1. Contingent Liabilites:
Description As at As at
March 31, March 31,
2011 2010
Rs.million Rs. million
Excise, Customs and Service Tax
Alleged improper re-credit of duty paid 318.58 318.58
through PLA under Notification no.
39/2001-CE dated July 31, 2001 in respect
of goods sold from the factory during the
period from February 2006 to September
2007. The Assistant Commissioner of
Central Excise passed the order against
the Company.The Company paid pre-deposit
of Rs. 100 million as required by Central
Excise authorities and obtained stay on
payment of remaining amount. The case was
remanded back to the lower authority to
consider the claim of the Company by
Commissioner Appeals.
Further, separate show cause notice had
been issued by Commissioner of Central
Excise seeking recovery of allegedly
improper re-credit of duty along with
interest and penalty. The Company is
in the process of filing reply against
this show cause notice. The case is
remanded back by Tribunal to lower
authority and directed them for
reassessments of liability vide order
dated March 29, 2011.
Alleged improper grant of refund for 69.57 69.57
duty paid through PLA by Assistant
Commissioner under Rule 18 of Central
Excise Rules during the period from
September 2005 to July 2006. The
Commissioner (Appeals) of Customs
and Central Excise had passed the
order against the Company. TheCompany
has filed Revision Application with
the Joint Secretary,Ministry of
Finance, Department of Revenue.
Alleged improper Cenvat credit availed 3.67 3.50
and non-payment of excise duty under
Notification No. 214/86 -CE dated
25-03-1986, on furnace oil used for
manufacturing of goods on job work
during the period April 2002 to May 2005.
The Company has filed its reply against
the show cause notices issued by Joint
Commissioner and Commissioner of Customs
and Central Excise, Daman.
Alleged improper abatement of service 50.46 47.98
tax on payments made to Goods Transport
Agency under Notification No. 32/04-ST
dated December 31,2004. The Company has
filed its reply against the show cause
notice issued by the Commissioner of
Central Excise and Customs, Daman.
Alleged availment of service tax credit - 0.16
based on improper documents.The Company
has received an order from Commissioner,
Central Excise andCustoms, Daman
demanding the amount of duty, interest
and penalty.The Company filed an appeal
against the order with Commissioner of
CentralExcise & Customs (Appeals), Daman
Alleged improper Cenvat credit availed on 2.00 1.91
racksclassified as capitalgoods, which
are used for storage of finished goods.
The Companyreceived an order from
Additional Commissioner, Central Excise
&Customs; Daman dated 11.02.2009
demanding the amount of duty,interest
and penalty. The Company paid Rs.0.69
million under protest and filed
an appeal against the order with
Commissioner of Central Excise &
Customs (Appeals), Daman in March 2009.
The Company has obtained stay order with
respect to the payment of duty.
Alleged improper availment of Cenvat - 0.04
credit on service tax paid oninsurance
premium paid for availing insurance
services that are not used in or in
relation to manufacture of final
products. During the year Commissioner
of Central Excise and Customs (Appeals),
Daman decided this matter in favour of
the Company.
Alleged non-reversal of cenvat credit 10.52 96.40
contained in raw material stock,raw
material in process and raw material
contained in finished stock on exit
from cenvat scheme. The Commissioner
of Central Excise issued a show cause
notice seeking recovery of the non-
reversed amount. During the year, the
Company has received favorable order
with respect to part of the amount in
dispute.The Company has filed an appeal
before Commissioner of Central Excise
and Customs (Appeals) for the balance
amount disallowed.
Alleged erroneous sanction of refund of 3.04 3.04
service tax by Assistant Commissioner
of Central Excise. The Deputy Commissioner
of Central Excise issued a show cause
notice regarding recovery of the refund
erroneously sanctioned. The Company has
submitted its reply to the Deputy
Commissioner of Central Excise.
Alleged improper availment of Cenvat 20.24 -
credit on service tax paid on sales
commission.The Company has received
a show-cause notice from Assistant
Commissioner of Central Excise and
Customs, Vapi against which a reply
has been filed by the Company.
Alleged improper availment of Cenvat 7.49 -
credit on service tax on outward
freight of transportation for export
clearance. The Company has received
a show-cause notice from Additional
Commissioner Central Excise Custom
and Service Tax (Daman) against
which reply has been submitted to
Commissioner of Central Excise.
Alleged improper availment of Cenvat 0.04 -
credit on service tax on commission
on sales. The Company has submitted
its reply for the show cause notice
received to Commissioner of Central
Excise.
Alleged misinterpretation of Notification 1.24 -
No 4/ 2006-2007 under the Customs Act for
which a reply to the show causes notice
has been submitted.
