CORPORATE INFORMATION

Suryalakshmi Cotton Mills Limited (the ‘company’) is a public limited company domiciled and incorporated in India under the Companies Act, 1956. The registered office of the company is located at 6th Floor, Surya Towers, 105 S P Road, Secunderabad, Telangana - 500003.

The company was formed in 1962 as a yarn manufacturing company. It has evolved today as integrated denim & branded Garments manufacturing textile Company. The company also has a captive thermal power plant.

a. Terms/ rights attached to equity shares

(i) The company has only one class of equity shares having a face value of RS.10 per share.

(ii) Each holder of equity share is entitled to one vote per share.

(iii) The dividends recommended by the Board of Directors if any, are subject to the approval of the shareholders in the ensuing Annual General Meeting.

(iv)In the event of liquidation of the Company, the equity share holders are entitled to receive the remaining assets of the Company after distribution of all preferential claims, in proportion to the number of shares held.

A. All the installments falling due within 12 months from the date of Balance Sheet have been classified as current maturities, the aggregate amounts are shown under ‘Other Current Liabilities’.

B. 1. The term loans referred at (a)(i) to (a)(ii) and (b)(i) to (b)(iv) above are secured by mortgage of (present & future) movable and immovable properties of the company on first charge pari passu & on the current assets of the company on second charge pari passu with existing term lenders and guaranteed by two directors of the company in their personal capacities.

2 The term loans referred at (a)(iii) to (a)(vi) and (c) above are secured by mortgage of (present & future) movable and immovable properties of the company on first charge pari passu & on the current assets of the company on second charge pari passu with existing term lenders and guaranteed by three directors of the company in their personal capacities. The term loan referred at (b) (viii) above are also secured with exclusive collateral security of Non-Agricultural property owned by M/s. Jayman Dealers Pvt. Ltd.

3. The loan referred at (b)(v) above is secured by pari-passu first charge by way of hypothecation of entire current assets (existing & future) of the company along with existing working capital credit lenders & guaranteed by three directors of the company in their personal capacities.

C. Vehicle loans are secured by hypothecation of the respective vehicles and guaranteed by one of the directors of the company.

D. Terms of Repayment:

a. Secured:

(i) Workcapital loans from (a) to (g) are secured by hypothecation of stocks of raw materials, yarn, fabric, stock-in-process, stores and spares and book debts and by a second mortgage over the (present and future) movable & immovable properties of the company on pari-passu basis and further guaranteed by three Directors of the Company in their personal capacities.

(ii) Commodity funding Purchase Bill discounting from Axis Bank is secured by pledge of stock of raw material, in the warehouse and further guaranteed by three Directors of the company in their personal capacities

b. Unsecured:

Loan from Directors and Inter corporate deposits are repayable on demand.

(x) In the Summary Suit filed by the Company, against Rajvir Industries Ltd. the Company has initiated the execution proceedings to recover the balance outstanding in the books of the Company (RS.236.93 lakhs) together with the interest as decreed by the City Civil Court, Secunderabad.

(xi) Three cases have been filed against the Company for amounts totaling to RS.1348 Lakhs in respect of three cheques allegedly issued by the company. These claims are being resisted on the plea that these cheques have been misused and in the absence of any legally enforceable debt or liability the company has been advised that the complaints are not maintainable and no liability is likely to arise.

(xii) Rajvir Industries Ltd. had filed an application before the Hon’ble High court of Andhra Pradesh for modification of the Order of the High Court in the scheme of arrangement for transfer of the liability of RS.1000 Lakhs to the company. The application has been dismissed with costs by the High Court and the applicant has preferred an appeal before the High Court which is pending.

(xiii) An order has been received from the office of DGFT Hyderabad for alleged violation of Target plus scheme to recover RS.3807 Lakhs including interest and penalties. Apart from this a penalty of RS.25 Lakhs each on CMD and MD and RS.5 Lakhs on some other Directors of the company has been imposed. The High Court of Andhra Pradesh has granted an interim stay of the dismissal of the appeal by the Company. The Company in compliance with the orders of the High Court has paid RS.500 Lakhs to DGFT, Hyderabad. (The Company has already paid RS.500 Lakhs to DRI in the same matter). A show cause notice on the same issue was issued by DRI and the Commissioner of Customs & Central Excise has confirmed the demand in the Show Cause Notice. The Company’s appeal is pending before CESTAT, Mumbai. The Company has been advised that no liability is likely to arise under the notice as the allegations are unfounded and the company is taking adequate steps to defend itself.

