MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our Restated Financial Information on page 295. Unless otherwise indicated or the context otherwise requires, the financial information for Fiscals 2022, 2023 (standalone) and 2024 (consolidated) included herein is derived from the Restated Financial Statements, included in this Red Herring Prospectus, which have been derived from our audited financial statements and restated in accordance with the SEBI ICDR Regulations and the Guidance Notes on Reports in Company Prospectuses (Revised 2019) issued by the ICAI, as amended from time to time, which differ in certain material respects from IFRS, U.S. GAAP and GAAP in other countries. For further information, see "Financial Information " on page 295.
The consolidated financial information for Fiscal 2024 are not directly comparable with the standalone financial information for Fiscals 2022 and 2023 given that we did not have any subsidiary in such prior periods. Further, unless otherwise indicated or the context otherwise requires, all operational information included herein for Fiscals 2022 and 2023 is on standalone basis and the Fiscal 2024 is on a consolidated basis. For further information, see "Restated Financial Information " on page 295.
Unless the context otherwise requires, in this section, references to "our Company", "the Company", "we", "us" and "our" refer to Tolins Tyres Limited.
Unless otherwise indicated, industry and market data used in this section has been derived from the industry report titled "The tyre and treads industry in India " released in August 2024 prepared by CRISIL MI&A, which has been commissioned by and paid for by our Company pursuant to an engagement letter with CRISIL dated September 28, 2023, and consent letter dated August 10, 2024 exclusively for the purposes of the Offer. A copy of the Company Commissioned CRISIL Report is available on the website of our Company at www.tolinstyres.com. The data included herein includes excerpts from the Company Commissioned CRISIL Report and may have been re-ordered by us for the purposes ofpresentation. There are no parts, data or information (which may be relevant for the proposed Offer), that has been left out or changed in any manner. Unless otherwise indicated, financial, operational, industry and other related information derivedfrom the Company Commissioned CRISIL Report and included herein with respect to any particular year refers to such information for the relevant calendar year. For more information, see "Risk Factors - Industry information included in this Red Herring Prospectus has been derived from an industry report prepared by CRISIL Limited exclusively commissioned and paid for by us for such purpose. " on page 77. Also see, "Certain Conventions, Use of Financial Information and Market Data and Currency of Presentation - Industry and Market Data " on page 19.
OVERVIEW
We are one of the leading players in the industry with all India presence with a diverse product range. We are one of the companies that are present in both verticals - manufacturing of new tyres and tread rubber. Our Company has established itself as a major tyre retreading solutions provider across India and exported to 40 foreign countries, including the Middle East, East Africa, Jordan, Kenya and Egypt. The major products of the Company include two-wheeler, three- wheelers, light commercial vehicle and agricultural tyres, precured tread rubber and other accessories including bonding gum, tyre flap, vulcanizing solutions, etc. (Source: Company Commissioned CRISIL Report).
We are primarily engaged in manufacturing of bias tyres for comprehensive array of vehicles (including light commercial, agricultural and two/three-wheeler vehicles) and precured tread rubber and are also involved in manufacturing of ancillary products like bonding gum, vulcanizing solution, tyre flaps and tubes. We commenced operations in 1982 as a proprietorship concern for manufacture of tread rubber. We incorporated this Company in the year 2003 and commenced production and sales in the year 2005 and since then have been one of the players for retreading products manufacturing owing to our excellence and innovation in the industry. We are a profitable growing company in the retreading and tyre manufacturing space and our Profit after Tax has grown at a CAGR of 541.98% between Fiscal 2022 (on a standalone basis) and Fiscal 2024 (on a consolidated basis). Over the years, we have expanded our manufacturing capabilities through infusion of capital from the Promoters, in addition to growing our dealers and distribution network. With over four decades of experience, we rely on our product development capabilities to design and deliver proprietary products such as precured tread rubber and bias tyres that are market fit.
Under the "Tolins Tyres" brand, we market and sell tyres for use in light commercial vehicles, agricultural vehicles and two/three-wheeler vehicles, primarily in India and export to the Middle East, the ASEAN region, and Africa. The Company has established itself as a major tyre retreading solutions provider across India and exported to 40 foreign countries, including the Middle East, East Africa, Jordan, Kenya and Egypt. (Source: Company Commissioned CRISIS Report).
Currently our Company caters to all three segments of market viz. exports, domestic sales and Original Equipment manufacturers ("OEMs") like, Marangoni GRP, Kerala Agro Machinery Corporation Ltd (KAMCO), Redlands Motors, Tyre Grip etc. Further, we sell our products through dealership network and our depots. We have a widespread customer base with our domestic customer base situated in most of the regions of the country and our international customers situated across varied countries covering Middle East, the ASEAN region and Africa. We have been recognized by our customers for the high-quality of the products supplied by us, which is one of the factors that has helped us establish long term relationships with them.
We are backward integrated with raw materials, design, process engineering, casting and machining capabilities which allows us greater control over process, timelines, pricing and quality. We believe that our in-house design capabilities have been instrumental in our success by allowing us to work closely with customers for design and development of high performance and durable products. For our products, we are also forward integrated with a network of sales channels through our depot and dealers across key states in India. As on March 31, 2024, we have a total of 8 depots and 3,737 dealers across the country.
Our competitive strengths lie in our operational efficiency, ensuring timely delivery, stringent quality control, and product innovations. We believe in a customer centric business model and endeavour to supply customised products to meet our customers demands. These factors have been instrumental in cultivating enduring relationships with our OEM customers, fostering both operational expansion and geographical penetration including exports. Anticipating that our quality management systems will sustain system-driven efficiency, we are poised for increased revenues and profitability. Needless to say, each of our product category is BIS (ISI certification required for Tyres) approved and almost all required sizes have got BIS product certification, which is mandatory for manufacturing and marketing Tyres in India.
We operate from three Manufacturing Facilities out of which two are located at Mattoor in Kalady, Kerala and the third one is located in Al Hamra Industrial Zone in Ras Al Khaimah in UAE. Our Companys manufacturing facility is spread over approximately 8.99 acres covering approximate built-up area of 126,488 square feet for end-to-end manufacturing of tyres and tread rubber including an in-house design development, production and quality testing at various levels in processes from receiving of raw material to final products. Our other facility in India is situated within the same premise and is spread over 2.21 acres covering an approximate built-up area of 64,537 square feet and is engaged in manufacturing complete compound mixing which is used by our Company as a raw material to manufacture our products. Our facility in Ras Al Khaimah, UAE is spread over approximately 2.47 acres with a built-up area of 30,189 square feet and is used for manufacture of tread rubber, bonding gum and warehousing of tyres. The location of our facilities in India is strategically close to the raw material source of natural rubber and infrastructure such as airports, seaports and national road network which gives us a competitive edge to address the market requirements. Currently, we have a consolidated capacity of 1.51 million tyre manufacturing, 12,486 tons tread rubber manufacturing capacity and 17,160 tons of rubber compound across our Company and its wholly owned subsidiaries.
Our Chairman and Managing Director, Dr. Kalamparambil Varkey Tolin, has been an integral part in the establishment and growth of our Company and with over three decades of experience in the rubber, tread rubber and tyre manufacturing industry, he has been instrumental in our continued growth. Our Senior Management Personnel of the Company have also been associated with us and have contributed to the growth of the Company through their commitment and expertise. We believe our experienced and dedicated senior management team have demonstrated ability to anticipate and capitalize on changing market trends, formulate and execute business strategies which enables us to manage and grow our operations and & deepen customer relationships.
Our key performance indicators for the last three Fiscals, i.e. 2024, 2023 and 2022 are as follows:
(Rs. in million unless otherwise stated) |
|||
| Key Performance Indicators | Fiscal | ||
| 2024 | 2023 | 2022 | |
| Consolidated | Standalone | Standalone | |
| Revenue from Operations1-1-1 | 2,272.18 | 1,182.46 | 1,133.65 |
| Gross Profit-2- | 630.74 | 236.82 | 184.62 |
| Gross Margin (%)(3) | 27.76% | 20.03% | 16.29% |
| EBITDA(4) | 463.74 | 122.61 | 60.90 |
| EBITDA Margin (%)(5) | 20.41% | 10.37% | 5.37% |
| PAT(6) | 260.06 | 49.92 | 6.31 |
| PAT Margin (%)(7) | 11.45% | 4.22% | 0.56% |
| Return on Equity (%)(8) | 25.87% | 25.70% | 5.83% |
| Return on Capital Employed (%)(9) | 36.08% | 31.49% | 14.80% |
| Debt-Equity Ratio(10) | 0.78 | 2.42 | 4.51 |
Notes:
1. Revenue from operations is calculated as revenue from sale ofproducts as per the Restated Financial Information.
2. Gross Profit is calculated as Revenues from operations less cost of goods sold, whereas cost of goods sold is calculated as sum of cost of raw material consumed, Purchase stock in trade and changes in inventories offinished goods, stock-intrade, and work-in-progress as per the Restated Financial Information.
3. Gross margin is calculated as a percentage ofgross profit divided by revenue from operations.
4. EBITDA is calculated as restated profit before tax, extraordinary and exceptional items plus finance costs, depreciation and amortisation expense minus other income.
5. EBITDA margin is calculated as a percentage of EBITDA divided by revenue from operations as per the Restated Financial Information.
6. PAT represents total profit for the year as per the Restated Financial Information.
7. PAT margin is calculated as a percentage of PAT divided by revenue from operations as per the Restated Financial Information.
8. Return on Equity (ROE%) is calculated as a percentage of PAT divided by Total Equity at the end of the year as per the Restated Financial Information, whereas Total equity is calculated as sum of equity share capital, other equity, Instrument entirely in the nature of equity, net of non-controlling interest.
9. Return on Capital Employed (ROCE%) is calculated as a percentage of Earnings before interest and Taxes/Total Assets minus Current Liabilities as per the Restated Financial Information. EBIT is calculated as restated profit before tax plus interest expense on borrowings minus other income.
10. Debt-Equity Ratio is calculated as Total Borrowing is divided by Total Equity.
Set out below are our revenues from operations from our Restated Financial Information during the last three Fiscals, i.e. 2024, 2023 and 2022, are as follows:
(Rs. in million) |
||||||
| Particulars | For the year ended March 31 |
|||||
2024 (Consolidated) |
2023 (Standalone) |
2022 (Standalone) |
||||
| Amount | Percentage of Revenue from operations (%) | Amount | Percentage of Revenue from operations (%) | Amount | Percentage of Revenue from operations (%) | |
| Tyres | 551.22 | 24.26% | 247.92 | 20.97% | 194.02 | 17.11% |
| Tread Rubber | 1,720.96 | 75.74% | 934.54 | 79.03% | 939.63 | 82.89% |
| Total | 2,272.18 | 100.00% | 1,182.46 | 100.00% | 1,133.65 | 100.00% |
Notes:
1. Tyres includes all types of tyres, tubes and flaps.
2. Tread rubber includespre cured tread rubber, conventional tread rubber, bonding gum, vulcanizing solutions and other ancillary product including rope rubber.
SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our results of operations have been, and will continue to be, affected by a number of events and actions, some of which are beyond our control. However, there are some specific items that we believe have impacted our results of operations and, in some cases, will continue to impact our results. We believe that the following factors, amongst others, have, or could have, an impact on these results, the manner in which we generate income and incur the expenses associated with generating this income.
Maintaining our customer relationships
Our customers typically have specific requirements, and we believe that our continued relationships with our customers plays a significant role in determining our continued success and results of operations.
We are one of the leading players in the industry with all India presence with a diverse product range.
We are one of the companies that are present in both verticals - manufacturing of new tyres and tread rubber. (Source: Company Commissioned CRISIL Report). We primarily cater to the requirements of the domestic markets in tyres and tread rubber industry. Our customers include domestic and international OEMs, private companies and public sector transport undertakings of State government in India across different product offering by us. We have strong and long-established relationships with most of our customers.
The demand for our products from our customers has a significant impact on our results of operations and financial condition and our sales are particularly affected by the inventory and sales levels of our key customers. In the event that we lose one or more of our key customers or if the amount of business we receive from them is reduced for any reason, our cash flows and results of operations may be affected.
Our supply arrangements with our customers also require us to meet certain standards and performance obligations and our failure to meet such specifications could result in a reduction of business from them, termination of contracts or additional costs and penalties, all of which may adversely impact our results of operations and financial condition.
Indian GDP forecast on economy:
Despite slowdown in the near term, Indias economy is expected to outperform over the medium run. CRISIL MI&A expects domestic GDP growth to average 6.8% between fiscals 2025 and 2029 vs 3.2% globally, as estimated by the IMF. (Source: Company Commissioned CRISIL Report)
Key drivers of Indias growth
• Capital will continue to be the biggest contributor to growth. However, as the government pursues fiscal consolidation, its role in boosting overall capex will partly diminish compared with the past few years.
• Also, strong domestic demand is expected to drive Indias growth over peer economies in the medium term.
