NOTE 1.1

Corporate information

Everest Industries Limited (‘the Company’) is engaged in manufacturing and trading of building products like roofing products, boards and panels, other building products and accessories and manufacturing of components of pre-engineered steel buildings and related accessories.

The financial statements for the year ended March 31, 2019 were approved by the Board of Directors and authorised for issue on May 1, 2019.

Note 1.2

Basis of preparation

The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015.

These financial statements have been prepared on the historical cost or at amortised cost, except for the following assets and liabilities:

- derivative financial instruments are measured at fair value;

- employee defined benefit assets/(liability) are recognised as the net total of the fair value of plan assets, plus actuarial losses, less actuarial gains and the present value of the defined benefit obligation;

NOTE 1.3

Significant accounting judgments, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of asset and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

(a) Uncertainty on the Estimation of the Total Construction Revenue and Total Construction Cost: The Company recognises revenue from the construction contracts over the period of contract as per the input method of IND AS 115 “Revenue from contracts with the customers”. The contract revenue is determined based on proportion of contract cost incurred to date compared to estimated total contract cost which involves significant judgement, identification of contractual obligations, and the company’s right to receive payments for performance completed till date, risk on collectability due to liquidation damages and other penalties imposed by the customers, change in scope and consequential revised contact price and recognition of the liability for loss making contracts/ onerous obligations etc. The Company has efficient, coordinated system for calculation and forecasting its revenue and expense reporting. However actual project outcome may deviate positively or negatively from the company’s calculation and forecasting which could impact the revenue recognition up to the stage of project completion and is recognised prospectively in the financial statements.

(b) Tax Uncertainties: The Company has open tax issues, ongoing proceedings and exposures at various levels of authorities. Where management makes a judgement that an outflow of funds is probable and a reliable estimate of the outcome of the dispute can be made, provision is made for the best estimate of the liability. In estimating any such liability, the Company applies a risk-based approach. These estimates take into account the specific circumstances of each dispute and relevant external advice, are inherently judgemental and could change substantially over time as each dispute progresses and new facts emerge.

The Company continues to believe that it has made adequate provision for the liabilities likely to arise from open assessments. Where open issues exist the ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of assessments with the relevant tax authorities or the litigation proceedings.

(c) Useful Lives of Property, Plant and Equipment: The Company uses its technical expertise along with historical and industry trends for determining the economic life of an asset/component of an asset. The useful lives are reviewed by the management periodically and revised, if appropriate. In case of a revision, the unamortised depreciable amount is charged over the remaining useful life of the assets.

(d) Measurement of Defined Benefit Obligation: The cost of the defined benefit gratuity plan and other Long term employee benefits (Compensated Absences) and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is sensitive to changes in these assumptions.

(e) Share-based Payments: The Company measures the cost of equity-settled transactions with employees using Black-Scholes model to determine the fair value of the liability incurred on the grant date. Estimating fair value for share-based payment transactions require determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them.

(f) Impairment in subsidiaries: Determining whether the investments in subsidiaries are impaired requires an estimate of the value in use of investments. In considering the value in use, the management anticipates the future commodity prices, capacity utilisation of plant, operating margins, discount rates and other factors of the underlying businesses/operations of the subsidiaries.

(g) Expected Credit Loss: The Company makes provision of expected credit losses on trade receivables using a provision matrix. The provision matrix is based on its historical observed default rates, adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and Company makes appropriate provision wherever outstanding is for longer period and involves higher risk.

Recent accounting pronouncements

Ind AS 116 Leases was notified by MCA on 30 March 2019 and it replaces Ind AS 17 Leases, including appendices thereto. Ind AS 116 is effective for annual periods beginning on or after 1 April 2019. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under Ind AS 17.

The Company intends to adopt these standards from 1 April 2019. As the company does not have any material long term leases, therefore the adoption of this standard is not likely to have a material impact in its Financial Statement.

In respect of the year ended March 31, 2019, the directors propose that a final dividend of Rs. 7.50 per share be paid on fully paid equity shares. This equity dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as liability in these financial statements. The proposed equity dividend is payable to all holders of fully paid equity shares. The total estimated equity dividend to be paid is Rs. 1,413.79 Lakhs (including dividend distribution tax thereon of Rs. 241.06 Lakhs). (refer note 2.46)

Note:

External Commercial Borrowing (ECB) from Axis Bank Limited of Rs. 4,150.28 lakhs (USD 60 lakhs) [previous year Rs. 3,902.65 lakhs (USD 60 lakhs)] is secured by first pari-passu charges on all the movable fixed assets situated at , Kymore, Lakhmpaur and Bhagwanpur and immoveable fixed assets located at Kymore, Bhagwanpur and Lakhmapur. The ECB is repayable in single instalment; the instalment is due in September 2022. The rate of interest is 3 months Libor 2.70% per annum(previous year 3 months Libor 2.70% per annum).

