1. Background
Pradeep Metals Limited (“the Company”) is a public Company domiciled in India and incorporated under the provisions of Companies Act, 1956. The Company's shares are listed on Bombay Stock Exchange in India. The Company is engaged in the manufacturing and selling of forged and machined components for various sectors. The Company caters to both domestic and international markets. The registered office and manufacturing facility of the Company is located at Navi Mumbai. The Company's CIN is L99999MH1982PLC026191.
The financial statements were authorized for issue in accordance with a resolution of the Directors on 9th May, 2018.
2. Basis of preparation
2.1. Statement of compliance with Ind AS
The financial statements (on standalone basis) of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time.
For all periods up to and including the year ended 31st March 2017, the Company had prepared its standalone financial statements in accordance with the Accounting Standards notified under Section 133 of the Companies Act, 2013 read together with the Companies (Accounts) Rules 2014 (referred as “Indian GAAP”). These are the Company's first annual financial statements prepared complying in all material respects with the Ind AS notified under Section 133 of the Companies Act, 2013.
The standalone financial statements comply with Ind AS notified by the Ministry of Corporate Affairs (‘MCA'). The Company has consistently applied the accounting policies used in the preparation of its opening Ind AS Balance Sheet at 1st April 2016 throughout all periods presented, as if these policies had always been in effect and are covered by Ind AS 101 “First-time adoption of Indian Accounting Standards''. The transition was carried out from Indian GAAP which is considered as the previous GAAP, as defined in Ind AS 101. The reconciliation of effects of the transition from Indian GAAP on the equity as at 1st April 2016 and 31st March 2017 and on the net profit and cash flows for the year ended 31st March 2017 is disclosed in note 55 to these standalone financial statements.
2.2. Overall consideration
The standalone financial statements have been prepared on going concern basis. The accounting policies are applied consistently to all the periods presented in the financial statements, including the preparation of the opening Ind AS Balance Sheet as at 1st April, 2016 being the ‘date of transition to Ind AS'. These financial statements are prepared under the historical cost convention unless otherwise indicated.
The standalone financial statement has been prepared considering all Ind AS notified by MCA till reporting date i.e. 31st March 2018. The significant accounting policies used in preparing the financial statements are set out in note 3 of the notes to the standalone financial statement.
In accordance with Ind AS 101, “First time adoption of Indian Accounting Standard”, the Company has presented three year figures for balance sheet, two years figures for statement of profit and loss, two years figures for statement of cash flows and two years figures for statement of changes in equity and related notes, including comparative information for all statements presented, in its first Ind AS financial statements. In future periods, Ind AS 1, ‘Presentation of Financial Statements' requires two comparative periods to be presented for the balance sheet only in certain circumstances.
2.3. Functional and presentation currency
The financial statements are prepared in Indian Rupees which is also the Company's functional currency. All amounts are rounded to the nearest rupees in lakhs.
2.4. Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal market or the most advantageous market must be accessible to the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole. The fair value hierarchy is described as below:
Level 1 - Unadjusted quoted price in active markets for identical assets and liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3 - unobservable inputs for the asset or liability
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of fair value hierarchy. Fair values have been determined for measurement and / or disclosure purpose using methods as prescribed in “Ind AS 113 Fair Value Measurement”.
2.5. Use of significant accounting estimates, judgements and assumptions
The preparation of these financial statements in conformity with the recognition and measurement principles of Ind AS requires management to make estimates and assumptions that affect the reported balances of assets and liabilities, disclosure of contingent liabilities as on the date of financial statements and reported amounts of income and expenses for the periods presented. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and future periods are affected.
Key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Significant estimates and critical judgement in applying these accounting policies are described below:
i) Property, plant & equipment and Intangible assets
The Company has estimated the useful life, residual value and method of depreciation / amortisation of property, plant & equipment and intangible assets based on its internal technical assessment. Property, plant & equipment and intangible assets represent a significant proportion of the asset base of the Company. Further, the Company has estimated that scrap value of property, plant & equipment would be able to cover the residual value & decommissioning costs of property, plant & equipment.
