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Marico

BSE: 531642|NSE: MARICO|ISIN: INE196A01026|SECTOR: Personal Care
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Notes to Accounts Year End : Mar '17

Back ground and operations

Marico Limited (“Marico” or ‘the Company’), headquartered in Mumbai, Maharashtra, India, carries on business in branded consumer products. Marico manufactures and markets products under the brands such as Parachute, Parachute Advansed, Nihar, Nihar Naturals, Saffola, Hair & Care, Revive, Mediker, Livon, Set-wet, etc. Marico’s products reach its consumers through retail outlets serviced by Marico’s distribution network comprising regional offices, carrying & forwarding agents, redistribution centers & distributors spread all over India.

1 Investment Properties

(i) Amounts recognised in profit or loss for investment properties

(ii) Leasing arrangements

Investment properties are leased to tenants under long-term operating leases with rentals payable monthly. Minimum lease payments receivable under non-cancellable operating leases of investment properties are as follows:

(iii) Fair value

Estimation of fair value

The Company obtains independent valuations for its investment properties at least annually. The best evidence of fair value is current prices in an active market for similar properties.

(iv) The fair values of investment properties have been determined by independent valuer who holds recognised and relevant professional qualification . The main inputs used are rental growth rates, expected vacancy rates, terminal yields and discount rates based on comparable transactions and industry data. All resulting fair value estimates for investment properties are included in level 3.

(v) During the year 2015-16 building appearing as asset held for disposal having a net carrying value of Rs.12.74 Crore (Deemed cost of Rs. 12.96 Crore less depreciation of Rs. 0.22 Crore) has been reclassified as Investment property.

During the year ended 31st March, 2007 the Company carried out financial restructuring scheme (‘Scheme’) under the relevant provisions of the Companies Act, 1956 which was approved by the shareholders on 8th February, 2007 and subsequently by the Hon’ble High Court vide its order dated 23rd March, 2007. In terms of the Scheme, the Company adjusted the carrying value of Rs. 448.15 Crore of intangible assets such as trademarks, copyrights, business and commercial rights as on 31st January, 2007 and related deferred tax adjustment of Rs. 139.06 Crore (net adjustment of Rs. 309.09 Crore) against the balance in Securities Premium Reserve of Rs. 129.09 Crore and Capital Redemption Reserve of Rs. 180 Crore.

2 Assets Classified as Held for Sale

Non-recurring fair value measurements

Fair value of Building classified as held for sale was Rs. 40.69 Crore as at 31st March, 2017, Rs. 39.12 Crore as at 31st March, 2016 and Rs. 47.45 Crore as on 1st April, 2015. Building classified as held for sale during the reporting period was measured at the lower of its carrying amount and fair value less costs to sell at the time of the reclassification. The fair values of these assets have been determined by independent valuer who holds recognised and relevant professional qualification. The main inputs include details obtained from “The Ready Reckoner”, location factor and physical verification of the property. All resulting fair value estimates for asset held for sale are included in level 3.

The company decided to sell land and building which was classified as asset held for sale as on 31st March, 2015. The assets situated at Goa were sold during the year ended 31st March, 2016, and the gain of Rs. 9.23 Crore was included in net gain on disposal of Property, Plant and Equipment in Note 19. The other asset was reclassified to investment property during the year ended 31st March, 2016. The delay in respect of the remaining asset (building) which the company has committed to sell is caused by certain event and circumstances which are beyond the entity’s control.

3(a) Equity Share Capital

(i) Movements in equity share capital

(ii) Rights, preferences and restrictions attached to equity shares

Equity Shares: The Company has one class of equity shares having a par value of Re.1 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting, except in case of interim dividend. 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.

(iii) Shares reserved for issue under options

Information relating to Marico ESOS 2007, Marico ESOS 2014, MD CEO ESOP Plan 2014 and including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 33.

(iv) Details of shareholders holding more than 5% shares in the company

(v) During the year ended 31st March, 2016, the Company has issued 645,085,599 fully paid-up bonus equity shares of face value Re. 1 each in the ratio of 1:1 with record date of 24th December, 2015. As a result EPS has been adjusted for reporting as well as for all the comparative periods.

3(b) Other reserves Hedge reserve

Nature and purpose of reserves Securities premium account

Securities premium account is used to record the premium on issue of shares. The reserve is utilised in accordance with the provisions of the Act.

General Reserve

The General Reserve account is used from time to time to record transfer of profit from retained earnings, for appropriation purposes. As General Reserve is created by transfer from one component of equity to another and it is not an item of other comprehensive income, item included in the General Reserve will not be reclassified subsequently to Profit or Loss.

Share based option outstanding account

The share based option outstanding account is used to recognise the grant date fair value of options as on the grant date, issued to employees under Company’s employee stock option schemes.

WEOMA reserve and Treasury shares

Profit on sale of treasury shares by WEOMA trust is recognised in WEOMA reserve. (refer note 35)

Hedge Reserve

The Company uses forward and options contracts to hedge its risks associated with foreign currency transactions relating to certain firm commitments and forecasted transactions. The Company also uses Interest rates swap contracts to hedge its interest rate risk exposure. The Company designates these as cash flow hedges. These contracts are marked to market as at the year end and resultant exchange differences, to the extent they represent effective portion of the hedge, are recognized directly in hedge reserve. The ineffective portion of the same is recognized immediately in the Statement of Profit and Loss.

