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NOTES TO ACCOUNTS

BASF India Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 4880.02 Cr. P/BV 3.45 Book Value (₹) 326.41
52 Week High/Low (₹) 2135/1123 FV/ML 10/1 P/E(X) 59.72
Bookclosure 12/07/2019 EPS (₹) 18.88 Div Yield (%) 0.44
Year End :2019-03 

a) Includes gross block of Rs. 21.4 million and net block Rs. Nil (Previous Year: gross block Rs. 21.4 million and net block Rs. Nil) for which the Company is in the process of complying with the terms of lease cum sale agreement and basis completion thereof, would execute the final sale agreement to obtain right of ownership thereon.

b) Buildings include Rs. 0.01 million (Previous Year: Rs. 0.01 million) being the value of shares in various co-operative societies.

a) Includes gross block of Rs. 21.4 million and net block Rs. Nil (Previous Year: gross block Rs. 21.4 million and net block Rs. Nil) for which the Company is in the process of complying with the terms of lease cum sale agreement and basis completion thereof, would execute the final sale agreement to obtain right of ownership thereon.

b) Buildings include Rs. 0.01 million (Previous Year Rs. 0.03 million) being the value of shares in various co-operative societies.

c) Gross block and accumulated depreciation of assets written down aggregated Rs. 589.0 million and Rs. 340.3 million, respectively. Also refer Note 39.

Amounts recognised in Statement of Profit and Loss

Write downs of inventories to net realisable value amounted to Rs. 170.0 million (Previous year Rs. 226.8 million). These were recognised as an expense during the year and included in ‘cost of materials consumed' and ‘Changes in inventories of finished goods, stock-in -trade and work-in-progress' in Statement of Profit and Loss.

(i) The Company intends to dispose off non-core residential apartments as it no longer intends to utilise these assets. A search for a buyer is underway. The Company expects the fair value less cost to sell to be higher than carrying amount.

(ii) The Company has sold certain plots of the land during the current year and it intends to dispose off the balance plot of land for biotechnology research related to ‘Agricultural Solution' segment. No impairment loss was recognised on reclassification of the freehold land as held for sale.

(iii) Refer Note 39 for gains/ losses from sale of these assets.

b. Rights, preferences and restrictions attached to the shares

The Company has one class of equity shares having a par value of Rs. 10 per share. 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 remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.

1. Other equity

(a) Securities premium

Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Act.

(b) Amalgamation reserve

Amalgamation reserve is used to record difference between the share capital of the amalgamating companies. It is utilised in accordance with the provisions of the Act.

(c) Share options outstanding account

Share options outstanding account is used to account for effects from employee stock option expense.

(d) General Reserve

General reserves are the retained earnings of the Company which are kept aside out of the profits to meet future (known or unknown) obligations.

(e) Retained earnings

Terms of repayment

Interest is payable on a half yearly basis on June 15 and December 15 at 4.93% p.a. for USD loan and at 6 months EURIBOR 147 basis point per annum for EURO loan.

Total outstanding external commercial borrowings from BASF Belgium Coordination Center Comm. V. as on October 1, 2018 have been assigned to BASF Ireland Limited effective October 1, 2018 with existing terms and conditions.

* Under the agreement terms entered into with BASF Belgium Coordination Center Comm. V. on April 27, 2018, borrowings aggregating USD 20 Million were converted into equivalent EURO loan amount at the EURO/USD exchange rate effective May 29, 2018 with interest rate of 6 months EURIBOR 147 basis point per annum.

Overdraft facilities and Short-term loan from banks carry average interest ranging from 7% to 9% p.a. computed on daily basis on the actual amount utilised and are repayable on demand and maturity respectively.

Commercial papers carry average interest ranging from 6% to 8% p.a. Outstanding Commercial Papers in previous year were repaid in May 2018.

Inter Corporate deposits carry average interest ranging from 7% to 8% p.a. over the financial year. Outstanding Inter corporate deposits are repayable on maturity in June 2019.

