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Gujarat State Fertilizers & Chemicals

BSE: 500690|NSE: GSFC|ISIN: INE026A01025|SECTOR: Fertilisers
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Notes to Accounts Year End : Mar '18

1. Non-Current Investments (Contd...)

Notes:

* Less than a Thousand

1) There is no change in the no of shares compare to previous year, except where specifically mentioned above under each case.

2) The 54,90,306 no of equity shares of Karnalyte Resources Inc., Canada, held by the Company are pledged to secure the Company''s long term borrowings from bank.

3) As a promoter of Bhavnagar Energy Company Limited (BECL), the Company has signed the Sponsors’ Support Agreement (SSA) and as per the said Agreement, the promoters collectively shall not, till the final settlement date (being the date on which all obligations under the SSA have been irrevocably and unconditionally paid and discharged in full to the satisfaction of lenders), dispose-off their shareholdings which would result in dilution of their shareholding below 51%.

Government of Gujarat has accorded its approval for carrying out appropriate modifications in the Memorandum & Articles of Association of BECL in pursuance of Section 2(45) & (87) of the Companies Act, 2013, there by converting BECL as Govt. Company by becoming a subsidiary of Gujarat Power Corporation Limited (GPCL)/ Gujarat State Electricity Corporation Limited (GSECL). In view of above, the Company has accorded its approval for amendment of third draft Shareholders Agreement and suitable changes / modifications in the Memorandum & Articles of Association of BECL. The decision for revised percentage of equity contribution in the said Government Company i.e. GPCL/GSECL is under process and the said revision shall be effective from 01.04.2018.

4) The equity shares held by the Company in Tunisian Indian Fertilizers S.A., Tunisia (TIFERT) have been pledged to secure the obligations of TIFERT to their lenders.

5) Company has received 93,82,895 nos of shares of Gujarat Gas Ltd in persuant to scheme of amalgamation and arrangement between the GSPC Gas Company Limited and GSPC Distribution Networks Limited pursuant to the Honourable High Court order. Out of the said shares, 39,47,369 nos of shares are lock-in for a period of 3 years from listing date.

6) Investments at fair value through OCI (fully paid) reflect investment in quoted and unquoted equity securities. Refer note 42 for determination of their fair values.

7) The company has provided a loan of USD 2.50 Mn to TIFERT for procurement of critical spares and equipments. Loan has been provided with a condition of compulsory conversion in equity shares of TIFERT after 3 years from the date of agreement and it carries an interest of daily average LIBOR plus a margin of 225 basis points. Principal amount of the loan along with unpaid interest will be converted into equity shares of TIFERT at face value after 3 years of agreement, accordingly the same has been classified as Investment, as in substance the nature is of the investment.

The average credit period on sale of goods is 30 to 90 days. No interest is charged on trade receivables upto the expiry of the credit period. Thereafter, interest is charged at 15% per annum on the outstanding balance.

The Company does not have any customers who represent more than 5% of the total balance of trade receivables.

The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the days the receivables are due and the rates as given in the provision matrix. Refer note 42 for the provision matrix at the end of the reporting period, ageing of receivable and movement in the expected credit loss allowance.

The concentration of credit risk is limited due to the fact that the customer base is large and unrelated. Refer note 42 for the credit risk management by the Company.

For balances relating to related party receivables, refer Note 40.

*As agreed by Department of Fertilizers vide its Office Memorandum dated 16th March, 2017, it has started releasing outstanding subsidy from 01/04/2010 to 17/03/2013 and as required, the Company has submitted cost data for the period 18/03/2013 to 05/03/2017 to Department of Fertilizers “DoF” to examine the eligibility of GSFC for the payment of subsidy. The same is under process at DoF. The outstanding receivable on account of Ammonium Sulphate subsidy claims related to the period 01/04/2010 to 17/03/2013 is - 26.37 Crores and for 18/03/2013 to 05/03/2017 is - 662.95 Crores as on 31st March 2018.

If the dividend has not been claimed within 30 days from the date of its declaration, the Company is required to transfer the total amount of the dividend which remains unpaid or unclaimed, to a special account to be opened by the Company in a scheduled bank to be called “Unpaid Dividend Account”. The unclaimed dividend lying in such account is required to be transferred to the Investor Education and Protection Fund (IEPF), administered by the Central Government after a period of seven years from the date of declaration. Company has transferred Unclaimed Dividend up to FY 2009 - 2010 to IEPF up to March 31, 2018.”

