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Notes to Accounts of Avadh Sugar & Energy Ltd.

Mar 31, 2018

1. Reporting entity

Avadh Sugar & Energy Limited is a public company domiciled and headquartered in India, having its registered office situated at Hargaon, District Sitapur in the state of Uttar Pradesh. The Company was originally incorporated on 19 March 2015 under the provisions of Indian Companies Act, 2013, as a joint venture of The Oudh Sugar Mills Limited (OSML) and Upper Ganges Sugar and Industries Limited (UGSIL). Consequent to a composite scheme of arrangement approved by the National Company Law Tribunal (NCLT) on 2 March 2017, and its filing with the Registrar of Companies, Kanpur on 23 March 2017, the residual OSML comprising of the business undertakings located at Hargaon District Sitapur, Dhadha Bujurg (Hata) District Kushinagar and Rosa District Shahjahanpur in the state of Uttar Pradesh and the residual UGSIL comprising of the business undertaking located at Seohara, District Bijnor in the state of Uttar Pradesh of OSML and UGSIL respectively had been transferred and amalgamated with the Company from the appointed date i.e. 1 April 2015. Its shares are listed on National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Calcutta Stock Exchange (CSE) with effect from 28 July 2017.

The Company is primarily engaged in the manufacture and sale of sugar and its By-products (Molasses and Bagasse), Spirits including Ethanol and Power. The Company has operations in India.

2. Basis of preparation

(a) Statement of compliance

These financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of the Companies Act, 2013 (''Act'') and other relevant provisions of the Act.

The financial statements upto and for the year ended 31 March 2017 were prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company had prepared the financial statements to comply in all material respects with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards) Amendment Rules, 2016 on an accrual basis under the historical cost convention after giving the impact of scheme of arrangement as detailed in Note 47(C).

As these are the Company''s first financial statements prepared in accordance with Indian Accounting Standards (Ind AS), Ind AS 101 First-time Adoption of Indian Accounting Standards has been applied. An explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance and cash flows of the Company is provided in Note 47(C).

The financial statements are authorised for issue by the Board of Directors of the Company at their meeting held on 14 May 2018.

Details of the Company''s accounting policies are included in Note 3.

(b) Functional and presentation currency

These financial statements are presented in Indian Rupees (Rs.), which is also the Company''s functional currency. All amounts have been rounded off to the nearest lakhs, unless otherwise indicated.

(c) Basis of measurement

The financial statements have been prepared on historical cost convention on the accrual basis, except for the following items:

Fair value is the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions, regardless of whether that price is directly observable or estimated using another valuation technique. In determining the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

(d) Use of estimates and judgments

In preparing these financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the financial statements for the every period ended is included in the following notes:

- Note 4 and 6 - Useful life and residual value of property, plant and equipment and other intangible assets;

- Note 7 - Determining the fair values of investments;

- Note 9 - Determining the fair values of biological assets other than bearer plants on the basis of significant unobservable inputs;

- Note 15 - Recognition of deferred tax assets: availability of future taxable profit against which carried forward tax losses can be used;

- Notes 24 and 37 - Recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources;

- Note 40 - Measurement of defined benefit obligations: key actuarial assumptions;

- Note 45 - Impairment of financial assets: key assumptions used in estimating recoverable cash flows.

(e) Measurement of fair values

A number of the Company''s accounting policies and disclosures require the measurement of fair values, for financial assets and financial liabilities.

The Company has an established control framework with respect to the measurement of fair values. The management has overall responsibility for overseeing all significant fair value measurements and it regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of Ind AS, including the level in the fair value hierarchy in which the valuations should be classified.

Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in Note 2(c).

(a) Title deeds of freehold and leasehold land of Rs. 24,276.25 lakhs (31 March 2017: Rs.24,298.35 lakhs), transferred to the Company pursuant to the Scheme of Arrangement (refer Note 1),are in the name of erstwhile OSML and UGSIL and the Company is in the process of getting the title deeds transferred in its name.

(b) Title deeds of land of Rs.1,078.95 lakhs (31 March 2017: Rs.1,078.95 lakhs) are yet to be executed pending for registration in favour of the Company.

(c) Includes Rs.3.08 lakhs (31 March 2017 Rs.2.80 lakhs) in relation to biological assets other than bearer plants.

(d) Property, Plant and Equipment given as security for borrowings [Note 21].

* received under the Scheme [Note 47(C)(V)].

