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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500179ISIN: INE236A01020INDUSTRY: IT Equipments & Peripherals

BSE   ` 16.89   Open: 17.88   Today's Range 16.70
18.19
-0.64 ( -3.79 %) Prev Close: 17.53 52 Week Range 11.60
26.69
Year End :2018-03 

1. Corporate information

HCL Infosystems Limited (‘the Company’) is domiciled and incorporated in India and publicly traded on the National Stock Exchange of India Limited (‘NSE’) and the BSE Limited (‘BSE’) in India. The registered office of the Company is situated at 806, Siddharth, 96, Nehru Place, New Delhi - 110019.

The Company is primarily engaged in value-added distribution of technology, mobility and consumer electronic products. The financial statements were approved by the Board of Directors and authorised for issue on May 29, 2018.

Notes:

(i) Paid up share capital includes :

a) 1,16,29,885 (2011 - 1,16,29,885) equity shares of Rs. 2/- each issued pursuant to the exercise of options granted under Employee Stock Option Scheme 2000.

b) 187,221 (2011 - 87,221) equity shares of Rs. 2/- each issued pursuant to the exercise of options granted under Employee Stock Based Compensation Plan 2005.

(i) Rights attached to equity shares:

The Company has only one class of equity share having a face value of Rs. 2/- each. Each holder of equity shares is entitled to one vote per share held. The Company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the Shareholders in ensuing Annual General Meeting, except in case of interim dividend.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by Shareholders.

(ii) Shares reserved for issue under options:

For detail of shares reserved for issue under Employee Stock Option Plan of the Company, refer Note 42.

Notes:

1. Secured term loan from bank and others amounting to Rs. 19.46 Crores (2017 - Rs. 38.04 Crores), out of which Rs. 12.18 Crores (2017 - Rs. 14.57 Crores) is shown under current maturity of long term debt, is secured by way of (a) First pari passu charge on identified immovable assets and all movable and intangible assets of the HCL Infosystems Limited and it’s material subsidiaries (b) First pari-passu charge on all Current Assets of the HCL Infosystems Limited & it’s Material Subsidiaries (except Lease Rental Receivables). (c) Negative lien on Two Identified Properties (d) Exclusive charge on Debt Service Reserve Account created by way of lien on mutual funds of Rs. 55.60 Crores. The loan is repayable in 13 quarterly installments starting from September 2016 and carries interest @ 10.05 % to 11.00% p.a.

2. Unsecured term loans from others amounting to Rs. 192.96 Crores (2017 - Rs. 191.87 Crores), out of which Rs.106.73 Crores (2017 - Rs. 82.93 Crores) is shown under current maturity of long term debt, is repayable in 12 to 20 equal quarterly instalments from the date of the disbursement which carries interest @ 11.02% to 12.50% p.a.

3. Unsecured terms loan from others amounting to Rs. 1.70 Crores (2017- Rs. 3.82 Crores), out of which Rs. 1.70 Crores (2017Rs. 2.02 Crores) is shown under current maturity of long term debt is repayable in 1 quarterly, 1 half yearly and balance 16 quarterly instalments from the date of the disbursement which carries interest @ 13.04% p.a.

4. Long term borrowings, Short term borrowings and Current maturities of long term debts is net of the loan amounting to Rs. 0.19 Crores (2017 - Rs. 2.16 Crores) and Rs. 1.76 Crores (2017 - Rs. 19.87 Crores) respectively that the Company has transferred to its subsidaries pursuant to the scheme of arrangement. However Company shall make repayments of such principal amounts and payments of interest or any other dues thereon on behalf of the respective Transferee Companies (HCL Infotech Limited, HCL Services Limited and HCL Learning Limited) and the respective Transferee Companies shall be under an obligation to place with HCL Infosystems Limited funds at the relevant time so as to enable HCL Infosystems Limited to make payments to the lenders on or before their respective due dates. Note: Material Subsidiaries include HCL Infotech Limited, HCL Services Limited and HCL Learning Limited.