Working Capital Term Loan from Kotak Mahindra Bank Limited of Rs. 1,211.54 lakhs (including Rs. 692.32 lakhs in current maturity) (previous year Rs. 1,903.84 lakhs) is secured by exclusive charge over the immovable and movable property situated at Dahej. The loan is repayable in 13 quarterly instalments of Rs. 173.08 lakhs; the last instalment is due in December 2020. The rate of interest is banks MCLR 0.20% per annum. For current maturities of long term borrowings refer note 2.17 (a).

The Company has financial covenants relating to the borrowing facilities that it has taken from the lenders which is maintained by the Company.

Note:

Loans from banks are secured by a first pari-passu charge by way of hypothecation of stocks, present and future, book debts and receivables, first pari-passu charge on land and building situated at Podanur, second pari-passu charges on all movable fixed assets situated at Kymore, Podanur, Kolkata, Lakhmapur and Bhagwanpur and second pari-pasu charges on land and building situated at Kymore, Lakhmapur and Bhagwanpur.

The Company had received show cause notice from VAT authorities in previous year which was then responded. As per management assessment the Company has a good case in these matters.

b. There are numerous interpretative issues relating to the Supreme Court (SC) judgement on PF dated 28th February, 2019. As a matter of caution, the company has made a provision on a prospective basis from the date of the SC order. The company will update its provision, on receiving further clarity on the subject.

c. Commitments

a. Estimated amount of contracts to be executed on capital account - Rs. 790.85 lakhs (net of advances - Rs. 286.64 lakhs), [previous year - Rs. 250.86 lakhs (net of advances Rs. 97.36 lakhs)].

b. The Company has other commitments, for purchases/sales orders which are issued after considering requirements per operating cycle for purchase/sale of goods and services, in normal course of business.

c. The Company did not have any long term commitments/contracts including derivative contracts for which there will be any material foreseeable losses.

2.1 Disclosure in respect of revenue from contracts with customers

a. Disaggregation of revenue from contracts with customers

The Company derives revenue from the transfer of goods and services over time and at a point in time in the following major product lines and geographical regions:

b. Contract Balances

The following table provides information about receivables, contracts assets, and contract liabilities from contracts with customers.

c. Disclosure of ‘revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period’ and ‘revenue recognised in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods.

d. The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at 31 March are as follows:

2.2 Employee Benefit

a. Defined contribution plan

The Company makes superannuation fund contribution to defined contribution retirement plans for covered employees. The Company’s contribution towards superannuation fund is deposited in trust. The Company recognised Rs. 78.05 lakhs (previous year Rs. 76.14 lakhs) for superannuation fund contributions in the Statement of Profit and Loss.

b. Defined benefit plan

I. Gratuity Fund

The Company’s contribution towards its gratuity liability is a defined benefit retirement plan. The Company makes contributions to the trust from time to time which in turn makes contributions to the Employee’s Group Gratuity-cum-Life Assurance scheme of the Life Insurance Corporation of India. The scheme provides for lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to fifteen days salary payable for each completed year of service or part thereof in excess of six months. Vesting occurs upon completion of five years of service.

The following tables set out the funded status of the gratuity plan and amounts recognised in the Company’s financial statements as at 31 March, 2019:

The planned assets of the Company are managed by the Life Insurance Corporation of India in terms of an insurance policy taken to fund obligations of the Company with respect to its gratuity plan. Information on categories of plan assets as at 31 March, 2019 has not been provided by the Life Insurance Corporation of India.

II. Provident Fund

The Company’s contribution towards provident fund is a defined benefit retirement plan. The Company makes contributions to the trust from time to time which in turn makes contributions in approved securities. The Company is liable for contribution paid/payable under provident fund scheme and any deficiency in interest cost compared to interest computed based on the interest declared by the Central Government under Employee Provident Fund Scheme, 1952 is recognised as defined benefit obligation.

