1 Corporate information

Khadim India Limited (the ‘Company’) is a Public Limited Company engaged in the manufacturing / retail business of footwear and leather accessories. The Company is incorporated and domiciled in Republic of India. The address of its Registered office is “Kankaria Estate”, 5th Floor, 6, Little Russell Street, Kolkata - 700071.

After successful completion of Initial Public Offering (IPO), the Company listed its Equity Shares in BSE Limited (BSE) and National Stock Exchange of India Limited (NSE) during the year.

2 Significant accounting judgments, estimates and assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period end. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

I Useful lives of property, plant and equipment and intangible assets

Management reviews the useful lives of property, plant and equipment and intangible assets at least once in a year. Such lives are dependent upon an assessment of both the technical lives of the assets and also their likely economic lives based on various internal and external factors including relative efficiency and operating costs. Accordingly depreciable lives are reviewed annually using the best information available to the Management.

II Actuarial Valuation

The determination of Company’s liability towards employee benefits in the nature of gratuity and unpaid leave balance is made through independent actuarial valuation including determination of amounts to be recognized in the Statement of Profit and Loss and in other comprehensive income. Such valuation depend upon assumptions determined after taking into account inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market. Information about such valuation is provided in notes to the financial statements.

3.1 During the year, the Company has completed the initial public offer (IPO) with a fresh issue of 666,666 equity shares of Rs.10 each at a price of Rs. 750 per equity share. The Company listed its equity shares on 14th November 2017 on BSE and NSE.

3.2 Rights, Preferences and Restrictions attached to Equity Shares

The Company has one class of Equity Shares having a face value of Rs. 10/- per share. Each shareholder is eligible for one vote per share held. The Dividend 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. In the event of liquidation, the Equity shareholders are eligible to receive the remaining assets of the Company after distribution of all Preferential amounts, in proportion to their shareholding.

3.3 Equity Shares allotted as fully paid up bonus shares for the period of five years immediately preceding 31st March 2018

The Company had issued bonus shares during the year ended 31st March 2014 to the shareholders in the ratio of 1:3 aggregating 3,64,05,714 number of equity shares of Rs.10 each as fully paid by utilising balance in General Reserve Account and Surplus in Statement of Profit and Loss Account to the extent of Rs. 4.34 millions and Rs. 359.72 millions respectively.

3.4 Equity Shares allotted as fully paid pursuant to contract without payment being received in cash during the period of five years immediately preceding 31st March 2018

During the year 2014-15 the Company issued 51,63,293 Equity Shares of face value Rs. 10 each at a conversion premium of Rs. 140.03 per share on conversion of Zero Coupon Compulsorily Convertible Debentures (Unsecured) issued in 2013-14, as per the formula set

Out in, and each with rights, preferences and privileges contained in the Securities Subscription and Share Purchase Agreement.

During the year the Company has introduced the Khadim Employee Stock Option Plan (2017) through the resolution passed by the Board of Directors and the same was subsequently approved by the Shareholders.

Terms and conditions of Options granted

Each option entitles the holder thereof to apply for and be allotted one equity share of Rs. 10 each upon payment of the exercise price during the exercise period. The exercise period commences from the date of vesting of the Options and expires at the end of five years from such date.

The vesting period for conversion of Options is as follows:

On completion of 12 months from the date of grant of the Options

- 15% vests

On completion of 24 months from the date of grant of the Options

- 15% vests

On completion of 36 months from the date of grant of the Options

- 30% vests

On completion of 48 months from the date of grant of the Options

- 40% vests

The Options have been granted at the ‘market price’ as defined under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.

Further details of ‘Khadim Employee Stock Option Plan 2017’ are provided in Note 39.

4.1 Nature of Security of Cash Credit, Working Capital Demand Loans, Short Term Loans and Buyer’s credit from Banks

1. Primary security - Hypothecation charge on inventory, receivables and all other current assets of the Company, both present and future, on pari-passu basis with other working capital member banks under the consortium.

