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NOTES TO ACCOUNTS

Alkyl Amines Chemicals Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 1770.20 Cr. P/BV 4.68 Book Value (₹) 185.35
52 Week High/Low (₹) 916/552 FV/ML 5/1 P/E(X) 20.56
Bookclosure 06/08/2019 EPS (₹) 42.22 Div Yield (%) 0.92
Year End :2018-03 

CORPORATE INFORMATION

Alkyl Amines Chemicals Limited (the ‘Company’) is a public limited company domiciled in India. Its shares are listed on two stock exchanges in India, viz. the Bombay Stock Exchange (‘BSE’) and the National Stock Exchange (‘NSE’). The Company is engaged in manufacturing and selling of specialty chemicals.

1. CRITICAL JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of financial statements requires the Company to make estimates, assumptions and judgments that affect the reported balances of Assets and Liabilities and disclosures as at the date of the financial statements and the reported amounts of income and expenses for the period presented.

The estimates and the associated assumptions are based on historical experience and the other factors that are considered to be relevant. Actual results may differ from the estimates under different assumptions and conditions.

Estimates and the underlying assumptions are reviewed on an ongoing basis. Impact on account of revisions to accounting estimates are recognized in the period in which the estimates are revised and future periods are affected.

The estimates and assumptions that have significant risk of causing a material adjustment to the carrying value of Assets and Liabilities within the next financial year are discussed below.

(i) Judgments:

In the process of applying the Company’s accounting policies, Company has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements:

a. Arrangements in the nature of lease:

The Company has entered into sub-contracting arrangements with its service providers wherein the Company supplies all the raw materials required for the manufacture and/or processing along with specifications to manufacture the products to the service provider, thereby retaining the title to all products. The Company has also entered into a subcontracting arrangement as a service provider wherein the Company processes the goods based on all the raw materials supplied to it for the manufacture and/or processing along with specifications to manufacture the products, the title to which remains with the customer.

The Company has determined, based on the evaluation of terms and conditions of the arrangement that it qualifies as an arrangement in the nature of operating lease.

b. Segment Reporting:

Ind AS 108 Operating Segments requires the Company to determine the reportable segments for the purpose of disclosure in financial statements based on the internal reporting reviewed by the Board of Directors to assess the performance and allocate resources. The standard also requires the Company to make judgments with respect to aggregation of certain operating segments into one or more reportable segment. Operating segments used to present segment information are identified based on the internal reports used and reviewed to assess performance and allocate resources. The Company has determined that some of the segments exhibit similar economic characteristics and meet other aggregation criteria and are accordingly aggregated into one primary reportable segment i.e. ‘Specialty Chemicals’ and two geographical reportable segments i.e. domestic and exports.

c. Stores and Spares Inventories:

The Company’s manufacturing process is continuous and highly technical with wide range of different types of plants and machineries. The Company keeps stores and spares as a standby to run the operations without any disruption. Considering the wide range of stores and spares and long lead times for their procurement, and based on criticality of spares, the Company believes that their net realizable value would be more than cost.

d. Income Taxes:

Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions.

e. Contingent Liability Judgment:

Note-29 describes claims against the Company not acknowledged as debt. It includes certain penalties and charges payable to a Government agency although as per the contracts, the Company, based on past experience, believes that the penalties and charges are negotiable and not certain, and accordingly, are not considered as an obligation as at the Balance Sheet date and are disclosed as Contingent Liabilities.

(ii) Estimates and Assumptions:

The key assumptions concerning the future and other key sources of estimation, uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of Assets and Liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

a. Defined Benefit Plans (Gratuity Benefits)

The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The parameter most subject to change is the discount rate. In determining the appropriate discount rate, the management considers the interest rates of government bonds. The mortality rate is based on Indian Assured Lives Mortality (2006-08). Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates.

