Intellect Design Arena Ltd. இன் கணக்கு குறிப்புகள்
Mar 31, 2023
^Security deposits are non-derivative financial assets which generate a fixed or variable interest income for the Company.
**Loan to employees are non-derivative financial assets which generate a fixed or variable interest income for the Company. There are no loans given to any Promoters / Directors / Key management personnel.
i. Out of the above balances Rs. 64.30 million (March 31, 2022 - Rs. 77.71 million) have been pledged as security by the Company for availing fund and non-fund based credit facilities. The Company has sanctioned fund and non fund based working capital facilities which are secured by hypothecation of Land and Building, non-current and current assets of the Company ranking on a pari passu basis.
ii. Non-current bank balances as at March 31, 2023 includes restricted bank balance of Company''s share of money based on subcontract agreement, lying in a joint escrow account amounting to Rs. 298.20 million (March 31, 2022 - Nil). Company will be able to withdraw these proceeds upon confirmation for distribution from the escrow holder (who is a subcontractor in a joint project).
Performance obligations and remaining performance obligations
Information on Company''s performance obligations and remaining performance obligations is summarised in accounting policies (also Refer note 3(j)).
The aggregate value of performance obligations that are completely or partially unsatisfied as at March 31, 2023, other than those meeting the exclusion criteria mentioned in Note 30) is Rs. 1,668.51 million (March 31, 2022 - 2,040.11 million). Out of this, the Company expects to recognise revenue of around 90% (March 31, 2022 -70%) within the next one year and the remaining thereafter. This includes contracts that can be terminated for convenience without a substantive penalty however, based on current assessment, the occurrence of the same is expected to be remote.
One customer accounted for more than 10% of the revenue amounting to Rs. 2,551.87 million (March 31, 2022 - 2,138.58 million) for the year ended March 31, 2023.
The Code on Social Security, 2020 (''Code'') relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period when the Code becomes effective.
Note:
Pursuant to the Taxation Law (Amendment) Ordinance, 2019 (''Ordinance'') subsequently amended in Finance Act issued by Ministry of Law and Justice (Legislative Department) on September 20, 2019 which is effective April 1, 2019, domestic companies have the option to pay corporate income tax rate at 22% plus applicable surcharge and cess (''New tax rate'') subject to certain conditions. Tax expense in the standalone financial statements includes reduction in deferred tax charge arising out of the estimated impact amounting to Rs. 19.53 million (March 31, 2022 - Rs. 200.72 million). This is arising from the re-measurement of deferred tax liability that is expected to reverse in future when the Company will migrate to the new tax regime.
There are certain income-tax related legal proceedings which are pending against the Company. Potential liabilities, if any have been adequately provided for, and the Company does not currently estimate any probable material incremental tax liabilities in respect of these matters.
26 EARNINGS PER SHARE
Basic EPS amounts are calculated by dividing the profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to equity shareholders by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares.
28 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company''s standalone financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
a. Judgements
In the process of applying the Company''s accounting policies, management has not made any judgements, which have significant effect on the amounts recognised in the standalone financial statements.
b. 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 adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the standalone financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
1) Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on projected sales transactions, conducted at arm''s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset''s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.
The Company capitalises intangible asset under development for a project in accordance with the accounting policy. Initial capitalisation of costs is based on management''s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits.
2) Share-based payments
The Company initially measures the cost of Equity-settled transactions with employees using a black scholes model to determine the fair value of the liability incurred. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 30.
3) Revenue from contract with customers
The Company is required to make an assessment for each new software license contract as to whether the underlying software requires significant modification or customisation by the Company in order to meet the customer''s requirements. If
significant modification or customisation is required, then the license fee is recognised based on percentage-of-completion. Majority of such modifications or customisations have not been deemed significant in current or prior periods.
In respect of service revenue, the management exercises judgment in determining the percentage of completion utilising output measures, such as the achievement of any project milestones stipulated in the contract, or internal quality milestones to assess proportional performance.
The Company also exercises judgment in assessing uncertainties surrounding the probability of collection when payment terms are linked to service implementation milestones or other various contingencies exist. These assessments are made at the outset of the contract.
4) Defined benefit plans (gratuity benefits)
The cost of the defined benefit gratuity plan and other post-employment benefits and the present value of the gratuity obligation are determined using actuarial valuation. An actuarial valuation involves making various assumptions that 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 complexities involved in the valuation 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. The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation. The underlying bonds are further reviewed for quality.
The mortality rate is based on publicly available mortality tables for the specific countries. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates for the respective countries.
Further details about gratuity obligations and sensitivity analysis are given in Note 29.
5) Taxes
Current Tax for the current year is computed as per the provisions of Section 115JB and the Minimum Alternate Tax liability (MAT) is provided for. Significant management judgement is involved in evaluating and recognising MAT credit, to be set off against the future taxable profits for which the Company has an eligible carry forward period of 15 years.
Deferred tax assets are recognised for 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 judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
6) Provision for allowance of credit Loss
The Company has adopted and laid out its Expected Credit Loss Model (ECL) for determination of the Provision for credit loss allowance, which are primarily in the nature of Trade receivables and Revenue accrued and not billed. In determining its ECL, assumptions and estimates are made in relation to nature of customers (Public Sector Banks, Non-Banking Finance Companies, Private Banks etc), billing and collection terms as per the contract, average ageing of the customer balance and the past trends of collection.
7) Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements 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. Also Refer to Note 34 and Note 38 for further disclosures.
8) Leases
Determining the lease term of contracts with renewal and termination options -Company as lessee:
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Company applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination.
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow.
Refer note 37 for information on potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.
29 GRATUITY
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. A trust by name âIntellect Design Group gratuity trust" has been constituted by Intellect Design Arena Limited to administer the gratuity fund.
(iii) The exercise price of the options in the Resulting Company shall be adjusted to 28% of the exercise price of the options granted under the Schemes of the Demerged Company.
(a) The estimate of future salary increases, considered in actuarial valuation, takes into account, inflation, seniority, promotions and other relevant factors, such as demand and supply in the employment market.
(b) Discount rate is based on the prevailing market yields of Indian government bonds as at the balance sheet date for the estimated term of the obligation.
(c) The Composition of Plan assets which is funded with ICICI Prudential Life Insurance.
Apart from the schemes provided under the Demerger arrangement the Company has following Employee stock option schemes (i) Intellect Stock Option Plan 2015 (ISOP 2015), Intellect Stock Option Plan 2016 (ISOP 2016) and Intellect Stock Option Plan
(ISOP 2018) of its own.
These plans provide for the granting of stock options to employees including directors of the Company (not being promoter directors and not holding more than 10% of the equity shares of the Company). The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire equity shares.
During the year ended March 31, 2018, the Company had offered rights issue to its shareholders. Consequent to this corporate action, the market price of the shares reduced from Rs. 130.60 to Rs. 118.20. The ESOP scheme of the Company specifically requires the Compensation/Nomination and Remuneration Committee to make a fair and reasonable adjustment to the option terms in case of corporate action. Considering the above, the Nomination and Remuneration Committee of Intellect on November 09, 2017 revised/ reduced the exercise prices of outstanding options (both vested and unvested) as on the record date i.e July 18, 2017 by 15 %. The fair values before and after the modification have remained unchanged and there is no incremental impact in the Statement of Profit and Loss. The option plans are summarised below:
Share options modification
The Nomination and remuneration committee (NRCC) at its meeting held at June 9, 2020 and June 17, 2020 decided to modify the options provided to the employees due to significant reduction in current market price of equity shares of the Company. As per decision of NRCC, the employees were given an option to surrender their existing options and avail new options under the new scheme in lieu of surrendered option.
As a result, associates holding 60,74,840 options under various schemes ASOP 2011, ISOP 2015, ISOP 2016 and ISOP 2018 voluntarily surrendered their options on May 29, 2020, June 9, 2020, June 17, 2020 and August 7, 2020 and were issued new options in
the ratio of 2:1 under Intellect Incentive Plan Scheme 2018 (Restrictive Stock Options) at an exercise price of Rs. 5. These modification have been approved by the NRCC.
The Black Scholes valuation model has been used for computing the weighted average fair value the details of which is mentioned under section RSU 2018 scheme.
Associate Stock Option Plan 2011
The Plan is effective from October 9, 2014 and the Company has received in principle approval from the National Stock Exchange on February 16, 2015 and the Bombay Stock Exchange on February 19, 2015 . The 2011 Plan provides for issuance of 48,88,450 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees. The plan shall be administered under 4 different schemes based on the following terms:
30 SHARE BASED PAYMENTS (EMPLOYEE STOCK OPTION SCHEME)
The Scheme of Arrangement (Demerger) entered into by the Company with Polaris Consulting and Services Limited (Demerged Company) with effect from April 1, 2014 provided for the following in respect of Employee Stock Option Schemes;
(i) The Company has adopted three stock option plans (ASOP 2003, ASOP 2004 and ASOP 2011) from Polaris Consulting and Services Limited, as provided in the Scheme of Arrangement.
(ii) Every employee holding an option in the Demerged Company under the stock option plans of the Demerged Company, shall be issued one option in the stock option plans formed by the Resulting Company upon the Scheme coming into effect.
