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NOTES TO ACCOUNTS

Tata Coffee Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 1491.36 Cr. P/BV 1.26 Book Value (₹) 63.19
52 Week High/Low (₹) 103/67 FV/ML 1/1 P/E(X) 21.68
Bookclosure 03/06/2019 EPS (₹) 3.68 Div Yield (%) 1.88
Year End :2018-03 

Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On March 28, 2018, MCA has notified the Companies (Indian Accounting Standards) Amendment Rules,

2018 containing Appendix B to IndAS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. This amendment will come into force from April 1, 2018. The Company has evaluated the effect of this on the financial statements and the impact is not material.

The Company intends to dispose off certain Non-Current assets, it no longer utilises in the next 12 months. No impairment loss was recognised on reclassification of the assets as held for sale, as the Company expects that the fair value less costs to sell is higher than the carrying amount.

E. Rights, Preferences and restrictions of Equity Shares:

The Company has one class of equity shares having a par value of ' 1 each. 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 in proportion to their shareholding.

The Board of Directors, in its meeting on 7th May, 2018, have recommended a dividend of Rs, 1.50 per share (face value of Rs, 1/- each) for the year ended 31st March, 2018. The proposal is subject to the approval of shareholders at the Annual General Meeting.

Note No. 13 - Nature and purpose of Reserves

Capital Redemption Reserve

A statutory reserve created to the extent of sum equal to the nominal value of the share capital extinguished on buyback of Company's own shares pursuant to Section 69 of the Companies Act, 2013.

Securities Premium Reserve

Securities Premium Reserve has been created consequent to issue of shares at premium. These reserves can be utilised in accordance with Section 52 of the Companies Act, 2013.

General Reserves II

Capital profits on sale value of own timber are transferred to General Reserve II through the Retained Earnings.

Amalgamation Reserves

Amalgamation Reserves pertains to the scheme of amalgamation of the Company with erstwhile Asian Coffee Limited, Coffee Lands Limited and SIFCO Limited.

1. Working Capital Facilities are secured by hypothecation of Coffee crop, inventories, finished/semi-finished goods/ receivables of the company. Part of the working capital facilities is also secured by deposit of title deeds of a coffee estate. The Working Capital is repayable on demand. The coupon rate is linked to Marginal Cost Fund based lending rates (MCLR).

2. Unsecured Loans from Banks are towards Working Capital facilities and are repayable on demand. The coupon rate is based on MCLR linked rates.

$ includes amounts due beyond the applicable period of ' Nil (' Nil) and no interest is paid or payable.

The information regarding Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company.

Note No. 33 - Corporate Social Responsibility

As per Section 135 of the Companies Act, 2013 ('Act), a company, meeting the applicability threshold, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities. The areas for CSR activities are Healthcare including Preventive healthcare, providing Safe drinking water, sanitation facility, promoting education, Old Age Home maintenance, Environmental sustainability and promotion and development of traditional art and handicrafts. A CSR committee has been formed by the company as per the Act. The funds were primarily allocated to a corpus and utilized through the year on these activities which are specified in Schedule VII of the Companies Act, 2013.

a) Gross amount required to be spent by the company during the year is Rs, 219.14 Lakhs. (PY 217.83 Lakhs)

b) Amount spent during the year on: Rs, 220.99 Lakhs (PY Rs, 221.29 Lakhs)

B. Measurement of fair values

The basis of measurement in respect to each class of financial asset, financial liability is disclosed in Note No. 2.2 (g) of Significant Accounting Policies. Note No. 36 - Financial Risk Management

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 Board has established the Risk Management Committee, which is responsible for developing and monitoring the Company's risk management policies. The Committee reports regularly to the Board of Directors on its activities.

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, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The 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. The Audit Committee is assisted in its oversight role by Internal Audit which regularly reviews risk management controls and procedures, the results of which are reported to the Audit Committee.

The Company has exposure to Credit, Liquidity and Market risks arising from financial instruments:

A. Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and investments in debt securities.

Trade and other receivables

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 of the country in which customers operate.

