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NOTES TO ACCOUNTS

KSB Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 2100.65 Cr. P/BV 2.77 Book Value (₹) 217.70
52 Week High/Low (₹) 825/549 FV/ML 10/1 P/E(X) 29.34
Bookclosure 08/05/2019 EPS (₹) 20.57 Div Yield (%) 0.99
Year End :2018-12 

1. Background:

KSB Limited (formerly known as KSB Pumps Limited) (the Company) is engaged in the business of manufacture of different types of power driven pumps and industrial valves. Castings are mainly produced for captive consumption. The registered office of the Company is 126, Maker Chambers III, Nariman Point, Mumbai -400 021. The separate financial statements have been authorized for issue by the Board of Directors on February 27, 2019.

i. Refer to note 29 (b) for disclosure of contractual commitments for the acquisition of property, plant and equipment.

ii. The borrowing costs capitalised during the year ended December 31, 2018 under buildings and plant and machinery is Rs. Nil (December 31, 2017 : 35.49 million). The Company constructed a new manufacturing plant in the year ended December 31, 2017 and the average rate used to determine the amount of borrowing costs eligible for capitalisation is 8 %.

iii. Leasehold land mainly pertains to manufacturing plant located at Shirwal.

iv. Capital work in progress mainly includes plant and machinery in the process of installation.

v. The additions to capital work in progress are net after considering the transfers to property, plant and equipment. Gross additions to capital work in progress/ transfers to property, plant and equipment are as follows:

Transferred receivables

The carrying amounts of the trade receivables includes receivables which have been discounted with banks (with recourse). The Company has the obligation to pay to the bank in case the customer makes a default in payment. Hence, the Company has continued to recognise the transferred receivables along with a corresponding liability of equivalent amount under current borrowings.

(ii) Terms/ rights attached to equity shares

The company has only one class of shares referred to as equity shares having a par value of ' 10/-. Each shareholder of equity shares is entitled to one vote per share. 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. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the shareholders.

Nature and purpose of Other reserves:

1 These reserves pertain to reserve arising on amalgamations in the past, which is required to be statutorily maintained and cannot be distributed to the shareholders.

2 This reserve represents amounts transferred from retained earnings in earlier years as per the requirements of the erstwhile Companies Act, 1956. The reserve is a free reserve.

Notes:

1. Packing credit has been obtained by the Company at a concessional rate of interest ranging from 5 - 7% p.a.

2. Hypothecation of stocks including loose tools, stores and spares, book debts against the Working Capital Facility - 2 and 3 has been released in full w.e.f. December 17, 2018

Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

Based on the information and records available with the Company, the disclosures required pursuant to the Micro, Small and Medium Enterprises Development Act,2006 ('MSMED ACT'). The Disclosure pursuant to the said MSMED Act are as follows:

Provision for employee benefits under note 17 (b) includes provision for employee bonus and incentives. For details of gratuity, superannuation and compensated absences, refer note 30.

Provision for warranty is computed as a percentage of sales based on the past trends observed. The time value of money is considered to be not material and hence the provisions are not discounted.

Goods and Service Tax (GST) has been effective from July 1, 2017 replacing excise duty. Until June 30, 2017, 'Sale of products' included the amount of excise duty recovered on sales. With effect from July 1, 2017, 'Sale of products' excludes the amount of GST recovered. 'Sale of products' for the year ended December 31, 2017 includes Rs. 249.10 million of excise duty collected. Accordingly, 'Sale of products' for the year ended December 31, 2018 and December 31, 2017 are not comparable to the extent.

Finance costs amounting to Rs.Nil (December 31, 2017 : Rs.35.49 million) is capitalised in the cost of assets during the current year. The average rate used to determine the amount of borrowing costs eligible for capitalisation is 8%.

b) Capital commitments

i) Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for is Rs.60.58 million (December 31, 2017 Rs.59.81 million)

A Defined contribution plan

The Company also has certain defined contribution plans. Contributions are made to provident fund for employees at the rate of 12% of basic salary as per regulations. The contributions are made to registered provident fund administered by the government. The obligation of the Company is limited to the amount contributed and it has no further contractual nor any constructive obligation. The expense recognised during the period towards defined contribution plan is Rs.60.01 million (December 31, 2017 - Rs.54.97 million).

B Compensated absences

The leave obligations cover the Company's liability for privilege leave and sick leave. The amount of provision made during the year is ' 52.63 million (December 31, 2017 - Rs.59.34 million).

C Gratuity

The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed proportionately for 15 days to one month's salary multiplied for the number of years of service. The gratuity plan is a funded plan.

The fund is subject to risks such as asset volatility, changes in bond yields and asset liability mismatch risk. In managing the plan assets, Board of Trustees reviews and manages these risks associated with the funded plan. Each year, the Board of Trustees reviews the level of funding in the gratuity plan. Such a review includes asset - liability matching strategy and investment risk management policy (which includes contributing to plans that invest in risk averse markets). The Board of Trustees aim to keep annual contributions relatively stable at a level such that no plan deficits (based on valuation performed) will arise.