Exchange differences taken to hedge reserve account are recognized in the Statement of Profit and Loss upon crystallization of firm commitments or occurrence of forecasted transactions or upon discontinuation of hedge accounting resulting from expiry / sale / termination of hedge instrument or upon hedge becoming ineffective.

Note:-

(i) Cash Credit, Pre-shipment Credit in Foreign Currency, Working Capital Demand Loan and Export Packing Credit is secured by hypothecation of Inventory and Debtors, value of Rs. 1,310.57 Crore as at 31st March, 2017,Rs. 959.66 Crore as at 31st March, 2016 and Rs. 922.14 Crore as at 1st April, 2015.

(ii) ECB Loan was secured by (i) Pledge of shares of Marico South East Asia Corporation (a Subsidiary company, formerly known as International Consumer Products Corporation), carrying value of Rs. 254.98 Crore as at 1st April, 2015, 31st March, 2016 and 2017 (ii) First ranking pari passu charge over all current and future plant and machinery, carrying value of Rs. 188.57 Crore as at 1st April, 2015, Rs. 175.37 Crore as at 31st March, 2016 and the said loan has been repaid during the year and (iii) Mortgage on land and building situated at Andheri, Mumbai (Mortgage was only till previous year ended 31st March, 2015), carrying value of Rs. 44.08 Crore as at 1st April, 2015.

4 Provisions

(a) Provision for disputed indirect taxes mainly pertains to Entry tax dispute in the state of Himachal Pradesh and West Bengal where company has filed a writ petition in both the states before the honourable high court and the matter is sub judice. It is not practicable to state the timing of the judgement and final outcome. Management has assessed that unfavourable outcome of the matter is more than probable and therefore has created provisions for necessary amounts.

(b) Movement in provisions

Notes:-

(i) Gratuity

The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/ termination is the employee’s last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service. The gratuity plan is funded through gratuity trust.

(ii) Provident fund

Contributions are made to a trust administered by the Company. The Company’s liability is actuarially determined (using the Projected Unit Credit method) at the end of the year and any shortfall in the fund balance maintained by the Trust set up by the Company is additionally provided for. There is no shortfall as at 31st March, 2017, 31st March, 2016 and 1st April, 2015.

(iii) Leave Encashment/Compensated absences.

The Company provides for the encashment of leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for future encashment / availment. The liability is provided based on the number of days of unutilized leave at each Balance Sheet date on the basis of an independent actuarial valuation. The company encourages its employees to plan and avail their leave within a year, hence the company has classified leave encashment provision amount as current.

(iv) Super annuation

The Company makes contribution to the Superannuation Scheme, a defined contribution scheme, administered by Insurance companies. The company has no obligation to the scheme beyond its monthly contributions.

(v) Share-appreciation rights

In respect of Employee Stock Appreciation Rights (STAR) granted pursuant to the Company’s Employee Stock Appreciation Rights Plan, 2011, the liability shall be measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, (excess of fair value as at the period end over the Grant price) and is recognized as employee compensation cost over the vesting period (refer note 33).

*The expected rate of return on plan assets is based on expectation of the average long term rate of return expected on investment of the fund during the estimated term of the obligations.

**The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion, and other relevant factors such as supply and demand factors in the employment market. (The expected rate of return on plan assets is based on the current portfolio of assets, investment strategy and market scenario.)

Sensitivity Analysis

The sensitivity of the defined benefit obligations to the changes in the weighted principal assumptions is as under:

The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

*The expected rate of return on plan assets is based on expectation of the average long term rate of return expected on investment of the fund during the estimated term of the obligations.

**The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion, and other relevant factors such as supply and demand factors in the employment market. (The expected rate of return on plan assets is based on the current portfolio of assets, investment strategy and market scenario.)

(c) Privileged leave (Compensated absences for employees):

Amount recognized in the Balance Sheet and movements in net liability:

The privileged leave liability is not funded.

(d) Superannuation fund

The Company has recognised Rs. Nil for the year ended 31st March, 2017, Rs. 0.15 Crore for the year ended 31st March, 2016 and Rs. 0.22 Crore for the year ended 31st March, 2015 towards contribution to superannuation fund in the Statement of Profit and Loss.

The Company has recognised Rs.0.12 Crore for the year ended 31st March, 2017, Rs. 0.05 Crore for the year ended 31st March, 2016, Rs. 0.08 Crore for the year ended 31st March, 2015 towards employee state insurance plan in the Statement of Profit and Loss.

Risk exposure (For Gratuity and Provident Fund)

The Company is exposed to below risks, pertaining to its defined benefit plans.

Asset volatility : The plan liabilities are calculated using a discount rate set with reference to bond yields; if plan assets underperform this yield, this will create a deficit. Most of the plan assets has investments in insurance/equity managed fund, fixed income securities with high grades, public/private sector units and government securities. Hence assets are considered to be secured.

