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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500425ISIN: INE079A01024INDUSTRY: Cement

BSE   ` 213.55   Open: 212.30   Today's Range 211.50
215.25
+1.00 (+ 0.47 %) Prev Close: 212.55 52 Week Range 188.50
275.00
Year End :2017-12 

1. Corporate Information

Ambuja Cements Limited (the Company) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. Its shares are listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India and its GDRs are listed under the EURO MTF Platform of Luxembourg Stock Exchange. The registered office of the Company is located at Ambujanagar, Taluka Kodinar, Dist. Gir Somnath, Gujarat.

The Company’s principal activity is to manufacture and market cement and cement related products.

2. Basis of preparation

The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under section 133 of the Companies Act, 2013 (“The Act”) read with rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016. Up to the year ended 31st December, 2016 the Company prepared its financial statements in accordance with the requirements of previous Generally Accepted Accounting Principles (previous GAAP) which includes standards notified under the Companies (Accounting Standards) Rules, 2006. These financial statements for the year ended 31st December, 2017 are the Company’s first Ind AS financial statements. The date of transition to Ind AS is 1st January, 2016 (transition date). Details of the principal adjustments along with related reconciliations are detailed in note 55 (first-time adoption).

The financial statements have been prepared on a historical cost basis, except for the following:

A. Certain financial assets and liabilities are measured at fair value (refer accounting policy regarding financial instruments).

B. Non-current asset held for sale are measured at the lower of carrying amount and fair value less cost to sell.

C. Employee defined benefit plans, recognised at the net total of the fair value of plan assets and the present value of the defined benefit obligation.

Financial statements are presented in ’ which is the functional currency of the Company and all values are rounded to the nearest crore, except when otherwise indicated.

Notes :

a) Includes

i) Premises on ownership basis of Rs.84.57 crore (31st December, 2016 - Rs.84.57 crore; 1st January, 2016 - Rs.84.57 crore) and Rs.3.21 crore (31st December, 2016 - Rs.1.61 crore; 1st January, 2016 - Rs. Nil) being accumulated depreciation thereon and cost of shares in co-operative societies are Rs.12,630 (31st December, 2016 - Rs.12,630; 1st January, 2016 - Rs.12,630 ).

ii) Rs.15.31 crore (31st December, 2016 - Rs.15.31 crore; 1st January, 2016 - Rs.14.40 crore) being cost of roads constructed by the Company, the ownership of which vests with the government/local authorities and Rs.7.83 crore (31st December, 2016 Rs.5.07 crore; 1st January, 2016 - Nil) being accumulated depreciation thereon.

b) Cost incurred by the Company, the ownership of which vests with the state maritime boards.

c) Includes Rs.70.61 crore (31st December, 2016 - Rs.69.96 crore; 1st January, 2016 - Rs.69.96 crore) being cost of power lines incurred by the Company, the ownership of which vests with the state electricity boards and Rs.4.43 crore (31st December, 2016 - Rs.2.21 crore; 1st January, 2016 - Rs. Nil) being accumulated depreciation thereon.

d) Includes Rs.11.75 crore (31st December, 2016 - Rs.11.75 crore; 1st January, 2016 - Rs.11.75 crore) being cost of railway sidings incurred by the Company, the ownership of which vests with the railway authorities and Rs.3.08 crore (31st December, 2016 - Rs.1.77 crore; 1st January, 2016 - Rs. Nil) being accumulated depreciation thereon.

e) Includes Rs.0.15 crore (31st December, 2016 - Rs.0.15 crore; 1st January, 2016 - Rs. Nil) capitalised as pre-operative expenses.

f) Pertains to goodwill pursuant to amalgamation of HIPL with the Company Rs. Nil (31st December, 2016 - Rs. Nil; 1st January, 2016 Rs.235.63 crore) (Refer note 54).

g) As per the website of the Ministry of Corporate affairs, certain charges aggregating Rs.53.68 crore on properties of the Company are pending for satisfaction due to some procedural issues, although related loan amounts have already been paid in full.

* In respect of these items, future cash outflows are determinable only on receipt of judgements / decisions pending at various forums / authorities.

