2.6 Provisions and contingencies, Contingent liabilities and Contingent Assets
Provisions are recognized when there is a present obligation (legal or constructive) as a result of a past event and it Is probable that It Is required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. A contingent liability is a possible obligation that arises from a past event, with the resolution of the contingency dependent on uncertain future events, or a present obligation where no outflow is probable. Major contingent liabilities are disclosed in the financial statements unless the possibility of an outflow of economic resources is remote. Contingent assets are not recognized In the financial statements but disclosed, where an inflow of economic benefit Is probable.
2.7 Financial Instruments
(i) Fair Value Measurement
a. Financial instruments
The estimated fair value of the Company's financial Instruments is based on market prices and valuation techniques. Valuations are made with the objective to include relevant factors that market participants would consider in setting a price, and to apply accepted economic and financial methodologies for the pricing of financial instruments. References for less active markets are carefully reviewed to establish relevant and comparable data.
b. Equity Investments
Fair value for listed shares is based on quoted market prices as of the reporting date. Fair value for unlisted shares is calculated based on commonly accepted valuation techniques utilizing significant unobservable data, primarily cash flow-based models. If fair value cannot be measured reliably unlisted shares are recognized at cost.
(ii) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments also include derivative contracts such as foreign exchange forward contracts and Interest rate swaps, a. Financial Assets
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.
Where the fair value of a financial asset at initial recognition is different from its transaction price, the difference between the fair value and the transaction price is recognised as a gain or loss in the Statement of Profit and Loss at Initial recognition If the fair value Is determined through a quoted market price in an active market for an identical asset (i.e. level 1 input) or through a valuation technique that uses data from observable markets (i.e. level 2 input). In case the fair value is not determined using a level 1 or level 2 input as mentioned above, the difference between the fair value and transaction price is deferred appropriately and recognised as a gain or loss in the Statement of Profit and Loss only to the extent that such gain or loss arises due to a change in factor that market participants take into account when pricing the financial asset. However, trade receivables that do not contain a significant financing component are measured at transaction price under Ind AS 115 “Revenue from Contracts with Customers".
Subsequent Measurement
The company classifies its financial assets as subsequently measured at either amortised cost or fair value depending on the company's business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
Financial Assets at amortised cost
A financial asset is measured at amortised cost only if both of the following conditions are met:
• It Is held within a business model whose objective Is to hold assets in order to collect contractual cash flows.
• The contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.
After Initial measurement, such financial assets are subsequently measured at amortised cost using the Effective Interest Rate ('EIR') method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss.
Financial Assets at fair value through Other Comprehensive Income (FVOCI)
Financial Assets with contractual cash flow characteristics that are solely payments of principal and interest and held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets are classified to be measured at FVOCI.
Financial Assets at fair value through profit and loss (FVTPL)
Any Financial Asset, which does not meet the criteria for categorization as at amortized cost or as FVOCI, is classified as at FVTPL.
In addition, the company may elect to classify a financial asset, which otherwise meets amortized cost or FVOCI criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition Inconsistency (referred to as 'accounting mismatch').
Financial Assets included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
De-recognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognised (i.e. removed from the company's balance sheet) when:
• The rights to receive cash flows from the asset have expired, or
• The company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a passthrough' arrangement; and either (a) the company has transferred substantially all the risks and rewards of the asset, or (b) the company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the company has transferred Its rights to receive cash flows from an asset or has entered Into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the company continues to recognize the transferred asset to the extent of the company's continuing Involvement. In that case, the company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the company could be required to repay.
Impairment of financial assets
The Company assesses on a forward-looking basis the expected credit loss associated with its assets carried at amortised cost and FVOCI debt instruments. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
With regard to trade receivable, the Company applies the simplified approach as permitted by Ind AS 109, Financial Instruments, which requires expected lifetime losses to be recognised from the initial recognition of the trade receivables.
b. Financial Liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and, in the case of amortised cost, net of directly attributable transaction costs.
Where the fair value of a financial liability at initial recognition is different from its transaction price, the difference between the fair value and the transaction price is recognised as a gain or loss in the Statement of Profit and Loss at initial recognition if the fair value is determined through a quoted market price in an active market for an identical asset (l.e. level 1 Input) or through a valuation technique that uses data from observable markets (i.e. level 2 input). In case the fair value is not determined using a level 1 or level 2 input as mentioned above, the difference between the fair value and transaction price is deferred appropriately and recognised as a gain or loss in the Statement of Profit and Loss only to the extent that such gain or loss arises due to a change in factor that market participants take Into account when pricing the financial liability. Subsequent measurement Financial Liabilities measured at amortised cost
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit and loss.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities designated upon initial recognition as at fair value through profit or loss.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/losses attributable to changes in own credit risks are recognized in OCI. These galns/loss are not subsequently transferred to P&L. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss.
