BSE Prices delayed by 5 minutes... << Prices as on Jun 19, 2018 - 3:44PM >>   ABB 1224 [ 0.76 ]ACC 1285.2 [ -1.10 ]AMBUJA CEM 200 [ -1.67 ]ASIAN PAINTS 1268.65 [ -0.63 ]AXIS BANK 516.75 [ -1.02 ]BAJAJ AUTO 2849.4 [ -1.81 ]BANKOFBARODA 128.2 [ -2.06 ]BHARTI AIRTE 370.5 [ -0.20 ]BHEL 74.4 [ -2.04 ]BPCL 413.75 [ -2.18 ]BRITANIAINDS 5989.1 [ -1.43 ]CAIRN INDIA 285.4 [ 0.90 ]CIPLA 602.25 [ -0.62 ]COAL INDIA 273.1 [ -0.55 ]COLGATEPALMO 1191.1 [ -1.00 ]DABUR INDIA 378 [ -2.15 ]DLF 196.25 [ -1.75 ]DRREDDYSLAB 2384.2 [ 0.17 ]GAIL 340.5 [ 0.68 ]GRASIM INDS 1011.65 [ -0.86 ]HCLTECHNOLOG 922 [ -1.25 ]HDFC 1827.1 [ 0.13 ]HDFC BANK 2026.3 [ 0.24 ]HEROMOTOCORP 3654 [ -0.40 ]HIND.UNILEV 1605 [ -0.30 ]HINDALCO 225.7 [ -2.38 ]ICICI BANK 291.5 [ -0.34 ]IDFC 48.75 [ -1.32 ]INDIANHOTELS 134 [ -0.52 ]INDUSINDBANK 1938 [ -1.51 ]INFOSYS 1244.05 [ -1.77 ]ITC LTD 266.15 [ 0.76 ]JINDALSTLPOW 222.5 [ -3.05 ]KOTAK BANK 1312.95 [ -0.08 ]L&T 1314.1 [ -0.68 ]LUPIN 898.3 [ -0.44 ]MAH&MAH 895 [ -1.94 ]MARUTI SUZUK 8868.45 [ -1.39 ]MTNL 16.65 [ -3.20 ]NESTLE 9670 [ 0.48 ]NIIT 95.95 [ -3.66 ]NMDC 107.95 [ -3.92 ]NTPC 156.2 [ -0.32 ]ONGC 164.85 [ 0.30 ]PNB 86.7 [ -1.92 ]POWER GRID 198.35 [ -0.28 ]RIL 995.65 [ -1.91 ]SBI 272.4 [ -1.61 ]SESA GOA 224.05 [ -3.55 ]SHIPPINGCORP 62.7 [ -2.49 ]SUNPHRMINDS 560.1 [ -1.88 ]TATA CHEM 724.35 [ -1.27 ]TATA GLOBAL 266.45 [ -3.04 ]TATA MOTORS 304.65 [ -1.33 ]TATA STEEL 554.05 [ -0.83 ]TATAPOWERCOM 73.2 [ -2.66 ]TCS 1825.85 [ -0.26 ]TECH MAHINDR 695.8 [ -1.99 ]ULTRATECHCEM 3655 [ -0.39 ]UNITED SPIRI 673.5 [ 1.06 ]WIPRO 262.25 [ -1.26 ]ZEETELEFILMS 554.9 [ -1.05 ] BSE NSE
You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532281ISIN: INE860A01027INDUSTRY: Computers - Software

BSE   ` 922.00   Open: 933.70   Today's Range 917.00
939.70
-11.70 ( -1.27 %) Prev Close: 933.70 52 Week Range 825.10
1106.60
Year End :2017-03 

HCL Technologies Limited (hereinafter referred to as “the Company”) is primarily engaged in providing a range of software services, business process outsourcing services and IT infrastructure services. The Company was incorporated under the provisions of the Companies Act applicable in India in November 1991, having its registered office at 806, Siddharth, 96, Nehru Place, New Delhi-110019. The Company leverages its extensive offshore infrastructure and global network of offices and professionals located in various countries to deliver solutions across select verticals including financial services, manufacturing (automotive, aerospace, hi-tech and semi-conductors) telecom, retail and consumer packaged goods services, media, publishing and entertainment, public services, energy and utility, healthcare and travel, transport and logistics.