• Investment prospects are optimistic, given the governments capex push, progress of the Production Linked Incentive (PLI) scheme, healthier corporate balance sheets, and a well-capitalised banking sector with low non-performing assets.
• India is also likely to benefit from its diversification of the supply chain for incoming FDI flows, as global supply chains get reconfigured with focus shifting from efficiency towards resilience and friend shoring.
• Further, rising employment and notable increase in private consumption, buoyed by growing consumer confidence, are poised to drive GDP growth in the coming months.
• The governments future capex is expected to be supported by tax buoyancy, simplified tax structures with lower rates, reassessment of the tariff structures and digitalisation of the tax filing process.
• Medium-term growth is anticipated to be bolstered by increased capital spending on infrastructure and asset development projects, thereby translating into enhanced growth multipliers.
(Company Commissioned CRISIL Report)
Tyre exports of India
Tyre exports from India have seen flat growth this year. The global economys challenges from recessionary conditions, rising interest rates, political upheaval, and a weakening of external demand impacted the growth momentum of Indian tyre exports.
CRISIL MI&A forecasts overall tyre exports to increase by 7-9% in fiscal 2029, with the two-wheeler tyre segment leading the growth. Indian two-wheeler OEMs strong market presence in African and Latin American countries, along with the enhanced reputation of Indian tyre brands, will support this expansion. However, exports in other segments are likely to decline due to decreased demand from advanced economies in Europe and America.
Indias tyre exports declined to Rs. 23,075 crore in fiscal 2024 from Rs. 23,125 crore in fiscal 2023.
In fiscal 2024, the top export markets for Indian tyres were the US, Germany, Brazil, Italy, UAE, France, Philippines, Netherland, UK, Bangladesh, and Canada. The US continues to be the largest market for Indian tyres, accounting for 18% of the total tyres exported from the country during the year.
Increased performance and better durability at affordable prices in addition to China de-risking strategy adopted by companies across the globe bodes well for increasing tyre exports from India. The presence of multiple manufacturing units of Indian OEMs outside the country is increasing traction for Indian tyres in global markets as well.
The competitive performance and affordability of Indian tyres, combined with the global shift towards diversifying supply chains away from China, have positively impacted export growth. The establishment of manufacturing units by Indian OEMs abroad is also boosting the acceptance of Indian tyres in international markets. Moreover, increased investments in technology and innovation are expected to further solidify the position of Indian tyre manufacturers globally.
Region-wise tyre exports from India
| (Rs. in Lakhs) | |||||||
| Region | FY18 | FY19 | FY20 | FY21 | FY22 | FY23 | FY24 |
| Europe | 3,74,585 | 4,25,153 | 4,00,776 | 5,15,249 | 7,73,320 | 7,53,342 | 7,92,730 |
| North America | 1,65,130 | 2,18,533 | 2,33,893 | 2,73,402 | 4,37,837 | 5,65,085 | 4,85,033 |
| Asia | 2,44,286 | 2,71,070 | 2,58,630 | 2,35,257 | 3,18,347 | 3,20,104 | 3,27,817 |
| Latin America | 1,03,433 | 1,05,548 | 1,11,330 | 1,16,090 | 2,20,146 | 2,59,008 | 2,48,394 |
| Middle East | 1,09,376 | 1,26,367 | 1,42,978 | 1,26,369 | 1,74,598 | 2,22,016 | 2,30,164 |
| Africa | 96,783 | 1,12,892 | 1,13,018 | 1,12,771 | 1,54,885 | 1,49,469 | 1,72,481 |
| Others | 24,365 | 29,324 | 23,749 | 30,935 | 38,783 | 43,469 | 50,675 |
Source: ATMA, CRISIL MI&A Consulting
Our future growth also depends on penetrating new international markets as well as remaining a key supplier to strategic sectors, adapting existing products to new applications, and introducing new products that achieve market acceptance.
Changes in applicable regulations have had and may have an impact on our business and results of operations. Our results of operations have been favourably impacted by the Governments initiatives. We believe that this policy will provide a significant boost to indigenous manufacturing companies with design and manufacturing capabilities and we are positioned through vertical integration of the business model to take full benefit of the same. We believe this represents a significant opportunity for growth as we expand our products and solutions portfolio to designing, developing and/or manufacturing new products and solutions, which in turn will enable us to establish new customer bases and penetrate new geographies.
Availability and cost of raw materials
Our primary raw materials are Natural rubber, synthetic rubber, carbon black, tyre cord fabric and chemicals. The following table sets out certain information about our purchases of raw materials expenditure in Fiscal 2024 (on a consolidated basis), Fiscals 2023 and 2022 (on a standalone basis) respectively.
(t in million) |
||||||
Fiscal |
||||||
2024 |
2023 |
2022 |
||||
(Consolidated) |
(Standalone) |
(Standalone) |
||||
| Description | Amount ( Rs. million) | Percentage to Total | Amount ( Rs. million) | Percentage to Total | Amount ( Rs. million) | Percentage to Total |
| Purchases | Purchases | Purchases | ||||
| (%) | (%) | (%) | ||||
| Raw Materials | 1,934.01 | 96.10% | 1,060.43 | 97.28% | 1,000.19 | 97.10% |
| Consumables | 10.88 | 0.54% | 6.47 | 0.59% | 6.36 | 0.62% |
| Packing Materials | 2.86 | 0.14% | 4.88 | 0.45% | 5.43 | 0.53% |
| Fuel | 64.71 | 3.22% | 18.28 | 1.68% | 18.09 | 1.76% |
| Total Purchases | 2,012.46 | 100.00% | 1,090.06 | 100.00% | 1,030.07 | 100.00% |
The tyre manufacturing industry is exposed to challenges associated with a limited number of suppliers for certain critical raw materials, such as natural and synthetic rubber, carbon black, tyre cord fabric, steel cord, and various chemical additives. Our major suppliers include, Birla Carbon India Private Limited, Epsilon Cardon Private Limited, Hindustan Petroleum Limited, Madura Coats Limited and POCL Enterprises Limited.
We have from time-to-time experienced cost fluctuations of our primary raw materials, particularly in the aforementioned components due to volatility in commodity markets. Since the selling price of our products are affected by the prices of our primary raw materials, fluctuations in the prices of these raw materials and an inability to pass on the cost increase to our customers could negatively affect our operating results.
This allows us to factor in the costs of the raw materials when we enter into any sales contracts and accordingly pass on any increase in the prices of raw materials to our customers. For most of our other suppliers with whom we do not have such pricing windows, we tend to submit purchase orders for raw materials back-to-back at or around the same time as we receive orders from customers, to help minimize our open raw material positions.
We typically pay in advance to our suppliers for procuring raw materials. However, shortage in supply positions in the domestic and global market could be a risk in scheduling our delivery timings and hence pose a business risk considering that the raw materials required for our business is basically a long lead time frame oriented. Shortage in supply of raw materials we use in our business may result in an increase in the price of the products. An increase in raw material prices could result in a reduction of our profit margins.
Our results of operations may be impacted by our ability to formulate and adjust business strategies in accordance with market demand as influenced by changing dynamics on supply in the competitive landscape.
Design and development of new products
Our business model going forward will be dependent on our ability to successfully conduct design and development with respect to new products. However, this process is both time consuming and costly, and involves a high degree of business risk. To develop new products, we are required to commit substantial time, funds and other resources.
Our investments in design and development for new products could result in higher costs without a proportionate increase in our revenues.
In addition, we must adapt to rapid changes in our industry due to technological advances. The cost of implementing new technologies, upgrading our Manufacturing Facilities and recruiting design staff could be significant and could adversely affect our profitability if commensurate revenue is not generated from the new design efforts.
Expansion of business verticals and operations
Our Manufacturing Facilities on a consolidated basis covers an area of 221,214 square feet facility situated in Kalady, Ernakulam, Kerala in India and in Ras Al Khaimah, UAE dedicated for tyre and precured tread manufacturing.
We believe our investment in infrastructure and capacity build up will enable us to cater to the growing demand from our customers and enhance our product portfolio, which in turn is expected to result in an increase in our revenue and profits.
While we continue to integrate our business model, we intend to evaluate and selectively pursue strategic investment and acquisition opportunities across the advanced technology platform products to supplement and complement our existing services and strategies when such opportunities arise. The actual deployment of funds will depend on a number of factors, including the timing, nature, size of acquisitions to be undertaken, as well as general factors affecting our results of operation, financial condition and access to capital.
These factors will also determine the form of investment for these potential acquisitions. Going forward, our acquisition plans may be affected by delays, cancellations, renegotiations of the contracts as well as the long gestation period in implementing the plan and concluding such contracts, if any, which may affect our business positioning and financial results.
Cost and availability of skilled manpower
We require the application of skilled manpower at key stages of engineering and manufacturing processes. We have therefore, been focused on the recruitment, training and retention of a skilled employee base. As at March 31, 2024, we have 201 employees on a consolidated basis comprising of 40 permanent employees and 161 contract employees who look after our business operations, factory management, administrative, secretarial, legal, marketing and accounting functions in accordance with their respective designated goals. We believe that our Companys growth and work environment combined with our employee satisfaction rate has allowed us to attract talent. In addition, the presence of varied profiles available in our organization coupled with high growth potential facilitates higher retention of employees. If there are any labour shortages, it could increase our production cost and hinder our productivity and ability to meet customers delivery schedules, any or all of which may have an adverse impact on our results of operations.
PRESENTATION OF FINANCIAL INFORMATION
Our Restated Financial Information for March 31, 2024 (consolidated basis) and as at for the financial year ended March 31, 2023 and March 31, 2022 (standalone basis) and the restated summary statements of profit and loss (including other comprehensive income), cash flows and changes in equity March 31, 2024 (consolidated basis) and as at for the financial year ended March 31, 2023 and March 31, 2022 (standalone basis) together with the summary of significant accounting policies and explanatory information thereon (collectively, the "Restated Financial Information"), prepared in accordance with the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Companies Act, 2013, read with Companies (Indian Accounting Standards) Rules, 2015 (as amended) and other relevant provisions of the Act.
The Restated Financial Information have been derived from our audited financial statements for the financial year ended March 31, 2024 (consolidated) prepared in accordance with AS 25 and as at and for the financial year ended March 31, 2023 and March 31, 2022 prepared in accordance with Indian GAAP, and is reclassified/ remeasured to Ind-AS, by preparing Ind-AS financial statements and further restated in accordance with the SEBI ICDR Regulations and the Guidance Note on Reports in Company Prospectuses (Revised 2019) issued by the Institute of Chartered Accountants of India, as amended.
The consolidated financial information March 31, 2024 is not directly comparable with the standalone financial information for Fiscals 2023 and 2022 given that we did not have any subsidiary in such prior periods. Further, unless otherwise indicated or the context otherwise requires, all operational information included herein for Fiscals 2023 and 2022 is on a standalone basis, while all such information for Fiscal 2024 is on a consolidated basis.
TRANSITION FROM INDIAN GAAP TO IND AS FINANCIAL INFORMATION
Our company has adopted Ind AS for the preparation of financial information for the financial year beginning from April 1, 2022. The audited financial statements for the financial year ended March 31, 2024 (consolidated and standalone basis) and for the financial year ended March 31, 2023 and March 31, 2022 (standalone basis) were prepared in accordance with Indian GAAP and the same have been converted into Ind AS by our management to align accounting policies, exemptions and disclosures as adopted by our Company for the transition to Ind AS in the context of the preparation for the financial year ended March 31, 2024 (consolidated and standalone basis) and for the financial year ended March 31, 2023 and March 31, 2022 (standalone basis) to Restated Ind AS summary of financial information. In preparing these financial information, our companys opening balance sheet was prepared as at April 1, 2022, our Companys date of transition to Ind AS. In preparing the restated Ind AS summary financial information for the financial year ended March 31, 2024, 2023 and March 31, 2022, our Company prepared opening balance sheet as at April 1, 2022, being the date of transition to Ind AS. For further information, see the chapter titled "Restated Financial Information " beginning on page 295 of this Red Herring Prospectus.
Ind AS differs in certain material respects from Indian GAAP, IFRS and U.S. GAAP. Accordingly, the degree to which our financial information will provide meaningful information to a prospective investor in countries other than India is entirely dependent on the readers level of familiarity with Ind AS. As a result, the Restated Financial Information Statements may not be comparable to our historical financial statements. For Reconciliation of Indian GAAP to Ind AS please refer Note 40 pertaining to reconciliation between Indian GAAP and Ind AS in the chapter titled "Restated Financial Statements" beginning on page 295 of this Draft Red Herring Prospectus.
NON-GAAP MEASURES
Earnings before Interest, Taxes, Depreciation and Amortization Expenses ("EBITDA")/ EBITDA Margin
EBITDA presented in this Draft Red Herring Prospectus is a supplemental measure of our performance and liquidity that is not required by, or presented in accordance with, Ind AS, Indian GAAP, IFRS or US GAAP. Further, EBITDA is not a measurement of our financial performance or liquidity under Ind AS, Indian GAAP, IFRS or US GAAP and should not be considered in isolation or construed as an alternative to cash flows, profit/ (loss) for the years/period or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities derived in accordance with Ind AS, Indian GAAP, IFRS or US GAAP. In addition, EBITDA is not a standardised term; hence a direct comparison of EBITDA between companies may not be possible. Other companies may calculate EBITDA differently from us, limiting its usefulness as a comparative measure. Although EBITDA is not a measure of performance calculated in accordance with applicable accounting standards, our Companys management believes that it is useful to an investor in evaluating us because it is a widely used measure to evaluate a companys operating performance.