Notes:

* The loans are secured by mortgage of the underlying assets and are repayable on demand.

Loans and receivables are non-derivative financial assets which generate a fixed or variable interest income for the Company. The carrying value may be affected by changes in the credit risk of the counter parties. These financial assets are carried at amortized cost.

* Expected net realizable value is higher than carrying amount.

The Company decided to sell plant and machinery amounting to Rs, 300.26 Lakhs which is of obsolete technology. The Company expects to sell the same in near future. There is no cost to sell the asset and hence the same is not presented seperately under liabilities.

During the year 2017-2018, company has acquired possession of Residential Property located at, New Delhi against outstanding receivables, value of which amounts to Rs, 403.72 Lakhs.

b) Rights, preferences and restrictions attached to shares Equity shares

The Company has one class of equity shares having a par value of Rs, 2 each. Each shareholder is eligible for one vote per share held. The dividend proposed by Board of Directors is subject to approval of shareholders in the ensuing Annual General Meeting. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.

* The term loan from bank comprises of Rupee Term Loan (RTL) from EXIM bank for 40,000 MTPA Melamine III Project at Baroda Unit of GSFC having tenure of 5 years. The sanctioned limit of the loan is - 500 Crores carrying G-sec rate prevailing as on the date of disbursement with spread of 160 bps (G - sec rate and spread will be reset annually). GSFC has availed - 200 Crore during F.Y. 2017-18 having effective rate of interest 7.855%. This loan is secured by hypothecation of movable fixed assets of the said project. The principal amount of loan is repayable over a period of 15 equal quarterly installments commencing after a moratorium of 18 months from the date of first disbursement which will be due on 01.04.2019.

*The term loan from bank comprise of External Commercial Borrowings (ECB) and are secured by pledge on Shares of Karnalyte Resources Inc, Canada. The principal amount of the loan is repayable over a period of six years in annual instalments with the first instalment due in March 2015 and the interest on the loan is repayable in quarterly instalments over the tenure of the loan. The above loan carries effective interest rates with spread ranging from 175 bps to 190 bps over three months LIBOR. The repayment obligations for these loans have been partially hedged for exchange rate risk and fully hedged for interest rate risk. The last installment of 8 Million ISD is repayable in MarchRs,19.

*The provision for Compensated absences pertains to accrued ordinary and sick leave entitlements. The change in carrying amount of the provision results from additional provision recognized net of benefits paid.

a) The company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

* The Cash credit facility from consortium of banks is secured by hypothecation of stock of raw materials, finished products, packing materials, general stores, spares, book debts etc. of the Company.

** The Company issued commercial paper of - 200 crores for 90 days period in 2016-17, has been repaid during the year 2017-18.

Interest rate details for short term borrowings:

(i) Working capital demand loan carries interest rate ranging from 7.00% to 8.00% p.a.

(ii) Cash credit accounts carries interest rates ranging from 8.15% to 11.00% p.a.

(iii) Commercial papers carries interest at ranging from 6.20% to 6.46% p.a.

(iv) Buyers credit carries interest at ranging from 1.04% to 2.35% p.a.

*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.

** includes trade payable to related parties Rs, 5997.95 lakhs (Rs, 7579.65 lakhs as at 31st March,2017).

Aforesaid post-employment benefit plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.

Investment Risk: The present value of the defined benefit liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds.

Interest Risk: A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on the plan’s investments.

Longevity Risk: The present value of the defined benefit liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.

Salary Risk: The present value of the defined benefit liability is calculated by reference to the future salaries of plan participants. As such, an increase in salary of the plan participants will increase the plan’s liability.

b) Defined contribution plans:

Amount towards Defined Contribution Plans have been recognized under “Contributions to Providend, Gratuity and Superannuation Fund (pension) Funds (including provisions)” in Note : 34 - 2,876.03 lakhs for financial year 2016-17 (- 2,730.07 lakhs for financial year 2016-17).

e. The estimates of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors.

f. The estimate of mortality rate during employment has been considered as per Indian Assured Lives Mortality (2006-08).

g. Provident Fund contributions are made to Trusts administered by the Company. The interest rate payable to the members of the T rusts shall not be lower than the statutory rate of interest declared by the Central Government under the Employees provident Funds and Miscellaneous Provisions Act, 1952 and shortfall, if any, shall be made good by the Company. Having regard to the assets of the Fund managed by the Trusts and the return on the investments, the Company does not expect any deficiency in the foreseeable future.

