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NOTES TO ACCOUNTS

Schaeffler India Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 12962.58 Cr. P/BV 4.79 Book Value (₹) 865.66
52 Week High/Low (₹) 5798/3836 FV/ML 10/1 P/E(X) 30.88
Bookclosure 30/04/2019 EPS (₹) 134.29 Div Yield (%) 0.72
Year End :2018-12 

1.Related Party disclosures as required under Ind AS-24 are given below:

1) Name and nature of relationship of the related party where control exists:

The ultimate control lies with INA Holding Schaeffler GmbH & Co. KG, Germany.

2) Names of the Related Parties having transactions with the Company during the year

2018 2017

Ultimate holding Company Holding Company

INA Holding Schaeffler GmbH & Co. KG, Germany. INA Holding Schaeffler GmbH & Co. KG, Germany.

Fellow subsidiaries / Affiliates Fellow subsidiaries / Affiliates

Schaeffler Australia Pty. Ltd., Australia Schaeffler Australia Pty. Ltd., Australia

Schaeffler Brasil Ltda., Brazil Schaeffler Brasil Ltda., Brazil

Schaeffler (China) Co. Ltd., China Schaeffler (China) Co. Ltd., China

Schaeffler Trading (Shanghai) Co. Ltd., China Schaeffler Trading (Shanghai) Co. Ltd., China

Schaeffler (Nanjing) Co. Ltd., China Schaeffler (Nanjing) Co. Ltd., China

Schaeffler (Ningxia) Co. Ltd., China Schaeffler (Ningxia) Co. Ltd., China

Schaeffler Holding (China) Co. Ltd., China Schaeffler Holding (China) Co. Ltd., China

Schaeffler Friction Products (Suzhou) Co., Ltd., China Schaeffler Friction Products (Suzhou) Co., Ltd., China

Schaeffler Middle East FZE, Dubai Schaeffler Middle East FZE, Dubai

Schaeffler France SAS, France Schaeffler France SAS, France

Schaeffler Chain Drive Systems SAS, France Schaeffler Chain Drive Systems SAS, France

Schaeffler Technologies AG & Co. KG, Germany Schaeffler Technologies AG & Co. KG, Germany

Schaeffler AG, Germany Schaeffler AG, Germany

Schaeffler Elfershausen AG & Co. KG, Germany Schaeffler Elfershausen AG & Co. KG, Germany

Schaeffler Automotive Aftermarket GmbH & Co. KG, Germany Schaeffler Automotive Aftermarket GmbH & Co. KG, Germany

FAG Industrial Services GmbH, Germany FAG Industrial Services GmbH, Germany

LuK Truckparts GmbH & Co. KG, Germany LuK Truckparts GmbH & Co. KG, Germany

LuK GmbH & Co. KG, Germany LuK GmbH & Co. KG, Germany

WPB Water Pump Bearing GmbH & Co. KG, Germany Egon Von Ruville GmbH, Germany

Industriewerk Schaeffler INA-Ingenieurdienst GmbH, Germany WPB Water Pump Bearing GmbH & Co. KG, Germany

LuK Unna GmbH & Co. KG, Germany Industriewerk Schaeffler INA-Ingenieurdienst GmbH, Germany

Schaeffler Verwaltungsholding Sechs GmbH, Germany (formerly Schaeffler Verwaltungsholding Sechs GmbH, Germany (formerly

known as INA Beteiligungsverwaltungs GmbH) known as INA Beteiligungsverwaltungs GmbH)

Schaeffler Buhl Verwaltungs GmbH, Germany (formerly known Schaeffler Schweinfurt Beteiligungs GmbH. Germany (Formerly

as LuK Vermogensverwaltungsgesellschaft mbH) known as FAG Kugelfisher GmbH)

Schaeffler Beteiligungsgesellschaft mbH, Germany LuK Vermogensverwaltungsgesellschaft mbH, Germany