2.3 Related Party Disclosures

a. List of related parties

i. Enterprise exercising significant influence

Falak Investment Private Limited

ii. Subsidiary companies

Everest Building Products, Mauritius Everest Building Solutions Limited

Everestind FZE, United Arab Emirates(UAE) - subsidiary of Everest Building Products, Mauritius Everest Building Products LLC , United Arab Emirates (UAE)* - subsidiary of Everest Building Products, Mauritius

* Had not commenced commercial operations and deregistered w.e.f 27 November 2017

iii. Key management personnel/Whole time director

Mr. Aditya Vikram Somani, Chairman (till 26 February, 2019)

Mr. Manish Sanghi, Managing Director Mr. Y. Srinivasa Rao, Executive Director Mr. Neeraj Kohli, Company Secretary

Mr. Nikhil Dujari, Chief Financial Officer (till 31 July, 2018 and from 3 September, 2018)

iv. Entities on which key management personnel have control/significant influence

Trapucans Pvt. Ltd

2.4 Segment Information

a. Business segments:

The Company has determined following reporting segments based on the information reviewed by the Chief Operating Decision Maker (CODM). Building products includes manufacturing and trading of roofing products, boards and panels, other building products and accessories. Steel buildings consist of manufacture and erection of pre - engineered and smart steel buildings and its accessories.

b. Geographical segments:

Since the Company’s activities/operations are primarily within the country and as such there is only one geographical segment.

c. Segment accounting policies:

In addition to the significant accounting policies applicable to the business segments as set out in note a above, the accounting policies in relation to segment accounting are as under:

i. Segment revenue and expenses:

Segment revenue and expenses include the respective amounts identifiable to each of the segments. Unallocable items in segment results include income from bank deposits and corporate expenses.

ii. Segment assets and liabilities:

Segment assets include all operating assets used by a segment and consist principally of operating cash, trade receivables, inventories and fixed assets, net of allowances and provisions, which are reported as direct offsets in the balance sheet. Segment liabilities include all operating liabilities and consist principally of creditors and accrued liabilities. Segment assets and liabilities do not include fixed deposits, advance income tax, borrowings and deferred income tax etc.

The measurement of each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company’s financial statements.

2.5 Lease Commitments

Operating lease as lessee

The Company has taken properties on cancellable operating leases and has recognised rent of Rs. 449.94 lakhs (previous year Rs. 465.46 lakhs). There are no non-cancellable lease arrangements as at the end of the year.

2.6 Rights, preferences and restrictions attached to equity shares

The Company has one class of equity shares having a par value of Rs. 10 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event 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.

2.7 Employee Stock Option Scheme

The Company has granted 1,70,000 stock options (previous year 1,60,000 stock options) to the employees during the year ended 31 March, 2019.The exercise price per option shall be the average of the two weeks high and low price of the share preceding the date of grant of options on BSE/NSE or closing price of the Company’s share on that stock exchange on the date prior to the date of grant of options, whichever is less. Options granted shall vest with the grantee after a period of one year from the date of grant. The exercise period of the options is a period of four years after the vesting of the options.

The fair value of stock based awards to employees is calculated through the use of option pricing models, requiring subjective assumptions which greatly affect the calculated values. The said fair value of the options have been calculated using Black-Scholes option pricing model, considering the expected term of the options to be 5 years, an expected dividend yield of 1.41% (previous year 18.00%) on the underlying equity shares, volatility in the share price of 38.82% (previous year 47.51%) and a risk free rate of interest of 7.35% (previous year 7.26%). The Company’s calculations are based on a single option valuation approach, and forfeitures are recognised as they occur. The expected volatility is based on historical volatility of the share price during the year after eliminating the abnormal price fluctuations.

2.8 Financial instruments - fair value hierarchy

The fair value of financial instruments as referred to in note 2.50 above have been classified into three categories depending upon the input used in the valuation technique.

The categories used are as follows :

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

2.9 Capital Management

For the purposes of the Company’s capital management, capital includes issued capital and all other equity reserves. The primary objective of the Company’s capital management is to maximise shareholder value. The Company manages it’s capital structure and makes adjustments in the light of changes in economic environment and the requirements of the financial covenants. The Company take appropriate steps in order to maintain its capital structure. The Company monitors capital using gearing ratio, which is total debt divided by total capital plus debt.

The capital gearing ratio as on 31 March 2019 and 31 March 2018 was 13.74% and 13.99% respectively.

2.10 Financial risk management objectives and policies

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 advances, trade and other receivables, and cash and cash equivalents that derive directly from its operations.

The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk.

Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises risk of: currency risk and interest rate risk.

The Company is exposed to market risk primarily related to foreign exchange rate risk and interest rate risk. Thus, the Company’s exposure to market risk is a function of borrowing activities, revenue generating and operating activities in foreign currencies.

Foreign exchange risk

The Company regularly evaluates exchange rate exposure arising from the foreign currency transaction.

