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NOTES TO ACCOUNTS

Aarti Industries Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 14492.73 Cr. P/BV 5.25 Book Value (₹) 318.69
52 Week High/Low (₹) 1899/1100 FV/ML 5/1 P/E(X) 29.98
Bookclosure 13/02/2019 EPS (₹) 55.77 Div Yield (%) 0.66
Year End :2018-03 

Corporate Information

Aarti Industries Limited (“The Company”) is listed entity incorporated in India. The registered office of the Company is located at Plot No. 801,801/23 G.I.D.C. Estate, Phase III, Vapi, Dist. Valsad Gujarat 396 195 India.

The Company is engaged in manufacturing and dealing in Speciality Chemicals, Pharmaceuticals and Home & Personal Care intermediates.

1.1 Note on Issued, Subscribed and Paid up Equity Share Capital:

[a] During the year 2017-18, 820,383 Shares were brought back at a premium of Rs. 1,195/-.

[b] During the year 2016-17, 1,200,000 Shares were brought back at a premium of Rs. 795/-.

[c] During the year 2015-16, 5,271,304 Shares of the Company had been cancelled, on the net basis, pursuant to the Scheme of Amlagmation of Anushakti Chemicals & Drugs Limited, Anushakti Holdings Limited, Gogri and Sons Investments Private Limited and Alchemie Leasing & Financing Private Limited into the Company.

2.1 a) Secured, Redeemable, STRPPS NCDs bearing coupon rate of 11.75% p.a. Debentures of Rs. 200.00 Crs are secured by way of First Pari Passu Hypothecation of the Moveable Plant & Machinery, Machinery Spares, Tools and Accessories and other movable fixed assets, both present and future, wherever situated, excluding those charged exclusively to other Term Lenders. The NCDs are issued in the year 2014-15 and are redeemable in five equal installments commencing from the end of the 3rd year from the date of allotment of these Debentures.

b) Out of the total ECB/Term Loans from Banks/Financial Institutions of Rs. 898.77 Crs

i) Outstanding Term Loans/ECBs to the extent of Rs. 94.55 Crs are secured by way of Pari Passu Joint Equitable Mortgage of the Company’s immovable properties situated at Sarigam, Vapi and Jhagadia, in the State of Gujarat, Pithampur in the State of Madhya Pradesh, Silvassa in the Union Teritorry of Silvassa, Tarapur in the State of Maharashtra and further by way of Pari Passu Hypothecation of the Moveable Plant & Machinery, Machinery Spares, Tools and Accessories and other movables, both present and future (except book debts, inventories and other current assets) wherever situated, excluding those charged exclusively to other Term Lenders.

ii) Outstanding Term Loans/ECBs to the extent of Rs. 804.22 crs are secured by way of Pari Passu Hypothecation of the Moveable Plant & Machinery, Machinery Spares, Tools and Accessories and other movables, both present and future (except book debts, inventories and other current assets) wherever situated, excluding those charged exclusively to other Term Lenders.

c) Vehicle loans from Banks/Financial Institutions are secured by way of hypothecation of respective vehicles.

3.1 Working Capital Loans availed from Scheduled Banks, are secured/to be secured by way of Pari Passu first charge by hypothecation of Raw Materials, Stock-In-Process, Semi-Finished Goods, Finished Goods, Packing Materials and Stores and Spares, Bills Receivables and Book Debts and all other moveable, both present and future. Also by way of Joint Equitable Mortgage of the Company’s immovable properties situated at Sarigam, Vapi, Jhagadia and Bhachau in the State of Gujarat Pithampur in the State of Madhya Pradesh, Silvassa in the Union Teritorry of Silvassa, and at Tarapur in the State of Maharashtra and further by way of hypothecation of all moveable plant & machinery, machinery spares, tools and accessories and other movables, both present and future (except book debts & inventories) wherever situated, ranking second to the charge held by NCDs/ECB/Other Term Lenders.

4.1 Basic earnings per share has been computed by dividing the profit/loss for the year by the weighted average number of shares outstanding during the year.

Partly paid shares are included as fully paid equivalents according to the fraction paid up.

Diluted earnings per share has been computed using weighted average number of shares dilutive potential shares, except where the results would be anti-dilutive.

5. There are no Micro and Small Enterprise, to whom the Company owes dues, which are outstanding for more than 45 days as at 31st March, 2018. This information as required to be disclosed under the Micro, Small and Medium Enterprise Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company.

6. Interest received of Rs. 7.08 Crs (Tax Deducted at Source Rs. 0.36 Crs) [previous year Rs. 9.41 Crs (Tax Deducted at Source Rs. 0.38 Crs)] is netted off against interest paid on Working Capital.

7. In the opinion of the Board, except as otherwise stated, the Current Assets and Loans and Advances have a value on realization at least equal to amounts at which they are stated in the Balance Sheet.

