JINDAL SAW Notes to Accounts

1. Corporate and General Information


Jindal Saw Limited [“JSAW” or “the Company”] is domiciled and incorporated in India and its shares are publicly traded on the National Stock Exchange [‘NSE’l and the Bombay Stock Exchange [‘BSE’], in India. The registered office of JSAW is situated at A-l, UPSIDC Industrial Area, Nandgaon Road, Kosi Kalan, District Mathura, 281403 [UP.] India.


The Company is a leading global manufacturer and supplier of Iron & Steel pipes and pellets having manufacturing facilities in India. Its products have application in oil and gas exploration, transportation, power generation, supply of water for drinking, drainage, irrigation purposes and other industrial applications. The Company is also into ocean waterways business.


2. Basis of preparation


The financial statements have been prepared complying in all material respects with the Indian Accounting Standards notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies [Accounts] Rule 2015. The financial statements comply with IND AS notified by Ministry of Company Affairs [“MCA”]. The Company has consistently applied the accounting policies used in the preparation for all periods presented.


The significant accounting policies used in preparing the financial statements are set out in Note no. 3 of the Notes to the Standalone Financial Statements.


The preparation of the financial statements requires management to make estimates and assumptions. Actual results could vary from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision effects only that period or in the period of the revision and future periods if the revision affects both current and future years [refer Note no. 4 on critical accounting estimates, assumptions and judgements].


3. Critical accounting estimates, assumptions and judgements


In the process of applying the Company’s accounting policies, management has made the following estimates, assumptions and judgements, which have significant effect on the amounts recognised in the financial statement:


[a] Property, plant and equipment


External adviser or internal technical team assess the remaining useful lives and residual value of property, plant and equipment. Management believes that the assigned useful lives and residual value are reasonable, the estimates and assumptions made to determine depreciation are critical to the Company’s financial position and performance.


[b] Intangibles


Internal technical or user team assess the remaining useful lives of Intangible assets. Management believes that assigned useful lives are reasonable.


[c] Income taxes


Management judgment is required for the calculation of provision for income taxes and deferred tax assets and liabilities. The Company reviews at each balance sheet date the carrying amount of deferred tax assets. The factors used in estimates may differ from actual outcome which could lead to significant adjustment to the amounts reported in the standalone financial statements.


[d] Contingencies


Management judgement is required for estimating the possible outflow of resources, if any, in respect of contingencies/claim/litigations against the Company as it is not possible to predict the outcome of pending matters with accuracy.


[e] Allowance for uncollected accounts receivable and advances


Trade receivables do not carry any interest and are stated at their normal value as reduced by appropriate allowances for estimated irrecoverable amounts. Individual trade receivables are written off when management deems them not to be collectible. Impairment is made on the expected credit losses, which are the present value of the cash shortfall over the expected life of the financial assets.


[f] Mine restoration obligation


In determining the fair value of the mine restoration obligation the Company uses technical estimates to determine the expected cost to restore the mines and the expected timing of these costs. Discount rates are determined based on the government bond of similar tenure.


[g] Insurance claims


Insurance claims are recognised when the Company have reasonable certainty of recovery. Subsequently any change in recoverability is provided for.


[h] Liquidated damages


Liquidated damages payable are estimated and recorded as per contractual terms; estimate may vary from actuals as levy by customer.


Nature of reserves


Retained Earnings represent the undistributed profits of the Company.


Other Comprehensive Income Reserve represent the balance in equity for items to be accounted in Other Comprehensive Income. OCI is classified into i]. Items that will not be reclassified to profit and loss ii]. Items that will be reclassified to profit and loss.


Debenture Redemption Reserve represents the statutory reserve for non-convertible debentures issued by the Company. This is in accordance with Indian Corporate Law wherein a portion of the profits are apportioned each year until the aggregate amount equals 25% of the face value of the debentures issued and outstanding. The reserve will be released on redemption of the debentures.


Capital Redemption Reserve represents the statutory reserve created when capital is redeemed.


General Reserve represents the statutory reserve, this is in accordance with Indian Corporate law wherein a portion of profit is apportioned to general reserve. Under Companies Act, 1956 it was mandatory to transfer amount before a company can declare dividend, however under Companies Act, 2013 transfer of any amount to General reserve is at the discretion of the Company.


Securities Premium Reserve represents the amount received in excess of par value of securities [equity shares, preference shares and debentures]. Premium on redemption of securities is accounted in security premium available. Where security premium is not available, premium on redemption of securities is accounted in statement of profit and loss. Section 52 of Companies Act, 2013 specify restriction and utilisation of security premium.


Secured non-convertible debentures include:


[i] 10.75% Non-Convertible Debentures of Rs.10,000 lakhs (including Rs.10,000 lakhs shown in current maturity] [March 31,2016 Rs.20,000 lakhs, including Rs.10,000 lakhs shown in current maturity] are secured by first pari-passu charge by way of English mortgage on the Company’s specific immovable properties located in the state of Gujarat and by way of equitable mortgage of Company’s other immovable properties and hypothecation of movable fixed assets both present and future in favour of Debenture Trustees. The same are repayable in single instalment of Rs.10,000 lakhs on April 08,2017.


