Company Overview:

Talwalkars Better Value Fitness Limited (the ‘Company’) is a public limited company domiciled in India and is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The Corporate Identity Number (CIN) of the Company is L92411MRS.2003PLC140134.

The Company, which is popularly known as ‘Talwalkars’ has pioneered the concept of gyms in India and today, is the largest chain of health centers in India offering a diverse suite of services in fitness including gyms, spas, aerobics, yoga and health counseling. Talwalkar’s growth can be attributed directly to the trust their customers have in them, and the benefits they derive from their expert advice, personalized supervision, on-going facility upgrades, result-oriented approach, and above all from Talwalkar’s know- how and experience in this field.

Note 1 : Disclosures as required by Indian Accounting Standard (Ind AS) 101 First time adoption of Indian Accounting Standard

These are the Company’s first financial statements prepared in accordance with Ind AS. The Company has adopted all the Ind AS and the adoption was carried out in accordance with Ind AS 101 First time adoption of Indian Accounting Standards. The transition was carried out from Generally Accepted Accounting Principles in India (Indian GAAP) as prescribed under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014, which was the “Previous GAAP”

The Significant Accounting Policies set out in Note No. 1 have been applied in preparing the financial statements for the year ended March 31, 2018, March 31, 2017 and the opening Ind AS Balance Sheet on the date of transition i.e. April 1, 2016.

In preparing its Ind AS Balance Sheet as at April 1, 2016 and in presenting the comparative information for the year ended March 31, 2017, the Company has adjusted amounts previously reported in the financial statements prepared in accordance with Previous GAAP. This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with Previous GAAP, and how the transition from Previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

I) Explanation of transition to Ind AS

Set out below are the Ind AS 101 optional exemptions availed as applicable and mandatory exceptions applied in the transition from Previous GAAP to Ind AS.

A. Optional Exemptions availed Fair valuation of Property, Plant and Equipment

The company has elected the option of fair value as deemed cost for property, plant & equipment on the date of transition to Ind AS instead of carrying value under previous Indian GAAP as on April 1, 2016.

Investment in Subsidiaries

The Company has elected either the Indian GAAP carrying amount or fair value at the date of transition as deemed cost for its investment in each subsidiary.

Business combinations

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date.The Company has availed the said exemption and elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Accordingly, business combinations occurring prior to the transition date have not been restated.

B. Applicable Mandatory Exceptions Estimates

An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with Previous GAAP (after adjustments to reflect any difference in accounting policies).

Ind AS estimates as at April 1, 2016 are consistent with the estimates as at the same date made in conformity with Previous GAAP,

The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investment in equity instruments carried at FVTPL or FVTOCI;

- Investment in debt instruments carried at FVTPL;

- Impairment of financial assets based on expected credit loss model

Derecognition of Financial Assets and Liabilities

Financial Assets and Liabilities derecognized before April 1, 2016 are not re-recognized under Ind AS. The company has not choosen to apply the Ind AS 109 Financial Instruments derocognizing criteria to an earlier date. No significant arrangements were identified that has to be assessed under this exception.

Impairment of Financial Asset

Ind AS 101 requires an entity to assess and determine the impairment allowance on financial assets as per Ind AS 109 using the reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments which were initially recognised and compare that to the credit risk at the date of transition to Ind AS. The Company has applied this exception prospectively. The company has applied the impairment requirements of Ind AS 109 retrospectively based on facts and circumstances at the date of transition to Ind AS

Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of financial assets accounted at amortised cost has been done retrospectively except where the same is impracticable.

C. Transition to IND AS-Reconciliations

The following reconciliations provide a quantification of the effect of significant differences arising from the transition from Previous GAAP to Ind AS as required under Ind AS 101:-

I) Reconciliation of Balance sheet as at April 1, 2016 (Transition Date) and March 31,2017

II) Reconciliation of Total Comprehensive Income for the year ended March 31, 2017

III) Reconciliation of Equity as on March 31, 2017 & April 1, 2016

IV) Notes to Reconciliation

The presentation requirements under Previous GAAP differs from Ind AS. Hence, Previous GAAP information has been regrouped for ease of reconciliation with Ind AS. The Regrouped Previous GAAP information is derived from the Financial Statements of the Company prepared in accordance with Previous GAAP.

IV) Notes to reconciliation of Balance Sheet as at April 1, 2016 and March 31, 2017 and the total comprehensive income for the year ended March 31, 2017 Note A : Property, Plant and Equipment

(a) The Company has elected to consider fair value of property, plant & equipment and other intangible assets as its deemed cost on the date of transition to Ind AS. Accordingly, depreciation on such revalued items has been calculated on deemed cost with corresponding increase in deferred tax liability.

