The accompanying financial statements comprise the financial statements of Bharat Electronics Limited (the Company). The Company is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. Bharat Electronics Limited’s shares are listed on two recognised stock exchanges in India. The registered office and Principal place of business of the Company is located at Bengaluru, Karnataka, India.
The Company is a public sector enterprise under the administrative control of the Department of Defence Production, Ministry of Defence. Bharat Electronics Limited manufactures and supplies electronic equipment and systems to defence sector. Other than defence sector, the Company has also got a limited presence in the civilian market.
i. Freehold Land consists of 2063.89 acres (31.03.2016 : 2037.34 acres; 01.04.2015 : 1036.07 acres) and Leasehold Land consists of 290.26 acres (31.03.2016 : 290.26 acres; 01.04.2015 : 290.26 acres).
ii. Freehold Land includes 7.11 acres (31.03.2016 : 7.11 acres; 01.04.2015 : 7.07 acres) leased to commercial/religious organisations and in their possession.
iii. Leasehold land includes land taken on Lease at Kochi for 90 Years and capitalised in the year 2008-09.
iv. Additions during the year includes Rs.1,089 (31.03.2016 : Rs.1,147; 01.04.2015 Rs.1,266) and Rs.5 (31.03.2016 : Rs.4; 01.04.2015 : Nil) in respect of the assets of Central Research Laboratories and Pune Unit respectively.
v. Addition of Buildings during the year includes Nil (31.03.2016 : Nil; 01.04.2015 : Rs.1,199) in respect of Development & Engineering Buildings.
vi. Electronic Equipment value includes POS machines valuing Rs.1,026 (31.03.2016: Nil; 01.04.2015 : Nil) which are under the control of Haryana Government (operating lease).
vii. Deductions include net carrying cost of Nil (31.03.2016 : Rs.588; 01.04.2015 : Nil) in respect of assets affected due to flood at Chennai Unit.
viii. Site Restoration Obligation
Refer Note 21 for Site Restoration Obligation in respect of Wind Mill Generation Plant.
ix. Gross Block Value of Plant & Machinery includes Site Restoration Obligation of Rs.83 (31.03.2016 : Rs.83; 01.04.2015 : Rs.3) in respect of Wind Mill Plants.
x. Contractual Commitment
Refer Note 30(8) for outstanding Contractual Commitment.
xi. Deemed Cost
On transition to Ind AS, the company has elected to continue with the carrying value of all its property, plant and equipment as at 1 April 2015 measured as per previous GAAP and use that carrying value as the deemed cost of the Property, Plant & Equipment.
xii. Estimation of Useful Life of Assets
The management has estimated the useful life of the various categories of tangible assets (which are different from the useful life indicated in Schedule II to the Companies Act, 2013) after taking into consideration, factors like expected usage of assets, risk of technical and commercial obsolescence, etc.
xiii. Depreciation / Amortisation
Depreciation is calculated on a straight-line basis over the estimated useful lives of the Assets.
Leased Assets are amortised on a straight-line basis over their estimated useful lives or their respective lease term whichever is shorter.
xiv. Method of Accounting Depreciation
Depreciation/Amortisation has been calculated as per the Accounting Policy No. 8 of the Company and recognised as expenses in the Statement of Profit and Loss. Amount of Depreciation recognised as part of Cost of Other Asset is Nil (31.03.2016 : Nil; 01.04.2015 : Nil).
xv. Impairment of Assets
Refer Note 30(6).
xvi. Compensation from third parties
Nil (31.03.2016 : Nil; 01.04.2015 : Nil).
xvii. Refer Note 12 in respect of Unadjusted Capital Advance paid towards Property, Plant & Equipment.
xviii. Land acquired free of cost from the Government in some units has been accounted in line with provisions of Ind AS 101.
xix. Details of Registration Pending Litigation etc.,
a. Deeds containing the terms of transfer / grant of land from State Governments / State Undertakings have been registered during the FY 2014-15 in respect of 86.60 acres valuing Rs.197 pertaining to Panchkula Unit. However, rectification of land area held by BEL for Township from 30.00 acres to 28.60 acres in records of HUDA and Registration Authority is in process. The title deed in respect of land measuring 0.30 acres (31.03.2016 : 0.30 acres; 01.04.2015 : 0.30 acres) is under litigation.
b. Pending execution of title/sale deeds and handing over of physical possession of land allotted to BEL Hyderabad Unit by Andhra Pradesh Industrial Infrastructure Corporation (APIIC) in respect of land measuring 5.60 acres (31.03.2016 : 5.60 acres; 01.04.2015 : 5.60 acres) in Mallapur, Hyderabad and the matter being under litigation, no provision towards registration and other cost has been made in the books of accounts. Cost of land paid to APIIC amounting to Rs.65 (Rs.65) is included in Capital Advances.
c. Based on the Memorandum of Understanding reached with the Defence authorities, assets constructed on the land allotted to BEL and in possession of BEL are capitalised under the respective heads for setting up of the Hyderabad Unit. Pending finalisation of the terms and conditions by the appropriate authorities, the cost of land measuring 25.11 acres (31.03.2016 : 25.11 acres; 01.04.2015 : 25.11 acres) has not been accounted in the books of accounts.
d. Land admeasuring to 122.82 Acres at Ibrahipatnam alloted by APIIIC/TSIIC possession is given for which sale deed is pending wrt Hyderabad Unit.
e. A demand of Rs.256 (31.03.2016 : Rs.256; 01.04.2015 : Nil) (being 50% of the compensation amount decreed by City Civil Court, Hyderabad) has been received towards additional compensation from TSIIC Dated. 31.01.2015 for Land of 22.375 acres (31.03.2016 : 22.375 acres; 01.04.2015 : Nil) which is part of free hold land mentioned above. The demand is under dispute and hence, no provision in respect of the same has been made in the books of accounts.
f. Free hold Land to the extent of 1.22 acres (31.03.2016 : 1.22 acres; 01.04.2015 : 1.22 acres) which was allotted by Government Authorities in return for handing over of Land measuring 1.24 acres (31.03.2016 : 1.24 acres; 01.04.2015 : 1.24 acres) is under litigation (Bangalore Complex Unit) .
g. The Company has installed Windmill Generator at three locations. Windmill Generator-I capitalized in the year 2006-07 on Lease Land. Upfront Lease rent is Nil and Lease Agreement for the land is pending finalization.