Note:

1. Secured term loan from banks amounting to Rs. 99.80 Crores (2017 - Rs. 124.78 Crores) is secured by way of (1) First pari passu charge on all immovable, movable and intangible assets of the HCL Infosystems Limited and it’s material subsidiaries (2) First pari-passu charge on all current assets of the HCL Infosystems Limited & it’s material subsidiaries (except lease rental receivables). (3) Negative lien on two identified properties, along with non-fund based facilities from banks. It carries interest @ 9.95% to 11.50 % p.a.

2. Short term loan of Rs. 24.97 Crores (2017 - Rs. 99.14 Crores ) is secured by way of subservient charge on stock and receivables of the Company and against support from HCL Corporation Private Limited. It also carries a lien on Mutual Funds of NiL (2017 - Rs. 50.31 Crores). Short Term Loan of Rs. 24.97 Crs is repayable in one year from the date of disbursement and carries interest @ 9.50 % p.a.

3. Secured Loan ( Cash Credit,WCDL and Buyer’s Credit ) from Banks amounting to Rs.139.08 (2017 - Nil) are secured by way of (1) First pari passu charge on all immovable, movable and intangible assets of the HCL Infosystems Limited and it’s Material Subsidiaries (2) First pari-passu charge on all current assets of the HCL Infosystems Limited & it’s Material Subsidiaries (except Lease Rental Receivables). (3) Negative lien on two identified properties.

4. Short Term Loan of Rs. 20 Crores (2017 - Nil ) is secured by way of subservient charge on current and movable fixed assets of the Company. Short Term Loan of Rs. 20 Crores is repayable in 4 months from the date of disbursement and carries interest @ 8.95% p.a.

5. Secured Term Loan from Banks amounting to Rs. 50 Crores (2017 - Nil) is secured by way of (1) First pari passu charge on identified immovable assets and all movable and intangible assets of the HCL Infosystems Limited and it’s Material Subsidiaries (2) First pari-passu charge on all current assets of the HCL Infosystems Limited and it’s Material Subsidiaries (except lease rental receivables). (3) Negative lien on two identified properties, along with non-fund based facilities from Banks.It carries interest @ 9% p.a.

6. Short Term Loan of Rs.100 Crores (2017 - Nil ) is secured by way of subservient charge on current and movable fixed assets of the Company. Short Term Loan of Rs. 100 Crores is repayable in 3 months from the date of disbursement and carries interest @ 8.25% p.a.

7. Unsecured term loans from others amounting to Rs. 149.16 Crores (2017 - Rs. 149.36 Crores) and against Support from HCL Corporation Private Limited is repayable in 1 yearly instalments from the date of the disbursement which carries interest @ 8.80% p.a.

8. Unsecured commercial papers from others amounting to Rs. 147.41 Crores (2017 - Rs. 195.00 Crores) is repayable in next 12 months from the date of availament of each tranche, which carries interest @ 8% to 10.80% p.a.

9. Unsecured intercorporate loan from HCL Corporation Private Limited amounting to Rs. 20.00 Crores (2017 - Nil Crores) is repayable in next 2 months from the date of availament of each tranche, which carries interest @ 10% p.a.

Fair Value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value. To provide an indication about the reliability of the inputs used in determining fair values, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

*There were no transfers between the Level 1, Level 2 and Level 3 during the year.

* There is no change in the valuation technique during the year.

Valuation techniques used to derive Level 2 fair values

Investment in mutual funds have been fair valued using published statement for NAV’s.

2 Financial Risk Management

The Company’s activities expose it to market risk, liquidity risk and credit risk. The Company’s financial risk management is an integral part of how to plan and execute its business strategies.

In order to minimize any adverse effects on the financial performance of the Company, derivative financial instruments, such as foreign exchange forward contracts are entered to hedge certain foreign currency exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.

This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the impact of hedge accounting in the financial statements.

