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Ceat

BSE: 500878|NSE: CEATLTD|ISIN: INE482A01020|SECTOR: Tyres
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Mar 17
Notes to Accounts Year End : Mar '18

1. Building includes '' 0.10 Lacs as at March 31, 2018 (As at March 31, 2017 '' 0.10 Lacs) being value of unquoted fully-paid shares held in various co-operative housing societies.

2. As a part of green field expansion plan, during the year the Company has acquired land of '' 6,731 lacs.

3. During the year, the Company has transferred the following expenses which are attributable to the construction activity and are included in the cost of capital work-in-progress (CWIP) / Fixed assets as the case may be. Consequently, expenses disclosed under the respective notes are net of such amounts.

4. As a part of expansion project at Halol-Phase II, during the year the Company has capitalized and commissioned assets of '' 2,364 lacs (March 31, 2017 '' 18,343 lacs). This has resulted in the installed capacity as on March 31, 2018 to 120 MT per day (March 31, 2017 76 MT per day).

5. As a part of ongoing expansion project at Halol-Phase III, during the year the Company has capitalized and commissioned assets of Rs, 79 lacs. The planned expansion of 208 MT per day is expected to be commissioned, in phase, by end of March 2020.

6. As a part of ongoing expansion project at Butibori, near Nagpur, Maharashtra, during the year the Company has capitalized and commissioned assets of Rs, 5,067 lacs (March 31, 2017 Rs, 22,996 lacs). This has resulted in the installed capacity as on March 31, 2018 to 91 MT per day (March 31, 2017 54 MT per day). The planned expansion of 120 MT per day is expected to be commissioned, in phase, by end of FY 2018-19.

7. The amount of borrowing cost capitalized during the year ended March 31, 2018 is Rs, 459 lacs (March 31, 2017: Rs, 1,437 lacs). The rate used to determine the amount of borrowing costs eligible for capitalization is 7.79% (March 31, 2017: 8.89%) which is the effective interest rate of specific borrowings.

8. Refer note 20 for details on pledges and securities.

1. I n an earlier year, the Company has acquired global rights of “CEAT” brand from the Italian tyre maker, Pirelli. Prior to the said acquisition, the Company was the owner of the brand in only a few Asian countries including India. With the acquisition of the brand which is renowned worldwide, new and hitherto unexplored markets are accessible to the Company. The Company will be in a position to fully exploit the export market resulting in increased volume and price realization. Therefore, the management believes that the Brand will yield significant benefits for a period of at least twenty years.

2. The Company has acquired technical know-how and assistance from International Tire Engineering Resources LLC, for setting up of Halol radial plant. Considering the life of the underlying plant / facility, this technical know-how is amortized on a straight line basis over a period of twenty years.

*These debts are secured to the extent of security deposit obtained from the dealers

- No trade receivables are due from directors or other officers of the company either severally or jointly with any other person.

- For terms and conditions relating to related party receivables, refer note 43.

- Trade receivables are non-interest bearing within the credit period which is generally 30 to 60 days.

a) Includes 688 (March 31, 2017- 688) equity shares offered on right basis and kept in abeyance.

b) Terms/ rights attached to equity shares

The Company has only one class of equity shares having face value of Rs,10 per share. Each holder of equity shares is entitled to one vote per equity share. Dividend is recommended by the Board of Directors and is subject to the approval of the members at the ensuing Annual General Meeting except interim dividend. The Board of Directors have a right to deduct from the dividend payable to any member, any sum due from him to the Company.

In the event of winding-up, the holders of equity shares shall 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 shareholders.

The shareholders have all other rights as available to equity shareholders as per the provision of the Companies Act, applicable in India read together with the Memorandum of Association and Articles of Association of the Company, as applicable.

d) As per the records of the Company as at March 31, 2018 no calls remain unpaid by the directors and officers of the company.

e) The Company has not issued any equity shares as bonus for consideration other than cash and has not bought back any shares during the period of 5 years immediately preceeding March 31, 2018.

f) General Reserve

The general reserve is used from time to time to transfer profits from retained earnings for appropriations purposes. As the general reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassified subsequently to statement of profit and loss.

Proposed dividends on equity shares which are subject to approval at the annual general meeting are not recognized as a liability (including Dividend Distribution Tax thereon) in the year in which it is proposed.

During the year ended 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. Hence, DDT paid is charged to equity.

