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Atul

BSE: 500027|NSE: ATUL|ISIN: INE100A01010|SECTOR: Dyes & Pigments
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Notes to Accounts Year End : Mar '19

1. Background

Atul Ltd (the Company) is a public company limited by shares, incorporated and domiciled in India. Its registered office is located at Atul House, G I Patel Marg, Ahmedabad 380 014, Gujarat, India and the principal place of business is located at Atul and Ankleshwar, Gujarat, India.

The Company is in the business of Life Science Chemicals and Performance and Other Chemicals and caters to the needs of varied industries across the world such as Adhesives, Agriculture, Animal Feed, Automobile, Composites, Construction, Cosmetic, Defence, Dyestuff, Electrical and Electronics, Flavour, Food, Footwear, Fragrance, Glass, Home Care, Horticulture, Hospitality, Paint and Coatings, Paper, Personal Care, Pharmaceutical, Plastic, Polymer, Rubber, Soap and Detergent, Sport and Leisure, Textile, Tyre and Wind Energy.

Notes:

Pursuant to the order passed by The Honourable High Court of Gujarat, dated November 17, 2008 and April 17, 2009 in case of water charges, the Company has created first charge over its certain land and buildings in favour of the Government of Gujarat and paid a security deposit Rs. 2 cr (March 31, 2018: Rs. 2 cr).

2Refer Note 28.12 (b) (ii) for disclosures where the Company is a lessee under a finance lease.

3includes premises on ownership basis Rs. 1.10 cr (March 31, 2018: Rs. 1.10 cr) and cost of fully paid share in co-operative society: Rs. 2,000 (March 31, 2018: Rs. 2,000).

4Capital work-in-progress mainly comprises addition expansion projects in progress.

5Exchange rate difference capitalised during current year: nil (Previous year: Rs. 0.05 cr).

Refer Note 17 for information on property, plant and equipment hypothecated | mortgaged as security by the Company.

Refer Note 28. 2 for disclosure of contractual commitment for acquisition of property, plant and equipment.

a) Amount recognised in the Statement of Profit and Loss for investment properties:

The Company has classified parcels of freehold land held for a currently undeterminable future use as investment properties. There are no amounts pertaining to these investment properties recognised in the Statement of Profit and Loss, since the Company does not receive any rental income, incur any depreciation or other operating expenses.

b) The Company does not have any contractual obligations to purchase, construct or develop, for maintenance or enhancements of investment property.

c) Fair value:

Estimation of fair value

The Company obtains valuations from independent valuer for its investment properties at least annually. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the valuer considers information from a variety of sources including current prices in an active market for investment properties of different nature or recent prices of similar investment properties in less active markets, adjusted to reflect those differences.

All resulting fair value estimates for investment properties are included in level 3.

*Book value includes equity component of Rs. 18.12 cr (March 31, 2018: Rs. 18.12 cr) recognised on 0% preference shares and loans given to Amal Ltd carried at amortised cost 2Conversion option exercised and allotment of resultant shares in process 3Received in terms of demerger scheme 4Shares with differential voting rights (DVR) carrying value of Rs. 8,520 (March 31, 2018: Rs. 12,700) | 5Under liquidation

* Valued at cost or net realisable value, whichever is lower.

Amounts recognised in the Statement of Profit and Loss:

Written-down value of inventories to net realisable value amounted to Rs. 12.26 cr (March 31, 2018: Rs. 6.85 cr). These were recognised as an expense during the year and included in cost of materials consumed, and changes in value of inventories of work-in-progress, stock-in-trade and finished goods in the Statement of Profit and Loss.

a) Rights, preferences and restrictions:

The Company has one class of shares referred to as equity shares having a par value of Rs. 10 each.

i) Equity shares:

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts and preference shares, if any. The distribution will be in proportion to the number of equity shares held by the shareholders.

