1 Background
The Company was incorporated on 21st January 2008. On 12th March 2010, the Hon'ble High Court of Bombay had passed an order pursuant to Section 391 to 394 of the Companies Act 1956, sanctioning the Scheme of Arrangement by way of Demerger for transfer of the Storage Division of Kesar Enterprises Limited (KEL) into the Company as a going concern with effect from 1st January 2009 (Appointed Date).
Pursuant to the Scheme of Demerger, in consideration of the transfer of Storage Undertaking into the Company, 4,753,1 13 Equity Shares of Rs. 10 each, fully paid up are issued and allotted on 1st June 2010 by the Company to the shareholders of Kesar Enterprises Limited (KEL) in the ratio of 10:7 i.e. for every 10 shares in KEL, 7 shares in the company.
The Company is mainly engaged in the business of renting of liquid storage tanks at Kandla and is in process of commencing its operation at Pipavav and Kakinada Port.
a) The Company has invested in 0% Cumulative Redeemable Preference Shares for 15 years. Under Ind-AS, preference shares are classified as Invesment based on the nature and terms of the contract. Interest on the said investment is recognised using the effective interest method with interest rate of 10.50%. Thus the said preference share investment is reduced by Rs.74,535,600 as on 01.04.2016 and Rs. 203,326,480 as on 31.03.2017 with a corresponding increase in Investment in Equity Capital of Subsidiary under the head Non Current Financial Investments.
b) Interest free Loan given to subsidiary has been recognised at fair value as per INDAS by taking effective rate of Interest @10.50%.Accordingly Interest amount of Rs.14,766,516 as on 01.04.2016 (Rs. 14,766,516 as on 31.03.2017) included in the said loan is reduced from Loan and added to Investment in Equity Capital of Subsidiary under the head Non Current Financial Investments.
c) Fair value of the corporate guarantee given to subsidiary is taken at 0.50% per annum on outstanding loan exposure in respect of which such guarantee is given. Accordingly Rs.9,321,060 as on 01.04.2016 and Rs.14,186,149 is adjusted in retained earnings and added to Investment in Equity Capital of Subsidiary under the head Non Current Financial Investments.
d) Deferred Tax Asset is recognised due to timing differences arising in Income Tax out of fair Valuation of investment in Preference Shares of Subsidiary and Loan given to subsidiary. Accordingly Rs.30,905,677 as on 01.04.2016 and Rs.73,966,913 as on 31.3.2017 has been added to Differed Tax Assets as well as retained earnings.
e) Under Ind-AS, impairment allowance has been determined based on Expected Credit Loss model (ECL). Accordingly, trade receivables have been reduced by Rs.870,157 as on 01.04.2016 and Rs.974,980 as on 31.3.2017 which is 2% of Trade Receivable with a corresponding decrease in retained earnings.
f) Provision for proposed dividend made as per GAAP as on 31.03.2016 is written back since it is no longer an adjusting event.
a. Other Income
Other Income Includes Implied Interest on Investment in preference shares of subsidiary company arising out of fair valuation amounting Rs.4,050,515 at interest rate of 10.50%, Implied interest of Rs.14,766,516 arising out of fair valuation of loan given to KMLL at 10.50% and Implied guarantee commission of Rs.4,865,089 on corporate guarantee given to KMLL.
b. Provision for Expected Credit Loss
As per Ind-AS 109, the Company is required to apply expected credit loss model for recognising the allowance for doubtful debts. As a result, the allowance for doubtful debts is increased by Rs.104,526 and the same is recognised in "Other Expenses" during the financial year 2016-17.
c. Other comprehensive income (OCI)
Concept of other comprehensive income did not exist under Indian GAAP. Under Ind-AS, all items of income and expenses recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income or expenses that are not recognised in profit or loss but are shown in the statement of profit and loss as 'Other comprehensive income' includes remeasurement of defined employee benefits plans. The amount related to remeasurement of defined employee benefit plan of Rs.2,277,335 is presented as part of OCI during the financial year 2016-17.Deferred Tax liability arising consequent to the same is also presented under OCI.
d. Deferred Tax
Deferred Tax Asset is recognised due to timing differences arising in Income Tax out of fair Valuation of investment in Preference Shares of Subsidiary. Accordingly net deferred Tax assets of Rs.43,061,237 is created for 2016-17.Also deferred Tax liability amounting to Rs.788,140 created on Rs.2,277,335 which is shown under other comprehensive income due to remeasurement of employee benefit expenses as per the requirement of IND-AS.
