1. Corporate Information

Srikalahasthi Pipes Limited (‘the Company’), is a public limited company in India having it’s registered office at Rachagunneri, Srikalahasthi Mandal, Chittoor district in the state of Andhra Pradesh, India engaged in the manufacture and supply of Ductile Iron Pipe as its core business and produces and supplies Pig Iron and Cement in the process. It also produces Low Ash Metallurgical Coke, Sinter and Power for captive consumption in its integrated complex. The company predominantly caters to the needs of Water Infrastructure Development. The company’s shares are listed on the National Stock Exchange Limited (NSE) and the BSE Limited.

2. Statement of Compliance and Recent Pronouncements

2.1 Statement of Compliance

The Company has adopted Indian Accounting Standards (referred to as “Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended) read with Section 133 of the Companies Act, 2013 (“the Act”) with effect from April 1, 2016 and therefore Ind ASs issued, notified and made effective till the financial statements are authorized have been considered for the purpose of preparation of these financial statements.

Accounting Policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing Accounting standard requires a change in the accounting policy hitherto in use.

Financial Statements for the year ended as at March 31, 2017 were audited by previous auditors - K R Bapuji & Co., Chartered Accountants.

2.2 Recent Pronouncements

On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2018 notifying Ind AS 115, “Revenue from Contract with Customers” and Appendix B to Ind AS 21 “Foreign currency transactions and advance consideration” which are applicable with effect from financial periods beginning on or after April 1, 2018.

Ind AS 115 - Revenue from Contract with Customers

The standard requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. This amendment is not likely to have any material impact on the financial statements of the company.

Ind AS 21 - Appendix B “Foreign currency transactions and advance consideration”

This Appendix applies to a foreign currency transaction (or part of it) when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income (or part of it). The effect of this amendment on the financial statements of the company is being evaluated.

3. Critical accounting judgments, assumptions and key sources of estimation and uncertainty

The preparation of the financial statements in conformity with measurement principle of Ind AS requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Differences between the actual results and estimates are recognized in the year in which the results are known / materialized and, if material, their effects are disclosed in the notes to the financial statements.

Application of accounting policies that require significant areas of estimation, uncertainty and critical judgments and the use of assumptions in the financial statements including key assumptions concerning the future and key sources of estimation and uncertainty at the balance sheet date, that have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are given here under:

a. Depreciation / amortization of and impairment loss on property, plant and equipment / intangible assets.

Property, plant and equipment are depreciated and intangible assets are amortized on straight-line basis over the estimated useful lives (or lease term if shorter) in accordance with Schedule II of the Companies Act, 2013, taking into account the estimated residual value, wherever applicable.

The Company reviews its carrying value of its Tangible and Intangible Assets whenever there is objective evidence that the assets are impaired. In such situation assets recoverable amount is estimated which is higher of asset’s or cash generating units (CGU) fair value less cost of disposal and its value in use. In assessing value in use the estimated future cash flows are discounted using pre-tax discount rate which reflect the current assessment of time value of money. In determining fair value less cost of disposal, recent market realisations are considered or otherwise in absence of such transactions appropriate valuations are adopted. The Company reviews the estimated useful lives and residual life of the assets regularly in order to determine the amount of depreciation / amortization and also amount of impairment expense to be recorded during any reporting period. Subsequent reassessment or review may result in change of estimates in future periods.

b. Arrangement contain leases and classification of leases

The Company enters into service / hiring arrangements for various assets / services. The determination of lease and classification of the service /hiring arrangement as a finance lease or operating lease is based on an assessment of several factors, including, but not limited to, transfer of ownership of leased asset at end of lease term, lessee’s option to purchase and estimated certainty of exercise of such option, proportion of lease term to the asset’s economic life, proportion of present value of minimum lease payments to fair value of leased asset and extent of specialized nature of the leased asset.

c. Impairment loss on trade receivables

The Company evaluates whether there is any objective evidence that trade receivables are impaired and determines the amount of impairment loss as a result of the inability of the debtors to make required payments. The Company bases the estimates on the ageing of the trade receivables balance, credit-worthiness of the trade receivables and historical write-off experience. If the financial conditions of the trade receivable were to deteriorate, actual write-offs would be higher than estimated.

d. Income taxes

Significant judgment is required in determination of taxability of certain income and deductibility of certain expenses during the estimation of the provision for income taxes.

e. Defined Benefit Obligations (DBO)

Critical estimate of the DBO involves a number of critical underlying assumptions such as standard rates of inflation, mortality, discount rate, anticipation of future salary increases etc. as estimated by Independent Actuary appointed for this purpose and Management. Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.

f. Provisions and Contingencies

Provisions and liabilities are recognized in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events and the amount of cash outflow can be reliably estimated. The timing of recognition and quantification of the liability requires the application of judgement to existing facts and circumstances, which can be subject to change.

