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Chemfab Alkalis

BSE: 541269|NSE: CHEMFAB|ISIN: INE783X01023|SECTOR: Chemicals
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Notes to Accounts Year End : Mar '19

1 Corporate Information

Chemfab Alkalis Limited (formerly known as Teamec Chlorates Limited) ( hereinafter referred to as the Company ) was incorporated on 06 May 2009 and is in the business of manufacturing of basic inorganic chemicals. The name of the Company was changed from Teamec Chlorates Limited to Chemfab Alkalis Limited on July 21, 2017, vide revised certificate of incorporation issued by the Registrar of Companies pursuant to the scheme of amalgamation (''scheme'') approved by the National Company Law Tribunal (NCLT) Chennai vide its order dated 30 March 2017. Erstwhile Chemfab Alkalis Limited a listed entity, had merged with the Company pursuant to the scheme and consequently the Company''s equity shares have been listed on the National Stock Exchange of India Limited ( NSE ) and BSE Limited (BSE) with effect from 25 April 2018.

2.1 Plant and Equipments include written down value of assets used for Research and Development purposes amounting to Rs. 49.06 Lakhs as at 31 March 2019.

2.2 The Company is currently using approximately 170 acres of land for production of salt. Further it is in the process of developing the balance 524.17 acres of salt fields. The production of salt on these lands is expected to commence post completion of the development activities.

2.3 Deletion to Freehold Land includes an amount of Rs. 19.61 lakhs being held as investment property. Also Refer Note 4.

2.4 Freehold Land includes:

2.5 The Company suspended the operations at its Qngole plant from 10 July 2018 in order to dispose excess accumulated inventory, post which the Management is evaluating various options of running the unit profitably. Pending final decision of viability of the unit, the operations at the Ongole Plant remains suspended till further notice. The Management has carried out a detailed impairment evaluation and has recognised an impairment loss (net) of Rs. 1,963.25 Lakhs pertaining to the carrying value of its property, plant and equipment, disclosed as exceptional item under Statement of Profit & Loss for the year ended 31 March 2019.

3.1 Plant and Equipment include written down value of assets used for Research and Development purposes amounting to Rs.56.84 lakhs as at 31 March 2018.

3.2 The Company is currently using approximately 170 acres of land for production of salt. Further it is in the process of developing the balance 524.17 acres of salt fields. The production of salt on these lands is expected to commence post completion of the development activities.

3.3 Freehold Land includes:

3.4 Additions to Plant and equipment for the year includes CEC plant of Rs 259.99 Lakhs (net of Impairment provision of Rs.99.02 Lakhs) and flaker plant of Rs.1,305.88 Lakhs (net of Impairment provision of Rs.254.65 Lakhs)

4.1 Secured Trade Receivables are secured by way of irrevocable Letter of Credits.

4.2 The Company has used a practical expedient by computing the expected loss allowance for trade receivables based on provision matrix. The provision matrix takes into account the historical credit loss experience and adjustments for forward looking information. Trade receivables are non-interest bearing and are generally on terms of upto 90 days.

4.3 The age of the receivables is as under:

The Company has one class of equity shares having par value of Rs. 10 per share. Each shareholder is eligible for one vote per equity share held. The Company declares and pays dividend in Indian Rupees. The dividend proposed by Board of directors is subject to the approval of shareholders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.

1 .This represents Share Application Money received from employees under the ESOP scheme titled “CAESOS 2015” [Chemfab Alkalis Employees Stock Option Scheme 2015].40,286options were exercised in previous year 2017-18 and 19,714 options were exercised in current year 2018-19. All shares were allotted in current year 2018-19. Also Refer Note 48.

2.Capital reserve represents reserve recognised on amalgamation being the difference between consideration amount and net assets of the transferor company and profit on reissue of shares

3.Capital redemption reserve has been created pursuant to Section 55 of the Companies Act, 2013 on account of redemption of preference shares out of the profits of the Company.

4,Securities premium reserve represents amount of premium recognised on issue of shares to shareholders at a price more than its face value.

5.Shares based payment reserve relates to the share options granted by the company to its employees under its share option plan. Refer Note 48 for further details.

6.Retained earnings refer to net earnings not paid out as dividends, but retained by the company to be reinvested in its core business. This amount is available for distribution of dividends to its equity shareholders.

7,Other comprehensive income represents the cumulative gain and losses arising on the revaluation of equity instruments measured at fair value through other comprehensive income, net of taxes.