1.1. Upfront lease amount of RS.3,56,75,740/- and RS.2,42,35,600/- paid to Maharastra Industrial Development Corporation (MIDC) towards factory land lease of Amravati Unit -1 (Spinning Unit) and Amravati Unit -2 (Weaving Unit) respectively, is amortized over the lease period of 95 years.

1.2. The Dividend Distribution tax on the preference dividend payable on 5% Non Cumulative Redeemable Preference shares amounting to RS.10 lacs and on 10% Cumulative redeemable Preference shares amounting to RS.50 lacs will be RS.12.21 lacs.

1.3. There was a major fire accident in spinning department of denim division at Ramtek, Nagapur district, Maharashtra state during January, 2008, in which the Building, Plant & Machinery, Electrical Installations and stocks were totally damaged. The factory was fully insured under reinstatement policy for fixed assets and under declaration policy for stocks. The Company’s Insurance claim is processed and settled partly. The Company received an amount of RS.2609 lakhs from the Insurance Company including salvage.The part claim of RS.490 lakhs which is still to be settled by the Insurance Company is shown under Claims receivable. The Company’s complaint in this matter is pending before National Consumer Disputes Redressal Commission (NCDRC), New Delhi.

1.4. Disclosures in accordance with Companies (India Accounting Standards) Rules, 2015 notified by the Central Government:

1.4.1. Capital Management

The company’s capital management is intended to create value for shareholders by facilitating the meeting of long-term and short-term goals of the company.

The company determines the amount of capital required on the basis of annual operating plans and long-term product and other strategic investment plans. The funding requirements are met through equity and other long-term/short term borrowings.

The company’s policy is aimed at combination of short term and long-term borrowings. The company monitors the capital structure on the basis of total debt to equity ratio and maturity profile of the overall debt portfolio of the company.

F. Sensitivity Analysis

The financial results are sensitive to the actuarial assumptions. The changes to the Defined Benefit Obligations for increase/ decrease of 1% from assumed salary escalation, withdrawal and discount rates are given below:

E. Sensitivity Analysis

The financial results are sensitive to the actuarial assumptions. The changes to the Defined Benefit Obligations for increase/ decrease of 1% from assumed salary escalation, Attrition and discountrates are given below

1.5.1. Financial Instruments

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into level 1 to level 3 as described below.

Level 1 - Quoted prices in an active market:

This level of hierarchy includes financial assets that are measured by reference to quoted prices (unadjusted) in active markets for identical assets or liabilities. This category consists of mutual fund investments.

Level 2 - Valuation techniques with observable inputs:

This level of hierarchy 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 - Valuation techniques with significant unobservable inputs:

This level of hierarchy 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.

1.5.2. Financial Risk Management Objectives and Policies

The company is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include interest rate risk, foreign currency risk, market risk, credit risk and liquidity risk. The company has a risk management policy which not only covers the foreign exchange risks, but also other risks associated with the financial assets and liabilities such as interest rate risks and credit risks. The risk management framework aims to:

1. Create a stable business planning environment by reducing the impact of currency and interest rate fluctuations on the company’s business plan.

2. Achieve greater predictability to earnings by determining the financial value of the expected earnings in advance.

The following sections provide the details regarding the Company’s exposure to the financial risks associated with financial instruments held in the ordinary course of business and the objectives policies and processes for the management of these risks.

(i) Market Risk:

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk, currency rate risk, interest rate risk and other price risks such as equity risk. Financial instruments affected by market risk include investments in equity shares.

a. Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of the Company and the Company’s financial instruments will fluctuate because of changes in market interest rates. Since the Company has only fixed interest-bearing debts, exposure to interest rate risk is minimal.

b. Foreign Currency Risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises when transactions are denominated in foreign currencies.

The Company has transactional currency exposures arising from goods supplied or received that are denominated in a currency other than the functional currency. The foreign currencies in which these transactions are denominated are mainly in US Dollars ($). The Company’s trade receivable and trade payable balances at the end of the reporting period have similar exposures.

The following table demonstrates the sensitivity in the USD to the Indian Rupee with all other variables held constant. The impact on the company’s profit before tax due to changes in the fair value of monetary assets and liabilities is given below:

c. Other price risk

Other price risk is the risk that the fair value or future cash flows of the Company’s financial instruments will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk) whether those changes are caused by factors specific to the individual financial instrument or its issuer or by factors affecting all similar financial instruments traded in the market.