Management judgment is required for estimating the possible outflow of resources, if any, in respect of contingencies/claim/ litigations/ against the Company as it is not possible to predict the outcome of pending matters with accuracy.

The carrying amounts of provisions and liabilities and estimation for contingencies are reviewed regularly and revised to taking into account changing facts and circumstances.

4.1 Refer Note no. 21.1 to financial statements in respect of charge created against borrowings

5.1 Particulars of Investments as required in terms of Section 186(4) of the Companies Act, 2013 has been disclosed herein above.

5.2 Includes INR 1848.07 lakhs (31st March 2017: Nil) out of QIP proceeds pending utilisation thereof in terms of the issue (Refer Note no. 46).

6.1 Refer Note no. 21.1 to financial statements in respect of charge created against borrowings

7.1 Includes INR 20,000 lakhs (31st March 2017: Nil) out of QIP proceeds pending utilisation thereof in terms of the issue (Refer Note no. 46).

8.1 Margin Fixed Deposits with banks include Fixed Deposit of INR 110.69 lakhs (31st March 2017: INR 75.41 Lakhs) have been lodged with banks against guarantee issued by them

9.1 Includes INR 169.20 lakhs (March 31, 2017 INR 141.97 lakhs) lying with customers in terms of agreement/ order with/ from customers

Terms/rights attached to equity shares

The company has only one class of equity shares having a par value of INR 10/- per share, each holder of equity share is entitled to one vote per share. In the event of liquidation of the company, the holders of equity shares will be entitled to receive any of the remaining assets of the company, after distribution of all preferential amounts.The distribution will be in proportion to the number of equity shares held by the shareholders.

10.1.1 Refer Statement of Changes in Equity for movement in balance of reserves

10.1.2 Nature of reserves

a) Securities Premium Reserve

Securities Premium Reserve represents the amount received in excess of par value of securities and is available for utilisation as specified under Section 52 of Companies Act, 2013

b) General Reserve

The general reserve represents appropriation of profits at the discretion of the Company. It is transferous from one component of equity to another.

c) Retained Earnings

Retained Earnings generally represent the undistributed profits /amount of accumulated earnings of the Company. This includes INR 2,48,85.21 lakhs which is not available for distribution as dividend as these are represented by change in carrying amount of an PPE being measured at Fair Value as on the date of transition to Ind AS and Other Comprehensive Income of INR (77.24 lakhs) (31st March 2017: INR (99.83 lakhs)) relating to re-measurement of defined benefit plans which cannot be reclassified to Statement of Profit and Loss.

10.1.3 Subsequent to the balance sheet date, the Board of Directors has recommended a dividend of INR 6/- per share to be paid on fully paid equity shares in respect of the financial year ended March 31, 2018. This equity dividend is subject to approval by shareholders at the ensuing Annual General Meeting and has not been included as a liability in these financial statements. The total estimated equity dividend to be paid is INR 2,801.90 lakhs and the dividend distribution tax thereon amounts to INR 591.36 lakhs.

11.1 Terms of Repayment and rate of interest:

a Rupee Term Loan outstanding as on 31st March 2018 INR 2,500.00 Lakhs (31st March 2017 INR 3,250.00 lakhs) is repayable in 10 Quarterly instalment of INR 250.00 Lakhs each and carries an Interest @ 9.80% p.a. payable monthly.

b External Commercial Borrowings outstanding as on 31st March 2018 INR 3,906.29 Lakhs (Equivalent US$ 59.94 Lakhs) (31st March 2017 INR 6,740.77 lakhs (Equivalent US$ 83.95 lakhs)) is repayable in 4 half yearly instalments in November and March every year of US$ 12,00,600 each and last installment of US$ 11,91,600 and carries an interest at LIBOR plus 4.6262% p.a payable half yearly.

11.2 Nature of security :

The above Loans are secured by way of first pari-passu charge on the Movable & Immovable Property, Plant and Equipment of the company, both present and future.

