K) Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When a provision is expected to be reimbursed, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the Statement of Profit and Loss net of any reimbursement
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as finance cost.
L) Contingencies
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises where a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognized but are disclosed where an inflow of economic benefits is probable. The estimation of financial effect in respect of contingent liabilities and contingent assets wherever not practicable, is not disclosed and such fact is accordingly stated.
M) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
a. Financial Assets
Initial Recognition and Measurement
All financial assets are recognized initially at fair value, plus in the case of financial assets not recorded at fair value through profit or loss (FVTPL), transaction costs that are attributable to the acquisition of the financial assets. However, trade receivables that do not contain a significant financing component are measured at transaction price.
Subsequent Measurement
Financial assets presently held by the Company are classified as under:-
• Debt instruments at amortized cost
• Debt instruments, TDRs and derivatives at Fair Value Through Profit or Loss (FVTPL)
• Equity instruments measured at Fair Value Through Other Comprehensive Income (FVTOCI)
i. Debt Instruments at Amortized Cost
A 'debt instrument' is measured at the amortized cost if both of the following conditions are
met:
(i) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
(ii) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the statement of profit or loss. This category generally applies to trade and other receivables.
ii. Debt Instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the Statement of profit or loss.
iii. Equity Investments
All equity investments in scope of Ind AS 109 - Financial Instruments are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. For all other equity
instruments, the Company may decide to classify the same as at FVTOCI. The Company makes such election on an instrument-by-instrument basis upon on initial recognition and same is irrevocable.
Upon classification of equity instruments as at FVTOCI, all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to Statement of Profit and Loss, even on sale of investments. The Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the statement of profit or loss.
Investments in Joint ventures, subsidiaries and associates are recognized at cost.
iv. Derivative Financial Instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to interest and foreign exchange rate risks, like foreign exchange forward contracts, interest rate swaps and cross currency swaps.
Derivatives are initially recognized at fair value on the date the derivative contracts are entered into and are subsequently re-measured to their fair value (Mark to Market) at the end of each reporting period. The resulting gain or loss is recognized in the Statement of profit and loss. Company does not designate any of its derivative instruments as hedge instruments. Derivatives are carried as financial assets when fair value is positive and as financial liabilities when the fair value is negative.
Transaction costs incurred for such derivative instruments are charged off to Statement of Profit and Loss on initial recognition.
Derecognition
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expires or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company's continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of Financial Assets
In accordance with Ind AS109 - Financial Instruments, the Company applies Expected Credit Loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
i. Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade receivables and bank balance
ii. Lease receivables
iii. Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115 - Revenue From Contracts with Customers.
iv. Financial guarantee contracts which are not measured as at FVTPL
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (i.e. all cash shortfalls) discounted at the original effective interest rate.
While estimating cash flows, Company considers all contractual terms of financial instrument over the expected life of the financial instrument including cash flows from the sale of collateral held that are integral to contractual terms.
In case of Trade receivables, the Company has used a practical expedient as permitted under Ind AS 109 - Financial Instruments. This expected credit loss allowance is computed based on a provision matrix which takes in account historical credit loss experience with adjustments for collaterals available and forward looking information, if required.
ECL allowance is not recognized on Subsidy receivables since they are due from Government of India and also on other receivables which are largely due from Government agencies, as the Company does not perceive any risk of default which would be material.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the Statement of Profit and Loss (P&L). This amount is reflected under the head 'other expenses' in the P&L. The Balance Sheet presentation for various financial instruments is described below:
• Financial assets measured as at amortised cost, trade receivables and lease receivables.
• ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet.
• The allowance reduces the net carrying amount, until the asset meets write-off criteria.
• Trade receivables, other receivables, loans and advances are also fully provided for as doubtful upon review on case to case basis, to the extent of such loss considered as incurred.
b. Financial Liabilities
Initial Recognition and Measurement
Financial liabilities are classified, at initial recognition as loans and borrowings, payables, derivatives and financial liabilities at fair value through profit or loss. The Company's financial liability consists of trade and other payables, loans and borrowings, bank overdrafts, financial guarantee contracts and derivative financial instruments.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs, if any.
Subsequent Measurement
The subsequent measurement of financial liabilities of the Company depending on their classification is described below:-
i. Loans and Borrowings Including Bank Overdrafts
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
This category generally applies to interest-bearing loans and borrowings.
ii. Financial Guarantee Contracts
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder of the guarantee for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment requirements of Ind AS 109- Financial Instruments and the amount recognized less cumulative amortization.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss.
