Nature and Purpose of each Reserve:1. Research & Development Reserve:
Research and Development Reserve is created by transfer from Retained Earnings an annual contribution of 15% of Operating Profit After Tax. Research & Development Reserve is created to bring technological superiority to the products in order to cope with the future technological challenges. The amount of utilisation for Research and Development purposes during the year is transferred from Research and Development Reserve to General Reserve.
2. Capital Redemption Reserve:
Capital Redemption Reserve is created on redemption/buyback of equity shares.
3. Indigenization Fund Reserve:
Indigenization Fund Reserve is created by transfer from Retained Earnings an amount equal to 3 % of Operating Profit After Tax which will be utilised to encourage Indigenization of items which are being sourced from foreign sources at present.
4. General Reserve:
General Reserve is created out of the profits of the Company and out of Research & Development Reserve on utilization of Research & Development purposes. This is a free reserve.
Company Overview:
Hindustan Aeronautics Limited ("HAL") herein after referred to as, "the Company" is a limited Company incorporated in India. It is presently a Government Company within the meaning of Section 2(45) of the Companies Act, 2013 as the President of India acting through the Ministry of Defence (MoD) holds 71.65%(Previous year - 75.15%) equity shares of the Company.
The Company is engaged in the design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. The Company has been set up to meet the requirement of Indian Defence Forces (namely Indian Airforce, Indian Navy, Indian Army and Indian Coast Guard) in the area of Aerospace.
1(a) The Company's operations are organised into five complexes, namely the Bangalore Complex, MiG Complex, Helicopter Complex, Accessories Complex and Design Complex, which together include 20 production divisions and 11 research and design centres ("R&D Centres") and 8 support offices located across India. For the purpose of Financial Statements 29 Divisions are consolidated by merging R&D Centers and support offices with the main production division. The Company relies on Indigenous research as well as enter into technology transfer and licence agreements to manufacture its products. In addition, the Company has established 11(eleven)(Previous year 12(twelve)) Commercial Joint Venture Companies(JVCs) in collaboration with leading international aviation and Indian Organizations and 2(two) Subsidiary Companies to grow its operations. Besides, the Company also formed 2(two) Section-8 (non-profit) Companies.
The Financial Statements are prepared to comply in all material aspects with Indian Accounting Standards (Ind AS) as prescribed under Section 133 of Companies Act, 2013 read with relevant rules of the Companies (Indian Accounting Standards) Rules.
One Avro Aircraft (BH 572) is on lease from Indian Air Force for a period of 1 year for an amount of '248 lakhs. The charges for the same has been accounted as expenditure of '248 lakhs for the year ended 31st March 2023. The company has option to renew the lease subject to increment of 9% over previous year. as lessor:
The Company leases out its Investment property and Property, Plant and Equipment. The Company has classified these lease as operating leases, as there is no transfer substantially all the risks and rewards incidental to the ownership of the assets. Clause 14.12 of Note 49 gives information about the operating leases of Investment Property.
R&D Corpus
Considering the futuristic business interest of the Company and to maintain the yearly growth in Revenues of the
12 Company, the Board has approved the enhancement of the existing fund allocation for creation of R&D Corpus (excluding customer funded R&D) with an annual contribution from 10 % to 15% of Operational Profit After Tax (PAT).
Indigenization Corpus
13 Notification on Policy for Indigenization of Components and spares used in Defence platforms for DPSUs/OFB was issued on 8th March 2019. As per the guidelines from Department of Defence Production(DDP) Board has approved creation of Indigenization Corpus with an annual contribution of 3% of Operating Profit After Tax (PAT).
The Company's Barrackpore Division is in possession of 22.51 acres (Previous year - 22.51 acres) of land on which the Division has its Buildings, Hangar, Plant and Machinery etc. The instruments of transfer in favour of Division / Company either by way of lease or transfer in respect of this land is pending execution. Provision for lease rental amounting to '35.00 Lakhs upto the period ended 31st March 2023 (Previous year - '34.50 Lakhs) has been made. The transfer of the land is being pursued with Defence Estate Officer, Kolkata.
The above does not includes 7.115 acres of Land received from Army in exchange of 5 acres of Land at Bangalore which was received free of cost from State Government before 31st March 1969. Since the value of 5 acres land was nil, the value of 7.115 acres land received in exchange of 5 acres land is also taken as Nil.
The title deeds of immovable properties are not held in the name of the Division.
Land(Right-of-Use) under Property Plant and Equipment includes land taken on lease for establishing a unit at Kasargod at a cost of '708 lakhs for 200 acres (Previous year - '708 lakhs for 200 acres). This cost is amortised over the lease period of 90 years. The Lease charges for the year amounting to ' 8 Lakhs (Previous year - ' 8 lakhs)
14.4 has been considered under depreciation for the year. However 4.171 Acres(Previous year - 4.171 Acres) of land shortage due to surrender of certain tracts of land against local disputes by KINFRA. However issue has been taken up with KINFRA for compensation of shortfall in the land. The Board of KINFRA also decided that the lease premium of '14.78 Lakhs remitted by HAL towards 4.171 acres of land will be refunded and necessary corrections are to be made in the lease deed to effect the changes. Awaiting action from KINFRA.
Land under 14.3 include 12 acres of land given under lease to M/s LNB Renewable Energy Pvt Ltd., Hyderabad for 25 years, giving vendor the 'Right to Use' specific land for establishing solar PV Power Plant project only and not for any other purpose with a Purchase Agreement for a period of 25 years for purchase of electricity generated by the Solar PV Power Plant project at the fixed tariff of ' 3.23/KWh.
