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Notes to Accounts of MRF Ltd.

Mar 31, 2017

Note 1 - Standalone Accounting Policies under IND AS

A) General Information

MRF Limited (the “Company”) is a limited company, incorporated on 5th November, 1960 in India, whose shares are publicly traded.

The Company is India’s largest tyre manufacturer and ranked amongst the Top 20 Global Manufacturers, with 9 state-of-the-art factories across India. It is also India’s largest Original Equipment Manufacturer (OEM) tyre supplier with an expansive tyre range from two-wheelers to fighter aircrafts.

The Registered Office is located at No.114, Greams Road, Chennai-600 006.

The Company is the ultimate parent of MRF Limited Group.

B) Basis of preparation of financial statements

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented.

The Company has adopted the Indian Accounting Standards (Ind AS’) in accordance with Ind AS 101 - First Time Adoption of Indian Accounting Standards. The Company has transited from its previous GAAP as defined in Ind AS 101 with the necessary disclosures relating to reconciliation of Shareholders equity under Previous GAAP and Ind AS and of the net profit as Previous GAAP and Total Comprehensive Income Under Ind AS. Refer Note 24 (a), (b), (c).

i. Statement of Compliance

In accordance with the notification issued by the Ministry of Corporate Affairs, the Company has adopted Indian Accounting Standards (referred to as “IND AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 with effect from April 1, 2016. These financial statements have been prepared in accordance with IND AS as prescribed under Section 133 of the Companies Act, 2013 read together with the Companies (Indian Accounting Standards) Rules, 2015 and subsequent amendments thereto.

The Financial Statement for the year ended 31st March, 2017 is the first Financial Statement, the Company has prepared in accordance with IND AS. (Refer Para D below for the details of first-time adoption exemptions availed by the Company.)

ii. Basis of preparation and presentation

The financial statements have been prepared on historical cost basis considering the applicable provisions of Companies Act 2013, except for the following items that have been measured at fair value as required by relevant IND AS. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services at the time of initial recognition.

a) Certain financial assets/liabilities measured at fair value (refer accounting policy regarding financial instruments) and

b) Any other item as specifically stated in the accounting policy.

The Financial Statement are presented in INR and all values are rounded off to Rupees Crores unless otherwise stated.

The financial statements of the Company for the year ended 31st March, 2017 were authorised for issue in accordance with a resolution of the directors on 4th May, 2017.

iii. Comparative Reporting Period

In view of the requirement of Companies Act, 2013, regarding uniform financial year for all Companies, the Company changed its financial year end from 30th September to 31st March. The company had reported for 18 months from 1st October 2014 to 31st March 2016 under previous GAAP. Therefore, the comparative reporting period for the company is of 18 months from 1st October 2014 to 31st March 2016. In view of the reporting period of current year and comparative period not being same, the financial statements are not entirely comparable.

iv. Use of Estimate and judgment

In the application of accounting policy which are described in Para C below, the management is required to make judgment, estimates and assumptions about the carrying amount of assets and liabilities, income and expenses, contingent liabilities and the accompanying disclosures that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant and are prudent and reasonable. Actual results may differ from those estimates. The estimates and underlying assumptions are reviewed on ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future period.

The few critical estimations and judgments made in applying accounting policies are:

Property, Plant and Equipment:

Useful life of Property, Plant and Equipment and Intangible Assets are as specified in Schedule II to the Companies Act, 201 3 and on certain assets based on technical advice which considered the nature of the asset, the usage of the asset, expected physical wear and tear, the operating conditions of the asset, anticipated technological changes, manufacturers warranties and maintenance support.

Inventories:

Inventory obsolescence is based on assessment of the future uses. In all cases, inventory is carried at the lower of historical cost and net realisable value.

Lease:

Lease accounting after evaluating the right to use the underlying assets, substance of the transactions including legally enforceable arrangements and other significant terms and conditions of the arrangement to conclude whether the arrangements meet the criteria under IND AS 1 7.

Impairment of Non-financial Assets:

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators.

Impairment of Financial Assets:

The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

Defined Benefit Plans:

The cost of the defined benefit plan and other postemployment benefits and the present value of such obligations 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 attrition rate. Due to 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.

Fair Value Measurement of Financial Instruments:

When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the Discounted Cash Flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgments 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.

NOTE 2 (a) - FOOTNOTES TO THE RECONCILIATION OF EQUITY AS AT 1ST OCTOBER, 2014 AND 31ST MARCH, 2016 AND TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ENDED 31ST MARCH, 2016

i) FVTPL Financial Assets:

Under previous GAAP, the Company accounted for non-current/ current investments in quoted equity shares and unquoted mutual funds units at cost less provision for other than temporary diminution in the value of investments and at lower of cost and share value respectively. Under Ind-AS, the investments are required to be classified and measured subsequently at fair value through profit or loss. At the date of transition to Ind-AS, difference between the fair value and GAAP carrying amount of Rs.195.39 Crores has been recognised in the retained earnings. The impact of Rs.167.71 Crores as at 31st March, 2016 has been recognised in the statement of profit and loss.

ii) Derivatives:

Under previous GAAP, the company recognised derivatives if the fair value of the derivative resulted in loss in the Statement of Profit or Loss. Derivatives resulting in gains in the Statement of Profit and Loss were not recognised. Ind AS requires all derivatives to be recognised whether they result in loss or gain. All derivatives have been recognised at fair value. The effective portion of the changes in fair value of interest rate swaps designated as hedging instrument under cash flow hedge relating to risk being hedged is recognised in Other Comprehensive Income. The changes in fair value of undesignated derivatives are recognised in retained earnings on the date of transition and in finance costs after the date of transition. However, none of the derivatives designated as hedge, were ineffective during the reporting period. The impact on account of recognition of derivatives in the Other Comprehensive Income for the period ended 31 March 2016 is Rs.6.08 Crores (Net of Tax of Rs.3.21 Crores) and Rs.5.18 Crores (Net of Tax of Rs.2.74 Crores) as at the date of transition.

iii) Other Payables:

Under previous GAAP, proposed dividend including Dividend

Distribution Tax are recognised as a liability in the period to which they relate, irrespective of when they are declared. Under Ind-AS, dividend is recognised as a liability in the period in which it is declared by the company (usually when approved by shareholders in a general meeting).

Accordingly, the liability of Rs.22.39 Crores for the year ended on 30th September, 2014 recorded for proposed dividend has been derecognised against retained earnings on 1st October, 2014. The proposed dividend for the period ended on 31st March 2016 of Rs.47.99 Crores recognised under Indian GAAP was reduced from other payables and with a corresponding impact in the retained earnings.

iv) Defined Benefit Obligation:

Both under previous GAAP and Ind-AS, the Group recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to statement of profit and loss. under Ind-AS, re-measurements comprising of actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, the effect of change in asset ceiling (if applicable) and the return on plan assets (excluding net interest) are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through Other Comprehensive Income (OCI). Thus, the employee benefit cost is reduced by Rs.16.36 Crores (Net of Tax of Rs.8.66 Crores) as at 31st March, 2016 and re-measurement losses on defined benefit plans has been recognised in the Other Comprehensive Incomes (net of tax)

v) Other Comprehensive Income:

Under previous GAAP, the Company has not presented Other Comprehensive Income (OCI) separately. Hence, it has reconciled previous GAAP profit to profit as per Ind-AS. Further, Indian GAAP profit is reconciled to total comprehensive income as per Ind-AS.

vi) Deferred Tax

Under previous GAAP, the deferred tax was calculated on income statement approach whereas Ind AS requires deferred tax to be recognised on balance sheet liability method. This change in the concept of recognition and measurement has resulted in an increase of deferred tax liability of Rs.15.30 Crores on transition date with corresponding decrease in retained earnings. Further, the impact during the previous period ended 31 March 2016 was net decrease in the total comprehensive income for the period of Rs.37.63 Crores

vii) Other IND AS Adjustments (Non Current Financial Assets / liabilities and provisions)

Under previous GAAP, the Company accounted for non-current Financial Assets / liabilities and provisions at undiscounted values. In contrast, the IND AS requires that where the effect of time value of money is material, the amount of Non Current Financial Assets / liabilities and provisions should be the present value of expenditure / income expected to be required to settle the obligations / received upon maturity. This impact is recognised as an Interest Income or as other borrowing cost.

viii) Non Current Assets

The Company has elected to measure certain advances at fair value at the date of transition to IND AS. Accordingly, at the date of transition to IND AS on 1st October 2014 a decrease of Rs.1.58 Crores and Rs.0.11 Crores for the period ended 31st March 2016 has been recognised as an expenses on de-recognition of the asset.

NOTE 3 : A. Capital Management

For the purpose of Company’s Capital Management, capital includes Issued Equity Capital, Securities Premium, and all other Equity Reserves attributable to the Equity Holders of the Company. The primary objective of the Company’s Capital Management is to maximise the Share Holder Value.

The Company manages its capital structure and makes adjustments in the light of changes in economic conditions and requirements of the financial covenants and to continue as a going concern. The Company monitors using a gearing ratio which is net debts divided by total capital plus net debt. The company includes within net debt, interest bearing loans and borrowings, less cash and short term deposit.

B. Financial Risk Management

The Company’s principal financial liabilities comprise loans and borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the operations of the Company. The principal financial assets include trade and other receivables, investments in mutual funds and cash and short term deposits.

The Company has assessed market risk, credit risk and liquidity risk to its financial liabilities.

i) Market Risk

Is the risk of loss of future earnings, fair values or cash flows that may result from a change in the price of a financial instrument, as a result of interest rates, foreign exchange rates and other price risks. Financial instruments affected by market risks, primarily include loans & borrowings, investments and foreign currency receivables, payables and borrowings.

In order to optimise and manage the company’s interest rate risk, the treasury performs a comprehensive risk management policy by balancing the portion of fixed rate and floating rate financial instruments in its total portfolio. The Company due to its AAA rated status commands one of the cheapest source of funding. Interest rate is fixed for the tenor of the term loans availed by the Company. Interest on borrowings subject to floating interest rate are repriced regularly. The sensitivity analysis detailed below have been determined based on the exposure to variable interest rates on the average outstanding amounts due to bankers over a year.

If the interest rates had been 1% higher / lower and all other variables held constant, the company’s profit for the year ended 31st March, 2017 would have been decreased/ increased by Rs.2.48 crores.

The Company is not exposed to significant risk with regard to foreign currency borrowing and payables.