The Risk Management Committee has established a credit policy under which each new customer is analysed individually for Creditworthiness before the Company's standard payment and delivery terms and conditions are offered. Credit limits are established for each customer and reviewed periodically.

At the end of the reporting period, there are no significant concentrations of credit risk. The carrying amount reflected above represents the maximum exposure to credit risk.

Cash and cash equivalents

The Company held cash and cash equivalents of ' 2560.08 Lakhs at March 31, 2018 (March 31, 2017: '143.00 Lakhs).

B. LIQUIDITY RISKS:

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. The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

C. MARKET RISKS:

Market risk is the risk that changes in market prices such as commodity prices risk, foreign exchange rates and interest rates which will affect the Company's financial position. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables.

The Plantation Industry is dependent on nature, making it susceptible to climate vagaries. The major weather factors that influence coffee yield are rainfall, temperature, light intensity and relative humidity. To mitigate the risk of drought conditions, the Company has invested significantly on augmentation of irrigation capacities rain water harvesting to improve the water table and enhance the water storage capacity. With regard to Plantation Operations, borer infestation is a continuous threat being faced . The Company, in addition to regular tracing and chemical control, has taken rigorous initiatives to curb pest incidence. It is also working closely with various R&D cells for developing effective measures in this regard.

Commodity Price Risk

Tata Coffee exposure to Market risk for commodity prices can result in changes to realisation for its Plantation products and Cost of Production for its value added products. The risk associated is actively monitored for mitigation actions. The other litigants includes strict implementation of Board mandated Commodity policy and also the natural hedge arising on export of Plantation produce vis a vis import of Coffee for value added segment.

Currency Risk

The Company is exposed to currency risk on account of its borrowings and other payables in foreign currency. The functional currency of the Company is Indian Rupee. The Company uses forward exchange contracts to hedge its currency risk, mostly with a maturity of less than one year from the reporting date. The Company does not use derivative financial instruments for trading or speculative purposes. Following is the derivative financial instruments to hedge the foreign exchange rate risk as of March 31, 2018:

Following Table summarises approximate gain/(loss) on the Company's Profit before tax and pre-tax equity on account of appreciation/ depreciation of underlying foreign currencies of the above table.

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. In order to optimize the Company's position with regard to interest income and interest expenses and to manage the interest rate risk, treasury performs a comprehensive corporate interest rate risk management by balancing the proportion of fixed rate and floating rate financial instruments in its total portfolio.

Exposure to Interest Rate Risk

Company's interest rate risk arises from borrowings.

The following Table demonstrates the sensitivity on the Company's profit before tax, to a reasonably possible change in interest rates on that portion of loans and borrowings affected, with all other variables held constant:

Note No. 37- Employee Benefits Obligation

(i) Defined Contributions

Amount of' 1470.39 Lakhs (PY '1444.08 Lakhs) is recognised as an expense and included in employee benefit expense to the following defined contribution plans:

(ii) Defined Benefits:

Gratuity, Post Retiral Medical Benefits and Pension :

The Company operates defined benefit schemes like retirement gratuity, defined superannuation benefits and post-retirement medical benefits. There are superannuation benefits and medical benefits restricted to certain categories of employees/directors in the form medical and pension, The defined benefit schemes offer specified benefits to the employees on retirement. The gratuity benefit provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 / 30 days' salary payable for each completed year of service. Vesting occurs upon completion of five continuous years of service.

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.

The Company contributes all its ascertained liabilities towards gratuity to the Trust set up for the same. Trustees administer the contributions made to the trust. As at March 31, 2018 and March 31, 2017, the plan assets have been primarily invested in insurance managed funds.

Expected contribution over the next financial year:

The Company is expected to contribute ' 420 Lakhs to defined benefit obligations funds for the year ending March 31, 2018.

(iii) Provident Fund

The Company operates Provident Fund Schemes and the contributions are made to recognised funds maintained by the Company and for certain categories contributions are made to State Plans. The Company has an obligation to fund any shortfall on the yield of the trust's investments over the administered rates on an annual basis. The Actuary has provided a valuation for provident fund liabilities on the basis of guidance issued by Actuarial Society of India and based on the below provided assumption there is no shortfall as on March 31, 2018 and March 31, 2017.