** the figures, being less than Rs.500, have been shown above as Rs.Nil.

*** Deposited / pledged with various Government authorities.

B. Equity shares designated at fair value through other comprehensive income (FVOCI)

As at 1 April 2016, the Company designated the investments shown below as equity instruments at FVOCI because these equity instruments represent investments that the Company intends to hold on long-term basis for strategic purposes.

a) The write-down of inventories to net realisable value during the year amounted to Rs.11,659.20 lakhs (31 March 2017: Rs.Nil; 1 April 2016: Rs.Nil). These are recognised as expenses during the respective period and included in changes in inventories of finished goods and work in progress.

b) Inventories of Rs.97,518.60 lakhs (31 March 2017: Rs.1,06,472.07 lakhs; 1 April 2016: Rs.84,319.33 lakhs) are hypothecated / pledged against borrowings [Note 21].

A. Measurement of fair values

The fair value of the sugarcane and other agriculture products at harvest is determined by the quantities harvested, it is valued at the rate fixed by the Uttar Pradesh Government (Level 1). The fair value of the harvested sugarcane is the cost of the raw material used in the production of sugar including captive consumption. For biological assets, where little biological transformation has taken place since the initial cost was incurred (for example seedlings planted immediately before the balance sheet date), such biological assets are measured at cost i.e. the total expenses incurred on such plantation upto the balance sheet date (Level 3).

B. Risk management strategy related to agricultural activities

The Company is exposed to a number of risks related to its sugarcane plantations.

i. Regulatory and environmental risks

The Company has established environmental policies and procedures, aimed for compliance, with local environmental and other laws.

ii. Supply and demand risk

The Company is exposed to risks arising from fluctuations in the sale price and quantity of sugarcane produced. When possible the Company manages this risk by aligning its harvest volume to market supply and demand.

iii. Climate and other risks

The Company''s sugar cane plantations are exposed to the risk of damage from climatic changes, diseases, forest fires and other natural forces. The Company has extensive processes in place aimed at monitoring and mitigating those risks.

a) No trade or other receivables are due from directors or other officers of the Company either severally or jointly with any other person. Further, no trade or other receivables are due from firms or private companies respectively in which any director is a partner, a director or a member.

(b) Information about the Company''s exposure to credit risks and loss allowances related to trade receivables are disclosed in Note 45(C).

(c) Trade receivable are hypothecated against borrowings [Note 21].

* includes Rs.12,000 lakhs and Rs.5,000 lakhs transferred from OSML and UGSIL respectively by virtue of the Scheme [Note 47(C)(II)].

** issued pursuant to the Scheme [Note 47(C)(II)].

*** after considering cancellation of 50,000 shares of Rs.10 each pursuant to the Scheme [Note 47(C)(I)].

17.00.000 12% Non-convertible Cumulative Redeemable Preference Shares of Rs.100 each issued are classified as financial liability. [Note 21]

4.87.00.000 8.5% Non-convertible Cumulative Redeemable Preference Shares of Rs.10 each issued are classified as financial liability. [Note 21]

(b) Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares with par value of Rs.10 per share. Accordingly, all equity shares rank equally with regard to dividends and share in the Company''s residual assets on winding up. The equity shareholders are entitled to receive dividend as declared by the Company from time to time. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company.

On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts, in proportion to the number of equity shares held.

The description, nature and purpose of each reserve within equity are as follows:

(a) Capital Reserve

The difference between the net fair value of assets and liabilities of the sugar business undertakings acquired and shares issued to the shareholders of OSML and UGSIL under the Scheme had been credited to Capital Reserve [Note 47(C)(IV)].

(b) Capital Redemption Reserve

The Company had created Capital Redemption Reserve on Non-convertible cumulative redeemable preference shares in accordance with the Companies Act, 2013.

(c) Molasses Storage & Maintenance Reserve

Molasses Storage & Maintenance Reserve is a fund, which is required under Uttar Pradesh Sheera Niyantran Adhiniyam, 1964 read with Uttar Pradesh Sheera Niyantran Niyamavali, 1974. This fund may be utilised against the cost of construction / maintenance of molasses storage tanks under the requisite permission.

(d) Retained Earnings

It comprise of accumulated profit / (loss) of the Company. The movement is on account of following:

(e) Equity Instruments through other comprehensive income

The Company has elected to recognise changes in the fair value of certain non-current investments in equity securities in other comprehensive income. These changes are accumulated within the equity instruments through OCI shown under the head other equity. The Company transfers amounts therefrom to retained earnings when the relevant equity securities are derecognised.

A. Nature of Securities and Terms of repayment

(i) Term Loans

(a) Term loan from banks carry interest in the range of 10.25% to 14.83% p.a. and is repayable in 32 quarterly instalments by 30th June 2020. This loan is secured by first mortgage / charge created / to be created on all the fixed assets, present and future, of the Company''s Sugar & Co-generation Units at Hargaon, Seohara, Dhadha Bujurg (Hata) and Sugar Unit at Rosa, ranking pari-passu amongst the various lenders.

The above term loan are further secured as follows:

(i) Second charge on current assets of Sugar Unit at Dhadha Bujurg (Hata) ranking pari-passu amongst the various lenders;

(ii) Pledge of 25% of total issued equity shares of the Company held by the promoter group companies, ranking pari-passu amongst the various lenders.

