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GFL

BSE: 500173|NSE: GFLLIMITED|ISIN: INE538A01037|SECTOR: Chemicals
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Notes to Accounts Year End : Mar '18

1. Company information

Gujarat Fluorochemicals Limited (“the Company”) is a public limited company incorporated in India. The Company is engaged in manufacturing and trading of refrigeration gases, anhydrous hydrochloric acid, caustic soda, chlorine, chloromethane, polytetrafluoroethylene (PTFE) and post-treated polytetrafluoroethylene (PTPTFE). The Company caters to both domestic and international markets. The Company’s parent company is Inox Leasing and Finance Limited. The shares of the Company are listed on the Bombay Stock Exchange and the National Stock Exchange of India.

The Company’s registered office is located at Survey No. 16/3, 26 & 27, Village Ranjitnagar, Taluka Ghoghamba, District Panchmahal, Gujarat 389380, and the particulars of its other offices and plants are disclosed in the annual report.

2. Statement of compliance and basis of preparation and presentation

2.1 Statement of compliance

These financial statements are the separate financial statements of the Company (also called standalone financial statements) and comply in all material aspects with the Indian Accounting Standards (“Ind AS”) notified under section 133 of the Companies Act, 2013 (“the Act”) and other relevant provisions of the Act.

2.2 Basis of measurement

These financial statements are presented in Indian Rupees (INR), which is also the Company’s functional currency. All amounts have been rounded-off to the nearest Lakhs, unless otherwise indicated.

These financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period, as explained in the significant accounting policies.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Ind AS 2 or value in use in Ind AS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

- Level 3 inputs are unobservable inputs for the asset or liability.

2.3 Basis of preparation and presentation

Effective 1st April, 2016, the Company has adopted all the Ind AS Standards and the adoption was carried out in accordance with Ind AS 101 ‘First time adoption of Indian Accounting Standards’, with 1st April, 2015 as the transition date. The transition was carried out from the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended), which was the Previous GAAP

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

The financial statements have been prepared on accrual and going concern basis.

Any asset or liability is classified as current if it satisfies any of the following conditions:

- the asset/liability is expected to be realized/settled in the Company’s normal operating cycle;

- the asset is intended for sale or consumption;

- the asset/liability is held primarily for the purpose of trading;

- the asset/liability is expected to be realized/settled within twelve months after the reporting period;

- the asset is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date;

- in the case of a liability, the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date.

All other assets and liabilities are classified as non-current.

For the purpose of current/non-current classification of assets and liabilities, the Company has ascertained its normal operating cycle as twelve months. This is based on the nature of products and services and the time between the acquisition of assets or inventories for processing and their realisation in cash and cash equivalents.

These financial statements were authorized for issue by the Company’s Board of Directors on 25th May, 2018.

* During the current financial year, the Company has sold equity shares of Inox Wind Limited (IWL) through Offer For Sale (OFS). Therefore, the shareholding of the Company in IWL has reduced from 63.09% as at 31st March, 2017 to 56.98% as at 31st March, 2018.

3. Critical accounting judgements and use of estimates

In application of Company’s accounting policies, which are described in Note 3, the Directors of the Company are required to make judgements, estimations and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision or future periods if the revision affects both current and future periods.

3.1 Following are the critical judgements that have the most significant effects on the amounts recognised in these financial statements:

a) Leasehold land

In respect of leasehold lands, considering the terms and conditions of the leases, particularly the transfer of the significant risks and rewards, it is concluded that they are in the nature of operating leases.

b) Investment in Inox Leisure Limited (ILL)

GFL’s ownership interest in ILL is 48.09%. The shareholders of ILL have passed a resolution at the Annual General Meeting held on 23rd August, 2013 amending its Articles of Association entitling GFL to appoint majority of Directors on the Board of ILL if GFL holds not less than 40% of the paid-up equity capital of ILL. Accordingly GFL is having control over ILL in terms of Ind AS 110 and hence ILL is classified as a subsidiary of GFL.

3.2 Following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

a) Useful lives of Property, Plant & Equipment (PPE), Investment property and Intangible assets

The Company has adopted useful lives of PPE, Investment property and Intangible assets as described in Note 3.8, 3.9 and 3.10 above. The Company reviews the estimated useful lives of PPE, Intangible assets and Investment property at the end of each reporting period.

b) Fair value measurements and valuation processes

The Company measures financial instruments at fair value in accordance with the accounting policies mentioned above.

For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period and discloses the same.

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 model, which involve various judgements and assumptions. Where necessary, the Company engages third party qualified valuers to perform the valuation.