The financial statements for the year ended 31 March, 2017 were approved and authorized for issue by the Board of Directors on 11 May, 2017.

1. Acquisition of Business of Geometric Limited

On 1st April 2016, the Company entered into a composite scheme of arrangement and amalgamation for acquisition of the IT enabled engineering services, PLM (‘Product Lifecycle Management’) services and engineering design productivity software tools business of Geometric Limited by way of demerger through a Court approved scheme of arrangement under Sections 391 to 394 and other relevant provisions of the Companies Act, 1956 (including those of the Companies Act, 2013). The acquisition will help the Company to create a unique portfolio of end-to-end engineering and R&D capabilities across the full product lifecycle - hardware, software, manufacturing engineering and PLM consulting.

The scheme has come into effect from 2 March, 2017 post all regulatory approvals required for completion of the scheme and is accounted from 1 April 2016.

The purchase consideration as per the scheme has been settled by issue of 10 equity shares of Rs.2 each (aggregating to 15,563,430 equity shares) for every 43 fully paid equity shares of Rs.2 each held by equity shareholders of Geometric Limited. The total purchase price of Rs.1,267.02 crores has been allocated to the acquired assets and liabilities as follows:

The purchase consideration has been allocated preliminarily based on management’s estimates. The Company is in the process of making a final determination of the fair value of assets and liabilities. Finalization of the purchase price allocation may result in certain adjustments to the above allocation.

2. Notes to financial statements

2.1 property, plant and equipment

The changes in the carrying value for the year ended 31 March 2017

Notes:

1. On 3 January, 2017, a subsidiary of the Company has entered into an agreement to acquire 100% membership interest of Butler America Aerospace, LLC (Butler Aerospace).

Butler Aerospace has one design center in India, the Company has acquired the India business of Butler Aerospace at a purchase price of Rs.3.64 crores.

The purchase consideration of Rs.3.64 crores has been allocated to tangible assets of Rs.0.07 crores and other current assets of Rs.0.35 crores with the residual Rs.3.22 crores allocated to goodwill. The resultant goodwill has been allocated to the Software Services segment.

2. Capital work in progress includes Rs.26.58 crores interest on extended interest bearing suppliers credit and during the year Rs.22.62 crores have been capitalised by the Company.

Notes:

1. On 31 March 2016, a subsidiary of the Company has acquired the IT divisions of Volvo IT AB (‘Volvo IT’), a subsidiary of AB Volvo, the holding company of the Volvo Group providing IT services to the Volvo group as well as non-Volvo group customers. Total purchase price for the acquisition was Rs.893.59 crores

Volvo IT has its presence in several countries including India. As a result of above acquisition, the Company has acquired the Indian business of Volvo IT at a purchase price of Rs.26.22 crores.

The purchase consideration of Rs.26.22 crores has been allocated to tangible assets of Rs.7.93 crores and intangible assets of Rs.0.13 crores with the residual Rs.18.16 crores allocated to goodwill. The resultant goodwill has been allocated to the IT Infrastructure Services segment.

2. Capital work in progress includes Rs.38.78 crores interest on extended interest bearing suppliers credit and during the year Rs.12.00 crores have been capitalised by the Company.

2.2 Goodwill

The changes in the carrying value of goodwill balances by reportable segment, for the year ended 31 March 2017

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash generating units (CGU) , which benefit from the synergies of the acquisition.

Goodwill is tested for impairment at least annually. Impairment is recognised, if present value of the future cash flows is less than the carrying value of goodwill. Future cash flows are forecast for 5 years & then on perpetuity on the basis of certain assumptions which includes revenue growth, earnings before interest and taxes, taxes, capital outflow and working capital requirements. The assumptions are taken on the basis of past trends and management estimates and judgement. Future cash flows are discounted with “Weighted Average Cost of Capital”. The key assumptions are as follows:

As at 31 March, 2017 , 31 March 2016 and 1 July, 2015 the estimated recoverable amount of the CGU exceeded its carrying amount and accordingly, no impairment was recognized.

2.3 other intangible assets The changes in the carrying value for the year ended 31 March 2017

Notes:-

(i) During the year, 261,500,000 preference shares of HCL Bermuda Limited were converted into 35,821,918 equity shares at fair value.

