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31 Contingent Liabilities and Commitments A Contingent liabilities a) Taxes*"
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March 31, 2023
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March 31,2022
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Excise, Customs Duty and Service tax
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8.05
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159.12
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Sales tax
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16.76
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19.72
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Income tax demands disputed in appellate proceedings#
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85.01
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68.43
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References/appeals preferred by the Income tax department in respect of which, should the ultimate decision be unfavourable to the Company
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16.36
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16.91
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Others
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0.12
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0.10
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* Excluding of interest and penalty thereon.
# The above excludes the effects of similar disallowances, if any, for any subsequent period that are pending for open assessments.
A Against income tax disputed demand, the Company has received favourable ITAT orders in earlier years (similar issues) for Rs. 93.62 (March 31, 2022: Rs. 59.45)
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b) Guarantees on behalf of subsidiaries
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March 31, 2023
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March 31,2022
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Counter corporate guarantees issued to banks (Also refer note 32)
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147.51
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92.64
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Indemnity bonds, letter of support/comfort and corporate guarantees (Also refer note 32)
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2,527.98
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2,001.17
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The Company has issued various guarantees for performance, deposits, tender money, advances, etc. The management has considered the probability for outflow of the same to be remote and accordingly no amount has been disclosed here.
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c) Others"
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March 31, 2023
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March 31,2022
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Liability for export obligations
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0.61
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0.58
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Claims against the Company not acknowledged as debt*
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206.43
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209.13
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The timing and amount of the cash flow which will arise from these matters, will be determined by the relevant authorities on settlement of the cases or on receipt of claims from customers.
A Excluding of interest and penalty thereon.
*Claims against the Company not acknowledged as debt on account of ongoing arbitration/ legal dispute with the various customers / vendors of the Company. Based on the legal opinion on few matters and management assessments of the facts of the case, no provision against the above claim is considered. Pending resolution of the matters, it is not practicable to estimate the timing of cash outflows, if any.
B Capital and other commitments
a) Liability in respect of partly paid shares Rs. Nil (March 31, 2022: Rs. 0.09).
b) Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for is Rs. 19.39 (March 31, 2022: Rs. 12.29).
C Lease commitments i) Operating lease: Company as lessor
The Company has leased certain parts of its surplus office and buildings. The tenure of such lease agreements ranges from 1 to 5 years. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. For nature of assets refer note 4(a).
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March 31,2023
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March 31,2022
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Lease rental received for the year
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5.09
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4.19
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ii) Where the Company is lessee
The Company has taken land, office buildings, factory sheds, guest house, warehouse, vehicles, printers and other office equipments on lease for a tenure of 1 to 99 years. The Company’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Company is restricted from assigning and subleasing the leased assets. However, Company has sub-leased some portion of its land and building to its subsidiary. There are no variable lease payments and residual value guarantees for these leases. The leases are renewable on mutually agreeable terms. At the expiry of the lease term, either party has an option to terminate the agreement or extend the term by giving notice in writing. The Company also has certain leases of machinery with lease terms of 12 months or less and leases of office equipment with low value. The Company applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.
Other than as disclosed above, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries. The Company has complied with the relevant provisions of the Foreign Exchange Management Act, 1999 (42 of 1999) and the Companies Act for the above transactions and the transactions are not violative of the Prevention of Money-Laundering Act, 2002 (15 of 2003).
The Company have not received any fund from any person(s) or entity(ies), including foreign entities (Funding Party) with the understanding (whether recorded in writing or otherwise) that the Group shall:
(a) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or
(b) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
33 Gratuity
The Company operates a defined benefit plan viz. gratuity for its employees. Under the gratuity plan, every employee who has completed at least specified years of service gets a gratuity on departure at 15 days (minimum) of the last drawn salary for each completed year of service. The scheme is funded with an insurance Company. The fund has formed a trust and it is governed by the Board of Trustees.
The fund is subject to risks such as asset volatility, changes in assets yields and asset liability mismatch risk. In managing the plan assets, Board of Trustees review and manage these risks associated with the funded plan. Each year, the Board of Trustees reviews the level of funding in the gratuity plan. Such a review includes asset-liability matching strategy and investment risk management policy (which includes contributing to plans that invest in risk-averse markets). The Board of Trustees aim to keep annual contributions relatively stable at a level such that no plan deficits (based on valuation performed) will arise.
The above sensitivity analysis is based on a change in 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 method (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 method and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous periods.
K Terms and conditions of related party transactions
The revenues and purchases from related parties are assessed to be at arm’s length transactions by the management. Outstanding balances at the year-end are unsecured and interest free except loans given and settlement occurs in cash. Refer note 32(A)(a) for terms and conditions for loans to related parties.
There have been no guarantees provided or received for any related party receivables or payables except as disclosed in Note 32.
