NIIT Technologies Limited (“the Company”) is a Company limited by shares, incorporated and domiciled in India. The Company delivers services around the world directly and through its network of subsidiaries and overseas branches. The Company is rendering Information Technology solutions and is engaged in Application Development and Maintenance, Managed Services, Cloud Computing and Business Process Outsourcing to organizations in a number of sectors viz. Financial Services, Insurance, Travel, Transportation and Logistics, Manufacturing and Distribution and Government. The Company is a public listed Company and is listed on Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
1 Critical estimates and judgments
The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgment in applying the Company’s accounting policies.
This Note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgments is included in relevant Notes together with information about the basis of calculation for each affected line item in the financial statements.
Areas involving critical estimates or judgments are:
- Estimated goodwill impairment - Note 4
- Estimated useful life of intangible asset - Note 4
- Estimation of defined benefit obligation - Note 16
- Estimation of provision for customer contracts - Note 15
- Impairment of trade receivables - Note 5 (iv)
Estimates and judgments are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the group and that are believed to be reasonable under the circumstances.
2 Intangible Assets
(i) Significant estimate: useful lives of intangible assets
The Company estimates 3 years as the useful life in case of computer softwares used for business and for project specific softwares, the Company amortises the assets according to the project duration.
If the useful life of assets was reduced by 2 years, there would be no significant impact on acquired intangible assets. For project specific cases, the carrying value would be reduced by Rs. 92 Mn.
(ii) Impairment tests for Goodwill
a) Significant estimates: Key assumptions used for value-in-use calculations
The Company tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by the management covering a five-year period.
Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates are consistent with forecasts included in industry reports specific to the industry in which each CGU operates.
b) Significant estimate: impairment charge
The Company has performed impairment testing for the above CGU and no impairment charge has been identified.
c) Significant estimate: Impact of possible changes in key assumptions
Goodwill is monitored by the management at the level of identified CGU to which the goodwill pertains to.
Provision Tree CGU:
If the budgeted gross margin used in the value-in-use calculation for the Provision Tree CGU had been 1% lower than management’s estimates at 31 March 2017 (1% instead of 2%), the Company would still have a higher recoverable amount and no additional impairment against the carrying amount of goodwill will be charged. If the pre-tax discount rate applied to the cash flow projections of this CGU had been 1% higher than management’s estimates (18% instead of 17%), the recoverable amount of the Company would still be higher than the carrying amount and no impairment against the carrying amount of goodwill would have to be recorded.
The Company has considered and assessed reasonably possible changes for other key assumptions and have not identified any instances that could cause the carrying amount of any CGU to exceed its recoverable amount.
Nature and purpose of other reserves
(i) Securities premium reserve
Securities premium reserve is used to record the premium on issue of shares. The reserve is utilized in accordance with the provisions of the Companies Act 2013.
(ii) Share options outstanding account
The share options outstanding account is used to recognize the grant date fair value of options issued to employees under NIIT Technologies Stock Option Plan 2005.
(iii) Cash flow hedging reserve
The Company uses hedging instruments as part of its management of foreign currency risk associated with its highly probable forecasted transactions, i.e. revenue, as described within Note 29. For hedging foreign currency risk, the Company uses foreign currency forward contracts which are designated as cash flow hedges. To the extent these hedges are effective; the change in fair value of the hedging instrument is recognized in the cash flow hedging reserve. Amount recognized in the cash flow hedging reserve is reclassified to profit or loss when the hedged item effects profit and loss, i.e. revenue.
The above sensitivity analysis is based on a change in assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognized in the balance sheet.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
Through its defined benefit plans, the group is exposed to a number of risks, the most significant of which are market volatility, changes in inflation, changes in interest rates, rising longevity, changing economic environment, regulatory changes etc. The Company ensures that the investment positions are managed within an asset-liability matching framework that has been developed to achieve investments which are in line with the obligations under the employee benefit plans. Within this framework, the Company’s asset-liability matching objective is to match assets to the obligations by investing in securities to match the benefit payments as they fall due.
The Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from employee benefit obligations. The Company has not changed the processes used to manage its risks from previous periods. Investments are well diversified, such that failure of any single investment should not have a material impact on the overall level of assets.
