Note 1: Corporate Information:
Hindoostan Mills Limited (“The Company“) is a Public Limited Company, incorporated under the provision of the Companies Act, 1956 (as amended by the Companies Act, 2013). Its Shares is listed on Bombay Stock Exchange. The Company is engaged in the business of Manufacture and Sale of Fabric and Yarn, Technical Fabric and Refiling of Elastic Calendar Bowls. The Company has its the Registered Office and principal place of business at SIR VITHALDAS CHAMBERS,16 MuMBAI SAMACHAR MARG, FORT, MuMBAI - 400001
The Company’s financial statements are reported in Indian Rupees, which is also the Company’s functional currency.
Note 2.1 : For investment property existing as on 1st April 2016, i.e., its date of transition to Ind AS, the company has used Indian GAAP carrying value as deemed cost.
Note 2.2 : Estimation of Fair Value :
The fair value ought to be based on current prices in the active market for similar properties. The main inputs to be used are quantum, area, location, demand, restrictive entry, age of builidng and the trend of the fair market rent.
The investment property held by the company has certain handicaps like it being part of larger property, lack of active market for this property and long term protected tenants in part occupation in this property. In view of these limitations, reliable measurement of fair value is not possible.
Inventory write down is accounted, considering the nature of inventory, age, liquidation plan and net realisable value. Write down of inventories during the year amount to Rs.51.98 lacs (Previous year - Rs.47.66 lacs). The effect of these write down were recognised in cost of materials consumed, and changes in value of inventories of work-in-progress, stock-in-trade and finished goods in the Statement of Profit and Loss.
The Company has issued only one class of shares referred to as Equity Shares having a par value of Rs.00/-. Each holder of Equity Shares is entitled to one vote per share.
In the event of liquidation of the Company, the holders of Equity Shares will be entitled to receive remaining Assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of Equity Shares held by the shareholders.
9,58,708 Equity Shares of Rs.00/- each are allotted on 27th June 2011 as fully paid up without payment being received in cash pursuant to the scheme of Amalgamation Sanctioned by the High Court of Bombay dated 1st April 2011.
Note 3.1: Details of terms and conditions of repayment and security provided for in respect of the Long- Term Borrowings as follows:
(a) Term Loan from Axis Bank is payable in 60 monthly installments of Rs.40.80 Lakhs each commencing from 31st May, 2015. Interest rate is base rate 2.75% i.e. 11.70%.
(b) Security :
Primary Security :
(i) The above Term Loan is secured by first charge on Factory Land , Building & Other Structures and Plant & Machinery (Present & Future) of the company’s Textile Unit at Plot no. D-1, MIDC Industrial Area, Village - Taswade, Tal-Karad, Satara
Collateral Security:
(ii) Second charge on all the Stocks, Book Debts (Present & Future) & Other Current Assets.
Note 4. 1 : Details of terms and conditions of repayment and security provided for in respect of the Short- Term Borrowings as follows:
(a) Secured Loan from HDFC Bank :Interest rate is MCLR 2.85% i.e. 11.1% for Cash Credit and 7.25% on packing credit
(b) Security :
Primary Security :
(i) The above Loan is secured by first charge on all the Stocks, Book Debts (Present & Future) & Other Current Assets Collateral Security :
(ii) Second Charge on Plant & Machinery (Present & Future) of the Company’s Textile Unit at Plot no. D-1, MIDC Industrial Area, Village - Taswade, Tal-Karad, Satara.
III. There was an incident of fire in the month of December 2016 in one of the production departments causing damage to stocks of value Rs.48.60 lakhs. The incident also led to certain damage to machinery and infrastructure entailing repairs at an estimated expense of Rs.037.84 lakhs. The Company has filed a claim for the amounts with the Insurance Company. Provision has been made aggregating to Rs.03.17 lakhs (in the financial statements for the year ended 31.03.2017 of Rs.9.32 lakhs and Rs.3.85 lakhs for the year ended 31.03.2018) for the loss to be borne by the Company. The same is shown an ‘Exceptional Item’. During the year, the Company has received an “on account” payment of Rs.77.31 lakhs. Adjustment, if any, in the final claim amount admitted by the Insurance Company will be accounted for as and when the same is settled.
