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Berger Paints India

BSE: 509480|NSE: BERGEPAINT|ISIN: INE463A01038|SECTOR: Paints & Varnishes
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Notes to Accounts Year End : Mar '19

1. Corporate Information

Berger Paints India Limited (‘BPIL’ or ‘the Company’) is a public limited company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. Its shares are listed on three stock exchanges in India. The Company is engaged in the manufacturing and selling of paints. The Company caters primarily to domestic market. The registered office of the Company is located at Berger House, 129 Park Street, Kolkata-700 017.

These Ind AS financial statements were approved for issue in accordance with a resolution of the Board of directors on May 30, 2019.

2. Basis of Preparation

The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of Division II of Schedule III to the Companies Act, 2013 (Ind AS compliant Schedule III), as applicable to the financial statements.

These Ind AS financial statements have been prepared on a historical cost basis, except for certain assets and liabilities which have been measured at fair values (refer accounting policy regarding financial instruments). The Ind AS financial statements are presented in INR and all values are rounded to the nearest crores in INR, except when otherwise indicated.

Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.

Note :

i) The Company has subscribed to 51% equity shares of Berger Rock Paints Private Limited (“Berger Rock”) representing 51% of the paid up equity share capital ofBerger Rock upon incorporation ofBerger Rock on September 25, 2018.

ii) The Company has acquired 51 % of the paid up equity share capital of Saboo Hesse Wood Coating Private Limited after close of business hours on January 28, 2019.

iii) During the previous year, the Company had acquired 100% of the paid up equity share capital of SBL Specialty Coatings Private Limited [formerly known as Saboo Coatings Private Limited (“SCPL”)] after close ofbusiness hours on June 5, 2017.

* Refer Note 41

# In the previous year, Excise duty disclosed in Statement of Profit and Loss for the three months period ended June 30, 2017 is net of excise duty benefit of Rs.8.16 crores. Subsequent to the implementation of GST w.e.f July 1,2017, the Company has claimed subsidy available under “Scheme of Budgetary Support under GST Regime to the eligible units” located in specified States amounting to Rs.51.60 crores (March 31, 2018: Rs.28.38 crores ).

b) Terms/Rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs.1 each. Holder of each equity share is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. 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 of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

As per records of the Company, including its register of shareholders/members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares as declared under the relevant provisions of the Companies Act ,2013.

e) Shares reserved for issue under Employee Stock Options:

For details of shares reserved for issue under the Employee Stock Option Plan (ESOP) of the Company, refer Note 31.

Securities Premium - Premium received on equity shares issued including those under Employee Stock Option Plan are recognised in the securities premium account net of utilization for bonus shares issued.

Retained Earnings - Retained earnings includes surplus in the Statement of Profit and Loss, Ind-AS related adjustments as on the date of transition, remeasurement gains/ losses on defined benefit plans and Revaluation Reserve that had arisen from revaluation of Leasehold Land, Freehold Land and Freehold Buildings of the Company in 1989, 1985 and 1993 done by approved valuers. The aforementioned revaluation reserve is not a free reserve as per the Companies Act, 2013 and hence is not available for distribution as dividend.

General Reserve - Under the erstwhile Indian Companies Act 1956, a general reserve was created through an annual transfer of net income at a specified percentage in accordance with applicable regulations, to ensure that if a dividend distribution in a given year is more than 10% of the paid capital of the Company for that year, the total dividend distribution is less than the total distributable results for that year. Consequent to introduction of Companies Act 2013, the requirement to mandatorily transfer a specified percentage of the net profit to general reserve has been withdrawn.

Share based payment reserve - The Company has two Employee Stock Option Plans (ESOP) under which options to subscribe for the Company’s shares have been granted to specific employees.

The Share based payment reserve is used to recognise the value of equity-settled share-based payments to employees as part of their remuneration. The year end balance is net of options exercised by the concerned employees. Refer to Note 31 for further details of these plans.

Capital redemption reserve - Represents amount equal to the face value of equity shares transferred at the time ofbuy-back of shares.

During the year ended March 31, 2019 and March 31, 2018, the Company has paid dividend to its shareholders. This has resulted in payment of Dividend Distribution Tax (DDT) to the taxation authorities. The Company believes that DDT represents additional payment to taxation authority on behalf of the shareholders.

