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

BSE: 500103ISIN: INE257A01026INDUSTRY: Engineering - Heavy

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108.00
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121.83
Year End :2017-03 

Note no. 1

Financial Assets -Trade receivables (Current)

Sub-classification

Unsecured, considered good

-(RS.22075.56 Crore (previous year RS.22430.12 Crore))

Doubtful

-(RS.5363.38 Crore (previous year RS.4808.60 Crore))

Current trade receivables include deferred debts (net of provisions)-

-(RS.8747.89 Crore (previous year RS.7915.68 Crore))

Current trade receivables include goods despatched pending billing-

-(RS.1038.38 Crore (previous year RS.678.80 Crore))

Current trade receivables include valuation adjustment-

-(RS.1031.75 Crore (previous year RS.1110.52 Crore))

Current trade receivables include debts outstanding for a period exceeding six months-

-(RS.17252.79 Crore (previous year RS.17723.02 Crore))

Includes:

Due from Directors

-(Rs.Nil (previous year Rs.Nil))

Due from Officers

-(Rs.Nil (previous year Rs.Nil))

Note no. 2

Financial Assets -Loans (Current)

Sub classification:-

Secured, considered good

-(RS.50.88 Crore (previous year RS.37.11 Crore))

Unsecured, considered good

-(RS.84.12 Crore (previous year RS.124.34 Crore))

Doubtful

-(RS.3.89 Crore (previous year RS.4.02 Crore)) includes:

Due from Directors

-(Rs.Nil (previous year Rs.Nil))

Due from Officers

-(RS.0.01 Crore (previous year RS.0.04 Crore))

Note no. 3

Notes to Accounts

Bharat Heavy Electricals Limited (“BHEL” or “the Company”) is a public limited company domiciled in India and has its registered office at BHEL House, Siri fort, New Delhi- 110049.

The Company is an integrated power plant equipment manufacturer engaged in the design, engineering, manufacture, erection, testing, commissioning and servicing of a wide range of products and services for the core sectors of the economy, viz. Power, Transmission, Industry, Transportation, Renewable Energy, Oil & Gas and Defence.

1 First-time Adoption of Ind AS -101

The company has prepared its first Financial Statements in accordance with Ind AS for the year ended 31st MarcRs.2017. For periods up to and including the year ended 31st MarcRs.2016, the Company prepared its financial statements in accordance with Indian GAAP, including accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended). The effective date for Company’s Ind AS Opening Balance Sheet is 1st April 2015 (the date of transition to Ind AS).

The accounting policies set out in Note 1 have been applied in preparing the financial statements for the year ended 31st MarcRs.2017, the comparative information presented in these financial statements for the year ended 31st MarcRs.2016 and in the preparation of an opening Ind AS Balance Sheet as at 1st April 2015 (the Company’s date of transition). According to Ind AS 101, the first Ind AS Financial Statements must use recognition and measurement principles that are based on standards and interpretations that are effective as at 31st MarcRs.2017, the date of first-time preparation of Financial Statements according to Ind AS. These accounting principles and measurement principles must be applied retrospectively to the date of transition to Ind AS and for all periods presented within the first Ind AS Financial Statements.

Any resulting differences between carrying amounts of assets and liabilities according to Ind AS 101 as on 1st April 2015 compared with those presented in the Indian GAAP Balance Sheet as on 31st MarcRs.2015, were recognized in equity under retained earnings within the Ind AS Balance Sheet, wherever applicable.

An explanation of how the transition from previous GAAP to Ind AS has affected the company’s financial position and financial performance is set out in the following tables and notes.

Exemptions and Exceptions availed

In the Ind AS Opening Balance Sheet as on 1st April 2015, the carrying amounts of assets and liabilities from the Indian

GAAP as at 31st MarcRs.2015 are generally recognized and measured according to Ind AS in effect as on 31st MarcRs.2017. For certain individual cases, however, Ind AS 101 provides for optional exemptions and mandatory exceptions to the general principles of retrospective application of Ind AS. The Company has used the following exemptions and exceptions in preparing its Ind AS Opening Balance Sheet:

Optional Exemptions Availed:

i) Property, plant and equipment & Intangible assets

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous Indian GAAP (IGAAP) and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38, Intangible Assets. Accordingly, the company has elected to measure all of its property, plant and equipment and intangible assets at their erstwhile Indian GAAP carrying value.

ii) Business Combination

Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. The Company has elected to apply Ind AS 103 ‘Business Combinations’ prospectively from the date of transition. Accordingly, business combinations occurred prior to 1st April 2015 have not been restated.

iii) Investment in subsidiary and joint ventures:

The Company has elected to measure its investments in subsidiary and joint ventures in the separate financial statements at cost. The cost of investment for the purpose of first financial statements shall be previous Indian GAAP carrying amount net of impairment on the date of transition.

