1.16. PROVISIONS AND CONTINGENCIES
The Company creates a provision when there exists a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may but probably will not require an outflow of resources.
When there is a possible obligation or a present obligation in respect of which likelihood of outflow of resources is remote no provision or disclosure is made.
The expenses relating to a provision is presented in the Statement of Profit & Loss net of any reimbursement.
1.17. TAXATION
Current Income Tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws
used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognized outside profit or loss is recognized outside profit or loss (either in other comprehensive income or in equity). Current tax items are recognized in correlation to the underlying transaction either in Other Comprehensive Income (OCI) or directly in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
The Company has adopted and effected the reduced corporate tax rate permitted under section 115BAA of the Income Tax Act 1961 as per the Taxation Laws (Amendment) Ordinance 2019. The tax calculations for the year ended 31st March 2024 have been made accordingly.
Deferred Tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Standalone Financial Statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax assets are recognised to the extent it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax losses can be utilised.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The carrying amount of Deferred tax liabilities and assets are reviewed at the end of each reporting period.
1.18. FINANCIAL INSTRUMENTS
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial Assets
Initial Recognition and Measurement
All financial assets are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets, which are not at Fair Value Through Profit or Loss, are adjusted to the fair value on initial recognition. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on
the trade date i.e. the date that the Company commits to purchase or sell the asset.
However, Trade Receivables that do not contain significant financing components are measured at transaction price.
Subsequent Measurement
For purposes of subsequent measurement financial assets are classified in four categories:
(i) Debt instruments at amortized cost
(ii) Debt instruments at fair value through other comprehensive income (FVTOCI)
(iii) Debt instruments derivatives and equity instruments at fair value through profit or loss (FVTPL)
(iv) Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt Instruments at Amortized Cost
A 'debt instrument’ is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
This category is the most relevant to the Company. After initial measurement such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method.
Equity Investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVTPL. For all other equity instruments the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument by- instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI then all fair value changes on the instrument excluding dividends are recognized in the OCI. There is no recycling of the amounts from OCI to P&L even on sale of investment. However the Company may transfer the cumulative gain or loss within equity.
Derecognition
A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when:
(i) The rights to receive cash flows from the asset have expired or
(ii) The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'passthrough’ arrangements and either
(a) The Company has transferred substantially all the risks and rewards of the asset or
(b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
Impairment of Financial Assets
In accordance with Ind AS 109 the Company uses expected credit loss model for evaluating impairment of financial assets other than those measured at sale value through profit and loss. Expected credit losses are measured through a loss allowance at an amount equal to :
- The twelve months expected credit losses (expected credit losses that result from those default events on the financial instrument but are possible within twelve months after the reporting date.) : or
- Full life time expected credit losses (expected credit losses that result from those default events over the life of the financial instrument).
For trade receivables the Company applies simplified approach which requires expected lifetime losses to be recognized from initial recognition of the receivables at every reporting date the existing trade receivables are reviewed and accordingly required credit loss is recognized in books.
For other assets (other than trade receivables) the Company uses twelve months expected credit loss to provide for impairment loss where there is no significant increase in credit risk. If there is significant increase in credit risk full life time expected credit loss is used.
Financial Liabilities
Initial Recognition and Measurement
Financial liabilities are classified at initial recognition as financial liabilities at fair value through profit or loss loans and borrowings payables or as derivatives designated as hedging instruments in an effective hedge as appropriate.
All financial liabilities are recognized initially at fair value and in the case of loans and borrowings and payables net of directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables loans and borrowings including bank overdrafts financial guarantee contracts and derivative financial instruments.
Subsequent Measurement
The measurement of financial liabilities depends on their classification as described below:
Loans and Borrowings
This is the category most relevant to the Company. After initial recognition interest-bearing loans and borrowings are subsequently measured at amortized cost using the Effective Interest Rate (EIR) method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Derivative Financial Instrument and Hedge Accounting
The Company uses derivative financial instruments such as forward exchange contracts and interest rate risk exposures to hedge its risk associated with foreign currency fluctuations and changes in interest rates.
Fair Value Measurement
Fair value is the price 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 regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability the Company takes into account the characteristics of
the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and / or disclosure purposes in these standalone financial statements is determined on such basis except for measurements that have some similarities to fair value but are not fair value such as net realizable value in Ind AS 2.
Levels of Risk in Fair Value Measurement:
Level 1 - The fair value of financial instruments quoted in active markets is based on their quoted closing price at the balance sheet date.
Level 2 - The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques using observable market data. Such valuation techniques include discounted cash flows, standard valuation models based on market parameters for interest rates, yield curves or foreign exchange rates, dealer quotes for similar instruments and use of comparable arm’s length transactions.
Level 3 - The fair value of financial instruments that are measured on the basis of entity specific valuations using inputs that are not based on observable market data (unobservable inputs).
1.19. EXCEPTIONAL ITEM
Exceptional items are disclosed separately in the standalone financial statements where it is necessary to do so to provide further understanding of the financial performance of the Company. These are material items of income or expense that have to be shown separately due to their nature or incidence.
