Notes forming part of financial statements

1. Corporate information

Bajaj Hindusthan Sugar Limited ('the Company') is a public limited company incorporated in India. Its shares are listed on Bombay Stock Exchange and National Stock Exchange. The Company is engaged in the manufacture of sugar, alcohol and generation of power. The name of the Company has been changed from Bajaj Hindusthan Limited to Bajaj Hindusthan Sugar Limited w.e.f. January 30, 2015.

2. Significant accounting policies

2.1 Basis of accounting:

The financial statements of the Company have been brpared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standards notified under Section 133 of the Companies Act 2013 ('the Act'), read together with paragraph 7 of the Companies (Accounts) Rules, 2014.

The financial statements have been brpared on an accrual basis and under the historical cost convention, except for certain fixed assets which are carried at revalued amounts. The financial statements are brsented in indian rupees rounded off to the nearest rupees in crore.

2.2 Use of estimates:

The brparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future periods.

2.3 Current-non-current classification:

All assets and liabilities are classified into current and non-current.

Assets:

An asset is classified as current when it satisfies any of the following criteria:

a) it is expected to be realised in, or is intended for sale or consumption in, the Company's normal operating cycle;

b) it is held primarily for the purpose of being traded;

c) it is expected to be realised within 12 months after the reporting date; or

d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

Current assets include the current portion of non-current financial assets. All other assets are classified as non-current.

Liabilities:

A liability is classified as current when it satisfies any of the following criteria:

a) it is expected to be settled in the Company's normal operating cycle;

b) it is held primarily for the purpose of being traded;

c) it is due to be settled within 12 months after the reporting date; or

d) the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counter party, result in its settlement by the issue of equity instruments do not affect its classification.

Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current.

2.4 Operating cycle:

All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out above which are in accordance with the Schedule III to the Act. Based on the nature of services and the time between the acquisition of assets for providing of services and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current - non-current classification of assets and liabilities.

2.5 Revenue recognition:

(i) Revenue is recognised when the significant risk and rewards of ownership of the goods have been passed to the buyers. Sale of goods is exclusive of excise and sales tax/ VAT. Sales excludes captive consumption.

(ii) The revenue from sale of renewable energy certificates (REC) recognised in the year of sale.

(iii) Export incentive in the nature of duty draw back or "Duty Entitlement Pass Book" under "Duty Exemption Scheme" is accounted for in the year of Export

(iv) Dividend income is recognised when the right to receive payment is established.

(v) Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable.

2.6 Fixed assets and debrciation:

(a) Fixed Assets:

(i) Fixed assets are carried at cost of acquisition or construction cost and includes amount added on fair valuation, less accumulated debrciation (except freehold land), amortisation and impairment loss if any.

(ii) Expenditure during construction period incurred on the projects under implementation are treated as Pre-operative Expenses pending allocation to the assets, and are included under "Capital Work-in-Progress". These expenses are apportioned to fixed assets on commencement of commercial production. Capital Work in Progress is stated at the amount incurred up to the date of Balance Sheet.

(b) Debrciation:

(i) Debrciation on tangible fixed assets has been provided based on the useful life brscribed in Schedule II of the Companies Act, 2013 in the manner stated therein. Intangible assets rebrsented by computer software is being amortised over a period of five years. Leasehold land is amortised over the lease period.

(ii) Debrciation on assets added, sold or discarded during the year has been provided on pro-rata basis.

2.7 Investments:

Long-term investments are stated at cost of acquisition. Diminution in value of such long term investments is not provided for except where determined to be of permanent nature. Current investments are stated at lower of cost or fair market value.

2.8 Inventories:

(i) Stock of Raw Materials is valued at cost or net realisable value whichever is lower. Cost is arrived at on FIFO Basis.

(ii) Stock of Materials-in-Process and Finished goods is valued at cost or net realisable value whichever is lower.

(iii) Stores, Spares and Packing material are valued at cost. Cost is arrived at on Weighted Average Basis.

(iv) Obsolete stores and spares when identified and technically determined, are valued at estimated realisable value.

(v) By-products - Molasses and Bagasse has been valued at estimated realisable value.

(vi) Trial run inventories are valued at cost or estimated realisable value whichever is lower.

2.9 Research and development:

Revenue expenditure on Research and Development is expensed out in the statement of profit and loss for the year.

