1. Corporate Information
The Company is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. Its shares are listed on two recognized stock exchanges in India. The registered office of the Company is located at Jai Kisaan Bhawan, Zuarinagar, Goa 403726. The Company is in the business of manufacturing, trading and marketing of chemical fertilizers, water soluble fertilizers, seeds, pesticides and fertilizer products. The Company caters to the demand of the farmers across the country, through its “Jai kisaan” brand of Fertilizers.
The National Company Law Tribunal, Mumbai Bench (NCLT) vide its order dated 14th September 2017 has approved/ sanctioned the scheme of amalgamation of Zuari Fertilisers and Chemicals Limited (ZFCL), Zuari Speciality Fertilizers Limited (formerly known as Zuari Rotem Speciality Fertilizers Limited) (ZSFL) and Zuari Agri Sciences Limited (ZASL) with the Company under the provisions of Sections 391 to 394 of the Companies Act, 1956 and other applicable provisions of Companies Act, 1956 and Sections 230 to 232 of the Companies Act, 2013, as may be applicable. The appointed date of the Amalgamation is April 01, 2015. The amalgamation came into effect from 13th November 2017 pursuant to filing of NCLT order with the Registrar of Companies on the said date. As a consequence of the amalgamation, there is no change in the shareholding pattern of the Company, given that the Company is not required to issue any shares pursuant to the Amalgamation of all the Transferor Companies i.e. ZFCL, ZSFL and ZASL. ZFCL and ZASL were the wholly-owned subsidiaries of the Company. The Company has on December 11, 2015 acquired balance 50% of equity shares of ZSFL held by Rotem Amfert Negev Limited for Rs. 1,332.33 lakhs. (Refer Note No 54 for details).
These financial statements were authorized for issue in accordance with a resolution of the Board of Directors of the Company in their meeting held on 25th May 2018.
Note:
* Goodwill, being immaterial amount, which arose on account of amalgamation of Greentech Seeds International Pvt Limited with the erstwhile subsidiary Company, has been amortized during the current year (but not in previous year), pursuant to the scheme of amalgamation approved by the High Court of Bombay at Panaji (Goa) in an earlier year. As per the order of the High Court of Bombay at Panaji (Goa), Goodwill needs to be amortized over a period of twenty years, without having regard to the Accounting Standard, subject to available surplus for the year before amortization of goodwill.
** Goodwill, which arose pursuant to the scheme of amalgamation of Zuari Speciality Fertilisers Limited (ZSFL) with the Company.
Investment property consist of freehold land owned by the Company.
As at 31 March 2018 & 31 March 2017 the fair values of the properties are Rs. 484.00 lakhs and Rs. 430.00 lakhs respectively. These valuations are based on valuations performed by Vr. Er. R. Aruljothi, an accredited independent valuer. Vr. Er. R. Aruljothi is a specialist in valuing these types of investment properties. A valuation model in accordance with that recommended by the International Valuation Standards Committee has been applied.
The Company obtains independent valuations for its investment properties at least annually. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the Company considers information from a variety of sources including
1. Current prices in an active market of properties of different nature or recent prices of similar properties in less active market adjusted to reflect those differences.
2. Discounted cash flow projections based on reliable estimates of future cash flows.
3. Capitalised income projections based upon a property’s estimated net market income, and a capitalisation rate derived from an analysis of market evidence.
The Company has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements.
b. Terms/Rights Attached to equity Shares
The Company has only one class of equity shares having a par value of Rs. 10/- Share. Each share holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by Board of Directors is subject to the approval of shareholders in the ensuing Annual General Meeting.
During the year 31st March 2018, ‘ Nil (31st March 2017: Re 1 per share) dividend was proposed for distribution to equity share holders.
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.
As per records of the Company including its register of share holders/members and other declarations received from share holders regarding beneficial interest, the above share holding represents both legal and beneficial ownership of shares.
* Pursuant to the Scheme of Arrangement and Demerger (“ the Scheme”) between Zuari Agro Chemicals Limited and Zuari Global Limited, Zuari Agro Chemicals Limited had issued 29,440,604 equity shares of Rs. 10/- each aggregating to Rs. 2944.06 lakhs to the existing shareholders of Zuari Global Limited in the ratio of 1 fully paid up Equity share of Rs. 10/- each of Zuari Agro Chemicals Limited during the financial year ending 31st March, 2013. Out of the above shares issued pursuant to the Scheme, 8,051 (31st March 2017: 8,051) Equity Shares entitlements have been kept in abeyance pursuant to Section 206A of the Companies Act, 1956 in accordance with instructions from the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 and in respect of shareholders who could not exercise their rights in view of disputes, mistakes, discrepancy in holdings, etc.
