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Notes to Accounts of Havells India Ltd.

Mar 31, 2015

CORPORATE INFORMATION

Havells India Limited (''the Company'') is a public limited Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The Company is listed on BSE Limited and National Stock Exchange of India Limited. The Company is electrical and power distribution equipment manufacturer with products ranging from Industrial and Domestic Circuit Protection Switchgears, Cables, Motors, Pumps, Fans, Power Capacitors, CFL Lamps and Luminaries for Domestic, Commercial and Industrial applications, Modular Switches, Water Heaters and Domestic Appliances covering the entire range of household, commercial and industrial electrical needs. The Company alongwith its subsidiary companies owns some of the prestigious global brands like Crabtree, Sylvania, Concord, Luminance, Linotile and Standard. The Company''s manufacturing facilities are located at Faridabad in Haryana, Alwar and Neemrana in Rajasthan, Haridwar in Uttarakhand, Sahibabad and Noida in Uttar Pradesh and Baddi in Himachal Pradesh. The research and development facilities are located at Head office, Noida (Uttar Pradesh) and at some of the units which have been approved by Department of Scientific & Industrial Research, Ministry of Science & Technology, Government of India, New Delhi.

a) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 1/- per share (previous year Rs. 5/- per share). Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees. A final dividend of Rs. 3/- per share of Rs. 1/- each (previous year Rs. 10/- per share of Rs. 5/-each) has been recommended by the Board subject to approval of shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

b) Shares reserved for issue under Stock Option

90,550 Equity shares of Rs. 1/- each ( Previous Year 39,345 equity shares of Rs. 5/- each) are reserved for the issue under Employees Stock Option Plan (ESOP) of the Company. {refer note no. 31(10)(a)}

c) External commercial borrowing is from HSBC Bank (Mauritius) Limited. The said loan is repayable in 12 equal quarterly instalments of Rs. 10.43 crores (USD 1,666,667) starting from 26th April, 2014 carrying an interest rate of LIBOR 195 bps per annum, and is secured by way of :-

i) first charge on movable fixed assets acquired out of the said loan and

ii) equitable mortgage over land and building situated at Plot no. 2A, sector 10, BHEL Industrial Estate, Haridwar, Uttarakhand.

b) Current maturities of long-term borrowings is Rs. 41.73 crores (Previous Year Rs. 40.07 crores)

c) Deposit from public are in respect of dealers for the amount payable under QRG Growth incentive Scheme, out of which a sum of Rs. 52.67 crores has been invested in Mutual Fund on behalf of dealers, Rs. 1.06 crores has been paid to dealers and remaining amount of Rs. 9.22 crores has been transferred to current liabilities under sales incentive payable.

a) Trade payables include acceptances of Rs. 25.83 crores (previous year Rs. 22.65 crores).

b) Trade payables include Rs. 18.51 crores due to subsidiary companies (previous year Rs. 13.27 crores) {refer note no. 31(13)(c)}

c) Information as required to be furnished as per section 22 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) for the period ended 31st March, 2015 is given below. This information has been determined to the extent such parties have been identified on the basis of information available with the Company.

a) Investor Education and Protection Fund is being credited by the amount of unclaimed dividend after seven years from the due date. The Company has transferred Rs. 0.03 crores (previous year Rs. 0.03 crores) out of unclaimed dividend pertaining to the financial year 2006-07 to Investor Education and Protection Fund of Central Government in accordance with the provisions of section 205C of the Companies Act,1956.

b) The Company has made a provision of excise duty payable amounting to Rs. 12.12 crores (previous year Rs. 10.99 crores) on stocks of finished goods and scrap material at the end of the year except units which are exempt from excise duty. Excise duty is considered as an element of cost at the time of manufacture of goods.

c) Other liabilities include expenses payable, bonus payable, retention money, liabilities towards banks for receivable buyout facilities and other miscellaneous deposits.