Collateral security - Equitable mortgage of properties at Kancharapara, Salt Lake, KG Road, Bangalore and Civil Station, Bangalore, on pari-passu basis with other working capital members banks under the consortium, equitable mortgage of property at Kasba, liquid security in the form of fixed deposits, personal guarantees of promoter directors and corporate guarantees of group companies.

2. Primary security - Same as State Bank of India Cash Credit (Refer Note 1 above).

Collateral security - Equitable mortgage of properties at Kancharapara, Salt Lake, KG Road, Bangalore and Civil Station, Bangalore, on pari-passu basis with other working capital members banks under the consortium, personal guarantees of promoter directors and corporate guarantees of group companies.

3. Primary security - Secured by hypothecation of all credit card receivables both present and future, mortgage of factory building at S19, S20 and S21 at Kasba, Kolkata, retail outlet at Rashbehari Avenue, Kolkata, Corporate guarantee of the Holding Company and personal guarantee of Managing Director.

4. Secured by personal guarantee of Managing Director.

5.1 There are no amounts due for payment to the Investor Education and Protection Fund under Section 205C of the Companies Act, 1956/ Section 125 of the Companies Act,2013 as at the year end.

5.2 The Government of India has implemented Goods and Services Tax (GST) from 1st July 2017 subsuming excise duty, service tax and various other indirect taxes. As per Ind AS, the revenue for the year ended 31st March 2018 is reported net of GST. Accordingly the numbers for the year ended 31st March 2018 are not comparable with the year ended 31st March 2017, which are reported inclusive of Excise Duty.

6 Miscellaneous Expenses included in “Note 30 - Other Expenses” includes expenditure incurred under Section 135 of the Companies Act, 2013 on Corporate Social Responsibility (CSR) activities and the same represents contributions for promoting health care. Gross amount required to be spent by the Company is Rs. 3.14 millions (Previous Year - Rs. 1.52 millions) and amount spent during the year is Rs. 1.02 millions (Previous Year - Rs. 1.52 millions).

7 The Company has identified one business segment namely “Footwear and accessories” which is consistent with internal reporting provided to the Chairman and Managing Director who is the Chief Operating Decision Maker (CODM).

Disclosure required under Ind AS 108 “ Operating Segments” for Companies with single segment are as follows :

8 Employee Benefits

The Company has recognized, in the Statement of Profit and Loss for the year ended 31st March 2018 an amount of Rs. 14.70 millions (Previous Year - Rs. 13.36 millions) as expenses under defined contribution plans (Employer’s Contribution to Provident Fund).

8.1 Defined Benefit Plan Description of Plans

The employees’ gratuity fund scheme is managed by Life Insurance Corporation Of India (LICI) as a defined benefit plan. The present value of obligation is determined based on actuarial valuation 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.

Risk Management

The Defined Benefit Plans expose the Company to risk of actuarial deficit arising out of investment risk, interest rate risk and salary cost inflation risk.

Investment Risks: This may arise from volatility in asset values due to market fluctuations and impairment of assets due to credit losses. These Plans primarily invest in debt instruments such as Government securities and highly rated corporate bonds - the valuation of which is inversely proportional to the interest rate movements.

Interest Rate Risk: The present value of Defined Benefit Plans liability is determined using the discount rate based on the market yields prevailing at the end of reporting period on Government Bonds. A decrease in yields will increase the fund liabilities and vice-versa.

Salary Cost Inflation Risk: The present value of the Defined Benefit Plan liability is calculated with reference to the future salaries of participants under the Plan. Increase in salary due to adverse inflationary pressures might lead to higher liabilities.

Longevity Risk: The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

X. Sensitivity Analysis

The Sensitivity Analysis below has been determined based on reasonably possible change of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. These sensitivities show the hypothetical impact of a change in each of the listed assumptions in isolation. While each of these sensitivities holds all other assumptions constant, in practice such assumptions rarely change in isolation and the asset value changes may offset the impact to some extent. For presenting the sensitivities, the present value of the Defined Benefit Obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the Defined Benefit Obligation presented above. There was no change in the methods and assumptions used in the preparation of the Sensitivity Analysis from previous year.