(i) Royalty on limestone represents additional royalty, consequent to the order passed by Madhya Pradesh State Mining Department, based on the ratio of 1.6 tonnes of limestone to 1.0 tonne of cement produced at its factory in Chhattisgarh. Subsequent to the year 2016, the Hon’ble High Court of Chhattisgarh, Bilaspur has ruled the matter in favour of the Company.

(ii) Includes a matter relating to 75% exemption from sales tax granted by Government of Rajasthan. However, the eligibility of exemption in excess of 25% was contested by the State Government in a similar matter of another Company. In year 2014, pursuant to the unfavourable decision of the Supreme Court in that similar matter, the sales tax department has initiated proceedings for recovery of differential sales tax and interest thereon on the ground that the Company had given an undertaking to deposit the differential amount of sales tax, in case the Supreme Court’s decision goes against the matter referred above. Against the total demand of Rs.247.97 crore, including interest of Rs.134.45 crore (31st December, 2016 - Rs.247.97 crore, including interest of Rs.134.45 crore; 1st January, 2016 Rs.247.97 crore, including interest of Rs.134.45 crore), the Company has deposited Rs.143.52 crore, including interest Rs.30.00 crore (31st December, 2016 - Rs.143.52 crore including interest of Rs.30.00 crore; 1st January, 2016 -Rs.143.52 crore including interest Rs.30.00 crore), towards sales tax under protest and filed a Special Leave Petition in the Supreme Court with one of the grounds that the tax exemption was availed by virtue of the order passed by the Board for Industrial & Financial Reconstruction (BIFR) during the relevant period. On Company’s petition, the Hon’ble Supreme Court has granted an interim stay on the balance interest. Based on the advice of external legal counsel, the Company believes that, it has good grounds for a successful appeal. Accordingly, no provision is considered necessary.

(iii) a) In 2012, the Competition Commission of India (CCI) issued an order imposing penalty on certain cement manufacturers, including the Company concerning alleged contravention of the provisions of the Competition Act, 2002 and imposed a penalty of Rs.1,163.91 crore on the Company. On Company’s appeal, Competition Appellate Tribunal (COMPAT), initially stayed the penalty and by its final order dated 11th December, 2015, set aside the order of the CCI, remanding the matter back to the CCI for fresh adjudication and for passing a fresh order.

After hearing the matter afresh, the CCI had again, by its order dated 31st August, 2016, imposed a penalty of Rs.1,163.91 crore on the Company (31st December, 2016 - Rs.1,163.91 crore; 1st January, 2016 - Rs. Nil). The Company has filed an appeal against the said Order with the COMPAT. The COMPAT, vide its order dated 21st November, 2016 has stayed the penalty with a condition to deposit 10% of the penalty amount, in the form of fixed deposit (the said condition has been complied with) and levy of interest of 12% p.a in case the appeal is decided against the appellant. Pending final disposal of the appeal, the matter has been disclosed as contingent liability along with interest of Rs.175.07 crore (31st December, 2016 - Rs.42.33 crore; 1st January, 2016 - Rs. Nil). Further, pursuant to the notification issued by Central Government on 26 May, 2017, any appeal, application or proceeding before COMPAT is transferred to National Company Law Appellate Tribunal (NCLAT). The matter has been heard by NCLAT and Order is reserved.

b) In a separate matter, pursuant to a reference filed by the Director, Supplies and Disposals, Government of Haryana, the CCI by its Order dated 19th January, 2017 has imposed a penalty of 29.84 crore on the Company. On Company’s appeal, the COMPAT has stayed the operation of CCI’s order in the meanwhile. The matter is listed before NCLAT and is pending for hearing.

Based on the advice of external legal counsels, the Company believes it has good grounds on merit for a successful appeal in both the aforesaid matters. Accordingly, no provision is considered necessary and the same is disclosed as contingent liability.

(iv) The Collector of Stamps, Delhi vide its Order dated 7th August, 2014, directed erstwhile Holcim (India) Private Limited (HIPL), (merged with the Company), to pay stamp duty (including penalty) of Rs.287.88 crore (31st December, 2016 - Rs.287.88 crore, 1st January, 2016 - Rs.287.88 crore) on the merger order passed by Hon’ble High Court of Delhi, approving the merger of erstwhile Ambuja Cement India Private Limited with HIPL. HIPL had filed a writ petition and the Hon’ble High Court of Delhi has granted an interim stay. Based on the advice of external legal counsel, the Company believes that it has a good grounds for success in writ petition. Accordingly, no provision is considered necessary.

