1 Corporate information

1.1 General information

KSK Energy Ventures Limited (‘the Company’), is a Public Company domiciled in India and incorporated under the provisions of Companies Act applicable in India. The Registered Office of the Company is located at Jubilee Hills, Hyderabad - 500 033, Telangana.

1.2 Nature of operations

KSK Energy Ventures Limited is primarily engaged in the development of private sector power projects

2 Basis of Preparation

2.1 Statement of Compliance

These financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 as amended notified under Section 133 of Companies Act, 2013, (the ‘Act’) and other relevant provisions of the Act.

The financial statements were authorised for issue by the Board of Directors on 14 June 2018.

2.2 Functional and presentation currency

These financial statements are presented in Indian Rupees (INR), which is also the Company’s functional currency. All amounts have been rounded-off to the nearest million, unless otherwise stated.

2.3 Basis of measurement

These financial statements have been prepared on historical cost basis except for the following items:

- Financial instruments that are designated as being at fair value through profit or loss account or through other comprehensive income upon initial recognition are measured at fair value;

- Net employee defined benefit (asset) / liability that is measured based on actuarial valuation.

2.4 Changes in accounting policy and disclosure

The accounting policies adopted are consistent with those of the previous financial year except for the adoption of new standards as of 1 April 2017, noted below.

The Company has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 April 2017.

IND AS 102 - Shares Based Payments: The amendments made to Ind AS 102 cover three accounting areas:

- Measurement of cash-settled share-based payments

- Classification of share-based payments settled net oftax withholdings and

- Accounting for a modification of a share-based payment from cash-settled to equity-settled.

These amendments affect the classification and/or measurement of the share-based payment arrangements and potentially the timing and amount of expense recognised for new and outstanding awards.

IND AS 7 - Statement of Cash Flows: The amendments made to Ind AS 7 require certain additional disclosures to be made for changes in liabilities arising from financing activities on account of non-cash transactions to improve information provided to users of financial statements about an entity’s financing activities.

These amendments do not have any material impact on the Company.

2.5 Standards and interpretations not yet applied

At the date of authorisation of these Consolidated financial statements, the following Standards and relevant Interpretations, which have not been applied in these Consolidated financial statements, were in issue but not yet effective

The Company has yet to assess the impact of above standards on the Consolidated financial statements. However the management does not intend to apply any of these pronouncements early.

2.6 Going Concern

The Company has incurred net loss during the current year as well in the previous years with resultant defaults in payment of interest and instalment dues to banks and financial institutions. Further as discussed at notes 35 and 36 to the financial statements, the underlying power generation assets also continue to face significant headwinds with resultant losses and defaulted in payment of interest and instalments dues to banks and financial institutions, along with the wider energy sector projects across India, thereby materially affecting the downstream investments and recoveries thereto. However, the company has been making appropriate representation and is in discussion with the respective lenders to find an appropriate resolution plan at each of the assets. The company continues to prepare the financial statements as going-concern.

3 Significant accounting judgements, estimates and assumptions

The preparation of financial statements in conformity with Ind AS requires management to make certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The principal accounting policies adopted by the Company in the financial statements are as set out above. The application of a number of these policies required the Company to use a variety of estimation techniques and apply judgment to best reflect the substance of underlying transactions.

The Company has determined that a number of its accounting policies can be considered significant, in terms of the management judgment that has been required to determine the various assumptions underpinning their application in the financial statements presented which, under different conditions, could lead to material differences in these statements.

The policies where significant estimates and judgments have been made are as follows:

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below:

- Estimation of fair value of acquired financial assets and financial liabilities: When the fair value of financial assets and financial liabilities recorded in the Balance sheet cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

- Un-collectability of trade receivables: Analysis of historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.

- Taxes: Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of assessment by the tax authorities. The amount of such provisions is based on various factors, such as experience of previous tax assessment and differing interpretations of tax laws by the taxable entity and the responsible tax authority. The Company assesses the probability for litigation and subsequent cash outflow with respect to taxes.

