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Pioneer Distilleries

BSE: 531879|NSE: PIONDIST|ISIN: INE889E01010|SECTOR: Breweries & Distilleries
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Notes to Accounts Year End : Mar '18

Notes to the Financial Statements

(i) Financing arrangements

The Company has access to the following undrawn borrowing facilities as at the end of the reporting period:

As at March 31, 2018

As at March 31, 2017

Unsecured facility from Bank, repayable at demand

420,832,934

153,136,668

(ii) The following is the contractual maturilties of the financial liabilities:

Carrying amount

Payable on demand

Less than 1 month

1-12 months

more than 12 months

As at March 31, 2017 Non-derivative liabilities

Borrowings

3,078,960,058

796,863,332

_

17,947,640

1,481,845,353

Trade payables

228,663,877

_

228,663,877

_

_

Other financial liabilities

879,581,951

-

234,402,354

-

645,179,597

4,187,205,886

796,863,332

463,066,231

17,947,640

2,127,024,950

As at March 31, 2018 Non-derivative liabilities

Borrowings

3,061,012,418

1,579,167,066

-

26,517,603

1,455,327,749

Trade payables

220,718,263

-

220,718,263

-

-

Other financial liabilities

839,483,680

-

84,637,654

-

754,846,026

4,121,214,361

1,579,167,066

305,355,917

26,517,603

2,210,173,775

b. Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk includes investment, deposits, foreign currency receivables and payables. The Company''s treasury team manages the Market risk, which evaluates and exercises independent control over the entire process of market risk management.

(i) Foreign currency risk

Foreign currency risk can only arise on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Company''s functional and presentation currency is INR. The Company does not have any foreign currency transactions and hence is not exposed to the Foreign Currency Risks.

(ii) Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market interest rates. The Company''s long term borrowings have fixed rate of interest and are carried at amortised costs. Hence, the Company is not subject to the interest rate risk since neither the carrying amount nor the future cash flows will change due to change in the market interest rates.

Working capital facility and loan from holding company are, as per contractual terms, primarily of long term in nature, which does not exposes company to significant interest rate risk.

c. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counter-party fails to meet its contractual obligations. The Company is exposed to credit risks from its operating activities, primarily trade receivables, cash and cash equivalents, deposits with banks and other financial instruments.

Credit risk is managed by the Company through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. Company''s major sales are to its holding company, United Spirits Limited (USL). USL has extended trade advance to support the operations of the Company. Hence, the credit exposure is assessed to be negligible.

Exposure to the Credit risks As at March 31, 2018 As at March 31, 2017
2017Financial assets for which loss allowance is measured using 12 months Expected Credit Losses (ECL)
- Deposits 6,552,966 14,309,670
6,552,966 14,309,670
Exposure to the Credit risks
Financial assets for which loss allowance is measured using Life time Expected Credit Losses (ECL)
Trade Receivables 1,903,364 14,192,497
1,903,364 14,192,497

Trade and other receivables

The Company considers the probability of default upon initial recognition of assets and whether there has been a significant increase in credit risks on an ongoing basis throughout each reporting period.

To assess whether there is a significant change increase in credit risk the Company compares the risks of default occurring on the assets as at the reporting date with the risk of default as at the date of initial recognition. It considers the reasonable and supportive forward looking information such as:

(i) Actual or expected significant adverse changes in business.

(ii) Actual or expected significant changes in the operating results of the counterparty.

(iii) Financial or economic conditions that are expected to cause a significant change to the counterparty''s ability to meet its obligations

(iv) Significant increase in credit risk on other financial instruments of same counterparty

Ageing of the accounts receivables

As at March 31, 2018

As at March 31, 2017

Not due

-

-

0-30 days

1,495,718

4,135,331

30-60 days

-

1,189,090

60-90 days

-

3,128,992

90-180 days

32,316

4,186,521

> 180 days

2,623,291

2,264,244

4,151,325

14,904,178

Movement in provisions of doubtful debts and advances

As at March 31, 2018

As at March 31, 2017

Opening provision

28,516,195

28,516,195

Add: Additional provision made*

8,614,370

-

Less: Provision write off/ reversed

-

-

Less: Provision utilised against bad debts

-

-

Closing provisions

37,130,565

28,516,195

* Includes charges to rates and taxes

34 (B) Financial instruments

The following methods and assumptions were used to estimate the fair values:

1. Fair value of cash and short-term deposits, trade and other short term receivables, trade payables, other current liabilities, short term loans from banks and other financial institutions approximate their carrying amounts, largely due to short term maturities of these instruments.