Intellect Stock option Plan 2015
The Shareholders of the Company in the Extraordinary General Meeting held on January 29, 2015 approved the Intellect Stock Option Plan 2015. The 2015 plan provides for issuance of 60,00,000 options convertible into equivalent number of equity shares of Rs. 5 each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the Scheme is for 12 years from the date of coming into effect and shall be extended by a period of not more than 5 years as the Board of Directors may decide. The Nomination Remuneration and Compensation Committee and the Board has decided to amend the Scheme to include Restricted Stock Units (RSU''s) to facilitate grant of fresh RSU''s in lieu of options voluntarily surrendered as well as for future grants. The Company in its shareholder''s meeting held on August 21, 2020 have approved the modification to the scheme, to include Restrictive stock options in addition to existing options part of scheme. The plan shall be administered under 5 different schemes based on the following terms:
Grant price of options (RSU''s) under Swarnam 601 shall be Rs. 5 per option
The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
The expected life of stock is based on historical data and current expectation and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
Intellect Stock option Plan 2016
The Shareholders of the Company in the Extraordinary General Meeting held on May 03, 2016 approved Intellect Stock Option Plan 2016. The 2016 plan provides for issuance of 40,00,000 options convertible into equivalent number of equity shares of Rs. 5 each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the Scheme is for 12 years from the date of coming into effect and shall be extended by a period of not more than 5 years as the Board of Directors may decide. The Nomination Remuneration and Compensation Committee and the board has decided to amend the Scheme to include Restricted Stock Units (RSU''s) to facilitate grant of fresh RSU''s in lieu of options voluntarily surrendered as well as for future grants. The Company in its shareholding meeting held on August 21, 2020 have approved the modification the scheme, to include Restrictive stock options in addition to existing options part of scheme. A summary of the status of the options granted under 2016 plan at March 31, 2023 is presented as below:
Grant price of options (RSUs) under Swarnam 601 shall be Rs. 5 per option The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
Intellect Incentive Plan Scheme 2018
The Shareholders of the Company in the Annual General Meeting held on August 23, 2018 approved Intellect Incentive Plan Scheme 2018. The 2018 plan provides for issuance of 62,50,000 options through Restrictive Stock Units (RSU''s) 2018 and ISOP 2018 in total convertible into equivalent number of equity shares of Rs. 5/- each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the scheme for RSU 2018 it shall continue to be in force until (i) its termination by the Company as per provisions of Applicable Laws, or (ii) the date on which all of the Restricted Stock Units available for issuance under the RSU 2018 / Stock Options 2018 have been issued and exercised, whichever is earlier and for ISOP 2018 is 12 years from the date of the Scheme coming to force. The scheme shall be extended by a period of not more than 5 years as the Board of Directors may decide. Nomination and remuneration committee (NRCC) in its meeting held of June 15, 2020 has decided to make the total options fungible between RSU and ISOP 2018. A summary of the status of the options granted under Intellect Incentive Plan scheme 2018 as at March 31, 2023 is presented below:
The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
Terms and conditions of transactions with related parties
The sales to related parties are made on terms equivalent to those that prevail in arm''s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2023 and March 31, 2022, the Company has not recorded any impairment of receivables relating to amounts owed by related parties. 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.
32 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
(i) Capital commitment:
Contracts yet to be executed on capital account (net of advances) Rs. 69.94 million (March 31, 2022- Rs.6.76 million).
(ii) Other commitment:
Bank guarantees in the nature of financial guarantees (guarantees being fully backed by margin deposits) as at March 31, 2023 amounting to Rs. 179.46 million (March 31, 2022 - Rs 470.73 million)
(iii) Claims against the Company, not acknowledged as debt includes:
a) Future cash outflows in respect of matters considered disputed are determinable only on receipt of judgments / decisions pending at various forums/authorities. The management does not expect these claims to succeed and accordingly, no provision for contingent liability has been recognised in the financial statements.
The Company''s pending litigations comprise of proceedings pending with tax authorities. The Company has reviewed all the proceedings and has adequately provided for where provisions are required and disclosed contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a material adverse effect on the financial statements.
The Company is contesting the demands raised by the respective tax authorities, and the management, based on internal assessment and per its tax advisors, believe that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company''s financial position and results of operations.
b) The Honorable Supreme Court of India had passed judgement on February 28, 2019 that all allowances paid to employees are to be considered for the purpose of Provident fund wages determination. There are numerous interpretative issues relating to the above judgement. As a matter of caution, the Company has recognised a provision on a prospective basis from the date of Supreme Court order. The Company will update its provision, on receiving further clarity on the subject.
33 FAIR VALUE
Set out below, is a comparison by class of the carrying amounts and fair value of the Company''s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values. The management assessed that the fair values of cash and cash equivalents, bank balances including deposits, trade receivables, loans and deposits, other financial assets, trade payables and other financial liabilities would approximate their carrying amounts due to their nature.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The method and assumptions used to
The Company continues its significant investments in Research and Development efforts towards research, technology, engineering and new product development. The Company follows a policy of capitalising new product development, which meets the criteria of Ind AS 38 Intangible assets and has accordingly recognised such cost as Internally generated Intangible asset under ''Intangible assets under development'' (Refer note 4(b)) and Intangible asset (Refer note 4(d)). During the year ended March 31, 2023 the Company has incurred a revenue expenditure of Rs. 1,500 million (March 31, 2022 - Rs. 1,051 million) which has been debited to the Income statement and capital expenditure as per table below:
The Company had total cash outflows for leases of Rs. 50.11 million in March 31, 2023 (March 31, 2022 - Rs. 42.44 million). The Company also had non-cash additions to right-of-use assets and lease liabilities of Rs. 105.44 million during the year (March 31, 2022-Rs. 1.93 million). There are no future cash outflows relating to leases that have not yet commenced.
37 LEASES
The Company has lease contracts for Land and Building used for the purpose of office space at different locations. Leases of such assets generally have lease terms between 1 and 5 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. There are several lease contracts that include extension and termination options and variable lease payments, which are further discussed below.
Before the adoption of Ind AS 116, the Company classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease.
Upon adoption of Ind AS 116, the Company applied a single recognition and measurement approach for all leases except for short-term leases on Plant and machinery and leases of low-value assets on Office equipments. The standard provides specific transition requirements and practical expedients, which have been applied by the Company.
The Company has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Company''s business needs. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised. The management does not expect undiscounted potential future rental payments due to extension options expected not to be exercised and termination options expected to be exercised.
There are no potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.
38 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company''s principal financial liabilities comprise lease liabilities, trade and other payables and financial guarantee contracts. Most of these liabilities relate to financing Company''s working capital cycle. The Company has trade and other receivables in local and in foreign currency, loans and advances that arise directly from its operations. The Company also executes contracts of hedging to cover foreign exchange risk exposure.
The Company is accordingly exposed to market risk, credit risk and liquidity risk.
The Company''s senior management oversees management of these risks. The senior professionals working to manage the financial risks and the appropriate financial risk governance framework for the Company are accountable to the Board of Directors, Risk Committee and the Audit Committee. This process provides assurance that the Company''s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Company''s policies and overall risk appetite. It is the Company''s policy that no trading in derivatives for speculative purposes shall be undertaken.
The Risk Committee and the Audit Committee review and agree policies for managing each of these risks which are summarised below:
1. Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include deposits, FVTPL investments and derivative financial instruments.
1.(a) Interest rate risk:
The Company''s exposure to the risk of changes in market interest rates relates primarily to debt obligations with floating interest rates. The Company does not have any debt obligations outstanding, other than lease liabilities where interest rates are fixed and implicit at the time of inception of the lease and is therefore not subject to any variability in the interest rates.
1.(b) 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 foreign exchange rates. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''s operating activities (when revenue or expense is denominated in a foreign currency). 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 settlement of the resulting receivable or payable that is denominated in the foreign currency.
1.(b)(i) Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in 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
of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Board of Directors of the Company on an annual basis which are monitored and updated, if necessary, on a regular basis by the management. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through the counterparty''s potential failure to make payments.
including non-designated foreign currency derivatives. The Company''s exposure to foreign currency changes for all other currencies is not material. The sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
The Company''s maximum exposure to credit risk for the components of the Balance Sheet as at March 31, 2023 and March 31, 2022 is the carrying amount as illustrated in Notes 7 and Notes 11.
3. Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses. The Company''s objective is to, at all times maintain optimum levels of liquidity to meet it cash and collateral requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It maintains adequate sources of financing including loans, debt, and overdraft from both domestic and international banks at an optimised cost.
The table below summarises the maturity profile of the Company''s financial liabilities based on contractual undiscounted payments:
In respect of the Company''s forward derivative contracts, a 5% increase in the contract exchange rates of each of the currencies underlying such contracts would have resulted in increase in Other Comprehensive income by Rs. 7.35 million (March 31, 2022 -Rs. 17.58 million.)
Conversely, 5% decrease in the above mentioned exchange rates on foreign currency exposures as at March 31, 2023 and March 31, 2022 would have had the same but opposite effect, again holding all other variable constant.
2. Credit risk
Credit risk is the risk that a 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 revenue accrued not billed) and from its investing activities, including deposits with banks and financial institutions and other financial instruments.
2.(a) Trade receivables and Revenue accrued and not billed
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. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.
An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, many minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is determined on expected credit loss method basis the historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 11(b) and Note 11(g). The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers (which are in the nature of reputed banking and financial institutions) operate in several jurisdictions in largely independent markets.
As at March 31, 2023, the outstanding amount of provision for employee benefits amounting to Rs. 745.38 million (March 31, 2022 - Rs. 522.52 million) have been substantially funded, accordingly no liquidity risk perceived.
39 CAPITAL MANAGEMENT
For the purpose of the Company''s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders. The primary objective of the Company''s capital management is to maximise the shareholders'' value. The Company determines the amount of capital required based on annual operating plans and long-term product and other strategic investment plans. The funding requirements are met through equity and borrowings (includes lease liabilities).
The Company manages its capital structure and adjusts in the light of changes in economic conditions and the requirements of financial covenants or lease arrangements. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt only lease liabilities less cash and cash equivalents.
43 TRANSFER PRICING ARRANGEMENTS WITH SUBSIDIARIES
The Company has international operations and in its normal course of business with its various subsidiaries, it is involved i n the business of software sale and implementation of its products across various countries. The Company reviews these arrangements on a periodic basis to reflect the current business models and in the current financial year has implemented a transfer pricing model to reflect its business environment. The Company has a policy of maintaining documents as prescribed by the Income-tax Act, 1961 to prove that these international transactions are at arm''s length and believes that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
The Management monitors the operating results of its business as a single primary segment âSoftware Product Licence and related services" for the purpose of making decisions about resource allocation and performance assessment. The business of the Company falls under a single primary segment i.e. ''Software Product License & related services'' for the purpose of Ind AS 108.
45 OTHER STATUTORY INFORMATION
i. The Company does not have any Benami property, where any proceeding has been initiated or pending against the Company for holding any Benami property.
ii. The Company does not have any transactions with Companies struck off.
iii. The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period.
iv. The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
v. The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall: a. 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)
a. 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
b. provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.
vi. The Company has 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 Company 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.
vii. The Company did not undertake 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.
