* Beneficial interest in respect of 12,795,074 shares of Dr. Ramachandra N Galla, 12,445,834 shares of Jayadev Galla and 14,990,400 shares of the rest was transferred in the name of RN Galla Family & Co.
Note: The interest free sales tax deferment loans were availed by the Company under the Government of Andhra Pradesh TARGET 2000 New Industrial Policy as per which the loans are repayable at the end of the 14th year from the year in which these loans were availed. The Company has also entered into agreements with the Deputy Commissioner of Commercial Taxes, Chittoor in respect of the aforementioned loans per which the repayment schedule of the loans have been determined as being repayable at the end of the 14th year from the month in which these loans were availed. The Management is however of the view that these loans are repayable at the end of the 14th year from the year in which these loans were availed in terms of the sanction of these loans by the Government of Andhra Pradesh, Commissioner ate of Industries and are accordingly making an early repayment of these loans.
Note: The provision for warranty claims represents the present value of the Management''''s best estimate of the future outflow of economic benefits that will be required under the Company''''s obligation for warranties. The estimation has been made on the basis of historical warranty trends and may vary as a result of new materials, altered manufacturing processes or other events affecting product quality.
a. Defined contribution plans
The Company makes Provident Fund, Superannuation Fund and Employees'''' State Insurance Scheme contributions which are defined contribution plans, for qualifying employees. The Company recognized Rs,4.30 crores (Year ended March 31, 2016: Rs,3.50 crores) for provident fund contributions, Rs,5.18 crores (Year ended March 31, 2016: Rs,4.09 crores) for Superannuation Fund contributions and Rs,3.69 crores (Year ended March 31, 2016: Rs,3.11 crores) towards Employees'''' State Insurance Scheme contributions in the Statement of Profit and Loss.
b. Defined benefit plans
The Company provides to the eligible employees defined benefit plans in the form of gratuity. The gratuity plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days'''' salary payable for each completed year of service. Vesting occurs upon completion of five continuous years of service. The measurement date used for determining retirement benefits for gratuity is March 31.
(i) Balance Sheet
The assets, liabilities and surplus / (deficit) position of the defined benefit plans at the Balance Sheet date were:
With the objective of presenting the plan assets and plan obligations of the defined benefits plans at their fair value on the Balance Sheet, assumptions under Ind AS 19 are set by reference to market conditions at the valuation date.
The sensitivity analysis above have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the year and may not be representative of the actual change. It is based on a change in the key assumption while holding all other assumptions constant. When calculating the sensitivity to the assumption, the same method used to calculate the liability recognized in the Balance Sheet has been applied. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the previous year.
Note 1: Segment reporting
The Vice Chairman and Managing Director of the company has been identified as the Chief Operating Decision Maker (CODM) who evaluates the Company''''s performance and allocates resources for manufacture and marketing of lead acid storage batteries. Accordingly, manufacturing and trading of lead acid storage batteries is considered as the operating segment of the Company.
The Company operates in India and makes certain sales to customers situated outside of India. The revenue from external customers by location of customers is detailed below. All the non-current assets of the Company are situated within India.
Refer to Note 43 on Financial Risk Management and Capital Management for information on revenue from major customers.
Note 2: The Company had purchased 8.68 hectares of freehold land for a consideration of Rs,15.59 crores in 2011-12 at Tehsil Laksar, District Haridwar, Uttarakhand State. Under the terms of sanction by the State Government for sale of such land, a manufacturing unit was to be set up within two years from the date of purchase of land, which owing to unforeseen circumstances could not take place. The District Collector vide order dated November 10, 2014 initiated proceedings for vesting the aforementioned land with the State Government. Based on legal advice, the Company has gone in appeal against the order of the District Collector and is pursuing the matter with relevant authorities. Consequent to the appeal by the Company against the aforesaid order, the Court of Board of Revenue, Dehradun, Uttarakhand State, has stayed the proceedings initiated under the aforesaid order.
However, pending resolution of the matter which is sub-judice, the Company had in the previous years, fully impaired the value of the aforesaid land. Consequent to the transition to Ind AS, and the Company''''s election to continue with the carrying amount of all of its property, plant and equipment recognized as of April 1, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date, the provision for impairment recorded in respect of the said land before the date of transition under previous GAAP cannot be reversed in later years.
