2.19 Provisions and contingencies
A Provision is recognised when the company has a present obligation(legal or constructive) as a result of past event i.e., 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. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate 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.
Contingent liability is disclosed for:
• Possible obligations which will be confirmed only by future events not wholly within the control of the company or
• Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.
• Contingent liabilities and assets are not recognised in financial statements. A disclosure of the contingent liability is made when there is a possible or a present obligation that may, but probably will not, require an outflow of resources.
2.20 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 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.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in two categories:
• Financial assets at amortised cost
• Equity instruments at fair value through other comprehensive income (FVTOCI)
Financial assets at amortised cost
‘Financial asset' is measured at the amortised cost if both the following conditions are met:
a. The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
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 in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss. This category generally applies to trade receivables.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value.
The Company makes such election on an instrument by-instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at Fair Value throughOther Comprehensive Income, then all fair value changes on the instrument, excluding dividends, are recognized in the Other Comprehensive Income. There is no recycling of the amounts from Other Comprehensive Income to Profit &Loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the Fair Value throughProfit &Loss category are measured at fair value with all changes recognized in the Profit &Loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily derecognized (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 ‘pass-through' 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.
Impairment of Financial assets
The Company recognizes loss allowances using the Expected Credit Loss (ECL) model for the financial assets which are not fair valued through profit or loss.
The Company follows “Simplified approach” for recognition of impairment loss allowance on trade receivables.
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.
For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised is recognised as an impairment gain or loss in profit or loss. As a practical expediency, 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.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L). This amount is reflected under the head ‘other expenses'.
Financial liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company's financial liabilities include trade and other payables, loans and borrowings including bank overdrafts.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Loans and borrowings
This is the category most relevant to the Company. 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. This category generally applies to borrowings.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
2.21 Earning per equity share
Basic earnings per equity share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per equity share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares. In computing the dilutive earnings per share, only potential equity shares that are dilutive and that either reduces the earnings per share or increases loss per share are included.
2.22 Segment Reporting
The management has assessed the identification of reportable segments in accordance with the requirements of Ind AS 108 ‘Operating Segments' and the company has disclosed three reportable segments namely (i) Chemical Manufacturing, (ii) Power Generation and (iii) Trading in Coal. Further, the Board of directors have designated the Managing Director as Chief Operating Decision Marker (‘CODM').
2.23 Cash flow Statement
Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payment and items of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated.
2.24 Estimates and assumptions
The preparation of the Company's 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.
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.
The Company applies judgement to determine whether each product or services promised to a customer are capable of being distinct, and are distinct in the context of the contract, if not, the promised product or services are combined and accounted as a single performance obligation. The Company allocates the arrangement consideration to separately identifiable performance obligation deliverables based on their relative stand-alone selling price. Because the financial reporting of these contracts depends on estimates that are assessed continually during the term of these contracts, recognized revenue and profit are subject to revisions as the contract progresses to completion.
Allowance for expected credit losses:
It describes the use of practical expedient by computing the expected credit loss allowance for trade receivables based on provision matrix. The expected credit allowance is based on the aging of the days receivables which are past due and the rates derived based on past history of defaults in the provision matrix.
Fair value of investments:
The Company has invested in the equity instruments of various companies. However, the percentage of shareholding of the Company in such investee companies is very low and hence, it has not been provided with future projections including projected profit and loss account by those investee companies. Hence, the valuation exercise carried out by the Company with the help of available historical annual reports and other information in the public domain.
Taxes
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will beavailable against which the losses can be utilised. Significant management judgement is required to determine theamount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxableprofits together with future tax planning strategies.
Contingent liability judgement:
Contingent liabilities are claims against the Company notacknowledged as debt. Contingencies may arise from the ordinary course of business in relation to claims against the Company, including legal, contractor 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 involve the exercise of significant judgement and the use of estimates regarding the outcome of future events.
2.25New Standards, Interpretations and Amendments adopted by the Company
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards) Amendment Rules, 2023 dated 31 March 2023 to amend the following Ind AS which are effective for annual periods beginning on or after 1 April 2023. The Company applied for the first-time these amendments.