2 SHORT TERM PROVISIONS

a) Provision for warranties

A provision is recognised for expected warranty claims and after sales services on products sold during the last one to two years, based on past experience of the level of repairs and returns. It is expected that significant portion of these costs will be incurred in the next financial year and all will have been incurred within two years after the reporting date. Assumptions used to calculate the provisions for warranties were based on current sales levels and current information available about returns based on one to two years warranty period for all products sold. The table below gives information about movement in warranty provisions.

i) During the financial year 2010-11, the Central Excise Department, Jalandhar raised a penalty demand for Rs. 0.10 crores (previous year Rs. 0.10 crores) towards differential excise duty on finished goods sold by the branches at higher selling price. The Company is contesting the same before the Central Excise and Service Tax Appellate Tribunal (CESTAT). A provision of Rs. 0.10 crores (previous year Rs. 0.10 crores) has been made towards the liability on this account.

ii) The Company has challenged the constitutional validity of Entry Tax in Rajasthan, Himachal Pradesh, Orissa and West Bengal before the Hon''ble High Courts in respective states. During the year 2014-15, a provision of Rs. 6.32 crores (previous year Rs. 5.13 crores) has been made on this account and the liability as on date is Rs.13.51 crores (previous year Rs. 7.21 crores).

iii) During the financial year 2011-12, a demand of Rs. 0.21 crores (previous year Rs 0.21 crores) has been raised by the Excise and Taxation officer, Jalandhar. The Company is contesting the same before the Deputy Excise & Taxation Commissioner, Jalandhar Division. However, the Company expects the liability of Rs. 0.06 crores (previous year Rs 0.06 crores) on account of input tax credit on diesel and provision has been made accordingly.

iv) That a demand of Rs. 0.03 crores (previous year Rs. 0.03 crores) has been raised by the Income Tax Department for the financial year 2003-04. The same is contested before the Hon''ble Income Tax Appellate Tribunal. However, the Company expects the liability of Rs. 0.02 crores (previous year Rs. 0.02 crores) and the provision has been made accordingly.

c) Provision for dividend

The Board of Directors has recommended a final dividend of Rs. 3/- per share of Rs. 1/- each (previous year of Rs. 10/- per share of Rs. 5/- each). The payment of final dividend is subject to the approval of the shareholders in the ensuing Annual General Meeting of the Company.



(Rs. in Crores)

2014-15 2013-14

A Contingent liabilities (to the extent not provided for)

a Claims / Suits filed against the Company not acknowledged as debts 5.21 14.09

b Liability towards banks against receivable buyout facilities {refer point (i)} 106.30 86.80

c Bonds to excise department against export of excisable goods / purchase of 3.30 18.57 goods without payment of duty (to the extent utilised)

d Disputed tax liabilities in respect of pending cases before appellate authorities 100.80 70.54

{Amount deposited under protest Rs. 20.65 crores (previous year Rs. 8.35 crores)} {refer point (ii)}

e Demand raised by Uttarakhand Power Corporation Limited contested before 1.00 1.00 electricity Ombudsman, Dehradun {Amount deposited under protest Rs. 1.00 crore (previous year Rs. 1.00 crore)}

f Corporate Guarantees given on behalf of subsidiary companies (to the extent - 143.13 of outstanding obligation) {refer point (iii)}

g Custom duty payable against export obligation {refer point (iv)} 12.14 19.18

Notes:

i) a) The Company has utilised a receivable buyout facility of Rs. 210.98 crores (previous year Rs. 227.69 crores) from IDBI Bank Limited against insurance backed trade receivables with a recourse of 10% of facility amount. Accordingly, the trade receivables stand reduced by the said amount. A sum of Rs. 14.18 crores (previous year Rs. 13.78 crores) on account of charges paid for this facility has been debited to trade receivables factoring charges account.

b) The Company has utilised a receivable buyout facility of Rs. 70.38 crores (previous year Rs. 72.82 crores) from Axis Bank Limited against insurance backed trade receivables with a recourse of 10% of the facility amount. Accordingly, the trade receivables stand reduced by the said amount. A sum of Rs. 5.11 crores (previous year Rs. 5.31 crores) on account of charges paid for this facility has been debited to trade receivables factoring charges account.

c) During the year, the Company has arranged a receivable buyout facility of Rs. 137.41 crores (previous year Rs. 40.47 crores) from The Hongkong and Shanghai Banking Corporation Limited against insurance backed trade receivables with a recourse of 10% of the facility amount. Accordingly, the trade receivables stand reduced by the said amount. A sum of Rs. 6.31 crores (previous year Rs. 4.68 crores) on account of charges paid for this facility has been debited to trade receivables factoring charges account.

d) The Company has arranged channel finance facility for its customers of Rs. 371.94 crores (previous year Rs. 356.46 crores) from Yes Bank Limited and Axis Bank Limited against insurance backed trade receivables with a recourse of 10% of the facility amount.