Land(Right-of-Use) under Property, Plant and Equipment includes land 0.273 acres taken on lease for Liason Office Mumbai at a cost of ' 3 lakhs (including development cost). This cost is amortised over the lease period of 30 years. The amount of amortisation has been considered under depreciation for the year. Lease rental is ' 2304/- payable annually.
Land under 14.3 includes 38.68 acres of land given under lease to M/s Ordanance Factory Board(OFB), out of which
8.65 acres has been sub-leased to M/s Indo-Russian Rifles Private Limited (IRRPL) at an annual rent of '1 per annum.
14.5 a) Facilities Management Division (FMD) is holding 21 17.367 acres (Previous year - 21 17.367 acres) land, out of which free hold land of 2096.267 acres (Previous year -2096.267 acres) is located in Bangalore and 15.1 acres (Previous year - 15.1 acres) located at Bagalkot, karnataka and Lease hold Land of 6 acres (Previous year - 6 acres) is located at Harapanahalli, Devanagere, of which 17.737 acres (Previous year - 17.737 acres) is under litigation / encroachment by third parties and 10.152 acres( Previous year - 10.152 acres) is under dispute with M/s Bharat Earth Movers Limited.
b) Titles to land are not in the name of the Company in respect of 30 survey numbers totalling to 76.475 acres(Previous year - 72.675 acres) at FMD Division, However, Records of Tenancy Certificate is available.
c) An amount of ' 3269 lakhs (Previous year - ' 3119 Lakhs) towards cumulative Lease Rental charges with various parties has not been considered in the books of accounts, pending dispute settlement. The applicable revised lease rental will be considered only after renewal of the lease agreements.
d) Department of Investment and Public Asset Management(DIPAM) has communicated the Institutional framework for monetization of the assets of the Central Public Sectors Enterprises, approved by Cabinet in its meeting dated 28th February 2019.
In this regard, approval has been given by the Board in its 439th Meeting held on 13th November 2020 for Monetization of 1.45 acres of land at Okalipuram, Bengaluru for forwarding the proposal to Department of Defence Production(DDP) for approval / further action by DDP / DIPAM. HAL during November 2020 referred the proposal to MoD. MoD vide letter dated 8th January 2021 communicated that the DIPAM has taken note of the asset monetization plan and indicated that HAL may take action to process the case further after taking necessary approval of competent authority as per extant guidelines. Accordingly FMD had advertised for outright sale of 1.45 acres of land through e-auction. However no bidders came forward to participate in response to the notification even after time for participation was extended twice. Thereafter a Committee was formed and as per its recommendation it was decided to monetize the full property of 2.925 acres at Okalipuram. Accordingly, the Board in its 458th Meeting held on 29th July 2022 approved monetization of 2.925 acres of land at Okalipuram. Accordingly, the Company advertised for outright sale of 2.925 acres for which e-auction was conducted on 12th January 2023 and two parties submitted applications.The premium offered by H1 bidder is proposed for acceptance of the Competent Authority.
In the meanwhile, Govt. Audit raised an Audit Enquiry that the projected realizable land value is lesser than the Govt. guidance value. Accordingly, the Company engaged the valuers to undertake the valuation.
e) Land at Nasik Division includes 0.0516 acres (Previous year - 0.0516 Acres) of land encroached by 9 persons.
f) Further, about 50.21 acres(Previous year - 50.21 acres) of the land belonging to the Company's Koraput Division is encroached upon by the nearby villagers for cultivation.
g) Land at Corporate office includes 711.22 sq.mt (Previous year - 711.22 Sq.mt) of land has been acquired for the Metro Rail Project by M/s Bangalore Metro Rail Corporation Limited (BMRCL). The compensation awarded of ' 549 Lakhs by M/s Karnataka Industrial Area Development Board (KIADB) was contested by Company in the City Civil Court at Bangalore. Meanwhile, a Joint Committee comprising the Company and BMRCL Officials was formed to arrive at an out of court settlement. Currently the case is pending at evidence stage, the Company is seeking adjournment on account of discussion between parties for settlement. However, this is subject to final agreement of parties and order of court. On completion of the Metro Rail project, the land utilized is restricted to 272.94 sq.mt (Previous year - 272.94 Sq.mt). Area to the extent of 438.28 sqm has been conveyed back to HAL through Deed of transfer. Compensation amount for acquired area, i.e 272.94 Sq. mt. is yet to be received by the Company. HAL has filed memos in the pending cases requesting the Court to disburse ' 348 lakhs along with interest as compensation for acquired area of land (i.e. 272.94 sq.mt.) to HAL. As the matter is subjudice, no adjustment has been made in the books.
Land under 14.1 does not include 374.73 acres (Previous year - 374.73 acres) of the land was aquired by State Government of Uttar Pradesh and possession was handed over to HAL by District Land Acquisition Officer. The factory area 54.30 acres was transferred during 1973 from Indian Air Force to HAL. As per the legal position, both the parties are Government bodies. According to Government Grants Act, 15 of 1895, Section-2 Governments Grants are exempted from the operation of the transfer of property Act. Thus, there is no need of execution of the
14.6 sale deed / transfer deed. A transfer of the title of land, thus, required no registration. The transfer of land by State of Uttar Pradesh and Indian Air Force to HAL need not require any registration as this transfer is exempted by the Government Grants Act.
