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Moneycontrol.com India | Notes to Account > Miscellaneous > Notes to Account from Titan Company - BSE: 500114, NSE: TITAN
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Titan Company

BSE: 500114|NSE: TITAN|ISIN: INE280A01028|SECTOR: Miscellaneous
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Notes to Accounts Year End : Mar '19

1. BACKGROUND

Titan Company Limited (the ‘Company’) is a Company domiciled in India, with its registered office situated at 3, SIPCOT Industrial Complex, Hosur - 635 126, Tamil Nadu, India. The Company has been incorporated under the provisions of the Indian Companies Act and its equity shares are listed on the National Stock Exchange (NSE) and BSE Ltd. in India. The Company is primarily involved in manufacturing and sale of Watches, Jewellery, Eyewear and other accessories and products.

a) Rights, preferences and restrictions attached to shares

The Company has only one class of equity shares. 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 approval by the shareholders at the ensuing Annual General Meeting.

In the event of liquidation, the shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion of their shareholdings.

2.1. Distributions made and proposed

The Board of Directors at its meeting held on 10 May 2018 had proposed a final dividend of Rs.3.75 per equity share of par value of Rs.1 each for the financial year ended 31 March 2018. The proposal was approved by shareholders at the Annual General Meeting held on 3 August 2018 and the same was paid during the year ended 31 March 2019. This has resulted in a total outflow of Rs.40,137 lakhs including corporate dividend tax of Rs.6,845 lakhs.

The Board of Directors, in its meeting on 8 May 2019, have proposed a final dividend of Rs.5.00 per equity share for the financial year ended 31 March 2019. The proposal is subject to the approval of shareholders at the Annual General Meeting to be held on 6 August 2019 and if approved would result in a cash outflow of approximately Rs.53,516 lakhs, including corporate dividend tax of Rs.9,127 lakhs.

Notes:

a) Rates and taxes include Nil (Previous Year: Rs.1,563 lakhs) being the excise duty paid on watch components transferred from Hosur, Dehradun and Roorkee factories to Pantnagar factory,

b) Includes exchange (gain) / loss (net) of Rs.Nil (Previous Year: Rs.228 lakhs)

c) Auditors remuneration comprises fees for audit of statutory accounts Rs.130 lakhs (Previous Year: Rs.145 lakhs), taxation matters Rs.15 lakhs (Previous Year: Rs.15 lakhs), audit of consolidated accounts Rs.10 lakhs (Previous Year: Rs.10 lakhs), other services Rs.53 lakhs (Previous Year: Rs.26 lakhs) and reimbursement of levies and expenses Rs.14 lakhs (Previous Year: Rs.14 lakhs).

d) The Company, as part of its Treasury operations, invested in intercorporate deposits aggregating Rs.14,500 lakhs with Infrastructure Leasing & Financial Services Limited and its subsidiary (IL&FS Group), which were due for maturity in November 2018 and December 2018. The aforesaid amounts and the interest thereon have however not been received as on date. As a result of increased credit risk in relation to outstanding balances from IL&FS Group and the uncertainity prevailing on IL&FS Group due to the proceedings pending with the NCLT, Management has provided for full amount of Rs.14,500 lakhs for impairment in value of deposit. The provision currently reflects the exposure that may arise given the uncertainity. The Company, however, continues to monitor developments in this matter and is committed to take steps including legal actions that may be necessary to ensure full recoverability

e) Corporate Social Responsibility:

(i) Gross amount required to be spent towards corporate social responsibility by the Company during the year:

Rs.2,408 lakhs

3. EXCEPTIONAL ITEM

Exceptional item includes the following:

a) Provision for impairment of investment in a subsidiary (Favre Leuba AG, Switzerland) amounting to Rs.7,000 lakhs (Previous Year: Rs.7,500 lakhs).

b) Expenses relating to Voluntary Retirement Scheme to its employees amounting to Nil (Previous Year: Rs.1,665 lakhs).

4. SEGMENT INFORMATION

a) Description of segments

The Chief Operating Decision Maker (CODM) of the Company examines the performance both from a product perspective and geography perspective and has identifieRs. 4 reportable segments Watches, Jewellery, Eyewear and Others, where ‘Others’ include Accessories, Fragrances and Indian dress wear. The Company’s Managing Director is the CODM.

Corporate (unallocated) represents other income, expenses, assets and liabilities which relate to the company as a whole and are not allocated to segments.

b) Segment revenues and profit and loss

c) Profit / (Loss) from segments before exceptional items, finance costs and taxes are as below:

4.1 Leasing arrangements

The Company has taken the above operating leases for non-cancellable periods ranging from 12 months to 108 months. The leases are renewable by mutual consent. The Company does not have an option to purchase the leased asset at the expiry of the lease periods.

