4. 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, and the disclosure of contingent liabilities. 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.
I n the process of applying the Company’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements:
(a) Operating lease commitments - Company as less or
The Company has assessed that its master service agreement (“MSA”) with operators contains lease of its tower sites and plant and equipment and has determined, based on evaluation of the terms and conditions of the arrangements such as various lessees sharing the same tower sites with specific area, the fair value of the asset and all the significant risks and rewards of ownership of these properties retained by the Company, that such contracts are in the nature of operating lease and has accounted for as such.
The Company has ascertained that the annual escalations in the lease payment received under the MSA are structured to compensate the expected inflationary increase in cost and therefore has not been straight-lined.
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 has 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.
(b) Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit (‘CGU’) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (‘CGU’).
The Company’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized, if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount and are recognized in Statement of Profit and Loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of goodwill, if any, allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
Impairment losses recognized in prior periods are assessed at end of each reporting period for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(c) Property, plant and equipment
Refer Note 3(a) for the estimated useful life of Property, plant and equipment.
Property, plant and equipment also represent a significant proportion of the asset base of the Company. Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to the Company’s financial position and performance.
The charge in respect of periodic depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual value at the end of its life. Increasing an asset’s expected life or its residual value would result in a reduced depreciation charge in the Statement of Profit and Loss.
The useful lives and residual values of Group assets are determined by management at the time the asset is acquired and reviewed periodically. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life, such as changes in technology.
During the FY 2014-15, the Company had reassessed the useful life and residual value of all its assets, accordingly, effective April 1, 2014, it has revised the useful life of certain class of shelters from 15 years to 10 years and revised the residual value of certain plant and machineries (batteries and DG sets) from Nil and 5% to 25% and 10%, respectively. Set out below is the impact of above change on future period depreciation:-
(d) Allowance of doubtful trade receivables
The expected credit loss is mainly based on the ageing of the receivable balances and historical experience. The receivables are assessed on an individual basis or grouped into homogeneous groups and assessed for impairment collectively, depending on their significance. Moreover, trade receivables are written off on a case-to-case basis if deemed not to be collectible on the assessment of the underlying facts and circumstances.
(e) Asset retirement obligation
The Company uses various leased premises to install its tower assets. A provision is recognized for the cost to be incurred for the restoration of these premises at the end of the lease period, which is estimated based on actual quotes, which are reasonable and appropriate under these circumstances. It is expected that these provisions will be utilized at the end of the lease period of the respective sites as per respective lease agreements.
(f) Share based payment
The Company initially measures the cost of cash-settled transactions with employees using a binomial 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. For cash-settled share-based payment transactions, the liability needs to be premeasured at the end of each reporting period up to the date of settlement, with any changes in fair value recognized in the profit or loss. This requires a reassessment of the estimates used at the end of each reporting period.
Refer note 36 for details of contingencies.
1. Recent accounting pronouncement issued but not yet effective upto the date of issuance of financial statements
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ‘Statement of cash flows’ and Ind AS 102, ‘Share-based payment.’ These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, ‘Statement of cash flows’ and IFRS 2, ‘Share-based payment,’ respectively. The amendments are applicable to the Company from April 1, 2017.
Amendment to Ind AS 7:
The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.
Amendment to Ind AS 102:
The amendment to Ind AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes.
It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market-based performance conditions and non-vesting conditions are reflected in the ‘fair values’, but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that include a net settlement feature in respect of withholding taxes to be treated as equity-settled in its entirety. The cash payment to the tax authority is treated as if it was part of an equity settlement.
b. Terms/ rights attached to equity shares:
The Company has only one class of equity shares having par value of Rs, 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company in proportion to the number of equity shares held by the shareholders, after distribution of all preferential amounts.
On May 8, 2017, the Board of Directors have proposed a dividend of Rs, 4 per equity share (FY 2015-16 - Rs, 3 per equity share) to all the existing shareholders for the year ended March 31, 2017. The dividend proposed by the Board of Directors is subject to approval of the shareholders in the ensuing general meeting.
The Board of directors of the Company at its meeting held on March 22, 2017 has approved an interim dividend of Rs, 12 per equity share for FY 2016-17.
e. Aggregate number of bonus shares issued and shares issued for consideration other than cash during the period of five years immediately preceding the reporting date:
During the year ended March 31, 2013, the Company allotted 1,161,605,820 equity shares as fully paid bonus shares by capitalization of securities premium account.
During the year ended March 31, 2016, the Company allotted 2,897,776 equity shares (FY 2014-15, 2013-14 and 201213 - 4,468,180, 558,059 and 100,212 equity shares respectively) of Rs, 10 each to its employees on exercise of stock options under the Employee Stock Option Plan 2008 wherein part consideration was received in form of employee services. (refer note 34).
f. Aggregate number and class of shares bought back during the year:
During the year ended March 31, 2017, the Company brought back 47,058,823 equity shares of Rs, 10 each by way of tender offer through stock exchange mechanism for cash at price of Rs, 425 per equity share.
g. Shares reserved for issue under options:
For details of shares reserved for issue under the employee stock option plan (ESOP) of the Company, refer note 34.
