Nature and purpose of other equity

(i) Securities premium:

Securities premium reserve is used to record the premium received on issue of shares. The reserve is utilised in accordance with the provisions of the Companies Act, 2013.

(ii) General reserve:

General reserve comprises of the reserve generally available to the shareholders of the Company

(iii) Remeasurement of defined benefit plans, net of tax effect:

Differences between the interest income on plan assets and the return actually achieved, and any changes in the liabilities over the year due to changes in actuarial assumptions or experience adjustments within the plans, are recognised in ‘Other equity’ and subsequently not reclassified to the Statement of profit and loss and will be reclassified to retained earnings.

(iv) Retained earnings:

The cumulative gain or loss arising from the operations which is retained by the Company is recognised and accumulated under the heading of retained earnings. At the end of the year, the profit after tax is transferred from the Statement of profit and loss to retained earnings.

28 Inter Company agreements and arrangements

a) Intellectual property agreement - The Company has entered into Intellectual Property agreement with 3M Innovative Properties Company and 3M Company, USA effective July 01, 2006 for the payment of license fees in the form of royalties. Payments were waived off for a period of 3 years effective from July 01, 2006 to June 30, 2009. These payments have been reinstated with effect from July 01, 2009. The Intellectual Property Agreement with 3M Innovative Properties Company and 3M Company, USA has been revised effective July 01, 2013. Accordingly, the Company has incurred an expenditure of '5,744.66 lakhs for the year ended March 31, 2023 (March 31, 2022: '4,448.16 lakhs) and disclosed as Royalty under other expenses (refer note 26).

b) (i) Support services and corporate management fees - In order to avail economies of scale, the Company

has entered into inter-company services support services agreement with 3M Global Service Center Management Company, USA (having expertise in establishing, operating and managing international business and incurring costs in developing, manufacturing, marketing and selling a diverse portfolio of products) with effect from April 01, 2019. The Company is charged with comprehensive support services charges by 3M Global Service Center Management Company for the services received from all the 3M group companies in the areas of Laboratory, Technical assistance and Manufacturing, Selling and Marketing, Strategic and Managerial, Information Technology, Routine Administration and Foreign Services Employees Expenses and Outsourced Services of Transaction Processing on competitive conditions. This agreement supersedes the agreement entered by the Company with 3M Company, USA dated April 01, 2009, 3M Asia Pacific Pte Limited dated January 1, 2003 and 3M Hong Kong Ltd with effect from January 1, 2011.

The Company has accrued an amount of '3,022.15 lakhs (March 31, 2022 : '2,301.53 lakhs) in respect of estimated liability for the above services during period January 1, 2023 to March 31, 2023, the actual liability would be ascertained by December 2023. The balance is included in Trade payables, refer note 16.

(ii) The support service agreement enables the Company to recharge expenses relating to Foreign Service Employees (FSEs) of 3M Company and its affiliates. Accordingly the Company has recharged '600.45 lakhs (March 31, 2022 : '375.98 lakhs).

(iii) The support service agreement enables the Company to invoice expenses relating to management support fee to 3M Company and its affiliates. During the year, the Company has recognised an income of '3,003.15 lakhs (March 31, 2022 : '4,649.75 lakhs).

c) Contract research agreement - The Company has entered into contract research agreement with 3M Innovative

Properties Company and 3M Company, USA effective July 01, 2006 for carrying out contract research activities.

During the year, Company has recognized an income of '1,457.76 lakhs (March 31, 2022 : '1,610.75 lakhs).

29 Employee stock option plan

A. Description of share based payment arrangements

i) Share purchase plan (equity-settled)

3M Company, USA, the parent Company has offered ‘General Employees Stock Purchase Plan’ to all the employees of the Company, under which the employees of the Company are eligible to purchase the shares of 3M Company, USA at 85% of the market price of the share. Under the plan, the Company deducts the amount from the monthly salary of the employees and remits the amount to 3M Company, USA. In accordance with the plan, the Company during the year has deducted for remittance a sum of '415.81 lakhs (2022: '409.89 lakhs) from the salary of the employees who have opted for the plan. As of the year end a sum of '27.51 lakhs (2022: '38.55 lakhs) is pending remittance to the holding Company and the same is included under ‘Other financial liabilities’ (refer note 17).

ii) Stock appreciation rights and Restricted stock units (cash-settled)

3M Company, USA has established 3M Company Long Term Incentive Plan (LTIP). As a part of the plan, Executive Directors and Senior Executives of the Company are eligible to acquire shares of 3M Company, USA via stock options i.e., stock appreciation rights (SARs) and restricted stock units (RSUs). The eligible employees are granted stock options i.e., stock appreciation rights (SARs) and restricted stock units (RSUs) which will vest with the employees over a period of 3 years from the date of the grant and they can exercise the stock option within a stipulated period mentioned in the plan. The exercise price of SARs will be based on the grant letter and RSUs will be Nil. As of the year end a sum of '1,314.36 lakhs (2022: '1,307.91 lakhs) is liability and the same is included under ‘Other financial liabilities’ (refer note 17).

