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Cravatex

BSE: 509472|ISIN: INE145E01017|SECTOR: Trading
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Mar 16
Notes to Accounts Year End : Mar '18

NOTE 1 — CORPORATE INFORMATION

Cravatex Limited (“the Company”) was incorporated on 22nd June, 1951 under the Companies Act, 1913 (“the Act”) domiciled in India and headquartered in Mumbai. Cravatex Limited is the Holding Company of two subsidiaries viz. BB (UK) London (BBUK) and Cravatex Brands Ltd Mumbai (CBL). The Company along with its subsidiaries is engaged in the business of Branded sports goods, wellness and fitness equipment with servicing.

Terms/rights attached to the Equity Shares

The Company has only one class of equity shares having a par value of Rs.10/- per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution to all preferential holders. The distribution will be in proportion to the number of equity shares held by the shareholders.

Description of nature and purpose of each reserve Capital Reserve

Capital reserve represents amount received from Government of Karnataka.

Export Profit Reserve

Export profit reserve represents the amount earned from export sales and is to be utilised for the purpose of exports.

General Reserve

The general reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. There is no policy of regular transfer.

Retained Earnings

Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.

Term Loan from Bank:

(1) HDFC Bank Ltd - Rs.128.77 Lacs (2017- NIL; 2016-NIL)

— Secured by first charge on the lease rentals from Company’s property at Nariman point, Mumbai and mortgage extended over the company’s property at Nariman point, Mumbai.

— Rate of interest is 11.25% p.a. (linked to 1 year MCLR)

— Repayable in 34 monthly installment starting from July 2017 with last installment payable on April 2020

(2) Axis Bank Ltd. -Rs. NIL (2017- NIL; 2016-Rs.677.38 Lacs)

— Secured by first charge of equitable mortgage of Company’s property at Prabhadevi & Secured by first charge on the lease rentals from Company’s property at Nariman point, Mumbai.

— Rate of interest is base rate plus 2.75%

— Repayable in 66 monthly installment.

Terms/rights attached to the 4% Non-convertible Cumulative Redeemable Preference shares of Rs.10 each

The Company has issued 4% Non-convertible redeemable preference share having a face value of Rs.10/- per each redeemable after a period of 20 years. Preference shareholders shall rank for dividend in priority to the equity shares. The Preference shareholder shall be eligible for 4% fixed cumulative preferential dividend.

Secured

The Overdraft and Working Capital Demand Loan facilities taken by the Company are availed from HDFC Bank and Axis Bank and have been secured by:

I) First pari-passu charge as follows:

1) by way of hypothecation on entire current assets of the Company including stock and book debts, present and future.

2) by way of equitable mortgage of property at Nariman point, Mumbai.

3) by way of hypothecation on entire movable fixed assets of the Company, both present and future except vehicles.

II) Second pari-passu charge on commercial Office located at 4th Floor Sahas, Prabhadevi, Mumbai of Cravatex Limited & first charge on the lease rentals from Company’s property at Nariman point, Mumbai .

The above borrowings carry a rate of interest ranging between 8% to 11.5%.

There are no Micro and Small Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days as at 31st March, 2018, and no interest payment made during the year to any Micro and Small Enterprises. This information, as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006, has been determined to the extent such parties have been identified on the basis of information available with the Company.

Notes:

1 Labour claim of an earlier year disputed by the Company against which Rs.1,75,000 has been deposited with The High Court, Mumbai.

2 Demands for Wealth Tax for the assessment years 1997-98 & 1998-99 amounting to Rs.51,25,378 was raised by the Tax authorities in earlier years which had been disputed by the Company and appeals filed with the Hon. High Court, Mumbai. The Company however deposited the demanded amounts in full with the tax authorities.

3 For the assessment years 2000-2001, 2002-2003 and 2003-2004 the Income-tax Appellate Tribunal had given relief of Rs.8,74,254 which had been accounted for in an earlier year. The tax authorities had subsequently filed an appeal with the Hon. High Court, Mumbai against the relief of Rs.8,74,254. The matter was set aside by Hon. High Court, in an earlier year and the matter was restored to the Tribunal for disposal. The matter is still pending with the tax authorities.

4 The tax authorities had raised a demand for the assessment year 2013-14 u/s 143 (3) for Rs. 16,43,120. The company has disputed this demand and has filed an appeal with the Commissioner (Appeals) of Income- tax Mumbai against this demand.

