Note 1. Statement of Significant Accounting Policies.
1.1 Company Overview
Hubtown Limited is a listed public limited company domiciled in India, incorporated under the Companies Act, 1956. The Company is engaged in real estate business of construction and development of Residential and Commercial Premises, Build Operate Transfer (BOT) Projects, etc. through both - on its own and through its subsidiaries / joint ventures / associate companies.
1.2 The financial statements are approved for issue by the Company’s Board of Directors on 29th May, 2018.
Footnotes:
a. Diminution of Rs. NIL (March 31, 2017: ‘ 0.90 lakhs) has been made for Investments.
b. The Company had sold its entire holding in the share capital of Giraffe Developers Private Limited, vide sale deed dated 15th February, 2017. The sale transacation has been cancelled in current year due to non fulfillment of certain conditions of sale.
c. Shreenath Realtors (a partnership firm) was into development and exploitation of areas at Nirmal Nagar, Sion, Mumbai. Since the approval from the Government has not been received till date nor there is any scope of it being approved in the near future, operation cost has been mounting year on year in the said firm. In view of the facts, the Company has written off the capital amount given for project development amounting to Rs. 775.00 lakhs. However, the Firm has not been dissolved as on date. Refer footnote (a) to Note 30.
d. Primeria (a joint venture), where the Company has invested capital of Rs. 1.60 lakhs has been written off. However, the Firm has not been dissolved as on date.
e. Details of investments made in the capital of partnership firms and joint ventures :
f. The Company has investments in certain subsidiaries, jointly controlled entities and associates aggregating Rs. 98217.00 lakhs (March 31, 2017: Rs. 98217.00 lakhs) and loans and advances outstanding aggregating Rs. 22826.00 lakhs (March 31, 2017: Rs. 27696.00 lakhs) as at March 31, 2018. While such entities have incurred losses and have negative net worth as at the year end, the underlying projects in such entities are at various stages of real estate development and are expected to achieve adequate profitability on substantial completion and/ or have current market values of certain properties which are in excess of the carrying values. The Company considers its investments in such entities as long term and strategic in nature. Accordingly, no provision is considered necessary towards diminution in the value of the Company’s investments in such entities or in respect of loans and advances advanced to such entities, which are considered good and fully recoverable.
Footnotes:
a. The amount funded by the Company to its subsidiaries, joint ventures and associate entities initially were in infant stage. These entities are on the verge of launching their own projects and are also in the process of obtaining finance facilities / investors, etc. on their own strength. In view of the above developments, project advances to these entities are considered as repayable on demand.
b. Other receivables other than trade receivables include Rs. NIL(as on 31st March,2017 Rs. 5,004.79 lakhs) receivable towards sale of shares by the Company of one of its erstwhile associate.
c. The Company has not charged interest on advances given by it to certain group entities developing real estate projects, in which the Company has commercial and business interests.
b) Terms / rights attached to equity shares
The Company has a single class of equity shares having a par value of ‘10 per share. Each shareholder of equity share is entitled to one vote per share. The Company declares and pays dividend in Indian rupees.
In the event of liquidation of the Company, the holder of equity shares will be entitled to receive the remaining assets of the Company in proportion to the number of equity shares held by each shareholder, after settlement of all preferential obligations.
Footnote:
The Company, owing to liquidity issues, has not invested / deposited as at 31st March, 2018: Rs. 310.46 lakhs (as at 31st March, 2017: Rs. 630.95 lakhs) in the manner prescribed under Rule 18(7)(c) of the Companies (Share Capital and Debentures) Rules, 2014 notified by the Ministry of Corporate Affairs.
Footnotes :
a. Working capital loan from bank carries interest rate of 17.30% (31st March, 2017: 17.60%). The loan is secured against mortgage of premises located at MIDC, Andheri (East), Mumbai and further secured by personal guarantee of one or more promoters. The said account of the Company has been attached by the Maharashtra State CID in connection with an ongoing case with regard to a commercial transaction with an erstwhile associate company. [Refer Note 36 (ii) (c)]
b. Secured loan from financial institution carries average interest rate of 16.50%. This loan is secured against pledge of equity shares in the Company held by the promoters alongwith personal guarantee of promoters and mortgage of premises in the project located at Andheri (East).
c. Secured loans from companies carry interest rate of 21% and are repayable on demand. However, loan from a company amounting to Rs. 3040.26 lakhs (As at 31st March, 2017: Rs. 3726.85 lakhs) is interest free.These Loans are secured against mortgage of unsold areas of the commercial projects at Andheri (East) and Jogeshwari (East) and secured against pledge of equity shares in the Company held by the promoters.
d. Unsecured loans from companies and others carry interest rates within a range of 15% to 36% and are repayable on demand.