** Refer Note No. 54 for increase in authorised share capital.
1. (a) Rupee term loan from a Bank of Rs. 11,439.28 lakhs (including Current Maturities of Rs. 5,000.00 lakhs) (31st March, 2017:
Rs. 14,881.12 lakhs including Current Maturities Rs. 3,500.00 lakhs) carries interest rate of 10.65 % p.a. The loan is repayable in 14 quarterly instalments starting from December, 2016 with the last instalment due on FebruaryRs. 2020. The loan is secured by first pari passu charge by way of mortgage of immovable assets of the Company (except for assets exclusively charged for other loans) located within its fertiliser plant in Goa, by deposit of title deeds and hypothecation of movable fixed assets at fertiliser plant in Goa (except for assets exclusively charged for other loans).
(b) Rupee term loan from a Bank of Rs. 3,368.29 lakhs (including Current Maturities of Rs. 3,368.29 lakhs) (31st March, 2017: 7,842.57 lakhs including Current Maturities Rs. 4,500.00 lakhs) carries interest rate of 10.90 % p.a. The loan is repayable in 8 equal quarterly instalments starting from March, 2017 with the last instalment due on DecemberRs. 2018. The loan is secured by exclusive charge by way of mortgage over land survey number 132 sub division 1 and land survey number 133 sub division number 1 of the Company situated in village sancoale in the state of Goa, by deposit of title deeds.
(c) Rupee term loan from a Bank of Rs. 8,862.51 lakhs (sanctioned amount Rs.10,000.00 lakhs) (including Current Maturities Rs. 2,499.00 lakhs) (31st March, 2017: Rs. 7,453.13 lakhs including Current Maturities: Rs. 820.00 lakhs) carries interest rate of 9.60 % p.a. The loan is repayable in 14 quarterly instalments starting from September, 2017 with the last instalment due on DecemberRs. 2019. The loan is secured by first pari passu charge by way of mortgage of immovable assets of the Company (except for assets exclusively charged for other loans) located within its fertiliser plant in Goa, by deposit of title deeds and hypothecation of movable fixed assets of Goa fertiliser plant of the Company (except for assets exclusively charged for other loans).
(d) Indian Rupee loan of Rs. 1,264.40 lakhs from Corporation Bank (including current maturities of Rs. 500.00 lakhs) (31st March, 2017: Rs. 1,655.37 lakhs including current maturities Rs. 500.00 lakhs), secured by equitable mortgage of land at Mahad & hypothecation of plant, machinery and other movable assets thereon. The loan carries interest rate of 11.40% p.a. and repayable in 24 quarterly instalments commencing from December, 2014.
(e) Indian Rupee loans of Nil (including current maturities of Nil) (31st March 2017: Rs. 20,908.83 lakhs including current maturities of Rs. 4,125.00 lakhs) from HDFC Limited & IL&FS Financial Services Ltd were secured by equitable mortgage of specific unencumbered land parcel (at Zuari Nagar in Goa) owned by the Company, further secured by way of pledge of shares of a subsidiary company, Mangalore Chemicals and Fertilisers Ltd (MCFL). These loans were repayable in 16 quarterly instalments after a moratorium period of one year from the date of first disbursement and carried interest of 12.50% p.a.(effective interest rate 12.75%p.a.).
2. Vehicle loans from bank of Rs. 434.07 lakhs (including Current Maturities Rs. 114.14 lakhs) (31st March, 2017: Rs. 61.05 lakhs including Current Maturities: Rs. 13.56 lakhs) carry interest rate ranging from 8.26%-11.01% p.a. The loans are repayable in 48 equal monthly instalments starting from February, 2017 with the last instalment due on March, 2022. The loans are secured by way of hypothecation of respective motor vehicles of the Company.
3. Indian Rupee loan of Rs. 18,455.26 lakhs from HDFC Limited (including current maturities of ‘ Nil) (31st March, 2017: Nil including current maturities: Nil) carries interest rate of 10.35 % p.a. The loan is repayable in 12 equal quarterly instalments starting from February, 2020 with the last instalment due on NovemberRs. 2022. The loan is secured equitable mortgage of specific unencumbered land parcel (at Zuari Nagar in Goa) owned by Company, further secured by way of pledge of shares of Mangalore Chemicals and Fertilisers Ltd (MCFL).
*(a) Cash credit (including working capital demand loans) of Rs. 66,851.66 lakhs (31st March, 2017: Rs. 30,914.25 lakhs) , Buyers credit of Rs. 74,084.14 lakhs (31st March, 2017: Rs. 1,00,619.67 lakhs) and Bill discounting of Rs. 27,645.31 lakhs (31st March, 2017: Rs. 11,762.64 lakhs) are secured by the first charge by way of hypothecation on the current assets (excluding assets against which specific loans have been availed), both present and future, wherever situated pertaining to the fertilizer division of the Company and the Company’s fertilizer division’s present and future book debts outstanding, moneys receivable, claims, bills, contracts, engagements, rights and assets excluding some subsidy receivable amount exclusively charged to certain banks.
