Notes to Accounts of Pennar Engineered Building Systems Ltd.

Mar 31, 2018

1. Corporate information

Pennar Engineered Building Systems Limited ("the Company") is into design, manufacture, supply, service and installation of pre-engineered steel buildings, building components and erection for industries, warehouses, commercial centres, multi storied buildings, aircraft hangars, defense installations, amongst others.

"The Company is a public limited company incorporated and domiciled in India and has its registered office situated at DHFLVC Silicon Towers Kondapur Hyderabad and manufacturing plant is located at Sadashivpet, Medak district of Telangana. The Company has its primary listings on the BSE Limited and National Stock Exchange of India Limited, in India."

2. Basis of preparation

A. Statement of compliance

a. Financial statements have been prepared in accordance with Indian Accounting Standards ("Ind AS") under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, notified under the Companies Act, 2013 (''the Act'') and Rules prescribed thereunder.

b. These are the Company''s first financial statements prepared in accordance with Ind AS, and Ind AS 101, First-time Adoption of Ind AS has been applied.

c. For all periods up to and including the year ended 31 March 2017, the Company had prepared its financial statements in accordance with accounting standards notified under the section 133 of the Companies Act 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014 (''Previous GAAP''). An explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance is provided in Note 45.

d. The financial statements were authorized for issue by the Company''s Board of Directors on 18 May 2018.

e. 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 a historical cost basis, except for the following items:

D. Use of estimates and judgements

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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

Judgements

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:

Note 3 - lease classification.

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 March 2018 is included in the following notes:

Note 4 - measurement of defined benefit obligations: key actuarial assumptions;

Note 5 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources;

Note 9 and 16 - impairment test of non-financial assets Note 6 to 8 and 11 to 15 - impairment of financial assets

E. Measurement of fair values

Certain accounting policies and disclosures of the Company require the measurement of fair values, for both financial and non financial assets and liabilities.

Fair values are categorized 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, 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 a different levels of the fair value hierarchy, then the fair value measurement is categorized 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 recognizes 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 the measuring fair values is included in the following notes:

Note 6 - Financial instruments

Notes:

1) Trade receivables includes retention money aggregating to Rs. 3,012 lakhs (31 March 2017: Rs. 3,429 lakhs and 1 April 2016: Rs. 3,031 lakhs).

3) For trade receivables amounting to Rs. 22 lakhs (31 March 2017: Rs. 448 lakhs and 01 April 2016: Rs. 388 lakhs) is held against letter of credit and bank guarantees provided by customers to the Company.

2) For details of trade receivables from related parties, refer note 40.

(iv) Terms and rights attached to the equity shares

The Company has one class of equity shares having a par value of Rs. 10 each. Each shareholder is eligible for one vote per share held. Any dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

(v) Shares reserved for issue under option

The Company has established an equity-settled share-based payment plan for certain categories of employees of the Company. Refer to note 48 for further details on this plan.

Note:

Share issue expenses comprise of expenses incurred in connection with issue of equity shares and their listing on stock exchanges. The total expenses in connection with the IPO were shared between the Company and the selling shareholders in the proportion of the amount received from the IPO proceeds. The Company''s share of issue expenses were adjusted against securities premium account u/s 52(2)(c) of the Companies Act, 2013.

Note:

Vehicle loan from ICICI Bank (including current maturities of long-term borrowings are disclosed under ''other financial liabilities'') of Rs. Nil (31 March 2017: Rs. 37 lakhs and 01 April 2016: Rs. 45 lakhs) is secured by hypothecation of the vehicle financed through the loan arrangement. The loan is repayable in 60 monthly installments of Rs. 1 lakh each commencing from 10 November, 2015 and carries an interest rate of 9.35 % per annum. The loan was closed during the current year.

(a) Cash credit

Cash credit facilities from banks are secured by hypothecation of entire current assets and are further secured by second charge on Company''s immovable properties and other property, plant and equipment, both present and future. The cash credit facility is further secured by personal guarantee of Promoter Director Mr. Aditya N Rao and corporate guarantee of Pennar Industries Limited, (the Holding Company). These borrowings carries interest rate of 9.60% to 12% per annum (31 March 2017: 9.50% to 11.80% per annum and 01 April 2016: 10.55% per annum).

