1. Corporate Information
Motherson Sumi Systems Limited (MSSL or ‘the Company’) was incorporated and domiciled in India on December 19, 1986 and is engaged primarily in the manufacture and sale of components to automotive original equipment manufacturers. The address of its registered office is Unit 705, C Wing, ONE BKC, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra. The Company is a public limited company and is listed in the Bombay Stock Exchange and National Stock Exchange. The Company is a joint venture entity between Samvardhana Motherson International Limited (SMIL) and Sumitomo Wiring Systems Limited, Japan.
2.1 Critical estimates and judgements
The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the company’s accounting policies.
This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.
Critical estimates and judgements
The areas involving critical estimates or judgements are:
- Estimation of current tax expense and payable - Note 33
- Estimated fair value of unlisted securities- Note 35
- Estimated useful life of intangible asset - Note 4
- Estimation of defined benefit obligation - Note 21
- Estimation of provision for warranty claims - Note 20
- Recognition of deferred tax assets for carried forward tax losses - Note 10
Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the company and that are believed to be reasonable under the circumstances.
3. Investment properties
(i) Amounts recognised in profit or loss for investment properties:
(ii) Contractual obligations:
Refer note 41 for disclosure of contractual obligation towards purchase of investment property.
(iii) Leasing arrangements:
Certain investment properties are leased to tenants under long-term and short-term cancellable operating leases with rentals payable monthly,
(iv) Fair value:
Estimation of fair value
The fair values of investment properties have been determined by independent valuer. The fair valuation is based on prevailing market prices/ price trend of the property in that locality/ city considering the location, size of plot, approach road, amenities, locality etc.
*Amount is below the rounding off norm adopted by the Company
Amount recognised in profit or loss:
During the year ended March 31, 2017 write-downs of inventories on account of provision in respect of obsolete / slow moving items amounted to Rs.81 million (March 31, 2016: Rs.7 million). These were recognised as an expense during the year and included in changes in value of inventories of work-in-progress, stock-in-trade and finished goods in statement of profit or loss.
4 (a) Other reserves
Reserve on amalgamation
This reserve was created at the time of amalgamation and mergers carried out in earlier years. The reserve is utilised in accordance with the provisions of the Act.
Securities premium reserve
Securities premium reserve is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Act.
General reserve is the retained earnings of a Company which are kept aside out of the Company’s profits to meet future (known or unknown) obligations.
FVOCI equity investments
The Company has elected to recognise changes in the fair value of certain investments in equity securities in other comprehensive income. These changes are accumulated within the FVOCI equity investment reserve within equity. The Company transfers amounts from this reserve to retained earnings when the relevant equity securities are derecognised.
1. Provision for warranty relates to the estimated outflow in respect of warranty for products sold by the Company. Due to the very nature of such costs, it is not possible to estimate the timing/ uncertainties relating to the outflows of economic benefits.
2. Provision for litigation relates to excise, entry tax and octroi demands including interest thereon, where applicable, being contested by the Company. It is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above, pending resolution of the respective proceedings.
The long term defined employee benefits and contribution schemes of the Company are as under:
A. Defined Benefit Schemes Gratuity
The Company operates a gratuity plan administered through Life Insurance Corporation of India (LIC) under its Group Gratuity Scheme. Every employee is entitled to a benefit equivalent to fifteen days’ salary last drawn for each completed year of service in line with the Payment of Gratuity Act, 1972. The same is payable at the time of separation from the Company or retirement, whichever is earlier. The benefits vest after five years of continuous service. The Company pays contribution to Life Insurance Corporation of India to fund its plan.
The reconciliation of opening and closing balances of the present value of the defined benefit obligations are as below:
The above sensitivity analysis is based on a change in assumption while holding all the other assumptions constant. In practice, this is unlikely to occur, and change in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in balance sheet
i) Risk exposure
The gratuity scheme is a final salary Defined Benefit Plan that provides for lump sum payment made on exit either by way of retirement, death, disability, voluntary withdrawal. The benefits are defined on the basis of final salary and the period of service and paid as lump sum at exit. The plan design means the risk commonly affecting the liabilities and the financial results are expected to be:
(a) Interest rate risk: The defined benefit obligation calculated uses a discount rate based on government bonds, if bond yield fall, the defined benefit obligation will tend to increase.