(b) Cash credit of Rs. 4560.56 lakhs (31st March,2017: Rs. 4,828.73 lakhs) are secured by equitable mortgage of land, hypothecation of stock in trade, book debts, plant and machinery and vehicles, both present and future of one of the divisions of the Company.
(c) Cash credit of Rs. 1,271.21 lakhs (31st March, 2017: Rs.1,225.58 lakhs) from Corporation Bank is secured by hypothecation of inventory cum book debts and all current assets of one of the divisions of the Company.
(d) Cash credit of Rs. 1,692.14 lakhs from Canara Bank (31st March, 2017: Rs. 1,695.67 lakhs) are secured by hypothecation of inventories and book debts of one of the divisions of the Company.
(e) In respect of the one of the divisions of the Company, a Working Capital demand loan of ‘ Nil (31st March, 2017: Rs. 1,499.75 lakhs) is secured pari-passu basis, all present and future current assets including book debts, claims and bills outstanding receivables, stock in trade and movable assets. Loan carries Rate of Interest @11% p.a.
* Including ‘9.93 lakhs (31st March 2017: Rs. 27.85 lakhs) outstanding due to Micro and Small Enterprises (Refer Note 30).
** Including Rs. 133.38 lakhs (31st March 2017: Rs. 90.02 lakhs) outstanding due to Micro and Small Enterprises (Refer Note 30).
- Includes Rs. 44.62 lakhs (31st March 2017: Nil) payable to related party. (Refer Note 34).
Terms and conditions of the above financial liabilities:
Trade payables are normally non-interest bearing. For maturity profile of trade payables and other financial liabilities, Refer Note 38. For explanations on the Company’s credit risk management processes, Refer Note 38.
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 tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
The Company has till date recognised Rs. 2,807.09 lakhs (March 31, 2017 Rs. 1,008.00 lakhs ) as Minimum Alternate Tax (MAT) credit entitlement which represents that portion of the MAT Liability, the credit of which would be available based on the provision of Section 115JAA of the Income Tax Act, 1961. The management based on the future profitability projections is confident that there would be sufficient taxable profits in future which will enable the Group to utilize the above MAT credit entitlement.
The Company has till date recognised Rs. 13,581.19 lakhs (March 31, 2017 Rs. 14,958.90 lakhs) as deferred tax assets on unabsorbed depreciation and carried forward tax loss, which the management based on the future profitability projections is confident that there would be sufficient taxable profits in future which will enable the Company to utilize the above deferred tax assets.
a. Sales of Finished Product and Traded Products include government subsidies. Subsidies include Rs. 725.27 lakhs (31st March 2017: Rs. 395.24 lakhs) in respect of earlier years, notified during the year.
b. Subsidy for Urea has been accounted based on notified concession price under New Urea Policy 2015, and other adjustments as estimated in accordance with known policy parameters in this regard.
c. Government of India has notified the pooling of Gas in Fertiliser (Urea) sector effective from June 2015. As per the notification domestic Gas is pooled with Re-gasified Liquefied Natural Gas (RLNG) to provide natural Gas at uniform delivered price to all Natural Gas Grid connected Urea manufacturing plants.
d. The subsidy on Phosphatic and Pottasic fertilizers has been accounted for as per concession price notified by the Government of India under Nutrient Based Subsidy Policy, from time to time.
2. Earnings Per Share (EPS)
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.
The following reflects the income and share data used in the basic and diluted EPS computations:
(a) Exceptional items for the year ended 31 March 2017 represent provision made towards rebates/ price reduction claims on stock lying with distribution channel pertains to earlier year’s sale.
(b) Exceptional items for the year ended 31 March 2018 represent provision made against Inter Corporate Deposits including interest accrued thereon. (Refer note 53)
3. Dues to Micro, Small and Medium Enterprises
Disclosure as per Section 22 of “The Micro and Small Enterprises Development Act, 2006”
* Plan assets of Rs. 57.05 lakhs (March 31, 2017: Rs. 23.99 lakhs) have been recognised in other assets in respect of the Company.
** Plan assets of Rs. 240.62 lakhs (March 31, 2017: Rs. 227.92 lakhs) have not been recognised in the financial statements, as the surplus of the trust, is distributable among the beneficiaries of the provident fund trust.
a) Gratuity
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy.
b) Provident Fund
As per Ind-AS 19, Employee Benefits, provident funds set up by employers, which requires interest shortfall to be met by the employer, needs to be treated as defined benefit plan. During the current year, actuarial valuation of Provident Fund was carried out in accordance with the guidance note issued by Actuary Society of India.
c) Post Retirement Medical Benefit Plan
The Company has a defined benefit post retirement medical benefit plan, for its employees. The Company provides medical benefit to those employees who leave the services of the Company on retirement. As per the plan, retired employee and the spouse will be covered till the age of 85 years and the dependent children till they attain the age of 25 years. In case of death of retired employee, the spouse will be covered till the age of 85 years and the dependent children till they attain the age of 25 years. The plan is not funded by the Company.