The foreign currency loans are designated as cash flow hedges and are fully covered for the tenor of the loan. As regards foreign currency trade transactions, net exposure on a month on month basis, is fully covered.

The Company is affected by the price stability of certain commodities. Due to the significantly increased volatility of certain commodities like Natural Rubber, Synthetic Rubber and other Chemicals, the Company enters into purchase contracts on a short term and forward foreign exchange contracts(matching the purchase contracts) are entered into to minimise price fluctuations.

ii) Credit Risk

Is the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. It arises from cash and cash equivalents, investments as well as credit exposure to customers.

The Company holds cash and cash equivalents with banks which are having highest safety rankings and hence has a low credit risk.

Investments in mutual funds are primarily debt funds, which have high safety ratings and are monitored on a monthly basis and the Company is of the opinion that its mutual fund investments have low credit risk.

The Company’s marketing policies are well structured and all replacement sales are predominantly through dealers and the outstanding are secured by dealer deposits. As regards sales to O.E. and other institutional sales, the Company carries out periodic credit checks and also limits the exposure by establishing maximum payment period for customers and by offering prompt payment discounts, etc. The outstanding trade receivables due for a period exceeding 180 days as at the year ended 31 March 2017 is 0.35% of the total trade receivables.

iii) Liquidity Risk

The Company manages liquidity risk by maintaining adequate surplus, banking facilities and reserve borrowings facilities by continuously monitoring forecasts and actual cash flows.

The Company has a system of forecasting rolling three months cash inflow and outflow and all liquidity requirements are planned.

All Long term borrowings are for a fixed tenor and generally these cannot be foreclosed.

The Company has access to various source of Short term funding and debit maturing within 12 months can be rolled over with existing lenders/new lenders, or repaid based on short term requirements.

Trade and other payables are plugged into the three months rolling cash flow forecast to ensure timely funding, if required.

All payments are made along due dates and requests for early payments are entertained after due approval and availing early payment discounts.

NOTE 4 : FAIR VALUES AND HIERARCHY

The management assessed that cash and cash equivalents, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The Fair value of financial assets and liabilities included is the amount at which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate the fair value.

1. The Fair values of Mutual Funds and Quoted Equities are based on NAv / Quoted Price at the reporting date. Further, the Company had invested in Co-operative Societies and in certain other companies towards the corpus. These are non participative shares and normally no dividend is accrued. The Company has carried these investments at it transaction value considering it to be its fair value.

2. The Company enters into Derivative financial instruments with counterparties principally with Banks with investment grade credit ratings. The Interest Rate swaps, foreign exchange forward contracts are valued using valuation techniques which employs the use of market observable inputs namely, Marked-to-Market.

a. Disclosures required under Section 186(4) of the Companies Act,2013:

(i) The Company has given Corporate guarantees to bankers on behalf of Subsidiary Companies for general business purposes in the earlier year amounting to Rs.854.85 Crores. The said guarantees have been cancelled during the period ended 31st March, 2016.

(ii) Refer Note 3 for Investments

b. Terms of Repayment and Security Description of Borrowings:

a) Current Borrowings

Loans repayable on demand from banks are secured by hypothecation of Inventories and book debts and carries interest rates at the rate of 8.25% to 9.75% (Previous period 9.35% to 10.50 %)

Buyer’s Line of Credit is repayable within a year and carries interest at the rate of LIBOR plus 15bps to LIBOR plus 25bps (Previous period LIBOR plus 25bps and LIBOR plus 40bps)

b) Non Current Borrowings

i) ECB from The Bank of Tokyo - Mitsubishi uFJ, Ltd. availed in December 2011-uSD 40 Million is secured by a first charge on Plant and Machinery situated at Puduchery Unit. Interest is payable at a rate equal to the 6 months BBA LIBOR plus margin of 1.55% (31.03.2016 and 01.10.2014- 6 months BBA LIBOR plus margin of 1.55%) payable half-yearly. The said loan is fully hedged and is repayable in three equal annual instalments at the end of the fourth, fifth and sixth year beginning October, 2015.

ii) The principal amount of Debentures, interest, remuneration to Debenture Trustees and all other costs, charges and expenses payable by the company in respect of Debentures are secured by way of a legal mortgage of Company’s land at Taluka Kadi, District Mehsana, Gujarat and hypothecation by way of a first charge on Plant and Machinery at the company’s plants at Perambalur, near Trichy, Tamil Nadu, equivalent to the outstanding amount.

iii) ECB(Unsecured) from the Bank of Tokyo- Mitsubishi UFJ, Ltd

a) USD 15 Million availed in October,2013 is for capital expenditure. Interest is payable at a rate equal to the six months USD LIBOR plus margin of 1.50%(31.03.2016 and 01.10.2014- six months USD LIBOR plus margin of 1.50%) payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning October,2017.

b) USD 20 Million availed in May,2015 is for capital expenditure. Interest is payable at a rate equal to the six months USD LIBOR plus margin of 1.00%(31.03.2016-six months USD LIBOR plus margin of 1.00%) payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning May,2019.

iv) ECB(Unsecured) from the Mizuho Bank, Ltd

a) USD 15 Million availed in January,2014 is for capital expenditure. Interest is payable at a rate equal to the six months USD LIBOR plus margin of 1.50%(31.03.2016 and 01.10.2014- six months USD LIBOR plus margin of 1.50%) payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning January,2018.

