Corporate information

Federal-Mogul Goetze (India) Limited (‘FMGIL’ or ‘the Company’), is inter-alia engaged mainly in the manufacture, supply and distribution of ‘automotive components’ used in two/three/four wheeler automobiles.

The principal facilities of the Company are located at Patiala (Punjab), Bengaluru (Karnataka) and Bhiwadi (Rajasthan), with its registered office in Delhi. The Company is listed at National Stock Exchange of India Limited and Bombay Stock Exchange.

Federal Mogul Holdings Limited, Mauritius, is the immediate parent company and ultimate parent company is Federal Mogul LLC, USA.

1. Statement of significant accounting policies

1.1 Statement of compliance with Ind AS

These financial statements (‘financial statements’) of the Company have been prepared in accordance with the Indian Accounting Standards (hereinafter referred to as the ‘Ind AS’) as notified by Ministry of Corporate Affairs (‘MCA’) under section 133 of the Companies Act 2013 read with the Companies (Indian Accounting Standards) Rules 2015, as amended and other relevant provisions of the Act. The Company has uniformly applied the accounting policies during the periods presented.

For all periods up to and including the year ended 31 March 2017, the Company had prepared its financial statements in accordance with accounting standards notified under section 133 of the Act, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP). These financial statements for the year ended 31 March 2018 are the first financial statements which the Company has prepared in accordance with Ind AS (see note 32 for explanation for transition to Ind AS). For the purpose of comparatives, financial statements for the year ended 31 March 2017 and opening balance sheet as at 1 April 2016 are also prepared as per Ind AS.

The financial statements for the year ended 31 March 2018 were authorized and approved for issue by the Board of Directors on 29th May 2018.

1.2 Recent accounting pronouncement

Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency.

The amendment will come into force from April 1, 2018. The Company has evaluated the effect of this on the financial statements and the impact is not material.

Ind AS 115- Revenue from Contract with Customers: On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is 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 new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.

The standard permits two possible methods of transition:

- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors

- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach)

The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1, 2018. The Company will adopt the standard on April 1, 2018 by using the cumulative catch-up transition method and accordingly comparatives for the year ending or ended March 31, 2018 will not be retrospectively adjusted. The effect on adoption of Ind AS 115 is expected to be insignificant.

1 A) Indian rupee loan amounting to Rs 2,000 lacs from Yes Bank in two tranches of Rs 1,000 lacs each taken on 31 May 2013 and 28 June 2013 respectively carried interest @ 11.70% p.a. Both tranches are repayable in 36 equal monthly installments of Rs. 27.77 lacs each along with interest after moratorium period of 12 months from the date of the disbursement of loan, viz., 31 May 2014 and 28 June 2014 respectively. The loan was secured by first parri passu charge on moveable assets of the Company including plant and machinery, spares, tools and accessories, furniture and fixtures and other moveable assets of the Company, excluding vehicles.

B) Indian rupee loan amounting to Rs 4,000 lacs from Yes Bank in two tranches of Rs 2,000 lacs each taken on 22 Dec 2015 and 31 Dec 2015 respectively carries interest @ 10.40% p.a. Both tranches are repayable in 36 equal monthly installments of Rs. 55.55 lacs each along with interest after a moratorium period of 12 months from the date of the disbursement of loan, viz., 22 Dec 2016 and 31 Dec 2016 respectively. The loan is secured by first parri passu charge on moveable assets of the Company including plant and machinery, spares, tools and accessories, furniture and fixtures and other moveable assets of the Company, excluding vehicles.

C) In May 2017, the company had repaid all of its term loans amounting to Rs 3,555 lacs and there is no such term loan exists as on 31st March 2018.

2. Current maturities of long term borrowings amounting to Rs. Nil as on 31 March 2018 (Rs. 1,388.89 lacs as on 31 March 2017 and Rs. 1,000 lacs as on 1 April 2016) are included under the head ‘Other financial liabilities’. (refer Note no.19).

Note (a)

(i) Indian rupees working capital loans and cash credit facilities are secured against hypothecation of current assets of the company, both present and future with HDFC bank, Yes Bank, Kotak Mahindra Bank, State Bank of India and Deutsche Bank.