The above security deposit is the fair value of total security deposit at transaction value for Rs, 4,034 as at March 31, 2017 (March 31, 2016 Rs, 3,743 Mn, April 1, 2015 Rs, 3,507 Mn)
“Security deposits” includes transaction value of '''' 2,019 Mn (March 31, 2016 - Rs, 1,936 Mn, April 1, 2015 - Rs, 1,949 Mn) amounts received from related parties. For details, refer note 40.
The Company uses various premises on lease to install plant and equipment. A provision is recognized for the costs to be incurred for the restoration of these premises at the end of the lease period. It is expected that this provision will be utilized at the end of the lease period of the respective sites as per the respective lease agreements. The movement of Provision in accordance with Ind AS 37 on ‘Provisions, Contingent liabilities and Contingent Assets’ is given below:
The bank overdraft is repayable on demand and carries interest rate of 8.15% per annum.
2. Trade payables
a) Trade Payable include Rs, 92 Mn (March 31, 2016 - Rs, 290 Mn, April 1, 2015 - Rs, 350 Mn) payable to Parent company and fellow subsidiary Company. For details, refer note 40.
b) Details of dues to micro and small enterprises as defined under the MSMED Act, 2006
v. The discount rate is based on the average yield on government bonds at the reporting date with a term that matches that of the liabilities.
vi. The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
vii. Estimated amounts of benefits payable within next year are Rs, 43 Mn (March 31, 2016- Rs, 38 Mn).
The above sensitivity analysis are based on a change in an assumption by a percentage while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. While calculating the sensitivity of the defined benefit obligation to significant actuarial assumption, same method i.e Projected Unit Credit method has been applied as when calculating the gratuity liability recognized within the Balance sheet
3. Employee stock/cash settled option plans
Pursuant to the board resolution dated July 22, 2008 and the resolution of the shareholders in extraordinary general meeting dated August 28, 2008, the Company instituted the Employee Stock Option Scheme 2008 (the 2008 Scheme).
In FY 2013-14 & 2014-15, the Company had announced new performance unit plan (cash settled option plan) for its employees.
The weighted average share price at the exercise date was Rs, 348.64 per share for options exercised under the 2008 Scheme & LTI plan, Rs, 364.88 per share for options exercised under cash settled plan & Rs, 341.41 per share for options exercised under the LTIP Scheme 2015 during the year ended March 31, 2017.
The weighted average fair value of the options granted during the year March 31, 2017 is Rs, 382.44 per share (FY 2015 -16 - Rs, 497.29 per share). The fair value of the options granted during the year was estimated using the Black Scholes, method of valuation with the following assumptions:
Total employee stock/cash options expense recognized for the year ended March 31, 2017and March 31, 2016 is Rs, 32 Mn and Rs, 82 Mn respectively.
(i) Bharti Airtel Limited has given stock option to certain employees of the Company. Bharti Airtel Limited has not charged the compensation cost relating to the stock option granted to the Company’s employee. Besides this, the Company has also given stock options to certain employees of Bharti Airtel Limited and has considered the related compensation cost in its books.
(ii) The Company has decided to issue equity shares on exercise of ESOPs through ESOP trust. The loan of Rs, 625 Mn has been given to ESOP trust during F.Y 2014-15 to purchase the Equity Shares of the Company from open market as permitted by SEBI (Share Based Employee Benefits) Regulations, 2014.
(iii) During the FY 2014-15 Bharti Infratel Employee Welfare Trust (a trust set up for administration of Employee Stock Option Plan (‘ESOP’) of the Company) has acquired 1,652,000 equity shares of the Company from the open market at an average price of Rs, 377.72 per share. As of March 31, 2017, Bharti Infratel Employee Welfare Trust (‘the Trust’) holds 852,656 shares (of Face Value of Rs, 10 each) (March 31, 2016- 1,470,439 equity shares) of the Company.
(b) Operating lease: Company as a lessor
The Company has given sites on operating lease to telecom operators. As per the agreements with the operators the escalation rates range from 0% to 2.5% per annum. The service charges recognized as income during the year for non-cancellable arrangements relating to provision for passive infrastructure sites as per the agreements is Rs, 37,433 Mn and Rs, 34,367 Mn for the year ended March 31, 2017 and March 31, 2016 respectively.
@ the amount includes demand amount and interest till the date of demand.
# Includes Rs, 2,955Mn (March 31, 2016 - Rs, 1,627 Mn , April 1, 2015 - Rs, 2,727 Mn) for which the possibility of tax demand materializing is remote, based on internal assessment of the Company.
Unless otherwise stated below, the management based on legal advice believes that, the outcome of these contingencies will be favorable and loss is not probable.
a) Sales Tax
The claims for sales tax as of March 31, 2017 comprise of the case relating to levy of penalty for the year 200809 in right to use litigation wherein the main demand has already been quashed by Hon’ble High Court (‘HC’) of Indore. The Company has filed Writ petition against the penalty before Hon’ble High Court which is pending for hearing on merits. Further the department has filed an appeal before Hon’ble Supreme Court (‘SC’) against the favorable order of Hon’ble High Court. Hon’ble SC has issued notice in this matter to file a reply.
(b) Stamp Duty
The Company has received demand in certain states for stamp duty on execution of Leave and License Agreement of Cell Sites.