Each holder of equity shares is entitled to one vote per share.

ii) Dividend:

The Company declares and pays dividend in Indian rupees. The dividend proposed by the Board is subject to the approval of shareholders in the ensuing Annual General Meeting, except in case of interim dividend.

b) Shares reserved for allotment at a later date:

56 equity shares are held in abeyance due to disputes at the time of earlier rights issues.

c) Details of shareholders holding more than 5% of equity shares:

Nature and purpose of other reserves

a) Securities premium

Securities premium is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Companies Act, 2013.

b) General reserve

General reserve represents the amount appropriated out of retained earnings pursuant to the earlier provisions of Companies Act, 1956. Mandatory transfer to general reserve is not required under the Companies Act, 2013.

c) Retained earnings

Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, any transfers from or to OCI, dividends or other distributions paid to shareholders.

d) FVOCI - equity instruments

The Company has elected to recognise changes in the fair value of certain investments in equity securities in other comprehensive income. These changes are accumulated within the FVOCI equity instruments reserve within equity. The Company transfers amounts from this reserve to retained earnings when the relevant equity securities are de-recognised.

e) Cash flow hedging reserve

The Company uses hedging instruments as part of its management of foreign currency risk associated with its highly probable forecast sale and inventory purchases and interest rate risk associated with variable interest rate borrowings. For hedging foreign currency risk, the Company uses foreign currency forward contracts, foreign currency option contracts and interest rate swaps. They are designated as cash flow hedges to the extent these hedges are effective, the change in fairvalue of the hedging instrument is recognised in the cash flow hedging reserve. Amounts recognised in the cash flow hedging reserve is reclassified to profit or loss when the hedged item affects profit or loss (for example, sales and interest payments). When the forecast transaction results in the recognition of a non-financial asset (for example, inventory), the amount recognised in the cash flow hedging reserve is adjusted against the carrying amount of the non-financial asset.

a) Information about individual provisions and significant estimates

i) Compensated absences:

The Compensated absences cover the liability for sick and earned leave. Out of the total amount disclosed above, the amount of Rs. 6.56 cr (March 31, 2018 : Rs. 6.86 cr) is presented as current, since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Company does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months.

ii) Others:

Regulatory and other charges:

The Company has provided for certain regulatory and other charges for which claims have been received by the Company. The provision represents the unpaid amount that the entity expects to incur | pay for which the obligating event has already arisen as on the reporting date.

Effluent disposal:

The entity has provided for expenses it estimates to incur for safe disposal of effluent in line with the regulatory framework it operates in. The provision represents the unpaid amount the entity expects to incur for which the obligating event has already arisen as on the reporting date.

a) Security details:

Working capital loans repayable on demand from banks (March 31, 2019: nil, March 31, 2018: nil) is secured by hypothecation of tangible current assets, namely, inventories and book debts of the Company as a whole and also secured by second and subservient charge on immovable and movable assets of the Company to the extent of individual bank limit as mentioned in joint consortium documents. This also extends to guarantees and letters of credit given by the bankers aggregating to Rs. 102.31 cr (March 31, 2018: Rs. 88.30 cr).

b) The carrying amount of assets hypothecated | mortgaged as security for current and non-current borrowing limits are:

Revenue from operations up to June 30, 2017 includes excise duty of Rs. 40.07 cr, which is discontinued effective July 01, 2017 upon implementation of Goods and Services Tax (GST) in India. In view of the aforesaid restructuring of indirect taxes, revenue from operations for the year ended March 31, 2019 is not comparable with the previous year.

Consideration payable to customers like discounts and price reductions offered to customers are estimated on specific identified basis and reduced from the contract price when the Company recognises revenue from the transfer of the related goods or services to the customer and the entity pays or promises to pay the consideration.

2Unsatisfied performance obligation for sale of services comprises revenue from insurance and freight services for exports in-progress as at March 31, 2019 of Rs. 6.12 cr, net of revenue recognised for such services for similar contracts in-progress as at March 31, 2018 for Rs. 4.69 cr. The revenue for exports in progress as at March 31, 2019 will be recognised in 2019-20 upon completion of the exports.

Water and other claims includes claims received with respect to water charges, customer and other claims aggregating to Rs. 102.41 cr.

The above matters are currently being considered by the tax authorities various forums and the Company expects the outcome will be in its favour and has therefore, not recognised the provision in relation to these claims. Future cash outflow in respect of above will be determined only on receipt of judgement decision pending with tax authorities various forums. The above (except in respect of water charges matter) excludes interest penalties which may become payable in case of unfavourable outcome.