(ii) Cash credit facilities carries interest rate ranges from 9% to 11.80% p.a.

(iii) Details of working capital loans:

Note (b): Inter-corporate deposits are repayable on demand and carry rate of interest ranging from 8.50 % to 9.50% p.a. (31 March 2017, 9.50% p.a.) (1 April 2016, 9.50% p.a.)

Note (c): Balance as on 31 March 2018 includes unsecured cash credit facility from Bank of America which carries interest rate @ 7.75%. Balance as on 31 March 2017 includes Export Packing Credit Loan from Bank of America of Rs.1,979.74 lacs at interest rate of 5% p.a., repayable in May, 2017. Balance as on 1 April 2016 includes unsecured loan from HDFC of Rs. 2,000 lacs carriying interest rate of 9.8% p.a, repayable in April, 2016. Also, Company also took an Export Packing Credit Loan for Rs 2,009.92 lacs from Bank of America at interest rate of 6.25% p.a., repayable in May, 2016.

3. First Time Adoption of Ind AS Transition to Ind AS

These standalone financial statements, for the year ended March 31, 2018, are the first financial statements the Company has prepared in accordance with Ind AS. For the periods upto March 31, 2017, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and Amendment thereof (‘Indian GAAP’ or ‘previous GAAP’).

Accordingly, the Company has prepared standalone financial statements which comply with Ind AS applicable for the year ended March 31, 2018, together with the comparative period data as at and for the year ended March 31, 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at April 1, 2016, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 1, 2016 and the financial statements as at and for the year ended March 31, 2017.

A. Exemptions and exceptions applied

Ind AS 101 allows first-time adopters certain optional exemptions and mandatory exceptions from the retrospective application of certain requirements under Ind AS.

Ind AS optional exemptions A.1.1 Deemed cost- Previous GAAP carrying amount: (Property, plant and equipments and Intangible Assets)

The Company has elected to avail exemption under Ind AS 101 to use previous GAAP carrying value as deemed cost at the date of transition for all items of property, plant and equipment and intangible assets as per the balance sheet prepared in accordance with previous GAAP.

A.1.2 Investment in Subsidary

In separate financial statements, a first-time adopter that subsequently measures an investment in a subsidiary at cost, may measure such investment at cost (determined in accordance with Ind AS 27) or deemed cost (fair value or previous GAAP carrying amount) in its separate opening Ind AS balance sheet.

The Company has elected to apply previous GAAP carrying amount of its investment in subsidiary for investment in equity shares of one of its subsidiary as at April 1, 2016 as deemed cost on the date of transition to Ind AS Ind AS mandatory exceptions A.1.3 Estimates

The estimates as at April 1, 2016 and as at March 31, 2017 are consistent with those made for the same dates in accordance with Indian GAAP apart from the Impairment of financial assets based on Expected Credit Loss (ECL) model where application of Indian GAAP did not require estimation.

The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions as at April 1, 2016 the date of transition to Ind AS, and as of March 31, 2017

A.1.4 Classification and measurement of financial assets

The Company has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.

B. Reconciliations between previous GAAP and Ind AS

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS:

Note-1. Environment health safety provision

Under IND-AS, non current provision for Environment, health and Saftey are recorded amortised cost. The amount of a provision is discounted to present value based on the interest cost determined by management equal to its interest cost of borrowing of the Company.

Note-2. Depreciation on leasehold land

Under Ind AS, amortisation of leasehold land has been recorded over the period of lease.

Note-3. Deferred tax impact on adjustments

Under Previous GAAP deferred taxes were recognised for the tax effect of timing differences between accounting profit and taxable profit for the year using the income statement approach. Under Ind AS, deferred taxes are recognised using the balance sheet for future tax consequences of temporary differences between the carrying value of assets and liabilities and their respective tax bases. The above difference, together with the consequential tax impact of the other Ind AS transitional adjustments lead to temporary differences. Deferred tax adjustments are recognised in correlation to the underlying transaction either in retained earnings or through profit and loss account or other comprehensive income.

Note-4. Other comprehensive income

Items of income and expense that are not recognised in profit and loss are shown in the statement of profit and loss as ‘other comprehensive income’ includes re-measurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP Note-5. Cash flow statement

The transition from previous GAAP to Ind AS has no material impact on the standalone cash flow of the Company.

