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Bajaj Hindusthan Sugar

BSE: 500032|NSE: BAJAJHIND|ISIN: INE306A01021|SECTOR: Sugar
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Notes to Accounts Year End : Mar '18

1 Corporate information:

“Bajaj Hindusthan Sugar Limited (‘the Company’) is a public limited company incorporated in India under the provisions of the Companies Act and its shares are listed on BSE Ltd. and National Stock Exchange of India Ltd. The registered office of the Company is situated at Golagokarannath, Lakhimpur - Kheri, District Kheri, Uttar Pradesh - 262 802, and its principal place of business is at TC-13, Vibhuti Khand, Gomti Nagar, Lucknow - 226 010. The Company is engaged in the manufacture of sugar, alcohol and generation of power.

The Standalone financial statements of the Company are for the year ended March 31, 2018 and are prepared in Indian Rupees being the functional currency. The values in Indian Rupees are rounded to crore, except otherwise indicated.

Nature and description of reserve:

- Capital Redemption Reserve: Whenever Company redeems its preference shares or buys its own shares which reduces its share capital, then capital redemption reserve is created by face value of its shares.

- Securities Premium Reserve: The amount received in excess of face value of the equity shares is recognised in Securities Premium Reserve.

- General Reserve: General Reserve was created by transferring a portion of the net profit of the Company as per the requirements of the Companies Act, 2013.

- Molasses Storage Reserve Fund is created as per provisions under Molasses Control (Regulation of Fund and Erection of Storage Facilities) Order,1976.

- Retained Earnings: Remaining portion of profits earned by the Company till date after appropriations.

2.1 34,83,24,626 (P.Y. nil) Unlisted, Unrated, Redeemable, Optionally Convertible Debentures (Series 1/2017-18) of Rs.100/- each issued on Preferential basis to the lenders in accordance with S4A Scheme on December 18, 2017. Debentures are to be redeemed in 13 equal annual instalments starting from March 31, 2025. The coupon rate for year 1 & 2 is 0.01% p.a., for year 3 & 4 is 1.00% p.a. and thereafter 2.50% p.a, payable annually on the last date of every financial year. The redemption premium is payable on redemption of debentures to be decided by lenders at going weighted average interest cost so that there is no NPV loss to the lenders.

On occurrence of event of default, lenders have the right to convert all outstanding debentures into equity shares at the conversion price to be determined in accordance with guidelines of RBI.

Due to losses incurred by the Company during the year, Debenture Redemption Reserve as required by Section 71 of the Companies Act, 2013 has not been created.

2.2 Details of securities

(i) Term Loans and debentures from Banks are secured on first pari-passu charge basis, by way of mortgage over all immovable fixed assets and hypothecation over all movable fixed assets (both present and future) of the Company, on first pari-passu charge by way of hypothecation over all current assets (both present and future) of the Company. The said loans are further secured by personal guarantee of Managing Director (Promoter) and corporate guarantee by a promoter group company, pledge of entire shares held by the Promoters of the Company and 33,00,001 shares of Bajaj Energy Ltd. held by promoters group company.

(ii) The Sugar Development Fund loan (SDF) from Government of India is secured on exclusive second charge basis, by hypothecation of the whole of movable fixed assets and properties and by mortgage on the whole of immovable fixed assets and properties of the concerned sugar unit of the Company.

2.3 Loan from promoters

(i) As per terms of restructuring approved by lenders, the promoters are required to bring promoter contribution amounting to Rs.200 crore in phased manner till September 2015 in the form of equity capital/preference capital/ unsecured loan/other similar instruments. An amount of Rs.200 crore has been brought by promoters as unsecured loan within stipulated period. Interest, if any, payable shall be determined after the restructuring period is completed. Presently, said amount is treated as unsecured loan with the option to convert into equity/preference or any other similar instrument. As per Ind AS 32, contribution amount received is classified as compound instrument bifurcated into Rs.64.22 crore as debt and Rs.135.78 crore as other equity by discounting the amount @12% pa for a tenure of 10 years. The unwinding of discount in subsequent periods on loan component is recognised in the statement of profit & loss.

