Notes to the consolidated financial statements for the year ended March 31, 2016

1

General  information

Varroc Engineering Private Limited (the "Company") incorporated in 1989 is primarily engaged in the business of auto components and services in the automotive industry to Indian and global customers. The Company, its subsidiaries and jointly controlled entities operate from manufacturing plants and Technical and development centers across 3 continents and 10 countries sbrad across the globe.

2

Principles of consolidation and significant accounting policies

The consolidated financial statements relates to the Company, its subsidiaries and jointly controlled entities (the "Group").

a)

Basis of brparation

These financial statements have been brpared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis, except for certain tangible assets which are being carried at revalued amounts. Pursuant to section 133 of the Companies Act, 2013 read with Rule 7 of the companies (Accounts) Rules, 2014, till the standards of accounting or any addendum thereto are brscribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. Consequently these financial statements have been brpared to comply in all material aspects with the accounting standards notified under Section 211(3C) [Companies (Accounting Standards) Rules, 2006,as amended] and other relevant provisions of the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) has notified the Companies (Accounting Standards) Amendment Rules, 2016 vide its notification dated 30 March 2016. The said notification read with Rule 3(2) of the Companies (Accounting Standards) Rules, 2006 is applicable to accounting period commencing on or after the date of notification i.e. 1 April 2016

b)

Principles of Consolidation

i) The financial statements of the subsidiary companies and  jointly controlled entities used in the consolidation are drawn up to the same reporting date as of the Company i.e. year ended March, 31, 2016.

ii) The consolidated financial statements are brpared using uniform accounting policies for like transactions and other events in similar circumstances and necessary adjustments required for deviations, if any, have been made in the consolidated financial statements.

iii) The financial statements of the subsidiary companies have been combined on a line by line basis by adding together like items of assets, liabilities, income and expenses. The intra group balances, intra group transactions and unrealised profits have been fully eliminated in accordance with AS-21.

iv) The Group's interest in jointly controlled entities are accounted for using proportionate consolidation. The Group combines its share of the jointly controlled entities' individual income and expenses, assets and liabilities and cash flows on a line by line basis with similar items in the Group's financial statements.

v)  The difference between the cost of investment in the subsidiaries and jointly controlled entities, over the net assets at the time of acquisition of investment is recognised in the financial statements as Goodwill or Capital Reserve on consolidation as the case may be.

vi) Minority interest in the net assets of consolidated subsidiaries consists of the amount of equity attributable to the minority shareholders at the dates on which investments are made by the Company in the subsidiary companies and further movements in their share in the equity, subsequent to the dates of investments.

vii) The assets and liabilities of non-integral foreign operations are translated at the year end exchange rate and all the items in the Statement of Profit and Loss are translated at the average exchange rate brvailing during the year. The resultant translation gains and losses are shown separately as Foreign currency translation reserve under Reserves and Surplus. These are transferred to the Statement of Profit and Loss on disposal of the non-integral foreign operations.

viii) The list of subsidiaries  considered in the consolidated financial statements:

Sr no.

Name of the  Company

Country of incorporation

% of holding either directly or through subsidiaries as at March 31, 2016#

% of holding either directly or through subsidiaries as at March 31, 2015#

Direct subsidiaries

1

Varroc Polymers Private Limited *

India

100

100

2

Durovalves India Private Limited

India

72.78

72.78

3

Varroc Exhaust Systems Private Limited ***

India

100

4

Varroc Lighting Systems (India) Private Limited

India

100

100

5

Varroc European Holding B.V.

Netherlands

100

100

6

Aries Mentor Holding B.V.

Netherlands

100

100

7

Varroc Corp Holding B.V.

Netherlands

100

100

Step down subsidiaries

1

Industrial Meccanica E Stampaggio S.p.a.

Italy

100

100

2

Industrial Meccanica E Stampaggio Sp.z.oo.**

Poland

3

Essex Forging s.r.l. (under liquidation) (Refer note no.38)

Italy

100

100

4

TRI.O.M., S.p.A.

Italy

80

80

5

TRI.O.M., Vietnam Co. Ltd.