Note 3: Related party transactions
(a) Details of related parties Entity exercising significant influence
RN Galla Family & Co. (Partnership Arm)
Johnson Controls (Mauritius) Private Limited, Mauritius
Key Management Personnel
Jayadev Galla Vice Chairman and Managing Director
Relative of Key Management Personnel
Dr. Ramachandra N Galla (Father of KMP) Chairman
Entities in which KMP / Relatives of KMP exercise significant influence
Amara Raja Power Systems Limited
Amara Raja Electronics Limited
Mangal Industries Limited
Amara Raja Infra Private Limited
Amara Raja Industrial Services Private Limited
Asistmi Solutions Private Limited
Amara Raja Media and Entertainment Private Limited
RNGalla Family Holdings Private Limited
G2 Healthcare Private Limited
Nine Nines Lifestyle Private Limited
Amaron Batteries Private Limited
The Company''''s significant leasing arrangements are in respect of operating leases for premises (off i ces and warehouses). These leasing arrangements which are cancellable, range between 1 years and 9 years generally and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals of Rs,16.54 crores (year ended March 31, 2016: Rs,14.50 crores) paid under such arrangements has been charged to the Statement of Profit and Loss.
Note: Net of income from sale of batteries, scrap, etc. Nil crores (Year ended March 31, 2016: Rs,2.44 crores)
Note 4: Disclosure as per Regulation 53(f) of Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015:
(i) Loans and advances in the nature of loans given to Companies in which Directors are interested Rs,Nil (March 31, 2016: Rs,Nil)
(ii) Details of investments made under Section 186 of the Companies Act, 2013 are disclosed in Note 5. There are no loans / guarantees issued under Section 186 of the Companies Act, 2013.
The Company has obtained approval from Department of Scientific and Industrial Research for claiming of weighted tax benefit under Section 35(2AB) of the Income Tax Act, 1961.
2. The fair values of investments in unquoted equity investments has been estimated using a discounted cash fi ow model under income approach. The valuation requires Management to make certain assumptions about model inputs, including forecast cash flows, discount rate and credit risk, the probabilities of the various estimates within range can be reasonably assessed and are used in Management''''s estimate of fair value for these unquoted investments.
Note 5: Fair value hierarchy
The fair value of financial instruments as referred to in Note 41 above have been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identified assets or liabilities [Level 1 measurements] and lowest priority to unobservable inputs [Level 3 measurements]
The categories used are as follows:
Level 1: Quoted prices for identified instruments in an active market.
Level 2: Directly or indirectly observable market inputs, other than Level 1 inputs; and Level 3: Inputs which are not based on observable market data.
This note provides information about how the Company determines fair values of various financial assets and financial liabilities.
Fair value of the Company''''s financial assets and financial liabilities that are measured at fair value on a recurring basis.
Some of the Company''''s financial assets and financial liabilities are measured at the fair value at the end of each reporting period. The following table gives information about how the fair value of these financial assets and financial liabilities are determined (in particular, the valuation technique and other inputs used).
1 If the Long-term revenue growth rates used were 1% higher/lower while all other variables were held constant, the carrying amount of the shares would increase/(decrease) by Rs,0.78 crores and Rs,(0.68) crores respectively [as at March 31, 2016: increase/(decrease) by Rs,0.63 crores and Rs,(0.55) crores; as at April 1, 2015: increase/(decrease) by Rs,0 .61 crores and Rs,(0.53) crores respectively].
2 A 1% increase/ (decrease) in WACC or discount rate used while holding all other variables constant would (decrease)/increase the carrying amount of the unquoted equity investments by Rs,(1.17 crores) and Rs,(0.96 crores), Rs,1.34 crores and Rs,1.12 crores respectively (as at March 31, 2016: (decrease)/increase by Rs,(0.93 crores) and Rs,(0.77 crores), Rs,1.07 crores and Rs,0.90 crores respectively; as at April 1, 2015: (decrease)/increase by Rs,(0.87 crores) and Rs,(0.73 crores), Rs,1.01 crores and Rs,0.86 crores respectively)
3 These investments in equity instruments are not held for trading. Instead, they are held for long term strategic purpose. Upon the application of Ind AS 109, the Company has chosen to designate these investments in equity instruments as at FVTOCI irrevocably as the Management believes that this provides a more meaningful presentation for long term strategic investments, than reflecting changes in fair value immediately in profit or loss.
The Company''''s business activities are exposed to a variety of financial risks, namely liquidity risk, credit risk and foreign currency risk. The Company''''s senior management has the overall responsibility for establishing and governing the Company''''s risk management framework. The Company''''s risk management policies are established to identify and analyse the risks faced by the Company, periodically review the changes in market conditions and reflect the changes in the policy accordingly. The key risks and mitigating actions are overseen by the Board of Directors of the Company.
A. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counter-party fails to meet its contractual obligation. Trade receivables Concentration of credit risk with respect to trade receivables are limited, due to Company''''s customer base being large and diverse. All trade receivables are reviewed and assessed for default on a monthly basis.
Historical experience of collecting receivables is that credit risk is low. Hence, trade receivables are considered to be a single class of financial assets.
The following table gives details in respect of revenues generated from top customer and top 5 customers:
Apart from one customer who is the largest customer of the Company, the Company does not have significant credit risk exposure to any single counter party.
