1. CORPORATE INFORMATION
Suryalata Spinning Mills Limited (the “Company”) is a public limited company incorporated on 23rd May,1983 and as its Registered office at 105, S P Road, Surya Towers , 1st Floor, Secunderabad, Telangana State. The Company is engaged in producing the best quality of yarns like synthetic, blended, melange and value added yarns suitable for suiting’s, shirting’s and knitting. The Company is listed on Bombay Stock Exchange.
The financial statements of the company for the year ended March 31st, 2018 are approved for issue by the Company’s Board of Directors on May 19th, 2018.
A. Rights, preferences and restrictions attached to the ordinary Shares
The Company has only one class of equity shares having at par value of Re .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.
Measurement of OCI
The OCI represents the re-measurement gains/(losses) arising from the actuarial valuation of the defined benefit obligations of the Company. The re-measurement gains/(losses) are recognized in other comprehensive income and accumulated under this reserve within equity. The amounts recognized under this reserve are not reclassified to profit or loss
Details of security for Term loans
Loans referred in (a) (b) and (c) are secured by pari passu first charge on all movable and immovable properties of the Company present and future. The loans further secured by personal guarantees of two promoter Directors of the company and pledge of some shares of the promoters of the company.
* Working Capital loans from bank referred to in (a) above are secured by hypothecation of stock in trade, raw materials, stock in process, stores and spares and receivables present and future and by a second charge on the present and future movable and immovable properties of the Company on pari passu basis. The loans further secured by personal guarantees of two promoter directors of the Company.
First time adoption of Ind AS
These financial statements for the year ended 31st March 2018 are the company’s first annual Ind AS complied financial statements. For all period up to and including the year ended 31st march 2017, the company prepared its financial statements in accordance with Accounting Standards notified under Section 133 of the Companies Act 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014 (‘previous GAAP’). Detailed explanation on how the transition from previous GAAP to Ind AS has effected the Company’s Balance Sheet, financial performance and Cash flows given as under
In preparing these Ind AS financial statements, the company has availed certain exemptions and exceptions in accordance with Ind AS 101 as explained below
1. Mandatory Exceptions from retrospective application Estimates
a. Estimates
The estimates at 1st April 2016 and at 31st March,2017 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies) apart from the following items under Indian GAAP did not require estimation:
The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions as at 1st April, 2016 and 31st March,2017
i. Fair values of financial assets & financial Liabilities.
ii. Impairment of financial assets based on expected credit loss modal.
iii. Discount rates
b. Classification and measurement of financial asset:
The classification of financial assets to be measured at amortized cost or fair value through Profit and loss or fair value through other comprehensive income is made on the basis of the facts and circumstances that existed on the date of transition to Ind AS.
c. Government Loans
The requirements of Ind AS 20 - Accounting for Government Grants and Disclosure of Government Assistance and Ind AS 109 - Financial Instruments in respect of interest free loans from government authorities is opted to be applied prospectively to government loans existing at the date of transition to Ind AS. Consequently, the carrying amount of such interest free loans as per the financial statements of the Company prepared under Previous GAAP is continued as carrying amount in the opening Ind AS Balance Sheet.
2. Optional Exemptions from retrospective application
Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has, accordingly, applied following exemption:
a. Deemed Cost
The Company has elected to consider carrying amount of all items of property, plant and equipments measured as per Indian GAAP as recognized in the financial statements as at the date of transition, as deemed cost at the date of transition. The effect of consequential changes arising on the application of other Ind AS has been adjusted to the deemed cost of Property, Plant &Equipment.
Transition to Ind AS - Reconciliations
The following reconciliations provide the explanations and quantification of the differences arising from the transition from Previous GAAP to Ind AS in accordance with Ind AS 101
Notes to reconciliation of balance sheet and Profit as previously reported under IGAAP to Ind-AS
i. Property, Plant & Equipment, Non-current Asset
Under the previous GAAP the transactions costs relating to origination of term loans raised specifically for acquisition of items of Property, Plant & Equipment were capitalized. Ind AS 109 requires transaction costs incurred towards origination of borrowings to be deducted from the proceeds of borrowings on initial recognition. These costs are treated as part of the interest expense by applying the effective interest method. Hence upfront fees capitalized under Previous GAAP is reversed and reduced from term loan
ii. Other Financial Assets Loans to employees
Under Indian GAAP, interest free loan to employees are recorded at their transaction value. Under Ind AS, these loans are to be measured at amortized cost on the basis of effective interest rate method. Due to this, long term loans to employees and short term loans to employees has been decreased and difference between carrying amount and amortized cost has been recognized as Employee cost in Retained earnings. And Notional Interest income on employee loan of Rs. 0.33 Lakhs for the year ended 31st March 2017
iii. Current Investment
At the date of transition to Ind AS, difference between the fair value of the instruments and its Previous GAAP carrying amount has been recognized in retained earnings. Fair value changes are recognized in the Statement of Profit and Loss for the year ended 31st March, 2018.
iv. Other Equity
Adjustments to retained earnings have been made in accordance with Ind-AS for the mentioned line items.
v. Non-current Borrowings Preference Shares
Under Previous GAAP, Preference share capital is treated as part of Share Capital and dividend on redeemable preference shares were adjusted to Reserves when the dividend is declared and paid. As per Ind AS, cumulative redeemable preference shares meet the definition of financial liability. Hence it is reclassified as financial liability (borrowings) classified as subsequently measured at amortized cost. Consequently, it is to be measured at fair value and the difference between transaction value and fair value is to be credited to Other Equity. Interest(Dividend) is to be charged to the statement of Profit and Loss using Effective Interest Rate .
