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

BSE: 500850ISIN: INE053A01029INDUSTRY: Hotels, Resorts & Restaurants

BSE   ` 125.05   Open: 126.10   Today's Range 124.00
126.40
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160.60
Year End :2017-03 

Note 1 : Corporate Information

The Indian Hotels Company Limited (“IHCL” or the “Company”), is primarily engaged in the business of owning, operating & managing hotels, palaces and resorts.

The Company is domiciled and incorporated in India in 1902 and has its registered office at Mandlik House, Mandlik Road, Mumbai - 400 001, India. It is promoted by Tata Sons Limited, which holds a significant stake in the Company.

The financial statements for the year ended March 31, 2017 were approved by the Board of Directors and authorised for issue on May 26, 2017.

i) During the year the Company has converted its Shareholders’ Deposit given to a wholly owned subsidiary, IHOCO BV into equivalent equity in that company at fair value as on the date of conversion. Arising out of amalgamation of IHMS LLC with the Company (Refer Note 29, Page 148), 77,30,000 shares of IHOCO BV have vested in the Company on April 1, 2015 at their carrying value of US$ 141.22 million equivalent to Rs.667.56 crores. Although the above shares were actually issued on October 16, 2015, the same have been accounted as on April 1, 2015 to harmonise the accounting of the amalgamation required under the approved Scheme with the provisions of Appendix C of Ind AS 103 (Refer Note 29, Page 148).

ii) As a result of the amalgamation of Lands End Properties Private Ltd. with the Company, 98,288 shares of Skydeck Properties and Developers Private Ltd. have vested in the Company on April 1, 2015 at their carrying value of Rs.275.94 crores. These shares were held by LEPPL as on April 1, 2015 and were vested in the Company with effect from that date as a result of the application of Appendix C of Ind AS 103 used in accounting for the said amalgamation (refer Note 29, Page 148).

iii) Transfer of shares is restricted due to option granted for 10 years upto July, 2021 to Tata Realty and Infrastructure Ltd. for repurchase of the shares at par value. Tata Realty and Infrastructure Ltd. has deposited a sum of Rs.71.10 crores (March 31, 2016 Rs.71.10 crores, April 1, 2015 Rs.71.10 crores) as Option Deposit (Refer Note 16(b), Page 138), which shall be adjusted upon exercise of the option or refunded.

iv) The continuing losses at its properties in the United States of America, has led the Company to reassess the recoverable amount of its investment in IHOCO BV, a wholly owned subsidiary. During the year, the Company recognised an impairment loss of Rs.64.33 crores (previous year Rs.Nil) in the Statement of Profit and Loss which has been classified under “Exceptional items” (Refer Note 27, Page 145).

v) For these investments, the Company has elected the fair value through Other Comprehensive Income irrevocable option since these investments are not held for trading.

vi) During the previous year, the Company has divested 90,000 shares in Tata Projects Ltd. (fair valued through Other Comprehensive Income) to unlock the value in existing assets. The fair value of the investment at the date of derecognition was Rs.56.69 crores and the cumulative gain on disposal was Rs.56.53 crores.

vii) For this investment, cost has been considered as an appropriate estimate of fair value because of a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range.

viii) The fair value hierarchy and classification are disclosed in Note 33, Page 151.

Footnotes:

(i) As a part of the Company’s initiative to restructure and hold its investments in overseas assets through IHOCO BV (“IHOCO”), a wholly owned subsidiary of the Company, the Company had transferred 34,375,640 shares in TAL Lanka Hotels PLC (“TAL Lanka”) and 1,329,778 shares in TAL Hotels & Resorts Ltd. (“TAL Hotels”) to IHOCO in the previous year. The total consideration payable by IHOCO of Rs.111.73 crores was based on market value of shares of TAL Lanka and the fair value of TAL Hotels as determined by an independent valuer. As the funds for the acquisition of the above shares were sourced from the Company, the gain on transfer of Rs.79.38 crores was recorded within Reserve on Transfer of Equity to entities under common control.

(ii) During the year under review, the Honourable High Court of Bombay had approved the two separate Schemes of Arrangement of the Company which inter alia included the amalgamation of its wholly owned subsidiaries namely International Hotel Management Services LLC (through ‘IHMS Scheme’) and Lands End Properties Private Limited (through ‘LEPPL Scheme’) with the Company itself.