Besides the above, show cause notices from various departments received by the Company have not been treated as contingent liabilities since the Company has adequately represented to the concerned departments and does not expect any liability on this account.

iii) a) The Company has given a corporate guarantee of Rs. 31.30 crores (USD 5 millions) {previous year Rs. 109.98 crores (USD

18.30 millions)} to Standard Chartered Bank (Hong Kong) Limited in respect of the credit facilities sanctioned to its subsidiary Company ''Havells Exim Limited''. The outstanding amount of the said credit facility as on the date of the balance sheet is Rs. Nil (previous year Rs. Nil).

b) The Company had given an irrevocable and unconditional corporate guarantee to Standard Chartered Bank Limited, London for Rs. 175.53 crores (Euro 26 millions) {previous year Rs. 214.70 crores (Euro 26 millions)} in respect of facility sanctioned to its subsidiary Company ''Havells Holdings Limited'' as per Deed of Guarantee executed between the Company and Standard Chartered Bank Limited, London on 29th March 2013. The outstanding amount of the said credit facility as on the date of the balance sheet is Rs. Nil {previous year Rs. 143.13 crores (Euro 17.33 millions)}. The bankers have released the corporate guarantee during the year.

iv) a) The Company is under obligation to export goods within a period of eight years from the date of issue of EPCG licenses issued in terms of para 5.2 of Foreign Trade Policy 2009-2014. As on the date of balance sheet, the Company is under obligation to export goods worth Rs. 68.39 crores (previous year Rs. 95.47 crores) within the stipulated time as specified in the respective licenses. Out of the said amount, the Company has fulfilled the export obligation of Rs. 65.63 crores (previous year Rs. 82.65 crores) in respect of which application for Export Obligation Discharge Certificates (EODC) will be filed with the Director General Foreign Trade (DGFT) within the stipulated time. Custom duty payable against the said obligation is Rs. 8.55 crores (previous year Rs. 13.89 crores)

b) Further the Company is under obligation to export goods worth Rs. 55.48 crores (previous year Rs. 70.46 crores) in respect of duty free imports made by the Company against Advance Licenses. Out of the said amount, export obligation of Rs. 54.32 crores (previous year Rs. 60.65 crores) has been fulfilled by the Company as at the end of the year in respect of which application for Export Obligation Discharge Certificates (EODC) will be filed with the Director General Foreign Trade (DGFT) within the stipulated time. Custom duty payable against the said obligation is Rs. 3.59 crores (previous year Rs. 5.29 crores)

D Other Litigations

i) One of the customer of the Company had raised claims against the Company relating to supply of switchgear products. The Company and the customer, considering their long-term relationship with each other and without admission of liability on part of either party, have settled their respective claims. The full and final settlement of the claim have been arrived at and the Company has agreed to pay an amount of Rs. 69.69 crores to the customer, which have appropriately accounted for in the financial statements.

ii) Additionally, the Company has some entry tax and other tax related litigation of Rs. 13.69 crores (previous year Rs. 7.39 crores) against which liability has been assessed as probable and adequate provisions have been made with respect to the same. {refer note no. 11(b)}

3 The Company has entered into a Joint Venture agreement with ''Shanghai Yaming Lighting Co., Ltd., Shanghai, China'' on 26th December, 2011 for forming a Joint Venture Company for production of lighting lamps and lighting accessories and sales / services of related products. Accordingly, a Company ''Jiangsu Havells Sylvania Lighting Co., Ltd.'' a Jointly Controlled Entity has been formed vide certificate of approval dated 13th February, 2012 issued by the People''s Government of Jiangsu Province, China. The Company has an investment of Rs. 30.87 crores (RMB 33.00 millions) {previous year Rs. 30.96 crores (RMB 33.00 millions)} towards 50% of capital contribution in the said Joint Venture Company as on the date of balance sheet.

The Company''s interest in Joint Venture is reported as a Non-Current Investment (refer note no. 13) and is stated at cost. The disclosure in respect of Company''s Joint Venture''s assets and liabilities are given on the basis of audited financial statements of the joint venture Company as at 31st December, 2014.

4 Depreciation

(a) Till 31st March, 2014, depreciation was being provided on straight line method as per the rates prescribed in Schedule XIV of the Companies Act, 1956. The Schedule XIV has been replaced by Schedule II of the Companies Act, 2013 and the depreciation has been charged on straight line method on the basis of useful lives of the assets in the manner as prescribed in Schedule II of the Companies Act, 2013.