1.20. GOVERNMENT GRANT
Government grants including any non-monetary grants are recognized where there is reasonable assurance that the grant will be received, and all attached conditions will be compiled with. Government grants are recognized in the statement of profit and loss on a systematic basis over the periods in which the related costs, which the grants are intended to compensate, are recognized as expenses. Government grants related to property, plant and equipment are presented at fair value and grants are recognized as deferred income.
Grants from government authorities relating to income are recognised in the profit or loss as other Income when the reasonable assurance is established as per the terms of the scheme.
25.3 Capital Management
The Company’s Capital management is intended to create value for shareholders by facilitating the achievement of long-term and short-term goals of the Company.
The Company determines the amount of capital required based on an annual business plan coupled with long-term and shortterm strategic investment and expansion plans. The funding needs are met through equity, cash generated from operations, long-term and short-term bank borrowings.
The Company monitors the capital structure based on net debt to equity ratio and maturity profile of the overall debt portfolio of the Company.
Net debt includes interest bearing borrowings excluding lease obligations less cash and cash equivalents, other bank balances (including non-current earmarked balances) and current investments.
NOTE 25: STANDALONE NOTES ON ACCOUNTS (Contd..)
25.12 Segment Reporting
Segments are identified in line with Indian Accounting Standards (Ind AS) 108 "Operating Segments” taking into consideration the internal organization and management structure.
Operating Segments are components of the Company whose operating results are regularly reviewed by the Chief Operating Decision Maker (CODM) to make decisions about resources to be allocated to the segment and assesses it performance and for which discreet information is available.
The operating segment of the Company is identified to be manufacturing of "Engineering Products of Iron and Steel” and the CODM reviews business performance at an overall Company level as one segment. Hence no separate disclosure is provided.
Information by Geographies
In presenting geographic information segment revenue has been based on the location of the customer and segment assets are based on geographical location of assets.
c) Revenue from Major Customers
Details of single external customer from whom the Company receives more than 10% of the revenue.
Revenue from two customers of the Company having more than 10% of the total revenue aggregating to H 63128.18 lakhs (previous year three customers H 49934.28 lakhs).
25.13 Financial Instruments
(A) Fair Values Hierarchy
Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
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.
(B) Financial Risk Management
The Company has exposure to the following risk:
Credit Risk:
Credit risk is the risk that counterparty will not meet its obligations leading to a financial loss. The Company is exposed to credit risk arising from its operating (primarily trade receivables) and investing activities including deposits placed with banks, financial institutions and other corporate deposits. The Company establishes an allowance for impairment that represents its estimate of expected losses in respect of financial assets. Financial assets are classified into performing, under-performing and non-performing. All financial assets are initially considered performing and evaluated periodically for expected credit loss. A default on a financial asset is when there is a significant increase in the credit risk which is evaluated based on the business environment. The assets are written off when the Company is certain about the non-recovery.
Liquidity Risk:
Liquidity risk is the risk that the Company may encounter difficulty in meeting its obligations. The Company’s approach is to ensure that it has sufficient liquidity or borrowing headroom to meet its obligations at all point in time. The Company has sufficient short term fund based lines, which provides healthy liquidity and these carry highest credit quality rating from reputed credit rating agency.
Market Risk:
Market risk is the risk that the fair value of the future cash flows will fluctuate because of changes in the market prices.
25.14 Related party disclosures
List of Related parties:
I Wholly Owned Subsidiary
(i) Pitti Rail and Engineering Components Limited
II Entity having significant influence over the entity
(i) Pitti Electrical Equipment Private Limited
III Key Management Personnel Executive Promoter Directors
(i) Shri Sharad B Pitti, Founder & Chairman
(ii) Shri Akshay S Pitti, Managing Director & Chief Executive Officer
NOTE 25: STANDALONE NOTES ON ACCOUNTS (Contd..)
Independent & Non-Executive Directors
(iii) Ms. Gayathri Ramachandran, Independent Director
(iv) Shri G. Vijaya Kumar, Independent Director
(v) Shri M. Gopalakrishna, Independent Director
(vi) Shri N.R Ganti, Independent Director
(vii) Shri S. Thiagarajan, Independent Director
(viii) Shri Y B Sahgal, Independent Director (From 09-11-2023)
(ix) Shri DV Aditya, Independent Director (10-08-2022 to 21-10-2022)
Others
(x) Shri N K Khandelwal, President Corporate Resource & CFO (till 13.04.2022)
(xi) Shri M Pavan Kumar, Chief Financial Officer (From 12.11.2022)
(xii) Ms. Mary Monica Braganza, Company Secretary & Chief Compliance Officer
IV Other Related Parties with whom transactions have taken place.
The Enterprises over which KMP or relatives of KMP having significant influence.
(i) Pitti Casting Private Limited
(ii) Pitti Trade & Investment Private Limited
The Relative of Executive Promoter Directors
(iii) Smt Madhuri S Pitti
(iv) Smt Radhika A Pitti
(v) Sharad B Pitti (HUF)
25.23. The Previous year figures have been regrouped/rearranged to the extent necessary to In line with the current period’s classification. All the numbers have been rounded off to the nearest lakh.