The Company’s risk management is carried out by the Treasury and Credit Control department under policies approved by the senior management and audit committee.

Financial Risk Management Credit Risk

“Credit risk arise from possibility that customer may default on its obligation resulting into financial loss. The maximum exposure to the credit risk is primarily from trade receivables.

Credit risk on cash and cash equivalent and bank balances is not significant as it majorly includes deposits with bank and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.

Investment primarily includes investment in liquid debts mutual funds.

The credit risk is managed by the Company through credit approvals, establishing the financial reliability of the customers taking into account the financial condition, analysis of historical bad debts and ageing of accounts receivables. Individual limits are set accordingly by the Company credit control department.

The Company uses a provision matrix to compute the expected credit loss for trade receivables. The provision matrix takes into consideration historical credit loss experience and other relevant available external and internal credit risk factors. Following table provides agewise breakup of receivables

Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Company. The Company categorises a trade receivable for write off when a debtor fails to make contractual payments greater than 3 years past due. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in statement profit and loss.

The summary of life time expected credit loss allowance made on customer balances during the year and balance at the year end is given below:

Financial Risk Management Liquidity risk:

Liquidity risk is the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company’s treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s net liquidity position through rolling forecasts on the basis of expected cash flows.

Note: Previous period’s figures are given in brackets.

Financial Risk Management

Market Risk

(i) Interest rate risk

The Company’s main interest rate risk arise from borrowings with variable interest rates, which expose the Company to Cash flow interest rate risk. As on 31.3.2018, the Company has Rs. 77.52 Crores (2017- Rs. 38.74 Crores) of borrowings with variable interest rates. In order to optimize the Company’s position with regards to interest expenses and to manage the interest rate risk, treasury performs a comprehensive corporate interest rate risk management by balancing of fixed rate and floating rate financial instruments in its total portfolio.

(a) Interest rate risk exposure

The exposure of the Company’s borrowing to interest rate changes at the end of the reporting period are as follows:

Financial Risk Management Market Risk

(ii) Foreign currency risk

The Company’s major operations are in India and are in INR and therefore, the Company is not exposed to significant foreign currency risk. The Company evaluates the exchange rate exposure arising from foreign currency transactions and the Company follows established risk management policies which are approved by the senior management and the Audit Committee, including the use of derivatives like foreign exchange forward contracts to hedge exposure to foreign currency risk.

(a) Foreign currency risk exposure

The Company’s exposure to foreign currency risk at the end of the reporting period expressed in INR are as follows

3. Capital Management Risk Management

The Company’s objective when managing capital are to safeguard their ability to continue as going concern so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure as of 31.03.2018 and 31.03.2017 are as follows:

4 Exceptional items include :

a) The Company has made provision of Rs. 80.19 Crores (FY 16-17 - Rs. 70.19 Crores) against loan given to HCL Infotech Limited. The Company, considering that HCL Infotech Limited has negative net worth as on 31.3.2018 due to continuous loss incurred by entity and based on future plan of this entity, may not be able to recover the loans given to HCL Infotech Limited upto the value of its negative net worth.

b) In respect to investment in HCL Services Limited, the Company considering the impending transactions for sale of Domestic Enterprises Services Business to Karvy Data Management Services Limited has recognised an impairment charge of Rs. 428.97 Crores, being excess of carrying value over the recoverable value.

c) In respect of HCL Learning Limited, the Company in current year has recognised an impairment charge of Rs. 44.46 Crores being excess of carrying value of investment over the recoverable value.

5 a) Contingent Liabilities :

Claims against the Company not acknowledged as debts:

* Includes sum of Rs. 124.97 Crores (2017 - Rs. 102.24 Crores) deposited by the Company against the above.