Consequent to the Order and subsequent approval of Securities and Exchange Board of India (“SEBI”) and other regulatory filing the IHMS Scheme had become effective on September 29, 2016 with effect from the appointed date of January 1, 2016 and LEPPL Scheme had become effective on December 19, 2016 with effect from the appointed date of March 31, 2016.

As these are common control transactions, the amalgamation has been accounted using the ‘pooling of interest’ method and the figures for the previous year have been recast as if the amalgamation had occurred from the beginning of the preceding year to harmonise the accounting approved in the Scheme with the requirements of Appendix C of Ind AS 103 on Business Combinations. However, the effect of capital reduction has been given on the respective Appointed Dates. Consequently, an aggregate sum of Rs.2020.36 crores has been reduced from the Securities Premium Account at the respective Appointed Dates (Refer Note 29, Page 148).

Footnotes: (i) non Convertible debentures - Secured include:

a) 4,950, 7.85% Secured Non-Convertible Debentures of Rs.10 lakhs each aggregating Rs.495 crores, allotted on January 20, 2017 are repayable at par after the end of 5th year from the date of allotment on April 15, 2022.

b) 3,000, 10.10% Secured Non-Convertible Debentures of Rs.10 lakhs each aggregating Rs.300 crores, allotted on November 18, 2011 are repayable at par on November 18, 2021 i.e at the end of 10th year from the date of allotment.

c) 2,500, 9.95% Secured Non-Convertible Debentures of Rs.10 lakhs each aggregating Rs.250 crores, allotted on July 27, 2011 are repayable at par on July 27, 2021 i.e at the end of 10th year from the date of allotment.

d) 3,000, 2% Secured Non-Convertible Debentures of Rs.10 lakhs each aggregating Rs.300 crores, allotted on March 22, 2010 were repayable in 3 annual instalments commencing at the end of 5th, 6th & 7th year from the date of allotment along with redemption premium of Rs.6.13 lakhs per debenture. The company had repaid the first instalment of Rs.60 crores on March 23, 2015 and the second instalment of Rs.90 crores on March 22, 2016. During the year, the Company has repaid the last instalment of Rs.150 crores due on March 22, 2017.

e) 5210, Zero coupon Secured Non-Convertible Debentures of Rs.10 lakhs each, allotted on February 13, 2013 and repaid on February 12, 2016 at the end of 3 years from the date of allotment having a Yield to maturity of 10% p.a. The Debentures were secured by pledge of the Company’s 100% investment in Skydeck Properties & Developers Private Limited (SPDPL), a wholly owned subsidiary of the Company and receivables of Lands End Properties Private Limited prior to amalgamation with the Company.

(ii) All the Secured Non-Convertible Debentures are rated, listed and secured by a pari passu first charge created on all the property, plant and equipment of the Company, both present and future.

(iii) Non Convertible debentures - Unsecured include:

a) 2,500, 2% Unsecured Non-Convertible Debentures of Rs.10 lakhs each aggregating Rs.250 crores, allotted on December 9, 2009 are repayable on December 9, 2019 i.e at the end of the 10th year from the date of allotment, along with redemption premium of Rs.12.43 lakhs per debenture.

b) 2,000, 2% Unsecured Non-Convertible Debentures of Rs.10 lakhs each aggregating Rs.200 crores, allotted on April 23, 2012 are repayable on April 23, 2017, i.e at the end of the 5th year from the date of allotment along with redemption premium of Rs.4.71 lakhs per debenture.

c) 1,360, 9.90% Unsecured Non-Convertible Debentures of Rs.10 lakhs each aggregating Rs.136 crores, allotted on February 24, 2012 were repayable on February 24, 2017 i.e at the end of the 5th year from the date of allotment. During the year, the Company has repaid these debentures on the due date.