Windmill Generator -II is capitalized in the year 2007-08 on the leased land by paying upfront lease rent of Rs.36 which being an operating lease classified as Other assets. Lease Agreement for the land is pending finalization.
Windmill Generator -III is capitalized in the year 2015-16 on the leased land by paying upfront lease rent of Rs.161 which being an operating lease classified as Other assets.
h. Title in respect of 12.50 acres (31.03.2016 : 12.50 acres; 01.04.2015 : 12.50 acres) of land acquired through land transfer certificate is under litigation (Kotdwara Unit).
i. Civil Construction mainly comprises of Production related building, R&D building, Employee Quarters and Training Centre under construction.
ii. Borrowing costs of Rs.1 (net of interest income) (31.03.2016 : Nil; 01.04.2015 : Nil) (capitalisation rate @ 8.15% p.a.) has been capitalised during the year 2016-17 in respect of employee quarter under construction.
iii. Refer Note 30(8) in respect of Contractual Commitment.
iv. Refer Note 12 in respect of Unadjusted Capital Advance paid towards Property, Plant & Equipment.
i. Amount recognised in Statement of Profit & Loss
ii. Refer Note No. 30(8) for Contractual Commitment.
iii. Fair Value of the investment properties
iv. Land comprises of Free Hold Land of 1.36 Acres (31.03.2016 : 1.36 Acres; 01.04.2015 : 1.36 Acres) in Bengaluru.
v. Estimation of Fair Value
The company has estimated the fair value of the Investment Property based on the Government Guidance Value (municipal value) of the similar properties in the investment property’s location. All resulting fair value estimates for the investment properties are included in Level 2.
vi. Deemed Cost
On transition to Ind AS, the company has elected to continue with the carrying value of all its Investment Property recognised as at 1 April 2015 (earlier treated as Property, Plant and Equipment) measured as per Previous GAAP and used that carrying value as the deemed cost of the Investment Property.
vii. Estimation of Useful Life of Assets
Depreciation is calculated on a straight-line basis over the estimated useful lives of the Assets.
The amount of Depreciation has been recognised as expense in the Statement of Profit and Loss.
ix. Method of Accounting Depreciation
Depreciation has been calculated as per the Accounting Policy No. 8 of the Company and recognised as expenses in the Statement of Profit and Loss.
x. Impairment of Assets
As the fair value of the Investment Property is higher than its carrying value, there is no indication of impairment.
xi. Restrictions on the reliability of Investment Property
The lands are alloted by Government of India.
xii. Related Party Transactions
Investment Property includes Building and land measuring 0.31 Acres (31.03.2016 : 0.31 Acres; 01.04.2015 : 0.31 Acres) given under cancellable operating lease to Subsidiary Company BEL Thales System Ltd. Also Refer Note 31.
i. Deemed Cost
On transition to Ind AS, the company has elected to continue with the carrying value of all its Intangible assets recognised as at 1 April 2015 measured as per Previous GAAP and used that carrying value as the deemed cost of the Intangible assets.
Amortisation is calculated on a straight-line basis over the estimated useful lives of the Assets.
The amount of Amortisation has been recognised as expense in the Statement of Profit and Loss.
iii. Method of Accounting Amortization
Amortisation has been calculated as per the Accounting Policy No. 8 of the Company and recognised as expenses in the Statement of Profit and Loss.
iv. Refer Note 30(8) for Contractual Commitment
i. Raw Materials and Components include Rs.13,023 (Rs.5,502) being materials with sub-contractors, out of which Rs.169 (Rs.68) of materials is subject to confirmation and reconciliation. Against Rs.169 (Rs.68), an amount of Rs.169 (Rs.68) has been provided for.
ii. Stock verification discrepancies for the year are as follows :
Shortages of Rs.1,583 (Rs.247) and surplus of Rs.1,256 (Rs.284). Pending reconciliation, an amount of Rs.370 (Rs.80) has been provided for.
iii. Valuation of inventories has been made as per Company’s Accounting Policy No. 18
iv. a. The United Nations Climate Change Secretariat has granted 15856 (15856) TON CO2EQ Carbon Credit during earlier years, for the 2.5MW BEL Grid Connected Wind Power Project at Davangere District , Karnataka for the verification period from 05 November 2007 to 31 March 2012 (05 November 2007 to 31 March 2009). The carbon Credits are included under Finished Goods at a value of Rs.2 (Rs.2). The CER is valued at cost as required by Guidance Note on CER issued by ICAI.
b. CER under Certification : Nil (Nil) CERs.
c. Depreciation & Operation Cost of Emission Reduction Equipments during the year :
v. Security, Hypothecation etc Refer Note 35.
vi. Amount recognised in Profit & Loss
Write-down of inventories to net realisable value amounted to Rs.2,662 (Rs.1,402) has been recognised in the statement of profit and loss.
vii. No Reversal of write down of inventories has been made during the year, which were recognised as an expenses in the previous year.
viii. Impairment of Assets
Provisions for inventory has been made in line with Accounting Policy No. 18 of the Company.
i. The information regarding dues to Micro and Small Enterprises as required under Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 as on 31 March 2017 is furnished below:
* Includes amount shown under Note No. 20
** Interest includes INR 3278 wrt current year which is rounded off.
ii. During the period Rs.8 of provisions made in Previous year has been reversed, since on subsequent verification, the amount was found to be not payable.
iii. The information has been given in respect of such suppliers to the extent they could be identified as Micro & Small Enterprises on the basis of information available with the Company and have been relied upon by the Auditors.
iv. Financial Instruments
Refer Note 33 for classification of financial instruments.
v. Related Party Disclosure
For Related Party Disclosures refer Note 31.
vi. The company’s exposure to currency and liquidity risk related to Trade Payables is disclosed at Note 34.