Schaeffler Buhl Beteiligungs GmbH, Germany Schaeffler Engineering GmbH, Germany

Schaeffler Friction Products GmbH, Germany Schaeffler Beteiligungsgesellschaft mbH, Germany

Schaeffler Schweiz GmbH, Switzerland LuK Unna GmbH & Co. KG, India

Schaeffler Hong Kong Company Ltd, Hong Kong Schaeffler Friction Products GmbH, Germany

Schaeffler Savaria Kft., Hungary Schaeffler Hong Kong Company Ltd, Hong Kong

Schaeffler Bearings Indonesia, PT, Indonesia Schaeffler Savaria Kft., Hungary

Schaeffler Water Pump Bearing Italia S.r.l., Italy Schaeffler Bearings Indonesia, PT, Indonesia

Schaeffler Japan Co. Ltd. Japan Schaeffler Water Pump Bearing Italia S.r.l., Italy

Schaeffler Korea Corporation, Korea Schaeffler Italia S.r.l., Italy

Schaeffler Ansan Corporation, Korea Schaeffler Japan Co. Ltd. Japan

LuK Puebla, S. de R.L. de C.V., Mexico Schaeffler Korea Corporation, Korea

Schaeffler Mexico, S. de R.L. de C.V., Mexico Schaeffler Ansan Corporation, Korea

2018 2017

Schaeffler Mexico Services, S. de R.L. de C.V., Mexico LuK Puebla, S. de R.L. de C.V., Mexico

Schaeffler Automotive Aftermarket Mexico, S. de R.L. de C.V., Schaeffler Mexico, S. de R.L. de C.V., Mexico Mexico

Schaeffler Nederland B.V., Netherlands Schaeffler Nederland B.V., Netherlands

Schaeffler Philippines Inc., Philippines Schaeffler Philippines Inc., Philippines

Schaeffler Portugal Unipessoal Lda., Portugal Schaeffler Portugal Unipessoal Lda., Portugal

SC Schaeffler Romania S.R.L., Romania SC Schaeffler Romania S.R.L., Romania

Schaeffler (Singapore) Pte. Ltd., Singapore Schaeffler (Singapore) Pte. Ltd., Singapore

Schaeffler Kysuce, spol. s.r.o, Slovakia Schaeffler Kysuce, spol. s.r.o, Slovakia

Schaeffler Skalica, spol. s r.o., Slovakia Schaeffler Skalica, spol. s r.o., Slovakia

Schaeffler South Africa (Pty.) Ltd., South Africa Schaeffler South Africa (Pty.) Ltd., South Africa

Schaeffler Schweiz GmbH, Switzerland Schaeffler Schweiz GmbH, Switzerland

Schaeffler (Thailand) Co. Ltd., Thailand Schaeffler (Thailand) Co. Ltd., Thailand

Schaeffler Manufacturing (Thailand) Co.,Ltd., Thailand Schaeffler Manufacturing (Thailand) Co.,Ltd., Thailand

Schaeffler Group USA Inc, USA Schaeffler Group USA Inc, USA

Schaeffler Transmission Systems, LLC, USA Schaeffler Transmission Systems, LLC, USA

Schaeffler (UK) Ltd. UK Schaeffler (UK) Ltd. UK

The Barden Corporation (U.K.) Ltd., UK The Barden Corporation (U.K.) Ltd., UK

Schaeffler Vietnam Co. Ltd., Vietnam Schaeffler Automotive Aftermarket (UK) Ltd. UK

Schaeffler Vietnam Co. Ltd., Vietnam

Key Management Personnel

Mr. Dharmesh Arora, Managing Director Mr. Dharmesh Arora, Managing Director (w.e.f. March 6, 2017)

Mr. Rajendra Anandpara, Managing Director (up to March 3, 2017)

2. Financial risk management

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

- market risk [refer 39 (A) below]

- liquidity risk [refer 39 (B) below]

- credit risk [refer 39 (C) below]

In the course of its business, the Company is exposed primarily to aforesaid risks, which may impact the fair value of its financial instruments. The Company has a risk management system which not only covers the foreign exchange risks but also other risks associated with the financial assets and liabilities such as credit risks. The risk management strategy is approved by Board of Directors which is implemented by the Company’s management. The risk management framework aims to create a stable business planning environment by reducing the impact of market related risks, credit risks and currency fluctuations on the Company’s earnings. The risks identified through the risk management system are analysed and evaluated by the Company’s management and reported to the Board of Directors periodically along with report of planned mitigation measures.