Reconciliation of EBITDA and EBITDA Margin to Profit for the Year
The table below reconciles profit for the period/year to EBITDA. EBITDA is calculated as profit before exceptional items and tax, plus finance costs, depreciation and amortization expenses plus net loss on foreign currency translation, while EBITDA Margin is the percentage of EBITDA divided by total income.
| (^ in million) | |||
For the year ended March 31 |
|||
| Particulars | 2024 | 2023 | 2022 |
| (Consolidated) | (Standalone) | (Standalone) | |
| Profit before exceptional items and tax | 328.98 | 70.27 | 8.54 |
| Adjustments: | |||
| Add: Finance Costs | 115.80 | 50.52 | 42.96 |
| Add: Depreciation and Amortization expense | 33.71 | 16.14 | 19.62 |
| Less: Other Income | (14.75) | (14.33) | (10.21) |
| Earnings before interest, taxes, depreciation and amortization expenses (EBITDA) (A) | 463.74 | 122.60 | 60.91 |
| Revenue from Operations (B) | 2,272.18 | 1,182.46 | 1,133.65 |
| EBDITA Margin (EBIDTA as a percentage of Revenue of Operations) (A/B) | 20.41% | 10.37% | 5.37% |
1 Corporate Information:
Tolins Tyres Limited (Formerly known as Tolins Tyres Private Limited) (the Holding Company together with its subsidiaries hereafter refer to as the "Group") is a public limited company domiciled and incorporated in India under the Companies Act, 1956 vide CIN No. U25119KL2003PLC016289 and incorporated on July 10, 2003. The registered office of the Company is located at No. 1/47, MC Road, Kalady, Ernakulam, Kerala - 683 574 India. The Group is primarily engaged in the manufacture of rubber tyres for various vehicle.
Pursuant to a special resolution passed in the extraordinary general meeting of the shareholders of the Company held on January 1, 2024, the Company has converted from a Private Limited Company to a Public Limited Company and consequently, name of the Company has changed to Tolins Tyres Limited pursuant to fresh certificate of incorporation issued by ROC on January 26, 2024.
2 Material Accounting Policy:
This note provides a list of the material accounting policies adopted in the preparation of these Financial Information. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation and presentation of Restated Summary Financial Information:
i. Basis of preparation
a) The Restated Summary Financial Information of the Group comprising of the Restated Consolidated Summary
Statement of Assets and Liabilities as at March 31, 2024 and Restated Standalone Summary Statement of
Assets and Liabilities for the Financial Year as at March 31, 2023 and March 31, 2022, the Restated Consolidated Summary Statements of Profit and Loss (including other comprehensive income) as at March 31, 2024 and Restated Standalone Summary Statement of Profit and Loss (including other comprehensive income the Financial Year ended March 31, 2023 and March 31, 2022 the Restated Consolidated Summary Statement of Changes in Equity, the Restated Summary Cash Flow Statement for the as at March 31, 2024 and Restated Standalone Summary Statement of Changes in Equity, the Restated Summary Cash Flow Statement for the Financial Year ended March 31, 2023 and March 31, 2022, the Summary Statement of Material Accounting Policy information, and other explanatory information (collectively, the "Restated Summary Financial Information" or "Restated Summary Financial Statements").
b) These Statements have been prepared by the Management as required under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended from time to time, issued by the Securities and Exchange Board of India ("SEBI") on September 11, 2018, in pursuance of the Securities and Exchange Board of India Act, 1992 ("ICDR Regulations") for the purpose of inclusion in this Red Herring Prospectus and Prospectus ("RHP" and "Prospectus" or "Offer Documents") in connection with its proposed initial public offering of equity shares of face value of Rs. 5 each of the Company comprising a fresh issue of equity shares and an offer for sale of equity shares held by the selling shareholders (the "Offer"), prepared by the Company in terms of the requirements of:
A. Section 26 of Part I of Chapter III of the Companies Act, 2013 (the "Act").
B. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 as amended from time to time; and
C. The Guidance Note on Reports in Company Prospectuses (Revised 2019) issued by the Institute of Chartered Accountants of India (ICAI) (the "Guidance Note").
c) The Restated Summary Financial Statements have been prepared on a going concern basis. The accounting policies are applied consistently to all the periods presented herein.
d) The Restated Summary Financial Statements have been prepared after making suitable adjustments to the accounting heads from their Indian GAAP values. These Restated Summary Financial Statements are not statutory financial statements under the Companies Act, 2013.
e) These Restated Summary Financial Statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as prescribed under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) (Amendment) Rules, 2016 and other accounting principles generally accepted in India, along with the presentation requirement of Division II of Schedule III to the Companies Act, 2013, (Ind AS compliant ), which have been approved by the board of directors at their meeting held on July 24, 2024.
f) The Restated Financial Statements have been prepared to contain information/disclosures and incorporating adjustments set out below in accordance with the ICDR Regulations: -
i. Adjustments to the profits or losses of the earlier periods for the changes in accounting policies if any to reflect what the profits or losses of those periods would have been if a uniform accounting policy was followed in each of these periods and of material errors; if any;
ii. Adjustments for reclassification/regroupings of the corresponding items of income, expenses, assets and liabilities retrospectively in the years ended March 31, 2024, in order to bring them in line with the groupings as per the Restated Financial Information of the Company for the purpose of filing of Offer Documents; and
iii. The resultant impact of tax due to the aforesaid adjustments, if any.
g) Historical cost convention:
The Restated Financial Statements have been prepared on a historical cost basis, except for the following assets and liabilities:
i. Certain financial assets and liabilities that are measured at fair value
ii. Defined benefit plans-plan assets measured at fair value
h) The Restated Financial Statements are presented in Indian Rupees (In Rupees) and disclosed in millions except as otherwise stated.
i) New and amended standards adopted by the Group
The Ministry of Corporate Affairs had vide notification dated March 31, 2023 notified the Companies (Indian Accounting Standards) Amendment Rules, 2023, which amended certain accounting standards, and are effective April 1, 2023.
i. Disclosure of accounting policies - amendments to Ind AS 1
The amendment aims to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant accounting policies with a requirement to disclose their ‘material accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures. The amendments did not have an impact on the Companys disclosures of accounting policies, on the measurement, recognition or presentation of any items in the Companys financial statements.
ii. Definition of accounting estimates - amendment to Ind AS 8
The amendment aims to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant accounting policies with a requirement to disclose their ‘material accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures. The amendments did not have an impact on the Companys disclosures of accounting policies, on the measurement, recognition or presentation of any items in the Companys financial statements.
iii. Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendment to Ind AS 12
The amendments narrow the scope of the initial recognition exception under Ind AS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences. There was no impact on the opening retained earnings as at 1 April 2023
These amendments did not have any material impact on the amounts recognized in prior periods and not expected to significantly affect the current or future periods
(ii) Consolidation:
a) Basis of consolidation:
The Restated Consolidated Summary Financial Statements comprises of the financial information of the Company and its wholly owned subsidiaries as at 31st March 2024. There is no consolidation for the year ended 31st March 31, 2023 and March 31, 2022 as the Company did not have any Subsidiaries, Associates, Joint venture, Joint operation.
Control is achieved when the Group is exposed or has right, to variable returns from its involvement with the investee and the ability to affect those returns through its power over the investee. Specially, the Group controls an investee if and only if the Group has: -
a. Power over investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee.
b. Exposure or right to variable returns from its involvement with the investee and
c. The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of the voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar right of: -
a. The contractual arrangement with the other vote holder of the investee.
b. Right arising from other contractual arrangements.
c. The Groups voting rights and potential voting rights.
d. The size of the Groups holding of voting relative to the size and dispersion of the holding of the other voting rights holders.
The Group re-assess whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a Subsidiary/Associates/Joint venture/Joint operation begins when the Group obtains control over the Subsidiary/Associates/Joint venture/Joint operation and ceases when the Group loses control of the Subsidiary/Associates/Joint venture/Joint operation.
Assets, liabilities, income, expenses of a Subsidiary/Associates/Joint venture/Joint operation acquired or disposed during the year/period are included in the Restated Summary Financial Statements from the date the Group gain control until the date the Group ceases to control the Subsidiary/Associates/Joint venture/Joint operation.
The Restated Summary Financial Statements are prepared using accounting policies for like transactions and other events in similar circumstances. If a member of the Group uses accounting policies other than those adopted in the Restated Summary Financial Statements for like transactions and events in similar circumstances then appropriate adjustments are made to Restated Summary Financial Statements in preparing the Restated Summary Financial Statements to ensure conformity with the Groups accounting policies.
In accordance with Ind AS 103, the Group accounts for these business combinations using the acquisition method when control is transferred to the Group. The consideration transferred for the business combination is generally measured at fair value as at the date the control is acquired (acquisition date), as are the net identifiable assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in OCI and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise, the gain is recognized directly in equity as capital reserve. Acquisition related costs are expensed as incurred.
Historical audited financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. If a member of the Group uses accounting policies other than those adopted in the Restated Summary Financial Statements for like transactions and events in similar circumstances, appropriate adjustments are made to that Group members financial statements.
An entity has a choice on a combination-by-combination basis to measure any NCI that represents present ownership interest in the acquiree at either fair value or the proportionate share of the acquirees net identifiable assets.
b) Consolidation procedure:
i. Combine like items of assets, liabilities, equity, income, expenses and cash flow of the holding company with those of its subsidiaries. For this purpose, income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the Restated summary statements at the acquisition date.
ii. Offset (eliminate) the carrying amount of the parents investment in each subsidiary and parents portion of equity of each subsidiary. Business combinations policy explains how to account for any related goodwill.
iii. Eliminate in full intragroup assets and liabilities, equity, income, expenses and cashflows relating to transactions between entities of the Group (profit or losses resulting from intragroup transactions that are recognised in assets, such as inventory and property, plant equipment are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the Restated Summary Financial Statements. Ind AS 12 income taxes applies to temporary differences that arise from the elimination of profit and loss resulting from intergroup transactions.
iv. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and the non-controlling interests, even if this results in the noncontrolling interests having a deficit balance. When necessary, adjustments are made to the summary statements of subsidiaries to bring their accounting policies into line with the groups accounting policies.
All intra-group assets and liabilities, equity, income, expenses and cashflow relating to transactions between member of the group are eliminated in full on consolidation.
A change in the ownership interest of subsidiary, without loss of control, is accounted for as an equity transaction. If the group losses control over a subsidiary, it:
a) Derecognises the assets (including goodwill) and liabilities of the subsidiary/ies
b) Derecognises the carrying amount of any non-controlling interests
c) Derecognises the cumulative translation differences recorded in equity
d) Recognises the fair value of the consideration received
e) Recognises the fair value of any investment retained
f) Recognises any surplus or deficit in profit or loss
g) Reclassifies the parents share of components previously recognized in OCI to profit or loss or retained earnings, as appropriate, as would be required if the group had directly disposed of the related assets or liabilities.
(iii) Fair value measurement:
The Group measures financial instruments at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i. In the principal market for asset or liability, or
ii. In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non- financial asset considers a market participants ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1- Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2- Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3- Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
i. Current versus non-current classification:
The Group presents assets and liabilities in the balance sheet based on current/non- current classification.
a. An asset is treated as current when it is:
(i) Expected to be realized or intended to be sold or consumed in normal operating cycle.
(ii) Held primarily for the purpose of trading.
(iii) Expected to be realized within twelve months after the reporting period, or
(iv) 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.
b. A liability is current when it is:
(i) It is expected to be settled in normal operating cycle.
(ii) It is held primarily for the purpose of trading.
(iii) It is due to be settled within twelve months after the reporting period, or
(iv) There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
All other liabilities are classified as non-current.
c. Deferred tax assets and deferred tax liabilities are classified as non- current assets and liabilities.
d. The operating cycle is the time between the acquisition of assets for processing and their realization in cash and cash equivalents. The Group has identified twelve months as its operating cycle.
ii. Property, plant and equipment:
Group initially recognised Property, Plant and Equipment including capital work in progress are stated at cost, less accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, taxes, duties, freight and other incidental expenses directly attributable and related to acquisition and installation of the concerned assets and are further adjusted by the amount of input tax credit availed wherever applicable. Subsequent costs are included in assets carrying amount or recognised as separate assets, as appropriate, only when it is probable that future economic benefit associated with the item will flow to the Group and the cost of item can be measured reliably.
When significant parts of plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their respective useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.
All other repair and maintenance costs are recognized in Restated Summary Statement of Profit or Loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
Any item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.