NOTE 2 Provisions
ii. Provision for Warranties - as per Accounting Policy No. 20 of the Company.
Provision for warranties is made in respect of products whose normal warranty period is outstanding. As the warranty provision period varies from product to product, provision is made at Strategic Business Unit (SBU) level based on average period of warranty period. Provision is made based on trend based estimate of the likely expenses to be incurred. The provision is measured at the present value of the estimated cost of Warranty.
iii. Provision for Site restoration - as per Accounting Policy No. 23 of the Company.
In accordance with the terms and conditions of the Lease agreement entered into with Lessor, the company is required to return the land in its original condition. Accordingly provision in respect of Site restoration obligation has been made. The provision required is reviewed and required adjustment made at each year end.
The provision is measured at the present value of the best estimate of the cost of restoration.
iv. Provision for Onerous contracts - as per Accounting Policy No. 23 of the Company.
In respect of certain contracts entered into by the company, it is expected that the likely cost to complete the contract would exceed the Revenue received / receivable against the contract. In such cases, provision in respect of the expected losses has been made. The provision required is reviewed and required adjustment made at each year end. The provision is measured at the present value of the best estimate of loss likely to be incurred.
v. Amount debited to opening provision.
vi. An amount of Rs.8,065 (Rs.8,592) has been debited against Natural Code Heads wrt Warranty Cost.
An amount of Nil (Nil) has been debited against Natural Code Heads wrt Site Restoration Obligation.
An amount of Rs.1,974 (Rs.2,498) has been debited against Natural Code Heads wrt Onerous Contract.
vii. * Represents excess of plan asset over obligation as on 31 March 2016.
(A) POST EMPLOYMENT BENEFIT OBLIGATION (i) Gratuity :
The Company provides gratuity to employees in India as per payment of Gratuity Act, 1971. The Company has a Gratuity Scheme for its employees, which is a funded plan. Every year, the Company remits fund to the Gratuity Trust to the extent of shortfall of the assets over the fund obligations, which is determined through actuarial valuation. As per the Gratuity Scheme, gratuity is payable to an employee on the cessation of his employment after he has rendered continuous service for not less than five years in the Company. For every completed year of service or part thereof in excess of six months, the Company shall pay gratuity to an employee at the rate of fifteen days salary based on the last drawn basic & dearness allowance.
The following table summarises the components of net benefit expense recognised in the Statement of Profit & Loss and amounts recognised in the Balance Sheet and the movement in the net defined benefit obligation over the years as per Actuarial valuation are as follows :
(ii) BEL RETIRED EMPLOYEES CONTRIBUTORY HEALTH SCHEME (BERECHS):
The Company has a contributory health scheme for its retired employees “BEL Retired Employees’ Contributory Health Scheme” (BERECHS), which is non-funded scheme. The primary objective of the scheme is to provide medical facilities to employees retiring on attaining the age of superannuation, or on VRS. Benefits under the Scheme shall be available to the employees who become members and their spouses only. The company takes insurance cover for inpatient treatment. In addition to the annual insurance premium, the Company bears 60% of the medicine cost and 75% of the cost of diagnostic tests for outpatient treatment and for the treatment of specified diseases, the Company bears the full cost of treatment, over and above the insurance coverage.
The following table summarises the components of net benefit expense recognised in the Statement of Profit & Loss and amounts recognised in the Balance Sheet and the movement in the net defined benefit obligation over the years as per Actuarial valuation are as follows :
(iii) EMPLOYEES PROVIDENT FUND [INTEREST SHORTFALL]
Employees Provident Fund is managed by Provident Fund Trust of the company. The Company contributes Managements’ contributions payable towards Employee Provident Fund to the Trust. During the year the Company has recognised an amount of Rs.8,033 (Rs.7,498) towards contribution to Employees Provident Fund in the Statement of Profit and Loss.
Company has determined on the basis of Actuarial Valuation carried out as at 31 March 2017, that there is no liability towards the interest shortfall on valuation date (having regard to terms of plan that there is no compulsion on the part of the Trust to distribute any part of the surplus, if any, by way of additional interest on PF balances).
B. Long Term Compensated Absence
The Company has a Long Term Compensated Absence Scheme for its employees, which is a Non-Funded Scheme. The employees of the Company are entitled to two types of Long Term Compensated Absences : Annual Leave (AL) & Half Pay Leave (HL) in case of Executives and Annual Leave (AL) & Sick Leave (SL) in case of Non-Executives. The Scheme provides for compensation to employees against the unavailed Leave (AL & HL in case of Executives and AL & SL in case of Non-Executives) on attaining the age of superannuation, VRS, or death. AL can also be encashed during service or at the time resignation.
The following table summarises the components of net benefit expense recognised in the Statement of Profit & Loss and amount recognised in the Balance Sheet for the plan as furnished in the disclosure report provided by the Actuary :
C. Pension Scheme
Company has got a defined contribution pension benefit plan for the benefit of its employees in respect of which contribution is made on an annual basis to a Trust setup for this purpose.
The benefit under the scheme are available for the employees as per the rules laid down in this regard.
A narrative description of the specific or unusual risks arising from a defined benefit plan (i.e. Gratuity and BERECHS)
The specific risk relating to defined benefit plans are as follows : -
Movement in long term government bond rate between two reporting periods which will impact discount rate and consequently the present value of obligations.
Risk of higher/lower salary escalation/benefit as considered for valuation vis-a-vis the actual experience through the Financial Year.
However, both the risks are mitigated on a regular basis i.e. yearly as valuations are done after every year based on updated assumptions.
A narrative description of any asset-liability matching strategies.
The gratuity plan of the company is a funded plan. The assets backing this plan are predominantly insurer-managed funds. Hence the company has limited flexibility in terms of implementing asset-liability matching strategies for this plan.
The post retirement medical plan of the company is an unfunded plan. Hence asset-liability matching strategies are not relevant for this plan.
