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NOTES TO ACCOUNTS

Eveready Industries India Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 548.43 Cr. P/BV 1.46 Book Value (₹) 51.71
52 Week High/Low (₹) 263/67 FV/ML 5/1 P/E(X) 11.47
Bookclosure 06/08/2018 EPS (₹) 6.58 Div Yield (%) 0.00
Year End :2018-03 

1 CORPORATE INFORMATION

Eveready Industries India Limited (“the Company”) is in the business of manufacture and marketing of batteries, flashlights and packet tea under the brand name of “Eveready”. The Company also distributes a wide range of electrical products and small home appliances. The Company has also entered into confectionery business through launch of fruit jellies under the brand name “Jollies”.The Company is a Public Limited Company incorporated and domiciled in India with its registered office at 1, Middleton Street, Kolkata 700071. Eveready has its manufacturing facilities at Chennai, Lucknow, Noida, Haridwar, Maddur, Kolkata and Goalpara (Assam) and is supported by a sales and distribution network across the country.

Fair value of the Company’s Investment property

The Company has identified its unused Freehold land and building at Plot No. 8, Industrial Park,Moula-Ali, Hyderabad, as Investment property. The fair value of such property at Hyderabad has been derived using the market comparable rate of the surrounding area as at March 31, 2018 and March 31, 2017 on the basis of a valuation carried out as on the respective dates by an independent valuer not related to the Company. The independent valuer is Government registered valuer and have appropriate qualifications and experience in the valuation of properties.

The cost of inventories recognised as an expense includes Rs.469.33 Lakhs (for the year ended March 31, 2017: Rs.211.31 Lakhs) in respect of write-down of inventory on account of obsolescence/adjustments. There have also been reversals of write-down by Rs.0.73 Lakhs (for the year ended March 31,2017: Rs.3.37 Lakhs)

The mode of valuation of inventories has been stated in Note 2.14

Inventories amounting to Rs.30,010.92 Lakhs (as at March 31,2017: Rs.28,429.53 Lakhs) have been pledged to secure borrowings of the Company (Refer Note 20).

The average credit period on sale of goods is 26 days.

Customers seeking appointment to dealership are approved by the Regional Head of Sales for a channel after completing the Customer Business Data Form, alongwith all necessary documents. New customers are usually on advance payment terms for three months. Customers seeking supply on credit after the stipulated period are extended the facility after evaluation by the Regional Head of Sales for the channel alongwith the Regional Commercial Manager. Sufficient proof of solvency has to be provided by the customer seeking credit. The credit limits are reviewed once every year in April.

(i) The Company’s maximum exposure to credit risk with respect to customers as at March 31, 2018 Rs.509.51 lakhs (as at March 31, 2017: Rs.350.59 lakhs), which is the fair value of trade receivables less impairment loss as shown below. There is no concentration of credit risk with respect to any particular customer.

Trade receivables amounting to Rs.12,060.57 Lakhs (as at March 31,2017: Rs.8,386.66 Lakhs) have been pledged to secure borrowings of the Company (Refer Note 20).

(ii) Terms / rights attached to equity shares:

The Company has one class of equity shares having a par value of Rs.5/- per share. Each holder of equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of shareholders in the ensuing Annual General Meeting, except in case of interim dividend. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution shall be according to the member’s right and interest in the Company.

The amalgamation reserve was created on April 1, 2007 during the amalgamation of the erstwhile Powercell Battery India Limited (PBIL) with the Company. This represents the difference between the paid up share capital of erstwhile PBIL and the value of investments of the Company in erstwhile PBIL.

Note:

# The Competition Commission of India (“CCI”) issued an Order dated April 19, 2018, imposing penalty on certain zinc carbon dry cell battery manufacturers, concerning contravention of the Competition Act, 2002 (The Act). The penalty imposed on the Company was Rs.17,155.0 lakhs. The Company filed an appeal and stay application before the National Company Law Appellate Tribunal, New Delhi, (NCLAT) against the CCI’s said Order.Since then, the NCLAT vide its order dated May 09, 2018, has stayed the penalty with the direction of depositing 10% of the penalty amount within 15 days with the Registry of the NCLAT. The Company has complied with the said direction of the NCLAT. Meanwhile, the Company received legal advice to the effect that given the factual background and the judicial precedents, there are reasonable grounds on the basis of which the NCLAT will allow the appeal and will either adjudicate upon the quantum of penalty imposed or remand it to the CCI for de novo consideration. It may also be noted that a certain amount of penalty will be levied on the Company as it had also earlier filed an application under the Lesser Penalty Regulations under the Act. However, at this stage it is not possible to quantify or even make a reasonable estimate of the quantum of penalty that may be imposed on the Company. According to the aforesaid legal advice, the matter should be recognized as a contingent liability as defined under Ind-AS 37 and there should be no adjustment required in the financial statements of the Company in accordance with Ind-AS 10. Accordingly, pending the final disposal of the appeal, the amount has been disclosed as contingent liability in the financial statements. It may also be noted that penalty imposed in this connection on certain officers of the Company amounting Rs.53.4 Lakhs has been included in the above.

