Note 1

Notes to Financial Statements for the year ended 31st March, 2018

1. Company overview:

1a) Corporate Information

Kanishk Steel Industries Limited (“the Company”), is a Company incorporated under the provisions of Companies Act, 1956, in the year 1989, having its registered office at B27M, Sipcot Industrial Complex, GummidipoondiThiruvallur District-601201 It is engaged in the manufacture and supply of Iron and Steel Products. The Company’s shares are listed on the Bombay Stock Exchange Limited and the shares are traded regularly.

2. Basis of Preparation of Financial Statements

2a) Statement of Compliance

In accordance with the notification dated 16th February 2015, issued by the Ministry of Corporate Affairs, the Company has adopted Indian Accounting Standards (referred to as “Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended) with effect from April 1, 2016.

The Financial Statements have been prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended) read with Section 133 of the Companies Act, 2013 (“the Act”).

The financial statement upto the year ended March 31, 2017, were prepared under the historical cost convention on accrual basis in accordance with the Generally Accepted Accounting Principles (Previous GAAP) applicable in India and the applicable Accounting Standards as prescribed under the provisions of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014.

Previous period figures in the Financial Statements have been restated in compliance to Ind AS. In accordance with Ind AS 101- “First Time adoption of Indian Accounting Standards” (Ind AS 101), the Company has presented a reconciliation of Shareholders’ equity as given under Previous GAAP and Ind AS as at March 31, 2017, and April 1, 2016 and of the Net Profit as per Previous GAAP and Total Comprehensive Income under Ind AS for the year ended March 31, 2017 in Note No. 45.

These are the Company’s first Ind AS Financial Statements. The date of transition to Ind AS is April 1, 2016. The mandatory exceptions and optional exemptions availed by the Company on First-time adoption have been detailed in Note 45(a).

2b) Recent Pronouncements

New Standards / Amendments to Existing Standard issued but not yet effective upto the date of issuance of the Company’s Financial Statement are disclosed below:

On 28th March, 2018, the Ministry of Corporate Affairs (MCA) has notified Ind AS 115

- Revenue from Contracts with Customers and certain amendment to existing Ind AS. These amendments shall be applicable to the Company from 1st April 2018.

i. Ind AS 115-Revenue from Contracts with Customers Ind AS 115 supersedes Ind AS 11, Construction Contracts and Ind AS 18, Revenue. Ind AS 115 requires an entity to report information regarding nature, amount, timing and uncertainty of revenue and cash flows arising from contract with customers. The principle of Ind AS 115 is that an entity should recognise revenue that demonstrates the transfer of promised goods and services to the customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

Based on preliminary assessment performed by the Company, the impact of the application of the standard is not expected to be material.

ii. Amendment to Existing issued Ind AS

a) Ind AS 12 - Income Taxes

b) Ind AS 21 - The Effects of Changes in Foreign Exchange Rates

c) Ind AS 28 - Investment in Associates and Joint Ventures and

d) Ind AS 112 - Disclosure of Interests in Other Entities

The impact of the above standards on the financial statements, as assessed by the Company, is not expected to be material

2c) Critical accounting judgments, assumptions and key sources of estimation and uncertainty

The preparation of the financial statements in conformity with the measurement principle of Ind AS requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Differences between the actual results and estimates are recognized in the year in which the results are known / materialized and, if material, their effects are disclosed in the notes to the financial statements.

Application of accounting policies that require significant areas of estimation, uncertainty and critical judgments and the use of assumptions in the financial statements have been disclosed below. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below:

2d. i. Depreciation / amortization and impairment on property, plant and equipment / intangible assets

Property, plant and equipment are depreciated on Straight line Method over the estimated useful lives (or lease term if shorter) in accordance with Schedule II of the Companies Act, 2013, taking into account the estimated residual value, wherever applicable. The Company reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation / amortization expense to be recorded during any reporting period. This reassessment may result in change in depreciation expense in future periods.