Capital work-in-progress includes cost of property, plant and equipment under installation/under development as at the balance sheet date.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Land is carried at historical cost and is not depreciated.
The useful lives, residual values and depreciation method of PPE are reviewed, and adjusted appropriately, at- least as at each reporting date so as to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from these assets.
The effects of any change in the estimated useful lives, residual values and/or depreciation method are accounted prospectively, and accordingly the depreciation is calculated over the PPEs remaining revised useful life. The cost and the accumulated depreciation for PPE sold, scrapped, retired or otherwise disposed off are derecognised from the Restated Summary Statement of Assets and Liabilities and the resulting gains/(losses) are included in the statement of profit and loss within other expenses/other income.
The management basis its past experience and technical assessment has estimated the useful life, which is at variance with the life prescribed in Part C of Schedule II of the Companies Act, 2013 and has accordingly, depreciated the assets over such useful life.
iii. Intangible Assets:
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangibles, excluding development cost, are not capitalized and the related expenditure is reflected in Restated Summary statement of Profit and Loss in the period in which the expenditure is incurred. Cost comprises the purchase price, taxes to the extent of nonrefundable and any attributable cost of bringing the asset to its working condition for its intended use.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period.
Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.
The amortization expense on intangible assets with finite lives is recognized in the statement of profit and loss in the expense category consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from disposal of the intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the assets are disposed off.
Intangible assets with finite useful life are amortized on a written down value basis over the estimated useful economic life of 10 years, which represents the period over which the Group expects to derive economic benefits from the use of the assets.
Intangible Assets under development includes cost of intangible assets under development as at the balance sheet date.
iv. Impairment of non- financial Assets:
Intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.
Other assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs of disposal and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for the which there are separately identifiable cash inflows which largely independent of the cash inflows from other assets or group of assets (cash generating units).
Non - financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
v. Compound financial instruments:
Compound financial instruments are separated into liability and equity components based on the terms of the contract. On issuance of compound financial instruments, the fair value of the liability component is determined using a market rate for an equivalent instrument. This amount is classified as a financial liability measured at amortised cost (net of transaction cost) until it is extinguished on redemption/ conversion.
vi. Investment in Subsidiaries, Associates, Joint Ventures:
Any investments in its subsidiaries, associates and joint ventures are carried at cost less impairment.
vii. 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
Classification:
The Group classifies its financial assets in the following measurement categories:
1. Those to be measured at fair value through other comprehensive income.
2. Those to be measured at fair value through profit or loss.
3. Those to be measured at amortised cost.
The classification depends on entitys business model for managing the financial assets and the contractual terms of the cash flow.
Initial recognition and measurement
All financial assets (not recorded at fair value through profit or loss) are recognized initially at fair value plus transaction costs that are attributable to the acquisition of the financial asset. Transaction cost of financial assets carried at fair value through profit or loss are expensed in profit or loss account.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in following categories:
i. Debt instruments at amortized cost
ii. Debt instruments at fair value through other comprehensive income (FVTOCI)
iii. Debt instruments at fair value through profit and loss (FVTPL)
iv. Equity instruments
Where assets are measured at fair value, gains and losses are either recognized entirely in the statement of profit and loss (i.e., fair value through profit or loss), or recognized in other comprehensive income (i.e., fair value through other comprehensive income).
For investment in debt instruments, this will depend on the business model in which the investment is held.
For investment in equity instruments, this will depend on whether the Group has made an irrevocable selection at the time of initial recognition to account for equity instruments at FVTOCI.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a Group of similar financial assets) is primarily derecognized (i.e., removed from the Groups statement of financial position) when:
i. The rights to receive cash flows from the asset have expired, or
ii. The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass through" arrangement and either;
a. the Group has transferred the rights to receive cash flows from the financial assets or
b. the Group has retained the contractual right to receive the cash flows of the financial asset but assumes a contractual obligation to pay the cash flows to one or more recipients.
Where the Group has transferred an asset, the Group evaluates whether it has transferred substantially all the risks and rewards of the ownership of the financial assets. In such cases, the financial asset is derecognized. Where the entity has not transferred substantially all the risks and rewards of the ownership of the financial assets, the financial asset is not derecognized.
Where the Group has neither transferred a financial asset nor retains substantially all risks and rewards of ownership of the financial asset, the financial asset is derecognized if the Group has not retained control of the financial asset. Where the Group retains control of the financial asset, the asset is continued to be recognized to the extent of continuing involvement in the financial asset.
Impairment of financial assets
In accordance with Ind AS 109, the Group applies expected credit losses (ECL) model for measurement and recognition of impairment loss on the following financial asset and credit risk exposure -
a. Financial assets measured at amortized cost;
b. Financial assets measured at fair value through other comprehensive income (FVTOCI)
The Group follows "simplified approach" for recognition of impairment loss allowance on Trade receivables or contract revenue receivables.
Under the simplified approach, the Group does not track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. The Group uses a provision matrix to determine impairment loss allowance on the portfolio of trade receivables. The provision matrix is based on its historically observed default rates over the expected life of trade receivable and is adjusted for forward looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
For recognition of impairment loss on other financial assets and risk exposure, the Group determines 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 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 Group reverts to recognizing impairment loss allowance based on 12- months ECL.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss. This amount is reflected under the head ‘other expenses in the statement of profit and loss.
The balance sheet presentation for various financial instruments is described below: -
i. Financial assets measured as at amortized cost:
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, the Group does not reduce impairment allowance from the gross carrying amount.
ii. Debt instruments measured at FVTOCI:
For debt instruments measured at FVTOCI, the expected credit losses do not reduce the carrying amount in the balance sheet which remains at fair value. Instead, an amount equal to the allowance that would arise if the asset was measured at amortised cost is recognised in other comprehensive income as the "accumulated impairment amount".
b) Financial liabilities:
Classification -
The Group classifies its financial liabilities in the following measurement categories:
i. Those to be measured at fair value through profit or loss (FVTPL).
ii. Those to be measured at amortised cost.
Initial recognition and measurement -
Financial liabilities are classified at initial recognition as financial liabilities at fair value through profit or loss, loans and borrowings, and payables, net of directly attributable transaction costs. The Group financial liabilities include loans and borrowings including bank overdraft, trade payables, trade deposits, retention money, liabilities towards services and other payables.
Subsequent measurement -
A. Financial liabilities at fair value through profit or loss (FVTPL):
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.
This category also includes derivative financial instruments entered by the Group that are not designated as hedging instruments in a hedge relationship as defined by Ind AS 109. The separated embedded derivate are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the statement of profit and loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI.
These gains/ losses are not subsequently transferred to profit and loss. However, the Group may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit or loss.
The Group has not designated any financial liability as at fair value through profit and loss unless otherwise specified.
B. Financial liabilities at amortised cost (AC):
i. Trade Payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 90 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period.
They are recognized initially at fair value and subsequently measured at amortized cost using Effective interest rate method.
ii. Loans and borrowings
Borrowings are initially recognized at fair value, net of transaction cost incurred. After initial recognition, interest-bearing borrowings are subsequently measured at amortized cost using the Effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognised as well as through the Effective interest rate amortization process. Amortized cos tis calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the Effective interest rate.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.
iii. Refundable Deposits
Refundable Deposits are initially recognized at fair value, net of transaction cost incurred. After initial recognition, refundable deposits are subsequently measured at amortized cost. Gains and losses are recognized in profit or loss when the liabilities are derecognised as well as through the amortization process.
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 medication 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.
c) General
Offsetting of financial instruments:
Financials assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Reclassification of financial assets/ financial liabilities:
The Group determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Groups senior management determines change in the business model as a result of external or internal changes which are significant to the Groups operations.
Such changes are evident to external parties. A change in the business model occurs when the Group either begins or ceases to perform an activity that is significant to its operations. If the Group reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Group does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
(viii.) Inventories:
a. Basis of Valuation:
Inventories are valued at lower of cost and net realizable value after providing cost of obsolescence, if any. The comparison of cost and net realizable value is made on an item-by-item basis.
b. Method of Valuation:
i. Cost of raw materials and component been determined by using FIFO method and comprises all costs of purchase, duties, taxes (other than those subsequently recoverable/ refundable from tax authorities) and all other costs incurred in bringing the inventories to their present location and condition.
ii. Cost of finished goods and work-in-progress includes cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity but excluding borrowing costs.
iii. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
(ix.) Taxes:
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year.
Current and deferred tax are recognised in the Statement of Profit and Loss, except when they relate to items that are recognised in Other Comprehensive Income or directly in equity, in which case, the current and deferred tax are also recognised in Other Comprehensive Income or directly in equity, respectively.
a. Current tax:
Current tax expenses are accounted in the same period to which the revenue and expenses relate. Provision for current income tax is made for the tax liability payable on taxable income after considering tax allowances, deductions and exemptions determined in accordance with the applicable tax rates and the prevailing tax laws. The Groups management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off recognised amounts and there is an intention to settle the asset and the liability on a net basis.
b. Deferred tax:
Deferred income tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for deductible and taxable temporary differences arising between the tax base of assets and liabilities and their carrying amount in financial statements.
Deferred income tax assets are recognized to the extent that it is probable that taxable profit will be Deferred income tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantially enacted by the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
(x.) Revenue from Contracts with Customers
Revenue is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.
The Group collects Goods and Service Tax, TCS if any, on behalf of government, and therefore, these are not consideration to which the Group is entitled, hence, these are excluded from revenue. In accordance with Ind AS 115, the Company recognises the amount as revenue from contracts with customers, which is received for the transfer of promised goods or services to customers in exchange for those goods or services.
Performance obligation are deemed to have been met when the control of goods or services transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The relevant point in time or period of time is the transfer of control of the goods or services (control approach). The Company recognises revenue at point in time, i.e. when control of the goods is transferred to the customer depending on terms of sales.
Revenue is reduced for customer returns, taxes on sales, estimated rebates and other similar allowances. To determine when to recognise revenue and at what amount, the five-step model is applied. By applying the five-step model distinct performance obligations are identified. Variable consideration includes various forms of discounts like volume discounts, price concessions, incentives, etc. on the goods sold or services rendered to its customers, dealers and distributors.
In all such cases, accumulated experience is used to estimate and provide for the variability in revenue, using the expected value method and the revenue is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not
occur in future on account of refund or discounts. The transaction price is determined and allocated to the performance obligations according to the requirements of Ind AS 115.
The Company also considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. Using the practical expedient in Ind AS 115, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less.
a. Revenue from sale of goods:
Revenue from the sale of goods is recognised at the point in time when control of the assets is transferred to the customer, generally on delivery of the goods.
The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of goods, the Group considers the effects of variable consideration, the existence of significant financing components, non-cash consideration, and consideration payable to the customer (if any).
b. Revenue from sale of services:
Revenue from sale of services is recognised over a period because the customer simultaneously receives and consumes the benefits provided by the Group and accounted revenue as and when services are rendered and there is no unfulfilled obligation.
c. Consideration of significant financing component in a contract:
The Group receives short-term advances from its customers. Using the practical expedient in Ind AS 115, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less.
d. Trade Receivables:
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method.
e. Contract Assets:
A contract asset is the entitys right to consideration in exchange for goods or services that the entity has transferred to the customer. A contract asset becomes a receivable when the entitys right to consideration is unconditional, which is the case when only the passage of time is required before payment of the consideration is due. The impairment of contract assets is measured, presented and disclosed on the same basis as trade receivables.
f. Contract Liabilities:
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, contract liability is recognised when the payment is made or the payment is due (whichever is earlier).
g. Impairment:
An impairment is recognised to the extent that the carrying amount of receivable or asset relating contracts with customers.
a. the remaining amount of consideration that the Group expects to receive in exchange for the goods or services to which such asset relates; less.
b. the costs that relate directly to providing those goods or services and that have not been recognised as expenses.
(xi.) Other Income:
a. Interest Income:
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time proportion basis by reference to the principal outstanding and effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset. Interest income is included in other income in the statement of profit and loss.
(xii.) Employee benefits:
a. Short-term obligations:
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within twelve months after the end of the period in which the employees render the related service are recognized in respect of employee service up to the end of the reporting period and are measured at the amount expected to be paid when the liabilities are settled. Corresponding liabilities are presented as current employee benefit obligations in the balance sheet.
Accumulated leaves, which are expected to be utilised within the next twelve months, is treated as short term employee benefits. The Group measured the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Group recognises the expected cost of short-term employee benefit as an expense, when an employee renders the related services.
The Group presents the leave encashment as a current liability in the balance sheet to the extent it does not have an unconditional right to defer its settlement for twelve months after the reporting date.
b. Defined Contribution Plan:
The Group makes defined contribution to Employees Provident Fund Organization (EPFO), Pension Fund and Employees State Insurance (ESI), which are accounted on accrual basis as expenses in the statement of Profit and Loss in the period during which the related services are rendered by employees.
Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available.
c. Defined Benefit Plan:
Retirement benefit in the form of Gratuity is considered as defined benefit plan. The liability recognised in the balance sheet in respect of gratuity is the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is determined by actuarial valuation as on the balance sheet date, using the projected unit credit method.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of:
i The date of the plan amendment or curtailment, and
ii The date that the Group recognises related restructuring costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability.
