1. Investment in Equity:
The company has equity investment aggregating to Rs.20,877.28 lakhs in Amtec Precision Products Inc., a wholly owned subsidiary. The subsidiary has made net profit during the previous year ended 31st march 2018, based on the audited accounts. It has restructured its loan, improved fund availability and enhanced its operational performance. Accordingly, no provision is considered necessary in respect of diminution in value of investments
2. Windmill Power Generation:
Electricity charges debited to Profit & Loss account is net of Rs.127.85 lakhs (previous year Rs.126.42 lakhs) being the electricity generated through company owned Wind Turbine Generators.
3. Managerial Remuneration:
Managerial Remuneration provided/ paid for the year ended 31st March 2018 based on the approval of the shareholders in the AGM held on 28th September 2017 stands at Rs.259.07 (including a sum of Rs.37.29 lakhs provided and yet to be paid) It is in accordance with the approval of the Central Government dated 12th July,2017.
4. Deferred Tax:
Foreign currency Trade Receivables of INR 2,854.06 lacs and loan receivable of INR 12,337.79 lacs have been written off and deferred tax Asset of INR 3,403 lacs has been recognized in the financials. The management firmly believes that adequate taxable profit would be earned in the years to come other than the reversal of taxable timing differences. The company has been earning profit before tax during a considerable number of its past years. The loss incurred during the year was on account of the aforesaid write-off and accordingly recognized as deferred tax asset.
*FVTPL=> Fair Value Through Profit and Loss
a. Financial Assets and Liabilities not carried at Fair Values:
The management considers that the carrying amount approximates the fair value in respect of financial assets and financial liabilities carried at amortized cost, such fair values have been computed using Level 3 inputs.
b. Assets and Liabilities that are measured at Fair Value on a recurring basis:
Fair Value Hierarchies as per Indian Accounting Standard 114 - Fair Value measurement:
Level 1: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. The asset included in this hierarchy are listed equity shares that are carried at fair value using the closing prices of such instruments as at the close of the reporting period.
Level 2: Level 2 hierarchy uses inputs that are inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. As on the balance sheet date there were no assets or liabilities for which the fair values were determined using Level 2 hierarchy.
Level 3: Level 3 hierarchy uses inputs that are unobservable for determination of fair value. Level 3 inputs were used in determination of fair value of investment in unquoted equity shares.
There were no transfers between fair value hierarchies during the reported years. The company’s policy is to recognize transfers in and transfers out of fair value hierarchy levels as at the end of the reporting period.
5. Financial Assets Risk Management:
The company is exposed to risks in the form of Market Risk, Liquidity Risk and Credit Risk. The risk management policies of the company are monitored by the board of directors. The nature and extent of risks have been disclosed in this note.
a) Market Risk
The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.
i) Currency Risk:
The company has foreign currency receivable and payables denominated in currency other than INR exposing the company to currency risk. The company’s significant foreign currency exposures at the end of the reporting period expressed in INR is as below:
The company is exposed to foreign currency risk as it does not hold any forward contracts for hedging the risk. Any weakening in the functional currency might increase the cost of imports and borrowing cost towards buyer’s credit.
Sensitivity Analysis
The sensitivity of profit or loss and equity to changes in the USD exchange rate arises mainly from foreign currency denominated financial instruments as disclosed above and has been computed in assuming an 5% increase or decrease in the exchange rate:
*Holding all other variable constant. In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
ii) 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 has availed loans at floating interest rate exposing the company to interest rate risk. The company has not hedged its interest rate risk using interest rate swaps and is exposed to the risk. The total exposure of the company to interest rate risk as at the balance sheet date has been disclosed below:
Sensitivity Analysis:
The sensitivity to the changes in the interest rate have been determined by assuming that the amount of liability as at the end of the reporting period was outstanding through out the year. A 50-basis points fluctuation has been used to demonstrate the sensitivity of profit or loss and equity to interest rate holding all other variables constant.