Land under 14.3 does not include, the ownership of 27 acres (Previous year - 27 acres) of land on which labour colony has been built by Labour Commissioner, Kanpur belongs to the Company as per Revenue records.
a) Approval has been given by the Board for acquiring 7.41 acres of land on lease at Sattari Goa for undertaking MRO activity.
b) Approval has been given by the Board for acquiring 5 acres of defence land on lease at Akabil village,
14 7 Missamari, District sonitpur for establishing MRO Hub Facilities for an annual lease rental of '1.00 per annum
. without any premium and registration charges, processing fees etc as per actual.
c) Approval has been given by the Board for acquiring 4.34 acres of defence land on lease at Mamun Military station for establishing MRO Hub facilities at an annual lease rental of '1.00 per annum without any premium along with necessary registration charges, processing fees etc as per actual.
One Hawk-i Aircraft has been used by Aircraft Division for Marketing and Testing Activities. The useful life of the 14.8 Hawk-i Aircraft is technically assessed to be 5 years from 2018-19, accordingly the depreciation has been provided @ 20% per annum.
DIVIDEND POLICY:
As per extant memorandum F.No. PP/14(0005)/2016 dated June 20, 2016, of the Department of Public Enterprises, Ministry of Heavy Industries & Public Enterprises, Government of India (GOI) ("DoE") read with the memorandum F.No. 5/2/2016-Policy dated 27th May, 2016 of the Department of Investment & Public Asset Management, Ministry of Finance, GoI, all central public sector enterprises are required to pay a minimum annual dividend of 30% of Profit After Tax (PAT) or 5% of the net-worth, whichever is higher, subject to the maximum dividend permitted 18A under the extant legal provisions and the conditions mentioned in the aforesaid memorandum.
However, the declaration and payment of dividends on our Equity Shares will be recommended by our Board and approved by our shareholders, at their discretion, subject to the provisions of the Articles, the Companies Act, 2013. Further, the dividends, if any, will depend on a number of factors, including but not limited to our earnings, guidelines issued by the DoE, capital requirements and overall financial position of our Company. In addition, our ability to pay dividends may be impacted by a number of factors, including the results of operations, financial condition, contractual restrictions, restrictive covenants under the loan or financing arrangements the Company may enter into.
HAL has initiated criminal proceedings against the accused in 2011-12 and during 2012-13, two civil suits have been filed for recovery of fradulently drawn amounts against the accused, his accomplices and institutions namely, the State Bank of India (SBI) for '289 Lakhs (COM.OS.5322/2012) and Shri Krishna Souharda credit Co-operative Limited for '102 lakhs (COM.OS.8225/2012), totalling to ' 391 lakhs. Both the civil cases and criminal case are under progress in the court. Properties of the accused amounting to '138 lakhs have also been attached by the court. An amount of ' 243 lakhs has been received from SBI on 25.04.19 and the balance amount of '148 lakhs has been
20 provided in the financials of 2018-19.
The Hon'ble Court has passed the judgement and decree in favour of HAL by awarding ' 289 Lakhs along with interest. Out of which to the extent of ' 148 Lakhs to be retained by HAL and the balance amount to be re-imbursed to SBI as per MoU entered between HAL and SBI. HAL has filed an Execution Petition on defendants for recovery of ' 597 lakhs along with interest. Further, the subject case has been transferred to Commercial Court, Bengaluru Rural, accordingly the case was re-allotted as Ex/124/2022 dt. 27.06.2022. The issuance of sale warrant in respect of the attached property is pending in court.
A fraud involving misappropriation of funds by Company official in collusion with six contractors has been noticed by the management and referred to Vigilance department for further investigations. The Vigilance department based on the investigations has lodged FIR with Central Bureau of Investigation (CBI), Bhubaneshwar. An amount
21 of '1892 lakhs has been provisionally assessed and fully provided in the financials of 2018-19 and 2020-21 as fraudulent payments made to contractors and others during the period from May 2011 to September 2018 and reported in the FIR with CBI. Adjustment of expenses relating to capital and other accounts in the financial year 2018-19 and 2020-21 includes the above mentioned amount. The matter is under investigation by CBI.
The Company's IJT Division is primarily engaged in production of Intermediate Jet Trainer (IJT) Aircraft. Contract for supply of 12 Limited Series Production of IJT Aircraft with IAF is pending for fulfillment of certain Parameters as required by the Customer. Completion of all parameters required by the Customers will take some more time after which delivery of 12 IJT LSP will start. As per the Article 5.2 of 12 LSP IJT Contract, Stores to be supplied under this contract shall be new i.e. not manufactured before and shall incorporate all the latest improvement and modification thereto. Therefore, Parts manufactured and lying in Inventory could not be used for delivery of 23A ultimate product to the customers at this stage. Accordingly, Work in progress of ' 26589 lakhs as on 31st March 2022 lying in the Books of IJT Division has been fully provided for in line with Company's accounting procedure.
Similarly, Kanpur Division of HAL has received order for supply of Series production of 72 IJT which will start after completion of supply of 12 IJT by IJT LSP Division. Accordingly, Net realisable value of Stock in Trade and Finished Goods of valuing ' 5705 Lakhs as on 31st March 2022 in the Books of Lucknow and Hyderabad Division has been considered as Nil.
While the company is pursuing actively with Ministry of Defence, for the approval of the price variation to change 23B order in LCA-IOC contract which is pending for approval, out of prudence, provision for '99025 lakhs is recognised in the Financial Statements 2021-22.
As per the Accounting Policy of the Company, in respect of deliverables like spares, Revenue is recognized based on acceptance by the Buyers' Inspection Agency or as agreed by the buyer.