[ii] 10.50% Non-Convertible Debentures of Rs.10,000 lakhs [March 31,2016 Rs.10,000 lakhs] in three series are secured by first pari- passu charge by way of English mortgage on the Company’s specific immovable properties located in the state of Gujarat and by way of equitable mortgage of Company’s other immovable properties and hypothecation of movable fixed assets both present and future in favour of Debenture Trustees. The same are repayable in three instalments of Rs.3,000 lakhs (Series I], Rs.3,000 lakhs (Series II] and Rs.4,000 lakhs (Series III] on September 12,2018, September 12,2019 and September 12,2020 respectively.


[iii] 10.38% and 10.73% Non-Convertible Debentures of Rs.12,500 lakhs each aggregating to Rs.25,000 lakhs [March 31, 2016 Rs.27,500 lakhs] in two series are secured by first pari-passu charge by way of English mortgage on the Company’s specific immovable properties located in the state of Gujarat and by way of equitable mortgage of Company’s other immovable properties and hypothecation of movable fixed assets both present and future in favour of Debenture Trustees. The same are repayable in single instalment of RS.25,000 lakhs on December 26,2021.


Secured term loans from banks include:


[i] Term Loan of Rs.9,590 lakhs (rate of interest 1.50% p.a.] [Including Rs.4,110 lakhs shown in current maturity] (March 31,2016 Rs.13,700 lakhs, including Rs.4,110 lakhs shown in current maturity] is secured by way of second charge on all the assets of the Company both present and future and also by way of personal guarantee of a Director. The same is repayable in two instalments of Rs.4,110 lakhs and Rs.5,480 lakhs on January 31, 2018 and January 31,2019 respectively.


[ii] Term Loan of Rs.38,391.72 lakhs [rate of interest 11.40% p.a.] [Including Rs.1,600 lakhs shown in current maturity] (March 31, 2016 Rs.39,195.83 lakhs, including Rs.800 lakhs shown in current maturity] is secured by first pari-passu charge by way of equitable mortgage on Company’s immovable properties and hypothecation of movable fixed assets both present and future. The loan is repayable in quarterly instalments in six years with annual payments of Rs.1,600 lakhs, Rs.6,000 lakhs, Rs.6,800 lakhs, Rs.6,800 lakhs, Rs.6,800 lakhs and Rs.10,391.72 lakhs in financial year 2017-18, 2018-19, 2019-20,2020-21,2021-22 and 2022-23 respectively.


[iii] Term Loan of 7 9,600.00 lakhs [rate of interest 10.45% p.a.) [Including 7 400 lakhs shown in current maturity) [March 31, 2016 7 9,800.00 lakhs, including 7 200 lakhs shown in current maturity) is secured by first pari-passu charge by way of equitable mortgage on Company’s immovable properties and hypothecation of movable fixed assets both present and future. The loan is repayable in quarterly instalments in six years with annual payments of 7 400 lakhs, 7 1,500 lakhs, 7 1,700 lakhs, 7 1,700 lakhs, 7 1,700 lakhs and 7 2,600.00 lakhs in financial year 2017-18,2018-19, 2019-20,2020-21,2021-22 and 2022-23 respectively.


[iv] Term Loan of 7 10,000 lakhs [rate of interest 10.75% p.a.) [Including 7 500 lakhs shown in current maturity] (March 31,2016 7 10,000 lakhs] is secured by first pari-passu charge by way of equitable mortgage on Company’s immovable properties and hypothecation of movable fixed assets both present and future. The loan is repayable in quarterly instalments in seven years with annual payments of 7 500 lakhs, 7 500 lakhs, 7 700 lakhs, 7 700 lakhs, 7 1,200 lakhs, 7 3,200 lakhs and 7 3,200 lakhs in financial year 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23 and 2023-24 respectively.


[v] Term Loan of 7 29,250 lakhs [rate of interest 9.35% p.a.] [Including 7 750 lakhs shown in current maturity] [March 31,2016 7 Nil] is secured by first pari-passu charge by way of hypothecation of movable fixed assets both present and future and is to be secured by first pari-passu charge by way of equitable mortgage on Company’s immovable properties. The loan is repayable in eight years in half yearly instalments with annual payments of 7 750 lakhs, 7 750 lakhs, 7 2,250 lakhs, 7 4,500 lakhs, 7 4,500 lakhs, 7 4,500 lakhs, 7 6,000 lakhs and 7 6,000 lakhs in financial year 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23, 2023-24 and 2024-25 respectively.


[vi] Term Loan of RS.12,187.50 lakhs [rate of interest 10.50% p.a.] [Including RS.312.50 lakhs shown in current maturity] [March 31, 2016 7 12,500 lakhs, including 7 312.50 lakhs shown in current maturity] is secured by first pari-passu charge by way of equitable mortgage on Company’s immovable properties and hypothecation of movable fixed assets both present and future. The loan is repayable in six years with annual payments of 7 312.50 lakhs, 7 2031.25 lakhs, 7 2,812.50 lakhs, 7 2,812.50 lakhs, 7 2,812.50 lakhs and 7 1,406.25 lakhs on quarterly rest in financial year 2017-18, 2018-19,2019-20, 2020-21, 2021-22 and 2022-23 respectively.