(b) Rupee Term Loans from banks, carry interest in the range of 10.10% to 10.30% p.a. and are repayable in 14/28 quarterly installments starting from December 2018 and ending by March 2026. These Loans are secured by first mortgage / charge created / to be created on entire fixed assets, present and future, of the Company, ranking pari passu amongst the various lenders.

(c) Term loans from banks under Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU 2014) carry interest rate in the range of 11.05% to 12.00% p.a. and are repayable in monthly/quarterly installments by March 2019. The Company is entitled to Interest subvention from Government of India upto 12% p.a. as per the terms of Scheme and the same will be directly reimbursed to banks by the Department of Food & Public Distribution and hence, no liability towards interest has been provided for in these financial statements. The above loans are secured by first pari-passu charge created / to be created on all the fixed assets, both present and future, of the Company''s Sugar units at Seohara, Hargaon (including Co-generation plant), Dhadha Bujurg (Hata) (including Cogeneration plant) and Rosa, ranking pari-passu amongst the various lenders. The term loan from Punjab National Bank is further secured by 3rd pari-passu charge on all current assets of the sugar unit at Seohara.

Some of the above SEFASU loans are also secured by first pari-passu charge on all the fixed assets, both present and future, of Sugar units at Sidhwalia, Hasanpur and / or Narkatiaganj, and the term loan from Punjab National Bank is further secured by 3rd pari-passu charge on all current assets of the sugar units at Sidhwalia and Hasanpur, which are now part of Magadh Sugar and Energy Limited, pursuant to the Scheme. However, the company has requested the banks to modify / amend the security clause, as per the term of the scheme of arrangement.

(d) Term loan from a bank under Financial Assistance Scheme of the Government of India (SOFT Loan 2015), carry interest range of 10% to 11.75% p.a. and repayable in 20 equal quarterly instalments by 1st July, 2022. The Company had availed interest subvention from the Government of India upto 10% p.a. for the first year as per terms of the Scheme. The above loan is secured by first pari-passu charge created / to be created on all the fixed assets, both present and future, of the Company''s Sugar & Co-generation Units at Hargaon, Seohara, Dhadha Bujurg (Hata) and Sugar Unit at Rosa, ranking pari-passu amongst the various lenders.

(e) Medium Term loan (Unsecured) from a bank carry interest @ 9.10% p.a. and is repayable in 3 (three) quarterly instalments from October, 2018 to April, 2019.

(ii) Cash credit including working capital demand loan

(a) Cash credit from banks, other than from District Co-operative Banks, is secured by hypothecation of current assets of Sugar Units of the Company ranking pari passu amongst the various lenders and also by way of 1st / 2nd and 3rd charge created / to be created on the fixed assets of the Company.

Further, cash credit other than from District Co-operative Bank , DCB Bank and Punjab National Bank, is also secured by pledge of 25% of total issued equity shares of the Company held by promoter group companies, ranking pari-passu amongst the various lenders.

(b) Cash credit of Rs.24,043.88 lakhs (31 March 2017: Rs.33,968.26 lakhs, 1 April 2016: Rs.24,040.15 lakhs) from District Co-operative Banks is secured by pledge of the stock of sugar pertaining to Sugar units at Seohara, Hargaon and Rosa.

(c) Cash Credit borrowings including Working Capital Demand Loan (WCDL) carry interest in the range of 8.65% to 11.65% p.a.. However working capital demand loans are repayable within a period range from one month to six months.

(d) Short Term loan (Unsecured) from a bank carry interest @ 9.30% p.a. and is repayable in 3 (three) quarterly instalments from November, 2018 to January, 2019.

(e) Inter-corporate deposits carry interest range of 8% to 10.20% p.a. and are repayable on demand.

(iii) As per Composite Scheme of Arrangement, the Company has already initiated its process to create charge in favour of the respective lenders against borrowings, which were hitherto created by OSML and UGSIL.

B. Non-convertible Cumulative Redeemable Preference Shares

(i) Rights, preferences and restrictions attached to 12% Non-convertible cumulative redeemable preference shares of Rs.100 each

The Non-convertible Cumulative Redeemable Preference Shares (NCCRPS) of Rs.100 each carries dividend @ 12% per annum. NCCRPS were redeemable at par on 24 September 2019 being five years from the date of the original allotment i.e. 25 September 2014 with a right vested to the Board of Directors to redeem it earlier. The same has been redeemed during the year.

(ii) Rights, preferences and restrictions attached to 8.5% non-convertible cumulative redeemable preference shares of Rs.10 each

The Non-convertible Cumulative Redeemable Preference Shares (NCCRPS) of Rs.10 each carries dividend @ 8.50% per annum. NCCRPS shall be redeemable at par on 2 August 2023 being twelve years and one day from the date of the original allotment i.e. 1 August 2011 with a right vested to the Board of Directors to redeem it earlier, subject to consent of the lenders. The Dividend is payable at the time of redemption of the NCCRPS. However, the Board reserves the right to pay dividend earlier subject to the availability of the profit.

