Notes to financial statements for the year ended March 31, 2016 1 Company overview Indo Tech Transformers Limited ('Indo Tech' / 'the Company') is engaged in the business of manufacturing power and distribution transformers and various special application transformers, mobile sub-station transformers and sub-stations. The Company has manufacturing plants located at Chennai and Kancheepuram in Tamil Nadu. 2 Significant Accounting Policies a Basis of brparation of financial statements The financial statements have been brpared and brsented under the historical cost convention, on the accrual basis of accounting in accordance with the accounting principles generally accepted in India ('Indian GAAP') and comply with the Accounting Standards as brscribed under Section 133 of the Companies Act, 2013 ('Act') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified and applicable) and guidelines issued by the Securities and exchange Board of India (SEBI) The financial statements are brsented in Indian rupees. During the year 2013-14, the Company has intimated to the Board for Industrial and Financial Reconstruction ('BIFR') about erosion of more than 50% of the Company's peak net worth pursuant to section 23 of Sick Industrial Companies (Special Provision) Act, 1985 (SICA'). During the year, the Company's performance has improved owing to rise in demand from its customers and better market conditions. The Company has also developed a business plan to strengthen its financial position and liquidity and initiated various measures to improve it's operational performance. Pursuant to such measures, the working capital and liquidity position has also improved. Prolec GE (the holding company) has also continued to support the Company over the years. Based on the approved business plans, commitment by the holding company to provide financial and other assistance as is necessary to enable the Company to continue in operational existence for the foreseeable future (at least for a period of 12 months from the balance sheet date) and availability of banking limits, the Company believes that it would be able to meet its financial requirements and no adjustments would be required in respect of the carrying values of assets/liabilities. The ability of the Company to continue as a going concern is significantly dependent on the consistent and continued improvement in its operational performance in the foreseeable future. Accordingly, the financial statements have been brpared on a going concern basis. b Use of estimates The brparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amount of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future years. c Revenue recognition Revenue from sale of goods is recognized upon transfer of all significant risks and rewards of ownership to the buyer which generally corresponds with the dispatch/delivery of goods to buyers based on the terms of the contract. The amount recognized as sale is exclusive of sales tax and trade discounts. Service income is recognized as the services are rendered on an accrual basis in accordance with the terms of the relevant contract. Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable. d Fixed assets and debrciation / amortisation Tangible fixed assets Tangible fixed assets are stated at cost of acquisition less accumulated debrciation. The cost of fixed assets includes freight, duties and taxes and other incidental expenses related to the acquisition, but exclude duties and taxes that are recoverable subsequently from tax authorities. Borrowing costs directly attributable to acquisition of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalized. Capital work-in-progress includes the cost of fixed assets that are not ready for its intended use and cost of assets not put to use before the balance sheet date. Intangible fixed assets and amortisation Intangible assets are recorded at the consideration paid for acquisition. Intangible assets are amortized over their estimated economic useful lives on a straight line basis commencing from the date the asset is available for its use. The management estimates the useful lives for the intangible asset (software) at 5 years. e. Impairment The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount (higher of net realizable value and value in use) of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than the carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the statement of profit and loss. If at the balance sheet date there is an indication that a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciable historical cost. f. Leases Assets taken on lease where the Company acquires substantially the entire risks and rewards incidental to ownership are classified as finance leases. The amount recorded is the lesser of the brsent value of the minimum lease rental and other incidental expenses during the lease term or the asset's fair value. Leases that do not transfer substantially all of the risks and rewards of ownership are classified as operating leases and recorded as expenses as and when payments are made on a straight line basis over the lease term. g. Inventories Inventories are valued at the lower of cost and net realizable value. Cost of inventories comprises all cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their brsent location and condition. Cost includes all taxes and duties, but excludes duties and taxes that are subsequently recoverable from tax authorities. The methods of determining cost of various categories of inventories are as follows: Description Method of determining cost Raw materials and components :Weighted average Stores and spares and consumables :Weighted average Work in progress :Weighted average and including an appropriate share of production overheads Finished goods :Weighted average and including an appropriate share of production overheads (excise duty in respect of closing inventory of finished goods is included as part of inventory h Foreign currency transactions Foreign currency transactions are recorded at the exchange rates brvailing on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rates on that date. Exchange differences arising on foreign exchange transactions during the year and on restatement of monetary assets and liabilities are recognized in the statement of profit and loss of the year. i Employee benefits Provisions for / contributions to retirement benefits scheme are made as follows: Defined contribution plan Provident fund: Eligible employees receive benefits from the provident fund, which is a defined contribution plan. Both the employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee's basic salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company's contribution to the Employees' Provident Fund scheme maintained by the Central Government is charged to the statement of profit and loss. Defined benefit plans Compensated absences: Provision for long term compensated absences is made on the basis of an actuarial valuation as at the balance sheet date carried out by an independent actuary using projected unit credit method. Provision for short term compensated absences is made on actual basis. Gratuity: The Company provides for gratuity, a defined benefit retirement Plan (the "Gratuity Plan") covering eligible employees. The Plan provides payment to vested employees at retirement, death or termination