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Bannari Amman Spinning Mills

BSE: 532674|NSE: BASML|ISIN: INE186H01014|SECTOR: Textiles - General
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Notes to Accounts Year End : Mar '18

1. Corporate Information

Bannari Amman Spinning Mills Limited (the Company) is an integrated textile company engaged in the manufacture of cotton yarn, knitted & woven fabrics, processing of fabrics, finished garments, home textiles and wind power generation. It also has retail division under the brand name BITZ. The company was incorporated in the year 1989 and issued shares to the public in the year 2005.

The Company has elected to use fair value in its Opening Ind AS Balance Sheet (as at April 01 2016) as deemed cost for owned property plant and equipment. Accordingly, the property plant and equipment is carried at fair value as shown below along with the carrying amount reported under previous GAAP. The difference between the fair value and carrying amount reported under previous GAAP has been taken to Retained Earnings as at April 01, 2016 (Transition Date) net of deferred tax.

The fair value of the above mentioned assets as at April 01, 2016 has been arrived at, on the basis of a valuation carried out as at March 31, 2016 by Mr. Karthikeyan, Chartered Engineer with respect to freehold land and with respect to other assets by Mr. K Kandaswamy, Chartered Engineers registered with the Institution of Engineers (India), having appropriate qualification and experience in the valuation of property plant and equipment. For the valuation of land, the fair value was derived using the market approach considering the prevailing market rate in the vicinity of the subject land parcel and also considering available details of recent transactions of similar land parcels adjusted for factors such as negotiation margin, land use, road location etc. For other assets, the fair value was dervied using the Depreciated Replacement Cost method (DRC). DRC has been worked out using the replacement value determined based on the existing conditions and specifications of the Building with depreciation having been deducted from such replacement value.

Amount Pertaining to the leased Land and Building comprised in the above note represented by 2,52,841 Equity Shares of Rs.10/- each of section 8 Company and Leave & License Agreement.

3B The Company entered into an agreement to sell dated March 30, 2011 with Shiva Tex Yarn Limited for the sale of land situated at Velvarkottai Dindigul & Kodangipalayam Karanampet Coimbatore for a value of Rs.56,72,085/-. Accordingly the said amount is disclosed as Assets held for sale.

The Company uses a provision matrix to determine impairment loss on portfolio of its trade receivable. The provision matrix is based on its historically observed default rates over the expected life of the trade receivable and is adjusted for forward-looking estimates. At every reporting date, the historically observed default rates are updated and changes in forward-looking estimates are analysed. The Company estimates the following matrix at the reporting date.

ii) Terms / rights attached to the equity shares :

The Company has issued only one class of equity share having a face value of Rs. 10/- per share. The holder of each equity share is entitled to one vote per share. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution to all preferential creditors and other creditors, in the order of priority. The distribution will be in proportion to the number of equity shares held by shareholders. The Company declares and pays dividend in Indian Rupees. The dividend proposed by Board of Directors is subject to the approval of shareholders in the ensuing annual general meeting.

iii) Distributions made and proposed

Dividend recognized as distributions to equity shareholders for the year ended March 31, 2017 was Rs. 1.80 per share,

The Board of Directors at its meeting held on May 30, 2017 had recommended a dividend of 18% (Rs.1.80 per equity share of par value Rs. 10 each). The proposal was approved by shareholders at the Annual General Meeting held on September 25, 2017, this has resulted in a cash outflow of Rs. 303.39 lakhs, inclusive of corporate dividend tax of Rs. 51.32 lakhs. Further, the Board of Directors at its meeting held on May 30, 2018 have proposed a dividend of 16% (Rs.1.60 per equity share of par value of Rs. 10 each) .

Security :

Term Loan 1 : First charge on entire movable and immovable property plant and equipment of spinning unit I situated at Vadamadurai Village, Vedasandhur Taluk, Dindigul District and entire movable property plant and equipment of weaving division situated at Karanampettai, Paruvai Road, Coimbatore 641658. Second charge on the current assets of Spinning Unit I situated at Vadamadurai Village, Vedasandhur Taluk, Dindigul.