3. Earnings per equity share (EPS)

Basic and Diluted earnings per share

The calculations of profit attributable to equity shareholders and weighted average number of equity shares outstanding for purposes of basic and diluted earnings per share calculation are as follows:

4. Capital and Other Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs.459.90 lakhs (31 March 2017: Rs.159.57 lakhs, 1 April 2016: Rs.62.42 lakhs).

* Notes:

a. Pending resolution of the respective proceedings, it is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above as it is determinable only on receipt of judgments / decisions pending with various forums / authorities.

b. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial position.

(c) A civil suit is pending against the Company''s sugar unit at Dhadha Bujurg (Hata), which is already in operation. The Company has been legally advised that the said civil suit is not tenable as per law.

5. The Central Government, pursuant to notification dated May 9, 2018 issued by Ministry of Consumer Affairs, Food and Public Distribution, has notified a Scheme for financial assistance of Rs.5.50 per quintal of actual sugarcane crushed during sugar season 2017-18 or the proportionate inter-se allocation of 28,000 lakhs quintals of sugarcane to be crushed (for sugar season 2017-18) on the basis of their average sugar production of last two sugar seasons and current season (upto February, 2018), whichever is lower. Such financial assistance is subject to fulfillment of certain eligibility conditions as specified therein. Pending compliance of such conditions, no accounting adjustment in this regard has been made in the books of account.

6. Operating Lease

Certain office premises, godowns, cane purchasing centre etc. are held on operating lease. The lease term is ranging up to 3 years and are renewable for further year either mutually or at the option of the Company. There are no escalation clause in the lease agreement. There are no restrictions imposed in lease agreements. There are no subleases. The leases are cancellable.

7. Assets and Liabilities relating to employee defined benefits Defined benefits - Gratuity Plan

The Company has a defined benefit gratuity plan. Every employee who has completed continuously at least five years or more of service is entitled to Gratuity on terms as per the provisions of The Payment of Gratuity Act, 1972. The approved gratuity fund of erstwhile companies (UGSIL & OSML) in respect of transferred business undertakings has been transferred to the Company and which has taken an insurance policy with Life Insurance Corporation of India (LIC) to cover the gratuity liabilities.

These defined benefit plans expose the Company to actuarial risks, such as currency risk, interest risk and market (investment) risk.

The Company expects to contribute Rs.262.56 lakhs to Gratuity Fund in the next year.

Inherent risk

The plan is defined benefit in nature which is sponsored by the Company and hence it underwrites all the risk pertaining to the plan. In particular, this exposes the Company, to actuarial risk such as adverse salary growth, change in demographic experience, inadequate return on underlying plan assets. This may result in an increase in cost of providing these benefits to employees in future. Since the benefits are lump sum in nature, the plan is not subject to longevity risk.

The following tables analyse present value of defined benefit obligations, fair value of defined plan assets, actuarial gain / (loss) on plan assets, expense recognised in the Statement of Profit and Loss and Other Comprehensive Income, actuarial assumptions and other information:

8. Operating Segments

A. Basis for segmentation

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company''s other components, and for which discrete financial information is available. All operating segments and its operating results are reviewed regularly by the Company''s Whole-Time Director (WTD) as the Company''s Chief Operating Decision Maker (CODM) to make decisions about resources to be allocated to the segments and assess their performance.

The Company has three reportable segments as described below, which are the Company''s strategic business:

Reportable segments Operations

Sugar Manufacture and sale of sugar, molasses and bagasse

Distillery Manufacture and sale of industrial spirits (including ethanol), fusel oil

and bio-compost

Co-generation Generation and transmission of power

Others Trading of petroleum products business comprising of less than 10%

revenues.

B. Information about reportable segments

Information related to each reportable segment is set-out below. The Company''s WTD reviews the results of each segment on a quarterly basis. The Company''s WTD uses Earning Before Interest and Tax (EBITA) to assess the performance of the operating segments. Segment is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within same industries. Inter-segment pricing is determined on an arm''s length basis.

C. Geographical information

The Company at present, operates in India only and therefore the analysis of geographical segments is not applicable to the Company.

D. Major customer

No single customer contributed 10% or more of the total revenue of the Company for the year ended 31 March 2018 and 31 March 2017.

(ii) Post employment benefits

The remuneration to the key managerial personnel does not include the provisions made for gratuity and leave benefits, as they are determined on an actuarial basis for the Company as a whole.

C. Details of loans, investments and guarantee covered under Section 186(4) of the Companies Act, 2013

(i) The Company has neither given any loan nor has advanced any amount either during the year ended 31 March 2018 or year ended 31 March 2017.

