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Amara Raja Batteries

BSE: 500008|NSE: AMARAJABAT|ISIN: INE885A01032|SECTOR: Auto Ancillaries
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Notes to Accounts Year End : Mar '19

1. Corporate Information

Amara Raja Batteries Limited (“the Company”) is one of the largest manufacturer of lead-acid storage batteries for industrial and automotive applications in India. The equity shares of the Company are listed on the BSE Limited and the National Stock Exchange of India Limited. The Company’s products are supplied to customer groups viz., Telecom, Railways, Power Control, Solar and UPS under Industrial Battery business; and to Automobile OEMs, Replacement Market and Private Label Customers under Automotive Battery business. The Company’s products are exported to various countries in the Indian Ocean Rim. The Company also provides installation, commissioning and maintenance services. The leading automotive and industrial battery brands of the Company are Amaron®, PowerZone™, Power Stack®, AmaronVolt® and Quanta®.

(i) The cost of inventories recognised as an expense during the year has been disclosed on the face of the Statement of Profit and Loss, Notes 23 and 27.

(ii) The cost of inventories recognised as an expense includes RS. 0.74 crores (during 2017-18: RS. 0.24 crores) in respect of write-downs of ( inventory to net realisable value, and has been reduced by D Nil ( during 2017-18 : D Nil ) in respect of reversal of such write-downs.

(iii) There are no inventories expected to be liquidated after more than twelve months.

(iv) The mode of valuation of inventories has been stated in Note 2.E.

Notes:

(i) The average credit period for after market sales is one week and for sales to other customers is in the range of 30 - 60 days. No interest is charged on overdue receivables, except for overdue balances of related parties._

(ii) Of the trade receivables balance, Rs.84.00 crores (as at March 31, 2018 : Rs. Nil ) is due from one of the Company’s large customers. There are no other customers who represent more than 10% of the total balance of trade receivables.

(iii) The Company has used a practical expedient by computing the expected credit loss allowance for doubtful trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward-looking estimates. The expected credit loss allowance is based on the ageing of the receivables which are due and the rates used in the provision matrix.

(ii) Rights, preferences and restrictions attached to the equity shares:

The Company has only one class of shares referred to as equity shares having a face value of each. Each holder of equity share is eligible for one vote per share held. The Company declares and pays dividends in Indian rupees and foreign currency. The dividend proposed by the Board of Directors is subject to the approval of the Shareholders in the ensuing Annual General Meeting, except in the case of interim dividend. In the event of liquidation, the holders of equity shares will be entitled to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to the number of equity shares held by the shareholders.

Note:

The interest free sales tax deferment loans were availed by the Company under the Government of Andhra Pradesh TARGET 2000 New Industrial Policy as per which the loans are repayable at the end of the 14th year from the year in which these loans were availed. The Company has also entered into agreements with the Deputy Commissioner of Commercial Taxes, Chittoor in respect of the aforementioned loans as per which the repayment schedule of the loans have been determined as being repayable at the end of the 14th year from the month in which these loans were availed. The Management is however of the view that these loans are repayable at the end of the 14th year from the year in which these loans were availed in terms of the sanction of these loans by the Government of Andhra Pradesh, Commissionerate of Industries and are accordingly making yearly repayment of these loans.

Note:

The deferred revenue of RS. 54.96 crores (March 31, 2018: RS. 55.02 crores) arises primarily as a result of duty benefit received on import of plant and equipment under Export Promotion Capital Goods (EPCG) schemes of the Government of India. The deferred revenue will be recognised in the Statement of Profit and Loss in the proportion of depreciation charged on such assets.

(iv) Includes RS. 8.41 crores (for the year ended March 31, 2018 : RS. 7.30 crores) recognised as income in proportion to the depreciation charged to the Statement of Profit and Loss. [Refer Note 20]

(v) The Government of India introduced the Goods and Services Tax (GST) with effect from July 1, 2017. Accordingly, in compliance with the Indian Accounting Standards and Schedule III of the Companies Act 2013, revenue from operations for the periods beginning July 1, 2017 is presented net of GST. Revenue from operations for the period up to June 30, 2017 included excise duty which now is subsumed in GST.