B. Measurement of fair values

The Company measures compensation expense for stock appreciation rights (SARs) at their fair value determined using Black - Scholes Model and restricted stock units (RSUs) based on fair market value of shares of 3M Company, USA as on March 31, 2023.

D. Expense recognised in Statement of profit and loss

An amount of '703.87 lakhs has been debited (March 31, 2022: '129.42 lakhs has been credited) to the Statement of profit and loss for the year and included under Employee benefit expenses.

E. The weighted average share price at the date of exercise with regards to SARs and RSUs exercised during the year is USD 126.25 and USD 117.89 respectively (March 31, 2022: USD 165.13 and USD 160.73 respectively)

The above disclosures have been made to the extent information is available with the Company.

30 Employee benefits

(a) Defined contribution plan

The Company offers its employees defined contribution plans in the form of Provident Fund (PF), Superannuation Fund (SF), Employees’ State Insurance (ESI). Contribution to SF is made to 3M India Ltd Employees Superannuation Fund Trust. Other contributions are made to the Government’s funds. While both the employees and the Company pay predetermined contributions into the Provident Fund and the ESI Scheme, contributions into superannuation fund are made only by the Company. The contributions are normally based on a certain proportion of the employee’s salary.

1. The discount rate is based on the prevailing market yield on Government securities as at the balance sheet date for the estimated term of obligations.

2. The estimates of future increase in compensation levels, considered in the actuarial valuation, have been taken on account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

3. As per the best estimate of the management, contribution of ' Nil (March 31, 2023: ' Nil) is expected to be paid to the plans during the year ending March 31, 2024.

The Compensated absences are unfunded defined benefit obligation. Refer note-14 of the financial statements

for the current and non current obligations.

32 Segment Reporting

In accordance with Ind AS 108 ‘Operating segments’, segment information are included in the consolidated financial statement of the Company and therefore no separate disclosure on segment information has been given in these standalone financial statement.

(i) Income tax matters mainly relate to intercompany charges.

(ii) The Company during the year 2012-13 had received an order from The Commissioner of Customs demanding differential duty, interest and penalty of '1,961.50 lakhs, contending the availment of concessional import duty in respect of some of its products for which a demand notice was served on the Company for payment of the above amount. The Company has filed an appeal against the order including for obtaining a stay against any recovery proceedings that may be initiated and accordingly no liability has been recognised in the books.

(iii) The Company was issued a Show Cause Notice dated December 08, 2016 by the Directorate of Revenue Intelligence (DRI) in relation to levy of customs duty on inter-company transactions for import of goods and services and hence proposing to demand differential duty of customs covering the transactions during the period December 08, 2011 to 7 February 2014. The Company has received an order in original on October 01, 2017 from Additional Director General - DRI (Adjudication), Mumbai confirming the demand raised for custom duty in show cause notice amounting to '7,693.52 lakhs, penalty equivalent to the custom duty amount and additional penalty and interest of '1,000 lakhs. The Company has filed an appeal against this order with CESTAT, Mumbai after making payment of mandatory deposit of '577 lakhs which is not included in the amount above.

(iv) Sales tax cases primarily pertains to Maharashtra Value Added Tax Act, 2002 and Karnataka Value Added Tax Act, 2003. These are pertaining to the years from 2005-06 to 2017-18. These cases are with respect to the applicable rate of tax for various products and matters pertaining to declaration forms.

(v) Service tax matters relates to cases with respect to manner of apportionment of credit availed by the Company without registering as an Input service distributor.

(vi) Excise matters relates to penalty for allegedly dealing in goods liable to confiscation under Rule 26 of the Central Excise Act.

(vii) The Supreme court of India in the month of February 2019 had passed a judgement relating to definition of wages under the Provident Fund Act, 1952. However, considering that there are numerous interpretative issues relating to this judgement and in the absence of reliable measurement of the provision for the earlier periods, the Company has made a provision for provident fund contribution pursuant to the judgement in the previous year. The Company will evaluate its position and update its provision, if required, on receiving further clarity on the subject. The Company does not expect any material impact of the same.

37 Capital management

The Company’s policy is to maintain a stable capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors capital on the basis of return on capital employed as well as the debt to total equity ratio.

For the purpose of debt to total equity ratio, debt is debt as considered under long-term, short-term borrowings and lease liabilities. Total equity comprise of issued share capital and all other equity reserves.

38 Financial Instruments - Fair values and risk management A. Accounting classification and fair values

a) Fair value through other comprehensive income (FVTOCI) - Where the financial assets are held not only for collection of cash flows arising from payments of principal and interest but also from the sale of such assets. Such assets are subsequently measured at fair value, with unrealised gains and losses arising from changes in the fair value being recognised in other comprehensive income

b) Fair value through profit or loss (FVTPL) - Where the assets are managed in accordance with an approved investment strategy that triggers purchase and sale decisions based on the fair value of such assets. Such assets are subsequently measured at fair value, with unrealised gains and losses arising from changes in the fair value being recognised in the Statement of Profit and Loss in the period in which they arise.

c) Amortised cost - Where the financial assets are held solely for collection of cash flows arising from payments of principal and/or interest.

i. Risk management framework

The Company’s principal financial liabilities comprise finance lease obligations, trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include trade and other receivables, cash and cash equivalents that are derived directly from its operations.

ii. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers.

