(a) Fair value of equity investments through Other Comprehensive Income (OCI)
Under previous GAAP, current investments were measured at lower of cost or fair value and long-term investments (quoted and unquoted) were measured at cost less diminution in the value which is other than temporary. Under Ind AS, these investments are required to be measured at fair value. The resulting fair value changes of investments in mutual funds were recognized in Statement of Profit and Loss and that of investments in equity (which is strategic in nature as not held for trading) were recognized in equity. Consequently, the gain on sale of such investments previously recognized in Statement of Profit and Loss is now recognized in OCI and such realized gain is transferred to retained earnings.
(b) Allowance for bad and doubtful debts based on Expected Credit Loss (ECL)
Under previous GAAP, the allowance for bad and doubtful debts were accounted based on incurred loss model. Whereas, under Ind AS, this provision is created based on Expected Credit Loss Model (ECL). Consequently, Rs. 3,678.52 lakhs as at 1st April, 2015 has been recognized as additional allowance with a charge to transition reserves. Also, Rs.460.52 lakhs during the year ended 31st March, 2016 has been recognized as a reversal of allowance.
(c) Remeasurement of defined benefit plans
Under Ind AS, remeasurements of defined benefit plans 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 recognized in other comprehensive income instead of the Statement of Profit and Loss. Under the previous GAAP, these remeasurements were accounted in the Statement of Profit and Loss for the year. As a result of this change, the profit before tax for the year ended 31st March, 2016 increased by '''' 255.32 lakhs. There is no impact on the total equity as 31st March. 2016.
(d) Investment in preference shares of a subsidiary
Under previous GAAP, 0.01% cumulative redeemable preference shares subscribed were classified as part of investment in preference shares. However, under Ind AS, preference shares are discounted and the difference between face value and discounted value is classified as an investment in subsidiary as in substance it is a debt instrument. The resultant interest income is recognized in the Statement of Profit and Loss. The effect of this change is increase in total equity of Rs.390 lakhs as at 31st March, 2016 ('''' Nil as at 1st April, 2015), and increase in profit before tax as well as net profit of Rs.389.55 lakhs for the year ended 31st March, 2016.
(e) Income on financial guarantees provided
Under Ind AS financial guarantee income is recognized in Statement of Profit and Loss based on fair value measurement. Accordingly, Rs.48 lakhs as at 31st March, 2016 (Nil as at 1st April, 2015) has been increased in the cost of investments. The effect of this change is an increase in total equity of Rs.48 lakhs as at 31st March, 2016 (Nil as at 1st April, 2015), increase in profit before tax and net profit of Rs.48 lakhs for the year ended 31st March, 2016.
(f) Tax adjustments
Tax adjustments include deferred tax impact on account of differences between previous GAAP and Ind AS. These adjustments have resulted in decrease in net profit by Rs.328 lakhs for the year ended 31st March, 2016.
(g) Reversal of Proposed Dividend and transfer to General Reserve
Under the previous GAAP, transfer to General Reserves and 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 recognized as a liability. Under Ind AS, such dividends are recognized when the same is approved by the shareholders in the General Meeting. This has resulted in an increase in other equity by Rs.10,354.37 lakhs as at 31st March, 2016 (Rs. 8,960.52 lakhs as at 1st April, 2015).
(h) Reclassification in cash flow statement
- Cash flow from rental income of investment properties have been reclassified from operating activities to investing activities in line with requirements of Ind AS.
- Cash in hand balance as at 31st March, 2016 under the previous GAAP included closing balance of imprest advance with the employees, which have been treated as other current assets under Ind AS.
1A. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Company''''s accounting policies, which are described in Note 2, Management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty
The following are 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 amount of assets and liabilities within the next financial year:
Cost to complete
The Company''''s Management estimates the costs to complete for each project for the purpose of revenue recognition and recognition of anticipated losses on projects, if any. In the process of calculating the cost to complete, Management conducts regular and systematic reviews of actual results and future projections with comparison against budget. This process requires monitoring controls including financial and operational controls and identifying major risks facing the Company and developing and implementing initiatives to manage those risks. The Company''''s Management is confident that the costs to complete the project are fairly estimated.
Percentage of completion
Management''''s estimate of the percentage of completion on each project for the purpose of revenue recognition is through conducting some weight analysis to assess the actual quantity of the work for each activity performed during the reporting period and estimate any future costs for comparison against the initial project budget. This process requires monitoring of financial and operational controls. Management is of the opinion that the percentage of completion of the projects is fairly estimated.
