adavanced accounting

8/7/2019 ADAVANCED ACCOUNTING

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ADAVANCED ACCOUNTING-III

PROJECT

MADE BY:-

SATWIK CHAUDHARY

TY A

ROLL No. 3042


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CEAT LTD.


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FUNDAM E NT AL ANA LYSIS

O MPAN Y PR OF ILE

Background

CEAT is a leading manufacturer of automobile tyres in India, and one of themost recognised brands in the country. The company also exports a range of tyres to over 130 countries. Around since 1958, CEAT has run up to be one of the best tyre manufacturersin the business. They not only make trailblazing tyres, but also market tubes andflaps. And that's not all. At CEAT they personify their business; tough yetsmooth, secure yet ready to explore the undaunted.

CEAT Limited, the flagship company of RPG enterprises, is one of Indiasleading tyre manufacturing companies. Established in 1958, the Company withan annual turnover of Rs. 2990 crores, manufactures close to 10 million tyresevery year and has a 11% share in the Indian tyre industry. The Company alsomarkets tubes and flaps which are outsourced from its partners.Renowned for itsworld class quality and durability, CEAT manufactures the widest range of tyresfor all user segments including heavy-duty Trucks & Buses, LCV, Earthmoversand Forklifts (specialty segment), PC, tractors, trailers, scooters (2/3 wheelers),motorcycles, auto-rickshaws and OTR. CEAT enjoys a major share in the light truck and truck tyre segments and has a

strong presence in both the domestic as well as international markets. TheCompany exports tyres to nearly 112 countries across America, Europe, Africaand Asia. CEATs products have found high acceptance with several OEMs inEurope despite stiff competition from other global players. Over the years, theCompanys export basket has improved both in terms of price realisations andprofitability. CEAT has 2 manufacturing plants, situated in Mumbai (Bhandup),

Maharashtra; Nasik, Maharashtra. CEATs robust and extensive network consists of 34 regional offices and over 3500 dealers of which approximately

100 are exclusive dealers running the CEAT SHOPPE outlets for the PCsegment and 96 run the CEAT HUBs for the Truck & Bus segments.


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HISTORY

y CEAT International was first established in 1924 at Turino in Italy and

manufactured cables for telephones and railways.y

In 1958, CEAT came to India, and CEAT Tyres of India Ltd was established incollaboration with the TATA Group.

y In 1982, the RPG Group took over CEAT Tyres of India, and in 1990, renamed

the company CEAT Ltd.

CURRENT SCENARIO

y Over 6 million tyres produced every year

y Operations in Mumbai and Nasik plants

y Exports to USA, Africa, America, Australia and other parts of Asia

y Network of 34 regional offices, 7 Zones, over 3,500 dealers and more than 100

C&F agentsy Dedicated customer service, with customer service managers in all four

divisional offices, assisted by 50 service engineers. PR O FILE: Company Background - Ceat

Industry Name: Tyres & Tubes

House Name: R P Goenka Group Collaborative

Year Of Incorporation: 1958

Regd. Offic e Address CEAT Mahal, 463, Dr. Annie Besant Road

Distr ict Mumbai

State Maharashtra Pin Co de 400030 T el. No. 022-24930621,022-56616054Fax No. 022-66606039 Em a il : [email protected]

In ter net : http://www.ceatyres.in

Aud itors : N M Raiji & Co.

Reg istrars Na me T S R Darashaw Ltd.

Address No. 6-10, Haji Moosa Patrawala Ind. Estate, 20, Dr. E. Moses Road,Mumbai - 400011, Maharashtra T el. No. : 66568484 Fax No. : 66568494Em a il: [email protected] In ter net : http://www.tsrdarashaw.com


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E C O NO M IC ANA LYSIS CEAT, started in 1958 has seen all kinds of phases of the Indian economy. Ithas successfully endured the difficult phases and worked continuously from its

strength to strength.

