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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532144ISIN: INE191B01025INDUSTRY: Steel - Tubes/Pipes

BSE   ` 191.00   Open: 193.00   Today's Range 189.90
194.50
-2.85 ( -1.49 %) Prev Close: 193.85 52 Week Range 78.80
197.00
Year End :2017-03 

Note 1: Critical estimates and judgments

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgment in applying the Company’s accounting policies. This note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgments is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

Critical estimates and judgments i) Estimation of current tax expense and deferred tax

The calculation of the Company’s tax charge necessarily involves a degree of estimation and judgment in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The final resolution of some of these items may give rise to material profits/ losses and/or cash flows. Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions (refer note 35).

Recognition of deferred tax assets/ liabilities

The recognition of deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future against which the reversal of temporary differences can be deducted. To determine the future taxable profits, reference is made to the approved budgets of the Company. Where the temporary differences are related to losses, local tax law is considered to determine the availability of the losses to offset against the future taxable profits as well as whether there is convincing evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilized by the Company. Significant items on which the Company has exercised accounting judgment include recognition of deferred tax assets in respect of losses. The amounts recognized in the financial statements in respect of each matter are derived from the Company’s best estimation and judgment as described above (refer note 35).

ii) Estimation of Provisions and Contingent Liabilities

The Company exercises judgment in measuring and recognizing provisions and the exposures to contingent liabilities which is related to pending litigation or other outstanding claims. Judgment is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in this evaluation process, actual liability may be different from the originally estimated as provision (refer note 19).

iii) Estimation of useful life of Property, Plant and Equipment

Property, Plant and Equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Company’s assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology. For the relative size of the Company’s property, plant and equipment (refer notes 3).

iv) Estimation of Provision for Inventory

The Company writes down inventories to net realizable value based on an estimate of the reliability of inventories. Write downs on inventories are recorded where events or changes in circumstances indicate that the balances may not realized. The identification of write-downs requires the use of estimates of net selling prices of the down-graded inventories. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write downs of inventories in the periods in which such estimate has been changed (refer note 11).

v) Estimation of Defined Benefit Obligation

The present value of the defined benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for post employments plans include the discount rate. Any changes in these assumptions will impact the carrying amount of such obligations.

The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit obligations. In determining the appropriate discount rate, the Company considers the interest rates of government bonds of maturity approximating the terms of the related plan liability (refer note 19).

vi) Estimated fair value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Management uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. For details of the key assumptions used and the impact of changes to these assumptions (refer note 39).

Estimation of fair value

The Company has obtained independent valuation of its freehold land located at Anjar based on current prices in an active market for properties of similar nature. The fair values of investment property have been determined by an independent valuer. The main inputs used are the rental growth rates and a study of the micro market in discussion with industry experts. Resulting fair value estimate for investment property are included in level 3.

ii) Terms and rights attached to equity shares Equity shares

The Company has only one class of equity shares having a par value of Rs, 5 per share. Each holder of equity shares is entitled to one vote per share however the holders of Global Depository Receipts (GDR’s) do not have voting rights in respect of shares represented by the GDR’s till the shares are held by the custodian. The dividend when proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting except in case of interim dividend.

I n the event of liquidation of the company the holders of the equity shares will be entitled to receive remaining assets of the Company after distribution of preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

Preference shares

Preference shares does not carry any voting rights in the Company, except as provided in the Companies Act, 2013. Preference share will have priority over equity shares in the payment of dividend and repayment of capital.

Nature and purpose of other equity

(i) Securities premium reserve

Securities premium reserve is used to record the premium on issue of shares. The reserve is utilized in accordance with the provisions of the Companies Act, 2013.

(ii) Debenture redemption reserve

The Company is required to create a debenture redemption reserve out of the profits which is available for payment of dividend for the purpose of redemption of debentures.

(iii) General reserve

General Reserve is a free reserve and is available for distribution as dividend, issue of bonus shares, buyback of the Company’s securities. It was created by transfer of amounts out of distributable profits.

