1. Company overview
SML Isuzu Limited is a public company, incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India. The Company is primarily engaged in the business of manufacture and sale of Commercial Vehicles and its parts. The Company has its operations primarily in India.
2. The financial statements for the year ended 31 March 2017 have been prepared as per the requirements of Schedule 111 of the Companies Act, 2013.
a. Rights, preferences and restrictions attached to the equity shares :-
The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company’s residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company. Voting rights cannot be exercised in respect of shares on which any call or other sums presently payable have not been paid. Failure to pay any amount called up on shares may lead to forfeiture of the shares. On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.
In respect of the matters above, the amount represents the demands received under the respective demand/ show cause notices/ legal claims, wherever applicable.
b) In addition, the Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company’s management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the Company’s results of operations or financial condition.
- Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs. 6,139.59 lakhs (previous year Rs. 3,948.77 lakhs).
- Non- cancellable lease commitments of Rs. 265.87 lakhs (previous year Rs. 74.12 lakhs)
3. The Supreme Court of India has on 29 March 2017 passed an order which restricts sale and registration of BS-III emission norms compliant (‘BS-III’) vehicles in India effective 01 April 2017. The Company has taken necessary steps to be in compliance with the aforesaid order. The Company has also decided to take back BS III vehicles lying with the dealers at the year end and has accounted for such sales returns amounting to Rs. 2,220.02 lakhs in its books of accounts. Further, certain BS-III components lying with the Company (including those forming part of impacted BS-III vehicles) and other related costs need to be written off as no future benefit is envisaged. Consequently, the total amount of BS III stock written off (including margin loss on sales returns) during the quarter / year ended 31 March 2017 amounts to Rs. 1,009.97 lakhs. The Company is taking necessary steps to convert the BS III vehicles in stock to ensure compliance with BS-IV emission norms. Related costs for such conversion will, accordingly, be accounted for as and when incurred.
# net of write back of liability in respect of provision for warranty Rs.113.14 lakhs (previous year Rs. 230.93 lakhs) and in respect of provision for service charges Rs. 510.00 lakhs (previous year Rs. 622.11 lakhs)
* The Company is liable towards warranty claims made by end users of its products. The year end provision is based on its estimate of the past experience regarding failure trends of products and costs of rectification or replacement. It is estimated that the provision would be fully utilized over the warranty period i.e. within 3 years.
** The Company has provided free service coupons to end users of its products and estimated a provision based on its historical trends of utilization and expected future utilization of service coupons within a period of 3 years.
4. Segment Information
The Company is engaged in the business of manufacture of Commercial vehicles and spares which is a primary segment for the Company which constitutes a single business segment and accordingly disclosure requirements of Accounting Standard 17, “Segment Reporting”, specified under Section 133 of the Companies Act, 2013 read with Rule 7 of Companies (Accounts) Rules, 2014 in relation to primary segment are not required to be given. All the business activities of the Company are primarily conducted from locations in the Indian subcontinent i.e. India and its neighbouring countries having similar economic environments. Accordingly, no additional disclosure for secondary segment reporting on the basis of geographical operations has been made in these financial statements.
5. Related party disclosures
A. Names of related parties
i. Related parties where control exists Sumitomo Corporation, Japan - Controlling Enterprise
ii. Key management personnel Mr. Eiichi Seto - Managing Director & CEO
Mr. Gopal Bansal - Whole-time Director & CFO Mr. Kei Katayama - Whole-time Director - R&D
6. The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing regulation under sections 92-92F of the Income Tax Act, 1961. Since the law requires existence of such information and documentation to be contemporaneous in nature, the Company continuously updates its documentation for the international transactions entered into with the associated enterprises during the financial year and expects such records to be in existence latest by the due date as required under law. The management is of the opinion that its international transactions are at arm’s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of income tax expense and that of provision for taxation.
7. The Company has taken certain premises under operating lease arrangements. The total lease rental recognized as expense aggregate to Rs.391.07 lakhs (previous year Rs. 369.89 lakhs).
Future minimum lease payments under non-cancellable operating leases:
I Defined Benefit Plan (Gratuity):
General description of defined benefit plan/other long term benefit plan:
The Company operates gratuity plan wherein every employee is entitled to the benefit equivalent to 15 days salary (includes dearness allowance) last drawn for each completed year of service. The same is payable on termination of service, or retirement, or death whichever is earlier. The benefits vest after five years of continuous service. Gratuity benefits valued are in accordance with the payment of Gratuity Act, 1972.
II Short term employment benefits:
The undiscounted amount of short term employee benefits expected to be paid in exchange for services rendered by employees is recognized during the period when the employee renders the services. These benefits include compensated absences and performance incentives.
8. Accounting for Derivative Contracts
The Company uses Currency/Interest rate swaps to hedge its exposure to movements in foreign exchange rates relating to certain firm commitments. The Company designates such contracts in a cash flow hedge relationship by applying the principles set out in “Guidance Note on Accounting for Derivative Contracts”. The use of hedging instruments is governed by the Company’s policies approved by the Board of Directors, consistent with the Company’s risk management strategy. The information on derivative instruments is as follows:
9. a) The cash credit limits sanctioned by the bankers are secured by a first charge by way of hypothecation of the Company’s current assets i.e. stocks of raw materials, semi-finished goods, finished goods, stores and spares, bills receivables including receivables from hire purchase/ leasing, book debts and other movables of the Company (both present and future) and also by way of a collateral pari passu second charge on the Company’s fixed assets. These carry an interest rate ranging from 10.00% to 12.00% per annum. The Company has not defaulted on repayment of loan and interest during the year.
Other loans from banks - unsecured represents working capital demand loan taken from Mizuho Bank Limited. The Company has not defaulted on repayment of loan and interest during the year. These loans have been fully repaid as at the end of current year.
b) The Company had in an earlier year taken loans from Financial Institutions against first charge on its movable and immovable property. The said loans have since been repaid. However, the charges in respect of these loans are in the process of being vacated.
10. Contribution towards Corporate social responsibility :
a) Gross amount required to be spent by the Company during the year 2016-17 - Rs. 102.45 lakhs (2015-16: Rs. 86.60 lakhs)
b) Amount spent during the year:
c) Related party transactions in relation to corporate social responsibility: NIL
d) The Company does not carry any provisions for Corporate social responsibility expenses for current year and previous year.
11. During the previous year ended 31 March 2016, the Company had adjusted provision for tax by Rs. 287.76 lakhs (disclosed as current tax adjustment related to prior years). This had been done to align the amounts as per the books of accounts with the relevant Income-tax records.
12. Previous year figures have been regrouped / reclassified, wherever necessary, in order to conform to current year’s classifications.