The following tables summarise the components of net benefit expense recognised in the statement of profit or loss and the funded status and amounts recognised in the balance sheet for the respective plans:
4. Commitments and Contingencies
a. Leases:
Operating Lease - as lessee
i) The Company has entered into the operating leases on certain godowns, office premises, Retail outlets and vehicles with lease term between 1 to 15 years and are renewable / cancellable at the option of either of parties. The Company also has the option, under some of its leases, to lease the assets for additional term of 3 to 5 years. There are no restrictions imposed by the lease arrangements. There are no subleases. The aggregate amount of operating lease payments recognized in the statement of profit and loss (including minimum lease payment) is Rs. 2,026.43 lakhs (March 31, 2017: Rs. 2,875.04 lakhs).
ii) Future minimum rental payable under non cancellable operating lease as at 31st March are as follows:
** Bank guarantees of Rs. 7,902.33 lakhs (31 March 2017: Rs. 12,527.48 lakhs) are secured by a charge created by way of hypothecation on the current assets, both present and future, wherever situated pertaining to the Company and the Company’s present and future book debts outstanding, moneys receivable, claims, bills, contracts, engagements, rights and assets.
III. The Company had received a demand of Rs. 5,293 lakhs from Gas Authority of India Limited (GAIL) toward Take or Pay obligation. Even prior to receiving this demand, the Company has represented to GAIL to reduce the annual contractual quantity based on which the Company is confident that the Take or Pay amount will be substantial lower. Further, in terms of Contract with GAIL, this Take or Pay amount can be utilised for future Make up Gas supplies. The Company is in discussion with GAIL to reduce / waive the Take or Pay charges, hence no provision has been made for the aforesaid demand amount.
5. Related party transactions
In accordance with the requirements of Ind AS - 24 ‘Related Party Disclosures’, names of the related parties, related party relationship, transactions and outstanding balances including commitments where control exits and with whom transactions have taken place during reported periods are:
(i) Subsidiaries of the Company
1) Mangalore Chemicals and Fertilisers Limited
2) Adventz Trading DMCC ( subsidiary of Company)
(ii) Joint ventures of the Company
1) Zuari Maroc Phosphates Private Limited
2) Paradeep Phosphates Limited - Subsidiary of Zuari Maroc Phosphates Private Limited
3) MCA Phosphates Pte Limited
(iii) Associate of the Company
1) Fosfatos del Pacifico S.A.
(iv) Key Management Personnel of the Company
1) Mr. Saroj Kumar Poddar - Chairman
2) Mr. Kapil Mehan - Managing Director (w.e.f. 1st April 2015 upto 3rd June 2017)
3) Mr. N. Suresh Krishnan - (Non-Executive Director)
4) Mr. Akshay Poddar - Non-Executive Director
5) Mr. V.Seshadri - Vice President - Finance (till June 2016)
6) Mr. Sandeep Agrawal - Chief Financial Officer (w.e.f. 1st July 2016)
7) Mr. RY. Patil - Chief General Manager and Company Secretary (till May 2016)
8) Mr. RY. Patil - Vice President and Company Secretary (w.e.f June 2016)
9) Mr. Marco Wadia - Independent Director
10) Mr. Gopal Krishna Pillai - Independent Director
11) Mr. J.N. Godbole - Independent Director
12) Ms. Kiran Dhingra - Independent Director
13) Mr. Sunil Sethy - Additional Director w.e.f 28 July 2017 & Managing Director w.e.f 1st August 2017
(v) Parties having significant influence
1) Zuari Global Limited
2) Indian Furniture Products Limited (IFPL)
3) Forte Furniture Products (India) Private Limited (joint ventur of IFPL w.e.f. 01st February 2017)
4) Simon India Limited
5) Zuari Management Services Limited
6) Zuari Infraworld India Limited
7) Zuari Investments Limited
8) Gobind Sugar Mills Limited (subsidiary of Zuari Investment Limited)
9) Zuari Indian Oil Tanking Private Limited (Joint Venture of Zuari Global Limited )
10) Adventz Industries India Limited
(vi) Details of Post Employment Benefit Plans managed through separate trusts (para 9 (b) (v) of Ind AS 24)
1) Zuari Industries Limited Employee Provident Fund
2) Zuari Industries Limited Senior Staff Superannuation Fund
3) Zuari Industries Limited Non Management Employees Pension Fund
4) Zuari Industries Limited Gratuity Fund
6. SEGMENT INFORMATION
Information regarding Primary Segment Reporting as per Ind AS-108
The Company is engaged in the business of manufacturing, trading and marketing of seeds, pesticides, chemical fertilizers and fertilizer products which according to the management, is considered as the only business segment.
