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NOTES TO ACCOUNTS

AGC Networks Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 376.33 Cr. P/BV 20.16 Book Value (₹) 6.28
52 Week High/Low (₹) 131/59 FV/ML 10/1 P/E(X) 0.00
Bookclosure 26/09/2019 EPS (₹) 0.00 Div Yield (%) 0.00
Year End :2018-03 

1 Corporate Information

AGC Networks Limited (‘the Company’) or ‘AGC’ is a public company domiciled in India and incorporated under the provisions of the Companies Act,1956. Its shares are listed on two stock exchanges in India. The Company’s registered office is located at Equinox Business Park, Off Bandra Kurla Complex, LBS Marg, Kurla (West), Mumbai - 400 070. The Company, along with its foreign subsidiaries, is a global information, communications technology (ICT) solutions provider and Integrator seamlessly delivering technology based solutions across global markets and verticals layered with a spectrum of applications and services. The Company is the leader in Enterprise Communications in India with global footprint in locations spanning India, Middle East/Africa, North America and Australia/New Zealand.

2 Basis of Preparation and Presentation

a. Statement of Compliance

These financial statements have been prepared in accordance with Indian Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016, as applicable. For all the periods upto the year ended 31 March 2017, the Company had earlier prepared and presented its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013 (Indian GAAP). These standalone financial statements for the year ended 31 March 2018 are the first financial with comparatives, prepared under Ind AS. The adoption was carried out in accordance with Ind AS 101, First Time adoption of Indian Accounting Standards. The transition was carried out from Indian Accounting Principle generally accepted in India as prescribed under Section 133 of the Act read with the Rule 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP), which was the previous GAAP. Reconciliations and description of the effect of the transition from Indian GAAP to Ind AS is given in Note 40. This financial statement of the Company as at and for the year ended 31 March 2018 (including Comparatives) were approved and authorised by the Company’s board of directors as on 29 May 2018.

All amounts included in the financial statements are reported in Indian rupees (in Crores) except share and per share data unless otherwise stated and “0” denotes amounts less than fifty thousand rupees.

b. Basis of Preparation

The financial statements have been prepared on a historical cost convention and on an accrual basis, except for the following material items that have been measured at fair value as required by relevant Ind AS:

i. Certain financial assets and liabilities measured at fair value (refer accounting policy on financial instruments);

ii. Share based payment transactions and

iii. Defined benefit and other long-term employee benefits

c. Use of estimate and judgment

The preparation of standalone financial statements in conformity with Ind AS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on a periodic basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the standalone financial statements is included in the following notes:

(i) Income tax: Significant judgments are involved in determining the provision for income tax, including the amount expected to be paid or recovered in connection with uncertain tax positions.

(ii) Defined benefit plans and compensated absences: The cost of the defined benefit plans, compensated absences and the present value of the defined benefit obligations are based on actuarial valuation using the projected unit credit method.

An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

(iii) Property, plant and equipment: Property, plant and equipment represent a significant proportion of the asset base of the Company. The change in respect of periodic depreciation/amortisation is derived after determining an estimate of an assets expected useful life and the expected residual at the end of its life. Depreciation of fixed assets is calculated on straight-line-basis over the useful life estimated by the management, based on technical evaluation or those prescribed under schedule II of the Companies Act, 2013, whichever is higher.

(iv) Expected credit losses on financial assets: On application of Ind AS 109, the impairment provisions of financial assets are based on assumptions about risk of default and expected timing of collection. The Company uses judgments in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s past history of collections, customer’s credit-worthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.

(v) Deferred taxes: Deferred tax is recorded on temporary differences between the tax bases of assets and liabilities and their carrying amounts, at the rates that have been enacted or substantively enacted at the reporting date. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carry forwards become deductible. The Company considers the expected reversal of deferred tax liabilities and projected future taxable income in making this assessment. The amount of the deferred tax assets considered realisable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

(vi) Provisions: Provisions are recognised when the Company has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can me made. Provisions (excluding retirement obligation and compensated expenses) are not discounted to its present value and are determined based on best estimate required to settle obligation at the balance sheet date. These are reviewed at each balance sheet date adjusted to reflect the current best estimates.

(vii) Share-based payments: The grant date fair value of options granted to employees is recognised as employee expense, with corresponding increase in equity, over the period that the employee become unconditionally entitled to the option. The increase in equity recognised in connection with share based payment transaction is presented as a separate component in equity under “share option outstanding account”. The amount recognised as expense is adjusted to reflect the impact of the revision estimates based on number of options that are expected to vests, in the statement of profit and loss with a corresponding adjustment to equity.

Notes

1 Building includes those constructed on leasehold land.

2 Above assets include those offered as security for borrowings availed by the Company (refer note 17.1).

3 Leasehold land is completely depreciated / adjusted and net book value for the year ended 31 March 2018 is Nil (31 March 2017 : Nil, 1 April 2016 : Nil) (refer note 42)

4 In accordance with Schedule II to the Companies Act, 2013, the Company has reassessed the estimated useful life of certain class of asset through technical evaluation during the year (refer note 41).

* refer note 42

During the year ended 31 March 2015, the Company issued 1,500,000 1% non-cumulative, non-convertible, redeemable preference shares having face value of Rs. 100 each at par for a total consideration of Rs. 15.00 Crores to Essar Information Technology Limited.

At the meeting of Board of Directors of the Company held on 29 April 2017, it was resolved to approve and pay interim dividend on preference shares at their coupon rate.

(b) Rights, preference and restriction on shares

The Company has only one class of equity share having par value of Rs. 10 per share. Each holder of equity share is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend if proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive assets of the Company remaining after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

The Company has one class of preference share i.e. 1% non-cumulative, non-convertible redeemable preference shares. The preference shares have preferred right on payment of dividend and repayment of capital over equity shareholders. As per Companies Act, 2013 the preference shareholders has right to vote on all resolution placed before the Company if preference dividend is not paid for a period of 2 years or more.

The preference shares shall be redeemed at the option of Investor in one or more tranches at any time between 10th year from the date of allotment (12 August 2014) and before expiry of 12th year from the date of allotment and the shares shall be redeemed at par. If the option is not exercised by the investor these shares will be automatically redeemed at par at the end of the 12th year from the date of allotment.

With effect from 30 March 2018, the Company received approval from the preference shareholder for extention of term by 5 years post original expiry of 7 years.

The Company has recognised these preference shares as a compound financial instrument and the Equity component of compound financial instrument is presented as a part of “Other Equity” (refer note 13) and the liability component of compound financial instrument is disclosed under “Other financial liability” (refer note 14).

(d) Aggregate number of bonus shares issued during the period of five years immediately preceding the reporting date:

14,233,232 Equity shares allotted as fully paid bonus shares by capitalisation of securities premium during the year ended 31 March 2013

(e) Details of shareholders holding more than 5% shares in the Company

As per records of the Company, including its register of shareholders / members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares.

Provision for warranties

A provision is recognized for expected warranty claims on products sold during the last one year, based on past experience of the level of repairs and returns. It is expected that significant portion of these costs will be incurred in the next financial year and all will have been incurred within a year after the reporting date. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the one-year warranty period for all products sold. The table below gives information about movement in warranty provisions.

Footnotes:

1. Working capital loan from bank is secured against first pari-passu charge on Lease hold land and buildings situated at Gandhinagar, Gujarat, second pari-passu charge on entire current assets (present and future) including stocks of materials and components, work-in-progress, stock-in-trade, trade receivables, etc. During the year ended 31 March 2015, the Company transferred its Gandhinagar properties vide deed of assignment (refer note 42). However, the loan is considered as secured since all properties have not been discharged as securities by the lender and continuance of the other assets as security.

As per the original payment schedule loan is repayable in 14 quarterly installments starting from 9 February 2016 viz 6 installments of Rs. 2.25 Crores each, 4 installments of Rs. 3.38 Crores each and 4 installments of Rs. 4.50 Crores each. The same has been classified under “Short term borrowings” in view of the intention of the Company to extinguish the borrowing either by way of assignment to the buyer of the aforesaid properties or by way of repayment of the loan from the sale consideration. The effective rate of interest is the base rate of the lending bank which is 10.25% p.a. (31 March 2017 10.25% to 10.75% p.a.; 1 April 2016 10.25% to 10.75% p.a.) plus spread 1.5%. Hence effective rate for the current year 11.75% p.a. (31 March 2017 11.75% to 12.25% p.a.; 1 April 2016 11.75% to 12.25% p.a.).

During previous year ended 31 March 2018, the Company had additionally paid Rs. 1.95 Crores in addition to the above repayment schedule. This repayment is through redemption of DSRA FD of Rs. 1.88 Crores kept for this facility with Yes Bank.

During the year ended 31 March 2016, the Company had additionally paid Rs. 3.20 Crores in addition to the above repayment schedule as the amount of (in part) received from sale of one of the property, forming part of the security.

2. Cash credits from banks are secured by first pari-passu charge on entire current assets of the Company (present and future) including stocks of materials and components, work-in-progress, stock-in-trade, trade receivables, insurances, etc. and by second pari-passu charge on all moveable Property, plants and equipments of the Company.

Cash credit carry an effective interest rate of 13.00% to 14.80% p.a. (31 March 2017 : 13.00% to 14.50% p.a. 1 April 2016 13.00% to 14.75% p.a.).

3. Buyers credits from banks are secured by first exclusive pari-pasu charge on entire current assets of the Company (present and future) including stocks of materials and components, work-in-progress, stock-in-trade, trade receivables, insurances, etc. and by second pari-pasu charge on all moveable property, plant and equipment of the Company.

Buyer’s credit are availed against import dues and carry an effective interest @ LIBOR Plus 0.25% to LIBOR Plus 2.00% (31 March 2017 LIBOR Plus 0.29% to LIBOR Plus 0.50%, 1 April 2016: LIBOR Plus 0.35% to LIBOR Plus 0.50%)

# There is no amount due and outstanding to be transferred to the Investor Education and Protection Fund (IEPF) as on 31 March 2018, 31 March 2017 and 1 April 2016 respectively. Unclaimed dividend, if any, shall be transferred to IEPF as and when they become due.

* Expenses / payments incurred/made by related parties on behalf of the group.

Note:

The Company is a global ICT solution provider and integrator operating in various quadrants and the solutions sold to customers are configured as per specific customer requirements. The heterogeneous mix of components in solutions offered to customers makes it difficult to establish a meaningful/homogenous relationship for providing breakup of goods purchased/sold during the year and the stock position. Consequently, it is neither feasible nor meaningful to give the category-wise details of goods purchased and sold during the year and stock position for all its product solutions.

Notes

(a) Represents reversal of inventory provisions made in earlier years to reflect lower of cost and net realisable value. The Company has entered into an agreement with the buyer for sale of these inventories.

(b) Represents liability towards rent pertaining to earlier years, reversed on account of settlement with the lessor during the year.

(c) Represents interest income recognised on sale consideration receivable from the buyer towards assignment of properties situated at Gandhinagar (refer note 42).

During the year ended 31 March 2018, 471,120 potential equity shares granted, as share option under the ESOP Scheme 2015 (refer note 32), are considered for calculation of diluted EPS.

The effect of 556,520 potential equity shares, granted during the year ended 31 March 2017 are anti-dilutive and thus these share are not considered in determining diluted loss per share.

3 Employee benefits plan

(a) Defined contribution plan - The following amount is recognised in the statement of profit and loss for the year ended:

Above amount has been included in the line item 'Contribution to provident and other funds’ in note 25.

(b) Defined benefit plan - The Company has an unfunded defined benefit plan, i.e. Gratuity, for its employees. Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure at 15 days of last drawn salary for each completed year of service.

The following tables summarises the components of benefit expense recognised in the statement of profit and loss and the amounts recognised in the balance sheet for the gratuity plan.

Sensitivity analysis:

Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase, attrition rate and mortality. The sensitivity analysis below have been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period, while holding all other assumptions constant. The result of the sensitivity analysis is given below:

The sensitivity analysis presented above may not be a representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another, as some of the assumptions may be correlated.

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. There has been significant change in expected rate of return on assets due to change in the market scenario.

(c) Compensated absences: With effect from 1 January 2017, the Company has decided to restrict the balance of unavailed privilege leave (PL) balance to a maximum of 42 days from existing limit of 90 days. Further, PL cannot be en-cashed or accumulated and shall lapse every year in the month of December. The balance as of 31 December 2016 is entitled to be en-cashed only during separation from the Company based on basic salary as of December 2016. Accordingly, during the previous year excess provision of Rs. 0.92 Crores has been written back based on actuarial valuation report and net reversal in excess of charge for the previous year has been grouped under ‘other operating income’ in the statement of profit and loss.

4 Employees Stock Option:-

The Company provides share based payment schemes to its employees. Since the year ended 31 March 2016 an employee stock option plan (ESOP) was in existence i.e ESOP scheme 2015. The relevant details of the scheme and the grant are as below.

On 14 May 2015 the Board of Directors approved the equity settled ESOP scheme 2015 for issue of stock options to key employees and directors of the Company setting aside 1,423,323 options under this scheme. Subsequently on 19 May 2016 the company granted 320,248. The contractual life (comprising vesting period and exercise period) of options granted is 6.12 years. According to the scheme, the employees selected by the remuneration committee from time to time will be entitled to options, subject to satisfaction of the prescribed vesting conditions. The other relevant terms of the grants are as below:

The options are granted at an exercise price, which is in accordance with the relevant SEBI guidelines in force, at the time of such grants. Each option entitles the holder to exercise the right to apply for and seek allotment of equity share by paying exercise price of Rs. 55 for ESOP granted on 19 May 2016 and Rs. 80 for ESOP granted on 14 May 2015 each.

The share option outstanding at the end of the year had a weighted average exercise price of Rs. 63.00 (as at 31 March 2017: Rs. 65.61), and a weighted average remaining contractual life of 4.12 to 5.12 years (as at 31 March 2017 : 5.12 to 6.12 years) The weighted average fair value of the share options granted is Rs. 32.85 and Rs. 42.84 of options granted on 14 May 2015 and 19 May 2016 respectively. Option were priced using Black Scholes valuation model:

Volatility : Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during the period. The measure of volatility is used in Black Scholes option pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. Company considered the daily historical volatility of Company’s stock price on NSE over a period prior to the date of grant, corresponding with the expected life of the options.

Risk free rate : The risk free rate being considered for the calculation is the interest rate applicable for a maturity equal to the expected life of the options based on zero coupon yield curve for government securities.

Expected life of the options : Expected life of the options is the period for which the Company expects the options to be live. The minimum life of stock options is the minimum period before which the options can not be exercised and the maximum life of the option is the maximum period after which the options can’t be exercised. The Company have calculated expected life as the average of the minimum and the maximum life of the options.

Dividend yield: Expected dividend yield has been calculated by dividing the last declared dividend per share by the market price per share as on the date of grant.

5 Leases

Operating lease: Company as lessee

The Company has entered into various leasing agreements classified as operating leases for residential, office and warehouse premises which are renewable by mutual consent on mutually agreeable terms. These agreement generally range between 11 months to 5 years. The Group does not have sub-leasing agreements or any contingent arrangements. Lease payments are recognised in the statement of profit and loss under ‘Rent’ in note 28.

The future minimum lease payments under non-cancellable operating leases are:-

6 Segment information

The Company has presented data related to its segments in its consolidated financial statements which are included in the same annual report as AGC Network Limited in terms of provisions of Indian Accounting Standards, no disclosures regarding segments are therefore presented in these standalone financial statement.

7 Related Party Disclosure:

(I) List of related parties and relationship.

(i) Ultimate Holding Company:

Essar Global Fund Limited

(ii) Holding Company:

Essar Telecom Limited

(iii) Subsidiary (including step down subsidiaries):

AGC Networks and Cyber Solutions Limited AGC Networks Australia Pty. Limited AGC Networks Inc.

AGC Networks Philippines, Inc.

AGC Networks Pte. Limited AGCN Solutions Pte. Limited AGC Networks LLC., Dubai

AGC Networks LLC., Abu Dhabi (w.e.f. 06 June 2017)

Related party with whom transactions have taken place

(iv) Fellow Subsidiary:

Aegis Limited (upto 22 November 2017)

Aegis Services Lanka Private Limited Equinox Business Parks Private Limited Essar Bulk Terminal (Salaya) Limited Essar Bulk Terminal Limited Essar Oil Limited Essar Oil UK Limited Essar Power Gujarat Limited Essar Projects (India) Limited Essar Shipping Limited Essar Steel India Limited Essar Telecom Kenya Limited Essar Power Hazira Limited Essar Steel Algoma Inc.

The MobileWallet Private Limited The Mobile Store Limited Vadinar Oil Terminal Limited Vadinar Ports & Terminals Limited Ibrox Aviation And Trading Private Limited

(v) Key Managerial Personnel:

Mr. Sanjeev Verma, Whole-time Director (w.e.f. 15 February 2016)*

Mr. Sujay R Sheth, Non Executive Director

Mr. Dilip Thakkar, Non Executive Director (w.e.f. 8 February 2018)

Ms. Suparna Singh, Non Executive Director

Mr. Jangoo M. Dalal, Non Executive Director (Up to 21 November 2017)

Mr. Manhar T. Mandaliya, Non Executive Director (Up to 13 July 2017)

Mr. Shuvabrata Mandal, Non Executive Director (Up to 8 August 2017)

Mr. Deepak Kumar Bansal, Chief financial officer (w.e.f. 8 February 2018)

Mr. Angshu Sengupta, Chief financial officer (Up to 8 February 2018)

Mr. Pratik Bhanushali, Company Secretary (Up to 12 January 2018)

Mr. Aditya Goswami, Company Secretary (w.e.f. 8 February 2018)

* The shareholders of the Company have approved the appointment of Mr. Sanjeev Verma as a whole-time director. The Company had filed an application seeking approval of the central government for the appointment since the whole-time director was not resident in India on the date of his appointment for which approval was received on 17 May 2017.

Foreign currency balance are restated at year end rates

** These amounts includes trade payables, other liabilities and advance from customers.

# Aegis Limited - Balances as on 30 November 2017 has been shown since on that day party ceases to be a related party.

@ Vadinar Ports & Terminals Limited merged with the Vadinar Oil Terminal Limited and hence the opening balance of the Vadinar Ports & Terminals Limited of Rs. 0.06 Crores transferred to the amount owed to related parties of Vadinar Oil Terminal Limited.

(d) Key Management Personnel (KMP) compensation:

The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year:

During the year, Nil (31 March 2017: 320,248) equity shares options are granted to key managerial personnel and NIL (31 March 2017: 113,865) equity shares options lapsed.

Note: The remuneration to the key managerial personnel does not include the provisions made for gratuity and leave benefits, as they are determined on an actuarial basis for the Company as a whole.

The Company is contesting all of the above demands in respect of Income tax, Excise duty, Service tax, Custom duty and Sales tax and the management, believes that its positions are likely be upheld at the appellate stage. No expense has been accrued in the financial statements for the aforesaid demands. The management believes that the ultimate outcome of these proceedings are not expected to have a material adverse effect on the Company’s financial position and results of operations and hence no provision has been made, in this regard.

(B) Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs. 0.42 Crores (31 March 2017 Rs. Nil, 1 April 2016: Rs. 0.03 Crores)

The management has identified enterprises which qualify under the definition of micro and small enterprises, as defined under Micro,Small and Medium Enterprises Development Act, 2006 (MSMED). Accordingly, the disclosure in respect of the amounts payable to such enterprises as at year end has been made in the financial statements based on the information received and available with the Company and has been relied upon by the statutory auditors.

9.1 Financial Instruments

a) Categories of financial instruments

Fair value of Cash and cash equivalent, other bank balances, loans, trade receivables, trade payable, other financial assets and liabilities, and current borrowings approximate their carrying amounts largely due to the short term maturities of these instruments.

b) Fair Value Hierarchy and Method of Valuation

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

1. Fair value of cash and cash equivalents, trade receivables, trade payables, other financial assets/liabilities, short term loans from banks approximate their carrying amounts largely due to short term maturities of these instruments.

2. Financial instruments with fixed and variable interest rates are evaluated by the Company based on parameters such as interest rates and individual credit worthiness of the counter-party. Based on this evaluation, allowances are taken to account for expected losses of these receivables. Accordingly, fair value of such instruments is not materially different from their carrying amounts. The fair values for loans, security deposits and investment in preference shares were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counter party credit risk.

3. The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the use of unobservable inputs, including own credit risk. For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

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

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

9.2 Financial risk management objectives and policies

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 Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:

Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including deposits, foreign currency receivables, payables and loans and borrowings.

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 exposure to the risk of changes in market interest rates relates primarily to the Company’s debt interest obligations.

Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as follows:

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. Credit risk arises 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 evaluates every receivable in the geography and creates adequate provision after analysing specific risk. Trade receivables are non-interest bearing and are generally on credit term in line with respective industry norms. Outstanding customer receivables are regularly monitored. The Company has no concentration of credit risk as the customer base is widely distributed both economically and geographically.

There is no other class of financial assets that is past due but not impaired, except for trade receivables.

Customer credit risk is managed by each geogrophical segments subject to the Company’s established policy, procedures and controls relating to customer credit risk management. Trade receivables are non-interest bearing and are generally on credit term in line with respective industry norms. Outstanding customer receivables are regularly monitored. The Company has no concentration of credit risk as the customer base is widely distributed both economically and geographically.

The following table gives details in respect of percentage of revenues generated from top customer and top five customers

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. The Company manages its liquidity needs by monitoring scheduled debt servicing payments for financial liabilities as well as forecast cash inflow and outflows due in day to day business. In addition, processes and policies related to such risks are overseen by senior management.

9.3 Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company procures goods and services in their respective local currency and in case of imports, it primarily deals in US Dollars. The Company has mainly foreign currency trade payables and other receivable which are unhedged and exposed to foreign currency risk.

The Company evaluates exchange rate exposure arising from foreign currency transactions and follows established risk management policies. There are earnings from customers in foreign currency which act as an natural hedge against foreign currency risk

Sensitivity to foreign currency risk

The following table demonstrates the sensitivity in the USD, CAD, GBP and other currencies with all other variables held constant. The below impact on the Company's profit before tax is based on changes in the fair value of unhedged foreign currency monetary assets and liabilities at balance sheet date:

10 Capital Management

The Company’s objectives when managing capital are to

- safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and

- maintain an optimal capital structure to reduce the cost of capital.

#Debt for the above purpose includes non-current borrowings, current borrowings, current maturities of non current borrowings and interest accrued but not due on borrowings (net of cash and cash equivalents).

During the current year, there is an improvement in Gearing ratio from 284% to 142% mainly attributable to reduction in borrowings and improvement in profitability.

11 First time adoption of IND-AS First Ind AS Financial statements

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

The adoption of Ind AS was carried out in accordance with Ind AS 101, using 1 April 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 31 March 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) Applicable mandatory exceptions:

Estimates

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. Classification and measurement of financial assets/liabilities

As required under Ind AS 101 the Company has assessed the classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

b) Optional exemption availed Deemed cost

The Company has elected to continue with the carrying value of all its property, plant and equipment including asset held for sale as recognised in standalone financial statements as at April l, 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 recognised as at April l, 2016, measured as per the Previous GAAP, and use that carrying value as the deemed cost of such intangible assets.