(c) Entry tax
Hon’ble Apex Court on November 11, 2016 while upholding the constitutional validity of entry tax levied by few States wherever its applicable, referred all the cases back to regular benches of the Court/s to decide all existing cases on merits while testing inter alia that whether the present levies in each such case/ State is discriminatory in nature or not.
Accordingly, all the said cases were listed before the regular bench of Supreme Court wherein after taking up all pending cases on State by State basis court have found that prime facie inter alia discrimination issues still exists and all the listed petitions have been remanded back to the respective High courts for decision after taking consideration all the grounds as laid down in the judgment of nine judges bench.
Pending disposition of each case by the High Courts, the Company has decided to maintain ‘Status Quo’ on its position/assessment and continued to disclose it as contingent liability.
(d) Municipal taxes
The Company based on its assessment of the applicability and tenability of certain municipal levies, which is an industry wide phenomenon, does not consider the impact of such levies to be material.
Further, in the event these levies are confirmed by the respective government authorities, the Company would recover these amounts from its customers in accordance with terms of Master Service Agreement.
(e) Service Tax
The service tax department has issued certain orders for the disallowance of cenvat credit availed on Inputs, Capital Goods and Input Services for the period starting from August, 2007 to March, 2014 The Company has filed an appeal before Hon’ble High Court of Delhi against the Larger Bench CESTAT decision while the appeal is pending before Division Bench, Chandigarh on merits. Writ petition listed for hearing on April 19, 2017 which is further adjourned to July 6 & 7, 2017 for final hearing.
I n separate proceeding before Directorate General of Central Excise Intelligence, the department has issued order for disallowance of Cenvat credit on items sold as scrap. The Company has filed appeal before CESTAT against such order.
(f) Others mainly include site related legal disputes.
(g) Income tax
This mainly includes tax demands for Assessment years 2011-12 to 2014-15.
The following methods / assumptions were used to estimate the fair values:
i. The carrying value of cash and cash equivalent, other bank balances, certificate of deposits, trade receivables and trade payables approximate their fair value mainly due to the short-term maturities of these instruments.
ii. The fair values of financial assets classified as FVTPL like investment in quoted mutual funds and Government securities is based on quoted market price/ net assets value at the reporting date.
iii. The fair value of other financial assets and other financial liabilities is estimated by discounting future cash flows using rates applicable to instruments with similar terms, currency, credit risk and remaining maturities. The fair values of other financial assets and other financial liabilities are assessed by the management to be same as their carrying value and is not expected to be significantly different if estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
iv. The fair value of financial asset classified as FVTOCI like Investment in Commercial papers, corporate deposits and quoted bonds etc are derived from quoted price/net assets value at the reporting date.
There are no significant unobservable inputs used in the fair value measurement.
4. Fair value hierarchy
All financial instruments for which fair value is recognized or disclosed are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole;
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: I nputs 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)
The following table presents the financial instruments measured at fair value, by level within the fair value measurement hierarchy:
During the year ended March 31, 2017, there were no transfers between Level 1 and Level 2 fair value measurements and no transfers in to and out of Level 3 fair value measurements
5. Related party Disclosures
In accordance with the requirements of Ind AS - 24 “Related Party Disclosures”, the names of the related parties where control exists and/ or with whom transactions have taken place during the year and description of relationships, as identified and certified by the management are as below:
A. List of related parties
1. Key management personnel (KMP)
Akhil Kumar Gupta, Chairman
D.S. Rawat, Managing Director and Chief Executive Officer
Pankaj Miglani, Chief Financial Officer
Shweta Girotra, Company Secretary
2. Related parties where control exists irrespective of whether transactions have occurred or not
Parent Company Bharti Airtel Limited
Subsidiary Company Bharti Infratel Services Limited (refer note 1)
Subsidiary Company Smartx Services Limited (w.e.f. September 21, 2015)
Name of related party_Relationship_
Bharti Hexacom Limited_Fellow Subsidiary_
Bharti Telemedia Limited_Fellow Subsidiary_
Nxtra Data Limited_Fellow Subsidiary_
Nettle Infrastructure Investments Limited_Fellow Subsidiary_
Indus Towers Limited_Joint Venture_
Bharti Enterprises Limited_Entity having significant influence/ Group Company
Centum Learning Limited_Entity having significant influence/ Group Company
Bharti Foundation_Entity having significant influence/ Group Company
Bharti Axa General insurance Co. Ltd. (Bharti Axa)_Entity having significant influence/ Group Company
Bharti Infratel Employees Welfare Trust_Entity having significant influence/ Group Company
Bharti Realty Holdings Limited_Entity having significant influence/ Group Company
Telesonic Network Limited_Entity having significant influence/ Group Company
Bharti Retail Limited_Entity having significant influence/ Group Company
Bharti Realty Limited_Entity having significant influence/ Group Company
Amount received from KMP for ESOP exercised Rs, 7 Mn during the year ended March 31, 2017 (March 31, 2016 '''' 300 mn).
Terms and conditions of transactions with related parties The transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the yearend 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.
6. Pursuant to Initial Public Offer (IPO), the Company raised '''' 31,657 Mn (net of selling shareholder’s proceeds), details of utilization of IPO proceeds are as follows:-
(a) The Company has fully utilized the IPO Proceeds towards the Objects to the Issue as stated in the prospectus and/ or as approved by the shareholders through postal ballot dated March 21, 2016.
