vii. Notes to Ind AS 101 - First time Adoption of Indian
Accounting Standards reconciliation
a. Business Combination
Effect of retrospective application of Ind AS 103-Business Combinations for AMHPL merger during the year ended March 2016. (refer Note C4)
b. Under previous GAAP, there was no concept of Other Comprehensive Income. Under Ind AS, specified items of income, expense, gains or losses are required to be presented in Other Comprehensive Income, which is reported along with the other equity.
c. Under previous GAAP, other investments were carried at cost. As per Ind AS, these investments are carried at fair value through profit and loss.
d. Under previous GAAP, foreign currency borrowings were stated at historical rate and derivative contracts were accounted in accordance with AS 11 whereas under Ind AS, the borrowings are restated at closing rate and a corresponding derivative asset/ liability is recognized separately at fair value. The derivatives are accounted for based on mark to market value as on the balance sheet date.
e. Under previous GAAP, the company had accounted the proposed dividend and corresponding dividend tax in the financial year to which it relates as and when the same is proposed by the board of directors, however under Ind AS, the same has to be accounted and reported in the year in which it is approved by the shareholders and paid accordingly.
f. Under previous GAAP, excise duty and certain sales related obligations had been netted off with income from sale of tyres, tubes and flaps, however under Ind AS, these items have been shown under expenses.
g. Under previous GAAP, net interest cost on valuation of defined benefit obligation was recognized as part of employee benefit expense whereas the same is considered as part of finance cost under Ind AS.
h. Under previous GAAP, actuarial gains and losses arising on valuation of defined benefit obligations were recognized in Statement of Profit and Loss as part of employee benefit expense whereas the same has been recognized as a component of Other Comprehensive Income under Ind AS.
i. Under previous GAAP, security deposits were recognized based on historical cost. However under Ind AS, the same has been accounted for as per amortized cost using effective interest rate. Accordingly interest income on such deposits has been recognized as part of other income and unwinding of security deposits has been amortized as a part of expenses.
j. Under the previous gaap, the Export promotion capital goods (EPCG) benefit received was netted off with the value of property, plant & equipment (PPE). Under Ind AS, the value of PPE has been grossed up and the EPCG benefit is treated as deferred revenue to the extent the export obligations are not met. (refer Note C11)
k. Deferred tax has been recalculated in respect of above changes and the deferred tax impact as at the transition date has been recognized in opening reserves and for the year ended March 31, 2016 has been recognized in the Statement of Profit & Loss.
*Out of the above '''' 147.37 Million ('''' 4.19 Million) is included in capital work-in-progress.
1. Borrowing costs capitalized / transferred to capital work-in-progress during the year is '''' 297.97 Million (Nil).
2. BUSINESS COMBINATION
The Hon’ble High Court of Kerala had sanctioned the Scheme of Amalgamation of AMHPL, a wholly owned subsidiary, with the Company on August 26, 2016. The appointed date of amalgamation is April 1, 2016 and has become effective from December 7, 2016. The merger has been accounted in line with principles prescribed under Ind AS 103 - Business Combinations.
i. Out of the total inventories Rs, 17,293.98 Million (Rs, 10,197.49 Million), the carrying amount of inventories carried at fair value less costs to sell Rs, 902.85 Million (Rs,121.21 Million).
ii. The amount of write-down of inventories to net realizable value recognized as an expense was Rs, 95.65 Million (Rs, 47.70 Million).
iii. The cost of inventories recognized as an expense during the year in respect of continuing operations was Rs, 52,924.14 Million (Rs, 50,568.33 Million).
4. CASH FLOW HEDGE RESERVE
The cash flow hedge reserve represents the cumulative effective portion of gain or losses arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges. The cumulative gain or losses arising on changes in fair value of the designated portion of the hedging instruments that are recognized and accumulated under the heading of cash flow hedge reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or included as a basis adjustment to the non-financial hedged item. For moment in the reserve, refer Statement of Changes in Equity.
5. GOVERNMENT GRANTS
(a) Investment promotion subsidy from Government of Tamilnadu
The Company has established radial tyre manufacturing facility in SIPCOT industrial park, Oragadam near Chennai and availed incentives from the state Government of Tamil Nadu for establishing such project. The construction of first phase of the new green field radial tyre plant was completed as per project schedule, which commenced operations from March 11, 2010. The truck/bus radial segment has commenced operations from May 11, 2010.