Terms and conditions of transactions with related parties:

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31st March,2017: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

41. Segment information

For management purposes, the company is organized into business units based on its products and has two reportable segments, as follows:

1. Fertilizer products comprising of Urea, Ammonium Sulphate, Di-ammonium Phosphate, Ammonium Phosphate Sulphate, NPK (12:32:16), (10:26:26), traded fertilizer products etc.

2. Industrial products comprising of Caprolactam, Nylon-6, Nylon Filament Yarn, Nylon Chips, Melamine, Methanol, Polymer products, traded industrial products etc.

The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by the two operating segments. The CODM reviews revenue and gross profit as the performance indicator for both operating segments.

Note 1: The Company has invested in the equity instruments of various companies. However, the percentage of shareholding of the Company in such investee companies is very low and hence, it has not been provided with future projections including projected profit and loss account by those investee companies. Hence, the independent valuer appointed by the Company has estimated fair value based on available historical Annual Reports of such companies and other information as available in the public domain. Since the future projections are not available, discounted cash flow approach for fair value determination has not been followed.

Note 2: In case of some companies, there are no comparable companies valuations available and some are recent startup companies. In light of no information available for future projections, capacity utilization, commencement of operations, etc., the valuation is based on cost approach.

ii) Transfers between Levels 1 and 2

There have been no transfers between Level 1 and Level 2 during 2017-18 and 2016-17

iii) Level 3 fair values Reconciliation of Level 3 fair values

The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.

Transfer out of Level 3

There were no movement in level 3 in either directions during the year 2017-18 and 2016-17.

C. Financial risk management

The Company has exposure to the following risks arising from financial instruments:

- Credit risk ;

- Liquidity risk ; and

- Market risk

i. Risk

The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company manages market risk through a Financial risk management committee, which evaluates and exercises independent control over the entire process of market risk management. The treasury department recommends risk management objectives and policies, which are approved by Audit cum finance committee and Board of Directors. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures, borrowing strategies, and ensuring compliance with market risk limits and policies.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The audit cum finance committee oversees how management monitors compliance with the company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

ii. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers.

The carrying amount of following financial assets represents the maximum credit exposure:

Trade and other receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate.

The Revenue department has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, if they are available, and in some cases bank references. Sale limits are established for each customer and reviewed quarterly. Any sales exceeding those limits require approval from the Board of Directors.

Goods are sold subject to retention of title clauses, so that in the event of non-payment the Company may have a secured claim. The Company does not otherwise require collateral in respect of trade and other receivables.

Management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behavior and extensive analysis of customer credit risk, including underlying customers’ credit ratings if they are available.

During the year 2017-18 and 2016-17, an impairment provision of INR (3,358.34) Lakhs and INR 3,640.66 Lakhs was created respectively.

Cash and cash equivalents

The Company held cash and cash equivalents of INR 5033.05 Lakhs at March 31, 2018, (INR 4,357.87 Lakhs at March 31, 2017). The cash and cash equivalents are held with approved scheduled banks.

Derivatives

The derivatives deals are done with AD category banks in OTC market and registered brokers in ETCD market.

iii. Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Exposure to liquidity risk

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

The gross inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes and which are not usually closed out before contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash-settled and gross cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement.

iv. Market risk

Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices - will affect the Company’s income or the value of its holdings of financial instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables and long term debt. The company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of company’s investments. Thus, company’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currency. The objective of market risk management is to control the financial risks associated with the Foreign Exchange/Currency rate movements through a sophisticated Foreign Exchange Risk Management System.

Currency risk

The Company is exposed to currency risk on account of its import payables and borrowings in foreign currency. The functional currency of the Company is Indian Rupee. The Company uses forward exchange contracts, Options and futures to hedge its currency risk, most with a maturity of less than one year from the reporting date.