The Company is exposed to price risk arising mainly from investments in Equity shares recognized at FVTPL.

Sensitivity analysis of 1% change in price of security as on reporting date.

(ii) Credit Risk:

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The credit risk arises from its operation activity primarily from trade receivable and from its financial activity. Customer credit risk is controlled by analysis of credit limit and credit worthiness of the customer on a continuous basis to whom the credit has been granted.

Long outstanding receivable from customer are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of trade and other receivable.

(iii) Liquidity Risk:

The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

The company ensures that it has sufficient cash on demand to meet expected operational demands including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted.

The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments:

(c) Information about major customers

Revenue from transactions with a single customer exceed 10% or more of entity revenues in case of 1 customer in Denim (Fabric) Division and 2 customers in Garments Division.

1.5.3. Dues to Micro, Small and Medium Enterprises

On the basis of details furnished by the suppliers, there are no amounts to be reported as dues to micro, small and medium enterprises as required under section 22 of the Micro, Small and Medium Enterprises Development Act, 2006 (‘‘MSMED Act’).

1.5.4. Previous Year’s figures have been reclassified, wherever necessary so as to conform with those of Current Year.

1.5.5. FIRST TIME ADOPTION OF IND AS

For all periods, up to and including the year ended 31st March 2017 the company has prepared its financial statements in accordance with generally accepted accounting principles and accounting standards notified under section 133 of the Companies Act 2013 read together with Rule 7 of the Companies (Accounts) Rules 2014 (“Previous GAAP”).

These financial statements for the year ended 31st March 2018 are the company’s first annual Ind AS complied financial statements.

The company has prepared financial statements which comply with Ind AS applicable for period beginning on or after 01st April 2016 (transition date) as described in the accounting policies. This note explains the principal adjustment made by the company in restating its Balance Sheets as at 01st April 2016 & 31st March 2017 and Statement of Profit & Loss for the year ended 31st March 2017.

A. Optional Exemptions from retrospective application

Ind AS 101 permits first-time adopters certain exemptions from retrospective application of certain requirements under Ind AS. The Company has elected to apply the following optional exemptions from retrospective application:

(i) Business Combinations:

Ind AS 101 provides the option to apply Ind AS 103 - Business Combinations prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. The Company elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Hence, Business combinations occurring prior to the transition date have not been restated.

(ii) Deemed cost for property, plant & equipment and Intangible asset:

The Company has elected to continue with the Previous GAAP carrying value for all its property, plant and equipment and intangible assets and use that as deemed cost on the date of transition to Ind AS.

B. Mandatory Exceptions from retrospective application

The Company has applied the following exceptions to the retrospective application of Ind AS as mandatorily required under Ind AS 101:

(i) Estimates:

On assessment of the estimates made under the Previous GAAP financial statements, the Company has concluded that there is no necessity to revise the estimates under Ind AS, as there is no objective evidence of an error in those estimates. However, estimates that were required under Ind AS but not required under Previous GAAP are made by the Company for the relevant reporting dates reflecting conditions existing as at that date.

(ii) Classification and measurement of financial assets:

The classification of financial assets to be measured at amortized cost or fair value through Profit and loss or fair value through other comprehensive income is made on the basis of the facts and circumstances that existed on the date of transition to Ind AS.

(iii) Government loans:

The requirements of Ind AS 20 - Accounting for Government Grants and Disclosure of Government Assistance and Ind AS 109 - Financial Instruments in respect of interest free loans from government authorities is opted to be applied prospectively to government loans existing at the date of transition to Ind AS. Consequently, the carrying amount of such interest free loans as per the financial statements of the Company prepared under Previous GAAP is continued as carrying amount in the opening Ind AS Balance Sheet.

C. Transition to Ind AS - Reconciliations

The following reconciliations provide the explanations and quantification of the differences arising from the transition from Previous GAAP to Ind AS in accordance with Ind AS 101:

I. Reconciliation of Equity as at 1st April 2016

II. A. Reconciliation of Equity as at 31st March 2017

B. Reconciliation of Statement of Profit and Loss for the year ended 31st March 2017

III. Adjustments to Statement of Cash Flows for the year ended 31st March 2017

Previous GAAP figures have been reclassified/regrouped wherever necessary to conform with financial statements prepared under Ind AS.

