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Mac Charles (India) Ltd. Notes to Accounts
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You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (Rs.) 395.65 Cr. P/BV 1.35 Book Value (Rs.) 223.40
52 Week High/Low (Rs.) 419/248 FV/ML 10/1 P/E(X) 18.15
Bookclosure 30/07/2018 EPS (Rs.) 16.64 Div Yield (%) 3.31
Year End :2018-03 

Notes:

Investment property comprises of a commercial property that is leased to third parties. The lease contains an initial non-cancellable period. Subsequent renewals are negotiated with the lessee and historically the average renewal period is five to nine years.

Investment property comprises of property of two buildings namely ‘Delta’ and ‘Alpha’ held by the Company in Cessna Business Park, Bengaluru. These properties are secured against the term loan from bank.

ii) Fair value Fair value hierarchy

The fair value of investment property has been determined by external, independent property values, having appropriate recognized professional qualifications and recent experience in the location and category of the property being valued.

The fair value measurement for the investment property has been categorized as a Level 3 fair value based on the inputs to the valuation technique used (Refer note 44).

Valuation techniques

Investment property comprises commercial properties that are leased to third parties. Each of the leases contains an initial non-cancellable period. Subsequent renewals are negotiated with the lessee. No contingent rents are charged.

The company obtains independent valuations for its investment properties at least annually.

Fair value: Rs in million

As at 31 March 2017 1,979.02

As at 31 March 2018 2,390.40

The fair values of the investment property is determined based on the current market prices in an active market for properties of different nature adjusted to reflect those changes.

Significant estimates

The charge in respect of periodic depreciation on investment property is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life, if any. 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 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.

20 Share capital (continued)

(b) The rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital:

The Company has one class of equity shares having a par value of Re 10 per share. Each shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors is subject to the approval of the Shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts if any, in proportion to their shareholding.

Nature and purpose of other reserves:

General reserve:

The general reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the general reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income, items included in general reserve will not be reclassified subsequently to profit and loss.

Retained earnings:

The cumulative gain or loss arising from the operations which is retained by the Company is recognized and accumulated under the heading of retained earnings. At the end of the period, the profit after tax is transferred from the statement of profit and loss to the retained earnings account.

Fair value of equity instruments

The Company has elected to recognize changes in the fair value of certain investments in equity securities in other comprehensive income. These changes are accumulated within the FVOCI equity investments within equity. The Company transfers amounts therefrom to retained earnings when the relevant equity securities are derecognized.

21.1 Capital management

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

The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital, as well as the level of dividends to equity shareholders. The Board of Directors seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position.

The Company monitors capital using a ratio of ‘adjusted net debt’ to ‘equity’. For this purpose, adjusted net debt is defined as total liabilities, comprising interest-bearing loans and borrowings less cash and cash equivalents. Equity comprises all components of equity. The Company’s adjusted net debt to equity ratio at 31 March 2018 was as follows:

* refer note 47

Information about the Company’s exposure to interest rate, foreign currency and liquidity risks is included in note 43.

Notes:

A. Terms and repayment schedule

(i) From HDFC Bank Limited, amounting to Rs. 1237.88 million (31 March 2017: Rs 400 million)

Secured by:

- Assignment of receivables by way of rent from LG Soft India Private Limited and Inmobi Technology Services Private Limited.

- 121,176 sq.ft. and 202 car parks of the Delta building, 84,512 sq.ft. and 169 car parks of the Alpha building, including undivided share of land, are secured against the term loan from bank.

- Loan from HDFC Bank Limited carries interest rate of 31 March 2018 - 8.50% per annum (31 March 2017 - MCLR plus 0.35% per annum), and is repayable in 144 installments. The repayment of principal and interest commences from April 2017.

- There is no undrawn facility in respect of this loan.

(ii) From Toyota Financial Services Private Limited, amounting to Rs 1.98 million (31 March 2017: Nil)

- Secured by way of hypothecation of the vehicle Toyota Altis as first charge to the lender

- The loan carries an interest rate of 8.25% p.a fixed and loan is repayable in 60 equal installments. The repayment commenced from February 2018

- There is no undrawn facility in respect of this loan.

a) Pending resolution of the respective proceedings, it is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above as it is determinable only on receipt of judgment’s/decisions pending with authorities.

b) The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial position.