Changes in bond yields : A decrease in bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.

The Trust ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are in line with the obligations under the employee benefit plans. Within this framework, the group’s ALM objective is to match assets to the obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due.

Defined benefit liability and employer contributions

The weighted average duration of the Gratuity is 6 years as at 31st March, 2017, as at 31st March, 2016 and as at 31st March, 2015.

5 Other Expenses

(a) Net loss on foreign currency transactions and translation is other than as considered in finance cost.

(b) Miscellaneous expenses include :

(c) Corporate social responsibility expenditure

(d) Research and Development expenses aggregating to Rs. 6.70 Crore for food and edible items and Rs. 23.15 Crore for others have been included under the relevant heads in the Statement of Profit and Loss. (Previous year ended 31st March, 2016 aggregating Rs. 25.04 Crore). Further Capital expenditure pertaining to this of Rs. 0.59 Crore for food and edible items and Rs. 2.11 Crore for others have been incurred during the year (Previous year ended 31st March, 2016 aggregating Rs. 2.43 Crore).

6 Fair Value Measurements

(a) Financial Instruments by category

Fair value hierarchy

(b) This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels in accordance with the applicable Accounting Standard. An explanation of each level follows underneath the table.

The fair value of financial instruments as referred to in note above has been classified into three categories depending on the inputs used in the valuation technique. The hierarchy gives the highest priority to quoted prices in active market for identical assets or liabilities (level 1 measurement) and lowest priority to unobservable inputs (level 3 measurements). The categories used are as follows:

Level 1: Financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds, mutual funds, bonds and debentures, that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is considered here.For example, the fair value of forward exchange contracts, currency swaps and interest rate swaps is determined by discounting estimated future cash flows using a risk-free interest rate. The mutual funds are valued using the closing NAV pubhlished by mutual fund

Level 3: The fair value of financial instruments that are measured on the basis of entity specific valuations using inputs that are not based on observable market data (unobservable inputs). When the fair value of unquoted instruments cannot be measured with sufficient reliability, the company carries such instruments at cost less impairment, if applicable.

The Company policy is to recognize transfers into and transfer out of fair value hierarchy levels as at the end of the reporting period.

The carrying amounts of trade receivables, trade payables, capital creditors, loans and advances, security deposit, fixed deposit, insurance claim receivable, other financial liabilities and cash and cash equivalents are considered to be the same as their fair values, due to their short-term nature.

7 Financial Risk Management Financial Risks

In the course of its business, the Company is exposed to a number of financial risks: credit risk, liquidity risk, market risk (including foreign currency risk and interest rate risk, commodity price risk and equity price risk). This note presents the Company’s objectives, policies and processes for managing its financial risk and capital.

Board of Directors of the Company has approved Risk Management Framework through policies regarding Investment, Borrowing and Foreign Exchange Management policy. Treasury Management Guidelines define,determine and classify risk,by category of transaction, specific approval, execution and monitoring procedures.

In accordance with the aforementioned policies, the company only enters into plain vanilla derivative transactions relating to assets, liabilities or anticipated future transactions.

(A) Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the company. Credit risk arises on liquid assets, financial assets, derivative assets, trade and other receivables.

In respect of its investments the company aims to minimize its financial credit risk through the application of risk management policies. Credit limits are set based on a counterparty value . The methodology used to set the list of counterparty limits includes, counterparty Credit Ratings (CR) and sector exposure. Evolution of counterparties is monitored regularly, taking into consideration CR and sector exposure evolution. As a result of this review, changes on credit limits and risk allocation are carried out. The Company avoids the concentration of credit risk on its liquid assets by spreading them over several asset management companies and monitoring of underlying sector exposure.

Trade receivables are subject to credit limits, controls and approval processes. Due to large geographical base and number of customers, the Company is not exposed to material concentration of credit risk. Basis the historical experience, the risk of default in case of trade receivable is low. Provision is made for doubtful receivables on individual basis depending on the customer ageing, customer category, specific credit circumstances and the historical experience of the Company.

The gross carrying amount of trade receivables is Rs. 227.61 Crore as at 31st March, 2017, Rs. 192.10 Crore as at 31st March, 2016 and Rs. 130.55 Crore as at 1st April, 2015.

Security deposits are interest free deposits given by the Company for properties taken on lease. Provision is taken on a case to case basis depending on circumstances with respect to non recoverability of the amount. The gross carrying amount of Security deposit is Rs. 15.04 Crore as at 31st March, 2017, Rs. 12.55 Crore as at 31st March, 2016 and Rs. 11.79 Crore as at 1st April, 2015.

Advances are given to subsidiaries andjoint venture for various operational requirements. Provision is taken on a case to case basis depending on circumstances with respect to non recoverability of the amount. The gross carrying amount of loans and advances is Rs. 37.59 Crore as at 31st March, 2017, Rs. 36.74 Crore as at 31st March, 2016 and Rs. 35.66 Crore as at 1st April, 2015

(B) Liquidity Risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, company treasury maintains flexibility in funding by maintaining availability under committed credit lines.