vi. Re-measurement of Defined Benefit Plans
Under Ind AS, re-measurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined benefit liability are recognized in other comprehensive income instead of profit or loss. Under the previous GAAP, these re-measurements were forming part of the Statement of Profit and Loss for the year. There is no impact on the total equity.
vii. Deferred tax
Under Previous GAAP, deferred taxes were recognized for the tax effect of timing differences between accounting profit and taxable profit for the year using the income statement approach. Under Ind AS, deferred taxes are recognized using the balance sheet approach for future tax consequences of temporary differences between the carrying value of assets and liabilities and their respective tax bases.
viii. Provisions
Under Previous GAAP, proposed dividends and related the dividend distribution taxes are recognized as a provision in the year to which they relate, irrespective of when they are declared. Under Ind-AS, dividends and related dividend distribution tax are recognized as a liability in the year in which it is approved by the shareholders in the Annual General Meeting of the Company.
ix. Other Income
a. Under Ind AS, the Investment is classified at Fair Value through Profit & Loss (FVPL). The adjustment reflect amount of change in value of investment measured at FVTPL.
b. As stated earlier on, Loans to employees are measured at amortized cost, Notional interest on such loans is included under Other Income.
x. Employee benefit expenses
Both under Indian GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to the Statement of Profit and Loss. Under Ind AS, measurements (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 recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI.
Note No 3
Fair Value Measurement Hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into level 1 to level 3 as described below.
Level 1 — Quoted prices in an active market:
Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds, ETFs and mutual funds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period
Level 2 — Valuation techniques with observable inputs:
The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the counter derivatives) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2
Level 3 — Valuation techniques with significant unobservable inputs:
This level of hierarchy includes financial assets and liabilities measured using inputs that are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data
The following table provide the fair value measurement hierarchy of the company’s assets and liabilities Quantitative disclosures of fair value measurement hierarchy as at March 31, 2018.
Financial Risk Management
The Company’s activities expose it to market risk, credit risk and liquidity risk. Company’s overall risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance.
I. Market Risk
Market risk is the risk of loss of the future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, commodity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments and deposits, foreign currency receivables, payables and borrowings.
a. Foreign Currency Risk - Foreign Currency Risk is the risk of impact related to fair value or future cash flows of an exposure in foreign currency, which fluctuate due to change in foreign currency rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to impact of raw materials and spare parts, capital expenditure, borrowings and exports of yarns. The company does not enter into any derivative instruments for trading or speculative purposes.
b. 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 rates relates primarily to the Company’s short term borrowing. The Company constantly monitors the credit markets and re-balances its financing strategies to achieve an optimal maturity profile and financing cost. Since all the borrowings are on floating rate, no significance risk of change in interest rate.
c. Commodity Risk — Commodity price risk arises due to fluctuation in raw material (fiber prices) linked to various external factors, which can affect the production cost of the Company. The Company actively manages inventory and in many cases sale prices are linked to major raw material prices. These risks are reviewed and managed by senior management on continuous basis.
II. Credit Risk
Credit risk arises when a customer or counterparty does 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/investing activities, including deposits with banks. The company has a prudent and conservative process for managing its credit risk arising in the course of its business activities. The Company is receiving payments regularly from its customers and hence the Company has no significant credit risk.
III. Liquidity Risk
Liquidity risk is defined as the risk that the company will not be able to settle or meet obligations on time or at reasonable price. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of credit facilities to meet obligations when due. The Company’s treasury team is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s liquidity position through rolling forecasts based on expected cash flows.
NOTE 4.
Capital Management
The Company’s objectives when managing capital are to
i) Safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders.
ii) Maintain an optimal capital structure to reduce the cost of capital
Consistent with others in the industry, the company monitors capital on the basis of the following gearing ratio: Net debt (total borrowings net of cash and cash equivalents) divided by Total ‘equity’ (as shown in the balance sheet)
Employee benefits : Gratuity
Consequent to the adoption of Accounting Standard on Employees Benefits (AS-15) (Revised 2005) issued by the Institute of Chartered Accountants of India, the following disclosures have been made as required by the Standard for Actuarial valuation of Gratuity.
The company has created a Trust namely SLSML Employees Gratuity Trust vide Trust deed dated 31st December, 2005 and obtained approvals from Income Tax Authorities vide letter No. CIT-III/10/GF/2005-06 dated 18.10.2006. SBI Life Insurance has been appointed for management of the Trust fund for the Benefit of the employees. The following tables summarize the components of net benefits.
Micro, Small and Medium Enterprises
A sum of Rs. 157.79 Lakhs is payable to Micro and small enterprises as at 31st March, 2018 (2017-137.20 lakhs ; 2016 - 173.35 lakhs). There are no Micro, Small and Medium Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days during the year and also as at 31st March, 2017. This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company and relied upon by the Auditors.
Note No 5.
Goods and Service Tax
Effective July 01, 2017, sales are recorded net of GST whereas earlier sales were recorded inclusive of excise duty and sales tax which formed part of expenses. Hence revenue from operations for the year ended 31st March, 2018 are not comparable with the previous year corresponding figures.
Note No 6.
Previous Year’s figures have been regrouped wherever necessary to correspond with the current year’s figures. Except when otherwise stated, the figures are presented in Rupees in Lakhs.
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