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VIP Industries

BSE: 507880|NSE: VIPIND|ISIN: INE054A01027|SECTOR: Plastics
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Notes to Accounts Year End : Mar '19

1. General information

V.I.P. Industries Limited (the ‘Company) is a public limited Company and is listed on the BSE Limited (BSE) and the National Stock Exchange of India Limited (NSE). The Company is engaged interalia, in the business of manufacturing and marketing of luggage, bags and accessories.

These standalone financial statements were approved for issue by the board of directors on May 7, 2019

2A Critical estimates and judgments

In the application of the company’s accounting policies, which are described in note 2, the management is required to make judgement, estimates, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other process. 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 recognised 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 both current and future period.

The following are the critical estimates and judgements, that have the significant effect on the amounts recognised in the financial statements.

Critical estimates and judgments

i) Estimation of Provisions and Contingent Liabilities

The company exercises judgment in measuring and recognising provisions and the exposures to contingent liabilities which are related to pending litigation or other outstanding claims. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in this evaluation process, actual liability may be different from the originally estimated as provision. Although there can be no assurance of the final outcome of the legal proceedings in which the company is involved, it is not expected that such contingencies will have a material effect on its financial position or profitability. (Refer note 40)

ii) Estimation of rebates, discounts and sales returns

The Company’s revenue recognition policy requires estimation of rebates, discounts and sales returns. The company has a varied number of rebates/discount schemes offered which are primarily driven by the terms and conditions for each scheme including the working methodology to be followed and the eligibility criteria for each of the scheme. The estimates for rebates/discounts need to be based on evaluation of eligibility criteria and the past trend analysis. The company estimates expected sales returns based on a detailed historical study of past trends. [Refer Note 2(c) and 25]

iii) Estimation of useful life of Property, Plant and Equipment, Intangible assets, Investment properties

Property, Plant and Equipment, Intangible assets, Investment properties represent a significant proportion of the asset base of the Company. The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. The useful lives and residual values of Company’s assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end. The useful lives are based on historical experience with similar assets as well as anticipation of future events, which may impact their life, such as changes in technology. (Refer note 4, 5 and 6)

iv) Estimation of provision for inventory

The Company writes down inventories to net realisable value based on an estimate of the realisability of inventories. Write downs on inventories are recorded where events or changes in circumstances indicate that the balances may not realised. The identification of write-downs requires the use of estimates of net selling prices of the down-graded inventories. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write-downs of inventories in the periods in which such estimate has been changed.

v) Estimation of defined benefit obligation

The Company provides defined benefit employee retirement plans. The present value of the defined benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for post employments plans include the discount rate, salary escalation rate, attrition rate and mortality rate. Any changes in these assumptions will impact the carrying amount of such obligations.

The Company determines the appropriate discount rate, salary escalation rate and attrition rate at the end of each year. In determining the appropriate discount rate, the Company considers the interest rates of government bonds of maturity approximating the terms of the related plan liability and attrition rate and salary escalation rate is determined based on the company’s past trends adjusted for expected changes in rate in the future. (Refer note 28)

vi) Estimated fair value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Management uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.

vii) Estimation of provision for warranty claims

The company offers warranties for its products. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. The assumptions made in relation to the current period are consistent with those in the prior year (Refer note 36).

viii) Impairment of trade receivable

The impairment provisions for trade receivable are based on expected credit loss method. The company uses judgement in making the assumptions in calculating the default rate required for identifying the provision as per the expected credit loss method at the end of each reporting period. (Refer note 15)

2B New accounting standards/ amendments to existing standards issued but not yet effective

Following is the new standard which have been issued by The Ministry of Corporate Affairs (‘MCA’) that is not effective for the reporting period and has not been early adopted by the Company: a) Ind AS 116, Leases:

Ind AS 116, Leases deals with accounting for lease transaction. This standard was issued in March 2019. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will be effective from April 1, 2019.

Following key changes are brought in by the new standard

1. The distinction between operating and finance leases is eliminated for lessees.

2. New lease asset (representing the right to use the leased item for the lease term) and lease liability (representing the obligation to pay rentals) are recognised for all leases.

3. lessees should recognise a right-of use asset and lease liability based on the discounted payments required under the lease, taking into account the lease term as determined under the new standard.

4. Initial direct costs and restoration costs are also included in the right-of-use asset.

5. Lease liability is measured in subsequent periods using the effective interest rate method. The right-of-use asset is depreciated in accordance with the requirements in Ind AS 16, ‘Property, plant and equipment’ which will result in depreciation on a straight-line basis or another systematic basis that is more representative of the pattern in which the entity expects to consume the right of- use asset. The lessee will also be required to apply the impairment requirements in Ind AS 36, ‘Impairment of assets’ to the right-of-use asset.