[vii] Term Loan of 7 12,187.50 lakhs [rate of interest 10.15% p.a.) [Including 7 312.50 lakhs shown in current maturity] [March 31, 2016 7 9,375 lakhs, including 7 234.38 lakhs shown in current maturity] is secured by first pari-passu charge by way of equitable mortgage on Company’s immovable properties and hypothecation of movable fixed assets both present and future. The loan is repayable in six years with annual payments of RS.312.50 lakhs, RS.2031.25 lakhs, RS.2,812.50 lakhs, RS.2,812.50 lakhs, RS.2,812.50 lakhs and RS.1,406.25 lakhs on quarterly rest in financial year 2017-18, 2018-19,2019-20, 2020-21, 2021-22 and 2022-23 respectively.


[viii] Term Loan of RS.9,750 lakhs [rate of interest 10.50% p.a.) (Including RS.250 lakhs shown in current maturity] (March 31,2016 Rs.Nil] is secured by first pari-passu charge by way of hypothecation of movable fixed assets both present and future and is to be secured by first pari-passu charges by way of equitable mortgage on Company’s immovable properties. The loan is repayable in eight years in half yearly instalments with annual payments of RS.250 lakhs, RS.250 lakhs, RS.750 lakhs, RS.1,500 lakhs, RS.1,500 lakhs, RS.1,500 lakhs, RS.2,000 lakhs and RS.2,000 lakhs in financial year 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23, 2023-24 and 2024-25 respectively.


[ix] Term Loan of 715,000 lakhs (rate of interest 10.35% p.a.] (Including RS.750 lakhs shown in current maturity] [March 31,2016 Rs.Nil] is secured by first pari-passu charge by way of hypothecation of movable fixed assets both present and future and is to be secured by first pari-passu charges by way of equitable mortgage on Company’s immovable properties. The loan is repayable in eight years in half yearly instalments with annual payments of RS.750 lakhs, 7 375 lakhs, X l,125lakhs, 7 2,250 lakhs, 7 2,250 lakhs, 7 2,250 lakhs. 7 3,000 lakhs and 7 3,000 lakhs in financial year 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23, 2023-24 and 2024-25 respectively.


[x] Term Loan of 7 2,500 lakhs [rate of interest 9.95% p.a.] [Including 7125 lakhs shown in current maturity] [March 31,2016 7 Nil] is to be secured by first pari-passu charge by way of equitable mortgage on Company’s immovable properties and hypothecation of movable fixed assets both present and future. The loan is repayable in eight years in half yearly instalments with annual payments of 7 125 lakhs, 7 62.5 lakhs, 7 187.5 lakhs, 7 375 lakhs, 7 375 lakhs, 7 375 lakhs, 7 500 Lakhs and 7 500 lakhs in financial year 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23, 2023-24 and 2024-25 respectively.


[xi] Term Loan of USD 4,368,681.28 [7 2,832.87 lakhs] [rate of interest 3 months Libor plus 3.60% p.a.) [Including USD 109,217.03 [7 70.82 lakhs] shown in current maturity] [March 31,2016 7 Nil] is secured by first pari-passu charge by way of hypothecation of movable fixed assets both present and future and is to be secured by first pari-passu charges by way of equitable mortgage on Company’s immovable properties. The loan is repayable in nine years in half yearly instalments with annual payments of USD 109,217.03, USD 109,217.03, USD 109,217.03, USD 327,651.10, USD 655,302.19, USD 655,302.19, USD 655,302.19, USD 873,736.26 and USD 873,736.26 in financial year 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23, 2023-24, 2024-25 and 2025-26 respectively.


[xii] Term Loans include Vehicle Loans of 7 180.21 lakhs [including 7 84.58 lakhs shown in current maturity] [March 31, 2016 7 75.06 lakhs, including 7 35.12 lakhs shown in current maturity ] which are secured by way of hypothecation of Vehicles, which carries rate of interest ranging from 9.20% to 10.75% p.a. Loans are repayable[monthly rest] of RS.84.58 lakhs, 7 69.38 lakhs and 7 26.25 lakhs in financial year 2017-18, 2018-19 and 2019-20 respectively.


[xiii] Interest free loan from state financial institution, for working capital financing secured by bank guarantee for seven years from the date of disbursement. Repayment in single bullet payment on due date after seven years from the date of disbursement. Loan disbursed 7 520.58 lakhs [discounted value including interest outstanding 7 267.21 lakhs] (March 31,2016 7 Nil).


[xiv] Term Loan of 7 Nil [March 31,2016 7 5,000 lakhs] [rate of interest 10.25% p.a.] secured by way of second charge on all the assets of the Company, both present and future and also by way of personal guarantee of a Director. The loan was prepaid on March 21,2017 which was due on May 23, 2017.


[xv] Term Loan of USD Nil [Rs.Nil ] [March 31, 2016 USD 89,04,719.50 [Rs.5,900.26 lakhs] [rate of interest 6 Months Libor 400 bps p.a.] secured by way of second charge on all the assets of the Company both present and future and also by way of personal guarantee of a Director. The loan was prepaid on March 21, 2017 which was due on May 23, 2017.


