Details of Security for Secured Loans:
A) Term Loan Availed from State Bank of India is secured by (a) exclusive first charge on the assets created out of the term loans including (1) Equitable Mortgage of Lease hold rights over 28424 Sq mt plot of land, plot No 7, Sector I, Industrial Area, I.I.E pant Nagar, Uttam Singh Dist, Uttarakhand and Buildings thereon, belonging to the Company and (2) Equitable mortgage over Land (1.90 acres) and Building at Survey No.519/1B2, located at Narasingampatti Village, Madurai & (b) second charge on the entire current assets of the Company.
B) Term Loan from DBS Bank is secured by hypothecation of Specific Plant & Machinery located at Vellaripatti Village, Madurai.
a. Details of Security for Secured Loans
Working Capital facilities availed from State Bank of India are secured by a first charge by way of hypothecation of Stock of Raw Materials, Stores, Work in progress, Finished goods and Book Debts. Working Capital facilities are also secured through a second charge on the assets created out of the term loans including: (1) EM of Lease hold rights over 28424 Sq mt plot of land, plot No.7, Sector I, Industrial Area, I.I.E, pant Nagar, Uttam Singh Dist and buildings thereon, Uttrakhand belonging to the Company and
(2) EM over Land [1.90 acres] and Buildings at S No. 519 / 1B 2 Narasingampatti Village, Therkutheru, Melur Taluk, Madurai District belonging to the Company.
1. Employee benefits
Discount rate - based on prevailing market yields of Indian Government securities as at the Balance Sheet date for estimated term of obligations expected rate of return on plan assets - expectation of the average long term rate of return expected on investment of the funds during the estimated terms of the obligations salary escalation rate - estimates of future salary increases considered taken into account the inflation, seniority, promotion and other relevant factors contributions - the company expects to contribute Rs.1.78 Crores to its gratuity fund during the year ending March 31, 2017.
These plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. When there is a deep market for such bonds; if the return on plan asset is below this rate, it will create a plan deficit. Currently, for these plans, investments are made in government securities, debt instruments, Short term debt instruments, Equity instruments and Asset Backed, Trust Structured securities as per notification of Ministry of Finance.
A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan''''s investments.
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan''''s liability.
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan''''s liability.
2. Segment reporting
The Company has identified manufacture and sale of tyres as the only reportable segment taking into account the different risks and returns, the organization structure and the internal reporting systems. Accordingly disclosure of segment-wise information is not applicable under Ind AS 108 - operating Segments.
3. Related party and transactions
a) Related parties and their relationship Entity with significant influence
T V Sundram Iyengar & Sons private Limited Subsidiaries
TVS Srichakra Investments Limited,
Van Leeuwen Tyres & Wheels B.V. Holland Joint venture
ZF Electronics TVS (India) pvt. Limited Key Management personnel
Sri R Naresh, Executive Vice Chairman Ms Shobhana Ramachandhran, CEo & Managing Director Enterprise with Common Key Management personnel Sundaram Industries private Limited
4. Financial instruments
a. Derivative financial instruments
(i) Forward and option contract
Foreign exchange forward contracts and options are purchased to mitigate the risk of changes in foreign exchange rates associated with certain payables, receivables and forecasted transactions denominated in certain foreign currencies. These derivative contracts are initially recognized at fair value on the date of contract is entered and subsequently re-measured at fair value. Gains or losses arising from changes in the fair value of the derivative contracts are recognized immediately in profit or loss, the counter parties for these contracts are generally banks or financial institutions. The details of outstanding forward contracts as at March 31, 2017 and March 31, 2016 are given below:
The Company recognized a net gain on the forward contracts of 0.39 Cr (previous year Rs.2.91 Cr) for the year ended March 31, 2017
All open forward exchange contracts mature within three-six months from the Balance Sheet date.
ii) Cross Currency Swap:
The Company has entered into a Cross Currency Swap (principal Only Swap arrangement) in order to hedge the cash flows arising out of the principal and interest payments of the underlying INR term loan. The period of the swap contract is co terminus with the period of the underlying term loan. As per the terms of engagement the company shall pay USD fixed and received fixed INR principal and interest cash flows during the term of contract. The swap arrangement is marked to market at the end of every period and losses are recognized in the Statement of Profit and Loss. The details of the outstanding balances and the mark to market losses recognized during the year are as under:
c. Fair value measurement of financial instruments measured at fair value on recurring basis:
Level 1 - Unadjusted quoted prices In active market for identical assets and liabilities Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable outputs for the assets and liabilities
5. Financial risk management
The company has exposure to the following risks from its use of financial instruments.