(iv) Term loan from Banks (Unsecured) include:

a) External commercial borrowing of US $ 95 million was taken on November 23, 2011. The loan is repayable at the end of 50th, 60th, and 72nd month from November 23, 2011 in equal instalments to achieve the average maturity of 5.05 years and carries an interest which is based on a spread over LIBOR. The first instalment of US $ 31.67 million and the second instalment of US $ 31.67 million has been repaid on January 25, 2016 and November 23, 2016 respectively. The last instalment of US $ 31.66 million ( Rs.204.52 crores) is due on November 22, 2017 and has been classified under current maturities of long term borrowings.

b) Unsecured term loan from a bank of Rs.125 crores carrying interest rate of 9.50% p.a. was taken during the previous year repayable at the end of 18 months from the date of first drawdown. The loan was drawn in 2 tranches of Rs.60 crores and Rs.65 crores on February 9, 2016 and March 21, 2016 respectively. Further, Rs.25 crores was drawn on May 30, 2016. The Company has prepaid the loan of Rs.100 crores on March 31, 2017. The net loan now stands at Rs.49.88 crores. The interest rate has reduced to 8.25% p.a. as on March 31, 2017.

(v) Secured loan from Bank consists of overdraft facilities. These are secured by hypothecation of operating supplies, stores, food and beverages and receivables.

(iv) Licence Fees includes Rs.3.59 crores (Previous year Rs.4.15 crores) towards amortisation of Lease premium on account of measurement of interest free refundable security deposits at amortised cost.

(v) The gross amount required to be spent by the Company during the year is Rs.4.26 crores (Previous year Rs.3.59 crores). Against this sum, the Company has spent Rs.4.36 crores (Previous year Rs.0.92 crores) on projects other than construction/ acquisition of assets. The entire amount has been disbursed prior to the end of the financial year.

Note 2 : Transition to ind As

In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (“previous GAAP”). The exemptions and exceptions applied by the Company in accordance with Ind AS 101 ’First-time Adoption of Indian Accounting Standards’ along with the reconciliations of equity, total comprehensive income and statement of cash flows in accordance with Previous GAAP to Ind AS are explained below.

Exemptions from retrospective application:

The Company has applied the following exemptions:

i. Business combinations exemption

The Company has elected not to apply Ind AS 103, Business Combinations, to business combinations occurred before the transition date.

ii. Property, plant and equipment and intangible assets - deemed Cost

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 GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for decommissioning liabilities included in the cost of property, plant and equipment (Para D7AA of Appendix D). This exemption can also be used for intangible assets covered by Ind AS 38 ’Intangible Assets’ and investment property covered by Ind AS 40 ’Investment Properties’.

Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.

a. The back ended premium on redemption on low coupon bonds had been offset against the Securities Premium Account under previous GAAP, which is now recognised in the Statement of Profit and Loss over the tenure of the borrowing as part of interest expense by applying the effective interest rate method. The redemption premium for unexpired period as at the date of transition has been added back to Securities Premium Account.

b. The Company has entered into cross currency swap contracts. Under previous GAAP, at the each reporting date, the notional amounts are restated at the closing exchange rates and recognized as liability. Under Ind AS, derivatives which are not designated as hedging instruments are fair valued with the resulting changes being recognised in the Statement of Profit and Loss.

c. The Company operates loyalty programme, which allows its members to earn, accumulate and redeem the points based on their spending at the Hotels. Under the previous GAAP, the company created a provision towards its liability under the programme.

Under Ind AS, the revenues have been allocated between the services rendered and points issued. The consideration allocated to the points has been deferred and will be recognized as revenue when the points are redeemed or lapse.

d. Interest free security deposits for leased premises (that are refundable in cash on completion of the lease term) were recorded at their transaction value under the previous GAAP. Under Ind AS, these deposits are recognized at fair value on the date of transaction, difference being taken to prepaid rent. Prepaid rent is amortised over the tenure of the deposit, which is partially set off by the notional interest income recognised on such deposit.

e. Under the previous GAAP, long term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value. Under Ind AS, these investments are required to be measured at fair value. Fair value changes with respect to investments in equity instruments designated as at fair value through Other Comprehensive Income (FVOCI) have been recognised in Equity through other comprehensive income as at the date of transition and subsequently in the other comprehensive income for the year ended March 31, 2016. Also, profit on sale of investment recognised under previous GAAP is now reversed as the investment was fair valued on transition date.

f. Under Ind AS, dividend to holders of equity instruments is recognised as a liability in the period in which the obligation to pay is established. Under Previous GAAP, dividend payable is recorded as liability in the period to which it relates. This has resulted in an increase in equity by Rs.35.72 crores and Rs.Nil as on March 31, 2016 and April 1, 2015 respectively.