Notes to Borrowings:

1. Non-Convertible Debentures (NCD) Rs, 20,000 lacs (March 31, 2017: Rs, 20,000 lacs) allotted on July 31, 2015 on private placement basis are secured by a first pari passu charge over the movable assets (except current assets) and immovable assets of the Company situated at the Nasik Plant. As at March 31, 2018, the NCDs carry an interest at 8.65% p.a. and is repayable as under:

- NCD Series 1: Rs, 1,000 lacs (5% of the issue amount) repayable on July 31, 2019

- NCD Series 2: Rs, 3,000 lacs (15% of the issue amount) repayable on July 31, 2020

- NCD Series 3: Rs, 3,000 lacs (15% of the issue amount) repayable on July 31, 2021

- NCD Series 4: Rs, 3,000 lacs (15% of the issue amount) repayable on July 31, 2022

- NCD Series 5: Rs, 4,000 lacs (20% of the issue amount) repayable on July 31, 2023

- NCD Series 6: Rs, 4,000 lacs (20% of the issue amount) repayable on July 31, 2024

- NCD Series 7: Rs, 2,000 lacs (10% of the issue amount) repayable on July 31, 2025

2. Term Loan from Export Import Bank of India (EXIM) NIL (March 31, 2017: Rs, 10,900 lacs) was pre-paid in full including interest thereon during the year. It was secured by first pari passu charge over the Company''s movable assets (excluding current assets) and immovable assets situated at the Halol plant and second pari passu charge on the current assets of the Company. It carried interest of 9.50% p.a at the time of repayment.

3. Term Loan from Kotak Mahindra Bank Limited NIL (March 31, 2017: Rs, 3,000 lacs) was pre-paid in full including interest thereon during the year. It was secured by first pari passu charge over the Company''s movable assets (excluding current assets) and immovable assets situated at Halol plant and second pari passu charge over the current assets of the Company. It carried interest of 8.60% p.a. at the time of repayment.

4. Term Loan from The Hong Kong and Shanghai Banking Corporation Limited (HSBC) NIL (March 31, 2017: Rs, 8,000 lacs) was pre-paid in full including interest thereon during the year. It was secured by a first pari passu charge over the Company''s immovable assets situated at Bhandup plant. It carried interest of 8.33% p.a. at the time of repayment.

5. Long-term buyer''s credit (for Halol expansion project) is secured by way of first pari passu charge on all movable assets (excluding current assets) and immovable assets of the Company situated at Halol plant and second pari passu charge over the current assets of the Company. It is repayable within 3 years from the date of disbursement. The long-term buyer''s credit carries interest in the range of 12 months LIBOR plus 35 bps p.a. to 12 months LIBOR plus 122 bps p.a. and 6 months LIBOR plus 52 bps p.a. to 6 months LIBOR plus 165 bps p.a. and 6 months EURIBOR plus 125 bps p.a. and 12 months EURIBOR plus 68 bps p.a. to 12 months EURIBOR plus 150 bps p.a. (Variation in range due to the movements in LIBOR/EURIBOR and the size of the deals.)

6. Long-term buyer''s credit (for Nagpur project) is secured by way of first pari passu charge on all movable assets (excluding current Assets) and immovable assets of the Company situated at Nagpur plant. It is repayable within 3 years from the date of disbursement. The long-term buyer''s credit carries interest in the range of 12 months LIBOR plus 20 bps p.a. to 12 months LIBOR plus 113 bps p.a. and 6 months LIBOR plus 50 bps p.a. to 6 months LIBOR plus 175 bps p.a. (Variation in range due to the movements in LIBOR/ EURIBOR and the size of the deals.)

Unsecured long-term borrowings (includes noncurrent portion and current maturities)

7. Public deposits included under the long-term borrowings were pre-paid in full including interest thereon on September 30, 2016.

8. Interest-free deferred sales tax is repayable in ten equal annual instalment commencing from April 26, 2011 and ending on April 30, 2025.

9. Outstanding balances shown in foot notes above, are grossed up to the extent of unamortized transaction cost.

a) Provision for warranty

A provision is recognized for expected warranty claims on product sold during the last three years, based on past experience of the level of returns and cost of claim. It is expected that significant portion of these costs will be incurred in the next financial year and within three years from the reporting date. Assumptions used to calculate the provision for warranty were based on current sales levels and current information available about returns based on the three years warranty period for all products sold. The table below gives information about movement in warranty provision.

c) Provision for decommissioning liability

The Company records a provision for decommissioning costs of land taken on lease at Nasik manufacturing facility for the production of tyres.

d) Indirect tax and labour matters

The Company is party to various lawsuits that are at administrative or judicial level or in their intial stages, involving tax and civil matters. The Company contests all claims in the court / tribunals / appellate authority levels and based on their assessment and that of their legal counsel, records a provision when the risk or loss is considered probable. The outflow is expected on cessations of the respective events.

