Note 1: Capital management (a) Risk management
The Company's objectives when managing capital are to:
- safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and
- maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return of capital to shareholders, issue new shares or sell assets to reduce debt.
The Company's policy is to maintain a stable and strong capital structure with a focus on total equity so as to maintain investors, creditors and market confidence and to sustain future development and growth of its business. The Company will take appropriate steps in order to maintain, or if necessary adjust, its capital structure. The Company is not subject to any externally imposed capital requirements.
The following table summarizes the capital of the Company:
No changes were made to the objectives, policies or processes for managing capital during the years ended 31st March 2019 and 31st March 2018.
Loan covenants:
Under the terms of the major borrowing facilities, the Company is required to comply with certain financial covenants. The Company has complied with the debt covenants throughout the reporting period.
Note 2: Financial risk management
The Company's activities expose it to credit risk, liquidity risk and market risk (i.e. foreign currency risk, interest rate risk and price risk).
This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the impact of it in the financial statements.
(A) Credit risk
The Company takes on exposure to credit risk, which is the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 40.
(i) Trade and other receivables
Customer credit risk is managed by the Company through established policy and procedures and control relating to customer credit risk management. Trade receivables are non-interest bearing and are generally carrying up to 60 days credit terms. The Company has a detailed review mechanism of overdue customer receivables at various levels within organization to ensure proper attention and focus for realization. Trade receivables are consisting of a large number of customers. Where credit risk is high, domestic trade receivables are backed by security deposits. Export receivables are backed by letters of credit.
The Company uses specific identification method in determining the allowances for credit losses of trade receivables considering historical credit loss experience and is adjusted for forward looking information.
The ageing of trade receivables (net of provisions) as of balance sheet date is given below. The age analysis have been considered from the due date:
Receivables are deemed to be past due or impaired with reference to the Company's normal terms and conditions of business. These terms and conditions are determined on a case to case basis with reference to the customer's credit quality and prevailing market conditions. Receivables that are classified as 'past due' in the above tables are those that have not been settled within the terms and conditions that have been agreed with that customer.
(ii) Other financial assets and deposits
Credit risk from balances with banks, deposits, etc is managed by the Company's finance department. Investments of surplus funds are made only with approved counterparties in accordance with the Company's policy. None of the Company's cash equivalents with banks, deposits, investments and other receivables were past due or impaired as at 31st March 2019 and 31st March 2018 (except for deposits of RS, 10.00 lacs).
The impairment provision as disclosed above are based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions based on the Company's past history, existing market condition as well as forward looking estimates at the end of each reporting period.
(B) Liquidity risk
Liquidity risk is 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.
Management monitors rolling forecasts of the Company's liquidity position and cash and cash equivalents on the basis of expected cash flows. This is generally performed in accordance with practice and limits set by the Company.
(i) Maturities of financial liabilities
The tables below analyse the Company's financial liabilities into relevant maturity groupings based on their contractual maturities.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
*gross of debt origination cost
(C) Market risk
(i) Foreign currency risk
The Company deals with foreign trade payables , trade receivables etc. and is therefore exposed to foreign exchange risk associated with exchange rate movement. y
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 in overseas and purchases from overseas suppliers in various foreign currencies. Foreign currency exchange rate exposure is partly balanced by purchasing of goods, commodities and services in the respective currencies.
Foreign currency risk exposure
The Company's exposure to foreign currency risk at the end of the reporting period expressed in Rupees (foreign currency amount multiplied by closing rate), are as follows:-
Sensitivity
The sensitivity of profit or loss to changes in the exchange rates arises mainly from foreign currency denominated financial instruments.
@ Holding all other variables constant
(ii) 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. The Company's exposure to the risk of changes in market interest rates relates primarily to the Company's debt obligations with floating interest rates.
The Company's main interest rate risk arises from borrowings with variable rates, which expose the Company to cash flow interest rate risk. During 31st March 2019 and 31st March 2018, the Company's borrowings at variable rate were mainly denominated in Rupees.
The Company's fixed rate borrowings and deposits with banks are carried at Amortized cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.
