Notes:

* Additions include Rs. 650.43 lakhs (previous year Rs.150.31 lakhs) towards assets located at the research and development facilities.

** refer note 15 for information on PPE pledged as security by the Company.

# refer note 31 for reconciliation of deemed cost as adopted by Company in accordance with Ind AS 101.

@ The related finance lease obligations in respect to plant and equipment acquired under finance lease arrangements have been disclosed in note nos. 15 A & 16.

^A Disposals / adjustments included in Capital work in progress / Intangible assets under development represents assets capitalised during the year.

Additions during the year in PPE and other intangible assets includes borrowing costs capitalised amounting to Rs. 403.97 lakhs (previous year Rs. 10.62 lakhs).

Refer note 32 for disclosure of contractual commitments for the acquisition of PPE.

The gross and net carrying amount of plant and equipment acquired under finance leases are separately shown in the reconciliation of carrying amount in note no. 3 above.

1. Rights, preferences and restrictions attached to the equity shares :-

The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company’s residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company. Voting rights cannot be exercised in respect of shares on which any call or other sums presently payable have not been paid. Failure to pay any amount called up on shares may lead to forfeiture of the shares. On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.

2. There are no shares reserved for issue under options and contracts/commitments. Further, there are no shares that have been allotted during last 5 years pursuant to a contract without payment being received in cash, or by way of bonus shares or shares bought back.

# Refer to note 33(c) for future minimum lease payments in respect of finance lease obligations.

* The Company's exposure to liquidity and market risks related to financial liabilities are disclosed in note 39.

** Represents term loan in the form of external commercial borrowing ("ECB"), denominated in USD, taken from Bank of Tokyo Mitsubishi UFJ Ltd., Japan. The loan carries floating rate of interest of USD 1M LIBOR 70 bps and is repayable in 18 quarterly instalments, commencing from 02 July, 2018 and ending on 03 October, 2022. Accordingly, the Company has an outstanding of Rs. 14,016.50 lakhs (USD 215.06 lakhs) as at 31 March 2018 [31 March 2017 Rs. 3,352.58 lakhs (USD 51.70 lakhs), 1 April 2016 Nil].

(i) The cash credit limits sanctioned by the bankers are secured by a first charge by way of hypothecation of the Company’s current assets i.e. stocks of raw materials, semi-finished goods, finished goods, stores and spares, bills receivables including receivables from hire-purchase/ leasing, book debts and other movables of the Company (both present and future) and also by way of a collateral pari passu second charge on the Company’s Property, plant and equipment. These carry an interest rate ranging from 10.00% to 11.00% per annum. The Company has not defaulted on repayment of loan and interest during the year.

(ii) Other loans from banks - unsecured represents working capital demand loan taken from Mizuho Bank Limited. These carry an interest rate ranging from 7.00% to 8.00% per annum. The Company has not defaulted on repayment of loan and interest during the year.

# This represents fair value of the derivative contracts undertaken to hedge against the foreign exchange exposure arising from repayment of loans and payment of interest. The Company has designated these derivatives as hedge relationships. Any change in the fair value of the derivative contract is recognised in the other comprehensive income.

* The Company's exposure to liquidity and market risks related to financial liabilities are disclosed in note 39.

# net of write back of liability in respect of provision for warranty Rs. 44.15 lakhs (2016-17 Rs. 113.14 lakhs, 2015-16 Rs. 230.93 lakhs)

* The Company is liable towards warranty claims made by end users of its products. The year end provision is based on its estimate of the past experience regarding failure trends of products and costs of rectification or replacement. It is estimated that the provision would be fully utilized over the warranty period i.e. within 3 years.

3. Explanation of transition to Ind AS

As stated in note 2 (a) (i), these are the Company's first financial statements prepared in accordance with Ind AS. For the year ended 31 March 2017, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2006 notified under section 133 of the Act and other relevant provisions of the Act ('previous GAAP').

The accounting policies set out in note 2 have been applied in preparing these financial statements for the year ended 31 March 2018 including the comparative information for the year ended 31 March 2017 and the opening Ind AS balance sheet on the date of transition i.e. 1 April 2016.

In preparing its Ind AS balance sheet as at 1 April 2016 and in presenting the comparative information for the year ended 31 March 2017, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with previous GAAP, and how the transition from previous GAAP to Ind AS has affected the Company's financial position, financial performance and cash flows.