Information about the valuation techniques and inputs used in determining the fair values of various assets and liabilities are disclosed in Note 44.10.

c) Other assumptions and estimation uncertainties, included in respective notes are as under:

- Estimation of current tax expense and payable, recognition of deferred tax assets and possibility of utilizing available tax credits - see Note 36 and Note 22

- Measurement of defined benefit obligations and other long-term employee benefits: - see Note 43

- Recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources - see Note 21 and Note 38

- Impairment of financial assets - see Note 44

4.1 Fair Value of Investment Properties

Fair valuation of Investment Properties as at 31st March, 2018 and 31st March, 2017 has been arrived at on the basis of valuation carried out as on respective dates by an independent valuer not related to Company. The valuer is registered with the authority which governs the valuers in India, and in the opinion of management he has appropriate qualifications and recent experience in the valuation of properties. For all Investment properties, fair value was determined based on the capitalisation of net income methods where the market rentals of all lettable units of the properties are assessed by reference to the rentals achieved in the lettable units as well as other lettings of similar properties in the neighbourhood. The capitalisation rate adopted is made by reference to the yield rates observed by the valuers for similar properties in the locality and adjusted based on the valuer’s knowledge of the factors specific to the respective properties. Thus, the significant unobservable inputs are as follows:

1. Monthly market rent, taking into account the difference in location, and individual factors, such as frontage and size between the comparable and the property; and

2. Capitalisation rate, taking into account the capitalisation of rental income potential, nature of the property, and prevailing market condition.

4.2 Expenses and income in respect of investment properties

Expenses (excluding depreciation) amounting to Rs.143.00 Lakhs (FY 2016-2017: Rs.112.46 Lakhs) in respect of repairs,electricity charges, security expenses etc. are included in Note 35 ‘Other Expenses’and income amounting to Rs.638.63 Lakhs (FY 2016-2017: Rs.698.91 Lakhs) is included in Note 28 ‘Other income’

1. The Company has provided undertakings to the various lenders of it’s subsidiaries , not to dilute its stake below 51%, in Inox Wind Limited and Inox Renewables Limited & its stake below 100% in Gujarat Fluorochemicals Singapore Pte. Limited.

2. Consequent to the equity shares of Inox Wind Limited (IWL) being listed on the stock exchanges on 9th April, 2015, out of the total equity shares of IWL held by the Company, 4,43,83,646 shares were locked-in upto 30th March, 2018. Subsequently, during the current year, the Company has sold 1,35,61,331 equity shares of IWL under Offer for Sale (OFS).

5.1 Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares having par value of Rs.1 per share. Each shareholder is eligible for one vote per share held and entitled to receive dividend as declared from time to time. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company, in proportion of their shareholding.

5.2 Particulars of dividend paid to shareholders

On 3rd October, 2017, final dividend of Rs.3.50 per share (Total dividend of Rs.4,627.45 Lakhs including dividend distribution tax (DDT) of Rs.782.70 Lakhs) for FY 2016-17 was paid to holders of equity shares.

In respect of financial year ended 31st March, 2018,the Board of Directors propose that a dividend of Rs.3.50 per share be paid on equity shares. The equity dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Standalone financial statements. The total estimated equity dividend (including dividend distribution tax of Rs.790.30 Lakhs) to be paid is Rs.4,635.05 Lakhs.

5.3 During the current year, 293213 and 21147 equity shares in respect of FY 2009-10 and FY 2010-11 respectively, have been transferred to the Investor Education and Protection Fund (I EPF).

Capital reserves represents compensation received for phased reduction and cessation of CFC production and dismantling of plant, unless otherwise used, as stipulated. During the year, the Company has received Nil (FY 2016-2017: Rs.212.53 Lakhs) in this regard.

In FY 2008-09, the Company has bought back and extinguished 59,30,000 equity shares of Rs.1 per share at an average price of Rs.103.48 per share from open market, and accordingly the face value of Rs.1 per share is reduced from the paid up equity share capital and correspondingly the amount of Rs.59.30 Lakhs was transferred to Capital Redemption Reserve from Statement of Profit and Loss.

General reserve is used from time to time to transfer profit from retained earnings for appropriation 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 profit or loss.

The cash flow hedge reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of designated portion of hedging instruments designated as cash flow hedge. The cumulative gain or loss arising on changes in fair value of the designated portion of the hedging instruments that are recognised and accumulated under the heading of cash flow hedge reserve will be reclassified to profit or loss when the hedged transaction affects the profit or loss, included as a basis adjustment to the non -financial hedged item, or when it becomes ineffective.

The amount that can be distributed by the Company as dividends to its equity shareholders is determined after considering the requirements of the Companies Act, 2013 and subject to levy of dividend distribution tax, if any. Thus, the amounts reported above may not be distributable in entirety.

(i) Company has taken Foreign Currency loan in form of ECB from ICICI Bank Limited on 13th February, 2012. Subsequently company has entered into call spread option contract to hedge the foreign currency risk and interest risk, wherein interest rate was fixed at 10.55% p.a.out of which 4.20% p.a. is payable quarterly as Premium on Option Contract.