Note 2: Employee benefits

a. Defined contribution plans_

The Company makes Provident Fund, Superannuation Fund and Employees’ State Insurance Scheme contributions which are defined contribution plans, for qualifying employees. The Company recognised RS. 7.17 crores (Year ended March 31, 2018: RS. 5.76 crores) for provident fund contributions, RS. 9.89 crores (Year ended March 31, 2018: RS. 7.66 crores) for Superannuation Fund contributions and RS. 4.82 crores (Year ended March 31, 2018: RS. 4.55 crores) towards Employees’ State Insurance Scheme contributions in the Statement of Profit and Loss.

b. Defined benefit plans

The Company provides to the eligible employees defined benefit plans in the form of gratuity. The gratuity plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days’ salary payable for each completed year of service. Vesting occurs upon completion of five continuous years of service. The measurement date used for determining retirement benefits for gratuity is March 31.

These plans typically expose the Company to actuarial risks such as investment risk, interest rate risk, longevity risk and salary risk.

Risk Management:

Investment risk - The probability or likelihood of occurrence of losses relative to the expected return on any particular investment.

Interest rate risk - The plan exposes the Company to the risk of fall in interest rates. A fall in interest rates will result in an increase in the ultimate cost of providing the above benefit and will thus result in an increase in the value of the liability.

Longetivity risk - The present value of defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

Salary risk - The present value of the defined benefit plan is calculated with reference to the future salaries of participants under the plan. Increase in salary due to adverse inflationary pressures might lead to higher liabilities.

The sensitivity analysis above have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the year and may not be representative of the actual change. It is based on a change in the key assumption while holding all other assumptions constant. When calculating the sensitivity to the assumption, the same method used to calculate the liability recognised in the Balance Sheet has been applied. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the previous year.

Note 3: Segment reporting

The Vice Chairman and Managing Director of the Company has been identified as the Chief Operating Decision Maker (CODM) who evaluates the Company’s performance and allocates resources for manufacture and marketing of lead acid storage batteries. Accordingly, manufacturing and trading of lead acid storage batteries is considered as the operating segment of the Company,

Geographical information

The Company operates in India and makes certain sales to customers situated outside India. The revenue from external customers by location of customers is detailed below. All the non-current assets of the Company are situated within India.

Note 4: The Company had purchased. 8.68 hectares of freehold land for a consideration of RS. 15.59 crores in 2011-12 at Tehsil Laksar, District Haridwar, Uttarakhand State. Under the terms of sanction by the State Government for sale of such land, a manufacturing unit was to be set up within two years from the date of purchase of land, which owing to unforeseen circumstances could not take place. The District Collector vide order dated November 10, 2014 initiated proceedings for vesting the aforementioned land with the State Government. Based on legal advice, the Company had in the past years gone in appeal against the order of the District Collector with the Court of Board of Revenue, Dehradun, Uttarakhand State, (“the Court”) which in the interim, had stayed the proceedings. The Court vide its order dated May 25, 2017 rejected the appeal filed by the Company, consequent to which the said freehold land has vested back with the State Government. The Company is in the process of evaluating various options to pursue the said order of the Court.

The Company had in the previous years, fully impaired the value of the aforesaid land. Consequent to the transition to Ind AS, and the Company’s election to continue with the carrying amount of all of its property, plant and equipment recognised as of April 1, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as on the transition date, the provision for impairment recorded in respect of the said land before the date of transition under previous GAAP cannot be reversed in later years.

The Company’s significant leasing arrangements are in respect of operating leases for premises (offices and warehouses). These leasing arrangements which are cancellable, range between 1 year and 9 years generally and are usually renewable by consent on mutually agreeable terms. The aggregate lease rentals of RS. 18.42 crores (year ended March 31, 2018: RS. 17.66 crores) paid under such arrangements has been charged to Statement of Profit and Loss as ‘Rent’ under Note 27.

Note 5: Disclosure as per Regulation 53(F) of Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

(i) Loans and advances in the nature of loans given to Companies in which Directors are interested Rs. Nil (March 31, 2018: Rs. Nil)

(ii) Details of investments made under Section 186 of the Companies Act, 2013 are disclosed in Note 5. There are no loans/guarantees issued under Section 186 of the Companies Act, 2013 read with rules issued thereunder.

