3.20 Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Company expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the Standalone Statement of Profit and Loss, net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimate.
3.21 Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration or is due from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
3.22 Contingent liabilities
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognised because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the standalone financial statements. Contingent assets are only disclosed when it is probable that the economic benefits will flow to the entity.
4. Material management judgement in applying accounting policies and estimation uncertainty
The preparation of the Company’s standalone financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities at the date of the standalone financial statements. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
In particular, the Company has identified the following areas where material judgements, estimates and assumptions are required. Further information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the standalone financial statements. Changes in estimates are accounted for prospectively.
i. Judgements
In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the standalone financial statements:
a. Contingencies
Contingent liabilities may arise from the ordinary course of business in relation to claims against the Company, including legal, contractor, land access and other claims. By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence, and potential quantum, of contingencies inherently involves the exercise of material judgments and the use of estimates regarding the outcome of future events.
b. Provisions
At each balance sheet date basis the management judgement, changes in facts and legal aspects, the Company assesses the requirement of provisions against the outstanding contingent liabilities. However, the actual future outcome may be different from this judgement.
c. Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and tax loss carry-forward can be utilised. In addition, material judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.
ii. Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the standalone financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
a. Useful lives of tangible/intangible assets
The Company reviews its estimate of the useful lives of tangible/intangible assets at each reporting date, based on the expected utility of the assets.
b. Defined benefit obligation
The cost of the defined benefit plan and other post-employment benefits and the present value of such obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. In view of the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
c. Inventories
The Company estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market-driven changes that may reduce future selling prices.
d. Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the Standalone Balance Sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
e. Allowance for expected credit loss
The Company applies Expected Credit Losses (“ECL”) model for measurement and recognition of loss allowance on trade receivables. In accordance with Ind AS 109 - Financial Instruments, the Company applies ECL model for measurement and recognition of impairment loss on the trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115 ‘Revenue from Contracts with Customers’.
For this purpose, the Company follows ‘simplified approach’ for recognition of impairment loss allowance on the trade receivable balances. The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
f. Application of new and revised Indian Accounting Standard (Ind AS)
The Ministry of Corporate Affairs vide notification dated 31 March 2023 notified the Companies (Indian Accounting Standards) Amendment Rules, 2023, which amended certain accounting standards (see below), and are effective 1 April 2023:
• Disclosure of accounting policies - amendments to Ind AS 1
• Definition of accounting estimates - amendments to Ind AS 8
These amendments did not have any material impact on the Company. For the year ended 31 March 2024, MCA has not notified any new standards applicable to the Company.
45 Defined benefit plan and long term employment benefits
a) Defined contribution plans
Contribution to defined contribution plans, recognised as expense for the year is as under:Employer’s contribution to provident and other funds Rs. 2.95 crores (31 March 2023: Rs. 2.11 crores) (refer note 37)
b) Defined benefit plan (Gratuity)
Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each year. The gratuity plan is governed by the Payment of Gratuity Act, 1972. Every employee who has completed five years or more of service gets a gratuity on retirement/leaving the organisation at 15 days salary (last drawn salary) for each completed year of service. The scheme is unfunded. Actuarial gains or losses are recognised in other comprehensive income.
IX Description of risk exposures:
Valuations are performed on certain basic set of pre-determined assumptions and other regulatory framework which may vary over
time. Thus, the Company is exposed to various risks as follows -
A) Salary Escalation Risk- The present value of the defined benefit plans calculated with the assumptions of salary increase rate of plan participants in future. Deviation in the rate of increase of salary in future for plan participants from the rate of increase in salary used to determined the present value of obligation will have a bearing on the plan’s liability.
B) Interest Rate Risk - The plan exposes the Company to the risk of decrease in interest rates. A decrease in interest rate will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of the liability.
C) Liquidity Risk - This is the risk that the Company is not able to meet the short term benefit payout. This may arise due to nonavailability of enough cash and cash equivalents to meet the liabilities or holding of illiquid assets not being sold in time.
D) Demographic Risk - The Company has used certain mortality and attrition assumptions in valuation of the liability. The Company is exposed to the risk of actual experience turning out to be worse compared to the assumptions.
E) Investment risk - The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to Government Bonds Yield. If plan liability is funded and return on plan assets is below this rate, it will create a plan deficit. The plan asset investments is in fixed income securities of Life Insurance Corporation of India.
46 Lease related disclosures as lessee
The Company’s lease asset class primarily consists of leases for land, corporate office and warehouses. With the exception of short-term leases, leases of low-value and cancellable long-term leases underlying assets, each lease is reflected on the balance sheet as a right of use asset and a lease liability.
Lease liabilities are measured at the present value of the remaining lease payments, discounted using the weighted average borrowing rate ranging 9.73-12.16% (31 March 2023: 10.70%-12.16%).
Each lease generally imposes a restriction that, unless there is a contractual right for the Company to sublet the asset to another party, the right-of-use asset can only be used by the Company. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to extend the lease for a further term. The Company is prohibited from selling or pledging the underlying leased assets as security against the Company’s other debts and liabilities.