A. Optional exemptions availed

(i) Property, plant and equipment and intangible assets

As permitted by Ind AS 101 "First time adoption", the Company has elected to continue with its carrying values under previous GAAP for all items of property, plant and equipment. The same selection has been made in respect of intangible assets.

(ii) Determining whether an arrangement contains a lease

Ind AS 101 includes an optional exemption that permits an entity to apply the relevant requirements in Appendix C of Ind AS 17 for determining whether an arrangement existing at the date of transition contains a lease by considering the facts and circumstances existing at the date of transition (rather than at the inception of the arrangement). The Company has elected to avail of the above exemption.

B. Mandatory exceptions

(i) Estimates

As per Ind AS 101, an entity's estimates in accordance with Ind AS at the date of transition or as at the end of the comparative information period presented in the entity's first Ind AS financial statements, shall be consistent with estimates made for the same date in accordance with previous GAAP unless there is objective evidence that those estimates were in error. However, the estimates should be adjusted to reflect any difference in accounting policies.

As per Ind AS 101, where application of Ind AS requires an entity to make certain estimates that were not required under previous GAAP, those estimates should be made to reflect conditions that exist at the transition date or at the end of the comparative period, as the case may be.

The Company’s estimates under Ind AS are consistent with the above requirement. Key estimates considered in preparation of the financial statements that were not required under the previous GAAP are as follows:

- Determination of discounted value for financial instruments carried at amortised cost.

- Determination of fair value changes of cash flow hedges through other comprehensive income.

- Impairment of financial assets based on expected credit loss model."

(ii) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition. Measurement of financial assets accounted at amortised cost has been done retrospectively.

(iii) De-recognition of financial assets and liabilities

"Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transaction to Ind AS. However, Ind AS 101 allows a first time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from the date of the entity’s choosing, provided that the information needed to apply Ind AS 109 to financials assets and liabilities derecognised as a result of past transaction was obtained at the time of initially accounting for those transactions. As permitted by Ind AS 101, the Company has adopted to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

(a) Finance lease arrangements

Under Ind AS, any arrangement (even if not legally structured as lease) which conveys a right to use an asset in return for a payment or series of payments are identified as leases provided certain conditions are met. In case such arrangements are determined to be in nature of leases, such arrangements are required to be classified into finance or operating leases as per the requirement of Ind AS 17 "Leases".

As per Ind AS 17, "Leases", the Company has assessed certain long term arrangements, fulfillment of which is dependent on use of specified assets and where the Company has the right to control the use of such assets for being in the nature of lease. This resulted in certain arrangements being treated as a lease and classified as a finance lease.

(b) Non current provision of warranty expense

Under Indian GAAP, the Company has accounted for provisions, including long term provisions, at the undiscounted amount. In contrast, Ind AS 37 "Provisions, Contingent liabilities and Contingent assets" requires that where the effect of time value of money is material, the amount of provision should be the present value of the expenditures required to settle the obligations. Hence, provision for warranty has been valued at present value by discounting it at risk adjusted discount rate. Ind AS 37 also provides that where the discounting is used, the carrying amount of provision increases in each period to reflect the passage of time. This increase is recognised as borrowing cost.

(c) Service charges

Under previous GAAP, service charge utilisation during the period was adjusted from service charge provision. However, under Ind AS, the same has been added to revenue from sale of goods and correspondingly service charge expense for the year has also been increased by the same amount. This has resulted in an increase in the revenue from operations and service charge expenses for the year ended 31 March 2017. Further, the amount of Rs. 185.12 lakhs recognised during the year in service charge expense has been reversed. The total comprehensive income for the year ended and equity as at 31 March 2017 has remain unchanged.

(d) Discounts , commissions and liquidated damages

Under previous GAAP discounts , commission paid and liquidated damages amounting to Rs. 1,598.03 lakhs were recorded under other expenses. However, under Ind AS they are reclassified from other expenses and netted off from revenue. Hence the revenue has been reduced by Rs.1,598.03 lakhs and correspondingly other expenses has been decreased. The total comprehensive income for the year ended and equity as at 31 March 2017 has remain unchanged.

(e) Excise duty

Under previous GAAP, revenue from sale of goods was presented net of excise duty on sales. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. Excise duty is presented as an expense in profit or loss. This has resulted in an increase in the revenue from operations and expenses for the year ended 31 March 2017. The total comprehensive income for the year ended and equity as at 31 March 2017 has remain unchanged.