(ii) As per the approved restructuring of loan under S4A Scheme, promoter/promoters group has transferred 11,99,87,344 equity shares of Rs.1/- per equity share to lenders as per overseeing committee recommendation as part payment of unsustainable debt. Consequently, the consideration amount of Rs.11,99,87,344 is accounted as unsecured loan from promoters and as per Ind AS 32, said amount due to promoters as treated as compound financial instrument and bifurcated into other equity of Rs.10.76 crore and Rs.1.24 crore by discounting the amount @12% p.a for a tenure of 20 years.

2.4 The principal of Rs.133.09 crore on term loan are due on March 31, 2018.

Working capital loan from Banks are secured on first pari-passu charge basis, by way of mortgage over all immovable fixed assets and hypothecation over all movable fixed assets (both present and future) of the Company, on first pari-passu charge by way of hypothecation over all current assets (both present and future) of the Company. The said loans are further secured by personal guarantee of Managing Director (Promoter) and corporate guarantee by a promoter group company, pledge of entire shares held by the Promoters of the Company.

The Company had recognised liability based on substantial degree of estimation for excise duty payable on clearance of goods lying in stock as on March 31, 2018 of Rs. Nil ( Rs.166.47 crore) as per the estimated pattern of despatches. During the year, Rs.95.99 crore was utilised for clearance of goods till June 30, 2017. Since the GST (Goods and Services Tax) has been implemented w.e.f. July 01, 2017, no provision is recognised for the year, as GST is payable on supply of goods. Excess provision of Rs.70.48 crore (P.Y. Rs. Nil) is reversed during the year.

This is a defined benefit plan and statutory liability of the Company. The Company has to pay the Gratuity to the employees as per the provisions of The Payment of Gratuity Act 1972 irrespective of the availability of the funds with the Gratuity Fund.

The Gratuity Liability is computed on actuarial valuation basis done at year end using the Project Unit Credit Method is provided for in the books of account and is based on a detailed working done by a certified Actuary. Past service cost is recognised immediately to the extent that the benefits are already vested.

The estimates of rate of escalation in salary considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market. The above information is certified by the actuary.

Company manages Gratuity obligation through Trust. Company arranges the fund based on the actuarial valuation and requirement of the Trust.

The expected contributions for Defined Benefit Plan for the next financial year will be in line with financial year 2017-18.

These gratuity plan typically expose the Company to actuarial risks such as: investment risk, interest risk, longevity risk and salary risk.

Investment risk

The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. For other defined benefit plans, the discount rate is determined by reference to market yield at the end of reporting period on high quality corporate bonds when there is a deep market for such bonds; if the return on plan asset is below this rate, it will create a plan deficit.

Interest risk

A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan debt investments.

Longevity risk

The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their 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 plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.

c. Provident fund

The Company has an obligation to fund any shortfall on the yield of the trust’s investments over the administered interest rates on an annual basis. These administered rates are notified by the Government annually. The actuary has provided a valuation based on the below provided assumptions and there is no shortfall as at March 31, 2018.

d. Share-based payment

Erstwhile Bajaj Hindusthan Sugar & Industries Limited, which was merged with the Company w.e.f. 01.04.2010, had formed Employees Stock Option Plan (ESOP) in 2007. All options granted have either been expired or exercised.

3 Foreign currency exposure that are not hedged by derivative instruments as on March 31, 2018 amounting to SGD 0.24 crore (P.Y. SGD 0.24 crore) in respect of loan given to subsidiary.

4 As per Ind AS 108 - “Operating segment”, segment information has been provided under the notes to consolidated financial statements (refer note 38 to the consolidated financial statements).