(b) Salary inflation risk: Higher than expected increases in salary will increase the defined benefit obligation.
(c) Demographic risk: This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase, discount rate and vesting criteria . It is important not to overstate withdrawals because in the financial analysis the retirement benefit of a short career employee typically costs less per year as compared to long career employee.
ii) Defined benefit liability and employer contributions
Weighted average duration of the defined benefit obligation is 9 years (March 31, 2016: 9 years, April 01, 2015: 12 years)
B. Defined Contribution Schemes
The Company deposits an amount determined at a fixed percentage of basic pay every month to the State administered Provident Fund, Employee State Insurance (ESI) and Social Insurance for the benefit of the employees.
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments that have quoted price. The fair value of all equity instruments which are traded in the stock exchanges is valued using the closing price as at the reporting period.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities included in level 3.
ii. Valuation technique used to determine fair value
Specific valuation techniques used to value financial instruments include:
a. the use of quoted market prices or dealer quotes for similar instruments.
b. the fair value of forward foreign exchange contracts and principal swap is determined using forward exchange rates at the balance sheet date.
c. the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows.
d. the fair value of the remaining financial instruments is determined using discounted cash flow analysis.
iii. Fair value measurements using significant unobservable inputs (level 3)
The following table presents the changes in level 3 items for the periods ended March 31, 2017 and March 31, 2016:
iv. Valuation inputs and relationships to fair value
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements. See (ii) above for the valuation techniques adopted:
1 The fair value of non-current financial assets and financial liabilities carried at amortized cost is substantially same as their carrying amount.
2 During the year ended March 31, 2017 loan amounting to Rs.10,975 million was taken at current market rates. Loan amounting to Rs.568 million as at March 31, 2017 (March 31, 2016: Rs.1,939 Million. April 01, 2015: Rs.3,166 million) carries floating rate of interest and hence are adjusted to current market rates.
5. Financial risk management
The Company, as an internationally active supplier for the automobile industry expose its business and products to various market risks, credit risk and liquidity risk. The Company’s global presence and decentralised management structure with the main activities in the plants make necessary organised risk management system. The regulations, instructions, implementation rules and in particular, the regular communication throughout the tightly controlled management process consisting of planning, controlling and monitoring collectively form the risk management system used to define, record and minimise operating, financial and strategic risks. Below notes explain the sources of risks in which the Company is exposed to and how it manages the risks:
Market risk: A Price risk:
Fluctuation in commodity price in global market affects directly and indirectly the price of raw material and components used by the Company in its various products segment. Substantial pricing pressure from major OEMs to give price cuts and inability to pass on the increased cost to customers may also affect the profitability of the Company. The Group has set up Global Sourcing Procurement (GSP) at Sharjah which gives leverage of bulk buying and helps in controlling prices to a certain extent.
The key raw material for the Company’s wiring harness business is copper. There is substantial fluctuations in prices of copper. The Company has arrangements with its major customers for passing on the price impact. Also, the Company has entered into forward contracts to hedge copper prices at the behest of the customers.
The major raw materials used by Polymer Division of the Company are polypropylenes, polycarbonates and various grades of nylons and resins. The Company is having arrangement with major customers for actualization of raw material price variations periodically. Motherson Polymer Solutions, compounding unit has been established with a view of taking leverage on group’s bulk consumption on major grades. The setting up of GSP further strengthens the procurement function.
The Company is regularly taking initiatives like VA-VE ( value addition, value engineering ) to reduce its raw material costs to meet targets set up by its customers for cost downs. In respect of customer nominated parts , the Company has back to back arrangements for cost savings with its suppliers.
The exchange variations in India has mainly impacted the imports, but however the Company has arrangements with its major domestic customers for passing on the exchange impact on import purchase and has considerably increased its export sales during last few years to attain natural hedge. The Company also does selective hedging to hedge its risks associated with foreign currency.
The derivative instruments and unhedged foreign currency exposure is as follows:
A. Interest rate risk:
Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market interest rates. The Company’s main interest rate risk arises from long-term borrowings with variable rates, which exposes the Company to cash flow interest rate risk. During March 31, 2017 and March 31, 2016, the Company’s borrowings at variable rate were mainly denominated in INR and USD.
The credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations towards the Company and arises principally from the Company’s receivables from customers and deposits with banking institutions. The maximum amount of the credit exposure is equal to the carrying amounts of these receivables.
The Company has developed guidelines for the management of credit risk from trade receivables. The Company’s primary customers are major Indian automobile manufacturers (OEMs) with good credit ratings. Non-OEM clients are subjected to credit assessments as a precautionary measure, and the adherence of all clients to payment due dates is monitored on an on-going basis, thereby practically eliminating the risk of default. The Company has deposited liquid funds at various banking institutions. Primary banking institutions are major Indian and foreign banks. In long term credit ratings these banking institutions are considered to be investment grade. Also, no impairment loss has been recorded in respect of fixed deposits that are with recognised commercial banks and are not past due.
B Liquidity risk:
The liquidity risk encompasses any risk that the Company cannot fully meet its financial obligations. To manage the liquidity risk, cash flow forecasting is performed in the operating divisions of the Company and aggregated by Company finance. The Company’s finance monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities / overdraft facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities.
6. Capital management
(a) Risk management
The Company’s objectives when managing capital is to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital.
Consistent with others in the industry, the Company monitors NET Debt to EBITDA ratio i.e. Net debt (total borrowings net of cash and cash equivalents) divided by EBITDA (Profit before tax plus depreciation and amortization expense plus finance costs).
The Company’s strategy is to ensure that the Net Debt to EBITDA is managed at an optimal level considering the above factors. The Net Debt to EBITDA ratios were as follows:
(b) Loan covenants
Under the terms of the major borrowing facilities, the Company is required to comply with certain financial covenants and the Company has complied with those covenants throughout the reporting period.
7. Related Party Disclosures
I. Related party disclosures, as required by Ind AS 24, “Related Party Disclosures”, are given below:
a. Entities with joint control over the entity/(Promoters)