IV. Investments :
The Investment of 42 Shares in Yeshwant Sahakari Sakhar Karkhana Ltd. (Society), are held in the names of two Directors of the Company, being its nominees, as required by the bye-laws of the Society.
V. The Company had entered into an Agreement with a Property Developer (Developer) in 1993 pursuant to which the development rights for construction of Residential Flats on the plot of Land belonging to the Company were transferred for consideration comprising of monetary compensation and allotment of specified constructed area to the Company subject to payment of the Cost of construction for such allotted area.
The settlement of accounts between the Company and the Developer under the said Agreement had been a subject of Arbitration since the year 2002 as there were claims and counter claims. The Company has made a provision of Rs.63.98 lakhs in the financial results for the year ended 31.03.2017, as the amount payable to the Developer in terms of the ‘Majority Arbitration Award’ dated October 20, 2016 and the same was presented as an ‘Exceptional Item’.
The property developer has challenged the said Arbitration Award in the Hon’ble Bombay High Court. As per legal advice, the Company does not consider that any further provision needs to be made in this regard.
VII. The Company has recognized interest subsidy, as per New Textile Policy 2012, as Other Income of Rs.221.47 lakhs on accrual basis for the period July, 2015 to 31st March, 2018 (Including Rs.58.31 lakhs for the current year). The Government Resolution in this regard dated 12th April, 2018 for release of subsidy is received for Rs.024.70 lakhs and for the balance ‘.96.77 lakhs is awaited.
VIII.Current Tax :
In view of losses for the year ended 31st March 2018, no provision for Income Tax and Minimum Alternate Tax under Section 115JB of Income Tax Act, 1961 is required to be made.
X. Employee Benefits : As per Ind AS-19, “Employee Benefits", the disclosure of employee benefits is given below:
A. Defined Contribution Plans:
The Company has certain defined contribution plans, such as provident fund and superannuation plan for benefits of employees. Contributions are made to provident fund for employees at the rate of 12% of basic salary as per regulations. The Contribution are made to registered provident fund administered by the government. The obligation of the Company is Limited to the amount contributed and it has no further contractual nor any constructive obligation. The expense recognized during the year towards defined contribution plan in Rs.010.23 lakhs( Previous year Rs.000.43 lakhs ).
B. Defined Benefit Plan
The company provides gratuity benefits to its employees as per the statute. Present value of gratuity obligation (Non-Funded) based on actuarial valuation done by an independent valuer using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation. The obligation for compensated absences (Non-funded) is recognized in the same manner as gratuity.
The estimates of rate of escalation in salary considered in actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market. The above information is extracted from the report obtained from Actuary.
B.6 There is no contribution under defined benefit plan in respect of Key Management Personnel.
B.7 Risks associated with defined benefit plan:
Gratuity is a defined benefit plan and company is exposed to the following Risks:
Interest rate risk: A fall in the discount rate which is linked to the Government Securities Rate will increase the present value of the liability requiring higher provision.
Salary Risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan’s liability.
Asset Liability Matching (ALM) Risk: The plan faces the ALM risk as to the matching cash flow. Company has to manage payout based on pay as you go basis from our own funds.
Mortality Risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.
B.9 Expected future benefit payments:
The following is the maturity profile of the benefit expected to be paid for each of the next five years and the aggregate five years thereafter:
The Sensitivity analysis has been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The sensitivity analysis presented above may not be representative of the actual change in the projected benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognised in the balance sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
C. Other long-term benefits:
The obligation for leave benefits (non-funded) is also recognised using the projected unit credit method and accordingly the long-term paid absence has been valued. The Liability towards leave encashment for the year ended 31st March, 2018 as per actuarial valuation is Rs.96.65 lakhs ( P.Y.? 96.85 lakhs) (Including liability aggregating to Rs.07.58 lakhs in relation to employees who have resigned on or before 31st March, 2018, which is reflected under other financial liabilities pending full and final settlement of their account)
XIV. The balances relating to Sundry Debtors, Sundry Creditors and Loans and Advances as on 31st March, 2018 are subject to confirmation and adjustments, if any on reconciliation of accounts. Since the extent to which these balances are subject to confirmation is not ascertainable, the resultant impact of the same on the accounts cannot be ascertained and the same will be adjusted in the accounts in the year in which reconciliation is completed.