Ind AS Mandatory Exceptions:

i) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist as on the date of transition to Ind AS. Accordingly Company has classified and measured all its financial assets on the basis of the facts and circumstances that exist as on the date of transition to Ind AS.

ii) Estimates

An entity’s estimates in accordance with Ind AS as on the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous IGAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. Ind AS estimates as at 1 April 2015 are consistent with the estimates as on the same date made in conformity with previous GAAP.

Notes to first-time adoption:

i) Classification of Locomotives as finance lease:

Locomotives given on lease prior to 1st April 2001 were accounted for in accordance with the guidance contained for manufacturer dealer lessor and recognised as Fixed assets under previous IGAAP. Under Ind AS, locomotives given on finance lease has been derecognised by the previous IGAAP net carrying value of RS.2.25 Crore and corresponding finance lease receivable has been recognised on transition date.

ii) Stores and Spares and retrofitting expenses classified as CWIP:

Stores and spares classified as inventory has been capitalized and depreciated over their useful life amounting to RS.1.53 Crore as at April 01, 2015. Further, expenditure on retrofitting works has been capitalised as an item of PPE in FY 2015-16 in line with Ind AS. The net impact is increase in retained earning by RS.0.40 Crore as on 01.04.2015 and increase in profit by RS.1.83 Crore for 2015-16.

iii) Proposed dividend:

Under Indian GAAP, the Company had accounted for proposed dividends relating to year ended 31st MarcRs.2015 in that year, though the approval of that dividend took place after the reporting date. Under Ind AS, proposed dividends do not meet the definition of liability until they have been approved by shareholders at the Annual General Meeting. Company has declared dividend of RS.151.75 Crore (RS.182.64 Crore inclusive of CDT) for the year 2014-15 which is reversed as per Ind AS on transition date, with corresponding effect of increase in retained earnings by RS.182.64 Crore. Dividend of RS.97.90 Crore (RS.117.83 Crore inclusive of CDT) for the year 2015-16 declared in 2016-17 is reversed and dividend of RS.151.75 Crore (RS.182.64 Crore including CDT) of 2014-15 declared in 2015-16 is adjusted. The impact is decrease in retained earnings by RS.64.81 Crore for 2015-16.

iv) Government grants to be shown as deferred income:

Under Indian GAAP, the Company had recognised government grant received amounting to RS.1.38 Crore as capital reserve. Under Ind AS, government grants received for capital assets are to be recognised as deferred income and to be amortized on a systematic basis in line with Ind AS. The amount of RS.1.38 Crore has been reclassified from capital reserve to retained earnings on transition date accordingly.

v) Investments in equity securities classified as at Fair Value through P&L (FVTPL):

As per Ind AS, the Company has classified certain investments amounting to RS.5.91 Crore as at FVTPL. The fair value of these investments have been calculated at RS.8.71 Crore. The gain of RS.2.80 Crore is adjusted to retained earnings as on 1st April, 2015. In FY 2015-16, the fair value of these investment has been calculated as RS.6.67 Crore and the resultant impact of RS.2.04 Crore is accounted through P&L.

vi) Revenue Contracts accounted at percentage of completion method (POCM):

The company has accounted for revenue arising from contracts entered into before 1.4.2003 at POCM as per Ind AS 11. The effect of adjustment is decrease in retained earnings by RS.9.60 Crore with consequential impact on trade receivables and provision for warranty obligation as on April 01, 2015. The effect of adjustment is increase in profit by RS.8.03 Crore with consequent impact on turnover and warranty obligation for 2015-16.

vii) Recognition of other Long term Provisions at present value:

As per Ind AS, long term provisions are to be accounted at present value where obligation are likely to be settled at later date. Accordingly, other long term provisions, wherever applicable, have been measured at present value and the effect of the adjustment is increase in retained earnings by RS.37.22 Crore and decrease in provisions by same amount as on April 01, 2015. The unwinding of interest on these provisions and discounting of provisions with respect to additions made during the year has net impact of decrease in profit by RS.20.57 Crore for 2015-16.

viii) Recognition of Long term Contractual Obligation at present value:

In line with Ind AS where the obligations are likely to be settled at later date and the effect of time value is material, the provision are to be accounted at present value. Accordingly, Long term Contractual obligation have been measured at present value and the effect of the adjustment is increase in retained earnings by RS.538.93 Crore and decrease in provisions by same amount as on April 01, 2015. The effect of unwinding of interest on these provisions and discounting of provision with respect to additions made during the year is decrease in profit by RS.184.06 Crore for 2015-16.

ix) Fair value of consideration:

Ind AS prescribes the revenue recognition in respect of construction contracts at fair value. Generally the transaction value is the fair value of consideration in respect of construction contracts except in certain contracts, where as per contractual payment terms, percentage of advance are lower than deferred debts. The resulted impact has decreased retained earnings by RS.193.49 Crore with corresponding reduction in deferred debtors as at April 01, 2015. The net impact resulted in decrease in turnover by RS.49.53 Crore and increase in other operating income by RS.96.20 Crores, increase in profit by RS.46.66 Crore for 2015-16.

x) Discounting of Deferred Liability:

As per Ind AS where a contractual payment terms contain deferred payments and constitutes a time value of money considering advance percentage, such deferred liability are to be recognised at discounted value and subsequently unwinded as a borrowing cost. The effect of the adjustments increase in retained earnings by RS.60.80 Crores and decrease in deferred liability by same amount as on April 01, 2015.The effect for 2015-16 is decrease in consumption of material cost / sub-contracting cost by RS.22.60 Crore and increase in finance cost by RS.37.99 Crore for unwinding of interest on these liabilities, resulted impact in decrease of profit by RS.15.39 Crore for 2015-16.

xi) Provisions for expected credit loss:

In respect of trade receivable the impairment loss has been computed using expected credit loss considering regression effect for time value. The effect of the adjustment is decrease in retained earnings by RS.2230 Crores as on April 01, 2015. Impact of the adjustment is reversal of provision by RS.328 Crore for 2015-16.

xii) Classification adjustment of Advances restatement:

Re-classification of advances adjustment has been carried out from transition date in line with Ind AS 21, the impact on retained earning is increase by RS.82.54 Crore as on 01.04.2015 and increase in profit by RS.33.43 Crore for 2015-16.

xiii) Deferred Tax:

The impact of transition adjustments together with Ind AS mandate of using balance sheet approach for computation of deferred taxes has resulted in charge to the Reserves, on the date of transition, with consequential impact to the Profit and Loss account for the subsequent periods.

xiv) Other comprehensive income:

Under Indian GAAP, the Company has not presented other comprehensive income (OCI) separately. Items that have been reclassified from statement of profit and loss to other comprehensive income includes remeasurement of defined benefit plans of RS.76.38 Crore (net of tax) in 2015-16. Indian GAAP profit or loss is reconciled to total comprehensive income as per Ind AS.

xv) Statement of cash flows:

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

2 (i) Cash credit limit from banks aggregating to RS.5000 Crore (previous year RS.5000 Crore) and Company’s counter guarantee / indemnity obligations in regard to bank guarantee / letters of credit limit aggregating to RS.55000 Crore (previous year RS.55000 Crore) sanctioned by the consortium banks are secured by first charge by way of hypothecation of raw materials, components, work in progress, finished goods, stores, trade receivables and other current assets both present and future. The outstanding bank guarantees as at 31.03.2017 is RS.40666 Crore (previous year RS.45834 Crore).

(ii) Corporate Guarantees given for own obligations outstanding as on 31.03.2017 is RS.1733.80 Crore (Previous year RS.3028.33 Crore).

