1. Notes on Transition to Ind AS
These financial statements are prepared in accordance with Ind AS. For years up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with Indian GAAP (i.e. Previous GAAP).
Exemptions from retrospective application:
In preparation of the Ind AS financial statements, the Company has:
1. Elected to apply Ind AS 103, Business Combinations, retrospectively to past business combinations from April 1, 2008.
2. Elected to adopt the Previous GAAP carrying value of Property, Plant and Equipment as deemed cost on date of transition.
Accordingly, the Company has prepared financial statements which comply with Ind AS for periods ending on March 31, 2017, together with the comparative period data as at and for the year ended March 31, 2016. In preparing these financial statements, the Company’s opening balance sheet was prepared as at April 1, 2015, the Company’s date of transition to Ind AS.
Notes to equity and net profit reconciliation:
A) Proposed dividend: Under the Previous GAAP, dividend payable including dividend distribution tax was recorded as a liability in the period to which it relates. Under Ind AS, dividend to holders of equity instruments is recognized as a liability in the period in which the obligation to pay is established (post approval of shareholders in the Annual General Meeting).
B) Expected credit loss: Under Previous GAAP, loss provision for trade receivables was created based on credit risk assessment. Under Ind AS, these provisions are based on assessment of risk of default and timing of collection.
C) Fair valuation of investments: Under the Previous GAAP, current investments were measured at lower of cost or fair value and long term investments were measured at cost less diminution in value which is other than temporary. Under Ind AS, investments are measured at fair value and the mark-to-market gains/ losses are recognized either through profit or loss (FVTPL) or through other comprehensive income (FVTOCI) based on the business model test. Effect of Ind AS adoption on total comprehensive income represents the mark-to-market gains/ losses on investment.
D) Amortization of intangible assets: Under Previous GAAP, in case of Business Combinations, assets and liabilities were carried at carrying value in the books of the acquired entity. Under Ind AS, all assets and including intangibles are recorded at fair value. Such intangibles are amortized over their useful life.
E) Employee benefits: Under the Previous GAAP, actuarial gains and losses on defined benefit obligations were recognized in the statement of profit and loss. Under Ind AS, these are recognized in other comprehensive income. This difference has resulted in an increase in net income for the year ended March 31, 2016. However, the same does not result in difference in equity or total comprehensive income.
F) Share based compensation expenses: Under the Previous GAAP, the share based compensation cost was amortized over the vesting period on a straight line basis. Under Ind AS, the share based compensation cost is determined based on the Company’s estimate of equity instruments that will eventually vest and amortized over the vesting period on an accelerated basis. However, the same does not result in difference in equity.
G) Change in fair value of forward contracts designated as cash flow hedges: Under Ind AS, changes in the fair value of derivative hedging instruments designated and effective as a cash flow hedge are recognized through other comprehensive income.
H) Tax impact (net): Tax adjustments include deferred tax impact on account of differences between Previous GAAP and Ind AS.
(1) Interest capitalized during the year ended March 31, 2017, aggregated to '''' 89 (2016: '''' 73). The capitalization rate used to determine the amount of borrowing cost capitalized for the year ended March 31, 2017 and 2016 are 2.4% and 4.8%, respectively.
(2) Includes net carrying value of computer equipment and software amounting to '''' 7,099 as at March 31, 2017 (March 31, 2016 - 6,687, April 1, 2015 - '''' 5,858)
2. Goodwill and Other intangible assets
The carrying value of goodwill is Rs, 3,882 as at March 31, 2017, March 31, 2016 and April 1, 2015.
The Company is organized by two operating segments: IT Services and IT Products. Goodwill as at March 31, 2017, March 31, 2016 and April 1, 2015 has been allocated to the IT Services operating segment.
During the year ended March 31, 2017, the company realigned its CGUs. This realignment did not have any impact on allocation of goodwill to the CGUs. Below is the allocation of the goodwill to the CGUs:
For the purpose of impairment testing, goodwill is allocated to a CGU representing the lowest level within the Company at which goodwill is monitored for internal management purposes, and which is not higher than the Company’s operating segment. Goodwill is tested for impairment at least annually in accordance with the Company’s procedure for determining the recoverable value of such assets.
The recoverable amount of the CGU is determined on the basis of Fair Value Less Cost of Disposal (FVLCD). The FVLCD of the CGU is determined based on the market capitalization approach, using the turnover and earnings multiples derived from observable market data. The fair value measurement is categorized as a level 2 fair value based on the inputs in the valuation techniques used.
