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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

BSE   ` 67.35   Open: 69.00   Today's Range 66.80
69.35
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91.10
Year End :2018-03 

The shareholders of the Company in their Annual General Meeting held on September 22, 2017 approved the issue of bonus shares in the ratio of 1:2 i.e. one equity share for two existing fully paid up equity share held. The bonus shares were allotted on October 3, 2017. Accordingly post bonus issue, the number of equity shares were increased from 244.76 crore to 367.14 crore. Accordingly, the earning per share for comparative period of March 31, 2017 have also been computed on the basis of new number of shares post bonus issue in line with Ind AS 33 - Earnings per share.

1. 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 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.

2. (i) The Company has a 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. These 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 March 31, 2018 is RS.43881 crore (previous year RS.40666 crore).

(ii) Corporate Guarantees given for own obligations outstanding as on March 31, 2018 is RS.1747.07 crore (Previous year RS.1733.80 crore).

3. Balance shown under Trade receivables, Trade payables, contractors’ advances, deposits and stock / materials lying with sub-contractors/ fabricators are subject to confirmation, reconciliation & consequential adjustment, if any. The Company is in the business of long term construction contracts, bills are raised on the customers as per contract 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 net of provisions are RS.35493 crore (Previous Year RS.31863 crore), {including deferred debts and other debts of RS.19041 crore (previous year RS.19116 crore)presently not due for payment and RS.7307 crore (previous year RS.6287 crore) outstanding in respect of completed projects}, out of which, the projects reconciled with customers during the year have outstanding debts of RS.6428 crore (previous year RS.5497 crore) in respect of completed projects.

4. The Company had taken over Amorphous Silicon Solar Cell Plant (ASSCP), Gurgaon 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.

5. 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.

6. Research and Development Expenditure

the details of research and 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.

A consortium of BHEL, IGCAR & NTPC has entered into an MOU in August, 2010 for taking up the R&D Project for development of Advanced Ultra Supercritical (AUSC) technology for thermal power plants of future, envisaging reduced coal consumption as well as Carbon Di-Oxide (CO2) emission. Cabinet Committee on Economic Affairs (CCEA) accorded approval to the project in its meeting held on August 10, 2017. the project invloves an estimated expenditure of RS.1554 crore, with a contribution of RS.270 crore from BHEL, RS.50 crore from NTPC, RS.234 crore from IGCAR, RS.100 crore from DST and balance RS.900 crore by Department of Heavy Industries, Government of India for implementation of the R&D project, spreading over a period of three years commencing from 2017-18. BHEL from own contribution has spent RS.23.60 crore in 2017-18 and accounted as R&D expenditure.

7 Jointly controlled Entities and Subsidiary

Details of entities and BHEL’s ownership proportion is as stated below:

(a) The provision for impairment in value of investment in NTPC-BHEL Power Projects Private Ltd. has been made to the extent of RS.45.60 crore based on the net financial position.The Board of Directors in its meeting held on February 8, 2018 has accorded in principle approval for pursuing the winding up of NBPPL.

(b) The provision for impairment in value of investment in Powerplant Performance Improvement Ltd. amounting to RS.2 crore has been made since the Company is under liquidation and the amount paid as equity is not recoverable.

(c) The provision for impairment in value of investment in Dada Dhuniwale Khandwa Power Ltd. has been retained to the extent of RS.5.50 crore (previous year RS.6.71 crore) based on the net financial position. The winding of the company is in process. An amount of RS.17 crore has been received on April 27, 2018 against investment of RS.22.50 crore in DDKPL.

(d) Latur Power Company Ltd. has been wound up during the year.

8 Related Parties Transactions

i) Joint Ventures:

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

Raichur Power Corporation Ltd. (RPCL)

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

Dada Dhuniwale Khandwa Power Ltd.

Powerplant Performance Improvement Ltd.

Subsidiary Company

BHEL Electrical Machines Limited

Others

Central Government controlled entities Provident fund trusts

Gratuity trusts, PRMB Trust, Pension Trust

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

Functional Directors : S/Shri D. Bandyopadhyay, Amitabh Mathur, S. Biswas, Akhil Joshi, T. Chockalingam

(upto November 30, 2017 )

company Secretary : Shri I.P. 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 J 0.02 crore (previous year J 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 Government of India directly or indirectly. The transactions with such entities are normal, based on market driven rates at arms length price.