Pursuant to the Memorandum of Understanding (MoU) dated August 7, 2006 read along with a supplementary MoU dated January 11, 2011, executed between the Government of Tamil Nadu (GoTN) and the Company, GoTN sanctioned a Structured Package of Assistance to the Company in terms of the New Industrial Policy, 2007. As per this Structured Package of Assistance, the Company is entitled, interalia, for refund of an amount equal to net output VAT CST paid by the Company to GoTN in the form of investment promotion subsidy for a period of 14 years (which can be extended by another
4 years), from the date of commencement of commercial production or till the cumulative a ailment of the said subsidy reaches 50% of the investment made in eligible fixed assets during the approved investment period as defend by the MoU, whichever is earlier. This eligiblity is subject to fulfillment of certain obligations by the Company.
As the Company has fulfilled the relevant obligations, the Company has recognized subsidy income of Rs, 464.50 Million (Rs, 536.21 Million) as other operating income, being the eligible amount of refund of net output VAT CST paid by the Company to GoTN.
(b) Export promotion capital goods
The Company had imported property, plant and equipment under the export promotion capital goods (EPCG) scheme wherein the Company is allowed to import capital goods including spares without customs duty, subject to certain export obligations which should be fulfilled within specified time period. Since the Company has recomputed cost as per Ind AS 16, it has made the following adjustments to meet the requirements of Ind AS 16 - Property, Plant & Equipment and Ind AS 20 - Accounting for Government Grants and disclosure of Government assistance:
1) The custom duty benefit received as deferred revenue included in other noncurrent liabilities with a corresponding increase in the value of property, plant and equipment and capital work-in-progress is Rs, 2,466.55 Million (Rs, 397.97 Million as at March 31, 2016 and Rs, 2,946.58 Million as at April 1, 2015)
2) The grant of Rs, 2,445.51 Million for which the extent the export obligations were met by April 01, 2015 was recognized in the opening reserve and the grant of Rs, 329.87 Million (Rs, 234.40 Million) was recognized in Statement of Profit and Loss as other operating income. The portion of grant for which the export obligation has not been met is retained in deferred revenue under other noncurrent liabilities.
3) The additional depreciation of Rs, 809.52 Million on the increase in the value of property, plant and equipment till the transition date was recognized in the opening reserve and Rs, 184.68 Million (Rs, 132.73 Million) was charged to the Statement of Profit and Loss.
6. EMPLOYEE BENEFIT LIABILITY
A. Defined contribution plans
a. Superannuation plan: The Company contributes a sum equivalent to 15% of the eligible employees basic salary to a superannuation fund administered and maintained by Life Insurance Corporation of India (LIC). The Company has no liability for future superannuation fund benefits other than its annual contribution and amortized such contributions as an expense in the year incurred. The amount of contribution paid by the Company to superannuation fund is Rs, 69.05 Million (Rs, 62.58 Million).
b. Provident Fund: Contributions are made to the Company’s employees provident fund trust/regional provident fund in accordance with the fund rules. The interest rate payable to the beneficiaries every year is being notified by the Government.
In the case of contribution to the trust, the Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate and amortized such obligation as an expense.
The amount of contribution made by the Company to employees provident fund trust/regional provident fund is '''' 222.61 Million (''''210.59 Million)
B. Defined Benefit Plans Gratuity
The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service receives gratuity on leaving the Company as per the Payment of Gratuity Act, 1972. The scheme is funded with Life Insurance Corporation of India.
The following table summarizes the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the respective plan:
7. EMPLOYEES STOCK APPRECIATION RIGHTS (EMPLOYEES PHANTOM STOCK PLAN 2010)
a) During the year 2010-11, the Company had announced cash-settled employee share-based payment plan (Phantom stock plan) for the eligible employees of the Company. Under the scheme, 1,200,000 phantom stock units have been granted on April 1, 2010, 900,000 Phantom stock units have been granted on April 1, 2011 and another 75,000 Units have been granted on April 1, 2012 by the board appointed committee. All three options will be vested as per the following schedule:
Pursuant to the above scheme, the eligible employees are entitled to get cash compensation upon exercise of the phantom stock unit within seven years of the vesting date
The details of variables used for fair valuation under the Black-Scholes Model
The options from Vest 1, Vest 2, Vest 3 & Vest 4 of all the three grants have been completely exercised and therefore don’t have to be valued.
8. FINANCIAL INSTRUMENT
A. Capital risk management
The capital structure of the Company consists of debt, cash and cash equivalents and equity attributable to equity shareholders of the Company which comprises issued share capital (including premium) and accumulated reserves disclosed in the Statement of Changes in Equity. The Company’s capital management objective is to achieve an optimal weighted average cost of capital while continuing to safeguard the Company’s ability to meet its liquidity requirements (including its commitments in respect of capital expenditure) and repay loans as they fall due.
