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Polycab India

BSE: 542652|NSE: POLYCAB|ISIN: INE455K01017|SECTOR: Cables - Power & Others
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Notes to Accounts Year End : Mar '19

1 Corporate information

Polycab India Limited (‘The Company’) is a public Limited company (CIN- U31300DL1996PLC266483) domiciled in India and incorporated under the provisions of the Companies Act, 1956. The status of the Company Polycab Wires Private Limited has been changed from Private Limited to Public Limited as per the approval received from Registrar of Companies, delhi on August 29, 2018 and consequently the name of the Company has been changed to Polycab Wires Limited. The name of the Company has been further changed to Polycab India Limited with Certificate of Incorporation pursuant to change of name dated October 13,2018. The Registered office of the company is situated at E-554, Greater kailash-ll, New delhi-110048. The Company is one of the Largest manufacturers of various types of cables and wires. The Company is also in the business of Engineering, Procurement and Construction (EPC) projects, Manufacturing and trading of Electrical Wiring Accessories, Electrical appliances and Agro Pipe and pumps. The Company’s manufacturing facilities are Located at Daman in Daman and Diu, halol in Gujarat, Nashik in Maharashtra and Roorkee in Uttarakhand.The Company caters to both domestic and International markets.

The Company has entered into the Listing agreement with the Securities and Exchange Board of India (‘SEBI’) on 15 April 2019, pursuant to the requirements of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as a result of which its shares have started trading on the national Stock Exchange (NSE) and Bombay Stock Exchange (BSE) on 16 April 2019.

2.1 Significant accounting judgements, estimates and assumptions

In the course of applying the policies outlined in all notes, the Company is required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

(a) Judgements

In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Standalone Financial Statements:

Leasehold land arrangement

The Company has entered into land lease arrangement at various locations. Terms of such lease ranges from 30-90 years. In case of lease of land for 90 years and above, it is likely that such leases meet the criteria that at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the Leased asset.accordingly,such Lease is classified as finance Lease.Other Land Lease are classified as operating leases.

(b) Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next Financial year, are described below. The Company based its assumptions and estimates on parameters available when the Standalone Financial Statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

(i) Cost to complete

The Company’s management estimate the cost to complete for each project for the purpose of revenue recognition and recognition of anticipated losses of the projects, if any. In the process of calculating the cost to complete, Management conducts regular and systematic reviews of actual results and future projections with comparison against budget. The process requires monitoring controls including Financial and operational controls and identifying major risks facing the Company and developing and implementing initiative to manage those risks. The Company’s Management is confident that the costs to complete the project are fairly estimated.

(ii) Impairment of investments in subsidiaries and joint-ventures

Determining whether the investments in subsidiaries, joint ventures and associates are impaired requires an estimate in the value in use of investments. In considering the value in use,the Directors have anticipated the future market conditions and other parameters that affect the operations of these entities.

(iii) Provisions and liabilities

Provisions and liabilities are recognized in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events that can reasonably be estimated. The timing of recognition requires application of judgement to existing facts and circumstances which may be subject to change. The amounts are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

(iv) Contingencies

In the normal course of business, contingent liabilities may arise from litigation and other claims against the Company. Potential liabilities that are possible but not probable of crystallising or are very difficult to quantify reliably are treated as contingent liabilities. Such liabilities are disclosed in the notes but are not recognized.

(v) Fair value measurements

When the fair values of Financial assets or Financial liabilities recorded or disclosed in the Standalone Financial Statements cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including multiples and the Discounted Cash flow (DCF model). The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgements include consideration of inputs such as liquidity risk, credit risk and volatility.

(vi) Taxes

Deferred tax assets are recognised for unused tax Losses to the extent that it is probable that taxable profit will be available against which the Losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

(vii) Impairment of non-Financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If an indication exists, or when the annual impairment testing of the asset is required, the Company estimates

The asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value Less costs of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from the other assets or group of assets. When the carrying amount of an asset or CGU exceeds it recoverable amount, the asset is considered as impaired and it’s written down to its recoverable amount.

(viii) Defined benefit plans

The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its Long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. ALL assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation.