Note:

a) Cash credit facilities from banks, export packing credit from banks and buyers credit from banks are part of working capital facilities availed from consortium of banks. Consortium limits are secured by way of first pari passu charge on the current assets of the Company, wherever situated and by way of second pari passu charge on the movable assets (except current assets) and immovable assets of the Company situated at Bhandup, Nasik and Halol Plants.

All short-term borrowings availed in Indian rupees during the current year carry interest in the range of 6.25% to 11.50% and all short-term borrowing availed in foreign currency during the year carry interest in the range of LIBOR plus 21 bps to LIBOR plus 75 bps. (LIBOR is set corresponding to the period of the loan).

b) The Company had issued Commercial Papers (total available limit Rs, 35,000 lacs) at regular intervals for working capital purposes with interest ranging from 6.22% to 6.56%. The outstanding as at March 31, 2018 is Nil lacs (As at March 31, 2017 Rs, 2,481 lacs).

b) Trade payables are non-interest bearing within the credit period which is generally 60 to 105 days.

Note:

a) Sale of goods includes excise duty collected from customers of Rs,16,891 lacs (March 31, 2017: Rs, 67,479 lacs) (refer note 2(3))

b) The Company has recognized a government grant of Rs, 1,191 lacs (March 31,2017: Rs, 1,220 lacs) as income on account of Export Incentive under Merchandise Exports from India Scheme (MEIS) from Directorate General of Foreign Trade, Government of India.

The Company has also recognized a government grant of Rs, 82 lacs (March 31, 2017: Rs, 82 lacs) relating to benefit received from Export Promotion Capital Goods (EPCG).

The Company had introduced VRS for employees across the Company. During the year, 178 employees (March 31, 2017, 93 employees) opted for the VRS.

The above expenditure of research and development has been determined on the basis of information available with the Company and as certified by the management.

Note 39: Earnings per share

Basic Earnings per share (EPS) amounts are calculated by dividing 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 reflects the income and share data used in the basic and diluted EPS computations:

Note 40: Significant accounting judgements, estimates and assumptions

The preparation of the 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 an adjustment to the carrying amount of assets or liabilities in future periods. Difference between actual results and estimates are recognized in the periods in which the results are known / materialised.

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 has 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.

a) Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the Company''s domicile. Based on approved plans and budgets, the Company has estimated that the future taxable income will be sufficient to absorb MAT credit entitlement, which management believes is probable. Accordingly, the Company has recognized MAT credit as an asset. Further details on taxes are disclosed in note 23

b) Defined benefit plans (gratuity benefits)

The Company''s obligation on account of gratuity, compensated absences and present value of gratuity obligation are determined based on actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future.

These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, these liabilities are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation.

The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change only at interval in response to demographic changes. Increase in future salary and gratuity is based on expected future inflation rates.

Further details about gratuity obligations are given in note 41.

c) Provision for decommissioning liability

The Company has recognized a provision for decommissioning obligations associated with a land taken on lease at Nasik manufacturing facility for the production of tyres. In determining the fair value of the provision, assumptions and estimates are made in relation to discount rates, the expected cost to dismantle and remove the plant from the site and the expected timing of those costs. The carrying amount of the provision as at March 31, 2018 was Rs, 61 lacs (March 31, 2017: Rs, 55 lacs). The Company estimates that the costs would be realized in year 2066 at the expiration of the lease and calculates the provision using the Discounted Cash Flow (DCF) method based on the following assumptions:

- Estimated range of cost per square meter - Rs, 45 - Rs, 50

- Discount rate - 11.50%

d) Provision for warranty

The estimated liability for warranty is recorded when products are sold. These estimates are established using historical information on the nature, frequency and average cost of obligations and management estimates regarding possible future incidence based on corrective actions on product failure. The timing of outflows will vary as and when the obligation will arise - being typically up to three years. The rate used for discounting warranty provisions is 11.50%.

e) Fair value measurement of financial instruments

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 Discounted Cash Flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement 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. (refer note 46 and 47 for further disclosures)

Note 41: Post-retirements benefit plan

a) Defined Contribution plan

The Company has recognized and included in Note No.33 “Contribution to Provident and other funds” expenses towards the defined contribution plan as under:

b) Defined Benefit plan - Gratuity

The Company has a defined benefit gratuity plan which is funded with an Insurance Company in the form of qualifying Insurance policy. The Company''s defined benefit gratuity plan is a salary plan for employees which requires contributions to be made to a separate administrative fund.