De-recognition
The company derecognises a financial liability when its contractual obligations are discharged or cancelled or expired.
c. Equity Instruments
All equity instruments in scope of Ind AS 109 are measured at fair value. On initial recognition an equity Investment that Is not held for trading, the Company may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis. All other Financial Instruments are classified as measured at FVTPL.
8 Income tax
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in Other Comprehensive Income,
i. Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable In respect of previous years. It Is measured using tax rates enacted or substantively enacted at the reporting date. Current tax assets and liabilities are offset only if, the Company:
a) Has a legally enforceable right to set off the recognised amounts: and
b) Intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
ii. Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the balance sheet and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that It Is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period In which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of Its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to Income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax are recognised in the statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Due to uncertainty, MAT Credit shall be accounted for as and when utilised under the Income-tax Act
2.9 Leases
The Company assesses whether a contract contains a lease, at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether, (i) the contract Involves the use of an Identified asset (li) the Company has substantially all of the economic benefits from use of the asset through the period of the lease and (iii) the Company has the right to direct the use of the asset.
The company applies a single recognition and measurement approach for all leases, except for leasehold land, shortterm leases (twelve month or less) and leases of low-value. For short-term and leases of low value, the Company recognises the lease payments as an operating expense on a straight-line basis over the term of the lease. Leasehold land Is carried at the acquisition cost l.e. one-time lease premium paid at the time of acquisition of leasehold rights. For all other leases, the Company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset. Right-of-use assets are evaluated for recoverability whenever events or changes in circumstances Indicate that their carrying amounts may not be recoverable.
The lease liability is initially measured at amortized cost at the present value of the future lease payments. The lease payments are discounted using the Incremental borrowing rate at the lease commencement date. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments, or a change in the assessment of an option to purchase the underlying asset.
Lease liability and ROU asset, if any, have been separately presented in the Balance Sheet and lease payments have been classified as financing cash flows.
Leasehold Land represents land allotted by U P State Industrial Development Corporation Ltd. for 90 years on leasehold basis and is recognised at cost.
2.10 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of twelve months or less.
For the purposes of the Statement of Cash Flow, cash and cash equivalents is as defined above. In the balance sheet, bank overdrafts are shown within borrowings in current liabilities.
2.11 Recent accounting pronouncements
Ministry of Corporate Affairs (“MCA”) notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. For the year ended 31s1 March, 2024, MCA has not notified any new standards or amendments to the existing standards applicable to the Company and its associates.
31’ Leases
The Disclosure Pursuant of IND AS -116 ‘ Leases are given herein below:
(i) Effective From April 1,2019, The company has adopted IND AS 116 "Leases" Using Modified retrospective approach. There is no material impact on transition to IND AS 116 . further no right of use assets and lease liability was required to be recognized.
(ii) Following is the summary of Practical Expedients elected on intial application:
(a) The company has not reassesed whether a contract is or contains a lease on the date of Intial application
(b) The company has applied The exemption avaialble for short term leases (less than 12 months) and leases for low value assets
(c) The company has used hindsight In determining the leaseterm where the contract contained options to extend or terminate the lease
(d) The company has relied on its previous assessment on whether the leases are onerous
(iii) Rental Expenses recorded for Shortterm leases was Rs. 19.43 lacs for the year ended March 31,2024
32' Borrowing Cost
During the year, the company has capitalized borrowing cost of Rs. 66.09 Lacs (Previous year Rs. 62.52). The capitalisation rate used to determine the amount of borrowing cost to be capitalized Is the weighted average Interest rate applicable to the entity's general borrowing including term loan and working capital during the year is - 10.43 % ( Previous Year '9.92%).
33' Employee benefits
The Company contributes to the following post-employment defined benefit plans in India.
(i) Defined Contribution Plans:
The Company makes contributions towards provident fund to a defined contribution retirement benefit plan for qualifying employees. Under the plan, the Company Is required to contribute a specified percentage of payroll cost to the retirement benefit plan to fund the benefits. During the year the Company has contributed to Government Provident Fund Rs. 51.96 (Previous year Rs. 49.09).
(ii) Defined Benefit Plan:
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 retirementytermination is the employees last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service. Gratuity liabilty is being contributed to the Group Gratuity-cum-life Assurance Cash Accumulation Policy administered by the LIC of India.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation for gratuity were carried out as at 31 March 2024. The present value of the defined benefit obligations and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.
A. Based on the actuarial valuation obtained in this respect, the following table sets out the status of the gratuity plan and the amounts recognised in the Company’s financial statements as at balance sheet date:
The carrying amounts of trade receivables, trade payables, capital creditors and cash and cash equivalents and other bank balances are considered to be the same as their fair values, due to their short-term nature.
The fair values for loans, security deposits were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values In the fair value hierarchy due to the Inclusion of unobservable inputs Including counterparty credit.
The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk. For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.
