1. Corporate information

Punj Lloyd Limited (the Company) is a public limited company domiciled in India. Its equity shares are listed on two recognized stock exchanges in India. The principal place of business of the Company is located at Gurugram, India. The Company is primarily engaged in the business of engineering, procurement and construction in the oil, gas and infrastructure sectors. The Company caters to both domestic and international markets.

These financial statements for the year ended March 31, 2018 were authorized for issue in accordance with a resolution of the directors on May 30, 2018.

1. The Company has elected to adjust exchange differences arising on translation/settlement of long-term foreign currency monetary items, pertaining to acquisition of a depreciable asset, to the cost of such asset. Accordingly, during the current year, foreign exchange loss of 0.45 (Previous year: foreign exchange gain of 1.98) has been adjusted in the gross block of plant and equipment.

2. Gross block of vehicles includes vehicles of cost Nil (Previous year: 1.25) taken on finance lease. Accumulated depreciation there on is Nil (Previous year: 1.25).

3. Gross block of plant and equipment includes equipment of cost 68.34 (Previous year: 105.35) taken on finance lease. Accumulated depreciation thereon is 68.34 (Previous year: 105.35).

4. For assets pledged as security, refer notes 12(a) and 12(b) and for capital commitments refer note 28.

The Company has business losses and unabsorbed depreciation which are allowed to be carried forward and set off against future taxable income under Income Tax Act, 1961. Owing to uncertainties in earlier years regarding future profits, the Company had refrained from recognising deferred tax assets on such carried forward losses and unabsorbed depreciation. However, the Company has undertaken several measures to improve operational efficiency which have resulted in increased revenues and higher margins. Further, as stated in Note 2 (a) (iii), the management is confident of a favourable outcome of its restructuring proposal submitted with its lenders. Accordingly, based on projected future taxable income and results of operations, the management believes that the Company will more likely than not have sufficient taxable income in future allowing it to realize the carried forward losses and unabsorbed depreciation. In the view of the above, the Company has recognized deferred tax asset, on conservative basis, during the year.

(b) Terms/rights attached to equity shares

The Company has only one class of equity shares having par value of Rs. 2 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive 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.

(d) Shares reserved for issue under options

For details of shares reserved for issue under the employee stock option plan (ESOP) of the Company, please refer note 24.

(e) Over the period of five years immediately preceding March 31, 2018, neither any bonus shares were issued nor any shares were allotted for consideration other than cash. Further, no shares were bought back during the said period.

2. Post-employment benefit plans

The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. All permanent employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/ termination is the employee's last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service. The gratuity plan is a funded plan and the Company makes contribution to recognized funds (in form of insurance policies) in India.

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

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

Risk exposure

Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which is the risk of change in the interest rates due to market volatility. A decrease therein will increase plan liabilities. Apart from the interest rate, the other significant risks associated with defined benefit plans are inflation risk, economic environment and regulatory changes.

The Company manages its investment positions to achieve long-term investments that are in line with the obligations under the employee benefit plans. The designated trust actively monitors how the duration and expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. The Company has not changed its processes to manage its risks from previous periods.

3. Segment information

Based on the guiding principles given in Ind AS 108 on ‘Operating Segments', the Company's business activity falls within a single operating segment viz. Engineering, procurement and construction services. Accordingly the segment disclosure requirements of Ind AS 108 are not applicable.

4. Interest in other entities

(a) Subsidiaries

The Company's interest and share in subsidiaries as at March 31, 2018 are set out below. Unless otherwise stated, the proportion of ownership interests held equals the voting rights held by the Company, directly or indirectly, and the country of incorporation or registration is also their principal place of business.

(c) Interest in associates and joint ventures

The Company's interest and share in associates and joint ventures as at March 31, 2018 are set out below. Unless otherwise stated, the proportion of ownership interests held equals the voting rights held by the Company, directly or indirectly, and the country of incorporation or registration is also their principal place of business.

(b) Non-cancellable operating leases

The Company leases various offices and guest houses under non-cancellable operating leases expiring, generally, within eleven months to three years. There are no contingent rents in the lease agreements. Upon renewal, the terms of the leases are renegotiated. There is no escalation clause in the lease agreements. There are no significant restrictions imposed by lease arrangements. The amount of total future minimum lease payments under non-cancellable operating leases as at March 31, 2018 is Nil (Previous year: Nil). Rental expenses relating to operating lease for the year ended March 31, 2018 is 31.69 (Previous year: 26.83).

(c) Finance lease obligations

The Company has finance leases and hire purchase contracts for certain project equipments, vehicles and building, the cost of which is included in the gross block of plant and equipment, vehicles and investment property respectively under tangible assets and investment properties. The lease term is for one to ninety nine years. There is no escalation clause in the lease agreements. There are no significant restrictions imposed by lease arrangements.

# excludes possible liquidated damages which can be levied by customers for delay in execution of projects. The management, based on consultation with various experts, believes that there exist strong reasons why no liquidated damages shall be levied by these customers. Although, there can be no assurances, the Company believes, based on information currently available, that the ultimate resolution of these proceedings is not likely to have an adverse effect on the results of operations, financial position or liquidity of the Company.