M IC R O ANA LYSIS

CEAT ended the year 2009-10 with net sales of Rs. 2808 crores as againstRs.2367 crores in the previous year, registering a growth of 18.6%. TheCompanys profit after tax stood at Rs. 161.04 crores as compared to a loss of Rs.16.11 crores during the same period last year. This was achieved due tosmart and strategic raw material procurement, substantial reduction in interestburden on account of efficient working capital management and numerous costreduction initiatives with higher productivity. The Company has been able to marginally increase its market share of 2-3wheeler and heavy / light commercial vehicle segments. A greater skew towardsthe more profitable replacement market was possible because of the better reachto end consumers through the CEAT Shoppes and CEAT Hubs. Revenues fromthe replacement segment grew from 66% in 2008-09 to 75 % this year. Sales infarm segment were impressive despite poor rains with a growth of 16%. CEATcontinues to be one of the largest exporters of tyres in the country. Despite the global slowdown, the company maintained exports at Rs. 477crores at the same level as last year. CEAT has continued its concerted effort tomove closer to the end customers by setting up offices in Dubai and Brussels.Through its strong network and reach in 112 countries the Company has stayedin tune with emerging trends in most of the export markets, particularly in theFar East, Africa and the Middle East. This initiative also helped the Company tohave a healthy order book and fetch better prices .

MA C R O ANA LYSIS The Indian tyre industry is banking on strong overall economic development of the country to see a further improvement in demand and better pricing power inthe future. Projected G DP growth forecast of over 8% in coming years augu rswell for the industry.


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Tyre Business is extremely raw material sensitive. Towards latter part of theyear there was a significant shortage of natural rubber, one of the most criticalinputs in tyre making, due to fall in production of the commodity. This supplydemand mismatch has led to a steep rise in the prices of natural rubber. Theposition is not likely to improve in the near future as rubber demand is expected

to remain strong and supply is not expected to keep pace with it. Despite a tough market scenario and an adverse economic situation, the Indiantyre industry was able to register a reasonable top-line growth, withcorresponding increase in its profitability in the first half of the year. However,profitability was adversely affected in the second half due to hardening of rawmaterial cost, which could not be fully passed on to the customers due tocompetitive pressures. G LOB AL ANA LYSIS The automobile industry, which faced a setback following the global financialcrisis, has since posted signs of recovery in certain global markets, particularlyin the Far East, Africa and the Middle East. However, it is yet to recover fully inthe US and Europe. In India, the demand situation started improving gradually,right from the start of the year, due to a positive swing in the overall economicactivity, substantially aided by the stimulus package announced by theGovernment of India. By the end of the first half of the year under review, thetyre industry saw a surge in overall demand, particularly in the replacementsegment. The Original Equipment segment and the export segment also joinedthe growth rally in the second half of the year under review. The demand fromthe two wheeler and passenger car segment was particularly impressive.


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MARK ET ANA LYSIS LO C AL

The Indian tyre industry accounts for around 5% of the global demand as wellas global supply of tyres. The industry has registered significant growth duringthe year on the back of an economic recovery with sales expected to touchRs. 263 billion in 2009-10, growing at a CAGR of 12-13% from Rs. 234 billionin 2008-09. This growth is expected to be predominantly driven by an increasein volumes rather than average realisations where growth is expected to berestricted to 2-3%. Average realisation per kg of tyre is in the range of Rs. 120-200.

The Indian tyre industry is enjoying strong growth and will continue to do so inthe near future on the back of several demand drivers that include the countrysfast paced G DP growth, growth in the automobile industry, faster developmentof road infrastructure, increasing levels of radialisation as well as growingdemand from the Off-The-Road (OTR) segment. Operating margins of the tyre industry improved by 900 -1,000 basis points inthe first nine months of 2009-10 due to a fall in raw material costs by around10% during the first nine months of 2009-10 vis--vis the same period the year before. Raw material, (mainly comprising of natural rubber, Nylon Tyre CordFabric, carbon black, synthetic rubber, Styrene Butadiene Rubber, Poly utadieneRubber etc.) costs account for around 65% of net sales of the tyre industry. Dueto the firming up of raw material prices in the September- December 2009quarter, the operating margins for most players declined sequentially in theQ3FY10, after reaching a 20-year peak in the second quarter of 2009 -10. Analysts estimate that operating margins of the industry will be around 13-14%in 2009-10, up sharply from 7-8% in 2008-09 due to softening of raw materialprices in the first half of the fiscal and an increase in average price realisations. G LOB AL Valued at approximately US D 120 billion, the global tyre industry, like itsIndian counterpart, is highly concentrated with the top four players accountingfor a major share of the total revenues. Passenger Cars (PC) and LightCommercial Vehicles (LCV) segments constitute a majority of the global tyreindustrys product mix at around 60%. Heavy Commercial Vehicles (HCV)


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segment constitutes around 27% of the product mix. The extent of radialisationis much higher in developed nations than others. Radial tyres offer better fuelefficiency and work out to be more cost effective over the life of a tyre.Radialisation in the PC segment in the global tyre industry is more than 95%,while it is around 60% in the LCV and the HCV segments.