12.1 Nature of Security and rate of interest

Loan repayable on demad being Working Capital facilities from banks (both fund based and non-fund based) are secured by first pari passu charge by way of hypothecation of raw materials, semi finished goods , finished goods, consumables, stores and spares, book debts, both present and future.

Reconciliation of Income Tax expense for the year with accounting profit is as follows:

Taxable Income differs from ‘profit before tax’ as reported in the statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Details in this respect are as follows:

The tax rate used for reconciliations above is the corporate tax rate of 30% plus applicable surcharge and cess etc. payable by corporate entities in India on taxable profits under the Indian tax laws.

The fair values of the financial assets and liabilities are included at the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair Valuation Techniques:

The following methods and assumptions were used to estimate the fair values:

1. The fair value of cash and cash equivalents, trade receivables, trade payables, current financial liabilities and borrowings approximate their carrying amount largely due to the short-term nature of these instruments. The Board considers that the carrying amounts of financial assets and financial liabilities recognized in the financial statement approximate their fair value.

2. Long-term debt has been contracted at floating rates of interest, which are reset at short intervals. Fair value of variable interest rate borrowings approximates their carrying value subject to adjustments made for transaction cost.

3. Investments in liquid and short-term mutual funds are measured using quoted market prices at the reporting date multiplied by the quantity held.

4. The fair value of derivative financial instruments is determined based on observable market inputs including currency spot and forward rates, yield curves, currency volatility etc. These derivatives are estimated by using the pricing models, where the inputs to those models are based on readily observable market parameters basis contractual terms, period to maturity, maturity parameters and foreign exchange rates. These models do not contain a high level of subjectivity as the valuation techniques used do not require significant judgment, and inputs thereto are readily observable from actively quoted market prices. The said valuation has been carried out by an Independent Agency with whom the contract has been entered with. Management has evaluated the credit and a non-performance risk associated with the counterparties and believes them to be insignificant and not requiring any credit adjustments.

Fair value hierarchy

The following table presents fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of March 31, 2018:

During the year ended March 31, 2018 and March 31, 2017, there were no transfers between Level 1 and Level 2 fair value measurements.

The Inputs used in fair valuation measurement are as follows:

Fair valuation of Financial assets and liabilities not within the operating cycle of the company is amortised based on the borrowing rate of the company.

Derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the market place. The inputs used for forward contracts are Forward foreign currency exchange rates and Interest rates to discount future cash flow.

Financial instruments are valued based on quoted price for similar assets and liabilities in active market or similar inputs that are directly or indirectly observable in the market place.

Derivatives financial assets and liabilities:

The Company follows established risk management policies, including the use of derivatives to hedge its exposure to foreign currency fluctuations on foreign currency assets / liabilities. The counter party in these derivative instruments is a bank and the Company considers the risks of nonperformance by the counterparty as non-material.

a) The following table presents the aggregate contracted principal amounts of the Company’s derivative contracts outstanding:

Sale of Financial Assets

In the normal course of business, the Company transfers its bill receivables to banks. Under the terms of the agreements, the Company surrenders control over the financial assets and the transfer is with recourse. Under arrangement with recourse, the company is obligated to repurchase the uncollected financial assets, subject to limits specified in the agreement with banks. Accordingly, in such cases the amount received are adjusted against the receivables. As at March 31, 2018 and March 31, 2017, the maximum amount of recourse obligation in respect of transferred financial assets are INR 2,815.40 lakhs and INR 8,453.46 lakhs respectively.

FINANCIAL RISK FACTORS

The company’s activities exposed it to a variety of financial risks. The key financial risks include Market risk, Credit risk and liquidity risk. The company’s focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance.

The Board of Directors review and approves policy for managing these risks. The risks are governed by appropriate policies and procedures and accordingly financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives.

MARKET RISK

Market risk is the risk or uncertainty arising from possible market price movements resulting in variation in the fair value of future cash flows of a financial instrument. The major components of Market risks are currency risk, interest rate risk and price risk. Financial instruments affected by market risk include trade receivables, borrowings, investments and trade and other payables.

Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s foreign currency denominated borrowing and trade and other payables.

The Company has adopted a comprehensive risk management review system wherein it actively hedges its foreign exchange exposures within defined parameters through use of hedging instruments such as forward contracts, options and swaps. The Company periodically reviews its risk management initiatives and also takes experts advice on regular basis on hedging strategy.