(b) Under the previous GAAP, the intangible assets were amortized using the straight-line method. Under Ind AS, the useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with indefinite useful life are not amortised, hence the same is written-off.

Note A : Amortised cost of financial assets and financial liabilities (i) Loan to subsidary

Under the previous Indian GAAP, the interest free inter-company loans were carried at nominal amount. Under Ind AS such loans are measured at fair value on initial recognition. The discounting rate to be used is the borrowing rate applicable to the borrower on the date of the loan. The difference between the fair value and the nominal value of loan is considered as investment in subsidiaries .Subsequently such loans are measured at amortised costs. The unwinding of discount is treated as interest income and is accrued as per the EIR method.

(ii) Borrowings

Under the previous GAAP, transaction costs incurred in connection with borrowings are amortized upfront and charged to profit or loss for the period. Under Ind AS, transaction costs are included in the initial recognition amount of financial liability and charged to profit or loss using the effective interest method.

(iii) Corporate Gaurantee

Under Ind AS, corporate financial guarantee given are measured at their fair value on initial recognition. Subsequently these contracts are measured at the higher of amount of impairment loss allowance as per Ind AS 109 and amount initially recognised less, where appropriate,cumulative amortisation recognised.

Note C : Deferred Tax

Under Ind-AS accounting for deferred taxes is done 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.

(i) Terms/ Rights attached to Equity Shares

(a) The Company has only one class of shares namely Equity Shares having a face value of Rs. 10 per share.

(b) In respect of every Equity Share (Whether fully paid or partly paid), voting right shall be in the same proportion as the capital paid up on such Equity Share bears to the total paid up Equity capital of the Company.

(c) The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend.

The Board of Directors of the Company has proposed dividend of Rs. 0.50 per equity share for the financial year 2017-18. The payment of dividend is subject to approval of the shareholders in the ensuing Annual General Meeting of the Company.

(d) In the event of liquidation, the shareholders of Equity Shares are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholdings.

(iv) Aggregate number and class of shares allotted to fully paid up pursuant to contract without payment being received in cash, bonus shares, and shares brought back for the period of five years immediately preceeding the Balance Sheet date is Nil

(v) Forfeited shares and calls unpaid- Nil

Notes:

a) All the secured Non-covertible debentures are secured by first pari passu charge on the specified assets of the Company as identified in the Debenture Trust Deed.

b) All loans are sanctioned by Axis Bank Ltd.and The South Indian Bank Ltd. secured primarily against the first hypothecation / mortgage charge on the entire movable and immovable fixed assets and current assets of the Company including Gymnasium Equipments, Furniture & Fixtures and any other equipment installed in the Gymnasiums, equitable mortgage or registered mortgage of immovable premises of the Company, corporate guarantee and collateral security by way of equitable mortgage or registered mortgage of premises of third parties situated at Tardeo and Mahalaxmi, Mumbai.

2. Related Party disclosure

A Name of related party and nature of its relationship:

(a) Related parties where control exists Subsidiaries

Talwalkars Club Pvt.Ltd Talwalkars Club Systems Pvt.Ltd

(b) Name of KMP and their relatives with whom transactions have taken place during the year

Mr. Madhukar Talwalkar

(c) Additional related parties as per Companies Act, 2013 with whom transactions have taken place during the year

Mr. Girish Nayak Ms. Avanti Sankav

In accordance with the scheme of demerger, company has bifurcated its assets and liabilities between the demerged and resultant companies. Company has assured its lenders that necessary documents and guarantees have been issued to ensure security creation for facilities granted to them, its subsidiaries and associates.

3. Segment Reporting

a) Primary (Business) Segment:

(i) Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (“CODM”) of the Company. The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Cheif Finance Officer of the Company. The Company operates only in one Business Segment i.e. “Lifestyle Business” hence does not have any reportable Segments as per Ind AS 108 “Operating Segments”.

As the Company’s business consists of one reportable business segment and hence, no separate disclosure pertaining to attributable Revenues, Profits, Assets, Liabilities and Capital employed are given.

(ii) The company does not have revenue from external customer outside India and assets located outside India ,hence not disclosed seperately.

(iii) Further, the Company does not have revenue more than 10% of total revenue from single external customer.

Geographical Information:

Secondary segmentation based on geography has not been presented as the company operates primarily in India and the Company perceives that there is no significant difference in its risk and returns in operating from different geographic areas within India.