The company is using derivative instruments which are not intended for trading or speculative purposes but for hedge purposes to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

Sensitivity analysis

A reasonably possible strengthening (weakening) of the Indian Rupee against US dollars at March 31 would have affected the measurement of financial instruments denominated in US dollars and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. ('' in lakhs)

Interest rate risk

Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing investments will fluctuate because of fluctuations in the interest rates.

Exposure to interest rate risk

Company’s interest rate risk arises from borrowings. Company has long term borrowings at variable rate of interest However, the same is hedged through interest rate swaps. The interest rate profile of the Company’s interest-bearing financial instruments as reported to the management of the Company is as follows.

Capital Management

The Company manages its capital to ensure that it will be able to continue as a Going Concern while maximizing the return to stakeholders through optimization of the Debt and Equity Balance.

The Company is subject to externally imposed capital requirements as part of its debt covenants such as maintaining an interest coverage ratio of 4 times, a Debt Service Coverage ratio of 1.75 times, Net external debt to EBDITA ratio of 2.75 times, Total leverage ratio of 1.5 times and an external gearing ratio of 1 time.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the requirements of the financial covenants. The Company monitors capital by computing the above ratios on an annual basis and ensuring that the same is in Compliance with the requirements of the Financial Covenants.

45. Details on derivative instruments and unheeded foreign currency exposure

(I) (a) Forward exchange contracts and options (being derivative instruments), which are not intended for trading or speculative purposes but for hedge purposes to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(b) Interest rate swaps to hedge against fluctuations in interest rate changes: No. of contracts:1, Amount: USD 8.00 Mn Principal (As at 31 March, 2017: No. of contracts:1, Amount: USD 16.00 Mn Principal)

(c) Currency Futures (other than forward exchange contracts stated above) which are not intended for trading or speculative purposes but for hedge purposes to hedge against fluctuations in changes in exchange rate.

Note: Figures in brackets relate to the previous year

(II) The year-end foreign currency exposures that have not been hedged by a derivative instrument or otherwise, represented in equivalent USD: USD 12.11 Mn (As at March 31, 2017: USD 0.73 Mn)

46. Leases

(i) The Company has taken various warehouses, god owns, guesthouses and office premises under operating lease or rental agreements. These are generally cancellable having a term of one year extendable for further one year on the discretion of the Company and are of rental nature. Payments are recognized in the statement of profit and loss under Note 34 - Other expenses.

(ii) Rent income includes lease rentals received towards office premises and land leased out for gas station. Such operating lease is generally for a period of three to four years. There are no restrictions imposed by lease arrangements.

8. Disclosure as per regulation 34(3) and 53(f) of Securities and Exchange Board of India (listing obligations and disclosures requirements) regulations, 2015:

Loans & Advances in the nature of loans to subsidiaries is Rs, Nil (PY: Rs, Nil)

9. Events occurring after the reporting period

(a) Announcement of Plan for Discontinue of Operation at Fibre Unit.

Management is considering shutting down of its Fibre unit situated at Kosamba, Dist. Surat and has made public announcement for the same on April 20, 2018. Closure of loss making unit will help Company in improving bottom-line.

This shutting down however is subject to the approval of Board of Directors, which shall be sought in due course of time. Management is evaluating the option of shifting whole of the operations to other units or to dispose off the same.

As informed by the management its value in use is higher in case operations are shifted to other unit and also its Net Realizable value is higher compare to its carrying value as on March 31, 2018.

As it being an Non Adjusting event, no adjustment has been carried out for the above mentioned event in the financial statement.

(b) Escalation of Urea Concession Rates.

Ministry of Chemical & Fertilizers vide its letter date April 26, 2018 has revised provisional concession Rates & Sales Tax for Urea on account of escalation for the period April 01, 2016 to December 31, 2017. Hence Revenue from Operations for the quarter under audit has been increased by - 76.07 Crores (Rs, 12.76 Crores related to FY 2016 - 17, - 39.24 Crores related to the period April’17 to December’17) & - 24.07 Crores related to Q4 17-18.

As it being a Adjusting event, adjustment has been carried out for the above mentioned event in the financial statement. Concession Rates & Sales Tax for Urea on account of escalation for the period April 01, 2016 to December 31, 2017.

Source : Dion Global Solutions Limited
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