[xvi] Term Loan of Rs.Nil [March 31, 2016 Rs.30,000 lakhs [rate of interest 10.65% p.a.] secured by subservient charge on entire moveable assets of the Company. The loan was prepaid on September 7, 2016 Rs.10,000 lakhs and September 8, 2016 f 20,000 lakhs. These repayments were due for f 6,000 lakhs in 2017-18 and Rs.24,000 lakhs in 2018-19.


Terms of repayment of unsecured ECB:


[i] External Commercial Borrowings of USD 7,600,000 [Rs.4,928.22 lakhs] [including USD 7,600,000 - Rs.4,928.22 lakhs shown in current maturity] [March 31, 2016 USD 13,300,000 - Rs.8812.58 lakhs, including USD 5,700,000 - Rs.3,776.82 lakhs shown in current maturity] is repayable in single instalment of USD 76,00,000 [Rs.4,928.22 lakhs] on November 27,2017. Rate of Interest is 6 months USD LIBOR plus 2.30% p.a.


[ii] External Commercial Borrowing of USD 24,826,233.56 [Rs.16,098.57 lakhs] [including USD 24,826,233.56 - Rs.16,098.57 lakhs shown in current maturity] [March 31, 2016 USD 48,922,284 - Rs.32,415.90 lakhs, including USD 24,096,050 - Rs.15,966.04 lakhs shown in current maturity] is repayable in single instalment of USD 24,826,233.56 [Rs.16,098.57 lakhs) on June 30, 2017, respectively. Rate of Interest is 6 months USD LIBOR plus 2.55% p.a.


Loan from related parties


Term loan from related parties t Nil [March 31,2016 RS.19,828.46 lakhs]. The rate of interest of these loans was 12% p.a.


There is no default in repayment of principal and interest thereon.


4. Financial risk management


4.1 Financial risk factors


The Company’s principal financial liabilities, other than derivatives, comprise borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to manage finances for the Company’s operations. The Company has loan and other receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations. The Company also enters into derivative transactions. The Company’s activities expose it to a variety of financial risks:


i] Market risk


Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: currency rate risk, interest rate risk and other price risks, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, investments, and derivative financial instruments. Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. This is based on the financial assets and financial liabilities held as at March 31,2017 and March 31,2016.


ii] Credit risk


Credit risk is the risk that a counter party will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.


iii] Liquidity risk.


Liquidity risk is the risk that the Company may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses.


The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures. The Company does not acquire or issue derivative financial instruments for trading or speculative purposes.


Risk management is carried out by the treasury department under policies approved by the board of directors. The treasury team identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.


Market Risk


The sensitivity analysis excludes the impact of movements in market variables on the carrying value of post-employment benefit obligations provisions and on the non-financial assets and liabilities. The sensitivity of the relevant Statement of Profit and Loss item is the effect of the assumed changes in the respective market risks. The Company’s activities expose it to a variety of financial risks, including the effects of changes in foreign currency exchange rates and interest rates. The Company uses derivative financial instruments such as foreign exchange forward contracts and interest rate swaps of varying maturity depending upon the underlying contract and risk management strategy to manage its exposures to foreign exchange fluctuations and interest rate.


(a) Foreign exchange risk and sensitivity


The Company transacts business primarily in Indian Rupee, USD, Yen and Euro. The Company has obtained foreign currency loans and has foreign currency trade payables and receivables and is therefore, exposed to foreign exchange risk. Certain transactions of the Company act as a natural hedge as a portion of both assets and liabilities are denominated in similar foreign currencies. For the remaining exposure to foreign exchange risk, the Company adopts a policy of selective hedging based on risk perception of the management. Foreign exchange hedging contracts are carried at fair value.


The following table demonstrates the sensitivity in the USD, Euro, Yen and other currencies to the Indian Rupee with all other variables held constant. The impact on the Company’s profit before tax and other comprehensive income due to changes in the fair value of monetary assets and liabilities is given below:


(b) Interest rate risk and sensitivity


The Comapny’s exposure to the risk of changes in market interest rates relates primarily to long term debt. The Company has entered into interest rate swap contracts, in which it agrees to exchange, at specific intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon principal amount. The management also maintains a portfolio mix of floating and fixed rate debt. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. As at March 31, 2017, after taking into account the effect of interest rate swaps, approximately 63.76% of the Company’s borrowings are at a fixed rate of interest [March 31,2016:59.96%]. Borrowings issued at fixed interest rate exposes the Company to fair value interest rate risk.


With all other variables held constant, the following table demonstrates the impact of borrowing cost on floating rate portion of loans and borrowings and loans on which interest rate swaps are taken.


Financial instruments and cash deposits


The Company considers factors such as track record, size of the institution, market reputation and service standards to select the banks with which balances and deposits are maintained. Generally, the balances are maintained with the institutions with which the Company has also availed borrowings. The Company does not maintain significant cash and deposit balances other than those required for its day to day operations.