(b) Variation to the objects and schedule of deployment as disclosed in the prospectus dated December 19, 2012 issued by the Company for its IPO was approved by the shareholders of the Company through postal ballot on March 21, 2016.
(c) Amount of Rs, 263 Mn has been utilized against installation of new towers adjusted from “Up gradation and replacement of existing towers” in line with the approval referred in (b) above.
7. The Company was set-up with the object of, interalia, establishing, operating and maintaining wireless communication towers. This is the only activity performed and is thus also the main source of risks and returns. The Company’s segments as reviewed by the Chief Operating Decision Maker (CODM) does not result in to identification of different ways/ sources in to which they see the performance of the Company. Accordingly, the Company has a single reportable segment as far as standalone reporting is concerned. Further, as the Company does not operate in more than one geographical segment hence the relevant disclosures as per Ind AS 108 - Operating Segments are not applicable to the Company on a Standalone basis.
8. In absence of any specific guidance under Ind AS with respect to merger under court scheme, the Company has continued to apply the accounting prescribed under the scheme as applied under Indian GAAP Accordingly, depreciation charges on the excess of fair value over the original book values is charged to general reserve.
A) Scheme accounting - Bharti Airtel Scheme
During the year ended March 31, 2008, pursuant to the Scheme of Arrangement with Bharti Airtel Limited (‘BAL Scheme’) under sections 391 to 394 of the Companies Act, 1956, the telecom infrastructure undertaking of Bharti Airtel Limited was transferred to the Company. Pursuant to the Scheme, the depreciation charged by the Company on the excess of the fair values over the original book values of the assets transferred by Bharti Airtel Limited is being off-set against General Reserve.
B) Scheme accounting - The Indus Scheme
The Scheme of Arrangement (‘Indus Scheme’) under Section 391 to 394 of the Companies Act, 1956 for transfer of all assets and liabilities, as defined in Indus scheme, from Bharti Infratel Ventures Limited (BIVL), erstwhile wholly owned subsidiary Company, to Indus Towers Limited (Indus), was approved by the Hon’ble High Court of Delhi vide order dated April 18, 2013 and filed with the Registrar of Companies on June 11, 2013 with appointed date April 1, 2009 i.e. effective date of Indus Scheme and accordingly, effective June 11, 2013, the erstwhile subsidiary Company has ceased to exist and has become part of Indus. The Company was carrying investment in BIVL at Rs, 59,921 Mn. Pursuant to Indus Scheme, the Company has additionally got 504 shares in Indus in lieu of transfer of its investment in BIVL to Indus and recorded these additional shares at their fair value of Rs, 60,419 Mn in accordance with the scheme. The resultant gain of Rs, 385 Mn (net of taxes Rs, 116 Mn) has been disclosed as adjustment to carry forward balance of Statement of Profit and Loss as at April 1, 2009.
9. First-time adoption of Ind AS
As stated in note 2(b), the Company has prepared its first annual Ind AS financial statements for the year ended March 31, 2017. These financial statements for the year ended March 31, 2017 have been prepared in accordance with Ind AS. The preparation of these financial statements resulted in changes to the accounting policies as compared to most recent annual financial statements prepared under Indian GAAP (“Previous GAAP”). Accounting policies have been applied consistently to all periods presented in the financial statements. They have also been applied in preparing the Ind AS opening balance sheet as at April 1, 2015 for the purpose of transition to Ind AS and as required by Ind AS 101: First Time adoption of Indian Accounting Standards.
Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions with respect to transition to Ind AS:
a. Deemed cost exemption
The Company has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets as recognized in the financial statements as at the date of transition to Ind AS, measured as per previous GAAP and used it as its deemed cost at the date of transition.
The Company, in its separate financial statements, has elected to record its investment in Joint Venture at previous GAAP carrying value by considering the same as deemed cost.
b. Merger Accounting
The Company has continued to follow the accounting treatment pursuant to the Merger Scheme prescribed by the Hon’ble High Court under Ind AS which is in line
with Previous GAAP Use of the accounting as mandated by the merger scheme 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. The Company did not recognize or exclude any previously recognized amounts as a result of Ind AS recognition requirements.
Impact of transition to Ind AS
Net Ind-AS transition adjustments of Rs, 3,330 Mn (Other than proposed dividend and DDT) in the opening balance sheet as at April 1, 2015 has been adjusted from General Reserve (created as per provisions of Companies (Transfer of profit to reserves) rules, 1975 upon declaration of dividend as per companies Act, 1956) and Retained Earnings as on April 1, 2015 by Rs, 1,925 Mn and Rs, 1,405 mn, respectively.
The following is a summary of the effects of the differences between Ind AS and Indian GAAP on the Company’s total equity and profit for the period or periods previously reported under Indian GAAP following the date of transition to Ind AS:
10 Asset Retirement obligation
Under Indian GAAP, Asset Retirement obligation (ARO) is capitalized when it is probable that an outflow of resources will be required to settle the obligation and reliable estimate can be made. The ARO Liability is stated at Historical cost till the extinguishment of liability or expiry of the contractual period. The capitalized portion of the cost is depreciated over the useful life of the asset.