3 Balance shown under Trade Receivables, Long term Trade Receivables, Trade Payable, contractors’ advances, deposits and stock / materials lying with sub-contractors/ fabricators are subject to confirmation, reconciliation & consequential adjustment, if any. As the Company is in the business of long term construction contracts, bills are raised on the customers as per contract by the units located at various places as per approved billing schedule by the customer and the reconciliation is carried out on ongoing basis & provisions made, wherever considered necessary. Final reconciliation with customer is done on completion of project (Trial Operation and PG Test completed). The total receivables (including long term) are RS.42510 Crore, (including deferred debts and other debts of RS.20195 Crore presently not due for payment and RS.6287 Crore outstanding in respect of completed projects), out of which, the projects reconciled with customers have outstanding debts of RS.5497 Crore in respect of completed projects.

4 In line with the EAC/ICAI opinion on “Fair value of consideration for Construction Contracts” under Ind AS 11, retention money, relating to the projects where advance %age is less than retention %age as per the terms of contract, is discounted at the time of recognition of turnover.

Out of total deferred debtors (net) of RS.16736.95 Crore (previous year RS.17957.67 Crore), deferred debtors at amortised value representing such retention money as stated above as on 31.03.2017 is RS.1797.27 Crore (previous year RS.1256.57 Crore).

5 Amorphous Silicon Solar Cell Plant (ASSCP), Gurgaon was taken on April 1, 1999 from Ministry of New and Renewable Energy (MNRE) on lease for a period of 30 years. The formal lease agreement with the Ministry of New and Renewable Energy (MNRE) is yet to be finalised.

6 Current Financial liabilities includes a sum of RS.100.51 Crore (previous year RS.100.51 Crore) towards guarantee fee demanded by the Government of India in respect of foreign currency loans taken by the Company at the instance of the Government upto 1990-91. The matter for its waiver has been taken up with the Government since there was no stipulation for payment of such guarantee fee at the time the loans (guaranteed by Government) were taken by the company. The Company vide letter dated 09.02.2015 has again requested Department of Heavy Industries (DHI) for waiver of the guarantee fee.

7. Disclosure as per Ind AS 19 on ‘Employee benefits’

A. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has rendered continuous service of five years or more is entitled to gratuity at 15 days salary (15/26 X last drawn basic salary plus dearness allowance) for each completed year of service subject to a maximum of RS.10 Lakhs. The gratuity liability arises on account of future payments, which are required to be made in the event of retirement, death in service or withdrawal. The liability has been assessed using projected unit credit actuarial method.

I. Movement in net defined benefit (asset)/liability on Gratuity plan

II. Details of Plan assets

The following were the principal actuarial assumptions at the reporting date.

IV. Sensitivity analysis

The sensitivity of the defined benefit obligation to changes in the significant principal assumptions is:

Sensitivities due to mortality and withdrawals are not material and hence impact of change not calculated.

Sensitivities as to rate of inflation, rate of increase of pensions in payment, rate of increase of pensions before retirement & life expectancy are not applicable being a lump sum benefit on retirement.

The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. This analysis may not be representative of the actual change in the defined benefit obligations as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

V. Expected maturity analysis of the gratuity plan in future years

Expected contributions to gratuity plans for the year ending 31st MarcRs.2018 are RS.118.87 Crore

The weighted average duration of the gratuity defined benefit plan obligation at the end of the reporting period is 14.66 years (31 MarcRs.2016: 14.37 years.)

VI. 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 such as increase in salary, investment risk, discount rate, mortality, disability and withdrawals.

B. Post Retirement Medical Benefits

The Company has Post-Retirement Medical benefit (PRMB), under which the retired employees and their spouses are provided medical facilities in the Company hospitals/empanelled hospitals. They can also avail treatment as out-patient subject to a ceiling fixed by the Company. The liability for the same is recognised annually on the basis of actuarial valuation.

I. Movement in net defined benefit (asset)/liability on Post Retirement Medical Benefit Plan

The plan assets of the Company are managed by Life Insurance Corporation of India through a trust managed by the Company in terms of an insurance policy taken to fund obligations of the Company.

II. Actuarial assumptions

The following were the principal actuarial assumptions at the reporting date.

III. Sensitivity analysis

The sensitivity of the defined benefit obligation to changes in the significant principal assumptions is:

Sensitivity due to mortality and withdrawls are not material and hence impact of change not calculated.

