Reporting entity

Dynamatic Technologies Limited (“the Company”) was incorporated in 1973 as Dynamatic Hydraulics Limited under provisions of the Companies Act, 1956. In 1992, the name of the Company was changed to Dynamatic Technologies Limited. The Company is in the business of manufacturing automotive components, hydraulics components, aerospace components and wind farm power generation. The Company is listed in India with National Stock Exchange and Bombay Stock Exchange. During the year ended 31 March 2018, the Board of Directors of the Company vide its meeting dated 28 February 2018 has approved the divestment plan of Auto divisions (refer note 58).

1 Basis of preparation

a) Statement of compliance

These Standalone Ind AS financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules 2015 notified under Section 133 of the Companies Act 2013 (‘the Act’) and other relevant provisions of the Act.

The Company’s Standalone financial statements up to and for the year ended 31 March 2017 were prepared in accordance with the Companies (Accounts) Rules 2014, notified under Section 133 of the Act and other provisions of the Act (‘Indian GAAP’ or ‘Previous GAAP’).

As these are the Company’s first Standalone Ind AS financial statements prepared in accordance with Indian Accounting Standards (Ind AS), the Company has adopted all the relevant Ind AS standards and the first time adoption was carried out in accordance with Ind AS 101, First time adoption of Indian Accounting Standards. The transition was carried out from Indian Accounting Principles generally accepted in India as prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 (IGAAP), which was the Previous GAAP and an explanation of how the transition to Ind AS has affected the previously reported financial position and financial performance of the Company is provided in note 56.

The Standalone Ind AS financial statements are authorised for issue by the Company’s Board of Directors on 29 May 2018.

b) Functional and presentation currency

These Standalone Ind AS financial statements are presented in Indian Rupees (‘), which is also the Company’s functional currency. All amounts have been rounded-off to the nearest Lacs, unless otherwise mentioned.

c) Basis of Measurement

The Standalone Ind AS financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following:

(i) Defined benefit and other long-term employee benefits where plan asset is measured at fair value less present value of defined benefit obligations.

(ii) Certain financial assets and liabilities that are qualified to be measured at fair value;

d) use of estimate and judgements

The preparation of Standalone Ind AS financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. They are based on historical experience and other factors that are believed to be reasonable under the circumstance. Revisions to accounting estimates are recognised prospectively.

Judgements

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:

- note 40 : leases classification

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 March 2018 is included in the following notes:

- note 3: useful life of property, plant and equipment and intangible assets;

- note 55 : recognition of deferred tax asset: availability of future taxable profit against which deferred tax can be used;

- note 20, 25 and 37 : recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.

- note 44 : measurement of defined benefit obligation : key actuarial assumptions;

- note 4, 5, 6, 10, 13, 14 and 46 : impairment of financial assets

e) Measurement of fair values

Certain accounting policies and disclosures of the Company require the measurement of fair values, for both financial and non financial assets and liabilities.

The Company has an established control framework with respect to the measurement of fair values.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments.

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

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

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

- level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the following notes:

- note 2 : financial instruments.

Rights, preferences and restrictions attached to equity shares:

The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company’s residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining asset of the Company after distribution of all preferential amounts, if any. The distribution will be in proportion to the number of equity shares held by the shareholders.

The Company has not allotted any fully paid equity shares by way of bonus shares nor has bought back any class of equity shares during the period of five years immediately preceeding the balance sheet date nor has issued shares for consideration other than cash.

3(i) Capital reserve:

Capital reserve was created on account of Subsidy received during the year ended 31 March 2005.

3(ii) Capital redemption reserve:

During the year ended 31 March 2005, an amount of Rs. 240 Lacs was transferred to Capital redemption reserve upon redemption of preference share, in accordance with the Companies Act, 1956. Capital redemption reserve is not freely available for distribution.

3(iii) Securities premium:

Securities premium reserve is used to record the premium received on issue of shares by the Company. The reserve can be utilised in accordance with the provision of sec 52(2) of Companies Act, 2013.

3(iv) Reserve on amalgamation:

Reserve on amalgation was created pursuant to the scheme of amalgamation of JKM Daerim Automotive Limited (JDAL) during the year ended 31 March 2008.