As required by Ind AS 11 in applying the percentage of completion on its long-term projects, the Company is required to recognize any anticipated losses on it contracts. In light of the above, Management is of the opinion that based on the current facts, future losses on contract has been adequately provided for.
Contract variations and claims
Contract variations and claims are recognized as revenue to the extent that it is probable that they will result in revenue which can be reliably measured and it is probable that the economic benefits associated with flow to the Company. This requires exercise of judgement by Management based on prior experience, application of contract terms, manner and terms of settlement and relationship with the customers, etc.
Impairment of financial assets
The Company''''s Management reviews periodically items classified as receivables to assess whether a provision for impairment should be recorded in the Statement of Profit or Loss. Management estimates the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgement and uncertainty.
The Company reviews its carrying value of investments annually, or more frequently when there is indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for.
Some of the Company''''s assets are measured at fair value for financial reporting purposes. The Management determines the appropriate valuation techniques and inputs for fair value measurements. In estimating the fair value of an asset, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company engages third party qualified valuers to perform the valuation. The Management works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model.
Information about valuation techniques and inputs used in determining the fair value of various assets is disclosed in Note 42. Valuation of deferred tax assets
The Company reviews the carrying amount of deferred tax assets at the end of each reporting period. The Policy for the same has been explained in Note 2(m).
From time to time, the Company is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation. A provision for litigation is made when it is considered probable that a payment will be made and the amount of the loss can be reasonably estimated. Significant judgement is made when evaluating, among other factors, the probability of unfavorable outcome and the ability to make a reasonable estimate of the amount of potential loss. Litigation provisions are reviewed at each Balance Sheet date and revisions made for the changes in facts and circumstances.
Defined benefit plans
The cost of the defined benefit plans and the present value of the defined benefit obligation are based on actuarial valuation using the projected unit credit method. 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. All assumptions are reviewed at each Balance Sheet date.
Useful lives of property, plant and equipment and intangible assets
The Company has estimated useful life of each class of assets based on the nature of assets, the estimated usage of the asset, the operating condition of the asset, past history of replacement, anticipated technological changes, etc. The Company reviews the useful life of property, plant and equipment and intangible assets as at the end of each reporting period. This reassessment may result in change in depreciation and amortisation expense in future periods.
Warranty provisions (trade gurantees)
The Company gives warranties for its products, undertaking to repair or replace the product that fail to perform satisfactory during the warranty period. Provision made at the year-end represents the amount of expected cost of meeting such obligations of rectification / replacement which is based on the historical warranty claim information as well as recent trends that might suggest that past cost information may differ from future claims. The assumptions made in current year are consistent with those in prior year. Factors that could impact the estimated claim information include the success of the Company''''s productivity and quality initiatives.
1B. RECENT ACCOUNTING PRONOUNCEMENTS
Standards issued but not yet effective
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ''''Statement of cash flows'''' and Ind AS 102, ''''Share-based payment.'''' These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, ''''Statement of Cash Flows'''' and IFRS 2, ''''Share-based payment,'''' respectively. The amendments are applicable from 1st April, 2017.
Amendment to Ind AS 7
The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the Balance Sheet for liabilities arising from financing activities, to meet the disclosure requirement.
The Company is evaluating the requirements of the amendment and the effect on the financial statements is being evaluated. Amendment to Ind AS 102
The amendment to Ind AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes.
It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market-based performance conditions and non-vesting conditions are reflected in the ''''fair values'''', but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that includes a net settlement feature in respect of withholding taxes to be treated as equity-settled in its entirety. The cash payment to the tax authority is treated as if it was part of an equity settlement.
The requirements of the amendment have no impact on the financial statements as the standard is not applicable to the Company.
2 (a) Under a loan agreement for Rs.60 lakhs (fully drawn and outstanding) entered into between Agro Foods Punjab Ltd. (AFPL) and the Punjab State Industrial Development Corporation Ltd. (PSIDC), the Company has given an undertaking to PSIDC that it will not dispose off its shares in AFPL till the monies under the said loan agreement between PSIDC and AFPL remain due and payable by AFPL to PSIDC. During 1998-99, the Company had transferred its beneficial rights in the shares of AFPL.
2 (b) For these unquoted investments categorized under Level 3, their respective cost has been considered as an appropriate estimate of fair value because of a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range.
2 (c) In respect of the Company''''s investment in 2,640 equity shares of Reliance Industries Ltd., there is an Injunction Order passed by the Court in Kanpur restraining the transfer of these shares. The share certificates are, however, in the possession of the Company. Pending disposal of the case, dividend on these shares has not been recognized.