(ii) During the previous year,the Company has acquired the entire equity share capital of HCL Training & Staffing Services Private Limited for a total purchase consideration of Rs.2.35 crores. The acquisition will enable the Company to supplement its capabilities in hiring of trained resources.

(iii) On 1 April 2016, these companies were acquired by way of merger through court approved scheme (refer note 2).

Terms / rights attached to equity shares

The Company has only one class of shares referred to as equity shares having a par value of Rs.2 / -. Each holder of equity shares is entitled to one vote per share.

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 the shareholders.

The Board of Directors of the Company, in its meeting held on 20 March, 2017 have approved the buy-back of up to 35,000,000 fully paid up equity shares of the Company at a price of Rs.1,000 per equity share for an aggregate amount not exceeding Rs.3,500 crores. The buy-back is subject to approval of the shareholders by way of special resolution through postal ballot and all other applicable statutory approvals.

Capital management

The primary objective of the Company’s capital management is to support business continuity and growth of the company while maximizing the shareholder value. The company has been declaring quarterly dividend for last 14 years. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are generally met through operating cash flows generated.

Employee stock option plan (Esop)

The Company has provided share-based payment schemes to its employees. During the year ended 31 March 2017 and 2016, the following scheme was in operation:

Each option granted under the above plans entitles the holder to eight equity shares (four equity shares prior to 1:1 bonus issue) of the Company at an exercise price, which is approved by the Nomination and Remuneration Committee.

Notes:-

1. The Company has availed of term loans of Rs.44.87 crores (31 March 2016: Rs.41.63 crores, 1 July 2015: Rs.40.63 crores) secured by hypothecation of gross block of vehicles of Rs.99.91 crores (31 March 2016: Rs.94.90 crores, 1 July 2015: Rs.89.20 crores) at interest rates ranging from 9.15% p.a. to 10.50% p.a.. The loans are repayable over a period of 3 to 5 years on a monthly basis

2. Current borrowings were primarily on account of bank overdrafts required for management of working capital.

The company has benefited from certain tax incentives that the Government of India has provided for the units situated in Special Economic Zones (SEZs) under the Special Economic Zone Act, 2005, which began providing services on or after April 1, 2005. The eligible units are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits and gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. The aforesaid tax benefits will not be available to Units commencing operations on or after April 1, 2020.

The Company is subject to Minimum Alternate Tax (MAT) on its book profits, which gives rise to future economic benefits in the form of adjustment of future income tax liability. MAT paid for a year can be set-off against the normal tax liability within fifteen subsequent years, expiring between the years 2023 to 2032.

2.3 Leases

i) Operating lease

The Company’s significant leasing arrangements are in respect of operating leases for office spaces and accommodation for its employees. The aggregate lease rental expense recognized in the statement of profit and loss for the year amounts to Rs.217.27 crores [Previous year (nine months) Rs.119.18 crores].

The lease equalization reserve amount for non-cancellable operating lease payable in future years and accounted for by the Company is Rs.83.54 crores (31 March 2016: Rs.85.49 crores, 1 July 2015: Rs.115.20 crores). Future minimum lease payments and the payment profile of non-cancellable operating leases are as follows:

ii) Finance lease: in case of assets given on lease

The Company has given IT equipments to its customers on a finance lease basis. The future lease receivables in respect of assets given on finance lease are as follows:

2.4 Financial instruments

(a) Derivatives

The Company is exposed to foreign currency fluctuations on foreign currency assets / liabilities and forecast cash flows denominated in foreign currency. The use of derivatives to hedge foreign currency forecast cash flows is governed by the Company’s strategy, which provides principles on the use of such forward contracts and currency options consistent with the Company’s Risk Management Policy. The counterparty in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as insignificant. The Company has entered into a series of foreign exchange forward contracts that are designated as cash flow hedges and the related forecasted transactions extend through January 2019. The Company does not use forward covers and currency options for speculative purposes.

The following table presents the aggregate notional principal amounts of the outstanding derivative forward covers together with the related balance sheet exposure:

The notional amount is a key element of derivative financial instrument agreements. However, notional amounts do not represent the amount exchanged by counterparties and do not measure the Company’s exposure to credit risk as these contracts are settled at their fair values at the maturity date.