2.1 Particulars of Loans, Guarantees or Investments covered under Section 186(4) of the Companies Act, 2013

Interest bearing (which is not lower than prevailing yield of related Government Security close to the tenure of respective loans) loans repayable on demand to Babcock Borsig Ltd and McNally Bharat Ltd outstanding at the year end was Rs.8,484.69 Lakhs and Rs.249.00 Lakhs respectively and maximum amount outstanding during the year was Rs.10,918.16 Lakhs and Rs.3,910.68 Lakhs respectively, for their business purposes.

Guarantees - Rs. Nil

Investment - Rs. Nil

2.2 Employee benefit plans

2.2.a Defined benefit plans

The Company offers the following employee benefit schemes to its employees:

i. Gratuity

ii. Post-employment medical benefits

iii. Pension

iv. Compensated absences

The following table sets out the funded/unfunded status of the defined benefit schemes and the amount recognised in the financial statements:

Provident Fund

Contributions towards provident funds are recognised as expense for the year. The Company has set up a Provident Fund Trust which is administered by Trustees. Both the employees and the Company make monthly contributions to the Fund at specified percentage of the employee’s salary and aggregate contributions along with interest thereon are paid to the employees/nominees at retirement, death or cessation of employment.

The Trust invests funds following a pattern of investments prescribed by the Government. The interest rate payable to the members of the Trust is not lower than the rate of interest declared annually by the Government under The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and shortfall, if any, on account of interest is to be made good by the Company.

The Actuary has carried out actuarial valuation of plan’s liabilities and interest rate guarantee obligations as at the Balance Sheet date using Projected Unit Credit Method and Deterministic Approach as outlined in the Guidance Not 29 issued by the Institute of Actuaries of India. Based on such valuation, no amount is required to be provided towards future anticipated shortfall with regard to interest rate obligation of the Company as at the Balance Sheet date. Disclosures given hereunder are restricted to the information available as per the Actuary’s Report.

Pension fund

Contribution towards Pension fund [Total amount charged to the Statement of Profit and Loss for the year ended March 31, 2018: Rs.585.85 lakhs (For the year ended March 31, 2017: Rs.531.93 lakhs)]

2.3 Segment information

The Company is engaged in the business of marketing of dry cell batteries, rechargeable batteries, flashlights, packet tea, general lighting products, small home appliances and confectionery products which come under a single business segment known as Consumer Goods. The financial performance relating to this single business segment is evaluated regularly by the Managing Director and Chief Financial Officer (Chief Operating Decision Makers). Sale outside India is below the reportable threshold limit, thus geographical segment information is not given.

2.4 Related party transactions

2.4.a Details of related parties:

2.5 Corporate Social Responsibility (CSR)

As per section 135 of the Companies Act, 2013, a CSR committee has been formed by the Company. The proposed areas of CSR activities are eradication of hunger, promoting education, gender equality, empowerment of women and promoting sports- National & Olympic, special education for differently-abled, conservation of water, rural development and healthcare. The expenditure incurred (Refer Note 30) during the year on these activities are as specified in schedule VII of the Companies Act, 2013.

(a) Gross amount required to be spent by the Company during the year Rs.158.49 Lakhs

(b) Amount spent during the year on:

2.6 Financial Instruments

2.6.1 Capital management

The Company’s capital management objective is to maintain an optimal debt-equity structure so as to reduce the cost of capital, thereby enhancing returns to shareholders. The Company also has a policy of making judicious use of various available debt instruments within its overall working capital drawing limit. This interest arbitrage helps the Company to contain / reduce the cost of capital

2.6.1.1 Gearing ratio

The gearing ratio at the end of the reporting period was as follows:

2.6.2 Financial risk management objectives

The Company endeavours to manage the financial risks related to it’s operations through specified policies, which deals with various market risks (foreign currency exchange risk, interest rate risks and commodity price risks), credit risks and liquidity risks. In order to minimize any adverse effects on the financial performance of the Company, derivative financial instruments like foreign exchange forward contracts, commodity future and option contracts, maintaining proper mix between fixed and floating rate of borrowings are undertaken to hedge the various financial risks as per guidelines set in those policies. Credit risk management is done through managing credit limits and transactions through letters of credit. Liquidity risk is managed through availability of committed credit lines and borrowing facilities.

2.6.3 Market risk

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and commodity prices in international markets. The Company enters into foreign exchange forward contracts and commodity futures contracts to manage it’s market risks.