Accordingly, no separate segmental information has been provided herein.
Geographical Segments
The Company operates in India and therefore caters to the needs of the domestic market. Therefore, there is only one geographical segment and hence, geographical segment information is not required to be disclosed.
Revenue from single customer i.e. Government of India amounted to Rs. 1,98,620.70 lacs (Previous year : Rs. 1,65,887.90 lacs) arising from sales in the fertilizers segment.
7 Fair Values
Set out below, is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments:
The management assessed that cash and cash equivalents, trade receivables and trade payables approximate their fair value largely due to the shortterm maturities of these instruments.
The fair value of the 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.
For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.
The following methods and assumptions were used to estimate the fair values:
(i) Derivative financial instruments - The fair value of forward foreign exchange contracts is determined using the forward exchange rates at the balance sheet date. The fair value of foreign currency option contracts is determined using the Black Scholes valuation model.
The derivatives are entered into with the banks counterparties with investment grade credit ratings.
(ii) Security deposits / Employee loans - The fair value of security deposits / employee loans approximates the carrying value and hence, the valuation technique and inputs have not been given.
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at March 31, 2018 are as shown below:
There have been no transfers between level 1, level 2 and level 3 during the year.
8 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 loans,trade and other receivables, and cash and cash equivalents that derive directly from its operations. The Company also holds investments and enters into derivative transactions. The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s risk management is carried out by a treasury department under policies approved by the Board of Directors. The treasury department identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The Board of Directors (Committee of directors for Banking and Finance) provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
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 three types of risk: interest rate risk, currency risk and other price risk, such as commodity risk. Financial instruments affected by market risk include borrowings, investments and derivative financial instruments. The sensitivity analysis in the following sections relate to the position as at March 31, 2018 and March 31, 2017.
The sensitivity analysis have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant.
The analysis exclude the impact of movements in market variables on: the carrying values of gratuity and other post retirement obligations, provisions, and other non-financial assets.
The following assumptions have been made in calculating the sensitivity analysis:
-The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at March 31, 2018 and March 31, 2017.
a) 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.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Company’s profit before tax is affected through the impact on floating rate borrowings, as follows:
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment.
b) 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. Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in exchange rates of various currencies with ‘, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives.
c) Commodity price risk
(i) The Company’s operating activities require the ongoing purchase of natural gas. Natural gas being an international commodity is subject to price fluctuation on account of the change in the crude oil prices, demand supply pattern of natural gas and exchange rate fluctuations. The Company is not affected by the price volatility of the natural gas as under the Urea pricing formula the cost of natural gas is pass through if the consumption of natural gas is with in the permissible norm for manufacturing of Urea.
(ii) The Company deals in purchase of imported fertilisers (i.e. DAP and MOP), which are imported by the Company and sold in the domestic market. The import prices of these goods are governed by international prices. There is a price and material availability risk, which may not be in line to meet the domestic market requirement. The risk is also with domestic manufacturers whose costing is based on majorly imported raw materials and small value-add. However, a dynamic alignment of procurement to sales and constant review of market conditions and competitors costing help in mitigating the impact.
(iii) The Company also deals in purchase of imported raw materials (i.e. P2O5, Ammonia, Potash and Urea), which are imported by the Company and used in the manufacturing of NPK. The import prices of these materials are governed by international prices. There is a price and material availability risk.
Equity price risk Applicability
The Company’s listed and non-listed equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Company manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Company’s senior management on a regular basis. The Company’s Board of Directors reviews and approves all equity investment decisions.
At the reporting date, the exposure to unlisted equity securities at fair value was Rs. 1,272.24 lakhs (31 March 2017: Rs. 1,370.80 lakhs. Sensitivity analyses of these investments have been provided in Note 36.
At the reporting date, the exposure to listed equity securities at fair value was Rs. 4,985.37 lakhs (31 March 2017: Rs. 6,259.95 lakhs). A decrease of 5% on the BSE market price could have an impact of approximately Rs. 249.27 (31 March 2017: Rs. 313.01 lakhs) on the OCI or equity attributable to the Company. An increase of 5% in the value of the listed securities would also impact OCI and equity. These changes would not have an effect on profit or loss.
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. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
a) Trade receivables
The Company receivables can be classified into two categories, one is from the customers into the market and second one is from the Government in the form of subsidy. As far as Government portion of receivables are concerned, credit risk is nil. For market receivables from the customers, the Company extends credit to customers in normal course of business. The Company considers factors such as credit track record in the market and past dealings for extension of credit to customers. The Company monitors the payment track record of the customers. Outstanding customer receivables are regularly monitored. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and operate in largely independent markets. The Company has also taken security deposits from its customers, which mitigate the credit risk to some extent.
b) Financial Instrument and Cash Deposits
Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with the guidelines framed by the board of directors of the Company. Guidelines broadly covers the selection criterion and over all exposure which the Company can take with a particular financial institution or bank. Further the guideline also covers the limit of overall deposit which the Company can make with a particular bank or financial institution. The Company does not maintain the significant amount of cash and deposits other than those required for its day to day operations.