8. RELATED PARTY DISCLOSURE UNDER ACCOUNTING STANDARD (Ind AS: 24):

I Following are the Subsidiaries of the Company

1. Aarti Corporate Services Limited

2. Nascent Chemical Industries Limited (Through it holding Company: Aarti Corporate Services Limited)

3. Shanti Intermediates Private Limited (Through it holding Company: Aarti Corporate Services Limited)

4. Innovative Envirocare Jhagadia Limited

5. Ganesh Polychem Limited

6. Alchemie (Europe) Limited

7. Aarti USA Inc.

8. Aarti Polychem Private Limited

II Following are the Enterprises/Firms over which controlling individuals/Key Management Personnel, of the Company along with their relatives, have significant influence

1. Alchemie Speciality Chemicals Private Limited

2. Alchemie Laboratories

3. Aarti Drugs Limited

4. Alchemie Dye Chem Private Limited

III Following are the individuals who with their relatives own Directly/indirectly 20% or more voting power in the Company or have significant influence or are Key Management Personnel

1. Shri Rajendra V. Gogri Director

2. Shri Rashesh C. Gogri Director

3. Shri Shantilal T. Shah Director

4. Shri Parimal H. Desai Director

5. Shri Manoj M. Chheda Director

6. Shri Kirit R. Mehta Director

7. Smt. Hetal Gogri Gala Director

8. Shri Renil R. Gogri Director

9. Shri Chetan Gandhi Chief Financial Officer

10. Smt. Mona Patel (upto Date 14/11/2017) Company Secretary

11. Shri Raj Sarraf (from Date 16/11/2017) Company Secretary

9. EMPLOYEE BENEFITS:

Defined Benefit Plan

The employees’ gratuity fund scheme managed by Life Insurance of India is a defined benefit plan. The present value of obligation is determined based on actuarial valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

The estimate of rate of escalation in salary considered in actuarial valuation, takes into account inflation, seniority, promotion, other relevant factor’s including supply and demand in the employment market. The above information is certified by the actuary.

Leave Encashment:

Leave Encashment liability amounting to Rs. 6.59 Crs (previous year Rs. 6.42 Crs) has been provided in the Books of Accounts.

10. DERIVATIVES & FORWARD CONTRACT INSTRUMENTS:

(A) The Company uses Forward Exchange Contract to hedge against its Foreign Exchange exposures relating to underlying transactions and firm commitments. The Company does not enter into any derivatives instruments for Trading or Speculative purposes.

As at 31st March, 2018 the Company has hedged in aggregate an amount of Rs. 1073.80 Crs (previous year Rs. 32.42 Crs) in respect of its short term and long term supply contracts. The annual value of its trade related operations (Exports & Imports) aggregates to Rs. 2171.92 Crs (previous year Rs. 1,976.60 Crs).

The Company has hedged its currency risks to the tune of Rs. 136.85 Crs (previous year Rs. 13.42 Crs), in respect of its long term Foreign Currency Loans/Borrowings. Relating to the same, the Company has also swapped its floating interest rate borrowing of Rs. 284.73 Crs (previous year Rs. 37.95 Crs) into a fixed rate loan through an interest rate swap.

(B) Net foreign exchange gain arriving out of export and import activities of the Company of Rs. 23.69 Crs (previous year gain of Rs. 16.41 Crs) is included in Profit & Loss Account.

Company had entered into forward contracts to hedge its medium and long term exports contracts. Mark to Market loss on such contracts to the tune of Rs. 10.68 Crs (including loss of Rs. 2.05 Crs for contracts of more than one year) is recognised in the Profit & Loss Account. Company had further provided for Revaluation loss on long term borrowing (ECBs) to the extent of Rs. 2.51 Crs as at 31st March, 2018 and have recognised the same in the Profit & Loss Account.

The financial instruments are categorized into two levels based on the inputs used to arrive at fair value measurements as described below:

Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities; and

Level 2 : Inputs other than the quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

11. CAPITAL MANAGEMENT:

For the purpose of the Company’s capital management, capital includes issued equity capital and all other equity reserves attributable to the equity holders. The primary objective of the Company’s capital management is to maximise the shareholder value.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. Net Debt is calculated as loans and borrowings less cash & marketable securities.

12. FINANCIAL RISK MANAGEMENT:

The Company’s principal financial liabilities comprise trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations.

The Company is exposed to credit risk, market risk and liquidity risk. The Company’s senior management oversees the management of these risks.

I. Credit Risk

The company is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities (deposits with banks and other financial instruments).

Credit risk is the risk that a customer or counterparty to a financial instrument fails to perform or pay the amounts due causing financial loss to the company. Credit risk arises from company’s activities in investments, dealing in derivatives and outstanding receivables from customers.

The company has a prudent and conservative process for managing its credit risk arising in the course of its business activities. Sales made to customers on credit are generally secured through Letters of Credit, Bank Guarantees, Parent Company Guarantees, advance payments and factoring & forfaiting without recourse to AIL.

Credit risk management

To manage the credit risk, the Company follows a adequate credit control policy and also has an external credit insurance cover with ECGC policy wherein the customers are required to make an advance payment before procurement of goods. Thus, the requirement of assessing the impairment loss on trade receivables does not arise, since the collectability risk is mitigated.

Bank balances are held with only high rated banks and majority of other security deposits are placed majorly with government/statutory agencies.

II. Liquidity risk

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. For the Company, liquidity risk arises from obligations on account of financial liabilities such as trade payables and other financial liabilities.

(a) Liquidity risk management

The Company’s corporate treasury department is responsible for liquidity and funding as well as settlement. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s net liquidity position through rolling forecasts on the basis of expected cash flows.

III. Market risk

Foreign currency risk

The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities in exports and imports which is majorly in US dollars.

Hence, to combat the foreign currency exposure, the Company follows a policy wherein the net exposures are hedged by forward Contracts.

Commodity Price Risk

The Company has a risk management framework aimed at prudently managing the risk arising from the volatility in commodity prices and freight costs.

The Company’s commodity risk is managed centrally through well-established trading operations and control processes. In accordance with the risk management policy, the Company enters into various transactions using derivatives and uses Over the Counter (OTC) as well as Exchange Traded Futures, Options and Swap contracts to hedge its commodity and freight exposure.

13. The figures of previous year have been regrouped and rearranged wherever necessary.

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