(ii) Company has taken Foreign Currency loan in form of ECB from ICICI Bank Limited, Mizuho Bank Limited and HSBC Limited. Subsequently company has entered into call spread option contract with ICICI Bank Limited and Cross Currency Swap agreement with Mizuho Bank Limited and HSBC Limited to hedge the foreign currency risk and interest rate risk. These derivative instruments are fair valued as on balance sheet date.

(iii) In respect of unclaimed dividends, the actual amount to be transferred to the Investor Education and Protection Fund is determined on the due date. Consequently, during the current year, final unclaimed dividends of Rs.12.52 Lakhs and interim unclaimed dividend Rs.8.15 Lakhs in respect of FY 2009-2010 and FY 2010-2011 respectively, are transferred to the Investor Education and Protection Fund (IEPF).

Revenue from operations for the year ended 31st March, 2017 and for the period from 1st April, 2017 to 30th June, 2017 was reported inclusive of excise duty. Goods and Services Tax (“GST”) was implemented with effect from 1st July 2017, which subsumed excise duty. As per Ind AS 18, revenue from operations for the period from 1st July, 2017 to 31st March, 2018 is reported net of GST. Therefore, revenue from operations for the current year is not comparable with corresponding previous year. Comparable revenue from operations included in Total Income above has been computed by adjusting excise duty from the revenue from operations of respective previous period, on like-to-like basis and same is tabulated below:

The tax rate used for the years ended 31st March, 2018 and 31st March, 2017 in reconciliations above is the corporate tax rate of 34.608% payable by corporate entities in India on taxable profits under the Indian tax law.

The increase in Corporate tax rate applicable in India from 34.608% to 34.994% (on account of increase in Cess) was substantially enacted before 31st March, 2018 and will be effective from 1st April, 2018 . As a result, the deferred tax balances have been remeasured and effect of the same is reflected in the above reconciliation.

Notes:-

a) ICICI Bank Limited:- The foreign currency term loan from ICICI Bank Limited is secured by way of an exclusive first ranking security interest /mortgage /hypothecation on movable and immovable assets including cash flow receivables and escrow account of 14 MW Wind Power Project at Mahidad. Further, the lender has exclusive first charge on movable fixed assets of AHF & HCFC plant located at Survey No 16/3, 26 & 27, Village Ranjitnagar 389380, Taluka Ghoghamba, District Panchmahal, Gujarat.

b) The Hongkong and Shanghai Banking Corporation Limited:- The foreign currency term loan from The Hongkong and Shanghai Banking Corporation, is secured by way of first charge on pari-passu basis with Mizuho Bank Limited on immovable & movable assets of 36 MW Wind Power Project at Mahidad, Gujarat, and on movable fixed assets of DPTFE plant at Plot No 12A, GIDC Estate, Village-Dahej, Taluka-Vagra, District-Bharuch, Gujarat. Further, the lender has assignment of rights on pari-passu basis with Mizuho Bank Limited under the project agreements with respect to 36 MW Wind Power Project at Mahidad.

c) Mizuho Bank Limited:- The foreign currency term loan from Mizuho Bank Limited, is secured by way of first charge on pari-passu basis with The Hongkong and Shanghai Banking Corporation Limited on immovable & movable assets of 36 MW Wind Power Project at Mahidad, Gujarat and on movable fixed assets of DPTFE plant at Plot No 12A, GIDC Estate, Village-Dahej, Taluka-Vagra, District-Bharuch, Gujarat. Further, the lender has assignment of rights on pari-passu basis with The Hongkong and Shanghai Banking Corporation Limited under the project agreements with respect to 36 MW Wind Power Project at Mahidad.

d) HDFC Bank Limited:- The Working capital demand Loan facility from HDFC Bank Limited is secured by first pari-passu charge in favour of the bank by way of hypothecation over the borrower’s stock and receivables, both present and future, of the Company’s unit located at Plot No.12-A, GIDC Estate, Village - Dahej, Taluka Vagra, District Bharuch, Gujarat.

6. Contingent Liabilities:

a. Claims against the Company not acknowledged as debt - in respect of claim by a service provider - Rs.Nil (as at 31st March, 2017: Rs.7.22 Lakhs).

b. In respect of Income tax matters - Rs.32,389.97 Lakhs (as at 31st March, 2017: Rs.27,427.89 Lakhs). This includes:

i. In the completed assessments, the demands are mainly on account of disallowance under section 14A and reduction in the claim of deduction under section 80IA .

ii. On account of slump sale of wind energy business by substituting estimated market value in place of actual consideration received.