(e) Defined benefit liability and employer contributions
The Company monitors the funding levels on an annual basis and the current agreed contribution rate is 12% of the basic salaries in India.
The expected maturity analysis of defined benefit obligations:
(iii) Defined contribution plans
The Company makes contribution towards Superannuation Fund, Pension Fund, Employee State Insurance Fund and Overseas Plans (related to the branches in the United States of America, Ireland, Belgium and Switzerland), being defined contribution plans for eligible employees. The Company has charged the following amount in the Statement of Profit and Loss:
The expense recognized during the period towards defined contribution plan is as follows:
(iv) Defined benefit plan- Provident Fund
Employees Provident Fund contributions are made to a Trust administered by the Company. The Company’s liability is actuarially determined (using the Projected Unit Credit method) at the end of the year. Actuarial losses/ gains are recognized in the Statement of Profit and Loss in the year in which they arise. The contributions made to the trust are recognized as plan assets. The defined benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligation as reduced by the fair value of plan assets.
The Company contributed Rs.86 Mn(31 March 2016 Rs.78 Mn) during the year to the Trust, which has been charged to Statement of Profit and Loss.
3 (a) Expenses recognized during the year are net of recoveries towards common services at cost from domestic subsidiaries amounting to Rs.21 Mn (31 March 2016 - Rs. 21 Mn ).
4 Details of exceptional Items charged to the Statement of Profit and Loss
(a) During December, 2016, the Group signed a settlement agreement with a government customer in respect of a contract that was put on hold by the customer during the quarter ended 30 June 2016 to resolve certain project related issues. The provisions/write offs amounting to Rs. 362 mn (including Rs 218 Mn related to provision for doubtful debts) in respect of all amounts outstanding relating to this project were reported as an exceptional item during the quarter ended 30 June 2016. Consequent to the partial receipt of the settlement amount before the year end, Rs. 221 mn (net of the partial settlement amount received) continue to be reported as an exceptional item. Revenue amounting to Rs. 270 mn for services contracted, has been recognized as a result of settlement, in the Statement of Profit and Loss during the year ended 31 March 2017.
(b) During the year ended 31 March 2016 ,additional provision amounting to Rs 6 Mn for bonus related to the period 01 April 2014 to 31 March 2015 pursuant to retrospective amendment to “The Payment of Bonus Act, 1965” notified on 01 January 2016 was reported as an exceptional item.
5 Income tax expense
This Note provides an analysis of the Company’s income tax expense, show amounts that are recognized directly in equity and how the tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the Company’s tax positions.
The Company determines taxes on income in accordance with the applicable provisions of Income Tax Act, 1961 (“Act”). The Company also claims deductions under sections 10AA and 80 IAB in respect of its Unit and Developer Operations, respectively, in Special Economic Zone (SEZ). The payments under Minimum Alternate Tax (MAT) can be carried forward and can be set off against future tax liability. Accordingly, a sum of Rs.622 Mn (31 March 2016 Rs. 520 Mn) has been shown under “Deferred tax assets”. Further, during the year, the Company has created MAT credit of Rs.102 Mn (31 March 2016 Rs. 318 Mn).
In addition to Indian operations, the Company has accounted for the tax liability/reliefs in respect of its branches having operations in the United States of America (USA) ,Ireland , Belgium and Switzerland in accordance with the tax legislations applicable in the respective jurisdiction.
There are no financial liabilities measured at fair value as at 31 March, 2017; 31 March , 2016 and 01 April, 2015 except as stated in Note 41.
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds and mutual funds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period. The mutual funds are valued using the closing net asset value.
Level 2: The fair value of financial instruments that are not traded in an active market (for example foreign exchange forward contracts) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
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 for unlisted equity securities, contingent consideration and indemnification asset included in level 3. (Refer Note 41)
The Company’s policy is to recognize transfers into and transfers out of fair value hierarchy levels at the end of reporting period.
(ii) Valuation technique used to determine fair value
Specific valuation techniques used to value financial instruments include:
- The use of quoted market prices for similar instruments.
- The fair value of forward foreign exchange contracts is determined using Mark to Market Valuation by the respective bank at the balance sheet date.