Based on the above, no impairment was identified as of March 31, 2017 and 2016 as the recoverable value of the CGUs exceeded the carrying value. Further, none of the CGU’s tested for impairment as of March 31, 2017 and 2016 were at risk of impairment. An analysis of the calculation’s sensitivity to a change in the key parameters (revenue growth, operating margin, discount rate and long-term growth rate) based on reasonably probable assumptions, did not identify any probable scenarios where the CGU’s recoverable amount would fall below its carrying amount.
(1) These deposits can be withdrawn by the Company at any time without prior notice and without any penalty on the principal.
(2) Demand deposits with banks include deposits in line with banks amounting to '''' Nil (March 31, 2016: '''' 3; April 1, 2015: Nil)
Cash and cash equivalents consists of the following for the purpose of the cash flow statement:
Specified Bank Notes -
As per the Notification G.S.R 308(E) dated March 31, 2017 issued by the Ministry of Corporate Affairs, the Company needs to provide the details of Specified Bank Notes (SBN) held and transacted during the period from November 08, 2016 to December 30, 2016. The term ‘Specified Bank Notes’ shall have the same meaning as provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016. The Company did not have any cash in hand as on November 8, 2016 and December 30, 2016.
Finance lease receivables
Finance lease receivables consist of assets that are leased to customers for contract terms ranging from 1 to 7 years, with lease payments due in monthly or quarterly installments.
Amounts receivable under finance leases:
In the event of liquidation of the Company, the equity shareholders will be entitled to receive the remaining assets of the Company, after distribution of all preferential amounts, if any, in proportion to the number of equity shares held by the shareholders.
(iv) Shares reserved for issue under option
For details of shares reserved for issue under the employee stock option plan of the Company, refer note 31.
(1) Current obligation under financial lease amounting to Rs, 1,108 (March 31, 2016 and April 1, 2015: Rs, 836 and Rs, 586 respectively) is classified under “Other current financial liabilities”. Refer note 32.
(2) Current maturities of term loans amounting to Rs, 342 (March 31, 2016 and April 1, 2015: Rs, 333 and Rs, 104 respectively) is classified under “Other current financial liabilities”.
The principal source of Short-term borrowings from banks as of March 31, 2017 primarily consists of lines of credit of approximately Rs, 204 (2016: Rs, 10,399, 2015: Rs, 2,700), U.S. Dollar (U.S. $) 1,386 Million (2016: U.S. $ 1,184 Million, 2015: U.S. $ 1,069 Million), United Kingdom Pound sterling (GBP) 20 million, Australian Dollar (AUD) 13 million, Canadian Dollar (CAD) 4 million and EUR 1 million from bankers for working capital requirements and other short term needs. As of March 31, 2017, the Company has unutilized lines of credit aggregating U.S.$ 632 Million (2016: 353, 2015: U.S. $ 279 Million), United Kingdom Pound sterling (GBP) 5 million, Australian Dollar (AUD) 13 million, Canadian Dollar (CAD) 4 million and EUR 1 million. To utilize these unused lines of credit, the Company requires consent of the lender and compliance with certain financial covenants. Significant portion of these lines of credit are revolving credit facilities and floating rate foreign currency loans, renewable on a periodic basis. Significant portion of these facilities bear floating rates of interest, referenced to LIBOR and a spread, determined based on market conditions.
The Company has non-fund based revolving credit facilities in INR and U.S. $ equivalent to Rs, 44,136, Rs, 36,523 and Rs, 34,880 as of March 31, 2017, March 31, 2016 and April 1, 2015 respectively, towards operational requirements that can be used for the issuance of letters of credit and bank guarantees. As of March 31, 2017, March 31, 2016 and April 1, 2015, an amount of Rs, 26,761, Rs, 15,449 and Rs, 16,796 respectively, was unutilized out of these non-fund based facilities.
The contracts governing the CompanyRs,s unsecured external commercial borrowing contain certain covenants that limit future borrowings and payments towards acquisitions in a financial year. The terms of the loans and borrowings also contain certain restrictive covenants primarily requiring the Company to maintain certain financial ratios. As of March 31, 2017, March 31, 2016 and April 1, 2015 the Company has met all the covenants under these arrangements.
The interest expense was Rs, 769 and Rs, 906 for the year ended March 31, 2017 and 2016, respectively.