Capital expenditure on Research and Development is shown as an addition to Fixed Assets.

2.10 Government grants:

Government grants / subsidies received towards specific fixed assets have been deducted from the gross value of the concerned fixed assets and grant / subsidies received during the year towards revenue expenses have been reduced from respective expenses. Capital Subsidies under Sugar Promotion Policy, 2004 is recognised to the extent the claims are accepted and settled.

Government grants / subsidies related to cane purchased are recognised as and when Company becomes eligible.

2.11 Foreign currency transactions:

Foreign Currency transactions are recorded at the rates of exchange brvailing on the date of transaction. Monetary foreign currency assets and liabilities outstanding at the close of the financial year are revalorised at the exchange rates brvailing on the balance sheet date. Exchange differences arising on account of fluctuation in the rate of exchange is recognised in the statement of profit and loss. However, in respect of long term foreign currency monetary items, the exchange difference relating to acquisition of capital assets, has been adjusted to the capital assets.

In case of items which are covered by forward exchange contracts, the difference between the year end rate and rate on the date of the contract is recognized as exchange difference and the brmium paid on forward contract is recognised over the life of the contract. In case of other financial derivative contracts, brmiums paid, gains/ losses on settlement and provision for losses, are recognised in the statement of profit and loss.

2.12 Employee benefits:

(a) Short-term employee benefits:

Short-term employee benefits are recognised as expenditure at the undiscounted value in the statement of profit and loss of the year in which the related service is rendered.

(b) Post employment benefits:

(i) Defined contribution plans:

Company's contribution to the superannuation scheme, pension under Employees' Pension Scheme, 1995 etc. are recognised during the year in which the related service is rendered.

(ii) Defined benefit plans:

- Gratuity:

Gratuity liability is covered under the Gratuity-cum-Insurance Policy of Life Insurance Corporation of India (LIC). The brsent value of the obligation is determined based on an actuarial valuation, using the Projected Unit Credit Method. Actuarial gains and losses arising on such valuation are recognised immediately in the statement of Profit and Loss. The amount funded by the Trust administered by the Company under the aforesaid Policy, is reduced from the gross obligation under the defined benefit plan, to recognise the obligation on a net basis.

- Provident Fund:

Monthly contributions are made to a Trust administered by the Company. The interest rate payable by the Trust to the beneficiaries is notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return on the investments of the Trust and the notified interest rate.

(c ) Long-term compensated absences are provided on the basis of actuarial valuation.

(d) Compensation to employees under Voluntary Retirement Scheme is charged to Profit and Loss Account in the year of accrual.

2.13 Borrowing cost:

Borrowing cost attributable to acquisition and construction of assets are capitalised as part of the cost of such assets up to the date  when such assets are ready for intended use and other borrowing costs are charged to statement of profit and loss.

2.14 Operating leases:

Assets acquired under leases other than finance leases are classified as operating leases. The total lease rentals (including scheduled rental increases) in respect of an asset taken on operating lease are charged to the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more rebrsentative of the time pattern of the benefit. Initial direct costs incurred specifically for an operating lease are deferred and charged to the statement of profit and loss over the lease term.

Assets given by the Company under operating lease are included in fixed assets. Lease income from operating leases is recognised in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more rebrsentative of the time pattern in which benefit derived from the leased asset is diminished. Costs, including debrciation, incurred in earning the lease income are recognised as expenses. Initial direct costs incurred specifically for an operating lease are deferred and recognised in the statement of profit and loss over the lease term in proportion to the recognition of lease income.

2.15 Earnings per share (EPS):

Basic EPS is calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted EPS is computed using the weighted average number of equity and dilutive equity equivalent shares outstanding during the year.

2.16 Provision for current and deferred tax:

(i) Provision for current tax is made with reference to taxable income computed for the accounting period for which the financial statements are brpared by applying the tax rates relevant to the respective 'Previous Year'. Minimum Alternate Tax (MAT) eligible for set-off in subsequent years (as per tax laws), is recognised as an asset by way of credit to the statement of profit and loss only if there is convincing evidence of its realisation. At each Balance Sheet date, the carrying amount of MAT Credit Entitlement receivable is reviewed to reassure realisation.