9 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:

The following dividend were declared and paid during the year:

a The above final dividend figures exclude tax on dividend of RS.38.87 crore (previous year RS.19.93 crore)

b The above interim dividend figures exclude tax on dividend of RS.59.79 crore (previous year RS.39.86 crore)

c The Company has alloted bonus share on October 3, 2017 in the ratio of 1:2. Accordingly,the number of equity shares have increased from 244.76 crore to 367.14 crore. The interim dividend paid in 2017-18 was on enhanced number of equity share of 367.14 crore.

d The company has proposed final dividend @ 51% (RS.1.02 per share, amounting to RS.374.48 crore) on paid up share capital of RS.734.28 crore out of profit for the year 2017-18. The total payout on account of dividend (RS.374.48 crore) alongwith corporate dividend tax (RS.76.97 crore) will be RS.451.45 crore.

e The Board of Directors has authorised to issue the Financial Statements 2017-18 in its meeting held on May 29, 2018.

The estimates of total costs and total revenue in respect of construction contracts in accordance with Ind AS - 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.

10 Leases

Disclosure ind AS 17 - leases Operating lease commitments - company as lessee

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 :

11 Disclosure as per Ind AS 19 on ‘Employee Benefits’

The Company has following Schemes in the nature of Defined Benefits plans

i) Gratuity Scheme

ii) Post Retirement Medical Scheme

iii) Provident Fund Scheme

a. Gratuity (Funded Plan)

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 limit of RS.20 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. Gratuity Act has been amended and Government has notified increase in maximum Gratuity limit to RS.20 lakhs from earlier limit of RS.10 lakhs during 2017-18.

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

Sensitivities as rate of increase of pensions in payment, rate of increase of pensions before retirement & life expectancy are not applicable.

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.

Expected contributions to gratuity plans for the year ending March 31, 2019 are RS.126.76 crore

The weighted average duration of the gratuity defined benefit plan obligation at the end of the reporting period is 14.78 years (March 31, 2017: 14.66 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 (Funded Plan)

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 subject to company medical rules. 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.

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

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.

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 medical cost, investment risk, discount rate, mortality, disability and withdrawals.

c. long term leave liability [Encashable leave (El) / half pay leave (HPL)] - (Unfunded plan)

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, once in a quarter. encashable leave and half pay leave is encashable upto a maximum of 300 days on superannuation subject to Company policy and leave encashment rules.The leave liability has been treated as other long term benefits and has been assessed using projected unit credit actuarial method.

D. Provident Fund

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.275.80 crore (March 31, 2017: RS.282.46 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 Government of India (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 provision for contractual obligation is made 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 Financial Instruments - (Disclosure Ind AS-107) 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 Classification of financial assets / liabilities

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.

Reconciliation of fair value measurement of unquoted equity shares classified as FVTPL assets

d Financial Risk Management Objectives and Policies

The Company’s activities are exposed to different financial risks arising out of natural business exposures to any Company operating in the sector. The management of financial risk has always been an integral part of the Company’s business strategies and policies. The Company reviews and aligns its policies and guidelines from time to time to address the financial risks in line with the needs and expectations of its various stakeholders. Exposure risk from the use of financial instruments can be categorized as under:

- 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 management of Company’s capital. Further quantitative disclosures are included throughout these financial statements.

e Risk Management Framework

BHEL has in place a Board approved Risk Management Charter & Policy which provides overall framework for Risk Management in the Company. The objective of the charter is to ensure that the risks are being properly identified, assessed and effectively managed by adopting suitable risk mitigation measures. The company has 3-layer risk management framework. At the first level, the Board Level Risk Management Committee (BLRMC) of the Company is assigned with responsibility of reviewing the Company’s Risk Governance structure, Risk Assessment & Risk Management framework, guidelines, policies and processes thereof. Risk Management Steering Committee (RMSC) at the second level is responsible for adopting & implementing the risk management framework and leading the risk management initiative across the Company. Chief Risk Officer (CRO) being the convener of BLRMC & RMSC is responsible for periodic reporting on risk management to Board/ BLRMC. Key risks being faced by the Company are analysed starting from Unit level for their respective areas to prepare risk mitigation plans and to ensure implementation.

f credit Risk Management

Credit risk is considered as an integral part of risk reward balance of doing business. BHEL is involved in setting up of power projects pertaining to Government sector (State utilities, PSU’s, Railways and other Government departments etc.) and private sectors. The projects are generally funded by Financial Institutions / Banks or payments are covered by Letter of Credit (LC). The project duration ranges from 3 to 4 years and payments are generally realised in stages as per the terms of the contract including advance, progress payments, milestone payments and retentions are released on completion of such projects. Since majority customers profile pertains to Government sector, constituting 81% of total receivables coupled with the fact that the company itself is a CPSE, credit risk is relatively low. In respect of private sector customers, the payment terms are mainly through LC. The company has well established review mechanism for receivables at various levels within organisation to ensure proper attention and focus for realisation in line with the Company policies, procedures and guidelines.The Company uses expected credit loss model to assess the impairment loss or gain and the disclosure of the same is made elsewhere. Further, the Company prepares its accounts on conservative basis and adequate provisions are maintained to address any eventuality.