Relationship where control exists
b. Subsidiaries of the Company
1 MSSL Mauritius Holdings Limited
2 Motherson Electrical Wires Lanka Pvt. Ltd.
3 MSSL Mideast (FZE)
4 MSSL (S) Pte Ltd.
5 MSSL Automobile Component Ltd.
6 Samvardhana Motherson Polymers Ltd.
7 MSSL GB Limited
8 Motherson Wiring System (FZE)
9 MSSL GmbH
10 MSSL Tooling (FZE)
11 Samvardhana Motherson Invest Deutschland GmbH
12 MSSL Advanced Polymers s.r.o.
13 Motherson Orca Precision Technology GmbH
14 MSSL s.r.l. Unipersonale
15 Samvardhana Motherson Polymers Management Germany GmbH
16 Motherson Techno Precision Mexico S.A. De C.V.
17 MSSL Manufacturing Hungary kft.
18 MSSL Australia Pty Ltd.
19 Motherson Elastomers Pty. Ltd.
20 Motherson Investment Pty. Ltd.
21 MSSL Ireland Private Ltd.
22 MSSL Global RSA Module Engineering Ltd.
23 MSSL Japan Limited
24 Vacuform 2000 (Pty) Ltd.
25 MSSL Mexico, S.A. De C.V,
26 MSSL WH System (Thailand) Co., Ltd.
27 MSSL Korea WH Limited
28 MSSL Consolidated Inc.
29 MSSL Overseas Wiring System Ltd.
30 MSSL Wiring System Inc.
31 Alphabet de Mexico, S.A. de C.V.
32 Alphabet de Mexico de Monclova, S.A. de C.V,
33 Alphabet de Saltillo, S.A. de C.V,
34 MSSL Wirings Juarez, S.A. de C.V,
35 Samvardhana Motherson Global Holdings Limited
36 Samvardhana Motherson Automotive Systems Group B.V.
37 Samvardhana Motherson Reflectec Group Holdings Ltd.
38 SMR Automotive Technology Holding Cyprus Ltd.
39 SMR Automotive Mirror Parts and Holdings UK Ltd.
40 SMR Automotive Holding Hong Kong Ltd
41 SMR Automotive Systems India Ltd.
42 SMR Automotive Systems France S.A.
43 SMR Automotive Mirror Technology Holding Hungary Kft
44 SMR Patents S.aR.L.
45 SMR Automotive Technology Valencia S.A.U.
46 SMR Automotive Mirrors UK Ltd.
47 SMR Automotive Mirror Services UK Ltd.
48 SMR Automotive Mirror International USA Inc.
49 SMR Automotive Systems USA Inc.
50 SMR Automotive Beijing Co. Ltd.
51 SMR Automotive Yancheng Co. Ltd.
52 SMR Automotive Mirror Systems Holding Deutschland GmbH
53 SMR Holding Australia Pty Ltd.
54 SMR Automotive Australia Pty. Ltd.
55 SMR Automotive Mirror Technology Hungary Bt
56 SMR Automotive Modules Korea Ltd. (formerly known as SMR Poong Jeong Automotive Mirrors Korea Ltd.)
57 SMR Automotive Beteiligungen Deutschland GmbH
58 SMR Hyosang Automotive Ltd.
59 SMR Automotive Mirrors Stuttgart GmbH
60 SMR Automotive Systems Spain S.A.U.
61 SMR Automotive Vision Systems Mexico S.A. de C.V,
62 SMR Automotive Servicios Mexico S.A. de C.V,
63 SMR Grundbesitz GmbH & Co. KG
64 SMR Automotive Brasil LTDA
65 SMR Automotive System (Thailand) Ltd.
66 SMR Automotives Systems Macedonia Dooel Skopje
67 SMR Automotive Operations Japan K.K.
68 SMR Automotive (Langfang) Co. LTD
69 SMR Automotive Vision System Operations USA INC
70 SMR Mirror UK Limited
71 Samvardhana Motherson Peguform GmbH
72 SMP Automotive Interiors (Beijing) Co. Ltd.
73 SMP Deutschland GmbH
74 SMP Logistik Service GmbH (previously known as SMP Automotive Solutions Personalleasings GmbH)
75 SMP Automotive Solutions Slovakia s.r.o.
76 Changchun Peguform Automotive Plastics Technology Co., Ltd.
77 Foshan Peguform Automotive Plastics Technology Co., Ltd.
78 SMP Automotive Technology Management Services (Changchun) Co. Ltd.
79 SMP Automotive Technology Iberica S.L.
80 Samvardhana Motherson Peguform Barcelona S.L.U
81 SMP Automotive Technologies Teruel Sociedad Limitada
82 Samvardhana Motherson Peguform Automotive Technology Portugal S.A.
83 SMP Automotive Systems Mexico S.A. de C.V.
84 SMP Automotive Produtos Automotivos do Brasil Ltda.
85 SMP Automotive Exterior GmbH
86 Samvardhana Motherson Innovative Autosystems BV & Co. KG
87 Samvardhana Motherson Innovative Autosystems Holding Company BV
88 SM Real Estate GmbH
89 Samvardhana Motherson Innovative Autosystems de Mexico, S.A. de C.V.
90 SMP Automotive Systems Alabama Inc.
91 Motherson Innovations Company Limited
92 Motherson Innovations Deutschland GmbH
93 Samvardhana Motherson Global (FZE)
94 SMR Automotive Industries RUS Limited Liability Company (incorporated on 03.10.2016)
95 Celulosa Fabril S.A. (Zaragoza, ES)
96 Modulos Rivera Alta S.L.U.
97 Motherson Innovations Lights GmbH & Co KG
(formerly Kobek Siebdruck GmbH & Co. KG - acquired on 02.01.2017)
98 Motherson Innovations Lights Verwaltungs GmbH (formerly Kobek Verwaltungs GmbH - acquired on 02.01.2017)
