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NOTES TO ACCOUNTS

Meghmani Organics Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 1332.61 Cr. P/BV 1.33 Book Value (₹) 39.46
52 Week High/Low (₹) 73/41 FV/ML 1/1 P/E(X) 5.30
Bookclosure 25/07/2019 EPS (₹) 9.88 Div Yield (%) 1.91
Year End :2018-03 

1. GRATUITY AND OTHER POST EMPLOYMENT BENEFIT PLANS

(a) Retirement Benefits

The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the act, employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the member’s length of service and salary at retirement age. The following tables summarise the components of net benefit expense recognised in the Statement of Profit or Loss and the funded status and amounts recognised in the Balance Sheet for the respective plans:

The Company has one customer based outside India who has accounted for more than 10% of the Company's revenue. Total amount of revenue from this customer is Rs. 15,144.36 Lakhs for the year ended March 31, 2018 and Rs. 6,000.76 Lakhs March 31, 2017 Notes

(1) The Company is divided into two Segments. These Segments are the basis for management control and hence form the basis for reporting. The business of each Segment comprises of :

a) Agro Business - The Company’s operation includes manufacture and marketing of Technical, Intermediates and Formulation of Insecticides and Herbicides.

b) Pigment Business - The Company’s operation includes manufacture and marketing of Phthalocynine Green 7, Copper Phthalocynine Blue (CPC), Alpha Blue and Beta Blue.

(2) Segment Revenue in the Geographical Segments considered for disclosure are as follows:

a) Revenue in India includes sales to Customers located within India.

b) Revenue outside India includes sales to Customers located other than above Geographic Segment.

(3) Segment Revenue, Results, Assets and Liabilities include the respective amounts identifiable to each of the segments and amounts allocated on a reasonable basis.

(4) Based on “management approach” defined under Ind AS 108 - Operating Segments, the Chief Operating Decision Maker evaluates the company’s performance and allocates resources based on an analysis of various performance indicators by business segments. Accordingly information has been presented along these segments.

2. RELATED PARTIES DISCLOSURES :-

- Subsidiaries of the Company : Meghmani Organics USA, Inc.(MOL-USA)

Meghmani Europe BVBA (MOL-EUROPE)

(Ceased from 23.02.2017)

PT Meghmani Organics Indonesia(MOL INDONESIA) Meghmani Overseas FZE-Dubai Meghmani Finechem Limited (MFL)

Meghmani Agrochemicals Private Limited (From 23.08.2017)

- Enterprises in which Key Managerial : Meghmani Pigments Personnel [KMP] & their Relatives Ashish Chemicals have significant influence Tapsheel Enterprise

Meghmani Dyes & Intermediates LLP Meghmani Industries Limited Meghmani Chemicals Limited Vidhi Global Chemicals Limited Panchratna Corporation

Meghmani LLP (Formerly Meghmani Unichem LLP)

Matangi Industries LLP Navratan Specialty Chemicals LLP

- Key Managerial Personnel : Mr. Jayanti Patel

Mr. Ashish Soparkar Mr. Natwarlal Patel Mr. Ramesh Patel Mr. Anand Patel Mr. Ankit Patel Mr. Karana Patel Mr. Darshan Patel

Mr. Rajkumar Mehta (Chief Financial Officer w.e.f.22.05.2017 to 31.12.2017)

Mr. G.S. Chahal (Chief Financial Officer w.e.f.10.02.2018)

Mr. Kamlesh Mehta (Company Secretary)

- Non Executive Directors : Mr. Balkrishna Thakkar

Mr. Chinubhai Shah

Mr. Bhaskar Rao (From 10.02.2018)

Mr. C S Liew (From 10.02.2018)

Mr. Chander Kumar Sabharwal Ms. Urvashi Shah

Mr. Kantibhai Patel (Resigned on 10.02.2018)

Mr. A L Radhakrishnan (w.e.f. 20.10.2017 to 10.02.2018)

