1. RECENT ACCOUNTING PRONOUNCEMENTS
Standards issued but not yet effective
4.1 New Accounting Standards yet to be adopted
Ministry of Corporate Affairs ("MCA") through Companies (Indian Accounting Standards) Amendment Rules, 2018 has notified the following new Accounting Standards ('Ind AS') and amendments to Ind ASs which the Company has not applied as they are effective for annual periods beginning on or after April 1, 2018:
Ind AS 115 - Revenue from Contracts with Customers
Ind AS 115 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Ind AS 115 will supersede the current revenue recognition standard Ind AS 18 Revenue, Ind AS 11 Construction Contracts when it becomes effective.
The core principle of Ind AS 115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:
- Step 1: Identify the contract(s) with a customer
- Step 2: Identify the performance obligation in contract
- Step 3: Determine the transaction price
- Step 4: Allocate the transaction price to the performance obligations in the contract
- Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Under Ind AS 115, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer
The Company has completed an initial assessment of the potential impact of the adoption of Ind AS 115 on accounting policies followed in its financial statements. The quantitative impact of adoption of Ind AS 115 on the financial statements in the period
of initial application is not reasonably estimable as at present. However as per the management assessment the impact is not expected to be significant.
Transition
The Company plans to apply Ind AS 115 using the cumulative effect method , with the effect of initially applying this standard recognized at the date of initial application (i.e. 1 April 2018) in retained earnings. As a result, the Company will not present relevant individual line items appearing under comparative period presentation.
Ind AS 21 - The effect of changes in Foreign Exchanges rates
The amendment has been incorporated in Ind AS 21 as Appendix B which clarifies on the accounting of transactions that include the receipt or payment of advance consideration in a foreign currency. The appendix is applicable for accounting periods beginning on or after 1 April 2018. The appendix explains that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The Company is evaluating the impact of this amendment on its financial statements.
(a) Rights, preferences and restrictions attached to equity shares
The Company has only one class of equity shares having a par value of ' 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
The shareholders at the Annual General Meeting held on 09 August 2017 approved dividend of Rs, 8 per equity share for year ended 31 March 2017 which was subsequently paid during the quarter ended 30 September 2017. The amount was recognized as distributions to equity shareholders during the nine month period ended 31 December 2017 and the total appropriation was Rs, 269.60 lakhs including corporate dividend tax of Rs, 45.60 lakhs.
On 24 May 2018, the Board of Directors have proposed a final dividend of Rs, 16 per equity share for the financial year ended 31 March 2018. The proposal is subject to the approval of shareholders at the Annual General Meeting. If approved, the dividend would result in a cash outflow of Rs, 540.10 lakhs inclusive of dividend distribution tax of Rs, 92.10 lakhs.
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.
The information has been given in respect of such vendors to the extent they could be identified as micro and small enterprises as per the MSMED Act on the basis of information available with the Company
2. Segment reporting
a) Business Segments:
The Company recognizes its sale of crucibles activity as its only primary business segment since its operations predominantly consist of manufacture and sale of crucibles to its customers. The 'Chief Operating Decision Maker' monitors the operating results of the Company's business as single segment. Accordingly in context of Ind AS "Operating Segments" the principle business of the Company constitute a single reportable segment. Accordingly, income from sale of crucibles comprises the primary basis of segmental information set out in these financial statements.
b) Geographical segments:
The geographical information analyses the Company's revenues and assets by the Company's country of domicile (i.e. India) and outside India presenting geographical information, segment revenue has been on the geographic location of customers and segment assets which have been based on the geographical location of the assets.
* The non-current assets in the above table excludes financial assets, deferred tax assets and post-employment benefits assets.
3. RELATED PARTY DISCLOSURES A. Names of related parties
a. Parties (where controls exists)
Morgan Advanced Materials Plc - Ultimate Holding Company
b. Investing Associates
Morganite Crucible Limited (holds 38.50% of issues, subscribed and paid up capital)
Morgan Terreassen BV (holds 36.50% of issues, subscribed and paid up capital)
c. Other related parties with whom transactions have taken place during the year
i Fellow subsidiary companies Morganite Crucible Inc.
Mkgs. Morgan Karbon Grafit
Morgan Molten Metal System (Suzhou) Company Limited
Morgan Molten Metal System GMBH Morganite Brasil Ltda.