3(v) General reserve:

General reserve is used from time to time to transfer profits from retained earnings for appropriation purpose.

3(vi) Retained earnings:

The cumulative gain or loss arising from the operations which is retained by the Company is recognised and accumulated under the heading of retained earnings. At the end of the year, the profit after tax is transferred from the statement of profit and loss to the retained earnings account.

* Cash credit and working capital demand loans from banks carry interest ranging between 10.40% - 12.10% per annum., computed on a monthly basis on the actual amount utilized, and are repayable on demand. These are secured by pari passu charge by way of hypothecation of stock and book debts of the Company and second pari passu charge on the movable (other than those exclusively charged) and immovable fixed assets of the Company.

** The Company had taken foreign currency letter of credit /buyer’s credit, which carry interest ranging between LIBOR 1% to LIBOR 1.5% per annum for 180 days and are renewable at 6 monthly rest for a maximum of one year.

# Short term loan from bank carries rate of interest @ 12.00% per annum repayable in 6 equal monthly installments and secured by way of personal guarantee given by promoter. The same has been repaid during the year.

@ The Company has availed bill discounting facility from banks which carry interest rate between 9.50% to 12.25 % per annum and is payable within 90 days from date of discounting of bills.

Information about the Company’s exposure to interest rate, currency and liquidity risk are disclosed in note 46.

* Consequent to the introduction of Goods and Service Tax (“GST”) with effect from 1 July 2017, Central Excise, Value Added Tax (“VAT”), etc have been subsumed into GST. In accordance with Indian Accounting Standard -18 on Revenue and Schedule III of the Companies Act, 2013 unlike Excise duties, levies like GST, VAT, etc are not part of revenue. Accordingly, the figures for the periods upto 30 June 2017 are not strictly relatable to those thereafter. The following additional information is being provided to facilitate such an understanding:

4. Leases

Operating leases

The Company has taken office premises, residential premises, machineries and other facilities under operating lease (cancellable lease). Such leases are generally with the option of renewal against increased rent and premature termination. Lease payments are renegotiated at the time of renewal.

Lease rental expense under cancellable operating leases during the year was Rs. 227 Lacs (previous year: Rs. 185 Lacs).

The Company is obligated under non-cancelable operating leases for land, building and plant and machinery. Lease rental expense under non-cancellable operating leases during the year was Rs. 1,437 Lacs (previous year: Rs. 1,571 Lacs).

5. Segment information

The Chief Executive Director and Managing Director of the Company has been identified as the Chief Operating Decision Maker (“CODM”) as defined by Ind AS 108, Operating Segments. The CODM evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by the products portfolio and segment information has been presented accodingly.

Operating segment

The Company’s business is concentrated in manufacturing of hydraulic products, automotive & aluminium castings, aerospace & defence related items and others. And accordingly, primary segment information is presented based on the followings:

Reportable segment

- Hydraulics - Engaged in the activity of manufacturing hydraulic pumps, hand pumps, lift assemblies, valves and power packs.

- Automotive and aluminium castings (“AUC”) - Engaged in the activity of manufacturing case front, intake manifolds and exhaust manifold and Wind farm division which is into generation of power through wind energy.

- Aerospace and defence (“ASP”) - Engaged in the activity of manufacturing airframe structures, precision aerospace components.

- Others - Comprising Corporate division and Homeland division which offers cutting edge security products and technologies.

Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Company as a whole. The Company has a corporate center, which provides various accounting and administrative support functions. Segment information for this activity has been aggregated under “Unallocated”. Revenue identifiable to business segments have been disclosed under the respective business segment. Segment costs include employee benefit expenses, cost of material consumed, finance costs, depreciation and other operating expenses that can be allocated on a reasonable basis to respective segments. Assets and liabilities in relation to segments are categorized based on items that are individually identifiable to that segment. Certain assets and liabilities are not specifically allocable to individual segments as these are used interchangeably. The Company therefore believes that it is not practicable to provide segment disclosures relating to such assets and liabilities and accordingly, these are separately disclosed as ‘Unallocated’.

B Geographic information:

The geographical information analyses the Company’s revenue and non- current assets by the Company’s country of domicile (i.e. India) and other countries. In presenting the geographical information, segment revenue has been based on the geographical location of the customer and segment assets which have been based on the geographical location of the assets.