N) Cash and cash equivalents
Cash and cash equivalents comprise of cash at banks and on hand and short-term deposits with a maturity of three months or less. For the purpose of the cash flow statement, cash and cash equivalents include cash on hand, in banks, demand deposits with banks and other short term highly liquid investments, net of outstanding overdrafts that are repayable on demand and are considered part of the Company's cash management system.
O) Government Grants
Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognized in statement of profit and loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate and are presented within other income.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognized in profit or loss in the period in which they become receivable.
Government grants relating to purchase of property, plant and equipment are included in Other non-current liabilities and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.
In the event of such property, plant and equipment being disposed off before completion of its estimated useful life, the outstanding amount of such capital grant is fully credited to profit or loss in the year of its disposal.
P) Employee Benefits
a. Short Term Employee Benefits:
All employee benefits payable within twelve months of rendering the service are classified as short term employee benefits and they are recognized in the period in which the employee renders the related service. The Company recognizes the undiscounted amount of short term employee benefits expected to be paid in exchange for services rendered as a liability (accrued expense) after deducting any amount already paid.
b. Retirement Benefit Costs and Termination Benefits and Other Long Term Employee Benefits Defined Contribution Schemes
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.
Company's defined Contribution made to its Superannuation scheme is charged off to Statement of Profit and Loss on accrual basis.
Defined Benefit Plans
Provident Fund
Contribution to Provident Fund is accounted for on accrual basis as per actuarial valuation done on deterministic basis. The Provident Fund contributions are made to a Trust administered by the Company by both the employer as well as employee. The Trust invests in specific designated instruments as permitted by Indian Law. The interest rate payable to the members of the Trust is being administered by the Government. The Company has an obligation to make good the shortfall, if any between the return from the investments of the Trust and the notified interest rate. Further in the event there is a deficit, owing to the fair valuation of plan assets being lower than defined benefit obligation at the Balance Sheet date, Company has to fund the shortfall. Such shortfall including shortfall in the interest is recognized in the Statement of Profit and Loss.
Gratuity and Post-retirement Medical Benefits
For Defined Benefit plans comprising of gratuity, post-retirement medical benefits the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each annual reporting period. Re-measurements, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the balance sheet with a charge or credit recognized in other comprehensive income in the period in which they occur. Re-measurements recognized in other comprehensive income is reflected immediately in retained earnings and is not reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorized as follows:
• Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
• Net interest expenses or income; and
• Re-measurements
The Company presents the first two components of defined benefit costs in the Statement of profit and loss in the line item 'Employee Benefits Expense'. Curtailment gains and losses are accounted for as past service costs.
The retirement benefit obligation recognized in the balance sheet represents the actual deficit or surplus in the Company's defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
The cost of the defined benefit gratuity plan and other Post employment medical benefits and the present value of gratuity obligation are determined using actuarial valuation techniques.
Termination Benefits
A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognizes any related restructuring costs.
Other Long term benefits
Liabilities recognized in respect of other long term benefits like leave encashment and long term service awards are measured at the present value of the estimated future cash outflows to be made by the Company (based on actuarial valuation) in respect of services provided by employees upto the reporting date.
IV) Other Accounting Policies:
A) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset as current when it is:
• Expected to be realized or intended to be sold or consumed in normal operating cycle,
• Held primarily for the purpose of trading,
• Expected to be realized within twelve months after the reporting period, or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
The classification of an asset either current or non-current has been made applying the criteria of realization of such assets within a period of 12 months after the reporting date.
Where assets have been fully provided for as doubtful, the same are classified as non-current.
A liability is current when:
• It is expected to be settled in normal operating cycle,
• It is held primarily for the purpose of trading,
• It is due to be settled within twelve months after the reporting period, or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Company classifies all other liabilities as non-current.
B) Foreign Currencies
The standalone financial statements are presented in Indian Rupees ('), which is also the Company's functional currency.
a. Transactions and Balances
Foreign Currency transactions are accounted at the rates prevailing on the date of transaction. Year-end monetary assets and liabilities are translated at the exchange rate prevailing on the date of the Balance sheet.
Exchange differences arising on settlement or translation of monetary items are recognized in Statement of Profit and loss for the period in which they arise, except for the following:-
♦ Exchange differences on Long term foreign currency borrowings relating to assets under construction for future productive use (i.e. Capital Work in progress), are included in the cost of those assets when they are regarded as an adjustment on account of interest costs on those foreign currency borrowings.
♦ Non-monetary items that are measured in terms of historical cost in foreign currencies are reported using the exchange rates at the date of the transaction.
C) Interest Income
For all debt instruments measured either at amortized cost or at fair value through other comprehensive income, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability.