The amounts shown in item (a) represents the best possible estimates arrived at on the basis of available information. The uncertainties and possible reimbursements are dependent on the out come of the different legal processes which have been initiated by the Company or the claimants as the case may be and therefore cannot be predicted accurately.It is not practicable for the Company to estimate the timing of cash outflows, if any, in respect of the above pending resolution of the respective proceedings.

b) Corporate Guarantees :

Corporate Guarantee of Rs. 362.45 Crores (2017 - Rs. 484.40 Crores) was given to Banks and Financial Institutions for working capital facilities sanctioned to subsidiaries of which the total amount utilised as at 31.03.2018 is Rs. 70.05 Crores (2017 - Rs. 143.40 Crores).

c) Other Litigations :

(i) The Company has been named in a supplementary charge sheet filed with the Court with respect to a Contract awarded to the Company in 2009 by the UP state Government, amounting to Rs. 4.94 Crores, for the supply of computer hardware and related services under the National Rural Health Mission and therefore summons have been issued by the Court. The matter is currently pending for adjudication before the Special Court CBI. The management is of the view that the company has not engaged in any wrong doing.

(ii) The Company has certain sales tax and other related litigation amounting to Rs. 3.71 Crores (2017 Rs. 1.62 Crores) against which provision have been made. Provision amounting to Rs. 2.09 Crores was created during the year.

6 As per provisions of Section 135 of the Companies Act, 2013, the Company has to provide at least 2% of average net profits of the preceeding three financial years towards Corporate Social Responsibility (“CSR”). Accordingly, a CSR Committee has been formed for carrying out CSR activities as per Schedule VII of the Companies Act, 2013. The Company was not requred to spend/contribute to CSR activity during the year as per Section 135 of the Companies Act, 2013 as average net profit for the last three financial year is negative.

7 Employee Stock Option Plan (ESOP):

(a) The Company has established Employee Stock Option Scheme 2000 and Employee Stock Based Compensation Plan 2005, for which a total grant of 31,90,200 and 33,35,487 options have been set aside respectively for the employees of the Company and its subsidiaries. These options vest on a graded basis over a period of 42 and 60 months respectively from the date of grant and are to be exercised with in a maximum period of 5 years from the date of vesting.

The Board of Directors/Committee approves the grant of options, including the grant of options that lapse out of each grant. Each option of Rs. 10/- confers on the employee a right to five equity shares of Rs. 2/- each.

Exercise price is market price as specified in the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by the Securities and Exchange Board of India(“SEBI”).

(b) Fair Value of options Assumptions

The fair value of each stock option granted under Employee Stock Option Scheme 2000 and Employee Stock Based Compensation Plan 2005 as on the date of grant has been computed using Black-Scholes Option Pricing Formula and the model inputs are given as under:

Notes:

1. Volatility: Based on historical volatility in the share price movement of the Company.

2. Risk Free Rate: Being the interest rate applicable for maturity equal to the expected life of options based on yield curve for Government Securities.

3. Time to Maturity: Vesting period and volatility of the underlying equity shares have been considered for estimation.

4. Dividend Yield: Based on historical dividend payouts.

8 Leases:

a) Cancelable Operating Leases As Lessee:

(i) The Company has taken various residential/commercial premises under cancelable operating leases. These leases are for a period of eleven months to three years and are normally renewable on expiry.

(ii) The rental expense in respect of operating leases is Rs. 6.94 Crores (FY 16-17 - Rs. 7.57 Crores) which is disclosed as Rent expense under ‘Other expenses’.

As Lessor:

The gross block, accumulated depreciation and depreciation expense in respect of the assets given on operating lease are as below:

9 Earnings per share (EPS)

Basic earnings per share is calculated by dividing the net loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The loss considered in ascertaining the Company EPS represent loss for the year after tax. Diluted EPS is computed and disclosed using the weighted average number of equity and dilutive equivalent shares outstanding during the year except when results would be anti-dilutive.

10 Segment Reporting

The Company publishes standalone financial statements along with the consolidated financial statements in the annual report. In accordance with Indian Accounting Standard 108, Operating Segments, the Company has disclosed the segment information in the consolidated financial statements.