A) Market risk

Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the foreign currency exchange rates, liquidity and other market changes. Future specific market movements cannot be normally predicted with reasonable accuracy.

(i) Foreign currency risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the US Dollars and Euro. Foreign exchange risk arises from future commercial transactions and recognized assets and liabilities denominated in a currency that is not the Company’s functional currency (Indian Rupees).

The Company has import and export transactions in foreign currencies. Imports are higher than exports and hence the Company has foreign currency exposure to the extent of purchases being higher than exports. The risk of foreign currency fluctuation is mitigated through hedging. Please refer Note 38 for details of foreign currency exposure.

The Company’s exposure to foreign currency risk at the end of reporting period are as follows:

(ii) Interest rate risk

The Company has granted loans to third party. The Company recovers interest as per the terms of the agreement which approximates the prevailing market rate of interest, from time to time. Accordingly, interest rate risk for loans given is not considered to be substantial.

The Company’s borrowings comprise of fixed rate loan from the related parties. The terms of the agreement which approximates the prevailing market rate of interest.

Surplus funds are being invested in bank deposits at fixed interest rates and the tenure is managed to match with the Company’s liquidity profile.

B) Liquidity Risk

The Company’s principal sources of liquidity are cash and cash equivalents and cash flows generated from operations. The Company regularly monitors actual cash flows and forecasts to ensure that the Company maintains sufficient liquidity to meet the operation needs.

C) Credit Risk

Credit risk is the unexpected loss in financial instruments if the counter parties fails to discharge it’s contractual obligations in entirety and timely. The Company is exposed to credit risks arising from it’s operating and financing activities such as trade receivables, loans and advances and other financial instruments. The carrying amounts of financial assets represent the maximum credit exposure.

Trade receivables

Credit risk on trade receivables is limited due to the Company’s diversified customer base which includes public sector enterprises and reputed private corporates. For trade receivables, the Company computes expected credit loss allowance based on provision matrix which is prepared considering customer’s industry segment and historically observed overdue rate over expected life of trade receivables. The expected credit loss allowance is considered as a percentage of net receivable position.

Other financial assets

The Company does not have significant credit risk on non-current loans given considering available security against which such loans have been given.

3. Capital management

For the purpose of Company’s capital management, capital includes equity share capital and all other reserves attributable to equity shareholders. The Company has a long-term strategy of pursuing profitable growth. Capital is managed proactively to secure the existence of the Company as a going concern in the long-term and create financial flexibility for profitable growth in order to add value to the Company. A further aim of the capital management is to ensure long-term availability of liquidity, maintain strong credit ratings and ensure optimal capital structure in order to support business through continuing growth and maximizing shareholders value. The Company funds it’s operations through internal accruals and the Management along with the Board of Directors regularly monitor the returns on capital as well as dividend levels to shareholders.

4. Employee benefits: Post employment benefit plans

Defined contribution plans

The Company makes contributions, determined as a specified percentage of employee salaries in respect of qualifying employees towards Provident Fund and Superannuation Fund, which are defined contribution plans. The Company has no obligations other than to make these specified contributions. The contributions are charged to the Statement of Profit and Loss as they accrue. The amount recognized as an expense towards contribution to Provident Fund for the year aggregate to Rs, 136.6 million (2017: Rs, 123.9 million) and contribution to superannuation fund for the year aggregating to Rs, 33.5 million (2017: Rs, 35.3 million).

