1. Company Information

Panama Petrochem Limited (“the Company”) is a public limited Company domiciled in India. The registered office ofthe Company is at Plot No. 3303, GIDC Estate, Ankleshwar 393002, Gujarat, India and corporate office at 401, Aza House, Turner Road, Bandra West, Mumbai 400050. The Company was incorporated on 9 March 1982.

The Company is engaged in the manufacture of specialty petroleum products for diverse user industries like printing, textiles, rubber, pharmaceuticals, cosmetics, power and other industrial oil.

The equity shares of the Company are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India. The Global Depository Receipts (GDRs) of the Company are listed on the Luxembourg stock exchange.

Authorisation of financial statements

The standalone financial statements were authorised for issue in accordance with a resolution of the Board of Directors passed on 25 May 2018.

a) Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 2 per share. Each holder of equity shares is entitled to one vote per share, however the holders of global depository receipts (GDR’s) do not have any voting rights in respect of shares represented by the GDR’s till the shares are held by the custodian bank. The company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the company, the holders of equity shares will be entitled to receive assets in proportion to the number of equity shares held by the shareholders.

*The company has initiated the process of identification of suppliers registered under Micro and Small Enterprise Development Act, 2006, by obtaining confirmations from all suppliers. Information has been collated only to the extent of information received as at the balance sheet date.

2. Segment Information

A. Factors used to identify the entity’s reportable segments, including the basis of organisation

For management purposes, as the Company is in the business of manufacturing and trading of specialty petroleum products, the Company has considered petroleum products as the only business segment for disclosure in this context of Indian Accounting Standard 108.

The Managing Director (MD) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by operating segment. The MD reviews revenue and gross profit as the performance indicator for the operating segment. However, the Company’s finance (including finance cost and finance income) and income taxes are managed on a company as a whole basis and are not allocated to any segment.

Geographical segment of the organisation

For the purpose of geographical segment the sales are divided into two segments - within India and outside India The accounting policies of the segments are the same as those described in Note 2 (O)

B. Information about reportable segment

The following table shows the distribution of the Company’s reportable segment by geographical market, regardless of where the goods were produced:

3. Details of related party transactions in accordance with Ind AS 24 ‘Related Party Disclosures’ (a) Names of related parties with whom transactions have taken place during the year

Key Management Personnel

Amirali E Rayani Amin A Rayani Samir Rayani Hussein Rayani

Relatives of key management personnel

Akbarali Rayani (Brother of Mr. Amirali E Rayani)

Vazirali Rayani (Brother of Mr. Amirali E Rayani)

Salimali Rayani (Brother of Mr. Amirali E Rayani)

Arif Rayani (Brother of Mr. Amin Rayani)

Nilima Kheraj (Sister of Mr. Samir Rayani)

Munira Rayani (Wife of Mr. Hussein Rayani)

Iqbal Rayani (Brother of Mr. Hussein Rayani)

Subsidiary ( Wholly owned )

Panol Industries RMC FZE, UAE

The shareholders in the 35th Annual General Meeting held on 18 Sept 2017 approved the issue of bonus shares in the ratio of one equity share of Rs. 2/- each for two existing share of Rs. 2/- each held and accordingly the Company has allotted 2,01,64,533 number of equity shares on 5th October 2017. Pursuant to above, earnings per share (both basic and diluted) for the year ended and comparative period has been calculated after adjustment of number of bonus share issued in compliance with para 64 of Indian Accounting Standard (Ind AS)-33.

4. Financial Instruments : Accounting classifications and fair value measurements

(i) Accounting classifications

The fair values of the financial assets and liabilities are determined 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.

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

The carrying amounts of trade receivables, cash and cash equivalents, bank balances, short term deposits, trade payables, payables for acquisition of property, plant and equipment, short term loans from banks, financial institutions and other current financial assets and liabilities are considered to be the same as their fair values, due to their shortterm nature.

(ii) Fair value measurements

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

The following table presents carrying value and fair value of financial instruments by categories and also fair value hierarchy of assets and liabilities measured at fair value :

During the reporting period ending 31st March, 2017 and 31st March, 2016, there were no transfers between Level 1 and Level 2 fair value measurements and no transfer into and out of Level 3 fair value measurements.

5. Financial risk management Risk management framework

The Company has identified financial risks and categorised them in three parts viz. (i) Credit Risk, (ii) Liquidity Risk and (iii) Market Risk. Details regarding sources of risk in each such category and how Company manages the risk is explained in following notes:

(i) Credit risk

Credit risk refers to the possibility of a customer and other counter parties not meeting their obligations and terms and conditions which would result into financial losses. Such risk arises mainly from trade receivables and investments. Credit risk is managed through internal credit control mechanism such as credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The maximum exposure to credit risk in case of all the financial instruments covered below is restricted to their respective carrying amount.

