1. COMPANY BACKGROUND
Sunshield Chemicals Limited ('the Company') was incorporated in India on 19th November 1986. The Company is engaged in manufacture and sale of Speciality Chemicals in the domestic and international markets.
2 First-time adoption - Mandatory Exceptions, Optional Exceptions Overall principle
The Company has prepared the opening balance sheet as at 1 April, 2016 (the transition date) as per Ind AS by recognising all assets and liabilities whose recognition is required by Ind AS, not recognising items of assets or liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS required under Ind AS, and applying Ind AS in measurement of recognised assets and liabilities. However, this principle is subject to the below mentioned optional exemption availed by the Company as per IND AS 101:
Deemed cost for property, plant and equipment, and intangible
The Company has elected to continue with the carrying value of all of its plant and equipment recognised as of 1 April, 2016 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
3 Critical accounting judgments and key sources of estimation uncertainty
In application of the Company's accounting policies, which are described in note 2, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
3.1 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Useful lives of property, plant and equipment
The Company reviews the estimated useful lives of property, plant and equipment and intangible assets at the end of each reporting period. During financial years ended 31 March 2018, 2017 and 2016, there were no changes in useful lives of property plant and equipment.
The company at the end of each reporting period, based on external and internal sources of information, assesses indicators and mitigating factors of whether the plant (cash generating unit) may have suffered an impairment loss. If it is determined that an impairment loss has been suffered, it is recognised in the Statement of Profit and Loss.
Impairment of trade receivables
The Company estimates the probability of collection of accounts receivable by analysing historical payment patterns, customer status, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.
Deferred tax
The management of the company estimates whether the company will earn sufficient taxable profits in future periods during which the temporary differences become deductible. The carrying amount of deferred tax is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Contingencies
In the normal course of business, contingent liabilities may arise from litigations and other claims against the company. There are certain obligations which management have concluded based on all available facts and circumstances are not probable of payment or difficult to quantify reliably and such obligations are treated as contingent liabilities and disclosed in the notes but are not provided for in the financial statements.
Notes to the reconciliation:
a. Under previous GAAP actuarial gains and losses were recognised in the statement of profit and loss. Under Ind AS, the return on plan asset and actuarial gains and losses form part of remeasurement of the net defined benefit liability/asset which is recognised in other comprehensive income. This resulted in a reclassification between profit or loss and other comprehensive income.
b. Under previous GAAP, allowance for doubtful debts was made as per management policy based on ageing of debtors. Under Ind AS, the Company applies expected credit loss (ECL) model for recognizing impairement loss on these financial assets on the transaction date. The resultant changes in provision for doubtful debts are recognised in statement of profit and loss. On transition to Ind AS, allowance for doubtful debts is remeasured as per ECL model, which was higher than the provision as per the previous GAAP.
c. The company has taken external commercial borrowing from a related party and has taken principal only swap to hedge against the foreign currency risk related to the ECB. Under Ind AS, the principal swap is required to be measured at fair value at each reporting period and changes therein are recognised in profit and loss.
d. Under IND AS, bank overdrafts which are payable on demand and form an integral part of an entity's cash management system are included in cash and cash equivalents for the purpose of presentation of statement of cashflows. Whereas under previous GAAP there was no similar guidance and hence, bank overdrafts were considered similar to other borrowings and the movement ther in were reflected in cash flows from financing activities. The effect of these is reflected in cashflows from financing activities and Cash and cash equivalents.
4. The Company has availed the deemed cost exemption in relation to the property plant and equipment on the date of transition and hence the net block carrying amount has been considered as the gross block carrying amount on that date. Refer note below for the gross block value and the accumulated depreciation on April 1, 2016 under the previous GAAE
The average credit period on sale of goods is 60 days. No interest is charged on trade receivables. The above Trade Receivables include amount due from related parties of Rs. 348.26 Lakhs (2017 - Rs. 140.15 Lakhs, 2016 - Rs. 161.38 Lakhs) For movement in allowance for doubtful debt refer Note No : 42
Terms/Rights attached to equity shares
The Company has issued only one class of shares referred to as equity shares having a par value of Rs 10 per share. Accordingly, all equity shares rank equally with regard to dividend and share in the Company's residual assets. The equity shareholders are entitled to receive dividend as declared from time to time. Each holder of equity share is entitled to one vote per share. In the event of liquidation of the Company the holder of equity shares will be entitled to receive remaining assets of the Company after distribution of all the preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
(a) Capital reserve
Capital Reserves includes
i) Rs.26.06 lakhs of various capital incentive grants received from time to time from Government of Maharashtra on the basis of investments made in plant and machinery as backward area incentives.
ii) Rs.427.50 lakhs of reserves was created in an earlier year consequent to surrender of tenancy rights for redevelopment in exchange for office premises. The office premises have since been disposed off.
