Notes: Nature and Purpose of Reserves
a) Capital Reserve : The company has created capital reserves out of merger approval of Kenson Manufacture Pvt Ltd. Capital Reserves are created during business combination on account of merger of Kenson Manufacture Private Limited in the year ended 31st March, 2013
b) Capital Redemption Reserve : These reserves are created by way of buyback of shares by the Company in the year ended 31st March, 2017. This reserve will be utilised in accordance with Section 69 of The Companies Act, 2013.
c) Stock outstanding account: The Company has share option scheme under which option to subscribe for the Company's share have been granted to certain employees. These reserves are used to recognise the value of such equity settled share based payments.
d) Effective portion of cash flow hedges: The Company has designated cross currency swap as cash flow hedge and any effective portion of cash flow hedge is maintained in the said reserve. In case hedging becomes ineffective the amount is recognised in statement of Profit and Loss.
e) Securities Premium : These reserves represent premium on issue of shares and can be utilised in accordance with Section 52 of The Companies Act, 2013.
f) Retained Earnings: These reserves are created by the company for net profits earned after reducing all appropriations and transfers.
The accompanying notes form an integral part of the financial statements.
f. Terms and rights attached to equity shares
The company has only one class of equity shares having a face value of Rs 10/- per share. Each shareholder is eligible for one vote per share held.In case of liquidation, the equity shareholders are eligible to receive the remaining assets of the company after distribution of all preferential amounts, in proportion to their shareholding.
2) For the year ended 31.03.2022, Secured by first pari passu Charge on present & future Current Assets of the company
3) All charges are registered with ROC within statutory period by the company during the year ended 31.03.2023.
4) All charges are registered with ROC within statutory period by the company during the year ended 31.03.2022.
Capital Management (Ind AS 1):
The Capital management objective of the Company is to:
i) maximise shareholder value and provide benefits to other stakeholders and,
ii) maintain an optimal capital structure to reduce the cost of capital.
The capital structure of the Company consists of issued capital, share premium and all other equity reserves attributable to the equity holders. The company's risk management committee reviews the capital structure of the company. The Company monitors capital using debt-equity ratio, which is debt divided by equity.
In addition the Company has financial covenants relating to the borrowing facilities that it has taken from the lenders like interest coverage service ratio, Debt to Equity Ratio, etc. which is maintained by the Company.
! Financial Risk Management Objectives (Ind AS 107)
The Company's principal financial liabilities, other than derivatives, comprises of borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Company's operations. The company's principal financial assets, other than derivatives include trade and other receivables, investments and cash and cash equivalents that derive directly from its operations.
The Company's activities expose it to market risk, liquidity risk and credit risk. The Company's overall risk management focuses on the unpredictability of financial markets and seek to minimise potential adverse effects on the financial performance of the Company. The company uses derivative financial instruments, such as foreign exchange forward contracts, cross currency swaps that are entered to hedge foreign currency risk exposure and hedge interest rate exposure. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.
The Company has policies, procedures and authorisation matrix for utilisation of funds, which ensures deployment of fund in prudent manner and the availability of funding through an adequate amount of credit facilities to meet obligation when due. The Company on periodical basis reviews implementation and execution of above policies.
A. Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments and deposits, foreign currency receivables, payables and borrowings.
1) Foreign Currency risk
Foreign currency risk is the risk of impact related to fair value or future cash flows of an exposure in foreign currency, which fluctuate due to changes in foreign exchange rates. The Company's exposure to the risk of changes in foreign exchange rates relates primarily to import of raw materials, capital expenditure and exports. When a derivative is entered for the purpose of being a hedge, the Company negotiates the terms of those derivatives to match the terms of the hedged exposure.
The Company evaluates exchange rate exposure arising from foreign currency transactions. The Company follows established risk management policies and procedures. It uses derivative instruments like foreign currency forwards and cross currency swaps to hedge exposure to foreign currency risk.
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's exposure to the risk of changes in market interest rates relates primarily to the company's term loans and short term borrowing with floating interest rate. For foreign currency loan with floating rate, the risk of variation in interest rate is mitigated through cross currency swap. The company constantly monitors the credit markets and rebalances its financing strategies to achieve an optimal maturity profile and financing cost.
Cash Flow Hedges
In the earlier years, the Company had raised foreign currency external commercial borrowings and to mitigate the risk of foreign currency and floating interest rates the Company had taken Cross Currency Swaps. There is no outstanding foreign external commercial borrowings as at 31st March, 2023 and 31st March, 2022. The Company had followed hedge accounting for the foreign currency borrowings raised based on qualitative approach.
The Company had assessed the hedge effectiveness based on following criteria:
(i) an economic relationship between the hedged item and the hedging instrument;
(ii) the effect of credit risk; and
(iii) assessment of the hedge ratio
The Company had designated the Cross currency swaps to hedge its currency risk and interest rate risk and applied a hedge ratio 1:1.
3) Commodity Price Risk
Commodity price risk for the Company is mainly related to fluctuations in raw material prices linked to various external factors, which can affect the production cost of the Company. To manage this risk, the Company monitors factors affecting prices, identifies new sources of supply of raw material, monitors inventory level, etc.