Vietnam

80

80

6

Electromures SA, Romania.

Romania

80

80

7

TRI.O.M. Mexico SA De. C.V.

Mexico

80

-

8

Varroc Lighting Systems SRO, Czech Republic.

Czech Republic

99.99

99.99

9

Varroc Lighting Systems Inc.

USA

99.99

99.99

10

Varroc Lighting Systems GmBH.

Germany

99.99

99.99

11

Varroc Lighting Systems S.de.R.L. De. C.V.

Mexico

100

100

12

Varroc Elastomers Pvt. Ltd.*

India

51

51

ix) The following jointly controlled companies are considered in the consolidated financial statements:

1

Nuova CTS S.r.l

Italy

50

50

2

Varroc TYC Corporation.

British Virgin Islands

50

50

3

Varroc TYC Auto Lamps Co. Ltd.

China

50

50

4

Varroc TYC Auto Lamps Co. Ltd. CQ ##

China

50

#

Rebrsents effective holding

##

The company has demerged from Varroc TYC Auto Lamps Co. Ltd

*

Subsidiary effective December 01, 2014 (Refer note no. 39)

**

Ceased to be a subsidiary effective January 30, 2015 (Refer note no. 40)

***

Merged with the Company w.e.f April 1, 2015.

c)

Summary of significant accounting policies

(I) Revenue Recognition

Sale of goods: Sales are recognised when the substantial risks and rewards of ownership in the goods are transferred to the buyer as per the terms of the contract and are recognised net of trade discounts, rebates, sales taxes and excise duties.

Income from the wind / solar power generation is recognised when earned on the basis of contractual arrangements with the buyers.

Sale of services : Income from services is recognised on the basis of time/work completed as per contract with the customers

(II) Other Income

Interest: Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

Dividend: Dividend income is recognised when the right to receive dividend is established.

(III) Fixed Assets

(i)

Tangible Assets

Tangible Assets are stated at acquisition cost, net of accumulated debrciation and accumulated impairment losses, if any, except in case of certain assets which are at revalued amounts.  Subsequent expenditures related to an item of fixed asset are added to its book value only if they increase the future benefits from the existing asset beyond its brviously assessed standard of performance. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss. Losses arising from the retirement of, and gains or losses arising from disposal of fixed assets which are carried at cost are recognised in the Statement of Profit and Loss.

(ii)

Intangible Assets

Intangible Assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortised on a straight line basis over their estimated useful lives. A rebuttable brsumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use is considered by the management. The amortisation period and the amortisation method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from brvious estimates, the amortisation period is changed accordingly. Gains or losses arising from the retirement or disposal of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of the asset and recognised as income or expense in the Statement of Profit and Loss.

(IV) Debrciation And Amortization

i)

Debrciation is provided on Straight Line Method basis (SLM) over the estimated useful lives of the assets. Estimated useful lives of assets are as follows:

Class of Assets

Estimated useful life (Years)

Leasehold land

Amortised over the  period of lease

Buildings

30 to 50

Plant and Machinery

General Plant and Machinery

8 to 20

Moulds

4 to 7

Computers

3 to 7

Vehicles

4 to 7

Furniture and Fixtures

5 to 15

Other assets

4 to 10

Software and ERP System

3 to 5

ii)

Product development costs are amortised over a period of 3 to 5 years.

iii)

In respect of assets whose useful life has been revised , the unamortised debrciable amount is charged over the revised remaining useful life.  (Refer note 13(1) (c))

(V) Impairment of Assets

Assessment is done at each Balance Sheet date as to whether there is any indication that an asset (tangible and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets, is considered as a cash generating unit. If any such indication exists, an estimate of the recoverable amount of the asset/cash generating unit is made. Assets whose carrying value exceeds their  recoverable amount are written down to the recoverable amount. Recoverable amount is higher of an assets or cash generating units net selling price and its value in use. Value in use is the brsent value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each Balance Sheet date as to whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased.