As on year ended March 31, 2023, the Company has recorded an impairment of receivables amounting to Rs. 4.21 (March 31, 2022: Rs. 0.30) and impairment of loan amounting to Rs. 4.12 relating to amounts owed by related parties (March 31, 2022: Rs. 4.12). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
35 Segment Information
In accordance with para 4 of Ind AS 108 “Operating Segments”, the Company has disclosed segment information in the consolidated financial statements.
There has been no transfer between Level 1 and Level 2 during the year and during the previous year.
The Company enters into derivative financial instruments in the nature of forward exchange contracts with banks.
Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs which captures credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies and currency basis spreads between the respective currencies. All derivative contracts are fully cash collateralised, thereby eliminating both counterparty and the Company’s own non-performance risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value.
Valuation of financial assets in Level 3 has been done based on discounting of future cash flows. There are no transfers into or out of Level 3 of the fair value hierarchy during the year.
* The movement in Level 3 is on account of interest accretion which is recognised under interest income in the statement of profit and loss.
37 (a) Financial Risk Management
The Company’s principal financial liabilities, other than derivatives, comprise trade and other payables and borrowings.
The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include loans, trade and other receivables and cash and cash equivalents that derive directly from its operations.
The Company also holds FVTPL and amortised cost investments and enters into derivative transactions.
Risk is inherent in the Company’s activities but it is managed through a process of on going identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Company’s continuing profitability and each individual within the Company is accountable for the risk exposures relating to his or her responsibilities. The Company is exposed to market risk, credit risk and liquidity risk.
The Company’s Board of Directors is ultimately responsible for the overall risk management approach and for approving the risk strategies and principles. No significant changes were made in the risk management objectives and policies during the years ended March 31, 2023 and March 31, 2022. The management of the Company reviews and agrees policies for managing each of these risks which are summarised below:
I Market risk
Market risk is the risk that the value of an asset will fluctuate as a result of changes in market variables such as interest rates, foreign exchange rates and equity prices, whether those changes are caused by factors specific to the individual investment or its issuer or factors affecting all investments traded in the market.
Market risk is managed on the basis of pre-determined asset allocations across various asset categories, diversification of assets in terms of geographical distribution and industry concentration, a continuous appraisal of market conditions and trends and management’s estimate of long and short term changes in fair value.
a Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not currently exposed significantly to such risk.
b Foreign currency risk
Foreign exchange risk arises when future commercial transactions and relevant assets and liabilities are denominated in a currency that is not the Company’s functional currency. Foreign exchange risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
Foreign exchange risk is managed on the basis of limits determined by management and a continuous assessment of current and expected exchange rate movements and entering into derivative contracts (foreign currency forward contracts) that hedge the maximum period of exposure of underlying transactions (i.e. highly probable forecast sales and purchases).
When a derivative is entered into for the purpose of being a hedge, the Company negotiates the terms of those derivatives to match the terms of the hedged exposure. For hedges of forecast transactions the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of expected settlement of the resulting receivable or payable that is denominated in the foreign currency.
Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in USD, JPY, SEK and EUR exchange rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities including foreign currency derivatives not designated as cash flow hedge and foreign currency derivatives with underlying foreign currency monetary assets/liabilities designated as cash flow hedge. The impact on the Company’s pre-tax equity is due to changes in the fair value of forward exchange contracts designated as cash flow hedges.
c Price risk
The Company’s investments are susceptible to market price risk arising from uncertainties about future values of the investment securities. These securities are unquoted. The Company manages the price risk through diversification and by placing limits on individual and total equity/mutual fund instruments. Further, the price risk is also mitigated by switching the investment portfolio between investment in equity/mutual fund instruments and investments in bank deposits. Reports on the investment portfolio are submitted to the Company’s senior management on a regular basis. The Company’s Board of Directors reviews and approves all equity investment decisions. The Company is not currently exposed significantly to such risk.
II Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables and contract assets) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.
Trade receivables
Customer credit risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management. An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogenous group and assessed for impairment collectively. The calculation is based on losses as per historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in notes 7 and 9(b) above. The charge of impairment to Statement of profit and loss is disclosed in note 28(a) above.
The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets.
Financial instruments and bank deposits
Credit risk from balances with banks, mutual funds, loans and other financial assets are managed by the Company’s treasury department in accordance with the Company’s policy. Investments of surplus funds are made only with approved counterparties having a good market reputation and within credit limits assigned to each counterparty.
The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
The Company’s maximum exposure to credit risk for bank balances and deposits as at March 31, 2023 and March 31, 2022 is the carrying amounts as disclosed in Note 9(a) and 13, maximum exposure relating to financial guarantees is disclosed in note 32 (A) and financial derivative instruments in notes 9(b) and 17(b) to the financial statements.”
III Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying businesses, company treasury maintains flexibility in funding by maintaining availability under committed credit lines.
The management monitors rolling forecasts of the Company’s liquidity position (comprising the undrawn borrowing facilities below) and cash and cash equivalents on the basis of expected cash flows. This is generally carried out at operating segments level in the Company in accordance with practice and limits set by the Company. In addition, the Company’s liquidity management policy involves projecting future cash flows and considering the level of liquid assets necessary to meet these and monitoring balance sheet liquidity ratios against internal requirements.