Note 3 - Material demand and dispute considered as “remote”

One of the Company’s cement manufacturing plants located in the state of Himachal Pradesh was eligible under the State industrial policy for deferral of its sales tax liability arising on sale of cement manufactured in the said plant. The excise and taxation department of the Government of Himachal Pradesh, disputed the eligibility of the Company to such deferment on the ground that the Company also manufactures an intermediate product, viz. clinker, arising in the manufacture of cement, and such intermediate product was in the negative list. A demand of Rs.66.94 crore (31st December, 2016 - Rs.66.94 crore; 1st January, 2016 - Rs.66.94 crore) was raised. The Company filed a writ petition before Hobn’ble High Court of Himachal Pradesh against the demand. The case has been admitted and the hearing is in process. The Company believes that its case is strong and the demand shall not sustain under law.

The principal business of the Company is of manufacturing and sale of cement and cement related products. All other activities of the Company revolve around its main business. The Executive Committee of the Company, has been identified as the chief operating decision maker (CODM). The CODM evaluates the Company’s performance, allocates resources based on analysis of the various performance indicators of the Company as a single unit. CODM have concluded that there is only one operating reportable segment as defined by Ind AS 108, i.e. cement and cement related products.

B) Information about major customers

No single customer contributes 10% or more to the Company’s revenue during the year ended 31st December, 2017 and 31st December, 2016.

Note 4 - Employee benefits

a) Defined contribution plans

Defined Contribution Plans - amount recognised and included in Note 30 “Contribution to provident and other funds” of statement of profit and loss Rs.28.09 crore (previous year - Rs.27.12 crore).

b) Defined benefit plans - as per actuarial valuation

Funded plan includes gratuity benefit to every employee who has completed service of five years or more, at 15 days salary for each completed year of service (on last drawn basic salary).

c) Inherent risk

The plan typically exposes the Company to actuarial risk such as interest rate risk , demographic risk , salary inflation risk and longevity risk.

i) Interest rate risk : The defined benefit obligation calculated uses a discount rate based on government bonds. All other aspects remaining same, if bond yields fall, the defined benefit obligation will tend to increase.

ii) Demographic risk : This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase, medical cost inflation, discount rate and vesting criteria.

iii) Salary Inflation risk : All other aspects remaining same, higher than expected increases in salary will increase the defined benefit obligation.

iv) Longevity risk : 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.

d) Other non funded plan include death & disability benefit, non-funded gratuity and post employment healthcare benefits to certain employees.

Summary of the components of net benefit / expense recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for the respective plans:

XI Basis used to determine expected rate of return on assets

The Company has considered the current level of returns declared by LIC, i.e. 8.00% to develop the expected long-term return on assets for funded plan of gratuity.

XII The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

e) Amount recognised as expense in respect of compensated absences is Rs.5.97 crore (previous year - Rs.11.47 crore)

f) The company expects to make contribution of Rs.14.00 crore (31st December, 2016 - Rs.13 crore; 1st January, 2016 -Rs.9 crore) to the defined benefit plans during the next year.

g) Provident fund managed by a trust set up by the Company

The Company has contributed Rs.7.74 crore (previous year Rs.7.72 crore) towards provident fund liability. Deficit of Rs. Nil crore (previous year Rs.0.73 crore) in the accumulated corpus fund is recognised in the statement of profit and loss. Further, considering net surplus in the accumulated corpus fund, liability of Rs.0.20 crore provided in the previous year, has been written back.

Note 5 - Leases

A) Operating Leases - Company as a lessee

i) The Company has entered into various long term agreements for land. The Company does not have an option to purchase the leased land at the end of the lease period. The unamortised operating lease prepayments as at 31st December, 2017 aggregating Rs.38.18 crore (31st December, 2016 - Rs.39.25 crore, 1st January, 2016 - Rs.40.58 crore) is included in other non current / current assets, as applicable.

(ii) The Company has also taken various residential premises, land, office premises and warehouses under operating lease agreements. These are generally cancellable and are renewable by mutual consent on mutually agreed terms.