(VI) Lease

Finance lease: Each lease payment is apportioned between the finance charge and the reduction of the outstanding liability. The outstanding liability is included in other long-term borrowings. The finance charge is charged to the Statement of Profit and Loss over a lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Operating lease: Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Statement of Profit and Loss on straight line basis over the period of leases.

(VII) Borrowing Cost

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in Statement of Profit and Loss in the period in which they are incurred.

(VIII) Investments

Investments that are readily realisable and are intended to be held for not more than one year from the date, on which such investments are made, are classified as current investments. All other investments are classified as long term investments. Current investments are carried at cost or fair value, whichever is lower. Long-term investments are carried at cost. However, provision for diminution is made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually.

(IX) Inventories

Inventories are stated at lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

(X) Government Grants

i)

The Company is entitled to various incentives from State Government. Government grants of the nature of promoters contribution are credited to capital reserve and treated as a part of shareholders funds. Such Government Grants are recognised on accrual basis, when the following conditions are satisfied:         There is a reasonable assurance that the Company will comply with the condition attached to it.         Such benefits are earned and reasonable certainty exists of the collection. An assessment is done at each balance sheet date of the recoverability of the amount of grant recognized, any excess of the carrying amount over the recoverable amount is reduced from the capital reserve.

ii)

The Group has also received government grants against specific debrciable assets. Such grant is treated as deferred income. Deferred income is recognised in the Statement of Profit and Loss on a systematic and rational basis over the useful life of the asset against which the grant has been received.

(XI) Foreign Currency Transactions

Initial Recognition On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

Subsequent Recognition As at the reporting date, non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.

All monetary assets and liabilities in foreign currency are restated at the end of accounting period. With respect to long-term foreign currency monetary items, from April 1, 2011 onwards, the Company has adopted the following policy: Foreign exchange difference on account of a debrciable asset, is adjusted in the cost of the debrciable asset, which would be debrciated over the balance life of the asset. In other cases, the foreign exchange difference is accumulated in a Foreign Currency Monetary Item Translation Difference Account, and amortised over the balance period of such long term asset/ liability. A monetary asset or liability is termed as a long-term foreign currency monetary item, if the asset or liability is exbrssed in a foreign currency and has a term of 12 months or more at the date of origination of the asset or liability. Exchange differences on restatement of all other monetary items are recognised in the Statement of Profit and Loss.

Derivative Contract Hedge Accounting : The Company uses forward contracts, currency swaps and interest rate swaps to hedge its exposure to movements in foreign exchange rates and interest rates. These derivative instruments are not used for trading or speculation purposes. In respect of derivative contracts other than those covered by AS 11 'The  effect of changes in foreign exchange rates', Effective April 01,2015, the Company has opted to adopt the Guidance Note on accounting for derivative contracts issued by The Institute of Chartered Accountants of India. Accordingly,  for derivative instruments that are designated as effective cash flow hedges, the gain or loss from the effective portion of the hedge is recorded and reported directly in reserves (under the "Cash flow hedge reserve") and is reclassified into the Statement of Profit and Loss upon the occurrence of the hedged transactions. The Company recognises gains or losses from changes in fair values of derivative instruments that are not designated as cash flow hedges and the ineffective portion of those that are designated as cash flow hedges in the Statement of Profit and Loss in the period in which they arise. Hitherto, forward contracts are accounted in accordance with the provisions of AS 11 'The  effect of changes in foreign exchange rates' and the other derivative contracts were marked to market and the losses, if any, were  recognised in the Statement of Profit and Loss and gains were ignored in accordance with Announcement of Institute of Chartered Accountants of India on Accounting for Derivatives issued in March 2008. Had the Company continued to follow the earlier accounting policy, profit before tax would have been lower by Rs.11.94 crores. Further, (a) Reserves higher by Rs. 2.27 crores (b) Liabilities higher by Rs. 8.41 crores (e) Assets lower by Rs. 1.34 Crores

(XII) Employee Benefits

a)

Defined contribution plans: The Group makes contributions to funds for certain employees to the regulatory authorities, where the Company has no further obligations. Such benefits are classified as Defined Contribution Schemes as the  Group does not carry any further obligations, apart from the contributions made on periodic basis.