2. Fair value measurement

Financial instruments

To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under Indian accounting standard 113 -‘Fair value measurement'.

Explanation of each

Level 1: Determination of the fair value based on quoted, unadjusted prices on active markets.

Level 2: Determination of fair value based on parameters for which directly or indirectly quoted prices on active market are available.

Level 3: Determination of fair value based on parameters for which there is no observable market data.

Fair values for financial assets and liabilities (other than those disclosed below) approximates the carrying amount. All other financial assets and financial liabilities are carried at amortised costs.

Risks exposure:

(i) Foreign currency risk

The Company is exposed to foreign-currency risks during the normal course of business. These risks are hedged through a determined strategy employing derivative instruments. Hedging is only employed for underlying items from the operating business. The risks from the underlying transactions and the derivatives are constantly monitored. Where the derivatives have a positive value, the Company is exposed to credit risks from the derivative transactions in the event of nonperformance of the other party. To minimise the default risk on derivatives with the positive market values, transactions are exclusively conducted with credit worthy banks and partners and are subject to predefined credit limits. The contracting and execution of derivative financial instruments for hedging purposes are conducted according to internal guidelines and subject to strict control mechanism.

The sensitivity analysis is conducted by simulating a 10% appreciation/ depreciation of the functional currency against respective other currencies.

(b) Sensitivity

The sensitivity of profit or loss to changes in exchange rates by 10%* arises mainly from foreign currency denominated financial instruments. Impact of sensitivity on net exposure for major currency balances is as follows:

Interest rate risk results from changes in prevailing market interest rates, which can cause a change in the fair value of fixed-rate instruments and changes in the interest payments of the variable-rate instruments. To hedge interest rate risk, mix of variable and fixed instruments is judiciously applied for financing the Company's requirements.

(iii) Liquidity risk

The Company recognises any risk from cash flow fluctuations as a part of liquidity planning. The Company has access to sufficient liquidity from unutilised credit lines from banks, ongoing commercial paper programme, debentures.

(a) Financing arrangements

The Company has access to undrawn borrowing facilities from banks for Rs. 12,419 million (Previous Year: Rs. 11,547 million), Debentures for Rs. 200 million as on March 31, 2019 (Previous Year: Rs. 200 million).

(b) Maturities of financial liabilities

The interest and principal payments as well as other payments for derivative financial instruments are relevant for the presentation of the maturities of the contractual cash flows from financial liabilities. Derivatives are included using their net cash flow, provided they have a negative fair value and therefore represent a liability. Derivatives with positive fair values are assets and are therefore not considered. Trade accounts payable are generally interest-free and due within one year. Therefore, the carrying amount of trade accounts payable equals the sum of future cash flows.

(iv) Credit risk

Credit risk arise when counterparties do not fulfill their contractual obligations. The Company regularly analyses the credit worthiness of relevant customers and grants credit limits on the basis of this analysis. Due to the diversified customer structure of the Company, there is no significant concentration of default risk. The carrying amount of all receivables, loans plus the nominal value of other financial obligations subject to expected credit loss and default risk represents the maximum default risk for the Company. The expected credit losses are calculated taking into consideration the credit rating of the customer, probability of default for various different credit ratings.

Significant estimates and judgements Impairment of financial assets

The impairment provision for the financial assets disclosed above are based on credit ratings, assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company's past history, existing market conditions as well as forward looking estimates at the end of each reporting year.

3. Capital management

(a) Risk management

The aim of capital structure management is to maintain the financial flexibility needed to further develop the Company's business portfolio and take advantage of strategic opportunities. The objective of the Company's financing policy are to secure solvency, limit financial risks and optimise the cost of capital.

The Company's capital structure is managed using equity and debt ratios as a part of the Company's financial planning.

Generally a mix of commercial paper programme, inter corporate deposits and bank loans are used for short term financing while group external commercial borrowings are used for financing long term requirements. The goal is to optimise the Company's capital cost financing conditions.