C Major customer:

Revenue from transactions with the external customer in Aerospace and defence segment amounting to 10% or more of the Company’s revenues is as follows:

6 Dues to micro, small and medium enterprises

The Ministry of Micro, Small and Medium Enterprises has issued an Official Memorandum dated 26 August 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum. However, the Company does not have any amounts payable to such enterprises as at 31 March 2018 (31 March 2017: Nil; 1 April 2016: Nil) based on the information received and available with the Company. Also the Company has not received any claim for interest from any supplier under the Micro, Small and Medium Enterprises Development Act, 2006.

Defined benefit plan

The Company operates post-employment defined benefit plan that provide gratuity, governed by the Payment of Gratuity Act,1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service or part thereof in excess of six months. The gratuity plan is a funded plan and the Company makes contributions to recognised funds in India. The Company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

These defined benefit plans expose the Company to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk.

A Funding

The Company’s gratuity scheme for employees is administered through a trust with the Life Insurance Corporation of India. The funding requirements are based on the gratuity fund’s actuarial measurement framework set out in the funding policies of the plan. The funding is based on a separate actuarial valuation for funding purposes for which the assumptions may differ from the assumptions set out in (E). Employees do not contribute to the plan.

The Company expects to pay Rs. 96 Lacs in contributions to its defined benefit plans in 2018-19.

B Reconciliation of net defined benefit liability

The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit liability/ assets and its components:

Notes:

(i) The discount rate is based on the prevailing market yield on Government Securities as at the balance sheet date for the estimated term of obligations.

(ii) The expected return on plan assets is determined considering several applicable factors mainly the composition of the plan assets held, assessed risks of asset management, historical results of the return on plan assets and the Company’s policy for plan asset management.

(iii) The estimate of future salary increases considered in actuarial valuation takes into account inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

(ii) Sensitivity analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant would have affected defined benefit obligation by amounts shown below:

Defined Contribution plan

The Company’s contribution to Provident Fund aggregating to Rs. 461 Lacs (31 March 2017: Rs. 362 Lacs) has been recognised in the Statement of Profit and Loss under the head employee benefit expense.

7 Financial instruments - fair value and risk management Accounting classification and fair value

The following table shows the carrying amount and fair value of financial assets and financial liabilities including their levels in fair value hierarchy:

Fair value hierarchy

The section explains the judgment and estimates made in determining the fair values of the financial instruments that are:

a) recognised and measured at fair value

b) measured at amortised cost and for which fair values are disclosed in the financial statements.

To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the Indian Accounting Standard.

* Current maturities of long term borrowings aggregating Rs. 1,436 Lacs, ‘ Nil and Rs. 5,813 Lacs as at 31 March 2018, 31 March 2017 and 31 March 2016 respectively, form part of other financial liabilities.

Investment in equity shares of subsidiaries are not appearing as financial asset in the table above being investment in subsidiaries accounted under Ind AS 27, Separate Financial Statements which is scoped out under Ind AS 109.

Fair Value Hierarchy

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes investment in equity, preference securities, mutual funds and debentures that have quoted price.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the-counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level

3. This is the case for unquoted equity securities.

Fair Valuation Method

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. The following methods and assumptions were used to estimate the fair values:

A. Financial Assets:

1. Fair value of all the above financial assets except Investments are measured at balance sheet date value, as most of them are settled within a short period and so their fair value are assumed to be almost equal to the balance sheet date value.

B. Financial Liabilities:

1. Borrowings: It includes loans taken from banks and financial institution, cash credit and bill discounting facilities. Borrowings are classified and subsequently measured in the financial statements at amortized cost. Considering that the interest rate on loans is reset on yearly basis, the carrying amount of the loan would be a reasonable approximation of its fair value.

2. Trade payables and other financial liabilities: Fair values of trade payables and other financial liabilities are measured at balance sheet date value, as most of them are settled within a short period and so their fair values are assumed almost equal to the balance sheet date values.

8. Financial risk management

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

Risk management framework

The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal auditor. Internal Audit function includes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

(i) Credit Risk

Credit risk is the risk of financial loss to the Company, if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and loans given. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivables. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors. The carrying amount of financial asset represent the maximum credit exposure.

