1. Company Information:
Chembond Chemicals Limited (the Company) is a public limited Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on the BSE Limited (BSE). The Registered office of the Company is situated at Chembond Centre, EL-71, MIDC Mahape, Navi Mumbai -400710, Maharashtra.
The Company is engaged in manufacturing of Speciality Chemicals.
c Terms/Rights attached to Equity Shares
The Company has only one class of Equity Shares having a par value of Rs. 5/- per share. Each holder of equity shares 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 approval of the shareholders. In the event of liquidation of the Company, the holders of Equity Shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
a Over draft facility are Secured against Fixed Deposit of Subsidiary Company Protochem Industries Pvt. Ltd.
b Working Capital / Buyers Credit loan is secured by charge on current asset, Mortgage of Tangible Immovable Properties and charge on other Property, Plant & Equipments.
b) As per the terms of agreement the Water Treatment Chemicals (WTC) business of Chembond Chemicals Ltd. had been merged with the subsidiary Chembond Water Technologies Ltd."Profit Transferred to Subsidiary on WTC Business" aggregating Rs.84.37 lakhs (Previous year Rs.70.42 lakhs) included in Manufacturing Expenses represents transfer by overriding title to Chembond Water Technologies Ltd., the income arising on account of the said Water Treatment Chemicals business that arose in Chembond Chemicals Ltd.
c) As per the terms of agreement, the Industrial Coating business of Chembond Chemicals Ltd had been merged with the Chembond Industrial Coating Co Ltd. "Profit Transferred to Subsidiary on Industrial Coatings Business" aggregating Rs.73.08 lakhs (Previous year Rs.14.05 lakhs) included in manufacturing expenses represents transfer by overriding title to Chembond Industrial Coatings Co Ltd. the income arising on account of the said Industrial Coating business that arose in Chembond Chemicals Ltd.
d) Compensation Expenses represents amount payable to related party Protochem Industries Pvt. Ltd. on account of their Proprietory products being manufactured & sold by Chembond Chemicals Limited.
2. Segment Reporting
"The Company is engaged in the manufacture of Specialty Chemicals, which in the context of Ind AS 108- Operating segment specified under section 133 of the Companies Act, 2013 is considered as a single business segment of the company.
3. First Time adoption of Ind AS
I. Transition to Ind AS
These are the Company's first financial statements prepared in accordance with Ind AS.
The accounting policies set out in note 1.2 have been applied in preparing the financial statements for the year ended 31 March 2018, the comparative information presented in these financial statements for the year ended 31 March 2017 and in the presentation of an opening Ind AS balance sheet at 1 April 2016 (the Company's date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amount reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the company's financial position and financial performance is set out in the following tables and notes.
II. Exemptions from retrospective application
Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
a) Deemed cost for Property, Plant and Equipment (PPE), Intangible assets
Ind AS 101 permits a first time adopters to continue with the carrying value for all its property, plant and equipment and intangible assets as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition.
Accordingly, the company has elected to measure all of its PPE and intangible asset at their previous GAAP carrying values.
b) Deemed cost for investment in subsidiary
The Company has elected to use the previous GAAP carrying amount of its investment in subsidiary on the date of transition as its deemed cost on that date, in its separate financial statements.
The remaining voluntary exemptions as per Ind AS 101 - First time adoption either do not apply or are not relevant to the Company.
III. Exceptions from full retrospective application:
a) Hedge accounting
Hedge accounting is applied from 1 April 2017 and therefore previous period comparative i.e., F.Y. 2016-17 has not been restated and the same will continue to reflect fair value through profit and loss accounting.
b) Use of Estimates
Upon an assessment of the estimates made under Indian GAAP, the Company has concluded that there was no necessity to revise such estimates under Ind AS, except where estimates were required by Ind AS and not required by Indian GAAP.
The company made estimate for following items in accordance with Ind AS at the date of transition as these were not required under
- Investment in equity instruments carried at FVTPL; and
- Investment in debt instruments carried at FVTPL.
- Fair Valuation of Deposits.
c) Classification and measurement of financial assets
The Company has classified and measured the financial assets (investment in debt instruments) on the basis of facts and circumstances that exist at the date of transition to Ind AS.
IV. Derecongnition of Financial Assets and Financial liabilities
The company has applied derecognition requirement of Financial Assets and Financial Liabilities prospectively from the transactions occurring on or After 1st April 2016
The remaining mandatory exceptions either do not apply or are not relevant to the Company
(e) Reconciliation of statement of Cash Flow ;
There are no material adjustments to the statement of cash flow as reported under previous GAAP
(f) Notes to the reconciliation:
1 Fair valuation of investments in Mutual Funds
Under Indian GAAP, investments in mutual funds were classified as non current investments or current investments based on the intended holding period and readability. Current investments were measured at lower of cost or market price as of each reporting date while non current investments were measured at cost reduced for diminution.
Under Ind AS, these investments are required to be measured at fair value. The resulting fair value changes of these investments have been recognised in retained earnings as at the date of transition and subsequently in the profit or loss for the year ended 31 March 2017.
2 Fair valuation of Investment in quoted equity shares
Under Indian GAAP, investments in quoted equity shares were classified as non current investments or current investments based on the intended holding period and readability. Current investments were measured at lower of cost or market price as of each reporting date while non current investments were measured at cost reduced for diminution.
Under Ind AS, these investments are required to be measured at Fair Value through Other Comprehensive Income (FVOCI) or Profit and Loss (FVTPL) and the Company has elected to measure it at FVTPL. The resulting fair value changes of these investments have been recognised in retained earnings as at the date of transition and subsequently in the profit or loss for the year ended 31 March 2017.
