1. Company Overview
Emami Limited ("the Company") is one of India’s leading FMCG Companies engaged in manufacturing & marketing of personal care & healthcare products with an enviable portfolio of household brand names such as BoroPlus, Navratna, Fair and Handsome, Zandu Balm, Kesh King, Zandu Pancharishta, Mentho Plus Balm and others. The Company is a public limited company domiciled in India and is primarily listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The registered office of the Company is located at 687,Anandapur, E.M. Bypass, Kolkata, West Bengal.
2.1 First-Time Adoption of Ind-AS
These standalone financial statements of Emami Limited for the year ended March 31, 2017 have been prepared in accordance with Ind AS. For the purposes of transition to Ind AS, the Company has followed the guidance prescribed in Ind AS 101-First Time Adoption of Indian Accounting Standards, with April 1, 2015 as the transition date and IGAAP as the previous GAAP
The transition to Ind AS has resulted in changes in the presentation of the financial statements, disclosures in the notes thereto and accounting policies and principles. The accounting policies set out in Note 1 have been applied in preparing the standalone financial statements for the year ended March 31, 2017 and the comparative information. An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s Balance Sheet, Statement of Profit and Loss, is set out in note 2.2.1 and 2.2.2. Exemptions on first time adoption of Ind AS availed in accordance with Ind AS 101 have been set out in note 2.1.1 .
2.1.1 Exemptions availed on first time adoption of Ind-AS 101
Ind-AS 101 allows first-time adopters certain exemptions from thereto respective application of certain requirements under Ind AS. The Company has accordingly applied the following exemptions:
(a) Business Combination
In accordance with Ind AS 101, the Company has elected not to restate business combinations that occurred before the date of transition i.e 1st April 2015. In view of the same, the Indian GAAP carrying amounts of assets and liabilities, that are required to be recognised under Ind AS, is their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with respective Ind AS.
(b) Property Plant and Equipment, Intangible Assets and Investment Properties
In accordance with Ind AS 101, the Company has elected to continue with the carrying values under previous GAAP for all the items of Property, Plant and Equipment. The same election has been made in respect of intangible assets and investment property also.
(c) Designation of previously recognised financial instruments
Ind AS 101 permits an entity to designate particular equity investments (other than equity investments in subsidiaries, associates and joint arrangements) as at fair value through other comprehensive income (FVOCI) based on facts and circumstances at the date of transition to Ind AS (rather than at initial recognition). Other equity investments are classified at fair value through profit or loss (FVPL).
The Company has opted to avail this exemption to designate certain equity investments as FVOCI on the date of transition.
(d) Investment in Subsidiaries
Under previous GAAP, investment in subsidiaries were stated at cost and provisions made to recognise decline, other than temporary. Under Ind AS, the company has elected to regard such carrying amount as at 31st March 2015, as deemed cost at the date of transition.
The following reconciliation provides the effect of transition to Ind AS from IGAAP in accordance with Ind AS 101
1. Equity as at April 1, 2015 and March 31, 2016
2. Net profit for the year ended March 31, 2016
Explanations for reconciliation of Balance Sheet as previously reported under IGAAP to IND AS
a. In accordance with Ind AS 40, the company has reclassified land & buildings to investment property. Under previous GAAP, this was disclosed as a part of Property, Plant & Equipment.
b. In accordance with Ind AS 103, acquisition cost capitalised under previous GAAP has been expensed out.
c. Under previous GAAP, non- current investments were stated at cost. Where applicable, provision was made to recognise a decline, other than temporary, in valuation of such investments. Under Ind AS, financial assets in equity instruments other than investment in subsidiaries have been classified as Fair Value Through Other Comprehensive Income (FVTOCI) through an irrevocable election at the date of transition.
d. Under previous GAAP, current investments were stated at lower of cost and fair value, under Ind AS, these financial assets have been classified as fair value through profit or loss on the date of transition and fair value changes after the date of transition has been recognised in profit or loss.
e. Under previous GAAP, the premium or discount on derivative instruments were expensed over the period of the contract. Under Ind AS, the net mark to market loss/gain on fair valuation of such instruments are recognised in Statement of Profit & Loss.
f. Under previous GAAP, dividend payable is recognised as a liability in the period to which it relates. Under Ind AS, dividends to shareholders are recognised when declared by the members in a general meeting.
g. Under previous GAAP, Grant or Subsidy relating to assets were shown as part of capital reserve. Under Ind AS, such grants are treated as deferred income and are recognized as other income in the Statement of Profit & Loss on a systematic and rational basis over the useful life of the asset.
h. Adjustments to retained earnings, other comprehensive income and deferred tax has been made in accordance with Ind AS, for the above mentioned line items. In addition, as per Ind-AS 19, actuarial gains and losses are recognized in other comprehensive income as compared to being recognized in the statement of profit and loss under IGAAP
Explanations for Reconciliation of Profit and Loss as previously reported under IGAAP to IND AS
a. Under Ind AS, revenue from sales of goods is inclusive of excise duty and are net of sales tax, discounts and secondary trade promotions. Under previous GAAP, sales included sales tax but was shown net of excise duty. Secondary promotions linked to sales was disclosed as part of advertisement & promotion under other expenses. Field Force expenses has been shown as part of employee benefit expenses.
b. Under Ind AS, Grants/Subsidy earlier treated as reserve now considered as deferred income and amortized to income based on the useful life of assets against which the same was received.
c. Under Ind AS, Mutual Funds, Forward & Option Contracts have been measured at Fair Valued Through Profit or Loss (FVTPL). Under Ind AS, financial assets in equity instruments other than investment in subsidiaries have been classified as Fair Value Through Other Comprehensive Income (FVTOCI) through an irrevocable election at the date of transition.
d. Under Ind AS, Actuarial Gain/Loss on Gratuity routed through Other Comprehensive Income instead of profit or loss.
e. Acquisition related costs expensed off instead of being capitalized with intangible assets.