5.1 Credit risk
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of dealing only with creditworthy counter parties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
Credit risk is managed by the entity. Considering the credit risk assessment made by the management and based on past history, no provision towards expected credit loss was deemed necessary.
5.2 Liquidity risk
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 following tables detail the Company''''s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The information included in the tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows. The contractual maturity is based on the earliest date on which the Company may be required to pay.
The following table details the Company''''s expected maturity for its non-derivative financial assets. The information included in the table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary in order to understand the Company''''s liquidity risk management as the liquidity is managed on a net asset and liability basis.
The Company has access to committed credit facilities as described below, of which Rs.43.86 cr were unused at the end of the reporting period (as at March 31, 2016 Rs.233.43 cr). The Company expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.
5.3 Market risk
Market risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of a business. The major components of market risk are commodity price risk, foreign currency exchange risk and interest rate risk.
6 Commodity price Risk - The primary commodity price risks that the Company is exposed to include rubber prices that could adversely affect the value of the Company''''s financial assets or expected future cash flows.
7 Foreign currency risk management - The Company imports raw materials from outside India as well as make export sales to countries outside India. The Company is, therefore, exposed to foreign currency risk principally arsing out of foreign currency movement against the Indian Currency. Foreign currency exchange risks are managed by entering into forward contracts against firm purchase commitment and receivables.
8. The carrying amounts of the Company''''s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows.
9. Foreign currency sensitivity analysis
The Company is principally exposed to foreign currency risk against USD & EURO. Sensitivity of profit or loss arises mainly from USD & EURO denominated receivables and payables.
As per management''''s assessment of reasonable possible changes in the exchange rate of /- 5% between USD-INR and EURO-INR currency pair, sensitivity of profit or loss only on outstanding foreign currency denominated monetary items at the period end is presented below:
In management''''s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
10. Forward foreign exchange contracts
It is the policy of the Company to enter into forward exchange contracts to cover specific foreign currency payments and receipts 100% of the exposure generated.
11. Interest rate risk management
The Company is exposed to interest rate risk because of borrowal of short term funds at floating interest rates. The Company''''s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidy risk management section of this note.
Interest rate sensitivity analysis
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company''''s Profit for the year ended March 31, 2017 would decrease/increase by Rs.1.49 Cr (for the year ended March 31, 2016: decrease/increase by Rs.0.88 Cr).
12. Capital Management
The Company''''s capital comprises of equity share capital, retained earnings and other equity attributable to equity holders. The primary objective of company''''s capital management is to maximize shareholders value. The Company manages its capital and makes adjustment to it in light of the changes in economic and market conditions. The Company does so by adjusting dividend paid to shareholders. The total capital as on March 31, 2017 is Rs.7.66 crores (previous Year: Rs.7.66 crores).
13. Legal preceedings / Contingent Liabilities / Contingent Assets
14. Dues to micro and small enterprises
The Company has not received any letter from any vendor claiming their status as micro / small enterprises. Accordingly the amount paid/payable to these parties is considered to be Nil.
15. Contribution to Corporate Social Responsibilities
Sec 135 of Companies Act 2013, requires Company to spend towards Corporate Social Responsibility. The Company is expected to spend Rs.3.12 crores in compliance to this requirement. A sum of Rs.3.12 crores has been spent during the current year towards CSR activities as explained below. Balance amount to be spent is Rs. Nil.
An amount of Rs.50.70 per share (507%) has been recommended by the Board of Directors towards dividend.