Definition of Accounting Estimates - Amendments to Ind AS 8
The amendments clarify the distinction between changes in accounting estimates, changes in accounting policies and the correction of errors. It has also been clarified how entities use measurement techniques and inputs to develop accounting estimates. The amendments had no impact on the Company's Standalone Financial Statements.
Disclosure of Accounting Policies - Amendments to Ind AS 1
The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant' accounting policies with a requirement to disclose their ‘material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments have had an impact on the Company's disclosures of accounting policies, but not on the measurement, recognition or presentation of any items in the Company's financial statements.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to Ind AS 12
The amendments narrow the scope of the initial recognition exception under Ind AS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences such as leases.
The Company previously has not recognised for deferred tax on leases. As a result of these amendments, the Company has recognised a separate deferred tax asset in relation to its lease liabilities and a deferred tax liability in relation to its right-of-use assets.
Impact on the statement of profit and loss account is recognition of deferred tax asset amounting to Rs. 12.54 lakhs. Opening retained earnings is increased by Rs. 55.87 lakhs.
Apart from these, consequential amendments and editorials have been made to other Ind AS like Ind AS 101, Ind AS 102, Ind AS 103, Ind AS 107, Ind AS 109, Ind AS 115 and Ind AS 34.
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds and mutual funds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the-counter derivatives) is determined using valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities included in level 3.
There are no transfers between levels 1 and 2 during the year.
The investments in certain quoted and unquoted instruments which are held for medium or longterm strategic purpose and are not held for trading purpose. Upon application of IND AS 109, the company has chosen to designate these equity instruments at FVTOCI as the management believe that this provides a more meaningful presentation for medium or longterm strategic investments, than reflecting changes in fair value in profit and loss account
Note 41: Capital Management & Risk Management Capital management
The Company being in a capital intensive industry, its objective is to maintain a strong credit rating healthy capital ratios and establish a capital structure that would maximise the return to stakeholders through optimum mix of debt and equity.The Company's capital requirement is mainly to fund its capacity expansion, repayment of principal and interest on its borrowings. The principal source of funding of the Company has been, and is expected to continue to be, cash generated from its operations supplemented by funding from bank borrowings. The Company is not subject to any externally imposed capital requirements. The Company regularly considers other financing and refinancing opportunities to diversify its debt profile, reduce interest cost and align maturity profile of its debt commensurate with life of the assets, and closely monitors its judicious allocation amongst competing capital expansion projects to capture market opportunities at minimum risk.
Financial risk management and objectives and policies
This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the impact in the financial statements.
A Special Team with Senior Executives having exposure in various fields has been formed to assist Cheif Financial Officer (CFO) in(a) Overseeing and approving the Company's enterprise wide risk management framework, and(b) Overseeing that all the risks that the organisation faces such as market risk(including currency risk, interest rate risk and other price risk), Credit risk and liquidity risk have been identified and assessed and there is an adequate risk management infrastructure in place capable of addressing those risks.The CFO, monitors and reports on the principal risks and uncertainties that can impact the company and its ability to achieve strategic objectives. The Company's management systems, organisational structures, processes, standards, code of conduct and behaviors together form the Management and business of the Company.
A. Market risk
The Company is exposed to market risk through changes in foreign currency exchange rates and changes in interest rates. Financial assets/liabilities affected by this risk are borrowings, letter of credits and trade receivables.
The Company's investments in equity securities are susceptible to price risk arising from uncertainities about future value of the investment secutities. The Company's non-current investment in equity shares are strategic investments and hence are considered as Fair Value through Other Comprehensive Income. The company's Board of Directors reviews and approves all equity investment decisions.
Foreign Currency risk management
The Company operates internationally and is exposed to foreign currency risk arising from foreign currency transactions, primarily with respect to the US$. Foreign exchange risk arises from import as well as exports of goods. The risk is measured through a forecast of highly probable foreign currency cash flows.
The special team as mentioned above analysis the options for hedging. Based on the analysis the management takes decision regarding hedging of foreign currency exposures. Currently, the Company has not hedged any of the foreign currency transactions in the veiw of the natural hedging. The natural hedging is sufficient to manage the current foreign currency risk management.