24b Delivery of the items to the customers are generally within three weeks from the date of acceptance. However, during the year ended 31.03.2023, due to lack of space in Customer premises/Customer insistence to dispatch the items at later date, there has been a delay in dispatching spares of '76 lakhs to the Customers within three weeks from the date of acceptance.
HAL has launched production of Light Utility Helicopter (LUH) against Letter of Intent (LoI) received from customers. 24C Against this anticipated contract Material has been procured for ' 18011 lakhs (Previous year - '1899 lakhs) has been accounted as Inventory.
Seasonality of business :
The Company experiences cyclicality in respect of recognition of revenue from operations, which is attributable to the delivery of a majority of our products happening in the second half of the year. The Company recognise sales upon acceptance of the product by customers and issuance of a signaling out certificate/certificate of conformity
25 by them. The sales are dependent on the certification process which needs to be completed before the customers can take deliveries. The certification process typically takes place in the third and fourth quarter due to favourable weather conditions for flight tests during this period. This leads to bunching up of sales during the third and fourth quarter of each financial year and consequently, the revenue varies significantly between the first and second half of the year.
Aircraft have been accepted and signaled out by customers' inspector with fitment of Cat-B items taken on Loan, in cases of non availability of Cat-A item. As the aircraft is flight worthy and the customers have accepted
26 the same, the sales are accounted, consistently, on the basis of Signaling Out Certificate (SOC) / Certicate of Conformity(COC). As a principle, Loan items fitted on the aircraft are excluded in value for recognising Sales. Sales in respect of such Cat-A items are recognized on supply of Cat-A items, within the contract period.
Balance shown under Trade Receivables, Trade Payable, Claims Receivable, Advance against Goods and Services, Capital Advances, deposits and stock / materials lying with sub-contractors / fabricators are under reconciliation. Since the Company is a Government entity under the control of Ministry of Defence (MoD), around 97% of the
27 Company's turnover, around 97% of Trade receivables and Contract Assets, around 38% of Claims receivables and around 99% of the customer advances is with respect to Government and Government related entities. The bills are raised on the customers by the divisions located at various places and reconciliation is carried out on an ongoing basis. However, management does not expect to have any material financial impact of such pending confirmation / reconciliation.
2g In the opinion of the Board, the Company do not have any assets other than fixed assets and Non-current investments having a value on realisation in the ordinary course of business less than the amount stated.
The expenditure involved in the work carried out post SOC date is absorbed against the provision for replacement charges.
The Company has taken up with Ministry of Defence (MoD) for amendment of ALH contract in respect of both Indian Air Force and Indian Army to bring them in line with the accounting policy of the Company. In respect of Indian Air Force, MoD have concurred "in principle" to above, with the stipulation that the contract amendment can be made only after similar contract amendment in respect of Indian Army contract with the Company is finalized. In respect of Indian Army contracts, the matter is under discussion.
The PSLV contract contains a clause that the acceptance of hardware takes in two places. The preliminary 29b acceptance will be based on the inspection and quality reports and test carried out at the contractor's premises and will be for the purpose of movement of hardware. Final acceptance will be at the site based on the final inspection / functional checks to be carried out on receipt at site.
HTFE 25 Project: The Company has taken up the design and development of Hindustan Turbo Fan Engine (HTFE-25) in 2013-14 with a time frame of 6 years for completion. The Core Engine 2, Run completed and development activities of TD Full Engine run and Design Configuration review are under progress. An amount of ' 16766 Lakhs (Previous year - ' 15923 Lakhs) has been accounted under Intangible Assets. It is assessed that, further 30A development activities involve development of flight worthy engine for certification on a particular platform would require at least another 5 years or so. Keeping this in view and also that there is no visibility of any progress of any commitment/ orders for the Product, the Intangible Asset review Committee has recommended for impairment of total expenditure incurred on this project. Accordingly, '16766 lakhs has been impaired upto the year ended 31st March 2023 (Previous year - ' 15923 lakhs).
HTT 40 Project: The Company has undertaken the design and development of Hindustan Turbo Prop Trainer Aircraft ( HTT- 40).
30B HAL has signed a contract with MoD on 6th March 2023 for supply of 70 HTT 40 Aircraft. As per the Contract, '82824 Lakhs (excluding taxes) has been sanctioned towards Design & Development of HTT 40 aircraft. Accordingly '76968 lakhs has been recognised as revenue during the year. The development amount of '58518 lakhs has been amortised against the revenue recognised.
One upgraded Mirage 2000 Aircraft crashed during customer acceptance flight at HAL Airport, Bangalore on 1st February 2019. HAL has taken an insurance policy for ' 3412 lakhs for HAL efforts and material used in repair 31A / overhaul, and preferred the claim with the Insurance company for ' 3447 lakhs. An amount of ' 3181 lakhs
has been adviced for payment by Insurance Company after deducting 1% policy Administration charges (Claim admitted '3215 lakhs less ' 34 lakhs), the disbursement has been received on 03.1 1.2022.
DDP/MoD Paid Advance of ' 20812 lakhs to HAL towards conducting Def Expo-2022. The event got postponed 31B while HAL had incurred expenditure of ' 19011 lakhs. Pending completion of audit of expenses by the O/o PCDA Bangalore, the balance of ' 1801 lakhs is shown under note-32 Other financial liability as on 31.03.2023.
Inventory amounting to '16,939 lakhs were damaged due to floods caused by rains. An internal technical 31C assessment committee estimated the loss of Inventory '7856 lakhs and the same has been provided in the books during the year. A claim for '750 lakhs towards loss of inventory and Plant & Equipment's based on the original cost has been submitted to the Insurance Company.