The Group recognises the following changes in the net defined benefit obligation as an expense in the statement of profit and loss:
i Service costs comprising current service costs, past-service costs gains and losses on curtailments and nonroutine settlements; and
ii Net interest expense or income.
The Group recognises the following changes in OCI on account of actuarial (gain) or Loss on total liabilities:
i Due to changes in financial assumptions
ii Due to changes in demographic assumption
iii Due to experience variance
(xiii.) Leases:
Leases are accounted for using the principles of recognition, measurement, presentation and disclosures as set out in Ind AS 116 Leases.
On inception of a contract, the Group assesses whether it contains a lease. A contract contains a lease when it conveys the right to control the use of an identified asset for a period in exchange for consideration. The right to use the asset and the obligation under the lease to make payments are recognised in the Groups financial statements as a right-of-use asset and a lease liability.
Lease contracts may contain both lease and non-lease components. The Group allocates payments in the contract to the lease and non-lease components based on their relative stand-alone prices and applies the lease accounting model only to lease components.
Right to use assets
The right-of-use asset recognised at lease commencement includes the amount of lease liabilities on initial measurement, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
Right-of-use assets are depreciated to a residual value over the rights-of-use assets estimated useful life or the lease term, whichever is lower. Right-of-use assets are also adjusted for any re-measurement of lease liabilities and are subject to impairment testing. Residual value is reassessed at each reporting date.
The lease liability is initially measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments (including ‘in-substance fixed payments) and variable lease payments that depend on an index or a rate, less any lease incentives receivable. ‘In-substance fixed payments are payments that may, in form, contain variability but that, in substance, are unavoidable.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest on lease liability and reduced for lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification e.g. a change in the lease term, a change in the ‘in-substance fixed lease payments or as a result of a rent review or change in the relevant index or rate.
Variable lease payments that do not depend on an index or a rate are recognised as an expense in the period over which the event or condition that triggers the payment occurs. In respect of variable leases which guarantee a minimum amount of rent over the lease term, the guaranteed amount is an ‘in-substance fixed lease payment and included in the initial calculation of the lease liability. Payments which are ‘in-substance fixed are charged against the lease liability.
The Group has opted not to apply the lease accounting model to intangible assets, leases of low value assets or leases which have a term of less than 12 months. Costs associated with these leases are recognised as an expense on a straight-line basis over the lease term.
Lease payments are presented as follows in the Groups statement of cash flows:
i Short-term lease payments, payments for leases of low-value assets and variable lease payments that are not included in the measurement of the lease liabilities are presented within cash flows from operating activities.
ii Payments for the interest element of recognised lease liabilities are presented within cash flows from financing activities; and
iii Payments for the principal element of recognised lease liabilities are presented within cash flows from financing activities.
(xiv.) Earnings per share:
a. Basic EPS -
Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equities shares outstanding during the period. The weighted average number of equities shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.
b. Diluted EPS -
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effect of all potentially dilutive equity shares.
(xv.) Borrowing Costs:
Borrowing cost includes interest and other costs incurred in connection with the borrowing of funds and charged to Statement of Profit & Loss on the basis of effective interest rate (EIR) method. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing cost.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. Capitalization of Borrowing Cost is suspended and charged to the statement of profit and loss during extended periods when active development activity on the qualifying asset is interrupted. All other borrowing costs are recognized as expense in the period in which they occur.
(xvi.) Cash and Cash Equivalents:
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposit held at call with financial institutions, other short - term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
(xvii.) Foreign currencies:
a. Functional and presentation currency:
Items included in the Restated Summary Financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Restated Summary statements are presented in Indian rupee (INR Rs.) which is also the Group functional and presentation currency of holding Group.
b. Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transaction and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rate are generally recognised in the Restated Summary Statement of profit and loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
c. Exchange differences:
Exchange differences arising on settlement or translation of monetary items are recognized as income or expense in the period in which they arise except for exchange differences on gain or loss arising on translation of non-monetary items measured at fair value which is treated in line with the recognition of the gain or loss on the change in fair value of the item. (i.e., translation differences on items whose fair value gain or loss is recognized in OCI or profit or loss are also recognized in OCI or profit or loss, respectively).
d. Translation of financial statements of foreign operations:
On consolidation, the assets and liabilities of foreign operations are translated into (INR Rs.) at the rate of exchange prevailing at the reporting date and their statements of profit and loss are translated at the exchange rates prevailing at the dates of the transactions. For practical reason, the Group uses monthly average rate to translate income and expense items, if average rate approximates the exchange rates at the dates of the transactions. The exchange differences arising on translation of foreign operation for consolidation are recognised in OCI.
On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to the statement of profit or loss.
Any goodwill arising in the acquisition/business combination of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of foreign operation and translated at the spot rate of exchange the reporting date.
When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
(xviii.) Provisions and Contingent Liabilities Provisions:
a. Provision:
A provision is recognized when the Group has a present obligation (legal or constructive) as a result of 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. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates. 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 a finance cost.
b. Contingent liabilities:
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 Group 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 in extremely rare cases, where there is a liability that cannot be recognized because it cannot be measured reliably.
The Group does not recognize a contingent liability but discloses its existence in the financial statements unless the probability of outflow of resources is remote.
c. Contingent assets:
Contingent assets are not recognised in the financial statements. Contingent assets are disclosed in the financial statements to the extent it is probable that economic benefits will flow to the Group from such assets. Provisions, contingent liabilities, contingent assets and commitments are reviewed at each balance sheet date.
(xix.) Exceptional items:
Items which are material by virtue of their size and nature are disclosed separately as exceptional items to ensure that financial statements allow an understanding of the underlying performance of the business in the year and to facilitate comparison with prior year.
(xx.) Segment Reporting:
Operating segments are defined as components of an entity where discrete financial information is evaluated regularly by the chief operating decision maker (CODM) in deciding allocation of resources and in assessing performance. The Groups CODM reviews financial information for the purposes of making operating decisions, allocating resources and evaluating financial performance.
(xxi.) Statement of cash flows:
Statements of cash flows is made using the indirect method, whereby profit before tax is adjusted for the effects of transactions of non-cash nature, any deferral accruals of past or future cash receipts or payments and item of income or expense associated with investing or financing of cash flows. The cash flows from operating, financing and investing activities of the Group are segregated.
(xxii.) Rounding of amounts
All amounts disclosed in the financial statements and notes have been rounded off to the nearest millions as per the requirement of Schedule III, unless otherwise stated.
(xxiii.) Critical accounting assumptions, estimations and judgements:
The preparation of the Groups financial statement requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
In the process of applying the accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the Financial Statements.
a. Recognition of deferred taxes:
The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the future taxable income against which the deferred tax assets can be utilized.
b. Impairment of Financial assets:
The impairment provisions of financial assets are based on assumptions about the risk of default and expected loss rates. The Group uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on history, existing market conditions as well as forward looking estimates at the end of each reporting period.
c. Impairment of Non-Financial assets:
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets CGUS fair value less cost of disposal and its value in use. It is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or Companies of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are considered. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, or other fair value indicators.
d. Recognition of revenue:
The price charged from the customer is treated as standalone selling price of the goods transferred to the customer. At each balance sheet date, basis the past trends and management judgment, the Group assesses the requirement of recognising provision against the sales returns for its products and in case, such provision is considered necessary, the management make adjustment in the revenue. However, the actual future outcome may be different from this judgement.
e. Leases:
Ind AS 116 requires lessees to determine the lease term as the non-cancellable period of a lease adjusted with any option to extend or terminate the lease, if the use of such option is reasonably certain.
The Group makes an assessment on the expected lease term on a lease-by-lease basis and there by assesses whether it is reasonably certain that any options to extend or terminate the contract will be exercised. In evaluating the lease term, the Group considers factors such as significant leasehold improvements undertaken over the lease term, costs relating to the termination of the lease etc. The lease term in future periods is reassessed to ensure that the lease term reflects the current economic circumstances.
f. Taxes:
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of business relationships and the longterm nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded.
The Group establishes provisions, based on reasonable estimates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.
g. Gratuity benefit:
The cost of defined benefit plans (i.e., Gratuity benefit) is determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future.
These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rates of long-term government bonds with extrapolated maturity corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics (i.e., IALM 2012-14 Ultimate). These assumptions translate into an average life expectancy in years at retirement age. Future salary increases and pension increases are based on expected future inflation rates.
h. Value measurement of financial instrument:
When the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the Discounted Cash Flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
i. Property, plant and equipment and intangible assets:
The charge in respect of periodic depreciation is derived after determining an estimate of expected useful life and the expected residual value at the end of its life. The useful lives and residual values of the assets are determined by management at the time the asset is acquired and reviewed periodically, including at each financial year end.
PRINCIPAL COMPONENTS OF INCOME AND EXPENDITURE Income
Our total income comprises (i) revenue from operations; and (ii) other business income.
Revenue from Operations
Revenue from operations comprise (i) sale of products which include tyres and precured tread rubber along with accessories.
Other Income
Other income includes (i) interest income on fixed deposits; (ii) unwinding of interest on security deposit; (iii) income from foreign exchange fluctuation; (iv) incentives on MEIS scheme.
Expenses
Our expenses comprise (i) cost of materials consumed; (ii) changes in inventories of finished goods and work-inprogress; (iii) employee benefits expense; (iv) finance costs; (v) depreciation and amortization expense; and (vi) other expenses.
Costs of Materials Consumed
Cost of material consumed consists of (i) import purchases; (ii) local purchases; and (iii) changes in raw materials inventory. Primary raw materials include Natural rubber, synthetic rubber, carbon black, tyre cord fabric and chemicals.
Changes in inventories of finished goods and work-in-progress
Changes in inventories of finished goods and work-in-progress consists of (i) opening inventories (stock-in-trade, finished goods, work-in-progress and stores and spares); and (ii) closing inventories (stock-in-trade, finished goods, work-in-progress and stores and spares).
Employee Benefits Expense
Employee benefits expense primarily comprises (i) salaries and wages including bonus, incentives; (ii) staff welfare expenses; (iii) gratuity; (iv) employee insurance; (v) induction and training programme expenses; (vi) encashment of earned leave. As of March 31, 2024, we had 40 full-time employees.
Finance Costs
Finance costs include (i) interest on borrowings; (ii) bank charges; (iii) other interest including interest on working capital demand loan; (iv) unwinding of interest on lease liabilities; and (v) other borrowing costs, consisting of bank guarantee charges and bank charges.
Depreciation and Amortization Expense
Depreciation and amortization expenses comprise (i) depreciation on property, plant and equipment; and (iii) amortization of intangible assets.
Other Expenses
Other expenses comprises: (i) power and fuel expenses incurred towards our manufacturing operations; (ii) repairs and maintenance expenses towards building and machinery; (iii) wages and labour charges; (iv) freight expenses incurred towards import and local transportation of goods; (v) insurance; (vi) rates and taxes incurred towards custom duty; (vii) loss on foreign currency translation; (viii) business promotion expenses; (ix) travelling and conveyance expenses; (x) professional and consultancy fees; (xi) communication expenses; (xii) printing and stationery; (xiii) recruitment expenses; (xiv) other expenses incurred towards security personnel charges, gardening charges, food expenditure, housekeeping expenditure, housekeeping material, membership fees and IT accessories; (xv) loss arising from fair valuation of assets through profit & loss (xvi) clearing and forwarding charges; and (xvii) remuneration to auditor towards statutory audit.