Trade receivables

As per the credit policy of the Company, generally no credit are given exceeding the accepted credit norms. The Company deals with large corporate houses and State Electricity Boards after considering their credit standing. The credit policy with respect to other customers is strictly monitored by the Company at periodic intervals. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers. In addition, for amounts recoverable on exports, the Company has adequate insurance to mitigate overseas customer and country risk.

The Company uses an allowance matrix to measure the expected credt losses of trade receivables (which are considered good). The following table provides information about the exposure to credit risk and loss allowance (including expected credit loss provision) for trade receivables:

Cash and cash equivalents

The Company held cash and cash equivalents of Rs. 2453.22 lakhs at 31.3.2018 (31.3.2017: Rs. 1005.42 lakhs, 1.4.2016 : Rs. 818.71 lakhs). The cash and cash equivalents are held with banks with good credit ratings. Also, the Company invests its surplus funds in bank fixed deposits, which carry no / low mark to market risks for short duration and therefore, does not expose the Company to credit risk.

Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.

Derivatives

The forward contracts were entered into with banks having an investment grade rating and exposure to counterparties is closely monitored and kept within the approved limits.

(ii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations on due date. The Company has a strong focus on effective management of its liquidity to ensure that all business and financial commitments are met on time. This is ensured through proper financial planning with detailed annual business plans, discussed at appropriate levels within the organisation. Annual business plans are divided into quarterly plans and put up to management for detailed discussion and an analysis of the nature and quality of the assumptions, parameters etc. Daily and monthly cash flows are prepared, followed and monitored at senior levels to prevent undue loss of interest and utilise cash in an effective manner. Cash management services are availed to avoid any loss of interest on collections. In addition, the Company has adequate borrowing limits with reputed banks in place duly approved.

a) Financing arrangements

The Company has an adequate fund and non-fund based limits lines with various banks. The Company’s diversified source of funds and strong operating cash flow enables it to maintain requisite capital structure discipline. The financing products include working capital loans, buyer’s credit loan, supplier’s credit loan etc.

b) Maturities of financial liabilities

The amounts disclosed in the table are the contractual undiscounted cash flows within one year

(iii) Market Risk

The risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market price. Market risk further comprises of (a) Currency risk, (b) Interest rate risk and (c) Commodity risk.

a) Currency Risk

The Company is exposed to currency risk mainly on account of its import payables and export receivables in foreign currency. The major exposures of the Company are in U.S. dollars. The Company hedges its import foreign exchange exposure partly through exports and depending upon the market situations partly through forward foreign currency covers. The Company has a policy in place for hedging its foreign currency exposure. The Company does not use derivative financial instruments for trading or speculative purposes.

The table below shows sensitivity of open forex exposure to USD / INR movement. We have considered 1% ( /-) change in USD / INR movement, increase indicates appreciation in USD / INR whereas decrease indicates depreciation in USD / INR. The indicative 1% movement is directional and does not reflect management forecast on currency movement.

Impact on profit or loss due to % increase / (decrease) in currency

b) Interest rate risk

The Company is not exposed to significant interest rate risk during the respective reporting periods. Short term loans are taken on fixed interest rates.

c) Commodity Risk Raw Material Risk

“Timely availability and also non-availability of good quality base oils from across the globe could negate the qualitative and quantitative production of the various products of the Company. Volatility in prices of crude oil and base oil is another major risk for this segment. The Company procures base oils from various suppliers scattered in different parts of the world. The Company tries to enter into long term supply contracts with regular suppliers and at times buys the base oils on spot basis.”

Capital management

The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders.

6. First time adoption of Ind AS

6.1 Mandatory exceptions, optional exemptions Transition to Ind AS

These are the Company’s first financial statements prepared in accordance with Ind AS. For the year ended 31st March, 2017, the Comapny had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2014, notified under Section 133 of the Companies Act, 2013 and other relevant provisions of the Act (‘IGAAP’). The accounting policies set out in Note 2 have been applied in preparing these Financial Statements for the year ended 31st March, 2017 and the opening Ind AS Balance Sheet on the date of transition (i.e. 1st April, 2016). In preparing its Ind AS Balance Sheet as at 1st April, 2016 and in presenting the comparative information for the year ended 31st March, 2017, the Company has adjusted amounts previously reported in the Financial Statements prepared in accordance with IGAAP. This note explains the principal adjustments made by the Comapny in restating its Financial Statements prepared in accordance with IGAAP, and how the transition from IGAAP to Ind AS has impacted the Company financial position, financial performance and cash flows.

Exemptions and exceptions availed

In preparing the Financial Statement, the Company has availed the below mentioned optional exemptions and mandatory exceptions.