(a) Provision for warranty is made for estimated warranty claims in respect of sale of certain storage batteries which are still under warranty at the end of the reporting period, the estimated cost of which is accrued at the time of sale. These claims are expected to be settled as and when warranty claims arise. Management estimates the provision based on historical warranty claim information and any recent trends that may suggest that future claims could differ from historical amounts. The products are generally covered under a free warranty period ranging from 6 months to 42 months.

Note 6: Financial instruments and Related Disclosures

A. Capital Management

The Company’s financial strategy aims to support its strategic priorities and provide adequate capital to its businesses for growth and creation of sustainable stakeholder value. The Company funds its operations through internal accruals. The Company aims at maintaining a strong capital base largely towards supporting the future growth of its businesses as a going concern. The capital structure of the Company is based on Management’s judgment of its strategic day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence.

The Management and the Board of Directors monitor the return on capital as well as the level of dividends to shareholders. The Company may take appropriate steps in order to maintain, or if necessary, adjust its capital structure.

Equity share capital and other equity are considered for the purpose of Company’s Capital Management.

C. Financial risk management objectives

The Company has a system-based approach to risk management, anchored to policies and procedures and internal financial controls aimed at ensuring early identification, evaluation and management of key financial risks (such as market risk, foreign currency risk, credit risk and liquidity risk) that may arise as a consequence of its business operations as well as its investing and financing activities. Accordingly, the Company’s risk management framework has the objective of ensuring that such risks are managed within acceptable and approved risk parameters in a disciplined and consistent manner and in compliance with applicable regulation. It also seeks to drive accountability in this regard. The key risks and mitigating actions are overseen by the Board of Directors of the Company.

Liquidity Risk

The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilised credit limits with banks. The Company maintained a cautious liquidity strategy, with a positive cash balance throughout the year ended March 31, 2019 and March 31, 2018. Cash flow from operating activities provides the funds to service the financial liabilities on a day to day basis.

The Company regularly maintains the rolling forecasts to ensure it has sufficient cash on an on-going basis to meet operational needs. Any short-term surplus cash generated, over and above the amount required for working capital management and other operational requirements, is retained as cash and cash equivalents (to the extent required) and any excess is invested in interest bearing term deposits and mutual funds with appropriate maturities to optimise the cash returns on investments while ensuring sufficient liquidity to meet its liabilities.

The Company’s Current assets aggregate to RS. 2,204.07 crores (March 31, 2018 - RS. 2,152.30 crores) including Current investments, Cash and cash equivalents and Other bank balances of RS. 72.05 crores (March 31, 2018 - RS. 126.61 crores) against an aggregate Current liability of RS. 902.47 crores (March 31, 2018- RS. 992.98 crores). The table below provides details regarding the contractual maturities of significant Non-current financial liabilities as of March 31, 2019 and March 31, 2018:

Further, while the Company’s total equity stands at RS. 3335.32 crores (March 31, 2018: RS. 2,937.39 crores), it has borrowings of RS. 58.43 crores (March 31, 2018: RS. 63.53 crores). In such circumstances, liquidity risk or the risk that the Company may not be able to settle or meet its obligations as they become due does not exist.

Market Risk

The Company continues to hold certain investments in equity for long term value accretion which are accordingly measured at fair value through Other Comprehensive Income. The value of investments in such equity instruments as at March 31, 2019 is RS. 19.87 crores (March 31, 2018 - RS. 19.80 crores). Accordingly, fair value fluctuations arising from market volatility is recognised in Other Comprehensive Income.

As the Company is virtually debt-free and its deferred payment liabilities do not carry interest, the exposure to interest rate risk from the perspective of Financial Liabilities is negligible. Further, treasury activities, focused on managing current investments are administered under a set of approved policies and procedures guided by the tenets of liquidity, safety and returns. This ensures that investments are only made within acceptable risk parameters after due evaluation. The Company invests in Mutual Fund schemes of leading fund houses. Such investments are susceptible to market price risk that arise mainly from changes in interest rate which may impact the return and value of such investments. However, given the relatively short tenure of underlying portfolio of the Mutual Fund schemes in which the Company has invested, such price risk is not significant. Fixed deposits are held with highly rated banks and have a short tenure and are not subject to interest rate volatility.