RESULTS OF OPERATIONS
The following table sets forth certain information with respect to our results of operations for the Fiscal 2024 (on a consolidated basis), Fiscal 2023 and Fiscal 2022 (on a standalone basis):
| (Rs. in million) | ||||||
| Fiscal | ||||||
2024 (Consolidated) |
2023 (Standalone) |
2022 (Standalone) |
||||
| Particulars | Amount | % of Total Income | Amount | % of Total Income | Amount | % of Total Income |
| Income | ||||||
| Revenue from operations | 2,272.18 | 99.36% | 1,182.46 | 98.80% | 1,133.65 | 99.11% |
| Other income | 14.75 | 0.64% | 14.33 | 1.20% | 10.21 | 0.89% |
| Total Income | 2,286.93 | 100.00% | 1,196.79 | 100.00% | 1,143.86 | 100.00% |
| Expenses | ||||||
| Cost of materials consumed | 1,759.07 | 76.92% | 1,007.62 | 84.19% | 992.46 | 86.76% |
| Changes in inventories of finished goods and work-inprogress and stock-in-trade | (117.63) | (5.14%) | (61.97) | (5.18%) | (43.44) | (3.80%) |
| Employee benefits expense | 68.94 | 3.01% | 33.20 | 2.77% | 36.50 | 3.19% |
| Finance costs | 115.80 | 5.06% | 50.52 | 4.22% | 42.96 | 3.76% |
| Depreciation and amortization expense | 33.71 | 1.47% | 16.14 | 1.35% | 19.62 | 1.72% |
| Other expenses | 98.06 | 4.29% | 81.01 | 6.77% | 87.22 | 7.62% |
| Total expenses | 1,957.95 | 85.61% | 1,126.52 | 94.13% | 1,135.32 | 99.25% |
| Profit before exceptional items and tax | 328.98 | 14.39% | 70.27 | 5.87% | 8.54 | 0.75% |
| Exceptional items | - | - | - | - | - | - |
| Profit/(Loss) before tax | 328.98 | 14.39% | 70.27 | 5.87% | 8.54 | 0.75% |
| Tax Expense: | ||||||
| Current tax | 65.46 | 2.86% | 19.47 | 1.63% | 3.27 | 0.29% |
| Deferred tax | 3.46 | 0.15% | 0.88 | 0.07% | (1.04) | (0.09%) |
| Total tax expense | 68.92 | 3.01% | 20.35 | 1.70% | 2.23 | 0.19% |
| Profit/(Loss) for the year/period | 260.06 | 11.37% | 49.92 | 4.17% | 6.31 | 0.55% |
| Other comprehensive (loss)/income | ||||||
| I. Items that will not be reclassified subsequently to Profit or Loss: | ||||||
| i. Remeasurements of defined employee benefit plans (Assets)/Liabilities | 1.12 | 0.05% | 0.08 | 0.01% | 0.13 | 0.01% |
| ii. Income tax relating to items that will not be reclassified to Profit or Loss | (0.32) | (0.01%) | (0.02) | 0.00% | (0.04) | 0.00% |
| II. Items that will be reclassified subsequently to Profit or Loss ; | ||||||
| i. Exchange differences in translating the financial statement of foreign operation | 0.43 | 0.02% | ||||
| ii. Income tax relating to items that will be reclassified to Profit or Loss | - | - | - | - | - | - |
| Total other comprehensive income = (I+II) | 1.23 | 0.05% | 0.06 | 0.00% | 0.09 | 0.00% |
| Total comprehensive income for the period | 261.29 | 11.43% | 49.98 | 4.17% | 6.40 | 0.55% |
FISCAL 2024 COMPARED TO FISCAL 2023
Set forth below is a discussion of our results of operations, on the basis of amounts derived from our Restated Financial Information for the Fiscals ended 2024 on a consolidated basis and 2023 on a standalone basis:
Income
Our total income increased by 91.09% from Rs. 1,196.79 million in Fiscal 2023 to Rs. 2,286.93 million in Fiscal 2024. Our total income comprised (i) revenue from operations, and (ii) other income.
Revenue from Operations
Our revenue from operations increased by 92.16% from Rs. 1,182.46 million in Fiscal 2023 to Rs. 2,272.18 million in Fiscal 2024, primarily due to increase in sales of tyres and negligible change in tread rubber & other ancillary products.
Other Income
Other income increased by 2.93% from Rs. 14.33 million in Fiscal 2023 to Rs. 14.75 million in Fiscal 2024. This was primarily due to decrease in (i) Our Interest from Bank Deposits decreased by 46.67% from Rs. 1.35 million in Fiscal 2023 to Rs. 0.72 million Fiscal in 2024, (ii) profit from foreign exchange fluctuation by which decreased 6.14% from Rs. 9.29 million in Fiscal 2023 to Rs. 8.72 million in Fiscal 2024, (iii) Values of MEIS license sold was decreased by 17.58% from Rs. 3.64 million in Fiscal 2023 to Rs. 3.00 million in Fiscal 2024, (iv) discount & subsidy received of Rs. 0.01 million in Fiscal 2023, whereas we had no such income in Fiscal 2024 which is offset by increase in profit on sale of assets(net) by Rs. 2.27 million in fiscal 2024 as compared to fiscal 2023.
Expenses
Our total expenses increased by 73.81% from Rs. 1,126.52 million in Fiscal 2023 to Rs. 1,957.94 million in Fiscal 2024. This was primarily due to the increase in cost of material consumed, employee benefit expenses, finance cost, depreciation & amortization expense, and changes in inventory of finished goods and work in progress in stock in trade and other expenses.
Cost of Materials Consumed
Our cost of materials consumed increased by 74.58% from Rs. 1,007.62 million in Fiscal 2023 to Rs. 1,759.07 million in Fiscal 2024. Whereas the percentage of Cost of Materials to Total Revenue decreased to 76.92% in Fiscal 2024 from 84.19% in Fiscal 2023.
Changes in Inventories of Finished Goods, Stock-in-Trade and Work-in-Progress
Our changes in inventories of finished goods, stock-in-trade and work in progress increases by 89.82% from Rs. (61.97) million in Fiscal 2023 to Rs. (117.63) million in Fiscal 2024.
Employee Benefits Expenses
Our employee benefit expense increased by 107.65% from Rs. 33.20 million in Fiscal 2023 to Rs. 68.94 million in Fiscal 2024 primarily due to increase in our expense on (i) salaries and wages which increased by 97.25% from Rs. 32.68 million in Fiscal 2023 to Rs. 64.46 million in Fiscal 2024. (ii) contribution to provident and other fund which increased by 63.16% from Rs. 0.19 million in Fiscal 2023 to Rs. 0.31 million in Fiscal 2024, (iii) gratuity expenses which increased by 127.59% from Rs. 0.29 million in Fiscal 2023 to Rs. 0.66 million in Fiscal 2024. (iv) ESI contribution which increased by 125.00% from Rs. 0.04 million in Fiscal 2023 to Rs. 0.09 million in Fiscal 2024 and
(v) increase in directors remuneration to Rs. 3.42 million in fiscal 2024 as compared to nil in fiscal 2023.
Finance Cost
Our finance costs increased by 129.22% from Rs. 50.52 million in Fiscal 2023 to Rs. 115.80 million in Fiscal 2024. This increase is primarily attributable to an increase in (i) interest on borrowing by 89.16% from Rs. 36.91 million in Fiscal 2023 to Rs. 69.82 million in Fiscal 2024, (ii) bank charges on loans by 785.98% from Rs. 3.71 million in Fiscal 2023 to Rs. 32.87 million in Fiscal 2024. (iii) our interest on other borrowings increased by 32.42% from Rs. 9.90 million in Fiscal 2023 to Rs. 13.11 million in Fiscal 2024.
Depreciation and Amortization Expense
Our depreciation and amortization expense increased by 108.86% from Rs. 16.14 million in Fiscal 2023 to Rs. 33.71 million in Fiscal 2024, primarily due to a increase in depreciation of property, plant and equipment by 109.35% from Rs. 15.94 million in Fiscal 2023 to Rs. 33.37 million in Fiscal 2024 and our interest on our amortization on intangible assets increased by 70.00% from Rs. 0.20 million in Fiscal 2023 to Rs. 0.34 million in Fiscal 2024.
Other Expenses
Our other expenses increased by 21.05% from Rs. 81.01 million in Fiscal 2023 to Rs. 98.06 million in Fiscal 2024, primarily due to increase in our expenses on (i) advertisement which increased 55.31% from Rs. 5.08 million in Fiscal 2023 to Rs. 7.89 million in Fiscal 2024, (ii) audit fee which increased by 680% from Rs. 0.25 million in Fiscal 2023 to Rs.1.95 million in Fiscal 2024, (iii) donation which increased by 4.17% from Rs. 0.72 million in Fiscal 2023 to Rs. 0.75 million in Fiscal 2024, (iv) interest on TDS increased by 1548.08% from Rs. 0.52 million in Fiscal 2023 to Rs. 8.57 million in Fiscal 2024, (v) liaison charges which increased by 1900.00% from Rs. 0.02 million in Fiscal 2023 to Rs. 0.40 million in Fiscal 2024, (vi) miscellaneous expenses which increased by 942.42% from Rs. 0.33 million in Fiscal 2023 to Rs. 3.44 million in Fiscal 2024, (vii) professional/consultancy/ technical fees which increased by 80.76% from Rs. 2.91 million in Fiscal 2023 to Rs. 5.26 million in Fiscal 2024, (viii) printing, stationary and communication which increased by 126.27% from Rs. 2.17 million in Fiscal 2023 to Rs. 4.91 million in Fiscal 2024, (ix) rates and taxes which increased by 309.33% from Rs. 0.75 million in Fiscal 2023 to Rs. 3.07 million in Fiscal 2024, (x) Rent expenses which increased by 134.68% from Rs. 5.19 million in Fiscal 2023 to Rs. 12.18 million in Fiscal 2024. (xi) Staff welfare which increased by 49.68% from Rs. 6.30 million in Fiscal 2023 to Rs. 9.43 million in Fiscal 2024, (xii) Travelling and conveyance which increased by 12.53% from Rs. 7.58 million in Fiscal 2023 to Rs. 8.53 million in Fiscal 2024.
These expenses were partially set off by our expenses on (i) freight outwards which decreased by 13.41% from Rs. 16.48 million in Fiscal 2023 to Rs. 14.27 million in Fiscal 2024, (ii) insurance which decreased by 21.43% from Rs. 1.82 million in Fiscal 2023 to Rs.1.43 million in Fiscal 2024, (iii) postage and courier which decreased by 90.34% from Rs. 1.45 million in Fiscal 2023 to Rs. 0.14 million in Fiscal 2024, (iv) Repairs & maintenance - Plant & Machinery which decreased by 71.83% from Rs. 14.59 million in Fiscal 2023 to Rs. 4.11 million in Fiscal 2024, (v) Repairs and Maintenance - vehicle which decreased by 24.78% from Rs. 14.81 million in Fiscal 2023 to Rs. 11.14 million in Fiscal 2024.
Restated profit before tax
For the reasons discussed above, our restated profit before tax increased by 368.17% from Rs. 70.27 million in Fiscal 2023 to Rs. 328.98 million in Fiscal 2024.
Tax Expenses
Our tax expenses increased by 238.67% from Rs. 20.35 million in Fiscal 2023 to Rs. 68.92 million in Fiscal 2024. This was due to increase in (i) current tax expense by 236.21% from Rs. 19.47 million in Fiscal 2023 to Rs. 65.46 million in Fiscal 2024, and (ii) deferred tax charge increased by 293.18% from Rs. 0.88 million in Fiscal 2023 to Rs. 3.46 million in Fiscal 2024.
Restated profit After Tax for the year
For the various reasons discussed above, we recorded a restated profit after tax for the year increased by 420.95% from Rs. 49.92 million in Fiscal 2023 to Rs. 260.06 million in Fiscal 2024.
FISCAL 2023 COMPARED TO FISCAL 2022
Set forth below is a discussion of our results of operations, on the basis of amounts derived from our Restated Financial Information for the Fiscals ended 2023 and 2022 on a standalone basis:
Income
Our total income increased by 4.63% from Rs. 1,143.86 million in Fiscal 2022 to Rs. 1,196.79 million in Fiscal 2023. Our total income comprised (i) revenue from operations, and (ii) other income.
Revenue from Operations
Our revenue from operations increased by 4.31% from Rs. 1,133.65 million in Fiscal 2022 to Rs. 1,182.46 million in Fiscal 2023, primarily due to increase in sales of our manufactures tyres and negligible change in tread rubber & other ancillary products.
Other Income
Other income increased by 40.35% from Rs. 10.21 million in Fiscal 2022 to Rs. 14.33 million in Fiscal 2023. This was primarily due to increase in (i) interest from bank deposits by 150% from Rs. 0.54 million in Fiscal 2022 to Rs. 1.35 million in Fiscal 2023, (ii) profit from foreign exchange fluctuation by 271.60% from Rs. 2.50 million in Fiscal 2022 to Rs. 9.29 million in Fiscal 2023, (iii) interest unwinding on rental deposits by 33.33% from Rs. 0.03 million in Fiscal 2022 to Rs. 0.04 million in Fiscal 2023, (iv) discount & subsidy received of Rs. 0.01 million in Fiscal 2023, whereas we had no such income in Fiscal 2022. This increase was offset by decrease in value of MEIS license sold by 47.93% from Rs. 6.99 million in Fiscal 2022 to Rs. 3.64 million in Fiscal 2023.
Expenses
Our total expenses decreased by 0.78% from Rs. 1,135.32 million in Fiscal 2022 to Rs. 1,126.52 million in Fiscal 2023. This was primarily due to the decrease in employee benefit expenses, depreciation & amortization expense and other expenses which is offset by increase in cost of material consumed and finance cost.
Cost of Materials Consumed
Our cost of materials consumed increased by 1.53% from Rs. 992.46 million in Fiscal 2022 to Rs. 1,007.62 million in Fiscal 2023. Whereas the percentage of Cost of Materials to Total Revenue was reduced by 86.76% in Fiscal 2022 from 84.19% in Fiscal 2023.
Changes in Inventories of Finished Goods, Stock-in-Trade and Work-in-Progress
Our changes in inventories of finished goods, stock-in-trade and work in progress increases by 42.66% from Rs. (43.44) million in Fiscal 2022 to Rs. (61.97) million in Fiscal 2023.