(f) Actuarial gains and losses

Under Ind AS, all actuarial gains and losses are recognised in other comprehensive income. Under previous GAAP, the Company recognised actuarial gains and losses in profit or loss. Hence actuarial gain amounting to Rs. 81.62 lakhs (gross of tax impact of Rs. 28.25 lakhs) has been recognised in other comprehensive income instead of profit or loss. However, this has no impact on the total comprehensive income and total equity for the year ended 31 March 2017.

(g) Net interest on net defined liability

Under Ind AS, net interest on net defined benefit liability amounting to Rs.169.57 lakhs has been reclassified from employee benefit expense to finance cost. However, this has no impact on the total comprehensive income and total equity for the year ended 31 March 2017.

(h) Deferred taxes

Under Ind AS, deferred taxes are recognised relating to Ind AS adjustments including deferred taxes measured using balance sheet approach. The effect of these are reflected in total equity and total comprehensive income.

(i) Derivatives (cross currency interest rate swaps)

Under the previous GAAP, the Company had adopted the hedge accounting principles as provided in Guidance note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India, and accordingly, the net effective portion of hedging instruments was recognised directly in the cash flow hedge reserve. Under Ind AS 109 "Financial instruments", net effective portion of hedging instruments are accounted as a part of the other comprehensive income to the extent considered as effective and are aligned to the hedging strategy. Accordingly total comprehensive income has been increased and this has no impact on the total equity as at 31 March 2017.

(j) Proposed dividend

Under previous GAAP, dividends proposed by the board of directors after the reporting date but before the approval of financial statements were considered to be adjusting event and accordingly recognised (along with related dividend distribution tax) as liabilities at the reporting date. Under Ind AS, dividends so proposed by the board are considered to be non-adjusting event. Accordingly, provision for proposed dividend and dividend distribution tax recognised under previous GAAP has been reversed.

(l) Under previous GAAP, Company had received the grant amounting to Rs. 15 lakhs from the Government for the set up of manufacturing facility and same has been treated as capital reserve. But as per Ind AS grant can be of two types i.e. income related and asset related grant. If the grant is related to asset, then the grant will be set up as deferred income and credited to statement of profit and loss on a systematic basis and rational basis over the useful life of asset. If the grant is related to income, then the grant is recognised in the statement of profit and loss over a period in which the company recognised the expenses for which the grant has been received. Accordingly, on the date of transition amount of Rs.15 lakhs has been transferred from capital reserve to general reserve. This has no impact on total equity as at 1 April 2016 and 31 March 2017.

In respect of the matters above, the amount represents the demands received under the respective demand/ show cause notices/ legal claims, wherever applicable.

(b) In addition, the Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company's management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the Company's results of operations or financial condition.

4. Segment information

The Company is primarily engaged in the business of manufacturing of commercial vehicles and related components which constitutes a single business segment, accordingly, disclosure requirement of Ind AS 108, “Operating Segments” are not required to be given. As defined in Ind AS 108, the Chief Operating Decision Maker (CODM) i.e. the Board of directors evaluates the performance of the Company, allocate resources based on the analysis of the various performance indicator of the Company as a single unit.

Notes:

a. Overseas segment includes sales and services rendered to customers located outside India

b. Domestic segment includes sales and services rendered to customers located in India

c. Non-current segment assets includes property, plant and equipment, capital work in progress, intangible assets, intangible assets under development and capital advances.

Major customer

No customer individually accounted for more than 10% of the revenue.

5. The Company has established a comprehensive system of maintenance of information and documents as required by the transfer pricing regulation under sections 92-92F of the Income-Tax Act, 1961. Since the law requires existence of such information and documentation to be contemporaneous in nature, the Company continuously updates its documentation for the international transactions entered into with the associated enterprises during the financial year and expects such records to be in existence latest by the due date as required under law. The management is of the opinion that its international transactions are at arm’s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of income tax expense and that of provision for taxation.

* Excludes contribution to the gratuity fund and provision for compensated absences determined on an actuarial basis, as these are determined for the Company as a whole.