Note No. 38 - Fair Value Measurement

A. Fair Value Measurement-Agricultural Produce

Agricultural produce is the harvested produce of the entity's Biological Assets (Bearer Plants) at the point of Harvest. Green Bean in Fruit form, Green Pepper and Green Tea at the point of plucking falls within the definition of Agricultural Produce at the point of Harvest.

The Company uses a Valuation technique that is appropriate in the circumstances and for which sufficient data are available to measure the fair value, maximising the use of relevant observable inputs. Accordingly, the Company follows a Market Approach as permitted under Indian Accounting Standard Ind AS-113- 'Fair Value Measurement'

(i) Fair Valuation of Coffee

The Coffee on reporting dates are available in (a) Fruit Form (b) Dried Uncured form and (c ) at Cured Coffee level.

There is no active quoted market for Green Bean in Fruit Form. Hence, Level 1 inputs (unadjusted quoted prices in active markets for identical assets or liabilities) are not available for valuation.

The Coffee Board publishes Daily Market Prices of Arabica Parchment, Arabica Cherry, Robusta Parchment and Robusta Cherry at Dried Uncured Coffee level.

Based on the well-established conversion norms and the Coffee Board prices, the cured equivalent of fair valuation of Fruit Coffee are arrived at based on Level 2 observable inputs.

The Valuation is carried out at the Fruit Coffee Level, while the the quoted prices are available at the Dried Coffee level. Hence, the fair value measurement is satisfying the conditions for applying Level 2 of the Fair Value hierarchy.

Suitable adjustments based on conversion norms applicable for the dried uncured Coffee and Cured Coffee are carried out to arrive at the corresponding Fair Value at these stages.

(ii) Fair Valuation of Pepper:-

The Spices Board of India publishes the average market rates for Pepper MG1 Grade. Since the Company produces and markets Pepper in various grades, apart from MG1, the quoted Prices for MG1 are considered as Level 2 inputs being quoted prices of Various Grades. The MG1 rate is applied to the Company's estimated grade % for black pepper production and the composite weighted average fair value is arrived at and after making adjustments for subsequent processes.

The fair value so arrived at becomes the Ind AS 2 Inventory rate /value and thereafter regular inventory accounting process is followed.

(iii) Fair Valuation of Tea:-

The tea leaves at the point of plucking are designated as Agricultural Produce at the point of harvest. The fair valuations are based on the auction prices of Made Tea and are suitably adjusted based on conversion norms to arrive at the fair valuation of green leaves.

B. Fair Value of Equity

The Fair value of equity investments except investments in subsidiaries are based on Quoted prices available on last reporting rate which is a Level 1 input.

Names of related parties and description of relationship

1. Promoter Company Tata Sons Limited

2. Parent Company Tata Global Beverages Limited

3. Subsidiaries Consolidated Coffee Inc.,

Eight O'Clock Holdings Inc.

Eight O'Clock Coffee Company Tata Coffee Vietnam Company Limited

4. Key Management Personnel Mr Sanjiv Sarin, Managing Director & CEO

Mr Chacko Purackal Thomas, Executive Director and Deputy CEO

Mr K Venkataramanan, Executive Director - Finance & CFO

Mr T Radhakrishnan, Executive Director (upto 7th November, 2017).

5. Fellow Subsidiaries/JVs OOO Sunty LLC (Ceased to be a related party with effect from 4th November, 2017).

Tata Global Beverages GB Ltd.

Tata Starbucks Private Limited

Tata Global Beverages Australia Pty. Ltd.

Earth Rules Pty.Ltd.

Amalgamated Plantations Private Limited

6. Subsidiaries/JVs of Promoter Tata Consultancy Services Limited

Tata Housing Development Company Limited

Tata Teleservices Limited

Taj Air Limited

Tata SIA Airlines Limited

Tata Uganda Limited

Tata Communications Limited

7. Post Retirement Benefit Plans Tata Coffee Staff Provident Fund Trust

Tata Coffee Superannuation Scheme Tata Coffee Employees Gratuity Fund

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