insignificant.
The fair value of the financial instruments are determined at the amount that would be received to sell an asset in an orderly transaction between market participants.
The following methods and assumptions were used to estimate the fair values:
Investments in mutual funds: Fair value is determined by reference to quotes from the financial institutions, i.e. net asset value (NAV) for investments in mutual funds declared by mutual fund house.
Investment in preference shares: Fair value is determined by reference to quotes from fund houses/portfolio management services companies/respective issuer of preference shares, i.e. value of investments.
Derivative contracts: The Company has entered into various foreign currency contracts to manage its exposure to fluctuations in foreign exchange rates. These financial exposures are managed in accordance with the Company's risk management policies and procedures. Fair value of derivative financial instruments are determined using valuation techniques based on information derived from observable market data, i.e., mark to market values determined by the Authorized Dealers Banks.
Quoted equity investments: Fair value is derived from quoted market prices in active markets.
Unquoted equity investments: Fair value is derived on the basis of net asset value approach, in this approach the net asset value is used to capture the fair value of these investments.
Financial risk management
The financial assets of the company include investments, loans, trade and other receivables, and cash and bank balances that derive directly from its operations.
The principal financial liabilities of the company, other than derivatives, include loans and borrowings, trade and other payables and the main purpose of these financial liabilities is to finance the day to day operations of the company.
The company is mainly exposed to the following risks that arise from financial instruments;
(i) Market risk
(ii) Liquidity risk
(iii) Credit risk
The Company's senior management oversees the management of these risks and that advises on financial risks and the appropriate financial risk governance framework for the Company.
This note explains the risks which the company is exposed to and policies and framework adopted by the company to manage these risks;
(i) Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk; interest rate risk, foreign currency risk and investment risk.
(a) Foreign currency risk
The company imports certain assets and material from outside India. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently the company is exposed to foreign currency risk and the results of the company may be affected as the rupee appreciates/ depreciates against foreign currencies. Foreign exchange risk arises from the future probable transactions and recognised assets and liabilities denominated in a currency other than company's functional currency.
The company measures the risk through a forecast of highly probable foreign currency cash flows and manages its foreign currency risk by hedging appropriately. The Company uses foreign exchange forward contracts/options to mitigate the risk of changes in exchange rates on foreign currency exposures.
The Carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities at the end of the reporting periods expressed in foreign currency are as follows;
Foreign exchange derivative contracts
The Company uses derivative financial instruments exclusively for hedging financial risks that arise from its commercial business or financing activities. The company's Corporate Treasury team measures the risk through a forecast of highly probable foreign currency cash flows and manages its foreign currency cash flows by appropriately hedging the transactions. When a derivative is entered into for the purpose of being a hedge, the company negotiates the terms of those derivatives to match the terms of the hedged exposure. For hedges of forecast transactions the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency. All identified exposures are managed as per the policy duly approved by the Board of Directors.
(b) Interest Rate Risk Management
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. The Company's exposure to the risk of changes in market interest rates relates primarily to the Company's debt obligations with floating interest rates.
As the Company has no significant interest-bearing assets, the income and operating cash flows are substantially independent of changes in market interest rates. The Company's exposure to the risk of changes in market interest rates relates primarily to the Company's debt obligations with floating interest rates, which are included in interest bearing loans and borrowings in these financial statements. The company's fixed rate borrowings are carried at amortised cost. They are therefore not subject to interest rate risk, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.
(c) Security Price Risk Management Exposure in equity
The Company is exposed to equity price risks arising from equity investments held by the Company and classified in the balance sheet as fair value through OCI.
Equity price sensitivity analysis
The sensitivity analysis below have been determined based on the exposure to equity price risks at the end of the year.
If the equity prices had been 5% higher / lower:
Other comprehensive income for 31st March 2024 would increase / decrease by H 16.49 Lakhs (31 March 2023: increase / decrease by H 15.35 Lakhs) as a result of the change in fair value of equity investment measured at FVTOCI.
Exposure in mutual funds
The Company manages the surplus funds majorly through investments in debt based mutual fund schemes. The price of investment in these mutual fund schemes is reflected though Net Asset Value (NAV) declared by the Asset Management Company on daily basis as reflected by the movement in the NAV of invested schemes. The Company is exposed to price risk on such Investments.
Mutual fund/Preference share price sensitivity analysis
The sensitivity analysis below have been determined based on Mutual Fund Investment at the end of the year. If NAV has been 1% higher / lower:
Profit for the year ended 31 March 2024 would increase / decrease by H 165.56 Lakhs (31 March 2023 by H 168.56 Lakhs) as a result of the changes in fair value of mutual fund investments.