*The management believes that the claims made are untenable and is contesting them. As of the reporting date, the management is unable to determine the ultimate outcome of the above matters. However, based on favorable decisions/outcomes in similar cases earlier and based on legal opinions /consultations with solicitors, the management believes that there are good chances of success in above mentioned cases and hence, no provision there against is necessary.

f) In respect of the direct tax matters which are subject to legal proceedings in the ordinary course of business, the management, based on the expert opinions, is confident that these matters, when ultimately concluded, will not have a material impact on the result of operations or the financial position of the Company.

g) The Company, directly or indirectly through its subsidiaries, is severally or jointly involved in certain legal cases with its customers / vendors in the ordinary course of business. The management believes that due to the nature of these disputes and in view of numerous uncertainties and variables associated with certain assumptions and judgments, and the effects of changes in the regulatory and legal environment, both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial changes. The Company regularly monitors its estimated exposure to such loss contingencies and, as additional information becomes known, changes its estimates accordingly. In view of aforesaid reasons, as of the reporting date, it is unable to determine the ultimate outcome of these matters.

5. The Company, during earlier years, accrued claims on Heera Redevelopment Project with Oil and Natural Gas Corporation Limited, based upon management's assessment of cost over-run arising due to design changes and consequent changes in the scope of work on the said project since it was of the view that the delay in execution of the project was attributable to the customer. After all the discussions in various forums to resolve the matter mutually, the Company, with a view to resolve the matter in finality, expeditiously and with legal enforceability, re-commenced the arbitration proceedings. The management is confident of satisfactory settlement of the dispute.

6. The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under the law/ Indian Accounting Standards for the material foreseeable losses on such long term contracts (including derivative contracts, if any) has been made in the books of accounts.

7. The Company has defaulted in repayment of dues (including interest) amounting to 1,274.36 as on March 31, 2018 (March 31, 2017: 717.80).

(b) Fair value hierarchy

Financial instruments are classified into three levels in order to provide an indication about the reliability of the inputs used in determining the fair values.

The categories used are as follows:

Level 1: Where fair value is based on quoted prices from active market.

Level 2: Where fair value is based on significant direct or indirect observable market inputs.

Level 3: Where fair value is based on one or more significant input that is not based on observable market data.

(c) Fair value of financial instruments measured at amortized cost

The carrying amounts of the financial instruments measured at amortized cost, disclosed in note (a) above, approximates to their fair values. Accordingly, the fair values of such instruments have not been disclosed separately.

(d) Valuation techniques and processes used to determine fair value

Fair value of quoted investments is based on the quotation as at the reporting date. For unquoted investments, fair value is determined based on the present values, calculated using internationally accepted valuation principles, by independent valuers.

(e) Valuation inputs and relationships to fair value

Significant unobservable inputs used in Level 3 fair value measurement.

8. Financial risk management objective and policies

The Company's principal financial instruments are as follows:

Financial assets: Investments, Cash and cash equivalents, Loans, Trade and other receivables,

Financial liabilities: Borrowings, Trade and other payables.

The main purpose of these financial instruments is to regulate, finance and support the Company's operations.

The Company is exposed to various financial risks such as credit, liquidity and market risk. An experienced and qualified team ensures that all financial risks are identified, measured and managed in accordance with the Company's policies and risk objectives.

A. Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade and other receivables) and from its financing activities, including deposits with banks and other financial instruments.

A.1. Trade receivables

The Company executes various projects for public sector/ government undertaking and others at various locations, including overseas. Trade receivables are contractual amounts due from these customers for works certified. Trade receivables are noninterest bearing and are generally on 30 to 45 days credit, depending upon contractual terms. The management evaluates the outstanding receivables on a periodic basis and provides for the impairment loss based on the established ECL policy, as described below.

The Company follows a ‘simplified approach' (i.e. based on lifetime ECL) for recognition of impairment loss allowance on its trade receivables. For the purpose of measuring lifetime ECL allowance for trade receivables, the Company estimates irrecoverable amounts based on the ageing of the receivable balances, clubbed with, historical experience with the customer and/or the industry in which the customer operates and assessment of litigation, if applicable. Receivables are written off when they are no more deemed collectible.

. Though the Company executes projects with repeat customers but there is no significant customer level concentration of the credit risk as at any of the reported periods. Further, there is no concentrated risk based on the location where the Company operates.

A.2. Other financial assets

Loans and receivable from related parties are periodically reviewed by the management in conjunction with the re-measured fair values of the Company's investments in those parties. Where the carrying amount of any receivable exceeds the re-measured fair value of investment, an impairment loss, to that extent, is provided for in the financial statements.

Cash and cash equivalents are managed by the Company's treasury department. Concentration risk is constantly monitored to mitigate financial loss.