II. Financial risk management
The Company has exposure to the following risks arising from financial instruments:- credit risk; - liquidity risk; and - market risk
i. 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 processes to ensure that executive management controls risks through the mechanism of property defined 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 by the board annually 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.
The Company's Audit Committee oversees compliance with the Company's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Audit Committee is assisted in its oversight role by Internal Audit I nternal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
ii. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company s receivables from customers and investments in debt securities.
The carrying amount of financial assets represents the maximum credit exposure. The Company monitor credit risk very closely both In domestic and export market. The Management Impact analysis shows credit risk and impact assessment as low.
Trade and other receivables
The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate.
The Company Management has established a credit policy under which each new customer is analyzed Individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes market check, industry feedback, past financials and external ratings, if they are available, and in some cases bank references. Sale limits are established for each customer and reviewed quarterly. Any sales exceeding those limits require approval from the Management of the Company.
More than 60 % of the Company s customers have been transacting with the Company for over four years, and no impairment loss has been recognized against these customers. In monitoring customer credit risk, customers are reviewed according
iii. 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 fallen due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, Company treasury maintains flexibility in funding by maintaining availability under committed credit lines.
Management monitors rolling forecasts of the Company's liquidity position (comprising the undrawn borrowing facilities) and cash and cash equivalents on the basis of expected future cash flows. This is generally carried out at unit level and monitored through caproate office of the Company In accordance with practice and limits set by the Company. These limits vary by location to take into account requirement, future cash flow and the liquidity in which the entity operates. In addition, the Company's liquidity management strategy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.
The ir»flows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes and which are not usually closed out before contractual maturity.The interest payments on variable interest rate loans in the table above reflect market forward interest rates at the reporting date and these amounts may change as market interest rates change.
iv. Market risk
Market risk is the risk that changes in market prices - such as foreign exchange rates and interest rates - 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.The Company uses derivatives like forward contracts to manage market risks on account of foreign exchange and various debt instruments on account of interest rates. All such transactions are carried out within the guidelines set by the Board of Directors.
v. Currency risk
Foreign currency exposure not hedged by derivatives instrument or otherwise :
Interest rate risk
The Company's main interest rate risk arises from long-term borrowings with variable rates, which expose the Company to cash flow interest rate risk. During 31 March 2024 and 31 March 2023, the Company's borrowings at variable rate were denominated In Indian Rupees.
Currently the Company's borrowings are within acceptable risk levels, as determined by the management, hence the Company has not taken any swaps to hedge the Interest rate risk.
Exposure to interest rate risk
The interest rate profile of the Company's interest-bearing financial instruments as reported to the management of the Company is as follows.
39 Other Statutory Informations :
i) Thre are no balance outstanding on account of any transaction with the companies struck off under section 248 of the comapany Act, 2013 or section 56 of company Act,1956.
ii) The Company does not have more than two layers of subsidiary as prescribed under section 2 (87) of comapany Act, 2013 read with companies ( Restriction number of layers) Rules, 2017.
iii) The Company has not advanced or loaned or invested fund to any other persons or entity including foreign entities ( intermediary) with the understanding ( whether recorded In writing or otherwise) that the company shall :
a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (ultimate benificiary) or
b) provided any guarantee, security or the like to or on behalf of the ultimate beneficiaries.
iv) The company has not received any fund from any person or entities including foreign entities (funding party ) with the understanding ( whether recorded in writing or otherwise ) that the company shall :
a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (ultimate benificiary) or
b) provided any guarantee, security or the like to or on behalf of the ultimate beneficiaries.
v) The company does not have any such transaction which is not recorded in the books of accounts that has been surrenderred or disclosed as income during the year in the tax assessments under the Income Tax act,1961.
vi) The Company is not declared as willful defaulter by any bank or financial Institution or other lender.
vii) There are no charges or satisfaction thereof which are yet to be registered with ROC beyond the statutory period.
40 Disclosure on Bank/ Financial institutions compliances
The quarterly statements including revision thereon of inventories and trade receivable filed by the company with banks/ financial Institution are In agreement with the books of accounts.
Summary of reconcilation of quarterly statements of current assets filed by the company with banks are as below:
The accompanying notes are an integral part of these financial statements As per our report of even date attached.
For M/s. Kothari Kuldeep & Co. For and on behalf ot the Board of Directors of
Chartered Accountants Kothari Fermentation and Biochem Limited
Firm Regn. No. 015960C
Kuldeep Kothari Pramod Kumar Kothari Siddhant Kothari Rajiv Agarwal
Partner Chairman & Managing Director Whole Time Director Director
Membership No - 413714 DIN:00086145 DIN: 08620559 DIN:07079724
20-06-2024
Place : Delhi Arun Kumar Sekhani Silky Gupta
Date : 30/05/2024 Chief Financial Officer Company Secretary
ACS-57285
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