Note:

Details in respect of Borrowings are as under :-

(i) During the current year, Term Loan carrying an interest rate of 9.35% p.a was availed for PVCO plant from Axis Bank Limited. The borrowings are secured by way of Equitable Mortgage over lease hold land (taken under 99 years lease by the company) comprising of 5 acres located in Domestic Tarrif Zone (DTZ) situated in Irugulam Village, Satyavedu Mandal, Chittor District, Andhra Pradesh - Exclusive Charge. Charge over the fixed assets (Building, Plant and Machineries with estimated cost of Rs.5,000 lakhs including land, created out of the proposed term loan of Rs.3,500 lakhs (Exclusive Charge ). Further collateral common for all bank sanction facilities including equitable mortgage over land and building comprising of 9.56 acres and 19.87 acres belonging to the company situated at East Coast road, Gnanananda Place, Kalapet, Pondicherry.

(ii) Repayment Summary

Term Loan Tranche 1 of Rs.2,343.64 lakhs (net of Rs.11.36 lakhs Ind AS EIR adjustment) as at 31 March 2019:

Repayable in 12 monthly instalments of Rs.35 lakhs each, 12 monthly instalments of Rs.35 lakhs each, 12 monthly instalments of Rs.40 lakhs each, 12 monthly instalments of Rs.35 lakhs each, 12 monthly instalments of Rs.30 lakhs each, 12 monthly instalments of Rs.20 lakhs each, 1 monthly instalment of Rs.15 lakhs respectively

Term Loan Tranche 2 of Rs. 875 lakhs as at 31 March 2019:

Repayable in 12 monthly instalments of Rs.15 lakhs each, 12 monthly instalments of Rs.17 lakhs each, 12 monthly instalments of Rs.18.50 lakhs each, 12 monthly instalments of Rs.15 lakhs each, 12 monthly instalments of Rs.12.25 lakhs each, 12 monthly instalments of Rs.9.40 lakhs each, 1 monthly instalments of Rs.9.20 lakhs respectively

Out of the above Rs.600 lakhs have been classified as Current maturities of long-term debt (Secured) under Other Financial Liabilities - Current

(iii) The entire amount represents borrowings from Titanium Equipment and Anode Manufacturing Company Limited, a related party, at an interest rate of 9.50% per annum. The loan including interest thereof is repayable within 7 years from the date of the borrowing of 01 July 2015. The entire amount was repaid alongwith interest during the current year 2018-19.

Note:

Details in respect of Current Borrowings are as under

(i) Cash Credit facilities are secured by way of first charge over the entire current assets of the Company. The cash credits are repayable on demand.

(ii) The entire amount represents Trade Credit from Global Outsourcers Pte Ltd, a related party, which was converted into an Unsecured External Commercial Borrowings originally repayable by 5 September 2015. The period for repayment were subsequently extended to 3rd September 2018 vide letter received from by Global Outsourcers Pte. Ltd. dated 1 June 2015. The interest on the ECB loan was also waived vide agreement dated 27 March 2013. The entire amount was repaid during current year 2018-19.

5.1. Trade Receivables and Contract Balances

The company classifies the right to consideration in exchange for deliverables as receivable.

A receivable is a right to consideration that is unconditional upon passage of time. Revenue is recognized as and when the related goods are delivered to the customer. Trade receivable are presented net of impairment in the Balance Sheet.

Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.

The Company has applied practical expedient and has not disclosed information about remaining performance obligations in contracts where the original contract duration is one year or less or where the entity has the right to consideration that corresponds directly with the value of entity’s performance completed to date.

5.2 Information about major customers

The company is a manufacturer of caustic soda lye, flakes, liquid chlorine, hydrogen gas, hydrochloric acid, sodium hypochlorite and pvco pipes. Revenues arising from direct sales above includes revenues of approximately Rs.3,203 Lakhs which arose from sales to the company’s single large customer (Previous Year 2017-18 Rs.2,130 Lakhs). No other single customers contributed 10% or more to the Company’s revenue during the finanical year 2018-19 and 2017-18.

(i) The amounts shown above represent best possible estimate carried on the basis of the available information. The uncertainties and possible reimbursement are dependent on the outcome of the various case proceedings which have been initiated by the Company or the claimants, as the case may be, and therefore cannot be predicted accurately.