Therefore, the estimates and assumptions made to determine useful life, residual value, method of depreciation / amortisation and decommissioning costs are critical to the Company's financial position and performance.
ii) Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or (Cash Generating Unit) CGU's fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations involves use of significant estimates and assumptions which includes turnover and earnings multiples, growth rates and net margins used to calculate projected future cash flows, risk-adjusted discount rate, future economic and market conditions.
iii)Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation based on industry practice, Company's past history and existing market conditions as well as forward looking estimates at the end of each reporting period.
iv) Contingencies
Management judgement is required for estimating the possible outflow of resources, if any, in respect of contingencies / claim / litigations against the Company as it is not possible to predict the outcome of pending matters with accuracy.
v) Income taxes
Provision for tax liabilities require judgements on the interpretation of tax legislation, developments in case law and the potential outcomes of tax audits and appeals which may be subject to significant uncertainty. Therefore the actual results may vary from expectations resulting in adjustments to provisions, the valuation of deferred tax assets, cash tax settlements and therefore the tax charge in the statement of profit and loss.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which such deferred tax assets can be utilized. Currently, the Company has recognised the deferred tax on unused tax losses / unused tax credits only to the extent of the corresponding deferred tax liability. Any increase in probability of future taxable profit will result into recognition of unrecognised deferred tax assets.
vi) Measurement of defined benefit plan & other long term benefits
The cost of the defined benefit gratuity plan / other long term benefits and the present value of the gratuity obligation / other long term benefits are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation / other long term benefits is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
vii)Impairment of investment in subsidiaries
In the opinion of the management, investments in subsidiaries are considered long term and strategic in nature and in view of future business growth / asset base, the value of long term investments are considered good. Considering adverse factors which could severely affect the financial position, expansion plans and on consideration of prudence, provision is not made for impairment of such investment.
4.4 The Company has elected to continue with the carrying value of property, plant & equipments and intangible assets as recognised in financial statements as per Indian GAAP and regard those values as deemed costs on the date of transition i.e 1st April 2016.
4.5 Factory Building is constructed on Leasehold Land.
4.11 First pari passu charge has been created on fixed assets of the Company (present and future) in respect of loans taken by the Company (Refer Note 17.1) and on fixed assets of the Company (excluding Windmill) in respect of foreign currency loan of USD 2.750 Million outstanding as on 31st March 2018 (Outstanding as on 31st March 2017- USD 1.800 Million) (Outstanding as on 1st April 2016 - USD 2.000 Million) taken by Pradeep Metals Limited, Inc. (Wholly Owned Subsidiary) in USA from Union Bank of India, Hong Kong.
5.1 Out of above, 60 Shares are pledged with Union Bank of India, Hong Kong and non - disposal undertaking given to them in respect of balance 140 shares in connection with Foreign Currency Loan of USD 3.200 Million taken by Pradeep Metals Limited, Inc. USA (Outstanding as on 31st March 2018 - USD 2.750 Million) (Outstanding as on 31st March 2017 - USD 1.800 Million) (Outstanding as on 1st April 2016 - USD 2.000 Million).
5.2 In view of the settlement of dispute with the erstwhile JV Partner of the step-down subsidiary (SDS) of the Company during the year, SDS became the wholly owned subsidiary (WOS) of the WOS of the Company. The improved performance of the WOS and SDS during the year and revival of the demand for their products and considering that the investment made in WOS is of strategic nature, in the opinion of management, no provision for diminution in the value of investment in WOS and loan given is required as at 31st March 2018.
7.1 No loans and advances are due from directors or other officers of the Company either severally or jointly with any other person.
7.2 Loans are non derivative financial assets which generate fixed interest income for the Company. The carrying valve may be affected by changes in the credit risk of the counter party.