g. Compulsorily Convertible Debentures (“CCDs”) were considered as a liability under the Previous GAAP. Under Ind AS, CCDs are considered as other equity. These were converted in to Equity shares on March 1, 2016.

h. Deferred taxes have been recognised on the adjustments made on transition to Ind AS.

i. Exchange difference on revaluation of Long Term Borrowings/ assets is recognised in the Statement of Profit and Loss under Ind AS. Under the previous GAAP, these translation differences were previously being amortised over the tenure of the borrowing. Previously translation gain on Investment in Non-Integral Foreign Operations was taken to Foreign Currency Translation Reserve (FCTR).

j. Under Ind AS, certain items of income and expense that are not recognised in profit or loss but in Other Comprehensive Income and these includes remeasurement of defined benefit plans and fair value gains or losses on equity instruments measured subsequently at FVOCI. The concept of Other Comprehensive Income did not exist under previous GAAP, k. Under Ind AS, Lands End Properties Private Ltd. was amalgamated into the Company with effect from April 1, 2015 in line with Appendix C to Ind AS 103. Accordingly, the changes in cash flows reflect the impact on account of the aforesaid treatment (Refer Note 29, Page 148).

Note 3 : Accounting and disclosures for schemes of arrangement

During the current year, the Honourable High Court of Bombay vide its Orders dated August 12, 2016 and October 13, 2016 respectively has approved the Schemes of Arrangement (the “IHMS Scheme” and the “LEPPL Scheme” ) which inter alia includes the amalgamation of International Hotel Management Services LLC (“IHMS LLC”) and Lands End Properties Private Ltd (“LEPPL”) with the Company. Both these Schemes were approved by the Board and members on October 19, 2015 and May 4, 2016 respectively. Consequent to the said Orders and subsequent approval of SEBI and the filing of the final certified Orders with the Registrar of the Companies, Maharashtra and with the Secretary of the State of the Delaware, the IHMS Scheme has become effective on September 29, 2016 with effect from the Appointed Date of January 1, 2016 and the LEPPL Scheme has become effective on December 19, 2016 with effect from the Appointed Date of March 31, 2016.

Upon the coming into effect of the Schemes and with effect from the Appointed Dates, the undertaking of IHMS LLC and LEPPL have been transferred to and vested in the Company from the respective Appointed Dates. Further, in terms of the above referred Orders, the effect of the capital reduction aggregating to Rs.2020.36 crores for both the Schemes has been given effect to on the respective Appointed Dates and adjusted against the Securities Premium Account.

As these are business combinations of entities under common control, the amalgamation has been accounted using the ‘pooling of interest’ method (in accordance with the approved Schemes). The figures for the previous period have been recast as if the amalgamation had occurred from the beginning of the preceding period to harmonise the accounting for the Scheme with the requirements of Appendix C of Ind AS 103 on Business Combinations and the following assets and liabilities were included (after eliminating the intercompany balances and adjusting the accumulated losses of the Company as on January 1, 2016 aggregating to Rs.358.58 crores) in the financial statements of the Company as of April 1, 2015:

Further, the investments held by the Company in IHMS LLC. (Rs.2002.03 crores) and LEPPL (Rs.10.00 crores) have been eliminated.

The difference between the consideration and the recorded investment as of the Appointed Dates i.e. Rs.7.12 crores has been transferred to Capital Reserve and shown separately in the Statement of Changes in Equity.

The effect of capital reduction has been given on the respective Appointed Dates. Consequently Rs.2020.36 crores has been reduced from the Security Premium Account at the respective Appointed Dates.

Note 4 : Contingent Liabilities (to the extent not provided for) and Contingent Assets:

The Company is involved in a number of appellate, judicial and arbitration proceedings (including those described below) concerning matters arising in the course of conduct of the Company’s businesses and is exposed to other contingencies arising from having issued guarantees to lenders of its subsidiaries and other entities. Some of these proceedings in respect of matters under litigation are in early stages, and in some other cases, the claims are indeterminate.