(iv) Foreign currency monetary item translation difference account (refer note 50)

Foreign exchange differences on long term foreign currency monetary items which relates to other than depreciable assets, are accumulated in “Foreign Currency Monetary Item Translation Difference Account” and amortized over the balance period of such long term assets / liabilities.

(v) Share options outstanding account

The share options outstanding account is used to recognize the grant date fair value of options issued to employees under Welspun Employee Stock Option Plan (refer note 53).

(vi) Cash flow hedging reserve

The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges. The Cumulative gain or loss arising on changes in fair value of the designated portion of the hedging instruments that are recognized and accumulated under the heading of cash flows reserve will be reclassified to statement of profit and loss only when the hedged transaction affects the profit or loss or included as a basis adjustment to the non-financial hedged item.

i) The debentures together with interest are secured by first charge ranking pari passu by way of mortgage/ hypothecation of entire immovable and movable property, plant and equipment of the Company both present and future and second/ floating charge on current assets subject to prior charge in favour of banks for working capital facilities.

* the above is excluding effective interest rate resulting in decrease in borrowing by Rs, 45.14 (March 31, 2016: Rs, 67.28, April 01, 2015: Rs, 78.33) and accrued interest of Rs, 184.90 (March 31, 2016: Rs, 231.21, April 01, 2015: Rs, 263.04)

ii) External commercial borrowings (ECB) of USD 42.60 million (March 31, 2016: USD 60.60 million, April 01, 2015: USD 67.30 million) is secured by first charge ranking pari passu by way of mortgage/ hypothecation of entire immovable and movable property, plant and equipment of the Company both present and future. The ECB carries interest of LIBOR plus 3.60% to 4.50%.

* the above is excluding impact of effective interest rate resulting in decrease in borrowing by Rs, 22.57 (March 31, 2016: Rs, 43.33, April 01, 2015: Rs, 66.21) and accrued interest of Rs, 7724 (March 31, 2016: Rs, 92.58, April 01, 2015: Rs, 91.09).

iii) Term loan of Rs, Nil (March 31, 2016: Rs, Nil, April 01, 2015: Rs, 1,857.60) from bank was secured by first charge ranking pari passu by way of mortgage/ hypothecation of entire movable and immovable property, plant and equipment of the Company and second charge over the entire current assets of the Company both present and future. The loan carried interest of LIBOR plus 5.00%. The loan has been repaid during the year ended March 31, 2016. The amount is inclusive of impact of effective interest rate resulting in decrease in borrowing by Rs, Nil (March 31, 2016: Nil, April 01, 2015: Rs, 9.91) and accrued interest of Rs, Nil (March 31, 2016: Rs, Nil, April 01, 2015: Rs, 8.14).

iv) Loan from Hewlett Packard India Financial Services Private Limited amounting to Rs, Nil (March 31, 2016: Rs, 10.29, April 01, 2015: Rs, 18.66). The loan carries interest rate of 12.03%. The outstanding loan is repayable within 12 months from the balance sheet date. The loan has been repaid during the year ended March 31, 2017.

(i) Nature of security for current borrowings

Secured by first charge on hypothecation of raw materials, finished goods, work-in-progress , goods-in-transit, stores and spares and trade receivables of the Company and second charge on entire immovable and movable property, plant and equipment of the Company both present and future.

(ii) Terms of repayment and interest

Working capital loan from banks and PCFC loan have a tenure of twelve months from the date of sanction and are repayable on demand.

Buyer’s credit is repayable up to a period of 180 days from the drawdown date and carries an interest rate of LIBOR plus maximum 50 basis points per annum.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to Level 3, as described below.

Level 1: This hierarchy includes financial instruments measured using quoted prices. This includes investment in Standard Chartered Bank PLC Indian Depository Receipt.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. The Company has derivatives which are designated as hedges and which are not designated as hedges, investments in preference shares, bonds and mutual funds for which all significant inputs required to fair value an instrument falls under 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 unlisted equity securities and unlisted preference shares.

(ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include: investment in Standard Chartered Bank PLC Indian Depository Receipt is valued using the closing price at National Stock Exchange (NSE) at the reporting period.

the fair value of forward contracts is determined using forward exchange rates prevailing with Authorized Dealers dealing in foreign exchange.

the fair value of interest rate swaps and coupon only swap is calculated as the present value of the estimated future cash flows based on observable yield curves.

the use of Net Assets Value ('NAV’) for valuation of mutual fund investment. NAV represents the price at which the issuer will issue further units and will redeem such units of mutual fund to and from the investors.

the fair value of quoted bonds are derived based on the indicative quotes of price and yields prevailing in the market or latest available prices.

the fair value of deep discount bonds are derived based on the yields comparable to Tax Free bonds considering the spreads of such deep discount bonds.

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the year ended March 31, 2017 and March 31, 2016:

2. Financial risk management

The Company’s activities expose it to market risk, liquidity risk and credit risk. In order to minimize any adverse effects on the financial performance of the Company, derivative financial instruments, such as foreign exchange forward contracts are entered to hedge certain foreign currency risk exposures and interest rate swaps to hedge variable interest rate exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.

This note explains the sources of risk which the Company is exposed to and how the Company manages the risk and the impact of hedge accounting in the financial statements.

The Company’s risk management is carried out by treasury department under policies approved by the board of directors. Treasury department identifies, evaluates and hedges financial risks. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments and investment of excess liquidity. There is no change in objectives, policies and process for managing the risk and methods used to measure the risk as compared to previous year.

(I) Credit risk

Credit risk is the risk that counterparty will not meet its obligation under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with bank and financial institution, foreign exchange transactions and other financial instruments.

The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk the Company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition.

a) Trade receivables

Trade receivables are typically unsecured and are derived from revenue earned from customers. Credit risk has been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or gain.

Top three customer contributes 51.4% (March, 31 2016: 47%) of total revenue. Trade receivables are regularly monitored and shipment to major customer are generally covered by letter of credit.

b) Other financial assets

The Company maintains exposure in cash and cash equivalents, term deposits with banks, derivative financial instruments, investments in government securities and bonds and investments in mutual funds. The Company has diversified portfolio of investment with various number of counterparties which have good credit ratings, good reputation and hence the risk is reduced. Individual risk limits are set for each counterparty based on financial position, credit rating and past experience. Credit limits and concentration of exposures are actively monitored by the Company.

(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 manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities (comprising the undrawn borrowing facilities below), by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

a) Financing arrangements

The Company had access to the following undrawn borrowing facilities for working capital at the end of the reporting period:

b) Maturities of financial liabilities

The tables below analyse the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for:

All non-derivative financial liabilities, and

Derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows.

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not material.

(III) Market risk - foreign currency risk

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.

The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments, highly probable forecast transactions and foreign currency required at the settlement date of certain receivables/payables. The use of foreign currency forward contracts is governed by the Company’s strategy approved by the board of directors, which provide principles on the use of such forward contracts consistent with the Company’s risk management policy and procedures.

b) Foreign currency sensitivity

The sensitivity of profit or loss to changes in the exchange rates arises mainly from foreign currency denominated financial instruments and impact on other components of equity arises from foreign forward exchange contracts, designated as cash flow hedges.

* Holding all other variables constant

(IV) Market risk - interest rate risk

The Company had borrowed funds at both fixed and floating interest rates. The Company’s interest rate risk arises from long-term borrowings with variable rates, which exposes the Company to cash flow interest rate risk. Company policy is to maintain most of its borrowings at fixed rate using interest rate swaps to achieve this when necessary. During March 31, 2017 and March 31, 2016, the Company’s borrowings at variable rate were denominated in USD.

The Company’s fixed rate borrowings are carried at amortized cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

The Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Under these swaps, the Company agrees with other parties to exchange the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts.

(V) Market risk - security prices

a) Exposure

The Company is mainly exposed to the price risk due to its investment in mutual funds and bonds. The price risk arises due to uncertainties about the future market values of these investments.

I n order to manage its price risk arising from investments in mutual funds, the Company diversifies its portfolio in accordance with the limits set by the risk management policies.

b) Sensitivity

The table below summarizes the impact of increases/decreases of 1% increase in price of bonds and mutual funds.