The carrying amount of the various exposure to foreign currency at the end of the reporting period are as follows:

(*) Figures in round brackets indicate figures as on 31st March 2017.

Derivative financial assets and liabilities dealing with outstanding derivative contracts and unhedged foreign currency exposure have been detailed in earlier paras. Unhedged foreign currency exposure is primarily on account of long term foreign currency borrowings for which hedge cover is taken as per the policy followed by the company depending upon the remaining period of maturity of the installments falling due for payment.

Sensitivity analysis resulting in profit or loss arising mainly from USD denominated payables are as follows:

A 5% strengthening of INR would have an equal and opposite effect on the Company’s financial statements.

Interest rate risk

The company’s exposure in market risk relating to change in interest rate primarily arises from floating rate borrowing with banks and financial institutions. Borrowings at fixed interest rate exposes the company to the fair value interest rate risk. The Company has entered into interest rate swap contracts in respect of certain foreign currency borrowings whereby interest at an agreed rate are to be applied on agreed upon principal amount. As of March 31, 2018, substantially all of the Company borrowings were subject to floating interest rates, which are reset at short intervals.

Further there are deposits with banks which are for short term period are exposed to interest rate risk, falling due for renewal. These deposits are however generally for trade purposes as such do not cause material implication.

With all other variables held constant, the following table demonstrates the impact of the borrowing cost on floating rate portion of loans and borrowings and excluding loans on which interest rate swaps are taken.

Other Price Risk

The company’s current investments which are fair valued through profit and loss are not material. Accordingly, other price risk of the financial instrument to which the company is exposed is not expected to be material.

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). The management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Major water infrastructure projects are Government funded or foreign aided and the risk involved in payment of default is minimum with respect to these customers. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends and ageing of accounts receivable. Individual risk limits are set accordingly and the company obtains necessary security including letter of credits and / or bank guarantee to mitigate its credit risk.

The carrying amount of respective financial assets recognised in the financial statements, (net of impairment losses) represents the Company’s maximum exposure to credit risk. The concentration of credit risk is limited due to the customer base being backed by the government order. Of the trade receivables balance at the end of the year, one customer having outstanding balance of INR 5,145.67 lakhs (Previous year INR 2,315 lakhs) which accounts for more than 10% of the accounts receivable and 10% of revenue as at and for the year ended March 31, 2018.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. Receivables are reviewed/evaluated periodically by the management and appropriate provisions are made to the extent recovery there against has been considered to be remote.

The Company’s current investments are valued at with respect to market quotation on the reporting date. These investments are diversified across various sectors and are periodically reviewed and managed in accordance with the company’s policy and risk objective

Financial assets that are neither past due nor impaired

Cash and cash equivalents, investment and deposits with banks are neither past due nor impaired. Cash and cash equivalents with banks are held with reputed and credit worthy banking institutions.

Financial assets that are past due but not impaired

Trade receivables amounts which are past due at the end of the reporting period, no credit losses there against are expected to arise.

LIQUIDITY RISK

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company’s objective is to maintain optimum level of liquidity to meet its cash and collateral requirements at all times. The company relies on internal accruals and borrowings to meet its fund requirement. The current committed line of credit are sufficient to meet its short to medium term fund requirement.

Liquidity and interest risk tables

The following tables detail the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows as at balance sheet date.

The Company has current financial assets which will be realized in ordinary course of business. The Company ensures that it has sufficient cash on demand to meet expected operational expenses.

The Company relies on mix of borrowings and operating cash flows to meet its need for funds and ensures that it does not breach any financial covenants stipulated by the lender.

Capital Management

The primary objective of the Company’s capital management is to ensure that it maintains a healthy capital ratio in order to support its business and maximize shareholder value. The Company’s objective when managing capital is to safeguard its ability to continue as a going concern so that they can continue to provide returns for shareholders and benefits for other stakeholders. The Company is focused on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required without impacting the risk profile of the Company.

The company also manages its capital to meet financial covenants, if any attached to the borrowings. Non-compliances may result in levy of higher rate of interest on loans charged by the lenders. At present the company has generally complied with the financial covenants of the borrowings during the reported period.

Note:

1. The Company has tax disputes in appeals as disclosed above and certain litigations in respect of land. Based on the facts of each dispute / litigation and opinion of the management including that of advice of our legal advisors, the company believes that the outcome of the said disputes / litigations will not result in material impact that would affect the financial position or operations of the Company.