Alleged availment of Cenvat credit on 0.20 -
service tax. The Company has received an
order from Commissioner, Central Excise
and Customs, demanding the amount of duty,
interest and penalty. The Company has filed
an appeal against the order with
Commissioner of Central Excise and Customs
(Appeals).
Alleged dual availment of duty drawback 1.14 -
and DEPB scheme simultaneously. Appeal of
Central Excise department was rejected by
Central Excise and Customs (Appeals). The
Central Excise Department has filed
appeal with Revisionary Authority,
New Delhi.
Alleged improper payment of service tax on 0.35 -
services received and used in export of
goods and applied for refund under 17/2009
-ST without taking credit of the same.
The department has rejected the refund
claims made by the Company and issued a
show cause notice dated March 7, 2011.
The Company has filed its reply against
the show cause notice to Deputy
Commissioner, Central Excise Division,
Gandhidham.
Alleged availment by the Company re-credit 3.74 -
under 39/2001-CE to the extent of balance of
cenvat credit lying as at 31-03-2005, which
was rejected by the department. The show
cause notice is being contested by the
Company with Additional Commissioner of
Central Excise and Service tax on the
grounds of devoid of merits.
Stamp Duty :
Disputed stamp duty liability on De-merger 4.46 4.46
Scheme. The Company paid Rs.1.74 million
under protest.
Sales Tax :
The Deputy Commissioner of Sales Tax has 1.28 1.17
issued an assessment order for the financial
year 2003 to 2004 and raised the demand on
purchase of Furnace oil during the year 2003
to 2004 in respect of purchases made by the
Company at a concessional rate of tax. The
Company had deposited Rs. 0.09 million under
protest and has filed an appeal with the
Joint Commissioner of Sales Tax, Vadodra.
The Deputy Commissioner of Sales Tax has 7.87 7.31
issued an assessment order for the
financial year 2004 to 2005 and raised the
demand on purchase of Furnace oil during
the year 2004 to 2005 in respect of purchases
made by the Company at a concessional rate
of tax. The Company has filed an appeal with
the Joint Commissioner of Sales Tax, Vadodra.
The Assistant Commissioner of Sales Tax has 1.46 1.32
passed an order vide No.3442 dated February
24, 2005 on purchase of Furnace oil during
the year 2000-2001 at a concessional rate of
tax. Deputy Commissioner Sales Tax
re-assessed and passed revised order vide
No.3181/83 on December 5,2005 increasing the
original demand. The Tribunal has granted
stay order for this matter
Others:
Claims against the Company not acknowledged 7.85 2.89
as debts
Bills discounted in respect of export
debtors - 75.96
4. During the year, the Company has recognised deferred tax assets
aggregating Rs. 303.64 million on the incremental unabsorbed Income-tax
depreciation arising out of its treatment of certain Excise and Value
Added Tax incentives as ‘capital receipts'' for income tax purposes
based on the favorable decision received from the Commissioner of
Income Tax (Appeals) in its own case and judgment in re Commissioner of
Income Tax, Mumbai v/s. Reliance Industries Limited of the Honourable
High Court of Judicature at Bombay. However, the judgment given by the
High Court of Judicatue at Bombay has been challenged by the tax
authorites in the apex court. If the final decision in the mater is
eventually decided against the Company, then the carrying value of the
deferred tax assets at the year end could be significantly impacted.
2. Pursuant to loan agreement with Welspun USA Inc., the loan
outstanding as on March 31,2011, aggregating Rs. 111.49 million
recoverable from Welspun USA Inc. is to be converted into equity
investments and pending conversion modalities, the same has been
disclosed as Share Application Pending Allotment and grouped under
Loans and Advances.
3. Borrowing Costs aggregating Rs. Nil (Previous Year: Rs. 15.46
million) (net of interest subsidy of Rs. Nil; Previous Year: Rs. 13.18
million) atributable to the acquisition or construction of qualifying
assets are capitalised during the year as part of the cost of such
assets.