Liquidity risk
The Company’s objective is to maintain optimum levels of liquidity to meet its cash and collateral requirements at all times. The Company relies on a mix of borrowings and excess operating cash flows to meet its needs for funds. The current committed lines of credit are sufficient to meet its short to medium/ long term expansion needs. The Company monitors rolling forecasts of its liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities.
The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments.
9. 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 company. The primary objective of the Company’s capital management is to maximise the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents.
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 year.
No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2018 and 31 March 2017.
10 Based on the circulars received for revision in uniform freight relating to secondary freight and direct road movement, the Company has, during the year, accrued additional freight subsidy income of Rs. 297.48 lakhs (upto Previous year Rs. 2746.24 lakhs) relating to Urea. Also, the Company has receivable of Rs. 2,910.62 lakhs (Previous Year Rs. 2,910.62 lakhs) for Phosphoric and Potassic Fertilisers, for which the claims are yet to be submitted. As the performa/ format for raising the bills is recently notified and the Company is in the process of raising the bills, the amount of Rs. 5,954.34 lakhs (Previous Year Rs. 5,656.86 lakhs) is still pending for collection. The Company is hopeful to realize the above entire amount of Rs. 5,954.34 lakhs (Previous Year Rs. 5,656.86 lakhs).
11 The Company is carrying receivable of Rs. 2203.93 lakhs (March 31,2017: Rs. 2577.95 lakhs) on account of claim raised on a product supplier for loss suffered on purchase of material which did not meet the specified standards. According to the management, the Company has entered into fresh contracts with the supplier for purchase of material at discounted price and the supplier has assured to provide rebate for adverse market condititons during the earlier period. Accordingly the Company has reviewed the cash flows from the supplier towards recovery of the amount and has discounted the long term portion of the inflows. Consequently, the Company has booked an impairment loss of Rs. 317.19 lakhs on the receivable in the Statement of Profit and Loss during the current financial year. The Company is hopeful to recover the said amount although the supplier has not confirmed the receivable amount.
12 The Company is carrying a receivable of Rs. 1,949.03 lakhs for the period February 2013 & March 2013 on account of accrual of subsidy income at higher rate in comparison to rate at which subsidy is granted. However, as per the office Memorandum dated April 16, 2018 issued by the Department of Fertilizer, the Government has ex-post facto approved the subsidy paid on specific quantity of P&K fertilizer received in the district during February 2013 and March 2013 months in different year since 2012-13, as the rates fixed for the next financial year which were lower than the rate approved by cabinet /CCEA for that year. The Company has represented to the Department of Fertilizer that the material moved in February 2013 and March 2013 was part of the approved movement plan of January 2013 and hence NBS rates of 2013 should be applicable. The Company has obtained a legal opinion and if required will take appropriate recourse to recover this amount. The Company is hopeful to realize the aforesaid amount hence no provision for Rs. 1,949.03 lakhs has been made in the accounts.
13 The Company has been granted Eligibility Certificate by the Directorate of Industries, Government of Maharashtra vide letter No JDI/PUNE/PSI-2007/EC-12/2012/732 dated July Rs.19, 2012. As per the Eligibility Certificate, the Company is entitled to:
a) Electricity Duty exemption for a period of 15 years from the date of commercial production.
b) 25% refund of annual VAT and CST liability (after set-off) on sale of manufactured goods.
In terms of the Indian Accounting Standard (Ind AS 20) “Accounting for Government Grants”, the eligible incentive is considered as a capital grant and has been set-up as deferred income, ‘being recognised in the statement of profit and loss over the life of the eligible fixed assets. Incentive receivable in respect of VAT and CST liability aggregating Rs.119.40 lakhs (Previous Year Rs.136.45 lakhs) has been set up as deferred income and is being recognised in the statement of profit and loss on systematic basis over the life of the eligible fixed assets. During the year,Rs.17.05 lakhs (March31, 2017: Rs. 17.05 lakhs) has been credited to the statement of profit and loss. Incentive in respect of electricity duty exemption is accounted for during the year as a reduction from the electricity charges (i.e. the electricity charges recognised in note 26 are considered net of electricity duty as per payments made to the electricity board).
14 The Company is planning to set up a Phosphoric fertilizer plant in Ras-Al-Khaimah (RAK) in United Arab Emirates in collaboration with Ras-Al-Khaimah Maritime City Free Zone Authority. Expenditure on feasibility study and related expenditure amounting to Rs. 3,212.39 lakhs (31st March 2017: Rs. 3,155.15 lakhs) have been carried forward, pending decision on issue of shares to the Company in the proposed Joint Venture project. The JV Company has been incorporated and definitive agreement between the shareholders have been completed. The Company is in discussion with various EPC contractors with regard to the implementation of the project.