(a) Interest rate risk exposure On Financial Liabilities:
The exposure of the Company's financial liabilities to interest rate risk is as follows:
# Holding all other variables constant
(iii) Securities price risk
Securities price risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market traded prices.
(a) Exposure
The Company's exposure to securities price risk arises from investments in equity instruments held by the Company and classified in the balance sheet at fair value through other comprehensive income. To manage its price risk arising from investments in equity securities, the Company does regular monitoring of security prices. In general, these investments are not held for trading purposes.
# Holding all other variables constant
(iv) Commodities price risk y
The Company has in place policies to manage the Company's exposure to fluctuation in the prices of the key materials and commodities used in the operations. Nevertheless, it believes that it has competitive advantage in terms of quality products and by continually upgrading its expertise and range of products to meet the needs of its customers. Commodities price risk exposure is evaluated and managed through operating procedures and sourcing policies. The management does not consider the Company's exposure to commodities price risk significant as on 31st March 2019.
Note 3: Debt reconciliation
This section sets out an analysis of debt and the movements in debt during the year
Note 4: Segment information
The Company is primarily engaged in single reportable operating segment viz. Paper and hence no segment disclosure is required. However, the Company has reported revenue from external customers based on location of customer in different geographical areas.
The Company's operating segments are organized and managed through the respective business managers, according to the nature of products manufactured and sold with each segment representing a strategic business unit. These business units' performance are reviewed by the Managing Director of the Company (Chief Operating Decision Maker
The amounts reported to CODM are based on the accounting principles used in the preparation of financial statements as per Ind AS. Segment's performance is evaluated based on segment revenue and segment result viz. profit or loss from operating activities before tax. Accordingly, finance costs / income are not allocated to individual segment.
Segment assets / liabilities comprise assets / liabilities directly managed by each segment. Segment assets primarily include receivables, property, plant and equipment, capital work-in-progress, inventories, cash and cash equivalents. Segment liabilities primarily include operating liabilities. Segment capital expenditure comprises additions to property, plant and equipment and intangible assets.
All non-current assets of the Company (excluding financial assets) are located in India.
No customer individually accounted for more than 10% of the revenues from external customers during the years ended 31st March 2019 and 31st March 2018.
Note 5: Related party disclosures
Names of related parties and related party relationship
Related parties with whom transactions have taken place during the year
Enterprise having significant influence on the Company Central India Industries Limited
Key management personnel/directors Mr. C.K.Birla (Non-executive Chairman)
Mr. A.Ghosh (Non-executive Director) (Ceased from 31-01-2019)
Mr. Michael Bastian (Non-executive Director)
Mr. N.S.Sisodia (Non-executive Director)
Ms. Gauri Rasgotra (Non-executive Director)
Mr. S. Vishwanathan (Non-executive Director)
(appointed w.e.f 25-03-2019)
Mr. M.L. Pachisia (Managing director)
Mr. P K. Sonthalia (President Finance & CFO)
Mr. Ajay Gupta (CEO- Amlai Paper Mills)
Mr. B.S.Gilra (Upto 17-04-2018)
Relatives of key management personnel/ Ms. Nirmala Birla directors Ms. Amita Birla
Ms. Avani Birla Ms. Avanti Birla Enterprises owned or significantly Origami
influenced by key management personnel/ Origami Cellulo Private Limited directors or their relatives Orient Cement Limited
Orient Electric Limited C K Birla Corporate Services Limited Post-employment employee benefit plans Birla Industries Provident Fund
Orient Paper & Industries Limited Employees Gratuity Fund Orient Paper & Industries Limited Superannuation Fund
Related party transactions
The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year:
*No separate valuation is done for key managerial personnel in respect of post-employment benefits and other long-term benefits. The same is included in the note 47-Employee benefits.
f. Terms and conditions of transactions with related parties
Transactions relating to dividend were on the same terms and conditions that applied to other shareholders. The sale to and purchases from related parties are made in the ordinary course of business. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. No provisions are held against receivables from related parties. There are no loans outstanding with related parties.