9 Financial Instruments and related disclosures

A Capital Management

The Company aims at maintaining a strong capital base safeguarding business continuity and augments its internal generations with a judicious use of borrowing facilities to meet the requirements of working capital that arise from time to time as well as requirements to finance business growth. The Company is not subject to any externally imposed capital requirements.

B Categories of Financial Instruments

C Financial risk management objectives

The Company’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company’s financial risk management process seeks to enable the early identification, evaluation and effective management of key risks facing the business. Backed by strong internal control systems, the current risk management framework rests on policies and procedures issued by appropriate authorities; process of regular reviews / audits to set appropriate risk limits and controls; monitoring of such risks and compliance confirmation for the same.

Interest rate risk

As majority of the financial assets and liabilities of the Company are either non-interest bearing or fixed interest bearing instruments, the Company’s net exposure to interest risk is negligible.

Price risk

The Company invests its short term funds primarily in debt mutual fund. Accordingly, these do not pose any significant price risk. Liquidity Risk

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities. The Company consistently generated strong cash flows from operations by ensuring timely collections of its trade receivables and this together with the available cash and cash equivalents provides adequate liquidity in short terms as well in the long term.

Credit Risk

The Company’s customer base is diverse limiting the risk arising out of credit concentration. Further, credit is extended in business interest in accordance with guidelines issued centrally and business-specific credit policies. All overdue customer balances are evaluated taking into account the age of the dues, specific credit circumstances, the track record of the counterparty etc. Loss allowances and impairment is recognized, where considered appropriate by responsible management.The Company has adopted a simplified approach by computing the expected credit loss allowance for trade receivables based on a provision matrix taking into account historical credit loss experience.

Foreign currency Risk

The Company undertakes transactions denominated in foreign currency (mainly US Dollar, Euro and Pound Sterling) which are subject to the risk of exchange rate fluctuations. Financial assets and liabilities denominated in foreign currency are also subject to reinstatement risks.

The carrying amount of foreign currency denominated financial assets and liabilities, are as follows:

The Company uses forward exchange contracts to hedge its exposures in foreign currency. Accordingly, forward exchange contracts that were outstanding on respective reporting dates:

10 Fair value measurement Fair value hierarchy

Fair value of the financial instruments is classified in various hierarchies based on the following three levels:

Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities

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

The fair value of financial instruments that are not traded in an active market is determined using market approach and valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3: Inputs for the assets and liabilities that are not based on observable market data (unobservable inputs).

If one or more of the significant inputs is not based on observable market data, the fair value is determined using generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparty.

The fair value of trade receivables, current investments, trade payables, other current financial assets and liabilities and short-term borrowings are considered to be equal to the carrying amounts of these items due to their short-term nature and accordingly not included in the below table. Where such items are Non-current in nature, the same has been classified as Level 3 and fair value determined using discounted cash flow basis. Similarly, unquoted equity instruments where most recent information to measure fair value is insufficient, or if there is a wide range of possible fair value measurements, cost has been considered as the best estimate of fair value.

There has been no change in the valuation methodology for Level 3 inputs during the year. The Company has not classified any material financial instruments under Level 3 of the fair value hierarchy. There were no transfers between Level 1 and Level 2 during the year.

The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis:

11 First-time adoption of Ind AS

A Ind AS 101 (First-time Adoption of Indian Accounting Standards) provides a suitable point for accounting in accordance with Ind AS and is required to be mandatorily followed by first-time adopters. The Company has prepared the opening Balance Sheet as per Ind AS as of 1st April 2016 (the transition date) by:

- recognising all assets and liabilities whose recognition is required by Ind AS

- not recognising items of assets or liabilities which are not permitted by Ind AS

- reclassifying items from previous Generally Accepted Accounting Principles (GAAP) to Ind AS as required under Ind AS, and

- applying Ind AS in measurement of recognized assets and liabilities

B Reconciliation of total comprehensive income for the year ended 31st March 2017 to those reported under previous GAAP are summarised as follows:

Notes

1 Ind /AS 101 mandates certain exceptions and allows first-time adopters exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions in the financial statements:

i. Property, plant and equipment and intangible assets were carried in the Balance Sheet prepared in accordance with previous GAAP on 31st March 2016. Under Ind AS, the Company has elected to regard such carrying values as deemed cost at the date of transition.

ii. Ind AS 103 (Business Combinations) has not been applied retrospectively to business combinations that occurred prior to 1st April, 2016. Use of this exemption means that in the opening Balance Sheet, all assets and liabilities acquired in previous business combinations remain at the previous GAAP carrying values.

iii. The Company has applied Appendix C of Ind AS 17 (Leases) - ‘Determining whether an Arrangement contains a Lease’ to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.