- The fair value of the remaining financial instruments is determined using discounted cash flow analysis.
(iii) Fair value of financial assets and liabilities measured at amortised cost
The carrying amounts of trade receivables, trade payables, capital creditors and cash and cash equivalents are considered to be the same as their fair values, due to their short term nature.
For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.
The fair values for security deposits were calculated based on cash flows discounted using a current lending rate.
6 Financial risk management
The Company’s principal financial liabilities, other than derivatives, comprise loans and borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations and to provide guarantees to support its operations. The Company’s principal financial assets include loans, trade and other receivables, and cash and short-term deposits that derive directly from its operations. The Company also hold investments measured at fair value through profit or loss (FVTPL) and enters into derivative transactions.
The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s senior management is supported by a financial risk committee that advises on financial risks and the appropriate financial risk governance framework for the Company. The financial risk committee provides assurance to the Company’s senior management that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. 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 may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
(i) Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, investments measured at FVTPL and derivative financial instruments.
- 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.
There are no significant borrowings on the financial statements. Hence, there is no significant concentration of interest rate risk.
- Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.
The Company operates internationally and a major portion of the business is transacted in several currencies. Consequently, the Company is exposed to foreign exchange risk through receiving payment for sales and services across the globe in various foreign currencies. The exchange rate risk primarily arises from foreign exchange revenue, receivables, cash balances, forecasted cash flows and payables. A portion of our revenue is in U.S. Dollars, United Kingdom Pound Sterling, Euros, and Australian Dollars while a large portion of the costs are in Indian Rupees.
The Company evaluates its exchange rate exposure arising from these transactions and enters into foreign exchange forward contracts to hedge forecasted cash flows denominated in foreign currency and mitigate such exposure.
The sensitivity of profit or loss to changes in the exchange rates arises mainly from foreign currency denominated financial instruments and the impact on other components of equity arises from foreign forward exchange contracts designated as cash flow hedges.
*The resultant impact on the cash flow hedge reserve for the year ended 31 March, 2017 and 31 March, 2016; on account of changes in the fair value has been reconciled in Note 13.
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.
If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the hedge relationship rebalancing.
(ii) Credit Risk
Credit risk refers to the risk of default on its obligation by the counter party resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to Rs. 2,317 Mn and Rs. 2,507 Mn as of 31 March,2017 and 31 March,2016, respectively and unbilled revenue amounting to Rs. 255 Mn and Rs. 264 Mn as of 31 March,2017 and 31 March,2016, respectively. Trade receivables and unbilled revenue are typically unsecured and are derived from revenue earned through subsidiaries, government customers and other corporate customers. Since the Company earns major revenues from its subsidiaries where the payment is received as and when it is due. For other customers, the Company has used the expected credit loss model to assess the impairment loss or gain on trade receivables and unbilled revenue, and has provided it wherever appropriate.
The following table gives the movement in allowance for expected credit loss for the year ended 31 March, 2017:
(III) Liquidity Risk
The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company has no outstanding borrowings except term loans and working capital limits from banks. The term loans are secured against hypothecation of the vehicles (refer Note 14), and working capital limit is secured by a first charge on the book debts of the Company and by a second charge on movable assets of the Company .
However, the Company believes that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived.
(IV) Maturities of financial liabilities
The table below provides details regarding the contractual maturities of significant financial liabilities as of 31 March, 2017:
7 Capital Management
a) Risk management
For the Company’s capital management, capital includes issued equity share capital, share premium and all other equity reserves attributable to the shareholders. The primary objectives of the Company’s capital management are to maximise the shareholder value and safeguard their ability to continue as a going concern. The Company has no outstanding borrowings except term loans and working capital limits from banks. The term loans are secured against hypothecation of the vehicles (refer Note 14), and working capital limit is secured by a first charge on the book debts of the Company and by a second charge on movable assets of the Company. The Company has complied with the financial covenants attached with above stated borrowings throughout the reporting period.
8A Interests in other entities
(i) Interest in subsidiaries
The Company’s subsidiaries at 31 March 2017 are set out below. Unless otherwise stated, they have share capital consisting solely of equity shares that are held directly by the Company and the proportion of ownership interests held equals the voting rights held by the Company. The country of incorporation or registration is also their principal place of business.