Further details about gratuity obligations are given in Note 31.

b. Fair Value Measurement of Financial Instruments

When the fair values of Financial Assets and Financial Liabilities recorded in the Balance Sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the Discounted Cash Flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. (Refer Note 43) for further disclosures.

c. Impairment of Non-Financial Assets

The Company has assessed certain Assets that do not have a future economic benefit. Such assessment involves estimates of availability of future cash flows and other alternative uses of the respective Assets. The Company reviews its carrying value of Assets carried at amortized cost annually, or more frequently when there is indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for. Based on the Management’s assessment, these Assets have been fully impaired. The total carrying amount impaired is Rs.116.78 lakhs. (Refer note 3) for details.

d. Useful Life of Property, Plant and Equipment and Others

The Company reviews the estimated useful lives and residual values of Property, Plant and Equipment (PPE) and Intangible Assets as at the end of each reporting year. The factors such as changes in the expected level of usage, number of shifts of production, technological developments, units of production and product life cycle, could significantly impact the economic useful lives and the residual values of Assets. Consequently, the future depreciation and amortization charge could be revised and thereby could have impact on the profit of the future years.

e. Litigations

From time to time, the Company is subject to legal proceedings, the ultimate outcome of each being always subject to many uncertainties inherent in litigations. A provision is made when it is considered probable that payment will be made and the amount of the loss can be reasonably estimated. Significant judgment is made when evaluating, among other factors, the probability of unfavorable outcome and the ability to make a reasonable estimate of the amount of potential loss. Litigation provisions are reviewed at each accounting year and revisions made for the changes in facts and circumstances.

f. Cash Flow Hedge Reserve

The Cash Flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of designated portion of hedging instruments entered into for cash flow hedges. It will be reclassified to the Statement of Profit and Loss only when the hedged transaction affects the profit or loss or included as a basis adjustment to the non-financial hedged item.

(i) The Company has called for balance confirmations from Trade Receivables. It has received a few of the confirmations which have been reconciled with the records of the Company. The other balances have been taken as per the records of the Company.

(ii) Trade Receivables are non interest bearing and are generally on terms of average 60 days.

(i) During the year, the Company has transferred Rs. 3.48 Lakhs to Investor Education & Protection Fund (for the year ended March 31, 2017 Rs 2.42 lakhs and for the year ended March 31, 2016 Rs 2.82 lakhs).

(ii) Fixed Deposits with original maturity of more than 3 months having remaining maturity of less than 12 months from Balance Sheet date are disclosed above.

2.1 Rights, preferences and restrictions

i. The Company has only one class of shares, referred to as equity shares, having par value of Rs 5. Each holder of equity shares is entitled to one vote per share.

ii. The Company declares and pays dividend in Indian rupees. Final dividend of Rs. 7 per share for face value of Rs. 5 each, proposed by the Board of Directors is subject to the approval of the shareholders at the ensuing Annual General Meeting.

During the year ended March 31, 2018, the amount per share of final dividend pertainnig to year ended 31 March 2017, distributed to equity shareholders Rs 5 for face value of Rs 5 each. The dividend appropriation for the year ended March 31, 2018 amounted to Rs 1,227.47 lakhs, including corporate dividend tax of Rs 207.65 lakhs.

iii. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

Term Loan from Banks:

(i) Foreign Currency Term Loans to part finance Company’s normal capital expenditure which are secured by creation of pari passu charge on Company’s immovable properties situated at Plot No. A-7, A-7 (part) and A-25 at Patalganga and Plot no. D-6/1 at Kurkumbh, Maharashtra and also a second pari passu charge by way of hypothecation of Raw Material Inventory, Book Debts, Movable Machinery, etc. of :

(ii) Foreign Currency Term Loans to part finance Company’s Dahej Project are secured by creation of pari passu charge on Company’s immovable properties situated at Plot No. A-7, A-7 (part) and A-25 at Patalganga, Maharashtra, Plot no. D-6/1 at Kurkumbh, Maharashtra and Plot No. D-2/CH/149/2 at Dahej, Gujarat and also a second pari passu charge by way of hypothecation of Raw Material Inventory, Book Debts, Movable Machinery, both present and future of :

(i) The above balances comprises of Cash Credits and Bank overdrafts

(ii) Cash Credits are secured by hypothecation of stocks of raw materials, semi-finished goods, finished goods, consumable stores and book debts of the Company, both present and future, as mentioned in the joint deed of hypothecation dated December 29, 1989 as amended from time to time, as well as by the second mortgage of the specified immovable properties of the Company.