4. Fair value disclosures

i) Fair values hierarchy

Financial assets and financial liabilities measured at fair value in the statement of financial position are classified into three Levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:

Level 1: quoted prices (unadjusted) in active markets for financial instruments.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data rely as little as possible on entity specific estimates.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

(ii) Company has only one investment carried at fair value through profit and loss account. The fair value of investment in GI Power Corporation Limited is determined to be zero. There are no other financial assets or liabilities carried at fair value.

(iii) Fair value of instruments measured at amortised cost

The management assessed that cash and cash equivalents, trade receivables, other receivables, trade payables and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is included 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 fair values of loans, security deposits, borrowings and other financial assets and liabilities are considered to be the same as their fair values, as there is an immaterial change in the lending rates.

““Investment in equity instrument of subsidiary has been accounted at cost in accordance with Ind AS 27, therefore not within scope of Ind AS 109, hence, not included here.

** The company has an investment in GI Power Corporation Limited which is carried at fair value which is equivalent to zero.

ii) Risk Management

The Company’s activities expose it to market risk, liquidity risk and credit risk. The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial statements.

A. Credit risk

Credit risk is the risk that a counterparty fails to discharge an obligation to the company. The Company is exposed to this risk for various financial instruments, for example by granting loans and receivables to customers, placing deposits, etc. The Company’s maximum exposure to credit risk is limited to the carrying amount of following types of financial assets.

- cash and cash equivalents,

- trade receivables,

- loans & receivables carried at amortised cost, and

- deposits with banks

a) Credit risk management

The Company assesses and manages credit risk based on internal credit rating system, continuously monitoring defaults of customers and other counterparties, identified either individually or by the company, and incorporates this information into its credit risk controls. Internal credit rating is performed for each class of financial instruments with different characteristics. The Company assigns the following credit ratings to each class of financial assets based on the assumptions, inputs and factors specific to the class of financial assets.

A: Low B: Medium C: High

Cash and cash equivalents and bank deposits

Credit risk related to cash and cash equivalents and bank deposits is managed by only accepting highly rated banks and diversifying bank deposits and accounts in different banks across the country.

Trade receivables

The Company closely monitors the credit-worthiness of the debtors through internal systems that are configured to define credit limits of customers, thereby, limiting the credit risk to pre-calculated amounts. The Company assesses increase in credit risk on an ongoing basis for amounts receivable that become past due and default is considered to have occurred when amounts receivable become six months past due.

Other financial assets measured at amortised cost

Other financial assets measured at amortized cost includes loans and advances to employees, security deposits and others. Credit risk related to these other financial assets is managed by monitoring the recoverability of such amounts continuously, while at the same time internal control system in place ensure the amounts are within defined limits.

b) Expected credit losses

The Company provides for expected credit losses based on the following:

The company recognizes lifetime expected credit losses on trade receivables using a simplified approach, wherein Company has defined percentage of provision by ‘analysing historical trend of default based on the criteria defined above. And such provision percentage determined have been ‘considered to recognise life time expected credit losses on trade receivables.

B) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the nature of the business, the Company maintains flexibility in funding by maintaining availability under committed facilities.

Management monitors rolling forecasts of the Company’s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates. In addition, the Company’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

Maturities of financial liabilities

The tables below analyses the Company’s financial liabilities into relevant maturity companyings based on their contractual maturities for all non-derivative financial liabilities.

The amounts disclosed in the table are the contractual undiscounted cash flows. For balances due within 12 months amounts equal their carrying values as the impact of discounting is not significant.

C) Market Risk

a) Foreign currency risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the US Dollar, Euro and Japanese Yen. Foreign exchange risk arises from recognised assets and liabilities denominated in a currency that is not the functional currency of any of the Company. Considering the low volume of foreign currency transactions, the Company’s exposure to foreign currency risk is limited and the Company hence does not use any derivative instruments to manage its exposure. Also, the Company does not use forward contracts and swaps for speculative purposes.