Note 6: Employee benefits
(i) Compensated absences
The Company provides for accumulation of leave by certain categories of its employees. These employees can carry forward a portion of the unutilized leave balances and utilize it in future periods or receive cash in lieu thereof as per the Company's policy. The Company records a provision for leave obligations in the period in which the employees render the services that increases this entitlement.
The total provision recorded by the Company towards this obligation was RS, 660.31 lacs (31st March 2018: RS, 618.37 lacs). The amount of the provision is presented as current, since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Company does not expect all employees to take full amount of accrued leave or require payment within the next twelve months. The following amounts reflect leave that is not expected to be taken or paid within the next twelve months.
(ii) Post-employment defined benefit plan Gratuity
The Company provides for gratuity, a defined benefit retirement plan covering eligible employees. Every employee is entitled to a benefit equivalent to fifteen days salary last drawn for each completed year of service on terms not less favorable than the provisions of the Payment of Gratuity Act, 1972. The same is payable at the time of separation from the Company or retirement, whichever is earlier. The benefits vest after five years of continuous service.
The gratuity plan is administered and managed by the Trustees who are responsible for the overall governance of the plan and to act in accordance with the provisions of the trust deeds and rules in the best interests of the plan participants.
The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit obligation recognized in the Balance Sheet.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
(d) The major categories of plan assets
The defined benefit plans are funded with insurance companies of India.
(e) Defined benefit liability and employer contributions
Expected contributions to post-employment benefit plans in the next twelve months are RS, 360.00 lacs (31st March 2018: RS, 335.00 lacs).
The weighted average duration of the defined benefit obligation is 8 years (31st March 2018: 8 years). The expected maturity analysis of undiscounted gratuity benefits is as follows:
(iii) Risk exposure
Through its defined benefit plans the Company is exposed to a number of risks, the most significant of which are detailed below:
Investment risk:
The defined benefit plans are funded with insurance companies of India. The Company does not have any liberty to manage the funds provided to insurance companies. The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to the Government of India bonds. If the return on plan asset is below this rate, it will create a plan deficit.
Discount rate risk:
The Company is exposed to the risk of fall in discount rate. A fall in discount rate will eventually increase the ultimate cost of providing the above benefit thereby increasing the value of the liability.
Demographic risk:
In the valuation of the liability, certain demographic (mortality and attrition rates) assumptions are made. The Company is exposed to this risk to the extent of actual experience eventually being worse compared to the assumptions thereby causing an increase in the benefit cost.
Salary growth risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. An increase in the salary of the plan participants will increase the plan liability.
(iv) Provident fund
Provident fund for certain eligible employees is managed by the Company through the "Birla Industries Provident Fund", in line with the Provident Fund and Miscellaneous Provisions Act, 1952. The plan guarantees interest at the rate notified by the Provident Fund Authorities. The contribution by the employer and employee together with the interest accumulated thereon are payable to employees at the time of their separation from the Company or retirement, whichever is earlier. The benefits vest immediately on rendering of the services by the employee.
The Company has an obligation to fund any shortfall on the yield of the trust's investments over the administered 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 return 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 there is no shortfall as at year-end.
The Company contributed RS, 261.87 lacs and RS, 223.68 lacs during the year ended 31st March 2019 and 31st March 2018 respectively to the above Provident Fund.
Further the Company is also contributing to the provident fund administered by government of India for some of the employees as per regulations. The obligation of the group is limited to the amount contributed and it has no further contractual nor any constructive obligation.
The Company contributed RS, 226.14 lacs and RS, 240.84 lacs during the year ended 31st March 2019 and 31st March 2018 respectively towards above defined contribution plan.
Note 7: Employee benefits (contd.)
Dislosure relating to Honbl'e Supreme Court Of India
The Hon'ble Supreme Court of India in its judgment dated February 28, 2019 in the matter of Vivekanada Vidyamandir & Others vs The Regional Provident Fund Commissioner (II) West Bengal (' the Order') has laid down principles in relation to inclusion of allowances for determination of wages for the purposes of computing the provident fund contributions.
While further clarification on applicability and operation of the Order is awaited from the Provident Fund authorities, based on initial estimates by the management the impact of the Order is not expected to be material on the financial statements.