3. The Scheme of Amalgamation of Alkyl Speciality Chemicals Limited (ASCL), the Company’s wholly owned Subsidiary, with effect from the Appointed Day, i.e. April 1, 2016, has been approved by the National Company Law Tribunal vide its order dated September 28, 2017, and the Company has filed the said Order of the Tribunal with the Registrar of Companies on November 3, 2017. The Company has considered ASCL as its Subsidiary on transition date i.e. April 1, 2016 and merged in subsequent years. As per the terms of the Scheme, with effect from the appointed date, the following effects have been given:

i) The Company has recorded all assets and liabilities, as appearing in the books of ASCL, at their carrying amounts.

ii) The balance lying in the Profit & Loss Account and Capital Reserve appearing in ASCL has been given effect by the Company under Other Equity.

iii) Intercompany balances and transactions have been cancelled.

The sensitivity analysis 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 presented above may not be representative of the actual change in the projected benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognised in the balance sheet.

There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.

4. Segment Reporting

4.1 Primary Segment:

The Company is exclusively engaged in the business of “Specialty Chemicals”. This in the context of Ind AS 108 “Operating Segment ”.

4.2 Secondary Segment (by Geographical Segment):

4.3 The segment revenue in Geographical Segments considered for disclosure is as follows:

i. Revenue within India includes sales to customers located within India and Other Operating Revenue earned in India.

ii. Revenue outside India includes sales to customers located outside India and Other Operating Revenue earned outside India.

5. List of Related Parties and their relationships

I. Subsidiary Company:

Alkyl Speciality Chemicals Limited (refer note 30)

II. Associate Company:

Diamines and Chemicals Limited

III. Key Management Personnel:

i. Yogesh M. Kothari - Chairman & Managing Director

ii. Kirat Patel - Executive Director

iii. Suneet Y. Kothari - Executive Director

IV. Relative of Key Management Personnel:

Hemendra M. Kothari

V. Entities over which Key Management Personnel has Control:

i. Anjyko Investments Private Limited

ii. Niyoko Trading & Consultancy LLP

iii. YMK Trading & Consultancy LLP

iv. SYK Trading & Consultancy LLP

VI. Entities over which relative of Key Management Personnel has control:

i. Kamiko Investment & Trading Private Limited

ii. DSP HMK Holdings Private Limited

iii. DSP ADIKO Holdings Private Limited

6. Related Party Disclosures

Following transactions were carried out in the ordinary course of business with the parties referred to in 8 above. There was no amount written off or written back from such parties during the year. The related parties included in the various categories above, where transactions have taken place are given below :

7. Leases

7.1 Where the Company is a Lessee:

The Company has taken residential, office and godown premises under operating lease on leave and licence agreement. These are generally cancellable and range between 11 months and five years under leave and licence, or longer for other leases and are renewable by mutual consent on mutually agreeable terms.

Lease/Rent payments are recognised in the Statement of Profit and Loss as ‘Rent’ under ‘Other Expenses’ in Note 25.

Land taken on lease has been amortised over the respective lease period and Rs 15.26 lakhs (Previous Years Rs 14.99 lakh in 201617) has been amortised during the year.

8. Earnings per Share

EPS is calculated by dividing the profit attributable to the equity shareholders by the weighted average number of equity shares outstanding during the year. Numbers used for calculating basic and diluted earnings per equity share are as stated below.

9 Income Taxes

a. A reconciliation of the tax expense to the amount computed by applying the statutory income tax rate to the profit before taxes is summarized below:

b. Significant component of deferred tax assets and liabilities for the year ended March 31, 2018

c. Significant component of deferred tax assets and liabilities for the year ended March 31, 2017 is as follows:

10. Financial and Other Derivative Instruments

Refer Note 1 (m), (n) and (o) for accounting policies on Financial Instruments.

11.1 Capital Management

The Company manages its capital to ensure that it will be able to continue as a Going Concern while maximising the return to stakeholders through optimisation of the Debt and Equity Balance.