(iii) The lease payments recognised in the statement of profit and loss amounts to Rs.40.89 crore (previous year - Rs.35.39 crore)

(iv) There is no escalation clause in the lease agreement. There are no restrictions imposed by lease arrangements. There are no subleases.

B) Finance Leases - Company as a lessee

The Company has entered into various finance lease agreements for land which have been assessed as finance lease since the present value of the minimum lease payments is substantially similar to the fair value of the leasehold land (Refer note 4). The Company does not have an option to purchase such leasehold land at the end of the lease period. There are no restrictions such as those concerning dividends, additional debts and further leasing imposed by the lease agreement.

Notes:

1) The company is required to contribute a specified percentage of the employee compensation for eligible employees towards providend fund. For the same the Company makes monthly contributions to a trust specified for this purpose. During the year, the Company has contributed Rs.4.97 crore (previous year -Rs.4.81 crore).

2) Company maintains gratuity trust for the purpose of administering the gratuity payment to its employees. During the year, the Company has contribued Rs.15.50 crore (previous year -Rs.6.29 crore).

3) The performance incentive to Managing Director and Chief Executive Officer is accounted for as and when it is approved by the Board.

B) Fair value measurements

The Company uses the following hierarchy for determining and/or disclosing the fair value of financial instruments by valuation techniques:

Level 1: This level includes those financial instruments which are measured by reference to quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: This level includes financial assets and liabilities, measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: This level includes financial assets and liabilities measured using inputs that are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.

The Company’s objectives when managing capital are to maximise shareholders value through an efficient allocation of capital towards expansion of business, optimisation of working capital requirements and deployment of balance surplus funds on the back of an effective portfolio management of funds within a well defined risk management framework

The management of the Company reviews the capital structure of the Company on regular basis to optimise cost of capital. As part of this review, the Board considers the cost of capital and the risks associated with the movement in the working capital.

The Company does not have any debt funding and thus meets its capital requirement through internal accruals. The Company is not subject to any externally imposed capital requirements.

Note 6 - Corporate social responsibility

The Company has incurred Rs.58.79 crore (previous year Rs.59.37 crore) towards social responsibility activities. It is included in different heads of expenses in the statement of profit and loss. Further, no amount has been spent on construction / acquisition of an asset of the Company and the entire amount has been spent in cash. The amount required to be spent under Section 135 of the Companies Act, 2013, for the year ended 31st December, 2017 is Rs.27.74 crore (previous year Rs.29.87 crore) i.e 2% of the average net profits for the last three financial years, calculated as per Section 198 of the Companies Act, 2013.

The Company has a system-based approach to risk management, established policies and procedures and internal financial controls aimed at ensuring early identification, evaluation and management of key financial risks such as market risk, credit risk and liquidity risk that may arise as a consequence of its business operations as well as its investing and financing activities. Accordingly, the Company’s risk management framework has the objective of ensuring that such risks are managed within acceptable and approved risk parameters in a disciplined and consistent manner and in compliance with applicable regulations.

The Company’s management is supported by a risk management committee that advises on financial risks and the appropriate financial risk governance framework for the Company. The risk management committee provides assurance to the Company’s management that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. The Board of Directors reviews policies for managing each of these risks, which are summarized below.

A) 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 a) interest rate risk b) currency risk and c) other price risk. Financial instruments are affected by market risk.

The Company is not an active investor in equity markets. The Company is virtually debt-free and its deferred payment liabilities do not carry interest, the exposure to interest rate risk from the perspective of financial liabilities is negligible. Further, treasury activities, focused on managing investments in debt instruments are administered under a set of approved policies and procedures guided by the tenets of liquidity, safety and returns. This ensures that investments are only made within acceptable risk parameters after due evaluation.

The Company’s investments are predominantly held in fixed deposits and liquid mutual funds (debt market). Mark to market movements in respect of the Company’s investments are valued through the statement of profit and loss account. Fixed deposits are held with highly rated banks and have a short tenure and are not subject to interest rate volatility.

Assumptions made in calculating the sensitivity analysis

The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. The analysis excludes the impact of movements in market variables on the carrying values of gratuity and other postretirement obligations and provisions.

a) Interest rate risk

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. The Company’s exposure to the risk of changes in market interest rates relates primarily to the security deposit taken from its dealers.