Term Loan 2 : First Pari passu charge on the entire movable and immovable property plant and equipment of Spinning Unit I located at Vadamadurai, Dindigul and First Pari passu charge on the specific plant and machinery of Weaving unit located at Karanampet.

Term loan 3 : First charge on the entire property plant and equipment of Spinning Unit I situated at Dindigul and Exclusive first charge on the windmills (Land, Building, Plant & Machinery) located at Chinnaputhur village, Tirupur District and Irukkandurai & Dhanakarkulam Village, in Tirunelveli District.

Repayment : Term loan 1: 20 quarterly instalments starting from April 2013. Term Loan 2 :16 quarterly instalments starting from July 2017. Term Loan 3: 16 quarterly instalments starting from July 2018.

Rate of Interest : Term loan 1: 12.35% Term Loan 2: 10.5%. Term loan 3: 10%.

i) First charge by way of equitable mortgage over factory land and building and hypothecation of other movable assets financed by SIPCOT for the expansion project ranking paripassu with other banks and property plant and equipment of the expansion scheme of spinning units located in Velvarkottai Village, Dindigul, Weaving unit at Karanampet, Coimbatore and Technical Textile Unit at Kunnathur Village Annur,

ii) The Government of Tamil Nadu in its order order : G.O. Ms. No. 126, dated October 20, 2009, has granted an amount equivalent to net output VAT CST paid through expansion project to Government as Investment Promotion Soft Loan for a period of 10 years, subject to terms and condition mentioned in the Eligibility Certificate ID/SPA/BSML/2010 dated 30 April 2013. The soft loan will carry a nominal rate of 0.1% per annum. The soft loan sanctioned is repayable on the 10th year from the date of sanction. This is considered as Government grant and accordingly the loan amount is carried at amortised cost considering an effective interest rate of 12.16%. The Government grant income is recognised proportionately in relation to the interest expense.

2. Employee benefits plans

2.1.a Defined contribution plans- provident fund employee state insurance

The Company makes Provident Fund and Employee state insurance scheme contributions to defined contribution plans for qualifying employees. Under the Schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognised the following contributions in the Statement of profit and loss.

21.1.b Defined benefit plan - gratuity

In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit retirement plan (Gratuity plan). The Gratuity plan provides a lump sum payment to vested employees, at retirement or termination of employment, an amount based on the respective employee''s last drawn eligible salary and the years of employment with the Company. The Company provides the gratuity benefit through annual contributions to a fund managed by the Insurer included as part of ''Contribution to provident and other funds'' in Note 20 Employee benefit expense. Under this plan, the settlement obligation remains with the company.

Description of Risk Exposures

Valuations are performed on certain basic set of pre-determined assumptions and other regulatory framework which may vary over time. Thus, the Company is exposed to various risks in providing the above gratuity benefit which are as follows :

a) 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 (as shown in financial statements).

b) Investment Risk: The probability or likelihood of occurrence of losses relative to the expected return on any particular investment.

c) Salary Escalation Risk: The present value of the defined benefit plan is calculated with the assumption of salary increase rate of plan participants in future. Deviation in the rate of increase of salary in future for plan participants from the rate of increase in salary used to determine the present value of obligation will have a bearing on the plan''s liabilty.

d) Demographic Risk: The Company has used certain mortality and attrition assumptions in valuation of the liability. The Company is exposed to the risk of actual experience turning out to be worse compared to the assumption.

e) Liquidity Risk: This is the risk that the Company is not able to meet the short-term gratuity payouts. This may arise due to non-availabilty of enough cash/cashequivalent to meet the liabilities or holding of illiquid assets not being sold in time.

In respect of the plan in India, the most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at March 31, 2018 by Mr. N Srinivasan, Fellow of the Institute of Actuaries of India. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method.

The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations.

These sensitivities have been calculated to show the movement in defined benefit obligation in isolation and assuming there are no other changes in market conditions at the accounting date. There have been no changes from the previous periods in the methods and assumptions used in preparing the sensitivity analysis.