(VI) Impact of hedging activities

The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward contracts.

The Company uses forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments, highly probable forecast transactions and foreign currency required at the settlement date of certain receivables/payables. The use of forward contracts is governed by the Company’s strategy approved by the board of directors, which provide principles on the use of such forward contracts consistent with the Company’s risk management policy.

The Company’s hedging policy only allows for effective hedge relationships to be established. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Company enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item, and so a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative method to assess effectiveness. Ineffectiveness is recognized on a cash flow hedge and net investment hedge where the cumulative change in the designated component value of the hedging instrument exceeds on an absolute basis the change in value of the hedged item attributable to the hedged risk. In hedges of foreign currency forecast sale and purchase transactions, hedges of interest rate risk and hedges of net investment this may arise if:

(i) The critical terms of the hedging instrument and the hedged item differ (i.e. nominal amounts, timing of the forecast transaction, interest resets changes from what was originally estimated), or

(ii) Differences arise between the credit risk inherent within the hedged item and the hedging instrument. There were no ineffectiveness recognized in the statement of profit and loss during March 31, 2017 and March 31, 2016.

3. Capital management (I) Risk management

The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Company monitors capital on the basis of the following gearing ratio:

Loan covenants

The Company has complied with all the loan covenants applicable, mainly debt service coverage ratio, debt equity ratio and fixed assets coverage ratio attached to the borrowings.

b) Key management personnel

Name Nature of relationship

Mr. Balkrishan Goenka Chairman

Mr. Rajesh Mandawewala Director

Mr. Braja Mishra Managing Director (till December 31, 2016)

Mr. Lalitkumar Naik Managing Director & Chief Executive officer (w.e.f. January 01, 2017)

Mr. S. Krishnan Chief Financial Officer

Mr. Pradeep Joshi Company Secretary

Mr. K.H.Viswanathan Director

Mr. Rajkumar Jain Director

Mr. Ram Gopal Sharma Director

Mr. Mintoo Bhandari Director

Mr. Utsav Baijal Director

Mr. Atul Desai Director

Mrs. Revathy Ashok Director

Mr. Mukul Sarkar Director (till January 25, 2017)

Mr. Nirmal Gangwal Director (till August 24, 2016)

Mr. Desh Raj Dogra Director (w.e.f. February 10, 2017)

c) List of Others over which key management personnel or relatives of such personnel exercise significant influence or control and with whom transaction have taken place during the year:

Welspun India Limited Welspun Steel Limited

RMG Alloy Steel Limited (erstwhile Remi Metal Gujarat Limited)

Welspun Foundation for Health and Knowledge

Welspun Realty Private Limited

Welspun Global Brands Limited

Welspun Captive Power Generation Limited

Welspun Enterprises Limited

Welspun Anjar SEZ Limited

Welspun Group Master Trust

AYM Syntex Limited (erstwhile Welspun Syntex Limited)

Welspun Energy Private Limited

Adani Welpsun Exploration Limited

Welspun Developers and Infrastructure Private Limited

Leighton Welspun Contractors

Welspun Fintrade Private Limited

Vipuna Tradings Limited_

(f) Terms and conditions

All transactions were made on normal commercial terms and conditions and at market rates.

All outstanding balances are unsecured and are payable in cash.

It is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of above pending resolution of the respective proceedings.

The Company does not expect any re-imbursements in respect of the above contingent liabilities.

ii) Supreme Court of India has dismissed an appeal filed by the Commissioner of Customs, Kandla against the CESTAT Order dated May 22, 2014 which had set aside the Order of the Commissioner of Customs, Kandla for custom duty of Rs, 8,609.82 on account of alleged wrong classification of imported raw materials along with penalty of Rs, 8,609.82 on the Company and a penalty of Rs, 205 on the directors and officers of the Company. On the same matter, a separate proceeding was initiated by Additional Director General of Foreign Trade, Mumbai, wherein the Honorable Bombay High Court has already granted interim stay in Company’s favour. The matter is awaiting final disposal.