The Company is currently under the process of assessing the potential impact of the new standard. This new standard is mandatory for the reporting period beginning on or after April 1, 2019.

*Amount is below the rounding off norm adopted by the Company.

** An amount of Rs. NIL (March 31, 2018: 0.46 Crores) included in building is reclassified from investment property.

*** An amount of Rs. 0.07 Crores (March 31, 2018: NIL) and Rs 1.42 Crores (March 31, 2018: NIL) previously included in leasehold land and building respectively is reclassified to investment property.

# An amount of Rs. 0.93 Crores (March 31, 2018: 0.95 Crores) included in building is yet to be registered in the name of the company. For other properties yet to be registered in the name of the Company [Refer note 5].

Notes :

i) Contractual obligations :

Refer note 38 for disclosure of contractual commitments for the acquisition of property, plant and equipment.

ii) Capital work-in-progress :

Capital work-in-progress mainly comprises of moulds and other routine infrastructure enhancements.

iii) Working capital loans from banks are secured by second charge on the fixed assets of the Company located at Sinnar. (Refer note 23)

Estimation of fair value

The Company obtains independent valuations for its investment properties at least annually based on current prices in an active market for properties of similar nature or recent prices of similar properties. The fair values of investment properties have been determined by an independent valuer. The main inputs used are the rental growth rates and market rates based on comparable transactions.

iii) Leasing Arrangements (Refer Note 37)

Sales Tax Provision: The amounts in respect of sales tax represent the best possible estimates arrived on the available information. The uncertainties are dependent on the outcome of the different legal processes. The timing of the future cash flows will be determinable only on receipt of judgements/ decisions pending with various forums/ authorities. The said provisions primarily relate to subjudice matters under the erstwhile local sales tax acts, value added tax acts of respective states and the central sales tax act 1961.

Warranty: A provision for warranty has been recognised for the expected warranty claims on product sold based on past experience. It is expected that the majority of this expenditure will be incurred in the next 2-5 years.

3 Leases

As a leasee:

The Company’s major leasing arrangements are in respect of commercial /residential premises (including furniture and fittings therein wherever applicable taken on leave and license basis). These operating leases with cancellable/non-cancellable periods, range 11 months to 3 years, or longer and are usually renewable by mutually agreed terms and conditions.

Future minimum lease rentals payable towards non-cancellable period of the lease agreements for not later than one year Rs. 16.83 crores and for later than one year and not later than five years Rs. 6.66 crores

Lease payments recognised in the statement of profit and loss during the year Rs. 55.43 crores (Previous year Rs. 46.89 crores).

As a lessor:

The Company has given certain assets-building on leases. These operating leases with cancellable/non-cancellable periods range 11 months to 3 years, or longer and are usually renewable by mutually agreed terms and conditions. Future minimum lease rentals payable under non-cancellable period of the lease agreements for not later than one year Rs. 0.24 crores and for later than one year and not later than five years Rs. 0.56 crores

4 Segment reporting

In accordance with Accounting Standard Ind AS- 108 “Segmental Reporting”, the Company has determined its business segment as manufacturing and marketing of luggage, bags and accessories. Since more than 99% of business is from manufacturing and marketing of luggage, bags and accessories, there are no other primary reportable segments. Thus, the segment revenue, total carrying amount of segment assets, total carrying amount of segment liabilities, total cost incurred to acquire segment assets, total amount of charge of depreciation and amortisation during the year are all as is reflected in the financial statements as at and for the year ended March 31, 2019.

The Honourable Supreme Court has passed a decision on 28th February 2019, in relation to inclusion of certain allowances within the scope of “Basic Wages” for the purpose of determining contribution to provident fund under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. The company, based on the legal advice, is awaiting further clarification for implementation of the said order, in order to reasonably assess the impact, if any.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments that have quoted price. The fair value of all equity instruments which are traded in the stock exchanges is valued using the closing price as at the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. The Company has mutual funds for which all significant inputs required to fair value an instrument falls under level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities and unlisted preference shares are included in level 3. There are no transfers between levels 1, 2 and 3 during the year.

(ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

- Investments in quoted equity instruments are valued using the closing price at BSE Limited (BSE) at the reporting period.

- The use of Net Assets Value (‘NAV’) for valuation of mutual fund investment. NAV represents the price at which The issuer will issue further units and will redeem such units of mutual fund to and from the investors.

