1. Company Overview
Morarjee Textiles Limited ("the Company") is a public limited company, incorporated and domiciled in India which mainly deals in manufacture of yarn and fabric. The registered office of the Company is located at 2, Peninsula Spenta, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013. The Company is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The standalone financial statements for the year ended 31st March, 2018 were approved by the Board of Directors and authorised for issue on 24th May, 2018.
i) The Company had classified the investment as current under the Previous GAAP, on account of intention to sell. However, the said investment has been reclassfied to non-current, as it does not meet the criteria laid down under Ind AS 105 "Non-current Assets Held for Sale", for classification as 'Held for Sale'.
ii) The Company has elected to treat fair value at the date of transition to Ind AS as deemed cost of the investment and the said deemed cost will be carrying value for subsequent measurement less impairment if any.
C) Terms / rights attached to Equity Shares
Each equity share of Company has a par value of Rs. 7/- as at 31st March, 2018 (Rs.7/- as at 31st March, 2017, Rs.7/- as at 1st April, 2016). Each holder of equity share is entitled to one vote per share. All shares rank pari passu with regard to dividend and repayment of capital. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.
Nature and Purpose of Reserve:
a) General Reserve
General Reserve has been created on account of the Schemes of Amalgamation, Demerger and Capital Restructing carried out in the past and transfer of net profit before declaring dividend, pursuant to the earlier provisions of the Companies Act, 1956. Such transfer of net profit to general reserve is not required under the Companies Act, 2013.
b) Retained Earnings
Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.
2 Transition to Ind AS
As stated in Note no. 1(a)(i), the Company's financial statements for the year ended 31st March, 2018 are the first annual financial statements prepared in compliance with Ind AS.
The adoption of Ind AS was carried out in accordance with Ind AS 101, using 1st April, 2016 as the transition date. Ind AS 101 requires that all Ind AS that are effective for the first Ind AS Financial Statements for the year ended 31st March, 2017, be applied consistently and retrospectively for all fiscal years presented.
All applicable Ind AS have been applied consistently and retrospectively wherever required. The resulting difference between the carrying amounts of the assets and liabilities in the financial statements under both Ind AS and Previous Generally Accepted Accounting Principles (the Previous GAAP) as of the transition date have been recognised directly in equity at the transition date.
In preparing these standalone financial statements, the Company has availed itself of certain exemptions and exceptions in accordance with Ind AS 101 as explained below:
a Mandatory Exceptions
i Estimates
An entity's estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with the Previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. Ind AS estimates as at 1st April, 2016 are consistent with the estimates as at the same date made in conformity with the Previous GAAP. The Company made estimates for following items in accordance with Ind AS at the transition date as the same was not required under the Previous GAAP:
1. Impairment of financial assets based on Expected Credit Loss (ECL) Model
ii Classification and Measurement of Financial Assets
As per Ind AS 101, the Company has assessed classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS.
b Optional Exemptions from Retrospective Application
i Deemed Cost
The Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets recognised as of 1st April, 2016 , measured as per the Previous GAAP and use that carrying value as its deemed cost as of the transition date under Ind AS.
ii Designation of Previously Recognised Financial Instruments
The Company has irrevocably designated its investment in Equity Instruments (other than investments in joint ventures) at fair value through other comprehensive income on initial recognition, on the basis of facts and circumstances existing on the date of transition to Ind AS.
iii Investments in Joint Ventures
The Company has elected to apply the Previous GAAP carrying amount of its investments in one of the two joint ventures as deemed cost as on the date of transition to Ind AS. As regards investment in another joint venture, the Company has elected to apply its fair value at the date of transition to Ind AS as its deemed cost on that date.
