1. Company background:
Monsanto India Limited (the "Company") was incorporated on 8th December, 1949. The Company's registered office is in Mumbai, Maharashtra and during the year the corporate office has shifted to Thane, Maharashtra. The Company is engaged in the business of production and sale of agricultural inputs, namely chemicals and hybrid seeds. It has a chemical production unit at Silvassa, hybrid seeds processing and drying units at Hyderabad and breeding stations at Bangalore and Udaipur.
The tax rate used for the year 2018 - 19 reconciliations above is the corporate tax rate of 34.94% (30% surcharge @12% and education and health cess @ 4%) payable on taxable profits under the Income Tax Act, 1961 (previous year 34.608% (30% surcharge @12% and education cess @ 3%) payable on taxable profits under the Income Tax Act, 1961)).
The biological assets of the Company represent the standing crops of corn as on the reporting date.
There are neither observable market prices for these biological assets nor are there alternative estimates of fair value that are determined to be clearly reliable that give a fair expression of the fair values. Hence, the standing crops of corn are measured at initial recognition and at each financial reporting date at cost. This comprises any cost attributable in bringing Biological assets to its location and condition intended by the management.
Risk management strategy related to agricultural activities
The Company is exposed to the following risks relating to corn seeds cultivation:
Regulatory and environmental risk
The Company is subject to laws and regulations in India and is required to comply with local environmental and other laws.
Supply and demand risk
The Company is exposed to risks arising from fluctuations in the price and sales volume of corn. Management performs regular industry trend analysis for projected harvest volumes and pricing to manage this risk.
Climate and other risk
The Company's corn plantations are exposed to the risk of damage from climatic changes, diseases and other natural forces. The Company has extensive processes in place aimed at monitoring and mitigating those risks, including preventive pest and disease sprays, regular inspection of crops in its growth phase, regular weather monitoring and mitigating measures.
Notes:
(a) Above inventory includes provision for obsolescence amounting to Rs. 25.97 crores (previous year Rs. 17.07 crores). These were recognised as expenses and included in "Cost of materials consumed and other inputs" and "Changes in stock of finished goods, work-in-progress and biological assets" in the Statement of profit and loss.
(b) Above inventory includes Rs. 3.43 crores against Company's right to receive the product from the customer, where the customer exercises his right of return (refer note 40).
Note :
The Company has closed its manufacturing operations at Bellary consisting of land, plant S equipment and building. Management is in the process of disposal of such assets which have been recorded at lower of carrying amount and fair value less cost to sell under "asset classified as held for sale". Management expects the process of sale to be completed within 12 months from 31st March, 2019.
Rights, preferences and restrictions attached to equity shares :
(i) Right to receive dividend as may be approved by the Board of Directors / Annual General Meeting.
(ii) Every member of the Company holding equity shares is eligible for one vote per share held.
(iii) The equity shares are not repayable except in the case of a buy back, reduction of capital or winding up in terms of the provisions of the Companies Act, 2013, as applicable.
(iv) Monsanto Company USA, the intermediate holding company has certain rights enshrined in the Articles of Association pertaining to appointment of Directors.
(i) Reconciliation of the number of shares outstanding at the beginning and at the end of the period.
(iv) Shares reserved for issue under commitment :
300 shares are the subject matter of disputes / court proceedings, the Company has not therefore been able to issue / allot rights and bonus share entitlements to holders.
Description of nature and purpose of each reserve
General reserve - General reserve is created from time to time by way of transfer of profits from retained earnings for appropriation purposes. General reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income.
Securities premium reserve - When the Company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to "Securities Premium Reserve". The Company may issue fully paid up bonus shares to it's members out of the securities premium reserve and the Company can use this reserve for buy-back of shares.
Share options outstanding account relates to stock options granted by the intermediate holding company to employees under an employee stock options plan. Refer Note 26 for share based payments
Trade Payables are payables in respect of the amount due on account of goods purchased or services received in the normal course of business. The average credit period on purchase of goods and services is in the range of 15 to 45 days and no interest is charged on the outstanding balance.
Based on the information available with the Company, there are no outstanding dues and payments made to any supplier of goods and services beyond the specified period under Micro, Small and Medium Enterprises Development Act, 2006 [MSMED Act]. There is no interest payable or paid to any suppliers under the said Act.
Note:
When a customer has a right to return product within a given period, the Company recognises a refund liability for the amount of consideration received for which the Company does not expect to be entitled of. Accordingly, the Company has recognised refund liability on right to return product of Rs. 15.45 crores. The costs to recover the products are not material because the customers usually return the product in a saleable condition.
