1 The Company has adopted Ind AS 116 effective 01 April 2019. Consequently, the motor cars acquired under finance lease agreements has been reclassified from 'Property, Plant & Equipment' to 'Right of Use assets'.
2. As at 31 March 2022, property, plant and equipment have been hypothecated against corporate guarantee issued by the Company towards loan availed by its subsidiary Keva Europe B. V.
5B Operating leases Leases as lessor
The Company leases out its investment property on operating lease basis, as they do not transfer substantially all of the risk and rewards incidental to the ownership of the assets. Rental income recognised by the Company during FY 21-22 was ' 5.00 crores (previous year ' 4.47 crores) of which ' 3.59 crores relating to sub lease (previous year ' 3.29 crores). The following table sets out maturity analysis of lease payments to be received after the reporting date.
Fair Value
The fair value of investment property has been determined using external property rates available in the market. The fair value measurement for all of the investment property has been categoried as a level 3 fair value based on the inputs to the valuation techniques used. The fair valuation is carried out by independent registered valuer.
Description of Valuation Technique used:
The fair value of the investment property have been derived using the Direct Comparison Method. The direct comparison approach involves a comparison of the investment property to similar properties that have actually been sold in arms-length distance from investment property or are offered for sale in the same region. This approach demonstrates what buyers have historically been willing to pay (and sellers willing to accept) for similar properties in an open and competitive market, and is particularly useful in estimating the value of the land and properties that are typically traded on a unit basis. This approach leads to a reasonable estimation of the prevailing price. Given that the comparable instances are located in close proximity to the investment property; these instances have been assessed for their locational comparative advantages and disadvantages while arriving at the indicative price assessment for investment property.
Notes:
1. Buildings is classified as Investment property by the Company in accordance with IND AS-40 "Investment Property''.
2. The property rental income earned by the Company from its investment property all of which is leased out under operating leased amount to ' 0.75 Crore ( previous year ' 0.53 Crore). Direct operating expenses arising on the investment property all of which generated rental income in the year amounted to ' 0.11 Crore (previous year ' 0.11 Crore).
3. Fair value of Investment Property is ' 22.88 crores (31 March 2021 ' 21.22 crores).
The recoverable amount of a CGU is based on value in use. Value in use has been determined based on future cash flows, after considering current economic conditions and trends, estimated future operating results, growth rates and anticipated future economic conditions. Value in use for CGU Saiba Industries Private Limited also factors the fair value of underlying Investment Property (refer note 6).
Operating margins and growth rates for the 5 year cash flow projections have been estimated based on past experience and after considering the financial budgets/forecasts provided by the management. Cash flows beyond 5 years is estimated by capitalising the future maintainable cash flows by an appropriate capitalisation rate and then discounted using appropriate discount rate. Other key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management's assessment of future trends in the relevant industries and have been based on historical data from both external and internal sources.
With regard to assessment of recoverable value, no reasonalably possible change in any of the above key assumptions would cost the carrying amount of the CGU's to exceed their recoverable amount.
The Company has also performed sensitivity analysis calculations on the projections used and discount rate applied. Company has concluded that, given the significant headroom that exists, and the results of the sensitivity analysis performed, there is no significant risk that reasonable changes in any key assumptions would cause the carrying value of goodwill to exceed its value in use.
a. The Company through its wholly owned subsidiary had acquired balance 49% stake in Creative Flavors & Fragrances SpA (CFF) following which, it had been classified as subsidiary. The entity was Joint venture until 31 July 2020. As on 31 March 2022, CFF is the step down subsidiary of the Company considering the rights issue done by CFF.
b. I nvestment in Creative Flavours and Fragrances SpA have been hypothecated against corporate guarantee issued by the Company towards loan availed by its subsidiary Keva Europe B. V
Terms of / Rights attached to each classes of shares Terms of/Rights attached to 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.
B. Notes to Reserves Capital redemption reserve
Capital redemption reserve is created by transferring funds from free reserves in accordance with the provisions of the Companies Act, 2013 (the 'Act') and its utilisation is also governed by the Act.
Securities premium
Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Act.
General reserve
General Reserve is a free reserve which is created by transferring funds from retained earnings to meet future obligations or purposes.