b) USD 25 Million availed in February,2015 is for capital expenditure. Interest is payable at a rate equal to the six months USD LIBOR plus margin of 1.00%(31.03.2016- six months USD LIBOR plus margin of 1.00%) payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning February,2019.

v) ECB(Unsecured) from the CITI Bank availed in January,2015 amounting to USD 20 Million is for capital expenditure. Interest is payable at a rate equal to the six months BBA LIBOR plus margin of 1.30% (31.03.2016- six months BBA LIBOR plus margin of 1.30%) payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning January, 2019.

vi) ECB(Unsecured) from the HSBC Bank availed in October,2015 amounting to USD 20 Million is for capital expenditure. Interest is payable at a rate equal to the six months BBA LIBOR plus margin of 1.25% (31.03.2016- six months BBA LIBOR plus margin of 1.25%) payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning October,2019.

vii) Buyers Line of Credit (Unsecured) of USD 24.82 Million availed from CITI Bank for Capital Expenditure is repayable after 2 years and 364 days beginning in March 2017 at varied interest rates as applicable on different drawdown dates. The said Loan is fully hedged.

viii) Interest free Unsecured Loan availed under Sales tax Deferral Scheme is repayable yearly and to end on 1st April, 2019.

ix) Deferred payment credit is repayable along with interest( at varying rates) in 240 consecutive monthly instalments ending in March 2026.

x) Fixed Deposits are Unsecured and are repayable as per the terms with interest rates of 8.50% to 9.50%.(Previous year 8.50% to 9.50%)

c. Commitment

(i) Estimated amount of contracts remaining to be executed on Capital Account, net of advances and not provided for - Rs.1086.57 Crores (Previous Period Rs.650.59 Crores).

(ii) Customs Duty on import of equipments and spare parts under EPCG Scheme - Rs.238.48 Crores (31.03.2016 - Rs.162.76 Crores, 01.10.2014Rs.161.36 Crores).

d. Contingent Liabilities not provided for:

(i) Guarantees given by the Banks - Rs.35.49 Crores (Previous Period - Rs.47.33 Crores).

(ii) Letters of Credit issued by the Banks - Rs.153.92 Crores (Previous Period - Rs.85.90 Crores).

(iii) Claims not acknowledged as debts:

a) Disputed Sales Tax demands pending before the Appellate Authorities - Rs.38.61 Crores (Previous Period - Rs.23.05 Crores).

b) Disputed Excise/Customs Duty demands pending before the Appellate Authorities/High Court - Rs.86.42 Crores (Previous Period - Rs.76.07 Crores).

c) Disputed Income Tax Demands - Rs.79.01 Crores (Previous Period - Rs.30.74 Crores). Against the said demand the company has deposited an amount of Rs.15.98 Crores.

d) Contested EPF Demands pending before Appellate Tribunal- Rs.1.10 Crores (Previous Period - Rs.1.10 Crores).

e. Previous period figures have been regrouped/ rearranged, wherever necessary.


Sep 30, 2014

A. The Company''s leasing arrangements are in respect of operating leases for premises (residential, office, godowns, etc). The leasing arrangements, which are not non-cancellable, range between eleven months and three years generally, and are usually renewable by mutual consent on agreed terms. The aggregate lease rentals payable are charged as rent.

b. Movement in provisions as required by Accounting Standard 29 "Provisions, Contingent Liabilities and Contingent Asset".

c. Provision for Taxation has been made in respect of the income presently determined for the period 1st April, 2014 to 30th September, 2014 which is subject to appropriate revision/adjustment on final determination of income for the year to end on 31st March, 2015, relevant to assessment year 2015-16. Further, provision for the assessment year 2014-15 has been determined and adjusted considering the provision already made in the accounts for the year ended 30th September, 2013.

d. Related party disclosures:

(a) Names of related parties and nature of relationship where control exists are as under:

Subsidiary Companies:

i) MRF Corp Ltd.

ii) MRF International Ltd.

iii) MRF Lanka (Private) Ltd.

iv) MRF SG Pte Ltd. ( w.e.f. 23rd July, 2014) - Ref Note q

(b) Names of other related parties and nature of relationship:

Key Management Personnel: i) Mr. K M Mammen, Chairman & Managing Director

ii) Mr. K M Philip, Whole-time Director

iii) Mr. Arun Mammen, Managing Director

iv) Mr. Rahul Mammen Mappillai, Whole-time Director

v) Mr. Ravi Mannath, Company Secretary (w.e.f. 1st April, 2014)

vi) Mr. Madhu P Nainan, Vice President Finance (w.e.f. 1st April, 2014)

Relatives of Key Management Personnel: Mr. Samir Thariyan Mappillai (Son of Chairman & Managing Director)

e. The Company is engaged mainly in the manufacture of Rubber Products such as Tyres, Tubes, Flaps, Tread Rubber and Conveyor Belt. These in the context of Accounting Standard 17 on Segment Reporting are considered to constitute one single primary segment. The Company''s operations outside India do not exceed the quantitative threshold for disclosure envisaged in the Accounting Standard. Non-reportable segments has not been disclosed as unallocated reconciling item in view of its materiality. In view of the above, primary and secondary reporting disclosures for business/geographical segment are not applicable to the Company.

f. The Micro, Small and Medium Enterprises Development Act, 2006 (''MSMED''):