Asset Liability Matching Strategies

The Company has purchased insurance policy, which is basically a year-on-year cash accumulation plan in which the interest rate is declared on yearly basis and is guaranteed for a period of one year. The insurance Company, as part of the policy rules, makes payment of all gratuity liability occurring during the year (subject to sufficiency of funds under the policy). The policy, thus, mitigates the liquidity risk. However, being a cash accumulation plan, the duration of assets is shorter compared to the duration of liabilities. Thus, the Company is exposed to movement in interest rate (in particular, the significant fall in interest rates, which should result in a increase in liability without corresponding increase in the asset).

3. Segment Reporting

a) Primary business segment information

The Company''s operations relate to only one business segment, viz., Textiles. Accordingly, this is the only reportable business segment.

4. During the year the Company capitalised an amount of Rs.450 lakhs of borrowing cost under property, plant and equipment (For the year ended March 31, 2017 Rs.316.37 Lakhs). The capitalisation rate considered is 10.25% being the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset.

The Management assessed that fair value of cash and short-term deposits, trade receivables, trade payables, and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values :

i) Long-term fixed-rate receivables/borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.

ii) Fair values of the Company''s interest-bearing borrowings and loans are determined by using DCF method using discount rate that reflects the issuer''s borrowing rate as at the end of the reporting period. The own nonperformance risk as at March 31, 2018 was assessed to be insignificant.

iii) The fair values of the unquoted equity shares have been estimated using a discounted cash flow model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility, the probabilities of the various estimates within the range can be reasonably assessed and are used in management''s estimate of fair value for these unquoted equity investments.

5. Fair value hierarchy

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 assets or liabilities that are not based on observable market data (unobservable inputs).

The following table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2018, March 31, 2017 and April 1, 2016.

6. Financial risk management

The Company''s principal financial liabilities, comprise loans and borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the company''s operations and to provide guarantees to support its operations. The Company''s principal financial assets include loans, trade and other receivables, and cash and shortterm deposits that derive directly from its operations.

The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the company is foreign exchange risk. The Company uses foreign currency borowings to mitigate foreign exchange related risk exposures.

The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:

1. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.

2. Trade and other receivables

The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.

The following table gives details in respect of percentage of revenues generated from top customer and top 5 customers :

Five customers accounted for more than 10% of the revenue for the year ended March 31, 2018 , however two of the customers accounted for more than 10% of the receivables as at March 31, 2018. Four customers accounted for more than 10% of the revenue for the year March 31, 2017, however two of the customers accounted for more than 10% of the receivables for the year ended March 31, 2017.

3. Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The company does not expect any losses from non- performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.

4. Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk through credit limits with banks.

The Company''s corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management.

5 Foreign Currency risk

The Company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. dollars, British pound sterling and euros) and foreign currency borrowings (primarily in U.S. dollars, British pound sterling and euros). A significant portion of the Company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company''s revenues measured in rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company''s management meets on a periodic basis to formulate the strategy for foreign currency risk management.

Consequently, the Company management believes that the borrowings in foreign currency and its assets in foreign currency shall mitigate the foreign currency risk mutually to some extent.

Foreign currency sensitivity analysis

The Company is mainly exposed to the currency USD on account of significant outstanding trade receivables, borrowings and trade payables in USD.

The following table details the Company''s sensitivity to a 5% increase and decrease in INR against the USD. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management''s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. A positive number below indicates an increase in profit or equity where the INR strengthens 5% against the relevant currency. For a 5% weakening of the INR against the relevant currency, there would be a comparable impact on the profit or equity and the balances below would be negative.

For a 5% weakening of the INR against the relevant currency, there would be equivalent amount of impact on the profit as mentioned in the above table.

6. Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company''s exposure to the risk of changes in market interest rates relates primarily to the Company''s debt obligations with floating interest rates.

If interest rates were 1% lower, the company''s profit would have increased by the equivalent amount as shown in the above table.

7 Capital management

The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital. The Company''s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.

7. Transition to Ind AS

The Company''s financial statements for the year ended March 31, 2018 are prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015. The adoption of Ind AS was carried out in accordance with Ind AS 101, using April 1, 2016 as the transition date. Ind AS 101 requires that all Ind AS standards and interpretations that are effective for the interim Ind AS financial statements for the year ended March 31, 2017 be applied consistently and retrospectively for all fiscal years presented. All applicable Ind AS have been applied consistently and retrospectively wherever required. The resulting difference between the carrying amounts of the assets and liabilities in the financial statements under both Ind AS and Indian GAAP as at the transition date have been recognized directly in equity at the transition date.