Interest rate sensitivity has been calculated assuming the borrowings outstanding at the reporting date have been outstanding for the entire reporting period.

b) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities. The aim of the Company’s approach to manage currency risk is to leave the Company with no material residual risk. The Company is not exposed to significant foreign currency risk and therefore it has not hedged it’s foreign currency payables and receivables.

In the Company’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 / in future years.

c) Other price risk

Other price risk includes commodity price risk. The Company primarily imports coal, pet coke and gypsum. It is exposed to commodity price risk arising out of movement in prices of such commodities. Such risks are monitored by tracking of the prices and are managed by entering into fixed price contracts, where considered necessary.

B) Credit risk

Credit risk is the risk that counter party will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The Company has no significant concentration of credit risk with any counter party.

The Company’s exposure and wherever appropriate, the credit ratings of its counterparties are continuously monitored and spread amongst various counter parties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management of the Company.

Financial instruments that are subject to concentrations of credit risk, principally consist of balances with banks, investments in liquid mutual funds (debt markets), trade receivables and loans. None of the financial instruments of the Company result in material concentration of credit risks.

Balances with banks were not past due or impaired as at year end. In other financial assets that are not past due and not impaired, there were no indication of default in repayment as at year end.

The Company has used a practical expedient by computing the expected loss allowance for financial assets based on historical credit loss experience and adjustments for forward looking information. Credit risk from balances with banks and financial institutions is managed in accordance with the Company’s policy. As per simplified approach, the Company makes provision of expected credit losses on trade receivables using a provision matrix to mitigate the risk of default payments and makes appropriate provision at each reporting date wherever outstanding is for longer period and involves higher risk.

Trade receivables consist of a large number of customers. The Company has credit evaluation policy for each customer and based on the evaluation credit limit of each customer is defined. The exposure in credit risk arising out of major customers is generally backed either by bank guarantee, letter of credit and security deposits.

The Company does not have higher concentration of credit risks since no single customer accounted for 10% or more of the company’s net sales.

Financial instruments and cash deposits

Credit risk on cash and cash equivalent, deposits with the banks / financial institutions is generally low as the said deposits have been made with the banks / financial institutions who have been assigned high credit rating by international and domestic rating agencies.

Investments of surplus funds are made only with approved financial Institutions. Investments primarily include investment in units of liquid mutual funds (debt market) and fixed deposits with banks having low credit risk.

Total non-current investments and investments in liquid mutual funds as on 31st December, 2017 are Rs.11,844.70 crore and Rs.1,483.22 crore (31st December, 2016 - Rs.11,844.70 crore and Rs.1,065.49 crore; 1st January, 2016 – Rs.11,831.03 crore and Rs.2,185.71 crore)

C) Liquidity risk

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at reasonable price. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of credit facilities to meet obligations when due. The Company’s treasury team is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s liquidity position through rolling forecasts on the basis of expected cash flows.

In the month of 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 to company from 1st January, 2018.

Amendment to Ind AS 7 - Statement of cash flows

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 noncash 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.

Amendment to Ind AS 102 - Share-based payment

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 include 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 adoption of above amendments will not have material impact on financial statements.

a) HIPL was primarily engaged in the cement business, through its downstream investment in cement manufacturing ventures in India. The Board of Directors and members of the Company had approved the Scheme of amalgamation (the Scheme) between the Company and HIPL from the appointed date, 1st April, 2013. The Scheme was sanctioned by the Hon’ble High Courts of Gujarat and Delhi vide their orders dated 7th April, 2014 and 18th March, 2014 respectively. On 1st August, 2016, Foreign Investment Promotion Board had approved the transaction for acquisition of 24% equity shares of HIPL by the Company and subsequent merger of HIPL through share swap, being the conditions precedent to the Scheme. Pursuant to FIPB approval, the Scheme came into effect on 12th August, 2016 (effective date) when all the conditions precedent to the Scheme were complied with.

b) During the previous year, pursuant to Scheme of Amalgamation, Holcim (India) Private Limited has been amalgamated with the Company with effect from the appointed date 1st April, 2013 and was accounted for, and continues to be accounted for, in accordance with the applicable accounting standards as per the scheme. Pursuant to this the Company has

i) purchased 24% equity shares of HIPL for a cash consideration of Rs.3,500.27 crore.

