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Notes to Accounts of TVS Motor Company Ltd.

Mar 31, 2017

1 FINANCE RISK MANAGEMENT

The company’s activities expose it to market risk, liquidity risk and credit risk. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the impact of hedge accounting in the financial statements

2 CAPITAL MANAGEMENT

(a) Risk management

The company’s objectives when managing capital are to

- safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and

- maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Company monitors capital on the basis of the following gearing ratio:

Net debt (total borrowings net of cash and cash equivalents) divided by Total ‘equity’ (as shown in the balance sheet)

The company’s strategy is to maintain an optimum gearing ratio. The gearing ratios were as follows:

The company also monitors Interest coverage ratio :

Company’s earnings before interest and taxes (EBIT) divided by Interest

The Company’s strategy is to maintain a optimum interest coverage ratio The Interest coverage ratio were as follows:

3 TRANSITION TO IND AS

These are the Company’s first financial statements prepared in accordance with Ind AS.

The accounting policies set out in Note No. 1 have been applied in preparing the financial statements for the year ended 31-03-2017, the comparative information presented in these financial statements for the year ended 31-03- 2016 and in the preparation of opening Ind AS balance sheet as at 01-04-2015 (The Company’s date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP).

An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s financial position and financial performance is set out in the following tables and notes.

A. Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

A.1 Ind AS optional exemptions

A.1.1 Deemed cost - Property, Plant and Equipment and Intangible assets

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 - Intangible Assets.

Accordingly, the company has elected to measure all of its property, plant and equipment and intangible assets at previous GAAP carrying value.

A.1.2 Deemed cost - Equity Investments

Ind AS 101 permits first time adopter to elect to measure the investments in subsidiaries, associates and joint venture at cost determined in accordance with Ind AS 27 or deemed cost. Deemed cost for the purpose of transition shall mean fair value of the investment at the entity’s date of transition to Ind AS or previous GAAP carrying amount at that date (previous GAAP cost). A first-time adopter may choose either fair value or Previous GAAP carrying amount in each subsidiary, joint venture or associate that it elects to measure using a deemed cost.

Accordingly, the company has elected to measure equity investments in overseas subsidiaries at fair value and investments in domestic subsidiaries and associates at previous GAAP carrying cost.

A.1.3 Designation of previously recognised financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments at FVOCI on the basis of the facts and circumstances at the date of transition to Ind AS. The company has elected to apply this exemption for its investment in equity investments.

A.1.4 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.

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.

A.2 Ind AS mandatory exceptions A.2.1 Estimates

An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. Ind AS estimates as at 01-04-2015 are consistent with the estimates as at the same date made in conformity with previous GAAP. The company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investment in equity instruments carried at FVOCI;

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

A.2.2 Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

A.2.3 Government Loans

A first-time adopter has the option to apply the requirements in Ind AS 109 (Financial Instruments) and Ind AS 20 (Accounting for Government Grants and Disclosure of Government Assistance) prospectively to government loans existing at the date of transition to Ind AS and shall not recognise the corresponding benefit of the government loan at a below-market rate of interest as a government grant. Accordingly the Company has elected to apply the above option to Sales tax deferral loans which continue to be valued at previous GAAP value.

A.2.4 Hedge Accounting

The Company had designated various hedging relationships as cash flow hedges under the previous GAAP On the date of transition to Ind AS entity had assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to Ind AS.

B. Notes to first-time adoption

Remeasurements of post-employment benefit obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year. As a result of this change, the profit for the year ended 31-03-2016 increased by Rs.11.84 crores. There is no impact on the total equity as at 31-03-2016.

Assumptions regarding future mortality for pension and medical benefits are set based on actuarial advice in accordance with published statistics and experience. These assumptions translate into an average life expectancy in years for a pensioner retiring at age 58.

(i) Sensitivity analysis

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

(ii) Risk exposure

Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility: The plan liabilities are calculated using a discount rate set with reference to bond yields; if plan assets under perform this yield, this will create a deficit. Most of the plan asset investments is in fixed income securities with high grades and in government securities. These are subject to interest rate risk and the fund manages interest rate risk with derivatives to minimise risk to an acceptable level. A portion of the funds are invested in equity securities and in alternative investments which have low correlation with equity securities. The equity securities are expected to earn a return in excess of the discount rate and contribute to the plan deficit. The Company has a risk management strategy where the aggregate amount of risk exposure on a portfolio level is maintained at a fixed range. Any deviations from the range are corrected by rebalancing the portfolio. The Company intends to maintain the above investment mix in the continuing years.