iii) Equity Price Risk:
Investments in equity instruments of the subsidiary companies are not held for trading and are carried at cost, hence are not exposed to equity price risk. The company holds certain investments in equity instruments that are quoted in stock exchanges and such investments are designated as measured at fair value through profit and loss statement exposing the company to equity price risk. Exposure to Equity price risk was INR 194.35 lacs (INR 153.58 lacs).
b) Liquidity Risk:
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The company has obtained fund and non-fund based working capital limits from various bankers which is used to manage the liquidity position and meet obligations on time.
c) Credit Risk:
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The management evaluates the credit risk of individual financial assets at each reporting date. An expected credit loss is recognized if the credit risk has increased significantly since the initial recognition of the financial instrument. In general, the company assumes that there has been a significant increase in credit risk since initial recognition if the amounts are 30 days past due from the initial or extended due date. However, in specific cases the credit risk is not assessed to be significant even if the asset is due beyond a period of 30 days depending on the credit history of the customer with the company and business relation with the customer. A default on a financial asset is when the counter party fails to make contractual payments within 1 year from the date they fall due from the initial or extended due date. The definition of default is adopted given the industry in which the entity operates.
Write off of Financial Assets:
To the extent a financial asset is irrecoverable, it is written off by recognizing an expense in the statement of profit and loss. Such assets are written off after obtaining necessary approvals from appropriate levels of management when it is estimated that there is no realistic probability of recovery and the amount of loss has been determined. Subsequent recoveries, if any of amounts previously written off are recognized as an income in the statement of profit and loss in the period of recovery.
The company considers the following to be indicators of remote possibility of recovery:
a) the counterparty is in continuous default of principal or interest payments
b) the counterparty has filed for bankruptcy
c) the counterparty has been incurring continuous loss during its considerable number its past accounting periods The company assesses changes in the credit risk of a financial instrument taking into consideration ageing of bills outstanding on the reporting date, responsiveness of the counterparty towards requests for payment, forward looking information including macroeconomic information and other party specific information that might come to the notice of the company. In general, it is assumed that the counterparty continues his credit habits in future.
The possibility of recovering the Trade Receivables of INR 2,854.06 lacs and loan receivable of INR 12,337.79 lacs due from its wholly owned subsidiary Amtec Precision Products Inc., were judged to be remote, accordingly these financial assets have been written off and the loss has been disclosed as an exceptional item in the statement of profit and loss. The company has initiated necessary action to secure approvals from the Reserve Bank of India in this regard.
6. Capital Management:
The company manages its capital to ensure the continuation of going concern, to meet the funding requirements and to maximize the return to its equity shareholders. The company is not subject to any capital maintenance requirement by law. Capital budgeting is being carried out by the company at appropriate intervals to ensure availability of capital and optimization of balance between external and internal sources of funding. The capital of the company consists of equity shares and accumulated internal accruals. Changes in the capital have been disclosed with additional details in the Statement of Changes in Equity.
B. Exemptions and Exceptions availed:
The company has applied all the mandatory exceptions and availed certain optional exemptions required/allowed by IndAS 101 - First Time adoption of Indian Accounting Standards.
B.1 IndAS optional Exemptions availed:
B.1.1 Deemed Cost - Property, Plant and Equipment and Intangible Assets:
IndAS 101 exempts entities from retrospective application of IndAS 16 Property, plant and Equipment and IndAS 38 Intangible Assets if the deemed cost exemption is applied. The standard inter-alia permits previous GAAP carrying value or Fair Value on the date of transition to IndAS to be adopted as deemed cost for the purpose of transition to IndAS.
Accordingly, the company has applied the exemption by adopting fair value on the date of transition as deemed cost of land and previous GAAP carrying value as deemed cost in respect of other assets. Consequential changes in the equity has been adjusted in the opening balance the reserves.
B.1.2 Deemed Cost - Equity Instruments:
IndAS 27 requires an entity to account for investments in subsidiaries, joint ventures and associates either at cost or in accordance with IndAS 109. IndAS 101 allows adoption of deemed cost if an entity opts to account for these investments at cost as per IndAS 27. The deemed cost can be the fair value at the entity’s date of transition to IndAS in its separate financial statements or the carrying value of the investments as per the previous GAAP.