** Approval from the Shareholders by way of a special resolution is being sought at the ensuing Annual General Meeting for payment of managerial remuneration as Minimum Remuneration to Managing Director & CEO and Whole-time Director & CFO in view of inadequacy of profits and ratification of payment of excess remuneration aggregating to Rs. 44.18 lakhs paid during the financial year ended 31 March 2018. In terms of the provisions of the Companies Act 2013, the amount will be refunded to the Company by the concerned directors in case it is not approved by the shareholders. Additionally, commission of 1% of the net profits computed in accordance with Section 198 of the Companies Act, 2013, will be paid to the Managing Director & CEO and to the Whole-time Director & CFO upon receipt of the aforesaid shareholder(s) approval.

(ii) Defined benefit plan - Gratuity

The Company operates gratuity plan wherein every employee is entitled to the benefit equivalent to 15 days salary (includes dearness allowance) last drawn for each completed year of service. The same is payable on termination of service, or retirement, or death whichever is earlier. The benefits vest after five years of continuous service. Gratuity benefits valued are in accordance with the payment of Gratuity Act, 1972.

The above defined benefit plan exposes the Company to following risks:

Interest rate risk:

The defined benefit obligation calculated uses a discount rate based on government bonds. If bond yields fall, the defined benefit obligation will tend to increase.

Salary inflation risk:

Higher than expected increases in salary will increase the defined benefit obligation.

Demographic risk:

This is the risk of variability of results due to unsystematic nature of decrements that include mortality, withdrawal, disability and retirement. The effect of these decrements on the defined benefit obligation is not straight forward and depends upon the combination of salary increase, discount rate and vesting criteria. It is important not to overstate withdrawals because in the financial analysis the retirement benefit of a short career employee typically costs less per year as compared to a long service employee.

The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the employee benefit obligations. The Company has not changed the processes used to manage its risks from previous periods. The funds are managed by specialised team of Life Insurance Corporation of India.

a) Funding

This is a funded benefit plan for qualifying employees. The Company makes contributions to Life Insurance Corporation of India ("LIC of India"). The assets managed by the fund manager are highly liquid in nature and the Company does not expect any significant liquidity risks.

The Company expects to pay Rs. 475 lakhs in contribution to its defined benefit plans in 2018-19.

f) Plan assets

The plan assets are maintained with Life Insurance Corporation of India Gratuity Scheme. The details of investments maintained by Life Insurance Corporation are not available with the Company and have not been disclosed.

"The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same methods (present value of defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.

6. Financial Instruments - Risk Management and Fair Values

(A) Financial risk management

In course of its business, the Company is exposed to certain financial risks that could have significant influence on the Company’s business and operational / financial performance. These include market risk (including currency risk, interest rate risk ), credit risk and liquidity risk.

The Board of Directors reviews and approves risk management framework and policies for managing these risks and has constituted Risk management committee of the Board to monitor suitable mitigating actions taken by the management to minimize potential adverse effects and achieve greater predictability to earnings.

The Company uses derivative financial instruments to hedge risk exposures in accordance with the Company’s policies as approved by the board of directors.

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

- Market risk (refer (I))

- Credit risk (refer (II)) and

- Liquidity risk (refer (III))

(I) Market risk

Market risk is the risk of any loss in future earnings, in realisable fair values or in future cash flows that may result from fluctuations in the pricing of a financial instrument. The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates as future specific market changes cannot be normally predicted with reasonable accuracy.

i. Foreign currency risk management:

The company is exposed to foreign currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and functional currency of the Company, i.e. INR (Rs.). The currencies in which these transactions are primarily denominated are US dollar, Euro and Yen. The Company uses currency swap contracts to hedge its currency risk as per the approved policy of the Company. The Company's policy is to ensure that its net exposure is kept to an acceptable level which will not have material effect on the profits of the company if there is any fluctuation in the currency rates. However, the Company has designated cross currency interest rate swaps derivatives as hedge relationship.

ii. Interest rate risk management:

The Company is exposed to interest rate risk pertaining to funds borrowed at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies.

- Sensitivity analysis:

The sensitivity analysis below has been determined based on the exposure to interest rates at the end of the reporting period. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents Management’s assessment of the reasonably possible change in interest rates.

A reasonably possible change of 1 % in interest rates at the reporting date would have increased / decreased the profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.

The Company's long term external commercial borrowings carries floating rate of interest and same is hedged by the company using cross currency interest rate swaps. They are, therefore, not subject to interest rate risk since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

(II) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.

The Company primarily has the exposure from following type of customers :

- Dealers

- Government institutions

To manage trade receivable, the Company periodically assesses the financial reliability of customers, taking into account the financial conditions, economic trends, analysis of historical bad debts, aging of such receivables and country in which customers operate.