(b) Till 31st March, 2014, the assets for a value not exceeding Rs. 5000/- were written off in the year of purchase as per Schedule XIV of the Companies Act, 1956. Schedule II of the Companies Act, 2013 does not recognize such practice. The depreciation on assets for a value not exceeding Rs. 5000/- has been provided on the basis of their useful lives in the manner as prescribed in the Schedule II of the Companies Act, 2013.

5 (a) The Company has availed working capital limits from banks under consortium of Canara Bank, IDBI Bank Limited, State Bank of India, Standard Chartered Bank, ICICI Bank Limited, Yes Bank Limited and Hongkong and Shanghai Banking Corporation Limited.

(b) Working capital limits from consortium banks are secured by way of:

i) pari-passu first charge by way of hypothecation on stocks of raw materials, semi-finished goods, finished goods, stores and spares, bill receivables, book debts and all movable and other current assets of the Company.

ii) pari-passu first charge by way of equitable mortgage of land and building at 14/3, Mathura Road, Faridabad.

iii) pari-passu second charge by way of hypothecation of plant and machinery, generators, furniture and fixtures, electric fans and installations.

(c) The Company has a debit balance in cash credit accounts as on the date of Balance Sheet.

5 The Company''s manufacturing units at Village Gularwala, Baddi Distt.-Solan (Unit-II) (Himachal Pradesh) and Haridwar (Uttarakhand) are exempted from excise duty vide Notification No. 49 and 50/2003 issued by Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs, New Delhi and the profits of the said units are eligible for deduction as per the provisions under section 80-IC of the Income Tax Act, 1961.

Defined Benefit Plan

The employees'' Gratuity Fund Scheme, which is a defined benefit plan, is managed by the trust maintained with Life Insurance Corporation of India (LIC) and Bajaj Allianz Life Insurance Company Limited. The present value of obligation is determined based on actuarial valuation using the Projected Unit Credit Method, which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

i) The plan assets are maintained with Life Insurance Corporation of India (LIC) and Bajaj Allianze Life Insurance Company Limited.

j) The Company expects to contribute Rs. 11.00 crores (previous year Rs. 5.00 crores) to the plan during the next financial year.

The estimates of rate of escalation in salary considered in actuarial valuation are after taking into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market. The above information is as certified by the Actuary.

The expected rate of return on plan assets is determined considering several applicable factors, mainly the composition of plan assets held, assessed risks, historical results of return on plan assets and the Company''s policy for the plan assets management.

6 Employee Stock Option Scheme

(a) The Company, vide special resolution passed by way of postal ballot on 23rd January 2013, had approved "Havells Employees Stock Option Plan 2013" (ESOP 2013 or Plan) for granting Employees Stock Options in the form of Equity Shares to eligible employees. The plan is administered by Havells Employees Welfare Trust ("EW Trust") under the supervision of the Nomination and Remuneration Committee of the Board of Directors of the Company ("Committee") in compliance with the provisions of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (SEBI Guidelines) and other applicable provisions for the time being in force. The first grant date of the options under the approved ESOP 2013 Plan was 8th April, 2013. The options are vested equally over a period of 2 years after the date of grant, and the said options can be exercised any time within a period of 30 days from the date of vesting and will be settled by way of equity shares in accordance with the aforesaid plan.

During the financial year 2013-14, the Company had granted 45,939 options at Rs. 677/- per share and the exercise price was Rs. 338.50 per share.

The weighted average remaining contractual life for the stock option outstanding as at 31st March, 2015 is 0.05 year (previous year 0.60 year). The exercise price for options outstanding at the end of year is Rs. 67.70 per share. The average market share price of ESOP exercised during the year is Rs. 254.80 per share.

The weighted average fair value of stock option granted during the year is Rs. 237.48 per share. The Black Scholes valuation model has been used for computing the weighted average fair value considering the following inputs:

(b) The Company had, vide special resolution passed by way of postal ballot on 9th June, 2014 and by way of amendment to the "Havells Employees Stock Option Plan 2013" (ESOP 2013 or Plan) included Part B - "Havells Employees Stock Purchase Plan 2014 and renamed it as "Havells Employees Long Term Incentive Plan 2014" for granting Employees Stock Options in the form of Equity Shares to eligible employees. The purchase price of the options was approved on 26th June, 2014 under the supervision of the Nomination and Remuneration Committee of the Board of Directors of the Company. The options were vested as on 15th July, 2014 after the grant date and in accordance with the terms and conditions of the plan, the said options can be exercisable within a period of 30 days from the date of vesting and settled by way of equity shares. Accordingly during the year, Equity Shares of Rs. 1/- each were allotted to eligible employees at Rs. 223.17 per share. As per the scheme, 50% of shares are under lock-in-period of one year and remaining 50% are under lock-in-period of two years.