4. Specified bank notes

The Ministry of Corporate Affairs has published notification in Official Gazette vide no. G.S.R. 308(E) dated March 30, 2017 where in the Company has to disclose its holdings as well as dealings in Specified Bank Notes (SBNs) during the period from November 08, 2016 to December 30, 2016.

'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 the November 08, 2016. The said notification, defines the term as “bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees.

iii) The Company has committed to provide continued need based financial support to its subsidiaries and joint ventures.

5. Operating lease

The Company has operating leases for premises and equipments. These lease arrangements range for a period within one year to five years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.

6. Segment information

In accordance with the paragraph 4 of Ind AS 108 “Operating segments”, the Company has presented segmental information only in the consolidated financial statements (refer note 48 of the Consolidated financial statements).

7. First-time adoption of Ind AS Transition to Ind AS

These are the Company’s first financial statements prepared in accordance with Ind AS.

The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended March 31, 2017, the comparative information presented in these financial statements for the year ended March 31, 2016 and in the preparation of an opening Ind AS balance sheet at April 01, 2015. In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and notes.

1. Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

A.1 Ind AS optional exemptions A.1.1 Business combinations

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date.

The Company elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.

A.1.2 Deemed cost

Ind AS 101 permits a first -time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustment for decommissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 - Intangible Assets and investment property covered by Ind AS 40 - Investment Properties.

Accordingly, the Company has elected to measure all of its property, plant and equipment, intangible assets and investment property at their previous GAAP carrying value.

A.1.3 Exchange differences arising from translation of long-term foreign currency monetary item

Ind AS 101 permits a first-time adopter to elect to continue the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognized in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per the previous GAAP.

The Company has elected to apply this exemption.

A.1.4 Share-based payment

The Company has availed the exemption provided by Ind AS 101 regarding share based payment transactions and accordingly has not applied Ind AS 102 - Share based payment to equity instruments that vested before date of transition to Ind AS.

A.1.5 Investments in subsidiaries, joint ventures and associate.

The Company has elected to measure its investments in subsidiaries, joint ventures and associate at its previous GAAP carrying values which shall be the deemed cost as at the date of transition.

A.2 Ind AS mandatory exceptions A.2.1 Hedge accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in Ind AS 109, at that date. Hedging relationships cannot be designated retrospectively, and the supporting documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of April 01, 2015 are reflected as hedges in the Company’s results under Ind AS.

The Company had designated various hedging relationships as cash flow hedges under the previous GAAP. On date of transition to Ind AS, the entity had assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to Ind AS.

A.2.2 Estimates

An entity’s estimates in accordance with Ind ASs 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.

Upon an assessment of the estimates made under Previous GAAP, the Company has concluded that there was no necessity to revise such estimates under Ind AS, except where estimates were required by Ind AS and not required by previous GAAP.

A.2.3 Classification and measurement of financial assets

An entity’s estimates in accordance with Ind ASs 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.

A.2.4 Impairment of financial assets

Ind AS 101 requires an entity to use 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 and compare that to the credit risk at the date of transition to Ind As.

C. Notes for the first time adoption

(i) Investment property

Under Ind AS, investment property is required to be presented separately on the face of the balance sheet. Accordingly, the land given on lease amounting to Rs, 1.23 (March 31, 2016: Rs, 1.23, April 01, 2015: Rs, 1.23) has been reclassified from property, plant and equipment to investment property. There is no impact on the total equity or profit or loss as a result of this adjustment.

(ii) Fair valuation of investments

Under the previous GAAP, investments were classified as long-term investments or current investments based on the intended holding period and reliability. Long-term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be measured at fair value at initial and subsequent recognition at fair value (other than equity investment in subsidiaries which are carried at cost and preference shares which are subsequently measured at amortized cost). The resulting fair value changes of these investments (other than equity instruments designated as at fair value through other comprehensive income) have been recognized in retained earnings as at the date of transition and subsequently in the profit or loss for the year ended March 31, 2016. This increased the retained earnings by Rs, 317.38 as at March 31, 2016 (April 01, 2015 increased by Rs, 548.09).