2 (d) Redeemable preference shares were issued to Rohini Industrial Electricals Limited (RIEL) in 2016-17 Rs. 6,500 lakhs, in 2012-13 Rs.3,700 lakhs and in 2011-12 Rs.2,500 lakhs for a period of 7 years, respectively and are cumulative with dividend of 0.01%. This investment is accounted at amortized cost and the difference between the investment value and the amortised cost is treated as additional capital contribution and included in value of equity investment in Rohini.
2 (e) During 2016-17, the Company has participated in buy-back offer from Lakshmi Machine Works Ltd and sold 20328 shares for a total consideration of Rs. 902.33 lakhs. The Company has received dividend of Rs. 8.13 lakhs (2015-16 : Rs.8.13 lakhs) on the shares sold during the year. During 2015-16, the Company has sold its shareholding in Rujuvalika Investments Limited and Industrial Estates Private Limited for consideration aggregating Rs.1,204.16 lakhs.
3(a) Equity Shares: The Company has one class of equity shares having a par value of Re.1 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders at the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding and are subject to preferential rights of the Preference shares (if issued).
Footnotes : Nature and purpose of reserves
Capital Reserve was created from capital surplus on sale of assets and on amalgamation of subsidiary.
Capital Redemption Reserves:
Capital Redemption Reserve is created out of profit available for distribution towards redemption of Preference shares. This reserve can be used for the purpose of issue of Bonus shares.
Securities Premium represents the surplus of proceeds received over the face value of shares, at the time of issue of shares.
General Reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the General Reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the General Reserve will not be reclassified subsequently to statement of profit or loss.
The balance in the Retained Earnings primarily represents the surplus after payment of dividend (including tax on dividend) and transfer to reserves.
(d) Except for matters included in the estimate above, the Company is unable to reasonably estimate a range of possible loss for certain proceedings or disputes, including where:
(i) plaintiffs / parties have not claimed an amount of money damages, unless Management can otherwise determine an appropriate amount;
(ii) the proceedings are in early stages;
(iii) there is uncertainty as to the outcome of pending appeals, matters under arbitration or negotiations;
(iv) there are significant factual issues to be resolved; and / or there are legal issues presented
Based on currently available information, the outcomes of the above matters will not have a materially adverse effect on the Company''''s financial statements, though the outcomes could be material to the Company''''s operating results for any particular period, depending, in part, upon the operating results for such period. Accordingly, an estimate of the timings of cash flows, if any, in respect of the above is not available.
4. Employee Benefit Plans
(a) In accordance with Indian Law or based on Gratuity Scheme, the Company provides for the lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five continuous years of service. Certain overseas branch of the Company also provide for retirement benefit plan in accordance with the local laws.
(b) The most recent acturial valuation of plan assets and the present values of the defined benefit obligations were carried out as at 31st March, 2017. The present value of the defined benefit obligation and the related current service costs and past service cost, are measured using the projected unit credit method.
(c) These plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.
B. Financial value measurements:
This note provides information about how the Group determines fair values of various 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 fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique (s) and inputs used).
(1) These investments in equity investments are not held for trading, Instead, they are held for medium or 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 as the Directors believe that this provides a more meaningful presentation for medium or long-term strategic investments, than reflecting changes in fair value immediately in profit or loss.
(2) There were no transfers between Level 1 and 2 during the period.
(3) The carrying amount of financial assets and financial liabilities measured at amortized cost in the financial statements are a reasonable approximation of their fair value since the Company does not anticipate that the carrying amount would be significantly different from the value of that would eventually be received or settled.
5. Finance Risk Management Objectives
The Company''''s financial liabilities comprise mainly of borrowings, trade payables and other payables. The Company''''s financial assets comprise mainly of investments, cash and cash equivalents, other balances with banks, loans, trade receivables and other receivables. The Company is exposed to Credit risk, Liquidity risk and Market risk. The Board of Directors (''''Board'''') oversee the Management of these financial risks through its Risk Management Committee. The Risk Management Policy of the Company formulated by the Risk Management Committee and approved by the Board, states the Company''''s approach to address uncertainties in its endeavour to achieve its stated and implicit objectives. It prescribes the roles and responsibilities of the Company''''s Management, the structure for managing risks and the framework for Risk Management. The framework seeks to identify, assess and mitigate financial risks in order to minimize potential adverse effects on the Company''''s financial performance. The following disclosures summarize the Company''''s exposure to financial risks and information regarding use of derivatives employed to manage exposures to such risks. Quantitative sensitivity analysis have been provided to reflect the impact of reasonably possible changes in market rates on the financial results, cash flows and financial position of the Company.