2. The Company’s pending litigations comprises of claim against the company and proceedings pending with Taxation/ Statutory/ Government Authorities. The Company has reviewed all its pending litigations and proceedings and has made adequate provisions, and disclosed contingent liabilities, where applicable, in its financial statements. The company does not expect the outcome of these proceedings to have a material impact on its financial position. Future cash outflows, if any, in respect of (d) above is dependent upon the outcome of judgments / decisions.

3. The matter related to Forest Department fee has been decided in favour of the company by the Hon’ble High Court of Karnataka. However, the Government of Karnataka has filed a Special Leave Petition before the Hon’ble Supreme Court and the matter is pending thereof.

13. Post Retirement Employee Benefits

The disclosures required under Ind AS 19 “Employee Benefits”, are given below: -

a. Defined Contribution Plan

Contribution to Defined Contribution Plan, recognized for the year are as under:

b. Defined Benefit Plans

The employee’s gratuity fund scheme managed by Life Insurance Corporation of India is a defined benefit plan. The present value of obligation is determined based on actuarial valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

Compensated absences

The obligation for compensated absences is determined in the same manner as gratuity and is recognised in the Statement of Profit and Loss. The actuarial liability of Compensated Absences (unfunded) of accumulated privileged and sick leaves of the employees of the Company as at March 31, 2018 is given below:

Notes:

i. Assumptions relating to future salary increases, attrition, interest rate for discount & overall expected rate of return on Assets have been considered based on relevant economic factors such as inflation, market growth & other factors applicable to the period over which the obligation is expected to be settled.

The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (projected unit credit method) has been applied as when calculating the defined benefit obligation recognised within the Balance Sheet.

14. Segment Reporting:

The Company’s operates mainly in one business segment viz. Pipes being primary segment and all other activities revolve around the main activity.

15. The company has opted for continuing accounting policy in respect of exchange difference arising on reporting of long term foreign currency monetary items in accordance with Ind AS 101 “First time adoption of Indian Accounting Standards”. Accordingly, during the year ended 31st March 2018 the net exchange difference loss of INR 274.16 lakhs (previous year INR 161.66 lakhs gain) on foreign currency loans have been adjusted in the carrying amount of fixed assets. The unamortised balance in this respect is INR 3909.01 lakhs (March 31, 2017: INR 3945.60 lakhs).

16. Disclosure of Related Parties/Related Party Transactions:

Name of the Related Parties with whom transactions were carried out during the year and description of relationship:

a. Key Management Personnel & their relatives (KMP):

i. Shri. G. Maruthi Rao, Chairman

ii. Shri. Mayank Kejriwal, Managing Director

iii. Shri. G. S. Rathi, Whole Time Director

iv. Shri. V. Poyyamozhi, Whole Time Director

v. Shri. S. Y. Rajagopalan, Director

vi. Shri. R. K. Khanna, Director

vii. Smt. S. Hemamalini, Director

viii. Smt. Priya Manjari Todi, Director

ix. Shri. Karthikeya Misra, Director

x. Shri. N. Sivalai Senthilnathan, Chief Financial Officer

xi. Shri. G. Kodanda Pani, Company Secretary

b. Enterprise where KMP and/or Close member of the family have significant influence or control

i. Electrosteel Castings Limited

ii. Amit Trexim Private Limited

iii. Global Exports Limited

Note:

1. The above related party information is as identified by the management and relied upon by the auditor.

2. In respect of above parties, there is no provision for doubtful debts as on March 31, 2018 and no amount has been written back or written off during the year in respect of debts due from/ to them.

3. Post-Employee benefits and other long term employee benefits have been disclosed made on retirement/resignation of services but does not include provision made on actuarial basis as the same is available for all the employees together.

17. The Company has operating lease arrangement for Land and office accommodation etc. Expenditure incurred on account of rent during the year amounting to INR 129.33 lakhs (Previous year INR 123.81 lakhs) is recognized in the Statement of Profit and Loss.

As required under Ind AS 17 - “Leases” the future minimum lease payments under non-cancelable operating leases in aggregate are as follows.

18. The Company has allotted on 28th December 2017, 6,934,812 equity shares of INR 10.00 each at a premium of INR 350.50 per share amounting to INR 25,000.00 lakh pursuant to a Qualified Institutions Placement (QIP) under Securities Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

19. These financial statements have been approved by the Board of Directors of the Company on 28th April, 2018, for issue to the shareholders for their adoption.