11 Employee benefits

The Company has calculated the various benefits provided to employees as under:

(a) Defined Contribution

During the year, the Company has recognised the following amounts in the statement of profit and loss:

* Included in Contribution to Provident and Other Funds under Employee benefits expense (Refer Note 31).

(b) Defined Benefit

(i) Gratuity

(ii) Provident Fund#

The Company contributes to the employee provident fund trust “Hindustan Computers Limited Employees Provident Fund Trust” which is managed by the Company. The Company’s Provident Fund Trust is exempted under Section 17 of Employees’ Provident Fund Act, 1952. Conditions for grant of exemptions stipulate that the employer shall make good deficiency, if any, in the interest rate declared by the trust vis-a-vis statutory rate. As per Ind AS - 19, Employee Benefits, provident funds set up by employers, which requires interest shortfall to be met by the employer, needs to be treated as defined benefit plan.

The Trust includes employees of the Company as well as of it’s Indian wholly owned subsidiaries. In view of the same, it is a multi employer defined benefit plan.

The Trust has been investing the provident fund contributions of the employees of it’s Indian wholly owned subsidiaries in a composite manner and the same cannot be separately identified entity wise.

In view of the same an actuarial valuation, in accordance with the Ind AS-19, was carried out at composite level. As per actuarial certificate there is no shortfall in the earning of fund against statutorily required “interest rate guarantee” and accordingly, the “liability on account of interest rate guarantee is nil.

In accordance with Ind AS 19, an actuarial valuation was carried out in the respect of the aforesaid defined benefit plan based on the following assumptions:

As of 31.03.2018, every 0.5 percentage point increase / decrease in discount rate will affect gratuity benefit obligation by approximately by Rs. 0.07 Crores.

As of 31.03.2018, every 0.5 percentage point increase / decrease in weighted average rate of increase in compensation levels will effect gratuity benefit obligation by approximately Rs. 0.07 Crores.

The estimates of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

Description of Risk Exposures:

Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such company is exposed to various risks as follow-

A) Salary Increases- Actual salary increases will increase the Plan’s liability. Increase in salary increase rate assumption in future valuations will also increase the liability.

B) Investment Risk - If Plan is funded then assets liabilities mismatch & actual investment return on assets lower than the discount rate assumed at the last valuation date can impact the liability.

C) Discount Rate : Reduction in discount rate in subsequent valuations can increase the plan’s liability.

D) Mortality & disability - Actual deaths & disability cases proving lower or higher than assumed in the valuation can impact the liabilities.

E) Withdrawals - Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal rates at subsequent valuations can impact Plan’s liability.

* Included in salaries, wages, bonus and gratuity for gratuity and contribution to provident and other funds for provident fund under employee benefits expense (Refer Note 31).

@ The Company’s contribution to provident fund for the year is Rs. 1.02 Crores (FY 1617 - Rs. 1.14 Crores) and the remaining relates to other related companies as mentioned above.

The major categories of plan assets are as follows:

12 Disclosure of related parties and related party transactions:

a) Company having substantial interest:

HCL Corporation Private Limited

b) List of parties where control exists/existed:

Subsidiaries:

HCL Infotech Limited HCL Learning Limited HCL Services Limited

Digilife Distribution and Marketing Services Limited

QDigi Services Limited (formerly known as HCL Computing Products Limited)

Pimpri Chinchwad eServices Limited (85% Shareholding of HCL Infosystems Limited)

HCL Insys Pte. Limited, Singapore

HCL Investments Pte. Limited, Singapore

HCL Touch Inc., USA (dissolved with effect from 04.04.2018)

HCL Infosystems MEA FZE, Dubai

HCL Infosystems LLC, Dubai (49% Shareholding of HCL Infosystems MEA FZE)

HCL Infosystems MEA LLC, Abu Dhabi (49% Shareholding of HCL Infosystems MEA FZE)

HCL Infosystems Qatar, WLL (49% Shareholding of HCL Infosystems MEA FZE)

c) Others (Enterprises over which, individual having indirect significant influence over the company, has significant influence) and with whom transactions have taken place during the year and/or where balances exist:

HCL Technologies Limited

HCL Comnet Limited

HCL Talent Care Private Limited

Koura & Co.