The Company's maximum exposure to credit risk for the components of the financial assets as at March 31, 2018, March 31, 2017 is to the extent of their respective carrying amounts as disclosed in note 7.

B. Liquidity risk

Liquidity risk is the risk that the Company may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses. The Company's objective is to maintain optimum levels of liquidity to meet its cash and collateral requirements, both immediate and long-term. The finance needs are monitored and managed by the Company's treasury department, in consultation with the project teams and management. The Company takes support from its secured lenders to finance and support the Company's operations.

The Company's objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans (term and working capital loans), including debentures. The working capital loans are generally revolving in nature and linked with the current assets of the projects. Of the total term debts of 2,019.42, approximately 76% is payable in less than one year at March 31, 2018 (March 31, 2017: 53% of 2,238.67) based on the carrying value of such borrowings reflected in the financial statements. Certain delays and defaults were noticed in scheduled repayment during the reported financial years. However, the Company is taking necessary corrective actions to rectify the defaults and is also in talks with its existing lender to carve out an overall financial restructuring. Such restructuring, when executed, would give the sufficient liquidity to chart out the business turnaround and would also provide an extended period to repay its current debt portfolio, including the over-due amounts.

Other financial liabilities, like trade and other payables, matures predominantly within one year.

C. 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 three types of risk: interest rate risk, foreign currency risk and other price risk, such as equity price risk.

The sensitivity analysis as shown below relates to the position as at March 31, 2018 and March 31, 2017. The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at March 31, 2018 and March 31, 2017.

C.1. 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 main interest rate risk arises from borrowings with variable rates, which exposes the Company to cash flow interest rate risk. As at March 31, 2018 and March 31, 2017, the Company's borrowings at variable rate were mainly denominated in INR and USD.

The Company's fixed rate borrowings are carried at amortised cost. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying mount nor the future cash flows will fluctuate because of a change in market interest rates.

C.1.2. Interest rate sensitivity

With all other variables held constant, increase of 50 basis points (bps) will result in a loss of 29.40 before tax (Previous year: 28.22) and a decrease of 50 bps will result in a gain of 29.40 before tax (Previous year: 28.22).

C.2. 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 foreign exchange rates. The Company's exposure to the risk of changes in foreign exchange rates relates primarily to the Company's un-hedged foreign currency exposure of its Indian operations and Company's net investment in its foreign operations.

C.3. Other price risk

Company's exposure to equity securities price risk arises from quoted investments held and classified in the balance sheet as fair value through OCI. Company's exposure is insignificant, since Company's investment in such securities is immaterial.

9. Capital management

Risk management:

For the purpose of the capital management, capital includes the issued equity capital, securities premium and all other equity reserves attributable to the equity holders. The Company's objective when managing capital 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.

Loan covenants:

Under the terms of some borrowing facilities, the Company is required to comply with the certain financial covenants. The Company aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants could permit the bank to immediately call loans and borrowings. There have been some breaches in the financial covenants during the reporting periods; however the management, in collaboration with its bankers, is taking necessary corrective measures to rectify the breaches.

No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2018 and March 31, 2017.

10. Others

a) Details of loan given, investments made and guarantee given covered u/s 186(4) of the Companies Act 2013 Act have been disclosed under the respective heads of ‘Related party transactions' given in note 27.

b) Contract revenues include Rs. 289.25 crores (Previous year Rs. 160.49) representing the retention money which will be received by the Company after the satisfactory performance of the respective projects. The period of release of retention money may vary from six months to eighteen months depending upon the terms and conditions of the projects.

c) The amount to be incurred towards Corporate Social Responsibility (CSR) for the financial year ended March 31, 2018, as prescribed under section 135 of the Companies Act 2013 Act, is Nil.

e) The Company has international and domestic transaction with ‘Associated Enterprises' which are subject to Transfer Pricing regulations in India. The Management of the Company is of the opinion that such transactions with Associated Enterprises are at arm's length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financial statements, particularly on account of tax expense and that of provision of taxation.

f) Capitalization of expenditure

During the current and previous year ended on March 31, 2018 and March 31, 2017, the Company has not capitalized any expenditure of revenue nature to the cost of tangible asset/ intangible assets under development.

g) During the current year, the Singapore High Court (‘the Court') heard upon the application filed by Judicial Management (JM) of Punj Lloyd Pte. Limited and Sembawang Engineers and Constructors Pte. Limited, subsidiaries of the Company. Accordingly the Court ordered for the liquidation of Punj Lloyd Pte. Limited and Sembawang Engineers and Constructors Pte. Limited vide its order dated August 07, 2017. Pursuant to appointment of Judicial Managers by the Court w.e.f June 27, 2016, the Company had lost control over these subsidiaries and consequently necessary adjustments were made in the year ended March 31, 2017.

h) Amounts in the financial statements are presented in INR crores, unless otherwise stated. Certain amounts that are required to be disclosed and do not appear due to rounding off are expressed as 0.00. One crore equals 10 millions.

i) Previous year figures have been regrouped/reclassified, where necessary, to conform to this year's classification.