The gearing ratio at the end of the reporting period

The Company is subject to externally imposed capital requirements as part of its debt covenants such as maintaining a Total Debt to EBIDTA ratio of 1.60 times, a Debt Service Coverage ratio of 4.55 times and a Total Debt to Tangible Net Worth ratio of 0.64 times.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the requirements of the financial covenants. The Company monitors capital by computing the above ratios on an annual basis and ensuring that the same is in Compliance with the requirements of the Financial Covenants.

i) Fair value hierarchy

The fair value of financial instruments as referred to in note above have been classified into three categories depending on the inputs used in the valuation technique. An explanation of each level follows underneath the table.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to determine fair value of 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.

ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

- The fair value of forward foreign exchange contracts is determined using forward exchange rates at the Balance Sheet date

- The fair value of receivables is considered to be the same as its carrying value due to short term nature.

iii) Valuation process

The finance department of the Company includes a team that performs the valuations of assets and liabilities required for financial reporting purposes, including level 3 fair values.

iv) Fair value of financial assets and liabilities measured at amortised cost

The carrying amounts of trade receivables, security deposits, cash and cash equivalents, interest accrued on fixed deposits, trade payables and borrowings are considered to be the same as their fair values, due to their short-term nature.The non-current borrowings are at market interest rate and are assumed to be equivalent to its fair value.

11.2 Financial Risk Management Policies and Objectives:

The Company, in the course of its business, is exposed to a variety of financial risks, viz. market risk, credit risk and liquidity risk which can adversely impact the financial performance. The Company’s endeavour is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The Company has a risk management policy that which not only covers the foreign exchange risk but also other risks such as interest rate risk and credit risk which are associated with financial assets and liabilities. The risk management policy of the Company is approved by its board of directors. The risk management framework focuses on actively securing the Company’s short to medium terms cash flows by minimising the exposure to financial markets.

Presented below is a description of our risks (market risk, credit risk and liquidity risk) together with a sensitivity analysis, performed annually, of each of these risks based on selected changes in market rates and prices. These analyses reflect management’s view of changes which are reasonably possible to occur over a one-year period.”

Market risk

Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity price fluctuations, liquidity and other market changes. Future specific market movements cannot be normally predicted with reasonable accuracy.

Foreign currency exchange rate risk:

The fluctuation in foreign currency exchange rates may have a potential impact on the standalone Statement of Profit and Loss and equity. This arises from transactions entered into in foreign currency and assets/liabilities which are denominated in a currency other than the functional currency of the Company.

A majority of the Company’s foreign currency transactions are denominated in US Dollars. Other foreign currency transactions entered into by the Company is in EURO and GBP. However, the size of these transactions is relatively small in comparison to the US dollar transactions. Thus, the foreign currency sensitivity analysis has only been performed in relation to the US Dollar (USD).

The Company evaluates the impact of foreign exchange rate fluctuations by assessing its exposure to exchange rate risks. Further, in accordance with its risk management policy, Company hedges its risks by using derivative financial instruments. The use of these instruments facilitates the management of transactional exposures to exchange rate fluctuations because the gains or losses incurred on the derivative instruments will offset, in whole or in part, losses or gains on the underlying foreign currency exposure.

c. The Company also designate certain hedges, usually for large transactions, as a cash flow hedge under hedge accounting, with the objective of shielding the exposure from variability in cash flows. The currency, amount and tenure of such hedges are generally matched to the underlying transaction(s). Changes in the fair value of the effective portion of cash flow hedges are recognised as cash flow hedging reserve in Other Comprehensive Income. While the probability of such hedges becoming ineffective is very low, the ineffective portion, if any, is immediately recognised in the Statement of Profit and Loss. The movement in the cash flow hedging reserve in respect of designated cash flow hedges is summarised below :

Foreign Currency senstivity analysis

An appreciation / (depreciation) of 5% in USD rates with respect to INR would result in increase/(decrease) in the Company’s net profit before tax for the year ended March 31, 2018 and comparision for the year ended March 31, 2017 is expained below:

Interest rate risk

Interest rate risk is measured by using the cash flow sensitivity for changes in variable interest rates. Any movement in the reference rates could have an impact on the Company’s cash flows as well as costs.

The Company has borrowed through a number of financial instruments such as ECBs and working capital demand loans. The Company is subject to variable interest rates on some of these interest bearing liabilities.

The risk estimates provided assume a parallel shift of 50 basis points interest rate across all yield curves. This calculation also assumes that the change occurs at the balance sheet date and has been calculated based on risk exposures outstanding as at that date. The year end balances are not necessarily representative of the average debt outstanding during the year.

