NOTE 1
Company Overview, Basis of Preparation & Significant Accounting Policies.
I. Corporate & General Information.
Udaipur Cement Works Limited ("the Company'') is domiciled and incorporated in India and its Shares are publicly traded on the Bombay Stock Exchange Ltd. (BSE). The Registered Office of the Company is situated at Shripati Nagar, P.O.: CFA, Dist.: Udaipur - 313021 (Rajasthan)
The Company is a manufacturer and supplier of Cement and Cementitious products with manufacturing facilities in the State of Rajasthan. The Company's Technical Service Cell provides construction solutions to its customers & carries out regular & innovative contact programmes with Individual House Builders, Masons and other Business Associates to keep in tune with their needs and requirements.
These Financial Statements were approved and adopted by the Board of Directors of the Company in their meeting held on 10th May, 2018.
II. Basis of Preparation of Financial Statements.
(i) Statement of Compliance.
The Financial Statements have been prepared in accordance with Indian Accounting Standards (IND AS) as prescribed under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) (Amendment) Rules, 2016 and relevant provisions of the Companies Act, 2013. 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.
(ii) Basis of Preparation.
The significant accounting policies used in preparing the Financial Statements are set out in Note no. III of the Notes to the Standalone Financial Statements.
(iii) Basis of Measurement.
The standalone financial statements have been prepared on accrual basis and under the historical cost convention except for the items that have been measured at fair value required by relevant IND AS.
(iv) Fair Value Measurement.
Fair value is the price 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 fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non- financial asset takes in to account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy in which they fall.
(v) Current & Non-Current Classifications.
All Assets and Liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of product & activities of the Company and their realisation in cash and cash equivalent, the Company has determined its operating cycle as twelve months for the purpose of current and non-current classification of assets and liabilities. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
(vi) Significant Accounting Judgments, Estimates and Assumptions.
The preparation of these Financial Statements requires management judgments, estimates and assumptions that affect the application of Accounting Policies, the Accounting disclosures made and the reports amounts of Assets, Liabilities, Income and Expenses. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to Accounting estimates are recognized in the period in which the estimates are revised and any future periods effected pursuant to such revision.
c. Terms / right attached to Equity Shareholders:
1. The Company has only one class of equity shares having a par value of Rs. 4 per share. Each holder of equity shares is entitled to one vote per share.
2. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
d. 5% Cumulative Redeemable Preference Shares (CRPS) (Series I & II) carries a Put option. In the event of the Company being unable to pay dividend for a consecutive period of 3 years after it is out of the purview of BIFR and unable to pay the Capital back, CRPS (Series I & II) holders have the right to get them converted into Equity Shares subject to statutory approvals.
5% CRPS (Series I & II) also carries a Call option. In case there being any Liquidity Event of the Company, if it fails to redeem the CRPS at par within 3 months, CRPS (Series I & II) holders shall have the right to get them converted into Equity Shares subject to statutory approvals.
If the Put/Call option is not exercised, 5% CRPS (Series I & II) are redeemable in 3 annual installments of 30%, 30% & 40% of face value at the end of 18th,19th & 20th year from the date of allotment.
e. 5% CRPS (Series B) carries a Put option. In the event of the Company being unable to pay dividend for a consecutive period of 3 years commencing from the Financial Year Apr-Mar'18 and unable to pay the Capital back, CRPS (Series B) holders shall have the right to get them converted into Equity Shares subject to statutory approvals.
5% CRPS (Series B) also carries a Call option. In case there being any Liquidity Event in the Company, if it fails to redeem the CRPS (Series B) at par within 3 months, CRPS (Series B) holders shall have the right to get them converted into Equity Shares subject to statutory approvals.
If the Put/Call option is not exercised, 5% CRPS (Series B) are redeemable in 3 annual installments of 30%, 30% & 40% of face value at the end of 18th,19th & 20th year from the date of allotment.
f. During the year, the Company has allotted 50 lakh, 6% Optionally Convertible Cumulative Redeemable Preference Shares (OCCRPS) of Face Value of ' 100 per share to the Holding Company on preferential basis. As per the Terms of Issue, the holder is entitled to exercise conversion option on OCCRPS at any time after nine months but not later than eighteen months from the date of allotment i.e. on or after 10th May 2018 and up to 9th February 2019 at a price determined in accordance with Regulation 76(1) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
The Holding Company has already exercised the conversion option on the OCCRPS of ' 50 Crs. to Equity Shares to be executed on or after 10th May 2018 and up to 9th February 2019.