5 The disclosures in respect of Related Parties as required under Ind AS 24 ‘Related Party Disclosures’ is stated herein below:

Notes:

1 Related party relationship is as identified by the Company based on the available information and relied upon by the auditors.

2 No amount has been written off or written back during the year in respect of debts due from or to related parties.

3 Rent received Rs.7.56 crore (P.Y. 7.56 crore) from Bajaj Aviation Pvt. Ltd, Rs.3.19 crore (P.Y. Rs.3.17 crore) from Bajaj Energy Ltd and Lalitpur Power Generation Company Ltd Rs.0.21 crore (P.Y. Rs.0.21 crore).

4 Interest received includes ‘104.47 crore (P.Y. Rs.104.47 crore) from Bajaj Power Generation Private Limited and Rs.2.93 crore (P.Y. ‘2.93 crore) from Bajaj Aviation Pvt Ltd. on loan given to them.

5 Remuneration includes ‘1.84 crore (P.Y. Rs.1.76 crore) to Mr. Kushagra Bajaj, and Rs.0.99 crore (P.Y. Rs.0.92 crore) to Mr. A.K. Gupta.

6 Rent paid includes Rs.0.93 crore (P.Y. Rs.0.87 crore) to Bajaj Capital Ventures Pvt. Ltd , Rs.2.22 crore (P.Y. Rs.2.08 crore) to Shishir Bajaj Family Trust, Rs.0.88 crore (P.Y. Rs.0.86 crore) to Bajaj Resources Ltd. and Rs.2.12 crore (P.Y. Rs.0.56 crore) to Abhitech Developers Pvt. Ltd.

7 Advance lease rent received Rs.0.21 crore (P.Y. Nil) from Lalipur Power Generation Company Ltd.

8 Advance rent paid Rs.4.25 crore (P.Y. Nil) to Abhitech Developers Pvt. Ltd.

9 Loan taken Rs.6.50 crore (P.Y. Nil) from Shishir Bajaj Family Trust, Rs.4.11 crore (P.Y. Nil) from Lambodar Stocks Pvt. Ltd. and ‘1.39 crore (P.Y. Nil).

10 Loans given including interest includes Rs.104.42 crore (P.Y. Rs.104.41 crore) to Bajaj Power Generation Private Ltd., Rs.2.93 crore (P.Y. ‘2.93 crore) to Bajaj Aviation Pvt Ltd and ‘0.78 crore (P.Y. Rs.0.65 crore) due to change in currency rate to Bajaj Hindusthan (Singapore) Pvt. Ltd.

11 Security deposit repaid Rs.5.82 crore (P.Y. Rs.0.42 crore) from Abhitech Developers Pvt. Ltd.

12 Restructured term loan from banks aggregating to Rs.6,790.77 crore are secured by personal guarantee of Mr. Kushagra Bajaj (Managing Director) and corporate guarantee by M/s Bajaj International Realty Private Ltd. (a promoter group company) and pledge of entire shares held by the promoters of the Company.

13 The transactions with related parties are made on terms equivalent to those that prevail in arm’s-length transactions. Outstanding balances year-end are unsecured except as stated above and settlement occurs in cash.

6 a) At the request of the Company, the Joint lenders’ forum (JLF Lenders) led by State Bank of India has approved the corrective action plan for restructuring of credit facilities on December 03, 2014 under JLF route in accordance with the applicable framework and guidelines issued by Reserve Bank of India. Accordingly, a Master Restructuring Agreement (MRA) has been signed on December 30, 2014 among the Company and JLF lenders, by virtue of which the restructured facilities are governed by the provisions specified in the said MRA. The cutoff date for restructuring under JLF route is July 31, 2014.

b) The MRA as well as guidelines of Reserve Bank of India issued on debt restructuring under JLF route give a right to the JLF lenders to get recompense of their waivers and sacrifices made as per corrective action plan. The recompense payable by the Company is contingent on various factors including improved performance of the Company and many other conditions, the outcome of which currently is materially uncertain and hence the proportionate amount payable as recompense is treated as a contingent liability. The aggregate present value of recompense till March 31, 2018 payable to the JLF lenders as per MRA is approximately ‘144.79 crore for the Company.