37(b) Hedging Activities and Derivatives Cash flow hedges Foreign currency risk
Foreign exchange forward contracts measured at fair value through OCI are designated as hedging instruments in cash flow hedges of forecast sales in USD, EUR, SEK and forecast purchases in USD, JPY, SEK, EUR. These forecast transactions are highly probable, and cover the Company’s expected future sales and future purchases based on the orders received.
While the Company also enters into other foreign exchange forward contracts with the intention to reduce the foreign exchange risk of expected sales and purchases, these other contracts are not designated in hedge relationships and are measured at fair value through profit or loss.
The foreign exchange forward contract balances vary with the level of expected foreign currency sales and purchases and changes in foreign exchange forward rates.
Explanations:
Debt service coverage ratio- Debt service coverage ration has increased by 26% on account of higher net profts for the current year
Return on Equity ratio- Return on equity has increased by 55% on account of higher net profts for the current year
Net Capital Turnover ratio- Reduction in working capital due to increase in execution activities from operations on account of growth in order booking and order backlog.
Net Profit ratio- Net profit has increased by 28% on account of higher net profts for the current year. Previous year net profit was impacted due to lower order execution and diminution of investment in subsidiaries.
Return on capital employed (ROCE) ratio- Return on capital employed has increased by 46% on account of higher net profts for the current year
A Profit after tax Finance Cost Loss on sale of fixed assets Depreciation and Amortisation for the period * Current borrowings Non-current lease liability Current lease liability Interest & Lease Payments paid ** Total Current Assets - Total Current Liabilities *** Total Equity Non-current borrowings
40 Share Based Payments
Employees Stock Option Plan 2021 (ESOP 2021)
The Board of Directors and the shareholders of the Company approved Employee Stock Option Plan at their meeting in January 2022. Pursuant to this approval, the Company instituted ESOP 2021 Plan in January 2022. The nomination and remuneration committee of the Company administers this Plan. Each option carries with it the right to purchase one equity share of the Company. The Options have been granted to employees of the Company and its subsidiaries at an exercise price that is not less than the face value of shares as on date of grant of such option. Option granted under ESOP 2021 shall vest not earlier than minimum period of 1 (One) year and not later than maximum period of 3 (Three) years from the date of grant. The vesting of the options is 33%, 33% and 34% of total options granted after end of first, second and third year respectively from the date of grant. The maximum exercise period is 5 years from the date of vesting.
43 Assets Classified as Held for Sale
The Company has identified certain assets like Land, Building etc. which are available for sale in its present condition.
The Company is committed to plan the sale of asset and an active programme to complete the sale has been initiated.
The Company expects to dispose off this asset in the due course. Accordingly, non-current assets held for sale amounting to Rs. 6.53 crore (net book value) has been classified in the books of account.
44 Other Statutory Information
(i) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Group for holding any Benami property.
(ii) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.
(iii) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(iv) The Company has not made any such transaction which is not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (such as, search or survey or any other relevant provisions of the Income Tax Act, 1961).
(v) The Company has not been declared as a wilful defaulter by any bank or financial institution or any other lender.
45 Compliance with Section 143 (3) for Maintenance of Books of Account
With effect from August 5, 2022, the Ministry of Corporate Affairs (MCA) has amended the Companies (Accounts) Rules, 2014, relating to maintenance of electronic books of account and other relevant books and papers. Pursuant to this amendment, the Company is required to maintain the books of account which are accessible in India at all times and their backup is to be kept on servers located in India on a daily basis.
The Company has a process to take daily back-up of books of account maintained in electronic mode and alongwith the logs of the back-up of such books of account. However, the backup of certain books and records pertaining to employee reimbursement system maintained in electronic mode has not been maintained on servers physically located in India on daily basis. The Company will take appropriate measures to comply with regulations.
46 Standards Issued but Not Yet Effective
Ministry of Corporate Affairs (“MCA”) notifies new standard 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) Rules, 2015 by issuing the Companies (Indian Accounting Standards) Amendment Rules, 2023, applicable from April 1, 2023, as below:
(i) Ind AS 1 - Presentation of Financial Statements - The amendments require companies to disclose their material accounting policies rather than their significant accounting policies. Accounting policy information, together with other information, is material when it can reasonably be expected to influence decisions of primary users of general purpose financial statements. The Company does not expect this amendment to have any significant impact in its financial statements.
(ii) Ind AS 12 - Income Taxes - The amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. The amendments narrowed the scope of the recognition exemption in paragraphs 15 and 24 of Ind AS 12 (recognition exemption) so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The Company is in process of evaluating this amendment.
(iii) Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors - The amendments will help entities to distinguish between accounting policies and accounting estimates. The definition of a change in accounting estimates has been replaced with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. Entities develop accounting estimates if accounting policies require items in financial statements to be measured in a way that involves measurement uncertainty. The Company has evaluated the amendment and there is no impact on its financial statements.
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