The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the act, every employee who has completed five years of service gets a gratuity on separation @ 15 days

of last drawn salary for each completed year of service. The scheme is funded with an insurance Company in the form of qualifying insurance policy.

The fund has the form of a trust and it is governed by the Board of Trustees, which consists of employer and employee representatives. The Board of Trustees is responsible for the administration of the plan assets and for the definition of the investment strategy.

Each year, the Board of Trustees reviews the level of funding. Such a review includes the asset-liability matching strategy and investment risk management policy. This includes employing the use of annuities and longevity swaps to manage the risks. The Board of Trustees decides its contribution based on the results of this annual review. The Board of trustees have appointed LIC of India, Birla Sun Life Insurance, India First Life Insurance & HDFC Life Insurance to manage its funds. The Board of Trustees aim to keep annual contributions relatively stable at a level such that no plan deficits (based on valuation performed) will arise.

I n case of death, while in service, the gratuity is payable irrespective of vesting. The Company makes annual contribution to the Company gratuity scheme administered by LIC through its gratuity funds.

ix) The principal assumptions used in determining gratuity and leave encashment for the Company’s plan are shown below

Description of Risk Exposures

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

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).

Liquidity Risk

This is the risk that the Company is not able to meet the shortterm gratuity payouts. This may arise due to non- availability of enough cash / cash equivalent to meet the liabilities or holding of illiquid assets not being sold in time.

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 liability.

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.

Regulatory Risk

Gratuity benefit is paid in accordance with the requirements of the Payment of Gratuity Act, 1972 (as amended from time to time). There is a risk of change in regulations requiring higher gratuity payouts (e.g. Increase in the maximum limit on gratuity of Rs, 20 lacs).

Asset Liability Mismatching or Market Risk

The duration of the liability is longer compared to duration of assets, exposing the Company to market risk for volatilities/ fall in interest rate.

Investment Risk

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

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

The sensitivity analysis above have been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.

The Company has purchased an insurance policy to provide for payment of gratuity to the employees. Every year, the insurance Company carries out a funding valuation based on the latest employee data provided by the Company. Any deficit in the assets arising as a result of such valuation is funded by the Company.

The Company''s best estimate of contribution during the next year is Rs, 207 lacs.

The weighted average duration (based on discounted cash flows) of defined benefit obligation is 8 years.

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 outflows happening 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 an increase in liability without corresponding increase in the asset).

Note 42: Commitments and contingencies

a. Leases

Operating lease commitments — Company as lessee

The Company has entered a lease agreement with the leasing Company for vehicles, resulting in a non-cancellable operating lease. There is no restriction placed upon the Company by entering these leases. The lease term range from one year to five years and are renewable at the option of the Company.

Lease rental on the said lease of Rs, 137 Lacs (March 31, 2017 Rs, 129 Lacs) has been charged to Statement of Profit and Loss.

*in respect of above matters, future cash outflows are determinable only on receipt of judgements pending at various forums / authorities.

d. Others

The Company has availed the Sales Tax Deferral Loan and Octroi refund from the Directorate of Industries for Nasik Plant. Hence, the Company has to take prior permission of the appropriate authority for removal/transfer of any asset (falling under the above Schemes) from Nasik Plant. In case of violation of terms & conditions, the Company is required to refund the entire loan/benefit along with the interest @ 22.50% on account of Sales Tax deferral Loan and @ 15% on account of Octroi refund.

e. Material demands and disputes considered as “Remote” by the Company

1. The Company has been served with a Show Cause cum Demand Notice from the DGCEI (Directorate General of Central Excise Intelligence) Mumbai, on the ground that, the activity of making tyre set, i.e. inserting Tubes and Flaps inside the Tyres and tied up through Polypropylene Straps, amounts to manufacture / pre-packaged commodity under Section 2(f)(iii) of Central Excise Act, read with Section 2(l) of the Legal Metrology Act, 2009. Accordingly, the authorities worked out the differential duty amounting to '' 27,421 Lacs i.e., the amount of duty already paid on the basis of transaction value and duty payable on the basis of MRP under Section 4A, for the period from April-2011 to March-2017. The Company believes that Set of TT / TTF (Tyre and Tube / Tyre, Tube and Flap) is not pre-packaged commodity in terms of provisions of Legal Metrology Act, 2009. The Company has a strong case on the ground that, the said issue has been clarified by the Controller of the Legal Metrology Department vide its letter dated May 1, 1991 that “Tyre with tube & flaps tied with three thin polythene strips may not be treated as a pre-packed commodity within the meaning of rule 2(l) of the Standards of Weights and Measures (Packaged Commodities), Rules, 1977”. The above clarification has been re-affirmed vide letter dated November 16, 1992 by the Legal Metrology authorities.

