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NOTES TO ACCOUNTS

Vadilal Enterprises Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 106.45 Cr. P/BV 26.09 Book Value (₹) 47.29
52 Week High/Low (₹) 1311/774 FV/ML 10/1 P/E(X) 1,196.85
Bookclosure 30/09/2019 EPS (₹) 1.03 Div Yield (%) 0.06
Year End :2018-03 

1. COMPANY OVERVIEW:-

Vadilal Enterprises Limited is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on Bombay stock exchange in India. The Company is engaged in the marketing and distribution of the ice cream, dairy products,frozen desserts and process food products of the brand “Vadilal” all over India except ice cream, dairy product and frozen desserts in Maharashtra, Goa, Karnataka, Kerala & Andhra Pradesh.The financial statements for the year ended March 31, 2018 were approved and authorised for issue by the Board of Directors on May 28, 2018.

2) Plant & Machinery includes Deep Freeze Machine & Freezers on Wheels given on cancellable operating lease. Gross Block Rs. 3,694.65 Lacs (as at March 31 ,2017. Rs. 3,562.93 lacs,as at April 1 ,2016 , 14,171.52 lacs ) Accumulated Depreciation Rs. 1,635.82 Lacs (as at March 31 ,2017 Rs. 1,100.08 lacs ,as at April 1 ,2016 Rs. 878.64 lacs) Net Carrying Amount Rs. 2,462.85 (as at March 31 ,2017 Rs. 3,292.88 lacs, as at April 1 ,2016 Rs. 3,292.88 lacs)

Notes :

1. The credit period ranges from 30 days to 180 days.

2. Before accepting any new customer, the Company assesses the potential customer's credit quality and defines credit limits by customer. Limits attributed to customers are reviewed annually. There are no customers who represent more than 5% of the total balance of trade receivable.

3. In determining the allowances for doubtful trade receivables, the Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and is adjusted for forward looking information. The expected credit loss allowance is based on the ageing of the receivables that are due and rates used in the provision matrix.

4. Borrowings are secured by first paripassu charge on stock ,book debts and other chargeable current assets. (Note 22)

5. Refer Note 37 for information about credit risk and market risk of Trade receivables.

b) Rights, Preferences and Restrictions attached to equity shares:

The company has issued only one class of equity shares having par value of Rs. 10 per share. Each holder of equity share is entitled to one vote per share and are entitled to dividend as and when declared. The dividend proposed by the Board of Directors is subject to the approval of shareholders in the ensuing Annual General meeting.

All Shares rank equally with regard to the company's residual asset after distribution of all preferential amounts.

c) Shares held by holding/ultimate holding company and/or their subsidiaries / associates

The Company does not have any holding/ultimate holding company and/or their subsidiaries / associates.

Notes

a) On October 01, 2016, a dividend of Rs. 0.80 per share (total dividend Rs. 8.31 lacs) was paid to holders of fully paid equity shares. On October 06, 2017, the dividend of Rs. 0.80 per share (total dividend of Rs. 8.31 lacs) was paid to the holders of fully paid equity shares. The total dividend includes dividend distribution tax at applicable rates.

b) The Board of Directors, in its meeting held on May 28th, 2018, have proposed a final dividend of Rs. 0.80 per equity share for the financial year ended March 31, 2018. The proposal is subject to the approval of shareholders at the Annual General Meeting to be held on September, 2018 and if approved would result in a cash outflow of approximately Rs. 8.31 lacs, including dividend distribution tax.

c) Nature and Purpose of reserve

Capital reserve The company has created capital reserve on account of forfeiture of Equity shares.

Securities premium reserve The amount received in excess of face value of the equity shares is recognised in Securities Premium Reserve. This reserve is available for utilization in accordance with the provisions of the Companies Act, 2013. General reserve General reserve is created from time to time by way of transfer of profits from retained earnings for appropriation purposes. General reserve is created by a transfer from one component of equity to another and is not an item of other comprehensive income.

Retained earnings Retained earnings are the profits that the Company has earned till date, less any transfers to general reserve, dividends or other distributions paid to shareholders.

* Each EMI includes interest portion also.

(i) Term Loan from Bank of India is secured by way of first hypothecation charge over movable Plant and Machinery Equipments of the company to be purchased out of term loan availed by company. The Term Loan is also secured on first charge by Equitable Mortgage of Immovable properties of the company situated at 1st Floor of Vadilal House,Shrimali Soceity, Navrangpura, Ahmedabad)

(ii) Term Loan from TATA Capital Services Limited is secured by way of hypothecation charge over movable Plant and Machinery Equipment of the company to be purchased out of term loan availed by company.