The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities are restated at the end of each reporting period. The same at the end of the reporting period are as follows :
Interest Rate Risk Management
Interest rate risk is the risk that the fair value or future cash flows of a financial intruments 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 borrowings with floating base interest rates. Based on the interest rate sensitivity the Company decides on the management of interest rate risk. The Company manages by having a balanced portfolio of variable and fixed interest rate borrowings.
B. Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company is operating through network of dealers based at different locations. Regular monitoring of the receivables is undertaken by the Marketing Department and in case the limits are exceeded, steps will be taken by the Marketing departments and after discussing with the management the Company will decide whether to stop or not further supplies to the concerned dealer till the amount outstanding is recovered. For the export made by the Company, the sales are backed by letters of credit or advance receipts. The internal risk management committee of the Company meets regularly to discuss the dealers and credit risks, measures taken to address them and the status and level of risk after the measures taken.Export sales are fully secured through letters of credit or against advance receipts. (refer Note No.9 for Trade Receivbles outstanding).
C. Liquidity risk
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 maintains flexibility in funding by maintaining availability under committed credit lines.
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Company's short-term, medium-term and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
Nature of Benefits:
The Company operates a defined benefit final salary gratuity plan which is open to new entrants. The gratuity benefits payable to the employees are based on the employee's service and last drawn salary at the time of leaving. The employees do not contribute towards this plan and the full cost of providing these benefits are met by the Company.
1. Regulatory Framework:
There are no minimum funding requirements for a gratuity plan in India. The trustees of the gratuity fund have a fiduciary responsibility to act according to the provisions of the trust deed and rules. Since the fund is income tax approved, the Company and the trustees have to ensure that they are at all times fully compliant with the relevant provisions of the income tax and rules. Besides this if the Company is covered by the Payment of Gratuity Act, 1972 then the Company is bound to pay the statutory minimum gratuity as prescribed under this Act.
2. Governance of the Plan:
The Company has setup an income tax approved irrevocable trust fund to finance the plan liability. The trustees of the trust fund are responsible for the overall governance of the plan.
3. 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 in providing the above benefit which are as follows:
(a) Interest Rate risk: The plan exposes the Company to the rise of fall in interest rates. A fall in interest rates 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 (as shown in financial statements).
(b) Liquidity Risk: This is the risk that the Company is not able to meet the short-term Benefit payouts. This may arise due to non availability of enough cash / cash equivalent to meet the liabilities or holding of illiquid assets not being sold in time.
(c) Salary escalation Risk: The present value of the defined benefit plan is calculated with the assumption 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 determine the present value of obligation will have a bearing on the plan's liability.
(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 assumption.
(e) Regulatory Risk: Benefit is paid in accordance with the Provisions of Gratuity Act 1972 (as may be amended from time to time). There is a risk of change in
8. Asset Liability Matching Reserves: The Company has Life Insurance Corporation (Group Gratuity Manager) for administering the Plan liability. The funds of the Plan liability are invested by the Life Insurance Corporation, (LIC), pay the benefits to members of the enterprise as per Rules of the LIC. So the LIC is exposed to the liquidity risk of not being able to arrange for the benefit outgo due to cash liquidity problems and so the LIC faces a liquidity risk.
9. Funding Arrangements & Policy:
The money contributed by the Company to the fund to finance the liabilities of the plan has to be invested.
The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations. Due to the restrictions in the type of investments that can be held by the fund, it is not possible to explicitly follow an asset-liability matching strategy to manage risk actively.
There is no compulsion on the part of the Company to fully pre fund the liability of the Plan. The Company's philosophy is to fund the benefits based on its own liquidity and tax position as well as level of under funding of the plan. The expected contribution payable to the plan next year is INR 2,000,000.
10. Projectedplan cash flow and maturity profile:
The table below shows the expected cash flow profile of the benefits to be paid to the current membership of the plan based on past service of the employees as at the valuation date:
Note:
1. Totaldebt = Long term Borrowings (including current maturities of Long term borrowings), Sales tax deferrment loans
(Current and non-current), short term borrowings and Interest accrued on Debts
2. Earning for Debt Service = Net Profit after taxes Non-cash operating expenses like depreciation and other amortizations interest other adjustments like loss on sale of Fixed assets etc
3. Debt service = Interest &lease payments principal repayments
4. Avg. Shareholder’s equity = Average of opening total equity and closing total equity
5. Avg. Inventory = Average of opening inventory and closing inventory
6. Avg. Trade Receivable = Average of opening trade receivables and closing trade receivables
7. Avg. Trade Payables = Average of opening trade payables and closing trade payables
8. Working capital shall be calculated as current assets minus current liabilities
9. Capital Employed = Tangible net worth (excluding revaluation reserve) Total debt Deferred tax liability
10. Average Total Assets = Average of opening total assets and closing total assets
11. Average Total equity = Average of opening equity share capital other equity and closing equity share capital other equity.