Further, as per the scheme, the Company shall pay 50% of issue price for differential bonus shares to eligible employees as exgratia / bonus for the said amount.

In respect of stock options granted pursuant to the Company''s stock options scheme, the intrinsic value of the options (excess of market price of the share over the exercise price of the option) is treated as expense and accounted as employee compensation over the vesting period and will be paid in two equal instalments annually.

(c) The Company has debited an expense of Rs. 3.73 crores (previous year Rs. 0.99 crores) to the statement of profit and loss under Employee Stock Option Scheme during the financial year.

7. Corporate Social Responsibility

As per provisions of section 135 of the Companies Act, 2013, the Company has to provide at least 2% of average net profits of the preceding three financial years towards Corporate Social Responsibility ("CSR"). Accordingly, a CSR committee has been formed for carrying out CSR activities as per the Schedule VII of the Companies Act, 2013. The Company has contributed a sum of Rs. 9.79 crores towards this cause and debited the same to the statement of profit and loss. The funds are primary allocated to QRG foundation, a society registered under section 12A of the Income Tax Act, 1961 for undertaking Mid-Day meal scheme, Ashoka University, sponsored by International Foundation for Research and Education (IFRE) which is a "Not for Profit" Company incorporated under the provisions of section 25 of the erstwhile Companies Act, 1956 for the promotion of education and to the Vivekanand Ashram for providing free education to underprivileged students.

8. Segment Reporting

The segment reporting of the Company has been prepared in accordance with Accounting Standard-17, "Segment Reporting" ( specified under section 133 of the Companies Act, 2013, read with Rule 7 of Companies (Accounts) Rules, 2014 ).

Segment Reporting Policies

a) Identification of Segments:

Primary- Business Segment

The Company has identified four reportable segments viz. Switchgears, Lighting and fixtures, Cables and Electrical Consumer Durables on the basis of the nature of products, the risk and return profile of individual business and the internal business reporting systems. The products included in each of the reported business segments are as follows:

(i) The switchgear segment comprises of domestic and the industrial switchgears, electrical wiring accessories, industrial motors, pumps and capacitors.

(ii) The cable segment comprises of flexible cables and industrial underground cables.

(iii) The lighting and fixture segment comprises of energy saving lamps (CFL) and luminaries.

(iv) The electrical consumer durable segment comprises of fans, water heaters and domestic appliances.

Secondary- Geographical Segment

The analysis of geographical segment is based on geographical location of the customers.

b) Revenue and expenses have been identified to a segment on the basis of relationship to operating activities of the segment. Revenue and expenses which relate to enterprise as a whole and are not allocable to a segment on reasonable basis have been disclosed as "Unallocated".

c) Segment assets and segment liabilities represent assets and liabilities in respective segments. Investments, tax related assets, borrowings and other assets and liabilities that can not be allocated to a segment on reasonable basis have been disclosed as "Unallocated".

9 a) The Company has taken various residential / commercial premises under cancellable operating leases. These lease agreements are normally renewed on expiry. There are no restrictions placed upon the Company by entering into these leases and there are no subleases.

10 Subsequent Event

The Company has acquired 51% stake in Promptec Renewable Energy Solution Private Limited, having its registered office at Bengaluru, Karnataka for a consideration of Rs. 29.08 crores as per the share subscription cum purchase agreement dated April 21, 2015 . The said Company is engaged in marketing and manufacturing of LED products including street lighting, office lighting and solar lighting.

11 The figures have been rounded off to the nearest crore of rupees upto two decimal places. The figure 0.00 wherever stated represents value less than Rs. 50,000/-.

12 Previous year figures has been regrouped/reclassiffed wherever necessary to make them comparable with the current year figures.