Grupo Industrial Morgan, S.A. De C.
Morganite Carbon Kabushiki Kaisha Dalian Morgan Refractories Ltd Morgan Am&T Hong Kong Co., Ltd.
Morgan Advanced Materials Furnace Indust Morgan Advanced Materials (Taiwan) Co.
Murgappa Morgan Thermal Ceramics Limited, Chennai Thermal Ceramics Limited, Uk Molten Ceramics Asia Pte. Ltd.
Morgan Ceramics Middle East FZE Furnace Industries
Morgan Advanced Materials India Private Limited
ii Key Management Personnel Mr. Aniruddha Karve - Managing Director (upto 31 March 2018)
Late Mr. Hitesh Saiwal - Managing Director (upto 30 April 2015)
Mr. Atithi Majumdar - Chief Financial Officer
Mr. Rupesh Khokle - Company Secretary
Mr. Mukund Bhogale -Non-Executive Independent Director **
Mr. Subhash Kolakpar -Non-Executive Independent Director** Ms. Maithilee Tambolkar -Non-Executive Independent Director**
C. Risk Management Framework
The Company's board of directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company's risk management policies. The committee reports regularly to the board of directors on its activities. The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate limits and controls and to monitor risks and adherence to limits. The Company, through its training and established procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The nature of the Company's business exposes it to a range of financial risks. These risks include:
(i) credit risk;
(ii) liquidity risk; and
(iii) market risk.
(i) Credit risk:
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to ' 1,696.51 lakhs and ' 1,841.52 lakhs as of 31 March 2018 and 31 March 2017, respectively. Trade receivables are typically unsecured and are derived from revenue earned from customers located in India and outside India. The management has established accounts receivable policy under which customer accounts are regularly monitored. The Company has a dedicated sales team which is responsible for collecting dues from the customer within stipulated period. The management reviews status of critical accounts on a regular basis.
On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss of trade receivables.
a) Expected credit loss assessment for trade receivables as at 31 March 2018, 31 March 2017 and 1 April 2016 :
The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. Expected loss rates are based on average computed default rate based on historical analysis of trade receivables.
The following table provides information about the exposure to credit risk and expected credit loss for trade receivables -
(ii) Liquidity risk:
The Company's principal sources of liquidity are cash and cash equivalents and cash flow that is generated from operations. The Company has no outstanding bank borrowings. The Company believes that the current working capital is sufficient to meet its current obligatory requirements. Accordingly, no liquidity risk is perceived.
As on 31 March 2018, the Company had a working capital of Rs, 5,838.33 lakhs (as on 31 March 2017 Rs, 4731.79 lakhs, as on 1 April 2016 Rs, 3,359.60 lakhs) including cash and cash equivalents and other bank balance of Rs, 4,038.39 lakhs (as on 31 March 2017 Rs, 4,586.21 lakhs; as on 1 April 2016 Rs, 2,859.95 lakhs). The working capital of the Company for this
(iii) 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- 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 exposures within acceptable parameters, while optimizing the return.
Market risk comprises of:
a. Interest rate risk
b. Foreign currency risk
Financial instruments affected by market risk include other financial assets, trade receivables and trade payables.
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. Since the Company does not have any financial instrument with variable interest rates, it is not exposed to interest rate risk.
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 (when revenue or expense is denominated in a foreign currency). The foreign currency to which the Company is majorly exposed to are US Dollars and GBP
The Company has entered into derivative contracts to hedge its risk associated with foreign currency fluctuations. However, none of these contracts can be co-related on one to one basis against the underlying exposure. The forward sell contracts which are outstanding as at end of the year is as follows:
4. Scheme of amalgamation with Diamond Crucible Company Limited -
As on 31 March 2017, the company held 51% equity shares of 'Diamond Crucible Company Limited' (DCCL) and during the year on 30 June 17, the company acquired the balance stake (49%) in DCCL from Terrassen Holdings Limited for cash consideration amounting to Rs, 1,675 lakhs to make it a wholly owned subsidiary.
On 10 August 2017, the Board of Directors of the Company approved a scheme of amalgamation ("the Scheme") for amalgamation of 'Diamond Crucible Company Limited 'into the Company. The Scheme has been approved by the National Company Law Tribunal (NCLT), Mumbai Bench on 22 February 2018.