For interest due from customers, vendor's etc. interest income is recognized when no significant uncertainty as to its realization exists and is accounted on time proportion basis at contracted rates.
D) Dividends
Dividend income is recognized when the Company's right to receive the payment is established.
E) Commission Income
For certain arrangements, Company acts as an agent. The role of the Company either as an agent or a principal is determined based on evaluation of its role as a primary obligor, has the pricing latitude in the said arrangements, its exposure to inventory risks and credit risks, on case to case basis. Commission income is recognized as per the terms of agreement when such amounts become entitled.
F) Others
Insurance and other miscellaneous claims are recognized on receipt/acceptance of claim.
Income from sale of Certified Emissions Reductions (CER's)/Voluntary Emissions Reductions (VER's)/ Renewable Energy Certificates (REC's) is recognized on delivery and confirmation of the same by the concerned authorities.
G) Company as a Lessor
Leases in which the Company does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental income from operating leases are recognised on straight line basis as per lease terms over the period of lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the lease asset and recognised over the lease term. Contingent rents are recognised as revenue in the period in which they are earned.
Leases are classified as finance leases when substantially all of the risks and rewards of ownership transfer from the Company to the lessee. Amounts due from lessees under finance leases are recorded as receivables at the Company's net investment in the leases.
Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease.
H) Non - Current Assets Held for Sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Also, such assets are classified as held for sale only if the management expects to complete the sale within one year from the date of classification.
I) Segment Reporting
The Company has recognized the following operating segments, viz Fertilizers, Industrial Chemicals and Trading, the business activities it is primarily engaged into. The same has been done based on the review of the operating results, internal reporting, review of performance, decision making relating to future allocation of resources, policy parameters influencing business etc. carried out by its Chief Operating Decision Maker i.e. Executive Management Committee/Board of Directors.
J) Prepaid Expenses
Individual expenses up to ' 1,00,000 is not considered in classifying prepaid expenses.
K) Research and Developments expenses
Revenue expenditure on Research activity is recognized separately and charged to Statement of Profit and Loss. Expenditure on development activities is capitalized when its future economic benefits can reasonably be regarded as assured.
L) Earnings per Share (EPS)
Basic earnings per share is calculated by dividing net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
Upon discontinuation of an operation the basic and diluted amount per share for the discontinued operation is separately reported, as applicable.
M) Cash Dividend
The Company recognizes a liability to make cash distributions to shareholders when the distribution is authorized and the same is no longer at the discretion of the Company. A corresponding amount is recognized directly in equity.
V) Exemptions applied
Ind AS101- First Time Adoption of Indian Accounting Standards, allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions.
Company has elected to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition measured as per Indian GAAP and use that as its deemed cost as at date of transition. The same is applicable even for Investment property, intangible assets and its investments in Joint venture, associates and subsidiaries.
Company has also reviewed the necessary adjustments required to be done in accordance with paragraph D21 this standard (i.e. adjustments arising on account of decommissioning or restoration liabilities) and has accordingly considered the impact of the same wherever applicable.
The Company has designated unquoted equity instruments held at 1 April 2015 as fair value through OCI.
VI) Recent Pronouncements:
There is no recent pronouncement/amendment with respect to Ind AS accounting standards requiring additional disclosures.
42.1.1 Includes an amount of ' 24.82 crores (P.Y. ' 24.82 crores) towards duty, interest and penalty relating to purchase of Naphtha at concessional rate of excise duty for the purposes other than mentioned in the exemption notification for the period November-1996 to October-2005. The demand for the period upto February-2005 for ' 21.28 crores (P.Y. ' 21.28 crores) has been appealed against by the Company and the matter is resting with the Honorable Supreme Court, which is yet to be heard. For the balance demand pertaining to subsequent period (i.e March 2005), amounting to ' 3.54 crore order has been stayed by CESTAT, which has been appealed by the department to High Court. Pending hearing, no provision is considered necessary.
42.1.2 Out of the above ' 36.73 crores, demand of ' 33.48 crore raised by Municipal Corporation of Greater Mumbai (BMC) towards additional sewerage charges levied from 05.04.1987 are disputed by the Company in a Writ Petition filed in Bombay High Court. The Honorable High Court vide its interim Order dated 10-11-92 has granted stay on recovery of the demand for the period up to the date of the Order and directed the Company to pay sewerage charges from the date of the order which is being paid by the Company. The matter has been disposed off by the High Court and the Company approached Supreme Court. Supreme Court has directed the Bombay High Court to hear the matter and decide on merits based on facts of the case. The Stay granted on the said matter continues.