A description of the funding arrangements and funding policy.
The Gratuity plan of the company is a funded plan. 87.97% of the plan assets backing this plan are insurer managed assets and 7.03% of the plan assets are invested in Central and State Government Securities. The annual contribution to the fund is typically set equal to the deficit as disclosed by the preceding actuarial valuation of the benefit obligations.
The post-retirement medical plan [BERECHS] is an unfunded plan.
General Notes to Accounts
1 Earnings per Equity Share
2 Impact of Changes in Accounting Policies
The Company has amended its R&D Policy (Accounting Policy No. 10) for enabling carrying forward of expenditure relating to Joint Developmental Projects. The impact due to above change in policy is increase in WIP by Rs.4,312 and increase in Profit by Rs.4,312.
3 Statement of Compliances
The standalone financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) [as notified under section 133 of the Companies Act, 2013 (the “Act”) read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015.], and other relevant provision of the Act.
The Company’s standalone financial statements up to and for the year ended 31 March 2016 were prepared in accordance with the Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act and other relevant provisions of the Act.
As these are the Company’s first standalone financial statements prepared in accordance with Indian Accounting Standards (Ind AS), Ind AS 101, First-time Adoption of Indian Accounting Standards has been applied. An explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance and cash flows of the Company is provided in Note 37.
4 Operating Cycle
As per the requirement of Schedule III to the Companies Act, 2013, the Operating Cycle has been determined at Strategic Business Unit (SBU) / Unit level, as applicable.
5 Construction Contracts
6 Impairment of Assets
The Company has analysed indications of impairment of assets of each geographical composite manufacturing unit considered as Cash Generating Units (CGU). On the basis of assessment of internal and external factors, none of the Unit has found indications of Impairment of its Assets and hence no provision is considered necessary.
7 Short Term Borrowings
a. The Company has been sanctioned working capital limit of Rs.290,000 by Consortium Bankers (SBI Lead Bank). The sanctioned limit includes a sub limit of Rs.20,000 of fund based limit (interchangeable with non fund based LC limits).
b. The interest rate payable on fund based limit is linked to SBI Base Rate plus 0.25%. (Interest rate payable as on 31 March 2017 is 8.25% p.a.).
c. The amount utilised is repayable on demand. Utilisation as on 31 March 2017 is Nil (Nil).
d. The above sanction limit is secured by hypothecation of Current Assets of the Company.
8 Contractual Commitments
9 Expenditure incurred on Research and Development:
The Company incurred on Research and Development during the year, which are included in the respective natural classification is given below :
10 Contingent Liabilities :
MTNL has made a claim of Rs.80,670 on the company in respect of convergent billing project. Against this the company has made a counter claim of Rs.31,900.
11 Contingent Assets :
12 Confirmation of Balances
Letters requesting confirmation of balances have been sent in respect of Trade Receivables, Trade Payables, Advances and Deposits. Wherever replies have been received, reconciliation is under process and provisions / adjustments are made wherever considered necessary.
13 Labour Disputes
In respect of Labour matters, as the matters are yet to be adjudicated, the liability, if any, is not ascertainable. However, such liability is not expected to be material.
14 Excise Duty
a. ”Excise Duty - Others” which is included in Note No. 29 - “Other Expenses” represents incremental provision of Excise
Duty on Finished Goods, Excise Duty paid on Sale of Scrap and Others.
b. ”Excise Duty” was leviable on certain category of Defence Sales only from 1 June 2015 in respect of FY 2015-16 as against full year in respect of FY 2016-17.
15 Segment Reporting
Ministry of Corporate Affairs has vide Notification no. 463 (E) dated 5 June 2015 exempted the Companies engaged in Defence Productions from the requirement of Segment Reporting.
16 Retention Sales
The Value of Retention Sales (i.e., Goods retained with the Company at the Customers’ request and at their risk) included in Gross Turnover during the year is Rs.11,394 (Rs.52,147).
The Value of Ex-work Sales included in Gross Turnover during the year is Rs.1,60,145 (Rs.2,01,585).
17 Foreign Exchange Exposure
Pursuant to the announcement of the ICAI requiring the disclosure of “Foreign Exchange Exposure”, the major currency-wise exposure as on 31 March 2017 is given below. (Previous year figures are shown in brackets)
* includes exposures relating to outstanding Letters of Credit and Capital Commitments.
During the FY 2016-17, the Company has not entered Forward Contracts to cover Foreign Currency fluctuations in respect of Firm Commitments. There are no outstanding Forward Contracts as on 31 March 2017.
18 Disclosure relating to CSR Expenditure
a. Gross amount required to be spent by the Company during the FY 2016-17 is Rs.2,972 (Rs.2,523).
b. Amount spent during the FY 2016-17:
19 The details of specified Bank Notes (SBN) held and transacted during the period from 08.11.2016 to 30.12.2016 is as follows :
20 Non Cancellable Operating Lease Disclosure:
a. As a Lessor:
The future minimum Lease Rent Receivable:
* represent INR 3,012 and ** represents INR 12,048 which is rounded off.
The company has Leased out Point of Sales machines to Government of Haryana for a period of five years from 2016-17 to 2021-22.
The company has Leased out few portions of Land to different organizations under non-cancellable operating Lease. Lease period is spread over from the year 1967 to 2077. The leases have various terms, escalation clause, lease renewal rights etc. On renewal, the terms of the lease are renegotiated.
The company has not recognized any income as contingent rent.
b. As a Lessee:
During the year 2016-17, Bangalore Complex has taken 356.73 Acres of Land on Lease for a period of 25 years from Ordnance Factory Board at various locations for setting up Solar Power Plant by paying a nominal Value of INR 1 as Annual Lease Rent for each Locations.
21 Chennai Unit was affected by floods during December 2015. Insurance policy taken by the company with United India Insurance Company Limited covers flood related losses. An amount of Rs.1,000 (Rs.1,000) was received as part of Insurance claim settlement and has been recognised under “Other Income”. In addition, an amount of Rs.32 was received towards claim settlement wrt scrap items.