Note 2.1 Commitments Capital commitments

Capital expenditure contracted for at the end of the reporting period, but not recognised as liabilities, is as follows:

Note 2.2 Research and Development

Details of expenditure incurred on approved in-house Research and Development facilities:

Note 2.3 (J) Terms and conditions

1 Sales to and purchases from related parties were made on normal commercial terms and conditions and at prevailing market prices or where market price is not available, at cost plus margin.

2 Transactions relating to dividends were on the same terms and conditions that applied to other shareholders. Subscriptions for new equity shares were on preferential basis.

3 All outstanding balances are unsecured and are repayable in cash and cash equivalent.

Note 3.1 Current and deferred tax

The major components of income tax expense for the years ended March 31, 2019 and March 31, 2018 are:

Note 3.2 Employee benefit obligations

Funded schemes

a) Defined benefit plans:

Gratuity

The Company operates a gratuity plan through the ‘Atul Ltd Employees Gratuity Fund''. Every employee is entitled to a benefit equivalent to 15 days salary last drawn for each completed year of service in line with the Payment of Gratuity Act, 1972 or Company scheme, whichever is beneficial. The same is payable at the time of separation from the Company or retirement, whichever is earlier. The benefits vest after five years of continuous service.

Sensitivity analysis

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

The above sensitivity analyses are 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 while calculating the defined benefit liability recognised in the Balance Sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change as compared to the prior year.

Risk exposure

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

i) Asset volatility

The plan liabilities are calculated using a discount rate set with reference to bond yields, if plan assets underperform this yield, this will create a deficit. Most of the plan asset investments are in fixed income securities with high grades and in government securities. These are subject to interest rate risk. 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.

ii) Changes in bond yields

A decrease in bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of other bond holdings.

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 will not have a material impact on the overall level of assets.

A large portion of assets consists insurance funds, although the Company also invests in corporate bonds and special deposit schemes. The plan asset mix is in compliance with the requirements of the respective local regulations.

Expected contributions to post-employment benefit plans for the year ending March 31, 2020 are Rs. 2.57 cr.

The weighted average duration of the defined benefit obligation is 6 years (2017-18: 6 years). The expected maturity analysis of gratuity is as follows:

Provident fund:

The Company has established an Atul Products Ltd (ANK. DIV.) Employee Provident Fund Trust for employees at Ankleshwar location, administered by the Company to which both the employee and the employer make monthly contribution equal to 12% of basic salary of employee respectively. The contribution of the Company to the provident fund for all employees is charged to the Statement of Profit and Loss. In case of any liability arising due to shortfall between the return from its investments and the administered interest rate, the same is required to be provided for by the Company. The actuary has provided an actuarial valuation and indicated that the interest shortfall liability is '' Nil. The Company has contributed the following amounts towards provident fund during the respective period ended:

b) Defined contribution plans:

Provident and other funds:

Amount of Rs. 14.27 cr (March 31, 2018: Rs. 9.60 cr) {net of Rs. 0.21 cr from the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY)} is recognised as expense and included in Note 25 ‘Contribution to provident and other funds''.

Compensated absences:

Amount of Rs. 3.24 cr (March 31, 2018: Rs. 0.71 cr) is recognised as expense and included in Note 25 ‘Salaries, wages and bonus''.

Note 3.3 Fair value measurements

Financial instruments by category

a) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are a) recognised and measured at fair value and b) measured at amortised cost and for which fair values are disclosed in the Financial Statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the 3 levels prescribed in the Indian Accounting Standard. An explanation of each level follows underneath the table:

includes investments in Bharuch Enviro Infrastructure Ltd (70,000 equity shares), in Narmada Clean Tech Ltd (7,15,272 equity shares) and in OPGS Power Gujarat Pvt Ltd (5,03,000 equity shares) which are for operation purposes and the Company expects its refund on exit. The Company estimates that the fair value of these investments are not materially different as compared to its cost.