The company has availed this exemption and has elected to account for the Investments in all the subsidiaries at carrying value as per previous GAAP adopting the same as deemed cost.
B.1.3 Designation of previously recognized financial instruments:
IndAS 101 allows designation of a financial asset as measured at fair value through profit or loss in accordance with IndAS 109 - Financial Instruments on the basis of the facts and circumstances that exist at the date of transition to IndAS.
Accordingly, the company has designated all its investments in Equity instruments other than investments in subsidiary companies as measured at fair value through profit or loss. Changes to total equity as at the date of transition to IndAS has been adjusted to the opening balance of retained earnings and changes in fair value during the year 2016-17 has been presented in the statement of profit and loss.
B.2 Mandatory Exceptions applied:
B.2.1 Estimates:
IndAS 101 requires that an entity’s estimates in accordance with IndAS at the date of transition to IndAS shall be consistent with estimates made for the same date in accordance with previous GAAP unless there is objective evidence that those estimates were in error. Ind AS estimates as at 01-04-2016 are consistent with the estimates as at the same date made in conformity with previous GAAP.
B.2.2 Classification and measurement of financial Assets:
As per IndAS 109, a financial instrument shall be classified based on the facts and circumstances existing on the date of initial recognition of the financial instrument. IndAS 101 allows a first-time adopter to classify their financial instruments based on the facts and circumstances existing at the date of transition to IndAS. The company applied this exemption in classifying its financial instruments on the date of transition to IndAS.
B.2.3 Derecognition of Financial Assets and Financial Liabilities:
A first-time adopter shall not apply the derecognition requirements of IndAS 109 Financial Instruments retrospectively except as permitted by IndAS101. Accordingly, the company has applied the derecognition requirements of IndAS 109 only for accounting periods beginning with the date of transition to IndAS.
C. Notes to First Time Adoption:
C.1 Excise duty impact on revenue from Operations:
The Statement of Profit and Loss has been prepared in accordance with the Division II of Schedule III to Companies Act, 2013. The format specified in the statute as aforesaid has not mandated the separate disclosure of excise duty unlike the previous format prescribed by the statute. Accordingly, the excise duty collectible from the customers has been added to Revenue from operations. This treatment has increased the revenue reported for the year 2016-17 to the extent of excise duty included therein. A comparative statement has been presented below:
*Excise duty included in revenue from sale of products for the year 2017-18 contains excise duty collectible/collected from the customers upto 30th June 2017 after the which the excise duty regime was replaced with goods and service tax regime. Goods and Services Tax payable to the tax authorities are being accounted for as a liability and included in statutory liabilities under other current liabilities.
C.2 Remeasurements of post-employment benefit obligations:
Under IndAS, remeasurements i.e., actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognized in other comprehensive income. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year. As a result of this change, the profit for the year ended 31st March 2017 has increased by INR 70.45 lacs. There is no impact on equity as on 31st March 2017.
C.3 Depreciation of Leasehold Land:
The company had entered into long term lease agreement with the development authorities of industrial estates (lessor) in respect of factory land in certain locations. The leases were for a fixed period of time from the date of inception and were classified as finance leases in the books of accounts. Under the lease arrangement the possession of the leased lands have to be transferred to the lessor at the end of the lease term unless renewed or extended Accordingly, the lease hold land may be controlled by the company only upto the end of the lease term. In line with IndAS 16 - Property, Plant and Equipment the deemed cost of the leased hold land as at the date of transition to IndAS is being amortized equally over the unexpired period of lease as at the even date.
C.4 Proposed Dividend and Tax on Distribution:
A provision shall be recognized only if there is a present obligation arising from past events. Dividend proposed by the board does not give rise any right to claim the dividend unless the dividend is declared by the shareholders in the annual general meeting. Accordingly, the proposed dividend presented as a liability as per previous GAAP has been added back to equity.