Changes in bond: A decrease in bond yields will increase plan liabilities, although this will be partially offset by an yield increase in the value of the plans’ bond holdings.

Inflation risks: In the pension plans, the pensions in payment are not linked to inflation, so this is a less material risk.

Life expectancy: The pension obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. This is particularly significant where inflationary increases result in higher sensitivity to changes in life expectancy. The Company ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are in line with the obligations under the employee benefit plans. Within this framework, the Company’s ALM objective is to match assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency. The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. The Company has not changed the processes used to manage its risks from previous periods. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A large portion of assets in 2017 consists of Government and Corporate bonds, although the

Company also invests in equities, cash and mutual funds. The Company believes that equities offer the best returns over the long term with an acceptable level of risk.

(iii) Defined contribution plans:

The Company’s contribution to defined contribution plan i.e., provident fund of Rs. 11.47 crores (previous year Rs.10.13 crores) has been recognised in the Statement of Profit and Loss.

4 CORPORATE SOCIAL RESPONSIBILITY

Expenditure incurred on Corporate Social Responsibility (CSR) activities:

(a) Gross amount required to be spent during the year is Rs.9.06 crores (last year Rs.7.15 crores)

(b) Amount spent during the year:

5 Previous year’s figures have been regrouped wherever necessary to conform to the current year’s classification.


Mar 31, 2015

1 (a) Defined contribution plans:

The Company''s contribution to defined contribution plan i.e., provident fund of Rs. 10.51 crores (last year Rs.10.76 crores) has been recognised in the Statement of Profit and Loss.

2 The Company operates in only one segment viz., automotive vehicles.

3 (a) Related parties and their relationship for the financial year 2014-15:

Notes:

(a) The above loans are subject to repayment schedule as agreed between the Company and its loanee. The loans are repayable within seven years.

(b) Investment by the loanee in the shares of the parent company and subsidiary company when the Company has made a loan or advance in the nature of loan - Nil.

(c) The subsidiary companies listed above also fall under the category of company in which Directors of the Company are interested.

4 During the year ended 31st March 2015, in accordance with Part A of Schedule II to the Companies Act, 2013, the management, based on Chartered Engineeer''s technical evaluation, has reassessed the remaining useful life of tangible fixed assets with effect from 1st April 2014. As a result of the same, depreciation for the year is higher by Rs.6.02 crores. For tangible fixed assets that had completed useful life as at 1st April 2014, the carrying amount of Rs.6.82 crores has been adjusted to reserves.

5 Expenditure incurred on Corporate Social Responsibility (CSR) activities is Rs.6.40 crores.

6 Previous year''s figures have been regrouped wherever necessary to conform to the current year''s classification.


Mar 31, 2012

(a) (i) Rights and preferences attached to equity share:

Every shareholder is entitled to such rights as to attend the meeting of the shareholders, to receive dividends distributed and also has a right in the residual interest of the assets of the Company. Every shareholder is also entitled to right of inspection of documents as provided in the Companies Act, 1956.

(ii) There are no restrictions attached to equity shares.

Details of securities created:

(i) External Commercial Borrowings secured by exclusive charge by way of hypothecation of specific movable properties including movable plant and equipment.

(ii) Term loans

(a) First and exclusive charge on specific plant and equipment.

(b) Charge on pari-passu basis on the movable plant and equipment, spares, tools and accessories and other movables, both present and future situated in all plants, with the existing term loan lenders.

(iii) Soft loan - State owned corporation viz., SIPCOT

First charge on the specific plant and equipment and also secured by equitable mortgage created by way of deposit of title deeds of lands.

1 CONTINGENT LIABILITY NOT PROVIDED FOR:

(a) On counter guarantee given to banks 22.28 14.44

(b) On letters of credit 97.21 94.50

(c) On guarantee to Housing Development Finance Corporation Limited, Mumbai, on loans granted to employees of the Company 1.25 1.25

(d) On bills discounted with banks 31.08 13.62

(e) Capital commitment towards capital expenditure 58.92 58.84

(f) On obligation arising out of agreements facilitating credit to a company 41.66 41.66 (g) On obligation arising out of agreements facilitating credit to subsidiary company (PT.TVS Motor Company Indonesia, Jakarta) 53.88 53.88

(h) On import of capital goods under Export Promotion Capital Goods Scheme 19.63 14.64

Notes: (a) The above loans are subject to repayment schedule as agreed between the Company and its loanee.

The loans are repayable within seven years.

