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NOTES TO ACCOUNTS

Titan Company Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 92471.81 Cr. P/BV 18.18 Book Value (₹) 57.30
52 Week High/Low (₹) 1077/732 FV/ML 1/1 P/E(X) 81.83
Bookclosure 03/08/2018 EPS (₹) 12.73 Div Yield (%) 0.36
Year End :2018-03 

a) Ind AS 115 - Revenue from Contracts with Customers

Ind AS 115, establishes a comprehensive framework for determining whether, how much and when revenue should be recognized . It replaces existing revenue recognition guidance, including Ind AS 18 Revenue, Ind AS 11 Construction Contracts and Guidance Note on Accounting for Real Estate Transactions. Ind AS 115 is effective for annual periods beginning on or after 1 April 2018 and will be applied accordingly.

The core principle of Ind AS 115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligation in contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

The Company has completed an initial assessment of the potential impact of the adoption of Ind AS 115 on accounting policies followed in its financial statements. The quantitative impact of adoption of Ind AS 115 on the financial statements in the period of initial application is not reasonably estimable as at present.

i. Sales of goods

For the sale of goods, revenue is currently recognized when related risks and rewards of ownership are transferred. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods.

Under Ind AS 115, revenue will be recognized when a customer obtains control of the goods.

For certain contracts that permit the customer to return an item, revenue is currently recognized when a reasonable estimate of the returns can be made, provided that all other criteria for revenue recognition are met. If a reasonable estimate cannot be made, then revenue recognition is deferred until the return period lapses or a reasonable estimate of returns can be made.

Under Ind AS 115, revenue will be recognized for these contracts to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. As a consequence, for those contracts for which the Company is unable to make a reasonable estimate of return, revenue

is expected to be recognized sooner than when the return period lapses or a reasonable estimate can be made. A refund liability and an asset for recovery will be recognized for these contracts and presented separately in the balance sheet.

For the loyalty programme operated by the Company, revenue is currently allocated between the loyalty programme and the goods using the residual value method i.e. consideration is allocated to the loyalty programme based on the fair value of the loyalty points and the remainder of the consideration is allocated to the goods. The amount allocated to the loyalty programme is deferred, and is recognized as loyalty points are redeemed or expire.

Under Ind AS 115, consideration will be allocated between the loyalty programme and the goods based on their relative standalone selling prices. As a consequence, a lower proportion of the consideration will be allocated to the loyalty programme, and therefore less revenue is likely to be deferred.

b) Ind AS 21 - The effect of changes in Foreign Exchange rates

The amendment clarifies on the accounting of transactions that include the receipt or payment of advance consideration in a foreign currency. The appendix explains that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The Company is evaluating the impact of this amendment on its financial statements.

1 DISTRIBUTIONS MADE AND PROPOSED

The Board of Directors at its meeting held on 12th May 2017 had proposed a final dividend of Rs, 2.60 per equity share of par value of Rs, 1 each for the financial year ended 31st March 2017. The proposal was approved by shareholders at the Annual General Meeting held on 3rd August 2017 and the same was paid during the year ended 31st March 2018. This has resulted in a total outflow of Rs, 27,780 lakhs including corporate dividend tax of Rs, 4,699 lakhs

The Board of Directors, in its meeting on 10th May 2018, have proposed a final dividend of Rs, 3.75 per equity share for the financial year ended 31st March 2018. The proposal is subject to the approval of shareholders at the Annual General Meeting to be held on 3rd August 2018 and if approved would result in a cash outflow of approximately Rs, 40,137 lakhs, including corporate dividend tax of Rs, 6,845 lakhs

(a) Secured against letter of credit.