5 The tax authorities had raised a demand of Rs.25,163/- for the assessment year 2011-12 as per order u/s 201(1)/(1A) dtd.29.03.2018 on account of short deduction of TDS & interest thereon. The company has disputed this demand and has filed an appeal with the Commissioner (Appeals) of Income- tax Mumbai against this demand.

6 Demand of Rs. 13,50,000 raised in an earlier year by the customs authorities for goods imported had been disputed by the Company against which the full amount had been deposited under protest. The matter is still pending with the Customs authorities.

7 Bond for Rs.1.20 crore executed with the Customs authorities for demand raised by the authorities in an earlier year which had been disputed and challenged by the Company. This Bond is to remain in force till finalisation of the value by the Customs authorities of the goods imported by the Company.

8 Demand of Rs.43,06,399 (PY 38,31,386) was raised in an earlier year by the New Maker Chambers IV Premises Co-operative Society Ltd, Mumbai for the difference in BMC tax from 01.04.2000 to 31.03.2015, and the company has paid Rs.17,35,297 so far to the Society under protest. However net liability of the Company against this demand is Rs.25,71,102.

NOTE 2 — OTHER COMMITMENTS

An amount of Rs.40,00,000 was due from a third party in terms of Settlement Agreemnt with this party as a Consultant. During the year an amount of Rs.5,00,000 has been recovered under the said Settlement Agreemnt with the party. Inspite of all assurances given to the company by this party for clearing the balance debt of RS.35,00,000, the party has not yet paid any amount. A legal case is being filed against the party for recovery of balance debt.

NOTE 3 — EMPLOYEE BENEFITS

a. Defined Benefit Plans:

Gratuity:

The gratuity payable to employees is based on the employee’s service and last drawn salary at the time of leaving the services of the Company and is in accordance with the rules of the Company for payment of gratuity.

Inherent Risk on above:

The plan is defined in nature which is sponsored by the Company and hence it underwrites all the risks pertaining to the plan. In particular, this exposes the Company to actuarial risk such as adverse salary growth, change in demographic experience, inadequate return on underlying plan assets. This may result in an increase in cost of providing these benefits to the employees in future. Since the benefits are lump sum in nature, the plan is not subject to any longevity risk.

Weighted Average duration of Defined benefit obligation

* The sensitivity analysis 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 projected benefit obligation 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 the projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognised in the balance sheet.

Basis used to determine Expected Rate of Return on Plan Assets: The overall expected rate of return on assets is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.

Salary Escalation Rate: The past experience and industry practice considering promotion and demand and supply of employees.

Asset Liability matching strategy: The money contributed by the Company to the Gratuity fund to finance the liabilities of the plan has to be invested.

The trustees of the plan have outsourced the investment management of the fund to an insurance Company. The insurance Company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations. Due to the restrictions in the type of investments that can be held by the fund, it is not possible to explicitly follow an asset liability matching strategy.

There is no compulsion on the part of the Company to fully prefund the liability of the Plan. The Company’s philosophy is to fund these benefits based on its own liquidity and the level of underfunding of the plan.

b. Defined Contribution Plans:

Amount recognized as an expense and included in Note 29 under the head “Contribution to Provident and other Funds” of Statement of Profit and Loss is:

Carrying amount of Investment, Trade Receivables, Cash and Cash Equivalent, Bank balances, Other financial Assets, Trade payables and Other financial liabilities as at 31st March, 2018, 31st March, 2017 and 1st April, 2016 approximate the Fair Value because of their short term nature. Difference between carrying amount and fair values of bank deposits, other financial assets, other financial liabilities and borrowings subsequenty measured at amortised cost is not significant each of year presented.

NOTE 4 — FAIR VALUE MEASUREMENT

The fair values of the financial assets and liabilities are 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 Company has established the following fair value hierarchy that categorizes the values into 3 levels. The inputs to valuation techniques used to measure fair value of financial instruments are:

Level 1: This hierarchy uses quoted (unadjusted) prices in active markets for identical assets or liabilities. The company does not have any such asset or liabilities.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on company specific estimates.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The investments included in Level 3 of fair value hierarchy have been valued using the cost approach to arrive at their fair value. The cost of unquoted investements approximate the fair value because there is a wide range of possible fair value measurements and the cost represents estimate of fair value within that range.