The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. This analysis may not be representative of the actual change in the defined benefit obligations as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

IV. Expected maturity analysis of the Post retirement medical Benefit plan in future years

Expected contributions to Post retirement medical benefit plan for the year ending 31 MarcRs.2018 are RS.32.30 Crore.

The weighted average duration of the post retirement medical benefit plan obligation at the end of the reporting period is 12.57 years (31 MarcRs.2016: 13.26 years ).

V. Risk Exposure

Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such company is exposed to various risks such as increase in salary, investment risk, discount rate, mortality, disability and withdrawals.

C. Long term Leave Liability (EL/HPL) - Unfunded

The company provides for earned leave benefit and half pay leave to the employees of the company which accrue half yearly at 15 days (maximum) and 10 days respectively. The earned leave is encashable while in service and up to a maximum of 300 days on retirement. Half Pay leave is encashable on superannuation or on separation beyond the age of fifty years subject to the overall ceiling of 480 days. The leave liability has been treated as other long term benefits and has been assessed using projected unit credit actuarial method.

I. Movement in net defined benefit (asset)/liability

II. Actuarial assumptions

The following were the principal actuarial assumptions at the reporting date.

The Company pays fixed contribution to provident fund at predetermined rates to a separate trust, which invests the funds in permitted securities. An amount of RS.282.46 Crore (31 MarcRs.2016: RS.278.88 Crore) for the year is recognised as expense on this account and charged to the Statement of Profit and Loss. The Company has an obligation to ensure minimum rate of return to the members as specified by GOI. Accordingly, the Company has obtained report of the actuary, based on which overall interest earnings and cumulative surplus is more than the statutory interest payment requirement for all the periods presented and wherever as per the actuarial valuation certificate liability for likely interest shortfall arises, the same has been provided in the accounts.

The company has PF trusts located at various places covering the employees of the company and managed separately, the details of plan assets and obligations are as follows

8 Leases

The company is in the practice of taking houses for employees, office buildings and EDP equipment etc. on operating lease both as cancellable and non- cancellable. The total of future minimum lease payments under non-cancellable operating leases for each of the following periods was:

Finance lease commitments - Company as Lessee

The Company has taken Land, building, EDP equipment on finance lease. The future minimum lease payments under non-cancellable leases are as follows:

9. Research and Development Expenditure

The details of Research & Development Expenditure incurred during the year, which is eligible (other than land or building) of deduction under section 35 (2AB) of the Income Tax Act, 1961.

10 Related Parties Transactions

i) Joint Ventures:

Power plant Performance Improvement Ltd.

BHEL-GE Gas Turbine Services Pvt. Ltd. (BGGTS)

NTPC-BHEL Power Projects Pvt. Ltd. (NBPPL)

Latur Power Company Ltd.

Raichur Power Corporation Ltd. (RPCL)

Dada Dhuniwale Khandwa Power Ltd.

Subsidiary Company BHEL Electrical Machines Limited Central Government controlled entities Provident fund trusts

Gratuity trusts, PRMB Trust, Pension Trust

ii) Other related parties (Key Management Personnel- Functional Directors: existing & retired and Company Secretary): CMD : Shri Atul Sobti

Functional Directors : S/Shri D. Bandyopadhyay, Amitabh Mathur, S. Biswas, T. Chockalingam, Akhil Joshi (w.e.f. 10.08.2016) & Company Secretary : Shri IP Singh

The CMD and functional directors have been allowed the use of staff car for both duty and non-duty journeys. The ceiling of non duty journey is 1000 kms p.m against recovery of prescribed amount in accordance with terms and condition of appointment. The monetary value of the perquisite for the use of car, if calculated in accordance with the provisions of I.T. Rules 1962 would amount to RS.0.02 Crore (Previous Year RS.0.02 Crore)

The company is a central public sector undertaking under the administrative control of Ministry of Heavy Industries and majority of its stake is held by Government of India. The significant transactions are with other PSUs, State owned utilities, Railways etc. which are also controlled by Govt. of India directly or indirectly. The transactions with such company are based on market driven rates at arms length price.