Mr. Manubhai Patel (w.e.f. 10.02.2018)

Mr. Jayaraman Vishwanathan (Resigned on 08.11.2017)

- Relatives of Key Managerial : Ms. Deval Soparkar Personnel (Employee) Mr. Maulik Patel

Mr. Kaushal Soparkar Ms. Taraben Patel

B. Measurement of Fair values and Sensitivity analysis Fair value hierarchy:

The fair value of the Financial Assets and Liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Company uses the following hierarchy for determining and/or disclosing the fair value of Financial Instruments by valuation techniques:

(i) Level 1: quoted prices (unadjusted) in active markets for identical Assets or Liabilities.

(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the Assets or Liabilities, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

(iii) Level 3: inputs for the Assets or Liabilities that are not based on observable market data (unobservable inputs). Financial Risk Management Framework

The Company’s Board of Directors have overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company manages market risk through treasury operations, which evaluates and exercises independent control over the entire process of market risk management. The finance team recommends risk management objectives and policies. The activities of this operations include management of cash resources, hedging of foreign currency exposure, credit control and ensuring compliance with market risk limits and policies.

The Company’s principal Financial Liabilities, other than Derivatives, comprises of Long Term and Short Term Borrowings, Trade and Other Payables, and Financial Liabilities. 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, Cash and Cash Equivalents, Other Bank Balances and other Financial Assets that derive directly from its operations.

The Company has an effective risk management framework to monitor the risks controls in key business processes. In order to minimise any adverse effects on the bottom line, the Company takes various mitigation measures such as credit control, foreign exchange forward contracts to hedge foreign currency risk exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.

The Company has exposure to the following risks arising from financial instruments

- Credit risk ;

- Liquidity risk ; and

- Market risk

i. Credit Risk

Credit risk is the risk that counter party will not meet its obligation leading to a financial loss. The Company is exposed to credit risk arising from its operating activities primarily from trade receivables and from financing activities primarily relating to parking of surplus funds as Deposits with Banks. The Company considers probability of default upon initial recognition of assets and whether there has been a significant increase in credit risk on an on-going basis throughout the reporting period.

The carrying amount of following Financial Assets represents the maximum credit exposure:

Financial Instruments and Cash Deposit

Credit risk from balances with Banks and Financial Institutions is managed by the Company’s treasury department. Investments of surplus funds are made only with approved counter parties and within credit limits assigned to each counterparty. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.

Trade Receivables

The Sales Department has established a Credit Policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, if they are available, and in some cases bank references. Sale limits are established for each customer and reviewed periodically. Any sales exceeding those limits require approval from the Board of Directors.

Trade Receivables of the Company are typically unsecured ,except to the extent of the security deposits received from the customers or financial guarantees provided by the market organizers in the business. Credit risk is managed through credit approvals and periodic monitoring of the creditworthiness of customers to which Company grants credit terms in the normal course of business. The Company performs on-going credit evaluations of its customers’ financial condition and monitors the creditworthiness of its Customers to which it grants credit terms in the normal course of business. The allowance for impairment of Trade receivables is created to the extent and as and when required, based upon the expected collectability of accounts Receivables. The Company evaluates the concentration of risk with respect to trade receivables as low, as its Customers are located in several jurisdictions and industries and operate in largely independent markets.

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.

Management believes that the unimpaired amounts that are past due by more than 180 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer Credit Risk, including underlying customers’ credit ratings if they are available.

Management estimates that the amount of provision of Rs. 226.72 lakhs (March 31, 2017: NIL) is appropriate.

ii. Market Risk

Market risk is the risk that the fair value of future cash flows of a Financial Instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: Currency Risk, Interest Rate Risk, and Other Price Risk such as Equity Price Risk. Financial Instruments affected by market risk include Loans and Borrowings, Deposits, FVTOCI and amortised cost Investments and Derivative Financial Instruments.

Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a foreign currency).