b)

Defined benefits plans: The Group has various defined benefit plans. These plans provides a lump sum payment to vested employees at retirement/ death/ incapacitation/ termination of employment, of an amount based mainly on the respective employees salary and the tenure of employment. The Companys liability is actuarially determined (using the Projected Unit Credit method) at the end of each year. Actuarial losses/ gains are recognised in the Statement of Profit and Loss in the year in which they arise.

c)

Compensated Absences: Accumulated compensated absences, which are expected to be availed or encashed within 12 months from the end of the year are treated as short term employee benefits. The obligation towards the same is measured at the expected cost of accumulating compensated absences as the additional amount expected to be paid as a result of the unused entitlement as at the year end.

(XIII) Taxes on Income

Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation laws brvailing in the respective jurisdictions. Deferred tax is recognised for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax asset on unabsorbed debrciation and carry forward of losses is recognised only to the extent that there is virtual certainty supported by convincing evidence that  sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. At each Balance Sheet date, the Company re-assesses unrecognised deferred tax assets, if any. Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis. Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities rebrsenting current tax and where the deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.

Minimum Alternative Tax credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of the MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the Company will pay normal income tax during the specified period

(XIV) Provisions and Contingent Liabilities

Provisions: Provisions are recognised when there is a brsent obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and there is a reliable estimate of the amount of the obligation. Provisions are measured at the best estimate of the expenditure required to settle the brsent obligation at the Balance sheet date and are not discounted to brsent value.

Contingent Liabilities: Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the company or a brsent obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.

(XV) Cash and Cash Equivalents

In the cash flow statement, cash and cash equivalents includes cash in hand, demand deposits with banks, other short-term highly liquid investments with original maturities of three months or less.

(XVI) Earnings Per Share

Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Earnings considered in ascertaining the Companys earnings per share is the net profit for the period after deducting brference dividends and any attributable tax thereto for the period. The weighted average number of equity shares outstanding during the period and for all periods brsented is adjusted for events, such as bonus shares, other than the conversion of potential equity shares, that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares.

Disclosure in accordance with Revised AS- 15 on Employee Benefits
		For the year ended
		March 31, 2016	March 31, 2015
(A)	Defined Contribution Plans: The company has recognized the following amount in the Statement of Profit and Loss for the year
	(I) Contribution to Employees' Provident Fund	7.41	6.64
	(II) Contribution to Employees' Family Pension Fund	5.60	3.67
	Total	13.01	10.31
(B)	Defined Benefit Plans- Gratuity and other defied benefit plans
	Following figures are as per actuarial valuation, as at the Balance Sheet date, carried out by independent actuary.
	a) Changes in Present Value of Defined Obligation
	Liability at the beginning of the year	111.42	73.63
	Add effect of acquisition of subsidiary during the year	0.20	7.95
	Interest cost	4.07	4.23
	Past service cost	-	-
	Current service cost	10.40	33.38
	Curtailment cost/(credit)	-	-
	Transfer out	-	-
	Settlement cost/(credit)	-	(0.21)
	Benefits paid	(7.37)	(9.77)
	Actuarial (gain)/Loss on obligations	(0.31)	18.62
	Effect of Foreign exchange rate	5.12	(16.20)
	Liability at the end of the year	123.53	111.63
	b) Changes in fair value of plan assets
	Fair value of plan assets at the beginning of the year	52.95	38.10
	Add effect of acquisition of subsidiary during the year	0.20	6.60
	Expected return on plan assets	3.03	2.84
	Actuarial gain /(loss)	(0.94)	-
	Employer's contributions (includes Rs. 10.14 relating to contributions made in brvious years [refer note 31])	11.20	11.57
	Benefit paid	(3.09)	(1.61)
	Actuarial gain/(loss) on plan assets	(0.02)	1.77
	Effect of Foreign exchange rate	2.09	(6.10)
	Fair value of plan assets at the end of the year	65.42	53.17
	c) Amount to be recognized in Balance Sheet including a reconciliation of the brsent value of defined benefit obligation and the fair value of assets
	Present value of funded obligations as at March 31	123.53	111.62
	Fair value of plan assets as at March 31	65.42	53.15
	Funded (asset)/ liability recognized in the Balance Sheet	58.11	58.47
	Liability transfer out
	Present value of unfunded obligation as at March 31
	Unrecognized past service cost
	Unrecognized actuarial (gains) / losses
	Unfunded net liability recognized in the Balance Sheet	58.11	58.47
	d) Expenses to be recognized in the Statement of Profit and Loss
	Current service cost	10.40	33.38
	Past service cost
	Interest cost	4.07	4.23
	Expected return on plan assets	(3.03)	(2.84)
	Curtailment cost/(credit)
	Settlement cost/(credit)
	Net actuarial (gain) loss to be recognized	0.65	16.85
	Expenses recognized in the Statement of Profit and Loss	12.09	51.62
	e) Percentage of each Category of Plan Assets to total Fair Value of Plan Asset as at March 31,
	Government Of India Securities
	Corporate Bonds
	Special Deposit Scheme
	Equity Shares of Listed Companies
	Property
	Insurer managed fund	100%	100%
	The overall expected rate of return on asset is based on the expectations of the average long term rate of return expected on investment of the Fund during the estimated term of the obligations.
	The actual return on plan assets is as follows:
	Actual return on plan assets	2.61	4.61
	f) Summary of actuarial assumptions
	Discount rate	0.08% to 8%	2.3% to 8%
	Salary escalation rate	0.45% to 7.5%	1.75% to 7.5%
	Expected rate of return on plan asset	1.85% to 9%	3.5% to 9%

