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Salzer Electronics

BSE: 517059|NSE: SALZERELEC|ISIN: INE457F01013|SECTOR: Electric Equipment
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Notes to Accounts Year End : Mar '18

Details of properties pledged as security - Refer Note No. 20

- The Company has elected to measure items of property, plant and equipment on the date of transition and designate the same as deemed cost on the date of transition at its carrying value, except for certain class of assets which are measured at fair value as deemed cost.

The Company has elected to use the exemption available under Ind AS 101 to continue the carrying value for all its intangible assets as recognized in the financial statements as at the date of transition to Ind AS(s), measured as per previous GAAP and use that as its deemed cost as at the date of transition.

The Reconciliation of Carrying value as per previous GAAP with Deemed cost as per Ind AS:

* Unbilled revenue represents revenue from projects recognized under the percentage of completion method. Revenue is recognized in proportion that the contract costs incurred for work performed up to the reporting date bears to the estimated total contract costs.

Note:-

1. For method of valuation of inventories, refer Note.1. XII

2. Inventories with the above mentioned carrying amount have been hypothecated as security against certain bank.

3. Cost of inventory recognized as expenses:

a. Amount of inventory charged off to Statement of Profit and Loss

b. Amount of inventories stated at fair value less cost to sell and

c. Value of inventory written down

During the year 2017-18, the authorized share capital of the Company Rs.20,00,00,000 Comprising of 2,00,00,000 equity shares of Rs. 10/- has been re-classified as under

i) Rs.19,00,00,000 comprising of 1,90,00,000 Equity Shares of Rs.10/- each

ii) Rs.1,00,00,000 Comprising of 10,00,000 Non Cumulative Convertible Preference Shares of Rs.10/- each

a) The following allotment of shares made to Salzer Magnet Wires Limited on March 16, 2018 as a consideration for other than cash as per the terms of business transfer agreement (BTA) towards acquisition of the whole of the business undertaking as a going concern on slump sale basis:-

- 5,00,000 Equity Shares of Rs.10/- each credited as fully paid-up for a total value of Rs.9.85 Crs

- 5,30,000 Non Cumulative 5% Convertible Preference Shares (NCCPS) of Rs.10/- each credited as fully paid-up for a total value of Rs.10.44 Crs

b) NCCPS are convertible into equity shares of Rs.10/- each credited as fully paid-up over the period of two years from the allotment;

c) Holder of NCCPS are not entitled for any voting rights till its conversion

d) The Company has two class of Shares having par value of Rs.10/- per share namely Equity Shares and NCCPS. Each holder of Equity Shares is entitled to one vote per share.

e) The Company declares and pays Dividend in Indian Rupees.

f) 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

g) Shares held by Holding Company or Ultimate Holding Company - NIL

h) Shareholders holders holding more than 5% shares (equity)

Securities Particulars

*Security: Assets purchased under Term Loan, Extension of equitable mortgage of Land and Building of the Company (Unit-I) Availment: Rs.4,70,58,642/- is availed against sanctioned limit of Rs.5,00,00,000/-.

**Security: Assets purchased under Term Loans, Extension of equitable mortgage of Land and Building of the Company (Unit-I) and guaranteed by Mr. D. Rajeshkumar, Joint Managing Director. Availment: Rs.18,49,78,591/- is availed against sanctioned limit of Rs.29,00,00,000/-. Terms of Repayment: Term Loan Repayable in 12 EMI of Rs.50,00,000 and 1 EMI of Rs.16,72,000/-

# For Citibank Phase I: Terms of Repayment: Plant & Machinery Term Loan Repayable in 7 EMI of Rs.3,48,333/- and 1 EMI of Rs.3,48,670/-

# For Citibank Phase II: Terms of Repayment: Plant & Machinery Term Loan Repayable in 10 EMI of Rs.1,32,500/-

# For Citibank Phase III: Terms of Repayment: Plant & Machinery Term Loan Repayable in 11 EMI of Rs.1,50,000/-

# For Citibank Phase IV: Terms of Repayment: Plant & Machinery Term Loan Repayable in 11 EMI of Rs.1,33,333/- and 1 EMI of Rs.1,33,337