The information given below and that given in Note 9 ''Trade Payables'' regarding Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company.

g. The total borrowing cost capitalised during the year is Rs. 18.18 crore (Previous year - Rs. 5.29 crore).

h. a) In terms of the guidance on implementing the revised AS 15 issued by the Accounting Standard Board of the Institute of Chartered Accountants of India, the Provident Fund Trust set up by the Company is treated as Defined Benefit Plan since the Company has to meet the shortfall in the fund assets,and interest based on the Government specified minimum rate of return, if any. However, as at the year end, no shortfall remains unprovided for. Further, having regard to the assets of the Fund and the Return on the Investments, the Company does not expect any deficiency in the foreseeable future. In terms of the guidance note issued by the Institute of Actuaries of India, the actuary has provided a valuation of provident fund liability based on the assumptions listed below and determined that there is no shortfall as at 31st March, 2014.

The assumptions used in determining the present value of obligation of the interest rate guarantee under deterministic approach are:

Projection is restricted to five years or earlier, if retirement occurs.

Expected guaranteed interest rate - 8.75%

Discount rate - 8.00%

i) The group gratuity Policy with LIC includes employees of Speciality Coating division divested effective 1st April, 2011.

(ii) Capital Expenditure on research and development during the year, as certified by the management is Rs. 5.44 crore (Previous Year - Rs. 4.22 crore). This information complies with the terms of the R&D recognition granted upto 31st March, 2018 for the Company''s in-house Research and Development activities by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India, vide their Letter No. TU/IV-RD/118/2014 dated 6th June, 2014.

j. Terms of Repayment and Security Description of Long Term Borrowings:

i) ECB from The Bank of Tokyo - Mitsubishi UFJ, Ltd. availed in December 2011-USD40 Million is secured by a first charge on Plant and Machinery situated at Puduchery Unit. Interest is payable at a rate equal to the 6 months BBA LIBOR plus margin of 1.55% payable half-yearly. The said loan is fully hedged and is repayable in three equal annual instalments at the end of the fourth, fifth and sixth year beginning October, 2015.

iii) ECB(Unsecured) from the Bank of Tokyo - Mitsubishi UFJ, Ltd. availed in October, 2013 amounting to USD 15 Million is for capital expenditure. Interest is payable at a rate equal to the six months BBA LIBOR plus margin of 1.50% payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning October, 2017.

iv) ECB(Unsecured) from the Mizuho Bank, Ltd. availed in January, 2014, amounting to USD 15 Million is availed for capital expenditure. Interest is payable at a rate equal to the six months USD LIBOR plus margin of 1.50% payable half yearly. The said Loan is fully hedged and is repayable in three equal annual instalments at the end of fourth, fifth and sixth year beginning January, 2018.

v) Buyers Line of Credit (Unsecured)of USD 24.09 Million availed from a Bank for Capital Expenditure is repayable after 2 years and 364 days beginning in March, 2017 at varied interest rates as applicable on different drawdown dates. The said Loan is fully hedged.

vi) Interest free Unsecured Loan availed under Sales tax Deferral Scheme is repayable yearly and to end on 1st April, 2019.

vii) Deferred payment credit is repayable along with interest (at varying rates) in 240 consecutive monthly instalments ending in March, 2026.

viii) Fixed Deposits are Unsecured and are repayable as per the terms with interest rates ranging from 8.5% to 9.5%

k. Estimated amount of contracts remaining to be executed on Capital Account, net of advances and not provided for - Rs. 1,460.46 crore (Previous year Rs. 1,031.68 crore)

l. The Company has during the year incorporated a wholly owned subsidiary in Singapore under the name MRF SG Pte Ltd and has subscribed to 10,000 ordinary shares of Singapore Dollar 1 each for Rs. 0.05 crore. An amount of Rs. 6.06 crore was paid as share application money for subscribing to 12,63,200 ordinary shares of Singapore Dollar 1 each which has been issued on the 1st of October, 2014.

m. Contingent Liabilities not provided for:

(i) Guarantees given by the Banks - Rs. 35.18 crore (Previous year - Rs. 39.53 crore)

(ii) Corporate Guarantees given to Banks for and on behalf of wholly owned Subsidiaries - Rs. 310.85 crore (Previous year - Rs. 1.88 crore)

(iii) Letters of Credit issued by the Banks - Rs. 466.05 crore (Previous year - Rs. 317.38 crore)

(iv) Customs Duty on import of equipments and spare parts under EPCG Scheme - Rs. 161.36 crore (Previous year - Rs. 97.25 crore)

(v) Bills discounted with a bank - Rs. 22.14 crore (Previous year - Rs. 3.23 crore).

(vi) Claims not acknowledged as debts:

(a) Disputed Sales Tax demands pending before the Appellate Authorities - Rs. 18.18 crore (Previous year - Rs. 17.38 crore)

(b) Disputed Excise/Customs Duty demands pending before the Appellate Authorities/High Court - Rs. 80.31 crore (Previous year - Rs. 79.66 crore)

(c) Disputed Income Tax Demands - Rs. 63.34 crore (Previous year - Rs. 58.13 crore). Against the said demand, the Company has deposited an amount of Rs. 55.02 crore.

(d) Contested EPF Demands pending before Appellate Tribunal - Rs. 1.10 crore (Previous year - Rs. NIL).

n. Figures are rounded off to nearest lakh.