The current ratio of the company as at 31st March, 2017 is 2.52 (as at 31st March, 2016 is 1.87, as at 1st April, 2015 is 1.97) whereas the liquid ratio of the company as at 31st March, 2017 is 1.42 (as at 31st March, 2016 is 1.15, as at 1st April, 2015 is 1.01).

(C) Market Risk

The Company is exposed to risk from movements in foreign currency exchange rates, interest rates and market prices that affect its assets, liabilities and future transactions.

(i) Foreign currency risk

The Company is exposed to foreign currency risk from transactions and translation.

Transactional exposures arise from transactions in foreign currency. They are managed within a prudent and systematic hedging policy in accordance with the Company’s specific business needs through the use of currency forwards and options.

Excludes Loans payable of Rs. 178.87 Crore [USD 27,000,000] (Rs. 262.49 Crore [USD 42,000,000]) assigned to hedging relationship against highly probable forecast sales. The Cash flows are expected to occur and impact the Statement of Profit and Loss within the period of 1 year (Previous year: 2 years).

ii) Interest rate risk

The Company is exposed primarily to fluctuation in USD interest rates. Interest rate risk on financial debt is managed through interest rate swaps.

The Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Under these swaps, the Company agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts.

The Company’s fixed rate borrowings are carried at amortised cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

Financial assets are classified at amortized cost have fixed interest rate. Hence, the Company is not subject to interest rate risk on such financial assets.

Sensitivity

The sensitivity analysis below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year.

iii) Price risk

Mutual fund Net Asset Values ( NAVs) are impacted by a number of factors like interest rate risk, credit risk, liquidity risk, market risk in addition to other factors. A movement of 1% in NAV on either side can lead to a gain/loss of Rs. 3.91 Crore, Rs. 3.59 Crore and Rs. 2.13 Crore, on the overall portfolio as at 31st March, 2017, 31st March, 2016 and 1st April, 2015 respectively.

Impact of hedging activities

Derivate Asset and Liabilites through Hedge Accounting Derivative financial instruments

The Company’s derivatives mainly consist of currency forwards and options ; interest rate swaps. Derivatives are mainly used to manage exposures to foreign exchange, interest rate and commodity price risk as described in section Market risk.

Derivatives are initially recognised at fair value. They are subsequently remeasured at fair value on a regular basis and at each reporting date as a minimum, with all their gains and losses, realised and unrealised, recognised in the Profit and Loss statement unless they are in a qualifying hedging relationship.

Hedge Accounting

The Company designates and documents certain derivatives and other financial assets or financial liabilities as hedging instruments against changes in fair values of recognised assets and liabilities (fair value hedges) and highly probable forecast transactions (cash flow hedges).The effectiveness of such hedges is assessed at inception and verified at regular intervals.

Fair value hedges

The Company uses fair value hedges to mitigate foreign currency and interest rate risks of its recognised assets and liabilities.

Changes in fair values of hedging instruments designated as fair value hedges and the adjustments for the risks being hedged in the carrying amounts of the underlying transactions are recognised in the Statement of Profit and Loss.

The Company uses cash flow hedges to mitigate a particular risk associated with a recognised asset or liability or highly probable forecast transactions, such as anticipated future export sales, purchases of equipment and raw materials.

The effective part of the changes in fair value of hedging instruments is recognised in other comprehensive income, while any ineffective part is recognised immediately in the Statement of Profit and Loss.

8 Capital Management

(a) Risk Management

Capital management is driven by Company’s policy to maintain a sound capital base to support the continued development of its business. The Board of Directors seeks to maintain a prudent balance between different components of the Company’s capital. The Management monitors the capital structure and the net financial debt at individual currency level. Net financial debt is defined as current and non-current financial liabilities less cash and cash equivalents and short term investments. The debt equity ratio highlights the ability of a business to repay its debts. Refer below for Debt equity ratio as on 31st March, 2017, 31st March, 2016 and 1st April, 2015.

9 Segment Information

(i) Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (“CODM”) of the company. The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Managing Director and CEO of the Company. The Company operates only in one business segment i.e. manufacturing and sale of consumer products within India, hence does not have any reportable segment as per Indian Accounting Standard 108 “operating segments” in Standalone. The company while presenting the consolidated financial statements has disclosed the segment information as required under Indian Accounting Standard 108 “operating segments”.

(ii) The amount of the Company’s revenue from external customers broken down by each product and service is shown in the table below.

(iiii) Revenue from external customer outside India and assets located outside India are not material. Further, the Company does not have revenue more than 10% of total revenue from single customer.

10 Related Party Transactions

Name of related parties and nature of relationship:

a) Subsidiary Companies:

The Marico Innovation Foundation (“MIF”), a company incorporated under Section 25 of the Companies Act, 1956 (being a private company limited by guarantee not having share capital) primarily with an objective of fuelling and promoting innovation in India, is a wholly owned subsidiary of the Company with effect from 15th March, 2013.

During the year ended 31st March, 2016, Marico South East Asia Corporation (formerly known as International Consumer Product Corporation) a subsidiary of the Company divested its entire stake in Beaute Cosmetique Societe Par Actions (BCS) on 14th May, 2015.