Under Ind AS, Asset Retirement obligation is provided at the present value of expected cost to settle the obligation and is recognized as part of Property, Plant and Equipment and liability. The estimated future cash outflows are discounted at a current pre tax rate that reflects the risk specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognized in the Statement of Profit and Loss as finance cost. Changes in the estimated future cost or in the discount rate applied are added to or deducted from the cost of the asset.
The financial impact on transition date for ARO adjustment amounted to decrease in Property, Plant and Equipment (ARO Asset) and Provision for ARO (Long Term provisions) by Rs, 1,397 mn and Rs, 1,711 mn respectively. The impact as at March 31, 2016 amounted to decrease in Property, Plant and Equipment (ARO asset) and Provision for ARO (Long Term provisions) by Rs, 1,307 mn and Rs, 1,635 mn, respectively. The impact of such adjustment in Statement of Profit and Loss for year ended March 31, 2016 is reduction in depreciation by Rs, 154 mn and increase in Finance cost due to unwinding of discount by Rs, 139 mn.
11. Revenue Equalization
Under Indian GAAP Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms and is included in revenue in the Statement of Profit and Loss.
Under Ind AS, the Company has ascertained that the increase is on account of general inflation. Hence, revenue equalization reserve relating to general inflation increase has been reversed.
The reversal of Revenue equalization on April 1, 2015 has been adjusted in general reserve & retained earnings and Other Non-Current Assets has been decreased by Rs, 14,538 mn. As at March 31, 2016 other noncurrent assets have been reduced by Rs, 15,122 mn respectively. In Statement of Profit and Loss for the year ended March 31, 2016, Revenue equalization has been reversed and revenue from operation is decreased by Rs, 585 mn.
12. Lease Equalization
Under Indian GAAP Operating lease payments are recognized as an expense in the Statement of Profit and Loss on a straight line basis over the non-cancellable lease term.
Under Ind AS, the Company has ascertained that the payments are structured to increase in line with expected general inflation to compensate for the less or’s expected general inflationary cost increases. Hence lease equalization reserve has been reversed.
The reversal of Lease equalization on April 1, 2015 impacts as decrease in other long term liabilities and such transition impact is adjusted in general reserve & retained earnings by Rs, 1,669 mn. As at March 31, 2016, other long term liabilities have been reduced by Rs, 1,778 mn.
In Statement of Profit and Loss for the year ended March 31, 2016, Lease equalization has been reversed and Rental expense is decreased by Rs, 109 mn.
13 Proposed dividend
Under Indian GAAP, proposed dividends including Dividend distribution tax (DDT) are recognized as a liability in the period to which they relate, irrespective of when they are declared.
Under Ind AS, a proposed dividend is recognized as a liability in the period in which it is declared by the company (usually when approved by shareholders in a general meeting) or paid.
The final dividend are declared and approved post the period to which it relates to, therefore, the liability of Rs, 14,815 mn for the year ended on March 31, 2015 recorded for dividend including dividend distribution tax has been derecognized against retained earnings on April 1, 2015. The proposed dividend for the year ended on March 31, 2016 of Rs, 6,847 mn recognized under Indian GAAP was reduced from Short term provisions and with a corresponding impact in the retained earnings.
14. Define benefit plan on Retirement benefits
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 impacted by '''' 3 Mn and remeasurement gains/ losses on defined benefit plans has been recognized in the other comprehensive income ( net of tax) for the year ended March 31, 2016.
15. Financial Assets at Fair Value through profit or loss
Under Indian GAAP Current investments are accounted for at cost or market price whichever is lower. Difference between the cost and market price is recognized in the Statement of Profit and Loss.
The long term investments in mutual funds required to be measured at cost less provision for diminution, other than temporary in the value of investments.
Under Ind AS, such investment have been designated at Financial Assets at Fair value through profit and loss. These are accounted for at fair value and any difference with the cost is recognized as gain or loss in the Statement of Profit and Loss.
The impact of financial assets at FVTPL measured at fair value as at April 1, 2015 resulted in increase in general reserve & retained earnings by Rs, 7,413 mn and increase in Non Current Investment and current Investment by Rs, 3,881 mn and Rs, 3,532 mn respectively. As at March 31, 2016, there is increase in Non Current Investment and Current Investment by Rs, 4,299 mn and Rs, 2,438 mn respectively. The Finance cost for the year ended March 31, 2016 increased by Rs, 682 mn on account of MTM gain reversed/ recognized earlier on fair value of such Investments.
16. Financial Assets at Amortised Cost
This category generally applies to trade and other receivables, Security deposit etc. Under Indian GAAP these kind of financial assets are stated at transaction value.
Under Ind AS, financial assets which are non derivative with fixed or determinable payments that are not quoted in an active market and recognized initially at Fair value. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss.
Such financial assets are classified at Amortised cost which needs to be initially recognized at Fair value under Ind AS. The corresponding fair value impact on April 1, 2015 is recognized in general reserve & retained earnings and security deposit paid is decreased by Rs, 6 mn and Rs, 9 mn, respectively as at April 1, 2015 and March 31, 2016.