(v) Superannuation fund
The Company operates a superannuation fund scheme with Life Insurance Corporation of India (LIC) for eligible employees for some of its employees towards which the Company contributes up to a maximum of 15% of the employees' basic salary, which is charged to the Statement of Profit and Loss.
The Company contributed RS, 112.75 lacs and RS, 106.18 lacs during the year ended 31st March 2019 and 31st March 2018 respectively towards above defined contribution plan of the Company.
Note 8: Earnings per equity share (EPS)
The following reflects the profit and share data used in the basic and diluted EPS computations:
Note 9: Leases
Finance lease: Company as lessee
The Company has finance lease agreements for plant and equipment’s. These lease agreements has terms of renewal and bargain purchase option. Each renewal is at the option of lessee. There are no contingent rent, no escalation clause and no restrictions imposed by lease arrangements. Future minimum lease payments (MLP) under finance leases together with the present value of the net MLP are as follows:
Operating lease: Company as lessee
Certain office premises, depots etc. are obtained on operating leases. The lease term is for 1-3 years and renewable for further period either mutually or at the option of the Company. There is no escalation clause in the lease agreements. There are no restrictions imposed by lease arrangements. There are no subleases or contingent rents. The leases are cancellable.
Operating lease: Company as lessor
The Company has leased out certain buildings on operating leases. The lease term is for 1-3 years and thereafter renewable. There is escalation clause in the lease agreements. The rent is not based on any contingencies. There are no restrictions imposed by lease arrangements. The leases are cancellable.
Note 10: Capital and other commitments
(a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) RS, 3,648.49 lacs (31st March 2018: RS, 2,488.81 lacs) [including H Nil (31st March 2018: RS, 34.83 lacs) relating to intangible assets].
(b) For commitments relating to lease arrangements refer note 49.
Note 11: Contingent liabilities (contd.)
Company, the quantum of water allowed to be drawn was 1165 MCF and the Company had never drawn the water even up to the initial quantity of 1165 MCF since it had not attained full development of the paper mill. One of the major reasons for not being able to achieve full development was frequent and perennial shortage of water. Based on an interim order passed by the Madhya Pradesh High Court in the aforesaid writ petition, the Company started paying water charges based on actual consumption of water (less than 1165 MCF), while the WRD of the State Government continued to raise bills on the basis of assumed consumption of 2500 MCF plus interest and penalty thereon. In January 2009, the High Court of Madhya Pradesh upheld the constitutional validity of August 2000 notification. After the aforesaid judgment, the Company paid RS, 908.47 lacs being the difference amount between the assumed quantity of 1165 MCF and the actual consumption, while the WRD of the State Government continued to raise the bills on the basis of assumed quantity of water consumption of 2500 MCF till April 2009, when the Company entered into a new agreement with the WRD of the State Government for water consumption of only 440 MCF effective from May 2009. The total balance demand for the aforesaid period amounts to RS, 98,248.03 lacs (31st March 2018: RS, 77,089.44 lacs) [including interest and penalty of RS, 96,835.10 lacs (31st March 2018: RS, 75,676.51 lacs)] as at 31st March 2018, for which no provision has been made in the books. The WRD of the State Government issued a notice for recovery of aforesaid demand in February 2015, against which the Company filed a writ petition in the Madhya Pradesh High Court and obtained an interim stay on the recovery. Also, Madhya Pradesh High Court has set aside demand for penal interest in a similar case for another Company. The Company has been legally advised that it has a fit case for quashing the present demand.
d) In respect of above contingent liabilities, it is not practicable for the Company to estimate the timings of cash outflows, if any, pending resolution of the respective proceedings. The Company does not expect any reimbursements in respect of above.
Note 12: Managerial remuneration
The Company's application to the Central Government seeking waiver of excess remuneration paid to Managing Director for the financial year 2015-16 has been abated consequent upon notification of Companies (Amendment) Act, 2017 on 12th September, 2018. The Company is in the process of obtaining requisite shareholder's approval within the prescribed time line.
The above information has been provided as available with the Company to the extent such parties could be identified on the basis of the information available witthe Company regarding the status of suppliers under the MSMED Act.
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