Thuan Phat Food stuff Joint Stock company has been merged with Marico South East Asia Corporation (formerly known as International Consumer Product Corporation) w.e.f 1st December, 2016.

b) Subsidiary firm:

MEL Consumer Care & Partners - Wind (Through MELCC)

c) Joint venture:

Bellezimo Professionale Products Private Limited (During the year ended 31st March, 2016, the Company has acquired 45% stake on 21st October, 2015)

Zed Lifestyle Private Limited (During the year ended 31st March, 2017, the Company has acquired 35.43% stake on 17th March, 2017)

d) Key management personnel (KMP):

Mr. Saugata Gupta, Managing Director and CEO

Mr. Harsh Mariwala, Chairman and Non Executive Director

Mr. Rajeev Bakshi, Independent Director

Mr. Atul Choksey, Independent Director

Mr. Nikhil Khattau, Independent Director

Mr. Anand Kripalu, Independent Director

Mr. Rajen Mariwala, Non executive Director

Mr. B.S. Nagesh, Independent Director

Ms. Hema Ravichandar, Independent Director

e) Individual holding directly / indirectly an interest in voting power and their relatives (where transactions have taken place) - Significant Influence:

Mr. Harsh Mariwala, Chairman and Non Executive Director Mr. Rishabh Mariwala, son of Mr. Harsh Mariwala

f) Post employment benefit controlled trust Marico Limited Employees Provident Fund Marico Limited Employees Gratuity Fund

g) Others - Entities in which above (e) has significant influence and transactions have taken place:

Marico Kaya Enterprises Limited (upto 18th April, 2015)

Kaya Limited Kaya Middle East FZE

II Transactions with related parties

The following transactions occurred with related parties:

Key management personnel compensation

The above remuneration to Key management personnel compensation does not include contribution to gratuity fund, as this contribution is a lump sum amount for all relevant employees based on actuarial valuation.

Contribution to post employment benefit controlled trust : refer note 15.

11 Contingent Liabilities and Contingent Assets

(a) Contingent liabilities

The Company had contingent liabilities in respect of :

It is not practicable for the Company to estimate the timing of cash outflows, if any, in respect of the above contingent liabilities pending resolution of the respective proceedings.

Note:

This contingent liability pertained to a possible obligation in respect of pure coconut oil packs up to 200 ml. This claim had been contested by the excise department. Based on the various judicial pronouncements, management believed that the probability of success in the matter was more likely than not and accordingly, the possible excise obligation was treated as a contingent liability in accordance with requirements of Indian Accounting Standard (Ind AS) 37 “Provisions, Contingent Liabilities and Contingent Assets”. The possible obligation of Rs. 563.73 Crores as at 31st March, 2016 (Rs. 443.85 Crores as at April 1, 2015) for the clearances made after June 3, 2009 (i.e. the date of issue of Board circular) till March 31, 2016 and Rs. 121.77 Crores as at March 31, 2016 (Rs. 121.77 Crores as at April 1, 2015) for clearances made prior to June 3, 2009 was disclosed as contingent liability to the extent of the time horizon covered by show cause notices issued by the excise department within the normal period of one year (from the date of clearance) as per the excise laws.

The aforementioned amount has not been considered under contingent liability as on 31st March 2017 as the matter has now been settled by orders of different adjudication authorities in the current financial year holding that clearance of pure coconut oil packs up to 200ml merits classification under chapter 15 and not under chapter 33 as contemplated by the excise department and accordingly the excise department has also withdrawn its circular dated June 3,2009 .

Consequently pending show cause notices issued by the excise authorities will not survive and therefore the contingent liability has been deleted from current financial year.

12 Share-Based Payments

(a) Employee stock option plan

The Corporate Governance Committee of the Board of Directors of Marico Limited had granted stock options to certain eligible employees of the Company and it’s subsidiaries pursuant to the Marico Employees Stock Options Scheme 2007 (“the Scheme”). Each option represents 1 equity share in the Company. The vesting period and the exercise period under the Scheme was not less than one year and not more than 5 years. The Scheme was administered by the Corporate Governance Committee of the Board comprising Independent Directors. All stock options granted under the Scheme were exercised on 10th June, 2015.

During the year ended 31st March, 2015, the Company implemented the Marico Employee Stock Option Scheme 2014 (“Marico ESOS 2014”). Marico ESOS 2014 was approved by the shareholders of the Company at the Extra Ordinary General Meeting held on March 25, 2014 enabling the grant of 300,000 stock options to the Chief Executive Officer of the Company (Currently designated as Managing Director & CEO).

Pursuant to the said approval, on 1st April, 2014 the Company granted 300,000 stock options to the Managing Director & CEO of the Company, at an exercise price of Re.1 per stock option. Each option represents 1 equity share in the Company. The vesting period is 2 years from the date of grant and the exercise period is 18 months from the date of vesting. As at 31st March, 2016, the aforesaid 300,000 stock options have increased to 600,000 on account of issue of bonus equity shares by the Company in the ratio of 1:1.