Trade and other receivables

The maximum exposure to credit risk at the reporting date is primarily from trade receivables. However, the management also considers the factors that may influence the credit risk of its customer base. Customers of the Company are spread across diverse industries and geographical areas. The Company limits its exposure to credit risk from trade receivables by establishing a maximum credit period and takes appropriate measures to mitigate the risk of financial loss from defaults. Recurring credit evaluation of credit worthiness is performed based on the financial condition of respective customers.

Expected credit loss assessment for Trade Receivables as at 1 April 2016, 31 March 2017 and 31 March 2018 are as follows:

The Company establishes an allowance for credit loss that respresents its estimate of expected losses in respect of trade and other receivables based on past and the recent collection trend. The maximum exposure to credit risk as at reporting date is primarily from trade receivables as at 31 March 2018 amounting to Rs. 14,202 Lacs (31 March 2017: 10,733 Lacs; 1 April 2016: 10,676 Lacs). The movement in allowance for credit loss in respect of trade and other receivables during the year was as follows -

There is no significant movement in the impairment loss allowance during 2017-18

(ii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Management monitors rolling forecast of the Company’s liquidity position and cash and cash equivalents on the basis of expected cash flows. This is generally carried out by the Management of the Company in accordance with practice and limits set by the Company. In addition, the Company’s liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

i) Financing arrangement

The Company maintains the following line of credit:

(i) Terms loans taken from bank aggregrating to Rs. 28,645 repayable in 32 quarterly installments first installment starting from 15 October 2018 with interest rate ranging from 10.45% to 11.50% per annum. Term Loan from financial institutions aggregating to Rs. 8,977 lacs with interest rate ranging from 10.35% - 10.50% per annum. These are secured by first pari passu charge on the entire movable and immovable fixed assets of the Company, present and future. Second pari passu charge on the entire current assets of the Company, present and future. Pledge of the shares of subsidiaries and personal guarantee issued by the promoter.

(ii) Cash credit and working capital demand loans from banks carry interest ranging between 10.40% - 12.10% per annum., computed on a monthly basis on the actual amount utilized, and are repayable on demand. These are secured by pari passu charge by way of hypothecation of stock and book debts of the Company and second pari passu charge on the movable (other than those exclusively charged) and immovable fixed assets of the Company.

(iii) The Company has taken foreign currency letter of credit /buyer’s credit, which carry interest ranging between LIBOR 1% to LIBOR 1.5% per annum for 180 days and are renewable at 6 monthly rest for a maximum of one year.

(iv) The Company has taken receivable bill discounting facility from banks which carry interest between 9.5% - 12.25% per annum and is payable within 90 days from date of bill discounted.

The table below provides details regarding the contractual maturities of significant financial liabilities as at 31 March 2018, 31 March 2017 and 1 April 2016. The amounts are gross and undiscounted contractual cash flow and includes contractual interest payment and exclude netting arrangements:

As disclosed in note 18 and 22, the Company has secured bank loan that contains loan covenants. A future breach of convenant may require the Company to repay the loan earlier than indicated in the above table. Except for these financial liabilties, it is not expected that cash flows included in maturity analysis could occur significantly earlier.

* Includes current maturies of long term borrowings

# Excludes current maturies of long term borrowings

(iii) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables and long term debt. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

(a) Currency risk

The Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the respective functional currency of the Company. The functional currency of the Company is primarily ‘. The currencies in which these transactions are primarily denominated are USD, GBP etc. Management monitors the movement in foreign currency and the Company’s exposure in each of the foreign currency. Based on the analysis and study of movement in foreign currency, the Company decides to exchange its foreign currency.

Exposure to currency risk

The summary quantitative data about the Company’s exposure to currency risk as reported to management is as follows:

Sensitivity analysis

A reasonably possible strengthening (weakening) of the USD, EURO, GBP and SGD against ‘ at 31 March 2018 and 31 March 2017 would have affected the measurement of financial instruments denominated in foreign currency and affected equity and profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

(b) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s borrowings comprises of term loan, cash credit working capital loan and bill discounting which carries fixed rate of interest, which do not expose it to interest rate risk.

9. Capital management

The Company’s policy is to maintain a stable and strong capital base structure with a focus on total equity so as to maintain investor, creditor and market confidence and to sustain future development and growth of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company’s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value and safeguard its ability to continue as a going concern.