Sep 30, 2013

A. The Company''s leasing arrangements are in respect of operating leases for premises (residential, office, godowns, etc). The leasing arrangements, which are not non-cancellable, range between eleven months and three years generally, and are usually renewable by mutual consent on agreed terms. The aggregate lease rentals payable are charged as rent.

Notes :

(i) Cash outflow towards warranty provision would generally occur during the next two years. Such claims are netted off from sales.

(ii) Litigation and related disputes represents estimates mainly for probable claims arising out of litigation/disputes pending with authorities under various statutes (i.e. service tax, excise & customs duty, electricity/fuel surcharge, cess, etc). The probability and the timing of the outflow with regard to these matters will depend on the consequent decision/conclusion by the Management.

B. Provision for Taxation has been made in respect of the income presently determined for the period 1st April, 2013 to 30th September, 2013 which is subject to appropriate revision/adjustment on final determination of income for the year to end on 31st March, 2014, relevant to assessment year 2014- 15. Further, provision for the assessment year 2013-14 has been determined and adjusted considering the provision already made in the accounts for the year ended 30th September, 2012.

C. The unsecured loan of Rs. 4 crore given to MRF Lanka (P) Ltd., a wholly owned subsidiary of the Company, has been converted into 99,41,238 Equity shares of SLR 10 each during the year, after obtaining necessary approvals.

D. The Company is engaged mainly in the manufacture of Rubber Products such as Tyres, Tubes, Flaps, Tread Rubber and Conveyor Belt. These, in the context of Accounting Standard 17 on Segment Reporting are considered to constitute one single primary segment. The Company''s operations outside India do not exceed the quantitative threshold for disclosure envisaged in the Accounting Standard. Non-reportable segments have not been disclosed as unallocated reconciling item in view of its materiality. In view of the above, primary and secondary reporting disclosures for business/geographical segment are not applicable to the Company.

E. The total borrowing cost capitalised during the year is Rs. 5.29 crore (Previous Year - Rs. 49.94 crore).

F. a) In terms of the guidance on implementing the revised AS 15 issued by the Accounting Standard Board of the Institute of Chartered Accountants of India, the Provident Fund Trust set up by the Company is treated as Defined Benefit Plan since the Company has to meet the shortfall in the fund assets, and interest based on the Government specified minimum rate of return, if any. However, as at the year end, no shortfall remains unprovided for. Further, having regard to the assets of the Fund and the Return on the Investments, the Company does not expect any deficiency in the foreseeable future. In terms of the guidance note issued by the Institute of Actuaries of India, the actuary has provided a valuation of provident fund liability based on the assumptions listed below and determined that there is no shortfall as at 31st March, 2013.

The assumptions used in determining the present value of obligation of the interest rate guarantee under deterministic approach are:

Projection is restricted to five years or earlier, if retirement occurs.

Expected guaranteed interest rate - 8.50%

Discount rate - 8.00%

(ii) Capital Expenditure on research and development during the year, as certified by the management is Rs. 4.22 Crore (Previous Year - Rs. 7.50 Crore).

This information complies with the terms of the R & D recognition granted upto 31st March, 2014 for the Company''s in-house Research and Development activities by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India, vide their Letter No. TU/IV-RD/118/2010 dated 30th April, 2010.

G. Security Description and Terms of repayment of Long-Term Borrowings:

i) ECB from The Bank of Tokyo - Mitsubishi UFJ, Ltd. is secured by a first charge on plant and machinery situated at its Pondicherry Unit. Interest is payable at a rate equal to the 6 month BTMU LIBOR plus margin of 1.55% payable half-yearly. The said loan is fully hedged and is repayable in 3 equal annual installments at the end of the 4th, 5th and 6th year beginning October 2015.

ii) The principal amount of debentures, interest, remuneration to Debenture Trustees and all other costs, charges and expenses payable by the Company in respect of debentures are secured by way of a legal mortgage of Company''s land at Gujarat and hypothecation of plant and machinery at the Company''s plants at Ankenpally, Andhra Pradesh and at Perambalur, near Trichy, Tamil Nadu, equivalent to the outstanding amount.

iii) Buyers Line of Credit availed from a bank for capital expenditure is repayable after a moratorium of 3 years beginning in February 2014 at varied interest rates as applicable on different drawdown dates.

iv) Interest free unsecured loan availed under Sales tax Deferral Scheme is repayable yearly and to end on 1st April, 2019.

v) Deferred payment credit is repayable along with interest in 240 consecutive monthly installments ending in March, 2026.

H. Estimated amount of contracts remaining to be executed on Capital Account, net of advances and not provided for - Rs. 1031.68 Crore (Previous year Rs. 220.28 Crore).

I. Contingent Liabilities not provided for:

(i) Guarantees given by the Banks - Rs. 41.41 Crore (Previous Year - Rs. 28.77 Crore).

(ii) Letters of Credit issued by the Banks - Rs. 317.38 Crore (Previous Year - Rs. 183.14 Crore).

(iii) Customs Duty on import of equipments and spare parts under EPCG Scheme - Rs. 97.25 Crore (Previous Year - Rs. 94.62 Crore).

(iv) Bills discounted with a bank - Rs. 3.23 Crore (Previous Year - Rs. 5.89 crore).