(a) on account of matters in dispute:

Amounts in respect of claims (excluding interest and penalties) asserted by various revenue authorities on the Company, in respect of taxes, etc, which are in dispute, are as under:

In respect of Income Tax matters, the Company’s appeals are pending and the said amounts have been paid/ adjusted and will be recovered as refund if the matters are decided in favour of the Company.

(b) on account of lease agreements:

In respect of a plot of land provided to the Company under a license agreement, on which the Company has constructed a hotel, the licensor has made a claim of Rs.344.50 crores to date, (13 times the previous annual rental) for increase in the rentals with effect from 2006-07. The Company believes these claims to be untenable. The Company has contested the claim based upon legal advice, by filing a suit in the Honourable High Court of Judicature at Bombay on grounds of the licensor’s inconsistent stand on automatic renewal of lease, levy of lease rentals and method of computing such lease rent, within the terms of the existing license agreement as also a Supreme Court judgment on related matters. Even taking recent enactments into consideration, in the opinion of the Company, the computation cannot stretch more than Rs.86.36 crores (excluding interest / penalty), and this too is being contested by the Company on merit.

Further, a “Notice of Motion” has been issued by the Honourable High Court of Judicature at Bombay, inter alia, for a stay against any further proceedings by the licensor, pending a resolution of this dispute by the Honourable Bombay High Court. In view of this, and based on legal advice, the Company regards the likelihood of sustainability of the lessor’s claim to be remote and the amount of any potential liability, if at all, is indeterminate.

(c) others:

Management is generally unable to reasonably estimate a range of possible loss for proceedings or disputes other than those included in the estimate above, including where:

(i) plaintiffs / parties have not claimed an amount of money damages, unless management can otherwise determine an appropriate amount;

(ii) the proceedings are in early stages;

(iii) there is uncertainty as to the outcome of pending appeals or motions or negotiations; and

(iv) there are significant factual issues to be resolved; and/or there are novel legal issues presented

The Company’s management does not believe, based on currently available information, that the outcomes of the above matters will have a material adverse effect on the Company’s financial position, though the outcomes could be material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period. It is not practicable for the Company to estimate the timings of cash flows, if any, in respect of the above.

(d) Litigation in respect of a property:

After expiry of the license period of Taj Mahal Hotel, New Delhi, there was an ongoing litigation between the Company and the licensor, New Delhi Municipal Council (NDMC). On April 20, 2017, the Supreme Court has permitted NDMC to conduct e-auction of license rights, and has also allowed the Company six months’ time to handover the premises in case the Company is unsuccessful in the e-auction. The hotel at the premises shall continue to carry out its operations in the meantime. The Supreme Court has directed that at the time of conducting such e-auction, NDMC shall take into account the unblemished record of the Company as well as its capabilities. NDMC has been directed to take into account these facts while taking a final decision in the matter. Pending the announcement of terms and conditions of the e-auction, these financial statements do not include the impact of the possible outcome of the same.

(e) Claims filed by the company:

The Company has filed a claim for Government subsidy with the Department of Industrial Policy and Promotion for a new greenfield hotel project which has commenced operations. The claim is in the initial stage of verification and in the absence of reasonable certainity at this stage on the amount that may be ultimately approved. No deferred income has been recognised.

Note 5 : Capital Commitments

Estimated amount of contracts remaining to be executed on capital account net of capital advances and not provided for is Rs.63.07 crores (March 31, 2016 - Rs.127.31 crores, April 1, 2015 - Rs.83.77 crores).

Note 6 : operating lease

The Company has taken certain vehicles, land and immovable properties on operating lease. The lease of hotel properties are generally long term in nature with varying terms and renewal rights expiring within five years to one hunderd & ninety eight years. On renewal, the terms of the leases are renegotiated. The total lease rent paid on the same is included under Rent and Licence Fees forming part of Other Expenses (Refer note no 26, Footnote (iv), Page 144).

The minimum future lease rentals payable in respect of non-cancellable leases entered into by the Company to the extent of minimum guarantee amount are as follows:-

In addition, in certain circumstances the Company is committed to making additional lease payments that are contingent on the performance viz. gross operating profits, revenues etc. of the hotels that are being leased.

Footnotes:

(i) The Company has not disclosed the fair value of financial instruments such as trade receivables, trade payables, short term loans, deposits etc. because their carrying amounts are a reasonable approximation of fair value.