The Company manages its foreign currency risk by hedging transactions that are expected to occur within a maximum 12-month period for hedges of actual sales and purchases and 12-month period for foreign currency loans. When a derivative is entered into for the purpose of being a hedge, the Company negotiates the terms of those derivatives to match the terms of the hedged exposure. For hedges of forecast transactions the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency.

Sensitivity analysis

A reasonably possible strengthening (weakening) of the Indian Rupee against US Dollars at March 31 would have affected the measurement of Financial Instruments denominated in US Dollars and affected Equity and Profit or Loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a Financial Instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s Long-term Debt Obligations with floating interest rates. The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.

Cash Flow sensitivity analysis for variable-rate instruments

A reasonably possible change of 100 basis points in interest rates at the reporting date would have increased / (decreased) Equity and Profit or Loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.

Equity Price Risk:

The Company’s listed and non-listed equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The investment in listed and unlisted equity securities are not significant.

iii. Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Exposure to Liquidity Risk

The Company manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of the Financial Assets and Liabilities. The table below summarises the remaining contractual maturities of Financial Liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.

The gross inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes and which are not usually closed out before contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash-settled and gross cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement

Excessive risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry

In order to avoid excessive concentrations of risk, the policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels

3 CAPITAL MANAGEMENT

Capital includes equity attributable to the equity holders to ensure that it maintains an efficient capital structure and healthy capital ratios in order to support its business and maximise shareholder value. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions or its business requirements. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the year ended March 31, 2018 and March 31, 2017.

The Company monitors capital using a ratio of ‘Adjusted Net Debt’ to ‘Adjusted Equity’. For this purpose, adjusted net debt is defined as total Liabilities, comprising Interest-bearing Loans and Borrowings and obligations under Finance Leases, less Cash and Cash Equivalents. Adjusted Equity Comprises all components of Equity.

4. EVENTS OCCURRED AFTER REPORTING DATE

During the current year, the Company has incorporated a new wholly owned subsidiary named ‘Meghmani AgroChemicals Private Ltd.’ (MACPL) whereby the Company has invested Rs. 1.00 Lakhs as initial capital and subsequently invested Rs. 10,986.54 Lakhs by subscribing additional 1,46,47,392 shares. The Board of Directors of the Company approved share sale in their meeting held on August 8, 2017. Further, the Company entered into a Share Purchase Agreement (SPA) with MACPL on October 1, 2017 for sale of 16,900,835 (23.88%) shares of Meghmani Finechem Limited (MFL) to MACPL. The shares were sold at a value of Rs. 65 per share derived as per the book value computation prescribed under Rule 11UA of the Income-Tax Rules. The SPA gives right to Company to purchase the shares at same value and right to revoke the transaction within 12 months. Also as per terms of SPA, Company retains the risk and rewards of the underlying investment for a period of 12 months from entering into the agreement.

Since as per MOU, the Company has retained substantially all the risk and rewards on shares of MFL and is exposed to all the economic risks and rewards as if the transfer had never taken place, the Company has continued to recognise the investment in MFL its books, and the consideration received from MACPL on sale of shares is considered as a loan.

The share of MFL are physically transferred in the name of MACPL and regulatory filing for the same has been made by MFL. The Company has obtained legal opinion which states that above mentioned accounting treatment not under the purview of Companies Act 2013, considering which Company is not required to comply with any sections of Companies Act, 2013 and accordingly MACPL has not charged interest from the Company.

Subsequent to the year end, the Company has further invested Rs. 22,119.66 Lakhs in Redeemable Preference Share Capital of MACPL. MACPL on hand acquired 24.97% stake of International Financial Corporation (IFC) in MFL, thereby giving IFC an exit from MFL.

5. The previous year financial statements of the Company were audited by firm other than S R B C & Co. LLP. Previous year figures have been regrouped or recasted wherever necessary to make them comparable with those of the current year.

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