15 In respect of Company’s investment of Rs. 11,943.48 lakhs (31st March 2017: Rs. 11,943.48 lakhs) in the rock phosphate mining project (which is under development) through MCA Phosphare Pte Ltd, a joint venture Company, the Company has not considered any impairment loss based on the fair valuation of the said investment done by an independent valuer, which indicates a value higher than the carrying amount, however review by statutory auditors is still in process. The joint venture company had provided for diminution in the entire value of said investment, which the Company is not in agreement with since the same is not in accordance with the shareholders agreement with the joint venture company, and also the project company where the MCA phosphate Pte Ltd has made an investment, has not made any provision for any impairment.
16 During the financial year 2013-14, the Company had sold part of freehold land at a consideration of Rs. 16,359.32 lakhs. The possession of the said parcel of land was handed over on 28 March 2014; however the transfer of title is under progress. The Company had received full consideration from the buyer in the financial year 2013-14.
17 In terms of Demerger of fertilizer undertaking from Zuari Global Limited in an earlier year, the title deeds of Immovable properties are in the process of being transferred in the name of the Company.
18 The Company is in the process of identifying name of the customers from whom it has received money and such collections of Rs. 128.98 lakhs (March 31,2017: Rs. 332.62 lakhs) are lying under unadjusted credits, although adjusted from the overall balance of the customers. Further, the balance of individual customers and vendors are subject to confirmation/ reconciliation. The adjustments, if any, which in the opinion of the management, would not be material, would be made once these accounts are confirmed/ reconciled.
19 Zuari Global Limited (ZGL) had demerged its fertilizer undertaking to the Company with effect from 1st July’2011. ZGL has during the year, based on Hon’ble High Court order on demerger of fertilizer undertaking, identified amount of income tax paid under protest pertaining to fertilizer undertaking demerged into the Company.
The Company has exchanged letter of mutual understanding with ZGL wherein the Company has paid such amount of income tax paid under protest. During the previous year, the Company had paid Rs. 2,533.85 lakhs to ZGL on this account pending completion of final assessment/litigation in respect of such financial years, out of which during the current year, ZGL has received a favourable order of Rs. 145.18 lakhs in respect of fertilizer undertaking for the assessment year 2008-09.
Also, the Company had, during the previous year, paid Rs. 3,209.13 lakhs as advance to ZGL on account of purchase of land and buildings in Solapur district.
20 During the year, the Company has paid remuneration to Managing Director as per the requisite approvals mandated by the provisions of Section 197 read with Schedule V of the Companies Act, 2013, However, the approval of Central Government for excess remuneration paid to Managing Director of the Company amounting to Rs. 149.82 lakhs for the year ended March 31, 2016 is awaited.
21 (a) United Breweries Limited, KingFisher Finvest India Limited, McDowell Holdings Limited instituted arbitration proceedings against the Company and its erstwhile subsidiary, Zuari Fertilizer and Chemicals Limited (now merged with the Company) alleging breach of the Share Holders Agreement (SHA) dated 12th May 2014 executed between the parties. The arbitration was instituted before the, former Chief Justice of India. The Award was passed on 8th May 2017 wherein the Arbitrator has held that the SHA cannot be specifically enforced. The claims raised by the Claimants stand dismissed and the arbitrator has ordered to pay to the Parent Company a sum of Rs. 75 lakhs. The Award has been challenged by the Claimants before the High Court of Bombay at Mumbai and the matter is pending for final arguments.
(b) Mangalore Chemicals and Fertilizers Limited (MCFL), a subsidiary company had engaged M/s Ernst & Young LLP (EY) to carry out a forensic investigation into transactions in relation to the investment in the preference shares of Bangalore Beverages Limited (BBL) and advances made to United Beverages Holding Limited (UBHL) aggregating to Rs. 21,668 lakhs which had duly been provided for in the books of MCFL. Based on their report, Zuari Fertilisers and Chemicals Limited (ZFCL), the then holding company of MCFL had approached the National Company Law Tribunal in Bangalore to obtain accountability of the UB Group for the irregularities. Since UBHL has been declared to be wound up by the High Court of Karnataka vide order dated 7th February 2017, the ZFCL made an application before the High Court of Karnataka. ZFCL’s application for permission to proceed against UBHL in the NCLT proceedings has been allowed by the High Court on 20th April 2017. The matter has been taken up for hearing on several occasions, the official liquidator has been made party to the proceedings pursuant to the order of the high court, the official liquidator has been served but has failed to appear in the matter. The NCLT has passed an order directing the official liquidator to be present and file a reply on the next date of hearing. The matter is now fixed on 22.06.2018.