# For Citibank Phase V: Terms of Repayment: Plant & Machinery Term Loan Repayable in 12 EMI of Rs.99,000 and 1 EMI of Rs.1,45,000/-

# For Citibank Phase VI: Terms of Repayment: Plant & Machinery Term Loan Repayable in 14 EMI of Rs.46,667/- and 1 EMI Rs.46,662/-

## Security: Assets purchased under Term Loans, Extension of equitable mortgage of Land and Building of the Company (Unit-III) and guaranteed by Mr. D. Rajeshkumar, Joint Managing Director Terms of Repayment: Plant & Machinery Term Loan Repayable within 27 EMI of Rs.1,10,417/-

### Security: Assets purchased under Term Loans, Extension of equitable mortgage of Land and Building of the Company (Unit-III) and guaranteed by Mr. D. Rajeshkumar, Joint Managing Director Terms of Repayment: Plant & Machinery Term Loan Repayable within 27 EMI of Rs.97,917/$ Plant & Machinery Term Loan

$$ Plant & Machinery Term Loan Repayable in 9 EMI of ''3,28,000

@ Security: First charge on Land & Building and Plant and Machinery of Unit IV and Guaranteed by Mr R. Doraiswamy, Managing Director and Mr. D. Rajeshkumar, Joint Managing Director Availment: Rs.3,46,99,917/- is availed against sanctioned limit of Rs.9,00,00,000/- Terms of repayment: Plant & Machinery Term Loan Repayable in 1 EMI of Rs.14,27,000

There are no interest amounts paid / payable to Micro, Small and Medium Enterprises. The information in relation to dues to Micro Enterprises and Small Enterprises have been determined to the extent such parties have been identified on the basis of information available with the Company, which has been relied upon by the auditors. (Refer Note No. 33)

Note no.1. gratuity

The details of various employee benefits provided to employees are as under:

B. Defined Benefit plans

In accordance with the Payment of Gratuity Act, 1972, the Company provides for gratuity, as defined benefit plan. The gratuity plan provides for a lump sum payment to the employees at the time of separation from the service on completion of vested year of employment i.e. five years. The liability of gratuity plan is provided based on actuarial valuation using the projected unit credit method as at the end of each financial year based on which the Company contributes the ascertained liability to Life Insurance Corporation of India with whom the plan assets are maintained.

These plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, salary risk and longevity risk.

Investment risk: The present value of the defined benefit plan liability (denominated in Indian Rupee) is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds.

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

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

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

Principal actuarial assumptions

Sensitivity Analysis

Below is the sensitivity analysis determined for significant actuarial assumptions for the determination of defined benefit obligations and based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period while holding all other assumptions constant.

Note no 2. employees STOCK OPTION SCHEME 2012-13

- Pursuant to the decision of the shareholders, at their meeting held on 11.08.2012, the Company had established an “Employees'' Stock Option Scheme 2012-13 (ESOS 2012-13 or the Scheme) being administered by the Employees'' Compensation Committee (ECC) of the Board of Directors.

- Under the Scheme, option not exceeding 10,28,000 have been reserved to be issued to the eligible employees. The option granted under the scheme vest not less than 1 year from the date of grant of option. The option granted to the employees would be capable of being exercised within a period of 5 years from the date of vesting.

- Accordingly, 10,28,000 options were granted to the employees on November 19, 2013 with vesting period of one year at a grant price Rs.40/- against the closing market price of Rs.48.60/- on November 18, 2013 resulting in an employee compensation cost of Rs.88,40,800/- which has duly been written off during the vesting period.

- All the granted options vested on November 19, 2014 with the exercise period of five years therefrom. During the year, the Company has allotted 148500 shares upon exercise of stock options by the employees and an amount of Rs.38.82 Lakhs received from the Employees on exercise of options and against which, allotment is pending as at March 31,2018.