As a part of an agreement entered into with BMC for obtaining raw sewerage, the Company has paid an interest free deposit of '16.00 crore to BMC representing approximately 50% of the disputed demand which would be adjustable against the disputed demand in case the Court rules in favor of BMC. No provision is considered necessary for the disputed demand of ' 33.48 crore as the claim of BMC is not tenable.
42.1.3 Owing to non-compliance of Corporate Governance requirements as mandated by SEBI, with reference to composition of Independent Directors in the Board, the Company is in receipt of notice of penalty aggregating to ' 0.78 crore (P.Y. ' 0.43 Crore) from the stock exchanges (BSE & NSE).Since the appointment of Directors is done by Government of India, the Company has approached its Administrative Ministry for ensuring the compliance and has also approached the stock exchanges for condonation/waiver of the penalty. The Company is confident that this penalty would be waived.
The Company is in receipt of notice of penalty aggregating to ' 0.01 crore (P.Y. ' 0.01 Crore) from the stock exchanges (BsE & NSE) for a period 07.03.2022 to 29.03.2022 for non-compliance of composition of the stakeholders relationship committee in line with Regulation 20 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Company has approached the stock exchanges for waiver of the penalty. Company is confident that this penalty would be waived.
42.2 The amount of claims in respect of legal cases filed against the Company for labour matters relating to regular employees and not acknowledged as debts is not ascertainable and hence no provision is made. However, with respect to matter relating to payment of overtime wages, a stay order has been obtained by the Company from High Court, pending disposal with submission of Bank guarantee amounting to ' 12.00 Crore.
42.3 In respect of clause 42.1 to 42.2 above, it is not practicable for the Company to estimate the closure of these issues and the consequential timing of cash flows, if any.
| WAGONS LEASED TO INDIAN RAILWAYS "UNDER OWN YOUR WAGONS SCHEME"
The lease agreement with Railways has expired in FY 2019-20 and is under renewal. As the wagons are still in the custody of Railways, Company has recognized income of ' 0.35 crore (P.Y ' 0.35 crore) for the period after completion of finance lease based on the minimum lease rentals expected to be negotiated with the Railways.
As the terms of lease are yet to be finalized the said transaction is now treated as Short-term Operating Lease.
45. Formalities relating to transfer of certain immovable and other properties situated at Trombay Unit, from Fertilizer Corporation of India Limited to the Company on reorganization of the former in 1978 are not yet completed. Out of property cards for a total area of 30,42,108 Sq. meters (P.Y. 30,42,108 Sq. meters), property cards for 3,75,826 Sq. meters (P.Y. 3,75,826 Sq. meters) are yet to be transferred in the name of the Company. The Company is in the process of obtaining transfer of title deeds in its favour.
Out of total area of 50,52,476 Sq. meters' area at Thal Unit, the title deeds relating to area of 32,27,573 Sq. meters (P.Y. 32,27,573 Sq. meters) area are in the name of the Company. The balance title deeds w.r.t 18,24,903 Sq meter of land are in the process of being transferred in the name of the Company. Freehold land at Thal Unit includes land at Kihim having carrying cost of ' 0.02 crore, pending execution of documents and transfer of title deeds in the name of the Company, due to dispute.
46. In respect of immovable properties other than land i.e. buildings and other structures, situated at its Trombay and Thal units they are self-constructed properties on the land owned by the Company as evidenced by property cards/title deeds of land.
The Company asserts that all these properties are its own and has clear title to the same since such properties are self-constructed on the Company's land, although no separate title documents for self-constructed properties are readily available. The Company has obtained opinion to that effect from the legal and regulatory experts on land matters and also has other documentary evidence in that regard.
The Company had come into existence in 1978 as a result of Government of India reorganizing Fertilizer Corporation of India Ltd. and National Fertilizers Ltd. Consequent to the same, major portion of immovable assets at its Trombay unit became vested with the Company. In case of Thal unit, such properties on the Company's land were erected over the years following land acquisition effected around 1978. Thus records pertaining to self-constructed properties are not readily available since they date back to more than 40 years. The Company has initiated the process of obtaining appropriate evidence of the approvals/permissions taken for construction of the self-constructed properties from the respective regulatory authorities.
47. Balance of subsidy receivables includes certain amounts receivable from Government recognized on estimated basis and are subject to confirmation.
48. In FY 2022-23, the Company was in receipt of debit note from Gail India Ltd. towards pooled price differential, worked out on an annual basis for the year 2021-22. As per the same, the Company is required to contribute additionally to the pool account. It has been observed that the differential has been arrived at by substituting EPMC gas meant for Urea Operations with cheaper market price gases specifically contracted by the Company for non-urea operations.