9 Contingent liabilities and contingent assets
(a) Contingent liabilities
The Company had contingent liabilities in respect of:
ii) The Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company’s management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the Company’s results of operations or financial condition. Further, it is not practicable for the Company to estimate the timing of cash outflows, if any, in respect of the above pending resolution of the respective proceedings.
iii) The Company does not expect any reimbursements in respect of the above contingent liabilities.
iv) Income tax
Claims against the Company not acknowledged as debts as on 31 March,2017 include demand from the Indian Income tax authorities for payment of tax of Rs. 334 Mn (31 Match 2016 - Rs. 325 Mn 1 April 2015 Rs. 300 Mn), upon completion of their tax assessment for the financial years starting from financial year 2005-06 to financial year 2012-13.
Demand for financial year starting from financial year 2005-06 to financial year 2010-11 includes disallowance of apportion of the deduction claimed by the Company under Section 10B of the Income Tax Act, 1961 as determined by the ratio of export turnover to total turnover. The disallowance arose mainly due the fact that tax authority considered all units as one for computation of tax deduction/exemption instead of calculating each unit eligibility separately. Demand for financial year starting from financial year 2006-07 to financial year 2012-13 also includes disallowance on account of brought forward unabsorbed depreciation on demerger, Section 14A read with Rule 8D and towards transfer pricing. The matters for financial year starting from financial year 2005-06 to financial year 2007-08 are pending before Hon’ble Income Tax Appellate Tribunal (ITAT), Delhi. The matters for financial year starting from financial year 2008-09 to financial year 2012-13 are pending before the Commissioner of Income Tax (Appeals) Delhi. The Company is contesting the demand and the management including its tax advisors believes that its position will likely be upheld in the appellate process. The management believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s financial position and results of operations.
(b) Contingent assets
The Company does not have any contingent assets as at 31 March 2017, 31 March 2016 and 1 April 2015.
(a) Capital expenditure contracted for at the end of the reporting period but not recognized as liabilities is as follows:
* Amount of estimated value of contracts in capital account remaining to be executed are net of capital advance of Rs 3 Mn (31 March 2016: Rs. 3 Mn; 01 April 2015: Rs. 41 Mn)
(b) Non-cancellable operating leases:
The Company leases various offices and equipments under non cancellable operating leases expiring within five years. The leases have varying terms, escalation clause and renewal rights. On renewal the terms of the leases are renegotiated.
Commitments for future minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Aggregate rental expense during the period under operating leases amount to Rs. 139 Mn (31 March, 2016 - Rs.165 Mn)
11 Share-based stock payments
(a) Employee option plan
“The establishment of the NIIT Technologies Stock Option Plan 2005 (ESOP 2005) was approved by the shareholders at the annual general meeting held on 18 May, 2005. The ESOP 2005 is designed to offer and grant, for the benefit of employees of the Company and its subsidiaries, who are eligible under Securities Exchange Board of India (SEBI) Guidelines (excluding promoters), options of the Company in aggregate up to 3,850,000 options under ESOP 2005, in one or more Tranches. Under the plan, participants are granted options which vest upon completion of such terms and conditions as may be fixed or determined by the Board in accordance with the provisions of law or guidelines issued by the relevant authorities in this regard. Participation in the plan is at the board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. As per the plan each option is exercisable for one equity share of face value of Rs 10 each fully paid up on payment to the Company for such shares at a price to be determined in accordance with ESOP 2005. SEBI has issued the SEBI (Share Based Employee Benefits) Regulations, 2014 which is applicable to the above ESOP 2005. Once vested, the options remain exercisable for a period of three years.
i) Set out below is a summary of options granted under the plan:
* The weighted average share price at the date of exercise of options exercised during the year ended 31 March 2017 was INR 260.35 (31 March 2016 - INR 202.31)
No options expired during the periods covered in the above tables.
ii) Share options outstanding at the end of the year have the following expiry date and exercise prices:
iii) Fair value of options granted
The fair value at grant date is determined using the Black Scholes Model as per an independent valuer’s report, having taken into consideration the market price being the latest available closing price prior to the date of the grant, exercise price being the price payable by the employees for exercising the option and other assumptions as annexed below:
Options granted to employees under the ESOP 2005 are considered to be potential equity shares. They have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in Note 34.