The mortality rate is based on publicly available mortality tables for the specific countries. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates.

The Company recognize the following changes in the net defined benefit obligation under employee benefit expenses in statement of Standalone Statement of Profit & Loss:

A) Service cost comprising current service costs, past service costs, gains and Losses on curtailments and non-routine settlements.

B) Net interest expense or lncome.

Remeasurements, comprising of actuarial gains and Losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Standalone balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or Loss in subsequent periods.

2.2 Standards Issued but not Effective:

The Company has applied the Companies (Indian Accounting Standards), Amendment Rules 2018 which is effective from 01 April 2018,while preparing the restated Ind as financial statements.

Accordingly, the Company has applied the standards and interpretations issued which are not effective to the reporting period presented. Thus, all the Ind AS applicable till date have been applied, and there are no standards which are issued but not yet effective, (refer note 47)

(ii) The above includes inventories held by third parties amouting to Rs. 1787.77 million (31 March 2018 - Rs. 29.80 million)

(iii) During the year ended 31 March 2019, Rs. 39.04 million (31 March 2018 - Rs. 13.00 million ) was recognised as an expense for inventories carried at net realisable value.

(iv) Inventories are hypothecated with the bankers against working capital Limits. (Refer note - 18(A))

(v) The Company enters into purchase contract of copper and aluminium, in which the amount payable is not fixed on the date of purchase and the same is affected by changes in LME prices in future. Such transactions are entered into to protect the Company against the risk of price movement in the purchased copper and aluminium. This is designated as a fair value hedge as it is taken to hedge the exposure to changes in fair value due to commodity price risks. The open hedge exposures are valued at the fair value and the impact is adjusted to the value of the inventory to the extent the hedged is considered effective. (Refer Note 42 (A)(iii))

Notes

- Trade receivables are non-interest bearing and are Generally on credit terms up to 90 days except EPC business.

- For EPC business trade receivables are non-interest bearing and credit terms are specific to contracts.

- For explanations on the Company’s credit risk management processes, refer note 42(B)

- The Company follows life time expected credit loss model. Accordingly, deterioration in credit risk is not required to be evaluated annually.

On 31 March 2019,the Company classified certain property, plant and equipmentrs. 0.22 million (31 March 2018 Rs. 2.58 million) and other asset Nil (31 March 2018 Rs. 0.12 million) retired from active use and held for sale recognised and measured in accordance with Ind-AS 105“Non Current Assets Held For Sale and Discontinued Operations “at lower of its carrying amount and fair value less costto sell. The Company expects to complete the sale in Financial year 2019-20.

(C) TERMS/RIGHTS ATTACHED TO EOUITY SHARES

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

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

Subject to the approval of the shareholders in the ensuing Annual General Meeting of the Company, the Board of Directors has recommended a final dividend of Rs. 3/- per equity share of Rs. 10/- each (30%) for the Financial year 2018-19. During the year ended 31 March 2018, the amount of per share interim dividend recognized and paid to equity shareholders Rs. 1 per share.

As per records of the Company, including its register of shareholders/members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares, including shares held in the name of individual’s trust.

* During the year ended 31 March 2019, 2,18,17,870 equity shares were transferred to an escrow account by the shareholders in a

Pre-Initial Public Offer (IPO) sale in the proportion mentioned below. These shareholders continue to be the beneficial owners of the shares until the completion of the IPO process.

The equity shares of the Company were Listed on national Stock Exchange of India Limited (NSE) via ID POLYCAB and BSE Limited (BSE) via ID 542652 on 16 April 2019.

The Company has estimated Rs. 554.10 million as IPO related expenses and allocated such expenses between the Company Rs. 165.33 million and selling shareholders Rs. 388.77 million in proportion to the equity shares allotted to the public as fresh issue by the Company and under offer for sale by selling shareholders respectively. As at 31 March 2019, the total amount attributable to the Company amounting to Rs. 148.28 million has been adjusted to securities premium and balance amountRs. 17.05 million charged off to Profit and Loss account.