Liquidity risk


The Company’s objective is to; at all times maintain optimum levels of liquidity to meet its cash and collateral requirements. The Company relies on a mix of borrowings, capital infusion and excess operating cash flows to meet its needs for funds. The current committed lines of credit are sufficient to meet its short to medium term expansion needs. The Company monitors rolling forecasts of its liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants [where applicable) on any of its borrowing facilities.


The table below provides undiscounted cash flows towards non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity based on the remaining period at the balance sheet to the contractual maturity date.


The Company is required to maintain ratios [including total debt to EBITDA / net worth, EBITDA to gross interest, debt service coverage ratio and secured coverage ratio] as mentioned in the loan agreements at specified levels. In the event of failure to meet any of these ratios these loans become callable at the option of lenders, except where exemption is provided by lender.


Interest rate and currency of borrowings


The below details do not necessarily represents foreign currency or interest rate exposure to the income statement, since the ComDanv has taken derivatives for offsettina the foreian currency and interest rate exposure.


(c) Commodity price risk and sensitivity


The Company is exposed to the movement in price of key raw materials in domestic and international markets. The Company has in place policies to manage exposure to fluctuations in the prices of the key raw materials used in operations. The Company enter into contracts for procurement of material, most of the transactions are short term fixed price contract and a few transactions are long term fixed price contracts.


Credit risk


The Company is exposed to credit risk from its operating activities [primarily trade receivables] and from its financing activities, including deposits with banks, mutual funds and financial institutions and other financial instruments.


Trade Receivables


The Company extends credit to customers in normal course of business. The Company considers factors such as credit track record in the market and past dealings for extension of credit to customers. The Company monitors the payment track record of the customers. Outstanding customer receivables are regularly monitored. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets. The Company has also taken advances and security deposits from its customers & distributors, which mitigate the credit risk to an extent.


4.2 Competition and price risk


The Company faces competition from local and foreign competitors. Nevertheless, it believes that it has competitive advantage in terms of high quality products and by continuously upgrading its expertise and range of products to meet the needs of its customers.


4.3 Capital risk management


The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The primary objective of the Company’s capital management is to maximize the shareholder value. The Company’s primary objective when managing capital is to ensure that it maintains an efficient capital structure and healthy capital ratios and safeguard the Company’s ability to continue as a going concern in order to support its business and provide maximum returns for shareholders. The Company also proposes to maintain an optimal capital structure to reduce the cost of capital. No changes were made in the objectives, policies or processes during the year ended March 31,2017 and year ended March 31,2016.


For the purpose of the Company’s capital management, capital includes issued capital, compulsorily convertible debentures, share premium and all other equity reserves. Net debt includes, interest bearing loans and borrowings less cash and cash equivalents.


The Company monitors capital using gearing ratio, which is net debt divided by total capital.


During year ended March 31,2017, the company’s strategy, which was unchanged from 2015-16, was to maintain a gearing ratio within 40% to 50%, the gearing ratios at March 31,2017 and March 31,2016 were as follows:


In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches of the financial covenants of any interest bearing loans and borrowing for reported periods.


5. Fair value of financial assets and liabilities


Set out below is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments that are recognised in the financial statements.


Fair valuation techniques


The Company maintains policies and procedures to value financial assets or financial liabilities using the best and most relevant data available. The fair values of the financial assets and liabilities are included at the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.


The following methods and assumptions were used to estimate the fair values:


1] Fair value of cash and deposits, trade receivables, trade payables, and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.


2] Long-term fixed-rate and variable-rate receivables / borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, credit risk and other risk characteristics. Fair value of variable interest rate borrowings approximates their carrying values. For fixed interest rate borrowing fair value is determined by using the discounted cash flow [DCF] method using discount rate that reflects the issuer’s borrowings rate. Risk of non-performance for the company is considered to be insignificant in valuation.


3] The fair values of derivatives are estimated by using pricing models, where the inputs to those models are based on readily observable market parameters basis contractual terms, period to maturity, and market parameters such as interest rates, foreign exchange rates, and volatility. These models do not contain a high level of subjectivity as the valuation techniques used do not require significant judgement, and inputs thereto are readily observable from actively quoted market prices. Management has evaluated the credit and non-performance risks associated with its derivative counterparties and believe them to be insignificant and not warranting a credit adjustment.


Fair Value hierarchy


The following table provides the fair value measurement hierarchy of Company’s asset and liabilities, grouped into Level 1 to Level 3 as described below:


- Quoted prices / published NVA [unadjusted] in active markets for identical assets or liabilities [level 1], It includes fair value of financial instruments traded in active markets and are based on quoted market prices at the balance sheet date and financial instruments like mutual funds for which net assets value[ NAV] is published mutual fund operators at the balance sheet date.


- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly [that is, as prices] or indirectly [that is, derived from prices] [level 2], It includes fair value of the financial instruments that are not traded in an active market [for example, over-the-counter derivatives] is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on the company specific estimates. If all significant inputs required to fair value an instrument are observable then instrument is included in level 2.


- Inputs for the asset or liability that are not based on observable market data [that is, unobservable inputs] [level 3]. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.