99 MSSL Estonia WH O0 (incorporated on 30.01.2017)
100 PKC Group Plc (Acquired on 27.03.2017)
101 PKC Wiring Systems Oy (Acquired on. 27.03.2017)
102 PKC Netherlands Holding B.V. (Acquired on. 27.03.2017)
103 PKC Group Poland Sp. z o.o. (Acquired on. 27.03.2017)
104 PKC Wiring Systems Llc (Acquired on. 27.03.2017)
105 PKC Group APAC Limited (Acquired on. 27.03.2017)
106 PKC Group Canada Inc. (Acquired on. 27.03.2017)
107 PKC Group USA Inc. (Acquired on. 27.03.2017)
108 PKC Group Mexico S.A. de C.V. (Acquired on. 27.03.2017)
109 Project del Holding S.a.r.l. (Acquired on. 27.03.2017)
110 PK Cables do Brasil Ltda (Acquired on. 27.03.2017)
111 PKC Eesti AS (Acquired on. 27.03.2017)
112 TKV-sarjat Oy (Acquired on. 27.03.2017)
113 PKC SEGU Systemelektrik GmbH (Acquired on. 27.03.2017)
114 PK Cables Nederland B.V. (Acquired on. 27.03.2017)
115 Groclin Luxembourg S.a r.l. (Acquired on. 27.03.2017)
116 PKC Vehicle Technology (Suzhou) Co., Ltd. (Acquired on. 27.03.2017)
117 AEES Inc. (Acquired on. 27.03.2017)
118 PKC Group Lithuania UAB (Acquired on. 27.03.2017)
119 PKC Group Poland Holding Sp. z o.o. (Acquired on. 27.03.2017)
120 OOO AEK (Acquired on. 27.03.2017)
121 Kabel-Technik-Polska Sp. z o.o. (Acquired on. 27.03.2017)
122 AEES Power Systems Limited partnership (Acquired on. 27.03.2017)
123 T.I.C.S. Corporation (Acquired on. 27.03.2017)
124 Fortitude Industries Inc. (Acquired on. 27.03.2017)
125 AEES Manufactuera, S. De R.L de C.V. (Acquired on. 27.03.2017)
126 Cableodos del Norte II, S. de R.L de C.V. (Acquired on. 27.03.2017)
127 Manufacturas de Componentes Electricos de Mexico S. de R.L de C.V. (Acquired on. 27.03.2017)
128 Arneses y Accesorios de Mexico, S. de R.L de C.V. (Acquired on. 27.03.2017)
129 Asesoria Mexicana Empresarial, S. de R.L de C.V. (Acquired on. 27.03.2017)
130 Arneses de Ciudad Juarez, S. de R.L de C.V. (Acquired on. 27.03.2017)
131 PKC Group de Piedras Negras, S. de R.L. de C.V. (Acquired on. 27.03.2017)
132 PKC Group AEES Commercial S. de R.L de C.V (Acquired on. 27.03.2017)
133 Jiangsu Huakai-PKC Wire Harness Co., Ltd. (Acquired on. 27.03.2017)
134 PKC Vechicle Technology (Hefei) Co, Ltd. (Acquired on. 27.03.2017)
135 Samvardhana Motherson Plastic Solutions GMBH & Co KG (dissolved on 16th Feb 2017) ( held by MSSL GmbH)
136 Samvardhana Motherson Nippisun Technology Ltd (SMNTL)
8. Segment Information:
Description of segments and principal activities
The Company is primarily in the business of manufacture and sale of components to automotive original equipment manufacturers.
Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Maker “CODM” of the Company. The CODM is responsible for allocating resources and assessing performance of the operating segments. The Company has monthly review and forecasting procedure in place and CODM reviews the operations of the Company as a whole, hence there are no reportable segments as per Ind AS 108 “Operating Segments”
A. Information about geographical areas:
The following information discloses revenue from external customers based on geographical areas:
i) Revenue from external customers
ii) Segment Assets
Total of non-current assets other than financial instruments, investment in subsidiaries, joint ventures and associate and deferred tax assets broken down by location of the assets, is shown below
iii) Revenues from transactions with a single external customer amounting to 10 per cent or more of the Company’s revenues is as follows
Earlier management used to review operations of the Company based on risk and return that was further based on nature of product and services, which were categorized into Auto and Non-auto segment, whereas now CODM reviews operations of the Company as a whole, hence there are no reportable segments as per Ind AS 108 “Operating Segments”
*Amount is below the rounding off norm adopted by the Company
i. Operating Leases:
The Company has significant operating leases for land, premises, plant & machinery, vehicles and computers. These lease arrangements range for a period between 11 months and 15 years, which include both cancellable and non-cancellable leases. Most of the leases are renewable for further period on mutually agreeable terms and also include escalation clauses.