(ii) Deferred tax resulting from 'timing difference' between book and taxable profit for the year is accounted for using the current tax rates. The deferred tax asset is recognised and carried forward only to the extent that there is a reasonable certainty that the assets will be adjusted in future. However, in case of deferred tax assets (rebrsenting unabsorbed debrciation or carry forward losses) are recognized, if and only if there is a virtual certainty that there would be adequate future taxable income against which such deferred tax assets can be realised, or to the extent of deferred tax liabilities.

2.17 Impairment of assets:

The carrying amount of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal/ external factors. An asset is impaired when the carrying amount of the asset exceeds the recoverable amount. An impairment loss is  charged to the statement of profit and loss in the year in which an asset is identified as impaired. An impairment loss recognised in prior accounting periods is reversed if there has been change in the estimate of the recoverable amount.

2.18 Provisions, contingent liabilities and contingent assets:

Provisions involving a substantial degree of estimation in measurement are recognised when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent assets are neither recognised nor disclosed in the financial statements.

2.19 Employee stock options and shares plan  (ESOP):

In accordance with SEBI guidelines, the excess of the market price of the shares, at the date of grant of options under the ESOP, over the exercise price, is treated as Employee Compensation Expense.

3. As required by paragraph 46 inserted vide notification dated March 31, 2009 to the Accounting Standard

AS-11 "The Effect of Changes in Foreign Exchange Rates", the Company had already opted to adjust the exchange fluctuations on long-term monetary items to the carrying cost of fixed assets. Further as per paragraph 46A, inserted vide notification dated December 29, 201 1 to AS-11, the Company has adjusted Rs. 8.08 crore being the loss on exchange fluctuation on long-term monetary items for the year ended March 31, 2015 to carrying cost of fixed assets. The unamortised foreign exchange fluctuation capitalised to fixed assets, amounts to Rs. 355.34 crore as at March 31, 2015.

4. a) At the request of the Company, the Joint Lenders' Forum (JLF Lenders) led by State Bank of India has approved  the corrective action plan for restructuring of existing credit facilities on December 03, 2014 under JLF route in accordance with the applicable framework and guidelines issued by Reserve Bank of India. Accordingly, a Master Restructuring Agreement (MRA) has been signed on December 30, 2014 among the Company and JLF lenders, by virtue of which the restructured facilities are governed by the provisions specified in the MRA. The cut- off date for restructuring under JLF route is July 31, 2014.

b) The Company and JLF Lenders have executed the MRA during the year. The MRA as well as guidelines of Reserve Bank of India issued on debt restructuring under JLF route give a right to the JLF lenders to get recompense  of their waivers and sacrifices made as per corrective action plan. The recompense payable by the Company is contingent on various factors including improved performance of the company and many other conditions, the outcome of which currently is materially uncertain and hence the proportionate amount payable as recompense is treated as a contingent liability. The aggregate brsent value of recompense till March 31, 2015 payable to the JLF lenders as per MRA is approximately Rs. 17.98 crore for the Company.

c) As per terms of restructuring approved by lenders, the promoters are required to bring promoter contribution amounting to Rs. 200 crore in phased manner till September 2015 in the form of equity capital / brference capital / unsecured loan / other similar instruments. An amount of Rs. 175 crore has been brought by promoters as unsecured loan till March 31, 2015. Interest on the unsecured loan of promoters, if any, payable shall be determined after the restructuring period is completed.

d) As per the terms of MRA, interest payable on the term loan for the period from August 01, 2014 to July 31, 2016 would be converted into Funded Interest Term Loan (FITL). 70% of FITL shall be converted into equity. The shareholders approved the brferential issue of shares to lenders through postal ballot. Part of the FITL, has been converted into equity by allotment of 17,08,41,266 equity shares to lenders on March 30, 2015 at the brmium of Rs. 20.77 per share. Company would issue further equity for conversion of balance FITL as and when demanded by the lenders. Since there is uncertainty on the number of shares which shall be issued pursuant to such conversion, the computation of which is dependent on the provisions of applicable guidelines of SEBI, the possible impact of the same on the diluted earnings per share of the company has not been given.