12 Segment Information
As per Ind AS 108 - Operating Segments, where the financial report contains both the consolidated financial statements of a parent as well as the parent’s separate financial statements, segment information is required only in the consolidated financial statements, Accordingly, no segment information is disclosed in these standalone financial statements of the Company.
13 Business Combinations
The Company ( Transferee) signed Business Transfer Agreements with its following step-down subsidiaries ( the Transferors) to acquire business on “as it is basis” with effective date of 1 April, 2016:
- NIIT Technologies AG, Switzerland
- NIIT Technologies NV, Belgium
The aforesaid transaction, being common control business combination has been accounted for using the pooling of interest method as follows:
- The assets and liabilities of the Transferors are reflected at their carrying amounts.
- No adjustments have been made to reflect fair values, or to recognize any new assets or liabilities.
- The balance of retained earnings appearing in the financial statements of the Transferors is adjusted with the corresponding balance appearing in the financial statements of the Transferee.
- The difference between the amounts recorded as consideration in the form of cash and the amount of share capital of the Transferors is transferred to capital reserve and is presented separately in the financial statements. [Refer Note 12] -The financial information in the financial statements in respect of prior periods has been restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination.
The resultant impact of this transaction on the balance sheet as at 01 April 2015 is as follows:
14 Events Occurring after the reporting period
Refer to Note 30(b) for the final dividend recommended by the Board of Directors which is subject to the approval of the shareholders in the ensuing annual general meeting.
15 First- time adoption of Ind AS Transition to Ind AS
These are the Company’s first financial statements prepared in accordance with Ind AS.
The accounting policies set out in Note 1 have been applied in preparing the financial statements for the year ended 31 March 2017, the comparative information presented in these financial statements for the year ended 31 March 2016 and in the preparation of an opening Ind AS balance sheet at 1 April 2015 (the date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian 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.
A. 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.1 Ind AS optional exemptions A.1.1 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 financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition. This exemption has also been used for intangible assets covered by Ind AS 38 Intangible Assets.
Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.
A.1.2 Designation of previously recognised financial instruments
Ind AS 101 allows an entity to designate investments in equity instruments at Fair Value through Profit or Loss Account on the basis of the facts and circumstances at the date of transition to Ind AS.
The Company has elected to apply this exemption for its investment in equity investments.
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.
Lease arrangements including both land and building have been separately evaluated for finance or operating lease at the date of transition to Ind ASs basis the facts and circumstances existing as at that date.
The Company has elected to apply this exemption for such contracts/arrangements.
A.1.4 Investments in subsidiaries, joint ventures and associates
As per Ind AS 27, the Company has the option to value its investment in subsidiaries, joint ventures and associates at Cost.
The Company has elected to apply this exemption for such investments.
A.1.5 Business Combinations
The Company has availed the option to not apply Ind AS 103, retrospectively to business combinations that occurred prior to the transition date.
A.1.5 Share based payment transactions
The Company has availed the option to apply Ind AS 102 Share-based payment to equity instruments that vested before date of transition to Ind ASs.
A.1.6 Fair Value Measurement of financial assets or financial liabilities at initial recognition
Ind AS 109 requires to initially recognize financial assets and liabilities at fair value and if the fair value differs from transaction price, the difference is recognized as gain or loss. The Company has elected to apply these requirements of initial recognition prospectively to transactions entered on or after the date of transition.
A.2 Ind AS mandatory exceptions
A.2.1 Hedge Accounting
Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in Ind AS 109, at that date. Hedging relationships cannot be designated retrospectively, and the supporting documentation cannot be created retrospectively. AS a result, only hedging relationships that satisfied the hedge accounting criteria as of 01 April 2015 are reflected as hedges in the Company’s results under Ind AS.
The Company had designated various hedging relationships as cash flow hedges under the previous GAAP. On date of transition to Ind AS, the entity had assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to Ind AS.
An entity’s estimates in accordance with Ind AS(s) at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
Ind AS estimates as at 1 April 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:
- Investment in debt instruments carried at FVTPL; and
- Impairment of financial assets based on expected credit loss model.