46 PRIOR PERIODS COMPARATIVES
Previous year figures have been re grouped/reclassified, where ever necessary to conform to this years classification
Mar 31, 2022
Pursuant to the Taxation Law (Amendment) Ordinance, 2019 (''Ordinance'') subsequently amended in Finance Act issued by Ministry of Law and Justice (Legislative Department) on 20 September 2019 which is effective 1st April 2019, domestic companies have the option to pay corporate income tax rate at 22% plus applicable surcharge and cess (''New tax rate'') subject to certain conditions. Tax expense for the year ended March 31, 2022 in the consolidated and standalone financial statements includes one-time reduction in deferred tax charge arising out of the estimated impact amounting to Rs. 200 million. This is arising from the re-measurement of deferred tax liability that is expected to reverse in future when the Company will migrate to the new tax regime.
There are certain income-tax related legal proceedings which are pending against the Company. Potential liabilities, if any have been adequately provided for, and the Company does not currently estimate any probable material incremental tax liabilities in respect of these matters.
27 EARNINGS PER SHARE
Basic EPS amounts are calculated by dividing the profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted EPS amounts are calculated by dividing the profit attributable to equity shareholders by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares. The following reflects the income and share data used in the basic and diluted EPS computations:
29 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company''s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
In the process of applying the Company''s accounting policies, management has not made any judgements, which have significant effect on the amounts recognised in the Standalone Financial Statements.
b. 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 adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
1) Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on projected sales transactions, conducted at arm''s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset''s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.
The Company capitalises intangible asset under development for a project in accordance with the accounting policy. Initial capitalisation of costs is based on management''s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits.
The Company initially measures the cost of Equity-settled transactions with employees using a black scholes model to determine the fair value of the liability incurred. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 31.
3) Revenue from Contract with Customers
The Company is required to make an assessment for each new software license contract as to whether the underlying software requires significant modification or customization by the Company in order to meet the customer''s requirements. If significant modification or customization is required, then the license fee is recognized based on percentage-of-completion. Majority of such modifications or customizations have not been deemed significant in current or prior periods.
In respect of service revenue, the management exercises judgment in determining the percentage of completion utilizing output measures, such as the achievement of any project milestones stipulated in the contract, or internal quality milestones to assess proportional performance.
The Company also exercises judgement in assessing uncertainties surrounding the probability of collection when payment terms are linked to service implementation milestones or other various contingencies exist. These assessments are made at the outset of the contract.
4) Defined benefit plans (gratuity benefits)
The cost of the defined benefit gratuity plan and other post-employment benefits and the present value of the gratuity obligation are determined using actuarial valuation. An actuarial valuation involves making various assumptions that 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 complexities involved in the valuation 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.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation. The underlying bonds are further reviewed for quality.
The mortality rate is based on publicly available mortality tables for the specific countries. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates for the respective countries.
Further details about gratuity obligations and sensitivity analysis are given in Note 30.
Current Tax for the current year is computed as per the provisions of Section 115JB and the Minimum Alternate Tax liability (MAT) is provided for Significant management judgements have been involved in evaluating and recognising MAT credit, to be set off against the future taxable profits for which the Company has an eligible carry forward period of 15 years. Deferred tax assets are recognised for 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 judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
6) Provision for Allowance of Credit Loss
The Company has adopted and laid out its Expected Credit Loss Model (ECL) for determination of the Provision for credit loss allowance, which are primarily in the nature of trade receivables and unbilled revenue. In determining its ECL, assumptions and estimates are made in relation to Nature of customers (Public Sector Banks, Non-Banking Finance Companies, Private Banks etc), billing and collection terms as per the contract, average aging of the customer balance and the past trends of collection.
7) Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements 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. See Note 34 & 39 for further disclosures.
Determining the lease term of contracts with renewal and termination options - Company as lessee:
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Company applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination.
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow.
Refer Note 38 for information on potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.
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. A trust by name âIntellect Design Group gratuity trust" has been constituted by Intellect Design Arena Limited to administer the gratuity fund.
ii. Every employee holding an option in the Demerged Company under the stock option plans of the Demerged Company, shall be issued one option in the stock option plans formed by the Resulting Company upon the Scheme coming into effect.
iii. The exercise price of the options in the Resulting Company shall be adjusted to 28% of the exercise price of the options granted under the Schemes of the Demerged Company.
Apart from the schemes provided under the Demerger arrangement the company has the following Employee stock option schemes:
(i) The Company has formulated two stock option plans (Intellect Stock Option Plan 2015, Intellect Stock Option Plan 2016) of its own.
These plans provide for the granting of stock options to employees including directors of the Company (not being promoter directors and not holding more than 10% of the equity shares of the Company). The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire equity shares.
During the year 2017-18, the Company had offered rights issue to its shareholders. Consequent to this corporate action, the market price of the shares reduced from Rs. 130.60 to Rs. 118.20. The ESOP scheme of the Company specifically requires the Compensation/Nomination & Remuneration Committee to make a fair and reasonable adjustment to the option terms in case of corporate action. Considering the above, the Nomination and Remuneration Committee of Intellect on 09th November 2017 has revised/reduced the exercise prices of outstanding options (both vested and unvested) as on the record date i.e 18th July, 2017 by 15%. The fair values before and after the modification have remained unchanged and there is no incremental impact in the Income statement. The option plans are summarized below:
The Nomination and remuneration committee (NRCC) at its meeting held at June 9, 2020 and June 17, 2020 decided to modify the options provided to the employees due to significant reduction in current market price of equity shares of the Company. As per decision of NRCC, the employees were given an option to surrender their existing options and avail new options under the new scheme in lieu of surrendered option.
As a result of, associates holding 6,074,840 options under various schemes ASOP 2011, ISOP 2015, ISOP 2016 and ISOP 2018 have voluntarily surrendered their options on May 29, 2020, June 9, 2020, June 17, 2020 and August 7, 2020 and were issued new options in the ratio of 2:1 under Intellect Incentive Plan Scheme 2018 (Restrictive Stock Options) at a exercise price of INR 5. These modification have been approved by the NRCC.
The Scheme of Arrangement (Demerger) entered into by the Company with Polaris Consulting & Services Limited (Demerged Company) with effect from April 1, 2014 provided for the following in respect of Employee Stock Option Schemes;
i. The Company has adopted three stock option plans (ASOP 2003, ASOP 2004 and ASOP 2011) from Polaris Consulting & Services Limited, as provided in the Scheme of Arrangement.
Associate Stock Option Plan 2011
The Plan is effective from October 9, 2014 and the Company has received in principle approval from the National Stock Exchange on February 16, 2015 and the Bombay Stock Exchange on February 19, 2015 . The 2011 Plan provides for issuance of 48,88,450 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees. The plan shall be administered under 4 different schemes based on the following terms:
Intellect Stock option Plan 2015
The Shareholders of the Company in the Extraordinary General Meeting held on January 29, 2015 approved the Intellect Stock Option Plan 2015. The 2015 plan provides for issuance of 60,00,000 options convertible into equivalent number of equity shares of Rs 5/- each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the Scheme is for 12 years from the date of coming into effect and shall be extended by a period of not more than 5 years as the Board of Directors may decide. The Nomination Remuneration and Compensation Committee and the board has decided to amend the Scheme to include Restricted Stock Units(RSU''s) to facilitate grant of fresh RSU''s in lieu of options voluntarily surrendered as well as for future grants.The Company in its shareholder meeting held on August 21, 2020 have approved the modification of the scheme, to include Restrictive stock options in addition to existing options part of scheme. The plan shall be administered under 5 different schemes based on the following terms:
The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
The expected life of stock is based on historical data and current expectation and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
Intellect Stock option Plan 2016
The Shareholders of the Company in the Extraordinary General Meeting held on May 03, 2016 approved Intellect Stock Option Plan 2016. The 2016 plan provides for issuance of 4,000,000 options convertible into equivalent number of equity shares of Rs 5/- each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the Scheme is for 12 years from the date of coming into effect and shall be extended by a period of not more than 5 years as the Board of Directors may decide. The Nomination Remuneration and Compensation Committee and the board has decided to amend the Scheme to include Restricted Stock Units (RSU''s) to facilitate grant of fresh RSU''s in lieu of options voluntarily surrendered as well as for future grants. The Company in its shareholding meeting held on August 21, 2020 have approved the modification the scheme, to include Restrictive stock options in addition to existing options part of scheme. A summary of the status of the options granted under 2016 plan at March 31, 2021 is presented as below:
Grant price of options (RSU''s) under Swarnam 601 shall be Rs.5/- per option.
The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
The Shareholders of the Company in the Annual General Meeting held on August 23, 2018 approved Intellect Incentive Plan Scheme 2018. The 2018 plan provides for issuance of 62,50,000 options through Restrictive Stock Units (RSU''s) 2018 and ISOP 2018 in total convertible into equivalent number of equity shares of Rs. 5/-each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the scheme for RSU 2018 it shall continue to be in force until (i) its termination by the Company as per provisions of Applicable Laws, or (ii) the date on which all of the Restricted Stock Units available for issuance under the RSU 2018 / Stock Options 2018 have been issued and exercised, whichever is earlier and for ISOP 2018 is 12 years from the date of the Scheme coming to force. The scheme shall be extended by a period of not more than 5 years as the Board of Directors may decide. Nomination and remuneration committee (NRCC) in its meeting held of June 15, 2020 has decided to make the total options fungible between RSU and ISOP 2018. A summary of the status of the options granted under Intellect Incentive Plan scheme 2018 at March 31, 2022 is presented below:
Terms and conditions of transactions with related parties
The sales to related parties are made on terms equivalent to those that prevail in arm''s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables.
For the year ended 31 March 2022, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2021 is Rs Nil). 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.
33 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
(i) Capital commitment:
Contracts yet to be executed on capital account (net of advances) Rs. 6.76 million (March 31, 2021: Rs.4.91 million).