2 In addition to the above, the principal adjustments made by the Company in restating its previous GAAP financial statements, including the Balance Sheet as at 1st April 2016 and the financial statements as at and for the year ended 31st March 2017 are detailed below:

i. Under previous GAAP, leasehold properties were presented as fixed assets and amortised over the period of the lease. Under Ind AS, such properties have been classified as prepaid expenses within non-current assets (current portion presented as other current assets) and have been amortised over the period of the lease, resulting in decrease in property, plant and equipment by Rs. 121.98 millions as at 31st March 2017 and by Rs.141.21 millions as at 1st April 2016 and corresponding increase in other non-current assets by Rs. 119.81 millions as at 31st March 2017 and by Rs. 138.76 millions as at 1st April 2016 and in other current assets by Rs. 2.17 millions as at 31st March 2017 and by Rs. 2.45 millions as at 1st April 2016.

Such classification has resulted in decrease in depreciation and amortisation expense by Rs. 2.45 millions for the year ended 31st March 2017 and corresponding increase in other expenses, but does not affect profit before tax and total profit for the year ended 31st March 2017.

ii. Under the previous GAAP, investments in mutual funds were classified as non-current investments or current investments based on the intended holding period and realisability. Non-current 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 measured at fair value through profit or loss.

iii. Under the previous GAAP, actuarial gains / losses, arising in respect of employee benefit schemes were recognized in the statement of profit and loss. Under Ind AS, the actuarial gains and losses forming part of re-measurement of net defined benefit liability / asset is recognized in other comprehensive income in the respective periods.

iv. Under the previous GAAP, long term interest free security deposits given against operating lease are recorded at their transaction value. Under Ind AS, such financial assets have been accounted at amortised costs using the effective interest rate method.

v. Under previous GAAP, movements in cash credit facilities, repayable on demand, were reflected in cash flows from financing activities in cash flow statement. Under Ind AS, such cash credit facilities are included in cash and cash equivalents in the cash flow statement.

12 The Company has entered into operating Lease arrangements primarily for various commercial premises / retail outlets,distribution centres and land. Some of the significant terms and conditions are :

- These leasing arrangements which are not non - cancellable range between 11 months and 40 years generally, or longer, and are usually renewable by mutual consent on mutually agreeable terms.

Rent in respect of the above amounting to ‘257.61 millions (Previous Year - Rs. 198.97 millions) has been charged to Statement of Profit and Loss in “Other Expenses” –

Note 13

14 Micro, Small and Medium scale business entities:

A sum of ‘60.63 millions is payable to Micro and Small Enterprises as at 31st March 2018 (31st March 2017 - ‘21.64 millions, 1st April, 2016 - ‘21.26 millions). There are no Micro, Small and Medium Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days during the year and also as at 31st March 2018. This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company.

15 Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) (Amendment) Rules, 2018 on 28th March 2018 notifying Ind AS 115, ‘ Revenue from Contracts with Customers’ and amending Ind AS 21 ‘The Effects of Changes in Foreign Exchange Rates’; Ind AS 12 ‘Income Taxes’. The same are applicable for financial statements pertaining to annual periods beginning on or after 1st April 2018. The Company is in the process of assessing the detailed impact on the financial statements resulting from the implementation of these standards.

16 As at 31st March 2018, remuneration payable to four non-executive directors aggregating Rs. 0.40 million is subject to the approval of the Members at the forthcoming Annual General Meeting (Previous Year - Rs.Nil).

17 The financial statements were approved for issue by the Board of Directors on 11th May 2018.