2. Financial Risk Management Objectives and Policies.
The Company's Financial Risk Management is an integral part of how to plan and execute its Business Strategies. The Company's Financial Risk Management Policy is set by the Board. The Company's activities are exposed to a variety of financial risks from its operations. The key financial risks include market risk (including foreign currency risk, interest rate risk and commodity risk etc.), credit risk and liquidity risk.
3.Market Risk: Market risk is the risk of loss of future earnings, fair values or future cash flows that may results from change in the price of a financial instrument. The value of a financial instrument change may change as result of change in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments and deposits, foreign currency receivables, payables and loans and borrowings. Market risk comprises mainly three types of risk: interest rate risk, currency risk and other price risk such as equity price risk and commodity risk.
The Company has an elaborate risk management system to inform Board Members about risk management and minimization procedures.
a) 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 makes certain imports in foreign currency & therefore is exposed to Foreign Exchange Risk.
The Company evaluates exchange rate exposure arising from foreign currency transactions and the Company follows established risk management policies, including the use of derivatives like foreign exchange forward contracts to hedge exposure to foreign currency risk.
Foreign Currency Sensitivity.
The following table demonstrates the sensitivity to a reasonable possible change of US $ with all other variable held constant. The impact on the Company's Profit/(Loss) before tax due to changes in Foreign Exchange Rate
b) Interest Rate Risk : Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Any changes in the interest rates environment may impact future rates of borrowing. The Company mitigates this risk by maintaining a proper blend of Fixed & Floating Rate Borrowings. The following Table shows the Company's Borrowings:
The Company regularly scans the Market & Interest Rate Scenario to find appropriate Financial Instruments & negotiates with the Lenders in order to reduce the effect Cost of Funding.
Interest Rate Sensitivity:
Since, the Company has only fixed rate borrowings; there would be no impact of interest rate sensitivity on profit/(loss) before tax.
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 manages fluctuations in raw material price through hedging in the form of advance procurement when the prices are perceived to be low and also enters into advance buying contracts as strategic sourcing initiative in order to keep raw material and prices under check cost of material hedged to the extent possible.
4. Credit Risk:
Credit Risk arises from the possibility that counter party may not be able to settle their obligations as agreed. The Company is exposed to credit risk from its operating activities (primarily trade receivables).
Trade Receivable:- Customer Credit Risk is managed based on Company's established policy, procedures and controls. The Company periodically assesses the financial reliability of customers, taking into account the financial conditions, current economic trends, and analysis of historical bad debts and aging of accounts receivables. Individual risk limits are set accordingly.
The credit risk from the organized and bigger buyers is reduced by securing Bank Guarantees/Letter of Credits/part advance payments/post dated cheques. The
Outstandings of different parties are reviewed periodically at different level of organization. The outstanding from the trade segment is secured by two tier security -security deposit from the dealer himself, and our business associates who manage the dealers are also responsible for the outstanding from any of the dealers in their respective region.
Financial Instruments and Deposits with Banks:
The Company considers factors such as track record, size of institution, market reputation and service standards to select the bank with which balances and deposits are maintained. Generally, 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 operation.
5. Liquidity Risk:
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due.
The Company relies on a mix of borrowings, 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 borrowings facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities.
Maturity Profile of Financial Liabilities :
The following Table provides undiscounted cash flows towards financial liabilities into relevant maturity based on the remaining period at the balance sheet to the contractual maturity date.
6. 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. 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 structure to reduce the cost of capital.
For the purpose of the Company's capital management, capital includes issued capital, preference shares and all other equity reserves. Net debt includes, interest bearing loans and borrowings, trade and other payables less cash and short term deposits.
The Company is not subject to any external imposed capital requirement. The Company monitors capital using a gearing ratio, which is Net Debt divided by Total Capital plus Net Debt. Net Debt is calculated as total borrowings including short term and current maturities of long term debt.
7. Fair Value of Financial Assets and Liabilities:
Set out below, is a comparison by class of the carrying amounts and fair value of the financial instruments of the companies: -
Fair Valuation Techniques:
The Company maintains policies and procedures to value Financial Assets & 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 shortterm maturities of these instruments.
2. Other non-current receivables are evaluated by the Company, based on parameters such as interest rates, individual creditworthiness of the counterparty etc. Based on this evaluation, allowances are considered to account for the expected losses of these receivables. As at end of each reporting year, the carrying amounts of such receivables, net of allowances (if any), are not materially different from their calculated fair values.
3. Fair value of Investments in quoted mutual funds and equity shares are based on quoted market price at the reporting date. The fair value of unquoted Investments in preference shares are estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. The fair value of unquoted Investments in equity shares are estimated on net assets basis.