(E) Aggregate number of bonus share issued and share issued for consideration other than cash during the period of 5 years immediately preceding the reporting date :

70,602,919 equity shares of Rs. 10 each fully paid up issued as Bonus shares in the ratio of 1:1 by capitalization of Securities premium during the year ended 31 March 2015.

* Securities premium represents the surplus of proceeds received over the face value of share at the time of issue of shares. The Company’s share of IPO expenses has been adjusted with securities premium account considering the successful completion of IPO process on 16 April 2019.

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

# The Company has two stock option schemes under which options to subscribe for the Company’s shares have been granted to certain employees. The ESOP Outstanding is used to recognise the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to Note 36(C) for further Details of these plans.

The above loans are secured by way of:

I) First pari passu charge byway of registered mortgage on specific immovable fixed assets at Halol and hypothecation of all movable fixed assets acquired on or after 1 April 2015.

Ii) Second pari passu charge byway of hypothecation of all movable fixed assets appearing in balance sheet as on 31 March 2015 and on all current assets of the Company.

Iii) Charges with respect to above borrowing has been created in favor of lead banker in the consortium. No separate charge created for each of the borrowing.

Notes

(i) 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 relating to income taxes Levied by the same tax authority.

(ii) The Company has received CIT(A) order dated 09 March 2018 for AY 2012-13,2013-14,2014-15 and 2015-16 allowing Company’s major claims relating to sales tax subsidy as capital receipt, Additional depreciation, disallowance u/s 14A read with rule 8D and consequently carry forward losses and payment of tax under MAT. Company’s claim was partly allowed, Income Tax Dept has filed appeals in the tribunal against the Company and Company has also filed appeal against disallowance in these orders, Since subject matter is pending in the higher courts and therefore Company has not accounted for refund received/receivable on these orders which is Rs.1,003.42 million including interest Rs. 163.89 million u/s 234B and 234C of the Income Tax Act, 1961.

Note

(i) Secured borrowings from banks are secured against pari passu first charge byway of hypothecation of inventories and receivables .

(ii) Pari passu first charge on specific properties , plant and equipment’s of the Company such as Daman staff quarters, Daman godown premises, factory land and building at Halol and Daman and office building at Mumbai.

(iii) Pari passu first charge byway of hypothecation of all movable fixed assets appearing in balance sheet as on 31 March 2015.

(iv) Pari passu second charge byway of registered mortgage on all movable assets acquired on or after 1 April 2015.

(v) Charges with respect to above borrowing has been created in favour of lead banker in the consortium. No separate charge has been created for each of the borrowing.

3 Current Financial liabilities

(i) Acceptances represent amounts payable to banks on due date as per usance period of Letter of Credit (lcs) issued to raw material vendors under non-fund based working capital facility approved by Banks for the Company. These letter of credit are discounted by the vendors with their banks and the payments are made on due date to Banks by the Company along with interest payable as perterms of lcs. Non-fund limits are secured by first pari-passu charge over the present and future current assets of the Company.

(ii) For explanations on the Group’s liquidity risk management processes. (Refer note - 42 (C))

(iii) Information as required to be furnished as per section 22 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) for the year ended 31 March 2019 and year ended 31 March 2018 is given below. This information has been determined to the extent such parties have been identified on the basis of information available with the Company.

iv) Revenue from contracts with customers includes excise duty collected of ‘ Nil (31 March 2018: Rs. 1,437.51 Million). Revenue from contracts with customers net of applicable taxes is Rs. 79,053.21 Million (31 March 2018: Rs. 67,518.55 million). Revenue from operations for previous periods up to 30 June 2017 includes excise duty. From 1 july 2017 onwards the excise duty and most indirect taxes in India have been replaced Goods and Service Tax (GST). The Company collects GST on behalf of the Government. Hence, GST is not included in Revenue from operations. In view of the aforesaid change in indirect taxes, Revenue from operations for the year ended 31 March 2019 is not comparable with 31 March 2018.