(iii) The Term Loans from BOI and TATA Capital service Limited are secured by Corporate Guarantee Vadilal Industries Ltd.

(iv) Vehicle loans from HDFC Bank Limited are secured against hypothecation of specific vehicles of the Company.

(v) Equipment Lease and financing transaction for SAP project for Rs. 200 Lacs availed by company from IBM India Pvt, Ltd. is guranteed by some of the Directors and group company.

(vi) Refer Note 39 for information about liquidity risk.

(vii) Amount stated in current maturity is disclosed under the head of “Other Current Financial Liabilities” (Note-24)

(i) Working Capital facilitites from Bank of India is secured by way of first hypothecation charge over stock, book debts and other chargeable current assets. It is also secured on first charge by way of Equitable mortgage of the immovable properties of the company situated at 1st Floor, “Vadilal house”, Shrimali Society, Navrangpura, Ahmedabad

(ii) Working Capital facilitites from Bank of India is secured by Corporate Guarantee Vadilal Industries Ltd.

Note on MSMED:

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. This has been relied upon by the Auditor.

*The Company has taken various residential, office and godown premises under operating lease or leave and license agreements. These are generally not non-cancellable and range between 11 months to 36 months under leave and license or longer for other leases and are renewable by mutual consent on mutually agreeable terms. The company has given refundable interest free security deposits under certain agreements.

The company's weighted average tax rates for the year ended March 31, 2018 and March 31, 2017 were 30.9 % and 30.9% respectively.

Future Cash Outflow in respect of (b) above are determined only on receipt of judgements/decisions pending at various forums/ authorities.

Note : 3

During the year, a Company Petition (being Company Petition No. 42 of 2017) has been filed against the Company, before the National Company Law Tribunal, Ahmedabad (“NCLT”), under Sections 241 and 242 of the Companies Act, 2013. In connection to the said Company Petition No. 42 of 2017, the Petitioners and some of the parties to the petition are seeking to arrive at an amicable resolution of matter.

Note : 4 Segment Information :

The company is primarily engaged in the business segment of “Food Products” which is Ice cream/ Frozen Dessert/ Process Food/ Flavoured Milk and Dairy Products. Information reported to and evaluated regularly by the Chief Operating Decision Maker (CODM) for the purposes of resource allocation and assessing performance focuses on the business as a whole and accordingly, in the context of Operating Segment as defined under the Indian Accounting Standard 108, there is single reportable segment.

Note : 5 Financial Instruments

1. Capital Management

The Company manages its capital so as to safeguard its ability to continue as a going concern and to optimise returns to shareholders. The Capital structure of the company is based on management's judgment of its strategic and day-to-day needs with a focus on total equity to maintain investor, creditors and market confidence and to sustain future development and growth of its business.

The management and the Board of Directors monitors the return on capital as well as the level of dividends to shareholders. The company may take appropriate steps in order to maintain, or if necessary adjust, its capital structure.

The capital structure of the Company consists of net debt (borrowings as detailed in notes 19 and 22 off set by cash and bank balances) and total equity of the Company.

The company's risk management committee reviews the risk capital structure of the company on semi annual basis. As part of this review the company considers the cost of capital and the risk associated with each class of capital.

i) Debt is defined as long-term borrowings, short-term borrowings and current maturities of long term borrowings (excluding financial guarantee contracts and contingent considerations) as described in notes 19 and 22.

2 Financial risk management

The Company's financial liabilities comprise mainly of borrowings, trade payables and other financial liabilities. The Company's financial assets comprise mainly of investments, cash and cash equivalents, other balances with banks, loans, trade receivables and other financial assets. The Company's business activities are exposed to a variety of financial risks, namely liquidity risk, market risks and credit risks. The company's senior management has the overall responsibility for establishing and governing the company's risk management framework. The company has constituted a Risk management committee, which is responsible for developing and monitoring the company's risk management policies. The company's risk management policies are established to identify and analyse the risks faced by the company, to set and monitor appropriate risk limits and controls, periodically review the changes in market conditions and reflect the changes in the policy accordingly. The key risks and mitigating actions are also placed before the Audit Committee of the company.