The Company is exposed to market risk, credit risk and liquidity risk which may impact the fair value of its financial instruments. The Company, based on its business operation, evaluated the following risks:
a) 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 exchange rates. The Company's exposure to the risk of changes in exchange rates relates primarily to the Company's imports for which the payment has to be done in currencies other than the functional currency of the Company. The fluctuation in exchange rates in respect to the Indian rupee may have very restricted impact on company as any fluctuations in foreign exchange are in general reimbursed by the customers of the Company in terms of the contractual obligations which the Company has with its customers.
b) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or counter party to a financial instrument fails to meet its contractual obligations resulting in a financial loss to the Company. Credit risk arises principally from trade receivables, loans & advances, advances given to suppliers (for procurement of goods, services and capital goods), cash & cash equivalents and deposits with banks and financial institutions. The Company for the Financial Year (FY) derived 93% (Previous year - 93%) of its total sales from sales to the Indian Defence Services. The Company expects to continue to derive most of its sales from the Indian Defence Services 33 under the contracts of the Ministry of Defence (MoD), Government of India (Gol) -the Company's principal
shareholder and administrative ministry.
c) Provision for expected credit losses:
As the Company's debtors are predominantly the Government of India (Indian Defence Services, Ministry of External Affairs), Central Public Sector Undertakings where the counter - parties have sufficient capacity to meet the obligations and where the risk of default is nil / negligible. Accordingly, impairment on account of expected credit losses is being assessed on a case to case basis in respect of dues outstanding for significant period of time as per the accounting policy of the Company. Further, management believes that the unimpaired amounts that are due is collectable in full, based on historical payment behaviour and extensive analysis of customer credit risk.
d) Liquidity risk:
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses including the servicing of financial obligations. The Company's standard contract terms provide that, the Company receives advance payments from customers pursuant to the applicable contracts, including the Government of India and the Indian Defence Services at the time of signing of any contract and milestone payments on achievement of physical milestones. These payments are utilized to meet the Company's working capital needs (for the Company required to maintain a high level of working capital because the Company's activities are characterized by long product development periods and production cycles). A majority of the Company's research, design and development costs are funded by the Indian Defence services. Services and supply of
spares are governed by the Fixed Price Quotation (FPQ) policy for fixation of the prices wherein the prices are fixed for the base year with escalation parameters for a pricing period of 5-7 years. The process of fixation of prices and approvals takes a minimum period of two years after the expiry of previous pricing period. In the interim, the approved prices of the previous pricing period are continued and payments are accordingly realised and on finalisation of the revised prices, the differential prices are paid to the Company. Further, certain costs not forming part of selling price are reimbursed by customer on incurrence of expenditure. The reimbursement is based on verification and issuance of audit certificate by the payees. There are delays in the above process due to unanticipated variations/adjustments in the scope and schedule of the Company's obligations due to subsequent modifications by the customers and delays in receipt of approvals from the customer. Further, payments to the Company by the Indian Defence Services are reliant on the continuing availability of budgetary appropriations by Government of India and any disruptions to the availability of such appropriations could adversely affect the Company's cashflows.
e) Market risk:
The Ministry of Defence (MoD) and the Government of India (GoI) have continued efforts to reform Defence related policies such as the Defence Acquisition Procedure 2020 ("DAP 2020") to promote private participation, a level playing field and the domestic Defence manufacturing Industry and eco-system. While the MoD has given the highest priority to Indigenously Designed, Developed and Manufactured ("IDDM") products for capital procurement, the Company faces competition to be selected as the Indian production agency for such contracts. These policies have raised the level of market competition in the areas in which the Company operates.
33 f) Risk Mitigation Process:
As a step of institutionalizing the risk management in the Company, an elaborate framework has been developed and the Company's top management has overall responsibility for the establishment and oversight of the Company's risk management framework. An important purpose of the framework is to have a structured and comprehensive risk management system across the company which ensures that the risks are being properly identified and effectively managed. The Company has a risk management policy to manage & mitigate these risks. The risk management process includes risk identification, risk assessment, risk evaluation, risk mitigation and regular review and monitoring of risks.The Company's risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Company's business plan along with reasonable participation in market movement.
g) COVID-19 Impact
Current Period Impact:
The Company has shown normal performance during the year. Hence, there is no impact during the year ended 31st March 2023.
Anticipated Future Impact:
Based on the information available (internal as well as external) up to the date of approval of this financial result, Company expects to recover the carrying amount of Intangible assets, Inventories, Property, Plant and Equipment's, Lease, Financial Instruments, Trade Receivables etc. The Company will continue to closely monitor the developments, the future economic and business outlook and its impact on Company's future financial statements with a view to minimize the Covid impact
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 parent. The primary objective of the Company's capital management is to maximise the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and requirements. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
Working Capital Facilities
The total Cash Credit limits ' 400000 lakhs including '240000 lakhs of Commercial Paper and Corporate Loan of 'NIL lakhs (Previous year - ' 400000 lakhs including '240000 lakhs of Commercial Paper) and Non-Fund based limits ' 205000 lakhs (Previous year - ' 205000 lakhs) sanctioned by consortium of bankers. The said limits are secured by hypothecation of inventories and receivables.