- Deferred income tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

- Gratuity benefits: The cost of defined benefit plans and the present value of the obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

Actual results can differ from estimates.

Judgement

In the process of applying the Company’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the financial statements:

- Useful lives of depreciable assets: Management reviews the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets to the Company. Actual results, however, may vary due to technical obsolescence, particularly relating to software and information technology equipment.

The Company has tax losses of Rs. 2,678.99 (31 March 2017: Rs. 1,220.85) that are available for offset against future taxable profits. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits . The Company evaluated and concluded that it is not probable that deferred tax assets on existing tax losses will be recovered fully. If the Company were able to recognise all unrecognised deferred tax assets, loss would decrease by Rs. 919.73 (31 March 2017: Rs. 422.51).Of the above, business losses expire at various dates ranging from 2019 to 2026.

Tax Reconciliation statement

Reconciliation between tax expense and the product of accounting profit multiplied by India’s domestic tax rate for the years ended 31 March 2018 and 31 March 2017 is as follows:

Note:

a The company has only one class of equity shares having a par value of Rs 10/- per share. The holders of equity shares are entitled to receive dividend as declared from time to time and are entitled to voting rights proportionate to their shareholding at the meeting of the shareholders.

1 The above rupee term loans from others are secured by first pari-passu charge by way of mortgage/hypothecation of all movable and immovable properties of Sai Lilagarh Power Generation Limited and KSK Surya photovoltaic Venture Limited, Mortgage of 95.48 HA land of VS Lignite Power Private Limited. Further these loans are secured by pledge of certain equity shares of the Company held by KSK Energy Limited, the holding company and corporate gurantee given by KSK Energy Limited and VS Lignite Power Private Limited, hence the same has been clasified as unsecured.

2 The long term rupee term loans are repayable in quarterly instalments with the last instalment of respective loans are payable up to November 2024. The long term borrowings carries an weightage average rate of interest of 16.26 % p.a.

3 Loans repayable on demand are secured by first pari-passu charge on fixed assets, current assets of the Company and corporate guarantee of KSK Power Ventur plc.

4 Some of the lenders have recalled the loan given to the Company and has issued notice for possession of underlying securities on account of non-payment of overdue amount. The Company would seek to take appropriate steps, for addressing the same. Notwithstanding of above, pending resolution, classification of borrowings into Non current and current is done based on original terms of sanctions.

Note :

1. The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

Discount rate: The discount rate is based on the prevailing market yields of indian government securities as at balance sheet date for the estimated term of the obligations

The Company has not received any information from suppliers or service providers, whether they are covered under the “The Micro Small and Medium Enterprises Development Act, 2006”. Disclosure relating to amount unpaid at the year end together with interest payable, if any, as required under the said Act are not ascertainable.

Trade payable are non-interest bearing and mainly includes amount payable to coal suppliers vendors in whose case credit period allowed is less than 12 months. Company usually opens usance letter of credit in favour of the coal suppliers. Since the average credit period is less than 12 months, the trade payable amount has been classified as current.

iii) Claims against the Company not acknowledged on debt Rs. 1,227.76 (31 March 2017: Rs. Nil)

iv) Service tax department has issued demand order to the Company for payment of service tax amounting to Rs 505.64 (31 March 2017: Rs. 505.64) (including penalty) relating to the disagreement on availment of Cenvat Credit for the period April 2008 to September 2010 and non -payment of service tax. Further, an amount of Rs. 26.88 (31 March 2017: Rs.26.88) has been paid against the demand under protest and the balance demand is stayed. However, the Company believes that the claims raised by the department are not tenable and the Company has filed an appeal against the said order before the CESTAT.

f) Equity held in subsidiaries and step down subsidiary have been disclosed under “Non current Investment”, (see note no 7).