SE G M E NT-WISE MARK ET ANA LYSIS 1. Replacement The Replacement segment constitutes around 65.5% of theindustry and is estimated to be 23 valued at Rs. 160 billion in 2009-10, growingat a steady pace of 10-11% on the back of an economic recovery. This segmentis the most sought after amongst tyre manufacturers as the margins are muchbetter in comparison to those in the Original Equipment Manufacturers (OEMs)

segment. OEMs are few and enjoy higher bargaining power. 2. Original Equipment Manufacturers (OEMs) This segment constitutesaround 22.4% of the industry and is expected to be valued at Rs. 50 billion in2009-10, growing by around 20-21% . 3. Exports Exports constitute approximately 12.1% of the industry and areexpected to be valued at Rs. 21 billion by 2009-10. The Middle East, SouthAfrica, Sri Lanka and North America are key export markets for tyres.

PR O DU C TS AND SE RV IC ES EXISISTI NG PR O DU C TS Currently the company offers its products (tyres) in 5 different segments. Theseare:1. Bikes2. Cars\SUVs3. Farm vehicles\Trailers

4. LCVs5. Trucks and Buses6. OTR 7. Industrial Vehicles


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The breakdown of the ir con tr ibution to the company in terms of sa les can beseen from the fo llow ing tab le:

SEG MENT Percen tage R evenue

Bikes 11.29

Cars /SUVs 5.38

Farm Veh icles /Tra ilers 7.61

LCVs 9.7

Trucks and Buses 60.61

OT R s 4.12

Indus tr ial Veh icles 1.29

Sales

Bikes

Cars/SUV s

Farm Vehicles/Trailers

LCV s

Trucks and Buses

OTR s

Industrial Vehicles


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NEW PR O DU C TS The company launched the following products recently:

SEGMENT PRO DUCTS

Bikes 3.00-18 Gripp, 3.00-17 Gripp, 3.00-18 Zoom, 3.00-17Sec Sport TL, 3.00-18 Sec Sport TL

Animal Drawn Vehicle 6.00-19

Farm Vehicles/Trailers 6.00-16 Mahaan, 12.4-28 Mahaan, 6.50-20 Samraat

LCVs 7.50-16 Buland Mile XL, 8.25-16 Buland Mile XL,7.00-16 Buland Mile XL, 7.00-15 Buland Mile XL

Scooter Scooter: 3.50-10 Sec Neo TL

OTRs 24.00-35

Animal Drawn Vehicle 6.00-19

MANA G E M E NT Sh are hold in g Patter n The following table shows the shareholding pattern of the company: CATEGORY No. Of Shares PercentagePromoters Holdings(Indian and Foreign)

16596578 48.47

Mutual Funds 3399278 9.93Banks, Financial Institutions,

Insurance Companies and others

2697606 7.88

Foreign Institutional Investors 1308964 3.82Non Resident Indians 277906 0.81Corporate Bodies, Indian Public andOthers

9963202 29.10

Total 34243534 100


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The above can be shown w ith the he lp of fo llow ing d iagram :

B FURCAT N F HAREH LD NG T P MANAGEMENT TRUCTURE

R P Goe ka Cha irman / Cha ir PersonH V Goe ka Vice Chairman

Paras K C owd ary Manag ing irec tor

A a t Vard a Goe ka epu ty Manag ing irec tor

Haigreve K aita irec tor

Hari L Mu dra irec tor

A C C oksey irec tor

Ma es Gupta irec tor Ba si Me ta irec tor K R Podar irec tor

48%

10%

8%

4%

1%

29%

SH A HO L NG PA N

P romot

r Holding (Indian andFor ign)

Mutual Fund

ank , Financial In titution , In uranc Compani and oth r

For ign In titutional Inv tor

Non R id nt Indian

Corporat

odi , Indian P ublic andOth r


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F INAN C IALS The comparative financials of the previous 5 years have been given:

BAL AN C E S EET

Bala nc e Sh eet of C E AT ------------------- in Rs. C r. -------------------

For the year ended Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Sour ces Of Fu nds

Total Share Capital 45.68 45.68 34.24 34.24 34.24

Equity Share Capital 45.68 45.68 34.24 34.24 34.24

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 303.32 332.96 465.56 449.45 594.47