Footnotes:
a. As per Fourth consent terms dated 2nd February, 2018, outstanding amount was repayable with interest @ 20% p. a., of which last installment was to be redeemed on or before 31st March 2018. The said debentures are secured by first and exclusive charge on the premises located at MIDC, Andheri (East), project located at Andheri (West) Mumbai and secured against pledge of equity shares in the Company held by the promoters of Hubtown Limited. The said Debentures have matured and unpaid amount of Rs. 2199.01 Lakhs has been disclosed under other current financial liabilities. However, the Company is in the process of renegotiating the terms of the Non - Convertible Debentures with the Debenture holders.
c. Other payable includes Rs. 17,779.65 lakhs (As at 31st March, 2017: Rs. 4,184.79 lakhs) due to related parties. Further, attention is invited to Note 33.
d. Retention Money liability to the contractors which are not due for payment as at 31st March, 2018 have been shown under the head “Other Financial Liabilities” as per Ind AS-32. As per the management, the retention liability is in the nature of holding the amount as guarantee towards performance and does not relate to credit period given by the contractor. Further in the opinion of the management, there has not been any authoritative clarification / interpretation with regard to measurement of fair value in respect of above item and hence retention liability has not been discounted as on 31st March, 2018.
Footnote:
a. The average credit period on purchases is 6 to 9 months.
Details of dues to Micro, Small and Medium Enterprises as defined under Micro Small Medium Enterprises Development Act, 2006 :
a. Trade payables include Rs. NIL (As at 31st March, 2017: ‘Nil) due to micro, small and medium enterprises registered under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED).
b. No interest was paid / payable to micro and small enterprises during the year.
c. The above information has been determined to the extent such parties could be identified on the basis of the information available with the Company regarding the status of parties under the MSMED Act and has been relied upon by the auditors.
Footnotes:
a. Sale of Properties/Rights includes Rs. 2932.11 lakhs (For 2016-17: Rs. 22,983.84 lakhs) from related parties. Further attention is invited to Note 33.
b. Sale of Properties is net Services of Rs. NIL (For 2016-17: Rs. 3,000.00 lakhs) on account of reversal of revenue recognised in earlier years.
c. The Company has not recognised finance income amounting to Rs. 18,508.44 lakhs from Deep Discount Bonds held in one of its joint venture entities as the terms of the said Bonds relating to tenure of the Bonds and redemption premium are under negotiation with the Issuer.
Footnotes:
a. (i) Income on account of OTC included waiver of outstanding loan and interest thereon from Bank of Maharashtra and Dena Bank amounting to Rs. 11,868.43 lakhs and Rs. 57.67 lakhs respectively.
(ii) UCO Bank has transferred the loan amount including interest thereon amounting to Rs. 18,287.94 lakhs as on 31.03.2017 to a third party “Invent Asset Securitisation & Reconstruction Private Limited”. vide letter dated 11.04.2017. The said loan has been settled at Rs. 15,500.00 lakhs vide letter dated 27.11.2017 from Invent Asset Securitisation & Reconstruction Private Limited. The waiver for the said loan amounted to Rs. 2,787.94 lakhs. The loan carries 0% interest rate and is repayable within 5 years. The loan is secured against properties located at Mulund, Thane and Andheri (East) and also by first charge on lease rent receivable from said Premises.
Footnote:
Cost incurred till date on Project Jewell has been written off amounting to Rs. 5642.41 lakhs during the F.Y. 2016-17. Change in town planning policies has affected the envisaged profitability of the Project and continuing with the same would have resulted in losses to the Company. Hence the losses have been curtailed by writing off the costs incurred in Project Jewell earlier carried under incomplete projects.
Footnotes:
a. The Company has not provided for interest amounting to Rs. 4,162.00 lakhs on certain inter-corporate deposits as the Company is in the process of re-negotiating the terms / waiver of interest by respective lenders.
b. In line with IND AS-23 ‘Borrowing Costs’ issued by The Institute of Chartered Accountants of India, borrowing costs of Rs. 7405.45 lakhs (F.Y. 2016-17: Rs. 9,796.50 lakhs) have been capitalised to inventory.