(b) All the above loans carry interest at agreed rates which are not less than the interest stipulated in section 372A of the Companies Act, 1956.

(c) Investment by the loanee in the shares of the parent company and subsidiary company when the Company has made a loan or advance in the nature of loan - Nil.

(d) The subsidiaries and associate companies listed above also fall under the category of company in which Directors of the Company are interested.


Mar 31, 2011

(i) Provisions

In respect of warranty obligations, provision is made in accordance with terms of sale of vehicles vide schedule XIV (c) to the Balance Sheet.

(ii) Contingent liabilities

The amount for which the Company is contingently liable is disclosed in note no. 11.

(iii) Contested liabilities are detailed in note no. 12. 2 Share capital

Authorised share capital increased to Rs.50 crores from Rs.25 crores on account of bonus equity shares issued on 10th September, 2010.

Sundaram-Clayton Limited, Chennai holds 4,20,00,000 (last year 2,10,00,000) Equity shares of Re.1/- each while its wholly owned subsidiary Anusha Investments Limited, Chennai holds 23,06,82,786 (last year 11,53,41,393) Equity shares of Re.1/- each. This aggregates to 57.40% (last year 57.40%) of the share capital of the Company.

3 (a) Amount of loan payable within one year:

(b) Details of securities created for Loans:

BANKS

(i) External Commercial Borrowings secured by exclusive charge by way of hypothecation of specific moveable properties including moveable plant and machinery located at Mysore Plant.

(ii) Rupee Term loans

(a) First and exclusive charge on specific plant and machineries located at Hosur plant.

(b) Charge on pari-passu basis on the movable plant and machinery, machinery spares, tools and accessories and other movables, both present and future situated in all plants, with the existing term loan lenders.

(iii) Cash credit facilities

First charge by way of hypothecation and / or pledge of current assets viz., stocks of raw materials, semi finished and finished goods, stores and spares not relating to plant and machinery, bills receivable,book debts and all other movable located in all plants.

OTHERS

(iv) Soft loan

First charge on the specific plant and machineries located at Hosur Plant and also secured by equitable mortgage created by way of deposit of title deeds of lands admeasuring 3.78 acres situated at Kothakondapalli, admeasuring 51.58 acres situated at Motham Agraharam, and admeasuring 11.98 acres situated at Mookandapalli - villages in Harita, Hosur, Krishnagiri district, in the State of Tamil Nadu.

4 Land

Title deed in respect of land acquired near Ahmedabad in Gujarat at a cost of Rs.0.01 crore is yet to be received from the registering authority.

During the year, 3 acres and 24 guntas of lands were converted from leasehold to freehold.

5 Miscellaneous expenditure not written off

(a) New product launch expenses carried forward from earlier years upto 31-03-2009 are charged off over 36 months. On and from the year ended 31-03-2010, new product launch expenses are charged off fully in the year of incurring such expenditure.

(b) Expenditure incurred in raising External Commercial Borrowings is being written off over the period of the loan.


Mar 31, 2010

1 Share capital

Sundaram-Clayton Limited, Chennai holds 2,10,00,000 (last year 2,10,00,000) equity shares of Re. 1/- each while its wholly owned subsidiary Anusha Investments Limited, Chennai holds 11,53,41,393 (last year 11,53,41,393) equity shares of Re. 1/- each. This aggregates to 57.40% (last year 57.40%) of the share capital of the Company.

2 Miscellaneous expenditure not written off

(a) New product launch expenses carried forward from earlier years is written off over 36 months. However, new product launch expenses incurred during this year are fully written off. Accounting Standard 26 is not applicable as it does not create any intangible asset or a resource.

(b) Expenditure incurred in raising external commercial borrowings is being written off over the period of the loan

As at/ As at/

Year ended Year ended

31-03-2010 31-03-2009

3 Contingent liability not provided for:

(a) On counter guarantee given to banks 0.46 0.72

(b) On letters of credit 77.32 34.63

(c) On guarantee to Housing Development Finance Corporation Limited, Mumbai, on loans granted to employees of the Company 1.25 1.25

(d) On bills discounted with banks 11.08 77.22

(e) Capital commitments towards Capital expenditure 5.01 5.87

(f) On obligation arising out of agreements facilitating credit to a company which was an associate company upto 03.03.2010. 16.66 41.50

(g) On obligation arising out of agreements facilitating credit to subsidiary company (PT. TVS Motor Company Indonesia) 53.88 60.88

4 Previous years figures have been regrouped wherever necessary to conform to the current years classification.

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