Employee Benefits Expenses
Our employee benefit expense decreased by 9.04% from Rs. 36.50 million in Fiscal 2022 to Rs. 33.20 million in Fiscal 2023 primarily due to decrease in our expense on (i) salaries and wages which decreased by 9.85% from Rs. 36.25 million in Fiscal 2022 to Rs. 32.68 million in Fiscal 2023. This decrease is offset by increase in (i) contribution to provident and other fund which increased by 280% from Rs. 0.05 million in Fiscal 2022 to Rs. 0.19 million in Fiscal 2023, (iii) gratuity expenses which increased by 61.11% from Rs. 0.18 million in Fiscal 2022 to Rs. 0.29 million in Fiscal 2023, and (iv) ESI contribution which increased by 100% from Rs. 0.02 million in Fiscal 2022 to Rs. 0.04 million in Fiscal 2023.
Finance Cost
Our finance costs increased by 17.60% from Rs. 42.96 million in Fiscal 2022 to Rs. 50.52 million in Fiscal 2023. This increase is primarily attributable to an increase in (i) interest on borrowing by 22.54% from Rs. 30.12 million in Fiscal 2022 to Rs. 36.91 million in Fiscal 2023, on account of interest on packing credit, (ii) bank charges on loans by 31.56% from Rs. 2.82 million in Fiscal 2022 to Rs. 3.71 million in Fiscal 2023. This increase is offset by decrease in other borrowing costs by 1.20% from Rs. 10.02 million in Fiscal 2022 to Rs. 9.90 million in Fiscal 2023.
Depreciation and Amortization Expense
Our depreciation and amortization expense decreased by 17.74% from Rs. 19.62 million in in Fiscal 2022 to Rs. 16.14 million in Fiscal 2023, primarily due to a decrease in depreciation of property, plant and equipment by 18.55% from Rs. 19.57 million in Fiscal 2022 to Rs. 15.94 million in Fiscal 2023.
Other Expenses
Our other expenses decreased by 7.12% from Rs. 87.22 million in Fiscal 2022 to Rs. 81.01 million in Fiscal 2023, primarily due to decrease in our expenses on (i) advertisement which decreased 23.49% from Rs. 6.64 million in Fiscal 2022 to Rs. 5.08 million in Fiscal 2023, (ii) freight outwards which decreased by 24.30% from Rs. 21.77 million in Fiscal 2022 to Rs. 16.48 million in Fiscal 2023, (iii) liaison charges which decreased by 96.08% from Rs. 0.51 million in Fiscal 2022 to Rs.0.02 million in Fiscal 2023, (iv) miscellaneous expenses which decreased by 42.11% from Rs.0.57 million in Fiscal 2022 to Rs.0.33 million in Fiscal 2023, (v) printing & stationary and communications which decreased by 1.36% from Rs.2.20 million in Fiscal 2022 to Rs.2.17 million in Fiscal 2023, (vi) rates & taxes which decreased by 43.18% from Rs. 1.32 million in Fiscal 2022 to Rs. 0.75 million in Fiscal 2023, (vii) repair and maintenance of plant and machinery which decreased by 15.91% from Rs.17.35 million in Fiscal 2022 to Rs.14.59 million in Fiscal 2023, (viii) staff welfare expenses which decreased by 10.89% from Rs.7.07 million in Fiscal 2022 to Rs.6.30 million in Fiscal 2023.
These expenses were partially set off by our expenses on (i) audit fee which increased by 127.27% from Rs. 0.11 million in Fiscal 2022 to Rs.0.25 million in Fiscal 2023, (ii) interest on TDS which increased by 173.68% from Rs. 0.19 million in Fiscal 2022 to Rs. 0.52 million in Fiscal 2023, (iii) professional, technical and consultancy fee which increased by 159.82% from Rs. 1.12 million in Fiscal 2022 to Rs. 2.91 million in Fiscal 2023, (iv) postage & courier which increased by 3.57% from Rs. 1.40 million in Fiscal 2022 to Rs. 1.45 million in Fiscal 2023, (v) rent expense which increased by 2.37% from Rs. 5.07 million in Fiscal 2022 to Rs. 5.19 million in Fiscal 2023, (vi) repairs & maintenance of vehicles which increased by 13.57% from Rs. 13.04 million in Fiscal 2022 to Rs. 14.81 million in Fiscal 2023, and (vii) travelling expenses which increased by 8.60% from Rs. 6.98 million in Fiscal 2022 to Rs. 7.58 million in Fiscal 2023. Additionally, we had an expense of Rs.0.72 million on donation in Fiscal 2023, whereas we did not incur such expense in Fiscal 2022.
Restated profit before tax
For the reasons discussed above, our restated profit before tax increased by 722.83% from Rs. 8.54 million in Fiscal 2022 to Rs. 70.27 million in Fiscal 2023.
Tax Expenses
Our tax expenses increased by 812.56% from Rs. 2.23 million in Fiscal 2022 to Rs. 20.35 million in Fiscal 2023. This was due to increase in (i) current tax expense by 495.41% from Rs. 3.27 million in Fiscal 2022 to Rs. 19.47 million in Fiscal 2023, and (ii) deferred tax charge from Rs. (1.04) million in Fiscal 2022 to Rs. 0.88 million in Fiscal 2023.
Restated profit After Tax for the year
For the various reasons discussed above, we recorded a restated profit after tax for the year increased by 691.13% from Rs. 6.31 million in Fiscal 2022 to Rs. 49.92 million in Fiscal 2023.
CASH FLOWS
The following table sets forth certain information relating to our cash flows in the periods indicated:
| Particulars | Fiscal ended |
||
| March 31, 2024 (Consol idated) | March 31, 2023 (Standalo ne) | March 31, 2022 (Standalone) | |
| Net cash flow from/(used in) operating activities | (35.90) | 18.16 | 25.30 |
| Net cash flows (used in)/from investing activities | (541.26) | 0.27 | (25.66) |
| Net cash flows (used in)/from financing activities | 577.14 | (19.35) | 1.04 |
| Net increase/(decrease) in cash and cash equivalents | (0.02) | (0.92) | 0.67 |
| Cash and cash equivalents at the beginning of the year | 8.83 | 4.68 | 4.01 |
| Net Additions on account of business combination as at April 01, 2023* | - | - | |
| Cash and cash equivalents at the end of the year/ period | 8.81 | 3.76 | 4.68 |
* Our Company acquired Tolin Rubbers Private Limited and Tolins Tyres LLC as our -wholly owned Subsidiaries, w.e.f. April 1, 2023. Accordingly, Tolin Rubbers Private Limited and Tolins Tyres LLC became Subsidiaries of our Company on April 1, 2023.
Net Cash Generated from/used in Operating Activities
Fiscal ended March 31, 2024
Net cash flow generated from operating activities was Rs. (35.90) million in Fiscal ended March 31, 2024. Restated Profit before tax was Rs. 328.98 million in Fiscal ended March 31, 2024. Adjustments to reconcile profit before tax to net cash flows primarily consisted of depreciation expense of Rs. 33.71 million, OCI Items Rs. 0.80 million, Translation from foreign operation Rs. 0.43 million, finance cost of Rs. 115.80 million, unrealised foreign exchange loss/(gain) (net) foreign operations of Rs. 0.59 million. This was partially offset by interest income on fixed deposits of Rs. 0.72 million.
Operating cash flow before working capital changes was Rs. 479.59 million in Fiscal ended March 31, 2024. The main adjustments in Fiscal ended March 31, 2024, primarily consisted of increase in current inventories of Rs. 373.14 million, increase in non-current other financial assets of Rs. 6.23 million, increase in current other financial assets of Rs. 2.84 million, increase in trade payables of Rs. 79.94 million, increase in other non-current liabilities of Rs. 0.05 million, increase in other current assets for Rs. 55.32 million, increase in current trade receivables for Rs. 95.86 million. This was partially offset by decrease in non-current provision of Rs. 0.27 million, decrease in current other financial liabilities of Rs. 8.71 million and increase in current provision of Rs. 0.18 million, increase in current liabilities of Rs. 27.96 million. Income taxes paid amounted to Rs. 24.97 million in Fiscal ended March 31, 2024.
Fiscal ended March 31, 2023
Net cash flow generated from operating activities was Rs.18.15 million in Fiscal ended March 31, 2023. Restated Profit before tax was Rs.70.27 million in Fiscal ended March 31, 2023. Adjustments to reconcile profit before tax to net cash flows primarily consisted of depreciation expense of Rs. 16.14 million, finance cost of Rs.36.91 million and translation from foreign operations of Rs.2.73 million. This was partially offset by interest income on fixed deposits of Rs.1.35 million.
Operating cash flow before working capital changes was Rs.124.70 million in Fiscal ended March 31, 2023. The main adjustments in Fiscal ended March 31, 2023, primarily consisted of increase in current inventories of Rs. 144.41 million, increase in non-current other financial assets of Rs. 0.84 million, increase in current other financial assets of Rs. 0.08 million, increase in non-current provision of Rs. 0.19 million, increase in current other financial liabilities of Rs. 17.29 million and increase in current provision of Rs. 0.09 million. This was partially offset by (i) decrease in current trade receivables of Rs. 127.52 million, (ii) decrease in other current assets of Rs. 151.21 million and (iii) decrease in trade payables of Rs. 254.83 million, and (iv) increase in current liabilities of Rs. 0.20 million. Income taxes paid amounted to Rs. 3.05 million in Fiscal ended March 31, 2023.
Fiscal ended March 31, 2022
Net cash flow generated from operating activities was Rs. 25.30 million in Fiscal ended March 31, 2022. Restated Profit before tax was Rs. 8.54 million in Fiscal ended March 31, 2022. Adjustments to reconcile profit before tax to net cash flows primarily consisted of depreciation expense of Rs. 19.62 million, finance cost of Rs. 30.12 million and translation from foreign operations of Rs. 0.90 million. This was partially offset by interest income on fixed deposits of Rs. 0.54 million.
Operating cash flow before working capital changes was Rs. 58.64 million in Fiscal ended March 31, 2022. The main adjustments in Fiscal ended March 31, 2022, primarily consisted of increase in current inventories of Rs. 81.05 million, increase in non-current other financial assets of Rs. 0.80 million, decrease in current trade receivables of Rs. 1.89 million, increase in current other financial assets of Rs. 2.10 million, increase in other current assets of Rs. 22.38 million. This was partially offset by (i) increase in non-current provision of Rs. 0.04 million, (ii) increase in current trade payables of Rs. 75.94 million, (iii) decrease in current other financial liabilities of Rs. 3.92 million, (iv) increase in current liabilities of Rs. 0.42 million, and (iv) increase in current provision of Rs. 0.14 million. Income taxes paid amounted to Rs. 1.50 million in Fiscal ended March 31, 2022.
Net Cash Generated from/ used in Investing Activities
Fiscal ended March 31, 2024
Net cash flow generated from investing activities in Fiscal ended March 31, 2024 was Rs. (541.26) million. This was partially due to purchase of property, plant & equipments of Rs. 33.41 million, changes in capital work in progress of Rs. 101.80 million, purchase of other intangible assets of Rs. 0.31 million, decrease in non-current investments of Rs. 404.74 million, decrease from term deposits and other bank balances of Rs. 1.72 million and interest income received of Rs. 0.72 million.
Fiscal ended March 31, 2023
Net cash flow generated from investing activities in Fiscal ended March 31, 2023 was Rs. 0.28 million. This was primarily on account of capital work-in-progress of Rs. 81.75 million, increase from term deposits and other bank balances of Rs. 2.71 million and interest received from fixed deposits of Rs. 1.35 million. This was partially offset by purchase of property, plant & equipments of Rs. 85.53 million.
Fiscal ended March 31, 2022
Net cash flow used in investing activities in Fiscal ended March 31, 2022 was Rs. 25.67 million. This was primarily on account of purchase of property, plant & equipments, capital work-in-progress and other tangibles assets of Rs. 13.30 million and decrease from term deposits and other bank balances of Rs. 3.89 million. This was partially offset by sale of property and plant of Rs.8.02 million and interest received of Rs.0.54 million.
Net Cash Generated from/ used in Financing Activities
Fiscal ended March 31, 2024
Net cash used in financing activities in Fiscal ended March 31, 2024 was Rs. 577.14 million. This was primarily on account of proceeds from issue of shares of Rs. 103.30 million and proceeds from share premium of increase in current borrowing of Rs. 526.50 million and Rs. 202.52 million. This was partially offset by repayments of long-term
borrowings of Rs. 59.38 million, interest paid on bank borrowings and other bank charges of Rs. 115.80 million and bonus issue of Rs. 80.00 million.
Fiscal ended March 31, 2023
Net cash used in financing activities in Fiscal ended March 31, 2023 was Rs. 19.35 million. This was primarily on account of proceeds from issue of shares of Rs. 36.00 million and increase in current borrowing of Rs. 1.28 million. This was partially offset by repayments of long-term borrowings of Rs. 19.72 million and interest paid on bank borrowings and other bank charges of Rs. 36.91 million.