- Ind AS 101 encourages, but does not require, first time adopters to apply Ind AS 102 Share based Payment to equity instruments that were vested before the date of transition to Ind AS. The Company has elected not to apply Ind AS 102 to options that vested prior to April 1, 2016.

- Accordingly, the Employees'' Compensation Cost as determined under Intrinsic Value Method, had been written off over the vesting period and credited to Reserve & surplus Account under the head “Employees Compensation Cost. As and when the shares are being allotted against exercise of options, the relevant amount is transferred from this head and credited to Share Premium Account.

- There were no modifications to the Scheme during the year ended March 31, 2018 and March 31, 2017. As at the end of the financial year, details and movements of the outstanding options are as follows:

Cash dividends on equity shares proposed - Rs.308.28 Lakhs

The disclosure in respect of the amounts payable to Micro, Small and Medium enterprises as at March 31, 2018 has been made in the financial statements based on information received and available with the Company. Also, the Company has not received any claim for interest from any supplier as at the balance sheet date.

ii. Fair Value Hierarchy

The Company has classified its financial instruments into three levels in order to provide an indication about the reliability of the inputs used in determining fair values.

(i) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

(iii) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

The carrying amounts of trade receivables, cash and cash equivalents, other bank balances, loans, other financial assets, current borrowings, trade payables and other current financial liabilities are a reasonable approximation of their fair values. Accordingly, the fair values of such financial assets and financial liabilities have not been disclosed separately.

iii. Valuation technique used to determine fair value

- The fair value of the financial assets and liabilities are at the amount that would be received to sell an asset and paid to transfer a liability in an orderly transaction between market participants at the measurement date.

- The carrying amounts of trade receivables, cash and cash equivalents, other bank balances, loans, other financial assets, current borrowings, trade payables and other current financial liabilities are a reasonable approximation of their fair values.

- The investment included in Level 3 hierarchy have been valued at cost approach to arrive at the fair values. The cost of unquoted investment approximate the fair value as there is a wide range of possible fair value measurement and the cost represents estimate of fair value within that range.

- The estimated fair value amounts as at March 31, 2018 have been measured as at that date. As such, the fair values of these financial instruments subsequent to reporting date may be different than the amounts reported at each year-end.

- There were no transfers between Level 1, Level 2 and Level 3 during the year

Note No. 3 FINANCIAL RISK MANAGEMENT

The Company''s businesses are subject to several risks and uncertainties including financial risks.

The Company''s activities expose it to credit risk, liquidity risk, market risk - interest rate risk and foreign currency risk. The Board of Directors has overall responsibility for the establishment and oversight of the Group''s risk management framework. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the related impact in the financial statements.

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. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration risks.

The Company''s credit risk generally arises from Cash and cash equivalents, trade receivables, and other financial assets.

Credit Risk Management

The Group assesses and manages credit risk of financial assets based on following categories arrived on the basis of assumptions, inputs and factors specific to the class of financial assets.

A: Low credit risk

B: Moderate credit risk

C: High credit risk

Based on business environment in which the Company operates, a default on a financial asset is considered when the counterparty fails to make payments within the agreed time period as per contract. Loss rates reflecting defaults are based on actual credit loss experience and considering differences between current and historical economic conditions. Assets are written off when there is no reasonable expectation of recovery, such as a debtor declaring bankruptcy or litigation decided against the Company. The Company continues to engage with parties whose balances are written off and attempts to enforce repayment. Recoveries made are recognized in statement of profit and loss.

As per simplified approach, the Company makes provision of expected credit losses on trade receivables based on past experiences to mitigate the risk of default in payments and makes appropriate provision at each reporting date wherever outstanding is for longer period and involves higher risk.

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 business, the Company maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Company''s liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates. In addition, the Company''s liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

Market Risk

Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates etc. could affect the Company''s income or the value of its holdings of financial instruments including cash flow. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while maximising the return.