Similarly, as per Department of Fertilizer's (DoF) directives during the year 2022-23, the Company had sourced Spot gas for its urea operations in lieu of gas sourced under the EPMC mechanism which also has not been considered in the pool price and was substituted with cheaper market price gases specifically contracted by the Company for non-urea operations resulting in additional contribution to the pool account.
The Company is of the view that EPMC gas / Spot gas is specifically meant for urea operations and thus needs to be subsumed in arriving at the final pool price and the same should be considered in the subsidy of urea, since the cost of gas is a pass through. The matter has been represented to DoF.
As the non-recognition of such EPMC Gas / Spot gas sourced as per DoF's directives for Urea Operations is not in accordance with the principles of gas pooling mechanism, the Company has continued to recognize such differential i.e. (EPMC / Spot gas price - Cheaper market gas price) amounting to ' 80.57 crore cumulatively till March 2024 which has been shown as receivable from DoF.
49. The Company is eligible to receive subsidy from Fertilizer Industry Co-Ordination Committee (FICC) / Department of Fertilizers (DOF) on Urea, Phosphatic and Potassic (P & K) Fertilizers at the rates notified from time to time.
Subsidy is further adjusted for escalations/de-escalations in the cost of inputs and other costs, as estimated by the management based on the prescribed norms in line with known policy parameters. Accordingly, the subsidy adjusted on account of this escalations/de-escalations basis for the year amounts to ' 409.39 crore refundable to FICC/DOF (PY ' 114.53 crore refundable).
Upon introduction of Direct Benefit Transfer (DBT) schemes for all Fertilizer Companies, there is shift in procedure for generation of subsidy claims with respect to Price subsidy & disbursement thereon. As per the same, Company is entitled for generation of claims/receipt of subsidy on the basis of actual sale by the retailers on weekly basis through POS machines. Accordingly, as on 31.03.2024, quantity of 8.58 LMT of urea and P&K having subsidy amounting ' 2141.70 Crore has been recognized in the current period, as such quantity has been sold to dealers but the payment of the same will become due under DBT on actual sale by the retailers through POS machines. (P.Y quantity 5.77 LMT and subsidy ' 2288.95 crore).
50. The Company has undertaken production of Sulphur Coated Urea of 3791.72 MT for commercial purpose. Government of India has notified the Maximum Retail Price (MRP) which is on similar lines as that of Neem Coated Urea, however as the subsidy rates are yet to be notified, Company has estimated the subsidy income amounting to ' 10.81 crore based on the proportionate Nitrogen content of notified subsidy rates of Neem Coated Urea. The Company has approached DOF for notifying the subsidy of Sulphur Coated Urea.
51. Directives have been given to Fertilizer CPSE's by Department of Fertilizers (DOF) vide letter No F.21-01/2023-FM dated 21st September 2023 to ensure availability of Phosphatic and Potassic (P&K) fertilizers in Rabi 2023-24 and undertake such procurement on priority. The price adversity if any beyond applicable NBS Subsidy rates will be addressed by DOF to protect at no profit no loss basis. Accordingly based on the directives of DOF with assurance of protection of losses on such imports the Company has undertaken import of DAP and NPK fertilizers during the period October to March 2024. Further, DoF has directed for submission of the data duly audited by statutory auditor of the Company and approved by Board of Directors.
Accordingly pending submission of a duly audited claim, the Company has recognized compensation towards such differential which is over and above the notified NBS rates based on its estimates amounting to approximately ' 207.23 crore for the year in line with DOF's assurance.
52. On 20th and 22nd March, 2019 respectively, both the Gas Turbine Generator (GTG) plants at Thal unit stopped operating. Upon failure, the matter was taken up with the LSTK contractor who had supplied the turbines, for repair, as the same were covered under warranties. The matter was referred by the LSTK contractor for repairs to the Original Equipment Manufacturer (OEM) who had indicated a total estimated expenditure of about 98 Million SEK (' 74.51 crore excluding taxes and duties).
As the equipment's are covered under warranties, the Company is of the view that no additional costs would devolve on the Company. Further the Company had initiated arbitration proceedings towards the LSTK contractor citing loss of profits owing to higher energy costs, higher maintenance costs etc. In response, counterclaims have been made by the LSTK contractor and the award was received in favour of the Company. The LSTK contractor has challenged this award in High Court.
The LSTK contractor has deposited the amount as directed by the Court with Company. However in the event, the Petition is allowed and the award is set aside, either in whole or in part, by the Court, the Company is obligated, within 10 days from the date of such order, to refund the entire amount of ' 218.46 crore deposited by M/s Thermax Ltd or any other amount as may be directed by the Court along with interest @ 6% per annum or such other rate as may be directed by Court which has accrued from date of such deposit.