(i) Credit risk management:
Credit risk refers to the risk of a financial loss arising from a counterparty failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses of both, the direct risk of default, the risk of deterioration of creditworthiness as well as concentration of risks.
The major exposure to credit risk at the reporting date is primarily from trade receivables. Trade receivables (typically unsecured) consists of a large number of customers, spread across diverse industries and geographical areas. Credit risk is controlled by analysing credit limits and creditworthiness on a continuous basis to whom the credit has been granted after obtaining necessary approvals for credit. For trade receivables, as a practical expedient, the Company computes credit loss allowance based on a provision matrix. The provision matrix is prepared based on historically observed default rates over the expected life of trade receivables and is adjusted for forward-looking estimates.
The concentration of credit risk is limited due to the fact that the customer base is large. There is no customer representing more than 5% of the total balance of trade receivables. More than 75% of the trade receivables are concentrated in India. The credit risk on liquid funds, bank balances, deposits with banks and derivative financial instruments is limited because the counterparties are banks and fund houses with high credit-ratings assigned by credit-rating agencies.
In addition, the Company is exposed to credit risk in relation to financial guarantees given to banks. For details refer Note 38B - Contingent liabilities.
(ii) Liquidity risk management:
Liquidity risk refers to the risk that the Company cannot meets its financial obligations. The objective of the liquidity risk management is to maintain sufficient liquidity and ensure that the funds are available for use as per the requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. The Company consistently generated sufficient cash flows from operations to meet its financial obligations as and when they fall due.
Maturities of financial liabilities:
The table below analyze the Company''''s financial liabilities into relevant maturity groupings based on their contractual maturities:
The amounts disclosed in the table are the contractual undiscounted cash flows. Balance due within 12 months is equal to their carrying balances as the impact of discounting is not significant.
(iii) 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 three types of risks: currency risk, interest rate risk and other price risk. Financial instruments affected by market risk includes borrowings, investments, trade payables, trade receivables, loans and derivative financial instruments.
(a) Foreign currency risk:
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.
The carrying amounts of the Company''''s foreign currency denominated monetary assets and monetary liabilities including overseas branches at the end of the reporting period are as follows.
The line-items in the Balance Sheet that include the above hedging instruments are "Other financial assets" and "Other financial liabilities".
At 31st March, 2017, the aggregate amount of losses under forward foreign exchange contracts relating to the exposure on these anticipated future transactions is Rs.163.60 lakhs (As at 31-3-2016: Rs.Nil; As at 1-4-2015: Rs.Nil).
The Company has entered into contracts to purchase raw materials from overseas suppliers. The Company mainly enters into forward foreign exchange contracts (for terms not exceeding 6 months) to hedge the exchange rate risk arising from these purchases.
Foreign currency sensitivity analysis:
The Company is mainly exposed to the currency of USD, GBP and EUR.
The following table details the Company''''s sensitivity to a 5% increase and decrease in the INR against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to Key Management Personnel and represents Management''''s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only material outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 5% change in foreign currency rates.
(b) Interest rate risk:
Interest rate risk is the risk that changes in interest rates will affect the Company''''s income or value of its holdings of financial instruments. The Company''''s exposure to interest rate risk relates to its bank loan and bank balances. Management believes that risk related to variation in interest rate on the bank loan and bank balances is very minimal.
(c) Other price risk:
The Company is exposed to other price risks arising from quoted equity investments. Some of the Company''''s equity investments are held for strategic rather than trading purposes.
The Company''''s exposure to equity securities price risk arises from investments held by the Company and classified in the Balance Sheet as fair value through OCI. (Refer Note 7)
The table below summarizes the impact of increases/decreases of the index on the Company''''s equity and OCI for the year. The analysis is based on the assumption that the equity index had increased by 5% or decreased by 5% with all other variables held constant, and that all the Company''''s equity instruments moved in line with the index.
There is no market price readily available for unquoted investments. The fair values of these investments are determined based on the valuations obtained from independent valuer and such fair values are dependent on various factors which affect such fair values.
6. Capital Management
The Company''''s objective for capital management is to maximize shareholder value, safeguard business continuity and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met mainly through equity and operating cash flows generated. The Company is not subject to any externally imposed capital requirements.
7. Events occurring after Balance Sheet:
i) The Directors have recommended final dividend of Rs.11,580.97 lakhs at Rs.3.50/- per share on equity shares which is subject to the approval of shareholders in the ensuing Annual General Meeting. This dividend and the tax thereon has not been recognized as a liability.
ii) Further, the amount of Rs.5,000 lakhs is proposed to be transferred to General Reserve which is approved in the Board Meeting subsequent to the year end and thus has not been recognized as transferred during the year.