Pursuant to the Orders passed for the Assessment years 2007-08, 2010-1 1 to 2015-16, giving effect to the orders of the Appellate authority, current period ' 125788 Lakhs (Previous year - ' 1 19273 Lakhs) provision no longer required is credited under Tax expense and consequent interest income of ' 56947 Lakhs (Previous year 41 - ' 26273 Lakhs) is included in other income. The Assessing Officer has passed the Orders Giving Effect (OGE)
for all the above years in compliance with the orders passed by the Income Tax Appellet Tribunal /High Court.
Provision for Gratuity and Earned Leave has been made based on Actuarial Valuation. The date of Actuarial valuation as of 31.03.2023
43 Employee Benefits:
The Company has adopted the Ind AS-19 on Employee Benefits. Consequently, the liability thereon is accounted on the basis of actuarial valuation, and is being recognised as short-term benefits / long term benefits.
43A Gratuity
The Company has a Gratuity Scheme for its employees, which is a funded plan. Every year the Company funds to the Gratuity Trust to the extent of shortfall of the assets over the fund obligations, which is determined through actuarial valuation. As per the Gratuity Scheme, Gratuity is payable to an employee on the cessation of his employment after he has rendered continuous service for not less than 5 (five) years in the Company. For every completed year of service or part thereof in excess of six months, the Company shall pay Gratuity to an employee at the rate of 15 (fifteen) days' emoluments based on the emoluments last drawn with a ceiling of ' 20 (twenty) Lakhs.
The following tables summarise the components of net benefit expense recognised in the Statement of Profit and Loss and the funded status and amounts recognised in the Balance Sheet for the plan as furnished in the Disclosure Report provided by the Actuary:
The exempt provident fund set up by the company is a defined benefit plan under Ind AS 19 Employee Benefits.
Provident Fund for eligible employees is managed by the Company through a trust in line with the Provident Fund and Miscellaneous Provision Act, 1952. The plan guarantees interest at the notified by the Provident Fund Authorities. The contribution by the employer and employee together with the interest accumulated thereon are payable to employees at the time of separation from the Company or retirement, whichever is earlier. The benefits vests immediately on rendering of the services by the employee.
The minimum interest rate payable by the trust to the beneficiaries every year is notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust (including investment risk fall) and the notified interest rate.
43B(i)
The Company has obtained report on the determination and disclosure of interest rate Guarantee & Diminution of Asset Values as per Ind AS19 of Employees Exempt Provident Fund of HAL for the period ended 31st March 2023.
In view of uncertainties regarding recoverability of certain investments in ILFS, Reliance Capital, Srei equipment finance, Future Enterprises etc., the liability was created. During the year ended 31st March 2023 based on actuarial valuation additional liability has been created of '3928 lakhs (Previous year - reversal of liability '5313 lakhs).
Further, based on settlement made by DHFL, Sintex, Reliance Commercial Finance and Hazaribagh Ranchi Express Way Ltd., the actual loss of investment including interest of '8247 lakhs has been accounted under employee benefits during the year ended 31st March 2023.
43c The Company has provided Performance Related Pay for the year as per the Guidelines issued by Department of Public Enterprises.
Pension:
In line with the Guidelines issued by the Department of Public Enterprises, Ministry of Heavy Industries & Public Enterprises, Govt. of India for revision of the Salary Structure of Executives of CPSEs with effect from 1st January, 2007 and as per the approval accorded by the Board of Directors and Department of Defence Production, Ministry of defence, a Defined Contribution Pension Scheme was notified in the Company on 16th July, 2014 in respect of 43D Executives retired etc., from 1st January, 2007.
A Defined Contribution Pension Scheme in respect of Workmen retired after 1st January, 2012 was notified on 2nd June, 2015 which was agreed as a part of the Workmen's Wage Revision effective from 1st January, 2012.
Contribution to the corpus of the above schemes by the Management may vary from year to year as the same is dependent on profits generated, affordability & sustainability by the Company.
The Scheme is managed by a duly constituted Trust.
Post Superannuation Group Health Insurance Schemes:
In line with the Guidelines issued by the Department of Public Enterprises, Ministry of Heavy Industries & Public Enterprises, Government of India and as per the approval accorded by the Board of Directors and Department of Defence Production, Ministry of defence, Post Superannuation Group Health Insurance Schemes in respect of (a) Employees (Officers & Workmen) retired before 1st January, 2007 and (b) Executives retired on or after 1st January, 2007 were introduced with effect from 1st February, 2014.
43E
A Post Superannuation Group Health Insurance Scheme in respect of Workmen of the Company retired, etc. after 1st January, 2007 has been introduced in the Company with effect from 1st February, 2015 which was agreed as a part of the Workmen's Wage Revision effective from 1st January, 2012.
Benefits under the Schemes may vary from year to year, as contribution to the Corpus of the Schemes is dependent on Profits generated, Affordability & Sustainability by the Company.
The Schemes are managed by a duly constituted Trust.
HAL Employees Group Life Insurance Trust:
As per the approval accorded by the Board, the Company has notified an insurance scheme namely the HAL Employees Group Life Insurance Trust to cover its employees, in case of death due to any reason other than suicide. 43F The contribution towards the scheme are borne equally by employees and the Management. In the event of Death of an employee due to any reason other than suicide, the dependent family members will be paid the sum assured(? 10 lakhs). The Company has made contribution of ' 470 lakhs to the trust with employees contribuitng an equal amount.
Revision of pay scales of executives and workmen, with effect from 01.01.2017 was implemented in accordance with the guidelines issued by Department of Public Enterprises vide OM dated 03.08.2017 for Executives and in accordance with the Wage Agreement entered into between Management and Employees Union representative in 2019-20 in respect of Workmen.