11.1 No trade receivables are due from directors or other officers of the Company either severally or jointly with any other person.
11.2 For details of outstanding receivables from related parties. (Refer note 38.3)
11.3 Trade receivables are non - interest bearing and are generally on terms of 30 to 270 days.
11.4 Trade receivable includes export bills aggregating to Rs.1,529.44 lakhs (31st March 2017: Rs.1,627.63 lakhs and 1st April 2016: Rs.1,271.44 lakhs) purchased / discounted by the bank but pending realisation as on the date of the Balance Sheet & disclosed under working capital (short term borrowing). The Company has transferred the relevant receivables to the discounting bank in exchange for cash.
However, the Company has retained the late payment and credit risk.
11.5 Trade receivable includes Rs. Nil (31st March 2017 Rs. 0.35 lakh & 1st April 2016 Rs. 0.21 lakh) receivable from private Company having common director.
11.6 Refer note 44 for policy on expected credit loss
* as on 31st March 2018, holding is not more than 5% and hence figures are not disclosed.
** as on 1st April 2016, holding is not more than 5% and hence figures are not disclosed.
15.5 The Company has only one class of issued shares having a par value of R. 10/- per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees. The dividend proposed, if any, by the Board of Directors shall be subject to the approval of the shareholders in the ensuring Annual General Meeting.
In the event of liquidation of the Company, the holder of equity shares will be entitled to receive remaining assets ot the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
15.6 Shares held by holding company and /or their subsidiaries
The Company being ultimate holding company, there are no shares held by any other holding, ultimate holding company and their subsidiaries.
3. Securities premium account
Securities premium account is used to record the premium on issue of equity shares. The same shall be utilised in accordance with the provisions of the Companies Act, 2013.
17.1 Details of security provided
(i) Term loans (Foreign currency loans & Rupee loans) are secured by charge on pari passu basis on fixed assets of the Company (present and future) and second charge on current assets. The loans are further secured by personal guarantee of Chairman and Managing Director of the Company.
(ii) Vehicle loan is secured against hypothecation of the vehicle against which the loan has been taken. The loan is further secured by personal guarantee of Chairman and Managing Director and one Director of the Company.
19.8 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.
20.1 Details of security provided on working capital loans
Working capital loans are secured by first charge on pari passu basis against hypothecation of stocks of semi-finished and finished goods, raw materials, consumable sores and spares (also refer note 10), book debts (also refer note 11) including biils discounted / purchased and second charge on its fixed assets. The loans are further secured by personal guarantee of Chairman & Managing Director of the Company.
21.1 Under the Micro, Small and Medium Enterprises Development Act, 2006 [MSMED Act], certain disclosures are required to be made relating to Micro and Small Enterprises. The Company has disclosed such information only to the extent received from suppliers about their coverage under the MSMED Act. Auditor's have relied on the same.
Note :
Provision for contingency represents provision for (a) expected margin on sales return and (b) provision for disputed Navi Mumbai Municipal Cess (‘NMMC'). In respect of (a) the outflow is expected to be within a period of one year. In respect of (b),the Company had paid Rs.60.29 lakhs under protest. During the year, Company has adjusted the payment under protest to the extent of expected liability though the outcome of appeal is pending to be received. Expected outflow of interest / penalty depends on outcome of the appeal filed.
31.1 The foreign exchange loss relating to foreign currency term loans and working capital loans to the extent considered as an adjustment to the interest cost.
(i) In respect of (a) and (d) above, the Company does not expect any cash outflow till such time contractual obligations are fulfilled.
(ii) In respect of (b) and (c) above, future cash out flows (including interest / penalty) are determinable on receipt of judgments from tax authorities / labour court.
(iii) In respect of (b) above, during the year, the Company has adjusted the payment made under protest of Rs. 60.29 lakhs against the provision made of Rs.60.44 lakhs (31st March 2017: Rs.34.94 lakhs). The hearing for appeal is under progress. Cash outflow for interest and penalty can be determined only upon the outcome of the appeal.