There were no transfers between any levels during the year.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. The fair value of all equity instruments which are traded on the Stock Exchanges is valued using the closing price as at the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. The mutual fund units are valued using the closing net assets value. If all significant inputs required to fair value an instrument are observable, the instrument is included in levels 1 and 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

b) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

i) the use of quoted market prices or dealer quotes for similar instruments

ii) the fair value of forward foreign exchange contracts are determined using forward exchange rates at the Balance Sheet date

iii) the fair value of foreign currency option contracts is determined using the Black Scholes valuation model

iv) the fairvalue of the remaining financial instruments is determined using discounted cash flow analysis All of the resulting fair value estimates are included in levels 1 and 2.

c) Valuation processes

The Finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3fairvalues.

The carrying amounts of trade receivables, cash and cash equivalents, other bank balances, dividend receivables, other receivables, trade payables, capital creditors, other liabilities are considered to be the same as their fair values due to the current and short-term nature of such balances.

The fair values for loans and investments in preference shares were calculated based on cash flows discounted using a current lending rate at the time of inception.

For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.

Note 3.4 Financial risk management

Risk management is an integral part of the business practices of the Company. The framework of risk management concentrates on formalising a system to deal with the most relevant risks, building on existing Management practices, knowledge and structures. With the help of a reputed international consultancy firm, the Company has developed and implemented a comprehensive risk management system to ensure that risks to the continued existence of the Company as a going concern and to its growth are identified and remedied on a timely basis. While defining and developing the formalised risk management system, leading standards and practices have been considered. The risk management system is relevant to business reality, pragmatic and simple and involves the following:

i) Risk identification and definition: Focused on identifying relevant risks, creating updating clear definitions to ensure undisputed understanding along with details of the underlying root causes contributing factors.

ii) Risk classification: Focused on understanding the various impacts of risks and the level of influence on its root causes. This involves identifying various processes generating the root causes and clear understanding of risk interrelationships.

iii) Risk assessment and prioritisation: Focused on determining risk priority and risk ownership for critical risks. This involves assessment of the various impacts taking into consideration risk appetite and existing mitigation controls.

iv) Risk mitigation: Focused on addressing critical risks to restrict their impact(s) to an acceptable level (within the defined risk appetite). This involves a clear definition of actions, responsibilities and milestones.

v) Risk reporting and monitoring: Focused on providing to the Board and the Audit Committee periodic information on risk profile evolution and mitigation plans.

The principal sources of liquidity of the Company are cash and cash equivalents, borrowings and the cash flow that is generated from operations. The Company believes that current cash and cash equivalents, tied up borrowing lines and cash flow that is generated from operations is sufficient to meet requirements. Accordingly, liquidity risk is perceived to be low.

The size and operations of the Company exposes it to the following market risks that arise from its use of financial instruments:

i) price risk

ii) foreign exchange risk

The above risks may affect income and expenses, or the value of its financial instruments of the Company. The objective of the Management of the Company for market risk is to maintain this risk within acceptable parameters, while optimising returns. The Company exposure to, and the Management of these risks is explained below:

includes hedges for highly probable transactions up to next 12 months

c) Management of credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty fails to meet its contractual obligations.

Trade receivables

Concentrations of credit risk with respect to trade receivables are limited, due to the customer base being large, diverse and across sectors and countries. Significant portion of trade receivable are secured by insurance policies or EPCG schemes. All trade receivables are reviewed and assessed for default on a quarterly basis.

Historical experience of collecting receivables of the Company is supported by low level of past default and hence the credit risk is perceived to be low.

Other financial assets

The Company maintains exposure in cash and cash equivalents, term deposits with banks, investments in government securities, preference shares and loans to subsidiary companies. The Company has a diversified portfolio of investments with various number of counterparties which have secure credit ratings, hence the risk is reduced. Individual risk limits are set for each counterparty based on financial position, credit rating and past experience. Credit limits and concentration of exposures are actively monitored by the treasury department of the Company.

The primary objective of capital management of the Company is to maximise shareholder value. The Company monitors capital using Debt-Equity ratio which is total debt divided by total equity.

For the purpose of capital management, the Company considers the following components of its Balance Sheet to manage capital:

Total equity includes general reserve, retained earnings, share capital, security premium. Total debt includes current debt plus non-current debt.

Note 3.5 Segment information

In accordance with Ind AS 108, ‘Operating Segments'', segment information has been given in the Consolidated Financial Statements of Atul Ltd and therefore no separate disclosure on segment information is given in the Standalone Financial Statements.