Investment in subsidiaries

In accordance with Ind AS 101, the Company has elected to measure all of its investments in subsidiaries at deemed cost i.e. previous GAAP carrying amount on transistion 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 1 April 2016;

Equity as at 31 March 2017;

Notes

1 Under Ind AS, Preference share being financial liability are classified as equity or liability or combination of both as compared to previous GAAP. This adjustment includes the reversal of preference share capital and recognising equity and liability components. Further, the liability has been carried at amortised cost.

2 Under Ind AS, deposits are valued at amortised cost as compared to being carried at transaction value in the previous GAAP The adjustment includes the difference between the book value and amortised value of security deposits which has been recognised as rent expense. Further, interest income computed on the amortised value of the security deposit is recognised over the tenure of the security deposit using the EIR method.

3 Under Ind AS, loans are valued at amortised cost as compared to being carried at cost in the previous GAAP. This adjustment includes the difference between the book value and the amortised value of an loan which recognised as interest expense. The interest on the amortised value of these loans is recognised over the tenure of the loans using the EIR method.

4 Under Ind AS, Share based compensation expenses are computed based on the fair valuation of ESOP scheme, whereas in the previous GAAP the ESOP scheme were valued at instrinsic value.

5 Under the previous GAAP, actuarial gains and losses were recognised 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 recognised in other comprehensive income.

12 During the quarter ended 30 June 2016, based on an internal technical evaluation, the management reassessed the remaining useful lives of certain Property, plant and equipment with effect from 1 April 2016. Accordingly the useful lives of such plant and equipment have been revised from 3 to 5 years to 15 years.

Had the Company continued with the previously assessed useful lives, depreciation expense for the year 31 March 2018 would have been higher by Rs. 2.12 Crores (31 March 2017 : Rs. 2.12 Crores). Further the revision of the useful lives will result in the following changes in depreciation expense as compared to depreciation expense based on earlier useful lives.

13 Sale of Gandhinagar properties

During the year ended 31 March 2015, the Company entered into deeds of assignment to transfer all the rights, title and obligations of its land and building situated at Gandhinagar to another company for a consideration of Rs. 50.52 Crores. During April 2015, the lender to whom these assets were provided as security provided its in-principal approval for the said transfer subject to fulfilment of conditions stated therein. The said transfer was pending approval from the relevant government authority and transfer of legal title that were considered to be procedural in nature. Accordingly, the Company had recognised profit on sale of property, plant and equipment of Rs. 46.04 Crores (net of incidental expenses Rs. 3.39 Crores) during the year ended 31 March 2015. During the year ended 31 March 2016, the Company received approval from the lender for sale of one of the property sold for consideration of Rs. 5.89 Crores and also realised part consideration of Rs. 3.20 Crores from the buyer. During April 2016, approval from the requisite authorities have also been received and sale deed has been executed between the Company and the buyer for transfer of legal title for one of the property. The Company has also obtained the requisite approvals for the other property and during the year ended 31 March 2018 has realised further consideration of Rs. 23.77 Crores. The sale deed for the other property will be executed on simultaneous settlement of balance consideration by the buyer.

14 As per the transfer pricing rules, the Company has examined domestic and international transactions and documentation in respect thereof to ensure compliance with the said rules. The management does not anticipate any material adjustments with regard to the transactions involved.

15 Corporate social responsibility

As per section 135 of the Companies Act, 2013, a corporate social responsibility (CSR) Committee has been formed by the Company. The Company has average net loss for the last 3 financials years so the amount of CSR expenditure required as per the Companies Act is Rs. Nil (31 March 2017: Rs. Nil) and the Company has not undertaken any CSR activity during the year.

16 Previous year figures have been regrouped / reclassified, where necessary, to confirm to this year’s classification.

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