g) The holding company has pledged certain shares held in the Company as security towards the borrowings of the Company.

h) Corporate Guarantees of Rs. 74,336.26 (31 March 2017 Rs.74,332.41), Bank guarantees of Rs. 2,743.12 (31 March 2017 Rs.2,848.68) and Letter of credit limits of Rs. Nil (31 March 2017 Rs.1,517.81) has been given by the Company on behalf of subsidiaries, fellow subsidiaries and associates.

i) The Company has obtained corporate guarantees of Rs. 8,039.00 (31 March 2017: Rs. 8,039.00) from step-up holding company Rs. 1,000.00 (31 March 2017: Rs.1,000.00) from holding company.

4 Financial risk managament objectives and policies

The Company’s principal financial liabilities comprises of loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to raise finance for the Company’s operations. The Company has loans and receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations. The Company also hold investments designated at fair value through other comprehensive income, at amortised cost and at cost for investment in subsidiaries.

The Company’s risk management activities are subject to the management direction. The Management ensures appropriate risk governance framework for the Company through appropriate policies and procedures and that risks are identified, measured and managed in accordance with the Company’s policies and risk objectives.

The Company is exposed to market risk, credit risk and liquidity risk.

Market risk

Market risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. Financial instruments affected by market risk include loans and borrowings, deposits, investment at fair value through at other comprehensive income.

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’s exposure to the risk of changes in market interest rates relates primarily to the Company’s long-term debt obligations with floating interest rates.

The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.

The sensitivity analysis have been carried out based on the exposure to interest rates for instruments not hedged against interest rate fluctuation at the end of the reporting period. The said analysis has been carried on the amount of floating rate long term liabilities Outstanding at the end of the reporting period. A 50 basis point increase or decrease represents management’s assessment ofthe reasonably possible change in interest rates.

In case of fluctuation in interest rates by 50 basis points and all other variables were held constant, the Company’s profit before tax for the year would increase or decrease as follows:

Equity price risk

The Company’s investments in unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Board of Directors reviews and approves all equity investment decisions.

At the reporting date, the Company’s exposure to unlisted equity securities other than in subsidiaries was Rs. Nil (31 March 2017: 160.00)

Credit risk analysis

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 for trade and other receivables) and from its investing activities, including short-term deposits with banks and financial institutions, and other financial assets.

The carrying value of financial assets represents the maximum exposure for credit risk. The maximum exposure to credit risk of each class of financial assets at the reporting date was as follows:

The credit worthiness of customers / subsidiaries to which the Company grants credit in the normal course of the business is monitored regularly. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

The Company’s maximum exposure for financial guarantees are noted in note 27.

Liquidity risk analysis

The Company’s main source of liquidity is its operating businesses. The treasury department uses regular forecasts of operational cash flow, investment and trading collateral requirements to ensure that sufficient liquid cash balances are available to service on-going business requirements. The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 90 day projection. Long-term liquidity needs for a 90 day and a 30 day lookout period are identified monthly.

The Company requires funds both for short-term operational needs as well as for long-term investment programmes mainly in construction projects for its power plants.

The following is an analysis of the Company contractual undiscounted cash flows payable under financial liabilities at 31 March 2018:

Capital management

Capital includes equity attributable to the equity holders of the parent and debt.

The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value objectives include, among others:

- Ensure Company’s ability to meet both its long-term and short-term capital needs as a going concern;

- Constantly evolve multiple funding alternatives - equity and /or preference capital, senior and /or subordinated debt, corporate loan facilities to arrive at an optimal capital mix;

The Company maintains a mixture of cash and cash equivalents, long-term debt and short-term committed facilities that are designed to ensure the Company has sufficient available funds for business requirements.

5 Financial Instruments

Carrying amounts versus fair values

The fair values of financial assets and financial liabilities, together with the carrying amounts in the statement of financial position are as follows:

6 Fair value hierarchy

The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised in to different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows.