(a) Financial assets that are not credit impaired

The Company has financial assets which are in the nature of cash and cash equivalents, loans to employees, unbilled revenue from related party, interest accrued on fixed deposits and receivables from related parties which are not credit impaired. These are contractually agreed with either banks, related parties or employees where the probability of default is negligible.

(b) Financial assets that are credit impaired Trade receivables

The Credit services team has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, if they are available. Sale limits are established for each customer and reviewed yearly.

The Company establishes an allowance for impairment that represents its estimate of expected losses in respect of trade receivables.

Expected credit loss assessment for the Company as at March 31, 2022 and 2023.

The Company has divided all the debtors outstanding for the last twelve quarters into age brackets of not due, 0-90 days, 91-180 days, 181-270 days, 271-365 days and amounts outstanding for more than one year.

The Company has calculated the impairment loss arising on account of past trends in the default rate for time bucket.

When determining whetherthe credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward looking information. Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive).”

Out of the total trade receivables of '63,492.65 lakhs (March 31, 2022: 52,787.92 lakhs), the exposure considered for expected credit loss is '60,532.21 lakhs (March 31, 2022: '51,666.35). The balance which is not considered for impairment primarily pertains to intercompany receivables and secured debtors.

iii. 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. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company believes that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived.

iv. Market risk

Market risk is the risk that changes in market prices - such as foreign exchange rates will affect the Company’s income or the value of its holdings of financial instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables. The Company is exposed to market risk primarily related to foreign exchange rate risk. Thus, the exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currency. The objective of market risk management is to avoid excessive exposure in our foreign currency revenues and costs.

The Company during the year incurred '150.63 lakhs (March 31, 2022: '279.44) towards expenses relating to lease of low-value assets and short termed leases respectively.

The total cash outflow for leases during the year is 2,444.64 lakhs (including interest of '177.03 lakhs) [March 31, 2022: '2,106.08 lakhs (including interest of '200.47 lakhs)].

The incremental borrowing rate on the previously considered operating leases is 9%.

41 The Boards of Directors of the Company and of 3M Electro & Communication India Private Limited (3M E&C), wholly owned subsidiary of the Company at their Meetings held on September 17, 2021 had approved the Scheme of Amalgamation of 3M E&C with the Company under Sections 230 to 232 of the Companies Act. 2013 read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The Appointed Date fixed under the Scheme is April 01, 2021. The Scheme of Amalgamation of 3M E&C with the Company has been filed with National Company Law Tribunal (NCLT) to amalgamate the wholly owned subsidiary. NCLT Chennai vide its order dated May 25, 2022 has dispensed with convening of the meeting of Equity Shareholders and the Creditors of 3M E&C. The Company and 3M E&C has filed the necessary applications to seek the approval for merger as per NCLT directions and the approval order is awaited.

43 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 lend or invest in party identified by or on behalf of the Company (Ultimate Beneficiaries). The Company has not received any fund from any party(s) (Funding Party) with the understanding that the Company shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Company (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

44 Other statutory information:

i) The Company does not have any Benami property or any proceeding is pending against the Company for holding any Benami property.

ii) The Company do not have any charges or satisfaction which is yet to be registered with Registrar of Companies 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 is not classified as wilful defaulter.

v) The Company doesn’t have any 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.

vi) The Company has no transactions with the struck off companies.

45 The Holding Company 3M Company, USA on July 26, 2022 has announced its intent to spin off Health Care business. There are no accounting and disclosure consequences in the financial results for the quarter ended March 31, 2023 since the conditions prescribed under the relevant Ind AS is not fulfilled. Also refer the segment information for Health Care business related assets and liabilities.

46 Company’s books of accounts and other relevant books and papers (“Books and papers”) are maintained in electronic mode and accessible all time in India. In compliance with Rule 3 of Companies (Accounts) Rules, 2014, the Company had identified the composition of books and papers and broadly classified into primary (Core ERP) and secondary (workflow applications) book and papers. The back-up of books and papers in electronic mode were periodically maintained in servers physically located in India. In addition, Company maintains back-up of books and papers on daily basis in servers physically located outside India. During the year, the Company initiated actions in phased manner to maintain daily back-up of books and papers in servers physically located in India. Accordingly, from December 2022, the Company started manually maintaining daily back-ups for primary books and papers (Core ERP) in the servers physically located in India by taking a copy of the global backup into servers physically located in India. As at March 31, 2023, the Company is in the process of implementing automated maintenance of daily back-up in a server physically located in India for primary and secondary books and papers, as well as testing the restoration of the backups.

47 For the year 2022-23, the Board recommended a final dividend of '100.00/- (per equity share) at its meeting held on 30 May 2023. This payment is subject to the approval of the shareholders in the ensuing Annual General Meeting of the Company.