c) As per terms of above restructuring approved by lenders, the Promoters were required to bring promoter contribution amounting to ‘200 crore in phased manner till September 2015 in the form of equity capital/ preference capital/unsecured loan/other similar instruments. An amount of Rs.200 crore has been brought by promoters as unsecured loan within stipulated period.

d) For restructuring of certain outstanding debts of the Company, the Joint lenders’ forum (JLF) of the Company adopted the scheme for sustainable structuring of stressed assets (S4A Scheme) with reference date as June 23, 2017, which was approved by the overseeing committee (OC) on November 30, 2017. As per the S4A Scheme, the total fund-based debt of Rs.8,284.59 crore (including funded interest of Rs.354.51 crore), were bifurcated in two parts - 57.81% as Part A (Sustainable Debt) amounting to Rs.4,789.34 crore to be serviced as per existing terms and conditions of these debts and remainder 42.19% as Part B (Unsustainable Debt) amounting to Rs.3,495.25 crore. While a sum of Rs.12.00 crore has been adjusted against the consideration payable to Promoters towards transfer of 11,99,87,344 equity shares, at a price of Rs.1/- per equity share, to JLF lenders and the balance Rs.3,483.25 crore has been converted into optionally convertible debentures allotted to the JLF lenders.

Promoter / Promoters’ group has transferred 11,99,87,344 (10.59%) equity shares, at Rs.1/- per equity share, to JLF lenders, resulting in reduction of Promoter holding from 26.02% to 15.43% in accordance with the S4A Scheme.

e) ”Finance Cost” includes a sum of Rs.354.51 crore, which instead of being paid in cash have been converted into OCDs as a part of “Unsustainable Debt” in accordance with the S4A Scheme, resulting into substantial savings of cash outflow during the year. The OCDs are redeemable by paying the Principal Amount together with YTM accrued till the date of respective redemption date in 13 equal annual instalments, commencing at the end of financial year 2024-25.

7 Details of Loans given, investment made and guarantee given covered under Section 186(4) of the Companies Act, 2013:

- Investment made are given under note 4

- Loan given to subsidiaries are given under note 11

8 Financial Risk Management

The Company’s activities expose it to credit risk, liquidity risk and market risk. This note explains the sources of risks which the entity is exposed to and how it mitigates that risk.

A Credit risk

Credit risk arises from the possibility that counter party may not be able to settle their obligations as agreed. Company is exposed to credit risk from trade receivables and deposits with banks. To manage this, Company periodically assesses the financial reliability of customers, taking into account loan given factors such as credit track record in the market and past dealings with the Company for extension of credit to customers. Company monitors the payment track record of the customers. Outstanding customer receivables are regularly monitored. Concentrations of credit risk are limited as a result of the Company’s large and diverse customer base. Company has also taken advances and security deposits from its customers / agents, which mitigate the credit risk to an extent. The ageing of trade receivable is given below:

Following table summarises the change in loss allowances measured using life time expected credit loss model. No significant changes in the estimation techniques or assumption were made during the period.

Company considers factors such as track record, size of the institution, market reputation and service standards to select the comparative banks with which loan/term deposits are maintained. Generally, term deposits are maintained with banks with which Company has also availed borrowings.

B Liquidity risk

Liquidity risk is the risk that a Company may encounter difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The Group monitors rolling forecasts of its liquidity requirements to ensure it has sufficient cash to meet operational needs. The table below provides undiscounted cash flows towards financial liabilities into relevant maturity based on the remaining period at the balance sheet to the contractual maturity date.