(ii) The carrying amounts of the borrowings (excluding non-convertible debentures) that are not measured at fair value are reasonable approximation of fair value, as they are floating rate instruments that are re-priced to market interest rates on or near the end of the reporting period.

c) Fair value hierarchy:

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:

(a) Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices in an active market. This included listed equity instruments, traded debentures and mutual funds that have quoted price. The fair value of all equity instruments (including debentures) which are traded in the stock exchanges is valued using the closing price as at the reporting period. The mutual funds are valued using the closing NAV.

(b) Level 2: Level 2 hierarchy includes financial instruments that are not traded in an active market (for example, traded bonds/ debentures, over the counter derivatives). The fair value in this hierarchy is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

(c) Level 3: If one or more of the significant Inputs is not based on observable market data, the instrument is included in

level 3. Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. Financial instruments such as unlisted equity shares, loans are included in this hierarchy.

d) inter level transfers:

There are no transfers between levels 1 and 2 as also between levels 2 and 3 during the year.

e) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

- the use of quoted market prices for the equity instruments

- the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves

- the fair value of non convertible debentures is valued using FIMMDA guidelines.

- the fair value for the cross currency swaps/principal swap is determined using forward exchange rates at the balance sheet date

- the fair value of the unlisted shares are determined based on the income approach or the comparable market approach. For these unquoted investments categorised under Level 3, their respective cost has been considered as an appropriate estimate of fair value because of a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range.

- the fair value of the remaining financial instruments is determined using the discounted cash flow analysis

f) Reconciliations of level 3 fair values

The following table shows reconciliation from the opening balances to closing balances for Level 3 fair values:

Note 7 : Financial risk management

Risk management framework

The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the Risk Management Committee, which is responsible for developing and monitoring the Company’s risk management policies. The Committee reports regularly to the Board of Directors on its activities.

The Company’s risk management policies are established to identify and analyse the risk faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Audit Committee is assisted in its oversight role by internal audit team. Internal audit team undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

The Company has exposure to the following risks arising from financial instruments:

- Credit risk;

- Liquidity risk;

- Market risk

a) Credit risk

Credit risk arises from the possibility that customers or counterparty to financial instruments may not be able to meet their obligations. To manage this, 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 receivable. Credit risks arises from cash and cash equivalents, deposits with banks, financial institutions and others, as well as credit exposures to customers, including outstanding receivables.

The Company’s policy is to place cash and cash equivalents and short term deposits with reputable banks and financial institutions.

The company has established a credit policy under which each new customer is analysed individually for creditworthiness before entering into contract. Sale limits are established for each customer, reviewed regularly and any sales exceeding those limits require approval from the appropriate authority. There are no significant concentrations of credit risk within the company.

b) 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 or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Company’s reputation.

Management monitors rolling forecasts of the Company’s liquidity position and cash and cash equivalents on the basis of expected cash flows to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants on any of its borrowing facilities, Such forecasting takes into consideration the Company’s debt financing plans, covenant compliance and compliance with internal statement of financial position ratio targets.

i) Financing arrangements

The Company had access to the following undrawn borrowing facilities at the end of the reporting period:

The bank overdraft facilities may be drawn at any time by the company. The bank loan facilities are available upto July 31, 2017 and will have a maturity of 18 months from drawdown (March 31, 2016 - the bank loan facilities were available upto May 31, 2016 and had a maturity of 18 months from drawdown).

ii) Maturities of financial liabilities

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include contractual redemption premium payments on low coupon debentures.

iii) Capital Risk Management

The Company manages its capital to ensure that it will be able to continue as a going concern. The structure is managed to maintain an investment grade credit rating, to provide ongoing returns to shareholders and to service debt obligations, whilst maintaining maximum operational flexibility.

Consistent with others in the industry, the Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by Equity. Net debt is calculated as total borrowings (including ‘current and non-current term loans’ as shown in the balance sheet) less cash and cash equivalents.

c) Market risk

Market risk is the risk that the changes in market prices such as foreign exchange rates, interest rates and equity prices 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 optimising the return.

The Company uses derivatives to manage its exposure to foreign currency risk and interest rate risk. All such transactions are carried out within the guidelines set by the risk management committee.

i) Foreign Currency risk

The predominant currency of the Company’s revenue and operating cash flows is Indian Rupees (INR). The Company’s reported debt has an exposure to borrowings held in US dollars. Further, company has foreign currency exposure for its investments (equity and shareholder’s loan) in its international subsidiaries. Movements in foreign exchange rates can affect the Company’s reported profit, net assets.

The Company’s investment in foreign subsidiaries is offset partially by US dollar denominated derivative instruments and bank loan which mitigates the foreign currency risk arising from the subsidiary’s net assets.

The Company uses interest rate swaps and currency swaps to hedge its exposure in foreign currency and interest rates. The information on derivative instruments is as follows:-

Sensitivity

For the year ended March 31, 2017 and March 31, 2016, every 3% depreciation in the exchange rate between the Indian rupee and US dollar, shall affect the company’s profit before tax by approximately 14.90% and 16.75% respectively and every 3% increase in the interest rate shall affect the company’s profit before tax by approximately 5.89% and (2.20)% respectively.

For the year ended March 31, 2017 and March 31, 2016, every 3% appreciation in the exchange rate between the Indian rupee and US dollar, shall affect the company’s profit before tax by approximately 4.01% and 22.48% respectively and every 3% decrease in the interest rate shall increase/(reduce) affect the company’s profit before tax by approximately (5.00)% and 3.53% respectively.

Sensitivity

For the year ended March 31, 2017 and March 31, 2016, every 3% depreciation/appreciation in the exchange rate between the Indian rupee and US dollar, shall affect the company’s profit before tax by approximately 2.00% and 12.41% respectively.

ii) Interest rate risk

The Company adopts a policy to hedge the interest rate movement in order to mitigate the risk with regards to floating rate linked loans based on the market outlook on interest rates. This is achieved partly by entering into fixed rate instruments and partly by borrowing at a floating rate and using interest rate swaps as hedges of the variability in cash flows attributable to interest rate risk.

The total borrowing at variable rate was Rs.254.40 crores as at March 31, 2017 (March 31, 2016 - Rs.542.04 crores, April 1, 2015 - Rs.588.30 crores). The carrying value of the long term debt approximates fair value since the current interest rate approximates the market rate.

iii) Other market price risks

The Company’s exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet as fair value through Other Comprehensive Income. If the equity prices of quoted investments are 3% higher/ lower, the Other Comprehensive Income for the year ended March 31, 2017 would increase/ decrease by 6.35 % (for the year ended March 31, 2016: increase/ decrease by 6.44 %).

Note 8 : Employee Benefits

(a) The Company has recognised the following expenses as defined contribution plan under the head “Company’s Contribution to Provident Fund and Other Funds”(net of recoveries):

(b) The Company operates post retirement defined benefit plans as follows :-

a. Funded :

i. Post Retirement Gratuity

ii. Pension to Employees - Post retirement minimum guaranteed pension scheme for certain categories of employees, which is funded by the Company and the employees.

b. Unfunded :

i. Pension to Executive Directors and Employees - Post retirement minimum guaranteed pension scheme for select existing and retired executive directors and certain categories of employees, which is unfunded.

ii. Post Employment Medical Benefits to qualifying employees

(c) pension scheme for Employees:

The Company has formulated a funded pension scheme for certain employees. The actuarial liability arising on the above, after allowing for employees’ contribution is determined as at the year end, on the basis of uniform accrual benefit, with demographic assumptions taken as Nil.

(d) The above defined benefit plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.

Note 9 : specified Bank notes disclosure:

During the year, the Company had specified bank notes (SBNs) or other denomination note (ODNs) as defined in the MCA notification G.S.R. 308(E) dated March 31, 2017 on the details of Specified Bank Notes (SBN) held and transacted during the period from November 8, 2016 to December 30, 2016, the denomination wise SBNs and other notes as per the notification is given below:

Note 10 : other regulatory matters

The Company, on a review of its foreign operations had, in the past, made voluntary disclosures to the appropriate regulator, of what it considered to be possible irregularities, in relation to foreign exchange transactions relating to the period prior to 1998. Arising out of such disclosures, the Company received show cause notices. The Company has replied to the notices and is waiting for the directorate to return its files, after which it will complete the replies. Adjudication proceedings are in progress.