4. (a) In the meeting of the Board of Directors of the Company held on
May 11, 2011, it was resolved that the business of Welspun Mexico S.A.
de C.V. (a wholly-owned downstream subsidiary of Welspun AG which, in
turn, is a wholly owned subsidiary of the Company), involved in
manufacturing decorative bedding products for Welspun AG, shall be
re-organised in view of the adverse law and order conditions in the
region in which the manufacturing premises of Welspun Mexico S.A. de
C.V is situated which has severely impacted its business prospects and
its ability to contain the sustained losses and reverse the accumulated
losses. Further, there has been breach of the lease agreement by the
landlord necessitating the vacating of the premises. The aforesaid
business reorganization involves exiting the current manufacturing
premises of Welspun Mexico S.A. de C.V. and setting up trading
activities only in new premises, disposing of the assets and
discontinuing the employment of the majority of its employees. The
Board of Directors further resolved in the aforesaid meeting that the
consequential impairment in the value of the Company''s investments in
Welspun AG, and loans given to Welspun AG, shall be determined and
recognized. Other than the business of Welspun Mexico S.A. de C.V,
Welspun AG does not have any substantial business actvities. As at
March 31, 2011, the Company had investments, aggregating Rs. 739.12
million, in Welspun AG, and outstanding loans at zero rate of interest,
aggregating Rs. 936.23 million, and other advances, aggregating Rs 1.68
million, due from Welspun AG. Accordingly, a provision of Rs. 739.12
million towards diminution in the value of investments in Welspun AG,
and a provision of Rs 937.91 million towards the aforesaid loans and
advances to Welspun AG, have been recognized and disclosed as
extraordinary items in the Profit and Loss Account for the year.
(b) As at March 31, 2011, the Company has trade receivables aggregating
Rs. 696.02 million, due from a related Company, Welspun Retail Limited
(WRL), (March 31,2010: Rs. 475.93 million). Of the said amount Rs.
108.33 million (March 31, 2010: Rs. 52.07 million) is outstanding for
more than one year. WRL continues to incur significant losses from
operations which could impact its ability to settle the aforesaid
receivables. In order to turnaround its operations, WRL has made a
robust plan for widening its reach in the market by using new marketing
strategies with aggressive cost reduction programs. Accordingly, in the
opinion of the Management, the aforesaid receivable from the said
related Company as at March 31, 2011 is considered good and
recoverable.
8. Consequent to the demerger of the marketing arm of the Company
efective April 1, 2009, the Company is dependent upon Welspun Global
Brands Limited (WGBL) for all marketing of its products and WGBL is the
Company''s principal customer as regards international sales of its
products. Most of the domestic sales of the Company are made to WRL, a
subsidiary of WGBL. The Company does not have any long term definitive
agreements with either WGBL or WRL for marketing the Company''s
products. In the event that WGBL or WRL ceased to purchase or market
the Company''s products, it could have an adverse effect on the business
of the Company.
5. The Company has issued a corporate guarantee of Rs. 3,593 million
(March 31, 2010: Rs. 3,593 million) on behalf of WGBL in favor of a
consortium of bankers in relation to post-shipment debt facilities
provided by them to WGBL. WGBL has also given a corporate guarantee of
Rs. 5,887.40 million (March 31, 2010: Rs. 5,887.40 million) in favour
of the consortium of bankers in relation to pre-shipment debt
facilities provided by them to the Company. If WGBL is unable to meet
their obligation to bankers as they fall due, the Company would be
required to pay the guaranteed amounts, which could adversely affect
its financial condition and cash flows.
6.(a) The Company has allotted 15,603,000 equity shares of Rs. 10 each
at Rs. 100 per share on April 19,2010 to Qualified Institutional Buyers
(QIBs) in accordance with Chapter VIII of the Securities and Exchange
Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009. The equity share issue expenses related to Qualified
Institutional Placement (QIP) aggregating Rs. 87.64 million has been
adjusted against Securities Premium Account as per Section 78 of the
Act.
(b) Pursuant to the resolution passed in the Annual General Meeting of
the Company held on August 31, 2010 for approval of final dividend for
the year ended March 31, 2010; the Company has declared final dividend
for equity and preference shareholders of Rs. 106.10 million and paid
dividend tax thereon of Rs. 17.63 million (including dividend of Rs.
15.60 million to QIBs referred supra and dividend tax thereon of Rs.
2.6 million). The final dividend paid to QIBs for the year has been
presented as Final Dividend for Previous Year as an appropriation in
the Profit and Loss Account for the year.
7. On June 30, 2009, the Company issued Employee Stock Options under
the Employee Stock Options Scheme (the Scheme) to employees of the
Company and its subsidiaries with a right to subscribe to equity shares
(New Options) at a price of Rs. 35.60 per equity share (closing
market price as on June 30, 2009) with an option to existing grantees,
who were granted options on May 17, 2006 (Old Options), to receive
New Optons on surrender of Old Options. All employees holding Old
Options on June 30, 2009 chose to surrender the Old Options. The
salient features of the Scheme are as under:
(i) Vesting: Options to vest over a period of four years from the date
of their grants as under:
- 20% of the Options granted to vest at each of the 1st and 2nd
Anniversaries of the date of grant.