11 a) Movement In Provisions

b) Liquidated damages are provided in line with the Accounting Policy of the Company and the same is dealt suitably in the accounts on settlement or otherwise. Contingent liability relating to liquidated damages is shown in Para 2 of Note 39.

c) The provision for contractual obligation is made at the rate of 2.5% of the contract revenue considering the effect of time value of money in line with significant Accounting Policy No. 11 to meet the warranty obligations as per the terms and conditions of the contract. The same is retained till the completion of the warranty obligations of the contract. The actual expenses on warranty obligation may vary from contract to contract and on year to year depending upon the terms and conditions of the respective contract.

12. As per Section 135 of the Companies Act, 2013 read with guidelines issued by DPE, the Company is required to spend, in every financial year, at least two per cent of the average net profits of the Company made during the three immediately preceding financial years in accordance with its CSR Policy. The details of CSR expenses for the year are as under:

13. Disclosure as per Ind AS 11 Construction Contracts

a) The disclosures relating to Construction Contracts as per the requirement of Indian Accounting Standard -11 (IndAS-11) Construction Contracts are as follows:

b) The estimates of total costs and total revenue in respect of construction contracts in accordance with IndAS-11 Construction Contracts are reviewed and up dated periodically to ascertain the percentage completion for revenue recognition. However, it is impracticable to quantify the impact of change in estimates.

14 Financial Instruments - Accounting Classifications and Fair value measurements

a The Fair value of cash and cash equivalents, bank balances, loans, trade receivables, trade payables and others approximates their carrying amount. Trade receivables are evaluated after taking into consideration for Expected Credit Losses. Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique.

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) b Financial Assets / Liabilities Classification

c Valuation Techniques used to determine fair value

Fair value of unquoted equity instruments is determined using Level 3 inputs which include inputs from the financial statements of the investee Company based on Net asset value per share.

d Financial Risk Management Objectives and Policies

The company’s Financial Risk Management is an integral part of business strategies. The Company is exposed to the following risks from its use of financial instruments:

- Credit risk

- Liquidity risk

- Market risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these financial statements.

e Risk management framework

BHEL has in place a Board approved Risk Management Charter laying down procedures to inform Board members about the risk assessment & minimization. An important purpose of the Charter is to implement a structured and comprehensive risk management system across the company which ensures that the risks are being properly identified and effectively managed. The risk management process includes risk identification, risk assessment, risk evaluation, risk mitigation and regular review & monitoring of risks. BHEL has in place a Board Level Risk Management Committee (BLRMC) with assigned responsibility of reviewing the company’s risk governance structure, risk assessment & risk management framework, guidelines, policies and processes. Besides this, Risk Management Steering Committee (RMSC) leads the risk management initiative across the company. RMSC members comprising of Executive Directors/ Functional Heads from Corporate Functions and Business sectors are responsible for adopting & implementing the risk management framework. At the divisional level, Risk Management Committees at the Business Sectors/Regions/Units/functions are responsible for review of risk profiles & risk mitigation plans and their implementation at the respective Units/Regions. Order book reduction due to increase in competition, excess domestic manufacturing capacities and low businesses sentiments are the key risk which is being mitigated through expanding the offerings, diversified product profile and focus on EPC business.

f Financial Risk management

Credit Risk

Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables. BHEL is a project oriented organisation with significant operations from power projects. The customer profile consists of around 75% from Govt. Sectors (SEB’s, PSU’s, Railways and other govt. departments). The projects are generally funded by Financial Institutions/ banks or payments are covered by Letter of Credit (LC). In respect of private sectors, the payment terms are mainly through LC. On account of adoption of Ind AS 109, the Company uses expected credit loss model to assess the impairment loss or gain. The disclosure of expected credit losses is made elsewhere.

(i) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

g Impairment losses

(a) Financial assets for which loss allowance is measured using 12 month expected credit losses

The company has assets where the counter- parties have sufficient capacity to meet the obligations and where the risk of default is very low.

The movement in the allowance for impairment in respect of loans during the year was as follows:

(b) Reconciliation of impairment loss provisions

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

The Company believes that, apart from the above, no impairment allowance is necessary in respect of any other assets. Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by credit rating agencies.

h Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash. The Company’s approach in managing the same is to ensure, as far as possible, sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions.