C. Adjustments to the statement of Cash Flows.
The transition from Indian GAAP to Ind-AS had no significant impact on cash flows generated by the Company
(b) Terms / rights attached to Equity Shares
i) The Company has only one class of equity shares having a par value of Rs.5 per share (March 31, 2017 : Rs.5 per share and April 1,2016 : Rs.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, except in case of Interim Dividend. 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 of their holdings.
ii) During the current year , the amount of Final dividend Rs.1 (previous year Rs.0.50) per Equity Share has been declared and paid .
* Hon'ble High Court of Gujarat has set aside demand of Gujarat Electricity Board; contrarily Gujarat Electricity Board has filed Special Leave Petition in Supreme Court. Order is awaited
** The total outstanding loans as at 31.03.2018 is Rs.1,012,040,149 (Previous Year Rs.946,301,322) against Corporate Guarantee.
Strategic Debt restructuring (SDR) was invoked and approved by the Banks of the Kesar Mulitmodal Logistics Ltd (KMLL) on 20.11.2017. However, upon withdrawal of the SDR scheme by RBI vide its circular no RBI/2017-18/131 DBR.No.BP.BC.101/21.04.048/2017-18 dated 12.02.2018, Bankers have invoked the Corporate Guarantee given by the Company. The company's subsidiary KMLL is contesting at appropriate legal forum, the applicability of RBI's aforesaid circular and its consequential invocation of Corporate Guarantee.
2. Pursuant to Scheme of Demerger, the Company has requested Deendayal Port Trust (DPT) (formerly known as Kandla Port Trust(KPT)) for transfer of leasehold land situated at Kandla in its name which is presently in the name of Kesar Enterprises Ltd. However, DPT has raised a demand of Rs.208,354,295/- on account of such transfer/ upfront fee for change in the name. The Company has filed a writ petition in High Court of Gujarat, against the demand raised by the DPT. In the Current year the Company has deposited Rs.50,000,000/- with DPT as per Court directives towards above demands and is of the view that the demand raised is likely to be deleted or substantially reduced and hence no provision in required to be made. However, for certain portion of leasehold land, where the lease period is expired, the same is pending for renewal by DPT, although the Company has filed writ petition/ application for the renewal of the said lease and is of the view that Lease shall be renewed by DPT. Pending outcome of the writ petition filed in High Court of Gujarat, depreciation on Assets constructed at lease hold land has been charged as per the rates prescribed in Schedule II of the Companies Act 2013.
3. The Non Current Investments amounting to Rs.35,000,000/- (Previous Year Rs.35,000,000/-) is placed as a security against borrowings.
4. Employee Benefit
Defined Benefit Plan (Gratuity Fund) - Funded
In accordance with Indian Accounting Standard 19 "Employee Benefits", actuarial valuation was performed by independent actuaries in respect of the aforesaid defined benefit plan.
The expected rate of return on plan assets is based on the expectations of the average long term rate of return expected on investments of the fund during the estimated term of the obligation.
The estimates of future salary increases are considered taking into account inflation, seniority promotion and other relevant factors.
Defined Contribution Plans
Amount recognized as expense in respect of Compensated Leave Absence is Rs. (321,496) (Previous Year Rs.2,230,872).
Amount recognized as an expense in respect of "Contribution to Provident and other Funds" is Rs.5,318,007 (Previous Year Rs.5,396,415)
The Company has a defined benefit gratuity plan in India (funded). The company's defined benefit gratuity plan is a final salary plan for employees, which requires contributions to be made to a separately administered fund. The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.