The recoverable amount of ' 5.55 crore PY (PY ' 5.13 crore) is based on value in use and is determined at the level of the CGU.
Higher raw material prices coupled with steep fall in realizations warranted in carrying out a review of the recoverable amount of the said plants and related equipment's resulting in provision towards impairment.
Key assumptions based on which recoverable amount is most sensitive.
The calculation of value in use for the identified CGU is most sensitive to the following assumptions.
1. Selling Prices
The extant selling prices are considered for forecasting cash flow estimates for arriving at the value in use. The selling prices are assumed to be kept constant in future year projections.
2. Discount Rate
Discount rate is estimated considering the entity's incremental borrowing rate which is arrived at considering the present debt structure etc.
3. Sales Quantity
The sales projections have been worked out considering the present demand scenario and the operating capacities of the plants.
4. Raw Material Prices - Considering current prices of raw materials.
The estimates of cash flows are done considering current raw material prices at the reporting date and the same are assumed to be remain constant in the future year projections as any increase in the same is expected to be passed on to the market.
54. Inventory includes stores and spares declared as surplus with further classification as disposable surplus. Since such surplus stores on disposal may not fetch full book value a suitable provision has been made. Consequent to full provision for impairment made in respect of plants referred in note no. 53, Company has also provided towards inventory of specific spares relating to the said plants. The value of such inventory and provision towards the same is as under: -
| EMPLOYEE BENEFITS:
General Description of Defined Benefit Plan
The required disclosure under Ind AS 19 Employee Benefits is given below.
1) Provident Fund: -
a) The Provident Fund contributions are made to a Trust administered by the Company. The interest rate payable to the members of the Trust shall not be lower than statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952.
During the year an amount of ' 14.49 crore (P.Y. ' 52.60 crore) has been charged off to statement of profit and loss towards contribution by the Company.
b) As per Ind AS 19 Employee Benefits, for Defined Benefit plans, the Company is required to ascertain the present value of the defined benefit obligation and compare with the fair value of the Plan assets to determine the surplus or deficit, if any, as at Balance Sheet date. Deficit, if any, needs to be accounted in the books of the Company. Accordingly, the Company had recognized a liability of ' 24.21 crore as at 31.03.2023. Upon review of fair value plan assets as compared to present value of the defined benefit obligation, the deficit stands reduced to ' 4.00 crore as at 31.03.2024 resulting in an reversal of provision amounting to ' 20.21 Crore during the year. (P.Y. ' 8.13 crore additional provision).
c) Provision on account of interest shortfall determined through actuarial valuation has been recognized amounting to ' 1.89 crore (PY ' Nil) in statement of Profit and Loss and ' 16.18 crore (PY ' 25.19 crore) in Other Comprehensive Income respectively.
The assumptions used in determining the present value of obligation of the interest rate guarantee under deterministic approach are:
separation from service, or retirement, whichever is earlier. The benefit vests after five years of continuous service. During the year, the charge on account of Gratuity to Statement of Profit and Loss (including other comprehensive income/expense) is ' 6.79 crore (PY ' 7.94 crore).
3) Leave Encashment: -
The Company has been accounting for provision on account of leave encashment on retirement based on actuarial valuation carried out as at the Balance Sheet date.
The liability for the leave encashment on retirement as at 31st March 2024 is ' 170.31 crore (P.Y. ' 175.04 crore).
4) Post-Retirement Medical Benefits: -
The Company has been accounting for provision on account of post-retirement medical benefits based on actuarial valuation carried out as at the Balance Sheet date. Employees of the company upon retirement/separation under Voluntary Retirement Scheme are entitled to medical benefits as per agreed upon scheme in force.
The liability for the Post-Retirement Medical Benefits on retirement as at 31st March 2024 is ' 145.85 crore (P.Y. ' 138.13 crore).
5) Long Term Service Award:
As a part of cordial relation and appreciation of long dedicated service, Company is honoring its employees with a memento on completion of 25/35 years of service.
General Description of Defined Contribution Plan
Contributory Superannuation Scheme:
The scheme is a defined contribution scheme. Employees are required to exercise their option to be a part of the scheme and make a contribution equivalent to the amount contributed by the Company to the fund, upon becoming the member of the scheme. Under the scheme the employee shall be eligible for pension at the time of superannuation from the Company which is as per Government of India guidelines. During the year, Company has recognized an expenditure of ' 17.84 crore (P.Y. ' 11.29 crore) as contribution towards the said scheme.