The Company has not accepted the above demands and has contested the same at appropriate levels.

c. In respect of Service tax matters - Rs.328.28 Lakhs (as at 31st March, 2017: Rs.432.16 Lakhs).

i. Amount of Rs.Nil Lakhs (as at 31st March, 2017: Rs.17.94 Lakhs) for which the Company had received various show cause notices regarding levy of service tax on certain items.

ii. Amount of Rs.6.16 Lakhs (as at 31st March, 2017: Nil) in respect of collection of cylinder rent charged from customers. The Company has filed appeal before Commissioner of Central Excise and Service tax.

iii. Amount of Rs.322.12 Lakhs (as at 31st March, 2017 : Rs.414.22 Lakhs) in respect of Service tax demand on account of non-payment of Service tax in respect of Import of services relating to supply of tangible goods, online information database access or retrieval services. The Company has filed appeal before CESTAT and the matters are pending.

d. In respect of Excise duty matters - Rs.3,661.78 Lakhs (as at 31st March, 2017: Rs.3,641.43 Lakhs). This includes:

i. Amount of Rs.2,169.49 Lakhs (as at 31st March, 2017: Rs.2,251.52 Lakhs ) for which the Company has received various show cause notices regarding service tax input credit on certain items, inter-unit transfers and freight charges recovered from buyers for supply of goods at buyers premises. The Company has filed the replies or is in the process of filing replies.

ii. Amount of Rs.211.55 Lakhs (as at 31st March, 2017: Rs.462.58 Lakhs) is in respect of demand on account of cenvat credit availed on certain items, levy of excise duty on freight recovered from customers. The Company has filed appeal before Commissioner of Central Excise and Service tax (Appeals).

iii. Amount of Rs.1,280.74 Lakhs (as at 31st March, 2017: Rs.927.32 Lakhs) in respect of demand on account of cenvat credit availed on certain items and levy of excise duty on freight recovered from customers. The Company has filed appeal before CESTAT.

e. In respect of Custom duty matter - Rs.1,241.65 Lakhs (as at 31st March, 2017: Rs.1,170.50 Lakhs).

Amount of Rs.11.82 Lakhs (as at 31st March, 2017: Rs.11.82 Lakhs) for which the Company had received various show cause notice regarding inadmissible EPCG benefit on consumables imported.

Amount of Rs.1,229.82 Lakhs (as at 31st March, 2017: Rs.1,158.68 Lakhs) The Company has received demands on account of differential custom duty on imported material on high seas basis. The Company has filed appeal before CESTAT and the matters are pending.

In respect of above Service tax, Excise and Customs matters, the Company has paid an amount of Rs.148.84 Lakhs (as at 31st March, 2017: Rs.115.10 Lakhs) and not charged to Statement of Profit and Loss.

f. In respect of Sales tax matters - VAT Rs.101.64 Lakhs (as at 31st March, 2017: Rs.62.88 Lakhs) & CST Rs.69.54 Lakhs (as at 31st March, 2017: Rs.49.85 Lakhs).

Company has received VAT & CST assessment order in respect of disallowance of proportionate Input tax credit reduced on capital goods at the rate of 2% of ratio of OGS sales to gross turnover of sales levying VAT demand of Rs.101.64 Lakhs & CST demand of Rs.69.54 Lakhs for the F.Y. 2011-2012, F.Y. 2012-2013 & F.Y. 2013-2014 respectively. The Company has not accepted the Order of Joint Commissioner of Commercial Tax for F.Y.2011-2012 and has filed appeal before Gujarat value added Tax tribunal, Ahmedabad.

For F.Y. 2012-2013, the Company has filed appeal before Joint Commissioner of Commercial Tax and is in process of filing appeal with the Joint Commissioner of Commercial tax (Appeals) for F.Y. 2013-2014.

g. Claims in respect of labour matters - amount is not ascertainable.

h. Corporate guarantee given to bank in respect of loan taken by a step-down subsidiary, GFL GM Fluorspar SA of Rs.4,950.23 Lakhs (as at 31st March, 2017: Rs.6,156.63 Lakhs) - equivalent to USD 7.59 million (as at 31st March, 2017 : USD 9.49 million).

i. Corporate guarantee given to bank in respect of loan taken by a step-down subsidiary, GFL GM Fluorspar SA of USD 2 million for their working capital requirement. The outstanding amount of Working capital loan as at 31st March, 2018 is Rs.912.49 Lakhs (31st March, 2017: Nil) - equivalent to USD 1.40 million (31st March, 2017: Nil) and Letter of Credit facility Rs.287.43 Lakhs (31st March, 2017: Nil) equivalent to USD 0.44 million. (31st March, 2017: Nil)

j. Corporate guarantee given to Axis Trustee Services Limited (Debenture Trustee) with respect Non-Convertible Debentures (NCD) issued by a step down subsidiary, Inox Wind Infrastructure Services Ltd (IWISL) for the purpose of (i) refinancing it’s existing capital expenditure costs; (ii) financing it’s fresh capital expenditures; (iii) refinancing it’s existing financial indebtedness and (iv) it’s general corporate purposes. The outstanding amount of NCD as at 31st March, 2018 is Rs.25,000.00 Lakhs (31st March, 2017: Nil)

k. Lien is marked on Company’s investments in Fixed Maturity Plan of Rs.10,500 Lakhs in favour of Axis Finance Ltd in respect to term loan taken by Inox Wind Infrastructure Services Ltd (IWISL) for general corporate purposes. The outstanding amount of Loan as at 31st March, 2018 is Rs.10,056.16 Lakhs (31st March, 2017: Nil)

In respect of above matters, no additional provision is considered necessary as the Company expects favourable outcome. Further, it is not possible for the Company to estimate the timing and amounts of further cash outflows, if any, in respect of these matters.