The Company monitors capital on the basis of the following ratios:

1. Equity ratio - Total equity divided by Total assets

(i) Commercial taxes department had issued demand notices amounting to Rs. 893.1 million (excluding interest and penalty) for the periods April 2006 to March 2010 by treating 100% of the stock transfers as interstate sales to unregistered dealers. The Company had filed appeals against the aforesaid demand notices with the Honorable Karnataka Appellate Tribunal which set aside and remanded back the impugned reassessment orders for the above referred periods for fresh assessment to lower authorities. In view of this outcome, currently there are no demand notices against the Company and thus, the contingent liability on this account is Rs. Nil (Previous Year Rs. Nil). The Company was aggrieved by certain observations and inferences of the Honorable Karnataka Appellate Tribunal and thus, had filed the relevant appeals with the Honorable Central Sales Tax Appellate Authority (CSTAA), New Delhi. The Honorable CSTAA has granted stay for the period April 2006 to March 2010 against the de-novo reassessment proceedings considering the pendency of the appeals at CSTAA.

Commercial taxes department has issued demand notice for the period January 2011 to March 2011 amounting to Rs. 63.8 million (excluding interest & penalty) against which company has filed an appeal before Karnataka Appellate Tribunal & also received stay order from the said Tribunal. The amount in respect of other periods, if any, are currently not determinable.

The Company, on the basis of legal opinions, does not consider these stock transfers as interstate sales.

(ii) The Company is in the process of evaluating the impact of the recent Supreme Court Judgment in case of “Vivekananda Vidyamandir And Others Vs The Regional Provident Fund Commissioner (II) West Bengal” and the related circular (Circular No. C-I/1 (33)2019/Vivekananda Vidya Mandir/284) dated March 20, 2019 issued by the Employees' Provident Fund Organisation in relation to non-exclusion of certain allowances from the definition of “basic wages” of the relevant employees for the purposes of determining contribution to provident fund under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952.

4. Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided (net of advances) for Rs. 349.8 million (Previous Year Rs. 313.2 million).

5. Operating lease

The Company has taken vehicles and office facilities under operating leases.

a) Total minimum lease payments in respect of non-cancellable leases are as follows:

6. Micro, Small and Medium Enterprises Development Act, 2006

On the basis of information and records available with the Management, the following disclosure pursuant to the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act') are made for the amounts due to the Micro and Small enterprises, who have registered with the competent authorities:

Trade receivables

The Company gives rebates / discounts for certain business units. Under the terms of contract, the amounts payable by the Company are offset against receivables from customers and only the net amount is settled (i.e. after adjustment of credit notes towards rebates/ discounts). The relevant amounts have therefore been presented net in the Balance Sheet.

Other provisions represent provisions for certain income tax, indirect taxes and other legal matters, the outflow of which would depend on settlement / conclusion of these matters with the relevant authorities or cessation of the respective events.

7. Corporate Social Responsibility (‘CSR’)

As per Section 135 of the Act, a Company meeting the applicability threshold, needs to spend atleast 2% of its average net profit for the immediately preeceding three financial years on CSR activities. The major areas for CSR activities are promoting education facilities, sanitation and making available safe drinking water. A CSR committee has been formed by the Company as per the Act.

(a) Gross amount required to be spent by the Company during the year: Rs. Nil (Previous Year Rs. Nil)

(b) The areas of CSR activities and contributions made thereto are as follows:

8. Employee benefits

(a) Defined contribution plans:

The Company's contribution to defined contribution funds comprising of Superannuation fund and Employees' state insurance schemes amounting to Rs. 48.4 million (Previous year Rs. 49.6 million) (net of recoveries) has been charged to the Statement of Profit and Loss.

(b) Defined benefit plans:

(i) Gratuity

Gratuity is payable to all eligible employees of the Company on retirement, death, permanent disablement and resignation in terms of provisions of the Payment of Gratuity Act, 1972, or as per the Company's scheme whichever is more beneficial. The Company irrevocably contributes funds to a separate Gratuity Trust which is recognised by Income Tax authorities.