A) Management of Market Risk

The company's size and operations result in it being exposed to the following market risks that arise from its use of financial instruments:

- Interest rate risk

The above risks may affect the company's income and expenses, or the value of its financial instruments. The company's exposure to and management of these risks are explained below:

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market interest rates. In order to optimize the Company's position with regards 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.

According to the Company interest rate risk exposure is only for floating rate borrowings. For floating rate liabilities, the analysis is prepared assuming that the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rates.

Exposure to interest rate risk

Interest rate sensitivity

A change of 100 bps in interest rates would have following Impact on profit before tax.

B) Management of Credit Risk

Credit risk arises from the possibility that the counter party may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses financial reliability of customers, taking into account the financial condition, current economic trends, and analysis of historical bad debts and ageing of accounts receivable. Individual risk limits are set accordingly.

The company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis through out each reporting period. To assess whether there is a significant increase in credit risk, the company compares the risk of default occurring on asset as at the reporting date with the risk of default as at the date of initial recognition. It considers reasonable and supportive forwarding-looking information such as:

1. Actual or expected significant adverse changes in business.

2. Actual or expected significant changes in the operating results of the counterparty.

3. Financial or economic conditions that are expected to cause a significant change to the counterparty's ability to meet its obligations.

4. Significant increase in credit risk on other financial instruments of the same counterparty.

5. Significant changes in the value of the collateral supporting the obligation or in the quality of the third-party guarantees or credit enhancements.

The Company measures the expected credit loss of trade receivables and loan from individual customers based on historical trend, industry practices and the business environment in which the entity operates. Loss rates are based on actual credit loss experience and past trends. Based on the historical data, loss on collection of receivable is not material hence no additional provision considered.

The Ageing analysis of Account receivables has been considered from the date the invoice falls due.

No Significant changes in estimation techniques or assumptions were made during the year

C) Management of Liquidity Risk

Liquidity risk is the risk that the company will face in meeting its obligation associated with its financial liabilities. The Company's approach in managing liquidity is to ensure that it will have sufficient funds to meet its liabilities when they are due without incurring unacceptable losses. In doing this management considers both normal and stressed conditions.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Group's short-term, medium-term and long term funding and liquidity managment requirments. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuosly monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

The following table shows the maturity analysis of the company's financial liabilities based on the contractually agreed undiscounted cash flows along with its carrying value as at the Balance sheet date.

Note : 1) Transaction of Purchase / Sales and outstanding of Trade Payables / Receivable are inclusive of Taxes.

Note : 2) The trademark “Vadilal” and its associated trademarks are owned by Vadilal International Pvt. Ltd. The Company is a licensee of the said Trademarks.

* Key Managerial Personnel and Relatives of Promoters who are under the employment of the Company are entitled to pos employment benefits and other long term employee benefits recognised as per Ind AS 19 - 'Employee Benefits' in the financia statements. Post-employment gratuity benefits of Key Managerial Personnel has not been included in (e) above.

Note : 6 EMPLOYEE BENEFITS:

1. Post Employment Benefit Plans as per Indian Accounting Standard 19:

Defined Contribution Plan:

The company makes provident fund (PF) contributions to defined contribution benefit plans for eligible employees. Under thi scheme the company is required to contribute a specified percentage of the payroll costs to fund the benefits. The contribution; specified under the law are paid to the government authorities (PF commissioner).

Amount towards Defined Contribution Plan have been recognized under “Contribution to Provident and Other funds” in Note 32 Rs. 74.97 Lacs (Previous Year: Rs. 60.93 Lacs).

Defined Benefit Plan:

The Company has defined benefit plans for gratuity to eligible employees, contributions for which are made to Life Insurance Corporation of India, who invests the funds as per IRDA guidelines. The details of these defined benefit plans recognised in the financial statements are as under:

Gratuity is a defined benefit plan and company is exposed to the Following Risks:

Interest rate risk: A fall in the discount rate which is linked to the G.Sec. Rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.

Salary Risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan's liability.

Investment Risk: The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.

Asset Liability Matching Risk: The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.

Mortality risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.

Concentration Risk: Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very less as insurance companies have to follow regulatory guidelines.

E Investment details of plan assets:

To fund the obligations under the gratuity plan, Contributions are made to Life Insurance Corporation of India, who invests the funds as per IRDA guidelines.