2.6.4 Foreign currency risk management

The Company undertakes transactions denominated in foreign currencies; consequently, exposure to exchange rate fluctuations arise. Exchange rate exposures are managed within the approved policy utilising forward foreign exchange contracts.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the end of reporting period are as follows:

2.6.4.1 Foreign currency sensitivity analysis

The Company is mainly exposed to the currency US Dollar, Japanese Yen and Hong Kong Dollar.This sensitivity analysis mentioned in the below table has been based on the composition of the Company’s financial assets and liabilities exposed to foreign currency as at year end. A positive number below indicates an increase in profit before tax where the INR(‘) strengthens 5% against the relevant currency. For a 5% weakening of the INR(‘) against the relevant currency, there would be a comparable impact on the profit and the balances below would be negative.

It is the policy of the Company to enter into foreign exchange forward contracts to cover foreign currency payments for known liabilities, all foreign currency loans and receipts, all of which covers approximately 40% to 50% of the exposure generated.

2.6.4.2 Forward Foreign Exchange Contract

It is the policy of the Company to enter into forward foreign exchange contracts to cover foreign currency payments for known liabilities, all foreign currency loans and receipts, all of which covers approximately 40% to 50% of the exposure generated.

The following table details the forward foreign exchange contracts outstanding at the end of the reporting period:

The line-items in the balance sheet that include the above hedging instruments are “Other financial assets” and “Other financial liabilities”.The Company had entered into forward foreign exchange contracts (for terms not exceeding 6 months) to hedge the exchange rate risk arising from the outstanding payables and receivables.

2.6.5 Interest rate risk management

The Company is exposed to interest rate risk because it borrows funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings contracts.

2.6.5.1 Interest rate sensitivity analysis

The sensitivity analysis below have been determined based on the exposure to interest rates for non-derivative instruments (borrowings) at the end of the reporting period. For liabilities with floating rate, the analysis is prepared considering average amount outstanding at the end of each month. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s profit before tax for the year ended March 31, 2018 would decrease/increase by Rs.122.58 lakhs (for the year ended March 31, 2017: decrease/increase by Rs.90.14 Lakhs). This is mainly attributable to the Company’s exposure to interest rates on its variable rate borrowings.

2.6.6 Commodity price risk management

The Company is exposed to commodity price risk, mainly in respect of Zinc, which is a key raw material in the manufacture of batteries. The price risk is linked to fluctuations in London Metal Exchange (LME). The Company manages the price risk by entering into derivative transactions by use of futures upto 50% of the total exposure generated.

The carrying amounts of the Company’s future contracts monetary assets and monetary liabilities at the end of reporting period are as follows:

2.6.6.1 Commodity price sensitivity analysis

The sensitivity analysis is determined based on outstanding future and option positions at the end of each reporting period. A $100 increase or decrease is used when reporting Zinc price risk to key management personnel and represents management’s assessment of the reasonably possible change in Zinc price on LME If Zinc price had been $100 higher/lower and all other variables were held constant, the Company’s profit before tax for the year ended March 31, 2018 would decrease/increase by Rs. Nil (for the year ended March 31, 2017: decrease/increase by Rs.19.46 Lakhs)

2.6.7 Credit risk management

Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counter-party as a means of mitigating the risk of financial loss from defaults. The Company’s exposure of its counter-party are continuously monitored.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantee insurance cover is purchased. Concentration of credit risk to any counter-party did not exceed 5% of gross monetary assets at any time during the year.

In addition, the Company is exposed to credit risk in relation to financial guarantees given to banks. The Company’s maximum exposure in this respect is the maximum amount the Company could have to pay if the guarantee is called on. As at March 31, 2018, an amount of Rs.2,509.53 lakhs (as at March 31, 2017: Rs.3,242.75 lakhs) and other bank guarantees amounts to Rs.1,626.26 lakhs as at March 31, 2018 (as at March 31, 2017: Rs.593.78 lakhs) has been considered as contingent liabilities (see note 32.1). These financial guarantees have been issued to banks under the supply agreements entered into with certain vendors.

2.6.7.1 Collateral held as security and other credit enhancements

The Company does not collect any collateral or other credit enhancements to cover its credit risks associated with its financial assets.

2.6.8 Liquidity risk management

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.

2.6.9.1 Fair value of the Company’s financial assets and liabilities that are measured at fair value on a recurring basis

Some of the Company’s financial assets and liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and liabilities are determined:

Financial assets/ (liabilities)

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

Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values.

The fair values of the financial assets and financial liabilities included in the level 3 category above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with most significant inputs being the discount rate that reflects the credit risk of counter-parties.

2.7 APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved for issue by the Board of Directors on May 29, 2018.

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