The balance sheet exposure denotes the fair values of these contracts at the reporting date and is presented in ’ crores. The Company presents its foreign exchange derivative instruments on a net basis in the financial statements due to the right of offset by its individual counterparties under master netting agreements.

The fair value of the derivative instruments presented on a gross basis as at each date indicated below is as follows:

The estimated net amount of existing gain that is expected to be reclassified into the statement of profit and loss within the next twelve months is Rs.435.05 crores (Previous year loss of Rs.18.16 crores).

(b) Financial assets and liabilities

The carrying value of financial instruments by categories as at 31 March, 2017 is as follows:

There have been no transfers between Level 1 and Level 2 during the year

The following table discloses the assets and liabilities measured at fair value on a recurring basis as at 31 March, 2016 and the basis for that measurement:

There have been no transfers between Level 1 and Level 2 during the year

The following table discloses the assets and liabilities measured at fair value on a recurring basis as at 1 July, 2015 and the basis for that measurement:

There have been no transfers between Level 1 and Level 2 during the year Valuation methodologies

Quoted market prices in active markets are available for investments in securities and, as such, these investments are classified within Level 1.

Investments: The Company’s investments consist primarily of investment in debt linked mutual funds. Fair values of investment securities classified as fair value through profit and loss are determined using quoted prices for identical assets or liabilities in active markets and are classified as Level 1. Fair value of term deposits with banks and corporates is determined using observable markets’ inputs and is classified as Level 2.

Derivative financial instruments: The Company’s derivative financial instruments consist of foreign currency forward exchange contracts. Fair values for derivative financial instruments are based on broker quotations and are classified as Level 2.

The Company assessed that fair value of cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

(c) Financial risk management

The Company is exposed to market risk, credit risk and liquidity risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage & mitigate these risks.

The Company’s risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Company’s business plan along with reasonable participation in market movement.

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of currency risk and interest rate risk. The Company is primarily exposed to fluctuation in foreign currency exchange rates.

(i) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in exchange rates. The Company’s exposure to the risk of changes in exchange rates relates primarily to the Company’s operations and the Company’s net investments in foreign branches.

The exchange rate risk primarily arises from assets and liabilities denominated in currencies other than the functional currency of the respective branches and foreign currency forecasted revenue and cash flows. A significant portion of the Company revenue is in US Dollar, Pound Sterling (GBP) and Euro while a large portion of costs are in Indian rupees. The fluctuation in exchange rates in respect to the Indian rupee may have potential impact on the statement of profit and loss and other comprehensive income and equity.

To mitigate the foreign currency risk the Company uses derivatives as governed by the Company’s strategy, which provides principles on the use of such forward contracts and currency options consistent with the Company’s Risk Management Policy.

Appreciation / depreciation of 1% in respective foreign currencies with respect to functional currency of the Company and its branches would result in decrease / increase in the Company’s profit before tax by approximately Rs.17.15 crores for the year ended 31 March, 2017.

The rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rates shift of all the currencies by 1% against the respective functional currencies of the Company and its branches. The sensitivity analysis presented above may not be representative of the actual change.

Non-derivative foreign currency exposure as of 31 March, 2017 , 31 March 2016 and 1 July 2015 in major currencies is as below:

(ii) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s investments are primarily in fixed rate interest bearing investments. Hence the Company is not significantly exposed to interest rate risk.

Credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and bank balances, inter-corporate deposits, trade receivables, unbilled revenue, finance lease receivables, investment securities and derivative instruments. The cash resources of the Company are invested with mutual funds, banks, financial institutions and corporations after an evaluation of the credit risk. By their nature, all such financial instruments involve risks, including the credit risk of non-performance by counterparties.

The customers of the Company are primarily corporations based in the United States of America and Europe and accordingly, trade receivables and finance lease receivables are concentrated in the respective countries. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of accounts receivables.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities. The investment philosophy of the Company is capital preservation and liquidity in preference to returns. The Company consistently generates sufficient cash flows from operations and has access to multiple sources of funding to meet the financial obligations and maintain adequate liquidity for use.