3 Revenue from Operations and Excise Duty
Under Indian GAAP, excise duty on sale of products was presented net basis whereas as per Ind AS, same needs to be presented on gross basis. Hence, excise duty on sale of products has been separately presented on the face of statement of profit and loss account
4 Proposed Dividend
Under Indian GAAP, proposed dividends are recognised as a liability in the period to which they relate, irrespective of when they are declared. Under Ind-AS, a proposed dividend is recognised as a liability in the period in which it is declared by the company (usually when approved by shareholders in a general meeting) or paid.
In the case of the Company, the declaration of dividend occurs after transition date. Therefore, the liability recorded for this dividend has been derecognised against retained earnings.
5 Employee Benefit Expenses
Under Indian GAAP, actuarial gain or losses were recognised in Profit and loss account. Under IND AS, the actuarial gain or losses for part of remeasurement of the net defined benefit liability/asset and is recognised in other comprehensive income (OCI). Consequently the deferred tax effect of the same has also been recognised in Other comprehensive income (OCI) under IND AS instead of profit or loss.
6 Deferred tax Adjustments
Indian GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of the balance sheet approach has resulted in recognition of deferred tax on new temporary differences which was not required under Indian GAAP
7 Income from corporate guarantees in favour of subsidiaries
The Company has given financial guarantees on behalf of subsidiaries which were disclosed as contingent liabilities under Indian GAAP Under Ind AS, financial guarantee contracts are accounted as financial liabilities and measured initially at fair value. Subsequently, the guarantee income is recognised over the period of the guarantee on a straight line basis
8 Fair Valuations of Deposits
Under Indian GAAP , the deposits were shown at amortised cost. Under Ind AS, the deposits with certain maturity are measured at fair value.
9 Other equity
Adjustments to retained earnings and other comprehensive income (OCI) has been made in accordance with IND As, For the above mentioned line items.
4. Financial instruments - Fair values and risk management
A. Accounting classification and fair values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
Fair values for financial instruments carried at amortised cost approximates the carrying amount, accordingly the fair values of such financial assets and financial liabilities have not been disclosed separately.
B. Measurement of fair values
In the Balance Sheet, using a three level fair-value-hierarchy (which reflects the significance of inputs used in the measurements). The hierarchy gives the highest priority to un-adjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to un-observable inputs (Level 3 measurements). Fair value of derivative financial assets and liabilities are estimated by discounting expected future contractual cash flows using prevailing market interest rate curves. The three levels of the fair-value-hierarchy under Ind AS 107 are described below:
Level 1: Hierarchy includes financial instruments measured using quoted prices.
Level 2: The fair value of financial instruments that are not traded in an active market are determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. e.g. unlisted equity securities.
Transfers between Levels
There are no transfers between the levels.
C. Financial risk management
The Company's activities expose it to Credit risk, liquidity risk and market risk.
i. Risk management framework
Risk Management is an integral part of the Company's plans and operations. The Company's board of directors has overall responsibility for the establishment and oversight of the Company risk management framework. The board of directors is responsible for developing and monitoring the Company risk management policies.
The audit committee oversees how management monitors compliance with the Company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.
ii. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counter party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and investments in debt securities, cash and cash equivalents, mutual funds, bonds etc.
The carrying amount of financial assets represents the maximum credit exposure.
Trade and other receivables
Credit risk is the risk of possible default by the counter party resulting in a financial loss.
The Company manages credit risk through various internal policies and procedures set forth for effective control over credit exposure. These are managed by way of setting various credit approvals,evaluation of financial condition before supply terms, setting credit limits, industry trends,ageing analysis and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.
Based on prior experience and an assessment of the current economic environment, management believes that sufficient provision is mad for credit risk wherever credit is extended to customers.
Cash and cash equivalents
Credit risk from balances with banks is managed by the Company's treasury department in accordance with the Company's policy. Investment of surplus funds are made in mainly in mutual funds with good returns and with high credit ratings assigned by International and domestic credit ratings agencies.
Other than trade and other receivables, the Company has no other financial assets that are past due but not impaired.
iii. 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, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company's reputation.
The Company has obtained fund and non-fund based working capital lines from various banks. The Company also constantly monitors funding options available in the debt and capital markets with a view to maintaining financial flexibility. Accordingly, liquidity risk is perceived to be low.
The following table shows the maturity analysis of financial liabilities of the Company based on contractually agreed undiscounted cash flows as at the Balance Sheet date:
iv. 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 ). Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and longterm debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. 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.
a) Currency risk
The Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchase, and other expenses are denominated and the functional currency of the Company. The functional currency of the Company is Indian Rupees (INR). The currencies in which these transactions are primarily denominated are EURO and USD.
Exposure to currency risk
The summary quantitative data about the Company's exposure to currency risk as reported to the management of the Company is as follows:
a The Company has entered into forward contracts to hedge the foreign currency risks arising from amounts designated in foreign currency. The counter party to such forward contract is a bank. Forward contracts
outstanding at the year end are:
b) 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. Investment committee manages and constantly reviews the interest rate movements in the market. This risk is mitigated by the Company by investing the funds in various tenors depending on the liquidity needs of the Company. The Company's exposures to interest rate risk is not significant.
5. Capital Management
For the purpose of the Company's capital management, capital includes issued capital and all other equity reserves attributable to the equity shareholders of the Company. The primary objective of the Company when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value.
As at 31st March, 2018, the Company has only one class of equity shares and has low debt. Consequent to such capital structure, there are no externally imposed capital requirements. In order to maintain or achieve an optimal capital structure, the Company allocates its capital for distribution as dividend or re-investment into business based on its long term financial plans.
6. The previous year figures have been regrouped, reallocated or reclassified wherever necessary to conform to current year classification and presentation.
|