B Valuation technique to determine fair values
Cash and cash equivalents, other bank balances, trade receivables, loans, other current financial assets, trade payables, current borrowings and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
(i) The fair values of the long term borrowings, loans and other deferred payments are determined by using discounted cash flow method using the appropriate discount rate. The discount rate is determined using other similar instruments incorporating the risk associated.
(ii) The fair values of investments measured at FVTPL are determined based on observable market data other than quoted prices in active market.
iii) The carrying amount of financial assets and financial liabilities measured at amortised cost in the standalone financial statements are a reasonable approximation of their fair values since the Company does not anticipate that the carrying amounts would be significantly different from the values that would eventually be received or settled.
48 Financial risk management
The Company’s principal financial liabilities comprise of borrowings, lease liabilities, trade payables and other payables. The Company’s principal financial assets include trade and other receivables, investments and cash and bank balances that it derives directly from its operations.
The Company has exposure to the following risks arising from financial instruments:
- credit risk;
- liquidity risk; and
- market risk
This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk.
A 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 resulting in a financial loss to the Company. Credit risk arises principally from trade receivables, loans and advances, cash and cash equivalents and deposits with banks.
Trade receivables
The Company primarily sells paints and coatings to customers operating in India and outside India. 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. Considering the nature of trade receivables, and entity’s history of credit with those receivables, entity has rebutted the presumption of having significant increases in credit risk since initial recognition for financial assets which are more than 30 days past due.
Cash and cash equivalents and deposits with banks
Cash and cash equivalents of the Company are held with banks which have high external rating. The Company considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties.
Loans to employees and securities deposits
The Company provides loans to its employees and furnish security deposit to various parties for electricity, communication, etc. The Company considers that its loans have low credit risk or negligible risk of default as the parties are well established entities and have strong capacity to meet the obligations.
Investments
The Company has invested in unquoted equity instruments and preference shares of its subsidiaries, and other company. The management actively monitors the operation of subsidiaries and joint venture which affect investments. The Company does not expect the counterparty to fail in meeting its obligations other than those specifically considered as impairment allowance as per the management’s assessment.
(a) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is:
Provision for expected credit loss
(i) Financial assets for which loss allowance is measured using 12 months expected credit loss
The Company has assets where the counter-parties have sufficient capacity to meet the obligations and where the risk of default is very low. Hence, no impairment loss has been recognised during the reporting period in respect of these assets.
(ii) Financial assets for which loss allowance is measured using life time expected credit loss
For trade receivables, the Company follows the approach of a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the days the receivables are due and the rates as given in the provision matrix.
Ageing analysis of trade receivables
The ageing analysis of the trade receivables (net) before adjustment of expected credit loss provision of Rs. 5.90 crores (31 March 2023: Rs. 7.70 crores) as of the reporting date is as follows:
C Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of fluctuation in market prices. The Company is exposed to market risk through its use of financial instruments and specifically to foreign currency risk, interest risk and commodity price risk which results from its operating, investing and financing activities.
(a) Currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The functional currency of the Company is Indian Rupees (INR) and most of the transactions are carried out in INR. Exposure to currency exchange rates mainly arises from the Company’s overseas sales and purchases which are primarily denominated in US Dollars (USD) and Euro (EUR).
55 Segment information
The business activities of the Company predominantly fall within a single reportable business segment, i.e. manufacturing of paints within India and sale of paints within India and outside India. There are no separately reportable business or geographical segments that meet the criteria prescribed in Ind AS 108 ‘Operating Segments’. The aforesaid is in line with review of operating results by the chief operating decision maker.
56 As per the order of Hon'ble High Courts of Calcutta and Delhi in accordance with the Scheme of arrangement under Section 391394 of the Companies Act, 1956 between Shalimar Paints Limited, its subsidiary company, Shalimar Adhunik Nirman Private Limited (SANL), and their respective shareholders and creditors, the Company has transferred its Real Estate Division, consisting fixed assets and current assets valued at Rs. 5.77 crores (inclusive of stamp duty on land) to SANL. Out of the said consideration money, SANL has issued preference shares amounting to Rs. 0.50 crores. The balance consideration of Rs. 5.27 crores shall be discharged by payment in cash and which has been presented as interest free loan in the investments (refer note 8).
Further, as per the abovementioned arrangement, all debts, duties, undertakings, liabilities and obligations incurred by the Company in connection with the Real Estate Division on or after the appointed date shall be deemed to have been raised, used, incurred for and on behalf of SANL. This has resulted in the additional loan of Rs. 3.00 crores (31 March 2023: Rs. 2.95 crores), including interest, to SANL (refer note 9).
57 The Company’s manufacturing plant situated at Nashik got a massive fire on 19 November 2016, which caused extortionate damage to the company, both on account of loss of assets i.e. building, plant and machinery, inventory etc. vis-a-vis loss of the profit during the period.