ii) cancelled 150,670,120 equity shares of Rs.2 each, fully paid up, of the Company held by HIPL

iii) issued 584,417,928 equity shares of Rs.2 each, fully paid up to the equity shareholder of HIPL for the remaining 76% equity shares (without consideration being received in cash) and credited an amount of Rs.10,967.20 crore to securities premium account.

c) The excess of the consideration viz. fair value of new shares issued and cost of shares in HIPL cancelled over the fair value of net assets taken over and the face value of the shares of the Company cancelled amounting to Rs.2,827.48 crore has been recognised as Goodwill and is amortized over a period of three years from the appointed date in accordance with the Accounting Standard AS 14 Accounting for amalgamations as specified in the scheme.

d) Consequent to amalgamation, the following adjustments by way of debit / (credit) have been made in “Retained earning” under “Other equity”

i) Rs.2,591.85 crore being amortization of goodwill from the appointed date till 31st December, 2015, adjusted in opening balance sheet as at 1st January, 2016.

ii) Rs. (41.19) crore, being the net surplus in the statement of profit and loss of HIPL from the appointed date till 31st December, 2015, adjusted in opening balance sheet date as at 1st January, 2016.

iii) Rs.199.96 crore, being interim dividend and tax thereon paid by HIPL during the previous year; and

iv) Rs.(74.69) crore being inter Company elimination of dividend paid by the Company, HIPL and ACC Limited during the previous year.

e) Depreciation and amortisation, in the previous year, includes goodwill amortisation amounting to Rs.235.63 crore.

f) Pursuant to the amalgamation, ACC Limited has become the subsidiary of the Company.

Note 7 - First time adoption of Ind AS (Ind AS 101)

The Company has prepared financial statements which comply with Ind AS applicable for year ended as on 31st December, 2017, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at 1st January, 2016, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its previous GAAP financial statements, including the balance sheet as at 1st January, 2016 and the financial statements as at and for the year ended 31st December, 2016 and how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

Exemptions availed

Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has availed the following exemptions.

a) Past Business Combinations

The Company has elected not to apply Ind AS 103- Business Combinations retrospectively to past business combinations that occurred before the transition date of 1st January, 2016. Consequently, the Company has kept the same classification for the past business combinations as in its previous GAAP financial statements and the Company has tested the goodwill for impairment at the transition date based on the conditions as of the transition date.

b) Deemed cost for property, plant and equipment and intangible assets

The Company has elected to continue with the carrying value of all of its plant and equipment and intangible assets as recognised as of 1st January, 2016 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.

c) Investment in Subsidiary, Joint ventures and Associates

The Company has elected to carry its investment in subsidiaries and joint venture at deemed cost which is its previous GAAP carrying amount at the date of transition to Ind AS.

d) Sales tax deferment loan

The Company has elected to use the previous GAAP carrying amount of the Sales Tax Deferment Loan existing at the date of transition to Ind AS as the carrying amount of the loan in the opening Ind AS Balance Sheet.

e) Fair value of financial assets and liabilities

As per Ind AS exemption the Company has not fair valued the financial assets and liabilities retrospectively and has measured the same prospectively.

Explanatory comments to first time adoption note (Ind AS 101)

1) IND AS adjustments

A) Property, plant and equipment

i) As per Ind AS 16, spare parts, stand- by equipment and servicing equipment are recognised as Property, Plant and Equipment (‘PPE’) when they meet the following criteria:

- Are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

- Are expected to be used during more than one period.

Accordingly, spare parts of Rs.2.31 crore for 31st December, 2016 are recognised in PPE, resulting in reduction in other expenses (consumption of spare parts), further related depreciation on spare parts capitalised of Rs.0.05 crore is included in depreciation / amortisation charge for the year.

ii) Under previous GAAP, leasehold lands was included in the property, plant and equipment as AS 19 specifically excluded land from its perview. However, as per Ind AS 17, where the substantial risks and rewards incidental to ownership of an asset have not been transferred in the name of Company, those land leases are reclassified as operating leases and accordingly the amount paid towards such leases of Rs.37.91 crore and Rs.1.34 crore (1st January, 2016 - Rs.39.24 crore and Rs.1.34 crore) shown as prepayments under other non-current assets and other current assets respectively. Depreciation to the extent of Rs.1.33 crore pertaining to leasehold land has been reversed and the same is expensed under the head “other expenses” (rent). This has no impact on statement of profit and loss or total equity.