The management assessed that cash and bank balances, trade payables, and other financial asset and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

NOTE 5 — FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company’s principal financial liabilities comprise of Borrowings. The main purpose of these financial liabilities is to finance and support the Company’s operations. The Company’s principal financial assets include Investments, Loans and Other receivables, Cash and Cash Equivalents, Other Bank Balances that directly derive from its operations.

The Company is exposed to Market Risk, Credit Risk and Liquidity Risk. The Company’s senior management oversees the management of these risks. The Company’s senior management ensures 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.

(A) Market Risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument.

The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments and deposits, foreign currency receivables, payables and borrowings.

(1) Foreign Currency Risk

Foreign currency risk is the risk of impact related to fair value or future cash flows of an exposure in foreign currency, which fluctuate due to changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the import of fila and fitness and exports of fila.

The Company evaluates exchange rate exposure arising from foreign currency transactions. The Company follows established risk management policies and standard operating procedures. It uses derivative instruments like forwards contracts to hedge exposure to foreign currency risk.

(2) 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 short term borrowing with floating interest rates. The Company constantly monitors the credit markets and rebalances its financing strategies to achieve an optimal maturity profile and financing cost.

(B) 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 from its operating (primarily Trade Receivables), investing and financing activities including Bank Balance, Deposits with Bank, Security Deposits, Loans to Employees and other financial instruments.

Trade Receivables:

Trade receivables are consisting of a large number of customers. The Company has credit evaluation policy for each customer and based on the evaluation credit limit of each customer is defined.

Trade receivables are typically unsecured and are derived from revenue earned from customers. Credit risk has always been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. The company allows credit period ranging from 60 days to 180 days, subject to reasonableness of the receivable. There is no concentration of customers and receivable amount.

Investments, Cash and Cash Equivalent and Bank Deposit:

Credit Risk on cash and cash equivalent is generally low, as the said deposits have been made with the banks/financial institutions who have been assigned high credit rating by international and domestic rating agencies.

Investments of surplus funds are made only based on Investment Policy of the Company. Investments consists of Investments in Subsidiaries.

(C) Liquidity Risk

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at reasonable price. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of credit facilities to meet obligations when due. The Company’s treasury team is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s liquidity position through rolling forecasts on the basis of expected cash flows. The table below provides details regarding the remaining contractual maturities of financial liabilities at the reporting date based on contractual undiscounted payments.

NOTE 6 — CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to

(a) maximise shareholder value and provide benefits to other stakeholders and

(b) maintain an optimal capital structure to reduce the cost of capital.

For the purposes of the Company’s capital management, capital includes issued capital, share premium and all other equity reserves attributable to the equity holders.

The Company monitors capital using debt-equity ratio, which is total debt less investments divided by total equity.

In addition the Company has financial covenants relating to the borrowing facilities that it has taken from the lenders like interest coverage service ratio, Debt to EBITDA, etc. which is maintained by the Company

NOTE 7 — FIRST TIME ADOPTION OF IND AS (IND AS 101)

As stated in Note 2, these financial statements for the year ended 31 March 2018, are the first financials which Company has prepared in accordance with Ind AS. For periods 1st April 2016 to 31 March 2017, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (IGAAP).

Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on March 31, 2018, together with the comparative period data as at and for the year ended March 31, 2017, as described in the summary of significant accounting policies. This note explains the principal adjustments made by the Company in restating its IGAAP financial statements as at 1st April 2016 and for the year ended March 31, 2017 and how the transition from IGAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

A. Exemptions Availed:

Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has availed the following exemptions:

a. Optional Exemptions availed

i) Deemed cost for PPE and Intangible Assets:

As permitted by Ind As 101, the Company has elected to continue with the carrying values under previous GAAP for all the items of property, plant and equipment. The same election has been made in respect of intangible assets.

ii) Investment in Subsidiary, Joint ventures and Associates:

The Company has elected to adopt the carrying value under previous GAAP as on the date of transition i.e. April 1, 2016 in its separate financial statements.

iii) Fair Value of Financials Assets and Liabilities:

As per Ind AS exemption the Company has not fair valued the financial assets and liabilities retrospectively and has measured the same prospectively.

b. Mandatory Exemptions availed

i) Estimates

Ind AS estimates as at 1st April, 2016 are consistant with the estimates as at the same date made in conformity with the previous GAAP. The Company made estimates for the following items in accordance with the Ind AS at date of transition as these were not required under previous GAAP:

— Fair valuation of financial Instruments carried at FVTPL and/or FVOCI

— Determination of the discounted value for financial instruments carried at amorised cost

ii) De-recognition of financial asets and liabilities

Ind AS 101 requires a first time adopter to apply the de-recognition provision of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind As. Accordingly, the Company has elected to apply the de-recognition provision of Ind AS 109 prospectively from the date of trasition to Ind AS.

iii) Classification and measurement of financial assets

The Company has determined the classification of financial assets based on facts and circumstances that exists on the date of trasition. Measurement of the financial assets accounted at amortised cost has been done retrospectively except where the same is impracticable.