Note 3.6 Leases

a) Operating lease

The Company has taken various residential and office premises under operating lease or leave and license agreements. These are generally cancellable, having a term between 11 months and 3 years and have no specific obligation for renewal. Payments are recognised in the Statement of Profit and Loss under ''Rent'' in Note 27.

b) Finance lease

i) The Company has given a building on finance lease for a term of 30 years.

Future minimum lease payments receivable under finance leases, together with the present value of the net minimum lease payments (MLP), are as under:

ii) The Company has taken on lease a parcel of land from Gujarat Industrial Development Corporation for a period of 99 years with an option to extend the lease by another 99 years on expiry of lease at a rental that is 100% higher than the current rental. The Company has considered that such a lease of land transfers substantially all of the risks and rewards incidental to ownership of land, and has thus accounted for the same as finance lease.

Disclosures pursuant to the Regulation 34(3) read with para A of Schedule V to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with Section 186 (4) of the Companies Act, 2013.

* at amortised cost

a) Loans given to employees as per the policy of the Company are not considered.

b) The loanees did not hold any shares in the share capital of the Company.

Note 3.7 Disclosure requirement under MSMED Act, 2006

The Company has certain dues to suppliers (trade and capital) registered under Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act''). The disclosures pursuant to the said MSMED Act are as follows:

Note 3.8 Expenditure on Corporate Social Responsibility initiatives

a) Gross amount required to be spent by the Company during the year is Rs. 7.90 cr

b) Amount spent during the year on:

Note 3.9 Offsetting financial assets and liabilities

The below Note presents the recognised assets that are offset, or subject to enforceable master netting arrangements and other similar agreements but not offset, as at March 31, 2019 and March 31, 2018.

a) Collateral against borrowings

The Company has hypothecated | mortgaged assets as collateral against a number of its sanctioned line of credit. Refer to Note 17 for further information on assets hypothecated | mortgaged as security.

b) Master netting arrangements - not currently enforceable

Agreements with derivative counterparties are based on an ISDA Master Agreement. Under the terms of these arrangements, only where certain credit events occur (such as default), the net position owing | receivable to a single counterparty in the same currency will be taken as owing and all the relevant arrangements terminated. As the Company does not presently have a legally enforceable right of set-off, these amounts have not been offset in the Balance Sheet.

Note 3.10 Changes in accounting policies

The Company adopted Ind AS 115 by using the modified retrospective transition method effective April 01, 2018. Under this method, the Company recognised the cumulative effect of initially applying Ind AS 115 as an adjustment to the opening balance of retained earnings as at April 01, 2018. Comparative prior period has not been adjusted.

Entities applying the modified retrospective method can elect to apply the revenue standard only to contracts that are not completed as at the date of initial application (that is, they would ignore the effects of applying the revenue standard to contracts that were completed prior to the date of initial application). However, the Company elected to apply the standard to all contracts as at April 01, 2018.

There is no impact on the retained earnings as at April 01, 2018.

The following table presents the amounts by which each financial statement line item is affected in the current year ended March 31, 2019 by the application of Ind AS 115 as compared with the Ind AS 18 revenue recognition requirements. Line items that were affected by the changes have been included.

As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided. The adjustments are explained as below:

Note:

i) Revenue deferment of Rs. 6.12cr representing unsatisfied performance obligation for export contracts in current year.

ii) Expenses deferment of Rs. 6.12cr representing unsatisfied performance obligation for export contracts in current year.

iii) Presentation of assets and liabilities related to contracts with customers:

Liabilities relating to expected discounts of Rs. 3.92 crwere previously presented as other current financial liabilities are now included as contract liabilities.

Advance from customers of Rs. 4.23 cr were previously presented as other current liabilities are now included as contract liabilities.

Note 3.11 Events after the reporting period

The proposed dividend on equity shares at Rs. 15 per share is recommended by the Board which is subject to the approval of shareholders in the ensuing Annual General Meeting.

Note 3.12 Rounding off

Figures less than Rs. 50,000 have been shown at actual in brackets.

Note 3.13 Authorisation for issue of the Financial Statements

The Financial Statements were authorised for issue by the Board on April 26, 2019.

Source : Dion Global Solutions Limited
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