VAMA Sundari Investments (Delhi) Private Limited

Shiv Nadar Foundation

Naksha Enterprises Private Limited

d) Key Management Personnel:

Mr. Premkumar Sheshadri* (Executive Vice Chairman & Managing Director, till 31.03.2018)

Mr. Rangarajan Raghavan (Managing Director,with effect from 01.04.2018)

Mr. S G. Murali (Group CFO till 15.09.2017)

Mr. Kapil Kapur (Deputy CFO with effect from 15.09.2017)#

Mr. Sushil Jain (Company Secretary)

*Remuneration has been paid by HCL Corporation Private Limited

# Appointed as CFO with effect from 1.04.2018

Note: Parties with whom transactions are more than 10% of the total value have been disclosed separately.

Notes:

# Sales and Related Income, Sale of Services, Purchase of Goods and Purchase of Services are net of transactions between HCL Infosystems and HCL Infotech on account of pending Novation of Contracts of System Integration Business.

* Related to Corporate Guarantee of Rs. 1,146 (2017- Rs. 325 Crores) taken from HCL Corporation Private Limited Amount due to / from related parties are unsecured and are repayable/to be received in cash.

13 Taxation:

(a) Provision for taxation has been computed by applying the Income Tax Act, 1961 and other relevant tax regulations in the jurisdiction where the Company conducts the business to the profit for the year. Deferred tax assets and deferred tax liabilities are offset, if a legally enforeable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relates to the same taxable entity and the same taxation authority.

(b) Deferred Tax:

Major components of Deferred tax arising on account of timing difference along with their movement as at 31.03 2018 are:

14 The Board of Directors of HCL Infosystems Limited (the Company) in its meeting held on 31.01.2018 had approved the sale of CARE business, a division of HCL Services Limited (wholly owned subsidiary) on slump sale basis, to QDigi Services Limited (Formerly known as HCL Computing Products Limited (HCPL) and then transfer of entire shareholding of QDigi Services Limited to Quess Corp Limited for a total consideration of Rs. 30 Crore.

Pursuant to above, the CARE Business division has been transferred to QDigi Services Limited on 31.03.2018 and entire shareholding of QDigi Services Limited has been transferred to Quess Corp Limited on 11.04 2018.

The Board of Directors of HCL Infosystems Limited (the Company) in its meeting held on 09.02.2018 had approved, sale of HCL Services Limited (consisting of Domestic Enterprise Services Business), a wholly owned subsidiary to Karvy Data Management Services Limited for a consideration of Rs.108 Crore approximately (including tax refunds of Rs. 87 Crore payable to the extent received). The consideration is subject to final adjustments at time of closing date.

This transaction excludes;

i) Care Business (for divestment to Quess Corp Limited)

ii) IT & Facility unit (transferred to HCL Infosystems Limited)

iii) Investment in HCL Insys Pte Limited, Singapore including its subsidiaries (transferred to HCL Learning Limited). Pursant to the above developement, the investment in HCL Services as at 31.03.2018 is classified and disclosed as assets held for sale.

15 During the year ended 31.03.2018, the Company has raised Rs. 499.09 Crores by allotment of 106,190,299 equity shares of Rs. 2/- each at a price of Rs. 47.00 per equity share including a premium of Rs. 45.00 per equity share through Right Issue on 08.12.2017.

16 The disclosures regarding details of specified bank notes (SBNs) held and transacted during 8.11.2016 to 30.12.2016 has not been made since the requirement does not pertain to financial year ended 31.03.2018. Corresponding disclosure as appearing in the audited standalone financial statements for the year ended 31.03.2017 have been disclosed as follows-

17 Previous year’s figures have also been regrouped/recasted, wherever necessary, to conform to the Current year’s presentation.