25.24. Business Combinations
Scheme of Amalgamation
The Board of Directors at their meeting held on 15th June 2023 considered and approved the Scheme of Amalgamation among Pitti Castings Private Limited (PCPL) and Pitti Rail and Engineering Components Limited (PRECL) and Pitti Engineering Limited and their respective shareholders and creditors under Sections 230 to 232 of the Companies Act, 2013 and the rules framed thereunder (Scheme).
The Scheme, inter-alia, provides for amalgamation of PCPL and PRECL with Pitti Engineering Limited.
The amalgamation of PCPL is proposed to be undertaken with the objective of achieving vertical integration, broaden the Company’s footprint across the supply chain and enhance the Company’s margins and profitability. The amalgamation of PRECL is proposed to be undertaken with the objective of simplifying the corporate structure and elimination of duplication in administrative cost and multiple record keeping thus resulting in cost savings.
The Board of the Company has recommended the following share exchange ratio for the amalgamation of PCPL with the Company:
"01” (One) equity share of PEL of INR 05/- each, fully paid-up for every 55 (Fifty-Five) equity shares of PCPL of INR 10/- each, fully paid-up ("Share Exchange Ratio”)
Since all the shares of PRECL are held by the Company, no consideration shall be payable pursuant to the amalgamation of PRECL. The Company had filed the Scheme with Stock Exchanges on 26th June 2023 and received their no objection on 26th October 2023. Further, the Company has received approval from the shareholders and creditors pursuant to an National Company Law Tribunal (NCLT) convened meeting on 22nd March 2024. A joint petition has been filed with the NCLT, Hyderabad bench on 29th March 2024 and the same is reserved for hearing on 07th June 2024. Pending receipt of necessary approvals, no effect of the Scheme has been given in the financial results for the quarter and year ended 31st March 2024.
Note1:
(a) Increase in Debt Equity ratio due to Increase in Term loans to the extent Property, Plant & Equipment got increased and also increase in utilization working capital limits.
(b) Decrease in debt service coverage ratio due to increase in Term loans.
(c) Decrease in Net Capital Turnover ratio due to increase in utilization of working capital limits.
Definitions:
(a) Current Assets = Total Current Assets as per Balance Sheet
(b) Current Liabilities = Total Current Liabilities as per Balance Sheet
(c) Debt = Long term and short-term borrowings as per Note 10A and Note 13A respectively of the Balance Sheet
(d) Equity/Shareholder Equity = Total Equity as per Balance Sheet
(e) EBDIT = Profit Before Tax Depreciation Interest on Term Loans Interest on working capital borrowings
(f) Interest = Total Interest cost on Borrowings (Term Loans and Working Capital Borrowings)
(g) Average Inventory = (Opening Inventory Closing Inventory)/2
(h) Average Receivables = (Opening Receivables Closing Receivables)/2
(i) Average Payables = (Opening Payables Closing Payables)/2
(j) Working Capital = Current Assets - Current Liabilities
(k) Capital Employed = Total Assets- Current Liabilities
(l) Earnings from Investor Funds= Earnings from Investment
(m) Average Investment Funds = (Opening Investments Closing Investments)/2
25.26. Other Statutory Information
(i) The Company does not have any Benami property where any proceeding has been initiated or pending against the Company for holding any Benami property.
(ii) The quarterly returns or statements of current assets filed by the company with banks or financial institutions are in agreement with the books of accounts.
(iii) The Company has not been declared willful defaulter by any bank or financial institution or government or any government authority.
(iv) The Company does not have any transactions with companies struck off.
(v) The Company does not have any charges or satisfaction which is yet to be registered with Registrar of Companies beyond the statutory period.
(vi) The Company has complied with the requirements of the number of layers prescribed under clause (87) of section 2 of the Companies (Restriction on number of Layers) Rules 2017.
(vii) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies) including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
(a) Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or
(b) Provide any guarantee security or the like to or on behalf of the Ultimate Beneficiaries.
(viii) The Company has not received any fund from any person(s) or entity(ies) including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Group shall:
(a) Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
(b) Provide any guarantee security or the like on behalf of the Ultimate Beneficiaries.
(ix) The Company has not entered into any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act 1961 (such as search or survey or any other relevant provisions of the Income Tax Act 1961).
(xi) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
As per our report of even date For and on behalf of the Board of Directors of
Pitti Engineering Limited
CIN : L29253TG1983PLC004141
For Talati & Talati LLP Sharad B Pitti Akshay S Pitti
Chartered Accountants Founder & Chairman Managing Director &
Firm’s Registration Number: DIN:00078716 Chief Executive Officer
110758W/W100377 DIN:00078760
Amit Shah G Vijaya Kumar M Pavan Kumar Mary Monica Braganza
Partner Director Chief Financial Officer Company Secretary &
M.No:122131 DIN:00780356 M. No: 216936 Chief Compliance Officer
M. No:F5532
Place: Hyderabad Place: Hyderabad
Date : 15th May 2024 Date : 15th May 2024
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