7. Commitments:

Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Rs.27,082.60 Lakhs (as at 31st March, 2017: Rs.11,641.74 Lakhs).

8. Segment information

Information reported to the chief operating decision maker (CODM) for the purpose of resource allocation and assessment of segment performance focuses on single business segment of ‘Chemicals’-comprising of Refrigerant Gases, Anhydrous Hydrochloric Acid, Caustic-Chlorine, chloromethane, PTFE and PT-PTFE. Electricity generated by captive power plant is consumed in chemical business and not sold outside. Hence the Company is having only one reportable business segment under Ind AS 108 on “Operating segment”. The information is further analysed based on the different classes of products.

9.1 Information about major customers

There are no single external customers who contributed more than 10% to the Company’s revenue for both FY 2017-2018 and FY 2016-2017.

10. Leasing arrangements

10.1 As a Lessee

(a) General description of operating Lease

Operating leases relate to leases of plants taken on operating lease are for initial non-cancellable period of 10 years which can be further extended at the mutual option of both the parties. The future minimum lease payments under these lease arrangements are as under:

(b) Interest in land taken on lease and classified as operating lease:

The leasehold lands are taken for the period of 83 to 99 years. The entire lease premium is already paid and future rentals are nominal. Amortisation of such lease payments is included in ‘Rent’in Statement of Profit and Loss and the balance remaining amount to be amortised is included in balance sheet as ‘Prepayments Leasehold land’.

10.2 As a Lessor

General description of operating Lease

Operating leases relate to Investment Properties owned by the Company with lease terms of between 11 to 60 months and are unsually renewable by mutual concent on mutually agreeable terms. All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. Lessee does not have an option to purchase the property at the expiry of the lease period.

Rental Income earned by the Company from its Investment Properties and direct operating expenses arising on the investment properties for the year are set out in Note 29 and Note 36 respectively.

11. Employee Benefits:

(a) Defined Contribution Plans

The Company contributes to the Government managed provident & pension fund for all qualifying employees.

Contribution to Provident fund of Rs.579.95 Lakhs (31st March, 2017: Rs.495.74 Lakhs) is recognized as an expense and included in ‘Contribution to Provident & Other funds’in the Statement of Profit and Loss.

(b) Defined Benefit Plans:

The Company has defined benefit plan for payment of gratuity to all qualifying employees. It is governed by the payment of Gratuity Act,1972. Under this Act, an employee who has completed five years of service is entitled to the specified benefit. The level of benefits provided depends on the employee’s length of services and salary at retirement age. The company’s defined benefit plan is unfunded.

There are no other post retirement benefits provided by the company.

The most recent actuarial valuation of the present value of the defined benefit obligation was carried out as at 31st March, 2018 by Mr. G N Agarwal, fellow member of the institute of the Actuaries of India. The present value of the defined benefit obligation, the related current service cost and past service cost, were measured using the projected unit credit method.

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

This plan typically expose the company to actuarial risks such as interest rate risk and salary risk

a) Interest risk:

a decrease in the bond interest rate will increase the plan liability.

b) Salary risk:

the present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, a variation in the expected rate of salary increase of the plan participants will change the plan liability.

(iv) Sensitivity Analysis

Significant actuarial assumptions for the determination of defined obligation are discount rate and expected salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occuring 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 obligation as it is unlikely that the change in assumption 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 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 recognized in the balance sheet.

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

(c) Other short term and long term employment benefits:

Annual leave and short term leave

The liability towards compensated absences (annual and short term leave) for the year ended 31st March, 2018 based on actuarial valuation carried out by using Projected Accrued Benefit Method resulted in increase in liability by Rs.154.13 Lakhs (31st March, 2017: Rs.224.68 Lakhs), which is included in the employee benefits in the Statement of Profit and Loss.

12. Financial instruments:

12.1 Capital management

The Company manages its capital structure with a view that it will be able to continue as going concern while maximising the return to stakeholders through the optimization of the debt and equity balance.

The capital structure of Company consists of net debt (borrowings as detailed in Note 19 and Note 23 offset by cash and bank balance) and total equity of the Company.