Notes to reconciliation of financial statements as previously reported under Previous GAAP to Ind AS

Notes to Reconciliation of Financial Statements as previously reported under previous GAAP to Ind AS

(i) Due to Ind AS Adjustments

1. Lease hold land:

Under Previous GAAP leasehold lands were recognized as assets under PPE. As per Ind AS 17, the company has treated leasehold lands as operating leases and premium paid is considered as pre-paid lease rentals. Thereafter, amortization of prepaid lease rentals is charged to Profit and loss.

2. Borrowing cost (Upfront fees):

Under the previous GAAP the transactions costs relating to origination of term loans raised specifically for acquisition of items of Property, Plant & Equipment were capitalized.

Ind AS 109 requires transaction costs incurred towards origination of borrowings to be deducted from the proceeds of borrowings on initial recognition. These costs are treated as part of the interest expense by applying the effective interest method.

Hence upfront fees capitalized under Previous GAAP is reversed and reduced from term loan (financial liability). Interest (calculated using effective interest method) upto date of addition is capitalized and after the date of addition, it is charged to Profit and loss account as part of finance cost.

3. Fair valuation of financial liability (sales tax deferment):

Under previous GAAP, the sales tax deferral incentive, which is sales tax collected and repayable after a fixed tenure was recognized at cost. Under Ind AS, sales tax deferment is a financial liability classified as subsequently measured at amortized cost. Hence it is to be measured at fair value and the difference between transaction value and fair value is to be recognized as Government grant. The Company has availed mandatory exception under Ind AS 101 and accordingly, there is no change in accounting treatment on the amount carried forward on the date of transition.

After transition date, the difference between transaction value and fair value has been recognized as Government grant in Balance Sheet. The Government grant has been recognized in the Statement of Profit and Loss on a straight-line basis over the period of grant and unwinding of interest on fair value of sales tax deferment liability has been recognized as finance cost.

4. Preference Shares:

Under Previous GAAP, Preference share capital is treated as part of Share Capital and dividend on redeemable preference shares were adjusted to Reserves when the dividend is declared and paid.

As per Ind AS, cumulative redeemable preference shares meet the definition of financial liability. Hence it is reclassified as financial liability (borrowings) classified as subsequently measured at amortised cost. Consequently, it is to be measured at fair value and the difference between transaction value and fair value is to be credited to Other Equity. Interest (Dividend) is to be charged to the statement of Profit and Loss using Effective Interest Rate (EIR).

5. Excise duty:

Under the previous GAAP, revenue from sale of products was presented net of excise duty. Excise duty is collected by the company on its own account and hence as per Ind AS, revenue from sale of goods is presented inclusive of excise duty. There is no impact on the total equity and profit.

6. Remeasurement of Defined Benefit Plans:

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognized in other comprehensive income instead of profit or loss.

Under the previous GAAP, these remeasurements were forming part of the Statement of Profit and Loss for the year. There is no impact on the total equity.

7. Revaluation Reserve:

On adoption of Ind AS, the company has elected to continue the previous GAAP carrying values of Property, Plant & Equipment and use those amounts as deemed cost. Hence, Revaluation Reserve created under previous GAAP is reversed and reduced from carrying amount of Property, Plant & Equipment.

8. Unsecured Loans from Directors

As per Ind AS, Unsecured Loan from Directors meet the definition of financial liability. Hence it is reclassified as financial liability (borrowings) classified as subsequently measured at amortised cost. Consequently, it is to be measured at fair value and the difference between transaction value and fair value is to be credited to Other Equity. Interest (Dividend) is to be charged to the statement of Profit and Loss using Effective Interest Rate (EIR).

9. Deferred Tax:

Deferred tax is created on all the temporary differences arising on adjustments arising on adoption of Ind AS.

10. Investments in Equity Shares

Under Previous GAAP, Investment in Equity shares are treated as current investments and shown at lower of cost and fair value.

As per Ind AS, Investments in Equity Instruments are carried at fair value (through Other Comprehensive Income) and resultant fair value changes are recognized in Other Comprehensive Income.

(ii) Due to Errors made under Previous GAAP

11. Preliminary, Product Development and Trial Run Expenditure

As per Previous GAAP, Preliminary and Product Development expenses are to be charged off to the statement of Profit and loss in the year in which they were incurred and trial run expenditure is to be capitalized along with cost of the item of Property, plant and equipment. Erroneously, these were treated amortised to the statement of Profit and loss and unamortised portion is shown under other Non-Current assets. On adoption of Ind AS, the error is rectified.