On an interpretation on pay refixation and pursuant to the directives of the Administrative Ministry, the pay fixation to be revised and the excess amount paid is to be recovered from the employees.
43G This has resulted in reduction of salaries and wages by ' 5155 lakhs and a consequential reduction in sales revenue by '1239 lakhs for the year ended 31st March 2023.
While so, the Employees Union and Officers Association have filed Writ Petition with Hon'ble High Court of Karnataka to stay recovery of excess amount of salary paid by the Company. The Honorable High Court has granted interim stay on recoveries, pending disposal of the writ petitions by the High court, the excess amount is shown under claims receivable(Gross) under Note No.19 for '29645 lakhs (Previous year - '24489 lakhs) and an equal amount of provision has been made in the books of accounts.
Based on the final order that may be passed, suitable effect will be carried out in the accounts.
The Board in its 436th meeting held on 25th June 2020 accorded approval to introduce the HAL Employees Voluntary Retirement Scheme-2020 subject to approval of the Administrative Ministry in light of the present economic 43H circumstances and changing business scenario and to operate economically to reduce surplus manpower and high labour cost to withstand the competition from private companies. Administrative Ministry approval for the scheme is awaited.
Financial Assitance Scheme for Dependents of Deceased Employee
As per the approval accorded by the Board, the Company has notified "Financial Assistance Scheme for dependents of Deceased Employees (FASDDE)" to pay a fixed amount on monthly basis to surviving spouse or dependent children if the spouse is not surviving, till the notional date of superannuation of the deceased employee. The prime objective of the scheme is to provide financial support for dependent beneficiaries of the employees who 43I die while in service, to enable them to lead a normal life. The scheme will be applicable in all cases of Death of an employee due to any other reason other than suicide. Fund of ' 4000 lakhs during 2021-22 & '1500 lakhs during 2022-23 transferred to trust for management of the Corpus. The income generated from the Corpus which will be invested with M/s LIC will be utilized to make payments under the Scheme.
As and when the instalments in respect of deferred debts falls due for payment to the Russian Federation, the same is paid by applying the exchange rate ruling on the date of actual payment and liability discharged. The differences arising due to recalculation of debts at the applicable /ruling rate is charged to the revenue at the time (b) of payment and recognised as sales when realised from the customer except to the extent it pertains to Capital Assets.The sales for Exchange Rate Variation (ERV) considered is '5118 Lakhs(Previous year - ' 3971 Lakhs). The Assets and Liabilities relating to deferred credit transaction are reinstated under Non-current Other Financial Assets, Current Other Financial Assets (recoverable within one year), Non-current Other Financial Liabilities and Current Other Financial Liabilities (to be settled within one year).
The Board in its 406th meeting held on 22nd September 2017, accorded in principle approval for voluntary winding up / closure of the three Joint Ventures i.e. M/s. HAL-Edgewood Technologies Private Limited, M/s. Tata HAL Technologies Ltd and M/s. Multirole Transport Aircraft Ltd. enabling the Company to take further action in the matter.
Further, the Board authorized the Company to seek approval of Ministry of Defence (MoD), for short closure of the Contracts associated with the M/s Multirole Transport Aircraft (MTA) project and request MoD, to initiate necessary action for closure of IGA, as it is a prerequisite for winding up of the MTA - Joint Venture Company. Further, MOD vide its letter dated 14th October 2021 notified the termination of the agreement between the Govt. of the Republic of India and Govt. of Russian Federation. In this respect the Russian Federation vide its letter dated 20th April 2022 intimated that the decision of the Indian side has been taken into consideration.
Further in 435th meeting held on 16th March 2020, the Board has directed the Company to expedite the closure of 45B M/s. Multirole Transport Aircraft Ltd at the earliest after taking clearance from Russian partners from their Board (refer Clause No.10).
The Board in its 440th meeting held on 9th December 2020, accorded in principle approval for voluntary winding up / closure of Joint Venture M/s. Infotech HAL Limited(IHL) enabling the Company to take further action in the matter.
TATA HAL Techonologies Limited, Pursuant to the Board Resolution dated 08th June 2021, the company has filed the application for voluntary liquidation to MCA in terms of Section 59 of the Insolvency and Bankruptcy Code, 2016 and the official liquidator is appointed. The official liquidator, vide their letter dated 07.03.2022, intimated about the distribution of liquidation proceeds to the stakeholders of the TATA HAL Technologies Limited. Pursuant to the same liquidation proceeds of ' 34 lakhs was received by the Company [On 27 April, 2022 (' 31 lakhs) and 15 June, 2022 ('3 lakhs)].
The Company has derecognized the investment made in TATA HAL Technologies Limited as on 30th June 2022.
Defence Innovation Organisation ("DIO"):
A Section 8 Company has been formed (Under Companies Act 2013) in the name of "Defence Innovation Organisation" with M/s BEL with an authorised Capital of ' 100 lakhs (Paid up capital as on 31st March 2023 is ' 1 Lakh( HAL 50% Share and BEL 50% Share). The registered office of DIO is situated at Centre for Learning and Development, Bharat Electronics Limited, Jalahalli, Bengaluru - 560013, Karnataka, India. DIO was incorporated to implement the scheme of defence innovation fund initiative by creation of an ecosystem to foster innovation 45C and technology development in defence.
HAL Board in its 417th meeting held on 30th July 2018 had accorded approval for release of ' 5000 lakhs to DIO towards initial corpus fund in form of Grant in Aid in a staggered manner. Accordingly ' 500 lakhs has been released to DIO in the month of August 2018 and the balance amount is recognised and disclosed in other finanial liabilities - other liabilities (note 32).