Refund liabilities are also recognised for discounts S incentives payable to customers amounting to Rs. 59.58 crores. Refer note no. 40 for details about change in accounting policy consequent to adoption of Ind-AS 115 w.e.f. 1st April, 2018.
Share based payment expenses upto 7th June, 2018
The Company has not provided any equity-based compensation to its employees. However, the intermediate holding Company, Monsanto Company, USA ("the grantor"/"parent company") had a Monsanto Company Long Term Incentive Plan (ESOP scheme) in which eligible employees of the Company participated. Eligible employees were granted stock options (SO's) and restricted share units (RSU's), which were to vest over a period of 3 years from the date of the grant, as per original terms and conditions of the scheme.
As per terms and conditions of the scheme, SO and RSU issued by the intermediate holding company were accounted for as equity settled as the Company had no obligation to settle the shared-based payment transaction and the shares granted were of the intermediate holding company. Company recognised the expense over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied, based on the fair value of the SO/RSU, as determined on the grant date. At the end of each period, the Company revised its estimates of the number of options that were expected to vest based on the non-market vesting and service conditions, Company recognised the impact of the revision to original estimates, if any, in the Statement of profit and loss, with a corresponding adjustment to Other equity.
Share based payment expenses post 7th June, 2018
Pursuant to the global merger scheme announced between Monsanto and Bayer on 7th June, 2018 (merger deal closure date), the ESOP scheme has been discontinued. All outstanding stock options and RSU's granted on or before 16th September, 2016 vested automatically based on stock price on merger deal closure date and differential between vesting price and fair value of the SO's/ RSU's on the grant date has been recognised through other equity. Restricted share units granted or after 16th September, 2016 were converted into cash incentive awards based at stock price on merger deal closure date without any change in vesting conditions.
At the end of each reporting period, the entity recognises expense towards cash incentive award based on the vesting schedule with a corresponding adjustment to liability towards employees based on the agreed vesting price as of merger deal closure date.
2 Financial instruments Capital management
The Company funds its operations mainly through initial equity capital contribution from the parent and later through efficient working capital management and retained earnings. The Company's capital management strategy is to ensure adequate capital base to sustain its business as a going concern and invest in the growth of the business for generating sustained stakeholder value.
The capital structure of the Company comprises only of Equity (Share Capital and other equity reserves) as disclosed in the Statement of Changes in Equity. It does not have any long-term debt obligation.
There is no change in the overall capital risk management strategy of the Company compared to last year.
Financial risk management framework
The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk. In order to manage the aforementioned risks, the Company has adequate risk management policies to ensure timely identification and evaluation of risk, setting acceptable thresholds, identifying and mapping controls against these risks, monitoring the risks and their limits.
Credit Risk
(i) Credit risk management
Credit risk arises when a counterparty defaults on its contractual obligations to pay, resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining collaterals (such as Security Deposit) as a means of mitigating the risk of financial loss from defaults. The Company's exposure and credit ratings of its counterparties are continuously monitored based on the counterparty's past performance and business dynamics. Credit exposure is controlled by counterparty limits that are reviewed and approved by the credit risk and monitoring team at regular intervals.
Trade receivables consist of a large number of customers, spread across the country, primarily in rural areas. Ongoing credit evaluation is performed on the financial condition and performance of accounts receivable. The average credit period is about 60 days. The Company's trade and other receivables consists of a large number of customers, hence the Company is not exposed to concentration risk.
The credit risk on mutual funds is limited because the Company invests in large and consistently performing fund houses with high credit-ratings assigned by international credit-agencies.
The Company applies the simplified approach to providing for expected credit losses prescribed by Ind AS 109, which permits the use of the lifetime expected loss provision for all trade receivables. The Company has computed expected credit losses based on a provision matrix which uses historical credit loss experience of the Company and individual receivable specific provision where applicable.
The Company has not recorded any impairment of receivables relating to amounts owed by related parties for years ended March 2019 and March 2018 because it has evaluated their credit risk as low considering the financial stability of the ultimate parent.
Liquidity Risk
(i) Liquidity risk management
Company manages the day-to-day operations and liquidity position. The Company has been consistently on a net cash position, having restricted its long term liabilities to minimal. Investments are made only in high rated debt-oriented mutual funds to ensure quick access withdrawal in order to meet urgent fund requirements. The Company enjoys favourable ratings and risk profile with its bankers, giving it access to credit from the bank, if needed. The Treasury team also manages liquidity by continuous monitoring of the actual and forecasted cash flows.
(ii) Maturities of financial liabilities
The following tables detail the Company's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The amount disclosed in 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. The contractual maturity is based on the earliest date on which the Company may be required to pay.