A. Exceptions :

1. Classification and measurement of financial assets

As permitted under Ind AS 101, the Company has determined the classification offinancial assets based on facts and circumstances that exist on the date oftransition. In line with Ind AS 101, measurement offinancial assets accounted at amortised cost has been done retrospectively except where the same is impracticable.

2. Estimates

Ind AS estimates as at 1st April, 2016 are consistent with the estimates as at the same date made in conformity with IGAAP. Company has made estimates for following items in accordance with Ind AS at the date of transition as these were not required under IGAAP:

- investment in equity instruments carried at FVTOCI;

- impairment offinancial assets based on expected credit loss model;

- determination ofthe discounted value for financial instruments carried at amortised cost.

B. Optional exemptions : Property, plant and equipment and intangible assets

The Company has availed the exemption available under Ind AS 101 to continue the carrying value for all of its property, plant and equipment and intangible assets as recognised in the Financial Statements as at the date of transition to Ind AS, measured as per the IGAAP and use that as its deemed cost as at the date of transition (1st April, 2016).

6.2 Notes to the reconciliations

1 Property, plant and equipment:

Under previous GAAP, there was no requirement to present investment property separately and the same was included under tangible fixed assets (buildings) and measured at cost less accumulated depreciation. Under Ind AS, investment property is required to be presented separately in the balance sheet and depreciation is charged on it. Accordingly, the carrying amount of investment property as at 1st April, 2016 of Rs. 578.63 lakhs and as at 31st March, 2017 of Rs. 578.63 lakhs (before considering depreciation) under previous GAAP has been reclassified to a separate line item on the face ofthe balance sheet. There is no impact on the statement of profit and loss.

2 Fair valuation of investments:

Under previous GAAP, long term investments were measured at cost less diminution in the value which is other than temporary. Under Ind AS, these assets are classified as financial assets measured at fair value through profit or loss (FVOCI). On the date of transition to Ind AS, these financial assets have been measured at their fair value which is lower/higher than the cost as per previous GAAP, resulting in an decrease in the carrying amount by Rs. (4.69) lakhs as at 1st April, 2016 and increase by Rs. 4.01 lakhs as at 31st March, 2017.

3. Trade receivables:

Under Indian GAAP, the Company has created provision for impairment of receivables only in respect of specific amount for incurred losses. Under Ind AS, impairment allowance has been determined based on Expected Credit Loss (ECL) model. Due to ECL model, the Comapny impaired its trade receivable by Rs. 35.67 lakhs on 1st April, 2016 which has been eliminated against retained earnings. The impact of Rs. (6.59) lakhs for year ended on 31st March, 2017 has been recognised in the statement of profit and loss. Moreover, all trade receivables are now classified as current financial assets as per Ind AS.

4. 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.

5. Dividend (including dividend tax):

Under previous GAAP, proposed dividends including Dividend Distribution Tax (DDT) are recognised as a liability in the period to which they relate, irrespective of when they are declared. Under Ind AS, a proposed dividend is recognised as a liability in the period in which it is declared by the company (usually when approved by shareholders in a general meeting) or paid. In the case of the company, the declaration of dividend occurs after period end. Therefore, the short term provision of Rs. 243.84 lakhs (including DDT) for the year ended on 31st March, 2016 recorded for dividend has been derecognised against retained earnings on 1st April, 2016.

6. Employee benefits:

“Both under Indian GAAP and Ind AS, the Comapny recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to profit or loss. Under Ind AS, remeasurements are to be recognised under other comprehensive income. Consequently, the tax effect of the same has also been recognised in other comprehensive income under Ind AS instead of profit or loss. On the date of transition, this change does not affect total equity. “

7. Deferred 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 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 approach 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 temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax adjustments are recognised in co-relation to the underlying transaction either in retained earnings or a separate component of equity. On the date of transition, the net impact on deferred tax assets is of Rs. 176.29 lakhs with corresponding impact on retained earning. For the year ended 31st March, 2017, deferred tax expenses are reduced by Rs. (57.38) lakhs.

8. Revenue:

Under previous GAAP, revenue from sale of products was presented net of excise duty under revenue from operations. Whereas, under Ind AS, revenue from sale of products includes excise duty. The corresponding excise duty expense is presented on the face of the statement of profit and loss. The change does not affect total equity as at 1st April, 2016 and 31st March, 2017, profit before tax or total profit for the year ended 31st March, 2018.

9. As per Ind AS, cash and cash equivalents are shown as a separate item and other bank balances are shown separately.

10. As per Ind AS, certain assets and liabilities are reclassified as financial assets or liabilities based on the recognition criteria for financial asset or financial liability.

7. Previous year figures

The company has reclassified previous year figures to conform to this year’s classification.