During the year ended 31st March, 2015, the Company implemented the Marico MD CEO Employee Stock Option Plan 2014 (“MD CEO ESOP Plan 2014” or “the Plan”). The MD CEO ESOP Plan 2014 was approved by the shareholders at the 26th Annual General Meeting held on July 30, 2014 enabling grant of stock options not exceeding in the aggregate 0.5% of the number of issued equity shares of the Company, from time to time, through notification of one more Scheme(s) under the Plan. Each stock option represents 1 equity share in the Company. The vesting period and the exercise period under the Plan is not less than one year and not more than 5 years.

Pursuant to the aforesaid approval, on 5th January, 2015, the Company notified Scheme I under the Plan and granted 46,600 stock options to the Managing Director & CEO of the Company, at an exercise price of Re.1 per stock option. The vesting date for stock options granted under the Scheme I is 31st March, 2017. Further, the exercise period is one year from the date of vesting. As at 31st March, 2016, the said 46,600 stock options have increased to 93,200 on account of issue of bonus equity shares by the Company in the ratio of 1:1. In view of the implementation of Marico Employee Stock Option Plan, 2016, as explained below, no further grant of stock options is envisaged under this Plan.

During the current year ended 31st March, 2017, the Company implemented Marico Employee Stock Option Plan, 2016 (“Marico ESOP 2016” or “the Plan”). The Marico ESOP 2016 was approved by the shareholders at the 28th Annual General Meeting held on 5th August, 2016, enabling grant of stock options to the eligible employees of the Company and its subsidiaries not exceeding in the aggregate 0.6% of the issued share equity share capital of the Company as on the commencement date of the Plan i.e. 5th August, 2016. Further, the stock options to any single employee under the Plan shall not exceed 0.15% of the issued equity share capital of the Company as on the commencement date (mentioned above). The Marico ESOP 2016 envisages to grant stock options to eligible employees of the Company and it’s subsidiaries on an annual basis through one or more Scheme(s) notified under the Plan. Each option represents 1 equity share in the Company. The vesting period and the exercise period under the Plan is not be less than one year and not more than five years. Pursuant to the said approval, the Company notified below schemes under the Plan:

(b) Share appreciation rights

The Corporate Governance Committee has granted Stock Appreciation Rights (“STAR”) to certain eligible employees pursuant to the Company’s Employee Stock Appreciation Rights Plan, 2011 (“Plan”). The grant price is determined based on a formulae as defined in the Plan. There are schemes under each Plan with different vesting periods. Scheme I, II, III and IV have matured on their respective vesting dates. Under the Plan, the specified eligible employees are entitled to receive a Star Value which is the excess of the maturity price over the grant price subject to certain conditions. The Plan is administered by Corporate Governance Committee comprising independent directors.

Information concerning the classification of securities

(i) Share Options

Options granted to Employees under Marico ESOS 2014,MD CEO ESOP Plan 2014 and Marico Employee Stock Option Plan 2016 are considered to be potential equity shares. They have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 33.

(ii) Treasury shares

The weighted average number of shares takes into account the weighted average effect of changes in treasury share transactions during the year.

13 First time adoption of Ind AS Transition to Ind AS

These are the Company’s first financial statements prepared in accordance with Ind AS.

The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended 31st March, 2017, the comparative information presented in these financial statements for the year ended 31st March, 2016 and in the preparation of an opening Ind AS Balance Sheet at 1st April, 2015 (the Company’s date of transition). In preparing its opening Ind AS Balance Sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP).

An explanation of how the transition from previous GAAP to Ind AS has affected the company’s financial position, financial performance and cash flows is set out in the following tables and notes.

A. Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

A.1 Ind AS optional exemptions

A.1.1 Business combinations

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date.

The Company has elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.

The Company has applied same exemption for investment in subsidiaries and joint ventures.

A.1.2 Deemed cost

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 -Intangible Assets and investment property covered by Ind AS 40 - Investment Properties.

Accordingly, the Company has elected to measure all of its property, plant and equipment, intangible assets and investment property at their previous GAAP carrying value.

A.1.3 Share-based payment transactions

Ind AS 102 deals with the accounting and disclosure requirements related to share-based payment transactions. The standard addresses three types of share-based payment transactions: equity-settled, cash-settled, and with cash-alternatives. A first-time adopter is encouraged, but is not required, to apply Ind AS 102 to:

(i) equity instruments that vested before the date of transition to Ind AS,

(ii) liabilities arising from share-based payment transactions that were settled before the date of transition to Ind AS.

The Company has availed this exemption and has not applied fair value to the equity instruments and liabilities that were vested and settled before the date of transition to Ind AS.

A.1.4 Investments in subsidiaries

When an entity prepares separate financial statements, Ind AS 27 requires it to account for its investments in subsidiaries, joint ventures and associates either at cost; or in accordance with Ind AS 109.

If a first-time adopter measures such an investment at cost in accordance with Ind AS 27, it shall measure that investment at one of the following amounts in its separate opening Ind AS Balance Sheet:

(a) cost determined in accordance with Ind AS 27; or

(b) deemed cost. The deemed cost of such an investment shall be its:

(i) fair value at the entity’s date of transition to Ind ASs in its separate financial statements; or

(ii) previous GAAP carrying amount at that date.

A first-time adopter may choose either (i) or (ii) above to measure its investment in each subsidiary, joint venture or associate that it elects to measure using a deemed cost.