4. Fair value of borrowings from banks and other non-current financial liabilities, are estimated by discounting future cash flows using rates currently available for debt on similar terms and remaining maturities.
5. The fair values of derivatives are calculated using the RBI reference rate as on the reporting date as well as other variable parameters.
Fair Value Hierarchy: There are no Financial Assets and Liabilities for which the Company is required to do fair value measurement. Hence, fair value hierarchy of Company's assets and liabilities to be grouped in various Levels is not applicable for the Company.
8. Segment Information:
The Company is engaged primarily into manufacturing of Cement. The Company has only one business segment as identified by management namely Cementious Materials. Segments have been identified taking into account nature of product and differential risk and returns of the segment. The business segments are reviewed by the Directors of the Company.
9. Dividends :
The Company has neither proposed nor declared any dividend for the financial year 2016-17 and 2017-18.
10. The Company uses foreign currency forward contracts to manage some of its transactions exposure. The details of derivative financial instruments are 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, 2018 and March 31, 2017, being the respective measurement dates:
The assumption of future salary increase takes into account the inflation, seniority, promotion and other relevant factors such as supply and demand in employment market. Same assumptions were considered for comparative period i.e. 2016-17.
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (projected unit credit method) has been applied as when calculating the defined benefit obligation recognised within the Balance Sheet.
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.
ii. Contingent liability for non-use of jute bags for Cement packing upto 30th June, 1997, as per Jute Packaging Materials (Compulsory use of Packaging Commodities) Act, 1987 is not ascertained and the matter is subjudice. The Government has excluded Cement Industry from application of the said Order from 1st July, 1997.
11. The liabilities pertaining to the statutory levies and pending legal cases prior to 01.12.1993 (date of takeover of the cement undertaking from Bajaj Hindustan Limited) will be borne by Bajaj Hindustan Limited.
12. During the year, the Company has received subsidy of Rs.137.18 lakh (Previous year Rs.46.24 lakh) in terms of State Investment Promotion Scheme towards exemption from electricity duty which has been netted from Power & Fuel expenses.
13. Exceptional Items comprises of Profit on Sale of Old & Obsolete Fixed Assets amounting to Rs.273.83 lakh (Previous year - Rs.404.12 lakh) which were scrapped due to complete suspension of operation since 2002.
14. a) Sales include own consumption at cost of Rs.23.06 lakh (Previous years - Rs.55.75 lakh).
b) Consumption of Stores and Spares is net of scrap sale - Nil (Previous year Rs.1.32 lakh).
c) Other Operating Revenue includes Sales Tax/Value added Tax/SGST subsidy of Rs.1,040.60 lakh (Previous year - Rs.271.52 lakh) and others of Rs.1.09 lakh (Previous year - Rs.4.27 lakh).
15. Forward Contract of Rs.741.36 lakh - USD 11.40 lakh (Previous year - Nil) taken for the purpose of hedging payables and Nil (Previous year - Nil) against letter of credit.
16. With introduction of Goods and Service Tax Act 2017 w.e.f. 1st July 2017 Revenue from operations for current year are not comparable with previous year, since sales in current year from 1st July 2017 are net of GST whereas Excise duty was included in Revenue and formed part of expenses till 30th June 2017.
17. Based on information available with the Company in respect of MSME ("The Micro Small & Medium Enterprises Development Act 2006"). The details are as under:
i. Principal and Interest amount due and remaining unpaid as at 31st March 2018 - Nil (Previous year - Nil).
ii. Interest paid in terms of section 16 of the MSME Act during the year - Nil (Previous year -Nil).
iii. The amount of Interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified - Nil (Previous year - Nil).
iv. Payment made beyond the appointed day during the year - Nil (Previous year - Nil).
v. Interest Accrued and unpaid as at 31st March 2018- Nil (Previous year - Nil).
18. No provision for taxation including MAT is considered necessary since the loss is being carried over for taxation purpose (adjusted Rs.5124.61 lakh in Capital Reserve, Rs.6711.39 lakh in Share Premium Reserve and Rs.8387.91 lakh in Capital Reduction reserve pursuant to the Rehabilitation Scheme sanctioned by Hon'ble BIFR for the purpose of accounts in earlier year).
19. Some of the Balances of debtors and creditors are in process of confirmation.
20. Related party transactions
In accordance with the requirements of IND AS 24, on related party disclosures, name of the related party, related party relationship, transactions and outstanding balances including commitments where control exist and with whom transactions have taken place during reported periods, are:
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.
21. Previous year's figures have been regrouped / re-classified wherever necessary.
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