(ii) Other Commitment:
Bank guarantees in the nature of Financial guarantees (backed up by Fixed deposits) as at March 31, 2022 amounting to Rs.470.73 million (March 31, 2021 : Rs 530.94 millions)
(iii) Claims against the Company, not acknowledged as debt includes:
a) Future cash outflows in respect of matters considered disputed are determinable only on receipt of judgments / decisions pending at various forums/authorities. The management does not expect these claims to succeed and accordingly, no provision for the contingent liability has been recognized in the financial statements.
The Company''s pending litigations comprise of proceedings pending with tax authorities. The company has reviewed all the proceedings and has adequately provided for where provisions are required and disclosed contingent liabilities where applicable, in its financial statements.The Company does not expect the outcome of these proceedings to have a material adverse effect on the financial statements.
Table No. 3.134
The Company is contesting the demands raised by the respective tax authorities, and the management, based on internal assessment and per its tax advisors, believe that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company''s financial position and results of operations.
Table No. 3.136
Level 1 - Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs)
There has been no transfer between level 1 and level 2 during the year ended March 31, 2022 and March 31, 2021
b) During the year 2017, the Company has entered into a sub-contract arrangement with Ms Nextender (''Claimant'') for execution of a contract. Subsequently, in February 2019, the Company has scoped out the work of Nextender to a third party service providers due to various service quality issues raised by the customer. Claimant has filed Statement of Claim with the Arbitral Tribunal India claiming specific performance of sub-contract arrangements or for an alternate compensation for material breach of terms of contract. The Company has filed its response with the Arbitral Tribunal and pending hearing. The case outstanding is in ordinary course of business. The Company does not expect these proceedings to result in liabilities that have a material effect on the company''s financial position.
c) The honorable Supreme Court of India had passed judgement on February 28, 2019 that all allowances paid to employees are to be considered for the purpose of Provident fund wages determination. There are numerous interpretative issues relating to the above judgement. As a matter of caution, the Company has made a provison on a prospective basis from the date of Supreme Court order. The Company will update its provison, on receiving further clarity on the subject.
Set out below, is a comparison by class of the carrying amounts and fair value of the Company''s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values. The management assessed that the cash and cash equivalents, trade receivables, trade payables, fixed deposits, bank overdrafts and other payables approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The method and assumptions used to estimate the fair values is the fair values of financial instruments traded in active markets are based on quoted market prices at the balance sheet date.
37 RESEARCH AND DEVELOPMENT EXPENDITURE
The Company continues its significant investments in Research and Development efforts towards research, technology, engineering and new product development.The Company follows a policy of capitalising new product development, which meets the critereas of Ind AS 38 Intangible assets and has accordingly recognised such cost as Internally generated Intangible asset under ''Intangible assets under development'' (Note 4(b)) and Intangible asset (Note 5). During the current year ended March 31, 2022 the Company has incurred a revenue expenditure of Rs. 1,051 millions (March 31, 2021 - Rs.760 million) which has been debited to the Income statement and Capital expenditure as per table below:
38 LEASES
The Company has lease contracts for Land and Building used for the purpose of office space at differnt location. Leases of such assets generally have lease terms between 1 and 5 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. There are several lease contracts that include extension and termination options and variable lease payments, which are further discussed below.
Before the adoption of Ind AS 116, the Company classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease.
Upon adoption of Ind AS 116, the Company applied a single recognition and measurement approach for all leases except for short-term leases on Plant and Machinery and leases of low-value assets on office equipments. The standard provides specific transition requirements and practical expedients, which have been applied by the Company.
The Company had total cash outflows for leases of Rs. 42.44 million in March 31, 2022 (March 31, 2021: Rs. 67.82 million) The Company also had non-cash additions to right-of-use assets and lease liabilities of Rs. 1.93 million during the year (March 31, 2021: Rs. Nil million). There are no future cash outflows relating to leases that have not yet commenced.
The Company has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Company''s business needs. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised. The management does not expect undiscounted potential future rental payments due to extension options expected not to be exercised and termination options expected to be exercised.
There are no potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.
39 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company''s principal financial liabilities comprise of short tenured borrowings, trade and other payables and financial guarantee contracts. Most of these liabilities relate to financing Company''s working capital cycle. The Company has trade and other receivables, loans and advances that arise directly from its operations. The Company also enters into hedging transactions to cover foreign exchange exposure risk.
The Company is accordingly exposed to market risk, credit risk and liquidity risk.
The Company''s senior management oversees management of these risks. The senior professionals working to manage the financial risks and the appropriate financial risk governance framework for the Company are accountable to the Board of Directors, Risk Committee and the Audit Committee. This process provides assurance that the Company''s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Company''s policies and overall risk appetite. All foreign currency hedging activities for risk management purposes are carried out by a team that have the appropriate skills, experience and supervision. In addition, independent views from bankers and currency market experts are obtained periodically to validate risk mitigation decisions. It is the Company''s policy that no trading in derivatives for speculative purposes shall be undertaken.
The Risk Committee and the Audit Committee review and agree policies for managing each of these risks which are summarised below:
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include deposits, FVTPL investments and derivative financial instruments.
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''s operating activities (when revenue or expense is denominated in a foreign currency) and the Company''s net investments in foreign subsidiaries.
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 settlement of the resulting receivable or payable that is denominated in the foreign currency.
The following table demonstrates the sensitivity to a reasonably possible change in exchange rates, with all other variables held constant. The impact on the Company''s profit / (loss) before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The Company''s exposure to foreign currency changes for all other currencies is not material. In management''s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Table No. 3.147
In respect of the Company''s forward derivative contracts, a 5% increase in the contract exchange rates of each of the currencies underlying such contracts would have resulted in increase in Other Comprehensive income by Rs. 769.80 million (Mar 2021 371.01 million.)
Conversely, 5% depreciation in the above mentioned exchange rates on foreign currency exposures as at March 31, 2022 and March 31, 2021 would have had the same but opposite effect, again holding all other variable constant.
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 from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
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. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.
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 groups and assessed for impairment collectively. The calculation is based on exchange losses historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 12(b) & 12(f). The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers (which are in the nature of reputed banking and financial institutions)
B. Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company''s treasury department in accordance with the Company''s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Company''s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Company''s Finance Committee. 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 the components of the balance sheet as at March 31, 2022 and 2021 is the carrying amount as illustrated in Notes 7 and 11.
Liquidity risk is the risk that the Group may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses. The Company''s objective is to, at all times maintain optimum levels of liquidity to meet it cash and collateral requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It maintains adequate sources of financing including loans, debt, and overdraft from both domestic and international banks at an optimised cost.
For the purpose of the Company''s capital management, capital includes issued equity capital, convertible preference shares, share premium and all other equity reserves attributable to the equity holders. The primary objective of the Company''s capital management is to maximise the shareholders value. The Group determines the amount of capital required on the basis of annual operating plans and longterm product and other strategic investment plans. The funding requirements are met through equity and other long-term/short-term borrowings.
44 TRANSFER PRICING ARRANGEMENTS WITH SUBSIDIARIES
The Company has international operations and in its normal course of business with its various subsidiaries it is involved in the business of software sale and implementation of its products across various countries. The Company reviews these arrangements on a periodic basis to reflect the current business models and in the current financial year has implemented a transfer pricing model to reflect its business environment. The Company has a policy of maintaining documents as prescribed by the Income-tax Act, 1961 to prove that these international transactions are at arm''s length and believes that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.
45 IMPACT OF COVID 19
The Company has considered the possible effects that may result from the pandemic relating to COVID-19 in the preparation of these Standalone financial statements including the recoverability of carrying amounts of financial and non-financial assets. In developing the assumptions relating to the possible future uncertainties in the global economic conditions because of this pandemic, the Company has, at the date of approval of these financial statements, used internal and external sources of information including credit reports and related information and economic forecasts and expects that the carrying amount of these assets will be recovered. The impact of COVID-19 on the Company''s financial statements may differ from that estimated as at the date of approval of these Standalone financial statements
46. OTHER STATUTORY INFORMATION
(i) The Company does not have any Benami property, where any proceeding has been initiated or pending against the Group/Company for holding any Benami property.
(ii) The Company does not have any transactions with companies struck of
(iii) The Company does not have any charges or satisfaction which is yet to be registered with ROC beyond the statutory period,
(iv) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(v) The Company has not advanced or loaned or invested funds to any other person(s) or entity(ies), including foreign entities (Intermediaries) with the understanding that the Intermediary shall
a. 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)
b. provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries
(vi) The Company has 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/Company 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,
(vii) The Company did not undertake 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).
47. PRIOR PERIODS COMPARATIVES
Previous year figures have been re-grouped/ reclassified, where ever necessary to conform to this years classification
Mar 31, 2018
Table No. 4.36
The estimates of future salary increases, considered in actuarial valuation, takes into account, inflation, seniority, promotions and other relevant factors, such as demand and supply in the employment market.
Discount rate is based on the prevailing market yields of Indian Government Bonds as at the Balance Sheet date for the estimated term of the obligation Estimated amount of contribution to the fund during the year ended March 31, 2018 as estimated by management is Rs. 799.80 lakhs.
Estimated amount of contribution to the fund during the Year Ended March
31, 2018, as estimated by management is Rs.7,99.80 lakhs (Previous year Rs.
5,57.11 lakhs)
Notes
(a) The estimates of future salary increases, considered in actuarial valuation, takes into account, inflation, seniority, promotions and other relevant factors, such as demand and supply in the employment market
(b) Discount rate is based on the prevailing market yields of Indian Government Bonds as at the Balance Sheet date for the estimated term of the obligation
(c) The Composition of Plan assets which is funded with ICICI Prudential Life Insurance
1. Share based payments
The Scheme of Arrangement (Demerger) entered into by the Company with Polaris Consulting & Services Limited (Demerged Company) with effect from April 1, 2014 provided for the following in respect of Employee Stock Option Schemes;
(i) The Company has adopted three stock option plans (ASOP 2003, ASOP 2004 and ASOP 2011) from Polaris Consulting & Services Limited, as provided in the Scheme of Arrangement.
(ii) Every employee holding an option in the Demerged Company under the stock option plans of the Demerged Company, shall be issued one option in the stock option plans formed by the Resulting Company upon the Scheme coming into effect.