Segment information
The group has disclosed business segment as the primary segment, Automotive segment consists of business of automobile products consisting of auto parts for two-wheeler, three-wheelers and four-wheelers and related engineering and other services. Others primarily includes forging components for off road vehicles and components for mining and oil drilling industry.
(a) Primary segment: Business segments							(Rs in Crores)
		For the year ended March 31, 2016			For the year ended March 31, 2015
Sr. No	Particulars	Automotive	Others	Total	Automotive	Others	Total
	Segment revenue
1	Revenue from operations (external)	8,156.40	191.75	8,348.15	6,708.53	261.98	6,970.51
	Total revenue	8,156.40	191.75	8,348.15	6,708.53	261.98	6,970.51
2	Segment results before other income, finance cost and tax	334.36	(18.66)	315.70	358.20	10.98	369.18
3(i)	Other income			25.12			51.37
3(ii)	Finance costs			(86.35)			(103.03)
3(iii)	Exceptional items (Refer note 33)			39.85			35.10
4	Profit before tax			294.32			352.62
5	Tax expenses including deferred tax			(47.14)			(44.97)
6	Profit after tax but before minority interest			247.18			307.65
7	Minority interest			(1.67)			(3.81)
8	Profit after tax			245.51			303.84
9	Segment assets	5,418.85	237.71	5,656.56	4,335.25	209.69	4,544.94
10	Segment liabilities	2,213.98	87.91	2,301.89	1,820.30	91.31	1,911.61
	Cost to acquire fixed assets (including on acquisition of business)	626.59	6.39	632.98	930.22	9.10	939.32
	Debrciation and amortization	289.89	13.86	303.75	249.59	12.82	262.41
(b) Secondary Segment - Geographical segments
Segment revenue by geographical area based on geographical location of customers:
Sr. No	Particulars			For the year ended March 31, 2016			For the year ended March 31, 2015
	Revenue within :
1	India			2,838.86			1,949.71
2	Asia Pacific			502.93			495.81
3	Europe			2,990.31			3,066.00
4	United States			1,398.09			924.78
5	Others			617.96			534.21
	Total			8,348.15			6,970.51
Carrying amount of segment assets
Sr. No	Particulars			As at March 31, 2016			As at March 31, 2015
1	India			2,109.75			1,811.55
2	Asia Pacific			565.98			546.31
3	Europe			1,715.30			1,448.92
4	United States			494.97			311.92
5	Others			770.56			426.24
	Total			5,656.56			4,544.94