The Company has availed the exemption and has measured its investment in subsidiaries at deemed cost being the previous GAAP carrying amount at that date.

A.2 Ind AS mandatory exceptions

A.2.1 Hedge accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in Ind AS 109, at that date. Hedging relationships cannot be designated retrospectively, and the supporting documentation can not be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of 1st April, 2015 are reflected as hedges in the company’s result under Ind AS.

The Company had designated various hedging relationships as cash flow hedges under the previous GAAP. On date of transition to Ind AS, the entity had assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the company continues to apply hedge accounting on and after the date of transition to Ind AS.

A.2.2 Estimates

An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at 1st April, 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP. The company made estimates for Investment in equity instruments carried at FVPL in accordance with Ind AS at the date of transition as these were not required under previous GAAP.

A.2.3 De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the de-recognition requirement provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

The company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS .

A.2.4 Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

Ind AS 101 requires the company to reconcile equity, total comprehensive income, and cash flow for prior periods. The following reconciliations provide the explanantions and quantification of the differences arising from the transition from previous GAAP to Ind AS in accordance with Ind AS 101:

(A) Reconciliation of Equity as at 1st April, 2015 and as at 31st March, 2016

(B) Reconciliation of Statement of Profit and Loss for the year ended 31st March, 2016 and

(C) The impact on cash flows from operating, investing and financing activities for the year ended 31st March, 2016.

C: Notes on First-time adoption

1 Consolidation of the Trust

The company has formed Welfare of Mariconions Trust (WEOMA trust) for implementation of the schemes that are notified or may be notified from time to time by the Company under the plan, providing share based payment to its employees. WEOMA purchases shares of the Company out of funds borrowed from the Company. The Company treats WEOMA as its extension and shares held by WEOMA are treated as treasury shares.

The Consolidation of the WEOMA trust financials statements with that of the Company does not in any manner affect the independence of the trustees where the rights and obligations are regulated by the trust deed.

Own equity instruments (treasury shares) are recognised at cost and deducted from equity. Profit on sale of treasury shares by WEOMA trust is recognised in WEOMA reserve.

Other items adjusted owing to the Trust consolidation include :

(a) Treasury shares

Upon consolidation, the investment in the Company’s equity shares made by WEOMA Trust is debited to the Company’s equity as treasury shares amounting to Rs. 68.37 Crore as at 31st March, 2016 (Rs. 28.29 Crore as at 1st April, 2015).

(b) WEOMA reserve

The income of the Trust till date comprising of profit on sale of Marico shares, forms a part of WEOMA reserve amounting to Rs. 20.18 Crore as at 31st March, 2016 (Rs. 2.66 Crore as at 1st April, 2015).

(c) Other Non Current Financial Assets and other income

Loan advanced to the Trust is eliminated on consolidation amounting to Rs. 50.59 Crore as at 31st March, 2016 (Rs. 8.40 Crore as at 1st April, 2015) forming a part of non current loans and Rs. 15.97 Crore (Rs. 19.76 Crore as at 1st April, 2015) being current loans in previous GAAP Accordingly, interest on above loan is also eliminated amounting to Rs. 2.12 Crore.

(d) Investments

The fair value of investments held by the Trust consolidated as per Ind AS amounts to Rs 1.47 Crore as at 31st March, 2016 (Rs. 4.52 Crore as at 1st April, 2015). The profit for the year ended 31st March, 2016 decreased by Rs. 3.05 Crore.

2 Employee Stock Option Liability

Under the previous GAAP, the cost of equity-settled employee share-based plan were recognised using the intrinsic value method. Under Ind AS, the cost of equity settled share-based plan is recognised based on the fair value of the options as at the grant date. Consequently, the amount recognised in share based option outstanding account decreased by Rs. 0.64 Crore as at 31st March, 2016 (1st April, 2015 - Rs. 0.31 Crore). The profit for the year ended 31st March, 2016 increased by Rs. 0.33 Crore. There is no impact on total equity.

3 STAR

Under the previous GAAP, the cost of cash-settled employee share-based plan were recognised using the intrinsic value of the rights (excess of market value as at period end over the Grant price) over the vesting period after adjusting amount recoverable from WEOMA trust. As per Ind AS 102, the Share appreciation rights liability shall be measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered service to date. There is an increase in liability by Rs. 14.61 Crore whereby Rs. 0.83 Crore (Rs. 4.69 Crore as at 1st April, 2015) is long term and Rs. 13.78 Crore (Rs. 11.39 Crore as at 1st April, 2015) is short term. The profit for the year ended 31st March, 2016 decreased by Rs. 13.99 Crore. Equity has decreased by Rs. 30.10 Crore as at 31st March, 2016 (1st April, 2015 - Rs. 16.08 Crore)

4 Retained Earnings

Retained earnings as at 1st April, 2015 has been adjusted consequent to the above Ind AS transition adjustments

5 Time Value reclassified to OCI

Under previous GAAP, the company recognised movements in time value of options and forward element of forward contracts and Interest rate swaps contract in profit or loss in the period in which they arose. Under Ind AS, these movements are reclassified to OCI and thereby decreasing hedge reserve balance by Rs. 2.15 Crore as at 31st March, 2016 (1st April, 2015 Rs. 0.47 Crore). The profit for the year ended 31st March, 2016 is decreased by Rs 1.68 Crore. There is no impact on total equity.