The Board in its 434th meeting was informed that Government approval is not required for transfer of lease hold land to M/S Helicopter Engines-MRO Private Limited (HE-MRO), as it is neither Defence land nor it is a land owned by HAL. Board reconsidered the decision taken in its 431st meeting and approved transfer of land without Government approval to M/s HE-MRO.
45D
The company has received a sum of '929 lakhs from HE-MRO for transfer of lease hold land at Goa to HE-MRO for right of use assets and the transfer of land is pending for registration, accordingly the carrying amount of right of use assets of '811 lakhs has been disclosed as asset held for sale and '929 lakhs received from HE-MRO disclosed under note 32 - Other Financial liabilities in accordance with Ind AS 105.
Promoters of HE-MRO have decided to restart the activities of the Company on improvement of the Covid-19 situation. To meet its financial requirement, HE-MRO in its 33rd Board meeting held on 30th July 2021 decided to raise funds by way of Right issue of 20 lakh equity shares to the existing shareholders at par value of '100 per share. 45E HE-MRO has sent Right issue offer letter to existing shareholders including HAL. This matter was put up to Board of Directors of HAL in its 449th Meeting held on 21st September 2021, and the Board has accepted the Right issue offer. Consequent to the same, '1000 lakhs has been paid to HE-MRO towards equity participation in Rights issue of HE-MRO Private Limited on 30.09.2021. The Company has been allotted 10 lakh Equity shares of '100 each on 11th November 2021 against the share application money paid.
In accordance with the approval of Board of Directors at its 408th meeting held on 28th November, 2017 and 48A approval of shareholders, the Company has bought back 2,71,12,500 fully paid equity shares of '10/- each equivalent to 7.5% of the paid -up share capital and Free Reserves of the Company, for an aggregate amount of ' 92150 lakhs (excluding tax of '20636 lakhs) at ' 339.88 per equity share from the President of India. The consideration amount for buy back of shares was paid to the Government of India on 19th December, 2017 and the shares so bought back were extinguished on 22nd December, 2017.
To achieve the mandatory threshold of 25% minimum public shareholding in the Company, Government of India (GoI) had offered 3.5% (1,17,03,563) equity shares of the Company to non-Retail Investors and Retail Investors on March 23-24, 2023, out of its shareholding of 75.15% in the Company, through Offer for Sale (OFS) by 48b Stock Exchange Mechanism. Consequent to the OFS, the Government of India shareholding stands at 71.65%.
Apart from above, as part of the OFS, GoI had also allotted 37,632 equity shares to the eligible employees of the Company during April, 2023 under Employee OFS. Consequent to the Employee OFS , the GoI shareholding stands at 71.64%.
Sensitivity of estimates on provisions:
The assumptions made for provisions relating to current period are consistent with those in the earlier years. The assumptions and estimates used for recognition of such provisions are qualitative in nature and their likelihood could alter in next financial year. It is impracticable for the Company to compute the possible effect of assumptions and estimates made in recognizing these provisions.
Provision for replacement and other charges represents, amounts towards expenditure incurred from the date of Signaling Out Certificate (SOC) to date of ferry out, loan items taken from the customer which needs to be replaced etc.
Warranty represents Performance Warranty for manufacture, repair and overhaul of Aircraft / Helicopters/ Engines / Rotables, supply of spares and development activities etc.
Provision for Redundancy in Raw Material and Components, Stores and Spares, Construction Material, Loose Tools and Work in progress represents provision on redundancy of such materials, completed / specific projects and 51 other surplus / redundant materials pending transfer to salvage stores etc.
Provision for Liquidated Damages represents amounts provided for the period of delay between the due date of supply of the Goods / rendering of services as per delivery schedule and the expected Date of delivery of said Goods / rendering of service in respect of manufacture / repair and overhaul of Aircraft / Helicopters/ Engines / Rotables, supply of spares and development activities etc.
Provision for doubtful debts is being assessed on a case to case basis in respect of dues outstanding for a significant period of time. Debts from the Government departments are generally treated as fully recoverable and hence the Company does not recognize credit risk of such financial assets.
Provision for doubtful claims represents provision on expected credit losses.
Impairment in value of investment represents reduction in the share of net worth below investment
Provision for Onerous contract has been recognised as the cost of meeting obligations is over and above the economic benefits expected to be received under it.
Recent pronouncements
Ministry of Corporate Affairs ("MCA") notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On March 31, 2023, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2023, as below:
Ind AS 1 - Presentation of Financial Statements - This amendment requires the entities to disclose their material accounting policies rather than their significant accounting policies. The effective date for adoption of this amendment is annual periods beginning on or after April 1, 2023. The Company has evaluated the amendment and the impact of the amendment is insignificant in the standalone financial statements.
56
Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors - This amendment has introduced a definition of 'accounting estimates' and included amendments to Ind AS 8 to help entities distinguish changes in accounting policies from changes in accounting estimates. The effective date for adoption of this amendment is annual periods beginning on or after April 1, 2023. The Company has evaluated the amendment and there is no impact on its standalone financial statements.
Ind AS 12 - Income Taxes - This amendment has narrowed the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. The effective date for adoption of this amendment is annual periods beginning on or after April 1, 2023. The Company has evaluated the amendment and there is no impact on its standalone financial statement.
The financial statements were approved for issue by the Board of Directors at their meeting held on 12th May 2023.
57 These financial statements are presented in Indian rupees (rounded off to lakhs). Previous Year figures have been rearranged or regrouped wherever necessary.
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