The Company has taken various land, commercial premises, plant and machinery under non-cancellable operating leases. The future minimum lease payments are as follows:
ii. Finance lease
The Company has taken land on long term finance lease from various Government authorities in India. The present value of minimum lease payments (MLP) under finance lease is as follows:
10. Contingent liabilities:
Claims against the Company not acknowledged as debts
# Against which Company has given bank guarantees amounting to Rs.14 million (March 31, 2016 : Rs.76 million. April 01, 2015: Rs.62 million)
(a) The Company does not expect any reimbursements in respect of the above contingent liabilities.
(b) It is not practicable for the Company to estimate the timings and amount of cash outflows, if any, in respect of the above pending resolution of the respective proceedings.
11 . In accordance with the MCA notification G.S.R. 308(E) dated March 30, 2017, details of Specified Bank Notes (SBN) and Other Denomination Notes (ODN) held and transacted during the period from November 8, 2016 to December 30, 2016, is as below in respect of entities in India : :
12. Due to micro, small and medium enterprises
The Company has certain dues to suppliers registered under Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’). The disclosures pursuant to the said MSMED Act is as follows:
13. Disclosure pursuant to the Regulation 34(3) read with para A of Schedule V to Securities and Exchange Board of India (Listing Obligations And Disclosures Requirements) Regulation, 2015:
a) Loans and advances in the nature of loans to subsidiaries and associates
b) Investment by the loanees in the shares of the Company: The loanees have not made any investment in the shares of the Company.
14. First time adoption of Ind AS
These are the Company’s first standalone financial statements prepared in accordance with Ind AS.
The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended March 31, 2017, the comparative information presented in these financial statements for the year ended March 31, 2016 and in the preparation of an opening Ind AS balance sheet at April 01 , 2015 (the Company’s date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP). An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows is set out in the following tables and notes.
A. Exemptions and exceptions availed
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.
(i) Ind AS optional exemptions Deemed cost
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets and investment property covered by Ind AS 40 Investment Properties.
Accordingly, the Company has elected to measure all its property, plant and equipment, intangible assets and investment properties at their previous GAAP carrying value. There are no decommissioning liabilities of the Company,
Designation of previously recognised financial instruments
Ind AS 101 allows an entity to designate investments in equity instruments at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS.
The Company has elected to apply this exemption for its investment in equity investments other than the investments in subsidiaries, joint ventures and associates.
Investment in subsidiaries, joint ventures & associates
There is an option to measure investments in subsidiaries, joint ventures and associates at cost in accordance with Ind AS 27 at either:
(a) Fair value on date of transition; or
(b) Previous gap carrying values
The Company has decided to use the previous gap carrying values and not to fair value its investments in subsidiaries, joint ventures and associates as on the date of transition.
(ii) Ind AS mandatory exceptions Estimates
An entity’s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
Ind AS estimates as at April 01, 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP
De-recognition of financial assets and liabilities
Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity’s choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.
Classification and measurement of financial assets
Assessment whether assets meets the criteria of amortised cost or fair value through OCI on the basis of the facts and circumstances that exist at the date of transition to Ind AS and not earlier dates.
A first-time adopter is required to apply the requirements in Ind AS 109 and Ind AS 20 prospectively to government loans existing at the date of transition to Ind AS. However, a first-time adopter may choose to apply the requirements of Ind AS 109 and Ind AS 20 to government loans retrospectively, if the information needed to do so had been obtained at the time of initially accounting for that loan.
Impairment of financial assets
If at the time of transition to Ind AS, the entity is unable to approximate the credit risk at the time of initial recognition of financial asset, the entity must recognize loss based on expected credit loss as at transition date.
B. Reconciliations between previous GAAP and Ind AS
Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
C Notes to first-time adoption of IND AS
1 Deemed Cost for Property, Plant & Equipment, Investment Property and Intangible Assets:
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets and investment properties covered by Ind AS 40 Investment Properties. Accordingly, the Company has elected to measure all its property, plant and equipment, intangible assets and investment properties at their previous GAAP carrying value. There are no decommissioning liabilities of the Company.