Market Risk
The Company faces two types of market risks: price risk pertaining to investments in mutual funds and currency risk due to exposure to exchange fluctuations for transactions undertaken in foreign currency. The exposure to price risk is limited since its investments are mainly maintained in high rated, consistently performing, debt-oriented mutual funds. Currency exposure is restricted to a small value of imports and exports in widely traded and less volatile currencies.
There has been no significant changes to the Company's exposure to market risk or the methods in which they are managed or measured.
Currency Risk
The Company's exposure in foreign currency is limited, however, it is exposed to foreign exchange risks arising from import and export of goods and services. Foreign exchange risk arises from recognised assets and liabilities, when they are denominated in a currency other than India Rupee. The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities all of which are unhedged at the end of the reporting period are as follows:
Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in USD and BDT exchange rates, with all other variables held constant. The impact of sensitivity of foreign currency fluctuations on the Company's profit before tax is due to changes in the fair value of monetary assets and liabilities. The Company's exposure to foreign currency changes for all other currencies is not material.
3 Employee benefits
a. Defined contribution plan
During the year ended 31st March, 2019 an amount of Rs. 3.16 crores have been recognized in the Statement of Profit or Loss under the head Employee Benefits Expense towards Company's contribution to Provident Fund and Superannuation Fund (previous year Rs. 3.02 crores).
b. Defined benefit plans :
(i) Gratuity
The Company participates in a group gratuity cum life insurance scheme administered by a life insurance company. Being a defined benefit plan, annual contributions made to the scheme are as per the intimations received from the life insurance company. The Company accounts for liability for future gratuity benefits based on an actuarial valuation by an independent actuary. The net present value of the Company's obligation is determined based on the projected unit credit method as at the Balance Sheet date. Shortfall if any, between the balance in the fund with life insurance company and the actuarial valuation is expensed to the statement of profit and loss.
Through its defined benefit plans the Company is exposed to a number of risks, the most significant of which are detailed below:
- Interest rate risk
The defined benefit obligation calculated uses a discount rate based on government bonds. If bond yields fall, the defined benefit obligation will tend to increase.
- Salary inflation risk
Higher than expected increases in salaries will increase the defined benefit obligations of the Company
- Demographic risk
This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase, discount rate and vesting criteria.
- Investment risk
The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to the market yields on government bonds denominated in Indian Rupees. If the actual return on plan asset is below this rate, it will create a plan deficit.
The most recent actuarial valuation of the plan assets and the present value of defined benefit obligation were carried out as at 31st March, 2019 by independent actuary. The present value of the defined obligation and the related current service cost and past service cost were measured using the projected unit credit method. The significant actuarial assumptions used for the purposes of the actuarial valuations were as follows:
The above sensitivity analyses are 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 (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the Balance sheet.
The methods and types of assumptions used in preparing the sensitivity analyses did not change compared to previous period.
The weighted average duration of the defined benefit obligation as at 31st March, 2019 is 8 years (previous year 10 years)
The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the fund during the estimated term of obligation.
The estimate of future salary increases, considered in actuarial valuation, takes account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
(ii) Compensated absences :
The liability towards compensated absences (earned leave and sick leave) for the year ended 31st March, 2019 based on actuarial valuation carried out by using projected cost benefit method resulted in decrease in liability by Rs. 0.41 crores (previous year decrease in liability by Rs. 1.80 crores).
4 Leases
Operating leases where Company is a lessee:
The Company has entered into lease arrangements pertaining to vehicles, office equipments, warehouses and office building. These leases are cancellable or non-cancellable and are executed for a period ranging from 11 to 48 months and may be renewed for further varied periods based on mutual agreement of the parties.
5 Related party transactions :
Names of related parties and description of relationship
A. Ultimate holding company
Bayer AG
B. Intermediate holding company
Monsanto Company, USA
C. Holding company:
Monsanto Investments India Private Limited
D. Fellow subsidiaries:
Monsanto Holdings Private Limited,
Monsanto Pakistan Agritech (Pvt) Ltd,
Monsanto Singapore Co Pte Ltd,
Beijing New Millenium Ltd,
Monsanto Europe SAS,
Monsanto SAS France,
Monsanto International S.A.R.L.,
Monsanto Ag Product LLC,
Seminis Vegetable Seeds Inc.,
Monsanto Nigeria,
Mahyco Monsanto Biotech (I) Pvt. Ltd.,
Sem y Agro Monsanto and City Guadalajara, Jalisco,
Monsanto South Africa Ltd.
Monsanto Australia Limited Seminis Seeds (Beijing) Co. Ltd Bayer CropScience Ltd.