The Company monitors capital using a ratio of ‘adjusted net debt’ to ‘equity’. For the purpose of Company’s capital management, adjusted net debt is defined as aggregate on Non-current borrowing, current borrowing and current maturities of long-term borrowings less cash and cash equivalents and total equity includes issued capital and all other equity reserves.

*Managerial remuneration does not include cost of employee benefits such as gratuity and compensated absences since, provision for these are based on an actuarial valuation carried out for the Company as a whole.

# The current year payment includes amount paid towards the full and final settlement.

Terms and conditions

All transactions with these related parties are priced at arm’s length basis and resulting outstanding balances are to be settled in cash within six months to one year of reporting date. None of the balances are secured.

10. Management fees

It represents the cost with an agreed markup for rendering executive management, finance accounting, human resources services, legal and other miscellaneous services to its certain overseas subsidiaries.

11. Transfer pricing

The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under Sections 92-92F of the Income-tax Act. Since the law requires existence of such information and documentation to be contemporaneous in nature, the Company is in the process of updating the documentation for the international as well as specified domestic transactions entered into with the associated enterprise during the financial year and expects such records to be in existence latest by the end of the stipulated timeline, as required by law. The Management is of the opinion that its international as well as specified domestic transactions are at arm’s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for taxation.

12. Specified bank notes

During the year ended 31 March 2017, the Company had specified bank notes or other denomination notes as defined in the MCA notification G.S.R. 308(E) dated 31 March 2017. The details of Specific Bank Notes (‘SBN’) held and transacted during the period from 8 November 2016 to 30 December 2016 and the denomination wise SBNs and other notes as per the notification is given below:

*For the purposes of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated 8 November 2016. Note: The disclosures in the financial statements regarding holdings as well as dealings in specified bank notes during the period from 8 November 2016 to 30 December 2016 have not been made since they do not pertain to the financial year ended 31 March 2018. However amounts as appearing in the audited Standalone Ind AS financial statements for the period ended 31 March 2017 have been disclosed.

13. First time adoption

As stated in note 1, these are the Company’s first Standalone Ind AS financial statements prepared in accordance with Ind AS. For the purpose of transition from previous GAAP to Ind AS, the Company has followed the guidance prescribed under Ind AS 101 - First time adoption of Indian Accounting Standards (“Ind AS 101”), with effect from 1 April 2016 (“transition date”). For the year ended 31 March 2017, the Company had prepared its standalone financial statements in accordance with Companies (Accounts) Rules, 2014, notified under Section 133 of the Act and other relevant provisions of the Act (“previous GAAP” or the “Indian GAAP”).

The accounting policies set out in note 2 have been applied in preparing these Standalone Ind AS financial statements for the year ended 31 March 2018 including the comparative information for the year ended 31 March 2017 and the opening Standalone Ind AS balance sheet on the date of transition i.e. 1 April 2016.

In preparing its Standalone Ind AS balance sheet as at 1 April 2016 and in presenting the comparative information for the year ended 31 March 2017, the Company has adjusted amounts reported previously in standalone financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in restating its standalone financial statements prepared in accordance with previous GAAP, and how the transition from previous GAAP to Ind AS has affected the Company’s financial position and financial performance. There were no significant reconciling items between cash flows prepared under Indian GAAP amd those prepared under Ind AS.

Optional exemptions availed and mandatory exceptions

In preparing these Standalone Ind AS financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.

A optional exemptions availed (i) property, plant and equipment and intangible assets:

As per Ind AS 101 an entity may elect to:

(a) measure an item of property, plant and equipment at the date of transition at its fair value and use that fair value as its deemed cost at that date;

(b) use a previous GAAP revaluation of an item of property, plant and equipment at or before the date of transition as deemed cost at the date of the revaluation, provided the revaluation was, at the date of the revaluation, broadly comparable to:

- fair value;

- or cost or depreciated cost under Ind AS adjusted to reflect, for example, changes in a general or specific price index. The elections under (a) and (b) above are also available for intangible assets that meets the recognition criteria in Ind AS 38, Intangible Assets, (including reliable measurement of original cost); and criteria in Ind AS 38 for revaluation (including the existence of an active market).