V) Trade receivables are non-interest bearing and are Generally on terms of 30 to 90 days. In 31 March 2019, Rs. 540.92 Million (31 March 2018: Rs. 421.00 Million) was recognised as provision for expected credit Losses on trade receivables. The Company has channel finance arrangement for providing credit to its dealers. Evaluation is made as per the terms of the contract i.e. If the Company does not retain any risk and rewards or control over the Financial assets, then the entity derecognises such assets upon transfer of Financial assets under such arrangement with the banks.

Vi) Contract assets are initially recognised for revenue earned from installation services as receipt of consideration is conditional on successful completion of installation. Upon completion of installation and acceptance/certifications by the customer, the amounts recognised as contract assets are reclassified to trade receivables. The increase in contract assets in March 2019 is the result of the increase in ongoing installation services at the end of the year. In March 2019, Rs.7.58 Million (March 2018: Nil) was recognised as provision for expected credit Losses on contract assets.

Vii) Contract liabilities include advances received towards EPC projects as well as transaction price allocated to unexpired service contracts. The outstanding balances of these accounts increased in 2018-19 due to the continuous increase in the Company’s customer base and contracts where billing is in excess of revenue.

X) Performance obligation

Aggregate amount of the transaction price (net of tax) allocated to Long-term construction contracts that are partially or fully unsatisfied as at 31 March 2019 Rs.14,431.36 Million (31 March 2018 Rs.8,518.78 Million).The unsatisfied performance obligation is expected to be recognised within 24 months. Based on the General trend of period of contract and its period of execution approximately 54% of the unsatisfied performance obligation amount is expected to be satisfied within one year. The remaining amount is expected to be realised within the next 12-24 months. In certain contract, where the company has extended warranty/ maintenance services obligation,a separate performance obligation is identified and the transaction price is allocated accordingly.

Xi) Impact of lnd AS115

Ind AS 115 “ Revenue from Contracts with Customers” is mandatory for reporting periods beginning on or after 1 April 2018 and has replaced existing Ind AS related thereto.The Company has adopted the modified retrospective approach under the standard. Under this approach, no adjustments were required to be made to the retained earning as at 1 April 2018. Also the application of Ind AS 115 did not have any significant impact on recognition and measurement of revenue and related Items In the Financial results for the year 31 March 2019.

Xii) Disclosure in terms of Ind AS 111 on the accounting of joint operation

The Company has 50% interest in a joint operation with GTPL hathway Limited for an EPC project ofrs. 10,738.40 million, which has been awarded by Gujarat Fibre Grid Network Limited (GFGNL) during the FY 2018-19. The principle place ofjoint operation is in India.

The arrangements require unanimous consent from all parties for all relevant activities and hence it is classified as joint operation. The partners to the agreement have direct right to the assets and are jointly and severally Liable for the liabilities incurred by the un- incorporated joint operation. In accordance with Ind AS 111 on “Joint Arrangements’’ the Financial statements of the Company includes the Company’s share in the assets, liabilities, incomes and expenses relating to joint operations based on the Financial statements received from the respective operators. The income, expenditure, assets and liabilities of the joint operations are merged on line by line basis according to the participating interest with the similar items in the Financial Statements of the Company.

The table below provides summarized Financial information of the company’s share of assets, liabilities, income and expenses in the joint operations.

4 Earnings per share (EPS)

Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.

For the purpose of calculating diluted earnings per share, the net profit or losses for the year attributable to the equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares unless the effect of the potential dilutive equity shares is anti-dilutive.

Employee Stock Option Plan 2018

Pursuant to the resolutions passed by our Board on August 30, 2018 and our Shareholders on August 30, 2018, the Company approved the Employee Stock Option plan 2018 for issue of options to eligible employees which may result in issue of Equity Shares of not more than 35,30,000 Equity Shares. The company reserves the right to increase, subject to the approval of the shareholders, or reduce such numbers of shares as it deems fit.

The exercise of the vested option shall be determined in accordance with the notified scheme under the plan.

Employee Stock Option Performance Scheme 2018 and Employee Stock Option Privilege Scheme 2018

The Company also approved Employee Stock Option Performance Scheme 2018 and Employee Stock Option Privilege Scheme 2018 under which the maximum number of options granted to any grantee under “Performance Scheme” together with options granted in any other scheme shall not exceed 1 percent of the total share capital at the time of grant.