(b)The Company had received order under Income Tax Act for Assessment Year 2015-16 in earlier year as per which the department has withhold refund to the extent of credit of dividend taxes paid. In this regard, the Company had filed rectification application for the same. The Company does not expect any demand from tax department and hence not treated as contingent liability.
4 Capital and other commitments
Capital commitment for tangible assets (net of advance paid) - Rs. 413.18 lakhs (31st March 2017 : Rs. 436.96 lakhs, 1st April 2016: Rs. 669.66 lakhs). There are no other commitments. Capital commitment for intangible assets (net of advance paid) - Nil (31st March 2017: Rs. Nil, 1st April 2016: Rs. Nil)
5 Disclosure of lease - Operating leases
Company as lessee:
The Company has taken factory premises and machinery under operating lease basis. Agreement for factory premises is non-cancellable and machinery is cancellable. Rent incurred with respect to cancellable operating lease (machinery) is Rs. 56.88 lakhs (31st March 2017: Rs. 50.99 lakhs). With respect to non-cancellable operating lease arrangement (factory premises), rent for the year and the future minimum lease payments is as under:
5.1 Outstanding balances at the year end are unsecured with a short term duration and interest free. For the year ended March 31, 2018 the Company has not recorded any impairment of receivables relating to amount owed by related parties (March 31, 2017 : Nil, April 1, 2016 : Nil). This assessment is undertaken in each financial year through examining the financial position of the related party & the market in which the related party operates.
5.2 All transactions were made on normal commercial terms and conditions and at market rates.
6 Financial instruments by category
Set out below is a comparison, by class, of the carrying amounts and fair value of the Company's financial instruments as of March 31, 2018, other than those with carrying amounts that are reasonable approximates of fair values:
The management assessed that the fair value of cash and cash equivalent, trade payables and other current financial assets and liabilities approximate their carrying amounts largely due to the short term 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.
7 Significant estimates and assumptions
The preparation of the Company's financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures, including the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
a) Impairment of non-financial assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. In determining the fair value less costs to disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
b) Defined benefit plans & other long term benefits
The cost of the defined benefit gratuity plan and other long term benefit and the present value of the gratuity obligation and leave benefit are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The mortality rate is based on publicly available mortality tables for India. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates for India.
c) Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the Discounted Cash Flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. See Note 48 for further disclosures.
d) Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on Company's past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
e) Income tax and deferred tax
Deferred tax assets are not recognised for unused tax losses as it is not probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
f) Provision for Inventories
Management reviews the inventory age listing on a periodic basis. This review involves comparison of the carrying value of the aged inventory item with the respective net realisable value. The purpose is to ascertain whether an allowance is required to be made in the financial statements for any obsolete and slow-moving items. Management is satisfied that adequate allowance for absolute and slow-moving inventories has been made in the financial statement.
8 Hedging activities and derivatives
Derivatives not designated as hedging instruments
The Company had used foreign exchange forward contracts to manage repayment of some of its foreign currency denominated borrowings in the past. These foreign exchange forward contracts are not designated as cash flow hedges and are entered into for periods consistent with foreign currency exposure of the underlying transactions i.e. the repayments of foreign currency denominated borrowings. However, considering that the Company has a natural hedge in the form of exports receivables, the Company does not book foreign exchange forward contracts.
9 Financial risk management objectives and policies
The Company's principal financial liabilities comprise loans and borrowings, trade payables and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Company's operations. The Company's principal financial assets include loans, trade and other receivables and cash and cash equivalents that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The Company's senior management oversees the management of these risks. The Company's senior management is supported by a Risk Management Committee (RMC) that advises on financial risks and the appropriate financial risk governance framework for the Company. The RMC provides assurance that the Company's financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company's policies and risk objectives. All derivative activities for risk management purposes are carried out by experienced members from the senior management who have the relevant expertise, appropriate skills and supervision. It is the Company's policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised as below.