(i) Foreign currency risk exposure:

The Companys exposure to foreign currency risk at the end of the reporting period expressed in Rs., are as follows:-

b) Interest rate risk

i) Liabilities

The Company’s policy is to minimise interest rate cash flow risk exposures on long-term financing. As at 31 March 2018, the Company is exposed to changes in market interest rates through bank borrowings at variable interest rates. The Company’s investments in fixed deposits pay fixed interest rates.

Interest rate risk exposure

Below is the overall exposure of the Company to interest rate risk:

ii) Assets

The Company’s fixed deposits are carried at amortised cost and are fixed rate deposits. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

c) Price risk

The Company does not have any significant investments in equity instruments which create an exposure to price risk.

35. Capital management

The Company’ s capital management objectives are

- to ensure the Company’s ability to continue as a going concern

- to provide an adequate return to shareholders

The Company monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of balance sheet.

Management assesses the Company’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Company’s various classes of debt. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

5. Segment information

As the Company’s business activities fall within a single primary business segment viz. auto components for automobile industry, the disclosure requirement of Indian Accounting Standard (Ind AS-108), Operating Segments is not applicable.

The analysis of geographical segment is based on the geographical location of the customers. The following table shows the distribution of the Company’s consolidated sales by geographical market, regardless of where the goods were produced.

Revenue from one customer amounts to Rs. 13,437.40 Lacs (previous year Rs. Nil). No other single customer represents 10% or more to the Group revenue for financial year ended March 31, 2018 and March 31, 2017.

6. Related Party Transactions

(i) In accordance with the requirement of Indian Accounting Standard (Ind AS - 24) on related party disclosures where control exist and description of the relationship are as follows:

(a) Name of Parties where control exists

i) Holding Company

- Federal Mogul Holdings Limited (Mauritius)

ii) Subsidiary Company

- Federal-Mogul TPR (India) Limited

iii) Ultimate Holding Company

- Federal Mogul LLC, USA

(b) Key managerial personnel

- Mr. Vinod Kumar Hans, Whole Time Managing Director

- Mr. Manish Chadha, Chief Finance Officer & Finance Director

- Mr. Rajesh Sinha, Additional Director

- Mr. Khalid Iqbal Khan, Whole Time Director- Legal and Company Secretary

- Mr. Krishnamurthy Naga Subramaniam, Non-executive Director

- Mr. Mukul Gupta, Non-executive Director

- Mr. Sundareshan Kanakku Chembakaraman Pillai, Non-executive Director (appointed w.e.f 16th Dec 2016)

- Mr. Mahendra Kumar Goyal, Non-executive Director

(c)Fellow and step fellow subsidiaries

- Federal Mogul Burscheid GMBH, Germany

- Federal Mogul Nurnberg, GMBH (Germany)

- Federal Mogul Holding Deutschland (Germany)

- Federal Mogul Limited (U.K.)

- Federal Mogul Financial Services FRANCTNL (France)

- Federal Mogul Gorzyce, S.A. (Poland)

- Federal Mogul Friedberg, GMBH (Germany)

- Federal Mogul Sintered Products Limited. (U.K.)

- Federal Mogul Friction Products Limited (Thailand)

- Federal Mogul Thailand Manufacturina Ayutthaya, (Thailand)

- Federal Mogul France, S.A. (France)

- Federal Mogul Corporation, Garennes (France)

- Federal Mogul (Shanghai)

- Federal Mogul Friction Products Limited

- Federal Mogul Worldwide Aftermarket

- Federal Mogul Sistemas Brazil

- Federal Mogul Dongsuh Piston Co. Limited. (China)

- Federal Mogul Bradford Limited.

- Federal Mogul Powertrain Spara, MII

- Federal Mogul KK Yokohama

- Federal Mogul Powertrain Inc, Southbend

- Federal Mogul Chasseneuil

- Federal Mogul Kontich

- Federal Mogul Anand Bearings India Limited (India)

- Federal-Mogul Ignition Products India Limited (India)

- Federal-Mogul Motorparts Limited. (India)

- Federal-Mogul Powertrain Solutions India Private Limited (India)

- Federal Mogul Anand Sealing India Limited (India)

- Motocare India Private Limited (India)

7. Operating lease

a) Assets taken under operating lease

Office premises taken by the company are on operating leases. The company enter into certain cancellable and non cancellable operating leases arrangement towards office premises.