1. Leases

(i) Operating lease

Leases as lessor:

The Company earns its rental income from investment property leased under operating lease which is recognized in the statement of profit and loss on a straight-line basis over the term of the lease. Total lease rental income recognized in the statement of profit and loss for the year is:

43 Related party

Related parties with whom transactions have taken place during the year

A. Holding company

Embassy Property Developments Private Limited

B. Subsidiaries

Airport Golfview Hotels and Suites Private Limited

C. Fellow subsidiary

Vikas Telecom Private Limited L.J Victoria Properties Private Limited

D. Key management personnel Mr. C.B. Pardhanani

Mr. Mulki Ramakrishna Bhasker Punja

Mr. P. B. Appiah

Mr. Suresh Vaswani

Ms. Tanya Giridhar

Mr. Aditya Virwani

Mr. P. R. Ramakrishnan

E. Enterprises significantly influenced by the Company/ key managerial personnel

C. Pardhanani’s Education Trust

F. Post employment benefit entities

Mac Charles (India) Limited Employees Gratuity Fund Trust.

G. The following is a summary of related party transactions Rs in millions

2.Financial instruments - fair value measurement and risk management (continued)

B Measurement of fair values

The section explains the judgments and estimates made in determining the fair values of the financial instruments that are:

a) recognized and measured at fair value

b) measured at Amortized cost and for which fair values are disclosed in the financial statements.

To provide an indication about the reliability of the inputs used in determining fair value, the company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level is mentioned below:

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds 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. The mutual funds are valued using the closing net asset value.

Level 2: 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: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The Company has elected to measure all financial instruments, except investments, at am mortised cost.

Investments fall under the ‘Level 1’ hierarchy and are measured using quoted prices on the respective reporting dates.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

C Financial risk management

The Company has exposure to the following risks arising from financial instruments:

- credit risk (refer note ii below)

- liquidity risk (refer note iii below)

- market risk (refer note iv below)

(i) Risk management framework

The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.

(ii) Credit risk

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

The carrying amount of financial assets represents the maximum credit exposure.

3. Financial instruments - fair value measurement and risk management (continued)

C Financial risk management (continued)

Trade receivable and loans

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate.

The Company has credit policies in place and exposure to the credit risk is monitored on an ongoing basis. A majority of Company’s income is from the corporate customers by way of advance receipts and revenue from related parties. Credit evaluations are performed on all customers requiring credit over a certain amount and there is no concentration of credit risk. Due from related parties are considered recoverable by the management. Risk assessment is done for each corporate to whom the inter -corporate deposits are provided. Cash is placed with reputable banks and the risk of default is considered remote. Under the current economic conditions, management has assessed the recoverability of its trade receivables as at the reporting date and consider them to be recoverable.

Due to this factor, management believes that no additional credit risk is inherent in the Company’s receivables . At the balance sheet date, there were no significant concentrations of credit risk.

The following table provides information about the exposure to credit risk and the expected credit loss for trade receivables:

4. Financial instruments - fair value measurement and risk management (continued)

D Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Management monitors rolling forecasts of the Company’s liquidity position and cash and cash equivalents on the basis of expected cash flows to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants on any of its borrowing facilities, Such forecasting takes into consideration the Company’s debt financing plans, covenant compliance and compliance with internal statement of financial position ratio targets. Usually the excess of funds is invested in short term mutual funds and fixed deposits. This is generally carried out in accordance with practice and limits set by the Company. These limits vary to take into account the liquidity of the market in which the Company operates.

Financing arrangements

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

5. Financial instruments - fair value measurement and risk management (continued)

E Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

i) Currency risk

The Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the respective functional currencies of transacting parties. The functional currency of the Company is primarily INR.

Since the company does not have any unhedged foreign currency exposure at the year end, it is not exposed to currency risk.

ii) Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations with floating interest rates.

Exposure to interest rate risk

The exposure of the Company’s borrowing to interest rate at the end of the reporting period are as follows :-

iii) Price risk

The Company’s exposure to equity securities price risk arises from investments held by the group and classified in the balance sheet either as fair value through OCI or at fair value through profit or loss. To manage its price risk arising from investments in equity securities, the group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the company. The majority of the company’s equity investments are publicly traded and are included in the BSE and NSE index.

6. Disposal group held for sale

In February 2018, management has committed to sell buildings of the Company in Kochi. Accordingly, the same is presented as a disposal group held for sale. Efforts to sell the disposal group have started and a sale is expected to be completed by June 2018.

A. Impairment losses relating to the disposal group

There is no impairment loss of the disposal group to have been applied to reduce the lower of its carrying amount and its fair value less costs to sell.

B. Assets of disposal group held for sale

At 31 March 2018, the disposal group was stated at lower of its carrying amount and its fair value less costs to sell.

7. In accordance with Ind AS 108, Operating segments, segment information has been provided in the consolidated financial statements of the Company and therefore no separate disclosure on segment information is given in the standalone financials statements.


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