The Company is not subject to any externally imposed capital requirement. However, under the terms of the major borrowings the Company is required to keep the gearing ratio of debt to equity not more than 300% and the ratio of debt to EBITDA must not be more than 300%. The Company has complied with these covenants throughout the reporting period. As at 31st March, 2018, the ratio of debt to EBITDA is 126% (31st March, 2017 was 211%).

The Company’s risk management committee reviews the capital structure of the Company. As part of this review, the committee considers the cost of capital and risk associated with each class of capital. The Company has a target gearing ratio of less than 100 % determined as the proportion of net debt to equity.

12.2 Financial risk management

The Company’s corporate finance function provides services to the business, coordinates access to financial market, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of the risk. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Company seeks to minimize the effects of currency and interest rate risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors of the Company, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments and the investment of the excess liquidity. Compliance with policies and exposure limits is reviewed internally on a continuous basis. The Company doesn’t enter into or trade financial instruments including derivative financial instruments for speculative purpose.

12.3 Market Risk

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Company enters into the variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk including:

1. Interest rate swaps to mitigate the risk of rising interest rates.

2. Principal only swaps, currency swaps, options and forwards contracts to mitigate foreign currency risk of foreign currency borrowings and receivables & payables in foreign currency.

12.4 Foreign Currency Risk Management

The Company is subject to the risk that changes in foreign currency values impact the Company’s export revenues, imports of material/capital goods, services/royalty and borrowings etc. Exchange rate exposures are managed within approved policy parameters by entering in to foreign currency forward contracts, options and swaps.

Foreign exchange transactions are covered within limits placed on the amount of uncovered exposure, if any, at any point in time. The aim of the Company’s approach to management of currency risk is to leave the Company with minimised residual risk.

The carrying amount of unhedged foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follow:

12.5.1 Foreign Currency Sensitivity Analysis

The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to US Dollar and Euro.

The following table details the Company’s sensitivity to a 10% increase and decrease in INR against the relevant foreign currencies.10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes unhedged external loans, receivables and payables in currency other than the functional currency of the Company.

A 10% strengthening of the INR against key currencies to which the Company is exposed (net of hedge) would have led to additional gain in the Statement of Profit and Loss. A 10% weakening of the INR against these currencies would have led to an equal but opposite effect.

12.6 Interest Rate Risk Management

Interest rate risk refers to the possibility that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Company is exposed to interest rate risk because it borrows funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied.

As per the Company’s risk management policy to minimize the interest rate cash flow risk on foreign currency long term borrowings, interest rate swaps are taken for most of the borrowings to convert the variable interest rate risk into rupee fixed interest rate. Thus, there is no major interest rate risks associated with foreign currency long term borrowings. In respect of foreign currency short term borrowings and rupee loans the Company does not have any borrowings at variable rate of interest.

12.6.1 Interest Rate Sensitivity Analysis

The sensitivity analysis below have been determined based on the exposure to interest rates for floating rate liabilities at the end of the reporting period. For floating rate liabilities in foreign currency, a 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the company’s profit for the year ended 31st March, 2018 would decrease/increase by Rs.6.83 Lakhs (net of tax) (for the year ended 31st March, 2017 decrease/increase by Rs.8.13 Lakhs (net of tax)). This is mainly attributable to the company’s exposure to interest rates on its variable rate borrowings.

12.6.2 Interest Rate Swap Contracts

Under interest rate swap contracts, the Company agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Company to mitigate the risk of changing interest rates. The fair value of interest rate swaps at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the reporting period.

The interest rate swaps settle on quarterly basis. The floating rate on the interest rate swaps is the local interbank rate of India.

All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the company’s cash flow exposures resulting from variable interest rates on borrowing. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount accumulated in equity is reclassified to profit or loss over the period that floating rate interest payments on debt affect profit or loss.

The line-items in the Standalone balance sheet that include the above hedging instruments are “Other financial assets”and “Other financial liabilities”.

12.7 Other price risks

Other price risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market traded price. Other price risk arises from financial assets such as investments in equity instruments and mutual funds. The company is exposed to equity price risks arising from equity investments. Equity investments in subsidiaries and Joint Ventures are held for strategic rather than trading purposes. The Company does not actively trade these investments. The Company is also exposed to price risk arising from investments in debt mutual funds, but these being debt instruments, the exposure to risk of changes in market rates is minimal.

12.7.1 Equity Price Sensitivity Analysis

The sensitivity analysis below have been determined based on the exposure to equity price risks for Investments in equity shares (including investments in equity oriented mutual funds) of companies other than subsidiaries and joint ventures at the end of the reporting period.

If equity prices had been 5% higher/lower, profit for the year ended 31st March, 2018 would increase/ decrease by Rs.1176.36 Lakhs (for the year ended 31st March, 2017: increase / decrease by Rs.398.37 Lakhs) as a result of the change in fair value of equity investments which are designated as FVTPL.