(b) Working capital demand loans

i. The loan of Rs. 3,500 lakhs (31 March 2017: Rs. 4,500 lakhs and 01 April 2016: Rs. 1,000 lakhs) from State Bank of India (SBI) is primarily secured by pari passu first charge on present and future current assets of the Company along with Axis Bank and secured by second charge on property, plant and equipment of the Company including equitable ,mortgage of acre 32.07 1/2 guntas under Survey numbers 88 to 92 (part) of Ankanapally Village & Survey Numbers 144 to 145 (part) of Chandapur Village Sadasivapet Mandal, Medak District (the land on which the plant is located), on pari passu basis along with Axis Bank, and pledge of 24.60% of the total paid-up equity share capital (6,150,000 shares of Rs. 10 each) held by Pennar Industries Limited. The facility is further secured by personal guarantee of Mr. Aditya N Rao and corporate guarantee of Pennar Industries Limited. The loan carries an average interest rate of 8.6% per annum (31 March 2017: 9.85% per annum and 01 April 2016: 10.55% per annum).

ii. The loan of Rs. Nil (31 March 2017: Rs. Nil and 01 April 2016: Rs. 1,250 lakhs) from Yes Bank Limited is exclusively secured by receivables. Pari passu first charge on present and future current assets of the Company and secured by second charge on property, plant and equipment of the Company. The facility is further secured by personal guarantee of Mr. Aditya N Rao and corporate guarantee of Pennar Industries Limited. The loan carries an average interest rate of 8.41% per annum (31 March 2017: 10.25% per annum and 01 April 2016: 10.25% per annum).

iii. The loan of Rs. 1,900 lakhs (31 March 2017: Rs. Nil and 01 April 2016: Rs. Nil) from HDFC Bank Limited is primarily secured by pari passu first charge on current assets of the Company and pari passu secured by second charge on the property, plant and equipment of the Company. The facility is further secured by personal guarantee of promoter director Mr. Aditya Rao and Corporate guarantee of Pennar Industries Limited. The loan carries an average interest rate of 7.9% per annum (31 March 2017: Nil and 01 April 2016: Nil).

* The demand raised by the excise authority is mainly towards short payment of excise duty on account of non-inclusion of freight charges in assessable value of the goods supplied by the Company.

The Company is contesting the demands and the Management believe that its position will likely be upheld in the appellate process and accordingly no expense has been accrued in the financial statements for the demand raised/ show cause notice received as the ultimate outcome of these proceedings will not have a material adverse effect on the Company''s financial statements.

7. 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 results are reviewed regularly by the Company''s Managing Director (MD) to make decisions about resources to be allocated to the segments and assess their performance.

The chief operating decision maker evaluates the Company''s performance and allocates resources based on an analysis of various performance indicators at operational unit level and since there is single operating segment, no segment disclosures of the company is presented. The Company''s operations fall within a single business segment "Manufacturing and erection of Pre-engineered Building Systems/ Steel Structurals".

B. Geographical information

The geographical information analyses the Company''s revenues and non-current assets held by the Company''s country of domicile (i.e. India) and other countries. In presenting the geographical information, segment revenue has been based on the geographic market, regardless of where the goods were produced. However, there are no non-current assets held in other countries. Hence, disclosure in respect of non-current assets has not been made.

8. Disclosures required under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006

The Ministry of Micro, Small and Medium Enterprises has issued an Office Memorandum dated 26 August 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allotted after filing of the Memorandum. Accordingly, the disclosure in respect of the amounts payable to such enterprises as at 31 March 2018 has been made in the financial statements based on information received and available with the Company. Further, in the view of the management, the impact of interest, if any, that may be payable in accordance with the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 ("the MSMED Act") is not expected to be material. The Company has not received any claim for interest from any supplier under the said Act.

Note: The list of undertakings covered under MSMED Act was determined by the Company on the basis of information available with the Company and has been relied upon by the auditors.

* As the future liabilities for gratuity and compensated absences is provided on an actuarial basis and payment of insurance costs are made for the Company as a whole , the amount pertaining to the key management personnel is not ascertainable, therefore, not included above.

Note:

1. The above information has been determined to the extent such parties have been identified on the basis of information available with the Company and relied upon by the auditors.