The impact of amortization of deferred lease expense and finance income for the year ended March 31, 2016 as increase in rental expense by Rs, 18 Mn and finance income of Rs, 15 Mn.
17. Financial Liabilities at Amortized cost
This category applies to Security deposit received, Trade payables etc. Under Indian GAAP these kind of financial liabilities are stated at transaction value.
Under Ind AS Financial liabilities at amortized cost are non derivative financial liabilities with fixed or determinable payment that are not quoted in an active market and recognized initially at fair value. After initial measurement, such liability are subsequently measured at amortized cost using the effective interest rate (EIR) method. The EIR amortization is included in finance cost in the Statement of Profit or Loss.
Such financial assets are classified at Amortized cost which needs to be initially recognized at Fair value under Ind AS. The corresponding fair value impact on such financial assets on April 1, 2015 resulted in increase in general reserve & retained earnings and decrease of Security deposit received by Rs, 291 mn and Rs, 317 mn, respectively on April 1 ,2015 and March 31, 2016.
The impact of amortization of deferred income on security deposit received resulted in increase in revenue from operation by Rs, 211 mn and unwinding of discount resulting in increase in finance cost by Rs, 185 mn during the year ended March 31, 2016, respectively.
18. Deferred Tax
Indian GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under Indian GAAP
I n addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences. Deferred tax adjustments are recognized in correlation to the underlying transaction either in retained earnings or a separate component of equity. The net impact on deferred tax liabilities/ assets as on April 1, 2015 and March 31, 2016 is of Rs, 1,527 mn and Rs, 2,687 mn respectively.
19. 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.
20. Statement of Cash Flows
The impact of transition from Indian GAAP to Ind AS on the Statement of Cash Flows is due to various reclassification adjustments recorded under Ind AS in Balance Sheet and Statement of Profit and Loss. The transition from Indian GAAP to Ind AS has not had a material impact on the Statement of Cash Flows.
21. Buyback of Shares
In accordance with Sec 68, 69, 70 and other applicable provisions of the Companies Act, 2013 and SEBI regulations and pursuant to the public announcement for buy back made by the Company, the Company initiated a buy back by way of tender offer through stock exchange mechanism for cash at price of Rs, 425 per equity share for an aggregate amount of 20,000 Mn.
22. On April 26, 2016, Board of Directors had proposed a dividend of Rs, 3.00 per equity share to all the existing shareholders for the year ended March 31, 2016. The dividend proposed by the Board of Directors has been approved by shareholders in the annual general meeting dated August 10, 2016 and paid subsequently.
23. The Company (concessionaire) has entered into a service concession agreement as a lead member with Bhopal Smart City Development Corporation Limited (BSCDL/ grantor) along with other consortium members for implementation and maintenance of “Bhopal Smart City project”(the project) vide agreement dated October 28, 2016. As per the terms of the agreement, the Company along with the consortium members has to work on Build, Own, Operate and Transfer (BOOT) model on Public Private Partnership (PPP) basis.
The concession period granted as per the agreement is 15 years (excluding implementation period of 1 year) further extendable by another 15 years based on mutually agreed terms and conditions.
The title of interest, ownership and rights with regard to project implemented by the Company along with fixtures/ fittings provided therein shall rest with the Company until the expiry/ termination of the agreement and the rights related to the land allotted by the BSCDCL shall vest with the BSCDCL, except that, these will be operated and maintained by the Company at its own cost and expenses as agreed in the concession agreement.
These project facilities and assets constructed shall be transferred to BSCDCL at zero cost on expiry/ termination of the agreement. On obtaining the Completion Certificate from the specified authority, the Company shall be exclusively entitled to demand and collect revenue from the project assets in any manner.
The Concessionaire shall pay a fixed quarterly revenue share, as specified by the terms of agreement,to BSCDCL over the concession period. As of March 31, 2017, the Company has incurred capex cost of Rs, 17 Mn and recognized in capital work in progress.
24. The Company was required to spend Rs, 326 Mn towards CSR expenditure as per the requirement of the Companies Act 2013. During the year Rs, 171 Mn were spent towards ongoing long term CSR projects basis approval from the board. The disbursement of committed funds was based on the individual project work plans and milestones achieved over the year. All projects are being monitored and evaluated on the progress made and impact created during the routine course of the business. Besides the above, the Company also contributed as charity/donation to Bharti Foundation for Satya Bharti School Program (? 50 Mn); Brooking Institution India Centre (Rs, 2.5 Mn) and Bharti Foundation towards promotion of formal education in rural areas (? 0.5 Mn via Airtel Delhi Half Marathon)
25. Financial risk management objectives and policies
The Company’s principal financial liabilities comprise trade payables, security deposits, short term borrowings etc. The main purpose of these financial liabilities is to manage finances for the Company’s operations. The Company’s principal financial assets include Investment in Mutual Funds, Bonds and Government Securities, trade and other receivables, unbilled revenue, cash and cash equivalents, security deposits, etc. that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The senior professionals working to manage the financial risks and the appropriate financial risk governance frame work for the Company are accountable to the Board Audit Committee. This process provides assurance to the Company’s senior management 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 Company’s risk appetite. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivatives for speculative purposes shall be undertaken. The Board of Directors reviews and agrees 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 prices comprise three types of risk: interest rate risk, foreign currency risk and price risk. Financial instruments affected by market risk include interest bearing Investment in bonds, Government Securities and fixed deposits etc.