vi Explanatory Notes
a Processing charges on borrowings (earlier capitalised) Rs.269.58 lakhs (Rs.278.89 lakhs as at 1st April, 2016) have been accounted for under Ind AS 109 as per Effective Interest Rate (EIR) and Government Grant (earlier reduced from cost of PPE) of Rs.2,638.34 lakhs (Rs. 1099.65 lakhs as at 1st April, 2016) has been accounted for under Ind AS 20 as per Income Approach. As a result, PPE together with Capital Work-in-Progress increased by Rs.2,368.76 lakhs ('820.76 lakhs as at 1st April, 2016). Unamortised government grant has been carried as a non-current liability of Rs.2,528.26 lakhs ('1054.92 lakhs as at 1st April, 2016) and a current liability of Rs.109.78 lakhs (Rs. 44.72 lakhs as at 1st April, 2016). The resultant amortisation and incremental depreciation amounted to Rs.88.87 lakhs and Rs.79.55 lakhs, respectively. b The Company had classified the investment as current under the Previous GAAP, on account of intention to sell. However, the said investment has been reclassfied to non-current, as it does not meet the criteria laid down under Ind AS 105 "Non-current Assets Held for Sale", for classification as 'Held for Sale'. Investment in this Joint Venture has been fair valued on the transition date, pursuant to optional exemption under Ind AS 101, reducing its carrying value by Rs.365.70 lakhs. c Long-term security deposit has been measured at amorised cost, resulting into reduction in its carrying value by Rs.25.19 lakhs (Rs. 33.85 lakhs as at 1st April, 2016). Unwinding effects have been credited as interest income Rs.8.65 lakhs and corresponding charge of Rs.9.67 lakhs in selling and other expenses. d MAT credit entitlement of Rs.2,924.34 lakhs (Rs. 2,650.58 lakhs as at 1st April, 2016) has been reclassified to deferred tax liability. Increase in deferred tax liability on account of transition to Ind AS amounts to Rs.998.34 lakhs (Rs. 1,119.44 lakhs as at 1st April, 2016). e The Company recognised provision for doubtful debts as per Expected Credit Loss (ECL) model, amounting to Rs.307.00 lakhs (Rs. 76.00 lakhs as at 1st April, 2016). Provision for the year ended 31st March, 2017 is Rs.231.00 lakhs shown under selling and other expenses. f Accounting of processing fees on borrowings as per EIR Rs.172.16 (Rs. 157.51 lakhs as at 1st April, 2016) and unamortised prepaid expenses are Rs.24.19 lakhs (Rs. 33.85 lakhs as at 1st April, 2016) in respect of long-term security deposit.
g Retrospective restatement of provision for expenses as per Ind AS 8.
h Effect of processing fees to be amortised in respect of current maturities of long-term borrowings as per EIR Rs.122.27 (Rs.84.21 lakhs as at 1st April, 2016) and preference dividend and distribution tax thereon treated as finance cost Rs.222.66 lakhs (Rs.222.66 lakhs as at 1st April, 2016). Reversal of equity dividend as recognised under Previous GAAP Rs.612.20 lakhs as at 1st April, 2016.
i Incentives to customers Rs.127.43 lakhs have been reclassified from Selling Expenses to net off with Revenue from Operations.
j Reclassification of actuarial gain / loss on defined benefit obligation from Employee Benefits Expense to Other Comprehensive Income, of Rs.22.68 lakhs and deferred tax thereon Rs.7.85 lakhs. k Impact on account of computation of interest on borrowings (including preference share capital) at amortised cost, based on Effective Interest Rate (EIR) Method. l Government Grant (earlier reduced from cost of PPE) of Rs.1,627.56 lakhs for the year ended 31st March, 2017 has been accounted for under Ind AS 20 as per Income Approach and other Ind AS reclassification adjustments.
(B) Defined Benefit Plan ( Gratuity and other Long - term Employee Benefits ( Leave Encashment)
The Company provides for gratuity for employees in India as per the payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement / termination is the employees last drawn basic salary per month computed proportionately for 15 days basic salary multiplied for the number of the years of service. The gratuity plan is not funded and payout is done by company on resignation / retirement of employees.
A description of methods used for sensitivity analysis and its limitations:
Sensitivity analysis is performed by varying a single parameter while keeping all the other parameters unchanged. Sensitivity analysis fails to focus on the interrelationship between underlying parameters. Hence, the results may vary if two or more variables are changed simultaneously.
The method used does not indicate anything about the likelihood of change in any parameter and the extent of the change if any.
h) Average outstanding term of obligations as at valuation date is 9.57 years
Note : Above disclosures with respect to employee benefits have been made to the extent of availability of date, as per actuarial valuation report
These cash movements are included within the following lines in the Statement of Cash Flows:
i. Proceeds from Long-term Borrowings
ii. Repayment of Long-term Borrowings
iii. Increase/ (Decrease) in Short-term Borrowings
3 Disclosure under Micro, Small and Medium Enterprises Act, 2006
There are no Micro and Small Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days as at 31st March, 2018. This information as required to be disclosed under the Micro, Small and Medium Enterprises
4 Leases
Lease payments recognised in the Statement of Profit and Loss is Rs.605.90 lakhs (Previous year Rs.606.68 lakhs)
Future minimum lease rentals payable under non - cancellable operating lease agreements, in respect of assets taken on operating lease:
General Terms of Lease Rentals:
i. Lease rentals are charged on the basis of agreed terms.
ii. Assets are given on lease for a period ranging between 3 years to 5 years.
iii. The lease agreements can be renewed on mutually agreed terms with the lessee.