2.5 Employee benefits

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

A. Defined contribution plans and state plans

Superannuation Fund

Employer’s contribution to Employees State Insurance Employer’s contribution to Employee Pension Scheme

During the year the Company has recognized the following amounts in the statement of profit and loss :-

B. Defined benefit plans

a) Gratuity

b) Employer’s contribution to provident fund Gratuity

The following table sets out the status of the gratuity plan : Statement of profit and loss

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

Discount rate and future salary escalation rate are the key actuarial assumptions to which the defined benefit obligations are particularly sensitive. The following table summarizes the impact on defined benefit obligations as at 31 March 2017 arising due to an increase / decrease in key actuarial assumptions by 50 basis points:

The sensitivity analysis presented may not be representative of the actual change in the defined benefit obligations as sensitivities have been calculated to show the movement in defined benefit obligations in isolation and assuming there are no other changes in market conditions. There have been no changes from the previous years in the methods and assumptions used in preparing the sensitivity analysis.

The defined benefit obligations are expected to mature after 31 March 2017 as follows:

Employer’s contribution to provident fund

The actuary has provided a valuation and based on the assumptions mentioned below, there is no shortfall as at 31 March 2017, 31 March 2016 and 1 July 2015.

The details of the fund and plan asset position are given below:-

Assumptions used in determining the present value obligation of the interest rate guarantee under the Deterministic Approach:

During the year ended 31 March 2017, the Company has contributed Rs.107.90 crores (previous year (nine months), Rs.66.21 crores) towards employer’s contribution to provident fund.

2.6 Related party transactions

a) Related parties where control exists

List of subsidiaries as at 31 March 2017, 31 March 2016 and 1 July 2015 is as below:

Employee benefit trusts

Hindustan Instruments Limited Employees Provident Fund Trust

HCL Consulting Limited Employees Superannuation Scheme

HCL Comnet System and Services Limited Employees Provident Fund Trust.

HCL South Africa Share Ownership Trust HCL Technologies Stock Options Trust

b) Related parties with whom transactions have taken place during the current year Key Management personnel

Mr. Shiv Nadar - Chairman and Chief Strategy Officer

Mr. C. Vijayakumar - President and Chief Executive Officer (w.e.f. 20 October, 2016) Mr. Anant Gupta - President and Chief Executive Officer (upto 20 October, 2016)

Mr. Anil Chanana - Chief Financial Officer Mr. Manish Anand - Company Secretary

Non executive & independent Directors

Mr. Amal Ganguli Mr. Keki Mistry Mr. Ramanathan Srinivasan Ms. Robin Ann Abrams Dr. Sosale Shankara Sastry Mr. Subramanian Madhavan Mr. Thomas Sieber

Ms. Nishi Vasudeva (appointed w.e.f. 1 August 2016)

Non-executive & non-independent Directors

Ms. Roshni Nadar Malhotra Mr. Sudhindar Krishan Khanna

Others (Significant influence)

HCL Infosystems Limited

HCL Avitas Private Limited

Vama Sundari Investments (Delhi) Private Limited

HCL Corporation Private Limited

SSN Investments (Pondi) Private Limited

Naksha Enterprises Private Limited

HCL Services Limited

HCL TalentCare Pvt. Ltd.

HCL Learning Limited

HCL IT City Lucknow Private Limited

HCL Infotech Limited

Shiv Nadar Foundation

HCL Holding Private Limited

The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business, the outcome of which is inherently uncertain. Some of these matters include speculative and frivolous claims for substantial or indeterminate amounts of damages. The Company records a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions at least quarterly and adjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The Company believes that the amount or estimable range of reasonably possible loss, will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, results of the Company, or cash flows with respect to loss contingencies for legal and other contingencies as at 31 March, 2017.

Guarantees have been given by the Company on behalf of various subsidiaries against credit facilities, financial assistance and office premises taken on lease amounting to Rs.625.44 crores (Previous year Rs.715.43 crores). These guarantees have been given in the normal course of the Company’s operations and are not expected to result in any loss to the Company, on the basis of the beneficiaries fulfilling their ordinary commercial obligations.