(ii) Particulars of investments as required under Section 186(4) of the Companies Act, 2013 have been disclosed in Note 7.

D. Terms and conditions of transactions with related parties

(i) The transactions with related parties have been entered at an amount which are not materially different from those on normal commercial terms.

(ii) The amounts outstanding are unsecured and will be settled in cash and cash equivalent. No guarantees have been given or received.

(iii) For the year ended 31 March 2018, the Company has not recorded any impairment of receivables relating to amounts owed by a related parties. This assessment is undertaken in each financial year through examining the financial position of the related parties and the market in which the related party operates.

(iv) The remuneration of directors is determined by the Nomination & Remuneration Committee having regard to the performance of individuals and market trends.

Notes :

(a) As per U.P. Sugarcane (Regulation on Supply and Purchase) Act, 1953 and its Rules 1954, society commission is payable on sugarcane purchased at the rate of three percent of Fair and Remunerative Price (F.R.P.) fixed by the Government of India. However, the same was reduced by the Government of Uttar Pradesh for the sugar season 2015-16, 2016-17 and 2017-18 by Rs.3.90, Rs.2.40 and Rs.2.55 per quintal of sugarcane purchased respectively. In accordance with the accounting policy, the above reduction in society commission applicable on sugarcane purchased during the periods has been netted with the Cost of Material Consumed.

(b) The Government of Uttar Pradesh vide order dated 29 April 2016 has exempted purchase tax @ Rs.2/- per quintal of sugarcane purchased during the sugar season 2012-13. Accordingly, the Company has recognised income in 2016-17 towards sugarcane purchase tax paid in earlier years and the same has been disclosed as "Purchase Tax Remission” under the head Other Operating Revenue.

(c) The Government of India vide its Notification No. 1(10)/2015-SP-I dated 18 September 2015 announced Minimum Indicative Export Quota (MIEQ) under tradeable export scrip scheme in order to export surplus sugar inventory out of the country. Further, the Government of India vide its Notification No. 20(43)/2015-SP - 1 dated 2 December 2015 announced a scheme for extending production subsidy @ Rs.4.50 per quintal of actual sugarcane crushed during sugar season 2015-16 or the proportionate sugarcane crushed for the average sugar production of the Company''s each unit in last three sugar seasons, whichever is lower. Under the said scheme Rs.7.41 lakhs being net-off expenses has been disclosed as "Subsidy towards Export Quota (net)” under the head Other Operating Revenue.

(d) The Company has obtained certain term loans from banks under financial assistance schemes (SEFASU 2014 and SOFT 2015) and Sugar Development Fund at below market rate of interest. The difference between the fair value of the loans based on prevailing market interest rates and interest paid on such loans has been recognised in the Statement of Profit and Loss by netting with the related finance cost. The Loan is subsequently measured as per accounting policy applicable to financial liabilities.

The management assessed that trade receivables, cash and cash equivalent, other bank balances, trade payable, cash credits including working capital loan, inter corporate deposits and other financial assets and liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.

The following methods and assumptions were used to estimate the fair values:

(a) The fair value of the quoted investments are based on market price at the respective reporting date.

(b) The fair value of the unquoted investments is determined using combination of different methodologies i.e. discounted cash flow method, comparable Companies method and net assets method with different weightage. The discount rate used is based on management estimates.

B. Measurement of fair values

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in forced or liquidation sale.

The Company has established the following fair value hierarchy that categories the value into 3 levels.

Transfer out of Level 3

The Company holds an investment in equity shares of Magadh Sugar and Energy Limited, (MSEL) which is classified as FVOCI, with a fair value of Rs.1,271.73 lakhs at 31 March 2018 (31 March 2017: Rs.2,094.42 lakhs; 1 April 2016: Rs.1,295.29 lakhs). The fair value of this investment was categorised as Level 3 upto 27 July 2017 since equity shares were listed on 28 July 2017 in National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Calcutta Stock Exchange (CSE) and before such listing there were no recent observable arm''s length transactions in the shares.

B. Measurement of fair values (Contd.)

Since the equity shares of MSEL now have published price quotation in an active market, the fair value measurement has been transferred from Level 3 to Level 1 of the fair value hierarchy at 31 March 2018.

C. Financial risk management

The Company has exposure to the following risks arising from financial instruments:

(i) Credit risk

(ii) Liquidity risk

(iii) Market risk

Risk management framework

The Company''s principal financial liabilities includes borrowings, trade payable and other financial liabilities. The main purpose of these financial liabilities is to finance the Company''s operations. The Company''s principal financial assets include trade receivables, cash and cash equivalents, other bank balances, investments, loans and other financial assets that derive directly from its operations.

The Company''s board of directors has overall responsibility for the establishment and oversight of the Company''s risk management framework.