(III) 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 sufficient working capital limits from various banks to take care of liquidity risks. Furthermore, the Company has access to funds through commercial papers.

Note:

(i) Fair valuation of financial assets and liabilities with short term maturities is considered as approximate to respective carrying amount due to the short term maturities of these instruments.

(ii) Fair value of non-current financial assets has not been disclosed as there is no significant differences between carrying value and fair value.

(iii) The fair value of borrowings is based upon a discounted cash flow analysis that used the aggregate cash flows from principal and finance costs over the life of the debt and current market interest rates

(iv) Trade receivables, cash and cash equivalents, bank balances other than cash and cash equivalents, other financial assets, trade payables and other financial liabilities have fair values that approximate to their carrying amounts due to their short-term nature.

The Company determines the fair value of its financial instruments on the basis of the following hierarchy:

Level 1: The fair value of financial instruments that are quoted in active markets are determined on the basis of quoted price for identical assets or liabilities.

Level 2: The fair value of financial instruments that are not traded in an active market are determined using valuation techniques based on observable market data.

Level 3: The fair value of financial instruments that are measured on the basis of entity specific valuations using inputs that are not based on observable market data (unobservable inputs).

There are no transfers between Level 1, Level 2 and Level 3 during the year ended 31 March 2018 and 31 March 2017.

Measurement of fair values

Fair value hierarchy

Fair value measurement for the cross currency interest rate swap has been categorised as level 2 fair value based on the inputs to the valuation technique used.

Valuation technique

Cross currency interest rate swaps: The fair value is calculated as the present value of the estimated future cash flows. Estimates of future floating-rate cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. Estimated cash flows are discounted using a yield curve constructed from similar sources and which reflects the relevant benchmark interbank rate used by market participants for this purpose when pricing interest rate swaps. The fair value estimate is subject to a credit risk adjustment that reflects the credit risk of the Company and of the counterparty; this is calculated based on credit spreads derived from current credit default swap or bond prices.

7. Dividends

a. Proposed Dividend

The board has proposed a dividend of Rs. 1.50 per equity share of Rs. 10 each fully paid up amounting to Rs. 261.70 lakhs (including dividend distribution tax), subject to approval by the shareholders at the ensuing Annual General Meeting.

8. CAPITAL MANAGEMENT

The Company manages its capital to ensure that the Company will be able to continue as a going concern, while maximising the return to stakeholders through efficient allocation of capital towards expansion of business, optimisation of working capital requirements and deployment of surplus funds into various investment options. The Company uses the operational cash flows and equity to meet its capital requirements. The funding requirements are met through equity, internal accruals and a combination of both long term and short term borrowings. The Company is not subject to any externally imposed capital requirements.

The management of the Company reviews the capital structure of the Company on regular basis and uses debt equity ratio to monitor the same. As part of this review, the management of the Company considers risks associated with the movement in the working capital and capex needs.

9. The specified bank notes (SBN) as defined under the notification issued by the Ministry of Finance, Department of Economic dated 08 November, 2016 are no longer in existence. Hence the Company has not provided the corresponding disclosures as prescribed in Schedule III to the Companies Act, 2013. The disclosure of SBN made in the financial statements for 31 March 2017 is as follows:

* For the purpose of this disclosure, the term 'Specified Bank Notes' shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407 (E) dated 8 November 2016

10. The Supreme Court of India had on 29 March 2017 passed an order which restricted sale and registration of BS-III emission norms compliant (‘BS-III’) vehicles in India effective 01 April 2017. The Company had taken necessary steps to be in compliance with the aforesaid order. The Company had also decided to take back BS-III vehicles lying with the dealers at the year end and had accounted for such sales returns amounting to Rs. 2,220.02 lakhs in its books of accounts. Further, certain BS-III components lying with the Company (including those forming part of impacted BS-III vehicles) and other related costs needed to be written off as no future benefit is envisaged. Consequently, the total amount of BS-III stock written off (including margin loss on sales returns) during the year ended 31 March 2017 amounted to Rs. 1,009.97 lakhs. The Company took necessary steps to convert the BS-III vehicles in stock to ensure compliance with BS-IV emission norms. Related costs for such conversion, accordingly, has been accounted for as and when incurred. The Company has during the current year additionally, identified certain components aggregating to Rs. 66.04 lakhs which are no longer usable and accordingly value has been written down in the Statement of profit and loss.