- The fair value of the preference shares is determined based on present values and the discount rates used were adjusted for counter party risk and country risk.

(iv) Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements.

See (ii) above for the valuation technique adopted.

(v) Valuation process

The fair value of unlisted preference shares are determined using discounted cash flow analysis by independent valuer.

a) The carrying amounts of trade receivables, trade payables, cash and cash equivalents, bank balances other than cash and cash equivalents, borrowings and other financial liabilities are considered to be the same as their fair values, due to their short-term nature.

(b) The fair values and carrying value for security deposits, other financial assets and other financial liabilities are materially the same.

5A Financial risk management

The Company’s activities expose it to market risk, liquidity risk, credit risk and interest risk. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the impact of hedge accounting in the financial statements.

The company has a robust risk management framework comprising risk governance structure and defined risk management processes. The risk governance structure of the company is a formal organisation structure with defined roles and responsibilities for risk management.

The company’s risk management is carried out by a central treasury department under the guidance from the board of directors. Company’s treasury identifies, evaluates and hedges financial risks in close co-ordination with the company’s operating units. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. There is no change in objectives and process for managing the risk and methods used to measure the risk as compared to previous year.

1) Credit risk :

Credit risk is the risk that the counterparty will not meet its obligation under a financial instrument or customer contract, leading to financial loss. The Credit risk mainly arises from receivables from customers, investments securities, cash and cash equivalents, and deposits with banks and financial institutions.

a) Trade receivables

The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to Rs. 298.61 Crores as at March 31, 2019 (March 31, 2018- Rs. 176.88 Crores). Trade receivables are typically unsecured and are derived from revenue earned from customers located in India as well as outside India. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade receivables.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry, the country and the state in which the customer operates, also has an influence on credit risk assessment.

Credit risk is managed through credit approvals,establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

The management continuously monitors the credit exposure towards the customers outstanding at the end of each reporting period to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macroeconomic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue.

The movement in the allowance for impairment in respect of trade receivables during the year was as follow:

The average credit period on sales of products is less than 120 days. Credit risk arising from trade receivables is managed in accordance with the Company’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on a detailed study of credit worthiness and accordingly individual credit limits are defined/modified. The concentration of credit risk is limited due to the fact that the customer base is large. For trade receivables, as a practical expedient, the Company computes credit loss allowance based on a provision table as above.

b) Cash and cash equivalents:

As at the year end, the Company held cash and cash equivalents of ‘5.80 crores (March 31, 2018: ‘16.74 crores). The cash and cash equivalents are held with bank and financial institution counterparties with good credit rating. 12-months expected credit losses is used as basis for recognition of loss provision.

c) Other Bank Balances:

Other bank balances are held with bank and financial institution counterparties with good credit rating. 12-months expected credit losses is used as basis for recognition of loss provision

d) Investment in mutual funds:

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties. 12-months expected credit losses is used as basis for recognition of loss provision.

e) Other financial assets:

Other financial assets are neither past due nor impaired. 12-months expected credit losses is used as basis for recognition of loss provision.

f) Investments in debt instruments:

Investments in debt instruments are neither past due nor impaired. Majority of the debt instruments are held within the group i.e. in subsidiaries of the company.

2) Liquidity risk :

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, Company treasury maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Company’s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows.

(i) Financing arrangements

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

3) 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 of risks namely interest rate risk, currency risk and other price risk, such as commodity risk.

A) Market Risk- Foreign currency risk.

The Company operates internationally and portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales in overseas and purchases from overseas suppliers in various foreign currencies. Foreign currency exchange rate exposure is partly balanced by purchasing of goods, commodities and services in the respective currencies. The Company also uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments, highly probable forecast transactions and foreign currency required at the settlement date of certain receivables/payables. The use of foreign currency forward contracts is governed by the Company’s strategy approved by the board of directors, which provide principles on the use of such forward contracts consistent with the Company’s risk management policy and procedures.

B) Market Risk- Price risk.

(a) Exposure

The company is mainly exposed to the price risk due to its investment in mutual funds and investment in equity instruments held by the company and classified in the balance sheet either as fair value through OCI or at fair value through profit or loss. The price risk arises due to uncertainties about the future market values of these investments. To manage its price risk arising from investments in equity securities, the company diversifies its portfolio The majority of the company’s equity investments are publicly traded.

(b) Sensitivity

The table below summarizes the impact of increases/decreases of the BSE index on the Company’s equity and Gain/ Loss for the period. The analysis is based on the assumption that the index has increased by 5 % or decreased by 5 % with all other variables held constant, and that all the Company’s equity instruments moved in line with the index.