2. All transactions with these related parties are priced on an arm''s length basis and resulting outstanding receivables and payables including financial assets and financial liabilities balances are settled in cash. None of the balances are secured.

9. Employee benefit

(i) Post retirement benefit - Defined contribution

The Company makes contributions, determined as a specified percentage of employee salaries, in respect of qualifying employees towards provident fund and employee state insurance which are defined contribution plans. The Company has no obligations other than to make the specified contributions. The contributions are charged to the statement of profit and loss as they accrue. The Company has recognised as an expense towards contribution to provident fund are for the year aggregating to Rs. 189 lakhs (31 March 2017: Rs. 156 Lakhs) and is included under contribution to provident and other funds."

(ii) Post retirement benefit - Defined benefit

The Company provides its employees with the benefits under a defined benefit plan, referred to as the "Gratuity Plan". The Gratuity Plan entitles an employee, who has rendered at least five years of continuous service, to receive fifteen days salary for every completed years of service or part thereof in excess of six months at the time of retirement/exit, restricted to a sum of Rs. 20 Lakhs (31 March 2017: Rs. 10 Lakhs) . "

The defined benefit plan for gratuity is administered by a single gratuity fund that is legally separate from the Company. The trust of the gratuity fund comprises three trustees. The trust of the gratuity fund is required by law to act in the best interests of the plan participants and is responsible for setting certain policies (e.g. investment and contribution policies) of the fund.

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

The Company expects to pay Rs. 120 Lakhs in contributions to its defined benefit plans in 2018-19.

Discount rate: The discount rate is based on the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligations.

Future salary growth: The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.

Attrition rate: Represents the Company''s best estimate of employee turnover in future (other than on account of retirement, death or disablement) determined considering various factors such as nature of business, retention policy, industry factors, past experience, etc.

c) Sensitivity analysis

The significant actuarial assumptions for the determination of the defined benefit obligations are discount rate and future salary growth rate. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all others assumptions constant:

10. Financial instruments - fair values and risk management

A. Accounting classifications and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy.

B. Measurement of fair values

i. Valuation technique and significant unobservable inputs

Investment in equity instruments: The fair value is determined based on the average of value determined as per discounted cash flows approach and intrinsic value per share as on the reporting date.

ii. Transfer between Level 1 and 2

There have been no transfers from Level 2 to Level 1 or vice-versa in 2017-18 and no transfers in either direction in 2016-17.

Financial risk management

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

a) Liquidity risk

b) Credit risk

c) Market risk

Risk management framework

The Company''s board of directors has overall responsibility for the establishment and oversight risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company''s risk management policies. The committee reports regularly to the Board of Directors on its activities.

The Company''s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the company''s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

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 risk faced by the Company. The Audit Committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and adhoc reviews of risk management controls and procedures, the result of which are reported to the Audit Committee.

a) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. 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, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company''s reputation.

The Company aims to maintain the level of its cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities (other than trade payables). The Company also monitors the level of expected cash inflows on trade receivables and loans together with expected cash outflows on trade payables and other financial liabilities.

Exposure to liquidity risk

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts reflect the principal amounts that are gross and undiscounted, and exclude the impact of netting agreements:

b) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet it contractual obligations, and arises principally from the Company''s receivables from customers.

Trade receivables:

The Company''s exposure to credit risk is influenced by the individual characteristics of each customer. Customer''s credit risk is managed by the respective department subject to Company''s established policy, procedures and control relating to customer credit risk management. The Company limits its exposure to credit risk from trade receivables by establishing a maximum payment period of 3 months for customer.

For trade receivables, as a practical expedient, the Company computes credit loss allowance based on a provision matrix (ECL model). The provision matrix is prepared based on historically observed default rates over the expected life of trade receivables and is adjusted for forward-looking estimates. An impairment analysis is performed at each reporting date.

c) Market risk

Market risk is the risk that results from changes in market prices - such as foreign exchange rates, interest rates and others - will affect the Company''s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

(i) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rate. The majority of the Company''s assets are located in India and Indian rupee being the functional currency for the Company. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to operating activities.

The Company has majority of its foreign exchange exposure in the form of receivables from customers for supply of services. The Company''s foreign currency receivables are unhedged.