5 Capital Management
a) Risk Management
The Company's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders.
The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.
6 Financial Risk Management 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 Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
A. Credit risk
Credit risk arises from the possibility that the counter party may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses financial reliability of customers and other counter parties, taking into account the financial condition, current economic trends, and analysis of historical bad debts and ageing of financial assets. Individual risk limits are set and periodically reviewed on the basis of such information.
The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis through each reporting period. To assess whether there is a significant increase in credit risk, the Company compares the risk of default occurring on asset as at the reporting date with the risk of default as at the date of initial recognition.
The Company measures the expected credit loss of trade receivables from individual customers based on historical trend, industry practices and the business environment in which the entity operates. Loss rates are based on actual credit loss experience and past trends.
ii Investments other than Investments in Joint Ventures
There is investment of Rs.0.89 lakh (Rs.0.89 lakh as at 31st March, 2017 and 1st April, 2016) and no impairment has been recognised on such investments.
iii Cash and Bank Balances
The Company held cash and bank balance with credit worthy banks of Rs.559.77 lakhs at March 31, 2018 (March 31, 2017 Rs.136.92 lakhs, April 1, 2016 Rs.825.03 lakhs). The credit risk on cash and cash equivalents is limited as the Company generally invests in deposits with banks where credit risk is largely perceived to be extremely insignificant.
iv Loans
No impairment in respect of loans was necessary during the current as well as prior years.
B. 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.
Management monitors rolling forecasts of the Company's liquidity position on the basis of expected cash flows. The Company manages its liquidity risk by preparing periodic cash flow projections to monitor liquidity requirements. In addition, the Company monitors the Balance Sheet liquidity ratios against internal and external regulatory requirements and maintains debt financing plans.
Maturity Pattern of Financial Liabilities
The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include contractual interest payments.
C Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes 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 including investments and deposits, foreign currency receivables, payables and loans and borrowings.
i Currency Risk
The Company operates internationally and portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales to overseas customers and purchases from overseas suppliers in various foreign currencies. Foreign currency exchange rate exposure is partly balanced by purchasing of goods in the respective currencies.
ii 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
In order to optimise the Company's position with regards to interest income and interest expenses and to manage the interest rate risk, the Company performs a comprehensive corporate interest rate risk management by balancing the proportion of fixed rate and floating rate financial instruments in its total portfolio. According to the Company, interest rate risk exposure is only for floating rate borrowings. The interest rate profile of the Company's interest-bearing financial instruments as reported to the Management of the Company is as follows.
Interest rate sensitivity
a) 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.
b) Cash Flow Sensitivity Analysis for Variable-rate Instruments
A reasonably possible change of 25 basis points in interest rates at the reporting date would have increased / (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables in particular foreign currency exchange rates remain constant.
B) Fair Value Hierarchy
Fair values of all financial intruments mentioned in Note no. 45(A) above belong to Level 3 Fair Value Hierarchy.
Carrying amounts of financial instruments such as cash and cash equivalents, other bank balances, trade receivables, loans, borrowings, trade payables and other financial assets and liabilities at 31st March 2018, 31st March 2017 and 1st April 2016 reasonably approximate their respective fair values.
7 Segment Reporting
Based on the "management approach" as defined in Ind AS 108 - Operating Segments, the Chief Operating Decision Maker (CODM) evaluates the Company's performance and allocates resources based on an analysis of various performance indicators of business the segment/s in which the Company operates. The Company is primarily engaged in the business of Textile Products which the Management and CODM recognise as the sole business segment. Hence, disclosure of segment-wise information is not required and accordingly not provided.
8 Corporate Social Responsibility Expenditure (CSR)
Disclosure as required under Section 135 of Companies Act, 2013, read with Companies (Corporate Social Policy) Rules, 2014 is as under:
a) Gross amount required to be spent by the Company during the year Rs.53.93 lakhs (Previous year Rs.60.03 lakhs)
b) CSR expenditure incurred during the year:
The Company undertakes its Corporate Social Responsibility (CSR) activities through Urvi Ashok Piramal Foundation. The foundation operates in areas of health, vocational skill training, environment and education. The Company has contributed Rs.100.00 lakhs (Previous year Rs.60.03 lakhs) to the foundation for undertaking CSR activities as defined under CSR rules.
9 Previous year figures have been regrouped / reclassified wherever necessary to conform to current year's classification.
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