4.2 Non-cancellable operating lease commitments

The total of future minimum lease payments in respect of premises taken on lease under non-cancellable operating leases are as follows:

5. CONTINGENT LIABILITIES AND COMMITMENTS

Contingent liabilities not provided for - Rs.29,198 lakhs (Previous Year: Rs.26,636 lakhs) comprising of the following:

a) Sales tax - Rs.2,885 lakhs (Previous Year: Rs.2,777 lakhs)

(relating to the applicability of rate of tax, computation of tax liability, submission of certain statutory forms)

b) Customs duty - Rs.68 lakhs (Previous Year: Rs.68 lakhs)

(relating to denial of benefit of exemptions)

c) Excise duty - Rs.19,208 lakhs (Previous Year: Rs.19,214 lakhs)

(relating to denial of exemption by amending the earlier notification, computation of the assessable value, denial of input credit on service tax and excise duty on Jewellery)

d) I ncome tax - Rs.6,083 lakhs (Previous Year: Rs.3,796 lakhs)

(relating to disallowance of deductions claimed)

e) Others - Rs.954 lakhs (Previous Year: Rs.781 lakhs)

(relating to miscellaneous claims)

The above amounts are based on the notice of demand or the Assessment Orders or notification by the relevant authorities, as the case may be, and the Company is contesting these claims with the respective authorities. Outflows, if any, arising out of these claims would depend on the outcome of the decisions of the appellate authorities and the Company’s rights for future appeals before the judiciary. No reimbursements are expected.

f) Corporate guarantees - Rs.9,000 lakhs (Previous Year: Rs.Nil)

(relating to guarantee provided for loans taken by Carat Lane Trading Private Limited)

g) Letter of financial support provided to the following:

Favre Leuba AG

h) The Supreme court of India in the month of February 2019 had passed a judgement relating to definition of wages under the Provident Fund Act,1952. However, considering that there are numerous interpretative issues relating to this judgement and in the absence of reliable measurement of the provision for the earlier periods, the Company has made a provision for provident fund contribution based on it’s interpretation of the said judgement. The Company will evaluate its position and update its provision, if required, on receiving further clarity on the subject. The Company does not expect any material impact of the same.

6. Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs.10,972 lakhs (Previous Year: Rs.1 1,367 lakhs).

7. EMPLOYEE BENEFITS

a) Defined Contribution Plans

i) The contributions recognised in the statement of profit and loss during the year are as under:

b) Defined Benefit Plans

The expense recognised in the statement of profit and loss during the year are as under:

* Contributions are made to the Company’s Employees Provident Fund Trust at predetermined rates in accordance with the Fund rules. The interest rate payable by the Trust to the beneficiaries is as notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate and recognises such shortfall as an expense. There is no shortfall in the interest payable by the Trust to the beneficiaries as on the balance sheet date.

i) Gratuity (Funded)

The Company makes annual contributions to The Titan Industries Gratuity Fund. The scheme provides for lump sum payment to vested employees at retirement, death while in employment, or on termination of employment as per the Company’s Gratuity Scheme. Vesting occurs upon completion of five years of service.

The plan is a defined benefit plan which is sponsored by the Company and hence it underwrites all the risks pertaining to the plan. In particular, there is a risk for the Company that an adverse salary growth or inadequate returns on underlying plan assets can result in an increase in cost of providing these benefits to employees in future. Since the benefits are lump sum in nature the plan is not subject to any longevity risks.

The principal assumptions used for the purposes of the actuarial valuations were as follows:

- The retirement age of employees of the Company varies from 58 to 65 years.

- The mortality rates considered are as per the published rates in the Indian Assured Lives Mortality (2012-14) Ult table.

- Rates of leaving service (leaving service due to disability included) at specimen ages are as shown below:

Sensitivity analysis

The key actuarial assumptions to which the defined benefit plans are particularly sensitive to are discount rate, full salary escalation rate and attrition rate. The following table summarises the impact on the reported defined benefit obligation at the end of the reporting period arising on account of an increase or decrease in the assumption by 50 basis points:

(ii) valuation technique used to determine fair value

Specific value techniques used to value financial instruments include:

- the use of quoted market prices for listed instruments.

- the fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.

- the fair value of foreign currency option contracts is determined using option prices obtained from banks.

- the fair value of remaining financial instruments is determined using market comparables, discounted cash flow analysis.

(iii) Fair value of financial assets and liabilities that are not measured at fair value but fair value disclosures are required

The carrying values of financial assets and liabilities approximate the fair values.

8.1 Financial risk management objective

The Company has constituted a Risk Management Committee. The Company has in place a Risk management framework to identify, evaluate business risks and challenges across the Company both at corporate level as also separately for each business division. These risks include market risk, credit risk and liquidity risk.

The Company minimises the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of derivative financial instruments and investment of excess liquidity is governed by the Company’s policies approved by the Board of Directors, which provide written principles on the use of such instruments consistent with the Company’s risk management strategy.

The Company does not enter into or trade financial instruments including derivative financial instruments, for speculative purposes.

8.2 Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate as a means of mitigating the risk of financial loss from defaults. Credit risk is managed by the Company through approved credit norms, establishing credit limits and continuously monitoring the creditworthiness 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. Credit risk arises principally from the Company’s receivables from customers. Refer note 10.2 for the disclosures for trade receivables.