(iii) Equity component of investment in preference share

Under the previous GAAP, investment in preference shares of subsidiaries is recorded at the transaction price. Under Ind AS, investment in preference shares is treated as financial asset. Such asset is recorded at fair value at initial recognition and are subsequently measured at fair value. The difference between fair value and transaction price on initial recognition is recognized as additional investment in subsidiary. Equity Investment in subsidiary is tested for impairment. As a result of this adjustment, investment in equity of subsidiaries has increased by Rs, 293.75 in April 01, 2015 with a corresponding decrease in investment in preference shares. The subsequent gain/ (loss) on fair valuation has been considered in note (ii) above.

(iv) Security deposits

Under the previous GAAP, interest free lease security deposits (that are refundable in cash on completion of the lease term) are recorded at their transaction value. Under Ind AS, all financial assets are required to be recognized at fair value. Accordingly, the Group has fair valued these security deposits under Ind AS. Difference between the fair value and transaction value of the security deposit has been recognized as prepaid rent. Consequent to this change, the amount of security deposits decreased by Rs, 7.80 as at March 31, 2016 (April 01, 2015: Rs, 22.35). The prepaid rent increased by Rs, 7.66 as at March 31, 2016 (April 01, 2015: Rs, 21.77). Total equity decreased by Rs, 0.14 as at March 31, 2016 (April 01, 2015: Rs, 0.58). The profit for the year ended March 31, 2016 increased by Rs, 0.44 due to amortization of the prepaid rent of Rs, 22.48 which is partially off-set by the notional interest income of Rs, 22.92 recognized on security deposits.

(v) Borrowings

Ind AS 109 requires transaction costs incurred towards origination of borrowings to be deducted from the carrying amount of borrowings on initial recognition. These costs are recognized in the profit or loss over the tenure of the borrowing as part of the interest expense by applying the effective interest rate method. Under previous GAAP, these transaction costs were charged to profit or loss as and when incurred. Accordingly, borrowings as at March 31, 2016 have been decreased by Rs, 110.61 (April 01, 2015: Rs, 154.45) with corresponding adjustment to retained earnings. The profit for the year ended March 31, 2016 reduced by Rs, 43.84 as a result of the additional interest expense.

(vi) Liability towards claim

Under the previous GAAP, the liabilities towards claim were measured at amount payable. Under the Ind AS, these financial liabilities are measured at fair value on initial recognition. The retained earnings as at March 31, 2016 increased by Rs, 98.87 (April 01, 2015: Rs, 134.92). The profit for the year ended March 31, 2016 reduced by Rs, 36.05.

(vii) Government grants:

The Company receives VAT incentives from the government of Gujarat under Gujarat Industrial Development policy based on the amount of capital expenditure made on eligible investments. The impact of change in method of recognizing grants has resulted in decrease in the retained earnings by Rs, 3,970.16 as at March 31, 2016 (April 01, 2015 Rs, 3,849.69).

(viii) Proposed dividend

Under the previous GAAP, dividends proposed by the board of directors after the balance sheet date but before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognized as a liability. Under Ind AS, such dividends are recognized when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend (including dividend distribution tax) of Rs, 159.61 as at March 31, 2016 (April 01, 2015: Rs, 157.90) included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by an equivalent amount.

(ix) Excise duty

Under the previous GAAP, revenue from sale of products was presented exclusive of excise duty. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. The excise duty paid is presented as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended March 31, 2016 by Rs, 1,445.56. There is no impact on the total equity and profit.

(x) Variable consideration

Under previous GAAP, Claims, discounts & rebates and liquidated damages paid to customers were recorded as part of expenses in the statement of profit and loss. However, under Ind-AS, these expenses are netted off against revenue. This change has resulted in decrease in total revenue and total expenses for the year ended March 31, 2016 by Rs, 8.74. There is no impact on the total equity and profit.

(xi) Remeasurements of post-employment benefit obligations

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 recognized 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. As a result of this change, the profit for the year ended March 31, 2016 increased by Rs, 1.66. There is no impact on the total equity as at March 31, 2016.