Treasury shares
a) Loan from Keva Fragrances Private Limited, a subsidiary is repayable on demand and carry interest at 7% p.a. (wef from 7th December 2020) until 07 December 2020 interest was 9% p.a.
b) The Company has sanctioned working capital loans from banks which are repayable on demand with interest computed on a monthly basis on the actual amount utilised. Working capital loans from banks (including the sanctioned limits) are secured by way of hypothecation of inventories both on hand and in transit and book debts, and other receivables both present and future. The Company has filed / submitted the statements comprising (stock statements, book debt statements, statements on ageing analysis of the debtors/other receivables, and other stipulated financial information) with such banks and these statements are in agreement with the unaudited books of account of the Company of the respective quarters ended on 30th June 2021, 30th September, 2021, 31st December 2021, and 31st March, 2022.
The Company has formed S H Kelkar Employee Benefit Trust (EBT) for implementation of the shcemes that are notified or may be notified from time to time by the Company under the plan providing share based payments to its employees. EBT purchases shares of the Company out of funds borrowed from the Company. The Company treats EBT as its extension and shares held by EBT are treated as treasury shares.
STARs reserves
The profit/loss on sale of treasury shares and dividend earned on the same by the trust is recognised in STARs reserves.
Other reserves
The Company had received a private equity investment in the form of equity shares and preference shares. Such amounts received were classified as financial liability with reference to the terms and conditions attached with such investment. On completion of the initial public offering, the private equity investor's rights were contractually extinguished and consequently, the liability was derecognised on such date, with corresponding credit to equity share capital and other relevant components of equity (including related gain on extinguishment).
Retained earnings
Retained earnings are the profits that the Company has earned till date, less any INDAS transition adjustments, transfers to general reserve, dividends or other distributions paid to shareholders.
34 Earnings per share (EPS)
Basic EPS is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year, after considering adjustment for the effects of all dilutive potential equity shares.
37 Employee benefits
(i) Defined Contribution Plans
The Company makes contributions towards superannuation fund and other retirement benefits to a defined contribution retirement benefit plan for qualifying employees. Under the plan, the Company is required to contribute a specified percentage of payroll cost to the retirement benefit plan to fund the benefits.
(ii) Defined Benefit Plans Gratuity:
The Employees Gratuity Fund Scheme is managed by "S.H. Kelkar and Co. Ltd. Employee's Gratuity Fund". The fund has the form of trust and it is governed by the Board of Trustees. The Board of Trustees is responsible for the administration of the plan assets including investment of the funds in accordance with the norms prescribed by the Government of India.
The contribution to the fund is made by the Company based on the actuarial valuation using the "Projected Unit Credit" Method. Gratuity is payable to all eligible employees of the Company on superannuation, death, and permanent disablement, in terms of the provisions of the Payment of Gratuity Act, 1972.
These plans typically expose the Company to actuarial risk such as: investment risk, interest rate risk, longevity risk and salary risk.
Investment 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. If the return on plan asset is below this rate, it will create plan deficit.
Interest risk:
A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the plan's assets.
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.
Salary Risk:
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.
The Company expects to pay ' 1.17 crore (previous year ' 0.97 crore) in contributions to its defined benefit plans in 2022-23.
Based on the actuarial valuation obtained in this respect, the following table sets out the status of the gratuity plan and the amounts recognised in the Company's standalone financial statements as at balance sheet date:
A. Reconciliation of the net defined benefit (asset) liability
The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit (asset) liability and its components
The above sensitivity analyses have been calculated to show the movement in defined benefit obligation in isolation and assuming there are no other changes in market conditions at the reporting date. In practice, generally it does not occur. When we change one variable, it affects to others. In calculating the sensitivity, project unit credit method at the end of the reporting period has been applied.
Provident fund (Managed by the Trust set up by the Company)
The Company manages the Provident Fund plan through a Provident Fund Trust setup by the Company, for its employees which is permitted under The Employees' Provident Fund and Miscellaneous Provisions Act, 1952 and is actuarially valued. The plan envisages contribution by the employer and employees and guarantees interest at the rate notified by the Provident Fund authority. The contribution by employer and employee, together with interest, are payable at the time of separation from service or retirement, whichever is earlier.