2 Investment property
Under the previous GAAP, investment properties were presented as part of non-current investments. Under Ind AS, investment properties are required to be separately presented on the face of the balance sheet. There is no impact on the total equity or profit as a result of this adjustment.
3 Fair valuation of investments
Under the previous GAAP, investments in equity instruments were classified as long-term investments or current investments based on the intended holding period and realisability. Long-term 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 required to be measured at fair value. The resulting fair value changes of these investments have been recognised in other comprehensive income as management has opted to value the equity investment through OCI as at the date of transition. Accordingly non current investments has increased by Rs.215 million as at March 31 ,2016 (April 01, 2015: Rs.211 million) and current investments by Rs.6 million as at March 31, 2016 (April 01, 2015: Rs.6 million).
Consequent to the above, the total equity as at March 31, 2016 increased by Rs.172 million (net of deferred tax of Rs.49 million) (April 01, 2015 - Rs.169 million (net of deferred tax of Rs.48 million)).
The Company has decided to use the previous gap carrying values and not to fair value its investments in subsidiaries, joint ventures and associates as on the date of transition.
4 Deferred Tax
Under IND AS deferred tax has been recognised on the adjustments made on transition to IND AS. Leasehold land is a non-depreciable asset, Management is expecting that its carrying value will be recovered through sale and indexation benefit at the time of disposal will be available, accordingly deferred tax asset on the difference between carrying value and indexed value has been created.
5 Security deposit
Security deposit mainly comprises of deposits given to electricty department, rental deposits etc. These all are short term in nature and hence they have been classified under current financials assets.Their fair value is equal to their carrying value as disclosed in the financials.
6 Retained earnings
Retained earnings as at April 01, 2015 has been adjsuted consequent to the IND AS adjustments.
7 Proposed dividend
Under the previous GAAP, dividends proposed by the board of directors after the balance sheet date but before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognised as a liability. Under Ind AS, such dividends are recognised when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend of Rs.3,185 million as at April 01, 2015 included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by an equivalent amount.
Ind AS 109 requires transaction costs incurred towards origination of borrowings to be deducted from the carrying amount of borrowings on initial recognition, earlier they were shown as prepaid expenses. These costs are recognised in the profit or loss over the tenure of the borrowing as part of the interest expense by applying the effective interest rate method.
Under previous GAAP, these transaction costs were charged to profit or loss over the period of the borrowing on a straight line basis. Accordingly, borrowings as at March 31, 2016 have been reduced by Rs.18 million (April 01, 2015 — Rs.33 million) and prepaid expenses as at March 31, 2016 decreased by Rs.9 million (April 01, 2015: Rs.28 million) .
During the financial year 2015-16 the Company has received a interest free loan of Rs.51 million from Pradeshiya Industrial & Investment Corporation of U.P. Ltd. (PICUP) which is amortised based on the effective interest rate method and the amortised portion is treated as government grant and accordingly there is a decrease in borrowings by Rs.25 million.
The retained earning for the period ended on March 31,2016 is increased by Rs.5 million (April 01, 2015: Rs.4 million) on account of amortisation of borrowing cost and decreased by Rs.1 million on account of notional interest expense on PICUP loan.
9 Government grant:
Under previous GAAP, government grants that were given with reference to total capital outlay were credited to capital reserve and treated as part of shareholders’ funds. Under Ind AS, Government grants relating to the purchase of property, plant and equipment shall be presented in the balance sheet by setting up the grant as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets and presented within other income. Consequently, capital reserve decreased by Rs.163 million and deferred income of Rs.112 million is recorded after taking Rs.51 million to retained earnings as at April 01, 2015. Further, an amount of Rs.11 million was credited to profit or loss during March 31,2016.
Ind AS 101 requires a first-time adopter to apply the requirements of Ind AS 109, Financial instruments and Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance, prospectively to government loans at below market rate of interest obtained after the date of transition to Ind AS.
During the financial year 2015-16 the Company has received a interest free loan of Rs.51 million from Pradeshiya Industrial & Investment Corporation of U.P. Ltd. (PICUP) which is amortised based on the effective interest rate method and the amortised portion is treated as government grant and accordingly we have considered a deferred income of Rs.23 million under government grant after crediting amount of Rs.2 million on account of amortisation to profit or loss for the period ended on March 31,2016.