B) Reconciliations between Previous GAAP and Ind AS:

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for the period. The following tables represent the reconciliations between previous GAAP and Ind AS:

Notes:

i. Under Previous GAAP, transaction cost related to borrowings were charged to Profit & Loss Account as and when incurred. Under Ind AS, these cost are recognised in the profit or loss over the tenure of the borrowing as part of the interest expense by applying effective interest rate method.

ii. Under the previous GAAP, interest free lease deposits were recorded at their transaction value. On transition to Ind AS, these lease deposits are remeasured at amortised cost using the effective interest rate method. The difference between the transaction value of the deposit and amortised cost is regarded as deferred lease rent and recognised as expense uniformly over the lease period. Interest income, measured by the effective interest rate method is accrued. The effect of these is reflected in total equity and / or profit or loss, as applicable.

iii. Deferred Tax has been recognised on adjustments made on transition to Ind AS.

iv. Under Ind AS, remeasurement i.e. acturial gain and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognised in other comprehensive income instead of profit or loss. Under the previous GAAP, these remeasurements were forming part of the profit or loss for the year.

5) Reconciliation of Statement of Cash flow for the year ended 31st March 2017

There are no material adjustments to the statement of cash flows as reported under the Previous GAAP IGAAP figures have been regrouped / reclassified wherever necessary to confirm with financial statements under Ind AS.

NOTE 8 — RECENT STANDARDS

Ministry of Corporate Affairs (“MCA”) through Companies (Indian Accounting Standards) Amendment Rules, 2018 has notified the following new and amendments to Ind AS which the Company has not applied as they are effective for annual periods beginning on or after April 1, 2018:

Ind AS 115 Revenue from Contracts with Customers (“Standard”)

Ind AS 115 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

Ind AS 115 will supersede the current revenue recognition standard Ind AS 18 Revenue, Ind AS 11 Construction Contracts when it becomes effective from 1 April 2018.

The core principle of Ind AS 115 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligation in contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under Ind AS 115, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.

The Company is evaluating the impact of this Standard on its financial statements.

NOTE 9 — SEGMENT INFORMATION

The Company has determined following reporting segments based on the information reviewed by the Company’s Chief Operating Decision Maker (‘CODM’)

A) Sports - Trading of footwear, apparels and accessories and

B) Wellness - Gym equipments and accessories

NOTE 10 — DISPOSAL OF GROUP OF ASSETS

During the previous year ended on 31 March 2017, pursuant to a Business Transfer Agreement executed on 6th February 2017, and Subscription and Shareholder Agreement executed on 23rd March 2017 which was approved by the Board of Directors of the Company on 2nd February 2017 and 23rd March 2017 respectively and subsequently by the share holders of CRAVATEX LIMITED on 9th March 2017, CRAVATEX LTD (CL) disposed its Group of Assets to CRAVATEX BRANDS LIMITED (CBL) a wholly owned subsidiary of the Company. The transaction involved in transfer of the business, associated employees and assets and liabilities pursuant to the terms of the business transfer agreement as an inseparable whole, as a going concern on slump sale basis on the lumpsum consideration of Rs.32,68,00,000. The lumpsum consideration is discharged in full by CBL by issuance and allotment to CL 32,68,000 equity shares of Rs.100 each of CBL at face value credited as fully paid up.

Accordingly by the aforesaid transaction company has recognised gain of Rs.4,60,74,156 as an exceptional item in Profit & Loss account.

In view of the above, the figures for the previous year are strictly not comparable.

NOTE 11 — CORPORATE SOCIAL RESPONSIBILITY

The provisions of Section 135 of the Companies Act, 2013 are not applicable to the Company as it does not fall under the class of Companies specified under the section.

NOTE 12 — PREVIOUS YEAR’S COMPARABLES

Previous year’s figures have been regrouped/reclassified wherever necessary, to confirm with current years classification/ disclosure.

Source : Dion Global Solutions Limited
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