5 Commitments and contingencies

(A) LEASES

Operating lease: Company as lessee

The Company has taken industrial premises, residential building, Land (space for godowns) under various Lease agreements. There are no restrictions placed upon the Company by entering into these Leases. There are no clauses on contingent rent.

There are numerous interpretative issues relating to the Supreme Court (SC) judgement on PF dated 28th February, 2019. The company will update its provision, on receiving further clarity on the subject.

In respect of the items above, future cash outflows in respect of contingent Liabilities are determinable only on receipt of judgements/decisions pending at various forums/authority. The Company doesn’t expect the outcome of matters stated above to have a material adverse effect on the Company’s Financial conditions, result of operations or cash flows.

6 Gratuity and other post-employment benefit plans

(A) DEFINED BENEFIT PLAN-AS PER ACTUARIAL VALUATION

The Company operates a defined benefit plan, viz., gratuity for its employees. Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy.

The following tables summarise the components of net benefit expenses recognised in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for gratuity.

The average expected future service as at 31 March 2019 is 8 years(31 March 2018 - 8 years).

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

The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

Sensitivity analysis is an analysis which will give the movement in liability if the assumptions were not proved to be true on different count. This only signifies the change in the liability if the difference between assumed and the actual is not following the parameters of the sensitivity analysis.

Maturity analysis of projected benefit obligation from the fund.

(C) SHARE-BASED PAYMENTS

employee stock option plan

During the year ended 31 March 2019, the Company had instituted an ESOP plan 2018, ESOP Performance Scheme, and ESOP privilege Scheme as approved by the Board of Directors and Shareholders dated 30 August 2018 for issuance of stock option to eligible employees of the Company.

Under employee Stock Options Performance Scheme 2018 the options will be vested in the specified ratio subject to fulfilment of the employee performance criteria Laid down in the scheme. This shall be monitored annually as per the performance evaluation cycle of the company and options shall vest based on the achieved rating to the employee.

Under employee Stock Options privilege Scheme 2018 the options are vested over a period of one year subject to fulfilment of service condition.

Expected volatility is based on historical stock volatility of comparable Companies operating within the same industry. The historical stock prices of comparable Companies has been observed for a period commensurate to the Life of option.

Pursuant to the said scheme, Stock options convertible into 2,147,500 equity shares vide ESOP Performance Scheme (Previous year: NIL) and 142,250 equity shares vide ESOP privilege Scheme (Previous year: NIL) of Rs. 10 each were granted to eligible employee at an exercise price of Rs. 405/-.

7 related party Disclosures

KEY MANAGEMENT PERSONNEL

Mr. Inder T. Jaisinghani Chairman and Managing Director

Mr. R. Ramakrishnan Chief Executive *

Mr. Ramesh T. Jaisinghani Whole time Director

Mr. Ajay T. Jaisinghani Whole time Director

Mr. Shyam lal Bajaj Chief Financial officer (w.e.f. 25 September 2018) and Whole time

Director- Finance (w.e.f. 15 December 2016)

Mr. Radhey Shyam Sharma Independent Director (w.e.f. 20 September 2018)

Mr. Tilokchand Punamchand ostwal Independent Director (w.e.f. 20 September 2018)

Mr. Pradeep Poddar Independent Director (w.e.f. 20 September 2018)

Mrs. Hiroo Mirchandani Independent Director (w.e.f. 20 September 2018)

Mr. Subramaniam Sai Narayana Company Secretary and compliance officer

*Mr. R. Ramakrishnan was Key Management personnel and Joint Managing Director of the Company till 23 May 2018.

Relatives of Key management personnel

Mr. Bharat A. Jaisinghani Son of Mr. Ajay T. Jaisinghani

Mr. Girdhari T. Jaisinghani Brother of Mr. Inder T. Jaisinghani

Mr. Kunal I. Jaisinghani Son of Mr. Inder T. Jaisinghani

Mr. Nikhil R. Jaisinghani Son of Mr. Ramesh T. Jaisinghani

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 period-end are unsecured and interest free and settlement occurs in cash. For the year 31 March 2019, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2018:’ 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.