G Sensitivity analysis:

Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase and mortality. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

The sensitivity analysis above have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period and may not be representative of the actual change. It is based on a change in the key assumption while holding all other assumptions constant. When calculating the sensitivity analysis, the present value of projected defined benefit obligation has been calculated using Projected Unit Credit Method at the end of the reporting period. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the previous period.

H The principal assumptions used for the purpose of actuarial valuation were as follows :

With the objective of presenting the plan assets and plan liabilities of the defined benefits plans at their fair value on the balance sheet, assumptions under Ind AS 19 are set by reference to market conditions at the valuation date.

The significant actuarial assumptions were as follows:

1. Other long term employee benefits :

Compensated absences

The liability towards compensated absences (leave encashment) for the year ended March 31, 2018 based on actuarial valuation carried out by using Projected Unit Credit Method is Rs. 109.21 Lacs. (As at march 31, 2017 : Rs. 73.62 Lacs)

Note : 7 First-time Ind-AS adoption reconciliation Transition to Ind As - Reconciliation

The following reconciliations provide a quantification of the effect of significant differences arising from the transition from previous GAAP to Ind AS as required under Ind AS 101:

1. Reconciliation of Balance Sheet as at April 1, 2016 (Transition Date) and March 31, 2017

2. Reconciliation of Profit for the year ended March 31, 2017

3. Reconciliation of Equity as at April 1, 2016 and as at March 31, 2017

4. Reconciliation of Total Comprehensive Income for the year ended March 31, 2017

5. Adjustments to Statement of Cash flow

6. Notes on reconciliation

8 Adjustments to Statement of Cash Flows for the year ended 31st March, 2017

The Ind AS adjustments are either non cash adjustments or are regrouping among the cash flows from operating, investing and financing activities. Consequently, Ind AS adoption has no impact on the net cash flow for the year ended March 31, 2016 as compared with the previous GAAP.

9. Notes on Reconciliation

(a) Under previous GAAP, investments in equity instruments were classified as Long term Investments. Long term investments were carried at cost less diminution in value for other than temporary decline in value of such investments. Under Ind AS 109, Investment in equity instruments of companies other than subsidiaries, joint ventures & associates are classified as FVTPL. On transition to Ind AS, these financial assets have been measured at fair value which is higher/lower than cost as per previous GAAP.

(b) Under Ind AS, security deposit given against operating lease are presented at fair value by discounting it taking lease contract Period and the differential amount has been treated as advance rentals/advance royalty to be amortised as rent/ royalty over the lease period.

(c) Under previous GAAP, dividend recommended by board of directors on equity shares for the reporting period while approving financial statement, subject to its approval by members in general meeting, was being recognised in the financial statements as a liability. Under Ind AS, such dividends are recognised as liability when declared by the members in a general meeting.

(d) Under previous GAAP, actuarial gains and losses were recognised in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of re-measurement of net defined benefit liability / asset which is recognised in other comprehensive income in the respective periods. However, the same does not result in difference in equity or total comprehensive income.

(e) Under previous GAAP, upfront fees paid to the lenders is charged to statement of profit and loss as and when incurred. However, Ind AS - 109 “Financial instruments” requires long term debt to be recognised at amortised cost and upfront fees are charged on the basis of effective interest rate method.

(f) Consequent to adoption of Ind AS from April 1, 2016, deferred tax at applicable rates has been recognised on effect of Ind AS adoption and transition on retained earnings as at April 1, 2016 and on impact on profit for the year ended March 31,2017 for the adjustment carried out in the statement of profit and loss.

Note : 10 Standards issued but not yet effective

Appendix B to Ind AS 21, Foreign currency transactions and advance consideration

On March 28, 2018, Ministry of Corporate Affairs (“”MCA””) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 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.

The amendment will come into force from 1 April 2018. The Company is evaluating the requirement of the amendment and the impact on the financial statements. The effect on adoption of Ind AS 21 is expected to be insignificant.”

Ind AS 115 - Revenue from contracts with customers

The Ministry of Corporate Affairs (MCA), on March 28, 2018, notified Ind AS 115, Revenue from Contracts with Customers as part of the Companies (Indian Accounting Standards) Amendment Rules, 2018. The new standard is effective for accounting periods beginning on or after April 1, 2018. The Company is evaluating the disclosure requirements of the amendments and its effect on the financial statements.

Note : 11. Previous years' figures have been regrouped and rearranged wherever necessary to make them comply with IND AS.

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