Interest rate Risks

The Company uses a mix of cash and borrowings to manage the liquidity & fund requirements of its day-to-day operations. 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 borrowings are fixed rate and / or Variable rate borrowings and are carried at amortized cost. The Fixed Rate borrowings therefore not subject to interest rate risk as defined in Ind AS 107, ‘Financial Instruments - Disclosures'', since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

Interest rate risk exposure

The following table provide the break-up of the co. fixed and floating rate borrowing

Interest rate sensitivity analysis:

The sensitivity analyses below have been determined based on the exposure to interest rates for floating rate liabilities, assuming the amount of the liability outstanding at the year-end was outstanding for the whole year

If interest rates had been 100 basis points higher / lower and all other variables were held constant, the Company''s profit for the year ended 31 March 2018 would decrease / increase by Rs.145.63 Lakhs (for the year ended 31 March 2017: decrease / increase by Rs.125.55 Lakhs). This is mainly attributable to the Company''s exposure to interest rates on its variable rate borrowings.

Foreign Currency Risk

The Company''s exposure to currency risk relates primarily to the Company''s operating activities including anticipated sales & purchase and borrowings where the transactions are denominated in a currency other than the Company''s functional currency The risk is measured through a forecast of highly probable foreign currency cash flows.

Note No. 4. CAPITAL MANAGEMENT

The Company''s objectives when managing capital is to safeguard continuity, maintain a strong credit rating and healthy capital ratios in order to support its business and provide adequate return to shareholders through continuing growth. The Company''s overall strategy remains unchanged from previous year

The funding requirements are met through a mixture of equity, internal fund generation and other non-current borrowings. The Company''s policy is to use current and non-current borrowings to meet anticipated funding requirements.

The Company monitors capital on the basis of the gearing ratio which is net debt divided by total capital (equity plus net debt).

Net debt are non-current and current debts as reduced by cash and cash equivalents, other bank balances and current investments. Equity comprises all components including other comprehensive income.

Note No.5 FIRST TIME ADOPTION OF IND AS

The Company has adopted Ind AS with effect from April 01, 2017 with comparatives being restated. Accordingly, the impact of transition has been provided in the Opening Reserves as at April 01, 2016. The figures for the previous period have been restated, regrouped and reclassified wherever required to comply with the requirement of Ind AS and Schedule III.

Ind AS 101 First-time Adoption of Indian Accounting Standards allows first-time adopters certain exemptions from retrospective application of certain requirements under Ind AS. Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.

IND AS - Optional Exemptions

i. Fair valuation as deemed cost for certain items of Property, Plant and Equipment,

The Company has elected to measure the items of property, plant and equipment and intangible assets at its carrying value at the date of transition except for certain class of assets which are measured at fair value as deemed cost.

ii. Designation of previously recognized financial instruments

Ind AS 101 allows an entity to designate investments in equity instruments at FVTOCI on the basis of the facts and circumstances at the date of transition to Ind AS. The Company has designated certain investments in equity share as held at FVTOCI on the basis of the facts and circumstances that existed at the transition.

iii. Share based payments

Ind AS 101 encourages, but does not require, first time adopters to apply Ind AS 102 Share based Payment to equity instruments that were vested before the date of transition to Ind AS. The Company has elected not to apply Ind AS 102 to options that vested prior to April 1, 2016.

IND AS - Mandatory Exceptions

i. 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 April 01, 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP

The Group made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investments in equity instruments carried at FVOCI

- Other investments carried at FVTPL or FVOCI; and

- Impairment of financial assets based on expected credit loss model.

Notes to reconciliation

1. Revenue from Projects

Under the previous GAAP, revenue from Public-Private-Partnership Contracts, which involve supply of materials and services over the contract period, were recognized after successful installation. Where the contract involves a deferred consideration payable contingent on a future performance obligation, revenue was recognized only after successful fulfilment of such future obligation. As per Appendix A of IND AS -11 read with IND AS 18, the revenue from such contracts shall be recognized based on percentage of completion method. The amount receivable shall be recognized as a financial asset and valued at amortized cost.