* Includes amounts payable against gold purchased from various banks under gold on loan scheme. The interest rate of the same varies from 1.70% to 3.50% per annum and is payable at monthly intervals. The credit period under the aforesaid arrangement is 180 days from the date of the delivery of gold.

c) Auditors remuneration comprises fees for audit of statutory accounts Rs, 145 lakhs (Previous year: Rs, 175 lakhs), taxation matters Rs, 15 lakhs (Previous year: Rs, 22 lakhs), audit of consolidated accounts Rs, 10 lakhs (Previous year: Rs, 10 lakhs), other services Rs, 26 lakhs (Previous year: Rs, 36 lakhs) and reimbursement of levies and expenses Rs, 14 lakhs (Previous year: Rs, 61 lakhs).

d) Corporate Social Responsibility:

(i) Gross amount required to be spent towards corporate social responsibility by the Company during the year: Rs, 2,078 lakhs

(ii) Amount spent during the year on:

2 ExCEPTioNAL ITEM

Exceptional item includes the following:

a) Provision for impairment of investment in a subsidiary (Favre Leuba AG, Switzerland) amounting to Rs, 7,500 lakhs (Previous year: Rs, Nil).

b) Expenses relating to Voluntary Retirement Scheme to its employees amounting to Rs, 1,665 lakhs (Previous year: Rs, 9,637 lakhs).

3 SEGMENT INFoRMATioN

a) Description of segments

The CODM of the Company examines the performance both from a product perspective and geography perspective and has identified 4 reportable segments Watches, Jewellery, Eyewear and Others, where 'Others' include Accessories, Fragrances and Sarees. The Company's Managing Director is the Chief Operating Decision Maker

Corporate (unallocated) represents other income, expenses, assets and liabilities which relate to the company as a whole and are not allocated to segments.

4 Contingent liabilities not provided for - Rs, 27,442 lakhs (Previous year: Rs, 30,084 lakhs) comprising of the following:

a) Sales tax - Rs, 2,777 lakhs (Previous year: Rs, 2,949 lakhs)

(relating to the applicability of rate of tax, computation of tax liability, submission of certain statutory forms)

b) Customs duty - Rs, 68 lakhs (Previous year: Rs, 69 lakhs)

(relating to denial of benefit of exemptions)

c) Excise duty - Rs, 19,214 lakhs (Previous year: Rs, 19,226 lakhs)

(relating to denial of exemption by amending the earlier notification, computation of the assessable value, denial of input credit on service tax and excise duty on Jewellery)

d) Income tax - Rs, 3,796 lakhs (Previous year: Rs, 7,081 lakhs)

(relating to disallowance of deductions claimed)

e) Others - Rs, 781 lakhs (Previous year: Rs, 759 lakhs)

(relating to miscellaneous claims)

The above amounts are based on the notice of demand or the Assessment Orders or notification by the relevant authorities, as the case may be, and the Company is contesting these claims with the respective authorities. Outflows, if any, arising out of these claims would depend on the outcome of the decisions of the appellate authorities and the Company's rights for future appeals before the judiciary. No reimbursements are expected.

5 Estimated amount of contracts remaining to be executed on capital account and not provided for is ' 1 1,367 lakhs (Previous year: ' 18,032 lakhs).

(ii) Valuation technique used to determine fair value

Specific value techniques used to value financial instruments include:

- the use of quoted market prices for listed instruments.

- the fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.

- the fair value of foreign currency option contracts is determined using option pricing models.

- the fair value of remaining financial instruments is determined using discounted cash flow analysis.

(iii) Fair value of financial assets and liabilities that are not measured at fair value but fair value disclosures are required

The carrying values of financial assets and liabilities approximate the fair values.

33.3 Financial risk management objective

The Company has constituted a Risk Management Committee. The Company has in place a Risk management framework to identify, evaluate business risks and challenges across the Company both at corporate level as also separately for each business division. These risks include market risk, credit risk and liquidity risk.

The Company minimizes the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of derivative financial instruments and investment of excess liquidity is governed by the Company's policies approved by the Board of Directors, which provide written principles on the use of such instruments consistent with the Company's risk management strategy.