Note 11 : Segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The Managing Director and Chief Executive Officer who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief operating decision-maker. From the internal organisation of the Company’s activities and consistent with the internal reporting provided to the chief operating decision maker and after considering the nature of its services, the ultimate customer availing those services and the methods used by its to provide those services, “Hotel Services” has been identified to be the Company’s sole operating segment. Hotel Services include “Revenue from Operations” including Management and Operating Fees where hotels are not owned or leased by the Company. The organisation is largely managed separately by property based on centrally driven policies and the results and cash flows of the period, financial position as of each reporting date aggregated for the assessment by the Managing Director and Chief Executive Officer. The Company’s management reporting and controlling systems principally use accounting policies that are the same as those described in Note 2, Page 111 in the summary of significant accounting policies under Ind AS. As the Company is engaged in a single operating segment, segment information that has been tabulated below is Company-wide:

Footnote: Non-current assets exclude financial assets, deferred tax assets, post-employment benefit assets and rights under insurance contracts.

No single customer contributes more than 10% or more of the Company’s total revenue for the years ended March 31, 2017 and March 31, 2016.

Note 12 : Earnings per Share (EPS):

Earnings Per Share is calculated in accordance with Ind AS 33 - ‘Earnings Per Share’.

Note 13 : Guarantees given

i) Guarantees/ Letters of Comfort given by the Company in respect of loans obtained by other companies and outstanding as on March 31, 2017 - Rs.420.29 crores (March 31, 2016 - Rs.1,415.83 crores, April 1, 2015 - Rs.1,124.40 crores). Out of this, counter indemnity for Rs.122.31 crores (March 31, 2016 - Rs.131.11 crores, April 1, 2015 - Rs.Nil) has been obtained from a JV partner for his 50% share.

ii) The Company has given letters of support to select subsidiaries, a joint venture and an associate during the year.

Footnotes:

(i) These subsidiaries have been amalgamated with the Company during the year as per the respective court orders (Refer Note 29, Page 148).

(ii) The Company consolidated Lands End Properties Private Limited (“LEPPL”) including its subsidiaries in which the Company held 19.90% stake on transition to Ind AS as it had exposure or had rights, to vari able returns from its involvement with this entity. Subsequently, the Company had acquired remaining 80.10% stake in LEPPL on October 14, 2015.

(iii) Apex Hotel Management Services (Pte) Ltd. is in the process of liquidation with effect from December 21, 2016.

(iv) Apex Hotel Management Services (Australia) Pty Ltd. has been sold on March 31, 2017.

(v) Chieftain Corporation NV filed for liquidation during the year and dissolved on April 13, 2017.

(vi) This subsidiary was created during the financial year ended March 31, 2016.

(vii) In May 2017, an application was filed with the appropriate local authority for liquidating Samsara Properties Ltd (SPL), an indirect WOS of the Company incorporated in the British Virgin Islands. SPL was a dormant intermediate holding company. The process of liquidation is expected to be completed within the next few months.

Note 14 : Going Concern assumption

At at the year end, the Company’s current liabilities have exceeded its current assets by Rs.886.36 crores primarily on account of borrowings aggregating Rs.547.13 crores which fall due within 12 months following the balance sheet date and certain provisions although classified as “Current” are unlikely to result in a cash outflow within that period. Management is confident of its ability to generate cash inflows from operations, liquidate certain non-current investments and raise cash from financing activities so that it would be able to meet its obligations on due dates as it has demonstrated in earlier years. On these considerations, these financial statements are prepared on a going concern basis

Note 15 : Dividends

Dividends paid during the year ended March 31, 2017 out of General Reserve was Rs.0.30 per equity share for the year ended March 31, 2016.

The dividends declared by the Company are based on the profits available for distribution as reported in the standalone financial statements of the Company. Accordingly, the retained earnings reported in these financial statements may not be fully distributable. As of March 31, 2017, retained earnings not tranferred to reaserves available for distribution was Rs.156.23 crores.

On May 26, 2017, the Board of Directors of the Company have proposed a final dividend of Rs.0.35 per equity share in respect of the year ended March 31, 2017, subject to the approval of shareholders at the Annual General Meeting. If approved, the dividend would result in a cash outflow of Rs.41.67 crores, inclusive of dividend distribution tax of Rs.7.05 crores.