Gratuity & Post-Retirement Medical Benefits:
The following table shows the impact of actuarial valuation as recognized in the financial statements in respect of Gratuity and Post-retirement medical benefits.
| CONTINGENTASSETS:
a) As per the Arbitration award received in its favor for the compensation claimed in respect of surrender of land to Mumbai Metropolitan Regional Development Authority (MMRDA) on 23rd May, 2018, Company is eligible for compensation either in the form of cash / TDRs amounting to ' 75.17 crore along with interest over and above the entitled compensation as recommended by Arbitration award. Company has filed an execution application, however MMRDA has obtained stay against the same from Mumbai High Court subject to deposit of 25% of the disputed amount with the Court. MMRDA has deposited 25% of the disputed amount as directed by the Court and the Company has withdrawn the same amounting to ' 27.93 crores in F.Y.2020-21 upon submission of bank guarantees of equivalent amount in favour of the Court. The matter is yet to be heard.
b) Further, in respect to action initiated towards certain parties for recovery of its dues, the Company has filed Execution Petitions attaching properties in existence upon receipt of favorable orders from Court amounting to ' 0.63 crore (P.Y. ' 0.63 crore).
c) In accordance with MOU entered with DOF for Import of Urea, the Company is eligible for interest on delayed settlement of claims from DOF. Accordingly, Company has preferred interest claims amounting to ' 29.33 crore towards delay in settlement of balance 2% claims, however has not recognized income towards the same since the same is subject to verification and finalization from DOF.
| HEDGING ACTIVITIES AND DERIVATIVES
• Derivatives not designated as hedging instruments
The Company has foreign currency denominated borrowings in the nature of External Commercial borrowings (ECBs), Foreign Currency Term Loan (FCTL) for its long term requirements and Buyers Credit, Suppliers credit for meeting its short term fund requirement. The Company has a hedging policy in place to manage its foreign currency risk relating to these borrowings. The Company uses various products for hedging like Forex Forward Contracts, Forward Rate Agreements, Plain Vanilla Options (call option and put option), Seagull options, Interest Rate Swaps, Currency Swaps including Cross-Currency Swaps etc. The Company undertakes hedging through these products considering the tenor of the underlying instrument and the same are not designated as cash flow hedges.
| FAIR VALUES
The management has assessed that its financial assets and liabilities like cash and cash equivalents, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate the fair values for the given below financial assets.
• Unquoted Equity Shares of Indian Potash Limited
The fair values of the unquoted equity shares have been estimated using a DCF model. The Company avails the services of professional valuer's for valuation of the same and the fair values so reported are based on a valuation report received from an investment valuation expert.
• Investment in Mutual Fund
The fair values of investments in mutual fund units is based on the net asset value (NAV) as stated by the issuers of these mutual fund units in the published statements as at Balance Sheet date. NAV represents the price at which the issuer will issue further units of mutual fund and the price at which issuers will redeem such units from the investors.
The Company's principal financial liabilities, other than derivatives, comprise of loans and borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Company's operations and to provide guarantees to support operations of its joint ventures, if any.
The Company's principal financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations. The Company also holds FVTOCI investments and enters into derivative transactions.
The Company is exposed to market risk (including interest rate risk and currency risk), credit risk and liquidity risk. The Company seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures, the use of financial derivatives is governed by the Company's polices approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, use of financial hedging instruments.
The Company's management oversees these risks with the support of a Risk Management Committee that advises on financial risks and the appropriate financial risk governance framework for the Company. The Risk Management Committee provides assurance to the Company's management that the Company's financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company's policies and risk objectives.
All derivative activities for risk management purposes are carried out by designated officers who have the appropriate skills, experience and supervision. It is the Company's policy that no trading in derivatives for speculative purposes may be undertaken. These risks are summarized below:
• Interest Rate Risk:
Interest Rate Risk Management:
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 is exposed to interest rate risks because the Company 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. Hedging activities are evaluated regularly to align interest rate views and defined risk appetite, ensuring the most cost-effective hedging structures are applied and accordingly the Company enters into interest rate swaps.
Interest Rate Sensitivity Analysis:
The sensitivity analysis has been determined based on the exposure to interest rate risk on the long term borrowings outstanding as at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year with a 50 basis point increase or decrease. The detailed sensitivity analysis is given below:
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment.
Credit Risk:
Credit Risk Management:
Credit risk refers to the risk that 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 mitigation the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across diverse geographical areas for its fertilizers segment and across geographical areas and industries inrespect of its chemicals segment. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
The credit risk on liquid funds is limited because the counterparties are primarily Public and private Sector mutual funds and further the Company invests only in 100% debt oriented schemes of such funds. As regards
derivative financial instruments the same is also limited because the counterparties are banks whose operations are regulated by the Reserve Bank of India.