6 Borrowings

Under previous GAAP, transaction costs incurred towards origination of borrowings were charged to profit or loss as and when incurred. Ind AS 109 requires these transaction costs to be deducted from the carrying amount of borrowings on initial recognition. These costs are recognised in the profit or loss over the tenure of the borrowing as part of the interest expense by applying the effective interest rate method. Accordingly, borrowings as at 31st March, 2016 have been reduced by Rs. 0.35 Crore (1st April, 2015 Rs. 0.73 Crore) with a corresponding adjustment to retained earnings. The total equity increased by an equivalent amount. The profit for the year ended 31st March, 2016 reduced by Rs. 0.38 Crore as a result of the additional interest expense.

7 Other Intangible assets

In previous GAAP, there was a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use. As per Ind AS 38, Intangible Assets having an indefinite life are not amortised and tested annually for impairment. The amortisation charged on copyrights and trademarks is reversed thereby increasing the value of intangible assets, retained earning and profit by Rs. 5.43 Crore as at 31st March, 2016.

8 Fair valuation of investments

Under the previous GAAP, investments in equity instruments and mutual funds were classified as non current investments or current investments based on the intended holding period and realisability. Non current investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be measured at fair value. The resulting fair value changes of these investments have been recognised in retained earnings as at the date of transition and subsequently in the profit or loss for the year ended 31st March, 2016. This increased the retained earnings by Rs. 7.09 Crore as at 31st March, 2016 (1st April, 2015 - Rs. 2.89 Crore). The profit for the year ended 31st March, 2016 increased by Rs. 4.20 Crore.

9 Security deposits

Under the previous GAAP, interest free lease security deposits (that are refundable in cash on completion of the lease term) are recorded at their transaction value. Under Ind AS, all financial assets are required to be recognised at fair value. Accordingly, the company has fair valued these security deposits under Ind AS. Difference between the fair value and transaction value of the security deposit has been recognised as prepaid rent. Consequent to this change, the amount of security deposits decreased by Rs. 1.18 Crore as at 31st March, 2016 (1st April, 2015 - Rs. 1.49 Crore). The prepaid rent increased by Rs. 1.12 Crore as at 31st March, 2016 (1st April, 2015 - Rs. 1.40 Crore). Total equity decreased by Rs. 0.06 Crore as on 1st April, 2015. The profit for the year and total equity as at 31st March, 2016 decreased by Rs. 0.02 Crore due to amortisation of the prepaid rent of Rs. 0.53 Crore which is partially off-set by the notional interest income of Rs 0.55 Crore recognised on security deposits.

10 Deferred tax has been recognised on adjustments made on transition to Ind AS.

Revenue from operations

11 Excise duty

Under the previous GAAP, revenue from sale of products was presented exclusive of excise duty. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. The excise duty paid is presented on the face of the Statement of Profit and Loss as part of expenses. This change has resulted in an increase in total revenue and total expenses for the year ended 31st March, 2016 by Rs. 7.13 Crore. There is no impact on the total equity and profit.

12 Revenue, Advertisement and Sales Promotion (ASP) and other expense

The Company will recognise revenue at the fair value of consideration received or receivable. Any sales incentive, discounts or rebates in any form, including cash discounts given to customers will be considered as selling price reductions and accounted as reduction from revenue. Under IGAAP, some of these costs were included in ‘advertising and sales promotion’ expenses. Accordingly, Rs. 60.78 Crore has been reclassified from Advertisement and Sales Promotion to Sales, Rs. 7.12 Crore has been reclassified from Advertisement and Sales Promotion to Cost of Goods Sold and Rs. 25.73 Crore from other expense to Sales.

Employee benefits expense

13 Remeasurements of post-employment benefit obligations

Under Ind AS, remeasurements i.e. actuarial gains and losses and 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. As a result of this change, the profit for the year ended 31st March, 2016 increased by Rs. 2.83 Crore. There is no impact on the total equity as at 31st March, 2016.

14 Investment property and Asset held for sale

Under the previous GAAP, investment properties were presented as part of non-current investments. Under Ind AS, investment properties are required to be separately presented on the face of the Balance Sheet. There is no impact on the total equity or profit as a result of this adjustment.

Under the previous GAAP, asset held for sale were presented as part of other current assets. Under Ind AS, asset held for sale are required to be separately presented on the face of the Balance Sheet. There is no impact on the total equity or profit as a result of this adjustment.

15 Other comprehensive income

Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit and loss includes remeasurements of defined benefit plans, effective portion of gains and losses on cash flow hedging instruments. The concept of other comprehensive income did not exist under previous GAAP.

14 Event occuring after Balance sheet date

As at 2nd May, 2017, the date of approval for issue of the standalone financial statement by the Board of Directors, the Company has no subsequent event which either warrant a modification in value of assets and liabilities or any other disclosure.

Source : Dion Global Solutions Limited
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