2. The Competition Commission of India (CCI) had, while considering the representation made by All India Tyres Dealers Federation (AITDF) made a prima facie view that the major players of tyre industry (including the Company) had some understanding amongst themselves, especially in the replacement market, as they did not pass the benefit of corresponding reduction in prices of major raw material inputs for the period subsequent to the year 2011-12. According to CCI, this practice is in violation of the Competition Act 2002 (the Act). Therefore, CCI had, vide its order passed on June 24, 2014 under Section 26(1) of the Act, directed the Office of the Director General (DG) to investigate the said alleged violation of the Act.

DG submitted its investigation report to CCI in December 2015, based on which CCI passed an order on February 18, 2016 directing the said tyre manufacturers to file their suggestions/objections by May 5, 2016. Objections were filed as directed and the CCI had also heard the tyre manufacturers in detail. The case was last posted on December 1, 2016 and is now reserved for Orders.

The Company''s decision to change the price is purely a business decision which depends upon many factors like cost of production, brand value perception, profit margin of each product, quality perception of each product in the market, demand and supply situation of each product category and market potential and market shares targets of various product categories etc. In view of the above, Company believes that it has a strong case hence, considered as remote.

Note 43: Related party transactions a) Names of related parties and related party

relationship

Related parties where control exists

- Associated CEAT Holdings Company (Pvt.) Limited (“ACHL”) (Subsidiary Company)

- CEAT AKKHAN Limited (Subsidiary Company)

- Rado Tyres Limited(“Rado”) (Subsidiary Company)

- CEAT Specialty Tyres Limited (“CSTL”) (Subsidiary Company)

- CEAT Specialty Tires Inc. (Subsidiary of CSTL)

Related parties with whom transactions have taken

place during the year

- CEAT Kelani Holdings (Pvt.) Limited (“CKHL”) (Joint venture of ACHL)

- Associated CEAT (Pvt.) Limited (“ACPL”) (Subsidiary of CKHL)

- Ceat-Kelani International Tyres (Pvt.) Limited (“CKITL”) (Subsidiary of CKHL)

- Ceat Kelani Radials Limited (“CKRL”) (Subsidiary of CKHL)

- Asian Tyres (Pvt.) Limited (“ATPL”) (Subsidiary of CKITL)

- CEAT Specialty Tyres Limited (“CSTL”) (Subsidiary Company)

- TYRESNMORE Online Pvt Ltd. (“TNM PVT LTD”) (Associate Company)

- RPG Enterprises Limited (“RPGE”) (Directors, KMP or their relatives are interested)

- RPG Lifesciences Limited (“RPGLS”) (Directors, KMP or their relatives are interested)

- Zensar Technologies Limited(“Zensar”) (Directors, KMP or their relatives are interested)

- Raychem RPG (Pvt.) Limited (“Raychem”) (Directors, KMP or their relatives are interested)

- KEC International Limited (“KEC”) (Directors, KMP or their relatives are interested)

- Vinar Systems Pvt. Limited (“Vinar”) (Directors, KMP or their relatives are interested)

- B.N. Elias & Co. LLP (“B.N. Elias”) (Directors, KMP or their relatives are interested)

- Atlantus Dwellings & Infrastructure LLP (“Atlantus”) (Directors, KMP or their relatives are interested)

- Chattarpati Apartments LLP (“Chattarpati”) (Directors, KMP or their relatives are interested)

- Allwin Apartments LLP (“Allwin”) (Directors, KMP or their relatives are interested)

- Amber Apartments LLP (“Amber”) (Directors, KMP or their relatives are interested)

- Khaitan & Co. (“Khaitan”) (Directors, KMP or their relatives are interested)

- CEAT AKKHAN Limited (Subsidiary Company)

- Rado Tyres Limited(“Rado”) (Subsidiary Company)

- Associated CEAT Holdings Company (Pvt.) Limited (“ACHL”) (Subsidiary Company)

- TYRESNMORE Online Pvt Ltd (“TNM PVT LTD”) (Associate Company)