55. Additional Regulatory Information:
(1) The Company has not granted any loans or Advances in the nature of Loans to Promoters, Directors, KMPs and other related partiesexcept Rs.2,109.1 Olakhs to subsidiaries (note12) which are without specifying terms and period of repayment and constitutes 100% of total advances.
(2) The company has no investment property as at the close of the year for fair valuation. The company has not revalued its Property Plant and Equipment (including Right of use Assets).
(3) The Company is not holding any Benami property and no proceeding has been initiated or pending against the company.
(4) The Company has no transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in tax assessments under the Income Tax Act, 1961(such as search or survey or any relevant provisions of Income Tax Act, 1961)
(5) (A)The Company has not advanced or loaned or invested any funds in any other person(s) or
entity(ies), including foreign entities (intermediaries) with understanding that the intermediary shall be directly or indirectly lend or invest in other person or entitites on behalf of the company or provide any gurantee or security or the like to or on behalf of the company.
(B) The Company has not received any funds from any person(s) or entity(ies), including foreign entities (funding party) with the understanding that the company shall lend or invest in other person or entity indentified in any manner by or on behalf of the funding party/Ultimate beneficiary or provide any guarantee or security or the like on behalf of the funding party/ Ultimate beneficiary.
(6) The Company is not declared as willful defaulter by any Bank or Financial institutions or RBI or other lenders.
(7) The Company has borrowings from Banks or Financial institutions on the basis of security of Current Assets. Quarterly returns or Statement of current assets filed by the company with Banks or Financial Institutions are in agreement with the Books of Accounts with some insignificant variances.
(8) There are no charges or satisfaction of charges yet to be registered with Registrar of Companies beyond the statutory period.
(10) The company has not made any investments through any layers of invesmtment companies.
(11) There are no Schemes of Arrangements approved by the Competent Authority in terms of sections 230 to 237 of the Companies Act, 201 3.
(12) The Company has not invested or traded in crypto currency or virtual currency during the financial year 2023-24.
(13) The Company do not have any intangible assets.
(14) The Company does not have any capital work in progress.
(15) The title deeds of Immovable property are in the name of the Company and the property not held in the name of the Company is detailed in Note No.52
(16) The financial ratios are calculated in Note No.54
(17) Compliance with number of layers of companies:
The Company is in compliance with the number of layers prescribed under clause (87) of section 2 of the Companies Act read with the Companies(Restrictions on number of Layers) Rules, 2017.
56. Confirmation of Bbalances
Confirmation of balances from certain parties for amounts due to them or due from them are yet to be received confirmation letters were received from some of the parties. And as per the letter of confirmation the balances are deemed to be accepted if not responded with in 15 days.
57. Figures have been rounded off to the nearest decimal of lakhs as required under Schedule III.
58. Previous year’s figures have been regrouped / reclassified wherever necessary to correspond with the current Year’s classification/ disclosure.
59. Approval of financial statements
60. The standalone financial statements approved by the Board of Directors in their meeting held on May 28, 2024.
As per our report of even date attached. For and on behalf of the Board
For S.T.Mohite & Co.,
Chartered Accountants (Regn.No.011410S) Sd/- Sd/-
Sri TG.Bharath Smt. R.Triveni
Sd/- Chairman & Managing Director Director
Sreenivasa Rao T.Mohite DIN : 00125087 DIN : 09045405
Partner
Membership No.015635 Sd/- Sd/-
UDIN NO : 24015635BKFPOC2912 Smt. V.Surekha Sri S. Ifthekhar Ahmed
Company Secretary Chief Financial Officer
Place: Kurnool Place: Kurnool
Date : May 28, 2024 Date : May 28, 2024
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