Note 3a. Reconciliation of tax expense and the accounting profit multiplied by India’s domestic tax rate for March 31, 2019 and March 31, 2018:

Income tax on the Company’s taxable profit differs from the theoretical amount that would have arisen had the enacted rate of corporate tax in India (34.944%) being applied to such taxable profits as explained below :

Cash Credits from banks are secured by way of first charge on book debts and other current assets ranking pari passu between the lenders (first pari passu charge over entire current assets). Cash Credit is repayable on demand and carries interest at 7.30% to 12.10 % per annum (March 31, 2018: 7.30%-11.75% per annum).

Working Capital demand loan from banks are secured by way of first charge on book debts and other current assets ranking pari passu between the lenders (first pari passu charge over entire current assets). Working capital demand loan is repayable within April 30, 2019 and carries interest at 9.50% -10.25% per annum (March 31, 2018: Nil).

Commercial paper carries interest at 9.50% per annum (March 31, 2018: Nil) and is repayable by April 11, 2019.

Amendments to Ind AS 7 Statement of Cash Flows:

The amendments to Ind AS 7 require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). The Company has provided the information for both the current and the comparative period is as under.

Terms and conditions of the above trade payables:

Trade payables are non interest bearing and are normally settled on 45-90 days terms. For terms and conditions of transactions with related parties, refer Note 34.

Revenue from operations for period up to June 30,2017 includes excise duty. From July 1,2017 onwards excise duty and most indirect taxes in India have been replaced by Goods and Service Tax (GST). The Company collects GST from its customers on behalf of the Government and hence, GST is not included in Revenue from operations. Revenue from operations includes excise duty collected from customers of ‘ Nil (March 31, 2018: Rs.134.28 crores). Revenue from operations net of excise duty is Rs.5,515.55 (March 31, 2018 Rs.4,705.09 crores). In view of the aforesaid change in indirect taxes, Revenue from operations for year ended March 31,2019is not comparable with the amount reported for the year ended March 31,2018.

* Revenue from sale of products are recognised when goods are transferred at a point in time.

** Contract revenue is recognised over a period of time.

The Company had in an earlier year provided for impairment amounting to Rs.28 crores in the carrying value of its investment in its wholly owned subsidiary, Berger Paints Cyprus Limited (BPCL) on account of losses sustained by the ultimate wholly owned subsidiary Berger Paints Overseas Limited (BPOL) due to downturn in Russian economy which were reflected in the consolidated financial position of the Company. BPOL continues to make losses and hence, the Company has made an assessment of the fair value less costs to sell off the investments in Berger Paints Overseas Limited taking into account management’s best estimate of the estimated fair value less costs to sell off the carrying value of assets and liabilities of the wholly owned subsidiary. Based on the above and as matter of prudence, a further provision of Rs.28.60 crores has been recognised in the current year towards impairment of such investment and has been accounted for as an exceptional item in the Statement of Profit and Loss.

Note 4. Earnings Per Share (EPS)

Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.

Diluted EPS amounts are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares.

The following table reflects the income and earnings per share data used in the basic and diluted EPS computations:

Note 5. Significant accounting judgements, estimates and assumptions

The preparation of the Company’s Ind AS financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities affected in future periods.

Judgements, Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the Financial Statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur. In the process of applying the Company’s accounting policies, management has made the following judgements, estimates and assumptions, which have the most significant effect on the amounts recognised in the Ind AS Financial Statements.

Defined Employer Benefit plans

The cost and the present value of the defined benefit gratuity plan and other post-employment leave encashment benefit are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in future. These include the determination of appropriate discount rate, estimating future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. For further details refer Note 30.

Fair value measurement of financial instruments and guarantees

When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree ofjudgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. See Note 36 for further disclosures.

Depreciation on Property, Plant and Equipment

Property, plant and equipment represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of company’s assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology.

Decommissioning Liability

Decommissioning Liability has been recognised for items of property plant and equipment built or installed on specified leasehold land the terms of which said leases include decommissioning of such assets on expiry of the lease prior to handing over to the lessor. The decommissioning costs as at the end of the lease period have been estimated based on current costs by the Company’s own technical experts and have been escalated to the end of the leasehold period using suitable inflation factors. The said escalated cost as at the end of the lease period is now discounted to the present value of such liability by applying Company’s weighted average cost of capital.