(c) use carrying values of property, plant and equipment and intangible assets as on the date of transition to Ind AS (which are measured in accordance with previous GAAP and after making adjustment relating to decommissioning liability prescribed under Ind AS 101) if there has been no change in its functional currency on the date of transition.

As permitted by Ind AS 101, the Company has elected to fair value certain items of property, plant and equipment and uses that fair value as its deemed cost at the date of transition, viz., 1 April 2016. The remaining item of property, plant and equipment are valued in accordance with Ind AS 16 - Property, plant and equipment.

(ii) Investments in subsidiaries:

Ind AS 101 provides an exemption to the first-time adopter to measure an investment in subsidiaries at:

a) cost determined in accordance with Ind AS 27, Consolidated and Separate Financial Statements; or

b) deemed cost, which shall be its:

i) fair value at the entity’s date of transition to Ind AS in its separate financial statements; or

ii) previous GAAP carrying value at that date.

For the purpose of deemed cost, the Company has elected either (i) or (ii) mention above to measure its investment in each of its subsidiary.

B Mandatory exceptions

Ind AS 101 also allows first-time adopters certain mandatory exceptions to be applied for retrospective application of certain requirements under Ind AS for transition from the previous GAAP (IGAAP):

(i) Estimates:

As per Ind AS 101, An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. However, the estimates should be adjusted to reflect any differences in accounting policies.

As per Ind AS 101, where application of Ind AS requires an entity to make certain estimates that were not required under previous GAAP, those estimates should be made to reflect conditions that existed at the date of transition (for preparing opening Ind AS balance sheet) or at the end of the comparative period (for presenting comparative information as per Ind AS).

Ind AS estimates as at 1 April 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Fair valuation of financial instruments carried at fair value through profit and loss or fair value through other comprehensive income;

- Impairment of financial assets based on expected credit loss model;

- Determination of the discounted value for financial instruments carried at amortised cost; and

- Discounted value of liability for decommissioning costs.

Upon the assessment of the estimate made under previous GAAP, the Company has concluded that there was no necessity to revise such estimates under Ind AS, other than those which are required due to application of Ind AS.

(ii) Derecognition of financial assets and liabilities:

As per Ind AS 101, an entity should apply the derecognition requirements in Ind AS 109, Financial Instruments, prospectively for transactions occurring on or after the date of transition to Ind AS. However, an entity may apply the de recognition requirements retrospectively from a date chosen by it if the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions were obtained at the time of initially accounting for those transactions.

The Company has chosen to avail the exception to apply the derecognition provision of Ind AS 109 prospectively from the date of transition.

(iii) Classification and measurement of financial assets:

Ind AS 101 require an entity to classify and measure its financial assets into amortised cost, fair value through profit or loss or fair value through other comprehensive income based on the business model assessment and solely payment of principal and interest (“SPPI”) criterion based on facts and circumstances that exist at the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on the facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of the financial assets accounted at amortised cost has been done retrospectively, except where the same is impracticable.

C Reconciliation between previous GAAP and Ind AS:

The following reconciliations provides the effect of transition to Ind AS from previous GAAP in accordance with Ind AS 101

1. Balance sheet as at 1 April 2016 and 31 March 2017.

2. Net profit for the year ended 31 March 2017.

3. Total equity as at 1 April 2016 and 31 March 2017.

Explanations for Reconciliation of Balance Sheet and statement of profit & loss as previously reported under previous GAAP to Ind AS:

(i) Property, plant and equipment and other intangible assets

The Company has elected to measure certain items of property, plant and equipment and intangibles assets at fair value at the date of transition to Ind AS and the remaining item has been accounted based on cost as determined in accordance with Ind AS - 16. As per Ind AS 16, the cost of the item of Property, plant and equipment comprises the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Hence at the date of transition to Ind AS, a net increase of Rs. 6,002 lacs was recognised in property, plant and equipment and a net decrease of Rs. 1,264 has been recognised in intangible assets. The Company has accounted the net decrease in depreciation and amortisation of Rs. 298 lacs for the year ended 31 March 2017 on account of fair valuation of property, plant and equipment and intangible assets.