Revaluation Reserves 0.00 0.00 13.45 4.68 0.00

Networth 349.00 378.64 513.25 488.37 628.71

Secured Loans 291.22 275.76 265.39 398.12 312.05

Unsecured Loans 126.42 101.24 64.63 63.01 117.32

Total Debt 417.64 377.00 330.02 461.13 429.37

T otal Li ab ilities 766.64 755.64 843.27 949.50 1,058.08


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Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Appl icat ion Of Fu n ds

Gross Block 1,106.78 1,113.03 1,214.33 1,234.06 1,256.41

Less: Accum. Depreciation 385.08 413.02 427.71 458.67 487.48

Net Block 721.70 700.01 786.62 775.39 768.93

Capital Work in Progress 4.27 10.13 3.48 19.56 233.84

Investments 127.81 127.81 9.60 42.67 58.51

Inventories 183.45 221.22 341.06 219.42 406.08

Sundry Debtors 253.23 263.17 307.91 318.71 376.32

Cash and Bank Balance 30.79 34.92 37.55 43.48 35.95

Total Current Assets 467.47 519.31 686.52 581.61 818.35

Loans and Advances 88.33 66.10 84.47 91.84 117.34

Fixed Deposits 8.82 5.63 4.03 158.04 104.04

Total CA, Loans & Advances 564.62 591.04 775.02 831.49 1,039.73

Current Liabilities 613.23 638.22 706.20 701.77 1,006.54

Provisions 38.54 35.13 25.25 17.80 36.36

Total CL & Provisions 651.77 673.35 731.45 719.57 1,042.90

Net Current Assets -87.15 -82.31 43.57 111.92 -3.17

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

T otal Assets 766.63 755.64 843.27 949.54 1,058.11

Contingent Liabilities 144.95 171.60 164.33 159.99 440.08

Book Value (Rs) 76.44 82.93 145.96 141.25 183.60


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PR O FIT AND LOSS ACC O UN T The comparative profit and loss account for the previous 5 financialyears has been given:

Pr ofit & L oss accoun t of C eat ------------------- in Rs. C r. -------------------



Inc om e

Sales Turnover 1,958.08 2,397.25 2,611.41 2,769.43 3,001.83

Excise Duty 204.57 257.53 275.38 239.97 185.33

Net Sales 1,753.51 2,139.72 2,336.03 2,529.46 2,816.50Other Income 10.86 8.08 77.54 31.50 20.85

Stock Adjustments 22.63 2.49 25.79 8.52 32.25

Total Income 1,787.00 2,150.29 2,439.36 2,569.48 2,869.60

E xpe nd iture

Raw Materials 1,246.68 1,495.72 1,567.37 1,830.69 1,918.46

Power & Fuel Cost 62.33 73.00 80.16 90.54 108.91

Employee Cost 118.26 128.23 143.02 160.69 194.68

Other Manufacturing Expenses 80.10 77.37 96.86 88.04 97.76

Selling and Admin Expenses 171.47 201.94 257.75 322.51 193.02

Miscellaneous Expenses 12.94 17.44 12.95 10.65 18.65

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Total Expenses 1,691.78 1,993.70 2,158.11 2,503.12 2,531.48


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Operating Profit 84.36 148.51 203.71 34.86 317.27

PBDIT 95.22 156.59 281.25 66.36 338.12

Interest 72.63 70.26 66.47 79.94 74.84

PBDT 22.59 86.33 214.78 -13.58 263.28

Depreciation 22.45 31.06 32.99 25.62 26.88

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 0.14 55.27 181.79 -39.20 236.40

Extra-ordinary items 5.07 5.65 15.54 13.91 2.58

PBT (Post Extra-ord Items) 5.21 60.92 197.33 -25.29 238.98

Tax 4.70 21.67 48.71 -9.18 77.96

Reported Net Profit 0.52 39.25 148.60 -16.11 161.04

Total Value Addition 445.10 497.98 590.75 672.44 613.01

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 0.00 8.22 13.70 0.00 13.70

Corporate Dividend Tax 0.00 1.40 2.33 0.00 2.33

Per share data (a nn ual ised)