- Key Management Personnel (KMP):

i) Mr. Harsh Vardhan Goenka, Chairman

ii) Mr. Anant Vardhan Goenka, Managing Director

iii) Mr. Arnab Banerjee, Whole-time Director

iv) Mr. Manoj Jaiswal, Chief Financial Officer upto January 15, 2017

v) Mr Kumar Subbiah, Chief Financial Officer w.e.f. from January 16, 2017

vi) Mr. H. N. Singh Rajpoot, Company Secretary upto August 31, 2016

vii) Ms. Shruti Joshi, Company Secretary w.e.f. from September 1, 2016

viii) Mr. Paras K. Chowdhary, Independent Director

ix) Mr. Vinay Bansal, Independent Director

x) Mr. Hari L Mundra, Non-Executive - Non Independent Director

xi) Mr. Atul Choksey, Independent Director

xii) Mr. Mahesh Gupta, Independent Director

xiii) Mr. Haigreve Khaitan, Independent Director

xiv) Ms. Punita Lal, Independent Director

xv) Mr. S.Doreswamy, Independent Director

xvi) Mr. Kantikumar Poddar, Independent Director up to February 9, 2017

Terms and conditions of transactions with related parties

The sales to, purchases and others from 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.

The remuneration to the key managerial personnel does not include the provisions made for gratuity as it is determined on an actuarial basis for the Company as a whole.

Managerial remuneration is computed as per the provisions of section 198 of the Companies Act, 2013. The amount outstanding are unsecured and will be settled in cash.

Loan and guarantee to subsidiary

Following are the details of loans and guarantee given to subsidiary companies in which directors are interested, as required under Schedule V read with Regulation 34 (3) and 53 (f) of the SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015 and disclosure required under section 186 (4) of the Companies Act, 2013.

Maximum outstanding during the year as loan to CSTL was Rs, 5,900 lacs (March 31, 2017: Rs, 5,000 lacs).

ii. CEAT has given a corporate guarantee up to Rs, 22,800 lacs to Ceat Specialty Tyres Limited as collateral security for raising the term loans. The outstanding guarantee as on March 31, 2018 is Rs, 22,451 lacs (March 31, 2017: Rs, 13,477 lacs).

Note 44: Segment information

For management purpose, the Company comprise of only one reportable segment - Automotive Tyres, Tubes & Flaps.

During the FY 2017-18 and FY 2016-17, no single external customer has generated revenue of 10% or more of the CompanyRs,s total revenue.

During the FY 2017-18 and FY 2016-17, no single country outside India has given revenue of more than 10% of total revenue.

Note 45: Hedging activities and derivatives Derivatives designated as hedging instruments

The Company uses derivative financial instruments such as foreign currency forward contracts to hedge foreign currency risk arising from future transactions in respect of which firm commitments are made or which are highly probable forecast transactions. It also uses cross currency interest rate swaps (CCIRS), Range Forwards, and Coupon only Swap (COS) to hedge interest rate and foreign currency risk arising from variable rate foreign currency denominated loans. All these instruments are designated as hedging instruments and the necessary documentation for the same is made as per Ind AS 109.

Cash flow hedges Foreign currency risk

Foreign exchange forward contracts measured at fair value through OCI are designated as hedging instruments in cash flow hedges of recognized purchase payables, committed future purchases, recognized sales receivables, forecast sales and Foreign Currency loan (Buyer''s Credit) in US dollar & Euro. The forecast sales transactions are highly probable, and comprise about 25% of the Company''s total expected sales in US dollar.

Cross currency Interest Rate Swaps (CCIRS) measured at fair value through OCI are designated as hedging instruments in cash flow hedges for Foreign currency loan (Buyer''s Credit) in US Dollar.

Derivative options like Range Forwards, COS measured at Fair value through OCI are designated as hedging instruments in cash flow hedges for Foreign currency loan (Buyer''s Credit) in US Dollar.

* The trade payables / short term borrowings are naturally hedged (off-set) to the extent of exposure under trade receivables / advances for respective currencies.

The terms of the foreign currency forward contracts match the terms of the expected highly probable forecast transactions. As a result, no hedge ineffectiveness arise requiring recognition through statement of profit and loss.

The cash flow hedges as at March 31, 2018 were assessed to be highly effective and a net unrealized gain of Rs, 1,098 lacs, with a deferred tax liability of Rs, 380 lacs relating to the hedging instruments, is included in OCI. Comparatively, the cash flow hedges as at March 31, 2017 were assessed to be highly effective and an unrealized loss of Rs, 377 lacs with a deferred tax asset of Rs, 131 lacs was included in OCI.

Note 46: Fair values

Set out below, is a comparison by class of the carrying amounts and fair value of the Company''s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values:

The management assessed that fair values of cash and cash equivalents, trade receivables, trade payables, loans, bank overdrafts and other current financial assets and liabilities (except derivative financial instrument those being measured at fair value through other comprehensive income) which are receivable/payable within one year 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 foreign exchange forward contracts used for hedging the recognized import trade payables / export trade receivables have been valued based on the Closing spot value. The following methods and assumptions were used to estimate the fair values:

- The fair value of quoted mutual funds are based on price quotations at the reporting date.