4. Business Combination: Scheme of arrangement with Talwalkars Better Value Fitness Limited

The Board of directors of the Talwalkars Better Value Fitness Limited” (“TBVFL”) on November 24, 2016 approved the Scheme of Arrangement under Sections 391 - 394 of the Companies Act, 1956 (‘the Scheme’) between Talwalkars Better Value Fitness Limited (“TBVFL”or ‘Demerged Company’) and Talwalkars Lifestyles Limited (“TLL” or ‘Resulting Company’ or ‘Company’) & their respective shareholders & creditors for the demerger of gymnasium business into the Company. The Scheme of Arrangement for Demerger has been approved by National Company Law Tribunal (NCLT), Mumbai Bench on December 21, 2017 and it came into effect on February 20, 2018 (the “Effective Date”), the date on which the Order from National Company Law Tribunal (NCLT) was filed with the Registrar of Companies. Pursuant to the scheme of arrangement (‘the scheme’), with effect from the Appointed date ie., April 01, 2016 the Gymnasium business of the company stands transferred to the newly formed company namely “Talwalkars Lifestyles Limited”. The scheme has been considered in these results by transferring the assets and liabilities as identified by the management as pertaining to the Gymnasium business with effect from the Appointed Date. Also, the Income and Expenses of the Demerged Company have been determined based on management evaluation of relevant business activities to be continued in the Demerged Company.

Pursuant to the scheme, all assets, liabilities, rights, business operations and activities forming part of the Demerged undertaking have been transferred to the Resulting Company at their respective Book value as follows:

As a consideration for the value of net assets transferred, the Company shall issue 1 (One) fully paid up equity shares of INR 10 each in resulting Company for every 1 (One) Equity share of INR 10 each held in the demerged undertaking to the existing shareholders of the demerged undertaking as on the record date, aggregating to shares of INR 1 each. There is no contingent consideration payable on this acquisition.

Further, as per the Scheme, the excess of book value of assets over the book value of liabilities of the demerged undertaking shall be adjusted against the securities premium account/ capital reserve/general reserve/ balance in the statement of profit /loss of demerged undertaking.

C. Financial Risk Management

i. Risk management framework

The Company’s activities expose it to a variety of financial risks: 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.

ii. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s trade and other receivables, cash and cash equivalents and other bank balances.The maximum exposure to credit risk in case of all the financial instruments covered below is restricted to their respective carrying amount.

(a) Trade and other receivables from customers

Credit risk in respect of trade and other receivables is managed through credit approvals, establishing credit limits and monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

The Company measures the expected credit loss of trade receivables based on historical trend, industry practices and the business environment in which the entity operates. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables. The provision matrix takes into account available external and internal credit risk factors such as credit ratings from credit rating agencies, financial condition, ageing of accounts receivable and the Company’s historical experience for customers.

Financial Assets are considered to be of good quality and there is no significant increase in credit risk

(b) Cash and cash equivalents and Other Bank Balances

The Company held cash and cash equivalents and other bank balances of Rs. 539.46 million at March 31, 2018 (March 31, 2017: Rs. 71.10 million, April 1, 2016 : Rs. 159.63 million). The cash and cash equivalents are held with bank with good credit ratings and financial institution counterparties with good market standing. Also, Company invests its short term surplus funds in bank fixed deposit, which carry no / low mark to market risks for short duration therefore does not expose the Company to credit risk.

iii. Market risk

Market Risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

a Currency risk

Foreign currency risk is the risk that the fair value of future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company does not have significant foreign currency exposure and hence, is not exposed to any significant foreign currency risk.

b 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. The Company is exposed to interest rate risk through the impact of rate changes on interest-bearing liabilities and assets. The Company manages its interest rate risk by monitoring the movements in the market interest rates closely.

Exposure to interest rate risk

Company’s interest rate risk arises primarily from borrowings. The interest rate profile of the Company’s interest-bearing financial instruments is as follows.

Cash flow sensitivity analysis for variable-rate instruments

The sensitivity analysis below have been determined based on the exposure to interest rates for financial instruments at the end of the reporting year and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates :

c Other price risk

The Company invests its surplus funds in various Equity and debt instruments . These comprise of mainly liquid schemes of mutual funds (liquid investments), Equity shares and fixed deposits. This investments are susceptible to market price risk, mainly arising from changes in the interest rates or market yields which may impact the return and value of such investments. However due to the very short tenor of the underlying portfolio in the liquid schemes, these do not pose any significant price risk.

iv. Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Liquidity risk is managed by Company through effective fund management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and other borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted.

5. Capital Management

The Company aims to manage its capital efficiently so as to safeguard its ability to continue as a going concern and to optimise returns to its shareholders. Management monitors the return on capital as well as the debt equity ratio and make necessary adjustments in the capital structure for the development of the business. The capital structure of the Company is based on management’s judgement of the appropriate balance of key elements in order to meet its strategic and day - to - day needs. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

Note : For the purpose of computing debt to equity ratio, equity includes Equity share capital and Other Equity and Debt includes Long term borrowings, Short term borrowings and current maturities of long term borrowings.

6. Other Notes

Previous year figures have been regrouped, re-arranged and re-classified wherever necessary to conform to current year’s classification.