22 Dividend not recognised at the end of the reporting period
The directors have recommended a final dividend of INR 1.05 (INR 14.50) per share.
The proposed dividend is subject to approval of shareholders in the ensuing Annual General Meeting.
23 Figures in brackets relate to Previous years.
24 All figures in financial statement are rounded off to nearest lakhs unless otherwise mentioned.
25 The standalone financial statements were approved for issue on 29 May 2017 by the Board of Directors.
Related Party Transactions a. Subsidiaries & Associates
b. Key Management Personnel’s Details
i. Name of Key Management Personnel’s
ii Compensation to Key Management Personnel’s
c. The transactions with Related Parties other than Key Management Personnel are as follows (Previous Year figures are shown in brackets) : -
* Represents amount of INR 7,763 (Nil) which is rounded off.
d. All transactions dealt with related parties are on arm’s length basis. In respect of loan to subsidiary (BELOP) refer note “h” below.
e. All Outstanding balances are Unsecured. All Outstanding balances (Other than loan) is repayable in cash within next 6 months. For Outstanding balance of loans refer note “h” below.
f. The Company has entered into an Agreement with BELOP in April, 2013 to temporarily fund the amount of Rs.10,416 (Rs.26,040 less Rs.15,624) for enabling BELOP to make payment towards ToT for XD-4 II Tubes, pending receipt of balance amount from MoD. As on 31 March 2017, an amount of Rs.9,503 (Rs.9,357) has been paid to BELOP, out of which an amount of Rs.6,401 (Rs.6,401) has been received from MoD. The balance amount of Rs.3,102 (Rs.2,956) has been shown under Other Non-Current Assets. (Refer Note 12).
As per the Agreement, an amount of Rs.273 (Rs.304) has been recovered during the financial year from BELOP towards the cost of funds.
g. Consequent to acquisition of 1,32,000 equity share held by Specified Undertaking of Unit Trust of India on 30 July 2015, BELOP has become 100 % Subsidiary of the BEL.
h. Loans to Related Parties
1. The Company has entered into an agreement with BELOP in July 2015 to temporarily fund its Working Capital requirement to the maximum extent of Rs.5,000 which was fully disbursed by 31 March 2016 and an amount of Rs.3,381 is outstanding as on 31 March 2017. As per the terms and conditions :
i) The balance amount will be repaid in quarterly installments with effects from July 2016.
ii) Interest will be charged on the outstanding loan amount, on monthly basis, at BEL’s rate of yield on its deposits.
2. The Company has entered into an agreement with BELOP in August 2016 to fund a Term Loan of Rs.4,600 out of which Rs.1,039 has been disbursed as on 31 March 2017. As per the terms and conditions :
i) The principal amount will be repaid in 36 equal installments with effects from June, 2018.
ii) Interest will be charged on the outstanding loan amount, on monthly basis, at BEL’s rate of yield on its deposits or the interest rate yield on a five year Government of India Bond, whichever is higher.
3. ** Loan outstanding does not include Rs.70 (Rs.83) adjusted on account of loan given to subsidiary (BELOP) at below market rate.
i. Management Contracts including deputation of Employees :
Two Official of BEL has been deputed to BELOP (Subsidiary) and Eight Officials of BEL have been deputed to BEL-THALES Systems Limited (Subsidiary) and their Salary and Other Costs is paid by BELOP and BEL-THALES System ltd. respectively during the year as per terms and conditions of employment.
j. Transaction with Government and Government Related Entities :
As BEL is a government entity under the control of Ministry of Defence (MoD), the company has availed exemption from detailed disclosures required under Ind AS 24 wrt related party transactions with government and government related entities.
However as required under Ind AS 24, following are the individually significant transactions :
1. Buyback of 13828771 number of Shares for Rs.1,80,465 during FY 2016-17.
2. 120028420 number of Bonus Shares were Issued in the FY 2015-16.
3. An amount of Rs.44,735 was Paid as Dividend during the year.
In addition to the above, around 90% of the Company’s Turnover, around 76% of Trade Receivables and around 70% of Customer’s Advance is with respect to government and government related entities.
k. Investment in Equity with respect to BELOP includes fair valuation of loan.
Level 1 : Level 1 hierarchy includes Financial instruments measured using quoted prices.
Level 2 : The fair value of Financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity specific estimates.
Level 3 : If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. This is the case of unlisted equity shares.
3. Valuation technique used to determine Fair Value :
a. LIC Investment - (Level 2)
Based on valuation report of the Scheme provided by LIC.
b. M/s Mana Effluent Pvt Ltd - (Level 3)
BEL has invested in equity securities of M/s Mana Effluent Pvt Ltd. which is an unlisted company. The Company’s cost of investment in M/s Mana Effluent Pvt Ltd is only Rs.5 (out of Issued Share Capital of Rs.161). The company has opted for Net Asset Value method for fair valuation.
Financial risk management
i. Risk Management framework and policies
The Company is broadly exposed to credit risk, liquidity risk and market risk (fluctuations in exchange rates, interest rates and price risk) as a result of financial instruments.
Board of Directors has the overall responsibility for the establishment, monitoring and supervision of the Company’s risk management framework. The Board has set up a Risk Management Committee, for this purpose, which is responsible for developing and monitoring the risk management policies. The Company has an established Risk Management Policy that outlines risk management structure and provides a comprehensive frame work for identification, evaluation, prioritization, treatment of various risks associated with different areas of finance and operations.
The company has a centralized Treasury function which is responsible to undertake appropriate measures to mitigate financial risk in accordance with the policies and procedures formulated by the Board. Hedging transactions are undertaken by a team with appropriate skills and experience in consultation with an external expert. The Company does not trade in derivatives for speculation.
ii. Market Risk
Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The Company’s activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rate movements (refer to notes below on currency risk and interest risk).
BEL is exposed to foreign exchange risk arising from foreign currency transactions primarily relating to purchases and sales made in foreign currencies such as US Dollar, Euro, Great Britain Pound and Swiss Franc. Foreign exchange risk arises from existing and future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Company’s functional currency (INR).