Sensitivity analysis

A reasonably possible strengthening/ (weakening) of the INR on a US dollar against all other currencies at 31 March would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

(ii) Interest rate risk

The Company''s main interest rate risk arises from short-term borrowings with variable rates, which exposes the Company to cash flow interest rate risk. The exposure of the Company''s borrowing to interest rate changes at the end of the reporting period are as follows:

11. Capital management

The Company aims to maintain a strong capital base so as to maintain the confidence of investors, creditors and market and to sustain future development of the business.

The Company monitors capital using a ratio of ''adjusted net debt'' to ''adjusted equity''. For this purpose, adjusted net debt is defined as total liabilities, including interest-bearing loans and borrowings, less cash and cash equivalents. Adjusted equity comprises all components of equity other than amounts accumulated in the effective portion of cash flow hedges and cost of hedging, if any.

12. First-time adoption of Ind AS

As stated in the accounting policies set out in Note 3, 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, 2006, 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 these financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.

A. 1 Optional exemptions availed

1.Property plant and equipment, capital work-in-progress and intangible assets

As per Ind AS 101 an entity may elect to:

1. 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, for example, changes in a general or specific price index

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).

iv. use carrying values of property, plant and equipment, capital work-in-progress 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 and capital work-in-progress. The same election has been made in respect of intangible assets also.

2.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 the above exemption.

A.2 Mandatory exceptions

1.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. Key estimates considered in preparation of the financial statements that were not required under the previous GAAP are listed below:

- Fair valuation of financial instruments carried at FVTPL and/ or FVOCI.

- Impairment of financial assets based on the expected credit loss model.

2.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 amortized 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 amortized cost has been done retrospectively except where the same is impracticable.

D. Notes to reconciliation

1. Property, plant and equipment

In line with the requirement of Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets, for creating a provision towards the costs of dismantling and removing the item of property, plant and equipment and restoring the site on which it is located at the time the item is acquired or constructed, Ind AS 16 requires that the initial estimate of the aforesaid costs should be included in the cost of the respective item of property, plant and equipment.

2. Investments:

Under the previous GAAP, investments in mutual funds were classified as non-current investments or current investments based on the intended holding period and realizability. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be measured at fair value. The resulting fair value changes of these investments have been recognised in retained earnings as at the date of transition 1 April 2016 and subsequently in the profit or loss for the year ended 31 March 2017.

3. Trade receivables

Provision for bad and doubtful receivables under the previous GAAP was based on ''incurred loss'' model where provision was recognised based on the occurrence of credit loss event as against the ''expected credit loss'' model under Ind AS wherein lifetime expected losses are recognised when such financial instruments (trade receivables) are first originated on the basis of relevant information about past events, including historical credit loss events for similar financial instruments, current conditions and reasonable and supportable forecasts. Based on the estimates, additional provision was recognised against for impairment of trade receivables as at transition date, with a corresponding charge recognised in the equity. For the year ended 31 March 2017, additional provision of has been recognised for such impairment in the Statement of Profit and Loss.

5. Changes in the accounting policy for construction contracts

During the year, the Company has changed its accounting policy for recognition of revenue in case of construction contract to percentage of completion method as this would result in more appropriate representation of contract revenue, whereas the revenue was recognised on transfer of significant risks and rewards of ownership to the buyer, which generally coincides with the delivery of goods to customers. The stage of completion of the project is determined by the proportion that contract costs incurred for shipments made up to the balance sheet date bear to the estimated contract costs for total shipments for the contracts. The impact on account of change in accounting policy is recognised in the opening reserves on the date of transition and consequential impact is recognised in the Statement of profit and loss.

6. 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.

7. Actuarial gain and loss

Under previous GAAP, actuarial gains and losses were recognised in statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of re-measurement of the net defined benefit liability/ asset which is recognised in other comprehensive income. Consequently, the tax effect of the same has also been recognised in other comprehensive income under lnd AS instead of statement of profit and loss.

8. Other comprehensive income

Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit and loss as ''other comprehensive income'' includes re-measurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP.

9. Deferred tax assets/ (liabilities)

The decrease/ (increase) in the deferred tax liabilities are on account of adjustments made on transition to Ind AS.