The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at March 31, 2017 and March 31, 2016.
The Company’s exposure to financial risks is to a variety of financial risks, including the effect of changes in foreign currency exchange rates, if any. The Company uses derivative financial instruments such as foreign exchange contracts to manage its exposures and foreign exchange fluctuations, if any.
- Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Indian Rupee is the Company’s functional currency. As a consequence, the Company’s results are presented in Indian Rupee and exposures are managed against Indian Rupee accordingly. The Company has very limited foreign currency exposure mainly due to incurrence of some expenses. The Company may use foreign exchange option contracts or forward contracts towards operational exposures resulting from changes in foreign currency exchange rates exposure. These foreign exchange contracts, carried at fair value, may have varying maturities depending upon the primary host contract requirement. The Company manages its foreign currency risk by hedging appropriate percentage of its foreign currency exposure, as approved by the Board as per established risk management policy.
- Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Company has invested in Government securities and bonds which will fetch a fixed rate of interest, hence, the income and operating cash flows are substantially independent of changes in market interest rates.
- Price risk
The Company invests its surplus funds in various Government securities, taxable and tax free quoted debt bonds, liquid schemes of mutual funds (liquid investments) and higher duration short term debt funds and income funds (duration investments).
These are susceptible to market price risk, mainly arising from changes in the interest rates or market yields which may impact the return and value of such investments. The Company manages the price risk through diversification from time to time.
- 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 for trade receivables) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments.
- Trade receivables
Customer credit risk is managed by each business unit subject to the Company’s established policy, procedures and control relating to customer credit risk management. Trade receivables are non-interest bearing and are generally on 15 days credit term. Outstanding customer receivables are regularly monitored. The ageing analysis of trade receivables as of the reporting date is as follows:
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed by Company’s treasury in accordance with the board approved policy. Investment of surplus funds are made only with approved counterparties who meet the minimum threshold requirements under the counterparty risk assessment process. The Company monitors ratings, credit spreads and financial strength on at least quarterly basis. Based on its on-going assessment of counterparty risk, the Company adjusts its exposure to various counterparties. The Company’s maximum exposure to credit risk for the components of the Balance Sheet at March 31, 2017, March 31, 2016 and April 1, 2015 is the carrying amounts as illustrated in Note 38.
- 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 its cash and collateral requirements. The Company principal sources of liquidity are cash and cash equivalents and the cash flow generated from operations. The Company closely monitors its liquidity position and deploys a robust cash management system.
The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments:-
- Capital management
Capital includes equity attributable to the equity holders of the parent. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.
The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. During the current year, the Company has availed Bank overdraft facility for Rs, 2,785 mn (Mar 31, 2016 - Nil, April 1, 2015 - Nil) which is integral part of cash management and the cash and cash equivalent amounting to Rs, 22,494 mn as at March 31, 2017 (March 31, 2016 - Rs, 20,091 mn and April 1, 2015 -Rs, 62 mn). The Cash and Cash equivalent net of Bank overdraft is Rs, 19,709 mn. Hence Capital gearing ratio as at March 31, 2017, March 31, 2016 and April 1, 2015 is not required to be disclosed.
26. During the year ended March 31, 2016, the company has re-classified the termination charges w.r.t. cancellation of contracts by operators of Rs, 47 Mn, from ‘Other income’ to ‘revenue from operations’ w.e.f July 1, 2015 and has not reclassified prior period comparative on the basis of materiality.
27. Charity and donation includes Rs, 50 Mn (FY 2015-16 - Nil) paid to Satya electoral trust.
28. During Q4’ 2017, dividend distribution tax (DDT) of Rs, 4,519 mn on Interim dividend and DDT of Rs,1,130 Mn on final dividend paid in the current year has been adjusted and reclassified from surplus in profit & loss account, respectively, to the general reserve under the demerger scheme as referred in Note 43.
29. The Board of Directors, in its meeting held on April 26, 2016, proposed a final dividend of Rs, 3 per equity share and the same was approved by the shareholders at the Annual General Meeting held on August 10, 2016.
30. General reserve include general reserve under scheme for Rs, 69,244 Mn as at March 31, 2017 (March 31, 2016 - Rs, 75,430 Mn, March 31, 2015 - Rs, 76,056 Mn), General reserve for Dividend as at March 31, 2017 - Nil (March 31, 2016 - Rs, 501 Mn, March 31, 2015 - Rs, 501 Mn) and Others as at March 31, 2017- Rs, 13 Mn (March 31, 2016 - Rs, 50 Mn, March 31, 2015 -Rs, 16 Mn)
31. Previous year’s figures in the financial statements, including the notes thereto, have been reclassified wherever required to conform to the current year’s presentation/classification. These do not affect the previously reported net profit or equity.
32. Overlapping circles Represent the telecommunication circles of Haryana, Rajasthan, Uttar Pradesh (East) and Uttar Pradesh (West) wherein Bharti Infratel and Indus Towers have overlapping operations. Bharti Infratel is not permitted to roll out any new towers in these telecommunications Circles, although it continues to own and operate its existing telecommunications towers in these Circles, and add additional sharing operators to these towers. New tower rollout in these telecommunication circles is done by Indus.