12.8 Credit Risk Management

Credit risk refers to risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. Credit risk arises primarily from financial assets such as trade receivables, investment in mutual funds, derivative financial instruments, balances with banks, loans and other receivables.

a) Trade receivables

Credit risk arising from trade receivables is managed in accordance with the Company’s established policy, procedures and control relating to customer credit risk management.The average credit period on sales of products is less than 90 days. The concentration of credit risk is limited due to the fact that the customer base is large and diverse. There is no external customer representing more than 10% of the total balance of trade receivables. All trade receivables are reviewed and assessed for default on a quarterly basis.

For trade receivables, as a practical expedient, the Company computes credit loss allowance based on a provision matrix. The provision matrix is prepared based on historically observed default rates over the expected life of trade receivables and is adjusted for forward-looking estimates. The provision matrix at the end of the reporting period is as follows:

Upto last year, no provision for expected credit loss was made in respect of trade receivables outstanding for less than six months. From this year, provision for expected credit loss is made @ 0.01% in respect of such trade receivables. Due to this change in estimate, the provision for expected credit loss is higher by Rs.4.37 Lakhs. The effect of this change in the estimate in future periods cannot be estimated and is not likely to be significant.

b) Loans and other receivables

The Company applies Expected Credit Losses (ECL) model for measurement and recognition of loss allowance on the loans given by the Company to the external parties. ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the company expects to receive (i.e., all cash shortfalls), discounted at the effective interest rate.

The Company determines if there has been a significant increase in credit risk of the financial asset since initial recognition. If the credit risk of such assets has not increased significantly, an amount equal to 12-month ECL is measured and recognized as loss allowance. However, if credit risk has increased significantly, an amount equal to lifetime ECL is measured and recognized as loss allowance.

12-month ECL are a portion of the lifetime ECL which result from default events that are possible within 12 months from the reporting date. Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial asset.

ECL are measured in a manner that they reflect unbiased and probability weighted amounts determined by a range of outcomes, taking into account the time value of money and other reasonable information available as a result of past events, current conditions and forecasts of future economic conditions.

ECL impairment loss allowance (or reversal) recognized during the period is recognized as expense/income in the Statement of Profit and Loss under the head ‘Other expenses’/ ‘Other income’.

c) Other financial assets

Credit risk arising from balances with banks, investment in mutual funds and derivative financial instruments is limited because the counterparties are banks and recognised financial institutions with high credit ratings assigned by the various credit rating agencies. There are no collaterals held against such Investments.

12.9 Liquidity Risk Management

Ultimate responsibility for liquidity risk management rests with the committee of Board of Directors for operations, which has established an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

12.9.1Liquidity and interest risk table

The following table detail the analysis of derivative as well as non-derivative financial liabilities of the Company into relevant maturity groupings based on the remaining period from the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

12.10 Fair Value Measurements

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

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

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

13. Related Party disclosures

(A) Where control exists:

Holding company -

Inox Leasing and Finance Limited

Subsidiary companies -

Inox Leisure Limited (ILL)

Inox Wind Limited (IWL)

Inox Renewables Limited (IRL)

Inox Infrastructure Limited

Gujarat Fluorochemicals Americas LLC, U.S.A. (GFL Americas LLC)

Gujarat Fluorochemicals GmbH, Germany

Gujarat Fluorochemicals Singapore Pte. Limited

Inox Renewables (Jaisalmer) Limited- Subsidiary of IRL

GFL GM Fluorspar SA -Subsidiary of GFL Singapore Pte. Limited

Shouri Properties Private Limited - Subsidiary of ILL

Inox Wind Infrastructure Services Limited (IWISL) - Subsidiary of IWL

Marut Shakti Energy Limited - Subsidiary of IWISL

Sarayu Wind Power (Kondapuram) Private Limited-Subsidiary of IWISL

Sarayu Wind Power (Tallimadugula) Pvt. Ltd-Subsidiary of IWISL

Vinirrmaa Energy Generation Pvt. Ltd-Subsidiary of IWISL

Satviki Energy Private Limited - Subsidiary of IWISL

RBRK Investments Limited - Subsidiary of IWISL w.e.f. 30th August 2016

Wind One Renergy Private Limited - Subsidiary of IWISL incorporated on 26th April, 2017

Wind Three Renergy Private Limited - Subsidiary of IWISL incorporated on 20th April, 2017

Suswind Power Private Limited - Subsidiary of IWISL incorporated on 27th April, 2017

Vasuprada Renewables Private Limited - Subsidiary of IWISL incorporated on 27th April, 2017

Ripudaman Urja Private Limited - Subsidiary of IWISL incorporated on 28th April, 2017

Vibhav Energy Private Limited - Subsidiary of IWISL incorporated on10th July, 2017

Haroda Wind Energy Private Limited - Subsidiary of IWISL incorporated on16th November, 2017