The expected rate of return on assets is based on the expectation of the average long term rate of return on investment of the fund, during the estimated term of obligation.

The obligations are measured at the present value of estimated future cash flows by using a discount rate that is determined with reference to the market yields at the Balance Sheet date on Government Bonds which is consistent with the estimated terms of the obligation.

The estimate of future salary increase, considered in the actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of defined benefit obligation calculated with projected unit credit method at the end of reporting period) has been applied as when calculating the defined benefit liability recognised in the Balance Sheet. The method and type of assumptions used in preparing the sensitivity analysis for current year are in line with previous year.

The contribution expected to be made by the Company during the financial year 2019-20 is Rs. 82.7 million (Previous Year Rs. 80.4 million).

Risk exposure

The fund assets are maintained by BASF trust Fund, a legally independent funded plan, which is financed by contribution of employees and the employer as well as the return on plan asset.

Following risk-mitigating strategies are adopted for the Funds:

Being managed passively, the debt segments of the portfolios are predominantly exposed to Credit Risk and Reinvestment Risk. These risks are managed in the following manner:

Reinvestment risk: Reinvestment risk is minimized by spreading maturities of debt investments across various years. Here a balance is struck between minimizing reinvestment risk and maximizing yield given the term structure of interest rates, issuance pattern of debt instruments and their liquidity.

Owing to the investment regulation, the Funds have also invested in Equity Mutual Funds which are exposed to Market Risk.

Market risk: Market risk is minimized by (a) ensuring that schemes selected for investment have high-ranking by independent agencies, (b) large-cap orientation and (c) have a track record of superior down-side management. Further, volatilities in returns of these schemes are minimized by staggering deployment in the schemes across months which bring in cost-averaging. Performance of the schemes is monitored on a monthly basis. Corrective action, if required, is recommended for schemes that underperform their peers and the benchmark consistently.

Credit risk: Credit risk is minimized by spreading exposure to multiple debt issuers, i.e. by not allowing exposure to an individual debt issuer to exceed by 15% of the total portfolio at any time. Further, investments are made only in high grade bonds. Rating migrations in the instruments held in the portfolios are tracked regularly and are reported to the Trustees in case of downgrades. Corrective action on downgrades is suggested, if deemed necessary.

(ii) Provident Fund

The Company has an obligation to fund any shortfall on the yield of the Company's Trust investments over the administered interest rates on an annual basis. These administered rates are notified by the Government annually. The Actuarial Society of India has issued the final guidance for measurement of provident fund liabilities. The actuary has accordingly provided a valuation based on the below provided assumptions and there is no shortfall as at March 31, 2019.

During the year ended March 31, 2019, amount recognised in the Statement of Profit and Loss for the Company's Contribution to Employee provident fund (net of recoveries) is Rs. 157.0 million (Previous year Rs. 105.8 million).

(c) Share-based payments

The Ultimate Holding Company (‘BASF SE') offers Share Price based compensation program (‘option program') for senior executives of BASF group. Participation in this program is voluntary.

The option program starts every year on July 1. After the two-year vesting period, the options can be exercised for a period of six years. Options that have not been exercised by the end of the exercise period of the respective program are forfeited, without any subsequent payment obligations towards the bearer.

The model used in the valuation of the option plans are based on the arbitrage-free valuation model according to Black-Scholes. The fair values of the options are determined using the binomial model.

The Company has recognized share based payment transactions of BASF SE as equity settled share based payment transaction in accordance with the requirements of paragraph 43 A and 43 B of Ind AS 102 Share Based Payments, since the Company receives the services of the employees to whom the options have been granted by BASF SE and the Company has no obligation to settle these options.

d) Other long term employee benefits:

(i) Long service awards:

Long Service Awards are payable to employees on completion of specified years of service.