Risks associated with defined benefit plan
Gratuity is a defined benefit plan and company is exposed to the Following Risks:
Interest rate risk: A fall in the discount rate which is linked to the G.Sec. Rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
Salary Risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan's liability.
Investment Risk: The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.
Asset Liability Matching Risk: The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
Mortality risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.
Concentration Risk: Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very less as insurance companies have to follow regulatory guidelines.
5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company's principal financial liabilities, comprises borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Company's operations and to support its operations directly or indirectly. The Company's principal financial assets include loans, trade and other receivables, cash and cash equivalents that derive directly from its operations.
The Company is exposed to credit risk and liquidity risk. Market risk is applicable to variable rate borrowing. Equity risk is not applicable since company does not have equity investments. Foreign exchange risk is not applicable since the company does not have long term imports. The below note explains the sources of risk which the entity is exposed to and how the entity manages the risk :
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 Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions and other financial instruments.
Trade receivables
Outstanding customer receivables are regularly monitored and any further services to major customers are approved by the senior management.
On account of adoption of Ind-AS 109, the Company uses expected credit loss model to assess the impairment loss or gain. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables. The provision matrix takes into account available external and internal credit risk factors and the Company's historical experience for customers.
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company's finance department. Liquidity Risk
The Company's objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, preference shares and unsecured loans.
Interest rate risk
The Company has MCLR based borrowing and depending on the interest rate scenario, the company decides on the mix of fixed rate versus variable rate borrowing.
6. Capital Management
For the purpose of the Company's capital management, capital includes issued equity share capital, securities premium and all other reserves attributable to the equity holders of the Company. The primary objective of the Company's capital management is to maximize the value of the share and to reduce the cost of capital.
The Company monitors capital using a gearing ratio, which is net debt divided by total equity. The Company includes within net debt, interest bearing loans and borrowings, less cash and cash equivalents.
7. Segment Reporting
The Company is mainly engaged in Liquid Storage Business in India and there is no other reportable business and geographical segment as required by Indian Accounting Standard 108.
8. Loans and advances in the nature of loans given to Subsidiary Company/Guarantees given on behalf of Subsidiary in accordance with schedule V of SEBI(Listing Obligations & Disclosure Requirements) Regulations, 2015 & Section 186 of the Companies Act, 2013.
9. Disclosure of amounts payable to vendors as defined under the "Micro, Small and Medium Enterprise Development Act, 2006" is based on the information available with the Company regarding the status of registration of such vendors under the said Act. There are no overdue principal amounts/ interest payable for delayed payments to such vendors as at the Balance Sheet date. There are no delays in payment made to such suppliers during the year or for any earlier years and accordingly there is no interest paid or outstanding interest in this regard in respect of payments made during the year or brought forward from previous years.
10. The common corporate expenses incurred at Corporate Head Office at Mumbai for the year have been allocated as per the Sharing Agreement between Kesar Enterprises Ltd. and the Company. The amount allocated to the Company is Rs.9,440,472 (Previous Year Rs.15,757,344). Addition to fixed assets includes Rs. Nil (Previous Year Rs. Nil) (net of depreciation), transferred from Kesar Enterprises Ltd.
11. Derivative instruments and unhedged foreign currency exposure Nil (previous year Nil).
12. Ministry of Corporate Affairs ("MCA") through Companies (Indian Accounting Standards) Amendment Rules, 2018 has notified the new Standard Ind-AS 115 "Revenue from Contracts with Customers" which is effective from April 1, 2018.
The core principle of Ind-AS 115 is that an entity should recognise 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 recognises 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 standard permits two possible methods of transition:
- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind-AS 8- Accounting Policies, Changes in Accounting Estimates and Errors.
- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach)
The Company will adopt the standard on April 1, 2018 by using the cumulative catch-up transition method and accordingly comparatives for the year ended March 31, 2018 will not be retrospectively adjusted. The effect on adoption of Ind-AS 115 is expected to be insignificant.
13. The previous year figures have been regrouped and reclassified wherever necessary to correspond with the current year classification/disclosure.
|