XV. Financial Risk Management
Financial risk management objectives and policies
The Company’s financial risk management is an integral part of how to plan and execute its business strategies. The Company’s financial risk management policy is set by the Board of Directors. Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments and deposits, foreign currency receivables, payables and loans and borrowings.
A. Interest rate risk:
Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market interest rates. In order to optimize the Company’s position with regards to interest income and interest expenses and to manage the interest rate risk, Board of Directors perform a comprehensive corporate interest rate risk management by balancing the proportion of fixed rate and floating rate financial instruments in its total portfolio. The Company’s interest rate risk exposure is only for floating rate borrowings. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.
B. Market Risk- Foreign Currency risk:
The Company has international operations and portion of the business is transacted in USD/EURO and consequently the Company is exposed to foreign exchange risk through its sales to foreign customers and purchases of goods and purchase of services from overseas suppliers.
C. Equity Price Risk
The company does not have material investment in equity instruments and hence equity price risk does not materially affect the company.
D. Liquidity Risk
The principal sources of liquidity of the Company are cash and cash equivalents, borrowings and the cash flow that is generated from operations. The Company believes that current cash and cash equivalents, tied up borrowing lines and cash flow that is generated from operations is sufficient to meet its requirements. Accordingly, liquidity risk is perceived to be low. The following table shows the maturity analysis of financial liabilities of the Company based on contractually agreed undiscounted cash flows as at the Balance Sheet date:
XVI. Capital risk management (a) Risk Management
The Company aims to manage its capital efficiently so as to safeguard its ability to continue as a going concern and to optimise returns to its shareholders
The capital structure of the Company is based on management’s judgment of the appropriate balance of key elements in order to meet its strategic and day-to-day needs. We consider the amount of capital in proportion to risk and manage the capital structure in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.
The Company’s policy is to maintain a stable and strong capital structure with a focus on total equity so as to maintain investor, creditors and market confidence and to sustain future development and growth of its business. The Company will take appropriate steps in order to maintain, or if necessary adjust, its capital structure.
XVII. Financial Instrument:
The significant accounting policies, including the criteria of recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability, and equity instrument are disclosed in note 2.12 of the Ind AS financial statement.
(a) Financial assets and liabilities
The carrying value of financial instruments by categories as at 31st March, 2018 are as follows:
Carrying amounts of cash and cash equivalents, trade receivables, loans and trade payable as at 31st March, 2018, 31st March, 2017 and 1st April, 2016 approximate the fair value because of their short term nature. Difference between the carrying amount and fair values of other financial liabilities subsequently measured at amortized cost is not significant in each of the year’s presented.
Fair Value Hierarchy
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consist of the following three levels:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: Inputs are other than quoted prices included within level 1 that are observable for the asset or liability either directly (i.e. prices) or indirectly (i.e. derived from prices).
Level 3: Inputs are not based on observable market data unobservable inputs. Fair value are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis and financial assets that are not measured on fair value on recurring basis (but fair value disclosures are required)
C. Material adjustments made during transition from previous GAAP to Ind AS
C.1 Proposed Dividend
Under the previous GAAP, dividend proposed by the board of directors after the balance sheet date but before the approval of the Financial Statements were considered as adjusting events and accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS, such dividends are recognised when the same is approved by the Shareholders in the general meeting. Accordingly, the liability for proposed dividend as at 1st April, 2016 included under the Provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity has been increased by an equivalent amount.
C.2 Security Deposit at Fair Value
Under Indian GAAP, the deposits are valued at cost less provision for impairment. Ind AS requires certain categories of financial assets and liabilities to be measured at amortized cost using the effective interest rate method. Deposit is a Financial Asset as the lease agreement gives a contractual right to the company to receive cash. Deposit satisfies the contractual cash flow characteristic test and it also satisfies the business model test as there is intention of holding to collect contractual cash flows. Thus the deposits given for rentals have to be valued at amortized cost.