• 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: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. The Company's activities expose it's primarily to the financial risk of changes in foreign currency risk and interest rates risk.
• Liquidity risk
Liquidity risk management
Liquidity risk management refers to the management of the Company's short-term, medium-term and long-term funding and liquidity management requirements. 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 following table details the Company's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period.
Foreign Currency Risk:
The Company undertakes transactions denominated in foreign currencies, consequently, exposure to exchange rate fluctuations arise. The Company has a Board approved Hedging Policy in place entailing parameters for hedging its foreign currency exposures completely before their maturities. The Company manages its exchange rate exposures within the approved parameters of the hedging policy through various derivative instruments such as options, swaps etc.
Foreign Currency Sensitivity Analysis:
The Company is mainly exposed to the currency of USD and EUR. The following table details the Company's sensitivity to a 5% increase and decrease in the INR as against the USD/EUR. The sensitivity analysis includes only outstanding foreign currency denominated monetary items i.e. loans in foreign currency and adjusts their translation at the period end for a 5% change in foreign currency rates. A positive number indicates an increase in profit or equity where the INR strengthens 5% against USD/EUR. For a 5% weakening of INR as against USD/EUR, there would be a comparable impact on the profit or equity, and the number would be negative.
For the purpose of the Company's Capital management, capital includes equity capital and all other reserves. The primary objective of the Company's capital management is to maximize the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. The Company, for its capex requirement, borrows to the extent of 70% of the requirement and the remaining 30% shall be sourced from the internal accruals. Further, the Company, being a
Public sector undertaking, is governed by the guidelines of the Department of Investment & Public Asset Management (DIPAM), which specifies the minimum percentage of dividend that can be declared. Accordingly, the Company has to manage its capex in such a way that the minimum dividend payout as stipulated is met. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt.
Gearing Ratio:
In order to achieve this overall objective, the Company's capital management, amongst other things, aims to ensure that its meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in financial covenants of any interest-bearing loans and borrowings in the currency period.
No changes have been made in the objectives, policies and processes for managing capital during the years ended 31st March 2024 & 31st March 2023.
| DISCLOSURES RELATING TO BORROWINGS AVAILED AGAINST SECURITY OF CURRENT ASSETS
Quarterly returns of current assets filed by the company with banks and financial institutions are in agreement with books of accounts.
82. The Company has not been declared willful defaulter by any bank or financial institution or any other lender.
83. There are no material transactions with respect to struck off companies as mentioned under section 248 of the Companies Act, 2013 or section 560 of the Companies Act, 1956.
84. The Company does not have any charges or satisfaction of charges which are yet to be registered with ROC beyond the statutory period.
85. Provision regarding the number of layers prescribed under Section of Section 2 (87) of the Act read with the Companies (Restriction on number of layers) Rules, 2017 is not applicable.
86. The Company does not have any transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of Income Tax Act, 1961).
87. The Company has not traded or invested in crypto currency or virtual currency during the respective financial year/period.
88. The Company does not have any scheme of arrangements which have been approved by the Competent Authority in terms of Section 230 to 237 of the Companies Act, 2013.
89. The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (intermediaries) with the understanding that the intermediary shall:
a. Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or
b. Provide any guarantee, security or like to or on behalf of the Ultimate Beneficiaries.
90. The Company has not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Company shall:
a. Directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the funding party (Ultimate Beneficiaries) or
b. Provide any guarantee, security or the like on the behalf of the Ultimate Beneficiaries.
95. Events occurring after the Balance sheet date
Board of Directors have recommended a final dividend of ' 1.24 per equity share of ' 10/- each (P.Y. ' 3.70 per equity share of '10/- each) i.e. 12.40 % on paid up equity share capital of the Company for the financial year 2023-24 which is subject to approval of Shareholders of the Company.
For and on behalf of the Board of Directors As per our report of even date attached
RASHTRIYA CHEMICALS AND FERTILIZERS LIMITED For K. GOPAL RAO & CO. For PARAKH & CO.
Chartered Accountants Chartered Accountants
Firm Regn. No. 000956S Firm Regn. No. 001475C
(S. C. Mudgerikar) (Gopal Krishna Raju) (Shalabh Jain)
Chairman & Managing Director Partner Partner
DIN : 03498837 Membership No: 205929 Membership No: 441015
(Nazhat Shaikh)
Director (Finance) Dated : 17th May, 2024.
DIN : 07348075 Place: Mumbai
(J. B. Sharma)
Company Secretary Membership No: FCS5030
Dated : 17th May, 2024.
Place: Mumbai
|