Footnotes:
a. The Company has given advances to certain companies towards potential interest in their projects. Due to cancellation of approvals, continuing losses and no movement in the project status, in the opinion of the management such advances/ receivables aggregating Rs. 7,086.81 being non-recoverable were written off during the year.
b. CSR amount required to be spent as per Section 135 of the Companies Act, 2013 read with Schedule VII thereto by the Company during the year was Rs. 34 Lakhs (Previous Year Rs. 39 lakhs), the actual amount spent during the year was Rs. 385.25 lakhs (Previous year Rs. NIL) for purpose other than construction/acquisition of assets.
c. Auditors’ Remuneration (included in Legal and professional fees and Other Expenses ):
Note ‘2’
Disclosure relating to employee benefits as per Ind AS 19 ‘Employee Benefits’
A. Defined Contribution Plans
An amount of Rs. 52.94 lakhs (F.Y. 2016-17: Rs. 74.19 lakhs) under defined benefit plan is recognised as expense in the Statement of Profit and Loss.
B. Defined benefit obligation - Gratuity
The Prinicipal assumptions used for the purpose of the actuarial valuations were as follows:
As of 31st March, 2018, every percentage point increase in discount rate will affect our gratuity benefit obligation Rs. 328.21 lakhs.
As of 31st March, 2018, every percentage point decrease in discount rate will affect our gratuity benefit obligation Rs. 410.46 lakhs.
As of 31st March, 2018, every percentage point increase in salary escalation rate will affect our gratuity benefit obligation Rs. 410.75 lakhs.
As of 31st March, 2018, every percentage point decrease in salary escalation rate will affect our gratuity benefit obligation Rs. 327.43 lakhs.
Sensitivity for significant actuarial assumptions is computed by varying one actuarial assumption used for the valuation of the defined benefit obligation by one percentage, keeping all other actuarial assumptions constant.
Projected service cost as on 31st March 2019 is Rs. 47.49 lakhs.
Narrations:
1 Analysis of Defined Benefit Obligation
The number of members under the scheme have decreased by 1.70%. Similarly the total salary increased by 0.25% during the accounting period. The resultant liability at the end of the period over the beginning of the period has increased by 6.58%.
2 Expected rate of return basis:
Since the scheme funds are invested with LIC of India EROA is based on rate of return declared by fund managers.
3 Description of Plan Assets and Reimbursement Conditions
100% of the Plan Asset is entrusted to LIC of India under their Group Gratuity Scheme. The reimbursement is subject to Insurer’s Surrender Policy.
IV. Key Management Personnel
1 Mr. Hemant M. Shah, Executive Chairman
2 Mr. Vyomesh M. Shah, Managing Director
V. Relatives of Key Management Personnel
1 Mrs. Lata M. Shah, Mother of Executive Chairman and Managing Director
2 Mrs. Kunjal H. Shah, Wife of Executive Chairman
3 Mrs. Falguni V. Shah, Wife of Managing Director
4 Mr. Rushank V. Shah, Son of Managing Director
5 Mr. Khilen V. Shah, Son of Managing Director
6 Mr. Kushal H. Shah, Son of Executive Chairman
7 Mrs. Nutan Dhanki, Sister of Executive Chairman and Managing Director
8 Mrs. Hemanti Parekh, Sister of Executive Chairman and Managing Director
9 Hemant M. Shah HUF- Karta Executive Chairman
10 Mrs. Pratiti K. Shah, Daughter in Law of Managing Director
11 Mrs. Meha R. Shah, Daughter in Law of Managing Director
12 Vyomesh M. Shah HUF- Karta Managing Director
13 Mahipatray V. Shah HUF- Karta Executive Chairman
14 Mahipatray V. Shah Discretionary Trust- Trustees Executive Chairman and Managing Director
15 Estate of Mahipatray V Shah - Beneficiaries Executive Chairman and Managing Director
VI. Enterprises where Key Management Personnel or their relatives exercise significant influence
(Where transactions have taken place)
1 Adhivitiya Properties Limited
2 Helik Advisory Limited
3 Sheshan Housing And Area Development Engineers Limited
4 Vishal Nirman (India) Limited
5 Buildbyte. Com (India) Private Limited
6 Celeste Joint Venture
7 Citygold Management Services Private Limited
8 Distinctive Realty Private Limited
9 Fern Infrastructure Private Limited
10 Fourjone Realtors Private Limited
11 Heeler Hospitality Private Limited
12 Ichha Constructions Private Limited
13 Lista City Private Limited
14 Merrygold Buildcon Private Limited
15 Starzone Developers Private Limited
16 Sunmist Builders Private Limited
17 Sunstone Developers Joint Venture
18 Superaction Realty Private Limited
19 Trans Gulf MEP Engineers Private Limited
Footnotes:
a. Previous year figures are given in brackets.