B. Credit Risk Management
Credit risk arises when a customer or counterparty does 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) and from its financing / investing activities, including deposits with banks, foreign exchange transactions and financial guarantees. The Company has no significant concentration of credit risk with any counterparty.
Trade Receivable
Trade receivables are consisting of a large number of customers / distributors. The Company has credit evaluation policy for each customer / distributor and based on the evaluation credit limit of each customer / distributor is defined.
Total trade receivable as on 31st March, 2023 Rs. 4,150.24 million (31st March, 2022 is Rs. 4,346.17 million). There are no customers which account for more than 10% of the company's total revenue from operations for the year ended 31st March, 2023 and 31st March, 2022.
As per simplified approach, the Company makes provision of expected credit losses on trade receivables using a provision matrix to mitigate the risk of default payments and makes appropriate provision at each reporting date wherever outstanding is for longer period and involves higher risk. The policy for creating provision for credit losses on trade receivables is as per following provision matrix:-
Investments, Derivative Instruments, Cash and Cash Equivalent and Bank Deposit:
Credit Risk on cash and cash equivalent, deposits with the banks / financial institutions is generally low as the said deposits have been made with the banks / financial institutions who have been assigned high credit rating by international and domestic rating agencies.
Credit Risk on Derivative Instruments are generally low as Company enters into the Derivative Contracts with the reputed Banks and Financial Institutions.
C. 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 reasonable price. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of credit facilities to meet obligations when due. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company's liquidity position through rolling forecasts on the basis of expected cash flows.
The table below provides details regarding the remaining contractual maturities of financial liabilities and investments held for managing the risk at the reporting date based on contractual undiscounted payments.
The fair values of the financial assets and Liabilities are included at the amount at which the instrument could be exchanged in an orderly transaction in the principal (or most advantageous) market at measurement date under the current market condition regardless of whether that price is directly observable or estimated using other valuation techniques. The Company has established the following fair value hierarchy that categorises the values into 3 levels. The inputs to valuation techniques used to measure fair value of financial instruments are:
Level 1: This hierarchy uses quoted (unadjusted) prices in active markets for identical assets or liabilities. The fair value of all quoted investments which are traded in the stock exchanges is valued using the closing price or dealer quotations as at the reporting date.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on company specific estimates. Unquoted investments are valued using the closing Net Asset Value. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
The management assessed that cash and bank balances, trade receivables, trade payables, cash credits and other financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate
the fair values:
(a) The fair values of the quoted investments are based on market price/net asset value at the reporting date.
(b) The fair value of unquoted investments is based on closing Net Assets Value.
(c) The fair value of forward foreign exchange contracts is calculated as the present value determined using forward exchange rates and interest rate curve of the respective currencies.
(d) The fair value of currency swap is calculated as the present value determined using forward exchange rates, currency basis spreads between the respective currencies, interest rate curves and an appropriate discount factor.
(e) The fair value of the remaining financial instruments is determined using discounted cash flow analysis. The discount rates used is based on management estimates.
34 Contingent Liability and Commitments not provided for in respect of :
The Company's pending litigations comprise of claims by or against the Company primarily by the workers/employees/ customers/suppliers etc., and proceedings pending with tax and other government authorities. The Company has reviewed its pending litigations and proceedings and has adequately provided for where Provisions are required and disclosed the contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial results. In respect of litigations, where the management assessment of a financial outflow is probable, the Company has made adequate provision in the financial statements and appropriate disclosure for contingent liabilities is given below :
ii) Guarantees
Guarantees given by Banks on behalf of the Company upto Rs. 26.84 million (31st March, 2022 Rs. 56.92 million).
iii) Commitments
Estimated amount of Contracts remaining to be executed on Capital account and not provided for are Rs. 333.19 million (31st March, 2022 Rs. 332.62 million) and Other Commitments Rs. NIL million (31st March, 2022 Rs. 594.30 million)
iv) The Hon'ble Supreme Court of India ("SC") by their order dated February 28, 2019, in the case of Surya Roshani Limited & others v/s EPFO, set out the principles based on which allowances paid to the employees should be identified for inclusion in basic wages for the purposes of computation of Provident Fund contribution. Pending directions or clarification from the EPFO, the quantification of impact, if any, is not ascertainable and consequently no effect has been given in the accounts.
35 Employee Benefits
The disclosures required under IND AS 19 " Employee Benefits" are given below :
A Defined Contribution Plans:
Amount recognized as an expense and included in Note 28 under the head "Contribution to Provident and other Funds" of Statement of Profit and Loss Rs. 43.73 million (31st March, 2022 Rs. 35.85 million).
B Defined Benefit Plans:Gratuity:
The Company operates a defined benefit plan covering eligible employees, which provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employees salary and the tenure of employment. The Gratuity scheme of the company is funded for certain employees and non funded for the remaining employees.