(ii) Figures in bracket indicate previous year figures.

6. The National Green Tribunal, in an application filed by a party (NGO), had granted an ex parte stay, restraining the construction activities pertaining to the expansion and operation of the Company''s Plant without valid consent order. The Company has objected the averments of the complainant and filed its counter for vacating the stay, which was granted. During the year, the Company has received an order from the National Green Tribunal, vide its order dated 29.01.2019, disposing the matter in favour of the Company and also to submit a report of compliance relating to certain information within three months of the order. The Company has submitted their report on compliance vide their letter dated 16 April 2019 to Central Pollution Control Board.

II Defined benefit plans

The Company operates a gratuity plan covering qualifying employees. The benefit payable is calculated as per the Payment of Gratuity Act, 1972 and the benefit vests upon completion of five years of continuous service and once vested it is payable to employees on retirement or on termination of employment. In case of death while in service, the gratuity is payable irrespective of vesting.The Company makes annual contribution to the group gratuity scheme administered by the Life Insurance Corporation of India. Gratuity has been accrued based on actuarial valuation as at the balance sheet date, carried out by an independent actuary.

(i) The current service cost and interest expense for the year are included in the Employee Benefit Expenses in the statement of profit & loss under the line item Contribution to Provident and Other Funds

(ii) The remeasurement of the net defined benefit liability is included in other comprehensive income.

Significant actuarial assumptions for the determination of defined obligation are discount rate, expected salary increase rate and mortality. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period while holding all other assumptions constant:

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligations as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore in presenting the above sensitivity analysis the present value of defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period which is the same as that applied in calculating the defined benefit obligation liability recognised in the balance sheet.

There is no change in the methods and assumptions used in preparing the sensitivity analysis from the prior years.

Dues to Micro and Small Enterprises have been determined to the extent such parties have been identified on the basis of information collected by the Management. This has been relied upon by the auditors.

7. During the year, the Company incurred an aggregate amount of Rs.49.78 lakhs (PY- Rs.53.39 lakhs) towards corporate social responsibility in compliance of Section 135 of the Companies Act 2013 read with relevant schedule and rules made thereunder. The details of the CSR spend are given below: -

Gross amount required to be spent by the Company during the year Rs.37.43 lakhs.

Amount spent by the Company during the year on:

8. Financial Instruments (I) Capital Management

The Company manages capital risk in order to maximize shareholders’ profit by maintaining sound/optimal capital structure. For the purpose of the Company’s capital management, capital includes equity share Capital and Other Equity and Debt includes Borrowings and Other Financial Liabilities net of Cash and bank balances. The Company monitors capital on the basis of the following gearing ratio. There is no change in the overall capital risk management strategy of the Company compared to last year.

(III) Financial Risk Management Framework

The Company manages financial risk relating to the operations through internal risk reports which analyse exposure by degree and magnitude of risk. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The Company does not enter into or trade financial instruments including derivative financial instruments for speculative purpose.

(IV) Foreign Currency Risk Management :

The Company undertakes transactions denominated in foreign currencies and consequently, exposures to exchange rate fluctuations arises. The Company has not entered into any derivate contracts during the year ended 31 March 2019 and there are no outstanding contracts as at 31 March 2019.

The following table details the Company''s sensitivity to a 5% increase and decrease in INR against the relevant foreign currencies. 5% is the rate used in order to determine the sensitivity analysis considering the past trends and expectation of the management for changes in the foreign currency exchange rate. The sensitivity analysis includes the outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. A positive number below indicates a increase in profit / decrease in loss and increase in equity where the INR strengthens 5% against the relevant currency. For a 5% weakening of the INR against the relevant currency, there would be a comparable impact on the profit or loss and equity and balance below would be negative.

Note :

This is mainly attributable to the exposure of receivable and payable outstanding in the above mentioned currencies to the Company at the end of the reporting period.

(VI) Forward foreign exchange contracts : NIL

(VII) Liquidity Risk Management :

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The Company manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and by matching maturing profiles of financial assets and financial liabilities in accordance with the approved risk management policy of the Company.

Liquidity and Interest Risk Tables :

The following tables detail the Company''s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables include both interest and principal cash flows.

To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which the Company may be required to pay.

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

Interest rate sensitivity analysis

The sensitivity analysis below have been determined based on the exposure to interest rates for term loan at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A change (decrease/increase) of 100 basis points in interest rates for term loan at the reporting date would increase/(decrease) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.