Impairment of Investment

The carrying amount of the Company’s investments are assessed at the end of each reporting period to determine whether there is any indication that an asset may be impaired. If any such indication exists, then the Company estimates the recoverable amount of the asset. The recoverable amount of the asset is computed as the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use. Such fair value is derived using valuation techniques (i.e. the Discounted Cash Flow (DCF) model) or management’s best estimate of the estimated fair value of the carrying value of assets and liabilities. The inputs to the Discounted Cash Flow models are taken from observable markets where possible, but where this is not feasible, a degree ofjudgment is required in establishing fair values. Key assumptions on which management has based its determination of recoverable amount includes estimated long term growth rates , weighted average cost of capital, estimated operating margins etc. Cash flow projections take into account past experience and represent management’s best estimate about future development. Details about impairment of investments recognised during the year has been further explained in Note 26.3.

Note 6. Gratuity and other post-employment benefit plans

(I) Defined benefit plans

(a) Gratuity

(i) The following table summarizes the components of net defined benefit expense towards gratuity recognised in the Statement of Profit and loss and OCI and the funded status and amounts recognised in the Balance Sheet.

(ii) The principal assumptions used in determining gratuity obligations for the Company’s plans are shown below

The estimates of future salary increases considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Assumptions regarding future mortality experience are set in accordance with the published statistics by the Actuary.

The discount rate is based on the government securities yield.

The Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards.

(iii) Major category of Plan Assets of the fair value of the total plan assets are as follows:-

(iv) A quantitative sensitivity analysis for significant assumptions are as shown below:

Impact on defined benefit obligation:

Sensitivity for significant actuarial assumptions is computed by varying one actuarial assumption used for the valuation of the defined benefit obligation by one percentage, keeping all other actuarial assumptions constant. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

(v) Risk Exposure

Since the employees gratuity fund is a defined benefit plan, the liability to be provided will be subject to interest rate risk since the future valuation ofbenefit depends upon the yield of government bonds for matching maturities.

(vi) Defined Benefit Liability and Employer Contributions

Since the employees gratuity fund is a defined benefit plan maintained by Life Insurance Corporation of India, the return is generated from a pool of assets invested by them and any deficit in the liability and return on plan assets is funded by the Company on a yearly basis.

(vii) In 2018-19, the Company expects to contribute Rs.1.43 crores (March 31, 2018: Rs.2.12 crores) to gratuity.

(b) Provident Fund

Provident Fund for certain eligible employees is administered by the Company through “Berger Paints Provident Fund (Covered)” as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The Rules for such a trust provide that in a provident fund set up by the employer, any shortfall in the rate of interest on member contributions as compared to the relevant rate of interest declared by the Goverment of India for this purpose will have to be met by the employer. Such provident fund would in effect be a defined benefit plan in accordance with the requirement of Ind AS 19- Employee Benefits.

The Actuary has carried out acturial valuation of interest rate guarantee obligations as at the Balance Sheet date using Projected Unit Credit Method and Deteministic Approach as outlined in the Professional Guidance Note 29 issued by the Institute of Actuaries of India. Based on such valuation, there is no future anticipated shortfall with regards to interest rate guarantee obligation of the Compay as at the balance sheet date. Further during the year, the Company’s contribution of Rs.5.76 crores (March 31, 2018: Rs.4.93 crores) to the Provident Fund Trust, has been expensed under “Contribution to Provident and Other Funds”. Disclosures given hereunder are restricted to the information available as per the Actuary’s report.

(c) Other Defined Benefit Plans

The amounts for “Other Defined Benefit Plans” are below the rounding off norm adopted by the Company (refer Note 41) and hence the disclosures as required under Ind AS 19- “Employee Benefits” have not been given.