Credit risk on liquid funds, Inter Corporate Deposits and derivative financial instruments is limited because the counterparties are banks and companies with high credit-ratings assigned by credit-rating agencies.

8.3 Liquidity risk

The Company has an approved policy to invest surplus funds from time-to-time in various short-term instruments. Security of funds and liquidity shall be the primary consideration while deciding on the type of investments.

The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities. The company expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.

Liquidity risk tables

The following table below analyses the Company’s financial liabilities into relevant maturity groupings based on their maturities for:

- all non-derivative financial liabilities, and

- derivative financial liabilities, that are net settled.

The tables have been drawn on an undiscounted basis based on the earliest date on which the Company can be required to pay

8.4 Market risk

The market risks to which the Company is exposed are price risk {refer note a) below} and foreign currency risk {refer note b) below}.

a) Price Risk:

The Company is exposed to fluctuations in gold price (including fluctuations in foreign currency) arising on purchase/ sale of gold.

To manage the variability in cash flows, the Company enters into derivative financial instruments to manage the risk associated with gold price fluctuations relating to all the highly probable forecasted transactions. Such derivative financial instruments are primarily in the nature of future commodity contracts, forward commodity contracts (up to 30 June 2018) and forward foreign exchange contracts. The risk management strategy against gold price fluctuation also includes procuring gold on loan basis, with a flexibility to fix price of gold at any time during the tenor of the loan.

The use of such derivative financial instruments is governed by the Company’s policies approved by the Board of Directors, which provide written principles on the use of such instruments consistent with the Company’s risk management strategy.

As the value of the derivative instrument generally changes in response to the value of the hedged item, the economic relationship is established.

The Company assesses the effectiveness of its designated hedges by using the same hedge ratio as that resulting from the quantities of the hedged item and the hedging instrument that the Company actually uses. However, this hedge ratio will be rebalanced, when required (i.e., when the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting), by adjusting weightings of the hedged item and the hedging instrument.

Sources of hedge ineffectiveness include mismatch in the weightings of the hedged item and the hedging instrument and the selling rate.

The following table gives details of contracts as at the end of the reporting period:

- The line item in the balance sheet that include the above hedging instruments are other financial assets and other financial liabilities.

As at 31 March 2019 the aggregate amount of gains under forward/future contracts is recognised in “Other Comprehensive Income” and accumulated in the cash flow hedging reserve. It is anticipated that the sales will take place during 6 months of the next financial year, at which time the amount deferred in equity will be reclassified to the statement of profit and loss. Details of movements in hedging reserve is as follows:

b) Foreign currency risk management

The company is exposed to foreign exchange risk arising through its sales and purchases denominated in various foreign currencies.

(i) The risk management strategy on foreign currency exchange fluctuation arising on account of purchase/ sale of gold is covered in Note 33.6 above.

(ii) In respect of normal purchase and sale transactions denominated in foreign currency, the Company enters into forward foreign exchange contracts and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. These contracts are measured at fair value through profit and loss.

Foreign currency sensitivity analysis:

The Company is mainly exposed to USD, CHF and EURO currencies. The Company’s sensitivity to a 1% increase and decrease in ‘ against the relevant foreign currencies is presented below:

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 1% change in foreign currency rates. There is a decrease in profit and equity by Rs.21 lakhs where INR weakens by 1% against the relevant currencies. For a 1% strengthening of the ‘ against the relevant currencies there would be a comparable increase in profit and equity.

8.5 The Company’s exposure to Forward foreign exchange contracts and option contracts at the end of the reporting year are as follows:

The Company has 3 forward exchange contracts for US Dollars 6 lakhs equivalent to Rs.411 lakhs (Previous Year: 9 forward exchange contracts for US Dollars 42 lakhs equivalent to Rs.2,746 lakhs).

In addition to the above, the Company has 15 Option contract in USRS. 329 Lakhs equivalent to Rs.23,837 Lakhs (Previous Year : 24 Option contracts in USRS. 194 lakhs equivalent to Rs.12,904 lakhs).

9. CAPITAL MANAGEMENT

The Company’s objective for capital management is to maximise shareholder value, safeguard business continuity and support the growth of the Company. The Company determines the capital requirement based on annual operating plan and other strategic investment plans. The funding requirements are primarily met through equity and operating cash flows generated. The Company aims to manage its capital efficiently so as to safeguard its ability to continue as a going concern and to optimise returns to all its shareholders. Gold on loan as disclosed in the financial statements represents amounts due to banks for the procurement of gold under ‘Gold (Metal) loan scheme’ by the Company. The Company is not subject to any externally imposed capital requirements.

10. The financial statements are presented in Rs. lakhs (rounded off). Those items which are required to be disclosed and which were not presented in the financial statements due to rounding off to the nearest Rs. lakhs are given below:

Source : Dion Global Solutions Limited
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