(ii) Compensated absences:

Eligible employees can carry forward and encash leave on superannuation, death, permanent disablement and resignation as per Company's policy.

For compensated absences, the amount of the provision of Rs. 348.0 million (Previous Year: Rs. 361.7 million) is presented as current, since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Company does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. Leave obligations not expected to be settled within the next 12 months is Rs. 293.7 million (Previous Year: Rs. 305.1 million).

9. Operating Segments

The Company has reorganised its segment structure with effect from January 1, 2019. The new segment structure will enable an even more differentiated steering of the business, taking into account market-specific requirements and the competitive environment. It will further increase the transparency of the segment results. Previous period segment figures are regrouped in accordance with revised segment structure.

The Company has following business segments for reporting purpose. The divisons are allocated to the segments based on their business models.

Details of type of products included in each segment:

— Agricultural Solution - The Agricultural Solutions segment consists of the Crop Protection division. Agricultural Solution is seasonal in nature

— Materials - The Materials segment comprises Performance Materials divisions and the Monomers divisions

— Industrial Solutions - The Industrial Solutions segment consists of the Dispersions & Pigments divisions and Performance Chemicals divisions

— Surface Technologies - The Surface Technologies segment comprises the Catalysts, Coatings and Construction Chemicals divisions

— Nutrition & Care - The Nutrition & Care segment consists of the Care Chemicals and Nutrition & Health divisions

— Chemicals - The Chemicals segment consists of the Petrochemicals and Intermediates divisions

— Others - Others includes activities that are not allocated to any of the continued operating divisions. These includes remaining activities after divestiture of leather and textile chemicals business, paper wet-end and water chemicals business, technical and service charges other than those specifically identifiable to above segments. Also includes transactions relating to leather and textile chemicals business, paper wet-end and water chemicals business during the year of respective divestiture.

Un-allocable Corporate Assets mainly includes Current tax assets (net), Deferred tax assets (net), Cash and cash equivalents and other un-allocable assets.

Un-allocable Corporate Liabilities mainly includes current borrowings and other un-allocable liabilities.

Revenue from major customer:

The Company is not reliant on revenues from transactions with any single customer and does not receive 10% or more of its revenue from transactions with any single external customers.

i) Terms and conditions

a) All outstanding balances are unsecured and are repayable as per terms of credit and settlement occurs in cash.

b) All related party transactions entered during the year were in ordinary course of business and on arms length basis.

10. Disclosure under Indian Accounting Standard 115

Effective April 1, 2018, the Company has adopted Indian Accounting Standard 115 - ‘Revenue from Contracts with Customers' (‘Ind AS 115') with modified retrospective approach. Accordingly, the comparative information for previous year has not been restated.

Adoption of Ind AS 115 did not have any material impact on the financial statements of the Company.

Deferred revenue:

The Company has disclosed contract liability towards deferred revenue as per terms of customer contracts aggregating Rs. 96.1 million (Previous Year: Rs. 154.8 million) as on March 31, 2019 in Notes 18 and 23. Further, an amount of Rs. 58.7 million was recognized as revenue in the current year which was included in deferred revenue as of April 1, 2018. Remaining deferred revenue will be recognised in subsequent periods based on terms of the contract.

Contract liability in respect of amount collected in advance towards satisfaction of performance obligations for goods/services to customers has been reflected as “Advances received from customers” in Note 23 - Other current liability.

11. As per Indian Accounting Standard 115/ Indian Accounting Standard 18 on Revenue and Schedule III of the Companies Act, 2013, Revenue from Operations for the period ended after June 30, 2017 does not include Goods and Service Tax (GST), however Revenue from Operations upto the period ended June 30, 2017 included Excise Duty. In view of the aforesaid restructuring of indirect taxes, Revenue from Operations for the year ended March 31, 2019 are not comparable with previous year. The below table reflects details of Revenue from Operations net of Excise Duty.

12. Previous year figures have been regrouped / reclassified, wherever necessary to conform to current year classification.

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