8 Fair value measurements

Set out below, is a comparison by class of the carrying amounts and fair value of the Company’s Financial instruments, other than those with carrying amounts tha tare reasonable approximations of fair values:

Interest rate swaps, foreign exchange forward contracts and embedded commodity derivative are valued using valuation techniques, which employ the use of market observable inputs( closing rates of foreign currency and commodities).

Embedded foreign currency and commodity derivatives are measured similarly to the foreign currency forward contracts and commodity derivatives. The embedded derivatives are commodity and foreign currency forward contracts which are separated from purchase contracts . The management assessed that cash and cash equivalents, trade receivables, trade payables, short-term borrowings, loans to related party, loans to employees, short term security deposit and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of the Financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values.

Fixed-rate and variable-rate loans are evaluated by the Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer. Based on this evaluation, allowances are taken into account for the expected credit losses of these receivables.

The fair values of the Company’s interest-bearing borrowings and loans are determined by using DCF method using discount rate that reflects the issuer’s borrowing rate as at the end of the reporting period. The non- performance risk as at 31 March 2019 was assessed to be insignificant.

The fair values of the mutual funds are based on NAV at the reporting date.

The fair value of interest rate swaps are based on MTM bank rates as on reporting date.

The fair value of put option is determined using Monte Carlo Simulation which assumes a Geometric Brownian Motion for the modelling equity value. The key assumptions used for fair valuation of Put option are:

A) costofequity-17.0%-17.5%

B) WACC-12.5%-12.75%

C) Terminal growth rate - 6.0%

The Company enters into derivative Financial instruments with various counterparties, principally Financial institutions with investment grade credit ratings. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves. All derivative contracts are fully cash collateralised, thereby eliminating both counterparty and the Company’s own non-performance risk. Mark-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value.

9 Financial risk management objectives and policies

The Company’s principal Financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main purpose of these Financial liabilities is to finance the Company’s operations and to provide guarantees to support its operations. The Company’s principal Financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations. The Company also holds FVTPL investments and enters into derivative transactions.

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s senior management’ focus is to foresee the unpredictability and minimize potential adverse effects on the Company’s Financial performance. The Company’s overall risk management procedures to minimise the potential adverse effects of Financial market on the Company’s performance are as follows:

(A) 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 include loans and borrowings, deposits, FVTPL investments and derivative Financial instruments.

(i) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a Financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the company’s long-term debt Obligations with floating interest rates.

The Company manages its interest rate risk by having a fixed and variable rate loans and borrowings. The Company’s approach is to keep its majority of borrowings at fixed rates of interest for long term funding. The Company also enters into interest rate swaps for long term foreign currency borrowings, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. At 31 March 2019, after taking into account the effect of interest rate swaps, approximately 72 % of the Company’s borrowings are at a fixed rate of interest (31 March 2018: 96%).

INTEREST RATE SENSITIVITY

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of Loans and borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Company’s profit before tax is affected through the impact on floating rate borrowings, as follows:

(ii) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a foreign currency) and the Company’s borrowings in foreign currency.

10 Financial risk management objectives and policies

FOREIGN CURRENCY SENSITIVITY

The following tables demonstrate the sensitivity to a reasonably possible change in USD, Euro, GBP and CHF exchange rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives and embedded derivatives. The Company’s exposure to foreign currency changes for all other currencies is not material. Sensitivity due to unhedged Foreign Exchange Exposures is as follows:

(iii) Commodity price risk

The Company’s exposure to price risk of copper and aluminium also arises from trade payables of the Company where the prices are linked to LME. Payment is therefore sensitive to changes in copper and aluminium prices. The trade payables are classified in the balance sheet as fair value through profit or loss. The option to fix prices are at future unfixed LME prices to hedge against potential Losses in value of inventory of copper and aluminium held by the Company. With effect from 1 April 2016, the Company applies fair value hedge for the copper and aluminium purchased whose price is to be fixed in future. Therefore, there is no impact of the fluctuation in the price of the copper and aluminium on the Company’s profit for the year ended 31 March 2019 to the extent of inventory on hand.