13 Note No.1 to 31 form integral part of the balance sheet and statement of profit and loss.


Mar 31, 2014

A) terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 5/- per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees. The Board of Directors at its meeting held on 14th March, 2014 declared an interim dividend of Rs. 5/- per equity share of Rs. 5/- each. A Final dividend of Rs. 10/- per share (previous year Rs. 7.50/- per share) has been recommended by board subject to the approval of shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

b) Shares reserved for issue under options :

39,345 shares are reserved for the issue under Employee Stock Option Plan (ESOP) of the Company {refer note no. 31(10)}

c) aggregate number of shares issued as fully paid up pursuant to contract without payment being received in cash or by way of bonus shares during the period of five years immediately preceding the date of Balance Sheet:

d) Provision for litigations

i) During the FY 2010-11, the Central Excise Department, Jalandhar raised a penalty demand for Rs. 0.10 crore (previous year 0.10 crore) towards differential excise duty on finished goods sold by the branches at higher selling price. The Company is contesting the same before the Central Excise and Service Tax Appellate Tribunal (CESTAT). A provision of Rs. 0.10 crore (previous year 0.10 crore) has been made towards the liability on this account.

ii) The Company has challenged the constitutional validity of Entry Tax in Rajasthan, Himachal pradesh, Orissa and West Bengal before the Hon''ble High Courts in respective states. During the year 2013-14, a provision of Rs. 5.13 crores (previous year Rs. 1.57 crores) has been made on this account and the liability as on date is Rs. 7.21 crores (previous year Rs. 2.82 crores).

iii) During the FY 2011-12, a demand of Rs. 0.21 crore (previous year 0.21 crore) has been raised by the Excise and Taxation officer, Jalandhar. The Company is contesting the same before the Deputy Excise & Taxation Commissioner, Jalandhar Division. However, the Company expects the liability of Rs. 0.06 crore (previous year 0.06 crore) on account of input tax credit on diesel and provision has been made accordingly.

iv) A demand of Rs. 0.03 crore (previous year 0.03 crore) has been raised by the Income Tax Department for the FY 2003-04. The same is contested before the Hon''ble Income Tax Appellate Tribunal. However, the Company expects the liability of Rs. 0.02 crore (previous year 0.02 crore) and the provision has been made accordingly.

e) Provision for dividend

The Board of Directors has recommended a final dividend of Rs. 10/- (previous year Rs. 7.50/-) per equity share of Rs. 5/- each in addition to an interim dividend of Rs. 5/- each (previous year nil) already paid for the year ended March 31, 2014. The payment of final dividend is subject to the approval of the shareholders in the ensuing Annual General Meeting of the Company.

Based on favorable decisions in similar cases, legal opinions taken by the Company and discussions with the solicitors, the Company does not expect any liability against these matters and hence no provision has been considered in the books of accounts.

Besides the above, show cause notices from various departments have been received by the Company have not been treated as contingent liabilities since the Company has adequately represented to the concerned departments and does not expect any liability on this account.

iv) a) The Company has given a corporate guarantee of Rs. 109.98 crores (USD 18.30 millions) {previous year Rs. 99.53 crores (USD 18.30 millions)} to Standard Chartered Bank (Hong Kong) Limited in respect of the credit facilities sanctioned to its subsidiary company ''Havells Exim Limited''. The outstanding amount of the said credit facility as on the date of the balance sheet is Rs. Nil {(previous year Rs. 97.24 crores (USD 17.88 millions)}. Subsequent to the date of balance sheet, the said guarantee has been reduced to Rs. 30.05 crores (USD 5 millions).

b) The Company has given an irrevocable and unconditional corporate guarantee to Standard Chartered Bank Limited, London for Rs. 214.70 crores (Euro 26 millions) {previous year Rs. 180.81 crores (Euro 26 millions)} in respect of facility sanctioned to its subsidiary company ''Havells Holdings Limited'' as per Deed of Guarantee executed between the Company and Standard Chartered Bank Limited, London on 29th March, 2013. The outstanding amount of the said credit facility as on the date of the balance sheet is Rs. 143.13 crores (Euro 17.33 millions) {previous year Rs. 180.81 crores (Euro 26 millions)}.

v) a) The Company is under obligation to export goods within a period of eight years from the date of issue of EPCG licenses issued in terms of para 5.2 of Foreign Trade Policy 2009-2014. As on the date of balance sheet, the Company is under obligation to export goods worth Rs. 95.47 crores (previous year Rs. 125.80 crores) within the stipulated time as specified in the respective licenses. Out of the said amount, the Company has fulfilled the export obligation of Rs. 82.65 crores (previous year Rs. 86.44 crores) in respect of which application for Export Obligation Discharge Certificates (EODC) will be fled with the Director General Foreign Trade (DGFT) within the stipulated time.

b) Further the Company is under obligation to export goods worth Rs. 70.46 crores (previous year Rs. 60.46 crores) in respect of duty free imports made by the Company against Advance Licenses. Out of the said amount, export obligation of Rs. 60.65 crores (previous year Rs. 49.70 crores) has been fulfilled by the Company as at the end of the year in respect of which application for Export Obligation Discharge Certificates (EODC) will be fled with the Director General Foreign Trade (DGFT) within the stipulated time.