Appointed date for the scheme is 1 October 2017. Under the Scheme, the Company has accounted for the amalgamation of DCCL on the pooling of interest method as stated in Appendix C of Indian Accounting Standard (IND AS 103) Business Combination. Accordingly all the assets and liabilities of DCCL are acquired at book values and the identity of reserves of DCCL are preserved in the books of the Company post amalgamation.
As per the requirements of IND AS 103, being a common control business combination, financial information in the financial statements in respect of prior periods have been restated as if the business combination had occurred from the beginning of the preceding period in the financial statements i.e 1 April 2016.
(i) Summary of assets and liabilities acquired as a result of the scheme is as given below -
1 The value of the investments of Rs. 2,171.99 lakhs in the equity shares of DCCL held by the Company shall stand cancelled in the books of the Company, without further act or deed. Accordingly carrying value of investments cancelled is debited to opening retained earnings.
ii The Company undertakes to have all legal or other proceedings initiated by or against DCCL transferred in its name respectively and to have the same continued, prosecuted and enforced by or against it to the same extent as would or might have been continued and enforced by or against DCCL, to the exclusion of it.
iii As per Appendix C, Business Combinations of Entities under Common Control of Ind AS 103, Business Combinations, in case of common control business combinations, the assets and liabilities of the combining entities are reflected at their carrying amounts. As per the ITFG 9, carrying value of assets and liabilities of the transferor entity ('DCCL') as considered in the consolidated financials of the Company prior to amalgamation is considered for accounting of common control business combination.
5. First time adoption of Ind AS
As stated in Note 2(a), Pursuant to the scheme of merger approved by NCLT by its Order dated 22 February 2018, Diamond Crucible Company Limited (100% subsidiary) was merged with the Company with effect from 1 October 2017. As per the requirements of Appendix C of Ind AS 103, being a common control business combination, financial information presented in the financial statements in respect of prior periods have been restated as if the business combination had occurred from the beginning of the preceding period in the financial statements i.e 1 April 2016.
These are the Company's first financial statements prepared in accordance with Ind AS. For the year ended 31 March 2017, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act and other relevant provisions of the Act ('Previous GAAP').
The accounting policies set out in Note 3 have been applied in preparing these financial statements for the year ended 31 March
2018 including comparative information for the year ended 31 March 2017 and the opening Ind AS Balance Sheet on the date of transition i.e. 1 April 2016.
In preparing its Ind AS Balance Sheet as at 1 April 2016 and in presenting the comparative information for the year ended 31 March 2017, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with previous GAAP, and how transition from previous GAAP to Ind AS has affected the Company's financial position, financial performance and cash flows.
Optional exemptions availed and mandatory exceptions
In preparing these financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.
A Optional exemptions availed 1 Business Combinations:
As per Ind AS 101, at the date of transition, an entity may not elect to restate business combinations that occurred before the date of transition. If the entity restates any business combinations that occurred before the date of transition, then it restates all the later business combinations, and also applies Ind AS 110, Consolidated Financial Statements, from that same date.
The Company has opted not to restate business combinations that occurred before the date of transition.
6 Property, plant and equipment, Intangible assets and investment properties:
As per Ind AS 101, an entity may elect to:
(i) measure an item of property, plant and equipment at the date of transition at its fair value and may use that fair value as its deemed cost at that date
* The previous GAAP figures have been reclassified to conform to Ind AS presentation requirements for the purpose of this note.
# Refer Note 37 for details of merger. Effect of merger also includes intercompany eliminations.
** Effect of Ind AS adjustments is after giving effect to the scheme of amalgamation as stated in Note 37.
c Explanatory notes to the Balance Sheet and Statement of Profit and Loss Reconciliation i Excise duty
Under previous GAAP, revenue from sale of goods was presented net of the excise duty on sales. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. Excise duty is presented in the Statement of Profit and Loss as an expense. This has resulted in an increase in the revenue from operations and expenses for the year ended 31 March 2017 by ' 571.51 lakhs. The total comprehensive income for the year ended and equity as on 31 March 2017 has remained unchanged.
ii Remeasurement of defined benefit plans
In the financial statements prepared under Previous GAAP, measurement of defined benefit plans (gratuity), arising primarily due to change in actuarial assumptions was recognized as employee benefits expense in the Statement of Profit and Loss. Under Ind AS, such remeasurement benefits relating to defined benefit plans is recognized in other comprehensive income (OCI) as per the requirements of Ind AS 19- Employee benefits. Consequently, the related tax effect of the same has also been recognized in OCI.