Shares in issue (lakhs) 456.57 456.57 342.43 342.44 342.44

Earnings Per Share (Rs) 0.11 8.60 43.40 -4.71 47.03

Equity Dividend (%) 0.00 18.00 40.00 0.00 40.00

Book Value (Rs) 76.44 82.93 145.96 141.25 183.60


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PR OJE C TS UND E R T AK E N CEAT has undertaken a number of initiatives to capitalise on the hugeopportunity in the tyre industry. The Company plans to expand its capacity by setting up a 130 Tonnes per Day(TP D) radial tyre facility at Halol in Gujarat. The plant will manufacture truck,bus, light truck and passenger car radials. A substantial proportion of the totalproduction is slated for exports. A brown-field expansion of 30 TP D at theCompanys Nasik facility is also expected to be commissioned by Q2FY11along with the Halol facility, taking CEATs total capacity to 570 TP D. Thiscapacity expansion will provide the Company a rob ust volume growth in theyears to come. The Company also plans to enter into the OTR tyre maintenance business in thecurrent fiscal. A revenue model based on servicing is being prepared.Simultaneously, the Company is exploring the option of making this into aseparate business vertical, offering end-to-end maintenance solutions for a widevariety of tyres. Further, plans to launch 20 WMCs in India in 2010 are also onthe anvil. A training centre to educate customers on new developments intrucking and wheel management is coming up shortly as well.

C OST O F FINAN C E

The total cost of finance for CEAT Ltd. was the sum of Interest on term loansand the proposed dividend for the financial year 2009 -10. TOTAL OF INTEREST ON LOAN 74.84 Cr.TOTAL OF DIVIDEND PAI D FOR 2009-10 13.70 Cr.TAX on corporate dividend 02.33 Cr.Total cost of fin anc e 90.87 C r. Note: This cost of finance includes the cost of finance used in the new projects.


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G LOB AL CH ALLE NG ES AND O PP O R T UN ITIES According to the World Economic Outlook report (2010) by the InternationalMonetary Fund (IMF), the Indian economy is projected to grow at 8.75% in

2010 and 8.5% in 2011, on the back of strong domestic demand and robustbusiness confidence. This growth reflects a stron g growth in exports as well as acontinued boost from the inventory cycle along with a rise in businessinvestment in response to high capacity utilisation and strong businessconfidence. High G DP growth, the infrastructure boom in the country, rising per capitadisposable income, strong growth in the auto industry which ensures healthyOEM demand and increasing vehicle population indicating sustainedreplacement demand, the emerging Truck and Bus radialisation opportunity

(with the ban on overloading of trucks and the Government emphasis onimproving road infrastructure, there is immense scope for growth asradialisation levels in CVs is abysmal at 10-12%), expansion in the high marginOTR segment and the under penetrated PC market are factors that indicatestrong growth in the Indian tyre industry in the near future. With continued recovery in OEM offtake and expected improvement in

replacement demand, analysts forecast the tyre industry to grow by 13-14% in2010-11 (in tonnage terms). Sales are expected to grow at 15 -16% to reach Rs.300 billion. The aggregate tyre capacity is expected to increase by 13 -15% in

the same period. Capacity utilisation is likely to remain around 86-87%.However, due to increasing raw material prices and the limited ability of companies to pass on costs to end users, operating margins are expected to beunder pressure. Experts predict a 2-3% rise in tyre prices due to an increase inraw material prices. This could be higher in the event of the withdrawal of dutybenefits announced in the stimulus package by the Government. Due to this,growth in realisations is expected to remain in the range of 2 -3%. With the revival in economic activity and the positive impact of improvingindustrial activity along with a stable credit scenario, demand from OEMs isestimated to grow at a robust 13-14% (in tonnage terms) in 2010-11 whilereplacement demand is expected to grow at 14 -15%. All key vehicle segmentsincluding MHCV, LCV, PC and UV are expected to witness strong growth inthe range of 14-15% in 2010-11. Analysts expect exports to grow at 4-5% in thesame period on the back of an expected revival in global auto markets, coupledwith restrictions on Chinese tyre exports to developed countries such as USA.All this bodes well for CEAT. Given its experience and expertise, the Companyis all set to maximise this huge opportunity.