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 equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings and deposits.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to the risk of changes in market interest rates relates primarily to the Company's long-term debt and short-term debt obligations with floating interest rates.
The Company generally converts its borrowings in Foreign Currency, considering natural hedge it has against its export. All foreign currency debt obligations carry floating interest rates.
Interest rate sensitivity
The Company's total interest cost the year ended March 31, 2018 was Rs.616.01 lakhs and for year ended March 31, 2017 was Rs.550.04 lakhs. 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, showing a significantly higher volatility than in prior years.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company's exposure to the risk of changes in foreign exchange rates relates primarily to the Company's export revenue and long term foreign currency borrowings. The Company manages its foreign currency risk by budgeting exports sales & repeat orders from its overseas customers and Company keep its long term foreign currency borrowings un-hedged which will be natural hedge against its un-hedged exports. The Company may hedge its long term borrowing near to the repayment date to avoid rupee volatility in short term. The company also avails bill discounting facilities in respect of export receivables.
Commodity price risk
Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase of steel. Due to significant volatility of the price of the steel, the Company has agreed with its customers for pass-through of increase/decrease in prices of steel. There may be lag effect in case of such pass-through arrangement.
Commodity price sensitivity
The Company revises its prices to customers on quarterly basis by considering average raw materials prices prevailing in the previous quarter impying it passes through any increase in prices thereby minimising the impact on the profit and loss and equity of the Company.
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 other receivables and deposits, foreign exchange transactions and other financial instruments.
Trade receivables
Customer credit risk is managed by the Company's established policy, procedures and control relating to customer credit risk management. Further, Company's customers includes companies having long standing relationship with the Company. Outstanding customer receivables are regularly monitored and reconciled. At March 31, 2018, receivable from Company's top 5 customers accounted for approximately 30% (March 31, 2017: 36%) of all the receivables outstanding. An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The calculation is based on historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 11. The Company does not hold collateral as security except in case of few customers. Majority of the export recieveable are covered under the insurance cover. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets.
Liquidity risk
As per the Company's policy, there should not be concentration of repayment of loans in a particular financial year. In case of such concentration of repayment, the Company evaluates the option of refinancing entire or part of repayments for extended maturity. The Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. The Company has access to a sufficient variety of sources of funding and debt maturing within 12 months can be rolled over with existing lenders and the Company.
10 Capital management
For the purpose of the Company's capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the 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 a debt equity ratio, which is debt divided by equity.
In order to achieve this overall objective, the Company's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period. No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2018 and March 31, 2017.
11 Segmental disclosure
The Company is primarily engaged in manufacturing of closed die steel forgings & processing and Company is also into power generation from wind turbine which is supplied to Maharashtra State Electricity Distribution Company Limited (MSEDCL).
Notes:
a) The operating segments have been reported in a manner consistent with the internal reporting provided to the Corporate Management Committee, which is the Chief Operating Decision Maker.
b) The business segment comprise the following:
a) Closed Die Forging and Processing
b) Power Generation
c) The geographical information considered for disclosure are: Sales within India and Sales outside India
d) Reliance on major customers: One customer represents more than 10% of the total revenue. Total revenue from this major customer amounts to Rs. 1,824.49 lakhs (FY 2016-17: Rs. 1,334.55 lakhs) During the FY 16-17, one more party other than the above represented more than 10% of the total revenue whose revenue amounts to Rs. 1,311.96 lakhs
12 Defined benefits and other long term benefit plans
(a) Gratuity plan
Funded scheme
The Company has a defined benefit gratuity plan for its employees. The gratuity plan is governed by the payment of Gratuity Act, 1972. Under the Act, every employee who has completed five years of service is entiltled to specific benefit. The level of benefits provided on the employee's lenth of service and salary retirement age. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn) for each completed year of service as per the provisions of the payment of Gratuity Act, 1972. The scheme is funded with insurance company in the form of a qualifying insurance policy.