The Company is required to comply with the transfer pricing regulations, which are contemporaneous in nature. The Company appoints independent consultant annually for conducting transfer pricing studies to determine whether transactions with associate enterprises undertaken during the financial year, are on an arm’s length basis. Adjustments, if any, arising from the transfer pricing studies will be accounted for when the study is completed for the current financial year. The management is of the opinion that its transactions with associates are at arm’s length so that the outcome of the studies to corroborate compliance with legislation will not have any material adverse impact on the financial statements.

2.7 Micro and small enterprises

As per information available with the management, the dues payable to enterprises covered under “The Micro, Small and Medium Enterprises Development Act, 2006” are as follows:

This has been determined on the basis of responses received from vendors on specific confirmation sought by the Company.

2.8 Corporate social responsibility

As required by the Companies Act, 2013, the gross amount required to be spent by the Company on CSR activities is Rs.129.16 crores (previous year Rs.122.13 crores) and the amount spent during the year is Rs.40.12 crores (previous year Rs.13.04 crores).

2.9 Disclosure on Specified Bank Notes

During the period from 8 November, 2016 to 30 December, 2016, the company held and transacted in Specified Bank Notes (SBN) or other denomination note as defined in the MCA notification G.S.R. 308(E) dated 30 March, 2017. The detail of same is as below in absolute rupees (‘).

3. First-time adoption of ind As

The adoption of Ind AS was carried out in accordance with Ind AS 101, using 1 July, 2015 as the transition date. Ind AS 101 requires that all Ind AS standards that are effective for the first Ind AS Financial Statements be applied consistently and retrospectively for all periods presented. The resulting difference between the carrying amounts of the assets and liabilities in the financial statements under Ind AS and Previous GAAP as at the transition date are recognized directly in equity.

In preparing these financial statements, the Company has availed of certain exemptions and exceptions in accordance with Ind AS 101 as explained below:

i. exemptions from retrospective application:

Following are the optional exemptions which the Company has opted to apply / not to apply:

i. cumulative translation differences exemption - The Company had accumulated foreign exchange translation gains and losses on branches in a separate component of equity under Previous GAAP. Upon transition to Ind AS, the treatment of recording translation differences on branches in equity did not undergo any change and consequently the optional exemption of setting cumulative translation reserve to zero as at transition date was not required to be applied.

ii. Share-based payment transaction exemption - Ind AS 102 Share-based Payment has not been applied to equity instruments in share-based payment transactions that vested before the transition date.

iii. Changes in decommissioning liabilities included in the cost of property, plant and equipment exemption -

The Company does not have material decommissioning, restoration and similar liabilities in the cost of property, plant and equipment and hence the exemption is not applicable.

ii. exceptions from full retrospective application

i. Estimates exception - Upon review of the estimates made under Previous GAAP, the Company concluded that there was no necessity to revise the estimates under Ind AS except where estimates were required by Ind AS and not required by Previous GAAP.

ii. Derecognition of financial assets and liabilities exception - Financial assets and liabilities derecognized in accordance with Previous GAAP are not re-recognized under Ind AS. The Company has chosen not to apply the Ind AS 109 derecognition criteria to an earlier date. No arrangements were identified that had to be assessed under this exception.

iii. Hedge accounting exception - The Company had followed hedge accounting under Previous GAAP which is aligned to Ind AS. Accordingly, this exception of not reflecting in its opening Ind AS balance sheet a hedging relationship of a type that does not qualify for hedge accounting under Ind AS 109, is not applicable to the Company.

iii. Reconciliations:

The following reconciliations provide a quantification of the effect of the transition to Ind AS from Previous GAAP in accordance with Ind AS 101:

- Equity as at 1 July, 2015 (Transition date)

- Equity as at 31 March, 2016

- Statement of profit and loss for the year ended 31 March, 2016

a. Leasehold deposits

Under Ind AS, long term lease deposits are required to be initially measured at fair value and subsequently at amortized cost using the effective interest method. Accordingly, fair value adjustment of Rs.66.39 crores (1 July 2015) and Rs.64.07 crores (31March 2016) on security deposits has been recognized against increase in prepaid assets of Rs.56.34 crores (1 July 2015) and Rs.53.50 crores (31 March 2016) and decrease in retained earnings of Rs.10.05 crores (1 July 2015) and Rs.10.57 crores (31 March 2016). Additionally, for the year ended 31 March 2016, interest income on deposit of Rs.3.56 crores and rent expense of Rs.4.08 crores is recognized in the statement of profit and loss. No such accounting was prescribed under Previous GAAP.