(iii) The exercise price of the options in the Resulting Company shall be adjusted to 28% of the exercise price of the options granted under the Schemes of the Demerged Company.
Apart from the schemes provided under the Demerger arrangement the company has the following Employee stock option schemes
(i) The Company has formulated two stock option plans (Intellect Stock Option Plan 2015, Intellect Stock Option Plan 2016) of its own.
These plans provide for the granting of stock options to employees including directors of the Company (not being promoter directors and not holding more than 10% of the equity shares of the Company). The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire equity shares.
During the current year the Company had offered rights issue to its shareholders on 17th July, 2017. Consequent to this corporate action, the market price of the shares reduced from Rs. 130.60 to Rs. 118.20. The ESOP scheme of the Company specifically requires the Compensation/Nomination & Remuneration Committee to make a fair and reasonable adjustment to the option terms in case of corporate action. Considering the above, the Nomination and Remuneration Committee of Intellect on 09th November 2017 has revised/ reduced the exercise prices of outstanding options (both vested and unvested) as on the record date i.e 18th July, 2017 by 15 %. The fair values before and after the modification have remained unchanged and there is no incremental impact in the Income statement. The option plans are summarized below:
Associate Stock Option Plan 2003
The Plan is effective from October 9, 2014 and the Company has received in principle approval from the National Stock Exchange on February 16, 2015 and from the Bombay Stock Exchange on March 3, 2015. The 2003 Plan provides for issuance of 26,03,850 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees including directors of the Company. The options are granted at the market price on the date of the grant. The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.
No compensation cost has been recorded as the scheme terms are fixed and there were no shares vesting after the transition date of April 1,
Associate Stock Option Plan 2004
The Plan is effective from October 9, 2014 and the Company has received in principle approval from the National Stock Exchange and the Bombay Stock Exchange on February 16, 2015. The 2004 Plan provides for issuance of 8,24,645 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees, including directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.
No compensation cost has been recorded as the scheme terms are fixed and there were no shares vesting after the transition date of April 1, 2015. A summary of the status of the options granted under 2004 plan at March 31, 2018 is presented below:
Table No. 4.52
The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
Table No. 4.61
Intellect Stock option Plan 2015
The Shareholders of the Company in the Extraordinary General Meeting held on January 29, 2015 approved the Intellect Stock Option Plan 2015. The 2015 plan provides for issuance of 60,00,000 options convertible into equivalent number of equity shares of Rs 5/- each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the Scheme is for 12 years from the date of coming into effect and shall be extended by a period of not more than 5 years as the Board of Directors may decide. The plan shall be administered under 5 different schemes based on the following terms:
Table No. 4.79
The expected life of stock is based on historical data and current expectation and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
Table No. 4.90
2. Related party transactions 33a. List of related parties Subsidiaries
1. Intellect Design Arena Pte Ltd, Singapore (âIntellect Singaporeâ)
2. Intellect Design Arena Limited, United Kingdom (âIntellect UKâ)
3. Intellect Design Arena SA, Switzerland (âIntellect Switzerlandâ)
4. Intellect Design Arena FZ-LLC, Dubai (âIntellect Dubaiâ)
5. Intellect Commerce Limited, India (âIntellect Commerceâ)
6. Intellect Design Chile Ltda , Chile (âIntellect Chileâ) *
7. Intellect Design Arena Inc, USA (''Intellect Inc. - SEEC USâ)**
8. SEEC Technologies Asia Private Limited, India (''Seec Asia'')***
9. Laser Soft Infosystems Limited, India (âLaser Softâ)
10. Indigo TX Software Pvt Ltd, India (âIndigo TXâ)
11. Intellect Design Arena Co. Ltd, Vietnam (âIntellect Vietnamâ)
12. SFL Properties Private Ltd, India (âSFL Propertiesâ)
13. Intellect Design Arena Philippines Inc.(â Intellect Philippinesâ)**
14. Sonali Polaris FT Limited, Bangladesh (âSonali Polaris FTâ)
15. FT Grid Pte Ltd, Singapore (âFT Gridâ)**
16.Intellect Design Arena, PT Indonesia (âIntellect Indonesiaâ)** 17.Intellect Design Arena Inc.(âIntellect Canadaâ)*
18.Intellect Design Arena Limited.(âIntellect Thailandâ)** 19.Intellect Design Arena,SDN BHD.(âIntellect Malaysiaâ)** 20.Intellect Design Arena Pty Ltd.(âIntellect Australiaâ)** 21.Intellect Payments Limited (âIntellect Paymentsâ)
22.Intellect India Limited (âIntellect Indiaâ)
23. Intellect Design Arena Limited (âIntellect Kenyaâ)
* Subsidiaries of Intellect Design Arena Limited, UK ** Subsidiaries of Intellect Design Arena Pte Ltd, Singapore *** Subsidiary of Intellect Design Arena Inc., USA
Associates
1. NMS Works Software Private Limited, India (''NMS'')
2. Adrenalin eSystems Limited, India (âAdrenalin eSystemsâ)
Joint Venture
1. Intellect Polaris Design LLC,USA (âIPDLLC USAâ)
Others
(a) Enterprises that directly or indirectly through one or more intermediaries, over which Key Management Personnel is able to exercise significant influence.
1. Polaris Banyan Holding Private Ltd, India (âPolaris Banyanâ)
(b) Key management personnel (KMP)
1. Mr. Arun Jain, Chairman and Managing Director
2. Mr. S Swaminathan, Chief Financial Officer
3. Mr. Naresh VV, Company Secretary
4. Mr. Balaraman V, Independent Director
5. Mr. Arun Shekhar Aran, Audit Committee Chairman
6. Mr. Anil Kumar Verma, Director
Table No. 4.91
Terms and conditions of transactions with related parties
The sales to related parties are made on terms equivalent to those that prevail in arm''s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2018, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2017: Nil). 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.
3. Capital and other commitments Capital commitment:
Contracts yet to be executed on capital account (net of advances) Rs. 150.63 lakhs (March 31, 2017: Rs.12.42 Lakhs).
Other Commitment:
Bank guarantees in the nature of Financial guarantees (backed up by Fixed deposits) as at March 31, 2018 amounting to Rs.3,940 Lakhs.
4. Investment - Fair value
Set out below, is a comparison by class of the carrying amounts and fair value of the Company''s financial instruments, other than those with carrying amounts that are reasonable approximations of fair values:
Table No. 4.93
Level 1 - Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs)
5. Hedging of foreign currency exposures
The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes. The following are the outstanding Forward Exchange Contracts entered into by the Company as at March 31, 2018 and March 31, 2017 including forward cover taken for forecasted revenue receivable transactions:
6. Research and Development Expenditure
During the current year ended March 31, 2018, the Company has incurred revenue expenditure of Rs 4,336.25 Lakhs (March 2017: 4,777 Lakhs). The Company continues its significant investments in Research and Development efforts towards research, technology, engineering and new product development. The Company follows a policy of capitalising new product development, which meets the critereas of Ind AS 38 Intangible assets and has accordingly recognised such cost as Internally generated Intangible asset under âIntangible assets under developmentâ (Note 4) and Intangible asset (Note 5). During the current year ended March 31, 2018 the Company has incurred a revenue expenditure of Rs. 43,36.25 Lakhs (FY March 31, 2017 - Rs. 47,77) which has been debited to the Income statement and Capital expenditure as per table below:
We hereby furnishing the details of expenses under the respective Head of accounts which are recognised as Intangible assets under development:
7. Financial risk management objectives and policies
The Company''s principal financial liabilities comprise of short tenured borrowings, trade and other payables and financial guarantee contracts. Most of these liabilities relate to financing Company''s working capital cycle. The Company has trade and other receivables, loans and advances that arise directly from its operations. The Company also enters into hedging transactions to cover foreign exchange exposure risk.
The Company is accordingly exposed to market risk, credit risk and liquidity risk.
The Company''s senior management oversees management of these risks. The senior professionals working to manage the financial risks and the appropriate financial risk governance framework for the Company are accountable to the Board of Directors, Risk Committee and the Audit Committee. This process provides assurance that the Companyâs financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Company''s policies and overall risk appetite. All foreign currency hedging activities for risk management purposes are carried out by a team that have the appropriate skills, experience and supervision. In addition, independent views from bankers and currency market experts are obtained periodically to validate risk mitigation decisions. It is the Companyâs policy that no trading in derivatives for speculative purposes shall be undertaken.
The Risk Committee and the Audit Committee review and agree policies for managing each of these risks which are summarised below:
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include deposits, FVTPL investments and derivative financial instruments.
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 foreign exchange rates. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''s operating activities (when revenue or expense is denominated in a foreign currency) and the Company''s net investments in foreign subsidiaries.
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 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 exchange rates, with all other variables held constant. The impact on the Company''s profit / (loss) before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The Company''s exposure to foreign currency changes for all other currencies is not material. In managementâs opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Table No. 4.97
Conversely, 5% depreciation in the above mentioned exchange rates on foreign currency exposures as at 31st March 2018 and 31st March 2017 would have had the same but opposite effect, again holding all other variables constant.
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 from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
A. 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. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.
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 groups and assessed for impairment collectively. The calculation is based on exchange losses historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 12(c). The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers (which are in the nature of reputed banking and financial institutions) are located in several jurisdictions and industries and operate in largely independent markets.
Table No. 4.98
B. Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company''s treasury department in accordance with the Company''s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Company''s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Company''s Finance Committee. 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 the components of the balance sheet as at March 31, 2018 and 2017 is the carrying amount as illustrated in Notes 7, 12 and 13.
Liquidity risk
Liquidity risk is the risk that the Group may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses. The Companyâs objective is to, at all times maintain optimum levels of liquidity to meet it cash and collateral requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It maintains adequate sources of financing including loans, debt, and overdraft from both domestic and international banks at an optimised cost.
The table below summarises the maturity profile of the Company''s financial liabilities based on contractual undiscounted payments:
8. Capital management
For the purpose of the Company''s capital management, capital includes issued equity capital, convertible preference shares, share premium and all other equity reserves attributable to the equity holders. The primary objective of the Company''s capital management is to maximise the shareholders value. The Group determines the amount of capital required on the basis of annual operating plans and long-term product and other strategic investment plans. The funding requirements are met through equity and other long-term/shortterm borrowings.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, interest bearing loans and borrowings, less cash and cash equivalents.