E. Reconciliation of statement of Cash flows

There are no material adjustments to the statement of cash flows as reported under previous GAAP.

13. Leases

Operating lease in the capacity of lessee

The Company has certain operating leases for office facilities under cancellable as well as non-cancellable operating lease agreements. The operating lease arrangements, are renewable on a periodic basis and the lease term ranges from 24 months to 60 months from their respective dates of inception. Some of these lease agreements have price escalation clauses. Future lease payment on the long term non-cancellable operating leases as per the lease agreements are as follow:

14. "During the year 2015-16 the Company approved the ""Employee Stock Option Scheme 2014"" for all eligible employees in pursuance of the special resolution approved by the share holders in Extra Ordinary General Meeting held on 11 November 2014. Under the said scheme the number of options to be granted are 1,000,000 (31 March 2017: 1,000,000 and 01 April 2016: 1,000,000). The options are yet to be granted to eligible employees. Upon grant to the employees, vesting of shares, vesting period, exercise period and price will be computed.

Each option holder entitled to apply for and be allotted one ordinary share of Rs. 10 each upon payment at the exercise price."

15. The Company has funds raised through Initial Public Offer (IPO) during the financial year 2015-2016. Use of the net proceeds of the IPO is intended for business purposes such as repayment/ prepayment of certain working capital facilities availed by the Company, financing the procurement of infrastructure, general corporate purposes and share issue expenses. As on 31 March 2018 an amount of Rs. 537 lakhs (31 March 2017: Rs. 590 lakhs and 01 April 2016: Rs. 712 lakhs) are unutilized funds which have been temporarily invested in short term liquid scheme of mutual funds and in bank balances.

16. The Company is in the process of establishing a comprehensive system of maintenance of information and documents as required by the transfer pricing legislation under Sections 92-92F of the Income-tax Act, 1961. Since the law requires existence of such information and documentation to be contemporaneous in nature, the Company expects the documentation for the domestic and international transactions entered into with the associated enterprise during the financial year, to be in existence latest by the end of November 2018, as required by law. The Management is of the opinion that its domestic and international transactions are at arm''s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for taxation.

17. The Company vide its board meeting dated 10 November 2017 has approved the proposed scheme of amalgamation between the Company, Pennar Enviro Limited (related Company) with Pennar Industries Limited (PIL) effective from 01 April 2018, as per terms and conditions mentioned in the draft Scheme. Subsequent to the year end, PIL has received approval letters from BSE Limited (''BSE'') and National Stock Exchange of India Limited (''NSE'') on the Scheme of Amalgamation. The Scheme remains subject to the receipt of necessary approvals from National Company Law Tribunal, and the respective shareholders and creditors of the Company.

---

Mar 31, 2016

a) The authorized share capital of Rs.3,750 lakhs divided into 31,500,000 Equity Shares and 6,000,000 Compulsorily Convertible Preference Shares (CCPS) was increased to Rs.4,200 lakhs divided into 36,000,000 Equity Shares and 6,000,000 CCPS, pursuant to a extra ordinary general meeting held on 16 March, 2015.

b) The Company completed its Initial Public Offering (IPO) of 8,774,567 Equity Shares of H10 each consisting of a Fresh Issue of 3,258,426 Equity Shares and an offer for sale of 5,516,141 Equity Shares from selling share holders on 04 September, 2015. Out of the total proceeds from the IPO of Rs.15,619 lakhs the Company''s share is Rs.5,800 lakhs on account of the said fresh issue. The fresh issue of 3,258,426 Equity Shares of face value H10 each was at a premium of H168 per share aggregating Rs. 5,474 lakhs. The said premium was recognized in securities premium account of the Company.

c) Pursuant to a resolution dated 16 March, 2015, 1,676,182 CCPS held by Zephyr Peacock India Fund III Limited were converted to 1,844,064 Equity Shares and 753,008 CCPS held by Zephyr Peacock India III Fund were converted into 828,427 Equity Shares respectively of face value H10 per share at a premium of H48.17 per share, resulting in a conversion ratio of 1:1.002. The net adjustment on such conversion was made to the securities premium account.

d) Pursuant to a Board resolution dated 21 July, 2015, 2,097,348 CCPS held by Zephyr Peacock India Fund III Limited were converted to 2,307,412 Equity Shares and 942,212 CCPS held by Zephyr Peacock India III Fund were converted into 1,036,582 Equity Shares respectively of face value H10 per share at a premium of H48.17 per share. The net adjustment on such conversion was made to the securities premium account.