(II) Defined contribution plans

During the year, the Company has recognised the following amounts in the Statement of Profit and Loss for defined contribution plans:

Note 7. Employee Stock Option Plan

Berger Paints India Limited Employee Stock Option Scheme, 2010

The Berger Paints India Limited - Employee Stock Option Plan [‘the Plan’] was approved at the Annual General Meeting of the Company held on 29th July, 2010. The objective of the plan is to:

1) Attract, retain and motivate Employees,

2) Create and share wealth with the Employees,

3) Recognise and reward employee performance with shares and

4) Encourage employees to align individual performance with the objective of the Company. The terms and conditions of the Plan is reproduced below:

a) ”Vesting Date” means the date on and from which the Option vests with the Participant and thereby becomes exercisable.

b) ”Exercise Date “means the date on which the Participant exercises his Vested Options and in case of partial Exercise shall mean each date on which the Participant exercises part ofhis Vested Options.

c) ”Vesting Period” means the period during which the Vesting of the Option granted to the Participant in pursuance of the Plan takes place.

d) ”Exercise Period” means a period of 3 years from the Vesting Date as defined above of the Plan within which the Vested Options can be exercised in pursuance of the Plan.

e) The Exercise Price of an Option shall be the face value of Rs.2/- per Share. However, due to sub-division of Company’s share from F.V of Rs.2/- to Rs.1/- w.e.f from 9th January, 2015, the Compensation & Nomination & Remuneration Committee made fair and reasonable adjustments with respect to ESOP’s earlier approved and granted by the Compensation & Nomination & Remuneration Committee.

f) Cashless exercise of the Options are not permitted under the Plan. Participants to pay full Aggregate Exercise Price upon the Exercise of the Vested Options.

g) Subject to Participant’s continued employment as defined in Clause 14 of the Plan the Unvested Options shall vest with the Participant automatically in accordance with the following schedule : a) 33% of the total Options granted, rounded up to the nearest whole number, shall vest on the first anniversary of the Grant Date; b) further 33% of the total Options granted, rounded up to the nearest whole number, shall vest on the second anniversary of the Grant Date and c) balance 34% of the total Options granted, rounded up to the whole number such that the total number of Options vested shall add up to 100%, shall vest on the third anniversary of the Grant Date.

h) The Date of grant of options :1st August, 2010.

Berger Paints India Limited Employee Stock Option Plan 2016

The Berger Paints India Limited - Employee Stock Option Plan 2016 [‘the Plan’] was approved at the Annual General Meeting of the Company held on 3rd August, 2016. The objective of the plan is to:

1) Attract, retain and motivate Employees,

2) Create and share wealth with the Employees,

3) Recognise and reward employee performance with shares and

4) Encourage employees to align individual performance with the objective of the Company. The terms and conditions of the Plan is reproduced below:

a) ”Vesting Date” means the date on and from which the Option vests with the Participant and thereby becomes exercisable.

b) ”Exercise Date” means the date on which the Participant exercises his Vested Options and in case of partial Exercise shall mean each date on which the Participant exercises part ofhis Vested Options.

c) ”Vesting Period” means the period during which the Vesting of the Option granted to the Participant in pursuance of the Plan takes place.

d) ”Exercise Period” means a period of 3 years from the Vesting Date as defined above of the Plan within which the Vested Options can be exercised in pursuance of the Plan.

e) The Exercise Price of an Option shall be the face value of Rs.1/- per share

f) Cashless exercise of the Options are not permitted under the Plan. Participants to pay full Aggregate Exercise Price upon the Exercise of the Vested Options.

g) Subject to Participant’s continued employment as defined in Clause 14 of the Plan the Unvested Options shall vest with the Participant automatically in accordance with the following schedule : a) 33% of the total Options granted, rounded up to the nearest whole number, shall vest on the first anniversary of the Grant Date; b) further 33% of the total Options granted, rounded up to the nearest whole number, shall vest on the second anniversary of the Grant Date and c) balance 34% of the total Options granted, rounded up to the whole number such that the total number of Options vested shall add up to 100%, shall vest on the third anniversary of the Grant Date.

h) The Date of grant of options : 9th November, 2016.

Expected volatility during the expected term of the ESOP is based on historical volatility of the observed market prices of the Company’s publicly traded equity shares during a period equivalent to the expected term of the ESOP.