Valuations of defined employee benefit obligations are performed on certain basic set of pre-determined assumptions and other regulatory framework which may vary over time. Thus, the company is exposed to various risks in providing the above gratuity benefit which are as follows:
In addition to Interest Rate risk and liquidity risk explained in the Note No. 37 the company is also exposed to the below risks on account of valuation of defined benefit obligations:
a) Salary Escalation Risk: The present value of the defined benefit plan is calculated with the assumption of salary increase rate of plan participants in future. Deviation in the rate of increase of salary in future for plan participants from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan’s liability.
b) Demographic Risk: The Company has used certain mortality and attrition assumptions in valuation of the liability. The Company is exposed to the risk of actual experience turning out to be worse compared to the assumptions.
c) Regulatory Risk: Gratuity benefit is paid in accordance with the requirements of the Payment of Gratuity Act, 1972 (as amended from time to time). There is a risk of change in regulations requiring higher gratuity payouts (e.g. Increase in the maximum limit on gratuity payout).
d) I nvestment Risk: The probability or likelihood of occurrence of losses relative to the expected return on any particular investment.
7. Related Party Disclosure:
1. Related parties where control exists
a) Holding Company Carburettors Limited
b) Subsidiaries
Ucal Polymer Industries Limited
UPIL, USA (Wholly Owned Subsidiary of UPIL)
Amtec Precision Products Inc. USA
North American Acquisition Corporation (Wholly Owned Subsidiary of Amtec)
Amtec Moulded Products Inc. USA (Wholly Owned Subsidiary of Amtec)
2. Other Related parties
a) Fellow Subsidiaries
RD Electrocircuits Private Limited
b) Key Managerial Personnel
Mr. Jayakar Krishnamurthy - Chairman and Managing Director
Mr. Ram Ramamurthy - Whole Time Director and Chief financial officer
Ms. Rekha Raghunathan - Director and Company Secretary
c) Enterprises controlled or jointly controlled by KMP or directors Minica Real Estates Private Limited
Minica Property Holdings Private Limited Bangalore Union Services Private Limited Sujo Land and Properties Private Limited UCAL - JAP Systems Limited Minica Services Private Limited Southern Ceramics Private Limited
d) Relatives of Key Managerial Personnel Dr. V Krishnamurthy
e) Entities controlled by relatives of KMP Magnetic Meter Systems (India) Limited Bharat Technologies Auto Components Limited
f) Entities in which KMP or relatives are trustees or members of managing committee Culture and Heritage Trust of Karuveli
Dr. V Krishnamurthy Educational Foundation
8. MSME disclosure:
Micro, Small and Medium Enterprises under the Micro, Small and Medium Enterprises Development Act (MSMED) 2006 have been determined based on the information available with the company. The required disclosures under MSMED Act are given below:
9. Proposed Dividend and Tax thereon:
The board of directors in their meeting held on 21st May 2018, have proposed a dividend of INR 2211.36 lacs (100% on the paid up equity share capital). Distribution of dividend is subject to approval by the shareholders in the annual general meeting. On distribution the company would be liable to pay a tax of INR 437.75 lacs as dividend distribution tax under section 115-O.
10. Corporate Social Responsibility:
Expenditure incurred on corporate social responsibility (CSR) activities:
(a) Gross amount required to be spent during the year is Rs.59.34 lacs (last year INR 45.43 lacs)
(b) Amount spent during the year
11. The company is engaged in the business of manufacture and sale of automotive components. There are no other reportable segments of operation of the company.
12. The balances outstanding as on 31st March 2018 in respect of Sundry Debtors, Loans & Advances and sundry creditors wherever not confirmed by them, in so far as they have not been subsequently recovered or adjusted are subject to confirmation or reconciliation.
Subject to the above, in the opinion of the board, current assets, loans and advances have a value on realization in the ordinary course of business at least equal to the amount at which they are stated. The provision for depreciation and for all other known liabilities is considered adequate and are not in excess of the amounts reasonable necessary.
13. Previous year’s figures have been regrouped wherever necessary to conform to current year’s grouping.
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