The company’s principal sources of liquidity are cash and cash equivalents, balances with banks and the cash flow that is generated from operations. The company has no outstanding bank borrowings. The company believes that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived.

The following are the contractual maturities of non-derivative financial liabilities, based on contractual cash flows:

i Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Company is exposed to foreign currency risk on certain transactions that are denominated in a currency other than the entity’s functional currency; hence exposures to exchange rate fluctuations arise. The risk is that the functional currency value of cash flows will vary as a result of movements in exchange rates.

j Foreign currency risk exposure -: The company’s exposure to foreign currency risk at the end of reporting period, are as follows:

(i) The derivative instruments that are hedged and outstanding as on 31.03.2017 is Nil (previous year Nil)

(ii) The foreign currency exposures that are not hedged by a derivative instrument or otherwise are as under:

Sensitivity analysis

A strengthening of the Indian Rupee, as indicated below, against the USD, Euro, LYD, Oman Riyal and others at 31 March would have increased (decreased) profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Company considered to be reasonably possible at the end of the reporting period. The analysis is performed on the same basis for previous year, albeit that the reasonably possible foreign exchange rate variances were different, as indicated below.

k Capital Management

While managing capital, the Company’s objective is to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders.

The Board of Directors monitors the return on capital, which the Company defines as result from operating activities divided by total shareholders’ equity. The Board of Directors also monitors the level of dividends to equity shareholders.

The Company’s return on capital is 1.54% as at 31.03.2017 in comparison to -2.21% as at 31.03.2016.

The Company monitors capital, using a medium term view and long term view, on the basis of a number of financial ratios generally used by industry and by the rating agencies. The Company is not subject to externally imposed capital requirements. The Company’s capital structure is managed against the various financial ratios as required to maintain strong credit ratings.

15. Dividends

a) The following dividends were declared and paid during the year:

The above final dividend figures exclude tax on dividend of RS.19.93 Crore (previous year RS.30.89 Crore)

The above interim dividend figures exclude tax on dividend of RS.39.86 Crore (previous year RS.NIL Crore)

b) The company has proposed final dividend @ 39% (RS.0.78 Per share, amounting to RS.190.91 Crore) on paid up share capital of RS.489.52 Crore out of profit for the year 2016-17. The total payout on account of dividend (RS.190.91 Crore) along with corporate dividend tax (RS.38.87 Crore) will be RS.229.78 Crore.

c) The Board of Directors has authorised to issue the Financial Statements 2016-17 in its meeting held on 29.05.2017.

16. As per SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the requisite details of loans and advances in the nature of loans, given by the Company are given below:

i) In respect of Subsidiary Company:

ii) No loans have been given (other than loans to employees), wherein there is no repayment schedule or repayment is beyond seven years; and

iii) There are no loans and advances in the nature of loans, to firms/companies, in which directors are interested.

17. Assets and Liabilities are classified between Current and Non-current considering 12 months period as operating Cycle.

18. Pending finalisation of agreement for wage/ salary structure due from 1st January, 2017, a provision of RS.961 Crore (including one time cumulative impact on a/c of gratuity and leave liability of RS.674 Crore) has been made in financial year 2016-17 based on estimates as per third pay revision committee (PRC) recommendation.

19. Marginal Cost of lending rate (MCLR) as applicable to BHEL as at the year end has been considered for working out fair value of consideration and present value of long term provisions.

20. There are net outstanding debts of RS.2119 Crore (after adjustment of advances) pertaining to 27 projects on hold due to various reasons like environment clearance, fuel linkage, land acquisition, fund constraints, force majeure, hold imposed by BHEL due to strategic reasons etc. FG/ WIP of RS.777 Crore is also lying in these projects. Provision of RS.1618 Crore for outstanding debts and RS.180 Crore for inventory has been provided till 31.03.2017 against these projects in line with the guidelines in this regard.

21. Previous year’s figures have been regrouped/ rearranged wherever considered necessary.

22. Operating Segment

The Segments have been identified as ‘Power’ and ‘Industry’ based on the orders booked by the respective business sectors. The order booked by International operation group is taken to Power or Industry as the case may be.

The Compnay’s Committee of functional Directors has been identified as Chief Operating Decision maker (CODM).