B) Goodwill

During the year 2016, pursuant to scheme of amalgamation of HIPL with the Company, the excess of the consideration over the fair value of net assets taken over and the face value of the shares of the Company cancelled amounting to Rs.2,827.48 crore was recognised as Goodwill in accordance with the Accounting Standard AS 14 - Accounting for amalgamation. The goodwill was amortized over a period of three years from the appointed date 1st April, 2013. As a result of above Rs.2,591.85 crore, being amount till 31st December, 2015 was charged to “retained earnings” and balance Rs.235.63 crore, as on 1st January, 2016 was recognised as goodwill and amortized in the previous year ended 31st December, 2016 (Refer note 54).

C) Other Intangible assets

Mining leasehold land of Rs.18.10 crore (1st January, 2016 - Rs.19.18 crore) disclosed under Property Plant and Equipment in previous GAAP have been reclassified to other intangible assets, as per Ind AS.

D) Investments

Under Ind AS, investments in liquid mutual funds are required to be measured at fair value in accordance with the principles of Ind AS 109 “Financial Instruments”. Accordingly at the date of transition to Ind AS, difference between the fair value of investment and previous GAAP carrying amount, which is Rs.66.52 crore, has been recognised in retained earnings. Fair value changes subsequent to transition date amounting to ’ (66.03) crore has been recognised in the statement of profit and loss in other income. Effectively impact of fair valuation of liquid mutual funds as on 31st December, 2016 is Rs.0.49 crore. Under Ind AS, joint operation needs to be consolidated in standalone, hence proportionate share in cash and cash equivalents of Wardha Valley Coal Field Private Limited of Rs.0.16 crore (1st January, 2016 - Rs.0.17 crore) has been considered.

E) Interest free loan from state government

Under previous GAAP, there was no specific guidance on accounting for government loans at below market rate of interest. Hence, these were recognised and carried at the amount of the proceeds received. Whereas in Ind AS, the benefit of government loans with below market rate of interest is accounted for as a government grant and is measured as the difference between the initial carrying amount of the loan determined in accordance with Ind AS 109 and the proceeds received from the loan. After initial recognition, the loan has been subsequently carried at amortised cost i.e. interest based on the market rate has been recognised under the effective interest rate method as part of finance costs. Accordingly, the Company has recognised the difference between the amount payable and its present value, which is Rs.2.72 crore, in retained earning as on transition date and subsequently unwinding impact of ’ (0.77) crore and discounting impact of Rs.5.90 crore on account of fresh installment received during the year ended 31st December, 2016 are considered in finance cost and revenue from operation respectively.

F) Provision for mines reclamation expenses

Under previous GAAP, provision for mines reclamation is initially measured at the undiscounted amount to settle the obligation, however, Ind AS 37 requires that where the effect of time value of money is material, the amount of provision should be the present value of the expenditures expected to be required to settle the obligation. The Company has discounted the provision for mines reclamation to present value at the reporting dates resulting in the provisions being decreased by Rs.2.00 crore (1st January, 2016 - Rs.3.02 crore). Consequently, the unwinding of discount has been recognised as a finance cost i.e. Rs.1.04 crore for the year ended 31st December, 2016.

G) Deferred tax

Previous GAAP requires deferred tax accounting using the statement of profit and loss approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under previous GAAP. In addition, the various transitional adjustments lead to temporary differences. And according to the accounting policies, the Company has to account for such differences. Deferred Tax adjustments are recognised in relation such underlying transactions of Rs.4.36 crore (1st January, 2016 - Rs.25.01 crore). Consequently, tax impact on account of Ind AS on the statement of profit and loss is Rs.19.99 crore and on OCI is Rs. (0.66) crore.

H) Other financial liabilities & other current liabilities

Entire impact is on account of consolidation of joint operation.

I) Proposed dividend

Under previous GAAP, proposed dividend including dividend distribution tax are recognised as a liability in the period to which they relate, irrespective of when they are declared. Under Ind AS, proposed dividend is recognised as a liability in the period in which it is declared (on approval of shareholders in a general meeting) or paid. In case of the Company, the declaration of dividend occurs after period end. Accordingly, proposed dividend along with dividend distribution tax liability associated with it, amounting to Rs.224.14 crore as at the date of transition and for financial year 2016 - Rs.275.31 crore respectively have been reversed and adjusted in retained earnings of respective financial year.