2. Financial instruments with fixed and variable interest rates are evaluated by the Company based on parameters such as interest rates and individual credit worthiness of the counterparty. Based on this evaluation, allowances are taken to account for expected losses of these receivables. Accordingly, fair value of such instruments is not materially different from their carrying amounts.

35 Capital risk management

The Company''s objectives when managing capital are to :

» safeguard their ability to continue as a going concern, so that they can continue to provide returns

for shareholders and benefits for other stakeholders, and > maintain an optimal capital structure to reduce the cost of capital

In order to maintain or adjust the capital structure, the Company may issue new shares, adjust the amount of dividends paid to shareholders etc.

The Company monitors capital using a gearing ratio being a ratio of net debt as a percentage of total capital. _______________________________

As at March 31, 2018

As at March 31, 2017

Total equity attributable to equity shareholders of the Company

255,795,636

(448,535,249)

Net debt (Total borrowings less cash and cash equivalents)

3,058,800,679

3,075,707,518

Total capital (Borrowings and Equity)

3,314,596,315

2,627,172,269

Gearing ratio

92%

117%

36 Related Party Disclosure

A Names of related parties and description of relationship

(a) Related Parties where control exists :

United Spirits Limited, immediate holding company Diageo PLC., ultimate holding company

(b) Fellow subsidairies :

Sovereign Distilleries Limited Tern Distilleries Private Limited Four Seasons Wines Limited

(c) Key management personnel:

Non-executive directors

(i) R Krishnamurthy, Chairman

(ii) Junia Sebastian

(iii) Mamta Sundara

(iv) Ajay Kumar Goel (from March 7, 2018)

(v) Sanjeev Kumar Gupta (from March 7, 2018)

Executive director

(i) B V Krishna Reddy, Managing Director

(c) Employees'' benefit plans :

Pioneer Distilleries Employees'' Gratuity Trust

B Summary of transactions with related parties during the year is as follows:

Immediate holding company

For the year ended March 31, 2018

For the year ended March 31, 2017

- Sale of goods*

613,904,503

519,203,083

- Finance costs (including guarantee commission) -

127,714,191

139,063,672

Income under tie-up manufacturing arrangement

53,343,974

44,518,616

- Salary recharge (reimbursement)

-

3,184,129

Fellow subsidiaries

- Salary recharge (outbound)

1,866,471

-

- Purchase of property, plant and equipments

7,149,620

-

Key management personnel Executive director

- Remuneration

8,508,548

8,000,420

Non-executive directors

- Sitting fee

824,000

613,500

Employees'' benefit plans

- Contribution to fund

1,614,483

10,000,000

* Excludes gross sale of IMFL amounting to Rs 3,909,934,919 (March 31, 2017: Rs. 4,034,356,902) and purchase of key ingredients amounting to Rs. 32,534,153 (March 31, 2017: Rs. 21,087,742) under tie-up manufacturing arrangement. Refer note 37.

C Outstanding balances as at the year-end are as follows:

As at March 31, 2018

As at March 31, 2017

Immediate holding company

- Non-current borrowing

(1,353,906,529)

(1,353,906,529)

- Interest accrued but not due on above

(754,846,026)

(645,179,597)

- Trade advance

(1,481,138,309)

(1,619,471,242)

- Receivable towards tie-up manufacturing arrangement

202,720,777

296,034,087

(refer note 37)

Fellow subsidiaries

- Receivable towards salary recharges

1,661,479

-

Employees'' benefit plans

- Payable towards contribution

6,099,709

9,567,481

D General terms and conditions

Transactions with related parties are carried out in the normal course of business and are generally on normal commercial terms.