(xii) Employee stock option expense

Under the previous GAAP, the cost of equity-settled employee share-based plan was recognized using the intrinsic value method. Under Ind AS, the cost of equity settled share-based plan is recognized based on the fair value of the options as at the grant date. Consequently, the amount recognized in share option outstanding account decreased by Rs, Nil as at March 31, 2016 (April 01, 2015: Rs, 0.70) and the amount recognized in share premium decreased by Rs, 2.61 as at March 31, 2016 (April 01, 2015: Rs, Nil). The profit for the year ended March 31, 2016 increased by Rs, 1.91. There is no impact on total equity.

(xiii) Financial instruments - derivatives

Under the previous GAAP, forward contracts were accounted for as prescribed under AS 11 " The Effects of Changes in Foreign Exchange Rates", under which forward premium was amortized over the period of forward contract and forward contracts were restated at the closing spot exchange rate. Under Ind AS 109, all derivative financial instrument are to be marked to market and any resultant gain or loss is to be charged to the statement of profit and loss. Accordingly, the marked to market has been recognized and forward premium unamortized balance has been derecognized. As a result of this adjustment, the total equity as at March 31, 2016 decreased by 13.64 (April 01, 2015 increased by Rs, 1.80). The profit for the year ended March 31, 2016 is lower by Rs, 15.44. Further, due to derivatives designated as hedge, the total equity as at March 31, 2016 lower by Rs, 27.07 (April 01, 2015 increased by Rs, 147.94)

(xiv) Retained earnings

Retained earnings as at April 01, 2015 has been adjusted consequent to the above Ind AS transition adjustments.

(xv) Other comprehensive income

Under Ind AS, all items of income and expense recognized 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 recognized in profit or loss but are shown in the statement of profit and loss as Rs,other comprehensive income’ includes remeasurements of defined benefit plans and cash flow hedging reserve. The concept of other comprehensive income did not exist under previous GAAP.

(xvi) Deferred tax

Deferred taxes impact of the above adjustments, wherever applicable have been recognized on transition to Ind AS.

50. Exchange differences on long term foreign currency monetary items outstanding

In accordance with para D13AA of Ind AS 101 First time adoption of Indian Accounting Standards and the option available in the Companies (Accounting Standards) (Second Amendment) Rules, 2011, vide notification dated December 29, 2011 issued by the Ministry of Corporate Affairs, the Company has adjusted the exchange rate difference arising on long term foreign currency monetary items, in so far as they relate to the acquisition of a depreciable capital asset, to the cost of the asset. In other cases, foreign exchange differences are accumulated in “Foreign Currency Monetary Item Translation Difference Account” and amortized over the balance period of such long term assets/ liabilities.

Accordingly, the Company has adjusted exchange gain of Rs, 14.05 (March 31, 2016: loss of Rs, 37.55) to the cost of property, plant and equipment as the long term monetary items relate to depreciable capital asset.

Exchange gain of Rs, 5.21 (March 31, 2016: loss of Rs, 190.00) has been transferred to "Foreign Currency Monetary Item Translation Difference Account (FCMITDA)" to be amortized over the balance period of such long term liabilities. Out of the FCMITDA, loss of Rs, 178.30 (March 31, 2016: loss of Rs, 328.90) has been adjusted in the current year and balance of Rs, 95.91 (March 31, 2016: Rs, 279.42, April 01, 2015: Rs, 418.32) has been carried over and included in reserves and surplus.

The Company has excluded the shares issued under the employee stock options scheme from the calculations of diluted earnings per share because their inclusion would have been anti-dilutive.

9. Employee Stock Options Scheme

In respect of options granted under the Welspun Employee Stock Options Scheme, in accordance with the guidelines issued by Securities and Exchange Board of India, the value of options (based on intrinsic value of the share on the date of the grant of the option) is accounted as deferred employee compensation, which is amortized on a straight line basis over the vesting period. Employee benefits expense includes Rs, Nil debited during the year (March 31, 2016: Rs, 97.44)