Table No. 4.101
* Includes Equity Share Capital & Other Equity
9. SCHEMEN OF ARRANGEMENT (MERGER) BETWEEN INDIGO TX SOFTWARE PRIVATE LIMITED AND LASER SOFT INFOSYSTEMS LIMITED
The Board of Directors of the Company at its meeting held on May 3, 2016 had approved a Scheme of Arrangement (âthe Scheme") enabling the merger of two of itâs subsidiaries, namely Indigo TX Software Private Limited (âITSPL") and Laser Soft Info systems Limited (âLSIL") with the Company, with an appointed date of April 1, 2016. The Scheme of Arrangement has been approved by the National Stock Exchange (NSE), the designated stock exchange on March 28, 2017 and by Bombay Stock Exchange (BSE) on March 29,2017, the creditors and by the shareholders of the Companies in the National Company Law Tribunal (NCLT) convened meeting on January 18, 2018 and is yet to be approved by the NCLT and other Statutory Regulatory authority(ies) as may be applicable and would be given effect to after receipt of all approvals in accordance with Ind AS 103 - âBusiness Combinationsâ as prescribed under Section 133 of the Companies Act, 2013 read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant amendment rules thereafter.
10. Rights Issue
The Company, vide its Letter of Offer dated July 06, 2017 offered unto 23.135.710 Equity Shares of Face Value of Rs 5/- each at a price of Rs 86/- per Rights Share including Share Premium of Rs 81/- per Equity Share for an amount aggregating to Rs 19,896.71 lakhs on Rights basis in the ratio of 5:22 (Five Rights Shares for every 22 fully paid up Equity Shares ) held by the Equity Shareholders on the record date ie July 18, 2017. The Company has allotted 23.135.710 shares on August 19, 2017. Pursuant to allotment of shares by way of rights issue, earnings per share (EPS) in respect of previous year has been restated as per Ind AS 33 - "Earnings Per Share", prescribed under Section 133 of the Companies Act, 2013.
11. Prior periods Comparatives
Previous year figures have been re grouped / reclassified, where ever necessary to confirm to this yearâs classification
Mar 31, 2017
Table No. 5.35
1. Basic EPS amounts are calculated by dividing the profit for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to equity shareholders by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares.
The following reflects the income and share data used in the basic and diluted EPS computations:_
2. Significant accounting judgments, estimates and assumptions
The preparation of the Company''s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
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 adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm''s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset''s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.
Share-based payments
The Company initially measures the cost of Equity-settled transactions with employees using a black schools model to determine the fair value of the liability incurred. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 33.
Defined benefit plans (gratuity benefits)
"The cost of the defined benefit gratuity plan and other postemployment medical benefits and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that 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 complexities involved in the valuation 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.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the postemployment benefit obligation. The underlying bonds are further reviewed for quality.
The mortality rate is based on publicly available mortality tables for the specific countries. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates for the respective countries.
Further details about gratuity obligations and sensitivity analysis are given in Note 32."
Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF 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. 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. Intangible asset under development
The Company capitalizes intangible asset under development for a project in accordance with the accounting policy. Initial capitalization of costs is based on management''s judgment that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits. At 31 March 2017, the carrying amount of capitalized intangible asset under development was INR 227.22 lakhs (31 March 2016: INR Nil). Refer note 39 for details on the intangible assets under development.
3. Gratuity
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. A trust by name "Intellect Design Group gratuity trust" has been constituted by Intellect Design Arena Limited to administer the gratuity fund.
The following table summarizes the components of net benefit expense recognized in the Statement of profit and loss and the funded status and amounts recognized in the balance sheet for the respective plans.
Table No. 4
Estimated amount of contribution to the fund during the Year Ended March 31, 2018, as estimated by management is Rs. 5,57.11 lakhs (Previous year Rs. 4,19.02 lakhs)
Table No. 5.
The estimates of future salary increases, considered in actuarial valuation, takes into account, inflation, seniority, promotions and other relevant factors, such as demand and supply in the employment market.
Discount rate is based on the prevailing market yields of Indian Government Bonds as at the Balance Sheet date for the estimated term of the obligation
Estimated amount of contribution to the fund during the year ended March 31, 2018 as estimated by management is Rs. 557.11 lakhs.
Table No. 6
Notes
a) The estimates of future salary increases, considered in actuarial valuation, takes into account, inflation, seniority, promotions and other relevant factors, such as demand and supply in the employment market
b) Discount rate is based on the prevailing market yields of Indian Government Bonds as at the Balance Sheet date for the estimated term of the obligation
c) The Composition of Plan assets which is funded with Life Insurance Corporation of India is as below:
7. Share based payments
The Scheme of Arrangement (Demerger) entered into by the Company with Polaris Consulting & Services Limited (Demerged Company) with effect from April 1, 2014 provided for the following in respect of Employee Stock Option Schemes;
(i) The Company has adopted three stock option plans (ASOP 2003, ASOP 2004 and ASOP 2011) from Polaris Consulting & Services Limited, as provided in the Scheme of Arrangement.
(ii) Every employee holding an option in the Demerged Company under the stock option plans of the Demerged Company, shall be issued one option in the stock option plans formed by the Resulting Company upon the Scheme coming into effect.
(iii) The exercise price of the options in the Resulting Company shall be adjusted to 28% of the exercise price of the options granted under the Schemes of the Demerged Company.
Apart from the schemes provided under the Demerger arrangement the company has the following Employee stock option schemes
(i) The Company has formulated two stock option plans (Intellect Stock Option Plan 2015, Intellect Stock Option Plan 2016) of its own. These plans provide for the granting of stock options to employees including directors of the Company (not being promoter directors and not holding more than 10% of the equity shares of the Company). The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire equity shares. The option plans are summarized below:
Associate Stock Option Plan 2003
The Plan is effective from October 9, 2014 and the Company has received in principle approval from the National Stock Exchange on February 16, 2015 and from the Bombay Stock Exchange on March 3,
2015. The 2003 Plan provides for issuance of 26,03,850 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees including directors of the Company . The options are granted at the market price on the date of the grant. The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of
5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.
Table No. 8
Associate Stock Option Plan 2004
The Plan is effective from October 9, 2014 and the Company has received in principle approval from the National Stock Exchange and the Bombay Stock Exchange on February 16, 2015. The 2004 Plan provides for issuance of 8,24,645 options, convertible to equivalent number of equity shares of Rs.5 each, to the employees, including directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.
Table No. 9
Associate Stock Option Plan 2011
The Plan is effective from October 9, 2014 and the Company has received in principle approval from the National Stock Exchange on February 16, 2015 and the Bombay Stock Exchange on February 19, 2015 . The 2011 Plan provides for issuance of 48,88,450 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees. The plan shall be administered under 4 different schemes based on the following terms:
Table No.10
The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
Table No. 11
Intellect Stock option Plan 2015
The Shareholders of the Company in the Extraordinary General Meeting held on January 29,2015 approved the Intellect Stock Option Plan 2015. The 2015 plan provides for issuance of 60,00,000 options convertible into equivalent number of equity shares of Rs 5/- each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the Scheme is for 12 years from the date of coming into effect and shall be extended by a period of not more than 5 years as the Board of Directors may decide. The plan shall be administered under 5 different schemes based on the following terms:
Table No.12
The market price, in accordance with the Securities and Exchange Board of India (Share based employee benefits) Regulations 2014 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the fair value model.