b. Fair value through profit and loss financial assets

Under Previous GAAP, the Company accounted for investments in mutual funds as investment measured at the lower of cost and fair value. Under Ind AS, the company has measured these investments at fair value through profit and loss. Accordingly, difference of Rs.2.97 crores as at the transition date and difference of Rs.0.86 crores as at 31 March 2016 between the instruments’ fair value under Ind AS and Previous GAAP carrying amount has been identified and recognized through statement of profit and loss (after netting of related deferred taxes of Rs.1.03 crores as at transition date and Rs.0.30 crore as at 31 March 2016) for Rs.2.11 crores.

c. Defined benefit obligations

Both under Previous GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Previous GAAP, the entire cost, including actuarial gains and losses, are charged to the statement of profit and loss. Under Ind AS, re-measurements [comprising of actuarial gains and losses] are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI. Thus the employee benefit cost for the year ended 31 March 2016 has increased by Rs.11.30 crores and re-measurement gain / loss on defined benefit plan net of related deferred taxes of Rs.2.33 crores has been recognized in the retained earnings.

d. Share-based payments

Under Previous GAAP, the Company recognized the intrinsic value of the share options as expense over the vesting period. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model and to be recognized as expense over the vesting period. Accordingly, additional expense of Rs.1.40 crores has been recognized in the statement of profit and loss for the difference between the fair value and intrinsic value for the year ended 31 March 2016.

Fair value adjustment of Rs.8.01 crores on share options which were granted before and unvested as at the transition date have also been recognized as a benefit in retained earnings with the corresponding decrease in share based payment reserve.

e. Leasehold land

Leasehold land was not classified as lease arrangement on account of specific exclusion under Previous GAAP. However, as per Ind AS 17 it is accounted for as operating lease as the arrangement does not satisfy the conditions for classification as finance lease. Accordingly, written down value of leasehold land as at transition date of Rs.258.05 crores and 31 March 2016 of Rs.257.53 crores has been reclassified from property, plant and equipments to prepaid expenses and similarly capital advance of Rs.85.75 crores paid towards purchase of leasehold land has been reclassified from capital advances to advances to suppliers. This change also has a reclassification impact of Rs.2.26 crores on the statement of profit and loss for the year ended 31 March 2016 from depreciation to rent expense.

f. Classification of provision for employee leave benefit

Under Previous GAAP, where the employee had unconditional right to avail accumulated leave, the same was classified as “current” even though it is measured as non-current under the prescribed guidance. Under Ind AS, provision for employee leave benefit is measured under the prescribed guidance as determined by a qualified actuary. Accordingly, non-current provision for leave benefits of Rs.106.52 crores and Rs.124.63 crores as on 1 July 2015 and 31 March 2016 respectively has been reclassified as non-current provision for leave benefits.

g. Revenue recognition

In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably whether the Company is the primary obligor to the customer, has established its own pricing, and has inventory and credit risks.

Under Previous GAAP, the Company recognized the reimbursement of out-of-pocket expenses net of corresponding revenue. However, under Ind AS, Revenue includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues in the statement of profit and loss. Accordingly, this change has resulted in increase in “revenue from operations” and “outsourcing costs” by Rs.1.29 crores with net NIL impact in the statement of profit and loss.

h. interest to / from the taxing authority

Under Previous GAAP, interest and penalties levied under income tax legislations were treated as expense in arriving at profit before tax and was presented under Other Expenses. Under Ind AS, the Company under Ind AS has adopted the accounting policy of treating the same as part of “Tax Expense”. Accordingly, this change has resulted in decrease in “Other Expenses” by Rs.31.06 crores with corresponding increase in “Current Tax” with net NIL impact in the statement of profit and loss.

i. Statement of cash flows

The transition from Previous GAAP to Ind AS has not had a material impact on the statement of cash flows.

4. Segment Reporting

As per Ind AS 108 ‘Operating Segments’, the Company has disclosed the segment information only as part of the consolidated financial results.

5. Previous year comparatives

The previous financial year of the Company was for nine months from 1 July 2015 to 31 March 2016. The figures for the current financial year are therefore not comparable with those of the previous year.