37 Tie up manufacturing arrangement:

(a) The Company has entered into a tie-up manufacturing agreement with United Spirits Limited (''USL''), the holding company. In terms of this agreement, the Company manufactures, under USL''s supervision, brands owned and marketed by USL. Under Ind-AS 18 on ''Revenue'', the Company has assessed its relationship with USL to be that of an agent. Further, under the arrangement, the Company is entitled to bottling fees which is determined based on output and volume. Risk and rewards of the activity rests with USL.

(b) The income under tie-up manufacturing arrangement included in Revenue from operations is as below

For the year ended March 31, 2018

For the year ended March 31, 2017

Income under tie-up manufacturing agreement

53,343,974

44,518,616

(c) The gross sales, excise duty and cost of goods sold (the net impact of which is nil) in respect of the tie up manufacturing arrangement as indicated below in the respect of these operations have not been disclosed by the Company in the Statement of Profit and Loss

For the year ended March 31, 2018

For the year ended March 31, 2017

Gross sales

5,158,882,588

4,034,356,902

Excise duty

(4,187,723,338)

(3,367,311,224)

Cost of goods sold

(971,159,250)

(667,045,678)

Net Impact

-

-

(d) The net working capital in respect of the tie up manufacturing arrangement as indicated below have been with the outstanding balance of USL

As at March 31, 2018

As at March 31, 2017

Inventories

153,781,778

74,202,580

Other current assets

28,931,916

(18,699,955)

Financial liabilities

Trade payables

(97,714,658)

(134,827,162)

Other current financial liabilities

(87,625,711)

(30,939,632)

Other current liabilities

(200,094,102)

(185,769,918)

(202,720,777)

(296,034,087)

(e) The details of property, plant and equipment used in tie-up manufacturing arrangements with USL are given below:

Buildings

Plant and equipment

Total

Year ended March 31, 2017

Gross carrying amount Opening gross carrying amount

188,932,829

68,378,716

257,311,545

Additions

-

30,770,980

30,770,980

Closing gross carrying amount

188,932,829

99,149,696

288,082,525

Accumulated depreciation

Opening accumulated depreciation

8,232,781

4,347,256

12,580,037

Depreciation charge for the year

8,260,656

6,396,625

14,657,281

Closing accumulated depreciation

16,493,437

10,743,881

27,237,318

Net carrying amount

172,439,392

88,405,815

260,845,207

Year ended March 31, 2018 Gross carrying amount

Opening gross carrying amount

188,932,829

99,149,696

288,082,525

Additions

2,400,379

28,630,336

31,030,715

Closing gross carrying amount

191,333,208

127,780,032

319,113,240

Accumulated depreciation

Opening accumulated depreciation

16,493,437

10,743,881

27,237,318

Depreciation charge for the year

8,285,431

7,115,220

15,400,651

Closing accumulated depreciation

24,778,868

17,859,101

42,637,969

Net carrying amount

166,554,340

109,920,931

276,475,271

38 Leases

(a) The Company has operating leasing arrangements for warehouse facilities that are renewable on a periodic basis. Rental expenses for operating leases recognised in the Statement of profit and loss is Rs. 5,835,882 (March 31, 2017: Rs. 4,818,821). The Company does not have any non-cancellable leases and thus no disclosures in this regard is given.

(b) Refer note 37 for disclosures relating to tie-up manufacturing arrangement.

39 In view of the Company''s business plan and the letter of financial support received from the holding Company, United Spirits Limited, these financial statements are prepared on a going concern basis.

40 Since the average net profit of the Company during the three immediately preceding financial years is negative, the Company has no obligation to spend towards the Corporate Social Responsibility as required under the provisions of Section 135 of the Act.

41 Previous year''s figures have been regrouped/ reclassified to conform to the current year''s presentation for the purpose of comparability.

As per our report of even date attached

For and on behalf of the Board of Directors

For Price Waterhouse & Co Chartered Accountants LLP

R. Krishnamurthy

BV Krishna Reddy

Firm Registraton Number - 304026E/E-300009

Chairman

Managing Director

DIN: 0006940830

DIN: 0007293482

Gautam Dharamshi

Sanjoy Sarkar

Akshara B L

Partner

Chief Financial Officer

Company Secretary

Membership Number - 042393

Place: Bangalore

Place: Bangalore

Date: April 24, 2018

Date: April 24, 2018

Source : Dion Global Solutions Limited
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