The Company has contributed ' 4.68 crores (2020-21: ' 4.33 crores) to the Provident Fund Trust. The Company has an obligation to fund any shortfall on the yield of the trust's investments over the guaranteed interest rates on an annual basis. These administered rates are determined annually predominantly considering the social rather than economic factors and in most cases the actual returned earned by the Company has been higher in the past years. The actuary has provided a valuation for provident fund liabilities on the basis of guidance issued by Actuarial Society of India and based on the below provided assumptions the shortfall has been recorded in the financial statement:
C. Risk management framework
In the course of its business, the Company is exposed primarily to credit risk, liquidity risk and market risk like fluctuations in foreign currency exchange rates, interest rates and equity prices, which may adversely impact the fair value of its financial instruments.
The Company has a risk management policy which covers the credit risk and other risks associated with the financial assets and liabilities such as interest rate risks. The risk management policy is approved by the board of directors. The audit committee oversees how management monitors compliance with the company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
i. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and others and investments in securities made.
The carrying amount of following financial assets represents the maximum credit exposure:
Trade and other receivables
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate.
The Company uses an allowance matrix to measure the expected credit loss of trade receivables. Loss rates are based on actual credit loss experience over the past 3 years. Trade receivables are in default (credit impaired), if the payment are more than 730 days past due.
Cash and cash equivalents
The Company held cash and cash equivalents of ' 9.91 crores at 31 March 2022 (31 March 2021: ' 30.59 crores). The cash and cash equivalents are held with banks with good credit rating.
Other bank balances
The Company held other balance of ' 1.79 crores at 31 March 2022 (31 March 2021: ' 0.80 crores).
Investments
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.
Other than trade and other receivables, the Company has no other financial assets that are past due but not impaired.
ii. 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 to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. The Company has access to fund from debt market through loans from banks and other debt instruments.
(a) Currency risk
The Company is exposed to currency risk in respect of transaction in foreign currency. The functional currency of the Company is primarily the local currency in which it operates.The currencies in which these transaction are primarily denominated are Indian Rupee. The Company uses forward exchange contracts to hedge its foreign currency risk.
Sensitivity analysis
The company is mainly exposed to changes in USD and Euro. A reasonably possible strengthening (weakening) of the Indian Rupee against USD and Euro at 31 March 2022 and 2021 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.
The gross inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to non derivative financial liabilities held for risk management purposes and which are not usually closed out before contractual maturity.
iv Market risk
Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices - will affect the Company's income or the value of its holdings of financial instruments. The objective of Market risk management is to manage and control market risk exposure with in acceptable parameters, while optimising the return. Martket risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables and long term debt. We are exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of our investments. Thus, our exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currency.
(b) Interest rate risk
Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing investments will fluctuate because of fluctuations in the interest rates.
Exposure to interest rate risk
Since the Company does not have any significant financial assets or financial liabilities bearing floating interest rates, a change in interest rates at the reporting date would not have any significant or material impact on the standalone financial statements of the Company.
Fair value sensitivity analysis for fixed-rate instruments
The Company does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss.
Cash flow sensitivity analysis for variable-rate instruments
The Company does not have any financial assets or financial liabilities bearing floating interest rates. Therefore a change in interest rates at the reporting date would not affect profit or loss.
39 Capital Management
For the purpose of the Company's capital management, capital includes issued capital and other equity reserves. The primary objective of the Company's capital management is to safequard its ability to continue as going concern and to maintain and optimal capital structure so as to maximise shareholders value. The Company manages its capital structure and makes adjustments in the light of changes in economic environment and the requirements of the financial covenants.
As at 31 March 2022, the Company has only one class of equity shares, short term debts and finance lease obligations. Consequent to such capital structure, there are no externally imposed capital requirements. In order to maintain or achieve an optimal capital structure, the Company allocates its capital for distribution as dividend or re-investment into business based on its long term financial plans.
The Company monitors capital using adjusted net debt to equity ratio. For this purpose, adjusted net debt is defined as total debt less cash and bank balances and current investments.