2. Fair Valuation of Investments

Under the previous GAAP, the non-current investments were valued at cost less any permanent diminution in the value of investments. Current investments were valued at lower of cost and fair value. IND AS 109 requires Financial Assets to be designated as Fair Value through Profit and Loss/ Fair value through Other Comprehensive Income/Amortized Cost. The Value of Investments have been measured at fair value.

3. Provisions

a. For Proposed Dividend

Prior to 1.4.2016, dividend proposed by the Board of Directors, but before the approval of the financial statements were considered as adjusting events, under previous GAAP However under IND AS, such dividend are recognised when the same is approved by the shareholders at Annual General Meeting (AGM). Accordingly, the liability for proposed dividend recognised as on transition date has been reversed with corresponding adjustment to opening retained earnings and recognised in the year of approval in the AGM.

b. For warranty

Under the previous GAAP, provisions were not recognized for constructive obligations. Under IND AS, provisions are measured for present obligations (both legal and constructive) as a result of past events, where it is possible that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made out of the obligation.

c. For Expected Credit Loss

IND AS 109 requires a provision to be made for Expected Credit Losses on an unbiased basis, considering the time value of money, and with reasonable and supportable information and forecasts, and the economic conditions as on the reporting date. The provision shall be reviewed as at each reporting period, with respect to its sufficiency and appropriateness.

4. Revaluation of Property, Plant and Equipment

Ind AS 101 permits an entity to elect to measure an item of property, plant and equipment at the date of transition to Ind AS at its fair value and use that fair value as its deemed cost at that date.

Accordingly, the Company has elected to use the fair value of certain items of property, plant and equipment on the date of transition and designate the same as deemed cost on the date of transition.

5. Deferred Tax

The previous GAAP permits accounting of Deferred taxes under the Income Approach as well as the Balance sheet Approach. Hence, the Company had followed the Income Approach. However, IND AS 12 requires the tax consequences to be recognized as a difference between the carrying amount of assets and liabilities and their tax base.

6. Other Comprehensive Income

Under previous GAAP, deferred tax was accounted using the income statement approach on timing difference between taxable profit and accounting profit. Under IND AS, deferred tax is recognised following Balance sheet approach on temporary differences between the carrying amount of asset or liability and its tax base.

7. Reclassification under IND AS

Assets and Liabilities have been regrouped/reclassified where ever required to conform to the requirements of Ind ASs.

Note No.6 BUSINESS COMBINATION WITH SALZER MAGNET WIRES LIMITED

During the year, Salzer Electronics Limited (“Buyer”) has acquired the whole of the business undertaking of Salzer Magnet Wires Limited (“Seller”) as a going concern on a Slump Sale basis in terms of Business Transfer Agreement executed by the Buyer and Seller on March 08, 2018. In pursuance of the Business Transfer Agreement the seller paid a consideration of Rs.20.29 Crores, as valued by an independent chartered accountant and the buyer paid the consideration by other than cash by allotment of 5,00,000/- Equity shares of Rs.10/- each at an issue price of Rs.197/- per share credited as fully paid-up and also 5,30,000/- Non cumulative 5% convertible Preference share of Rs.10/- each at an issue price of Rs.197/- per share, convertible over a period of 2 years , and credited as fully paid, on preferential basis. Accordingly, all the assets and liabilities of the Seller have duly been duly combined/dealt in the books of Accounts of the Buyer effective March 08, 2018 which is reflecting state of affairs of business undertaking acquired from Seller for a period of 24 days in the reporting Financial year under Report.

Note No.7 SEGMENT INFORMATION

The Company is engaged in manufacture of Electrical Installation Products which is considered to be the only reportable business segment as per Ind AS 108, ‘Segment Reporting''. The Company operates primarily in India and there is no other significant geographical segment. The Company has widespread customer base and hence the Company does not have any concentration risk.

Note No. 8 Previous year figures have also been reclassified, regrouped, recast to conform to current year classification.

Source : Dion Global Solutions Limited
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