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ACC O UN TI NG POLI C IES The company has adhered to the following accounting and disclosure policiesA) Fixed Assets Fixed Assets are stated at cost / revalued cost wherever applicable. Costcomprises cost of acquisition, cost of improvements, borrowing cost and anyattributable cost of bringing the asset to the condition for its intended use. Costalso includes direct expenses incurred upto the date of capitalisation /commissioning.Leased Assets comprise of assets acquired under Finance Leases which havebeen stated at cost of acquisition plus entire cost component amort isable over the useful life of these assets.B) Borr ow in g Co sts Borrowing costs include interest, fees and other charges incurred in connectionwith the borrowing of funds and is considered as revenue expenditure for theyear in which it is incurred except for borrowing costs attributed to theacquisition / improvement of qualifying capital assets and incurred till thecommencement of commercial use of the asset which is capitalised as cost of that asset.C) Depre ciat ion Depreciation is provided on the Straight Line Method, at the rates prescribed inSchedule XIV to the Companies Act, 1956. Certain Plants have been treated asContinuous Process Plants based on technical and other evaluations. Leaseholdland is amortised over the period of the lease.Software expenditure have been amortised over a period of three years. In caseof a subsidiary company, depreciation is provided for on a straight line basis atsuch rates as will write off cost of various assets over the period of their expected useful lives. The principle annual rates of depreciation used are asfollows:Buildings - 5% Plant & Equipment - 5 to 20% Motor vehicles - 20%. Thedepreciation charge in respect of the subsidiary company is not significant in thecontext of the Consolidated Financial Statements.D) In est m ents Investments being long term are stated at cost. Provision against diminution inthe value of investments is made in case diminution is considered as other thantemporary, as per criteria laid down by the Board of Directors after cons ideringthat such investments are strategic in nature. Current Investments are stated atlower of cost or fair value. In respect of subsidiary company, provision for diminution in value is made when there has been a decline other than temporaryin the value of the investment.


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E) In en tor ies Raw materials, Stores and spares and Stock-in-process are valued at weightedaverage cost. Finished Goods are valued at lower of cost or net realisable value.Material-in-transit is valued at cost.F) Reve nue Re cogni t ion

Gross Sales include excise duty and are net of trade discounts / sales returns /sales tax. Interest is accounted on an accrual basis. Dividend is accounted whenright to receive payment is established.G) E xp ort Inc ent ive Export Incentives are recognised in the year of entitlement and credited to theRaw Material Consumption Account.H) F ore ign C urre nc T ra nsa ctions Foreign currency transactions other than those covered by forward contracts arerecorded at current rates. Forward premia in respect of forward exchangecontracts are recognised over the life of the contract. Monetary Assets and

Liabilities denominated in foreign currency are restated at year-end rates. Allexchange gains and losses arising out of transaction/restatement, are acc ountedfor in the Profit and Loss Account. The financial statements of the consolidatedforeign subsidiary are translated in Indian Rupees, which is the functionalcurrency of the company, as follows:l. Assets and liabilities at rates of exchange ruling at year end.2. Income statement items at the average rate for the year. Exchange ratedifferences arising on the translation of consolidated foreign subsidiary istransferred to the Foreign Currency Translation Reserve.I) Lease Re ntals

The cost components in respect of Finance Leases is being amortised over theprimary lease period or effective life of the Assets as depreciation on LeasedAssets and the interest component is charged as a period cost. Secondary Leaserentals are being charged to Profit and Loss Account. Leases that do not transfer substantially all the risks and rewards of ownership are classified as operatingleases and recognised as expenses as and when payments are made over thelease term.J) Resear ch a nd Devel op m ent Revenue expenditure on research and development is recognised as an expensein the year in which it is incurred. Capital expenditure is shown as an addition to

the fixed assets and is depreciated at applicable rates.K) Em pl oyee Benefits a) Defined Contribution planContribution to Defined Contribution Schemes such as Provident Fund,Superannuation, Employees State Insurance Contribution and Labour WelfareFund are charged to the Profit 91and Loss Account as and when incurred.


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b) Defined Benefit planThe Company also provides for retirement /post-retirement benefits in the formof gratuity and Leave encashment. Companys liability towards these benefits isdetermined using Project Unit Credit Method. These benefits are providedbased on the Actuarial Valuation as on Balance Sheet date by an independent

Actuary.c) Short term benefits are recognized as an expense in the Profit and LossAccount of the year in which the related service is rendered.d) Long term leave benefits are provided as per Actuarial Valuation as onBalance Sheet date by an independent Actuary using Project Unit CreditMethod.e) Termination benefits are recognised as an expense as and when incurred.L ) T axes on Inc om e a) C urre n t T ax : Indian Company: Tax on income for the current period isdetermined in accordance with the provisions of Income Tax Act , 1961.

Foreign Company: Tax on income recognised in accordance with the applicablelocal laws.b) De f erred T ax Pr ovision: Deferred tax is recognised on timing differencesbetween the accounting income and the taxable income for the year andquantified using the tax rates and laws enacted or substantively enacted on theBalance Sheet date. Deferred tax assets are recognised and carried forward tothe extent that there is a reasonable certainty that suf ficient future taxableincome will be available against which such deferred tax assets can be realised.


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