The expected life of stock is based on historical data and current expectation and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
Intellect Stock option Plan 2016
The Shareholders of the Company in the Extraordinary General Meeting held on May 03, 2016 approved the Intellect Stock Option Plan 2016. The
2016 plan provides for issuance of 40,00,000 options convertible into equivalent number of equity shares of Rs 5/- each to employees but shall exclude independent directors, an employee belonging to the promoter group or a director holding more than 10% of the share capital. The tenure of the Scheme is for 12 years from the date of coming into effect and shall be extended by a period of not more than 5 years as the Board of Directors may decide. A summary of the status of the options granted under 2016 plan at March 31, 2017 is presented as below:
Table No. 13
14. Related party transactions 34a. List of related parties Subsidiaries
1. Intellect Design Arena Pte Ltd, Singapore (''Intellect Singapore'')
2. Intellect Design Arena Limited, United Kingdom (''Intellect UK'')
3. Intellect Design Arena SA, Switzerland (''Intellect Switzerland'')
4. Intellect Design Arena FZ-LLC, Dubai (''Intellect Dubai'')
5. Intellect Commerce Limited, India (''Intellect Commerce'')
6. Intellect Design Chile Ltda , Chile (''Intellect Chile'') *
7. Intellect Design Arena Inc, USA (''Intellect Inc. - SEEC US'')**
8. SEEC Technologies Asia Private Limited, India (''Seec Asia'')***
9. Laser Soft Info systems Limited, India (''Laser Soft'')
10. Indigo TX Software Pvt Ltd, India (''Indigo TX'')
11. Intellect Design Arena Co. Ltd, Vietnam (''Intellect Vietnam'')
12. SFL Properties Private Ltd, India (''SFL Properties'')
13. Intellect Design Arena Philippines Inc.('' Intellect Philippines'')**
14. Sonali Polaris FT Limited, Bangladesh (''Sonali Polaris FT'')
15. FT Grid Pte Ltd, Singapore (''FT Grid'')**
16.Intellect Design Arena, PT Indonesia (''Intellect Indonesia'')**
17.Intellect Design Arena Inc.(''Intellect Canada'')*
18.Intellect Design Arena Limited.(''Intellect Thailand'')**
19.Intellect Design Arena,SDN BHD.(''Intellect Malaysia'')** 20.Intellect Design Arena Pty Ltd.(''Intellect Australia'')** 21.Intellect Payments Limited (''Intellect Payments'')
22.Intellect India Limited (''Intellect India'')
* Subsidiaries of Intellect Design Arena Limited, UK ** Subsidiaries of Intellect Design Arena Pte Ltd, Singapore *** Subsidiary of Intellect Design Arena Inc., USA Associates
1. NMS Works Software Private Limited, India (''NMS'')
2. Adrenalin eSystems Limited, India (''Adrenalin eSystems'')
Joint Venture
1. Intellect Polaris Design LLC,USA (''IPDLLC USA'')
Others
(a) Enterprises that directly or indirectly through one or more intermediaries, over which Key Management Personnel is able to exercise significant influence, "Others"
1. Polaris Banyan Holding Private Ltd, India (''Polaris Banyan'')
(b) Enterprises that directly or indirectly through one or more intermediaries, over which Key Management Personnel is able to exercise significant influence, "Others" - Up to 2nd March 2016
1. Polaris Consulting & Services Pte Ltd, Singapore (''PCSL Singapore'')
2.Polaris Consulting & Services Inc, Canada (''PCSL Canada'')
3.Polaris Consulting & Services Limited, United Kingdom (''PCSL UK'')
4.Polaris Consulting & Services GmbH, Germany (''PCSL Germany'')
5. Polaris Consulting & Services Pty Ltd, Australia (''PCSL Australia'')
6. Polaris Consulting and Services Japan K.K , Japan (''PCSL Japan'')
7. Polaris Consulting & Services Ireland Ltd, Ireland (''PCSL Ireland'')
8. Polaris Consulting & Services B.V, Netherlands (''PCSL Netherlands'')
9. Polaris Software (Shanghai) Limited, China (''PSL China'')
10.Polaris Software Consulting & Services Sdn Bhd, Malaysia (''PCSL Malaysia'')
11. Polaris Consulting & Services KFT, Hungary (''PCSL Hungary'')
12. Optimus Global Services Limited, India (''Optimus'')
13.Polaris Consulting & Services Limited, India (''PCSL India'')
14.Polaris Consulting & Services Limited, FZ LLC (''PCSL Dubai'')
15.Polaris Consulting & Services SA (''PCSL Switzerland'')
(b) Key management personnel (KMP)
1. Mr. Arun Jain, Chairman and Managing Director
2. Mr. S Swaminathan,Chief Financial Officer
3. Mr. Naresh VV,Company Secretary
4. Mr. Balaraman V, Independent Director
5. Mr. Arun Shekhar Aran, Audit Committee Chairman
6. Mr. Anil Kumar Verma, Director
Terms and conditions of transactions with related parties
The sales to related parties are made on terms equivalent to those that prevail in arm''s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 March 2017, the Company has not recorded any impairment of receivables relating to amounts owed by related parties (31 March 2016: INR Nil, 1 April 2015: Nil). 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.
Table No.15
Level 1 - Quoted price (unadjusted) in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs)
16. Hedging of foreign currency exposures
The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes. The following are the outstanding Forward Exchange Contracts entered into by the Company as at March 31, 2017 and March 31, 2016 including forward cover taken for forecasted revenue receivable transactions:
17. Research and Development Expenditure
During the current year ended March 31, 2017, the Company has incurred revenue expenditure of Rs 4,777 Lakhs (March 2016: 8,525.86 Laths). The Company continues its significant investments in R&D efforts towards research, technology, engineering and new product development. The Company follows a policy of capitalizing new product development, which meets the criteriaâs of Ind AS 38 Intangible assets and has accordingly recognized such cost as Internally generated Intangible asset under CWIP ( Note 4) and Intangible asset (Note 5). During the current year ended March 31, 2017 the Company has incurred a revenue expenditure of Rs. 4,777 Lakhs (FY March 31, 2016 - Rs. 8,525.86, FY March 31, 2015 - Rs. 441.63).
We hereby furnishing the details of expenses under the respective Head of accounts which are recognized as Capital Work in Progress.
Table No. 18
19. Financial risk management objectives and policies
The Company''s principal financial liabilities comprise of short tenured borrowings, trade and other payables and financial guarantee contracts. Most of these liabilities relate to financing Company''s working capital cycle. The Company has trade and other receivables, loans and advances that arise directly from its operations. The Company also enters into hedging transactions to cover foreign exchange exposure risk.
The Company is accordingly exposed to market risk, credit risk and liquidity risk.
The Company''s senior management oversees management of these risks. The senior professionals working to manage the financial risks and the appropriate financial risk governance framework for the Company are accountable to the Board of Directors, Risk Committee and the Audit Committee. This process provides assurance that the Company''s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Company''s policies and overall risk appetite. All foreign currency hedging activities for risk management purposes are carried out by a team that have the appropriate skills, experience and supervision. In addition, independent views from bankers and currency market experts are obtained periodically to validate risk mitigation decisions. It is the Company''s policy that no trading in derivatives for speculative purposes shall be undertaken.
The Risk Committee and the Audit Committee review and agree policies for managing each of these risks which are summarized below:
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include deposits, FVTPL investments and derivative financial instruments.
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 foreign exchange rates. The Company''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''s operating activities (when revenue or expense is denominated in a foreign currency) and the Company''s net investments in foreign subsidiaries.
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 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 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 non-designated foreign currency derivatives and embedded derivatives. The impact on the Company''s pre-tax profit is due to changes in the fair value of forward exchange contracts designated as cash flow hedges and net investment hedges. The Company''s exposure to foreign currency changes for all other currencies is not material. In management''s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year.
Table No. 20 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 from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
A. 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. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.
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 groups and assessed for impairment collectively. The calculation is based on exchange losses historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 12(c). The Company does not hold collateral as security. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers (which are in the nature of reputed banking and financial institutions) are located in several jurisdictions and industries and operate in largely independent markets."
B. Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by the Company''s treasury department in accordance with the Company''s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Company''s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Company''s Finance Committee. The limits are set to minimize 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 the components of the balance sheet as at March 31, 2017 and 2016 is the carrying amount as illustrated in Notes 7, 12 and 13.
Liquidity risk
Liquidity risk is the risk that the Group may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses. The Company''s objective is to, at all times maintain optimum levels of liquidity to meet it cash and collateral requirements. The Company closely monitors its liquidity position and deploys a robust cash management system. It maintains adequate sources of financing including loans, debt, and overdraft from both domestic and international banks at an optimized cost.
The table below summarizes the maturity profile of the Company''s financial liabilities based on contractual undiscounted payments:
For the purpose of the Company''s capital management, capital includes issued equity capital, convertible preference shares, share premium and all other equity reserves attributable to the equity holders. The primary objective of the Company''s capital management is to maximize the shareholders value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Company includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents, excluding discontinued operations.
43. First-time adoption of Ind AS
These financial statements, for the year ended March 31, 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP).
Exemptions applied
Ind AS 103 Business Combinations has not been applied to acquisitions of subsidiaries, which are considered businesses under Ind AS that occurred before April 1, 2015. Use of this exemption means that the Indian GAAP carrying amounts of assets and liabilities, that are required to be recognized under Ind AS, is their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with respective Ind AS. The Company recognizes all assets acquired and liabilities assumed in a past business combination, except (i) certain financial assets and liabilities that were derecognized and that fall under the de-recognition exception, and (ii) assets (including goodwill) and liabilities that were not recognized in the acquirer''s consolidated balance sheet under its previous GAAP and that would not qualify for recognition under Ind AS in the individual balance sheet of the acquire. Assets and liabilities that do not qualify for recognition under Ind AS are excluded from the opening Ind AS balance sheet. The Company did not recognize or exclude any previously recognized amounts as a result of Ind AS recognition requirements.
Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. Ind AS 102 Share-based Payment has not been applied to equity instruments in share-based payment transactions that vested before April 1, 2015.
Estimates:
The estimates at April 1, 2015 and at March 31, 2016 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies) apart from FVTPL - equity instruments in Non group companies and Impairment of financial assets based on expected credit loss model where application of Indian GAAP did not require estimation.
The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at April 1, 2015 (i.e. the date of transition to Ind-AS) and as of March 31, 2016.
The company has measured its investment in equity instruments of subsidiaries, joint ventures and associates as the previous GAAP carrying amount for determining the deemed cost.
Leases:
Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected to be not material. The Company has elected to apply this exemption for such contracts/arrangements.
Classification and measurement of financial assets:
Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exists at the date of transition to Ind AS. Accordingly, classification and measurement of bonds, debentures, government securities, commercial papers, certificate of deposits has been based on the facts and circumstances that exists at the date of transition to Ind AS.
17. SCHEMEN OF ARRANGEMENT (MERGER) BETWEEN INDIGO TX SOFTWARE PRIVATE LIMITED AND LASER SOFT INFOSYSTEMS LIMITED
The Board of Directors of the Company at its meeting held on May 21, 2015 have approved a Scheme of Arrangement (âthe Scheme") enabling the merger of two of its wholly owned subsidiaries, namely Indigo TX Software Private Limited (âITSPL") and Laser Soft Info systems Limited(âLSIL") with the Company, with effect from April 1, 2015 (âAppointed Date"). Subsequently the Board of directors in its meeting held on May 3, 2016 had revised the appointed date of merger to April 1, 2016. The Scheme of Arrangement is yet to be approved by the respective shareholders'' of all three companies, the creditors of the subsidiaries, the High Court of Madras or the National Company Law Tribunal (as the case may be) and such other statutory / regulatory authority(ies), as may be applicable before it is given effect to.
18. Rights Issue
The Board of Directors of the Company approved filing of a Draft Letter Of Offer in connection with a proposed offering of equity shares of the Company of face value of Rs 5/- for an aggregate amount of Rs 20,000 Lakhs. The DLOF was filed with Securities Exchange Board of India (SEBI) / Stock exchanges on January 27, 2017 and has been approved by SEBI on April 13, 2017. The company has incurred an expenditure of Rs.102 Lakhs towards the Rights Issue transaction which has been classified as "other current assets" in the financial statements (Refer note 17 of Annexure VI), such costs would be accounted for as a deduction from equity (net of any related income tax benefit) upon completion of the equity transaction.