Fair value hierarchy


The following table provides the fair value measurement hierarchy of Company’s asset and liabilities, grouped into Level 1 to Level 2 as described below:


6. Segment information


The Company is engaged primarily into manufacturing of Iron and steel pipes and pellets. The Company’s reportable segments as identified by management are Iron and steel products and Waterways oceangoing.


Segments have been identified taking into account nature of product and differential risk and returns of the segment. These business segments are reviewed by the Chief Operating Officer of the Company [Chief operating decision maker].


Iron and Steel Products:


The segment comprises of manufacturing of Iron and Steel pipes and pellets in India.


Ocean Waterways:


The segment comprises of ocean going shipping business.


The measurement principles for segment reporting are based on IND AS. Segment’s performance is evaluated based on segment revenue and profit or loss from operating activities


1. Operating revenues and expenses related to both third party and inter-segment transactions are included in determining the segment results of each respective segment.


2. Finance income earned and finance expense incurred are not allocated to individual segment and the same has been reflected at the Company level for segment reporting.


3. The total assets disclosed for each segment represent assets directly managed by each segment, and primarily include receivables, property, plant and equipment, intangibles, inventories, operating cash and bank balances, inter-segment assets and exclude derivative financial assets, deferred tax assets and income tax recoverable.


4. Segment liabilities comprise operating liabilities and exclude external borrowings, provision for taxes, deferred tax liabilities and derivative financial liabilities.


5. Segment capital expenditure comprises additions to property, plant and equipment and intangible assets (net of rebates, where applicable].


6. Unallocated expenses/ results, assets and liabilities include expenses/ results, assets and liabilities [including inter-segment assets and liabilities] and other activities not allocated to the operating segments. These also include current taxes, deferred taxes and certain financial assets and liabilities not allocated to the operating segments.


7. Derivative financial instruments


The Company uses foreign currency forward and Interest rate swap contracts to manage some of its transactions exposure. The details of derivative financial instruments are as follows:


Interest rate swaps


The company has variable interest foreign currency borrowings, to offset the risk of variation in interest rates, the company has entered into, fix pay and variable receipt, interest rate swaps, these swap contracts are in US$. Outstanding amortised notional value of loan for swap contracts was US$ 24.83 million and US$ 48.92 million as on March 31,2017 and March 31,2016 respectively.


Composite swaps


The Company has composite swap, to offset the risk of variation in interest rate and currency fluctuations. Outstanding amortised notional value of loan for composite swap contracts was $ 4.37 million and $ nil as on March 31, 2017 and March 31, 2016 respectively.


Forward Contracts


The Company has foreign currency sale and purchase forward contracts to offset the risk of currency fluctuations. These contracts are for settlement of operational receivable and payable. As at March 31,2017 outstanding contracts for net purchase of Euro 19.24 million and purchase of USD 50.46 million. As at March 31,2016 outstanding contracts are for net purchase of Euro 44.50 million and sale of USS 7 million.


8. Deferred income tax


The analysis of deferred tax assets and deferred tax liabilities dealt in the statement of profit and loss is as follows.


Below tables sets forth the changes in the projected benefit obligation and plan assets and amounts recognised in the standalone Balance Sheet as at March 31,2017 and March 31,2016, being the respective measurement dates:


OCI presentation of defined benefit plan


- Gratuity is in the nature of defined benefit plan, Re-measurement gains/(losses] on defined benefit plans is shown under OCI as Items that will not be reclassified to profit or loss and also the income tax effect on the same.


- Leave encashment cost is in the nature of short term employee benefits.


Presentation in Statement of Profit & Loss and Balance Sheet


Expense for service cost, net interest on net defined benefit liability [asset] is charged to Statement of Profit & Loss.


IND AS 19 do not require segregation of provision in current and non-current, however net defined liability [Assets] is shown as current and non-current provision in balance sheet as per IND AS 1.


Actuarial liability for short term benefits [leave encashment cost] is shown as current and non-current provision in balance sheet.


When there is surplus in defined benefit plan, company is required to measure the net defined benefit asset at the lower of; the surplus in the defined benefit plan and the assets ceiling, determined using the discount rate specified, i.e. market yield at the end of the reporting period on government bonds, this is applicable for domestic companies, foreign company can use corporate bonds rate.


The Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. The mortality rates used are as published by one of the leading life insurance companies in India.


d) Details of loans given, investment made and Guarantees given, covered U/S 186(4) of the Companies Act 2013.


- Loans given and investment made are given under the respective heads.


- Corporate Guarantees have been issued on behalf of subsidiary companies, details of which are given in related Party transactions refer note no. 47.


e) Disclosure of Specified Bank Notes


During the year, the Company had Specified Bank Notes[SBN’s] or other denomination notes as defined in the MCA notification, G.S.R. 308[E], dated March 31,2017. The details of SBN’s held and transacted during the period from November 8, 2016 to December 30, 2016, the denomination wise SBN’s and other notes as per the notification are as follows:


9. Government Grant


Packaged Scheme of Incentive [PSI] - Maharashtra


The Company’s manufacturing facility at Nashik has been granted “Mega Project Status” by Government of Maharashtra and therefore is eligible for Industrial Promotion Subsidy [IPS] under Packaged Scheme of Incentive [PSI] 2007. The purpose of the scheme is for intensifying and accelerating the process of dispersal of industries to the less developed regions and promoting high tech industries in the developed areas of the state coupled with the object of generating mass employment opportunities.