E. Key managerial personnel :
Mr. Sekhar Natarajan, Chairman, Non-executive director
Ms. Shilpa Shridhar Divekar, Managing director (upto 21st September, 2018)
Ms. Shilpa Shridhar Divekar, Non-executive director (w.e.f. 22nd September, 2018) Mr. Ravishankar Cherukuri, Managing Director (w.e.f. 22nd September, 2018)
Mr. Pradeep Poddar, Independent and Non-executive Director Mr. H C Asher, Independent and Non-executive Director Mr. Bangla Bose, Non-executive Director
Ms. Aarti Sathe, Independent and Non-executive Director (w.e.f. 1st April, 2019)
There were no transfers between level 1 and level 2 for recurring fair value measurements during the year. Fair value of financial assets and financial liabilities that are not measured at fair value
a) Financial assets measured at amortised cost
The carrying amounts of trade receivables, cash and cash equivalents and other bank balances, short-term loans and advances and security deposits are considered to approximate their fair values due to their short-term nature. The carrying amounts of long term security deposits given are considered to approximate their fair value.
b) Financial liabilities measured at amortised cost
The carrying amounts of trade payables, payables for capital expenditure and security deposit received from customers are considered to approximate their fair values due to their short-term nature.
6. Contingent liability and commitments
a. Contingent liabilities (to the extent not provided for)
c. The Company has consistently maintained a position that its income from agricultural activities (which involves growing seeds in various Indian states through local growers under its supervision and instructions) is not taxable. This contention has been upheld by the Honorable Bombay High Court for the Assessment Years 1993-94 to 2001-02 and Assessment Years 2003-04 to 2005-06 in August 2011. Further, during FY 2018-19, Hon'ble Bombay High Court upheld Company's contention for Assessment Years 2006-07 to 2008-09 as well.
The income tax authorities have filed special leave petitions before the Honourable Supreme Court against Honorable Bombay High Court's order for Assessment Years 1993-94 to 2001-02 and 2003-04 to 2005-06 and the same have been admitted by the Honourable Supreme Court. The matter has been listed for final hearing before Hon'ble Supreme Court.
Further, income-tax department is expected to file special leave petition for recent Hon'ble Bombay High Court orders for Assessment Years 2006-07 to 2008-09 as well. As of date, the Company has not been served with copies of special leave petitions for said years
7. Corporate Social Responsibility
a. Gross amount required to be spent by the Company towards Corporate Social Responsibility is Rs. 2.96 crores (Previous Year Rs. 2.66 crores).
b. Details of amount spent are as under : --
8. Segment reporting
The Company's operations predominantly relate to production and sale of agricultural inputs, namely chemical and hybrid seeds. The Chief Operating Decision Maker (CODM) reviews the operations of the Company as one operating segment. Hence no separate segment information has been furnished herewith.
9. Disclosure under Micro, Small and Medium Enterprises Development Act, 2006 (MSMED)
The disclosures under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) have been made to the extent such parties have been identified on the basis of information collected by the management regarding their status under the said act;
10. Changes in accounting policies
Effective 1st April, 2018, the Company adopted Ind AS 115 "Revenue from Contracts with Customers" using the cumulative catchup transition method. In accordance with the cumulative catch-up transition method, the comparatives have not been restated and continues to be reported as per Ind AS 18.
The details of significant changes and quantitative impact of the changes on the financial statements are set out below:
Sales return and discounts/incentives:
The Company recognises revenue when the goods are dispatched from the Company's premises. Revenue is recognized net of actual sales returns and discounts/incentives. The amount of revenue recognised is further adjusted for estimated sales returns and discounts/incentives. The said estimates are based on the historical experience, market assessment and various discount/ incentive programs launched in the market. The Company previously netted of accrual made towards sales return and discounts against trade receivables whereas accrual for incentive programs was recognised under Provisions. Under Ind AS 115, a liability/ accrual for estimated sales returns and discounts/ incentives towards customer is recognised in Other current liability.
b. Statement of Profit and Loss:
There is no impact on the Statement of Profit and Loss on account of adoption of Ind AS 115, hence no disclosure is made.
11. Note on proposed merger of Company with Bayer CropScience Limited
The Board of Directors at its meeting held on 14th November, 2018 approved the Scheme of Amalgamation of Monsanto India Limited (MIL) with Bayer CropScience Limited (BCSL) and their respective shareholders under Section 230 and 232 of the Companies Act, 2013 and other applicable provision, if any. In consideration of the amalgamation BCSL will issue and allot 2 (two) equity shares of Rs. 10/- each credited as fully paid-up of BCSL, for every 3 (three) equity shares of Rs. 10/- each in MIL to the shareholders of MIL whose names are recorded in the register of members on the record date. The Scheme is subject to various regulatory and other approvals.
12. Approval of financial statements
The Financial Statements of Monsanto India Limited were approved by the Board of Directors and authorised for issue on 30th April, 2019.
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