In preparing these financial statements, the Company has availed itself of certain exemptions and exceptions in accordance with Ind AS 101 as explained below :

a) Exceptions from full retrospective application :

Estimates exception: Upon an assessment of the estimates made under Indian GAAP, the Company has concluded that there was no necessity to revise such estimates under Ind AS, except where estimates were required by Ind AS and not required by Indian GAAP,

b) Exemptions from retrospective application :

a. The Company has elected to fair value all its property plant and equipment and restate the carrying value of the balance categories of property, plant and equipment in accordance with Ind AS 101 as of April 01, 2016.

b. The Company has elected to continue with the carrying value of all of its investments in subsidiaries, joint venture recognised as of April 01, 2016 (transition date) measured as per the previous GAAP as its deemed cost as at the date of transition.

c) Reconciliations :

The following reconciliations provide a quantification of the effect of significant differences arising from the transition from Indian GAAP to Ind AS in accordance with Ind AS 101 :

- Equity as at April 1, 2016 ;

- Equity as at March 31, 2017 ;

- Total comprehensive income for the year ended March 31, 2017 ;

- Explanation of material adjustments to cash flow statements.

iii) There were no significant reconciliation items between cash flows prepared under Indian GAAP and those prepared under Ind AS.

iv) Explanation notes for Ind AS transition :

i) Previous GAAP provision for bad and doubtful receivables were based on ''Incurred Loss Model'' (ILM) and financials of the Company for previous year did not carry any provisions against the trade receivables. Under Ind AS, an entity uses trends when measuring Expected Credit Losses (ECL).

ii) Under Ind AS, liability for dividend is recognized in the period in which the obligation to pay is established. Under previous GAAP (till March 31, 2016), a liability is recognized in the period to which the dividend relates, even though the dividend may be approved by the shareholders subsequent to the reporting date.

iii) During the year 2014-15, the Company had received a sum of Rs. 15 Million in the eligible fixed assets and to create direct employment within the investment period of 3 years. The preconditions were complied with by the Company within the given period before April 1, 2016. Under the previous GAAP the said grant was recognised over the useful life of the fixed assets.

Since the Company has already complied with the investment and employment conditions as per the Government order as at 01 April 2016 the carrying amount as at the transition date 01 April 2016 of Rs.84 lakhs shall be adjusted to retained earnings as at the said date.

iv) The Company has made an irrevocable election to present the subsequent changes to the fair value of quoted equity investments in OCI. Accordingly all fair value changes on the instrument, excluding dividend are recognised in OCI which is not subsequently recycled to statement of profit and loss. Under the previous GAAP these investments were recognised at cost.

v) Under the previous GAAP, actuarial gains or losses were recognised in the statement of profit and loss. Under Ind AS, the actuarial gains or losses from part of remeasurement of the net defined benefit liability / asset is recognised in other comprehensive income.

vi) The Company has fair valued its property plant and equipment as at the transition date i.e April 1, 2016 and accordingly adjutsed the opening retained earnings as at the Transition date. Accordingly the excess depreciation on such revalued property plant and equipment has been reversed in the respective years.

vii) Assets not qualifying for recognition under Ind AS is de-recognised,

viii) The Company changed the inventory valuation policy and accordingly such effect is adjusted in the retained earnings/statement of profit and loss of the respective years.

Standards / amendments not yet effective

8. Ind AS 115- Revenue from Contract with Customers

On March 28, 2018, Ministry of Corporate Affairs (MCA) has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity''s contracts with customers.

The standard permits two possible methods of transition :

1) Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors.

2) Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach). The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1, 2018.

The Company is currently assessing the impact on adoption of this standard on its standalone financial statements.

9. Appendix B to Ind AS 21, Foreign currency transactions and advance consideration

On March 28, 2018, Ministry of Corporate Affairs (MCA) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force for periods beginning on or after April 1, 2018. The Company is currently assessing the impact of this on the consolidated financial statements.

Source : Dion Global Solutions Limited
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