- The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. The foreign exchange forward contracts used for the expected future sales/expected future purchase have been valued using forward pricing, based on present value calculations. These values are the realizable values which could be exchanged with the counterparty. The foreign exchange forward contracts used for the recognized export receivables/recognized import payables have been measured using the closing currency pair spot. The forward premium is separately amortized over the period of the forward. These values are close estimations of the fair values which could be realized on immediate winding up of the deals. The swap contracts and the option contracts have been valued at the market realizable values obtained from the counterparty and the same have been valued using the swap valuation / option valuation, based on present value calculations

- The 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.

Note 47: Fair value hierarchy

The following table provides the fair value measurement hierarchy of the Company''s assets and liabilities.

There have been no transfers between Level 1 and Level 2 during the period.

*For valuation under Level 3 following assumptions were made:

a. All repayments of borrowings will happen at end of financial year and not during the year.

b. For valuation purpose we have taken rate of 11.50% which represents additional borrowing rate.

Note 48: Financial risk management objectives and policies

The Company''s principal financial liabilities, other than derivatives, comprise loans and borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Company''s operations. The Company''s principal financial assets include trade and other receivables, mutual fund investments, cash and cash equivalents that derive directly from its operations. The Company also enters into derivative transactions.

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 specialist teams that have the appropriate skills, experience and supervision. The Board of Directors through its risk management committee reviews and agrees policies for managing each of these risks, which are summarized below.

a. Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, investments and derivative financial instruments.

The sensitivity analysis in the following sections relate to the position as at March 31, 2018 and March 31, 2017.

The sensitivity analysis 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 and on the basis of hedge designations in place at March 31, 2018.

The analysis exclude the impact of movements in market variables on: the carrying values of gratuity and other post-retirement obligations and provisions.

The following assumptions have been made in calculating the sensitivity analysis:

- 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, 2018 and March 31, 2017 including the effect of hedge accounting

- The sensitivity of equity is calculated by considering the effect of any associated cash flow hedges and hedges of a net investment in a foreign subsidiary at March 31 2018 for the effects of the assumed changes of the underlying risk

i. 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 long-term debt obligations with floating interest rates.

The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. To manage this, the Company enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. At March 31 2018, after taking into account the effect of interest rate swaps, approximately 46% of the Company’s total borrowings are at a fixed rate of interest (March 31,2017: 58%).

The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment, showing a significantly higher volatility than in prior years.

ii. Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''s operating activities (when revenue or expense is denominated in a foreign currency) and the Company''s net investments in foreign subsidiaries.

The Company manages its foreign currency risk by hedging transactions that are expected to occur within a maximum 6 month period for the foreign currency denominated trade payables and trade receivables. The foreign currency risk on the foreign currency loans are mitigated by entering into Cross Currency Swaps. When a derivative is entered into for the purpose of being a hedge, the Company negotiates the terms of those derivatives to match the terms of the hedged exposure. For hedges of forecast transactions the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency.

At March 31, 2018, the Company hedged 94% (March 31, 2017: 95%,) of its foreign currency loans. This foreign currency risk is hedged by using foreign currency forward contracts. At March 31, 2018, the Company hedged 95% (March 31, 2017: 98%) of its foreign currency receivables/payables.

Foreign currency sensitivity

The following tables demonstrate the sensitivity to a reasonably possible change in USD and EURO 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.

The movement in the pre-tax effect is a result of a change in the fair value of the financial asset/liability due to the exchange rate movement. The derivatives which have not been designated in a hedge relationship act as an economic hedge and will offset the underlying transactions when they occur. The same derivatives are not covered in the above table.

I n management''s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.

iii. Equity price risk

The Company invests its surplus funds in various debt instruments and debt mutual funds. These comprise of mainly liquid schemes of mutual funds (liquid investments) and fixed deposits.

Mutual fund investments are susceptible to market price risk, mainly arising from changes in the interest rates or market yields which may impact the return and value of such investments. However due to the very short tenor of the underlying portfolio in the liquid schemes, these do not pose any significant price risk.

There is no material equity risk relating to the Company''s equity investments which are detailed in note 5. The Company equity investments majorly comprises of strategic investments rather than trading purposes.

b. Commodity price risk

The Company is affected by the price volatility of certain commodities. Its operating activities require the ongoing purchase of rubber and carbon black and therefore require a continuous supply of rubber and carbon black. Due to the significantly increased volatility of the price of the rubber and carbon black, the Company also entered into various purchase contracts for rubber and carbon black (for which there is an active market).