Both the capital reserves are not available for the distribution to shareholders as dividend.
(b) Securities premium reserve
Security premium account is created when shares are issued at premium. Company can use this reserve in accordance with the provisions of the Act.
(c) Retained earnings
The amount that can be distributed by the company as dividends to its equity shareholders is determined considering the requirements of the Act. Thus, the amounts reported above may not be distributable in entirety.
Consequent to the introduction of Goods and Service Tax ("GST") with effect from 1stJuly 2017, Central Excise, Value Added Tax (VAT), etc. have been subsumed into GST. Accordingly, the figures for the period upto 30th June, 2017 are not strictly relatable to those thereafter. The following additional information is being provided to facilitate such understanding:
(e) Excise Matters
The company had received a Show Cause Notice cum Demand from the Assistant Commissioner of Central Excise & Customs demanding excise duty. The demand is raised on account of dispute over excise classification.
(f) In the financial year 15-16, the Company had received a legal notice from a party alleging that the Company has been using their land (approximately 0.43 acres) for the past several years and has claimed mesne profit for it aggregating Rs. 1,166.40 lakhs. The Company had replied to the said notice calling upon the party to cancel / withdraw the notice since there was no merit in the matter raised by the party.
During the current year, the party filed a suit in the district court against the Company relating to the same matter, without mentioning any amount and has requested the Court to grant appropriate relief to it. The management is of the view that there is no merit in the matter raised by the party and the Company has a strong case. Also, since the matter is subjudice, a sufficiently reliable estimate of the possible obligation is not determinable .
Note.
(1) Future ultimate outflow of resources embodying economic benefits in respect of matters stated under 33 (i) above is uncertain as it depends on the final outcome of judgments / decisions on the matters involved.
(2) Management considers that excise, service tax, sales tax and income tax demands received from the respective authorities and demand relating to land case are not tenable against the Company, and therefore no provision for these tax
(3) The Company has reviewed all its pending litigations and proceedings and has adequately provided for, where provisions are required and disclosed as contingent liabilities wherever applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have materially adverse effect on its financial statements.
Note 5
Capital Commitments
The estimated amount in respect of the contracts remaining to be executed on capital account (net of capital advances) and not provided for relating to Tangible Assets
Note 6
Dues to Micro, Small and Medium Enterprises
Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from 2 October 2006, certain disclosures are required to be made relating to Micro and Small Entrprises. On the basis of the information and records avilable with the Management, the outstanding dues to the Micro & Small enterprises as defined in MSMED are set out in the following disclosure
(i) Principal amount remaining unpaid to any supplier as at the end of the accounting year
(ii) Interest due thereon remaining unpaid to any supplier as at the end of the accounting year
(iii) The amount of interest paid along with the amounts of the payments made to the supplier beyond the appointed day
(iv) The amount of interest due and payable for the year
(v) The amount of Interest accrued and remaining unpaid at the end of the accounting year
(vi) The amount of further interest due and payable even in the succeeding year, until such date when the interest dues as above are actually paid
Notes :
(i) The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current lax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
Note 7 Segment information
(a) General information
The Company is engaged in the business of specialty chemicals.
The Chief Operating Decision Maker ("CODM") i. e. the Managing Director of the Company evaluates the Company's performance and allocates resources based on an analysis of various performance indicators by operating segment"specialty chemicals" which is the only operating segment. There is no single customer which contributes more than 10% of the Company's total revenues.
(e) Current maturities of long term debts from bank (Note 22) of Rs.Nil (previous year Rs.1,700 Lakhs) were secured by a corporate guarantee from Rhodia SA France, a subsidiary of the ultimate holding company. The loan is repaid during the year on maturity and the bank guarantee is cancelled.
(f) No amounts have been written off / provided for or written back in respect of amounts receivable from or payable to the related parties.
Details of Employee Benefits as required by the Indian Accounting Standard (Ind AS) 19 "Employee Benefits" are as follows:
1) Defined contribution plan:
The Company makes Provident Fund contributions which are defined contribution plans, for qualifying employees. Under the Schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognised Rs.26.19 Lakhs (Year ended 31 March, 2017 Rs.22.68 Lakhs) for Provident Fund contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.
2) Defined Benefit Plan (Funded)
(a) A general description of the Employees Benefit Plan:
The Company has an obligation towards gratuity, a funded defined benefit retirement plan covering eligible employees.
The plan provides for lumpsum payment to vested employees at retirement, death while in employment or on termination of the employment. Gratuity is calculated in accordance with the provisions of the Payment of Gratuity Act, 1972. Vesting occurs upon the completion of five years of service.
3) The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations.
4) The assumption of the future salary increases, considered in actuarial valuation, takes into account the inflation, seniority, promotions and other relevant factors.
The Sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in the assumptions would occur in isolation of one another as some of the assumptions may be correlated.
5) Defined benefit obligation - Average duration
The weighted average duration of the defined benefit obligation is 6.76 years (31 March 2017: 6.54 years).
6) Other long term employee benefits
Compensated absences are payable to employees. The charge towards compensated absences for the year ended 31 March 2018 based on actuarial valuation using the projected accrued benefit method is Rs.3.03 lakhs (31 March 2017 : Rs.12.30 lakhs).
Note 8
Disclosure of Holdings as well as dealings in Specified Bank Notes:
Pursuant to the notification dated 30th March, 2017 issued by the Ministry of Corporate Affairs (MCA), the Company has to disclose the holdings as well as dealings in Specified Bank Notes during the period from 8 November, 2016 to 30 December, 2016. Also pursuant to another notification issued by MCA on the same date amending the Schedule III of the Companies Act, 2013 requiring the company to disclose the details of Specified Bank Notes held and transacted during the period from 8 November, 2016 to 30 December, 2016 . The details are as given below:
Note 9
Financial instruments (A) Capital management
The company manages its capital to ensure that it will be able to continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The company is not subject to any externally imposed capital requirements.
(C) Fair value measurements
This note provides information about how the group determines fair values of various financial assets and financial liabilities. Fair value measurements are categorised into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.
Fair value of the Company's financial liabilities that are measured at fair value on a recurring basis.
Some of the Company's financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how their fair values are determined (in particular, the valuation technique(s) and inputs used).
Fair value of financial assets and financial liabilities that are not measured at fair value (but fair value disclosures are required)
The Company is of the belief that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values.
(D) Financial risk management objectives
The Company's principal financial liabilities comprise borrowings, trade payables, Other financial liabilities (including derivative liability). The main purpose of these financial liabilities is to support its operations. The Company's principal financial assets include trade and other receivables and cash that are derived directly from its operations.
The Company has exposure to the following risks arising from financial instruments:
- Credit risk ;
- Liquidity risk ; and
- Market risk
i . Risk management framework
The Company's activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company's primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Company's risk management assessment and policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company's activities. The Board of and the Audit Committee is responsible for overseeing the Company's risk assessment and management policies and processes.
ii. Credit risk management
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers. The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables.
Trade and other receivables
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.
Expected credit loss assessment for customers as at 1 April 2016 , 31 March, 2017 and 31 March, 2018
Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. The impairment loss at March 31, 2018 related to customers who have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.
Cash and cash equivalents
The Company held cash and cash equivalents with credit worthy banks and financial institustions of Rs. 263.21 lakhs as at 31 March 2018. (Rs. 124.02 lakhs as at 31 March 2017; Rs.212.16 lakhs as at 31 March 2016).
Derivatives
The derivatives are entered into principal only swap with credit worthy banks and financial institution counterparties.
The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be good.
Other than trade and other receivables, the Company has no other financial assets that are past due and impaired.
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, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company's reputation. The Company has obtained term loan from bank which is repayable in full in 2018. Furthermore, the Company has access to funds from related party as external commercial borrowings.
Exposure to liquidity risk
The table below analyses the Company's financial liabilities into relevant maturity groupings based on their contractual maturities for:
* all non derivative financial liabilities
* Derivative financial instruments for which the contractual maturites are essential for understanding the timing of the cash flows.
(F) Market risk
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk. Thus, the Company's exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.
Currency risk
The fluctuation in foreign currency exchange rates may have potential impact on the profit and loss account and equity, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the entity.
Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in U.S. dollar and Euro, against the respective functional currencies of the Company.
The Company, as per its risk management policy, uses foreign exchange and other derivative instruments primarily to hedge foreign exchange exposure. The Company does not use derivative financial instruments for trading or speculative purposes.
Sensitivity analysis
A 10% strenghtening / weakening of the respective foreign currencies with respect to functional currency of Company would result in increase or decrease in profit or loss and equity as shown in table below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The following analysis has been worked out based on the exposures as of the date of statements of financial position.
Interest rate sensitivity - fixed rate instruments
The company's fixed rate borrowings are carried at amortised cost. They are therefore not subject to interest rate risk as defined in IND AS 107, since neither the carrying amount nor the future cash flow will fluctuate because of a change in market interest rates.
Interest rate sensitivity - variable rate instruments
A reasonably possible change of 100 basis points in interest rates at the reporting date would have increased / decreased equity and profit or loss by amounts shown below. This analyses assumes that all other variables, in particular, foreign currency exchange rates, remain constant. This calculation also assumes that the change occurs at the balance sheet date and has been calculated based on risk exposures outstanding as at that date.
Note 10 Approval of financial statements
The financial statements were approved for issue by the board of directors on 28 May 2018.
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