1. In accordance with the provisions of Companies Act, 2013, the Company is required to contribute '''' 57.98 million (31 March 2016: '''' 46.07 million) towards CSR expenditure for the year ended 31 March 2017 against which actual revenue expenditure is '''' 20.25 million (31 March 2016: '''' 8.00 million).
2. Earnings per share (EPS)
The following reflects the income and share data used in the basic and diluted EPS computations:
* There have been no transactions involving equity shares or potential equity shares between the reporting date and the date of authorization of these financial statements.
3. Significant accounting judgments, estimates and assumptions
The preparation of the Company’s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
Defined benefit plans (gratuity benefits): The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation.
The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rate and past trends. Further details about gratuity obligations are given in Note 35.
Provision for litigations and contingencies: The provision for litigations and contingencies are determined based on evaluation made by the management of the present obligation arising from past events the settlement of which is expected to result in outflow of resources embodying economic benefits, which involves judgments around estimating the ultimate outcome of such past events and measurement of the obligation amount. Due to the judgments involved in such estimations the provisions are sensitive to the actual outcome in future periods.
4. Employee benefits
The Company has a defined benefit gratuity plan for its employees. The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the member’s length of service and salary at retirement age. The contributions are managed through a third party which acts as the administrator of the fund.
The following tables summarize 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.
5. Commitments and contingencies
Operating lease commitments - Company as lessee
The Company has entered into operating leases on buildings for office, factory and other premises with lease term between 11 and 144 months and which are renewable on a periodic basis at the option of the Company or less or. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. There are no restrictions imposed by lease arrangements.
The Company has paid '''' 346.62 million (31 March 2016: '''' 310.14 million) during the year towards minimum lease payments.
Estimated amount of contracts remaining to be executed on capital account and not provided for as at 31 March 2017 is '''' 456.06 million (31 March 2016: '''' 186.00 million).
Refer note 36 (a) above for lease commitments.
* The Hon’ble High Court of Karnataka, based on a preliminary hearing of writ petition filed by the Karnataka Employers’ Association, of which, the Company is a Member, on 2 February 2016, has stayed the retrospective applicability of The Payment of Bonus (Amendment) Act, 2015 from 1 April 2014. The Hon’ble High Court has further ordered that the amended provision shall be implemented effective from FY 2015-16 pending disposal of the writ petition. Consequent to the above, the Company has not recorded the differential liability of bonus payable for the year ended 31 March 15 aggregating to '''' 118.18 millions in its books.
The Company has assessed that it is only possible, but not probable, that outflow of economic resources will be required.
Future cash outflows in respect of the above matters are determinable only on receipt of judgments/ decisions pending at various forums/authorities.
37. Related party transactions
Names of related parties and related party relationship
Enterprises in which key managerial Page Garment Exports Private Limited
personnel (KMP) or their relatives have significant influence
Key management personnel Sunder Genomal - Managing Director
Ramesh Genomal, Director Nari Genomal, Director
Pius Thomas - Exeuctive Director, Finance (till 7th April 2017)
Shamir Genomal - Executive Director Vedji Ticku - Chief Executive Officer (w.e.f. 12th February 2016)
Pradeep Jaipuria - Director Timothy Ralph Wheeler - Director G.P. Albal - Director P.V.Menon - Director V Sivadas - Director B.C.Prabhakar - Director Rukmani Menon - Director Vikram Gamanlal Shah - Director Sandeep Kumar Maini - Director C Murugesh - Company Secretary
Relative of key management personnel Rohan Genomal
*As the liability for gratuity and leave encashment is provided on an actuarial basis for the Company as a whole, the amount pertaining to the directors are not included above.
d. Other notes
The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the yearend are unsecured and interest free (except for loans and advances receivable from Page Garment Exports Private Limited) and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. The Company has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
7. Segment information
For management purposes, the Company has one business unit based on its products and has one reportable segment.
The management monitors the operating results of its single business unit for the purpose of making decisions about resource allocation and performance assessment.
The following tables present revenue details of the Company for the year ended 31 March 2017 and 31 March 2016.
The information above is based on the locations of the customers.
All Non-current operating assets (fixed asset etc,.) are located in India
There are no transfer between levels during the year.
The carrying value of trade receivables, trade payables, cash and cash equivalents, loans, borrowings and other current financial assets and liabilities approximate their fair values largely due to the short-term maturities.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The fair values of the investments in mutual funds are derived from quoted market prices in active markets.
8. Financial risk management objectives and policies
The Company’s activities expose it to the following risks:
a) Credit risk
b) Liquidity risk
c) Market risk
a) Credit Risk
Credit risk is the risk that counter party will not meet its obligations under a financial instruments or customer contract leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities including deposits with banks and financial institutions, investments, foreign exchange transactions and other financial instruments.
i) Trade receivables
Customer credit risk is managed by the Company subject to the Company’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored and major customers are generally secured by obtaining security deposits/bank guarantee or other forms of credit insurance. The maximum exposure to credit risk at the reporting date is the carrying value of trade receivable disclosed in note 9.
ii) Financial instrument and cash deposit
Credit risk is limited as the Company generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investments in liquid mutual fund units. Counterparty credit limits are reviewed by the Company periodically and the limits are set to minimize the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
b) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. Typically the Company ensures that it has sufficient cash on demand to meet expected short term operational expenses. The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans/internal accruals.
c) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises two types of risk: interest rate risk and foreign currency risk. Financial instruments affected by market risk include borrowings, trade receivable and trade payable.