Entitlements under the scheme consists of the following:


a] Electricity Duty exemption for a period of 7 years from the date of commencement of commercial production- from September 10, 2009 to September 09, 2016.


b] 100% exemption from payment of Stamp duty.


c] VAT and CST payable to the State Government [on sales made from Nashik plant, within a period of 7 years starting from September 10, 2009],


IPS will be payable so as to restrict up to 75% of the Eligible Fixed Capital investments made from September 13,2007 to September 10, 2009. The Eligibility Certificate issued allows maximum Fixed Capital Investment of Rs.35,000 lakhs and restricts IPS to 75% of Rs.35,000 lakhs i.e. Rs.26,250 lakhs.


In terms of the Indian Accounting Standard [IND AS 20] “Accounting for Government Grants”, incentive for which details are as provided below is considered to be in the nature of promoters’ contribution. Amount of benefits receivable in excess of grant income accrued based on usage of the assets is accounted as Government grant received in advance and has been credited to Statement of Profit and Loss on a systematic basis over the useful life of the asset.


Rajasthan Investment Promotion Scheme (RIPS) Rajasthan


The Company’s manufacturing facility at Bhilwara has been granted “Customized Package” by Government of Rajasthan and therefore is eligible for Investment Promotion Subsidy [IPS] under Rajasthan Investment Promotion Scheme - 2010 [RIPS-2010]. The purpose of the Customize Package Scheme of RIPS-2010 is to promote investment in the State of Rajasthan and to further generate employment opportunities through such investment. Modalities of payment of IPS consists of the following:


a] 50% exemption from payment of Electricity Duty for a period of 10 years from the date of issuance of Entitlement Certificate - from December 09,2015 to December 08,2025.


b] Investment Subsidy equivalent to 70% of Taxes [VAT & CST] which have become due and have been deposited into the Government exchequer, for a period of 07 years from the date of issuance of Entitlement Certificate - from December 09, 2015 to December 08, 2022.


c] Employment Generation Subsidy - for General category: RS.15,000/- per employee & for Women/SC/ST/PwD: RS.18,000/per employee per completed year of service, subject to maximum, 05% of Taxes [VAT & CST] which have become due and have been deposited into the Government exchequer, for a period of 07 years from the date of issuance of Entitlement Certificate - from December 09,2015 to December 08,2022.


d] 50% exemption from payment of Stamp duty & Conversion charges for change of land use.


In terms of the Indian Accounting Standard [IND AS 20] “Accounting for Government Grants”, incentive for which details are as provided below is considered to be in the nature of promoters’ contribution. Amount of benefits receivable in excess of grant income accrued based on usage of the assets is accounted as Government grant received in advance and has been credited to Statement of Profit and Loss on a systematic basis over the useful life of the asset.


Kosi Unit


The Government of Uttar Pradesh implemented an Industrial Investment Promotion Scheme, 2003 for the purpose of providing interest free loan under the scheme by way of working capital assistance during the initial years of production to promote setting up of a Mega unit. Company has an Industrial unit having investment exceeding 7 2,500 lakhs at Kosi Kalan as per above mentioned scheme and became eligible for sanction of Interest Free Loan as a Mega unit. PICUP, on behalf of the state Government has given Interest Free Loan amounting to Rs.119.45 lakhs on October 7, 2016 and Rs.401.13 lakhs on January 2, 2017 under the scheme. As per Indian Accounting Standard [IND AS 20] “Accounting for Government Grants” the benefit derived from concessional or without interest loan from PICUP is treated as a Government Grant and accounted for accordingly.


Bellary Unit


The Company’s manufacturing facility at Bellary has been granted, “Subsidy for setting up of ETP Plant” by Government of Karnataka. As per operational guidelines of Karnataka Industrial Policy 2009-2014 and package of incentive and concession scheme offered for investment, Bellary unit is eligible for subsidy for setting up of ETP Plant [Effluent treatment plant].


Eligibility: One time capital subsidy up to 50% of the cost of Effluent Treatment Plants [ETPs] is available to Manufacturing Micro, Small and Medium Enterprises and Service Enterprises, Manufacturing SEZ Enterprises, Large and Mega industries both for establishment of new enterprises or for expansion, diversification, and modernization of existing industries, subject to a ceiling of Rs.100 lakhs per manufacturing enterprises in zone-1,2 and 3 and a ceiling of Rs.50 lakhs in zone-4. Since our unit is eligible, we applied for capital subsidy on Effluent Treatment Plants [ETPs] and get it sanctioned from District Industries Centre, Bellary and Directorate of Industries and Commerce, Bengaluru for capital subsidy on ETP of Rs.31.50 lakhs.


In terms of the Indian Accounting Standard [IND AS 20] “Accounting for Government Grants”, incentive for which details are as provided below is considered to be in the nature of promoters’ contribution. Amount of benefits receivable in excess of grant income accrued based on usage of the assets is accounted as Government grant received in advance and has been credited to Statement of Profit and Loss on a systematic basis over the useful life of the asset.