33. Circles Represents the telecommunications circles of Bihar, Madhya Pradesh and Chhattisgarh, Odisha, Jammu and Kashmir, Himachal Pradesh, Assam and North East states wherein Bharti Infratel operates on exclusive basis.
34. Circles Represents the 7 telecommunications circles of Bihar, Madhya Pradesh and Chhattisgarh, Odisha, Jammu and Kashmir, Himachal Pradesh, Assam and North East states wherein Bharti Infratel operates on exclusive basis and the 4 common circles of Haryana, Rajasthan, Uttar Pradesh (East) and Uttar Pradesh (West) wherein Bharti Infratel and Indus Towers have overlapping operations.
35.Circles Represents the 11 telecommunication circles of Andhra Pradesh, Delhi, Gujarat,
Karnataka, Kerala, Kolkata, Maharashtra & Goa, Mumbai, Punjab, Tamil Nadu (including Chennai) and West Bengal wherein Indus operates on exclusive basis and the 4 common telecommunication circles of Haryana, Rajasthan, Uttar Pradesh (East) and Uttar Pradesh (West) wherein Bharti Infratel and Indus Towers have overlapping operations.
Adjusted Fund from Operations It is not an Ind AS measure and is defined as EBITDA adjusted for Maintenance and
(AFFO) General Corporate Capex, revenue equalization and lease rent equalization (which represents straight lining of revenue and expense).
Average Co-locations Average co-locations are derived by computing the average of the Opening and Closing co-locations at the end of relevant period.
Average Sharing Factor Average Sharing factor is calculated as the average of the opening and closing number of co-locations divided by average of the opening and closing number of towers for the relevant period.
Average Towers Average towers are derived by computing the average of the opening and closing towers at the end of relevant period.
BISL Bharti Infratel Services Limited
BIVL Bharti Infratel Ventures Limited
Capex It includes investment in gross fixed assets and capital work in progress for the relevant period.
Capital Employed Capital Employed is defined as sum of equity attributable to equity shareholders and
Net Debt/ (Net Cash).
Cash Profit from operations It is not an Ind AS measure and is defined as operating income adjusted for depreciation and amortization, revenue equalization, lease rent equalizations and finance costs.
Circle(s) 22 service areas that the Indian telecommunications market has been segregated into Closing sharing factor Closing sharing factor is calculated as the closing number of co-locations divided by closing number of towers as at the end of relevant period.
Co-locations Co-location is the total number of sharing operators at a tower, and where there is a single operator at a tower; ‘co-location’ refers to that single operator. Co-locations as referred to are revenue-generating co-locations.
Consolidated Financial The Consolidated financial statements of the company till FY 2012-13 represent statements the financials of Bharti Infratel Ltd Standalone taken together with its wholly owned subsidiary Bharti Infratel Ventures Ltd and Bharti Infratel’s 42% equity interest in Indus Towers Ltd. accounted for by proportionate consolidation. Consequent to Indus Merger, the financial statements of Indus have been prepared after giving effect to the Merger Scheme. Accordingly the Consolidated Financial Results of the Company from quarter ended June 2013 and onwards represent the financials of Bharti Infratel Ltd. Standalone taken together with its 42% equity interest in Indus Towers Ltd. accounted for by proportionate consolidation and consolidating the subsidiary Bharti Infratel Services Ltd. & Smartx Services Ltd. till March 31, 2016 under Indian GAAP Post transition to Ind AS, the Consolidated financial results of the Company represent financials of Bharti Infratel Ltd. Standalone taken together with its 42% interest in Indus Towers Ltd accounted for under Equity method and consolidation of subsidiary Smartx Services Ltd. and controlled trust Bharti Infratel Employee Welfare Trust.
Cumulative Investments Cumulative Investments comprises of gross property, plant & equipment (including
Capital Work In Progress).
Earnings per Share (EPS) (Basic) It is computed by dividing net profit or loss attributable for the period to equity shareholders by the weighted average number of equity shares outstanding during the period.
Earnings per Share (EPS)- Diluted earnings per share is calculated by adjusting net profit or loss for the period (Diluted) attributable to equity shareholders and the weighted average number of shares outstanding during the period for the effects of all dilutive potential equity shares.
EBIT Earnings before interest, taxation excluding other income for the relevant period.
EBIT (Including Other Income) Earnings before interest, taxation including other income for the relevant period.
EBITDA Earnings before interest, taxation, depreciation and amortization and charity and donations excluding other income for the relevant period. It is defined as operating income and does not include depreciation and amortization expense, finance cost and tax expense.
EBITDA (Including Other Income) Earnings before interest, taxation, depreciation and amortization and charity and donations including other income for the relevant period.
Enterprise Value (EV) Calculated as sum of Market Capitalization plus Net Debt/ (Net Cash) as at the end of the relevant period.
EV / EBITDA (times) (LTM) Computed by dividing Enterprise Value as at the end of the relevant period (EV) by EBITDA for the preceding (last) 12 months from the end of the relevant period.
Future Minimum Lease Payment The Company has entered into long term non-cancellable agreements to provide
Receivable infrastructure service