C Market risk

The Company is exposed to the risk of movements in interest rates, inventory price and foreign currency exchange rates that affects its assets, liabilities and future transactions.

i) Interest rate risk

Fluctuation in fair value or future cash flows of a financial instrument because of changes in market interest rates gives rise to interest rate risk. Almost 100% of the Company’s borrowings are linked to SBI base rate rates of the banks. With all other variables held constant, the following table demonstrates the impact of change in interest rate on borrowing cost on floating rate portion of loans.

ii) Inventory price risk

The Company is exposed to the movement in price of principal finished product i.e. sugar. Prices of the sugar cane is fixed by government. Generally, sugar production is carried out during sugar cane harvesting period from November to April. Sugar is sold throughout the year which exposes the sugar inventory to the movement in the price. Company monitors the sugar prices on daily basis and formulates the sales strategy to achieve maximum realisation. The sensitivity analysis of the change in sugar price on the inventory as at year end, other factors remaining constant is given in table below:

iii) Foreign exchange risk

Foreign currency risk arises commercial transactions that recognised assets and liabilities denominated in a currency that is not Company’s functional currency (INR). The Company is not exposed to significant foreign exchange risk at the respective reporting dates.

9 Fair value of financial assets and financial liabilities

Financial instruments measured at fair value can be divided into three levels for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

Level 3 - Inputs for the asset or liability that are not based on observable market data.

Following methods and assumptions are used to estimate the fair values:

a) Fair value of cash and short-term deposits, trade and other short-term receivables, trade payables, other current liabilities and short-term borrowings carried at amortised cost is not materially different from its carrying cost largely due to short-term maturities of these financial assets and liabilities.

b) Financial instruments with fixed and variable interest rate fall within level 2 of the fair value hierarchy and are evaluated by Company based on parameters such as interest rate, credit rating or assessed creditworthiness.

c) Non-listed shares and other securities fall within level 3 of the fair value hierarchy. Valuation is based on the net asset method.

d) Fair value of the borrowing items fall within level 2 of the fair value hierarchy and is calculated on the basis of discounted future cash flows.

Set out below is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments that are recognised in the financial statements.

During the year ended March 31, 2018, there was no transfers between level 2 and level 3 fair value hierarchy. During the year ended March 31, 2017, there was no transfers between level 2 and level 3 fair value hierarchy.

Following table shows the reconciliation from the opening balances to the closing balances of the level 3 values.

10 During the current year and in past four years, Company has incurred losses resulting into reduction of net worth to that extent. The losses were mainly attributable to high raw material i.e. sugarcane price (as fixed by the Government) and relatively lower price of finished goods i.e. sugar and molasses (determined by market forces based on the demand-supply equation), both of which are external factors. As at year end, Company has overdue instalments of certain debts and dues payable to farmers for sugarcane purchases. The Company continues to operate at optimal levels and expects improvement in the operational efficiencies in the form of improvement in yield, sugar recovery, reduction of overheads, finance and other costs, sale of certain non-core assets etc. The debt restructuring concluded during the year as per RBI’s S4A Scheme, will result into improved liquidity during next 7 years. Also pursuant to a favourable Order of Hon’ble Supreme Court of India, the Company expects to receive benefits under the Sugar Promotion Policy 2004. In view of the above, the management expects to generate positive cash flow from operations and accordingly, the financial statements are continued to be presented on going concern basis, which contemplates realisation of assets and settlement of liabilities in the normal course of business.

11 Capital Management

There has not been any change in its objectives, policies and processes for managing capital from previous year. The Company is not subject to any externally imposed capital requirements.

12 The Proposal for sale of Co-Generation power business of the Company as was initiated in earlier years primarily for the purpose of utilising the sale proceeds towards repayment/ prepayment of Company’s debt which has consequently been shelved as the Company has restructured loan under the scheme for sustainable structuring of stressed assets (S4A Scheme).

13 The financial statements were approved for issue by the Board of Directors, at its meeting held on May 26, 2018.

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

Source : Dion Global Solutions Limited
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