The company reviews its carrying value of its Tangible Assets whenever there is objective evidence that the assets are impaired. The required level of impairment losses to be made is estimated by reference to the estimated value in use or recoverable amount.

2d. ii. Impairment loss on trade receivables

The Company evaluates whether there is any objective evidence that trade receivables are impaired and determines the amount of impairment loss as a result of the inability of the debtors to make required payments. The Company bases the estimates on the ageing of the trade receivables balance, credit-worthiness of the trade receivables and historical write-off experience. If the financial conditions of the trade receivable were to deteriorate, actual write-offs would be higher than estimated.

2d. iii. Income taxes

Significant judgment is required in determination of taxability of certain income and deductibility of certain expenses during the estimation of the provision for income taxes.

2d. iv. Contingencies

Management judgment 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. Based on management best estimates the same does not qualify for recognition in the financial statements.

2d. v. Arrangements containing leases and classification of leases

The Company enters into service / hiring arrangements for various assets / services. Thedetermination of lease and classification of the service / hiring arrangement as a finance lease or operating lease is based on an assessment of several factors, including, but not limited to, transfer of ownership of leased asset at end of lease term, lessee’s option to purchase and estimated certainty of exercise of such option, proportion of lease term to the asset’s economic life, proportion of present value of minimum lease payments to fair value of leased asset and extent of specialized nature of the leased asset.

2d. vi. Insurance Claim and Liquidated damages

Insurance claims are accounted as and when admitted/settled. Liquidated damages and penalties from the vendors are accounted for in accordance with the terms of agreement for loss of opportunity/profit of the company due to delay in completion if balances are available in the Supplier’s Account. Subsequent changes in value if any in value are provided for.

2d. vii. Defined benefit obligation (DBO)

Critical estimate of the DBO involves a number of critical underlying assumptions such as standard rates of inflation, mortality, discount rate, anticipation of future salary increases etc. as estimated by Independent Actuary appointed for this purpose/ Management. Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.

a) Movement of Shares

There is no movement of shares outstanding at the beginning and at the end of the reporting period.

b) Terms / rights attached to equity shares:

The company has only one class of equity shares havinga par value of Rs.10/- per share. Each holder of equity share 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 the assets of the company, in proportion to the number of equity shares held by the shareholders afterdistribution of all preferential amounts.

Fair Valuation Techniques

The fair values of the financial assets and liabilities are included at the amount 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.

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

a) The fair value of cash and cash equivalents, trade receivables, trade payables, current financial liabilities and borrowings approximate their carrying amount largely due to the short-term nature of these instruments. The Board considers that the carrying amounts of financial assets and financial liabilities recognized in the financial statement approximate their fair value.

b) Long-term debt has been contracted at floating rates of interest, which are reset at short intervals. Fair value of variable interest rate borrowings approximates their carrying value of such long-term debt approximates fair value subject to adjustments made for transaction cost.

c) The fair value of derivative financial instruments is determined based on observable market inputs including currency spot and forward rates, yield curves, currency volatility etc. These derivatives are estimated by using the pricing models, where the inputs to those models are based on readily observable market parameters basis contractual terms, period to maturity, and maturity parameters such as foreign exchange rates and volatility. These models do not contain a high level of subjectivity as the valuation techniques used do not require significant judgement, and inputs thereto are readily observable from actively quoted market prices. Management has evaluated the credit and a non-performance risk associated with the counterparties and believes them to be insignificant and not requiring any credit adjustments.

Fair value hierarchy

The Company categorizes assets and liabilities measured at fair value into one of three levels depending on the ability to observe inputs employed in their measurement which are described as follows:

Figures in round brackets ( ) indicate figures as on 31st March 2017 and in brackets [ ] indicate figures as of 1 st April, 2016

During the year ended March 31, 2018 and March 31, 2017, there were no transfers between Level 1 and Level 2 fair value measurements. There is no transaction / balance under level 3.

The fair value of liquid mutual funds is based on quoted price.

Derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace. The inputs used under level II market valuation technique for forward contracts are Forward foreign currency exchange rates and Interest rates to discount future cash flow

Derivatives assets and liabilities:

The Company follows established risk management policies, including the use of derivatives to hedge its exposure to foreign currency fluctuations on foreign currency assets / liabilities. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material. The following table presents the aggregate contracted principal amounts of the Company’s derivative contracts outstanding:

(a) Category wise outstanding derivatives contracts entered for hedging as on 31st March 2018: Nil

(b) Unhedged Foreign Currency exposures as on March 31, 2018 are as follows: -

The foreign exchange forward and option contracts mature within twelve months. The table below analyses the derivative financial instruments into relevant maturity groupings based on the remaining period as of the balance sheet date:

Financial Risk Factors

The company’s activities expose it to a variety of financial risks - Market risk, Credit risk and liquidity risk. The Company’s focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The primary market risk to the company is foreign exchange risk. The company uses derivative financial instruments to mitigate foreign exchange related risk exposures. The company’s exposure to credit risk is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customers. The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The risks 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. The Board of Directors reviews and approves policies for managing each of these risks, which are summarized below:

i. Market Risk

Market risk is the risk or uncertainty arising from possible market price movements resulting in fluctuation of the fair value of future cash flows of a financial instrument. The major components of Market risks areprice risk, interest rate risk and foreign currency exchange risk.

Financial instruments affected by market risk includes borrowings, investments and derivative financial instruments.

3 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 foreign currency denominated borrowing.

The Company evaluates exchange rate exposure arising from these transactions and enters into foreign currency derivative instruments to mitigate such exposure. The Company follows established risk management policies, including the use of derivatives like foreign exchange forward / option contracts to hedge forecasted cash flows denominated in foreign currency.

As per the hedging policy of the Company, all foreign currency exposures that are due in the next

4 months are either hedged or based on the technical assessment of foreign currency movement against the INR and the premium charged for the hedging, the same might be left un-hedged so as to avail maximum financial benefit to the company. The carrying amount of the Non-Derivative financial instruments in foreign currency as of the end of the reporting period are as follows:

(*) Figures in round brackets ( ) indicate figures as on 31st March 2017 and in brackets [ ] indicate figures as of 1st April, 2016

The company is principally exposed to foreign currency risk against USD. Sensitivity of profit or loss arises mainly from USD denominated receivables and payables are as follows:

iii) Commodity price risk

The company uses scrap metals which exposes it to be price risk on account of procurement of commodities. The management monitors commodities / raw materials whose prices are volatile and suitable steps are taken accordingly to minimise the risk on the same. The company enter into contract for procurement of material, most of the transactions are short term fixed price contract and a few transactions are long term fixed price contracts.

iv) Interest rate risk

Interest rate risk primarily arises from floating rate borrowing with banks and financial institutions. As of March 31, 2018, substantially all of the Company borrowings were subject to floating interest rates, which are reset at short intervals.

v) 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).To manage this, the management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends and ageing of accounts receivable. Individual risk limits are set accordingly. Further the company obtains necessary security including letter of credits and / or bank guarantee to mitigate its credit risk.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. Receivables from customers are reviewed/ evaluated periodically by the management and appropriate provisions are made to the extent recovery there against has been considered to be remote.

The carrying amount of respective financial assets recognised in the financial statements, (net of impairment losses) represents the Company’s maximum exposure to credit risk.

The concentration of credit risk is limited due to the customer base being backed by the government order and unrelated. Of the trade receivables balance at the end of the year, Rs.16,15,07,971.81 is due from BHEL, the Company’s largest customer. The customer accounted for more than 29.08% and 16.15% of the accounts receivable as at March 31, 2018 and 2017, respectively and more than 23.64% and 15.87% of revenues for the year ended March 31, 2018 and 2017, respectively.