Interest rate sensitivity

For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year.Based on the composition of net debt, a 50 basis points increase / decrease in interest rates over the 12 month period would increase / decrease the Company’s net finance expense explained as below:

Credit risk

Credit risk is the risk of financial loss arising from counterparty failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses both the direct risk of default and the risk of deterioration of creditworthiness as well as concentration risks.

Financial instruments that are subject to concentrations of credit risk principally consist of Trade Receivables and Loans.

The Company continuously monitors defaults of customers and other counterparties and incorporates this information into its credit risk controls. The Company’s policy is to deal only with creditworthy counterparties. The Company management considers that all the financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due.

In respect of receivables other than Trade Receivables, the Company’s exposure to any significant credit risk exposure to any single counterparty or any groups of counterparties having similar characteristics is considered to be negligible. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

The Company’s exposure to credit risk is limited to the carrying amount of financial assets recognized at the Balance Sheet date

Liquidity risk

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements.

The Company has obtained fund and non-fund based working capital lines from various banks. Furthermore, the Company has access to funds from debt markets through various debt instruments. The Company invests its surplus funds in bank fixed deposits which carry no mark to market risk.

The Company maintains the following lines of credit.

Rs 4209.41 lakhs Working capital loans that is secured. Interest would be payable at the rate ranging from 2.20% of 10.15%.

The following tables detail the remaining contractual maturities at the end of the reporting period of the Company, which are based on contractual and undiscounted cash flows and the earliest date the Company can be required to pay. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The Company also monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables

This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.

12. Explanation of Transition to IND AS

I. Exemptions Availed by the Company

Ind AS 101 “First time adoption of Indian accounting standards “permits companies adopting Ind AS for the first time to avail of certain exemptions from the full retrospective application of Ind AS in the transition period”. The Company, on transition to Ind AS, has availed the following key exemptions:

a. Property, Plant and Equipment, Intangible Assets and Others

Property, plant and equipment and Intangible Assets were carried in the Balance Sheet prepared in accordance with previous GAAP on 31st March 2016. Under Ind AS, the Company has elected to regard such carrying values as the deemed cost for all the items of its Property, Plant and Equipment and Intangible Assets at the date of transition i.e. as on April 1, 2016.

b. Investment in Associates

The Company has elected to take the carrying amount of all its investments in its associate / subsidiary as at April 1, 2016, as its deemed cost under Ind AS.

c. Leases

The Company has elected to carry out the assessment of leases based on conditions prevailing as at the date of transition.

d. Long Term Foreign Currency Loan

The Company has adjusted the exchange difference to the cost of Depreciable Asset upto the period ending immediately before the beginning of the first Ind AS Financial Reporting period.

II. Exceptions Applicable to Company

Ind AS 101 “First time adoption of Indian accounting standards” contains certain exceptions that prohibit full retrospective application of Ind AS in the transition period. From amongst these exceptions, the one applicable to the Company are as follows:

a. De-recognition of Financial Assets and Liabilities

The Company has elected to apply the de-recognition provisions of Ind AS 109 (Financial Instruments) prospectively from the date of transition to Ind AS.

b. Classification and Measurement of Financial Assets

The Company has classified the financial assets in accordance with Ind AS 109 (Financial Instruments) on the basis of facts and circumstances that existed as at the date of transition to Ind AS.

c. Interest Free Deferment Loan

Under Ind AS, the Company elected to take the Government Grants in the form of Interest free Sales Tax deferral loan to be carried at previous Indian GAAP amount on transition date.

Notes:

1. The Company has recognized actuarial losses of Rs 97.54 Lakhs before tax on re-measurement of post-employment defined benefits in Other Comprehensive Income.

2. The Company has recognized loss of Rs 3.05 Lakhs arising due to deferred losses on cash flow hedge in Other Comprehensive Income.

3. The Company has recognized Tax of Rs 34.83 lakhs impact on above Other Comprehensive Income.

13. Previous Year’s figures, wherever necessary, have been regrouped/reclassified to conform to the current year’s presentation. Figures in brackets, unless specified, represent previous year’s figures.

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