A.2.3 De-recognition of financial assets and liabilities
Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the derecognition requirements in Ind AS 109 retrospectively from a date of entity’s choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognised 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.
A.2.4 Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS.
B: Reconciliations between previous GAAP and Ind AS
Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
C: Notes to first- time adoption:
a. Fair valuation of Investments
Under the previous GAAP, investments which were readily realisable and were intended to be held for not more than 12 months from the date on which they were made, were classified as current investments, and carried at lower of cost or fair value. All other investments were classified as long term investments and were carried at cost less provision for other than temporary diminution in the value of investments.
Under Ind AS, these investments are required to be measured at fair value.
At the time of transition, fair value changes have been recognised in retained earnings, and subsequently, in the profit for the year ended 31 March 2016, the net impact of Rs. 2 Mn. Investments were thereby revalued for Rs. 4 Mn as at 31 March 2016 (1 April 2015 Rs. 2 Mn). Consequent to fair valuation of investment as at April 1,2015 and March 31,2016 has been recorded in profits for the year ended March 31,2016.
As per Ind AS 27, the Company has the option to value its investment in subsidiaries at Cost; and accordingly the Company has availed this exemption.
b. Deferred tax
Under the previous GAAP, deferred tax accounting was done using the income statement approach, which focused on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using balance sheet approach, which focuses on temporary difference between the carrying amount of an asset or liability in the balance sheet and it’s tax base.
In addition, various transitional adjustments lead to temporary difference. Deferred tax adjustments are recognized in correlation to the underlying transaction either in retained earnings or a separate component of equity. As on 31 March 2016, the net downward impact on deferred tax asset was Rs. 27 Mn [1 April 2015 Rs. 25 Mn].
Under the previous GAAP, transaction costs incurred in connection with borrowings are amortized upfront by charging them in the Statement of Profit and Loss for the period. As per Ind AS 109, transaction cost incurred towards origination of borrowings are to be deducted from carrying amount of borrowings on initial recognition. These costs are recognized in the Statement of Profit and Loss over the tenure of borrowings as part of interest expenses by applying effective interest rate method. No impact was perceived therein as on 31 March 2016 [1 April 2015 Rs. Nil].
d. Trade Receivables
Under the previous GAAP, provisions for impairment of receivables consisted only of specific amount for incurred losses. As per Ind AS 109, impairment allowance has to be determined as per expected credit loss model (ECL).
The resultant impact was Nil as at March 31,2016 [April 1,2015 Nil].
Under the previous GAAP, provisions (including long term provisions) were accounted at the undiscounted amount. Under Ind AS, if the effect of time value is material, provisions should be measured at discounted amounts to reflect the present value of expenditure expected to be required to settle the obligation.
Ind AS 37 also provides that where discounting is used, the carrying amount of provision increases in each period to reflect the passage of time; this increase is to be recognized in profit or loss.
As on 31 March 2016, provisions were revalued so to result in increase of Rs. 17 Mn [1 April 2015 Rs. 10 Mn]. The resultant net impact of Rs. 7 Mn was made in other income.
f. Forward contracts
Under the previous GAAP, the Company used foreign currency forward contracts to hedge it’s risks associated with foreign currency fluctuations relating to certain firm commitments and highly probable forecasted transactions. The derivatives that qualified for hedge accounting and were designated as cash flow hedges were initially measured at fair value and were remeasured at a subsequent reporting date and the changes in the fair value of derivatives i.e. gain or loss (net of tax impact) was recognized directly in reserves under hedging reserves to the extent considered highly effective. Gain or loss on derivative instruments that either do not qualify for hedge accounting or are not designated as cash flow hedges or designated as cash flow hedges to the extent considered ineffective are recognized in the Statement of Profit and Loss. No impact was perceived therein as on 31 March 2016 [1 April 2015 Rs. Nil].
g. Proposed Dividend
Under the previous GAAP, dividends [including dividend distribution tax (DDT)] proposed by the board of directors after the balance sheet date but before the approval of financial statements by shareholders were considered as an adjusting events and accordingly, recognized as a liability.