C.3 Bank Borrowings recorded at fair value as per EIR method
Ind AS 109 requires borrowings and financial liabilities to be carried at amortised cost. Accordingly, any transaction cost incurred towards origination of borrowings is to be deducted from the carrying amount of borrowings on initial recognition. These costs are recognised in the statement of profit and loss over the tenure of the borrowing as part of the interest expense by applying the EIR method. Under Ind AS, loans are valued at present value as against cost in the previous GAAP. The difference between the present value and cost is recognised in the opening retained earnings.
C.4 Depreciation on Investment Property
As per Ind AS 40, investment property is also subject to depreciation. The company did not provide depreciation upto 1st April, 2016 on investment property. Under Ind AS financials, the company has provided depreciation with retrospective effect.
C.5 Investments recorded at FVTPL
Investments in Debt Mutual Fund, i.e. Investment in HDFC MF and UTI MF, are recorded at FVTPL. In previous GAAP, the same was measured at cost.
C.6 Investments recorded at FVTOCI
Company’s investment in Siemens Ltd was earlier recognised at cost under previous GAAP. Under Ind AS 109, the same is recognised as FVTOCI.
C.7 Provision for ECL on Financial Assets
As per Ind AS 109, the financial assets are subject to expected credit loss. Under previous GAAP, there was no such provision. In compliance with Ind AS 109, the company has made provision of ECL on Trade Receivables following simplified approach.
C.8 Deferred Tax Adjustments on Ind AS Adjustments
Under Previous GAAP, deferred tax was recognized based on the profit and loss method. Under Ind-AS 12, deferred tax is recognized based on the balance sheet method for all differences between the accounting and tax base. Consequentially, deferred tax has been recognised for the adjustments made on transition to Ind AS, wherever applicable.
C.9 Disclosures as required by Indian Accounting Standard (Ind-AS) 101 First Time Adoption Standard:
The Company has adopted Ind AS with effect from 1st April, 2017 with comparatives being restated. Accordingly the impact of transition has been provided in the Opening Retained Earnings as at 1st April, 2016 and all the periods presented have been restated accordingly.
D. Exemptions availed on first time adoption of Ind AS 101:
On first time adoption of Ind AS, Ind AS 101 allows certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has availed the following exemptions:
a) Under Ind AS 109, at initial recognition of a financial asset, an entity may make an irrevocable election to present subsequent changes in the fair value of an investment in an equity instrument in other comprehensive income. Ind AS 101 allows such designation of previously recognized financial assets, as ‘fair value through other comprehensive income’ or ‘fair value through profit or loss’ on the basis of the facts and circumstances that existed at the date of transition to Ind AS.
Accordingly, the Company has designated its investments in certain equity instruments at fair value through other comprehensive income and fair value through profit or loss on the basis of the facts and circumstances that existed at the date of transition to Ind AS.
b) The Company has opted to continue with the carrying values measured under the previous GAAP, use that carrying value as the deemed cost for property, plant and equipment, intangible assets and Investment Property on the date of transition.
E. Mandatory Exemptions
The following mandatory exemptions have been applied in accordance with Ind AS 101 in preparing the financial statements:
a) Estimates:
(i) Impairment of financial assets based on the expected credit loss model; and
(ii) Investments in equity instruments carried as FVTPL or FVTOCI.
b) Classification and movement of financial assets and liabilities:
The Company has classified the financial assets and liabilities in accordance with Ind AS 109 on the basis of facts and circumstances that existed at the date on transition to Ind AS.
XIX. The Company’s financial statements were authorized for issue in accordance with a resolution of the Board of Directors on 16th May, 2018 in accordance with the provisions of the Companies Act, 2013 and are subject to the approval of the shareholders at the Annual General Meeting.
XX. The figures in the financial statements are rounded off to the nearest lakhs and indicated in lakhs of Rupees.
XXI. Previous year’s figures have been regrouped/re-arranged wherever necessary in order to conform to those of the Current Year.
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