Interest rate risk is the risk that the fair value or future cash flows of the Company’s financial instruments will fluctuate because of changes in market interest rates. The Company does not have significant debt obligations with floating interest rates, hence, is not exposed to any significant interest rate risk.
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company does not have significant foreign currency exposure and hence, is not exposed to any significant foreign currency risk.
9. Capital management
The Company’s objective is to maintain a strong capital base to ensure sustained growth in business. The Capital Management focuses to maintain an optimal structure that balances growth and maximizes shareholder value.
The Company is predominantly equity financed. Further, the Company has sufficient cash, cash equivalents, current investments and financial assets which are liquid to meet the debts.
10. First time adoption
These financial statements, for the year ended 31 March 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended 31 March 2016, the Company prepared its financial statements in accordance with generally accepted accounting principles in India (Previous GAAP).
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on or after 31 March 2017, together with the comparative period data as at and for the year ended 31 March 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening statement of financial position was prepared as at 1 April 2015, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Previous GAAP financial statements as at 1 April 2015 and the financial statements as at and for the year ended 31 March 2016.
Ind AS 101 requires an entity’s estimates in accordance with Ind ASs at the date of transition to Ind AS to 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.
Exemptions applied on first time adoption of Ind AS 101
Ind AS 101 allows first time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
1. 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 recognized 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. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets. Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their Previous GAAP carrying value.
Footnotes to the reconciliation of equity as at 1 April 2015 and 31 March 2016 and profit and loss for the year ended 31 March 2016
11. Government grant
a) Under Previous GAAP, the government grant received was reduced from the cost of property, plant and equipment. Under Ind AS, the cost of property, plant and equipment has been increased by such government grant received with corresponding increase in government grant.
b) Under Ind AS, when loans or similar assistance are provided by governments or related institutions, with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The loan or assistance is initially recognized and measured at fair value and the government grant is measured as the difference between the initial carrying value of the loan and the proceeds received.
12. Security deposits paid
Under the Previous GAAP, interest free lease security deposits (that are refundable in cash on completion of the lease term) were recorded at their transaction value. Under Ind AS, all financial assets are required to be recognized 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 deposit has been recognized as prepaid rent.
13. Deferred tax
Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS approach has resulted in recognition of deferred tax on new temporary differences which was not required under Previous GAAP.
In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax adjustments are recognized in correlation to the underlying transaction either in retained earnings or a separate component of equity.
14. Dividend and tax on dividend
Under previous GAAP, dividend payable was recorded as a liability in the period to which it relates. Under Ind AS, dividend to holders of equity shares is recognized as a liability in the period in which the obligation to pay is established
15. Sale of goods
(a) Under Previous GAAP, sale of goods was presented as net of excise duty. However, under Ind AS, sale of goods includes excise duty. Excise duty on sale of goods is separately presented on the face of statement of profit and loss.
(b) The Company recovers from its customers certain freight and insurance costs paid to the vendor on behalf of the customers. Under Previous GAAP, the actual freight and insurance costs incurred was netted off with the recoveries. Under Ind AS, such costs and amounts recovered from the customers is accounted on gross basis.
(c) The Company evaluated its revenue contracts and consequently, reversed revenue that did not meet the revenue recognition criteria under Ind AS with corresponding increase in inventory and decrease in cost of sales and trade receivable.
(d) The Company purchases certain products manufactured by a related party and also sells raw materials to the related party. Under Previous GAAP, the purchase and sale transactions are accounted for separately. Under Ind AS, same are netted off as the purchase and sale contract is considered as linked contracts.
16. Defined benefit liabilities
Under Previous GAAP, actuarial gains and losses were recognized in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of re-measurement of net defined benefit liability/asset which is recognized in other comprehensive income in the respective periods. Further, interest costs on actuarial valuation of gratuity has been reclassified to finance costs under IND AS.
17. Statement of cash flows
The transition from Indian GAAP to Ind AS has not had a material impact on the statement of cash flows.
18. The figures of the previous year as at and for the year ended 31 March 2016 and as at 1 April 2015 have been regrouped/reclassified, wherever necessary.
19. Standards issued but not yet effective:
The standards issued, but not yet effective up to the date of issuance of Company’s financial statements are disclosed below. The Company intends to adopt these standards when it becomes effective.
a. Amendments to Ind AS 7 Disclosure Initiative:
The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments apply prospectively for annual periods beginning on or after 1 April 2017. The Company does not anticipate that the application of these amendments will have a material impact on the Company’s financial statements.
b. Amendments to Ind AS 102 Classification and Measurement of Share-based Payment Transactions:
The amendments to Ind AS 102 applies prospectively for annual periods beginning on or after 1 April 2017. As per the amendments, in estimating the fair value of a cash-settled share-based payment, the accounting for the effects of vesting and non-vesting conditions should follow the same approach as for equity-settled share-based payments. Further, where tax law or regulation requires an entity to withhold a specified number of equity instruments and the share-based payment arrangement has a ‘net settlement feature’, such an arrangement should be classified as equity-settled in its entirety. The Company does not anticipate that the application of the amendments in the future will have a significant impact on the Company’s financial statements as the Company does not have any cash-settled share-based payment arrangements or any withholding tax arrangements with tax authorities in relation to such share-based payments.
20. The figures of the previous year up to 31 March 2016 were audited by a firm of Chartered Accountants other than S.R. Batliboi & Associates LLP. Previous year’s figures have been regrouped/ reclassified, wherever necessary to conform to current year’s classification.