Risk exposure and asset-liability matching
Provision of a defined benefit scheme poses certain risks, some of which are detailed hereunder, as companies take on uncertain long term obligations to make future benefits payments.
I. Liability risks
a) Asset-liability mismatch risk
Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the Company is successfully able to neutralize valuation swings caused by interest rate movements.
b) Discount rate risk
Variations in the discount rate used to compute the present value of the liabilities may seem small, but in practice have a significant impact on the defined benefit liabilities.
c) Future salary escalation and inflation risk
Since prive inflation and salary growth are linked economically, they combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increase provided at management's discretion may lead to uncertainties in estimating this increasing risk.
II. Asset Risks
All plan assets are maintained in a trust fund managed by a public sector insurer viz. LIC of India. LIC has a sovereign guarantee and has been providing consistent and competitive returns over the years. The Company has opted for a traditional fund wherein all assets are invested primarily in risk averse markets. The Company has no control over the management of funds but this option provides a high level of safety for the total corpus. A single account is maintained for both the investment and claim settlement and hence 100% liquidity is ensured. Also interest rate and inflation risk are taken care of.
The estimates of future salary increases, considered in actuarial valuation, takes account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. The sensitivity analysis above have been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
(b) Leave benefits
Liability for leave benefits which are long term in nature (Privilege and sick leave) are unfunded and actuarially determined considering the leave policy/rules of the Company. Provision for short term leave benefit - casual leave is calculated on arithmetic basis. The total liability for leave benefits as at year end is Rs.141.65 lakhs (31st March 2017: Rs.142.37 lakhs, 1st April 2016: Rs. 115.58 lakhs).
13 Defined contribution plan
Provident fund & ESIC
In accordance with the law, all employees of the Company are entitled to receive benefits under the provident fund and ESIC. Under the defined contribution plan, provident fund and ESIC is contributed to the government administered fund. The Company has no obligation, other than the contribution payable to the provident fund & ESIC.
14 Cash flow statement related
14.1 Aggregate outflow on account of direct taxes paid is Rs. 306.67 lakhs (31st March 2017: Rs.165.33 lakhs).
14.2 Conversion of Rupee term loan in foreign currency loan (USD) aggregating to Rs. 1,565.75 lakhs (31st March 2017 :Rs. 631 lakhs) is not considered as cash transaction.
14.3 Due to reclassification of Dies from Inventories to Fixed Assets in the Previous Financial Year, finance facilities from banks changed accordingly. In the current financial year, amount of Rs.700 lakhs has been reclassified from short term as long term borrowings without any physical movement of Cash Flow.
15 During the financial year 2016 - 17, the Company had received a government grant of Rs. 214 lakhs from Steel Development Fund (SDF) of Ministry of Steel as first installment towards its contribution for a specified project which will help decreasing greenhouse gases emission. The total estimated cost of the project is Rs. 560 lakhs out of which contribution from SDF is Rs. 275 lakhs and balance Rs. 285 lakhs shall be contributed by the Company. As the project is ongoing, all direct cost and allocable costs (including depreciation) has been considered as intangible assets under development. Intangible assets and equipments which are used for the project have been capitalised as tangible fixed assets. Further, government grant received of Rs. 214 lakhs is treated as deferred income. (refer note 4.7)
16 First time adoption
These financial statements for the year ended 31st March 2018 are the first the Company has prepared in accordance with IND AS. For periods up to and including the year ended 31st March 2017, the Company prepared its financial statements in accordance with Indian accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (‘Indian GAAP').
Accordingly, the Company has prepared financial statements which comply with IND AS applicable for periods ending on 31st March 2018, together with the comparative period data as at and for the year ended 31st March 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Company's opening balance sheet was prepared as at 1st April 2016, the Company's date of transition to IND AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at 1st April 2016 and the financial statements as at and for the year ended 31st March 2017.