Financial assets that are neither past due nor impaired

Cash and cash equivalents, investment and deposits with banks are neither past due nor impaired. Cash and cash equivalents with banks are held with reputed and credit worthy banking institutions

vi) Counter-party risk

Counterparty risk encompasses settlement risk on derivative and money market contracts and credit risk on demand and time deposits. Settlement and credit risk is reduced by the policy of entering transactions with counterparties that are usually banks or financial institutions with acceptable credit ratings. Exposure to these risks are closely monitored and maintained within predetermined parameters. There are limits on credit exposure to any financial institution. The limits are regularly assessed and determined based upon credit analysis including financial statements and capital adequacy ratio reviews. In addition, net settlement agreements are contracted with significant counterparties.

vii) Liquidity risk

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. The Company monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Company’s operations and to mitigate the effects of fluctuations in cash flows.

The company relies on mix of borrowings, capital infusion and excess operating cash flows to meet its need for funds.The current committed limits are sufficient to meet its short and medium-term requirements. The company ensures that it does not breach any financial covenants stipulated by the lender. In the event of breach of covenants the Company may be liable to pay additional interest. The Company also ensures that it has sufficient cash on demand to meet expected operational expenses. As of March 31, 2018, the cash and cash equivalents are held with major banks.

Capital Management:

The primary objective of the Company’s capital management is to ensure that it maintains a healthy capital ratio in order to support its business and maximise shareholder value. The Company’s objective when managing capital is to safeguard their ability to continue as a going concern so that they can continue to provide returns for shareholders and benefits for other stake holders. The Company focused on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required without impacting the risk profile of the Company.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. 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 and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would thereby permit the banks/financial institutions to immediately call loans and borrowings. The Company has complied with these covenants and there have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the current period.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31st March 2018 and 31st March 2017.

The Company’s audit committee reviews the capital structure of the Company on periodic basis. As part of this review, the committee considers the cost of capital and the risks associated with the same.

The company also monitors capital using gearing ratio which is net debt divided by total capital. The gearing ratios as at 31st March, 2018, 31st March, 2017 and 1st April, 2016 are as follows

The company also manages its capital to meet financial covenants, if any attached to the borrowings. Non-compliances may result in levy of higher rate of interest on Loans charged by the lenders. At present the company has generally been complying with the financial covenants of the borrowings during the reported period.

5. Commitments not provided for: Nil

6. Disclosure of Trade Payables under current/Non-Current liabilities is based on the information available with the company regarding the status of the suppliers as defined under the “Micro, Small and Medium Enterprises Development Act, 2006” (the Act). There are no delays in payment made to such suppliers and there is no overdue amount outstanding as at the Balance Sheet date. Based on the above the relevant disclosure u/s 22 of Act are as follows:

7. The disclosures required under Ind AS 19 “Employee Benefits”, the disclosures as definec are given below :

Defined Contribution Plans:

Contribution to Defined Contribution Plans (Provident Fund) recognized as expense for the year 2017-18 is Rs.

8. Segment Reporting:

The Company’s activities during the year revolve around Steel and Steel Products. Considering the nature of Company’s business and operations, as well as based on reviews of operating results by the chief operating decision maker to make decisions about resource allocation and performance measurement, there is only one reportable segment in accordance with the requirements of Ind AS - 108 - ‘‘Operating Segments’’, prescribed under Companies (Indian Accounting Standards) Rules,2016.

9. RELATED PARTIES DISCLOSURES

Related party disclosure as identified by the management in accordance with the Indian Accounting Standard (Ind AS) 24 on “Related Party Disclosures” are as follows:

a) Key Management Personnel & their relatives (KMP):

Mr. Kanishk Gupta, Chairman & Managing Director Mr. Vishal Keyal, Whole time Director & CFO Mr.R. Balaji Ravi Gopal, Company Secretary

Other related parties:

1. Gita Renewable Energy Limited.

2. OPG Renewable Energy Private Limited.

3. OPG Business Centre Private Limited.

4. Indian Corporate Business Centre Limited.

5. Kanishk Metal Recycling Private Limited.

6. OM Power Sakthi India Private Limited

7. OPG Energy Private Limited

10. FIRST TIME ADOPTION OF IND AS

In terms of Ind AS 101, “First-Time Adoption of Indian Accounting Standards” the required reconciliation of equity, other comprehensive income and cash flows with respect to the figures reported under the previous GAAP are as under:

(i) Reconciliation of equity as at 31st March, 2017 and 1st April, 2016

MANDATORY EXCEPTIONS AND OPTIONAL EXEMPTIONS

These financial statements are covered by Ind AS 101, “First Time Adoption of Indian Accounting Standards”, as they are the Company’s first Ind AS financial statements for the year ended March 31, 2018.