(v) Claims not acknowledged as debts:

(a) Disputed Sales Tax demands pending before the Appellate Authorities - Rs. 17.38 Crore ( Previous Year- Rs. 1.73 Crore).

(b) Disputed Excise/Customs Duty demands pending before the Appellate Authorities/High Court - Rs. 79.66 Crore (Previous Year - Rs. 78.65 Crore).

(c) Disputed Income Tax Demands - Rs. 58.13 Crore (Previous Year - Rs. 48.87 Crore). Against the said demand the Company has deposited an amount of Rs. 53.62 Crore.


Sep 30, 2010

1. Sundry Debtors include dues from a subsidiary company Rs.4.97 Crore (Previous Year - Rs.3.79 Crore).

2. Loans and Advances include:

i) Due from an Officer of the Company - Rs.0.04 Crore. Maximum balance due at any time during the year - Rs.0.06 Crore.

(Previous Year - Rs.0.06 Crore and maximum balance due at any time during the year Rs.0.08 Crore) ii) Due from a subsidiary company Rs.0.20 Crore (Previous Year - Rs.0.31 Crore)

3. The Companys leasing arrangements are in respect of operating leases for premises (residential, office, godowns, etc). The leasing arrangements are not non-cancellable, range between eleven months and three years generally and are usually renewable by mutual consent on agreed terms. The aggregate lease rentals payable are charged as rent.

4. The Company decided not to exercise the option available under Notification No.G.S.R. 225(E) dated March 31, 2009 issued by the Government of India optionally providing for a modification in accounting certain foreign currency items pursuant to AS-11 prescribed under Section 211 (3C) of the Companies Act, 1956. Accordingly, the treatment in that respect continues to be in conformity with AS-11.

5. The total borrowing cost capitalised during the year is Rs.5.90 Crore (Previous Year - Rs.12.60 Crore).

6. a) In terms of the guidance on implementing the revised AS 15 issued by the Accounting Standard Board of the Institute of Chartered Accountants of India, the Provident Fund Trust set up by the Company is treated as Defined Benefit Plan since the Company has to meet the shortfall in the fund assets, if any. Pending the issuance of the Guidance note from the Actuarial Society of India, the Companys actuary has expressed his inability to reliably measure the Provident Fund liability. However, as at the year end, no shortfall remains unprovided for. Further, having regard to the assets of the Fund and the Return on the Investments, the Company does not expect any deficiency in the foreseeable future.

7. Interest paid to Chairman & Managing Director and Managing Director on Fixed Deposits at the rates prescribed in the Companies (Acceptance of Deposits) Rules, 1975 - Rs.0.24 Crore (Previous Year - Rs.0.02 Crore). Fixed Deposits outstanding as at the year end - Rs. 3.23 Crore (Previous year - Rs.0.95 Crore)

8. Related Party disclosures:

(a) Names of related parties and nature of relationship where control exists are as under: Subsidiary Companies: i) MRF Corp Ltd.

ii) MRF International Ltd. iii) MRF Lanka (P) Ltd.

(b) Names of other related parties with whom transactions have taken place during the year:

Key Management Personnel (KMP): i) Mr. K.M. Mammen, Chairman & Managing Director

ii) Mr. K.M. Philip, Whole-time Director

iii) Mr. Arun Mammen, Managing Director Relatives of Key Management

Personnel: i) Mr. Rahul Mammen Mappillai (Son of Chairman & Managing Director)

9. The amount due and paid during the year to "Investor Education and Protection Fund" is Rs.0.16 Crore (Previous Year - Rs.0.13 Crore).

10. The Company is engaged mainly in the manufacture of Rubber Products such as Tyres, Tubes, Flaps, Tread Rubber and Conveyor Belt. These in the context of Accounting Standard 17 on Segment Reporting are considered to constitute one single primary segment. The Companys operations outside India do not exceed the quantitative threshold for disclosure envisaged in the Accounting Standard. Non-reportable segments have not been disclosed as unallocated reconciling item in view of their materiality. In view of the above, primary and secondary reporting disclosures for business/geographical segment are not applicable to the Company.

11. Estimated amount of contracts remaining to be executed on Capital Account, net of advances and not provided for - Rs.778.46 Crore. (Previous Year - Rs.384.20 Crore).

12. Contingent Liabilities not provided for:

(i) Guarantees given by the banks - Rs.1 7.75 Crore (Previous Year - Rs.16.87 Crore).

(ii) Letters of Credit issued by the banks - Rs.21 7.65 Crore (Previous Year - Rs.115.23 Crore).

(iii) Customs duty on import of equipments and spare parts under EPCG Scheme - Rs.36.92 Crore (Previous Year - Rs.23.94 Crore).

(iv) Bills discounted with a bank - Rs. Nil. (Previous Year - Rs.16.44 Crore).

(v) Claims not acknowledged as debts:

(a) Disputed Sales / Purchase Tax demands - Rs.3.09 Crore (Previous Year - Rs.3.20 Crore).

(b) Disputed Excise/Customs Duty demands - Rs.83.15 Crore (Previous Year - Rs.80.49 Crore).

(c) Disputed Income Tax Demands - Rs.1 7.1 7 Crore (Previous Year - Rs.4.88 Crore).

(d) Contested ESIC Demands - Rs.0.06 Crore (Previous Year - Rs.0.19 Crore).