Foreign Currency Risk

The Company is subject to the risk that changes in foreign currency values impact the Company’s export revenues and import of raw materials and property, plant and equipment. The Company is exposed to foreign exchange risk arising from currency exposures, primarily with respect to US Dollars. Financial assets and liabilities denominated in foreign currency, are also subject to reinstatement risk.

The Company manages currency exposures within prescribed limits. The aim of the Company’s approach to management of currency risk is to leave the Company with no material residual risk.

Foreign currency sensitivity analysis

For every percentage point increase in the underlying exchange rate of the outstanding foreign currency denominated assets and liabilities, holding all other variables constant, the profit before tax for the year ended March 31, 2019 would change by Rs. (0.29) crores [March 31, 2018: Rs. (1.29 crores)]. For every percentage point decrease in the underlying exchange rate would have led to an equal but opposite effect.

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year-end for a 1% change in foreign currency rates.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counter-party fails to meet its contractual obligation.

Concentration of credit risk with respect to trade receivables are limited, due to Company’s customer base being large and diverse. All trade receivables are reviewed and assessed for default on a monthly basis. The Company’s historical experience of collecting receivables and the level of default indicate that credit risk is low and generally uniform across markets; consequently, trade receivables are considered to be a single class of financial assets. All overdue customer balances are evaluated taking into account the age of the dues, specific credit circumstances, the track record of the counterparty etc. Loss allowances and impairment is recognised, where considered appropriate by responsible management.

The credit risk on cash and bank balances and fixed deposits is limited because the counterparties are banks with high credit ratings.

D. Fair value measurement Fair value hierarchy

The fair value of financial instruments as referred to in Note 41.B above have been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active markets for identified assets or liabilities [Level 1 measurements] and lowest priority to unobservable inputs [Level 3 measurements]

The following levels have been used for classification:

- Level 1: Quoted prices (unadjusted) for identical instruments in active market.

- Level 2: Directly or indirectly observable market inputs, other than Level 1 inputs

- Level 3: Inputs which are not based on observable market data.

If one or more of the significant inputs is not based on observable market data, the fair value is determined using generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparty.

The fair value of trade receivables, trade payables and other current financial assets and liabilities is considered to be equal to the carrying amounts of these items due to their short-term nature. Where such items are non-current in nature, the same has been classified as Level 3 and fair value determined using discounted cash flow basis. Similarly for certain unquoted equity instruments where most recent information to measure fair value is insufficient, or if there is a wide range of possible fair value measurements, cost has been considered as the best estimate of fair value. There has been no change in the valuation methodology for Level 3 inputs during the year. The Company has classified certain unquoted equity instruments under Level 3 of the fair value hierarchy. There were no transfers between Level 1 and Level 2 during the year.

The Board of Directors at its meeting held on May 15, 2019 have recommended a final dividend of RS.5.08 per equity share of face value of RS. 1 each for the financial year ended March 31, 2019. The above is subject to approval at the ensuing Annual General Meeting of the Company and hence is not recognized as a liability. Interim dividend of RS. 2 per equity share of face value of RS. 1 each approved by the Board of Directors at its meeting held on November 09, 2018 was paid during the current year. The total dividend (including interim dividend) for FY 2018-19 amounts to RS. 7.08 per equity share (Previous year RS. 4.15 per equity share).

Note 7: Subsequent to the year-end, consequent to the announcement by Johnson Controls International PLC on the proposed sale of its power solutions business, a decision to acquire 2% equity shares of the Company by Galla Family (promotors group) from Johnson Controls (Mauritius) Private Limited was agreed to between the said parties. Also the shareholders’ agreement with Johnson Controls (Mauritius) Private Limited and other agreements with Johnson Controls were terminated with effect from April 1, 2019.

Note 8: The financial statements are approved for issue by the Audit Committee and Board of Directors at their meetings held on May 15, 2019.

Source : Dion Global Solutions Limited
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