B. Financial Risk Management a. Market risk
The Company’s activities expose it primarily to the financial risk of changes in foreign currency exchange rates and changes in interest rates. The Company enters into a variety of derivate financial instrument to manage its exposure to foreign currency and interest rates. There have been no changes to the Company’s exposure to market risk or the manner in which it manages and measures the risk in recent past.
i) Currency risk
The Company’s exposure arises mainly on import (of raw material and capital items) and export (of finished goods). The Company follows a policy of matching of import and export exposures (natural hedge) to reduce the net exposure in any foreign currency. Whenever the natural hedge is not available
or is not fully covering the foreign currency exposure of the Company, management uses certain derivative instruments to manage its exposure to the foreign currency risk. Foreign currency transactions are managed within approved policy parameters.
ii) Interest rate risk
The Company is exposed to interest rate risk as the Company borrows funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. The use of interest rate swaps are also entered into, especially to hedge the floating rate borrowings or to convert the foreign currency floating interest rates to the domestic currency floating interest rates.
b) Credit risk
Credit risk is the risk that counterparty will default on its contractual obligations resulting in financial loss to the company. The Company has adopted a policy of only dealing with creditworthy customers.
In many cases an appropriate advance or letter of credit / bank guarantee is taken from the customers to cover the risk . In other cases credit limit is granted to customer after assessing the credit worthiness based on the information supplied by credit rating agencies, publicly available financial information or its own past trading records and trends.
At March 31, 2017, the company did not consider there to be any significant concentration of credit risk which had not been adequately provided for. The carrying amount of the financial assets recorded in the financial statements, grossed up for any allowances for losses, represents the maximum exposure to credit risk.
c) Liquidity Risk
The Company manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities for the Company.
The Company has established an appropriate liquidity risk management framework for it’s short-term, medium term and long-term funding requirement.
iii. Fair value of financial assets/liabilities ( other than investment in subsidiaries) that are not measured at fair value
The management considers that the carrying amount of financial assets and financial liabilities recognized at amortized cost in the balance sheet approximates their fair value.
* Level 1 - Quoted price in an active market.
* Level 2 - Discounted cash flow. Future cash flows are estimated based on forward exchange rates and contract rates, discounted at a rate that reflects the credit risk of various counterparties.
* Level 3 - Discounted cash flow method is used to capture the present value of the expected future economic benefits that will flow to the company.
^Excludes amount of '''' 441.66 Million ('''' 441.66 Million as at March 31,2016 and '''' 441.66 Million as at March 31,2015) in appeals which have been decided by Appellate authorities in Company’s favour but on which the department has gone for further appeal and a demand of '''' 663.70 Million relating to the adjustments made in MAT computation, which in the opinion of the Company, is not sustainable and the probability of cash outflow is considered remote.
*Excludes demand of '''' 532.12 Million ('''' 532.12 Million as at March 31,2016 and '''' 532.12 Million as at March 31,2015) raised on one of the Company’s units relating to issues which have been decided by the Appellate Authority in Company’s favour in appeals pertaining to another unit of the Company. Show-cause notices received from various Government Agencies pending formal demand notices have not been considered as contingent liabilities.
In the opinion of the management, no provision is considered necessary for the disputes mentioned above on the ground that there are fair chances of successful outcome of appeals.
*Includes '''' 4.03 Million payable to NSL Wind Power Company towards additional 402,805 shares allotted and '''' 0.06 Million payable to OPGS Power Gujarat Pvt. Ltd. towards additional 310,000 shares allotted under Group Captive Scheme. All the additional shares were allotted during FY 2016-17 but payments for additional shares are made after March 31, 2017. Total investment by the Company is 598,805 shares of NSL Wind Power Company and 930,000 shares of OPGS Power Gujarat Pvt. Ltd. as at March 31, 2017.
9. The Company has international transactions with related parties. For the current year, the management confirms that it maintains documents as prescribed by the Income tax Act, 1961 to prove that these international transactions are at arm’s length and the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
10. EVENTS AFTER BALANCE SHEET DATE
The Board of Directors have recommended a final dividend of Rs, 3.00 per share amounting to Rs, 1,527.07 Million on Equity Shares of Rs, 1/- each for the year, subject to approval from Shareholders. Dividend distribution tax on the same amounts to Rs, 310.88 Million.
11. APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved for issue by the board of directors on May 5, 2017.