Vigodi Wind Energy Private Limited - Subsidiary of IWISL incorporated on 20th November, 2017

Aliento Wind Energy Private Limited - Subsidiary of IWISL incorporated on17th January, 2018

Flurry Wind Energy Private Limited - Subsidiary of IWISL incorporated on18th January, 2018

Tempest Wind Energy Private Limited - Subsidiary of IWISL incorporated on 17th January, 2018

Vuelta Wind Energy Private Limited - Subsidiary of IWISL incorporated on 17th January, 2018

Flutter Wind Energy Private Limited - Subsidiary of IWISL incorporated on 18th January, 2018

Swanston Multiplex Cinema Private Limited (SMPCL) - Subsidiary of ILL from 5th March, 2018

(a joint venture up to 4th March, 2018)

(B) Other related parties with whom there are transactions during the year:

Associates-

Following subsidiaries of IWISL incorporated during the year, have subsequently ceased to be subsidiaries and accounted as an “associate”

Key Management Personnel -

Mr. V K Jain (Managing Director)

Mr. D K Jain (Non Executive Director)

Mr. P K Jain (Non Executive Director)

Mr. D K Sachdeva (Whole Time Director)

Mr. Anand Bhusari (Whole Time Director)

Mr. Shailendra Swarup (Non Executive Director)

Mr. Om Prakash Lohia (Non Executive Director)

Mr. Deepak Asher (Non Executive Director)

Mr. Shanti Prasad Jain (Non Executive Director)

Mr. Rajagopalan Doraiswami (Non Executive Director)

Ms.Vanita Bhargava (Non Executive Director)

Mr. Chandra Prakash Jain (Non Executive Director)

Relatives of Key Management Personnel -

Mr. Devansh Jain (Son of Mr. V K Jain)

Enterprises over which a Key Management Personnel, or his relatives, have significant influence -

Devansh Gases Private Limited Devansh Trademart LLP Inox India Private Limited Inox Air Products Private Limited Inox Chemicals LLP Refron Valves Limited Rajni Farms Private Limited Siddhapavan Trading LLP Siddho Mal Trading LLP Swarup & Company

(C) Guarantees

For Corporate Guarantees given by the Company - see Note 38

(D) Compensation of Key management personnel

The remuneration of directors and Key Management Personnel (KMP) is determined by the Nomination and Remuneration Committee having regard to the performance of individuals and market trends. As the liabilities for the defined benefit plans and other long term benefits are provided on actuarial basis for the Company, the amount pertaining to KMP are not included above.Contribution to Providend Fund (defined contribution plan) is Rs.17.72 Lakhs (previous year Rs.14.71 Lakhs) included in the amount of remuneration reported above.

(E) Professional fees includes payment made to Swarup & Company Rs.25.00 Lakhs (2016-17 : Nil)

Notes

(a) Sales, purchases and service transactions with related parties are made at arm’s length price.

(b) Amounts outstanding are unsecured and will be settled in cash or receipts of goods and services.

(c) No expense has been recognised for the year ended 31st March, 2018 and 31st March, 2017 for bad or doubtful trade receivables in respect of amounts owed by related parties.

(d) There have been no other guarantees received or provided for any related party receivables or payables.

Note: During the year, to meet the minimum public shareholding requirements by the Company’s subsidiary Inox Wind Limited (“IWL”), the ‘Promoter/Promoter Group’have sold, in aggregate, 2,35,61,331 equity shares in IWL through an Offer For Sale (OFS) of shares through the stock exchange. The OFS included sale of 1,35,61,331 equity shares in IWL by GFL as a promoter. The net gain of Rs.15,402.58 Lakhs on sale of these shares by GFL is included in Exceptional Items above.

14. (a) Disclosure as required under Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

14. (b) Disclosure required under section 186(4) of the Companies Act, 2013

In respect of related parties:

i) The inter-corporate deposits of Rs.16,249.00 Lakhs (31st March, 2017: Rs.16,249.00 Lakhs) to Inox Leisure Limited (ILL) are unsecured and given for business purpose. The inter-corporate deposits are repayable in 9 to 11 years from the date of respective inter-corporate deposits and carry interest @ 10% p.a.

(ii) The inter-corporate deposits of Rs.22,700.00 Lakhs (31st March, 2017: Rs.20,000.00 Lakhs) to IRL are unsecured and given for business purpose. The inter-corporate deposit is repayable at call and carry interest in the range of @ 9.35% p.a. to 10% p.a.

(iii) For Corporate Guarantees given by the Company - see Note 38

15. Corporate Social Responsibility (CSR)

(a) The gross amount required to be spent by the Company during the year towards Corporate Social Responsibility (CSR) is Rs.283.67 Lakhs (31st March, 2017: Rs.235.72 Lakhs)

(b) Amount spent during the year on:

Source : Dion Global Solutions Limited
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