Other financial assets
The Company maintain exposure in cash and cash equivalents, term deposits with banks and money market liquid mutual funds.
The Company''''s maximum exposure of credit risk as at March 31, 2017, March 31, 2016 and April 1, 2015 is the carrying value of each class of financial assets.
B. Foreign currency risk management
The Company is subject to the risk that changes in foreign currency values impact the Company''''s export revenues and import of raw materials and property, plant and equipment. The Company is exposed to foreign exchange risk arising from currency exposures, primarily with respect to US Dollars.
The Company manages currency exposures within prescribed limits. The aim of the Company''''s approach to management of currency risk is to leave the Company with no material residual risk.
The following table presents foreign currency risk from non-derivative financial instruments as of March 31, 2017, March 31, 2016 and April 1, 2015.
* Others includes currencies such as Singapore $, Japanese Yen, Russian ruble, South Korean Won, etc.
Foreign currency sensitivity analysis
A 5% strengthening of the INR against key currencies to which the Company is exposed would have led to approximately an additional Rs,2.46 crores gain in the Statement of Profit and Loss (2015-16: Rs,2.81 crores gain). A 5% weakening of the INR against these currencies would have led to an equal but opposite effect.
The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 5% change in foreign currency rates.
C. 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 its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks. The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended March 31, 2017 and March 31, 2016. Cash flow from operating activities provides the funds to service the financial liabilities on a day to day basis.
The Company regularly maintains the rolling forecasts to ensure it has sufficient cash on an on-going basis to meet operational needs. Any short-term surplus cash generated, over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess is invested in interest bearing term deposits and mutual funds with appropriate maturities to optimize the cash returns on investments while ensuring sufficient liquidity to meet its liabilities.
The table below provides details regarding the contractual maturities of significant financial liabilities as of March 31, 2017, March 31, 2016 and April 1, 2015:
Equity share capital and other equity are considered for the purpose of Company''''s capital management.
The Company manages its capital so as to safeguard its ability to continue as a going concern and to optimize returns to shareholders. The capital structure of the Company is based on Management''''s judgment of its strategic day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence.
The Management and the Board of Directors monitors the return on capital as well as the level of dividends to shareholders. The Company may take appropriate steps in order to maintain, or is necessary, adjust its capital structure.
Note 6: Dividend
The Board of Directors at its meeting held on May 24, 2017 have recommended a dividend of Rs,4.25 per equity share of face value of Rs,1 each for the financial year ended March 31, 2017. The above is subject to approval at the ensuing Annual General Meeting of the Company and hence is not recognized as a liability.
Note 7: Transition to Ind AS
For periods up to and including the year ended March 31, 2016, the Company had prepared its financial statements in accordance with the accounting standards notified under Section 133 of the Companies Act, 2013 ("the Act") read together with Rule 7 of the Companies (Accounts) Rules, 2014 ("Previous GAAP"). The Company''''s financial statements for the year ended March 31, 2017 are prepared in accordance with Ind AS notified under Section 133 of the Act read together with the Companies (Indian Accounting Standards) Rules, 2015 as amended by the Companies (Indian Accounting Standards) Amendment Rules, 2016, as applicable. The adoption of Ind AS was carried out in accordance with Ind AS 101 First time Adoption of Indian Accounting Standards, using April 1, 2015 as the transition date. Ind AS 101 requires that all Ind AS standards and interpretations that are issued and effective for the first Ind AS financial statements be applied consistently and retrospectively for all financial years presented. Accordingly, the Company has prepared financial statements which comply with Ind AS for the year ended March 31, 2017, together with the comparative information as at and for the year ended March 31, 2016 and the opening Ind AS Balance Sheet as at April 1, 2015 the date of transition to Ind AS.
In preparing these financial statements, the Company has availed certain exemptions and exceptions in accordance with Ind AS 101 as explained below. The resulting difference between the carrying values of the assets and liabilities in the financial statements as at transition date under Ind AS and Previous GAAP have been recognized directly in equity [retained earnings or another appropriate category of equity]. This note explains the principal adjustments made by the Company in restating its financial statements prepared under previous GAAP, including the Balance Sheet as at April 1, 2015 and the financial statements as at and for the year ended March 31, 2016.
A. Exceptions from full retrospective application:
(i) Estimates exception: 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.
(ii) Classification and measurement of financial assets: The Company has determined the classification of financial assets in terms of whether they meet the amortized cost creteria or the fair value through other comprehensive income criteria based on the facts and circumstances that existed as of the transition date.
(iii) Government loans: The requirements of Ind AS 20 - Accounting for Government Grants and Disclosure of Government Assistance and Ind AS 109 - Financial Instruments, in respect of recognition and measurement of interest-free loans from government authorities is opted to be applied prospectively to all grants received after the date of transition to Ind AS. Consequently, the carrying amount of such interest-free loans as per the financial statements of the Company prepared under Previous GAAP is considered for recognition in the opening Ind AS Balance Sheet.