- 30% of the Options granted to vest at each of the 3rd and 4th
Anniversaries of the date of grant.
(ii) Exercise: Options vested with an employee will be exercisable
within 3 years from the date of their vesting by subscribing to the
number of equity shares in the ratio of one equity share for every
option, at the Exercise Price. In the event of cessation of employment
due to death, resignation or otherwise the Options may lapse or be
exercisable in the manner specifically provided for in the Scheme.
The compensation costs of stock options granted to employees are
accounted by the Company using the intrinsic value method. Since, on
the date of grant of option, quoted market price of the underlying
equity shares of the Company was equal to the exercise price of an
option, no expense or liability arising from the Scheme has been
recognised.
The fair value of the options as per the ‘Black Scholes'' model as on
the date of grant was Rs. 17.49. Had the Company adopted fair value
method in respect of options granted, the employee compensation cost
would have been higher by Rs. 9.11 million (March 31,2010: Rs.13.33
million), Loss after Tax would have been higher by Rs. 6.27 million
(March 31, 2010: Profit after tax would have been lower by Rs. 8.80
million) and the basic loss per share would have been higher by Rs.
0.07 (March 31, 2010: basic earnings per share would have been lower by
Rs. 0.12) and diluted loss per share would have been higher by 0.07
(March 31, 2010: diluted earnings per share would have been lower by
Rs. 0.17), respectively.
8. Pursuant to High Court Order, 500,000 (March 31, 2010 : 500,000)
0% Redeemable Preference Shares of Rs. 100 each fully paid up are
redeemable at par on or after repayment of all outstanding term
liabilities and preference shares held by banks and financial
institutions as on April 1, 2000 and interest and dividend thereon.
Accordingly, the Preference Shares are expected to be redeemed by
January 2012.
9. (a) Term loans from banks including interest thereon are secured
by way of first charge on entire movable and immovable properties of
the Company, both present and future, ranking pari passu, subject to
prior charge on specific assets as per 13(b) below.
(b) In addition to 13(a) above, term loans from Banks Rs. 11,442.60
million (March 31, 2010: Rs. 3,880.09 million) and interest thereon,
are secured by lien on fixed deposits of the Company.
(c) The working capital loans, which includes cash credit and packing
credit from banks, are secured by hypothecation of raw materials,
stock-in-progress, finished and semi finished goods, stores and spares
and book debts and other current assets of the Company and second
charge on entire fixed assets of the Company and by a Corporate
Guarantee issued by Welspun Global Brands Limited.
10. Loan/ Deposits of Rs. Nil (March 31, 2010: Rs. 48.18 million) were
given to Companies in which some of the Directors are interested as
members.
11. Interest in Joint Venture
(a) The Company has accounted the investments in Joint Ventures in
Welspun Zucchi Textiles Limited (WZTL) and MEP Cotton Limited (MCL) in
accordance with Accounting Standard 13, Accounting for Investments.
(b) The Company''s share of contingent liability of WZTL is Rs. 13.88
million (March 31, 2010: Rs.14.85 million).
(c) The Company''s share of the aggregate amounts of assets and
liabilities as on March 31, 2011 and income and expenditures of WZTL
for the year ended March 31, 2011 are as under
12. Additional information pursuant to Part II of Schedule VI to the
Companies Act, 1956.
a) Licensed Capacity Not Applicable
As per the Industrial Policy declared in July 1991, as amended in April
1993, no licences are required for the products manufactured by the
Company.
Installed Capacity as at March 31, 2011 (As certified by Management)
Cotton Terry Towels 41,500 (March 31, 2010 : 41,500) M.T.
Cotton Yarn 33,130 (March 31, 2010 : 33,130) M.T.
Bed Sheets 45,000 (March 31, 2010 : 45,000) 000'' Mtrs
Rugs 10,151 (March 31, 2010 : 10,151) M.T.
13. Derivative Instruments outstanding as at March 31, 2011:
The Company is exposed to foreign currency fluctuations on foreign
currency assets/ liabilities, forecasted receivable, payables
denominated in foreign currency.
In line with the company''s risk management policies and procedures, the
Company enters into foreign currency forward contracts and swap
contracts to manage its exposure. These contracts are for a period of
maximum twelve months and forecasted transactions are expected to occur
during the same period.
(a) The following are outstanding foreign currency forward, swaps and
other derivative contracts against the future forecasted payables.