The fair values of our ESOP are based on the market value of our stock on the date of grant.

m. The following table summarizes information about Share Options outstanding as at year end:-

Note 8. Leases

Operating lease - Company as lessee

The Company’s leasing arrangements for various depots, offices etc are in the nature of operating leases which are cancellable at the option of the Company. These leases have a life between 1 year to 20 years ( March 31, 2018 - 1 year to 20 years ) which is renewable by mutual consent of concerned parties. No contingent rent is payable by the Company in respect of the above leases. Some of the lease agreements have price escalation clauses. Related lease rentals have been disclosed under the head “Rent” in Note 26 of Statement of Profit and Loss. There are no restrictions placed upon the Company by such leases.

Operating lease - Company as lessor

The Company has given Color Bank (tinting machines) on operating lease to its dealers. The Company enters into 3- 5 years cancellable lease agreements. However the corresponding lease rentals may be receivable for a shorter period or may be waived off/refunded on acheivement of certain sales targets by the concerned dealers.The minimum aggregate lease payments to be received in future is considered as ‘ Nil. Accordingly the disclosure of the minium lease payments receivable at the Balance sheet date is not made. The amounts received from customers pending to be refunded back are recognised as liabilities and are included in “Deposits” under “Other financial liabilities” in Note 12. Also refer note 4.

Note 9. Commitment and Contingencies

a. Commitments

b. Contingent Liabilities

(i) Claims against the Company not acknowledged as debts:

The Company has been advised by its lawyers that none of the claims are tenable and is therefore contesting the same and hence has not been provided for in the books. The future cash flows on account of the above cannot be determined unless thejudgements/decisions are received from the ultimatejudicial forums. No reimbursements is expected to arise to the Company in repect of above cases.

There are numerous interpretative issues relating to the Supreme Court (SC)judgement dated February 28, 2019 on Provident Fund (PF) on the inclusion of allowances for the purpose of PF contribution as well as its applicability of effective date. The impact is not expected to be material as per the assessment made by the Company.

a) The Company has mortgaged certain immovable properties with Standard Chartered Bank and has also created charge on certain fixed moveable assets with DBS Bank in relation to loan extended to its subsidiary, M/s Lusako Trading Limited.

b) The loan is utilised by the said subsidiary for its business purposes. Also refer note 12 and 34.

9a. Disclosure in respect of Related Parties pursuant to Ind AS 24 List of Related Parties

I. Parent and Subsidiary Companies:

II. Other related parties with whom transactions have taken place during the year: a) Key Management Personnel

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel. No share options have been granted to the non-executive members of the Board of Directors under this scheme. Refer to Note 31 for further details of the scheme.

* ReferNote 41

Refer Note 5a for details of investments held.

Notes:

Terms and conditions of transactions with related parties:

The transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash except as otherwise mentioned.

Note 10. Segment Information

The Company is engaged in the business of manufacturing and selling of paints. Based on the nature of products, production process, regulatory environment, customers and distribution methods there are no reportable segment(s) other than “Paints”.

Note 11. Fair Value Hierarchy

The table shown below analyses financial instruments carried at fair value. The different levels have been defined below:-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 (unobservable inputs).

(b) Financial instruments at amortized cost

The carrying amount of financial assets and financial liabilities measured at amortised cost in the Ind AS financial statements are a reasonable approximation of their fair values since the Company does not anticipate that the carrying amounts would be significantly different from the values that would eventually be received or settled.

(c) During the year there has been no transfer from one level to another.

(d) Also refer note 17a and 17b.

Note 12. Financial risk management objectives and policies

The Company’s principal financial liabilities, other than derivatives, comprise borrowings and trade payables. The main purpose of these financial liabilities is to finance the Company’s working capital requirements . The Company has various financial assets such as trade receivables, loans, investments,short-term deposits and cash & cash equivalents , which arise directly from its operations. The Company enters into derivative transactions by way of forward exchange contracts to hedge its payables

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s Board of Directors oversees the management of these risks. The Company’s Board of Directors is supported by the Business Process and Risk Management Committee (BPRMC) that advises on financial risks and the appropriate financial risk governance framework for the Company. The BPRMC provides assurance to the Company’s Board of Directors that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. All derivative activities for risk management purposes are carried out by personnels that have the appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:

Market Risk

Market risk is the risk that the fair value offuture cash flows of a financial instrument will fluctuate because ofchanges in market factors. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk, liquidity risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, FVTOCI investments and financial derivative. The sensitivity analyses in the following sections relate to the position as at March 31,2019 and March 31,2018.