of employment, of an amount based on the respective employee's salary and the tenure of employment with the Company. The Company provides the gratuity benefit through annual contribution to a fund managed by the LIC. Under this scheme the settlement obligation remains with the Company although the LIC administers the scheme and determines the contribution brmium required to be paid by the Company. Liabilities related to the Gratuity Plan are determined by actuarial valuation done by an independent actuary using projected unit credit method as at the balance sheet date. Actuarial gains and losses in respect of post employment and other long-term benefits are charged to the statement of profit and loss. j Earnings per share Basic earnings per share is computed by dividing net profit or loss for the year attributable to equity shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share amounts are computed after adjusting the effects of all dilutive potential equity shares. The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earnings per share, and also the weighted average number of equity shares, which could have been issued on the conversion of all dilutive potential shares. The diluted potential equity shares are adjusted for the proceeds receivable, had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). Dilutive potential equity shares are deemed converted as of the beginning of the year, unless issued at a later date. k Taxation Income-tax expense comprise current tax (i.e. amount of tax for the year determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting that tax effects of timing differences between accounting income and taxable income for the year). The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognized only to the extent there is a reasonable certainty that the assets can be realized in future; however, where there is unabsorbed debrciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is a virtual certainty of realization of such assets. Deferred tax assets are reviewed as at the balance sheet date and written down or written up to reflect the amount that is reasonably/virtually certain (as the case may be) to be realized. Current tax and deferred tax assets and liabilities are offset to the extent to which the Company has a legally enforceable right to set off and they relate to taxes on income levied by the same governing taxation laws. l Provisions, contingent liabilities and contingent assets The Company creates a provision when there is brsent obligation as a result of past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognised nor disclosed in the financial statements. m Cash flow statements Cash flows are reported using the indirect method, whereby profit/ loss before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, financing and investing activities of the Company are segregated. n Government and other grants Grant and subsidies are recognised when there is reasonable assurance that the grant / subsidy will be received and all attaching conditions will be complied with. Government and other grants in the nature of promoter's contribution are credited to capital reserve and treated as a part of shareholders' funds. o Cash and cash equivalents In the cash flow statement, cash and cash equivalents include cash in hand, demand deposits with banks, other short-term highly liquid investments with original maturities of three months or less. 2 Segment reporting The Company considers it's business segment as it's primary segment. The Company is engaged into the business of manufacture and sale of transformers and there are not more than one reportable segment as envisaged by Accounting Standard 17 - Segment Reporting (AS-17). Accordingly, amounts appearing in these financial statements relates to only manufacture and sale of transformers. Further, the operations primarily cater to the needs of the domestic market. Accordingly, there are no separate reportable segments according to AS-17. 3 Transfer pricing The Company has transactions with related parties. For the financial year 2014-15, the Company has obtained the Accountant's Report from a Chartered Accountant as required by the relevant provisions of the Income-tax Act, 1961 and has filed the same with the tax authorities. For the financial year 2015 -16, the management confirms that it maintains documents as brscribed by the Income-tax Act, 1961 to prove that these transactions are at arm's length considering the economic scenario, brvailing market conditions etc. and the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation. 4 Monies held in trust Monies held in trust amounting to Rs. 13,538,376, rebrsents money transferred from the Sellers' Escrow account (ex-promoters), on behalf of Prolec GE during the year 2011-2012. The said money was transferred to the Company's account, as the holding company had no office in India to do the documentation to transfer the funds on the date of settlement to their account in Mexico and the Escrow Account was closed in November 2011. During the year the entire amount of Rs. 13,538,376 has been remitted back to Prolec GE after obtaining appropriate approvals from Reserve Bank of India. 5 During the year ended March 31, 2015, vide an agreement dated July 1, 2014, the Company has received subvention (voluntary, non-repayable financial grant) of US$ 25 million (Rs. 1,491,250,000) from the holding company, Prolec GE. The grant had been utilized for repayment of all the short term borrowings. 6 During the year ended March 31, 2015, the management has reassessed the remaining useful life of the assets with effect from April 1, 2014 as required under Schedule II to the Companies Act, 2013. In respect of assets whose life had already exhausted as on April 1, 2014, debrciation of Rs. 6,522,787 (net of deferred tax impact of Rs. Nil) has been adjusted in Reserves and Surplus in accordance with the requirements of Schedule II to the Companies Act, 2013. 7 During the year ended March 31, 2015, the Company has entered into an agreement with Prolec GE, whereby Prolec GE has assured the Company that they would make good the loss to the benefit of the Company in case certain identified customers do not pay or default in the payment of outstanding dues. In the earlier years, the Company had recorded provision on a portion of the total balance receivable from these identified customers. Based on the agreement, the provision (amounting to Rs. 51,929,844), pertaining to these receivables has been reversed during the year ended March 31, 2015 and the balance outstanding from these customers has been brsented as 'secured debtors'. 8 The Company had entered into a Memorandum of Understanding ('MOU') dated March 2, 2015 with a buyer for sale of one of its freehold land, included in assets held for sale and had received Rs. 20,000,000 as advance under the MOU as at March 31, 2015. During the current year, the aforesaid land has been sold. As per our report of even date attached for B S R & Co. LLP Chartered Accountants ICAI Firm Registration No. - 101248W/W-100022 Amar Sunder Partner Membership No.: 078305 for and on behalf of the Board of Directors of Indo Tech Transformers Limited Ricardo Suarez Garza Chairman DIN: 07194157 Indraneel Dutt Director DIN:01942447 Dhiraj Narula Chief Financial Officer Sathyamoorthy A Company Secretary Place: Chennai Date: May 25, 2016 |