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NOTES TO ACCOUNTS

Mastek Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 1125.09 Cr. P/BV 1.57 Book Value (₹) 298.73
52 Week High/Low (₹) 645/365 FV/ML 5/1 P/E(X) 11.09
Bookclosure 16/07/2019 EPS (₹) 42.31 Div Yield (%) 1.81
Year End :2018-03 

1. SEGMENT REPORTING

The Company has presented data relating to its segments in its consolidated financial statements which are included in the same annual report as Mastek Limited. In terms of provisions of Indian Accounting Standard, no disclosures related to segments are therefore presented in these standalone financial statements.

2. ACQUISITION OF TRANS AMERICAN INFORMATION SYSTEMS PRIVATE LIMITED

During the previous year, Company has acquired 100% stake in Trans American Information Systems Private Limited, a company engaged in IT consulting and Software Services, for a fixed consideration of 1187 lakhs. Trans American Information Systems Private Limited is a Company with deep routed capability in providing high skilled resources and end to end e-commerce services including strategy, creative design, implementation and managed services having presence in india and supporting US customers.

3. FAIR VALUE HIERARCHY

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 assets or liabilities that are not based on observable market data (unobservable inputs).

The following table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2018, March 31, 2017 and April 1, 2016

Derivative financial instrument

The Company's risk management policy is to hedge substantial amount of forecast transactions under GBP. Hedge is broadly classifies as revenue hedge. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.

Risk management is predominately managed by the Finance department of the Company under policies developed by Mastek UK Limited, a wholly owned subsidiary ("MUK"). The Finance department identifies, evaluates and hedges financial risks under the guidance and instructions of MUK which predominantly provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk and use of derivative financial instruments.

The Company, in accordance with its risk management policies and procedures laid down by MUK, enters into foreign currency forward contracts to hedge against foreign currency exposures relating to highly probable forecast transactions. All forward contracts have been designated hedging instrument in cash flow hedge in accordance with Ind AS 109.

The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date. The following table presents the aggregate contracted principal amounts of the Company's derivative contracts outstanding:

4 FINANCIAL RISK MANAGEMENT

The Company's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company's primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company's policy that no trading in derivative for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below:

Business and Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counter party credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.

The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Most of the Company doubtful debt pertains to the Public Sector which is undergoing through restructuring and therefore, the Company evaluate every receivable in the geography and create adequate provision after analyzing specific risk.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks. The Company's corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management.

Foreign Currency Risk

The Company's activities expose it to market risk. In order to minimize any adverse effects on the financial performance of the Company, derivative financial instruments, such as foreign exchange forward contracts are used to hedge certain foreign currency risk exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.

Risk management is predominately managed by the Finance department of the Company under policies developed by Mastek UK Limited, a wholly owned subsidiary ("MUK"). The Finance department identifies, evaluates and hedges financial risks under the guidance and instructions of MUK which predominantly provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk and use of derivative financial instruments.

The Company, in accordance with its risk management policies and procedures laid down by MUK, enters into foreign currency forward contracts to hedge against foreign currency exposures relating to highly probable forecast transactions. The Company does not enter into any derivative instruments for trading or speculative purposes. The counter party is generally a bank. These contracts are for a period between one day and three years.

The Company is predominantly equity financed which is evident from capital structure table. Further, the Company has always been a net cash Company with cash and bank balances along with current financial assets which is predominantly investment in liquid and short term mutual funds being far in excess of debt.

5. FIRST-TIME ADOPTION OF INDIAN ACCOUNTING STANDARD (IND AS)

The Company's standalone financial statements for the year ended March 31, 2018 are prepared in accordance with Ind ASs notified under the Companies (Indian Accounting Standards) Rules, 2015.

The adoption of Ind AS was carried out in accordance with Ind AS 101, using April 1, 2016 as the transition date. Ind AS 101 requires that all Ind AS standards and interpretations that are effective for the Ind AS Financial Statements for the year ended March 31, 2018, be applied consistently and retrospectively for all fiscal years presented.

All applicable Ind AS have been applied consistently and retrospectively wherever required. The resulting difference between the carrying amounts of the assets and liabilities in the standalone financial statements under both Ind AS and Indian GAAP as of the Transition Date have been recognized directly in equity at the Transition Date.

In preparing these financial statements, the Company has availed itself of certain exemptions and exceptions in accordance with

Ind AS 101 as explained below:

(a) Exception from full retrospective application:

1. Estimates exception: Upon an assessment of the estimates made under previous GAAP, the management is of the opinion that there was no need to revise such estimates under Ind AS, except where estimates were required by Ind AS and not required by previous GAAP

(b) Exemption from retrospective application:

1. Share-based payment exemption: The Company has availed exemption available under Ind AS 101 on application of Ind AS 102, "Share Based Payment", to equity instruments that vested before the date of transition to Ind AS.

2. The Company has elected to continue with the carrying value of all its property, plant and equipment including asset held for sale as recognized in standalone financial statements as at April 1, 2016 (transition date) to Ind AS measured as per the Previous GAAP and use that as its deemed cost as at the transition date. On transition to Ind AS, the Company has elected to continue with the carrying value of all of its intangible assets recognized as at April 1, 2016, measured as per the Previous GAAP, and use that carrying value as the deemed cost of such intangible assets.

3. The Company has designated various hedging relationships as cash flow hedges under the Previous GAAP. On date of transition to Ind AS, the Company has assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to Ind AS.

4. In accordance with exemption given in Ind AS 101, the Company has recorded investments in subsidiaries at deemed cost

i.e previous GAAP carrying amount on transition date.

(c) Reconciliations:

The following reconciliations provide a quantification of the effect of significant differences arising from the transition from

Indian GAAP to Ind AS in accordance with Ind AS 101:

Equity as at April 1, 2016;

Equity as at March 31, 2017;

Total comprehensive income for the year ended March 31, 2017;

Notes

1. Fair valuation of investments:

a) Under Ind AS, financial assets and financial liabilities designated at fair value through profit and loss (FVTPL) are fair valued at each reporting date with changes in fair value recognized in the statement of profit and loss. Under previous GAAP, they are measured at lower of cost or net realizable value. Some mutual fund Liquid fund investments have been classified as FVTPL based on business model of the company. Consequently, increase in fair value of such investments in quoted mutual funds has resulted in a gain.

b) Under Ind AS, financial assets designated at fair value through other comprehensive income (FVTOCI) are fair valued at each reporting date with changes in fair value (net of deferred taxes) recognized directly in other comprehensive income. Under previous GAAP, they are measured at cost with provision for diminution other than temporary.

2. Under previous GAAP, actuarial gains and losses were recognized in the statement profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability / asset which is recognized in other comprehensive income. Consequently, the tax effect of the same has also been recognized in other comprehensive income under Ind AS instead of statement of profit and loss.

3. Under the Previous GAAP, the Company was not required to present other comprehensive income (OCI) separately. As per Ind AS 1, Presentation of Financial Statements, Ind AS 19, Employee Benefits and Ind AS 109, actuarial gain / loss on defined benefit liability, effective portion of cash flow hedges reserve has been shown separately and gain/loss on other financial assets measured through OCI.

4. The Ind AS adjustments are either non cash adjustments or are regrouping among the cash flows from operating, investing and financing activities. Consequently, Ind AS adoption has no impact on the net cash flow for the year ended 31st March, 2017 as compared with the previous GAAP

5 EMPLOYEE STOCK BASED COMPENSATION

i) Plan IV

The Shareholders of the Company through Postal Ballot on August 9, 2007 approved the allocation of 1,000,000 stock options to the eligible employees of the Company and its subsidiaries. The Company subsequently established a new scheme in 2007 for granting 1,000,000 stock options to the employees referred to above, each option representing one equity share of the Company. The vesting period of stock options will range from one year to four years from the date of grant. The stock options are exercisable within a period of seven years from the date of vesting.

ii) Plan V

The Company introduced a new scheme in 2008 for granting 1,500,000 stock options to the employees, each option representing one equity share of the Company. The vesting period of stock options will range from one year to four years from the date of grant. The stock options are exercisable within a period of seven years from the date of vesting.

iii) Plan VI

The Company introduced a new scheme in 2010 for granting 2,000,000 stock options to the employees, each option representing one equity share of the Company. The vesting period of stock options will range from one year to four years from the date of grant. The stock options are exercisable within a period of seven years from the date of vesting.

iv) Plan VII

The Company introduced a new scheme in 2013 for granting 2,500,000 stock options to its employees, employees of its subsidiaries and its Independent Directors, each option giving a right to apply for one equity share of the Company on its vesting. The vesting period of stock option will range from one year to four years from the date of grant. The stock options are exercisable within a period of seven years from the date of vesting.

6 MICRO, SMALL AND MEDIUM ENTERPRISES

Disclosure of payable to vendors as defined under the "Micro, Small and Medium Enterprise Development Act, 2006" is based on the information available with the Company regarding the status of registration of such vendors under the said Act, as per the intimation received from them on requests made by the company. There are no overdue principal amounts / interest payable amounts for delayed payments to such vendors at the Balance Sheet date. There are no delays in payment made to such suppliers during the year or for any earlier years and accordingly there is no interest paid or outstanding interest in this regard in respect of payments made during the year or on balance brought forward from previous year.

7 CAPITAL COMMITMENTS

Estimated amount of contracts remaining to be executed on capital account and not provided for as at March 31, 2018 is Rs,130 (March 31, 2017: Rs,133 and April 1, 2016: Rs,295)

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