B. Exemptions from retrospective application:
(i) Deemed cost for property, plant and equipment and intangible assets: The Company has elected to continue with carrying value of all its property plant and equipment, and intangible asets recognized as of April 1, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
C. Transition to Ind AS - Reconciliations.
The following reconciliations provide a quantification of the effect of significant differences arising from the transition
from Previous GAAP to Ind AS in accordance with Ind AS 101:
i. Reconciliation of Equity as at April 1, 2015 and March 31, 2016
ii. Reconciliation of Total Comprehensive Income for the year ended March 31, 2016; and
iii. Material adjustment to Statement of cash flows.
Notes to the reconciliations
a. Under previous GAAP, dividends on equity shares (including dividend distribution tax thereon) recommended by the board of directors after the end of reporting period but before the financial statements were approved for issue were recognized in the financial statements as a liability. Under Ind AS, such dividends (including dividend distribution tax thereon) are recognized when declared by the members in general meeting. The effect of this change is an increase in total equity as at March 31, 2016 of Rs,Nil (April 1, 2015 - Rs,73.99 crores), but does not affect profit before tax and profit for the year ended March 31, 2016.
b. Under previous GAAP, discounting of provisions was not permitted and provisions were measured at best estimate of the expenditure required to settle the obligation at the balance sheet date without considering the effect of discounting. Under Ind AS, provisions are measured at discounted amounts, if the effect of time value of money is material. The Company has discounted the warranty provisions to present value at the reporting dates resulting in the provisions being decreased. Consequently, the unwinding of discount has been recognized as a finance cost. Further, the corresponding differences in deferred taxes have also been recognized.
c. Under previous GAAP, actuarial gains and losses were recognized in profit or loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability / asset which is recognized in other comprehensive income. Consequently, the tax effect of the same has also been recognized in other comprehensive income under Ind AS instead of profit or loss. The actuarial losses for the year ended March 31, 2016 were Rs,0.09 crores and tax effect thereon Rs,0.03 crores. This change does not affect the total equity, but there is a increase in the profit before tax of Rs,0.09 and in total comprehensive income of Rs,0.06 crores for the year ended March 31, 2016.
d. Under previous GAAP, long-term investments were measured at cost less provision for diminution, other than temporary. Under Ind AS, these financial assets have been classified as FVTOCI. On the date of transition to Ind AS, these financial assets have been measured at their fair value which is higher than the cost as per previous GAAP, resulting in an increase in carrying amount. The corresponding deferred taxes have also been recognized. These changes do not affect profit before tax for the year ended March 31, 2016 because the investments have been classified as FVTOCI.
e. Under 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 measured at fair value. Accordingly, the Company has fair valued these security deposits under Ind AS. Difference between the fair value and transaction value of the security deposits has been recognized as prepaid rent. Profit for the year end and total equity as at March 31, 2016 decreased by Rs,0.21 crores due to amortization of prepaid rent, which is partially off-set by the notional interest income of Rs,0.20 crores recognized on security deposits.
f. Under Ind AS, government grants in the nature of duty benefit under Export Promotion Capital Goods scheme (EPCG) received have been recognized separately in the financial statements. Deferred revenue of Rs,38.63 crores (April 1, 2015: Rs,Nil) arises as a result of duty benefit received on import of plant and equipment under EPCG scheme. The deferred revenue is recognized in the Statement of Profit and Loss in the proportion of depreciation charged on such assets.
g. Under previous GAAP, revenue was recognized net of trade discounts, rebates, sales taxes and excise duties. Under Ind AS, revenue is recognized at the fair value of the consideration received or receivable, after deduction of any trade discounts, volume rebates and any taxes or duties collected on behalf of the government such as sales tax and value added tax except excise duty. Discounts given include rebates, price reductions and incentives given to customers (including through free issues of traded batteries), which have been reclassified from ''''advertising and sales promotion'''' within other expenses and ''''purchase of traded goods'''' under Previous GAAP and netted from revenue under Ind AS. The change does not affect total equity as at March 31, 2016, profit before tax or total comprehensive income for the year ended March 31, 2016.
h. Under previous GAAP, revenue from sale of products was presented net of excise duty. However, under Ind AS, excise duty is included in sale of goods. Excise duty expense is presented separately on the face of Statement of Profit and Loss. Thus, sale of goods under Ind AS has increased with a corresponding increase in expenses. In the light of above, increase/ (decrease) of excise duty on finished goods included as part of changes in inventories of finished goods, work-in-progress and stock-in-trade has been included in ''''excise duty'''' presented as expense on the face of the Statement of Profit and Loss.
Note 8: The financial statements are approved for issue by the Board of Directors on May 24, 2017.