1. Background
Kakatiya Cement, Sugar and Industries Limited (the “Company”) was incorporated in 1979 having it’s Registered office in Hyderabad. The Company’s activities are organized into three operating divisions namely Cement, Sugar and Power. The major activity of the company is to produce, manufacture, refine, sell and generally to deal in all kinds of Portland Cement, sugar, generation and distribution of power.
“2.1 Terms/Rights attached to equity shares The Company has only one class of equity shares having a face value of Rs. 10 /-each. Each holder of equity share is entitled to one vote per share. The company declares and pays dividends in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the company, the distribution will be in proportion to the number of equity shares held by the shareholders.”
1. Security premium reserve is utilised in accordance with the provisions of the Act.
2. General reserve is used for strenthening the financial position and meeting the future contigencies and losses.
3. Amalgamation reserve is created in the process of amalgamation of the company. This reserve is used in accordance with the provisions of the Act.
4. The reserves represent the cumulative profits of the Company and effects of the remeasurement of defined benefit obligations. This Reserve can be utilised in accordance with the provisions of the Companies Act, 2013.
Interest free loan from Andhra Bank to meet timely settlement of cane price for crushing sugar season (2013-14) relating to the fair and remunerative price fixed by the Central Government to the sugar cane growers. Loan is secured by first charge on the fixed assets of sugar division and collatteral security of fixed deposits of Rs.795 lakhs of the company. Repayment Schedule as under:
Note 3.1 : The Company had filed a Writ Petition registered as W.P. No. 20536 of 2009 before the Hon’ble High Court of Telangana questioning levy of Electricy Duty @ 0.25 per unit by the State Government on captive consumption of the electricity generated by the Company. The Writ Petition was dismissed by the Hon’ble High Court on 19.05.2016. The Company preferred a Special Leave Petition before the Supreme Court of India registered as SLP No. 22936 of 2016. As per the Interim Orders of the Supreme Court the Company had paid an amount of Rs.481.32 lakhs to the Credit of Government of Telangana & Andhra Pradesh.
The Appeal before the Supreme Court is yet to come up for hearing and accordingly a provision of Rs.909.54 lakhs (Previous Year Rs.867.22 lakhs) is included in the statutory liabilities.
4 Earnings Per share
Basic and Diluted EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the company by the weighted average number of Equity shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to equity holders of the company by the weighted average number of Equity shares outstanding during the year plus the weighted average number of Equity shares that would be issued on conversion of all the dilutive potential Equity shares into Equity shares.
5 Notes to Employee Benefits
Defined Benefit Plans Gratuity:
Each employee rendering a continuous service of 5 years or more is entitled to receive gratuity amount equal to 15/26 of the monthly emoluments for every completed year of service at the time of separation from the company subject to the provisions of the Gratuity Act.
Estimates of future compensation increases considered taking into account the inflation, seniority, promotion and other relevant factors.
Discount rate is based on the prevailing market yields of Indian Government securities as at 31st March 2019 for the estimated term of the obligations.
"The sensitivity analysis above have been determined based on a method that extrapolate the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period."
Note.6 Provisions, Contingent Liabilities and Contingent Assets:
Disclosures required by AS-29 “Provisions, Contingent Liabilities & Contingent Assets”
i) The Company had appeated to Appellate Tribunal (CT) against order of ADC on restriction of ITC for the Year 2012-13 of Rs.29,52,639 and for the year 2013-14 of Rs.27,52,164 pending with Appeallate Tribunal. For the year 2014-15 the Assessing Officer had raised a demand for an amount of Rs.198.09 Lakhs for non submission of C-Forms and Way Bills against which the company filed an appeal against the demand before AJC(A) and paid an amount of Rs.24.76 Laks being 12.5% on the disputed Tax.
ii) The Company had filed a Writ Petition registered as W.P. No. 20536 of 2009 before the Hon’ble High Court of Telangana questioning levy of Electricy Duty @ 0.25 per unit by the State Government on captive consumption of the electricity generated by the Company. The Writ Petition was dismissed by the Hon’ble High Court on 19.05.2016. The Company preferred a Special Leave Petition before the Supreme Court of India registered as SLP. No. 22936 of 2016. As per the Interim Orders of the Supreme Court the Company had paid an amount of Rs.481.32 lakhs to the Credit of Government of Telangana & Andhra Pradesh. The Appeal before the Supreme Court is yet to come up for hearing and accordingly a provision of Rs.909.54 lakhs (Previous Year Rs.867.22 lakhs) has been made.
iii) For the Asst. years 1999-00, 2000-01 and 2001-02 Income tax paid was for a sum of Rs.123.98 lakhs under protest against the demand of Rs.136.40 lakhs towards disallowance of un-absorbed depreciation / losses. The matter has been pending in appeal before the High Court of Telangana.
iv) For the Asst. Year 2012-13 there was a demand of Rs.120.68 lakhs towards denial of exemption u/s. 80-IA to Company’s Power Division and the same was adjusted against refund due. The matter has been pending before ITAT, Hyderabad.
v) For the Asst.Year 2009-10 penalty has been imposed and the same was adjusted against the refund due and pending in ITAT Hyderabad. For the Asst.Year 2014-15, CIT (A) disposed off the case in favour of the company allowing 80IA deduction, against which the IT department had filed an appeal in ITAT, Hyderabad, which is pending.
vi) Sales tax paid under protest for the Asst. years 2001-02,2002-03 of Rs.188.56 lakhs against a demand of Rs.188.56 lakhs regarding disputed sales tax on Molasses sales. The matter has been under appeal before the High Court of Telangana.