The Company uses forward contracts and derivative instruments to mitigate foreign exchange related risk exposures. When a forward contract is entered into for the purpose of being a hedge, the Company negotiates the terms of those contracts to match the terms of the hedged exposure. The Company’s exposure to unhedged foreign currency risk as at March 31, 2019 and March 31, 2018 has been disclosed in note 2.34.

For the year ended March 31, 2019, every 5 percentage point depreciation/appreciation in the exchange rate between the Indian rupee and U.S. dollar, would have affected the Company’s profit before tax by Rs. 251.31 Lakhs/ Rs. (251.31) Lakhs respectively.

For the year ended March 31, 2018, every 5 percentage point depreciation/appreciation in the exchange rate between the Indian rupee and U.S. dollar, would have affected the Company’s profit before tax by Rs. 263.10 Lakhs/ Rs. (263.10) Lakhs respectively.

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 exposure to the risk of changes in market interest rates relates primarily to the Companies long-term debt obligations with floating interest rates. The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. The Company has Rs. 4,150.28 lakhs (previous year Rs. 3,902.65 lakhs) of term loan carrying a floating interest rate of LIBOR plus 270 bps to LIBOR plus 400 bps and Rs 1,211.54 lakhs (previous year Rs. 1,904.84 lakhs) of term loans carrying a floating interest rate of MCLR plus 20bps to MCLR minus 20 bps, respectively. These loans expose the Company to risk of changes in interest rates. The remaining loans carry a fixed rate of Interest.

For details of the Company’s short-term and long-term loans and borrowings, including interest rate profiles, refer to note 2.14 of these financial statements.

For the years ended 31 March 2019 and 31 March 2018, every 1% increase or decrease in the floating interest rate component (i.e., LIBOR and MCLR) applicable to its loans and borrowings would affect the Company’s net profit by approximately Rs. 5.21 lakhs and Rs. 3.43 lakhs, respectively.

The Company’s investments in term deposits with banks are for short durations, and therefore do not expose the Company to significant interest rates risk. To optimise the interest cost the Company balances the borrowings from commercial paper, working capital loan and non-fund facilities from banks.

Interest rate sensitivity have been calculated assuming the borrowing outstanding at the reporting date have been outstanding for the entire reporting period.

Credit risk

Credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. The Company is exposed to credit risk from its operating activities (primarily trade receivables and deposits) and from foreign exchange transactions.

Trade receivables

To manage the credit risk the Company periodically assesses the financial reliability of customers taking into account the financial condition and ageing of accounts receivable.

An impairment analysis is performed for all major customers at each reporting date on an individual basis. The calculation is based on historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note.

Reconciliation of the allowances for credit losses :

The details of changes in allowances for credit losses for the year ended 31 March 2019 and 31 March 2018 are as follows:

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due.

As at 31 March 2019 and 31 March 2018, the Company had unutilised limits from banks of Rs. 14,352.56 lakhs and Rs. 16,172.25 lakhs respectively.

2.11 As per Orissa Industrial Policy 2007, the Company is eligible for State Government incentives in the form of reimbursement of 75% of Value added tax (VAT) paid after adjusting input tax rebate on VAT/ CST.

Post GST implementation effective July 1, 2017, the VAT / CST Acts have been repealed but as the aforesaid Scheme has not been withdrawn by the Orissa Government, the benefits therein continue. Further, the State Government has assured the Company that a notification on revised criteria for the calculation of incentive under GST regime shall be announced soon and the incentive under GST regime should be more or less at par with incentives under VAT regime. Accordingly, the Company has accrued the incentives amounting to Rs. 412.56 lakhs (previous year Rs. 134.74 lakhs) in these financial statements post GST implementation.

2.12 The Board of Directors of the Company at its meeting held on May 1, 2019 has approved a Scheme of merger of its 100% subsidiary company i.e. Everest Building Solutions Limited into Everest Industries Limited under section 230-232 and other applicable provision of the Companies Act, 2013 w.e.f April 1, 2019 or a date as may be approved by National Co. Law Tribunal. The parties to the Scheme are in process of obtaining regulatory and other approvals and the accounting will be done after Scheme becomes effective.

2.13 The subsidiary Company under which the proposed fibre cement board project in UAE was being set up, has since decided not to pursue the project. Accordingly, the investment has been carried at the estimated realisable value and an impairment provision of Rs. 165 Lakhs has been recorded as an exceptional item. The subsidiary Company has also reduced its share capital and repatriated investments of Rs. 1522.06 Lakhs to the Company. Consequent to above, the board manufacturing machinery purchased by the UAE subsidiary Company has been sold to the Company in the previous year. The Company is in advanced stage for the finalization of the location for the installation of this machinery and expects the completion of installation and start of commercial production from the said machinery in the near future.