The Company has a Board approved currency risk management policy implemented by a Risk Management Committee that reviews the Company’s exposure to this risk on a regular basis. The Risk Management Policy recommends hedging upto 50% of the open foreign currency exposure. However the decision to enter into a hedging arrangement is made by the Risk Management Committee based on the relevant data inputs and the advice of the external specialist consultant retained for this purpose.
The Company’s export proceeds are realized mostly by remittance into an Export Earners Foreign Currency account (EEFC) which is then utilised for payments to be made in foreign currency, thereby mitigating the currency risk on exports. Imports to the extent of around 30% of annual foreign exchange outgo are not covered by the Exchange Rate Variation (ERV) clause in the related customer contract and hence are open to currency risk. These imports are benchmarked as per the policy and appropriate decision on covering the risk is taken on a case to case basis. The Company’s currency risk policy advocates forward contract hedging for mitigating risk wherever required.
As on 31 March 2017, there are no outstanding forwards contracts. The company has not entered into any forward contracts during the financial year 2016-17.
Foreign Currency sensitivity
The sensitivity of profit or loss to changes in the exchange rate arises mainly from foreign currency denominated financial instruments. The sensitivity to variations in respect of major currencies is given below . This analysis assumes that all other variables remain constant.
Interest rate risk
Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing instruments will fluctuate because of fluctuations in market interest rates.
Variable Rate Borrowing:
The company has been sanctioned a Term loan of Rs.10,000 on 31 March 2017 (Outstanding as on 31 March 2017 is Rs.5,000). Interest payable on this loan is based on SBI’s Minimum Commercial Lending Rate - MCLR. (SBI is eligible to reset the interest charged on yearly basis). There would be an additional outflow of cash of Rs.50 if the interest rate goes up by 1% and saving of Rs.50 in cashflow if interest rate goes down by 1%. There would however be no impact on profit as the interest component is capitalized since the borrowing is towards capital expenditure.
In addition the company has been sanctioned a working capital limit of Rs.2,90,000 which has not been utilised in the year end (Outstanding as on 31 March 2017 is Nil (31 March 2016 is Nil) (1 April 2015 is Nil)) in respect of which interest payable is based on SBI’s base rate. SBI is eligible to reset the interest charged on periodic basis. As the borrowing is Nil there is no impact on likely change in interest rates.
Equity Price Risk
The company’s exposure to equity price risk is negligible as its equity investment (other than in subsidiaries and Associate) is negligible.
iii. Liquidity Risk
Liquidity Risk is the risk that a Company could encounter if it faces difficulty in meeting the obligations associated with financial liabilities by delivering cash and other financial asset or the risk that the Company will face difficulty in raising financial resources required to fulfill its commitments. The Company’s exposure to liquidity risk is very minimal as it has a prudent liquidity risk management process in place which ensures maintaining adequate cash and marketable securities to pay its liabilities when they are due. To ensure continuity of funding, the Company has access to short-term bank facilities in the nature of bank overdraft facility, cash credit facility and short-term borrowings to fund its ongoing working capital requirements and growth needs when necessary.
The Company meets its liquidity requirement mainly through internally generated cash flows which is monitored centrally by treasury. There is an established process of rolling cash forecasts from various operating units which form the basis for mapping expected cash inflows, to meet the liabilities.
The table below analyses the company’s financial liabilities based on their contractual maturities. The amounts disclosed are contractual un discounted cash flows.
The company does not have any outstanding derivatives as on 31 March 2017.
iv. Credit Risk
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Company. Credit risk arises from credit exposures from customers, cash and cash equivalent with banks, security deposits and loans.
The credit risk of the Company is managed at a corporate level by the risk management committee which has established the credit policy norms for its customers and other receivables. Significant amount of trade receivables are due from Government/Government Departments, Public Sector Companies (PSUs) consequent to which the Company does not have a credit risk associated with such receivables. In case of non Government trade receivables, sales are generally carried out based on Letter of Credit established by the customer thereby reducing the credit risk.
In a few cases credit is extended to customers based on market conditions after assessing the solvency of the customer and the necessary due diligence to determine credit worthiness. Advance payments are made against bank guarantee which safeguards the credit risk associated with such payments. Impairment losses on financial assets (representing mainly liquidated damages leviable for delayed deliveries and other disallowances) have been made after factoring contractual terms, etc and other indicators.
The cash and cash equivalent with banks are in the form of short term deposits with maturity period of upto 1 year. The Company has a well structured Risk Mitigation Policy whereby there are preset limits for each bank based on its net worth and earning capacity which is reviewed on a periodic basis. The Company has not incurred any losses on account of default from banks on deposits.
The credit risk in respect of other financial assets is negligible as they are mostly due from government department / parties.
Loan of Rs.4,445 given is to 100% subsidiary company. The subsidiary company has been regular in repayment of its dues (Interest and Principal) and no credit risk is expected in terms of repayment of the loan amount.
v. Capital Management
The Company’s Capital Management objective is to maintain a strong capital base to provide adequate returns to the shareholders and ensure the ability of the company to continue as a going concern. The Company has a conservative approach for raising capital through debt but reserves the right to leverage this alternative at an appropriate time to fuel growth and maintain optimal capital structure.
As part of this overall objective, the company has expanded capital base by issuing bonus shares in financial year 2015 and bought back shares in financial year 2016. The Company has a well defined Dividend Distribution Policy which lays the framework for payments of dividend and retention of surplus for future growth and enhancing shareholders wealth. The company has a nominal borrowing of Rs.5,000 as on 31 March 2017. The Company has sanctioned borrowing limits with some banks to the tune of Rs.2,90,000.