The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant at March 31, 2019. The analyses exclude the impact of movements in market variables on the carrying values of gratuity and other post-retirement obligations. The following assumptions have been made in calculating the sensitivity analyses:

- The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at March 31,2019 and March 31,2018

- The sensitivity of equity is calculated as at March 31,2019 for the effects of the assumed changes of the underlying risk Interest rate risk

The Company has incurred short term debt to finance its working capital , which exposes it to interest rate risk. Borrowings issued at variable rates expose the Company to interest rate risk. Borrowing issued at fixed rates expose the Company to fair value interest rate risk. The Company’s interest rate risk management policy includes achieving the lowest possible cost of debt financing, while managing volatility of interest rates, applying a prudent mix of fixed and floating debt through evaluation of various bank loans and money market instruments.

Some of the Company’s borrowings are index linked, that is their cost is linked to changes in the London inter-bank offer rate (Libor).

Although the Company has significant variable rate interest bearing liabilities at March 31,2019, there would not be any material impact on pretax profit and pretax equity of the Company on account of any anticipated fluctuations in interest

Foreign currency risk

The Company has a policy of entering into foreign exchange forward contracts to manage risk of foreign exchange fluctuations on borrowings and payables. These contracts are not designated in hedge relationships and are measured at fair value through profit or loss. Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in exchange rates of any currency. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities by way of direct imports or financing of imports through foreign currency instruments.

The Company proactively hedged its currency exposures in case of a significant movement in exchange rates for imports and in case the hedged cost of foreign currency instrument is lower than the domestic cost ofborrowing in case of short term import financing.

As at March 31, 2019, the Company hedged 28 % (March 31, 2018: 2%) for 6-9 months, of its expected foreign currency payables. This foreign currency risk on payables is hedged by using foreign currency forward contracts.

Foreign currency sensitivity

The following tables demonstrate the sensitivity to a reasonably possible change in USD/Euro/JPY exchange rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities. The Company’s exposure to foreign currency changes for all other currencies is not material.

Commodity price risk

The Company doesn’t enter into any long term contract with its suppliers for hedging its commodity price risk.

Equity price risk

The Company does not have any investments in listed securities or in Equity Mutual Funds and thereby is not exposed to any Equity price risk.

Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments.

Trade receivables

Customer credit risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored by BPRMC and corrective actions taken.

Financial instruments and cash deposits

Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with the Company’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Company’s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Company’s Finance Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.

The Company’s maximum exposure to credit risk for the components of the balance sheet at March 31, 2019 and March 31, 2018 is the carrying amounts as illustrated in Note 12 except for financial guarantees .The Company’s maximum exposure relating to financial guarantees and financial derivative instruments is noted in note 36 and the liquidity table below.

Liquidity risk

The Company monitors its risk of a shortage of funds using a liquidity planning tool.

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, cash credit facilities and buyers’ credit facilities. The Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. The Company has access to a sufficient variety of sources of funding and debt.

The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments.

Note 13. Capital management

For the purpose of the Company’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Company’s capital management is to maximise the shareholder value.

The Company only avails short term borrowings to bridge its working capital gap and finances its capital expenditure through internal generation of funds. The Company has a generally low debt equity ratio.

In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the current period.

No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2019 and March 31, 2018.

Note 14 Expenditure on Research & Development

a. Details of Research & Development expenses incurred during the year, debited under various heads of Statement of Profit and Loss is given below.

b. Details of Capital expenditures incurred for Research & Development are given below:

Above includes allowable expenditure under section 35(2AB) of the Income Tax Act for a research & development unit situated in Howrah, Kolkata which focuses on reasearch on new and existing paint products, reformulation for cost optimization, environment friendly products etc.

Details are mentioned below :

Capital expenditure Rs.2.20 Crores(March31,2018Rs.0.51crores)

Revenue expenditure Rs.10.41 Crores(March31,2018Rs.9.54crores)

Note 15

The figures of previous year have been regrouped/rearranged wherever considered necessary.

Note 16

All figures are in Rupees Crores. Figures marked with (*) are below the rounding off norm adopted by the Company.

Source : Dion Global Solutions Limited
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