Non-interest rate bearing financial assets disclosed above includes Trade Receivable, Cash, Balances with banks held in current accounts and Other Financial Assets.

Fixed interest rate instruments disclosed above represents balances with banks held in deposit accounts and discounted financial assets.

(VIII) Credit Risk:

Credit risk refers to the risk that a customer or a counterparty will default on its contractual obligations resulting in a financial loss to the Company. Credit control policies are included in a blue print, including prescribed work procedures and guidelines; to manage credit risk, credit checks are performed upfront for new customers. For High risk clients, credit limits are put in place based on internal and / or external ratings. Credit risk is monitored by the credit control department of company on a daily basis.

The carrying amount of the financial assets recorded in these financial statements, grossed up for any allowance for losses, represents the maximum exposures to credit risk.

(IX) Fair value of financial assets and financial liabilities that are not measured at fair value (but fair value disclosures are required)

The Management considers that the carrying amount of financial assets and financial liabilities recognized in the financial statements approximate their fair values.

(X) Offsetting of financial assets and financial liabilities

The Company has not offset financial assets and financial liabilities.

9. Fair Value Hierarchy

This note provides information about how the Company determines fair value of various financial assets and liabilities

Description of segments and principal activities

The company identifies its operating segment based on the nature and class of product and services, nature of production process and assessment of differential risks and returns and financial reporting results reviewed by the Chief Operating Decision Maker (CODM) for the purposes of resource allocation and assessment of performance. Operating segments have been identified on the basis of the nature of products / services and have been identified as per the quantitative criteria specified in the Ind AS. For financial statements presentation purposes, individual operating segments have been aggregated into a single operating segment after taking into consideration the similar nature of the products, production processes and other risk factors.

Specifically, the Company’s reportable segments under Ind AS are as follows:

1) Chemicals and related Products / Services

2) PVC-O Pipes Geographical segments

The geographical segments considered for disclosure are based on markets, broadly as India and Others

Segment accounting policies

In addition to the significant accounting policies applicable to the business segment as set out in note 1, the accounting policies in relation to segment accounting are as under:

Operating revenues and expenses related to both third party and inter-segment transactions are included in determining the segment results of each respective segment. Inter segment sales are eliminated in consolidation

Other income earned and finance expense incurred are not allocated to individual segment and the same has been reflected at the Company level for segment reporting.

The total assets disclosed for each segment include all operating assets used by each segment, and primarily include receivables, property, plant and equipment, intangibles, inventories, operating cash and bank balances, inter-segment assets and exclude, deferred tax assets and income tax etc.

Segment liabilities comprise operating liabilities and exclude external borrowings, provision for taxes, deferred tax liabilities etc.

Note: 1) Figures in bracket indicate previous year figures

2) Also Refer Note 1.16

3) Non current assets excludes deferred tax assets and income tax assets 48 Employee Stock Option Scheme

a) The ESOP scheme titled “CAESOS 2015” [Chemfab Alkalis Employees Stock Option Scheme 2015] was approved by the erstwhile shareholders of Chemfab Alkalis Limited through postal ballot on 5 March 2016 pursuant to which 1,68,000 employee stock options were issued. Subsequent to merger, the benefit of swap ratio was extended to the options outstanding and revised shares outstanding were 2,40,000 options out of which 40,286 options were exercised during the year 2017-18 and 19,714 options were exercised during the year 2018-19. The vesting period of these options range over a period of 2 to 4 years. The options may be exercised within a period of 12 months from the date of vesting.

Vesting plan:

25% of the Options - Two years from the date of grant. 25% of the Options - Three years from the date of grant. 50% of the Options - Four years from the date of grant.

10. The Board of Directors has recommended a final dividend of 12.50% (Rs. 1.25 per Equity Share of Rs. 10 each) for the financial year 2018-19 which is subject to the approval of the shareholders in the forthcoming Annual General Meeting of the Company.

11. Approval of Financial Statements

The Board of Directors of the Company has reviewed the realisable value of all the current assets and has confirmed that the value of such assets in the ordinary course of business will not be less than the value at which these are recognized in the financial statements. In addition, the Board has also confirmed the carrying value of the non-current assets in the financial statements. The Board, duly taking into account all the relevant disclosures made, has approved these financial statements in its meeting held on 07 May 2019.

Source : Dion Global Solutions Limited
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