Critical estimates and judgments
While preparing the financial statements, management has made certain judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
Judgments made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements and Estimates that have a significant risk of resulting in a material adjustment are as under :
i. Research and Development Expenditure - Accounting Policy No. 10 - (Refer Note No. 5)
Developmental expenditure incurred with respect to No Cost No Commitment (NCNC) Projects and Joint developmental projects which are not fully compensated by the development partner are carried forward till the completion of project.
ii. Estimation of defined benefit obligation - Key actuarial assumptions - (Refer Note No. 21)
iii. Estimation of provision for warranty claims - (Refer Note No. 21)
Warranty provision computation involves estimation of average warranty cost based on trend based analysis. If the estimations made varies, the same will impact the expense recognised.
iv. Pay Revision Provision - (Refer Note No. 21)
Pay Revision in respect of Executive and Non executive is due with effect from 1 January 2017. Provision in respect of revised pay has been made based on a reasonable estimate of expected liability for the period 1 January 2017 to 31 March 2017.
v. Recognition of Revenue - (Refer Note No. 23)
Percentage-of-completion method involves estimation of Stage of completion based on actual costs incurred to the estimated total costs expected to complete the contract. If the estimations made varies, the same will impact the Revenue recognised.
NOTE 7 First Time Adoption of Ind AS Transition to Ind AS
These are the Company’s first standalone financial statements prepared in accordance with Indian Accounting Standard (Ind AS).
The transition to Ind AS has resulted in changes in the presentation of financial statements, disclosures in the notes thereto and accounting policies and principles. The accounting policies set out in the financial statements have been applied in preparing the financial statements for the year ended 31 March 2017 and the comparative information. For the purpose of transition to Ind AS, the Company has followed the guidance prescribed in Ind AS 101 (first time adoption of Indian Accounting Standards), with 1 April 2015 as the transition date from the previous GAAP. An explanation of how the transition from previous GAAP to Ind AS has affected the company’s financial position, financial performance and cash flows is set out in the following tables and notes.
I Exemptions and Exceptions Availed
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.
A. Ind AS optional exemptions
Property, plant and equipment, Intangible assets and Investment Property-Deemed cost
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the previous financial statements as at the date of transition to Ind AS, and use that as its deemed cost on the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets and investment property.
Accordingly, the company has elected to measure all of its property, plant and equipment, intangible assets and investment property at their previous GAAP carrying value as at the date of transition. The carrying values of property, plant and equipment, as aforesaid are after making adjustments relating to decommissioning liabilities.
Designation of previously recognised financial instruments
Ind AS 101 allows an entity to designate investments in equity instruments (other than equity investments in Subsidiaries, Associates) at Fair Value through Other Comprehensive Income (FVOCI) on the basis of the facts and circumstances at the date of transition to Ind AS. The Company has elected to designate its investment in equity instruments (other than equity investments in Subsidiaries, Associates) at FVOCI on the date of transition to Ind AS.
Investments in Subsidiaries and Associates
Ind AS 101 permits an entity to measure its investments in Subsidiaries, Associates at cost in accordance with Ind AS 27 (Separate Financial Statements). Accordingly, the Company has measured investments in subsidiaries and Associate at cost.
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.
The company has availed the following exemption :
B. Ind AS mandatory exceptions
De-recognition of financial assets and financial liabilities
As per Ind AS 101 a first time adopter shall apply the de-recognition principles requirements in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, an entity may apply the de-recognition requirements retrospectively from a date chosen by it if the information needed to apply Ind AS 109 to financial assets and liabilities recognised as a result of past transactions was obtained at the time of initially accounting for those transactions.
The company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.
Classification and measurement of financial assets
As per Ind AS 101 an entity has to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition.
Accordingly, BEL has determined the classification of Financial assets based on facts and circumstances existing at the date of transition to Ind AS.
II Reconciliation between Previous GAAP and Ind AS A. Reconciliation of Equity
Previous GAAP (IGAAP) figures have been reclassified to conform to Ind AS and Schedule III presentation requirements.
i. Reconciliation of Equity as at date of transition 1 April 2015 and 31 March 2016.
C. Notes to first time adoption
i. Property, Plant and equipment
a) Under previous GAAP assets acquired out of customer grants were carried at Net value (Cost less grant value). Under Ind AS these assets have to be recognised at cost with Grant amount being credited to Deferred revenue (Customer Grant). Consequently, the amount of Property, plant and equipment has increased by Rs.697 during FY 2015-16 (Rs.1,606 as on 1 April 2015) with corresponding credit to Deferred revenue (Customer Grant). There will be no impact on Total equity because of this adjustment.
b) Due to creation of provision towards Site restoration Obligation as required under Ind AS 37 an amount of Rs.80 has been recognised as a part of Property, Plant and equipment during 2015-16 (Rs.55 as on 1 April 2015). This amount will be charged off over the Lease period.
ii. Investment Property
As required under Ind AS 40 on Investment Property, Land and building that are rented out have been reclassified as Investment property. In the previous GAAP these were classified as Property, plant and equipment. Accordingly the carrying value of Rs.14 Lakhs of Building that has been rented out has been reclassified from property, plant and equipment to Investment property as on 1 April 2015. There is no impact on the total equity on account of this adjustment.
iii. Leasing Arrangement
As permitted under Ind AS 101 the company has assessed whether a contract or arrangement contains a lease on the basis of facts and circumstances existing at the date of transition to Ind AS. Based on the assessment some leasing agreements have been identified as Operating lease and consequently an amount of Rs.180 has been decapitalised during FY 2015-16 (Rs.75 as on 1 April 2015) and the corresponding amount recognised as Non-Financial Assets. There is no impact on total equity on account of this adjustment.
iv. Adjustment to Revenue recognition and consequential adjustment to Inventories, unbilled revenue, etc
Adjustment to revenue recognized under previous GAAP has been made on account of change in timing of revenue recognition, fair value criteria,etc as per requirements of Ind AS. Due to this additional revenue of Rs.1,962 has been recognised during FY 2015-16 with increase in corresponding expenses amounting to Rs.3,222 primarily due to onerous nature of the contracts in respect of which revenue is recognised. The net impact due to above adjustments resulted in decrease in profit by Rs.1,260 during FY 2015-16.