The Company''s audit committee oversees how management monitors compliance with the Company''s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal auditor undertakes both regular and adhoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

The Company''s primary risk management focus is to minimise potential adverse effects of market risk on its financial performance. The Company''s risk management assessment and policies and processes are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company''s activities.

This note presents information about the Company''s exposure to each of the above risks, the Company''s objectives, policies and processes for measuring and managing risk, and the Company''s management of capital.

(i) Credit risk

Credit risk is the risk of financial loss of the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company receivables from customers and loans. The Company has no significant concentration of credit risk with any counterparty. The carrying amount of financial assets represent the maximum credit risk exposure. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.

Trade receivables

The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry also has an influence on credit risk assessment. Customer credit risk is managed by each business unit subject to the Company''s established policy, procedures and control relating to the customer credit risk management. The Company uses financial information and past experience to evaluate credit quality of majority of its customers. Outstanding receivables and the credit worthiness of its counter parties are periodically monitored and taken up on case to case basis. There is no material expected credit loss based on the past experience. However, the Company assesses the impairment of trade receivable on case to case basis and has accordingly created loss allowance on trade receivables.

Exposure to credit risks

The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry. The Company evaluates the concentration of risk with respect to trade receivables as low, as the Company sugar sales are mostly on cash. Power and Ethanol are sold to Government entities, thereby the credit default risk is significantly mitigated.

Trade receivables are primarily unsecured and are derived from revenue earned from customers. Credit risk is managed through credit approvals, establishing credit limits and by continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. As per simplified approach, the Company makes provision of expected credit loss on trade receivables using a provision matrix to mitigate the risk of default payments and makes appropriate provisions at each reporting date whenever is for longer period and involves higher risk. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or gain. The Company uses a provision matrix to compute the credit loss allowance for trade receivables.

During the period, the Company has made no write-offs of trade receivables. The Company''s management also pursue all legal option for recovery of dues, wherever necessary based on its internal assessment.

(ii) Liquidity risk

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at reasonable price. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of credit facilities to meet obligations when due. Processes and policies related to such risks are overseen by senior management. Management monitors the Company''s liquidity position through rolling forecasts on the basis of expected cash flows.

The Company''s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due.

(iii) Market risk

Market risk is the risk of loss of future earnings, fair value or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, commodity prices, regulatory changes, equity prices and other market changes that effect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments and deposits, foreign currency receivables, payables and borrowings.

Foreign currency risks

All transactions of the Company are in Indian currency, consequently Company is not exposed to foreign currency risk. The Company has no outstanding foreign currency exposure or related derivative contract.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company exposure to the risk of changes in market interest rates relates primarily to the Company''s long term and short term borrowing with floating interest rates. The Company constantly monitors the credit markets and rebalances its financing strategies to achieve an optimal maturity profile and financing cost.

The Company''s main interest rate risk arises from long-term borrowings with variable rates, which expose the Company to cash flow interest rate risk.

Currently the Company''s borrowings are within acceptable risk levels, as determined by the management, hence the Company has not taken any swaps to hedge the interest rate risk.

Exposure to interest rate risks

The interest rate profile of the Company''s interest bearing financial instruments at the end of the reporting period are as follows:

Interest rate sensitivity has been calculated assuming the borrowings outstanding at the reporting date, have been outstanding for the entire reporting period and all other variables.

Equity risk

The Company''s quoted equity instruments are susceptible to market price risk arising from uncertainties about future values of the investment securities. The reports on the equity portfolio are submitted to the Company''s senior management on a regular basis. The senior management reviews and approves all equity investment decisions.

Sensitivity analysis

Investment in equity instruments of the Company are listed on the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Calcutta Stock Exchange (CSE) in India. The table below summaries the impact of increase/decrease of the Nifty 50 index on the Company''s equity and profit for the period. The analysis is based on the assumption that the BSE had increased / decreased by 10% with all other variables held constant, and that all the Company''s equity instruments moved in line with the index.

Regulatory risk

Sugar industry is regulated both by Central Government as well as State Government. Central and State Governments policies and regulations affects the Sugar industry and the Company''s operations and profitability. Spirit business is also dependent on the Government policy.

However, with the removal of major regulatory control on sugar sales by the Central Government, the regulatory risk are moderated.

Commodity price risk

The Company is exposed to the risk of price fluctuations of raw material as well as finished goods. Sugar industry being cyclical in nature, realisations get adversely affected during downturn. Higher cane price or higher production than the demand ultimately affect profitability. The Company has mitigated this risk by well integrated business model by diversifying into co-generation and distillation, thereby utilizing the by-products. The Company manage its commodity price risk by maintaining adequate inventory of raw materials and finished goods considering future price movement.

Inventory sensitivity analysis (raw material, work-in-progress and finished goods)

A reasonably possible change of 10% in prices of inventory at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.

9. Capital management

The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The management monitors the return on capital, as well as the level of dividends to equity shareholders.