For the year ended 31 March, 2017, remeasurement of gratuity liability resulted in a net loss of ' 23.09 lakhs which has now been removed from employee benefits expense in the Statement of Profit and Loss and recognized separately in Other Comprehensive Income. This has resulted in decrease in Employee benefits expense by ' 23.09 lakhs and loss in Other Comprehensive income by ' 23.09 lakhs for the year ended 31 March, 2017. Consequently, tax effect of the same amounting to ' 7.99 lakhs is also recognized separately in Other Comprehensive Income.
iii Provisions
In accordance with Ind AS 10, Events after the Reporting Period, provision for proposed final dividend and tax on dividend has been derecognized by the Company, as dividend was declared by the company and approved by shareholders in the annual general meeting which was after the end of the reporting period. The impact arising from the change is summarized below:
7. Employee benefits
Defined contributions plans
The Company makes contributions, determined as a specified percentage of employee salaries, in respect of qualifying employees towards Provident Fund, Labour Welfare Fund and Superannuation Scheme , which are the defined contribution plans. The Company has no obligations other than to make the specified contributions. The contributions are charged to the Statement of Profit and Loss as they accrue. The amount recognized as an expense towards defined contribution plans for the year for provident fund and superannuation scheme aggregated to INR 85.87 Lakhs (31 March 2017: INR 76.95 Lakhs).
Defined benefit plans
Gratuity
The Company operates post-employment defined benefit plans that provide gratuity benefit. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive 15 days salary for each year of completed service at the time of retirement / exit. The scheme is funded by plan assets.
Although, the analysis does not take account of full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumptions shown.
8. Managerial Remuneration
During an earlier year, the Company had paid managerial remuneration to Late Hitesh Saiwal- Managing Director amounting to Rs, 102.07 lakhs which was in excess of the limits specified in section 197 read with Schedule V of the Act by Rs, 73.01 lakhs. The Company had made an application to the Central Government for waiver of such excess remuneration paid. During the year ended 31 March 2018, the Central Government has rejected the said application by its Order dated 11 August 2017. Further, based on the management's evaluation of the response received from legal heirs of Late Hitesh Saiwal to the notice sent for recovery of such excess remuneration, the Company has filed the application with the Central Government to reconsider its aforesaid Order.
9. Transfer Pricing
The Company has developed a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under section 92-92F of the Income Tax Act, 1961. The management is of the opinion that its international transactions are at arm's length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
During the previous year the Company has applied for Advance Pricing Agreement (APA) before the Central Board of Direct Tax (CBDT) and Government of India for International Inter-company related party transactions with associated Enterprises (AE). The APA is an arrangement between the taxpayer and the tax authority covering future transactions, with a view to avoid the potential transfer pricing disputes in a cooperative manner. Once APA agreement is completed, the Company will have certainty with respect to tax outcome of international transactions, by agreeing in advance the arm's length pricing, or pricing methodology which is to be applied. Under APA specific rollback provisions enable to attain certainty in transfer prices of international transactions for up to 9 years (including 4 years rollback provisions) in total. The company has applied for Advanced Pricing Agreement (APA) in FY 2015-16, the period covered under rollback is from FY 2012-13 to FY 2015-16 and five year down the line i.e. from FY 2016-17 to 2020-21. Besides this the APA has a persuasive value on all open Transfer pricing litigations of past years. During the year, the Company received questionnaire from the CBDT and the Company has replied to the questionnaire.
The Domestic Transfer Pricing Regulations as prescribed under section 92BA of the Income Tax Act, 1961 was introduced from April 1, 2012. The Company has been consistently transacting with related parties on an Arm's Length basis in accordance with Group Transfer Pricing Policy. The Company is of the opinion that there will be no significant changes to Arm's length price under determination in order to comply with the requirement of section 92BA of Income Tax Act. Hence, there will no material impact on the financial statements.
10. The previous year's figures were audited by a firm other than B S R & Associates LLP
11. Figures for the previous year have been regrouped / rearranged wherever necessary to confirm with the current year's classification.
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