J) Revenue from operations

i) Under previous GAAP, cash discount of Rs.43.21 crore was recognised as part of other expenses which has now been adjusted against the revenue under Ind AS during the year ended 31st December, 2016.

ii) Under previous GAAP, revenue was presented net of excise duty. However, as per Schedule III to the Companies Act, 2013, revenue from operations is to be shown inclusive of excise duty. Accordingly, excise duty of Rs.1,270.33 crore has been included in revenue from operations and shown separately as an expense (refer note - 56).

iii) Excise duty also includes Rs.27.94 crore and Rs.5.93 crore on account of captive consumption of clinker and variation of opening and closing stock recognised under other expenses which has now been regrouped.

K) Employee benefits and finance costs

Under Ind AS, return on plan assets Rs.9.24 crore and net interest expense on the net defined benefit liability Rs. (10.15) crore are reclassified from employee benefits expense to finance costs and re-measurements i.e. actuarial gains and losses of Rs. (1.90) crore are recognised in other comprehensive income from earlier employee benefits expense. Additionally, employee benefits and finance cost includes an impact of Rs.0.02 crore and Rs.0.04 crore on account of consolidation of joint operation.

2) Reclassification

A) Investments in subsidiaries and joint venture

Interest in subsidiaries and joint venture of Rs.11,815.10 crore (1st January, 2016 - Rs.77.30 crore) are accounted as per Ind AS 111 “Disclosure of Interest in other entities”.

B) Non-current tax assets

As per schedule III, non-current income tax assets of Rs.70.43 crore (1st January, 2016 - Rs.79.79 crore) are required to be presented on the face of balance sheet and hence they are reclassified accordingly.

C) Cash and cash equivalents

i) Investments in short term highly liquid mutual funds of Rs.1,065.02 crore (1st January, 2016 - Rs.2,119.23 crore) forming part of cash and cash equivalents.

ii) Fixed deposits with maturity of more than three months but less than twelve months of Rs.158.02 crore (1st January 2016 - Rs.35.91 crore) and earmarked balances with banks amounting to Rs.24.74 crore (1st January 2016 - Rs.24.25 crore) have been reclassified from cash and bank balances to other bank balances as per Schedule III to Companies Act, 2013.

iii) Mainly includes deposit with Housing Development Finance Corporation Limited of Rs.100.00 crore (1st January, 2016 - Rs.100 crore) forming part of cash and cash equivalents.

D) Other financial liabilities

The Company has mainly reclassified the security deposits of Rs.316.63 crore (1st January, 2016 - Rs.305.42 crore) being financial in nature from other current liabilities to other financial liabilities.

E) Current tax liabilities

As per schedule III, current tax liabilities of Rs.886.34 crore (1st January, 2016 - Rs.777.25 crore) are required to be presented on the face of balance sheet and hence they are reclassified accordingly.

F) Other adjustments

To comply with the Companies (Accounting Standard) Rules, 2006, certain account balances have been regrouped as per the format prescribed under Division II of Schedule III to the Companies Act, 2013.

G) Statement of cash flows

The transition from previous GAAP to Ind AS had no material impact on the Statement of cash flows.

Note 8

a) Excise duty includes excise duty paid on sale of goods and excise duty on captive consumption of clinker.

b) The Government of India introduced the Goods and Services tax (GST) with effect from 1st July, 2017. Consequently revenue for the year ended 31st December, 2017, includes excise duty up to 30th June, 2017. Revenue of earlier periods included excise duty which is now subsumed in GST.

Note 9

The opening balance sheet and financial statements for the year ended 31st December, 2016 have been audited by S R B C & CO LLP, the predecessor auditor.

Note 10

a) Other income includes Rs. Nil (previous year - Rs.21.04 crore) written back towards interest on income tax relating to earlier years.

b) Tax expense for earlier years represents write back upon completion of assessments and change in estimate of allowability of certain deductions.

Note 11

Figures below Rs.50,000 have not been disclosed.

Note 12

Previous years’ figures have been regrouped / reclassified wherever necessary, to conform to current year’s classification.