(ii) Fair valuation of investment in subsidiaries

The Company has chosen to avail the exemption provided by Ind AS 101 and value its investment in subsidiary at deemed cost. The deemed cost as defined in Ind AS 101 are either (i) fair value at the entity’s date of transition to Ind AS in its separate financial statements; or (ii) previous GAAP carrying amount at that date. At the date of transaction, a net increase in value of investment in subsidiaries amouting Rs. 21,423 lacs has been recorded.

(iii) Financial guarantee obligation

The Company has given financial gurantees against the loan taken by its subsidiaries from banks and financial institutions. Under previous GAAP, the guarantees given were disclosed in the financial statement as a contingent liability. Under Ind AS, the Company has recognised the commission on such guarantee as financial guarantee liability under Ind AS 109 and recorded the same at it’s fair value.

(iv) Loans and other non financial assets - Security deposit

Under the previous GAAP, interest free security deposits were recorded at their transaction value. Under Ind AS, all financial assets are required to be recognised at fair value. Accordingly, the Company has fair valued these security deposits under Ind AS and difference between the fair value and transaction value of the security deposits has been recognised as prepaid rent.

(v) Borrowings

Under previous GAAP, amount of processing fees was required to be amortised over the period of loan, whereas in accordance with Ind AS 109, transaction costs incurred towards origination of borrowings to be deducted from the carrying amount of borrowings on initial recognition. These costs are recognised in the profit or loss over the tenure of the borrowing as part of the interest expense by applying the effective interest rate method.

(vi) Deferred tax liabilities (net)

Increase in the deferred tax liabilities assets are on account of adjustments made on transition to Ind AS.

(vii) Trade Receivables

Under Previous GAAP, loss provision for trade receivables was created based on credit risk assessment. Under Ind AS, these provisions are based on assessment of risk of default and timing of collection. The Company uses an allowance matrix to measure the expected credit loss over the last four years under which the Company impaired its trade receivables by Rs. 2,477 lacs on the date of transition (31 March 2017: Rs. 2,495 lacs).

(viii) Leases

Under the previous GAAP, lease payments under an operating lease were recognised as an expense on a straight-line basis over the lease term. Under Ind AS, if the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessor’s expected inflationary cost increase, then lease payments are not straightlined.

(ix) Remeasurement of post employment benefit expenses

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year.

(x) Other expenses

Ind AS adjustments in relation to other expenses primarily pertains to amortisation of prepaid rent recognised against security deposits and impairment loss recognised against trade receivables as per expected credit loss model.

(xi) Foreign Currency Monetary Item Translation Difference Account (FCMITD)

The Company has chosen to avail the exemption provided by Ind AS 101 wherein cumulative amount lying in FCMITD has been de recognized by an adjustment against retained earnings on the date of transition to Ind AS. Consequent to this, amount of Rs. 119 lacs from exceptional items being FCMITD charged off under previous GAAP has been reversed.

(xii) Other comprehensive income

Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit and loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP.

14. During the previous year, the Company had entered into a new facility arrangement with a consortium of banks and financial institution for term loan of Rs. 36,900 lacs. The proceeds of such term loan was utilized primarily towards the prepayment of existing debts. The loans have a moratorium period for 2 years from the date of first drawdown i.e. 15 July 2016, and then repayable in 32 quarterly installments. The loans are secured by first ranking pari passu charge on movable and immovable fixed assets of the Company, present and future, second ranking pari passu charge on all current assets of the Company, pledge of the shares of subsidiaries and personal guarantee issued by the promoter.

15. During the year ended 31 March 2018, the Board of Directors of the Company vide its meeting dated 28 February 2018 has approved the plan for the future of Auto divisions of the Company and has directed the management to execute the following plan:

Divestment of the following assets along with business:

- JKM-Auto division situated at Irrangattukottai, Sriperumbudur, Tamil Nadu;

- Aluminum Foundry division situated at Irrangattukottai, Sriperumbudur, Tamil Nadu;

- Wind farm property situated at Coimbatore, Tamil Nadu

Subsequent to the year end, the Company has intimated stock exchanges vide letter dated 16 May 2018 based on the voting results based on postal ballot and scrutiny report dated 15 May 2018 that the above resolution have been passed with more than requisite majority.

With respect to divestment above, JKM Auto division and Aluminium Foundry division represents “Automotive and Aluminum Castings”, refer note 42 for assets, liabilities, revenues and results pertaaining to the JKM Auto divisiona nd Aluminium Foundry division.