Compensated Absences :
The Company allows privilege leave and sick leave to its employees. Privilege leave and sick leave are accumulated and can be availed during the period of employment or encashed in case of privilege leave at the time of resignation, retirement or termination of employment.
xi) Expected rate of return on Plan Assets is based on expectation of the average Long term rate of return expected on investments of the fund during the estimated term of the obligations.
xii) The estimates of future salary increases are considered taking into account inflation, seniority, promotion and other relevant factors.
xiii) Asset Liability matching strategy:
The money contributed by the Company to the Gratuity fund to finance the liabilities of the plan has to be invested for funded gratuity plan. The Company has outsourced the investment management of the fund to an Insurance Company. The Insurance Company in turn manages these funds as per the permissible limits prescribed in the insurance regulation. Due to the restriction in the type of investment that can be held by the fund,it is not possible to explicitly follow an asset libility matching strategy. There is no compulsion on the part of the Company to fully prefund the liability of the Plan.
xiv) The Company's expected contribution during next year is Rs. NIL (31st March, 2022 of Rs. NIL).
Key Managerial Personnel and their Relatives who are under the employment of the Company are entitled to post employment benefits as per Ind AS 19 - 'Employee Benefits' in the financial statements. As these employee benefits are lump sum amounts provided on the basis of actuarial valuation, the same is not included above.
All transactions entered into with related parties during the year were on arm's length basis, in the ordinary course of business.
List of Related Parties and transactions have been identified by the management and relied upon by the Auditors.
37 Share Based Payments (Ind AS 102)
The Company has granted 900,158 options to its eligible employees in various ESOP Schemes, details are as under:
i) No of Option granted will be 900,158
ii) Exercise price of options will be Rs.200/- per share
The Company is primarily engaged in manufacturing and selling of PVC, CPVC, PPR and HDPE Pipes and Fittings in India. As per Ind AS 108 "Operating Segments", specified under Section 133 of the Companies Act, 2013, there are no reportable operating or geographical segments applicable to the Company. Further, during the year as well as the previous year, Revenue from sale of products outside India is insignificant and hence, separate disclosure is not given. No Single customer represents 10% or more of the Company's total Revenue for the year ended 31st March 2023 and year ended 31st March 2022
Disclosure pertaining to Ind AS 116 Lease is as under
The Company has applied a single discount rate to a portfolio of leases with reasonably similar characteristics. The Company has treated the leases with remaining lease term of less than 12 months as if they were "short term leases". The Company has not applied the requirements of Ind AS 116 for leases of low value assets.
Revenue (IND AS 115)a. Revenue From manufacturing and trading activities
The Company is primarily in the Business of manufacture and sale of plastic pipes and fittings. AH sales are made at a point in time and revenue from contract with customer are recognised when goods are dispatched and the control over the goods sold are transferred to customers. The Company does not expect to have any contracts where the period between the transfer of goods and payment by customer exceeds one year. Hence, the Company does not adjust revenue for the time value of money.
In compliance with Ind AS 115, discounts and incentives provided to customers are now treated as variable components of consideration and have been recognised as revenue deductions instead of other expenses. Such discount were recognized as deduction from revenue in previous period also.
The Contract liability outstanding at the beginning of the year has been recognised as revenue during the year ended 31st March, 2023.
b. Revenue from Turn-key Contract
The state of Andhra Pradesh has assigned three Villages (Kandulavaripalle, Venkata Chalam & Aman Charla) to the Company for under-ground Drainage system and similar projects in other states. The Company recognises revenue to the extent of transaction price allocated to the performance obligation satisfied. The Company measures the progress using the Output method and the satisfaction of performance obligation is measured based on the achievement of milestone as per the terms of contract. Pending acknowledgement from the state of Andhra Pradesh, revenue to the extent of Rs 19.50 million (P.Y. Rs 41.04 million) (gross) is not recognised and corresponding cost incurred is carried forward under contract assets.
48 Compliance with number of layers of companies
The Company does not have any subsidiary company accordingly compliance with the number of Layers prescribed under clause (87) of section 2 of the Act read with Companies (Restriction on number of Layers) Rules, 2017 does not arise.
49 Utilisation of borrowed funds
The Company has not advanced any funds or loaned or invested by the Company to or in any other person(s) or entities, including foreign entities ("Intermediaries"), with the understanding that the intermediary shall whether directly or indirectly lend or invest in other persons or entities identified in any manner by or on behalf of the Company (Ultimate Beneficiaries) or provide any guarantee, security or the like on behalf of ultimate beneficiaries.
The Company has not received any funds from any person(s) or entities including foreign entities ("Funding Parties") with the understanding that such Company shall whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (ultimate beneficiaries) or provide guarantee, security or the like on behalf of the Ultimate beneficiaries.
50 Relationship with struck off companies
The Company does not have any transaction with companies struck off under section 248 of Companies Act, 2013 or section 560 of Companies Act, 1956 and hence no disclosure is required.
51 Compliance with approved Scheme(s) of Arrangements
The Company has not entered into any scheme of arrangements in terms of sections 230 to 237 of the Companies Act, 2013.
52 Wilful defaulter
As on 31st March, 2023 the Company has not been declared wilful defaulter by any bank/financial institution or other lender.
53 Ratios
The following are analytical ratios for the year ended 31st March, 2023 and 31st March, 2022
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