6 Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate as a means of mitigating the risk of financial loss from defaults. Credit risk is managed by the Company through approved credit norms, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss. Credit risk arises principally from the Company's receivables from customers. Refer note 10.2 for the disclosures for trade receivables.

Credit risk on liquid funds, Inter Corporate Deposits and derivative financial instruments is limited because the counterparties are banks and companies with high credit-ratings assigned by credit-rating agencies.

7 Liquidity risk

The Company has an approved policy to invest surplus funds from time-to-time in various short-term instruments. Security of funds and liquidity shall be the primary consideration while deciding on the type of investments.

The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities. The company expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.

8 Market risk

The market risks to which the Company is exposed are price risk {refer note a) below} and foreign currency risk {refer note b) below}.

a) Price Risk:

The Company is exposed to fluctuations in gold price (including fluctuations in foreign currency) arising on purchase/ sale of gold.

To manage the variability in cash flows, the Company enters into derivative financial instruments to manage the risk associated with gold price fluctuations relating to all the highly probable forecasted transactions. Such derivative financial instruments are primarily in the nature of future commodity contracts, forward commodity contracts and forward foreign exchange contracts. The risk management strategy against gold price fluctuation also includes procuring gold on loan basis, with a flexibility to fix price of gold at any time during the tenor of the loan.

The use of such derivative financial instruments is governed by the Company's policies approved by the Board of Directors, which provide written principles on the use of such instruments consistent with the Company's risk management strategy. As the value of the derivative instrument generally changes in response to the value of the hedged item, the economic relationship is established.

The Company assesses the effectiveness of its designated hedges by using the same hedge ratio as that resulting from the quantities of the hedged item and the hedging instrument that the Company actually uses. However, this hedge ratio will be rebalanced, when required (i.e., when the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting), by adjusting weightings of the hedged item and the hedging instrument. Sources of hedge ineffectiveness include mismatch in the weightings of the hedged item and the hedging instrument and the selling rate.

b) Foreign currency risk management

The company is exposed to foreign exchange risk arising through its sales and purchases denominated in various foreign

currencies.

(i) The risk management strategy on foreign currency exchange fluctuation arising on account of purchase/ sale of gold is covered in Note 34.6 above.

(ii) In respect of normal purchase and sale transactions denominated in foreign currency, the Company enters into forward foreign exchange contracts and option contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. These contracts are measured at fair value through profit and loss.

Foreign currency sensitivity analysis:

The Company is mainly exposed to USD, CHF and EURO currencies. The Company's sensitivity to a 1% increase and decrease in ' against the relevant foreign currencies is presented below:

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 1% change in foreign currency rates. There is a decrease in profit and equity by ' 173 lakhs where INR weakens by 1% against the relevant currencies. For a 1% strengthening of the ' against the relevant currencies there would be a comparable increase in profit and equity

33.7 The Company's exposure to Forward foreign exchange contracts and option contracts at the end of the reporting year are as follows:

The Company has 9 forward exchange contracts for US Dollars 42 lakhs equivalent to Rs, 2,746 lakhs (Previous year: 159 forward exchange contracts for US Dollars 638 lakhs equivalent to Rs, 42,721 lakhs).

In addition to the above, the Company has 24 Option contract in USD 194 Lakhs equivalent to Rs, 12,904 Lakhs (Previous year : 3 Option contracts in USD 170 lakhs equivalent to Rs, 11,296 lakhs).

9 CAPITAL MANAGEMENT

The Company's objective for capital management is to maximize shareholder value, safeguard business continuity and support the growth of the Company. The Company determines the capital requirement based on annual operating plan and other strategic investment plans. The funding requirements are primarily met through equity and operating cash flows generated. The Company aims to manage its capital efficiently so as to safeguard its ability to continue as a going concern and to optimize returns to all its shareholders. Gold on loan as disclosed in the financial statements represents amounts due to banks for the procurement of gold under 'Gold (Metal) loan scheme' by the Company. The Company is not subject to any externally imposed capital requirements.

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