Under Ind AS, such dividends are recognized when the same is approved by the shareholders in the general meeting. Accordingly, liability for proposed dividend (including DDT) included under provisions has been reversed with corresponding adjustment to retained earnings.
As on 31 March 2016 an adjustment of Rs. 714 Mn (1 April 2015 - Rs. 653 Mn) was made to the retained earnings.
h. Post employment benefits
Both under previous GAAP and Ind AS, the Company recognized costs related to it’s post employment defined benefit plan on an actuarial valuation basis. Under the previous GAAP, reimbursements i.e. actuarial gains and losses and the return on the plan assets, excluding amounts included in the net interest expense on the net benefit liability are recognized in the profit or loss for the year.
Under Ind AS, these remeasurements are recognized in other comprehensive income instead of profit or loss. As a result, the profit for the year ended 31 March 2016 decreased by Rs. 12 Mn. There was no impact on the total equity as at 31 March 2016.
i. Employee stock option expenses
Under the previous GAAP, the cost of equity settled employee share-based plan was recognized using intrinsic value method. Under Ind AS, the cost of equity settled share-based plan is recognized based on fair value of the options as at grant date. Therefore, the amount recognised in share option outstanding account (under Reserves and Surplus) as on 31 March 2016 increased by Rs. 39 Mn (1 April 2015 - Rs. 17 Mn).
Consequently, profit before tax for the year ended 31 March 2016 has decreased by Rs. 18 Mn.
Also, an amount of Rs. 8 Mn (1 April 2015 - Rs 5 Mn) was recognized as recoverable from subisidiaries on account of Employee stock option expense.
j. Deferred Revenue
Unearned Revenue included in ‘“‘Other Non - current”“ and ‘“‘Current liabilities”“ represents amounts received/billed in excess of the value of work performed in accordance with the terms of the contracts with customers.
After adopting Ind AS, amount of deferred revenue as on 31 March 2016 was revalued by Rs. 208 Mn (1 April 2015 -Rs.263 Mn).
Corresponding costs were revalued by Rs. 189 Mn (1 April 2015 - Rs. 239 Mn) which resulted in decrease in trade payables by Rs 15 Mn (1 April 2015- Rs 167 Mn) and increase in other non current assets by Rs 34 Mn. (1 April 2015 Rs 72 Mn).
Revenue recognized for the year of transition was Rs. 55 Mn; corresponding costs being Rs. 50 Mn.
Resultant profit before tax for the year ended 31 March 2016 has increased by Rs. 5 Mn.
k. Other Financial Assets
k.1 Security Deposits
Under the previous GAAP, interest free lease security (that are refundable in cash on completion of their lease term) are recorded at their transaction value. Under Ind AS, all financial assets are required to be recognized at fair value. Therefore, the Company has recognised security deposits at their present values under Ind AS. Consequent to this change, the amount of security deposits decreased by Rs. 16 Mn as at 31 March 2016 (1 April 2015 - Rs. 9 Mn).
k.2 Non Current Assets
Consequent to change in amount of security deposits as stated above, prepayments were recognised for Rs. 14 Mn (Current prepaid Rs 6 Mn and Non current prepaid Rs 8 Mn) as at 31 March 2016 (1 April 2015 - Rs 7 Mn , Current prepaid Rs 3 Mn Non Current prepaid Rs 4 Mn). The profit for the year and total equity as at 31 March 2016 decreased by Rs. 5 Mn due to amortization of the prepaid rent.
(ii) Deferred Cost
As stated in note j above, deferred contract cost has been recognised in respect of certain customer contracts. The impact of Rs 34 Mn on Non current assets is due to outstanding balance of deferred contract cost.
k.3 Unbilled Revenue
Unbilled Revenue included in other financial assets represents amount of revenue recognised between the billing cycle and reporting date.
After adopting Ind AS, amount of unbilled revenue as on 31 March 2016 was revalued by Rs. 9 Mn (1 April 2015 - Rs. 10 Mn). Corresponding impact on profit or loss for the year ended 31 March 2016 was Rs.1 Mn.
l. Retained Earnings
Retained earnings as at 1 April 2015 have been adjusted consequent to the Ind AS transition adjustments.
m. Other comprehensive income
Under Ind AS, all items of income and expenses recognized in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognized in profit or loss but are shown in the Statement of Profit and Loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans, foreign exchange differences arising on translation of foreign operations, effective portion of gain and losses on cash flow hedging instruments and fair value gains or losses on FVOCI equity instruments. The concept of other comprehensive income did not exist under previous GAAP.