The Company had taken two insurance policies from United India Insurance Company Limited viz. Loss of Profit Policy and Reinstatement Policy and had filed the claims against those policies with the insurance company. The status of those claims is as under:
(i) The Company had claimed Rs. 32.90 crores in respect of Nashik Plant Fire under Loss of Profit Policy, and the surveyor appointed by the insurer has assessed the claim vide their survey report at Rs. 22.14 crores (loss of production method) and at Rs. 22.63 crores (turnover method) and thereafter further reduced the amount to Rs. 18.32 crores. Against the aforesaid claim, the Company has received in total Rs. 16.14 crores (Rs. 13.99 crores, as interim payment during earlier financial years). The remaining amount of Rs. 2.14 crores received during previous year had been shown under the head “Other Income”. Aggrieved with the assessment being not fully indemnified, the Company invoked arbitration and has filed its claim of Rs. 12.57 crores before the Arbitral Tribunal, which is currently pending for adjudication.
(ii) The Company had claimed Rs. 59.35 crores in respect of Nashik Plant fire under Reinstatement Policy, and the surveyor appointed by the insurer had assessed the claim vide their survey report at Rs. 21.89 crores. Against the aforesaid claim, the Company had received total Rs. 20.91 crores in earlier financial years. Aggrieved with the assessment being not fully indemnified, the Company invoked arbitration and had filed its claim of Rs. 37.93 crores before the Arbitral Tribunal. On 05 January 2024, Arbitrator has passed an Award of Rs. 20.01 crores in favour of the Company for the claim filed under Reinstatement Policy. The Company is in the process of getting the award executed for its enforcement.
58 Term loans from financials institutions represent loan availed by the Company for working capital needs of business.
59 The Division Bench of Hon’ble High Court of Calcutta passed an order on 07 May 2009 requiring the Company to give immovable property to the extent of Rs. 4.50 crores as security in favour of Tara Properties Private Limited (the landlord of property at 13, Camac Street, Kolkata). The Company has given portion of its land at Goaberia (adjacent to Howrah plant), as security. Refer note 5.1(e).
60 Additional regulatory information not disclosed elsewhere in the financial information
a The Company has used the borrowings from banks and financial institutions for the specific purposes for which it were taken at the balance sheet date (refer note 26).
b The Company does not hold any investment property as defined under Ind AS 40.
c The Company has not revalued its property, plant and equipment (including right of use assets) or intangible assets during the current or previous year (refer notes 5 and 7).
d The Company has not traded or invested in crypto currency or virtual currency during the current and previous year (refer notes 8 and 14).
e The Company has not granted loans or advances in the nature of loans to its promoters, directors, KMPs and other related parties (as defined under Companies Act, 2013), either severally or jointly with any other person other than referred in note 50.
f No proceeding has been initiated or pending against the Company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder.
j The Company has registered with Ministry of Corporate Affairs/ Registrar of Companies, all charges or satisfaction within the statutory time period.
k The Company is compliant in respect of number of layers prescribed under Clause (87) of Section 2 of the Act read with the Companies (Restriction on number of Layers) Rules, 2017.
l The Company has not entered into any scheme of arrangement in the current and previous year.
m The Company has not advanced or provided loan to or invested funds in entity including foreign entity or to any other person with
the understanding that the intermediary shall(i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company (ultimate beneficiaries) or(ii) provide any guarantee, security or the like to or on behalf of the ultimate beneficiaries.
n The Company has not received any funds from any person or entity including foreign entity with the understanding that the company shall(i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (ultimate beneficiaries) or(ii) provide any guarantee, security or the like on behalf of the ultimate beneficiaries.
o In view of continued lossess, the Company is not covered by Section 135 of the Companies Act, 2013 dealing with CSR activities.
p The Company has not undertaken any transaction which is not recorded in the books of accounts that has been surrendered or
disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).
61 The Ministry of Corporate Affairs (MCA) has prescribed a new requirement for companies under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 inserted by the Companies (Accounts) Amendment Rules 2021 requiring companies, which use accounting software for maintaining their books of accounts, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.During the current year, the audit trail (edit logs) feature was not enabled at the database level for accounting software SAP (Database - Oracle 12C) to log any direct data changes, used for maintenance of all accounting records by the Company. Audit trail (edit log) is enabled at the application level as part of standard SAP framework.
62 Amounts below the rounding off norms adopted by the Company are presented as “0”.
63 Previous year figures have been regrouped/reclassified, wherever considered necessary in order to comply with financial reporting requirements. The impact of such regrouping/reclassification is not material to these standalone financial statements. Further, the Company has chosen to present these financial statements from INR lakhs to INR crores. Accordingly, the previous year numbers are presented to INR crores.
The accompanying notes are an integral part of standalone financial statement.
As per our report of even date attached
For Walker Chandiok & Co LLP For and on Behalf of the Board of Directors of
Chartered Accountants Shalimar Paints Limited
Firm’s Registration No.: 001076N/N500013
Ashish Gera Ashok Kumar Gupta Shan Jain
Partner Managing Director Director
Membership No.: 0508685 DIN:- 01722395 DIN:- 09661574
Sachin Naik Shikha Rastogi
Chief Financial Officer Company Secretary
Mem. No:- ACS 18226
Place : Gurugram Place : Mumbai
Date : 17 May 2024 Date : 17 May 2024
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