vii) The Company had paid Rs.1.00 crore as per the directions of Hon’ble High Court against demand of Rs.850.22 lakhs from the forest department towards Net Present Value (NPV) in respect of diverted forest land for renewal of Mining lease under Forest (Conservation) Act, 1980. The matter has been pending in appeal before the High Court of Telangana.
viii) Company had appealed to Addl.Commissioner of Customs vide appeal no.72/2014 dated 05/06/2014 and 28/2014 dated 25/06/2014 against the demand of the department amounting to Rs.65.77 Lakhs excluding interest and Penaltyfor the year 2012-13.
ix) For the A.Y.2016-17, the company had filed an appeal before the CIT(A) against the orders passed by the Assessing Officer disallowing 80IA deduction under IT Act. The tax amount in dispute is Rs.969.26 Lakhs
Note :7 Capital and other commitments Rs Nil (P.Y Rs Nil)
8 Fair values
Set out below, is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values:
The management assessed that fair value of financial assets and liabilities significantly approximate their carrying amounts largely due to the shortterm maturities of these instruments. The fair value ofthe 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 Company determines fair values of financial assets or liabilities by discounting the contractual cash inflows / outflows using prevailing interest rates of financial instruments with similar terms. The initial measurement of financial assets and financial liabilities is at fair value. . Further, the subsequent measurements of all assets and liabilities is at amortised cost, using effective interest rate method.
The following methods and assumptions were used to estimate fair values:-
-The fair value ofthe Company’s interest bearings borrowings are determined using discount rate that reflects the entity’s discount rate at the end ofthe reporting period. The own non-performance risk as at the reporting period is assessed to be insignificant.
For other non-current financial assets and liabilities the fair value is the same as the amortized cost, measured using the discount rate at the time of initial recognition of financial assets and liabilities
A one percent change in the unobserved inputs used in fair valuation of level 3 Assets and liabilities does not have a significant impact in its Fair value of financial assets and financial liabilities
The carrying value of the current financial assets and current financial liabilities are considered to be same as their values, due to their short-term nature. The non-current borrowings and securities deposits are carried at amortized cost which is considered as their fair value.
9 Financial risk management objectives and policies Financial Risk Management Framework
The Company’s principal financial liabilities, other than derivatives, comprise loans and 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 include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations.
The Company is exposed primarily to Credit Risk, Liquidity Risk and Market risk (fluctuations in foreign currency exchange rates and interest rate), which may adversely impact the fair value of its financial instruments. The Company assesses the unpredictability of the financial environment and seeks to mitigate potential adverse effects on the financial performance of the Company.
A. Credit Risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration of risks. Credit risk is controlled by analyzing credit limits and creditworthiness of customers on a continuous basis to whom the credit has been granted after obtaining necessary approvals for credit. Financial instruments that are subject to concentrations of credit risk principally consist of trade receivables, investments, derivative financial instruments, cash and cash equivalents, bank deposits and other financial assets. None of the financial instruments of the Company result in material concentration of credit risk.
Trade receivables:
Ind AS requires expected credit losses to be measured through a loss allowance. The Company assesses at each date of statements of financial position whether a financial asset or a Company of financial assets is impaired. Expected credit losses are measured at an amount equal to the 12 month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The company is not expecting any credit loss allowance which is calculated on life time expected credit losses for trade receivables. Credit loss provision on security deposits is taken as 12 months expected credit loss and no loss is expected as at 31st March, 2019, 31st March, 2018
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with the Company’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Company’s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the authorised person. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
B. Liquidity Risk
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry.
In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.
Collateral : Nil
C. Market Risk
Market risk is 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: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits etc.
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 long term and short term borrowings. The company has borrowed funds on fixed rate of interest, there is no impact on the entity due to any interest fuluctuations.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a foreign currency). The exposure of entity to foreign currency risk is very limited on account of limited transactions in foreign currency.
10 Capital Management
For the purpose of the Company’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Company’s capital management is to maximise the shareholder value. Capital includes equity attributable to the equity holders of the Parent. The primary objective of the Companies capital management is to ensure that it maintains an efficient capital structure and healthy capital ratios in order to support its business and maximise shareholder value. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions or its business requirements. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period.
No changes were made in the objectives, policies or processes for managing capital during the year ended 31st March, 2019 and 31st March, 2018.
11 Dues to Micro and Small Enterprises
The dues to Micro and Small Enterprises as required under the Micro, Small and Medium Enterprises Development Act, 2006 to the extent information available with the company is given below:
12. Segment information
The Company’s activities are organised into three operating segments namely Cement, Sugar and Power. The Segments are the basis on which the company reports its segment information Cement division - produce, manufacture, refine and prepare the portland cement Sugar division - It deals mainly with the crushing of sugar-cane Power division - It generates and distributes the power
They primarily use a measure of profit before tax to assess the performance of the operating segments. Information about Products:
Revenue from external customers- sale of cement sugar and Power is Rs.11,061.43 lakhs
The company has not made external sales to the customers inexcess of 10% or more of the entities revenue.
Segment revenue and expenses:
The Company has an established basis of allocating Joint/Corporate expenses to the segments, which is reasonable, and followed consistently. All other segment revenue and expenses are attributable to the segments.
Segment assets and liabilities:
Segment assets include all operating assets used by a segment and consist principally of operating cash, debtors, inventories and fixed assets, net of allowances and provisions that are reported as direct offsets in the balance sheet. While most assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or more segments is allocated to the segments on a reasonable basis. In such cases, the entire revenue and expenses of these assets including depreciation are also allocated to the same segments.Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities. Segment assets and liabilities do not include deferred income taxes.
Inter segment transfers:
The Company accounts for inter segment sales and transfer at average Market price
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