16.1 Exceptions applied
The Company has applied all the mandatory exceptions in accordance with IND AS 101. Following are the exceptions with significant impact:
1) Estimates
The estimates at 1st April 2016 and at 31st March 2017 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies). The estimates used by the Company to present these amounts in accordance with IND AS reflect conditions at 1st April 2016, the date of transition to IND AS and as of 31st March 2017.
2) Classification and measurement of financial assets
The Company has classified financial assets on the basis of the facts and circumstances that exist at the date of transition to IND AS.
3) Deemed cost for property, plant and equipment and intangible assets
The Company has elected to continue with the carrying value for all of its property, plant and equipment and intangible assets as recognized in the financial statements as at the date of transition to IND AS, measured as per the Indian GAAP and use that as its deemed cost as at the date of transition.
4) Embedded lease
Appendix C to IND AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with IND AS 17, this assessment is carried out at the inception of the contract or arrangement. However, the Company has used IND AS 101 exemption and assessed all arrangements based for embedded leases based on conditions in place as at the date of transition.
5) Investments in subsidiaries
The Company has elected the Indian GAAP carrying amount at the date of transition as deemed cost for its investment in its subsidiary.
16.2 Notes to the reconciliation of equity as at 1st April 2016 & 31st March 2017 and statement of profit and loss for the year ended 31st March 2017.
1) Defined benefit liabilities
Both under Indian GAAP and IND AS, the Company recognized costs related to its post-employment defined benefit plan and other long term benefit on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to the statement of profit and loss. Under IND AS, remeasurements (comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets excluding amounts included in net interest on the net defined benefit liability) are recognized immediately in the balance sheet with a corresponding debit or credit to other equity through OCI. Thus the employee benefit cost is reduced by Rs.36.32 lakhs and remeasurement gains/losses on defined benefit plans has been recognized in the OCI net of related deferred tax for FY 2016-17.
2) Revenue
Under Indian GAAP, revenue from sale of products was presented excluding excise duty. Under IND AS, revenue from sale of products is presented inclusive of excise duty. Excise duty paid is presented on the face of the statement of profit and loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended 31st March 2018 by Rs. 91.26 lakhs. There is no impact on total equity and profits.
3) Deferred tax
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 required 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. This has not resulted in recognition of deferred tax on new temporary differences which was not required under Indian GAAP. In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax adjustments are recognized in correlation to the underlying transaction either in other equity or a separate component of equity.
4) Standby equipment/ Capital Spares
The Company accounted for certain spares which are capable of being used during more than one accounting period or which can be only specifically used in combination with another fixed assets as part of inventories under Indian GAAP. Under IND AS, any asset which satisfies the criteria of IND AS 16 needs to be accounted as a part of property, plant and equipment. Accordingly, the Company has done an assessment of the relevant spares and reclassified the same from inventory to property, plant and equipment wherever such spares satisfied the criteria of IND AS 16. Depreciation on such reclassified items have been computed retrospectively to the extent of available information and the net amount is considered for reclassification purposes while the balance impact is adjusted in other equity.
5) Prior period
Prior period expenses/(income) as reportes as per previous GAAP has been restated respective period/year in accordance with Ind AS requirements.
6) Investment in subsidiary
The Company has availed the option to value investment in subsidiary at deemed cost. The deemed cost for this purpose can be either its fair value at the entity's date of transition to IND AS in its separate financial statements or previous GAAP carrying amount at the transition date. The Company has decided to use previous GAAP value as deemed cost for its investments.
7) Impact on cash flow
The translation from previous GAAP to IND AS has no material impact on the statement of cash flow.
17 Additional information as required by para 5 of General Instructions for preparation of Statement of Profit and Loss (other than already disclosed above) are either Nil or Not Applicable.
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