Defined benefit plans

The Company has defined benefit plans that provide gratuity benefit. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half month’s salary for each year of completed service at the time of retirement/exit. The Scheme is funded by the plan assets.

As at December 31, 2018, weighted-average duration of the defined benefit obligation was 6.22 years (December 31, 2017: 7.58 years).

Note: The estimates of future salary increases, considered in actuarial valuation takes into account inflation, seniority, promotion and other relevant factors.

Sensitivity Analysis

The following table summarizes the impact in percentage terms on the reported defined benefit obligation at the end of the reporting period arising on account of an increase or decrease in the reported assumption by 100 basis points:

These sensitivities have been calculated to show the movement in defined benefit obligation in isolation and assuming there are no other changes in market conditions at the accounting date. There have been no changes from the previous periods in the methods and assumptions used in preparing the sensitivity analyses.

The carrying amounts of all financial instruments (except derivative instruments which are measured at fair value through Other Comprehensive Income and long-term loans) are not materially different from their fair values, since these are of short term nature.

B) Fair value hierarchy

The following table provides quantitative disclosures of fair value measurement hierarchy of financial instruments as refered above:

Valuation techniques and significant unobservable inputs

Specific valuation techniques used in measuring Level 2 and Level 3 fair values for financial instruments include:

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

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

5. The tax year for the Company being the year ending March 31, 2019, provision for taxation for the year ended December 31,

2018 is aggregate of provision made for three months ended March 31, 2018 and provision based on amounts for remaining nine months ended December 31, 2018, the ultimate tax liability of which will be determined on the basis of figures for the fiscal year April 1, 2018 to March 31, 2019.

The Company’s international and domestic transactions with associated enterprises are at arm’s length, as per the independent accountant’s report for the year ended March 31, 2018. The Management believes that the Company’s international and domestic transactions with associated enterprises post March 31, 2018 continue to be at arm’s length and that transfer pricing legislations will not have any impact on the Ind AS financial statements, particularly on the amount of tax expenses for the year and the amount of provision for taxation at the year end.

6. Amalgamation of INA Bearings India Private Limited and LuK India Private Limited with the company

(a) The Scheme of Amalgamation of INA Bearings India Private Limited (‘INA’) and LuK India Private Limited (‘LuK’) jointly referred to as ‘transferor companies’) with Schaeffler India Limited (‘the Scheme’), has been approved by the National Company Law Tribunal, Chennai and Mumbai Benches vide their orders dated June 13, 2018 and October 8, 2018 respectively. The Company has carried out the accounting prescribed in the Scheme and made the required disclosure for Amalgamations in the nature of merger, as required under Appendix C of Ind AS 103 Business Combinations, for Business Combinations of entities under “Common Control”.

(b) As per the Scheme, all assets and liabilities of INA and LuK as at appointed date (i.e. January 1, 2018) have been recorded at their carrying values determined in accordance with the Companies (Indian Accounting Standards) Rules, 2015 (Ind AS) prescribed under Section 133 of the Companies Act, 2013 and other recognized accounting practices and policies to the extent applicable after eliminating inter-company balances is credited to Capital Reserve. Being

a common control business combination as per Appendix - C of ‘Ind AS 103 - Business Combinations’, financial information for year ended December 31, 2017 have been restated.

In accordance with the Scheme:

The Company has taken over following assets, liabilities and other equity (before intercompany eliminations) at their respective book values against capital issuance of ' 146.4 million to the shareholders of respective transferor companies as at the appointed date and resultant surplus of ' 612.6 million has been credited to Capital reserve.

(c) In terms of the Scheme, the Company has alloted 8,214,891 equity shares of ' 10 each to existing shareholders of INA and 6,428,573 equity shares of ' 10 each to existing shareholders of LuK based on share entitlement ratio as per the Scheme.

(d) Exceptional items pertain to provision for stamp duties, professional/consulting fees and other costs incurred pursuant to the Scheme.

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