(ii) Liquidity Risk
The financial liabilities of the company, other than derivatives, include loans and borrowings, trade and other payables. The company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations,
The company monitors its risk of shortage of funds to meet the financial liabilities using a liquidity planning tool, The company plans to maintain sufficient cash and marketable securities to meet the obligations as and when fall due, The below is the detail of contractual maturities of the financial liabilities of the company at the end of each reporting period:
(iii) Credit Risk Management
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial Ioss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables which are typically unsecured. Credit risk on cash and bank balances is limited as the company generally invests in deposits with banks and financial institutions with high credit ratings assigned by credit rating agencies. Investments primarily include investment in liquid mutual fund units, bonds, fixed maturity plan etc. issued by institutions having proven track record.
The company assesses the creditworthiness of the customers internally to whom goods are sold on credit terms in the normal course of business. The credit limit of each customer is defined in accordance with this assessment
The impairment analysis is performed on client to client basis for the debtors that are past due at the end of each reporting date. The company has not considered an allowance for doubtful debts in case of Trade receivables that are past due but there has not been a significant change in the credit quality and the amounts are still considered recoverable.
The following is the detail of revenues generated from top five customers of the company and allowance for lifetime expected credit loss
46. A. Disclosure under Ind AS 115 "Revenue from Contracts with Customers"
Disaggregated revenue information:
The table below presents disaggregated revenues from contract with customers using the existing segment and timing of transfer of goods is adequate for its circumstances.
The companies believes the disaggregation best depicts how the nature, amount and timing and uncertain of revenue and cash flows are affected.
48. Ratios: (Contd..)
iii) Return on equity ratio has decreased as compared to previous year, mainly on account of lower earnings by H15.32 or. Lower earnings are on account of market condition, as compared to previous year where there was normal market condition. Production was interrupted for 37 days due to market condition and lower margin.
iv) Inventory turnover ratio has decreased as compared to previous year, mainly on account of lower revenue from sales by H129.19 cr. Lower revenue are on account of lower sales due to market condition as well as lower sales realization based on raw material prices.
v) Trade receivables turnover ratio has decreased as compared to previous year, mainly on account of lower revenue from sales by H129.19 cr. Lower revenue are on account of lower sales due to market condition as well as lower sales realization based on raw material prices. However, there is a increase in Trade receivables by H2.84 cr as compared to previous year, but decrease is mainly due to lower revenue from sales.
vi) Net Capital turnover ratio has decreased as compared to previous year, mainly on account of lower revenue from sales by H129.19 cr. Lower revenue are on account of lower sales due to market condition as well as lower sales realization based on raw material prices. However, net working capital for both periods remained more or less same.
vii) Return on capital employed is lower, mainly on account of lower profits (EBIT) by H21.75 cr. Profits are lower, as 2023-24 was not a normal year compared to 2022-23. FY 2023-24 was affected with sluggish demand and accordingly plant was shut due to sales plan not available.
viii) Return on investment is higher, mainly on account of higher income by H4.15 cr. Income on investments such as mutual funds are higher on account of uprising stock markets. Also there has been increase in investments by H16.07 cr as compared to previous year, which also contributed to higher income.
49. The company does not have any Benami property, where any proceeding have been initiated or pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988).
50. The company has not been declared as willful defaulter by any bank or financial Institution or other lender.
51. The company does not have any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956.
52. The company does not have any such transactions which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).
53. The company has not advanced or loaned or invested funds (either from borrowed funds or share premium or any other sources or kind of funds) by the company to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with the understanding (whether recorded in writing or otherwise) that the Intermediary shall:
(a) directly or indirectly lend or invest in other person or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or
(b) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.
54. The company has not received any fund from any person or entity, including foreign entities (Funding parties) with the understanding (whether recorded in writing or otherwise) that the company shall:
(a) directly or indirectly lend or invest in other person or entities identified in any manner whatsoever by or on behalf of the funding party (Ultimate Beneficiaries) or
(b) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries
55. The Company has not traded or invested in Crypto currency or Virtual Currency, during the financial year.
56. There are no loans or advances in the nature of loans are granted to Promoters, Directors, KMPs and their related parties (as defined under Companies Act, 2013), either severally or Jointly with any other person, that are:
(a) repayable on demand; or
(b) without specifying any terms or period of repayment.
57. The company has taken unsecured borrowings from banks (No security provided). The quarterly returns/statements are not required to be filed by the company with the banks.
58. The company does not have any charge or satisfaction which is yet to be registered with ROC beyond the statutory period.
59. Previous year figures in the financial statements, including the notes thereto, have been reclassified wherever required to confirm to the current year presentation/classification.
For and on behalf of the Board of Directors of Vardhman Acrylics Limited
Satin Katyal Raish Shaikh Vivek Gupta S.P. Oswal
Company Secretary Chief Financial Officer Whole Time Director Chairman
Membership No:-A40578 Place: Jhagadia DIN:10366909 DIN: 00121737
Place: Ludhiana Date: 04-May-2024 Place: Gurugram Place: Ludhiana
Date: 04-May-2024 Date: 04-May-2024 Date: 04-May-2024
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