Under previous GAAP, Goodwill was amortised over a period determined at the time of initil recognition of Goodwill. Under Ind AS, Goodwill needs to be tested for impairment.
The Company tested goodwill for impairment as at 31 March 2016 and has thus written back goodwill of Rs. 13 Mn (1 April 2015 - Nil) which was amortized in previous year (as per previous GAAP).
o. Business combination under common control
Refer Note 37 for impact on the financial statements due to business combination under common control
p. Deferred payment liabilities
Impact on account of deferred payment liabilities recognised at discounted value, as on 31 March 2016 of Rs 87 Mn (1 April 2015 Rs 96 Mn).
40 As required by the Ministry of Corporate Affairs notification G.S.R. 308(E) dated 31 March, 2017, disclosure relating to Specified Bank Notes* (SBNs) held and transacted during the period from 8 November, 2016 to 30 December, 2016 is as below:
* SBNs mean the bank Notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees as defined under the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs no. S.O.3407(E), dated 8 November, 2016.
a) Certain contractual staff who were paid cash towards local conveyance reimbursements before the announcement of the aforesaid Circular, later requested the Company for exchange of specified bank Notes with other denomination Notes. This resulted in receipt of SBNs of Rs. 3,500 during the period from 8 November, 2016 to 30 December, 2016.
b) At one of the branches, due to non-availability of cash in other denomination Notes, certain usual office expenditure aggregating Rs. 9,211 was incurred using specified bank Notes.
16 During the year ended 31 March, 2016, the Company acquired controlling stake of 51% of the shareholdings of Incessant Technologies Private Limited (“Incessant”). The acquisition was executed through a share purchase agreement dated 5 May, 2015 signed between the Company and the shareholders of Incessant for an upfront cash consideration of Rs. 1,350 Mn. The Company will acquire remaining 49% of the shareholding of Incessant Technologies Private Limited, in two tranches, subject to certain conditions as provided in the Shareholder’s Agreement signed between the parties.
As the price of the remaining 49% shares to be acquired is linked to future performance of Incessant, this transaction has an “underlying” element which needs to be accounted for as a derivative in accordance with Ind AS 109-”Financial Instruments”. The independent fair valuations carried out as at 1 May 2015, 31 March 2016 and 31 March 2017 to record the initial recognition of its resultant derivative liability/asset through profit or loss and also to re-measure it as at each subsequent reporting date have resulted in the derivative asset/liability to be an insignificant amount and accordingly, no impact has been given in the Statement of Profit and Loss for the year ended 31 March 2017 [ 31 March 2016 - Nil].
17 Scheme of amalgamation
The Board of Directors of the Company has, in its meeting held on 24 March, 2017, approved the amalgamation of PIPL Business Advisors and Investment Private Limited (“PBIPL”) and GSPL Advisory Services and Investment Private Limited (“GAIPL”) with NIIT Technologies Limited (“the Company or NTL”) by way of and in accordance with a scheme of amalgamation as per the provisions of Sections 230 to 232 and any other applicable provisions of the Companies Act, 2013 (hereinafter referred to as the “Scheme”). PBIPL and GAIPL holds 3.55% each of share capital of NIIT Technologies Limited and form part of promoter/ promoter group of NIIT Technologies Limited. From the effective date, pursuant to the Scheme, the entire shareholding of PBIPL and GAIPL in the Company shall stand cancelled and the equivalent shares of the Company shall be re-issued to the shareholders of PBIPL and GAIPL as on the record date to be fixed for the purpose. Pursuant to the proposed amalgamation of PBIPL and GAIPL with the Company, there will be no change in the promoter’s shareholding in the Company. All cost and charges arising out of this proposed scheme of amalgamation shall be borne by the promoter. The aforesaid Scheme is subject to various regulatory and other approvals and sanction by National Company Law Tribunal, New Delhi Bench.