The number of shares used in computing basic EPS is the weighted average number of shares outstanding during the year.


The diluted EPS is calculated on the same basis as basic EPS, after adjusting for the effects of potential dilutive equity.


10. impairment review


Assets are tested for impairment whenever there are any internal or external indicators of impairment.


Impairment test is performed at the level of each Cash Generating Unit [‘CGU’] or groups of CGUs within the Company at which the goodwill or other assets are monitored for internal management purposes, within an operating segment.


The impairment assessment is based on higher of value in use and value from sale calculations.


During the year, the testing did not result in any impairment in the carrying amount of goodwill and other assets.


The measurement of the cash generating units’ value in use is determined based on financial plans that have been used by management for internal purposes. The planning horizon reflects the assumptions for short to- mid term market conditions.


Key assumptions used in value-in-use calculations:


- Operating margins [Earnings before interest and taxes]


- Discount rate


- Growth rates


- Capital expenditures


Operating margins: Operating margins have been estimated based on past experience after considering incremental revenue arising out of adoption of valued added and data services from the existing and new customers, though these benefits are partially offset by decline in tariffs in a hyper competitive scenario. Margins will be positively impacted from the efficiencies and initiatives driven by the Company; at the same time, factors like higher churn, increased cost of operations may impact the margins negatively.


Discount rate: Discount rate reflects the current market assessment of the risks specific to a CGU or group of CGUs. The discount rate is estimated based on the weighted average cost of capital for respective CGU or group of CGUs.


Growth rates: The growth rates used are in line with the long term average growth rates of the respective industry and country in which the Company operates and are consistent with the forecasts included in the industry reports.


Capital expenditures: The cash flow forecasts of capital expenditure are based on past experience coupled with additional capital expenditure required


11. Discontinued operation and Non-current assets held for distribution Composite Scheme of Arrangement


1. A Composite Scheme of Arrangement [hereinafter referred to as ‘Scheme’] amongst Jindal Saw Limited and its three wholly owned subsidiaries namely JITF Infralogistics Limited, JITF Shipyards Limited and JITF Waterways Limited and their respective shareholders and creditors under section 391-394 read with 100-103 of the Companies Act, 1956 and other relevant provisions of Companies Act, 1956 and / or Companies Act, 2013 has been sanctioned by the Hon’ble High Court of Judicature at Allahabad [Uttar Pradesh] vide its Order dated July 8, 2016, made effective from August 5, 2016, operative from appointed date April 1, 2015 and consequently ocean waterways business of JITF Waterways Limited has been transferred to the Company and interest in Infrastructure business has been transferred from the Company.


2. As per the accounting treatment detailed in the Scheme, the Company has recorded the undermentioned assets and liabilities of Merged and Demerged undertakings at their respective book values as on the appointed date i.e. April 1,2015. The combined effect of which is aiven in table below:


3. As per the scheme the shareholders of the Company will be eligible to get 50 numbers of equity shares of face value of Rs.2 each for every 622 numbers of equity shares of face value of Rs.2 each held as on the record date.


Discontinued operation


Disposal of interest in subsidiary Universal Tube Accessories Private Limited


The Company has entered into an agreement dated March 29, 2016 with minority shareholders for disposal of interest in the subsidiary Universal Tube Accessories Private Limited. As per agreement, shareholding held by the Company will be transferred in exchange for takeover of certain assets and repayment of certain loans of the subsidiary which are guaranteed by the Company, guarantee of balance loans will be released by bank. The summary of transactions is as below. During 2015-16 Company has designated the highly probable transaction as discontinued operation and assets and liabilities of the disposal group are designated as held for sale, the entity ceased to be subsidiary w.e.f. April 13,2016.


12. New Developments


The Company has disposed its 100 % shareholding in Jindal Saw Espana, S.L. on March 10, 2017.


The Company has disposed its 100% shareholding in JITF Shipping & Logistics [Singapore] Pte. Limited on March 17,2017. Subsidiary of the Company has disposed its 81% shareholding in Jindal Tubular U.S.A. LLC on March 30,2017.


Subsidiary of the Company has disposed its 100% shareholding in JITF Coal Logistics Limited on June 30,2016.


Subsidiary of the Company has acquired 100% ownership in Sulog Transshipment Services Limited on June 29,2016.


13. These financial statements were approved and adopted by board of directors of the Company in their meeting dated May 29, 2017.


14. Previous year figures have been regrouped/ rearranged, wherever considered necessary to conform to current year’s classification


15. Notes 1 to 57 are annexed to and form an integral part of financial statements.

CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.
“2019 © COPYRIGHT DYNAMIC EQUITIES PVT. LTD.”

Disclaimer: There is no guarantee of profits or no exceptions from losses. The investment advice provided are solely the personal views of the research team. You are advised to rely on your own judgment while making investment / Trading decisions. Past performance is not an indicator of future returns. Investment is subject to market risks. You should read and understand the Risk Disclosure Documents before trading/Investing.

Disclosure: We, Dynamic Equities Private Limited are also engaged in Proprietory Trading apart from Client Business. In case of any complaints/grievances, clients may write to us at compliance@dynamiclevels.com

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