The Company''s objective when managing capital are to:

(a) to maximise shareholders value and provide benefits to other stakeholders, and

(b) maintain an optimal capital structure to reduce the cost of capital.

In order to achieve this overall objective, the Company''s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. The Company has complied with these covenants and there have been no breaches in the financial covenants of any interest-bearing loans and borrowings.

For the purpose of the Company''s capital management, capital includes issued equity share capital and other equity reserves attributable to the equity holders.

10. Explanation of transition to Ind AS

As stated in Note 2(a), the Company has prepared its first financial statements in accordance with Ind AS. For the year ended 31 March 2017, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2014 read with the Companies (Accounting Standards) Amendment Rules, 2016 notified under Section 133 of the Act and other relevant provisions of the Act (''previous GAAP'').

The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended 31 March 2018 including the comparative information for the year ended 31 March 2017 and the opening Ind AS balance sheet on the date of transition i.e. 1 April 2016.

In preparing its Ind AS balance sheet as at 1 April 2016 and in presenting the comparative information for the year ended 31 March 2017, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with previous GAAP, and how the transition from previous GAAP to Ind AS has affected the Company''s financial position, financial performance and cash flows.

Optional exemptions availed and mandatory exceptions

In preparing the financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.

A. Optional exemptions availed

(a) Property, plant and equipment and intangible assets

As per Ind AS 101 an entity may elect to:

(i) measure an item of property, plant and equipment at the date of transition at its fair value and use that fair value as its deemed cost at that date

(ii) use a previous GAAP revaluation of an item of property, plant and equipment at or before the date of transition as deemed cost at the date of revaluation, provided the revaluation was, at the date of revaluation, broadly comparable to:

- fair value;

- or cost or depreciated cost under Ind AS adjusted to reflect.

The elections under (i) and (ii) above are also available for intangible assets that meets the recognition criteria in Ind AS 38, Intangible Assets, (including reliable measurement of original cost); and criteria in Ind AS 38 for revaluation (including the existence of an active market).

(iii) use carrying values of property, plant and equipment and intangible assets as on the date of transition to Ind AS (which are measured in accordance with previous GAAP and after making adjustments relating to decommissioning liabilities prescribed under Ind AS 101) if there has been no change in its functional currency on the date of transition.

As permitted by Ind AS 101, the Company has elected to continue with the carrying values under previous GAAP for all the items of property, plant and equipment. The same election has been made in respect of intangible assets also. There is no decommissioning liabilities to be incurred by the Company relating to property, plant and equipment.

(b) Determining whether an arrangement contains a lease

Ind AS 101 includes an optional exemption that permits an entity to apply the relevant requirements in Appendix C of Ind AS 17 for determining whether an arrangement existing at the date of transition contains a lease by considering the facts and circumstances existing at the date of transition (rather than at the inception of the arrangement).

The Company has elected to avail of above exemption.

(c) Designation of previously recognised financial instruments

Ind AS 101 permits an entity to designate particular equity investments (other than equity investments in subsidiaries, associates and joint arrangements) as at fair value through other comprehensive income (FVOCI) based on facts and circumstances at the date of transition to Ind AS (rather than at initial recognition). Other equity investments are classified at fair value through profit or loss (FVTPL).

The Company has opted to avail this exemption to designate certain equity investments as FVOCI on the date of transition i.e. 1 April 2016 on the basis of facts and circumstances existed at the date of transition to Ind AS.

(d) Business combinations

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date.

The Company elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated, accordingly Company has elected not to apply Ind-AS 103 on the scheme of arrangement, the effective date of which was 1 April 2015 [Note 2(a)].

(e) Fair value measurement of financial assets or liabilities at initial recognition

The Company has applied the requirements of Ind AS 109, "Financial Instruments: Recognition and Measurement”, wherever applicable.

B. Mandatory exceptions

(a) Estimates

As per Ind AS 101, an entity''s estimates in accordance with Ind AS at the date of transition to Ind AS at the end of the comparative period presented in the entity''s first Ind AS financial statements, as the case may be, should be consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error.

However, the estimates should be adjusted to reflect any differences in accounting policies.

As per Ind AS 101, where application of Ind AS requires an entity to make certain estimates that were not required under previous GAAP, those estimates should be made to reflect conditions that existed at the date of transition (for preparing opening Ind AS balance sheet) or at the end of the comparative period (for presenting comparative information as per Ind AS).

The Company''s estimates under Ind AS are consistent with the above requirement.

(b) Derecognition of financial assets and liabilities

As per Ind AS 101, an entity should apply the derecognition requirements in Ind AS 109, Financial Instruments, prospectively for transactions occurring on or after the date of transition to Ind AS. However, an entity may apply the derecognition requirements retrospectively from a date chosen by it if the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the derecognition principles of Ind AS 109 retrospectively as reliable information was available at the time of initially accounting for these transactions.