(b) The movement in Hedging Reserve during the year ended March 31,
2011 for derivatives designated as Cash Flow Hedges is as follows:
The entire balance of Hedging Reserve Account as at March 31, 2009 of
Rs. 294.94 million pertaining to ‘Marketing Division'' of the Company
was transferred to Welspun Global Brands Limited with effect from April
1, 2009, pursuant to demerger and transfer of ‘Marketing Division'' to
Welspun Global Brands Limited
c) As at the Balance Sheet date, the foreign currency exposure not
hedged by a derivative instrument or otherwise aggregates Rs. 1,127.20
million (March 31, 2010 Rs. 678.77 million) for receivables and Rs.
1,008.75 million (March 31, 2010 Rs. 825.21 million) for payables.
14 (i). Related Party Disclosures
(i) Relationships
(a) Subsidiary Companies Welspun AG (WAG)
Besa Developers and Infrastructure
Private Limited (BESA)
Welspun Mexico S.A. de C.V (WMEX)
(Held through WAG)
(b) Joint Venture Welspun Zucchi Textiles Limited (WZTL)
Companies MEP Cotton Limited (MCL) (up to January
31, 2010)
(c) Associate Company Welspun USA Inc., USA (WUSA)
Welspun Holdings Private Limited,
Cyprus (WHPL)
Welspun Captive Power Generation Limited
(WCPGL)
(with effect from January 27, 2011)
(d) Enterprises over wh Welspun Global Brands Limited (WGBL)
ich Key Management Per Welspun Investments and Commercials
sonnel or relatives of Limited (WICL)
such personnel exercise Welspun Sorema Europe, S.A. (SOREMA)
significant influence Welspun UK Limited (WUKL)
or control and with Welspun Home Textiles Limited (WHTL)
whom transactions have Welspun Retail Limited (WRL
taken place during Welspun Corp Limited (WCL) (Formerly
the year known as Gujarat Stahl
Rohren Limited (WGSRL))
Welspun Power and Steel Limited
(WPSL)
Welspun Syntex Limited (WSL)
Welspun Trading Limited (WTL)
Welspun Wintex Limited (WWL)
Welspun Mercantile Limited (WML)
Krishiraj Trading Limited (KTL)
Welspun Logistics Limited (WLL)
Welspun Realty Private Limited (WRPL)
Vipuna Trading Limited (VTL)
Mertz Securities Limited (MSL)
Welspun Polybuttons Limited (WPBL)
Wel-treat Enviro Management Organisation
Limited (WEMO)
Remi Metals Gujarat Limited (RMGL)
Welspun Maxsteel Limited (WMSL)
Welspun Projects Limited ( WPL)
Methodical Investment and Trading
Company Private Limited (MITCPL)
Welspun FinTrade Limited (WFTL)
Welspun Finance Limited (WFL)
Welspun Foundation for Health and
Knowledge (WFHK)
Welspun Urja Gujarat Private Limited
(WUGPL)
(e) Key Management B.K.Goenka (BKG)
Personnel M. L. Mital (MLM)
R. R. Mandawewala (RRM)
(Upto October 31, 2009)
(f) Relatives of Key
Management Personnel Dipali Goenka (DBG)
15. In accordance with the Company''s policy given in Note 1(x) (a)
above, net exchange loss of Rs. 42.64 million (Previous Year: net
exchange gain Rs. 104.29 million) has been accounted in the Profit and
Loss Account.
16. Segment Information for the year ended March 31, 2011.
(i) Information about Primary Business Segment
The Company is exclusively engaged in the business of Home Textiles
which, in the context of Accounting Standard 17 on Segment Reporting,
issued by the Institute of Chartered Accountants of India, is
considered to constitute a single primary segment. Thus, the segment
revenue, carrying amount of segment assets and capital expenditure
incurred to acquire segment assets during the year are all as refected
in the financial statements for the year ended March 31, 2011 and as on
that date.
(iii) Notes:
(a) The Segment revenue in the geographical segments considered for
disclosure are as follows:
-Revenue within India includes sales to customers located within India
and earnings in India.
-Revenue outside India includes sales to customers located outside
India, earnings outside India and export benefits on sales made to
customers located outside India.
(b) Segment revenue and assets include the respective amounts
identified to each of the segments and amounts allocated on a
reasonable basis.
17. Leases
B. Where the Company is a lessee:
Operating Lease
The Company has taken various residential, office premises, godowns,
equipment and vehicles under operating lease agreements that are
renewable on a periodic basis at the option of both the lessor and the
lessee. The initial tenure of lease is generally for eleven months to
sixty months.
The aggregate rental expenses of all the operating leases for the year
are Rs. 94.32 million (Previous Year: Rs. 84.13 million).
18. Prior year comparatives have been reclassified to conform with the
current year''s presentation, wherever applicable. |