Note 47, 48 & 49
Ind AS 101 requires an entity to reconcile equity, total comprehensive income for prior periods. The following reconciliations provide the explanations and quantification of the differences arising from the transition from Previous GAAP to Ind AS in accordance with Ind AS 101:
(i) Redeemable Preference Shares
Investments in redeemable preference shares of associates were carried at cost under Indian GAAP. Investments in preference shares of associates, which are classified as investment in debt instruments of associates under Ind AS, carrying coupon below market rate of interest are required to be measured and carried at fair value. The excess of principal amount over its fair value will be added to the cost of investment in equity instruments of the associate entities. The interest income thereby on such instruments will be accreted on the fair value recognized on inception to bring the fair value to the principal amount that will be repaid.
(ii) Investment in Mutual Funds
Under IGAAP, investments in liquid mutual funds were carried at cost or net realizable value, whichever is less. Under Ind AS, such investments are measured at fair value through profit or loss
(iii) Trade receivables
Under Indian GAAP, the Company has created provision for impairment of receivables that consists only in respect of specific amount for incurred losses. Under Ind AS, impairment allowance has been determined based on Expected Credit Loss model (ECL). Due to ECL model, the Company has impaired its trade receivables by Rs 273.63 lakhs on April 1, 2015, which has been eliminated against retained earnings.
(iv) Share-based payments
Under Indian GAAP, the Company recognized only the intrinsic value for the long-term incentive plan as an expense. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model recognized over the vesting period. The Company has given effect of Rs 1,399.11 lakhs to opening balance sheet as on April 1, 2015.
(v) MAT Credit adjustment
Under Indian GAAP, the Company recognized its MAT credit assets under other noncurrent assets. Ind AS requires it to be recognized in Income tax assets (net). MAT Credit are reclassified from Non Current Assets as shown in previous Indian GAAP and presented separately amounting to Rs 604.65 lakhs.
(vi) Interest free security deposits
Under IGAAP, interest-free deposits were carried at transaction cost. Under Ind AS, interest-free deposits paid will be required to be measured and carried at fair value. The excess of principal amount over its fair value will be considered as prepaid expense and will be amortized over the period of deposit on straight line basis. The interest income arising there on will be accreted on the fair value recognized on inception to bring the fair value to the principal amount that will be repaid.
An amount of Rs 3.25 lakhs has been recognized against corresponding adjustment to Retained Earnings.
(i) Redeemable Preference Shares
Investments in redeemable preference shares of associates were carried at cost under Indian GAAP. Investments in preference shares of associates, which are classified as investment in debt instrument of associates under Ind AS, carrying coupon below market rate of interest are required to be measured and carried at fair value. The excess of principal amount over its fair value will be added to the cost of investment in equity instruments of the associate entities. The interest income thereby on such instruments will be accreted on the fair value recognized on inception to bring the fair value to the principal amount that will be repaid.
(ii) Investment in Mutual Funds
Under IGAAP, investments in liquid mutual funds were carried at cost or net realizable value, whichever is lesser. Under Ind AS, such investments are measured at fair value through profit or loss.
(iii) Trade receivables
Under Indian GAAP, the Company has created provision for impairment of receivables that consists only in respect of specific amount for incurred losses. Under Ind AS, impairment allowance has been determined based on Expected Credit Loss model (ECL). Due to ECL model, the Company impaired its trade receivables by Rs 513.63 lakhs on April 1, 2016, which has been eliminated against retained earnings.
i) Defined benefit liabilities
Both under Indian GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to profit or loss. Under Ind AS, remeasurements [comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets excluding amounts included in net interest on the net defined benefit liability are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI. Thus the employee benefit cost is reduced by Rs. 81.48 Lakhs.
(ii) Share-based payments
Under Indian GAAP, the Company recognized only the intrinsic value for the long-term incentive plan as an expense. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model recognized over the vesting period. An additional expense of Rs.448.11 lakhs has been recognized in profit or loss account for the year ended 31 March 2016.
Due to ECL model, the Company has impaired its trade receivable by the amount, which has been eliminated against retained earnings.
(iv) Share-based payments
The Company holds investments held for sale. Under Indian GAAP, the Company has classified it as other current assets. Under Ind AS, the same is required to be classified as Investment in subsidiary.
(v) Interest free security deposits
Under IGAAP, interest-free deposits were carried at transaction cost. Under Ind AS, interest-free deposit paid will be required to be measured and carried at fair value. The excess of principal amount over its fair value will be considered as prepaid expense and will be amortized over the period of deposit on straight line basis. The interest income arising there on will be accreted on the fair value recognized on inception to bring the fair value to the principal amount that will be repaid.
An amount of Rs 5.27 lakhs has been recognized against corresponding adjustment to Retained Earnings.
(vi) Under Indian GAAP, the Company recognized only the intrinsic value for the long-term incentive plan as an expense. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model recognized over the vesting period. The Company has given effect of Rs 1,847.22 lakhs to balance sheet as on April 1, 2016.
(iii) Other comprehensive income
Under Indian GAAP, the Company has not presented Other Comprehensive Income (OCI) separately. Hence, it has reconciled Indian GAAP profit or loss to profit or loss as per Ind AS. Further, Indian GAAP profit or loss is reconciled to total comprehensive income as per Ind AS.
Under Indian GAAP, the company had measured the investments lower of cost or fair value. Ind AS requires debt investments held for liquidity purposes to be measured at fair value and differences are recognized immediately in the profit or loss account
(iv) Investment in Mutual Fund
Under IGAAP, investments in liquid mutual funds were carried at cost or net realizable value, whichever is less. Under Ind AS, such investments are measured at fair value through profit or loss. An additional expense of Rs 82.32 lakhs has been recognized in profit or loss for the year ended 31 March 2016.
(v) Redeemable Preference Shares
Investments in redeemable preference shares of associates were carried at cost under Indian GAAP. Investments in preference shares of associates, which are classified as investment in debt instrument of associates under Ind AS, carrying coupon below market rate of interest are required to be measured and carried at fair value. The excess of principal amount over its fair value will be added to the cost of investment in equity instruments of the associate entities. The interest income thereby on such instruments will be accreted on the fair value recognized on inception to bring the fair value to the principal amount that will be repaid. An income of Rs 53.90 lakhs has been recognized in profit or loss for the year ended 31 March 2016.
(vi) Interest free Security Deposits
Under IGAAP, interest-free deposits were carried at transaction cost. Under Ind AS, interest-free deposits paid will be required to be measured and carried at fair value. The excess of principal amount over its fair value will be considered as prepaid expense and will be amortized over the period of deposit on straight line basis. The interest income arising there on will be accreted on the fair value recognized on inception to bring the fair value to the principal amount that will be repaid. A net additional expense of Rs 2.59 lakhs has been recognized in profit or loss for the year ended 31 March 2016.
(vii) Trade receivables - Expected Credit loss
Under Indian GAAP, the Company has created provision for impairment of receivables that consists only in respect of specific amount for incurred losses. Under Ind AS, impairment allowance has been determined based on Expected Credit Loss model (ECL). Due to ECL model, the Company impaired its trade receivable by Rs 240 lakhs for the year ended March 31, 2016.
18. Prior periods Comparatives
Previous year figures have been re grouped/ reclassified, where ever necessary to conform to this yearâs classification
Mar 31, 2016
1. Capital Commitments (Ref Standalone Annual Report Note No:21)
The estimated amount of contracts remaining to be executed on capital
account and not provided for (net of advances) as at March 31, 2016 is
Rs 567.45 lakhs (March 31, 2015 : Rs 647.77 Lakhs)
2. Research and Development Expenditure (Ref Standalone Annual Report
Note
No:29)
The Company continues its significant investments in R&D efforts
towards research, technology, engineering and new product development.
The Company follows a policy of capitalising new product development,
cost effective 1st January 2016 and accordingly has recognized such
Cost as Capital work in progress to be capitalized in future. During
the current year the Company has incurred a revenue expenditure of Rs.
85,25.86 lakhs and a capital expenditure of Rs 27,95.10 lakhs (FY 15 Rs
18.87 lakhs) including capital work in progress Rs 12,27.00 lakhs (FY
15 NIL).
3. Segment reporting (Ref Standalone Annual Report Note No:32)
The Company has only one reportable segment ''Software product licence
and related services'' in terms of Accounting Standard 17 ''Segment
Reporting'' manadated by Section 133 of Companies Act 2013 read with
General Circular 8/2014 issued on April 4, 2014. Secondary segmental
reporting is based on the geographical location of customers.
The accounting policies consistently used in the preparation of the
financial statements are also applied to record revenue and expenditure
in individual segments.
Secondary segment information
Customer relationships are driven based on the location of the
respective client. The geographical segments comprise:
a) India, Middle East & Africa;
b) Asia Pacific;
c) Europe; and
d) Americas
e)
4. Scheme of Arrangement (De-merger) between the Company and Polaris
Consulting & Services Limited (Ref Standalone Annual Report Note No:33)
During the previous year the Company (Resulting Company) had entered
into a Scheme of Arrangement with Polaris Consulting & Services Limited
(''demerged company'', ''Polaris Consulting''). The "Scheme of Arrangement"
(''the Scheme'') involved vesting of the Product Business Undertaking of
the demerged company into Intellect Design Arena Limited. In
consideration for the vesting of the Product business undertaking in
the Company as per the terms of the Scheme, each member of the demerged
company shall receive one equity share of Rs 5/- each in the resulting
company for every one equity share of Rs 5/- each held in the demerged
company.
The Scheme was approved by the Honorable High Court of Madras on
September 15, 2014. The Company has filed the order approved by the
High Court with the Registrar of the Companies, Chennai (ROC) on
September 24, 2014. The ROC had approved the said demerger on September
25, 2014. The Scheme has accordingly been given effect to in these
financial statements with retrospective effect from April 1, 2014.
Further, the Scheme also provided that the shareholders could elect to
receive one Non-Convertible Debentures of Rs 42 each in the Company for
one equity share of Rs 5/- each being issued and alloted to the
shareholders. The option to receive the Non- Convertible Debentures was
to be offered within 12 days from the Second Record Date (which was
determined by the management of the Company as January 19, 2015). None
of the shareholders have opted for the conversion to Non-Convertible
Debentures.
The following assets and liabilities have been divested into the
Company from Polaris Consulting & Services Limited with effect from
April 1, 2014 pursuant to the Scheme.
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