Fiscal ended March 31, 2022
Net cash used in financing activities in Fiscal ended March 31, 2022 was Rs. 1.04 million. This was primarily on account of proceeds from issue of shares of Rs.5.00 million and proceeds for long-term borrowing and current borrowing of Rs. 26.16 million. This was partially offset by interest paid on bank borrowings and other bank charges of Rs. 30.12 million.
Liquidity and Capital Resources
We have historically financed the expansion of our business and operations primarily through debt financing and funds generated from our operations. From time to time, we have obtained loan facilities to finance our short term working capital requirements. We evaluate our funding requirements regularly in light of cash flows from our operating activities, the requirements of our business and operations and market conditions.
The following table summarizes certain information in relation to our liquidity and capital resources for the years indicated:
| (Rs. in million) | |||
| Particulars | Consolidated | Standalone | Standalone |
| March 31, 2024 | March 31, 2023 | March 31, 2022 | |
| Cash & Cash equivalent | 8.81 | 3.76 | 4.68 |
| Non- Current borrowings | 88.04 | 130.97 | 150.69 |
| Current borrowings | 699.68 | 339.32 | 338.03 |
| Bank Balance other than cash & cash equivalents | 17.92 | 4.32 | 7.03 |
Indebtedness
As on August 23, 2024, our outstanding borrowings of our Company and its Subsidiaries on a consolidated basis aggregated to Rs.1,013.25 million, comprising of secured loan of Rs. 1,013.25 million and unsecured loan of Rs. Nil million. For further details of our borrowings, see section titled "FinancialIndebtedness" on page 340.
There are a number of covenants in our financing agreements that we have entered into with our lenders. Further, some of our financing agreements include conditions and covenants that require us to obtain their consent prior to carrying out certain activities and entering into certain transactions. Failure to meet these conditions or obtain these consents could have significant consequences on our business. For further details, see section titled "Risk Factors" on page 38.
Contingent Liabilities and Commitments
As on March 31, 2024, our contingent liabilities and commitments identified under the Ind AS 37, on a consolidated basis, were as follows:
| (Rs. in million) | |
| Particulars | As at March 31, 2024 |
| (a) Contingent Liabilities - | |
| i. Claim against the company not acknowledged as debt | - |
| ii. Bank Guarantees | 3.63 |
| iii. Letter of Credit (LC) | 145.06 |
| iv. Other money for which the company is contingently liable | - |
| (b) Commitments | |
| i. Estimated amount of contracts remaining to be executed on capital account and not provided for | - |
| ii. Uncalled Liability on share and other investments partly paid | - |
| iii. Other commitments | - |
For details of our contingent liability and guarantees as of March 31, 2024, as per Ind AS 37, see "Restated Financial Information - Note 37 - Additional note to financial statements - Contingent liabilities & Commitments" on page F-64.
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors.
Capital Expenditures
For Fiscal 2024 (on a consolidated basis), Fiscal 2023 and Fiscal 2022, our capital expenditure towards additions (after disposal and adjustments) to fixed assets (property, plant and equipments and intangible assets) were Rs. 71.83 million, Rs. 85.53 million and Rs. 8.02 million respectively.
Related Party Transactions
We enter into various transactions with related parties in the ordinary course of business. These transactions principally include remuneration paid to KMPs, purchases of rubbers, sale of tyres and export of tyres, technology purchase and import of varieties of rubbers, equipments and other items.
For details of our related party transactions, please see "Restated Financial Information -Note 38 -Related Parties" on page F-76.
AUDITORS OBSERVATIONS
Our Statutory Auditor have included certain emphasis of matters in their examination report:
Emphasis of matters in the Auditors report which do not require any corrective adjustments in the Restated Financial Statements:
Audited Special Purpose Consolidated Summary Financial Statements of the Group for year ended March 31, 2024:
The Special Purpose Consolidated Summary Financial Statements have been prepared by the Company for the purpose of preparation of the Restated Financial Information, which will be included in this Red Herring Prospectus and the Prospectus in connection with the proposed issue of equity shares of the Company by way of a fresh issue and offer for sale of equity shares by the existing shareholders by way of initial public offer. Accordingly, Special purpose Consolidated Summary Financial Statements may not be suitable for any other purpose and this report should not be used, referred to or distributed for any other purpose.
Audited Special Purpose Standalone Summary Financial Statements of the Company for year ended March 31, 2024:
The Special Purpose Standalone Summary Financial Statements have been prepared by the Company for the purpose of preparation of the Restated Financial Information, which will be included in this Red Herring Prospectus and the Prospectus in connection with the proposed issue of equity shares of the Company by way of a fresh issue and offer for sale of equity shares by the existing shareholders by way of initial public offer. Accordingly, Special Purpose Standalone Summary Financial Statements may not be suitable for any other purpose and this report should not be used, referred to or distributed for any other purpose.
Audited Special Purpose Standalone Ind AS Summary Financial Statements of the Group for year ended March 31, 2023 and March 31, 2022:
The Special Purpose Standalone Ind AS Summary Financial Statements have been prepared by the Company for the purpose of preparation of the Restated Financial Information, which will be included in this Red Herring Prospectus and the Prospectus in connection with the proposed issue of equity shares of the Company by way of a fresh issue and offer for sale of equity shares by the existing shareholders by way of initial public offer.
Accordingly, Special purpose Standalone Ind AS Summary Financial Statements may not be suitable for any other purpose and this report should not be used, referred to or distributed for any other purpose.
Our opinion is not modified in respect of this matter.
CHANGES IN ACCOUNTING POLICIES
There have been no changes in our accounting policies during Fiscal 2024 (on a consolidated basis), Fiscal 2023 and Fiscal 2022 (standalone basis).
Unusual or Infrequent Events or Transactions
Except as described in this Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.
Significant Economic Changes that Materially affect or are likely to affect income from continuing operations
Our business has been subject, and we expect it to continue to be subject, to significant economic changes that materially affect or are likely to affect income from continuing operations identified above in "Managements Discussion and Analysis of Financial Position and Results of Operations - Significant Factors Affecting our Results of Operations and Financial Condition" and the uncertainties described in "Risk Factors" on pages 302 and 38, respectively.
Known Trends or Uncertainties
Other than as described in the section "Risk Factors " on page 38, to our knowledge, there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on revenues or income of our Company from continuing operations.
Future Relationship between Cost and Income
Other than as described in chapter titled "Risk Factors " beginning on page 38 and in this section, to our knowledge there are no known factors that might affect the future relationship between cost and revenue. Our Companys future costs and revenues will be determined by demand/ supply situation, government policies, global market situation and prices of raw material and finished products.
Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices
New products or Business segments
Our operations fall under a single business segment, which is "Tyres" and "Tread Rubber". Thus, the segment revenue, segment results, total carrying amount of segment assets, total carrying amount of segment liabilities, total cost incurred to acquire segment assets, total amount of charge for depreciation during the year is as reflected in the Restated Consolidated Financial Information.
We disaggregate our revenue based on geographical locations which are revenue generated within India and from outside India, the details of which are as follows:
Except as set out in this Red Herring Prospectus, here are no new products or segments that have been announced but are yet to be launched.
The extent to which the business is seasonal.
Significant dependence on a single or few customers or suppliers
Our income is not dependent on a single customer or supplier or a few customers or suppliers. Further, no foreign customer or supplier contributes to a significant portion of our business.
Contribution of our customers and suppliers, as a percentage of total revenue and cost, respectively, for the periods indicated below:
(Rs. in million) |
||||||
| Customer | Fiscal |
|||||
| Concentration* | 2024 |
2023 |
2022 |
|||
(Consolidated) |
(Standalone) |
(Standalone) |
||||
| Amount | Percentage of Revenue from Operations (%) | Amount | Percentage of Revenue from Operations (%) | Amount | Percentage of Revenue from Operations (%) | |
| Top 3 Customers | 767.23 | 33.77% | 153.47 | 12.98% | 142.09 | 12.53% |
| Customer 1 | 378.49 | 16.66% | 70.15 | 5.93% | 59.93 | 5.29% |
| Customer 2 | 316.95 | 13.95% | 56.12 | 4.75% | 52.17 | 4.60% |
| Customer 3 | 71.79 | 3.16% | 27.21 | 2.30% | 29.99 | 2.65% |
| Top 10 Customers | 1534.463 | 42.69% | 285.92 | 24.18% | 304.16 | 26.83% |
* Names of customers are not disclosed due to confidentiality reasons.
| Supplier | Fiscal |
|||||
| Concentration* | 2024 |
2023 |
2022 |
|||
(Consolidated) |
(Standalone) |
(Standalone) |
||||
| Amount (f in million) | Percentage to Total Purchases (%) | Amount ( Rs. in million) | Percentage to Total Purchases (%) | Amount (f in million) | Percentage to Total Purchases (%) | |
| Top 3 Supplier | 1,207.42 | 60.00% | 853.38 | 78.29% | 814.52 | 79.07% |
| Supplier 1 | 585.09 | 29.07% | 708.77 | 65.02% | 753.00 | 73.10% |
| Supplier 2 | 379.35 | 18.85% | 101.64 | 9.32% | 31.02 | 3.01% |
| Supplier 3 | 242.98 | 12.07% | 42.97 | 3.94% | 30.50 | 2.96% |
| Top 10 Suppliers | 1,972.54 | 98.02% | 1,006.49 | 92.33% | 924.63 | 89.76% |
* Names of suppliers are not disclosed due to confidentiality reasons.
Reason for variation in profit from Fiscal 2023 to Fiscal 2024.
The main reason for change in profit from Fiscal 2023 to Fiscal 2024 are mentioned below: -
1. Raw material prices: Rubber constitutes a major portion of the total cost for the tyre industry. Tyre manufacturing companies use crude oil derivatives as major raw material for making synthetic rubber tyres. Since the start of 2023, crude oil prices have fallen due to concerns about interest rate hike, growing recession fear, and uncertainty surrounding Chinese demand. In the last two years, natural rubber price was also on the decline. Weak demand and high inventory levels dragged down rubber prices. In January 2023, natural rubber prices dropped to a two-year low mirroring the weaker trends overseas due to lower demand from China and higher supply. Declining rubber prices have improved the operational efficiency and margins of all the tyre manufacturing companies manifold. This is the major contributor of our expansion in margins, thereby PAT.
2. Growing demand: The second reason why tyre stocks are rising is due to strong demand. Tyres are integral parts of the automobile industry for obvious reasons. Hence, a growing automobile industry growth opportunity for the tyre industry. Improving disposable income, a low base of the past three financial years and an improvement in supply chains should continue to support the automobile sectors recovery in this financial year. Hence, rubber companies might see strong demand from original equipment manufacturers (OEMs). The rising demand for vehicles will lead to growing demand for tyres. Also, the replacement segment is growing at a stable pace. Reportedly, factors like improving economic activities, increasing freight movement, higher spending on infrastructure, absence of material price hikes, etc. shall support the growth in the replacement segment in the financial year 2024. Another major shift in the automobile industry is driven by electric vehicles (EV). Growing EV demand in India will lead to higher demand in the tyre industry.
3. Carbon black, another major raw material is a derivative of Carbon black feed stock (CBFS), which is a major raw material for making tyres and this constitutes around 30% of the total raw material cost. Crude oil prices have declined sharply in the last one year helping this industry with lower cost of production, while the higher demand is persisting for better realisation on sales resulting in higher spike in profitability of the industry.
4. Curb on imports and domestic economy: The faster recovery from the pandemic which led to demand depression, stringent anti-dumping duties by Government and China one plus market policy of many countries are prominent factors for stronger growth in tyre industry. This industry further benefited from government interventions restricting high volumes of imports and revised axle-load norms. These revised norms were to re-engineer the demand for replacement tyres and the buoyancy of Indian exports. This curb on imports has increased the size and scale of production of the industry. This has led to an increase in the export capacity of the companies.
5. Cost optimisation: Our company has reengineered number of initiatives during the last one year through R & D to reduce the cost of operations and new mix of product ranges/variants and these initiatives have also significantly contributed to improvement in margins thereby PAT.
6. Capacity Utilisation: Though the installed capacity increased fivefold at the end of FY 2024, the actual production had increased from 2.27 Lac Tyres to 4.77 Lacs, which is more than 100% in comparison to FY 2022 when it was 75%, resulting in improvement in margins, thereby PAT.
7. Consolidation of Profits from two wholly-owned Subsidiaries: There has been a further increase in PAT due to consolidation of Numbers from 2 Subsidiaries-Tolin Rubbers Private Limited and Tolins Tyres LLC (One Person). The higher margins in Tolins Tyres LLC, has also contributed to the increase in PAT for the Year ending March 2024.
COMPETITIVE CONDITIONS
We operate in a competitive environment. Please refer to the sections "Our Business", "Industry Overview " and "Risk Factors" on pages 212, 167 and 38, respectively for further information on our industry and competition
Significant developments after March 31, 2024 that may affect our future results of operations
Except as disclosed in this Red Herring Prospectus, to our knowledge no circumstances have arisen since March 31, 2024, that could materially and adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.
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