22 While confirming the balance due from Mcdowells Holdings Limited (MHL), aggregating to Rs. 2,332.97 lakhs, they have sought to adjust a sum of Rs. 939.43 lakhs said to be due to them from one of the subsidiaries i.e. Mangalore Chemicals & Fertilisers Ltd (MCFL). The Company has replied that MHL has no right to unilaterally assign any liability of MFCL on the basis that MCFL is a subsidiary of the Company and have refuted the stand taken by MHL. The Company has instituted proceedings against MHL under the various provisions of the Companies Act, 2013 before the National Company Law Tribunal questioning among others MCFL’s purported liability. During current financial year the Company has made a provision for the net recoverable amount from MHL of Rs. 1393.54 lakhs and has charged off the same to the statement of profit and loss as exceptional items.
23 Amalgamation
I. Pursuant to the Scheme of Amalgamation [“the Scheme”] under Section 391 to 394 of the Companies Act 1956 among the Company and its erstwhile wholly owned subsidiary companies, namely Zuari Fertilizers and Chemicals Limited (“ZFCL”), Zuari Speciality Fertilisers Limited (“ZSFL”) and Zuari Agri Sciences Limited (“ZASL”), [Transferor Companies] approved by Hon’ble National Company Law Tribunal, Mumbai Bench (“NCLT”) vide its order dated 14th September 2017, the Transferor Companies stand merged with the Company w.e.f. April 1, 2015 (the appointed date). A certified true copy of the Order has been received by the Transferor Companies and the Company on November 07, 2017 and the Company has filed the order with the Registrar of Companies (ROC), Goa.
In terms of the NCLT order, the Scheme of Amalgamation is effective from November 13, 2017, the date on which the order was filed with the ROC, Goa.
With effect from the appointed date, all the business undertakings , assets , liabilities , rights and obligations of the Transferor Companies stood transferred to and vested in the Company.
II. Since ZFCL and ZASL were the entities under the common control, the amalgamation has been accounted for in terms of ‘Appendix C’ of Indian Accounting Standard 103 (Ind AS 103) by applying “pooling of interest” method of accounting on the appointed date, where in all the assets and the liabilities of the Transferor companies have been accounted for at their book values as appearing in the books as on appointed date i.e April 1, 2015. Further, accounting for amalgamation for ZSFL has been done as per “acquisition method” as prescribed in Indian Accounting Standard 103 (Ind AS 103) where in all the assets and liablities of ZSFL have been accounted for at their book values as appearing in the books as on appointed date i.e April 1, 2015 as per the scheme of Amalgamation. The difference in the value of assets and value of the liabilities pertaining to transferred undertaking of ZSFL has been treated as Goodwill.
III. Pursuant to the Scheme of Amalgamation approved by the NCLT, all assets and liabilities of the transferor company are transferred to the transferee company and all inter-company transactions are eliminated. However, no elimination of inter company transactions has been made for transactions entered upto March 31, 2015.
IV. (a) Two of the transferor companies (i.e ZASL & ZFCL) were wholly owned subsidiaries of the Company and their entire share capital were held by the Company and its nominees. Upon the Scheme becoming effective, the shares held by the Company and its nominees in the Transferor Companies stands cancelled and extinguished without any further application, act, instrument or deed and no shares shall be issued to the shareholders of the Transferor Companies.
(b) One of the transferor company i.e ZSFL, became wholly owned subsidiary of the Company upon acquiring balance equity shares on December 11, 2015 held by joint venture partner i.e Rotem Amfert Negev Limited. Upon the Scheme becoming effective, the difference between the amount of consideration paid and book value of those equity shares has been treated as goodwill. Further, the Company has credited a sum of Rs. 96.99 lakhs towards the share of loss of joint venture partner till the date of acquiring shares from April 01, 2015.
V. As per the Scheme of Amalgamation, the authorized share capital of the Company will automatically increase by the authorized share capital of Transferor Companies without any further act or deed on the part of the Company on the effective date as defined in the Scheme. In order to intimate the ROC,Goa regarding the Scheme and to get its authorised share capital increased as per the Scheme, the Company has filed E Form INC-28 on November 13, 2017.
VI. As per the Scheme, during the period between the Appointed date and the Effective date, the Transferor Companies have carried on the business in “trust” on behalf of the Company. Further, all profits or incomes earned and losses and expenses incurred by the Transferor Companies during the period, for all purposes, is profits or income or expenditure or losses of the Company.
VII. The title deeds for immovable properties, licenses, agreements, bank accounts, loan documents etc. of the Transferor Companies are in the process of being transferred in the name of the Company.
VIII. The Company had previously issued its financial statements for the previous year ended March 31, 2017 as on May 19, 2017. Due to the aforesaid NCLT order for Amalgamation which came after issuance of financial statements for the previous year, the comparative number for the previous year ended March 31, 2017 have been prepared after incorporating the financial statements of the erstwhile subsidiaries according to the Scheme of Amalgamation.
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