(B) CREDIT RISK

Credit risk is the risk that counterparty will not meet its Obligations under a Financial instrument or customer contract, leading to a Financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and Financial institutions, foreign exchange transactions and other Financial instruments.

(i) Trade receivables

Credit risk has always been managed 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.On account of adoption of ind as 109,the Company uses expected credit loss model to assess the impairment loss or gain. The Company has applied Expected credit loss (ECL) model for measurement and recognition of impairment losses on trade receivables. ECL has been computed as a percentage of revenue on the basis of Company’s historical data of delay in collection of amounts due from customers and default by the customers along with management’s estimates.

The Company has channel finance arrangement for providing credit to its dealers. Evaluation is made as perthe terms of the contract i.e. If the Company does not retain any risk and rewards or control over the Financial assets, then the entity derecognises such assets upon transfer of Financial assets under such arrangement with the banks._

(C) LIQUIDITY RISK

The Company’s principle sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company believes that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived. The Company closely monitors its liquidity position and maintains adequate source of funding.

11 Hedging activity and derivatives

Fair value hedge of copper and aluminium price risk in inventory

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s senior management’ focus is to foresee the unpredictability and minimize potential adverse effects on the Company’s Financial performance. The Company’s overall risk management procedures to minimise the potential adverse effects of Financial market on the Company’s performance are as follows:

The Company enters into contracts to purchase copper and aluminium wherein the Company has the option to fix the purchase price based on LME price of copper and aluminium during a stipulated time period. Accordingly, these contracts are considered to have an embedded derivative that is required to be separated. Such feature is kept to hedge against exposure in the value of inventory of copper and aluminium due to volatility in copper and aluminium prices. The Company designates the embedded derivative in the payable for such purchases as the hedging instrument in fair value hedging of inventory. The Company designates only the spot-to-spot movement of the copper and aluminium inventory as the hedged risk. The carrying value of inventory is accordingly adjusted for the effective portion of change in fair value of hedging instrument. Hedge accounting is discontinued when the hedging instrument is settled, or when it no longer qualifies for hedge accounting or when the hedged item is sold.

To test the hedge effectiveness between embedded derivatives and LME prices of Copper and Aluminium, the Company uses the said prices during a stipulated time period and compares the fair value of embedded derivative against the changes in fair value of LME price of copper and aluminium attributable to the hedged risk.

The Company has established a hedge ratio of 1:1 for the hedging relationships as the underlying embedded derivative is identical to the LME price of Copper and Aluminium. The hedge ineffectiveness can arise from the difference in timing of embedded derivative and LME strike price of Copper and Aluminium.

Disclosure of effects of fair value hedge accounting on Financial position:

Hedged item - Changes in fair value of inventory attributable to change in copper and aluminium prices.

Hedging instrument- Changes in fair value of the embedded derivative of copper and aluminium trade payables, as described above.

12 Capital management

For the purpose of the Company’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Company’s capital management is to maximise the shareholder value.

The Company manages its capital structure and makes adjustments in Light of changes in economic conditions and the requirements of the Financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company’s policy is to keep the gearing ratio between 40% and 60%.The Company includes within net debt, interest bearing Loans and borrowings, trade and other payables, Less cash and cash equivalents.

In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets Financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the Financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the Financial covenants of any interest-bearing loans and borrowing in the current period.

No changes were made in the objectives, policies or processes for managing capital during the year ended 31 March 2019 and year ended 31 March 2018.

13 Provision for investment and loan to subsidiary

“As at 31 March 2019, the Company has investment of Euro 150,000 (Rs. 10.89 million) and Loan of Euro 388,276.11 C 30.17 million) in Polycab italy SRL (PWISRL), a wholly owned subsidiary company situated in italy.

PWISRL in its Financial statement had appropriated an amount of Euro 40,000 C 2.80 million) from Share Capital and Euro 438,276.11 C 34.06 million) from Loan given by the Company, to accumulated Losses of previous years and Capital Reduction Reserve to comply with the applicable italian accounting requirements in an earlier year.