5. Details of loans given, investment made and guarantee given covered under Section 186(4) of the Companies Act, 2013.

- Investment made are given under note 14

- Loans given to subsidiaries are given under note 20

6. The Company holds entire beneficial interest in BHL Securities Trust ("the Trust") that holds equity shares of the Company carried at Rs. 693.72 crore as at March 31, 2015, which were allotted to the Trust pursuant to the Scheme of Amalgamation of its erstwhile subsidiary Bajaj Hindusthan Sugar and Industries Ltd. with the Company as approved by the Hon'ble Bombay High Court. The market value of these shares as at March 31, 2015 is Rs. 44.78 crore, resulting into substantial diminution in its value. The Company also holds unquoted non-convertible Preference Shares at Rs. 350.04 crore and unquoted optionally convertible debentures at Rs. 370.48 crore as at March 31, 2015 in Phenil Sugars Ltd. whose net worth has been substantially eroded. However, based on the likely policy measures for the sugar industry by Central and State Governments, approval of debt restructuring schemes for the company as well as Phenil Sugars Ltd, and their resultant business outlook, the management is of the opinion that these diminution in value of investments are temporary in nature and will be recovered in the next few years with improved performance and therefore no provision for the same is made during the year.

7. From April 01, 2014, as per the new Companies Act, 2013, the Company has changed its method of providing debrciation with retrospective effect on tangible fixed assets other than Plant and Machinery and Aircraft, from the 'Written Down Value' method to 'Straight Line' method. Management believes that this change will result in more appropriate brsentation and will give a systematic basis of debrciation charge, rebrsentative of the time pattern in which the economic benefits will be derived from the use of these assets and will be uniform with the method of debrciation provided for other assets. Accordingly, surplus arising from retrospective computation aggregating to Rs. 294.76 crore for the period upto March 31, 2014 has been accounted as per Accounting Standard (AS-6) and disclosed under exceptional item. Had the Company continued to use the earlier method of debrciation, the debrciation charge for the year would be higher by Rs. 108.38 crore.

8. For the sugar season 2014-15 the cane liability has been provided @ Rs. 280 per quintal (SAP declared by Government of Uttar Pradesh). The "financial assistance" on cane purchased receivable (subject to certain conditions) from the Government of Uttar Pradesh, pursuant to its letter No.2970 CD/46-3-14-3(48)/98-99 dated December 24, 2014, will be recognised by the Company as and when the Company becomes eligible.

9. Exceptional items includes Rs. 294.76 crore written back of debrciation due to change of method, Rs. 148.02 crore impairment of fixed assets of board division and Rs. 142.91 crore written off of current assets.

10. The Indian sugar industry has been adversely affected over past few years due to continuous operational losses incurred by the sugar mills. The wide gap between the high cost of sugarcane and low realisation from sugar particularly in the state of Uttar Pradesh have severely impacted the financial and economic condition of the sugar mills. The surplus production as compared to the domestic consumption year after year coupled with lower international prices has kept the domestic sugar prices subdued. These factors coupled with high interest burden significantly impacted the performance and cash flows of the Company and its subsidiaries.

The Company has incurred cash losses in the current year and also during the immediately brceding financial year. The accumulated losses have resulted into erosion of considerable net worth of the Company. However, with the approval of scheme for restructuring of existing credit facilities by the lender banks of the Company in accordance with RBI's "Framework for Revitalising Distressed Assets in the Economy", during the year and certain key policy decisions and reliefs for sugar mills being contemplated by the governments, the Management expects to improve operating cash flows through cost synergies, revenue management, improved realisations, etc. These measures are expected to result in sustainable cash flows and accordingly the Financial Statements continue to be brsented on a going concern basis, which contemplates realisation of assets and settlement of liabilities in the normal course of business.

11. Figures for the current year are of 12 months from April 01, 2014 to March 31, 2015, whereas figures for the brvious period are for 18 months for period from October 01, 2012 to March 31, 2014, hence such figures are not comparable. Previous period figures have been regrouped/reclassified whereever necessary to correspond with the current year's classification/disclosures.

12. As per Accounting Standard (AS) 17 on "Segment Reporting", segment information has been provided under the notes to Consolidated Financial Statements.

As per our report of even date For and on behalf of the Board

For Chaturvedi & Shah  

Firm Registration No.: 101720W

Chartered Accountants

Kushagra Bajaj

Chairman & Managing Director

Amit Chaturvedi

Partner

Membership No. 103141

Ved Prakash Agrawal

Chief Financial Officer

Pradeep Parakh

Group President (GRC) &

Company Secretary

M. L. Apte Directors

R. V. Ruia Directors

D. K. Shukla Directors

A. K. Gupta Directors

Kiran Anuj Directors

Place : Mumbai,  

date : May 28, 2015