1. The Company has entered into a Joint Venture agreement with ''Shanghai Yaming Lighting Co., Limited, Shanghai, China'' on 26th December, 2011 for forming a Joint Venture Company for production of lighting lamps and lighting accessories and sales/services of related products. Accordingly, a Company ''Jiangsu Havells Sylvania Lighting Co., Limited'' a Jointly Controlled Entity has been formed vide certificate of approval dated 13th February, 2012 issued by the People''s Government of Jiangsu Province, China. The Company has invested a sum of Rs. 30.96 crores (RMB 33.00 millions) {previous year Rs. 16.85 crores (RMB 19.19 millions)} towards 50% of capital contribution in said Joint Venture Company as on the date of balance sheet.

The Company''s interest in Joint Venture is reported as a Non-Current Investment (refer note 13) and is stated at cost. The disclosure in respect of Company''s Joint Venture''s assets and liabilities are given on the basis of audited financial statements of the joint venture company as at 31st, December, 2013.

(b) Working capital limits from consortium banks are secured by way of:

i) pari-passu first charge by way of hypothecation on stocks of raw material, semi-finished goods, finished goods, stores and spares, bill receivables, book debts and all movable and other current assets of the Company.

ii) pari-passu first charge by way of Equitable Mortgage on land and building at 14/3, Mathura Road, Faridabad

iii) pari-passu second charge by way of hypothecation on plant and machinery, generators, furniture and fixtures, electric fans and installations.

(c) The Company has a debit balance in cash credit accounts as on the date of Balance Sheet.

2. The Company had created a Business Reconstruction Reserve Account( "BRR") in the FY 2009-10 by transfer of Rs. 400 crores from securities premium account for the purpose of adjustment of certain expenses as per the scheme of arrangement entered into by the Company with its subsidiary and associate company as approved by the Hon''ble High Court of Delhi vide their order dated 19.08.2010. As per the scheme of arrangement, as and when the Board of Directors of the Company determines that a part or whole of the balance remaining in BRR is no longer required, then such unutilised amount can be transferred to the General Reserve. Accordingly, during the year, the Company has transferred unutilised amount of BRR of Rs. 398.46 crores to General Reserve pursuant to resolution passed by the Board of Directors.

3. Companies (Accounting Standards) (Second Amendment Rules), 2011 issued by the Ministry of Corporate Affairs vide Notification dated December 29, 2011, had amended Accounting Standard - 11 "The Effect of Changes in Foreign Exchange Rates" and given an option to the companies to adopt the treatment prescribed in the said notification in reference to exchange differences arising on reporting of long term foreign currency monetary items. The Company has, consistently following the provisions of AS-11 as in the past, chosen not to adopt the alternate treatment prescribed under the above notification. In accordance with the accounting policy of the Company, a sum of Rs. 11.42 crores has been recognised as exchange loss in respect of the long term foreign currency monetary items during the year (previous year exchange loss Rs. 5.86 crores).

Out of the said loss, Rs. 10.73 crores (previous year Rs. 2.25 crores) has been treated as finance cost being the exchange difference arising from foreign currency borrowings to the extent they can be regarded as an adjustment to interest costs as per Accounting Standard -16, " Borrowing Costs" notified under the Companies (Accounting Standards) Rules, 2006 (as amended).

Research and development facilities located at Head offce, Noida (Uttar Pradesh) and other manufacturing units have been approved by Department of Scientific & Industrial Research, Ministry of Science & Technology for In-house Research & Development Facility and are eligible for deduction under section 35(2AB) of the Income Tax Act,1961.

4. The Company''s manufacturing units at Baddi, (Himachal Pradesh) and Haridwar (Uttarakhand) are exempted from excise duty vide Notification No. 49 and 50/2003 issued by Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs, New Delhi and the profits of the said units are eligible for deduction as per the provisions under section 80-IC of the Income Tax Act,1961.

j) The plan assets are maintained with Life Insurance Corporation of India (LIC) and Bajaj Allianze Life Insurance Company Limited

k) The Company expects to contribute Rs. 5.00 crores (previous year Rs. 3.75 crores) to the plan during the next financial year.