The Company''s Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation.

Commodity price sensitivity

The following table approximately details the Company''s sensitivity to a 5% movement in the input price of rubber and carbon black. The sensitivity analysis includes only 5% change in commodity prices for quantity sold or consumed during the year, with all other variables held constant. A positive number below indicates an increase in profit or equity where the commodity prices decrease by 5%. For a 5% increase in commodity prices, there would be a comparable impact on profit or equity, and the balances below would be negative.

c. 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, foreign exchange transactions 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. Trade receivables are non-interest bearing and are generally on 30 days to 90 days credit term. Credit limits are established for all customers based on internal rating criteria. Outstanding customer receivables are regularly monitored. Credit risk on receivables is also mitigated by securing the same against security deposit, letter of credit and advance payment.

An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The Company has no concentration of credit risk as the customer base is widely distributed both economically and geographically.

Export customers are against Letter of Credit, bank guarantees, payment against documents. For open credit exports insurance cover is taken. Generally deposits are taken from domestic debtors under replacement segment. The carrying amount and fair value of security deposit from dealers amounts to Rs, 30,375 lacs (March 31, 2017: Rs, 30,757 lacs) as it is payable on demand. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets.

Other financial assets 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 as per the Investment policy. The limits are set to minimize 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, 2018 and March 31, 2017 is the carrying amounts as illustrated in note 6, note 11 and note 12 except for derivative financial instruments. The Company''s maximum exposure relating to financial derivative instruments is noted in note 21 and 27.

d. Liquidity risk

The Company prepares cash flow on a daily basis to monitor liquidity. Any shortfall is funded out of short term loans. Any surplus is invested in liquid mutual funds. The Company also monitors the liquidity on a longer term wherein it is ensured that the long term assets are funded by long term liabilities. The Company ensures that the duration of its current assets is in line with the current assets to ensure adequate liquidity in the 3-6 months period.

The table below summarizes the maturity profile of the Company''s financial liabilities based on contractual undiscounted payments. Liquidity exposure as at March 31, 2018

e. Excessive risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company''s performance to developments affecting a particular industry.

I n order to avoid excessive concentrations of risk, the Company''s policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels

Collateral

The Company has hypothecated the movable, immovable properties and entire current assets to its consortium of bankers as detailed in note 20 and 25. The term lenders also have a second charge on the varied current assets.

Note 49: Capital management

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

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents.

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 borrowing in the current period.

No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2018 and March 31, 2017.

Note 50: Events after the reporting period

- The board has recommended dividend of Rs, 11.50 per equity share (March 31, 2017 Rs, 11.50 per equity share) of face value Rs, 10 each for financial year 2017-18.

Note 51: Standards issued but not yet effective

Ind AS 115 - Revenue from Contracts with Customers

Ind AS 115 was notified on March 28, 2018 and establishes a five-step model to account for revenue arising from contracts with customers. The new revenue standard will supersede all current revenue recognition requirements under Ind AS. This new standard requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions of the Company. Ind AS 115 is effective for the Company in the first quarter of FY 2018-19 using either one of two methods: (i) retrospectively to each prior reporting period presented in accordance with Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors, with the option to elect certain practical expedients as defined within Ind AS 115 (the full retrospective method); or (ii) retrospectively with the cumulative effect of initially applying Ind AS 115 recognized at the date of initial application (1 April 2018) and providing certain additional disclosures as defined in Ind AS 115 (the modified retrospective method).

The Company continues to evaluate the available transition methods and its contractual arrangements. The ultimate impact on revenue resulting from the application of Ind AS 115 will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of the contractual arrangements and the mix of business. The Company''s considerations also include, but are not limited to, the comparability of its financial statements and the comparability within its industry from application of the new standard to its contractual arrangements. The Company has established an implementation team to implement Ind AS 115 related to the recognition of revenue from contracts with customers and it continues to evaluate the changes to accounting system and processes, and additional disclosure requirements that may be necessary.

Upon adoption the Company expects there to be a change in the manner that variable consideration in certain revenue arrangements is recognized from the current practice of recognizing such revenue as the services are performed and the variable consideration is earned to estimating the achievability of the variable conditions when the Company begins delivering services and recognizing that amount over the contractual period. The Company also expects a change in the manner that it recognizes certain incremental and fulfillment costs from expensing them as incurred to deferring and recognizing them over the contractual period. A reliable estimate of the quantitative impact of Ind AS 115 on the financial statements will only be possible once the implementation project has been completed.

Source : Dion Global Solutions Limited
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