The details disclosure required by Ind AS-17, Leases is given below:

8. Employee benefit obligations Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of services, gets a gratuity on departure at 15 days basic salary (last drawn) for each completed year of service on terms not less favourable than the provisions of the payment of Gratuity Act, 1972. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summaries the components of net benefit expense recognized in the Statement of Profit and Loss and the funded status and amounts recognized in the balance sheet for the plan.

9. Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

On the basis of confirmation obtained from suppliers who have registered themselves under the Micro, Small and Medium Enterprise Development Act, 2006 (MSMED Act, 2006) and based on the information available with the Company, the following are the details:

10. Expense capitalisation

The Company has capitalized various expenses incurred in the course of construction of self generated assets in accordance with Ind AS 16 - Property, plant and equipments, the details of expenses capitalized for the purpose of construction of self generated assets are as follows:

11. Provision for regulatory matters

The Company is continuosly evaluating processes for regulatory matters at its factories based on more accurate evidences available, a provision, towards costs to be incurred to remediate these matters, of Rs. 367.33 lacs is included under Note no. 15 for provisions which are net of amounts utilized of Rs. 247.38 lacs during the year towards remediation.

In addition to the above, the provision for regulatory matters includes a provision of Rs.1,959.19 lacs towards certain other regulatory matters.

The Company is actively seeking to resolve these actual and potential statutory, taxation, regulatory and contractual obligations. In accordance with requirements of Indian Accounting Standard (Ind AS) 37 on ‘Provisions, Contingent liability and Contingent assets’ issued by the Institute of Chartered Accountants of India, although difficult to quantify based on the complexity of the issues, the Company has accrued amounts corresponding to its best estimate of the costs associated with such regulatory and contractual obligations on the basis of available information and best professional judgment of experts appointed for this exercise.

Based on consultations obtained from the experts in respect of the said matters, in management’s view, no further costs are expected to be incurred for which a provision would be required at this stage and considers the provisions made to be adequate

12. Management support charges

During the financial year 2017-18, the Audit committee in its meeting held on December 6, 2017, had approved increase in management support charges under Cost Allocation Agreement with Federal Mogul Holding Deutschland Gmbh to Rs. 3,776.35 lacs (approx.) per annum, effective July 1, 2017 against the earlier charge of Rs. 580.06 lacs per annum for financial year 201617. The propotionate charge for the full financial year 2017-18 is Rs. 3,016.57 lacs (Previous year 2016-17 Rs.580.06 lacs).

These charges are availment of centralised services pertaining to all the products of the company and, inter-alia, include Technical Support, Operations Management, Applications Engineering, Global Executive Management Services, Purchasing, Key Accounts Sales Management. This charge is based on actual services received by the company on cost basis without any mark up and is at an arm’s length basis.

13. Per transfer pricing legislation under sections 92-92F of the Income Tax Act, 1961, the Company is required to use certain specific methods in computing arm’s length prices of international transactions with associated enterprises and maintain adequate documentation in this respect. Since law requires existence of such information and documentation to be contemporaneous in nature, the Company has appointed independent consultants for conducting a Transfer Pricing Study (the ‘Study’) to determine whether the transactions with associate enterprises undertaken during the financial year are on an “arms length basis”. Management is of the opinion that the Company’s international transactions are at arm’s length and that the results of the ongoing study will not have any impact on the financial statements and the independent consultants appointed have also preliminarily confirmed that they do not expect any transfer pricing adjustments.

14. Corporate social responsibility

a) Gross amount required to be spent by the Company during the year in compliance with section 135 of the Act is Rs. 155.11 lacs.

b) Amount spent during the year on :-

15. With the implementation of Goods and service tax Act, 2017 (GST), w.e.f 1st July 2017, Revenue from operations for the year ended 31 March 2018 is reported net of GST (from 01 July 2017 till 31 March 2018) and gross of excise duty (from 01 April 2017 till 30 June 2017). However, revenue from operations for the year ended 31 March 2017 is presented in the financial gross of excise duty. Had previously reported revenues were shown net of excise duty, the comparative revenue of the company would have been as follows: