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NOTES TO ACCOUNTS

Spicejet Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 7604.43 Cr. P/BV -21.73 Book Value (₹) -5.84
52 Week High/Low (₹) 153/121 FV/ML 10/1 P/E(X) 0.00
Bookclosure 29/11/2018 EPS (₹) 0.00 Div Yield (%) 0.00
Year End :2018-03 

1. CORPORATE INFORMATION

SpiceJet Limited (‘SpiceJet’ or the ‘Company’) was incorporated on February 9, 1984 as a limited Company under the Companies Act, 1956 and is listed on the Bombay Stock Exchange Limited (‘BSE’). The Company is principally engaged in the business of providing air transport services for the carriage of passengers and cargo. The Company is a low cost carrier (‘LCC’) operating under the brand name of ‘SpiceJet’ in India since May 23, 2005. The Company operates a fleet of 60 aircraft including 4 aircraft taken on wet lease across various routes in India and abroad as at March 31, 2018. The registered office of the Company is located at Indira Gandhi International Airport, Terminal 1D, New Delhi - 110037.

The financial statements were approved for issue by the board of directors on May 11, 2018.

2. OTHER NON-CURRENT FINANCIAL ASSETS

(Unsecured, considered good unless stated otherwise)

Sale of air tickets are on cash basis. In respect of revenue from cargo operations, the Company offers credit to its customers which is in the range of 30 to 90 days.

For terms and conditions relating to related party receivables, refer Note 47.

At March 31, 2018, the Company had available INR 925.62 million (March 31, 2017: INR 377.55 million, April 01, 2015: Nil) of undrawn committed borrowing facilities.

*Margin money deposit have been placed with banks for non-fund based facilities sanctioned to the Company.

B Term / Rights attached to Equity Shares

The Company has only one class of equity shares having a par value of Rs 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the board of directors is subject to the approval of the shareholders in the ensuing annual general meeting.

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

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.

D. Aggregate number of bonus shares, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceeding the reporting date:

The Company has issued total Nil shares (March 31, 2017 - 171,665 shares) during the period of five years immediately preceeding the reporting date on exercise of options granted under the employee stock option (‘ESOP’) plan wherein part consideration was received in form of employee services.

E. Shares reserved for issue under options

For details of shares reserved for issue under ESOP, refer Note 39

e. Foreign Currency Monetary Item Translation Difference Account

Represents the exchange differences arising on other long-term foreign currency monetary item amortised to the Statement of Profit and Loss over the remaining life of the concerned monetary item.

a. Term loan from banks is repayable in 6 equal instalments commencing from December 2017, and carries an interest rate of 10%.

The loan and other facilities granted by the lender were secured by exclusive charge on current assets both present and future excluding lien marked deposits, second charge on movable fixed assets, both present and future, and pledge of shares of the Company owned by the promoter of the Company, Mr. Ajay Singh.

b. The External commercial borrowing (“ECB”) relates to the acquisition of “Bombardier Q400 Aircraft”. The ECB has been approved by the Reserve Bank of India and is granted through a finance lease structure between the Company and the lessor with lending from Export Development Canada. The related aircraft are owned by the lessor until the repayment of all outstanding by the Company under the terms of the respective lease agreements (also refer note 3). As per the terms of these lease agreements with the lessor, the Company may opt for either fixed or a floating rate of interest benchmarked to LIBOR for each drawdown, which coincides with the delivery of each aircraft. The interest on these borrowings ranges from 2.4% to 4.1%. Under each lease agreement the Company is required to make payment of lease rentals over a period of forty-eight quarters to lessor or its nominees.

c. The vehicle loan has been availed from Yes Bank Limited and is repayable in equal instalments over a period of three years commencing from March 2016, and carries an interest rate of 10.25%. The loan is secured by the related vehicle purchased by the Company having a carrying value of Rs. 13.79 million.

Working capital demand loan from bank is secured by fixed deposits placed by the erstwhile promoter and is repayable on demand. The loan carries an interest rate of 12.75%.

Working capital demand loan from others is secured by an exclusive charge on pledge of shares and a first pari-passu charge over all current assets of the Company. The loan carries an interest rate of 11.25%.

Buyers Credit from bank is secured by fixed deposits places by the Company having a carrying value of Rs. 160 million and repayable within 6 months. The loan carries an interest rate benchmarked to the LIBOR rate at each drawdown ranging between 2% to 2.5%..

Pre-shipment credit foreign currency loan from bank is secured by fixed deposits placed by the Company having a carrying value of Rs. 793.14 million and is repayable within 6 months from each drawdown. The loan carries an interest rate benchmarked to the LIBOR rate at each drawdown. The interest rate on these borrowings ranges between 3.72% to 4.45%.

There are no overdue amounts payable to Micro and Small Enterprises as defined under Micro, Small and Medium Enterprises Development Act, 2006. Further, the Company has not paid any interest to any Micro and Small Enterprises during the current and previous year.

Terms and conditions of the above financial liabilities:

Trade payables are non interest bearing and carry a credit period generally between 30 and 90 days For terms and conditions relating to related party payables, refer Note 47.

** Provision for aircraft maintenance:

Certain heavy maintenance checks for the aircraft engines need to be performed at specified intervals as enforced by the Director General of Civil Aviation in accordance with the Maintenance Program Document laid down by the aircraft manufacturers. In this regard, the Company estimates the expected costs at the time of such check factoring expected drawdown of supplemental rentals and other contributions receivable from the lessors wherever applicable. As required by Ind-AS 37, “Provisions, Contingent Liabilities and Contingent Assets” given below is the movement in provision for aircraft maintenance.

The Company has, having regard to its obligation to maintain engines under aircraft lease agreements, finalized the terms of service contracts and has also entered into revised contracts for maintenance of engines on its Boeing and Q400 aircraft. Based on such finalized contracts / terms, and factors such as scope and timing of maintenance and repairs of engines including firm fixed costs of maintenance at different intervals, expected drawdown from the supplemental rentals under the relevant lease agreements (wherever applicable), etc, management undertook a comprehensive exercise to re-estimate its liabilities in respect of engine maintenance obligations. During the current year, the Company continues to evaluate for expected shortfalls in the maintenance obligations and on such basis estimates the provisions required to be made in this regard.

The Company has in its fleet certain aircraft on operating lease. As per the terms of the lease agreements, the aircraft are to be redelivered to the lessors at the end of the lease term in technical condition as stipulated under the lease agreements. Such redelivery conditions include costs for technical inspection, maintenance checks, repainting costs prior to its redelivery and the cost of ferrying the aircraft to the location as stipulated in the lease agreements.

The Company, therefore, provides for such redelivery expenses, as contractually agreed, in proportion to the expired lease period.

The Company in the past, had also accounted for costs relating to early termination of Boeing aircraft leased by the Company which were retired from commercial use. Such accrual is based on management estimate of these liabilities, having regard to various factors including lease terms, age of the aircraft and past experience of aircraft redelivery costs incurred by the Company. Further liabilities in this regard, are accounted for in the period they are determined to be payable. During the previous year, the Company has concluded / substantially agreed the terms of settlement with these aircraft lessors.

Note:

# In previous financial reporting periods, the Company had made certain provisions based on management’s assessment of certain claims by a vendor, based on applicable contractual terms. Under the provisions of such contract, the vendor had initiated arbitration proceedings in the previous financial year. Based on the status of the proceedings and submissions thereat, and legal advice obtained, management is of the view that certain previously recognised provisions are not likely to subsist. Accordingly, management has revised its assessment thereof, and as a consequence, the Company has written back provisions made in this regard, of Rs. 385.54 million as an exceptional item.

3. EARNINGS PER SHARE (‘EPS’)

a. Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders by the weighted average number of Equity shares outstanding during the year.

b. Diluted EPS amounts are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Equity shares outstanding during the year plus the weighted average number of Equity shares that would be issued on conversion of all the dilutive potential Equity shares into Equity shares.

The following reflects the income and share data used in the basic and diluted EPS computations:

c. Having regard to the status of the matters relating to the allotment and conversion of share warrants, as stated in Note 44, it is not possible to determine the dilutive effect, if any, of those on Diluted Earnings Per Share calculations. Accordingly, diluted earnings per share do not include the dilutive impact on the allotment and conversion of share warrants stated in Note 44.

4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with Ind AS requires the Company’s management to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities recognised in the financial statements that are not readily apparent from other sources. The judgements, estimates and associated assumptions are based on historical experience and other factors including estimation of effects of uncertain future events that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates (accounted on a prospective basis) are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgements and estimations that have been made by the management in the process of applying the Company’s accounting policies that have the most significant effect on the amounts recognised in the financial statements and/or key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Taxation

Determining of income tax liabilities using tax rates and tax laws that have been enacted or substantially enacted requires the management to estimate the level of tax that will be payable based upon the Company’s/ expert’s interpretation of applicable tax laws, relevant judicial pronouncements and an estimation of the likely outcome of any open tax assessments including litigations or closures thereof.

Deferred income tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses, unabsorbed depreciation and unused tax credits could be utilized.

In respect of other taxes which are in disputes, the management estimates the level of tax that will be payable based upon the Company’s / expert’s interpretation of applicable tax laws, relevant judicial pronouncements and an estimation of the likely outcome of any open tax assessments including litigations or closures thereof.

Defined Benefit plans (gratuity benefits)

The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. 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.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model.

Useful life, residual value of property, plant and equipment

The management has estimated the useful life of its property, plant and equipment based on technical assessment. The estimate has been supported by independent assessment by technical experts. The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.

Going concern assumption

These financial statements have been prepared on the basis that the Company will continue as a going concern for the foreseeable future. (refer note 2(a)(iii) for management’s assessment regarding going concern, including related judgments involved).

5. SHARE BASED PAYMENTS

The following share-based payment arrangements were in existence during the current and prior years :

Employees Stock Option Scheme, 2007

The shareholders at the Annual General Meeting held on September 11, 2007, approved an Employee Stock Option Scheme (ESOS) which provides for the grant of 6,016,250 options (each option convertible into share) to employees. Further, at the Extraordinary General Meeting held on December 23, 2009, the shareholders had approved to extend the aggregate number of options under the scheme to 20,000,000 options.

The remuneration committee had granted 5,200,000 options to eligible employees on September 11, 2007 at an exercise price of Rs. 30 /- per share. Such options were to vest over 4 years in the following manner:

- 35% of the options - one year from the date of grant

- 25% of the options - two years from the date of grant

- 25% of the options - three years from the date of grant

- 15% of the options - four years from the date of grant

In accordance with the shareholders’ approval, options once vested can only be exercised by the employee (subject to him / her remaining in employment) within a period of 5 years. Consequently, the scheme expires on September 11, 2016 which is the last date for exercise of options vested to the employee’s. All the unexercised options have been forfeited in the current year.

Employees Stock Option Scheme, 2017

The shareholders at the Annual General Meeting held on November 27, 2017, approved an ESOS which provides for the grant of 10,000,000 options (each option convertible into share) to employees.

The remuneration committee had granted 2,131,538 options to eligible employees subject to certain conditions on February 07, 2018 at an exercise price of Rs. 10 /- per share. Such options were to vest over 3 years in the following manner:

- 25% of the options - one year from the date of grant

- 35% of the options - two years from the date of grant

- 40% of the options - three years from the date of grant

In accordance with the shareholders’ approval, options once vested can only be exercised by the employee (subject to him / her remaining in employment) within a period of 5 years.

The compensation cost for ESOS been recognized based on the fair value at the date of grant in accordance with the Black-Scholes method.

The fair value of options provided under the ESOS, 2017 was estimated at the date of grant using the Black-Scholes method with the following assumptions:

6. EMPLOYEE BENEFITS obligation Defined benefit plan

a. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs. 2.00 million (March 31, 2017 - Rs. 1.00 million). The scheme is unfunded and accordingly the disclosures relating to plan assets are not provided.

The following tables summarise the components of net benefit expense recognised in the profit and loss account and amounts recognised in the balance sheet for gratuity.

c. Contributions to defined contribution plan:

During the year, the company recognized Rs. 209.59 Million (Previous year- t 171.10 Million) to Provident Fund under defined contribution plan and Rs. 37.66 Million (Previous year - Rs 12.41 Million) for contributions to Employee State Insurance scheme in the Statement of profit & loss.

7. LEASES

Operating lease: Company as a lessee

The Company has taken on lease aircraft, aircraft spares, engines and premises from third parties. Lease charges for aircraft and engines for the year ended March 31, 2018 amount to Rs. 10,369.11 million (Previous year Rs. 9,605.76 million), supplemental lease charges amount to Rs. 6,330.81 million (Previous year Rs. 4,907.86 million) and rental expense on premises for the year ended March 31, 2018 amount to Rs. 447.14 million (Previous year Rs. 376.17 million).

The Company has taken aircraft through dry operating lease from lessors. Under the aircraft lease agreements, the Company pays monthly rentals in the form of base and supplementary rental. Base rental payments are either based on floating or fixed interest rates. Supplemental rentals are based on aircraft utilisation and are calculated with reference to the number of hours flown or number of cycles operated during each month. Both base and supplemental lease rentals have been charged to the statement of profit and loss. The lease terms vary between 4 and 10 years. There are no significant restrictions imposed by lease arrangements.

The Company has also taken aircraft on wet lease. In a wet lease lease arrangement, the lessor provides an aircraft, complete crew, maintenance, and insurance (ACMI) to the lessee. The Company pays monthly lease rentals containing fixed and variable consideration. The lease period for a wet lease are generally between 3 to 5 months.

The future minimum lease rentals payable under non-cancellable leases (except supplementary rental which are based on aircraft utilisation and calculated on number of hours flown or cycle operated) are as follows:

8. CAPITAL AND OTHER COMMITMENTS

a. At March 31, 2018, the Company has commitments of t 529,250.32 million (March 31, 2017 - Rs 496,134.73 million) relating to the acquisition of aircraft.

b. The Company has commitments in the nature of non-cancellable operating leases. The future minimum lease payments expected to be incurred over the remaining lease term are detailed in Note 41.

c. Under certain long-term maintenance contracts for the management, maintenance, repair and overhaul of aircraft components and spares, the Company incurs an agreed power-by-the-hour cost based on aircraft / component utilization. In addition, some contracts provide for compensation upon pre-mature termination, as applicable.

9. LITIGATIONS AND CLAIMS

a) Note 1:

i) Matters wherein management has concluded the Company’s liability to be probable have accordingly been provided for in the books. Also refer note 25.

ii) Matters wherein management has concluded the Company’s liability to be possible have accordingly been disclosed under Note 2 Contingent liabilities below.

iii) Matters wherein management is confident of succeeding in these litigations and have concluded the Company’s liability to be remote. This is based on the relevant facts of judicial precedents and as advised by legal counsel which involves various legal proceedings and claims, in different stages of process.

i. Under a suit filed by Leela Capital (petitioner) for recovery of the Inter Corporate Deposit (‘ICD’) aggregating Rs. 50 million, the Company had deposited the amount of Rs. 50 million on November 30, 2001 with the Hon’ble Bombay High Court and the Hon’ble Bombay High Court later allowed the petitioner to withdraw the said amount, upon furnishing an undertaking that the petitioner will restitute the said sum or such part thereof, with 9% interest, to the Company, if and as directed by the Hon’ble Court at the time of the final decision of the suit filed by the petitioner. Accordingly, pending finality of the matter, both the ICD and deposit with Hon’ble High Court have been disclosed under Short-term borrowings and Other non-current assets, respectively. The parties have entered into a settlement agreement in the current year and have agreed to 10 million as a full and final settlement towards interest. Accordingly, the Company has written back interest payable of Rs. 64.71 million up to the date of deposit in its financial statements.

ii. In another case, M/s Hindustan Development Corporation Limited (“HDCL”) (now renamed as Mallanpur Steels Limited) who had lent Rs. 50 million by way of inter-corporate deposit to the Company, has filed an appeal before the division bench of the Hon’ble Delhi High Court against the Scheme of Settlement passed by the Hon’ble Delhi High Court wherein the Company’s liability was fixed at Rs. 35 million. The Company had made a deposit of Rs. 35 million to the Official Administrator of the Scheme in accordance with approved Scheme. Pending disposition of the review petition, the likelihood of the balance amount of Rs. 15 million devolving on the Company is not probable. Also, the interest (if any) on the same is not ascertainable.

iii. The Company has received a demand notice from the Regional Provident Fund Commissioner, Gurgaon for Rs 79.91 million in respect of provident fund (“PF”) dues for international workers vide Notifications GSR 706(E) dated 1st October 2008 and GSR 148 dated 3rd September 2010, for the period from November 2008 to February 2011. The Company has responded to the notice disputing the demand and, without admitting any liability towards the same, has deposited an amount of Rs 1.96 million towards the PF contributions in respect of international workers for the period from November 2008 to July 2011 under the provisions of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (‘PF Act’). Since August 2011, the Company has been making provident fund contributions in respect of international workers under the provisions of the PF Act. During the year ended March 31, 2012, the Company has filed a writ petition with the Hon’ble Delhi High Court contending that the above notifications relating to international workers are unreasonable and ultra vires the PF Act. The Court has directed that this matter be put up in the regular list and the interim order in favour of the Company has been made absolute till disposal of the petition. In addition, during the current year, a report has been filed by the Department’s Representatives before the Regional Provident Fund Commissioner on March 22, 2017 pursuant to which there is an additional claim against the Company aggregating Rs. 64.42 million for the period from March 2011 till January 2012. The aggregate demand on account of this matter from the period November 2008 to January 2012 is Rs. 144.43 million. Pending disposal of the petition, the Company has not accrued for any additional liability in respect of provident fund contributions to international workers.

iv. A vendor has filed an arbitration claim against the Company for Rs. 33.32 million including an interest of Rs. 10.58 million for termination of a lease agreement for accommodation of the Company’s crew. The agreement was terminated by the Company citing poor quality of services . The arbitration proceedings in the matter have been completed and the suit has been dismissed in favour of the Company. The vendor has subsequently, filed an appeal before the High Court of Delhi and the matter is currently sub-judice. Pending disposal of the appeal, the Company has not accrued for any additional liability in respect of the dispute.

v. The Company has received a demand order for a sum of f 77.28 million, and applicable interest, as well as penalty of Rs. 77.28 million from the service tax department for non-remittance of service tax on reverse charge mechanism on certain payments made during the period April 18, 2006 to March 31, 2012. The Company is contesting the order on the grounds that the services obtained by the Company were not liable to service tax under the categories determined by the authorities and are hence not taxable services. Effective July 2012, pursuant to the enactment of the negative list of taxable services, the Company has been paying service tax on these services received on reverse charge basis under the relevant provisions of the Finance Act, 1994. Based on advice by its tax consultants and internal evaluation, the Company has provided an amount of Rs. 67.09 million (including a portion of applicable interest) on a conservative basis. However, the Company continues to contest the entire demand and has filed an appeal against the adverse order with the CESTAT and is confident of its success. The balance amount of the matter under litigation, (including interest and penalty) of f 170.70 million, has not been accrued pending final outcome of this matter and has been disclosed as a contingent liability.

vi. One of the Company’s vendors filed an arbitration claim against the Company before the International Court of Arbitration of the International Chamber of Commerce claiming payment of overdue amounts with applicable interest. The Company has also served a counter-claim against the vendor during the arbitration proceedings, and without prejudice to its defence, has accrued for the amounts claimed by the vendor which were considered probable in its financial statements as at March 31, 2017. During the previous year, based on the current status of such proceedings and submissions thereat, and legal advice obtained, certain previously recognised provisions are not likely to subsist. Accordingly, the Company has written back provisions made in this regard, of Rs. 385.54 million in previous financial year as an exceptional item. The Company has not made any adjustments to the financial statements in respect of its counter-claim. The Company has received the final arbitral award in the current year against its favour directing refund of the amounts which form the subject matter of the claims made by the Vendor along with interest and legal costs incurred in connection with the arbitration. Based on the final arbitral award, the Company has accounted for the damages claimed by the Vendor.

vii. The Company has received certain show cause notices from the service tax authorities, citing various defaults, including failure/delay in remitting service tax collected, over past financial years as well as alleged failure in remittance of service tax on certain other items. Based on their assessment of the contentions of the service tax authorities, management has submitted a detailed reply to the notice, and based on legal advice obtained, believes that the likelihood of this liability devolving on the Company is low, and accordingly has made no adjustments to the financial statements.

viii.The Competition Commission of India (“CCI”) passed an order dated November 17, 2015 against, inter alia, the Company, which included a demand of Rs 424.80 million on the Company. The Company’s appeal against this order with Competition Appellate Tribunal (“COMPAT”) was disposed of by the COMPAT, which set aside the impugned order on technical grounds and has referred the matter back to the CCI for fresh adjudication based on the COMPAT’s directions. Subsequent thereto, the matter was reconsidered by CCI and a revised order dated March 7, 2018 imposing fine of Rs. 51 million was imposed on the Company. The Company is in the process of filing its appeal before COMPAT and based on legal advice received, management is confident of a favourable outcome in this matter and accordingly no adjustments are considered necessary in the financial statements.

ix. The Company had previously defaulted in remittance of the Inland Air Travel Tax (“IATT”) dues for the period of March 1996 to August, 1996. The Revisionary Authority, Government of India had confirmed the orders of the Commissioner (Appeals), Department of Customs directing the Company to pay Rs. 86.50 million together with a penalty of Rs. 100.00 million. The Company remitted the entire dues towards IATT and a minimum penalty @ 20% amounting to Rs. 17.30 million. The Company filed a Civil Writ Petition challenging the orders passed by the Revisionary Authority against the penal dues levied. The Hon’ble Delhi High Court dismissed the Company’s writ petition. Subsequently, the Company has challenged the same through a Special Leave to Petition (SLP) before the Hon’ble Supreme Court and the SLP has been dismissed in the current year pursuant to which the Company has remitted Rs. 82.69 million against this obligation to the Department of Customs.

x. The Assistant Commissioner of Income-Tax (“ACIT”) has filed a complaint against the Company and its erstwhile Chairman and Managing Director in their individual capacity, over delayed payment of tax deducted at source in contravention of section 276B of the IT Act, 1961 for financial years 2013-14 and 2014-15. The matter is sub-judice as on date and based on professional advice, the management is confident of a favourable outcome in this matter in so far as it relates to the Company. Accordingly, no adjustments are considered necessary in the financial statements.

xi. The Company has received certain orders from the the customs authorities, levying IGST, on overseas repairs and replacement of various aircraft equipment, which in the opinion of management and based on expert advise obtained, is not subject to such levy. Accordingly no further adjustments have been made in this regard as at March 31, 2018.

c. Based on the legal advice obtained by the management, no provision is required to be made for the above contingent liabilities.

10. STATUS OF ADVANCE MONEY RECEIVED AGAINST SECURITIES PROPOSED TO BE ISSUED

The Company, had in earlier financial years, received amounts aggregating Rs 5,790.89 Million from Mr. Kalanithi Maran and M/S KAL Airways Private Limited (“erstwhile promoters”) as advance money towards proposed allotment of certain securities (189,091,378 share warrants and 3,750,000 non-convertible cumulative redeemable preference shares, issuable based on approvals to be obtained), to be adjusted at the time those securities were to be issued. Pursuant to the legal proceedings in this regard before the Hon’ble High Court of Delhi (“Court”) between the erstwhile promoters, the present promoter and the Company, the Court, in its order dated July 29, 2016, without expressing anything on the merits of the dispute, ordered the Company to deposit the amount of Rs. 5,790 Million as security with the Court, in 5 equal monthly instalments, and directed the parties to take necessary steps for the purpose of constitution of an Arbitral Tribunal.

During the current year, the Company’s appeal against this order was dismissed by Hon’ble Division Bench of the Court (“Division Bench”). As a consequence, the Company was required to secure an amount of Rs. 3,290 Million through a bank guarantee in favour of the Registrar General of the Delhi High Court (“Registrar”) and to deposit the balance amount of Rs. 2,500 Million with the Registrar. The Company has complied with these requirements during the year.

The parties to the aforementioned litigation have concurrently initiated arbitration proceedings which are ongoing before a 3 member arbitral tribunal. The erstwhile promoters have made various claims against the Company and the present promoter, citing various purported breaches / non-compliances with the terms of the Share Sale & Purchase Agreement (“SSPA”) dated January 29, 2015. The Company and the current promoter have disputed all such claims citing various grounds including non-compliances with the terms of the SSPA by the erstwhile promoters themselves. The arbitration is currently in progress, and the final outcome of the matter is currently not ascertainable.

In view of the uncertainties involved as explained above, management believes that the manner, timing and other related aspects of adjustment of these amounts, are currently not determinable. The effects of this matter may attract the consequent non-compliance provisions (including penal provisions) of applicable law, including deeming provisions, relating to acceptance of deposits. Based on their assessment and legal advice obtained, management is of the view that any possible consequential effects, including penal consequences and any compounding thereof, will not have a material impact on the financial statements of the Company. Accordingly, no adjustments have been made for any such consequential penal effects in this regard.

11. SEGMENT REPORTING

Based on internal reporting provided to the chief operating decision maker, air transport service is the only reportable segment for the Company.

Non-current assets for this purpose consist of property, plant and equipment ,intangible assets and other non-current assets.

There are no sales to external customers more than 10% of total revenue.

12. INCOME TAX EXPENSE

The major components of income tax expense for the years ended March 31, 2018 and March 31, 2017 are:

Reconciliation of tax expense and the accounting profit multiplied by India’s domestic tax rate for March 31, 2017 and March 31, 2018 :

The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the standard rate of corporation tax in India (34.608%) as follows:

Deferred Tax

The Company has recognized deferred tax assets arising on account of carried forward tax losses and unabsorbed depreciation to the extent of the deferred tax liability arising on account of the temporary difference on depreciation of Rs. 4,276.32 million as at March 31, 2018 (Rs. 4,470.24 million as at March 31, 2017) since it is not probable that future taxable profit will be available against which the complete unused tax losses and unused tax credits will be utilised.

Unused tax losses and unused tax credits

Unused tax losses and unused tax credits for which no deferred tax assets have been recognized are attributable to the following:

The unused tax losses and unabsorbed depreciation considered above are based in the tax records and returns of the Company and does not consider the potential effect of matters under dispute/litigation with the tax authorities which are currently sub-judice at various levels. Also refer note 43.

Terms and conditions of transactions with related parties

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. For the year ended March 31, 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (March 31, 2017: Nil).

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel.

As the liabilities for gratuity and compensated absences are provided on actuarial basis for the Company as a whole, the amounts pertaining to the key management personnel are not included above.

13. FAIR VALUES

The Management considers that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values. The management assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, and other current and non-current financial liabilities and financial assets approximate their carrying amounts largely due to the short-term maturities of these financial instruments.

14. FAIR VALUE HIERARCHY

The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities are measured at fair value in the Balance Sheet.

The fair value of the derivative instruments have been calculated in reference to the intermediate market rate between offer rate and bid rate (both interest rate and exchange rate) or intermediate price between buying price and selling price as on the reporting date.

There have been no transfers between level 1 and level 2 during the period.

15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company’s principal financial liabilities, comprise of loans and borrowings, trade and other payables and derivatives. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include loans, trade and other receivables, and cash and cash equivalents that derive directly from its operations.

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s senior management is supported by a treasury team. The treasury team provides assurance to the Company’s senior management that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. 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 derivatives for speculative purposes may be undertaken. 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 any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. Market risk comprises three types of risk: interest rate risk, currency risk and foreign currency risk.

The sensitivity analyses in the following sections relate to the position as at March 31, 2018 and March 31, 2017.

The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant as at March 31, 2018.

Equity Price Risk is related to the change in market reference price of the investments in equity securities. The majority of the Company’s investments are in the shares of subsidiaries, which are carried at cost. The investments in other equity instruments as at the reporting date are not material.

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 is exposed to interest rate risk because it borrow funds at floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. As at March 31, 2018 approximately 53.95% of the Company’s borrowings are at a variable rate of interest (March 31, 2017 - 61.58%)

Interest rate sensitivity

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company’s profit for the year ended March 31, 2018 would decrease/increase by Rs. 30.98 million (March 31, 2017: decrease/increase by Rs. 37.30 million).

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent interest rate risk because the exposure at the end of the reporting period does not reflect the exposure during the year.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company actively manages its currency rate exposures through its treasury team using derivative instruments such as forward contracts to mitigate the risks from such exposures.

The use of derivative instruments is subject to limits and regular monitoring by appropriate levels of management.

Foreign currency sensitivity

The following demonstrates the sensitivity to a reasonably possible change in the foreign currency exchange rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The sensitivity analysis includes only outstanding unhedged foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates.