(c) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of the financial assets accounted at amortised cost has been done retrospectively except where the same is impracticable.

I. Equity Share Capital

50,000 equity shares of Rs.10 each of the Company, held by OSML and UGSIL stand cancelled and has been consequently credited to Capital Reserve.

II. Share Capital Suspense

The Company has issued the following shares to the shareholders of OSML and UGSIL:

i) 57,67,301 equity shares of Rs.10 each to the shareholders of OSML aggregating Rs.576.73 lakhs, in the ratio of 2 equity shares of face value of Rs.10 each of the Company for every 9 equity shares of face value of Rs.10 each held in OSML, and

ii) 42,41,909 equity shares of Rs.10 each to the shareholders of UGSIL aggregating Rs.424.19 lakhs, in the ratio of 11 equity shares of face value of Rs. 10 each of the Company for every 30 equity shares of face value of Rs.10 each held in UGSIL, and

iii) 4,87,00,000 fully paid up 8.5% Non-Convertible Cumulative Redeemable Preference Shares (NCCRPS) of Rs.10 each to the preference shareholders of OSML aggregating Rs.4,870.00 lakhs, in lieu of each original shares earlier issued by OSML [classified as financial liabilities (refer Note 19).

iv) 17,00,000 fully paid up 12% Non-Convertible Cumulative Redeemable Preference Shares (NCCRPS) of Rs.100 each to the preference shareholders of UGSIL aggregating Rs.1,700.00 lakhs, in lieu of each original shares earlier issued by UGSIL [classified as financial liabilities (refer Note 19).

Note: Rs.12,000 lakhs and Rs.5,000 lakhs has been added to the authorised share capital from OSML and UGSIL respectively by virtue of the scheme.

* Pending allotment, these have been shown as share capital suspense in the Balance sheet as at 1 April 2016 and the same have been subsequently allotted on 30 March 2017.

IV. Capital Reserve (included in other equity above)

i) Rs.5.00 lakhs has been credited to Capital Reserve towards cancellation of 50,000 equity shares of Rs.10 each of the Company, held by OSML and UGSIL pursuant to the scheme of arrangement.

ii) The difference of Rs.25,756.69 lakhs between the Net fair value of assets and liabilities of the sugar business undertakings and shares issued to the shareholders of OSML and UGSIL has been credited to Capital Reserve.

V. 10,61,539 equity shares of Magadh Sugar & Energy Limited was received under the scheme in lieu of slump sale of one business undertaking located at Narkatiaganj, District West Champaran in the state of Bihar of OSML.

Note :

The Previous GAAP figures as on 1 April 2016 and effect of scheme of arrangement have been reclassified to conform to Ind AS presentation requirements for the purpose of this note.

E. There were no significant reconciliation items between cash flows prepared under previous GAAP and those prepared under Ind AS.

F. Notes to the reconciliations of equity as at 1 April 2016 and 31 March 2017 and total comprehensive income for the year ended 31 March 2017:

(a) Investments:

In accordance with Ind AS, financial assets representing investment in equity shares of entities have been fair valued. The Company has designated equity investments as at fair value through other comprehensive income as permitted by Ind AS 109. Under the previous GAAP, the application of the relevant accounting standard resulted in these investments being carried at cost.

(b) Biological assets

Under the previous GAAP, biological assets was measured at cost. Ind AS requires biological assets other than bearer plants and agricultural produce within its scope to be measured at fair value less cost to sell at each balance sheet date and to be presented as separate line item on the face of the balance sheet with corresponding gain or loss to be recognized in the Statement of Profit and Loss.

(c) Borrowings at amortised cost:

Based on Ind AS 109, financial liabilities in the form of borrowings have been accounted at amortised cost using the effective interest rate method.

The impact arising from the change is summarised as follows:

(d) Excise duty

Under previous GAAP, revenue from sale of goods was presented net of the excise duty on sales. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. Excise duty is presented in the Statement of Profit and Loss as an expense. This has resulted in an increase in the revenue from operations and expenses for the year ended 31 March 2017. The total comprehensive income for the year ended and equity as at 31 March 2017 has remained unchanged.

(e) Actuarial gain and loss

Under Ind AS, all actuarial gains and losses are recognised in other comprehensive income. Under previous GAAP the Company recognised actuarial gains and losses in profit or loss. However, this has no impact on the total comprehensive income and total equity as on 1 April 2016 or as on 31 March 2017.

11. The financial statements of the previous years were audited by a firm of chartered accountants other than B S R & Co. LLP. The previous year''s including figures as at the date of transition have been reworked, regrouped, rearranged and reclassified wherever necessary on transition to Ind AS. Amounts and other disclosures for the preceding years including figures as at the date of transition are included as an integral part of the current year financial statements and are to be read in relation to the amounts and other disclosures relating to the current year.

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