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 makes investments out of surplus funds as per investment policy of the Company duly approved by the Board and in line with the DPE guidelines. Credit risk on cash and cash equivalents and term deposits is very limited as the Company generally invests’ in deposits with banks and financial institutions with high credit ratings assigned by credit rating agencies.

h Liquidity risk

The Company manages liquidity risk by maintaining sufficient cash and cash equivalents including term deposits to meet obligations as and when due. Robust cash management system and regular monitoring of cash flows enables management to plan and maintain adequate sources to finance its funds requirement throughout the year. Besides adequate cash and bank balances, company enjoys cash credit facilities which has remained unutilised during the year. The company is able to meet all its fund requirements from internal resources i.e. the funds generated from operations.

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

The Company is exposed to certain currency,commodity, interest rate risks arising from its operations. The Company has foreign exchange risk management policy to cover the foreign exchange risks. To insulate the company against major commodity price fluctuation, framework agreements including price pass through claims are being entered regularly with supply chain partners including suppliers and customers. The Company has no borrowings. Surplus funds generated from operation are kept invested in short term deposits with PSU Banks or large sized private banks only and in debt based schemes of public sector mutual funds , thereby minimizing any chance of risk.

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 March 31, 2018 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

The impact of strengthening / weakening of the Indian Rupee vis a vis USD, EURO and others as at year end on profit or loss is as 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

The Company’s objective, while managing capital is to continue business as a going concern, safeguard, preserve and enhance its capital to provide maximum return to shareholders and benefits to other stakeholders. The Board of Directors also montiors the level of dividends to equity shareholders. 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 as well as 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. The Board of Directors monitors the return on capital.

The Company’s return on capital is 2.47 % for FY 2017-18 in comparison to 1.54% for FY 2016-17.

13 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.

14 Assets and liabilities are classified between current and non-current considering 12 months period as operating cycle.

15 The wage revision for various cadre of employees is due w.e.f. January 1, 2017. In respect of Executives, pursuant to the issue of Presidential directive during the year, the liability has been provided as part of employee benefits. For Supervisors & Workers, pending finalisation of agreement for wage / salary structure, a provision of RS.760 crore has been kept as on March 31, 2018.

16 Marginal cost of lending rate (MCLR) @8.30% (previous year @9.25%) as at the year end has been considered for working out fair value of consideration and present value of long term provisions.

17 There are net outstanding debts of RS.2197 crore (after adjustment of advances) (previous year RS.2119 crore) pertaining to 27 projects on hold due to various reasons e.g. environment clearance, fuel linkage, land acquisition, fund constraints, force majeure, hold imposed by BHEL due to strategic reasons etc. FG/ WIP of RS.711 crore (previous year RS.777 crore) is also lying in these projects. Provision of RS.1655 crore (previous year RS.1618 crore) for outstanding debts and RS.225 crore (previous year RS.180 crore) for inventory has been provided till March 31, 2018 against these projects in line with the guidelines in this regard.

18 amendment to Standards Effective april 1, 2017

The amendment to Ind AS 7, Statement of Cash Flows and Ind AS 102 Share Based Payments effective from April 1, 2017 does not have any impact / disclosures on financial statements as it does not have any such transactions.

19 Recent accounting Pronouncements ( Effective april 1, 2018)

Ministry of Corporate Affairs (MCA) has notified amendment to Ind AS 21 (The Effects of Changes in Foreign Exchange rates) and Ind AS 115 (Revenue from Contracts with Customers) on March 28, 2018 as part of the Companies (Indian Accounting Standards) Amendment Rules, 2018 effective from April 1, 2018.

Appendix B to Ind AS 21 “Foreign Currency Transactions and Advance Consideration” clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency.

Ind AS 115 - Revenue from Contract with Customers: The new standards replaces existing revenue recognition standards Ind AS 11 (Construction Contracts) and Ind AS 18 (Revenue).

Under Ind AS 115 revenue shall recognize when control over goods & services is transferred to customer and in respect of contracts when performance obligation is satisfied over a period, the revenue shall recognize over the period at transaction price. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The standard permits retrospective approach in accordance with Ind AS 8 or retrospectively with cumulative effect of initially applying the standard (cumulative catch-up approach)

The Company is in the process of examining and evaluating the impact of the said changes on the Company’s financial statements.

20 Figures have been rounded off nearest to J in crore with two decimal.

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 Compnays’ Committee of Functional Directors (COFD) has been identified as Chief Operating Decision Maker (CODM).