(iv) Rights, preferences and restrictions attached to shares

a) Equity shares

The Company has one class of equity shares having a par value of H10 each. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company in proportion to their shareholding.

b) Conversion of Compulsorily convertible preference shares (CCPS)

The Company has converted all of its Compulsorily Convertible Preference Shares (CCPS) into Equity Shares of the Company. As on 31 March, 2016, the number of CCPS of the Company is NIL (as at March 31, 2015 the Company was having 3,039,560 CCPS, the said CCPS got converted fully to equity shares on 21 July, 2015)

c) Details of shares reserved for issue

Shares aggregating 1,000,000 (31 March, 2015 1,000,000) is reserved for issue under Employee Stock Option Scheme 2014 (Refer Note 34)

Note - iii (a)

Working Capital loan of Rs.4,500 Lakhs from State Bank of India (SBI) is primarily secured by Pari passu first charge on present and future Current Assets of the Company along with Axis Bank and secured by second charge on fixed assets of the Company including Equitable Mortgage of Acre 32.07 1/2 guntas under Survey numbers 88 to 92 (part) of Ankanapally Village & Survey Numbers 144 to 145 (part) of Chandapur Village Sadasivapet Mandal, Medak District (the land on which the plant is located), on pari passu basis along with Axis Bank, and pledge of 24.60% of the total paid up equity capital (61,50,000 shares of H10 each) held by Pennar Industries Limited. Further secured by personal guarantee of Aditya N Rao and corporate guarantee of Pennar Industries Limited. The loan carries interest rate of 10.55% per annum (31 March, 2015 - 11.25% per annum).

Note - iii (b)

Working Capital loan of Rs.1,000 Lakhs from Axis Bank Limited is primarily secured by Pari passu first charge on present and future Current Assets of the Company and pari passu secured by second charge on present and future fixed assets of the Company including Equitable Mortgage of Acre 32.07 1/2 guntas under Survey numbers 88 to 92 (part) of Ankanapally Village & Survey Numbers 144 to 145 (part) of Chandapur Village Sadasivapet Mandal, Medak District (the land on which the plant is located). Further secured by personal guarantee of promoter director Aditya Rao and Corporate guarantee of Pennar Industries Limited. The loan carries interest rate of 11.55% per annum (31 March, 2015 - 12.15% per annum).

Note 1.

The Company approved the ""Employee Stock Option Scheme 2014"" for all eligible employees in pursuance of the special resolution approved by the share holders in Extra Ordinary General Meeting held on 11 November, 2014. Under the said scheme the number of options to be granted are 1,000,000 (March 31, 2015 - 1,000,000). The options are yet to be granted to eligible employees. Upon grant to the employees, vesting of shares, vesting period, exercise period and price will be computed.

Each option holder entitled to apply for and be allotted one ordinary share of H10 each upon payment at the exercise price.

Note 2.

In accordance with the requirements of component accounting of fixed assets as per Schedule II to the Companies Act, 2013, the Company has identified and accounted for the components of fixed assets during the current year. Consequently, the depreciation on such components aggregating Rs.16 lakhs (March 31, 2015 - H Nil) has been charged in the Statement of Profit and Loss.

Note 3.

Tax expenses for the year ended March 31, 2016 includes tax for earlier years of Rs.185 lakhs (March 31, 2015 - H Nil).

Note 4.

During the previous year, pursuant to the transition provisions prescribed in Schedule II to the Companies Act, 2013, the Company had fully depreciated the carrying value of assets, net of residual value, where the remaining useful life of the asset was determined to be H nil as on April 1, 2014, and has adjusted an amount of Rs.11 lakhs (net of deferred tax of Rs.5.6 lakhs) against the opening balance in the Statement of Profit and Loss under Reserves and Surplus.

The depreciation expense in the Statement of Profit and Loss for the previous year was higher by Rs.118 lakhs consequent to the change in the useful life of the assets.

Note 5.

Previous year’s figures have been regrouped / reclassified wherever necessary to correspond with the current year’s classification.