If the foreign currency rates had been 5% higher/lower and all other variables were held constant, the Company’s profit for the year ended March 31, 2018 would decrease/increase by Rs. 275.06 million (March 31, 2017: decrease/increase by 291.70 million).

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.

Credit risk management

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

The Company has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. Trade receivables are typically unsecured and are primarily derived from cargo and other revenue streams. Majority of the Company’s passenger revenue is are made against deposits made by agents. Trade receivables primarily comprise of domestic customers, which are fragmented and are not concentrated to individual customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored. At March 31, 2018, the Company had 11 customers (March 31, 2017: 11 customers) that owed the Company more than Rs. 10 million each and accounted for approximately 61% (March 31, 2017: 64%) of all the receivables outstanding.

An impairment analysis is performed at each reporting date on an individual basis for major customers. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on exchange losses historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are widely dispersed and operate in largely independent markets. The average credit period ranges between 30 and 90 days.

Liquidity risk

Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company has obtained fund and non-fund based working capital lines from various banks. The Company invests its surplus funds in bank fixed deposit and mutual funds, which carry minimal mark to market risks. The Company also constantly monitors funding options available in the debt markets with a view to maintaining financial flexibility.

The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments

16. CAPITAL MANAGEMENT

The Company’s capital management is intended to create value for shareholders by facilitating the meeting of long-term and short-term goals of the Company.

The Company determines the amount of capital required on the basis of annual operating plans and longterm fleet expansion plans. The funding requirements are met through internal accruals and other longterm/short-term borrowings. The Company’s policy is aimed at combination of short-term and long-term borrowings.

The Company monitors capital employed using a Debt equity ratio, which is total debt divided by total equity and maturity profile of the overall debt portfolio of the Company.

The Company’s policy is to keep the net debt to total equity ratio above (1.00).

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

17. PRIOR PERIOD COMPARATIVES

Prior year comparative amounts in these financial statements have been reclassified wherever applicable to conform to current year’s presentation.

18. STANDARDS ISSUED BUT NOT EFFECTIVE

The amendments to standards that are issued, but not yet effective, up to the date of issuance of the company’s financial statements are disclosed below. The company intends to adopt these standards, if applicable, when they become effective.

The Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2017 and Companies (Indian Accounting Standards) Amendment Rules, 2018 amending the following standard:

Ind AS 115 Revenue from Contracts with Customers

Ind AS 115 was issued on 28 March 2018 and establishes a five-step model to account for revenue arising from contracts with customers. Under Ind AS 115, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition requirements under Ind AS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 April 2018. The Company plans to adopt the new standard on the required effective date using the modified method.

Sale of Services

For passenger revenues and cargo revenues in which the provision of transportation services are generally expected to be the only performance obligation, adoption of Ind AS 115 is not expected to have any impact on the Company’s revenue and profit or loss. The Company expects the revenue recognition to occur at a point in time when performance obligation is met.

Amendments to Ind AS 12 Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

These amendments are effective for annual periods beginning on or after 1 April 2018. These amendments are not expected to have any impact on the Company as the Company has significant tax losses and consequently there are no assets that are in the scope of the amendments.

Amendments to Ind AS 112 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in Ind AS 112

The amendments clarify that disclosure requirements for interests in other entities also apply to interests that are classified (or included in a disposal group that is classified) as held for sale or as discontinued operations in accordance with Ind AS 105, Non-current Asset Held for Sale and Discontinued Operations.

The amendments are effective for annual periods beginning on or after 1 April 2018. The group will apply amendments when they become effective.

Appendix B to Ind AS 21 Foreign Currency Transactions and Advance Consideration

The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration.

Entities may apply the Appendix requirements on a fully retrospective basis. Alternatively, an entity may apply these requirements prospectively to all assets, expenses and income in its scope that are initially recognised on or after:

i) The beginning of the reporting period in which the entity first applies the Appendix, or

ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix.

The Appendix is effective for annual periods beginning on or after 1 April 2018. The Company is analysing the changes and impact as applicable from financial year 2018-19.

19. EVENTS AFTER THE REPORTING PERIOD

The financials have been approved by the Board of Directors on May 11, 2018 and there have been been no significant events after the reporting period till such date.

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