Under previous GAAP, revenue in case of sales of tools was recognized upon transfer of significant risk and reward of ownership. Under Ind AS, tooling revenue is recognized on the basis of percentage of completion method and accordingly revenues and costs are recognized on the basis of stage of completion of tools. Consequently, revenue and cost of material consumed has decreased by Rs.666 million for the year ended March 31,2016. There is no impact on profit and loss.
Consequent to the above, the total inventory as at March 31, 2016 decreased by Rs.564 million (April 01, 2015 -Rs.1,009 million), unbilled revenue as at March 31, 2016 increased by Rs.929 million (April 01, 2015 - Rs.1,596 million) and trade payables as at March 31, 2016 increased by Rs.363 million (April 01, 2015 - Rs.586 million)
11 Excise duty
Under the previous GAAP, revenue from sale of products was presented exclusive of excise duty. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. The excise duty paid is presented on the face of the statement of profit and loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended March 31, 2016 by Rs.5,889 million. There is no impact on the total equity and profit.
12 Cash discount
Under previous GAAP, cash discount was shown separately under other expenses whereas under Ind AS, it has been netted off from revenue. Consequently, for the period ended March 31,2016 amount of Rs.13 million pertaining to cash discount has been netted off from revenue.
13 Borrowing cost
Ind AS 109 requires transaction costs incurred towards origination of borrowings to be deducted from the carrying amount of borrowings on initial recognition. These costs are recognised in the profit or loss over the tenure of the borrowing as part of the interest expense by applying the effective interest rate method.
The retained earning for the period ended on March 31,2016 is increased by Rs.4 million.
As per Ind AS 23, borrowing costs includes exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Consequently exchange loss on external commercial borrowings of Rs.256 million coming under other expenses is reclassified to finance cost for the period ended on March 31, 2016. There is no impact on profit for the year.
14 Other comprehensive income
Under Ind AS, all items of income and expense recognised in a period should be included in the statement of profit and loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit and loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans, fair value gains or (losses) on FVTOCI equity instruments and fair value gains or (losses) on FVTOCI debt instruments net of tax. The concept of other comprehensive income did not exist under previous GAAP. The total comprehensive income for the year ended on March 31, 2016 decreased by Rs.34 million due to such adjustments.
15 Remeasurements of post-employment benefit obligations
Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year. As a result of this change actuarial loss of Rs.58 million was reclassified during March 31, 2016, from the profit or loss to other comprehensive income and corresponding deferred tax on the same of Rs.20 million is also reclassified to other comprehensive income. There is no impact on the total equity as at March 31, 2016.
15 The company enters into contracts for manufacturing and sale of tooling to various OEM’s which are falling in the definition of Construction Contracts as per Ind AS 11
16 During the year ended March 31, 2017, the Company has allotted 17,762,460 equity shares and 62,884,827 equity shares of Rs.1 each to Sumitomo Wiring Systems Japan and Qualified Institutional Buyers respectively at an issue price of Rs.317 per equity share (including premium of Rs.316 per equity share). Share issue expenses amounting to Rs.288 million has been charged to Securities Premium Account as per the provisions of Companies Act 2013. The proceeds from the issue have been utilised for the business combination referred to in note 51.
17 During the year ended March 31, 2017, the Company through its wholly owned subsidiary MSSL Estonia WH OU acquired 93.75% of PKC Group Plc outstanding share and stock options. The total consideration payable in cash amounted to Euro 571 million ( Rs.4,034 crores) including consideration for 6.25% share which is in the process of being acquired.
18 The Company has a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under sections 92-92F of the Income Tax Act, 1961. Since the law requires existence of such information and documentation to be contemporaneous in nature, the Company appoints independent consultants for conducting a Transfer Pricing Study to determine whether the transactions with associate enterprises are undertaken, during the financial year, on an “arm’s length basis”. Adjustments, if any, arising from the transfer pricing study shall be accounted for as and when the study is completed for the current financial year. However, the management is of the opinion that its international and domestic transactions are at arm’s length so that 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