Overall principle:

The Company has adopted Ind AS with effect from 1st April 2016 with comparatives being restated. The figures for the previous period have been restated, regrouped and reclassified wherever required to comply with the requirement of Ind AS and Schedule III by recognizing all assets and liabilities whose recognition is required by Ind AS, not recognizing items of assets or liabilities which are not permitted by Ind AS. The accounting policies that the Company used in its opening Ind-AS Balance Sheet may have differed from those that it used for its previous GAAP. Accordingly the impact of transition has been provided in the Opening Reserves as at 1st April 2016. However, this principle is subject to certain mandatory exceptions and certain optional exemptions availed by the Company as detailed below.

a) Exemptions from retrospective application

i. Fair value as deemed cost exemption

The Company has elected to measure items of property, plant and equipment at its carrying value at the transition date.

ii. De-recognition of financial assets and financial liabilities

The Company has applied the de-recognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after April 1, 2016 (the transition date).

iii. Impairment of financial assets

Ind AS 109 “Financial Instruments” requires the impairment to be carried out retrospectively; however, as permitted by Ind AS 101, the Company, has used reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognized in order to compare it with the credit risk at the transition date. Further, the Company has not undertaken an exhaustive search for information when determining, at the date of transition to Ind AS, whether there have been significant increases in credit risk since initial recognition, as permitted by Ind AS 101.

b) Explanatory Notes to reconciliation between Previous GAAP and Ind AS:

i. Property, Plant & Equipment:

The company has ascertained major components of Plant & Machinery and reviewed its useful Life in terms of Ind AS as on the date of transition. Accordingly an amount of Rs.1,84,03,512/- has been adjusted as on transition date and this has resulted in reduction in depreciation to the extent of Rs.42,42,003 for the year ended 31-03-2017.

ii. Investment in Other Equity

The company has ascertained major components of Plant & Machinery and reviewed its useful Life in terms of Ind AS as on the date of transition. Accordingly an amount of Rs.1,84,03,512/- has been adjusted as on transition date and this has resulted in reduction in depreciation to the extent of Rs.42,42,003 for the year ended 31-03-2017.

iii. Defined benefit liabilities

Both under previous GAAP and Ind AS, the Company recognizes costs related to its post-employment defined benefit plan on an actuarial basis. Under previous GAAP, the entire cost, including actuarial gains and losses, are charged to Statement of Profit and Loss. Under Ind AS, re-measurements [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 equity through Other Comprehensive Income (OCI).

Under Ind AS, the entity is permitted to transfer amounts recognized in the Other Comprehensive Income within equity. The Company has taken recourse of the said provision and has transferred all re-measurement costs recognized relating prior to the transition date from Retained earnings as on the date of transition as permitted under Ind AS.

Thus, the employee benefit cost is reduced by Rs.41,80,629 on transition date and Rs.11,08,654 for the year 2016-17 and re-measurement losses on defined benefit plans has been recognized in the Other Comprehensive Income, net of tax.

iv. Taxation

The Company has accounted for current and deferred tax on various adjustments between previous GAAP and Ind AS at the tax rate at which they are expected to be reversed.

v. Other Adjustments:

The company has accounted for Deferred Tax Liability of Rs. 3,48,28,160 under the previous GAAP. However, the same was reviewed and Rs.46,84,942 is reversed from reserves on 31-03-2017

Previous GAAP figures have been reclassified /regrouped wherever necessary to confirm with financial statements prepared under Ind AS.

11. These financial statements were approved for issue by the Board of Directors of the Company on 30th May 2018 and are subject to approval by the shareholders in the ensuing annual general meeting.