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

- Level 2: inputs other than quoted prices that is observable for the asset or liability, either directly or indirectly.

- Level 3: valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Company recognises transfers between levels of the fair value hierarchy as of the end of the reporting year during which the transfer has occurred. During the year ended 31 March 2018, there were no transfers between Level 1 and Level 2 fair value measurements.

Reconciliation of Level 3 fair value measurements of financial assets:

The Company recognises transfers between levels of the fair value hierarchy as of the end of the reporting year during which the transfer has occurred. During the year ended 31 March 2017, there were no transfers between Level 1 and Level 2 fair value measurements.

Reconciliation of Level 3 fair value measurements of financial assets:

Valuation techniques

Level 3 fair values for equity securities FVTOCI has been determined by using Comparable Company Analyses. This is a relative valuation technique which involves comparing that company’s valuation multiples to those of its peers. The multiples consider for the valuation is price to book value which is then adjusted for differences that are directly related to the characteristics of equity instruments being valued such as discounting factor for size and liquidity etc.

7 The company is primarily engaged in the business of providing project development and corporate support services. Accordingly there are no reportable segment as per Indian Accounting Standard -108 “Operating Segments”.

8 The Company has incurred an amount of Rs. Nil (31 March, 2017: Rs. 6.80) towards Corporate Social Responsibility (CSR) as per Section 135 of the Companies Act, 2013 and is included in other expenses.

9 The Company has made investment of Rs 28,771.44 million in KSK Mahanadi Power Company Limited (‘KMPCL’) in form of equity shares and advances . The Company has pledge certain shares with Power Finance Corporation Limited (‘PFC’) as Security Trustee for the financial assistance granted by lenders to KMPCL. Pursuant to the RBI Circular dated 12th February, 2018, Lenders decision on 27th March, 2018 to consider the change in management outside NCLT, during may 2018 lenders have accordingly invoked shares equivalent to Rs. 25,713.72 million in KMPCL held by the Company along with its subsidiaries.

Consequent to the above, the Company has lost control over KMPCL along with its subsidiaries i.e. KSK Water Infrastructures Private Limited (‘KWIPL’), Sai Power Pte Ltd (‘SPPL’) and associate i.e. Raigarh Champa Rail Infrastructure Private Limited (‘RCRIPL’) with effect from 27 March 2018. The Company continue to carry remaining Investment, advances and amount receivable pursuant to the invocation at carrying value and no provision has been considered in these financial statements by the management, as impact, if any, is currently unascertainable.

10 SWPGL Lenders on 28th April, 2017 have decided to implement change in Management and restructure the debt under “Outside Strategic Debt Restructuring Scheme (‘OSDR’) as per the Reserve Bank of India (RBI) guidelines and in October 2017 has invoked the pledge shares. However, RBI notification dated 12th February, 2018 repealed all debt restructuring schemes (including OSDR) therby necessitating resolution under the new circular

Consequent to the invocation of pledge shares, the Company has lost control over SWPGL and SWPGL ceased to be the subsidiary of the Company. The Company continue to carry balance investment, Loans and advances and amount receivable of Rs 2,993.15 million pursuant to the invocation at carrying value and no provision has been considered in these financial statements by the management, as impact, if any, is currently unascertainable.

11 Considering the wider developments across the energy sector in India , wherein even commissioned and operational projects are facing significant stress for resolution, the immediate demand for partially devloped project, especially various hydro and other projects that entail further development and construction risks, would attract very limited investor interest. Resultantly, the Company has re evaluated the recoverability of its investment in various Hydro, Solar and other projects which are under various stages of construction and implementation over the last few years. Based on such reassessment, Company has undertaken impairment of Property, Plant and Equipment (PPE), investments and other assets related to such projects and accordingly recognised an impairment loss of Rs. 1,888.84 million and disclosed the same as exceptional item in the financial statements.