Retained earnings have gone down by Rs.948 as on 1 April 2015 due to adjustment relating to Revenue recognition. Consequential adjustments have been made to Inventory and corresponding Assets and Liabilities.
As per requirements of Ind AS 37 provision has been created in respect of Site restoration obligation, onerous contracts and warranty expenses. This has lead to increase in provision amount by Rs.11,198 during FY 2015-16 ( Rs.13,976 as on 1 April 2015 ). Consequently the total equity as on 31 March 2016 has reduced by Rs.25,094 (Rs.13,976 as on 1 April 2015) and profit for the year ended 31 March 2016 by Rs.11,118.
vi. Excise Duty
Under previous GAAP revenue from sale of products was presented net of excise duty on sales. Under Ind AS, revenue from sale of goods is presented inclusive of excise duty. The excise duty paid is presented in Statement of Profit and Loss as an expense. This change has resulted in an increase in revenue from operations and expenses for FY 2015-16 by Rs.36,751. This change in presentation has no impact on profit.
vii. Remeasurement of Post employment benefit obligations
Under Ind AS, remeasurements of Employee benefit obligations i.e., actuarial gains and losses are recognised in Other comprehensive income (OCI). Under previous GAAP these were recognised in Statement of profit and loss. Consequently an amount of Rs.5,169 (before tax) has been reclassified from Employee benefit expenses to Other Comprehensive income during FY 2015-16. However, this has no impact on profit on 31 March 2016.
Additionally, an amount of Rs.1,072 representing excess of Plan assets over net defined liability has been recognised as an Asset under Ind AS during FY 2015-16 with credit of Rs.1,749 to Other Comprehensive Income and charge of Rs.677 to employee cost. This has resulted in increase in Total Comprehensive income by Rs.1,072 as on 31 March 2016.
viii. Fair value of Investments
In accordance with Ind AS, financial assets representing investment in equity shares of entities other than subsidiaries and associates have been designated as Fair Value through Other Comprehensive Income (FVOCI) as permitted by Ind AS 109. Under previous GAAP, this investment was carried at cost. The resulting fair value changes of this investment has been recognized in Equity investment through OCI reserve as at the date of transition and subsequently in Other Comprehensive Income for the year ended 31 March 2016. This has increased “Other Comprehensive Income (OCI)’’ and “Total equity” by Rs.1 as at 31 March 2016 ( Rs.Nil as on 1 April 2015).
ix. Fair valuation of Loan given to Subsidiary Company
Loan given to subsidiary company at below market rate of interest has been fair valued resulting in recognition of the differential amount of Rs.115 as Investment in the subsidiary as on 31 March 2016 with corresponding reduction in the carrying value of the Loan. Interest Income of Rs.32 has been recognised for the year 2015-16 with corresponding increase in the outstanding Loan amount on account of unwinding of discount value. This has resulted in increase in profit by Rs.32 for the year ended 31 March 2016.
x. Deferred Tax
Deferred tax adjustment has been made in respect of temporary differences arising on account of adjustments made consequent to transition to Ind AS. This has resulted in increase in value of deferred tax asset by Rs.3,855 as on 31 March 2016 and by Rs.4,989 as on 1 April 2015 with increase in Total equity by Rs.8,844 as on 31 March 2016 (Rs.4,989 on 1 April 2015) and Profit by Rs.3,855 as on 31 March 2016.
xi. Prior period error and omissions
As required under Ind AS, if errors and omissions relating to prior period are material they have to be adjusted by restating the Opening balances of Assets, Liabilities and equity for the earliest prior period presented. Accordingly prior period income of Rs.326 reported for the year 2015-16 under previous GAAP has been adjusted against Opening reserves as on 1 April 2015 with corresponding increase in Trade receivables. This has resulted in a decrease in Profit by Rs.326 for the FY 2015-16.
xii. Interest charged on temporary financial assistance to subsidiary company BELOP has been grossed up in 2015-16 by crediting interest income by Rs.304 and corresponding increase in material cost. This has no impact on retained earnings. In addition as on 1 April 2015 an amount of Rs.14 (Rs.9 for the year 2015-16) has been credited to opening reserve with corresponding increase in Inventory in respect of unused inventory. This has increased profit and opening reserve by corresponding amount respectively.
xiii. Government Grant
As per requirements of Ind AS, amount given by Government in the capacity of a Customer should be treated as Customer grant. Accordingly, an amount of Rs.398 has been reclassified from Government Grant to customer Grant as on 1 April 2015. This change in classification does not have any impact on profit or retained earnings.
xiv. Other Adjustments
Depreciation of Rs.333 has been charged to Property, Plant and equipment as on 31 March 2016 and an equivalent amount credited to Other Income (from Customer grant). An amount of Rs.148 for the FY 2015-16 (Rs.102 as on 1 April 2015) has been charged to Profit and Loss statement and Retained earnings respectively towards other consequential adjustments due to changes explained above.
An amount of Rs.33 has been treated as “Other Income” during FY 2015-16 with corresponding debit to employee cost due to Grossing up of amount adjusted against perks etc. This has no impact on profit for the year.
xv. Redesignation of Joint Venture as an Associate
Based on assessment of control criteria, on transition to Ind AS, Investment in Joint Venture has been identified as an associate. There is no impact on Financial Statements on account of this re-assessment.
xvi. Retained Earnings
Retained Earning as on 1 April 2015 and as on 31 March 2016 has been adjusted consequent to adjustments as explained.
xvii. Impact on Cash Flow
Cash flow has decreased by Rs.1,331 for the FY 2015-16 on transition to Ind AS.
Under previous GAAP dividends proposed by the Board of Directors after the balance sheet date before the approval of the financial statements were considered as adjusting events. Accordingly, provision for proposed dividend was recognized as a liability. Under Ind AS such dividends are recognized when it is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend and the dividend distribution tax thereon amounting to Rs.19,546 for the FY 2015-16 (Rs.22,338 as at 1 April 2015) has been reversed with corresponding adjustment to retained earnings. Consequently the total equity increased by an equivalent amount.