The company had filed a compounding application with Reserve Bank of India (RBI) in response to which RBI directed our company to comply with alternatives. Currently, the company is in the process of evaluating the alternatives directed by RBI and will be responding in due course. Considering the status, no adjustment is made in the Financial statements for the year ended 31 March 2019.”

14 Subsequent events

The Company has completed initial public offering (IPO) including fresh issue of Rs. 4,000 million comprising of 73,88,058 equity shares of Rs. 10/- each at an issue price Rs. 538/- per share and 52,009 equity shares of Rs. 10/- each at an issue price Rs. 485/- per share for employee quota. The equity shares of the Company were Listed on national Stock Exchange of India Limited (NSE) and BSE Limited (BSE) w.e.f. 16 April 2019.

15 Standards issued but not effective

The amendments to standards that are issued, but not yet effective, up to the date of issuance of the Company’s Financial statement are disclosed below. The Company intends to adopt these standards if applicable, when they become effective. The Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) Second Amendment Rules, 2019 applicable from 1 April 2019 amending the following standard:

(i) Impact of Ind AS 116 - Leases

“On 30 March 2019, Ministry of Corporate Affairs has notified Ind AS 116, Leases. Ind AS 116 will replace the existing Leases Standard, Ind AS 17 Leases, and related Interpretations. The Standard sets out the principles for the recognition, measurement, presentation and Disclosure of Leases for both parties to a contract i.e., the Lessee and the Lessor. Ind AS 116 introduces a single Lessee accounting model and requires a Lessee to recognize assets and liabilities for all Leases with a term of more than twelve months, unless the underlying asset is of Low value. Currently, operating Lease expenses are charged to the statement of Profit & Loss. The Standard also contains enhanced Disclosure requirements for Lessees. Ind AS 116 substantially carries forward the Lessor accounting requirements in Ind AS 17

The effective date for adoption of Ind AS 116 is annual periods beginning on or after April 1, 2019. The standard permits two possible methods of transition:

- full retrospective - retrospectively to each prior period presented applying Ind AS 8 Accounting policies, Changes in Accounting Estimates and Errors

- Modified retrospective - retrospectively, with the cumulative effect of initially applying the Standard recognized at the date of initial application. Under modified retrospective approach, the Lessee records the Lease liability as the present value of the remaining Lease payments, discounted at the incremental borrowing rate and the right of use asset either as:

- Its carrying amount as if the standard had been applied since the commencement date, but discounted at Lessee’s incremental borrowing rate at the date of initial application or

- An amount equal to the Lease liability, adjusted by the amount of any prepaid or accrued Lease payments related to that Lease recognized under Ind AS 17 immediately before the date of initial application. Certain practical expedients are available under both the methods.

On completion of evaluation of the effect of adoption of lndas116, the Company is proposing to use the ‘Modified Retrospective Approach’ for transitioning to Ind AS 116,and take the cumulative adjustment to retained earnings, on the date of initial application (April1,2019). Accordingly, comparatives for the year ended 31 March 2019 will not be retrospectively adjusted.”

16 Standards issued but not effective

(ii) Amendment to existing issued Ind AS

“The MCA has also carried out amendments of the following accounting standards:

(a) Appendix C to Ind AS 12: Uncertainty over Income Tax Treatment

(b) Amendments to Ind AS 109: Prepayment Features with Negative Compensation

(c) Amendments to Ind AS 19: plan Amendment, curtailment or Settlement

(d) Amendments to Ind AS 28: Long-term interests in associates and joint ventures

(e) Annual improvement to Ind AS (2018)

Amendments to Ind AS 103: Party to a Joint Arrangements obtains control of a business that is a Joint Operation Amendments to Ind AS lll:Joint Arrangements Amendments to Ind AS 12: Income Taxes Amendments to Ind AS 23: Borrowing Costs application ofabove standards are not expected to have any significant impact on the Company’s Financial Statements.” Polycab India Limited (formerly known as ‘Polycab Wires Limited’)

17 Others

Figures relating to previous years has been regrouped wherever necessary to make them comparable with the current period figures. Figures representing Rs. 0.00 million is below Rs. 5,000.

Source : Dion Global Solutions Limited
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