The estimates of rate of escalation in salary considered in actuarial valuation are after taking into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market. The above information is as certified by the Actuary.

The expected rate of return on plan assets is determined considering several applicable factors, mainly the composition of plan assets held, assessed risks, historical results of return on plan assets and the Company''s policy for the plan assets management.

5. employee Stock Option Scheme

a) The Company had, vide special resolution passed by way of postal ballot on 23rd January 2013 approved "Havells Employees Stock Option Plan 2013" (ESOP 2013 or Plan) for granting Employees Stock Options in the form of Equity Shares to eligible employees. The plan is administered by Havells Employees Welfare Trust ("EW Trust") under the supervision of the Nomination and Remuneration Committee of the Board of Directors of the Company ("Committee") in compliance with the provisions of SEBI (Employee Stock Option Scheme and Employee Stock purchase Scheme) Guidelines, 1999 (SEBI Guidelines) and any other applicable provisions for the time being in force. The first grant date of the options under the approved ESOP 2013 Plan was 8th April, 2013. The options are vested equally over a period of 2 years after the date of grant, and the said options can be exercised any time within a period of 30 days from the date of vesting and will be settled by way of equity shares in accordance with the aforesaid plan.

During the year, the Company has granted 45,939 options at Rs. 677/- per share and the exercise price is Rs. 338.50/- per share.

In respect of stock options granted pursuant to the Company''s stock options scheme, the intrinsic value of the options (excess of market price of the share over the exercise price of the option) is treated as expense and accounted as employee compensation over the vesting period.

Expense on Employee Stock Option Scheme debited to the Statement of Proft and Loss during the FY 2013-14 is Rs. 0.99 crore.

b) During the year, financial statements of ''Havells Employee Welfare Trust'' have been consolidated in the Standalone financial statements of the Company, in accordance with the opinion of Expert Advisory Committee (EAC) issued by the Institute of Chartered Accountants of India. Accordingly, investments held by trust in the shares of the Company and loan received by trust from the Company has been eliminated with the issued share capital and securities premium and loan given by the Company. Further, bank balance of Rs. 2.74 crores, advance received by trust from Company''s employees of Rs. 4.21 crores has been consolidated in respective account heads in the financial statements of the Company.

6. Segment Reporting

The segment reporting of the Company has been prepared in accordance with Accounting Standard-17, "Segment Reporting", notified under the Companies (Accounting Standards) Rules, 2006 (as amended).

Segment Reporting Policies

a) identification of Segments:

Primary- Business Segment

The Company has identified four reportable segments viz. Switchgears, Lighting and fixtures, Cables and Electrical Consumer Durables on the basis of the nature of products, the risk and return profile of individual business and the internal business reporting systems. The products included in each of the reported business segments are as follows:

(i) The switchgear segment comprises of domestic and the industrial switchgears, electrical wiring accessories, industrial motors, pumps and capacitors.

(ii) The cable segment comprises of flexible cables and industrial underground cables.

(iii) The lighting and fixture segment comprises of energy saving lamps (CFL) and luminaries.

(iv) The electrical consumer durable segment comprises of fans, water heaters and domestic appliances.

Secondary- Geographical Segment

The analysis of geographical segment is based on geographical location of the customers.

b) Revenue and expenses have been identified to a segment on the basis of relationship to operating activities of the segment. Revenue and expenses which relate to enterprise as a whole and are not allocable to a segment on reasonable basis have been disclosed as "Unallocated".

c) Segment assets and segment liabilities represent assets and liabilities in respective segments. Investments, tax related assets, borrowings and other assets and liabilities that can not be allocated to a segment on reasonable basis have been disclosed as "Unallocated".

7. a) The Company has taken various residential/commercial premises under cancellable operating leases. These lease agreements are normally renewed on expiry. There are no restrictions placed upon the Company by entering into these leases and there are no subleases.

8. The figures have been rounded off to the nearest crore of rupees up to two decimal places. The figure 0.00 wherever stated represents value less than Rs. 50000/-.

9. Previous year figures has been regrouped/reclassified wherever necessary to make them comparable with the current year figures.

10. Note No.1 to 31 form integral part of the balance sheet and statement of profit and loss.

 
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