D Superannuation

Superannuation is a benefit to certain employees at ' 1000/ 500/ 250 (depending on the grade/ category of the employee and completed years of service) per year for each completed year of service.

2 Segment reporting

Where a financial report contains both consolidated financial statements and separate financial statements for the parent, segment information needs to be presented only in case of consolidated financial statements. Accordingly, segment information has been provided only in the consolidated financial statements.

3 Fair value measurements

All financial assets (except derivative instruments) and financial liabilities (except derivative liabilities) are measured at amortised cost and derivative instruments are classified as fair value through profit or loss. The fair value is determined using forward exchange rates at the balance sheet date. The instruments fall under level II of the fair value hierarchy as per Ind AS 113 Fair Value Measurements. Level II fair values maximise the use of observable market date and rely as little as possible on entity specific estimates. Significant inputs required to measure a level II fair value are observable. The fair value of all the instruments measured at amortised cost is not materially different from the carrying value of such instruments.

4 Financial risk management

The Company's activities exposes it to market risk, liquidity risk and credit risk. In order to minimise any adverse effects on the financial performance of the Company, derivative financial instruments, such as foreign exchange forward contracts are taken. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk.

The Company's risk management is carried out by the Company's treasury department under policies approved by the board of directors. The board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

(A) Credit risk

The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and other financial instruments. For banks and other financial institutions, only high rated banks/ financial institutions are accepted. The balances with banks, loans given to employees, security deposits are subject to low credit risk and the risk of default is negligible or nil. Hence, no provision has been created for expected credit loss for credit risk arising from these financial assets.

I Trade receivables

Credit risk arises from the possibility that customer will not be able to settle their obligations as and when agreed. To manage this, the Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts, ageing of accounts receivable and forward looking information. Individual credit limits are set accordingly.

(B) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying business, the Company's treasury maintains flexibility in funding by maintaining availability under committed credit lines.

The financial liabilities as at December 31, 2018 and December 31, 2017 mature within a period of one year.

(C) Market risk

I) Foreign currency risk

The Company is engaged in international trade and thereby exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD, EUR, AUD, GBP and CHF. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Company's functional currency (INR). The Company's risk management policy is to hedge purchases and sales separately. The Company uses foreign exchange forward contracts to hedge its exposure in foreign currency risk.

ii) Sensitivity

The sensitivity of profit and loss to changes in the exchange rates arises mainly from foreign currency denominated financials instruments:

II) Interest rate risk

The Company's main interest rate risk arises from short term borrowings and deposits taken / placed over a period of time on frequent basis thereby exposing the Company to interest rate risk. The Company's policy is to have fixed interest rate at the time of deal execution.

5 Capital management

a) Risk management

The Company's objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital. For the purpose of the Company's capital management, capital includes issued equity capital and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Company's capital management is to maximise the shareholders value. The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants.

6 The list of standards issued but not yet effective:

Following are the pronouncements which have been issued by the Ministry of the Corporate Affairs (‘MCA’) that are effective from annual periods beginning on and after April 1, 2018 and are applicable to the Company from next year:

a) Ind AS 115 - Revenue from Contract with Customers

The standard deals with revenue recognition and establishes principles for reporting useful information to users of financials statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the Company's contracts with customers. It defines a new five step model to recognise revenue from customer contracts.

Revenue is recognised when a customer obtains control of the goods or receive services and thus has the ability to direct the use and obtain the benefits from the goods or services. The standard supersedes Ind AS 18 'Revenue' and Ind AS 11 'Construction Contracts' and related interpretations. Adoption of Ind AS 115 is not expected to have a significant impact on the timing and measurement of revenue. Consistent with the current practice, recognition of revenue will continue to occur over time when services are provided to customers, which is also when the customers consumes the benefits of the entity's performance as it occurs under Ind AS 115. The Company is in process of evaluating the effect of this on the financials statements and does not expect any material impact from the change.

b) Ind AS 12 - Income Taxes

The amendments clarify the accounting for deferred taxes on unrealised loss, where an asset is measured at fair value and the fair value is below assets tax base. A temporary difference exists whenever the carrying amount of an asset is less than its tax base at the end of the reporting period. The amendment will come into force from April 1, 2018. The Company is in process of evaluating the effect of this on the financials statements and does not expect any material impact from the change.

c) Ind AS 21 - Foreign currency transactions and advance consideration

The amendments clarify the date of the transaction for the purpose of determining the exchange rate to use an initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from April 1, 2018. The Company is in process of evaluating the effect of this on the financials statements and does not expect any material impact from the change.

There is no other standards or interpretations that are not yet effective and that would be expected to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.

7 Events occurring after the reporting period

Refer to note 35 (b) (ii) for the final dividend recommended by the directors which is subject to the approval of shareholders in the ensuing general meeting.

8 Previous year's figures have been regrouped / reclassified wherever considered necessary to conform to current year's classification / disclosure.

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