13. Figures are rounded off to nearest lakh. Figures below Rs.50,000 are denoted by an *.

14. Previous years figures have been regrouped, wherever necessary.


Sep 30, 2009

1. Sundry Debtors include due from a subsidiary Company Rs.3.79 Crore (Previous Year - Rs.2.23 Crore)

2. Loans and Advances include:

i) Due from an Officer of the Company - Rs.0.06 Crore. Maximum balance due at any time during the year - Rs.0.08 Crore. (Previous Year - Rs.0.08 Crore and maximum balance due at any time during the year Rs.0.10 Crore)

ii) Due from a subsidiary Company Rs.0.31 Crore (Previous Year - Rs.0.15 Crore)

3. The Companys leasing arrangements are in respect of operating leases for premises (residential, office, godowns, etc). The leasing arrangements, which are not non-cancellable, range between eleven months and three years generally and are usually renewable by mutual consent on agreed terms. The aggregate lease rentals payable are charged as rent.

4. The Company enters into Forward Exchange Contracts, Currency Swaps and Interest Rate Swaps being derivative instruments, which are not intended for trading or speculative purposes, but for hedging purposes, to establish the amount of reporting currency required or available at the date of settlement of certain payables and receivables.

5. The Company decided not to exercise the option available under Notification No. G.S.R. 225(E) dated March 31, 2009 issued by the Government of India optionally providing for a modification in accounting certain foreign currency items pursuant to AS-11 prescribed under Section 211 (3C) of the Companies Act, 1956. Accordingly, the treatment in that respect continues to be in conformity with AS-11.

6. The total borrowing cost capitalised during the year is Rs.12.60 Crore (Previous Year - Rs.6.29 Crore).

7. (a) In terms of the guidance on implementing the revised AS 15 issued by the Accounting Standard Board of the Institute of Chartered Accountants of India, the Provident Fund Trust set up by the Company is treated as defined benefit plan since the Company has to meet the shortfall in the fund assets, if any. However, as at the year end, no shortfall remains unprovided for. Further, having regard to the assets of the Fund and the Return on the Investments, the Company does not expect any deficiency in the foreseeable future. Accordingly, other related disclosures in respect of Provident Fund have not been disclosed.

8. Interest paid to Chairman & Managing Director and Managing Director on Fixed Deposits at the rates prescribed in the Companies (Acceptance of Deposits) Rules, 1975 - Rs.0.02 Crore (Previous Year - Rs.0.01 Crore).

9. Related Party disclosures:

(a) Names of related parties and nature of relationship where control exists are as under:

Subsidiary Companies:

i) MRF Corp. Ltd. ii) MRF International Ltd. iii) MRF Lanka (P) Ltd.

(b) Names of other related parties with whom transactions have taken place during the year:

Key Management Personnel:

i) Mr. K.M. Mammen, Chairman & Managing Director

ii) Mr. K.M. Philip, Whole-time Director iii) Mr. Arun Mammen, Managing Director

Relatives of Key Management

Personnel:

i) Mrs. K.M. Mammen Mappillai

ii) Mr. Rahul Mammen Mappillai

10. The amount due and paid during the year to "Investor Education and Protection Fund" is Rs.0.13 Crore (Previous Year - Rs.0.13 Crore).

11. The Management is of the view that having regard to the future business projections and plans and considering the strategic and long term nature of investments in a subsidiary, the decline in the book value of investment is temporary in nature requiring no provision.

12. The Company is engaged mainly in the manufacture of Rubber Products such as Tyres, Tubes, Flaps, Tread Rubber and Conveyor Belt. These in the context of Accounting Standard 17 on Segment Reporting are considered to constitute one single primary segment. The Companys operations outside India do not exceed the quantitative threshold for disclosure envisaged in the Accounting Standard. Non-reportable segments have not been disclosed as unallocated reconciling item in view of their materiality. In view of the above, primary and secondary reporting disclosures for business/geographical segment are not applicable to the Company.

13. Estimated amount of contracts remaining to be executed on Capital Account, net of advances and not provided for - Rs.384.20 Crore. (Previous Year - Rs.153.13 Crore).

14. Contingent Liabilities not provided for:

(i) Guarantees given by the banks - Rs.16.87 Crore (Previous Year - Rs.21.24 Crore).

(ii) Letters of Credit issued by the banks - Rs.115.23 Crore (Previous Year - Rs.144.74 Crore).

(iii) Customs duty on import of equipments and spare parts under EPCG Scheme - Rs.23.94 Crore (Previous Year - Rs.40.12 Crore).

(iv) Bills discounted with a bank - Rs.16.44 Crore (Previous Year - Rs.Nil).

(v) Claims not acknowledged as debts:

(a) Disputed Sales / Purchase Tax demands - Rs.3.20 Crore (Previous Year - Rs.18.06 Crore).

(b) Disputed Excise/Customs Duty demands - Rs.80.49 Crore (Previous Year - Rs.83.02 Crore).

(c) Disputed Income Tax Demands - Rs.4.88 Crore (Previous Year - Rs.Nil).

(d) Contested ESI Demands - Rs.0.19 Crore (Previous Year - Rs.0.30 Crore).

15. Figures are rounded off to nearest lakh. Figures below Rs.50,000 are denoted by an.

16. Previous years figures have been regrouped, wherever necessary.

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