42 Segment reporting
A. Basis for segmentation
The Company is operating in the manufacture of fragrances. The Company has only one reportable business segment which is manufacture of fragrances.
B. Geographical information
As the Company mainly caters to the needs of domestic market and the total export turnover is not significant i.e. 3.19% (previous year 2.69%), hence separate geographical segment information has not been given in the standalone financial statements.
Terms and conditions of transactions with related parties
All the transactions with the related parties were made on normal commercial terms and conditions and at market rates. The interest rate on loans given to subsidiaries is 7% p.a. (wef 07 December 2020) until 07 December 2020 is 9% p.a.
All the outstanding balances are unsecured and repayable in cash and on demand.
**Excludes provision for encashable leave and gratuity for certain key management personnel as a seperate acturial valuation is not available.
45 Corporate social responsibility
As per Section 135 of the Act, a CSR committee has been formed by the Company. The funds are utilised during the year on the activities which are specified in Schedule VII of the Companies Act 2013. The utilisation is done by way of direct contribution towards various activities. Gross amount required to be spent by the Company during the year: ' 1.24 crores (previous year: ' 1.36 crores).
48 Consolidation of Trust
The Company had formed S H Kelkar Employee Benefit Trust (Trust) through its trustees Barclays Wealth Trustees(India) Private Limited.
The Trust has been formed for administering and implementing S H Kelkar Stock Appreciation Rights Scheme 2017 ('the Scheme') of the Company which was adopted by the Board on 10 August 2017 and approved by shareholders of the Company on 01 November 2017
For the purpose of the Scheme, the Trust will purchase Shares out of funds borrowed from the Company which will be sold on the secondary market. The appreciation amount received by the Trustee on sale of shares be transferred to the Beneficiaries upon fulfilment of certain terms and conditions of the Scheme.
The Company treats the Trust as its extension and the shares held by the Trust are treated as treasury shares.
The Consolidation of the Trust financials statements with that of the Company does not in any manner affect the independence of the trustees where the rights and obligations are regulated by the trust deed.
Own equity instruments (treasury shares) are recognised at cost and deducted from equity.
Other items adjusted owing to the Trust consolidation include:
(a) Treasury shares
Upon consolidation, the investment in the Company's equity shares made by Trust is debited to the Company's Equity as treasury shares amounting to ' 71.09 crores as at 31 March 2022 ( previous year ' 72.95 crores). Further, the Trust during year participated in the Company's buy-back of equity shares and consequently, sold 60,661 equity shares, aggregating to ' 1.87 crores. Accrodingly, the adjustment pertaining to participation in buy-back, including the corresponding profit/ loss on the sale of equity shares has been recorded in the Company's equity.
(b) Other Non Current Financial Assets and other Income
Loans advanced to the Trust have been eliminated on consolidation amounting to ' 75.00 crores as at 31 March, 2022 (previous year ' 75.00 crores) and interest income of ' 5.25 crores (previous year ' 5.25 crores) on the above loan is also eliminated.
(c) Other Current Financial Assets
Interest on loans receivable from Trust eliminated on consolidation amounting to ' 18.59 crores as at 31 March 2022 (previous year ' 13.87 crores).
49 The Company does not have any benami property held in its name. No proceedings have been initiated on or are pending against the Company for holding benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and Rules made there under.
50 The Company has not been declared wilful defaulter by any bank or financial institution or other lender or government or any government authority.
51 The Company has complied with the requirement with respect to number of layers as prescribed under section 2(87) of the Companies Act, 2013 read with the Companies (Restriction on number of layers) Rules, 2017.
52 Utilisation of borrowed funds and share premium :
1. The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall:
a. Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or
b. Provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries
2. The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:
a. directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
b. provide any guarantee, security or the like on behalf of the ultimate beneficiaries
53 There is no income surrendered or disclosed as income during the year in tax assessments under the Income Tax Act, 1961 (such as search or survey), that has not been recorded in the books of account.
54 The Company has not traded or invested in crypto currency or virtual currency during the year.
55 The Company does not have any charges or satisfaction of charges which is yet to be registered with Registrar of Companies beyond the statutory period.
56 There are no transactions during the year, by the Company with struck off Companies.
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