C) Market Risk- Interest rate risk

The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt obligations with floating interest rates. The Company manages its interest rate risk by monitoring the movements in the market interest rates closely.

The sensitivity analysis below have been determined based on the exposure to interest rates for debt obligations at the end of the reporting year and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. A 50 basis point increase or decrease is based on the currently observable market environment.

5B Capital management (a) Risk management

The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Company monitors capital on the basis of the following gearing ratio:

6 Employee benefits obligations

A) Defined contribution plan

B) Defined benefit plan

a) Gratuity:

The Company provides for gratuity for employees as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years or more are eligible for gratuity. The amount of gratuity payable on retirement/ termination is based on the employees last drawn basic salary per month and the number of years of service. The gratuity plan is a funded plan and the Company makes contributions to the “VIP Industries Limited Employees Gratuity Fund Trust”. The Company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected gratuity payments.

i) The amounts recognised in the balance sheet and the movement of net defined benefit obligation over the years are as follows

iv) Sensitivity analysis

The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the Balance Sheet.

vi) Risk exposure

Aforesaid post-employment benefit plans typically expose the Company to actuarial risks such as: Investment risk, interest rate risk, salary risk.

vii) Defined benefit liability and employer contributions

The company expects to make a contribution for the year ending March 31, 2020 is Rs. 2.97 Crores (March 31, 2019: Rs.2.12 Crores) to the defined benefit plans during the next financial year.

The average duration of the defined benefit plan obligation at the end of the reporting period is 7 years. The expected maturity analysis of undiscounted gratuity benefits is as follows:

b) Provident Fund

Provident fund for eligible employees is managed by the Company through the “VIP Industries Limited Employees Provident Fund Trust”, in line with the Provident fund and Miscellaneous Provisions Act 1952. The plan guarantees interest at the rate notified by the Provident Fund Authorities. The contribution by the employer and employee together with the interest accumulated thereon are payable to employees at the time of their separation from the Company or retirement whichever is earlier. The benefits vest immediately on rendering the services by the employee. The Company does not currently have any unfunded plans.

In terms of the guidance note issued by the Institute of Actuaries of India for measurement of provident fund liabilities, the actuary has provided a valuation of provident fund liability and based on the assumptions provided below, there is no shortfall as at March 31, 2019. The Company has contributed ‘3.43 Crores (March 31,2018: Rs.2.93 Crores) towards VIP Industries Limited Employees Provident Fund Trust during the year ended March 31, 2019.

c) Other long term employee benefits:

Leave obligation

The leave obligation cover the company’s liability for privilege leave and sick leave

Based on the past experience, the group does not expect all employees to avail full amount of accrured leave or require payment for such leave within the next 12 months.

7 Related party disclosures as per Ind AS 24

a) List of related parties:

b) Key management personnel

c) List of entities over which key management personnel or relatives of such personnel exercise significant influence or control and with whom transactions have taken place during the year:

Name

i) DGP Securities Limited

ii) Kemp & Company Limited

ii) Vibhuti Investments Company Limited

d) Trust

i) VIP Industries Limited Employees Gratuity Fund Trust

ii) VIP Industries Limited Employees Provident Fund Trust

e) Disclosure in respect of significant transactions with related parties during the year:

*Amount is below the rounding off norm adopted by the Company

# The company had provided a bank guarantee for credit facilities for the subsidiary in Bangladesh (USD 1.1million). The said guarantee has been closed during the year.

g) Terms and conditions

All transactions were made on normal commercial terms and conditions and at market rates.

All outstanding balances are unsecured and are payable in cash.

8 Employee Stock Appreciation Rights

In July 2018, the remuneration committee decided to reward senior level management for their contibution to the performance of the company by granting them 220,000 employee stock appreciation rights (ESAR). The rights entitle the employees, equity shares of the company on exercise of the rights. The number of equity shares to be issued shall be determined based on the difference between the base price as per the scheme and the share price on the date of exercise.

The fair value of the ESAR’s was determined using the Black Scholes model using the following inputs at the grant date

9 Subsequent to the year end, certain property, plant and equipment and inventories, were destroyed due to a fire at one of the warehouse of the company. The company has initiated its insurance claim process and considering the company’s insurance policy, it expects the loss to be adequately covered.

10 Net Debt Reconciliation

This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.

11 Previous year figures

Previous year’s figures have been regrouped / reclassified wherever necessary to correspond with the current year’s classification / disclosure.

Source : Dion Global Solutions Limited
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