b. Related party relationships are as identified by the Company and relied upon by the auditors.
c. $ Enterprises where Key Management personnel or their relatives exercise significant influence.
Footnotes:
a. Interest free advances
b. Previous year figures are given in brackets.
Note ‘3’
In the opinion of the Board of Directors of the Company, all items of Current Assets, Current Liabilities and Loans and Advances continue to have a realizable value of at least the amounts at which they are stated in the Balance Sheet.
Footnotes:
a. Interest / penalty that may accrue on original demands are not ascertainable, at present. The Company has taken necessary steps to protect its position with respect to the above referred claims, which in its opinion, based on professional / legal advice are not sustainable.
b. Contingent liabilities include corporate guarantees issued by the Company and are relied upon by the Auditors.
c. The management is of the view that it was necessary to provide the corporate guarantees to further the business interest of the Company in the entities on whose behalf such guarantees have been provided and the management is of the view that there would be no sustainable claims on the Company in respect of these corporate guarantees.
The rate of interest, processing fees, any other charges levied by the lenders on the entities availing loans are based on internal guidelines of the lenders depending on the merits of the underlying projects and their estimated cash flows. Majority of the corporate guarantees issued by the Company are basically to provide comfort by the Company as a shareholder of the Borrower entity to the Lenders. These corporate guarantees, in any case, do not result in any additional benefits to the borrowers. Accordingly, the financial liability on account of financial guarantee contracts have not been fair valued as these are expected to be immaterial.
Note ‘4’
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 focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance.
1) Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument which fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk. Major financial instruments affected by market risk include loans and borrowings.
a) Interest rate risk
Majority of the long-term borrowings of the Company bear fixed interest rate, thus interest rate risk is limited for the Company.
b) Foreign currency risk
The Company is engaged in real estate business and only imports certain material against Letter of Credit for which hedging instruments are not required.
c) Equity price risk
The Company’s equity securities are not majorly susceptible to market price risk. However, the Company’s Board of Directors reviews and approves all equity investment decisions after taking due diligence which may affect the market related risk.
2) Credit Risk
Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure of the financial assets are contributed by trade receivables, unbilled revenue, cash and cash equivalents and receivables from group companies.
a) Receivables resulting from sale of properties: Customer credit risk is managed by requiring customers to pay advances before transfer of ownership, thereby, substantially eliminating the Company’s credit risk in this respect.
b) Receivables resulting from other than sale of properties: Credit risk related to such receivables is managed as per Company’s established policy, procedures and control. Outstanding customer receivables are regularly monitored. The impairment analysis is performed at each reporting date on an individual basis for major receivables. The Company does not hold collateral as security. The company’s credit period genarally ranges from 30 to 90 days.
c) Credit risk on cash and cash equivalents is limited as the Company generally invests deposits with banks which have high credit ratings.
3) Liquidity risk
The Company’s treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s net liquidity position through rolling forecasts on the basis of expected cash flows.
Note ‘5’ Disclosure of derivatives
a. No derivative instrument was outstanding at the end of the year.
b. Uncovered risks in foreign currency transactions disclosed as at:
Note ‘6’
Capital Management
For the purpose of the Company’s capital management, capital includes issued equity capital and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company’s management is to maximise shareholders value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may issue new shares. Consistent with others in the industry, the Company monitors its capital using the gearing ratio which is total net debt (borrowings offset by cash and cash equivalents) divided by total capital of the Company.
Gearing Ratio
In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the borrowings that define the capital structure requirements. Breaches in meeting the financial covenants would permit the lenders to immediately call loans and borrowings.
The gearing ratio at the reporting period was as follows:
# Includes amount received from customer against projects on which revenue is not recognised till date.
Note ‘7’
Loans and advances, other receivables, debtors and creditors are subject to confirmations and are considered payable / realisable, as the case may be.
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