2.2.1 Cash flow statement
There were no significant reconciliation items between cash flows prepared under IGAAP and those prepared under Ind AS.
Sensitivity Analysis :-
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase and mortality. The sensitivity analysis below have been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period, while holding all other assumptions constant. The results of sensitivity analysis is given below:
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
There is no change in the method of valuation for the prior period.
Effect of Plan on Entity’s Future Cash Flows
a) Funding arrangements and Funding Policy
The Company has purchased an insurance policy to provide for payment of gratuity to the employees. Every year, the insurance company carries out a funding valuation based on the latest employee data provided by the Company. Any deficit in the assets arising as a result of such valuation is funded by the Company.
For Leave, the Scheme is partly managed on funded basis.
b) Expected Contribution during the next annual reporting period
c) Maturity Profile of Defined Benefit Obligation
Liability sesitivity analysis
Significant actuarial assumptions for the detemination of the guarantee liability are interest rate gaurantee and discount rate.
The sensitivity analysis below have been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period, while holding all other assumptions constant. The results of sensitivity analysis is given below: 3.36
The Company has made a provision of Rs. 126.48 Lacs (P.Y.- 105.89 Lacs) towards Indirect Taxes resulting mainly from issues, which are under litigation/dispute as shown below :
There were no dues outstanding for more than 45 days to any Micro, Small and Medium Enterprises Creditor. The above information regarding Micro, Small and Medium Enterprise has been determined to the extent such communication has been received from the respective parties by the company.
Long Term Loans & Advances include Security Deposit of Rs. 5.75 Lacs (P.Y.-Rs. 5.85 Lacs) due from Directors of the Company against tenancies. (Maximum amount outstanding during the year - Rs. 5.85 Lacs (P.Y.-Rs. 7.04 Lacs).
3.3 Contingent Liabilities & Commitments I) Contingent Liabilities:
Note: Contingent Liability disclosed above represent possible obligations where the possibility of cash outflow to settle the obligation is remote and is exclusive of interest and penalty. (if any)
In addition, the company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The company’s management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the company’s results of operations and financial condition.
3.4 DISCLOSURE ON SPECIFIED BANK NOTES (SBN’S)
During the year, the Company had specified bank notes or other denomination note as defined in the MCA notification G.S.R. 308(E) dated March 31, 2017 on the details of Specified Bank Notes (SBN) held and transacted during the period from November 8, 2016 to December, 30 2016, the denomination wise SBNs and other notes as per the notification is given below :
3.5 FAIR VALUE HIERACHY
Level 1 - Quoted prices (unadjusted ) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices 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).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The operating lease arrangements, are renewable on a periodic basis and for most of the leases extend upto a maximum of ten years from their respective dates of inception and relates to rented premises. Some of these lease agreements have price escalation clauses.
3.6 FINANCIAL RISK MANAGEMENT Financial risk factors
The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures.
Market risk Foreign Currency risk
The Company operates both in domestic market and internationally and a major portion of the business is transacted in foreign currencies and consequently the Company is exposed to foreign exchange risk through its sales in overseas countries, and purchases from overseas suppliers in foreign currencies. The Company holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures.
For the year ended March 31, 2017 and March 31, 2016, every percentage appreciation in the exchange rate between the Indian rupee and U.S. dollar, has affected the Company’s Profit before tax by approx Rs. 24.53 Lacs.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign currency forward and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank or a financial institution.
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to Rs. 3413.19 Lacs and Rs. 5063.28 Lacs as of March 31, 2017 and March 31, 2016, respectively. Trade receivables includes both secured and unsecured receivables and are derived from revenue earned from domestic and overseas customers. Credit risk has always been managed by the group through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Group grants credit terms in the normal course of business.
Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in liquid mutual fund units, certificates of deposit which are funds deposited at a bank for a specified time period.
The company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations as well as investment in mutual funds. The company believes that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived.
As of March 31, 2017, the Company had a working capital of Rs. 7255.24 Lacs (PY. Rs. 2747.67 Lacs).
The underspend in the CSR activities in financial year 2016-17 amounting Rs. 191.63 Lacs was mainly due to extraneous factors and also due to better planning and negotiations which resulted in savings despite carrying the activities as envisaged . Besides, some projects are multiyear projects and so expenditure can be done stages/ year wise which may result in lower expenditure in a particular year.
Commercial production of the Company’s Newly setup plant in Pacharia, Dolapathar, Kamrup, Assam has commenced from 23rd February 2017.
On 12th June 2015, the Company acquired Hair & Scalp Care business under the "Kesh King" and allied Brands at Rs 1,68,400 Lacs (Including duties & taxes). Intangible Assets viz. Brands/Trademarks including Goodwill has been valued based on valuation report of an expert. In accordance with the provisions of Ind AS 38- Intangible Assets, the management has estimated useful life of various intangible assets at 5 to 10 years, except Goodwill of Rs 1,050 Lacs which has been charged to the statement of profit & loss. For the year ended 31st March 2017, amortisation of acquired Trade Marks/ Brands includes Rs 23,996.68 Lacs (P Y Rs 19,517 lacs) respectively provided on intangible assets of ‘Kesh king’ business on pro-rata basis.
Previous year’s figures have been rearranged/regrouped wherever necessary