Provision for warranty represents cost associated with providing sales support services which are accrued at the time of recognition of revenues and are expected to be utilized over a period of 1 to 2 years. Other provisions primarily include provisions for indirect tax related contingencies and litigations. The timing of cash outflows in respect of such provision cannot be reasonably determined. A summary of activity for provision for warranty and other provisions is as follows:
For the financial assets and liabilities subject to offsetting or similar arrangements, each agreement between the Company and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis. In the absence of such an election, financial assets and liabilities will be settled on a gross basis and hence are not offset.
The fair value of cash and cash equivalents, trade receivables, unbilled revenues, borrowings, trade payables, other current financial assets and liabilities approximate their carrying amount largely due to the short-term nature of these instruments. The CompanyRs,s long-term debt has been contracted at market rates of interest. Accordingly, the carrying value of such long-term debt approximates fair value. Further, finance lease receivables that are overdue are periodically evaluated based on individual credit worthiness of customers. Based on this evaluation, the Company records allowance for estimated losses on these receivables. As of March 31, 2017, March 31, 2016 and April 1, 2015, the carrying value of such receivables, net of allowances approximates the fair value.
Investments in liquid and short-term mutual funds, which are classified as FVTPL are measured using net asset values at the reporting date multiplied by the quantity held. Fair value of investments in certificate of deposits, commercial papers classified as FVTOCI is determined based on the indicative quotes of price and yields prevailing in the market at the reporting date. Fair value of investments in equity instruments classified as FVTOCI is determined using market and income approaches.
The fair value of derivative financial instruments is determined based on observable market inputs including currency spot and forward rates, yield curves, currency volatility etc.
Fair value hierarchy
The different levels have been defined as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The following methods and assumptions were used to estimate the fair value of the level 2 financial instruments included in the above table.
Derivative instruments (assets and liabilities): The Company enters into derivative financial instruments with various counter-parties, primarily banks with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward contracts and foreign exchange option contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black Scholes models (for option valuation), using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and forward rate curves of the underlying. As at March 31, 2017, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.
Investment in Commercial paper, certificate of deposits and bonds: Fair valuation is derived based on the indicative quotes of price and yields prevailing in the market as on the reporting date.
Derivatives assets and liabilities:
The Company is exposed to foreign currency fluctuations on foreign currency assets / liabilities, forecasted cash flows denominated in foreign currency and net investment in foreign operations. The Company follows established risk management policies, including the use of derivatives to hedge foreign currency assets / liabilities, foreign currency forecasted cash flows and net investment in foreign operations. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as not material.
Sale of financial assets
From time to time, in the normal course of business, the Company transfers accounts receivables, unbilled revenues, net investment in finance lease receivables (financials assets) to banks. Under the terms of the arrangements, the Company surrenders control over the financial assets and transfer is without recourse. Accordingly, such transfers are recorded as sale of financial assets. Gains and losses on sale of financial assets without recourse are recorded at the time of sale based on the carrying value of the financial assets and fair value of servicing liability.
In certain cases, transfer of financial assets may be with recourse. Under arrangements with recourse, the Company is obligated to repurchase the uncollected financial assets, subject to limits specified in the agreement with the banks. These are reflected as part of loans and borrowings in the balance sheet. The incremental impact of such transaction on our cash flow and liquidity for the years ended March 31, 2017 and March 31, 2016 is not material.
Financial risk management
Market risk is the risk of loss of future earnings, to fair values or to future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including investments, foreign currency receivables, payables and loans and borrowings.
The Company’s exposure to market risk is a function of investment and borrowing activities and revenue generating activities in foreign currency. The objective of market risk management is to avoid excessive exposure of the Company’s earnings and equity to losses.
Risk Management Procedures
The Company manages market risk through a corporate treasury department, which evaluates and exercises independent control over the entire process of market risk management. The corporate treasury department recommends risk management objectives and policies, which are approved by senior management and Audit Committee. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures, borrowing strategies, and ensuring compliance with market risk limits and policies.
Foreign currency risk
The Company operates internationally and a major portion of its business is transacted in several currencies. Consequently, the Company is exposed to foreign exchange risk through receiving payment for sales and services in the United States and elsewhere, and making purchases from overseas suppliers in various foreign currencies. The exchange rate risk primarily arises from foreign exchange revenue, receivables, cash balances, forecasted cash flows, payables and foreign currency loans and borrowings. A significant portion of the Company’s revenue is in the U.S. Dollar, the United Kingdom Pound Sterling, the Euro, the Canadian Dollar and the Australian Dollar, while a large portion of costs are in Indian rupees. The exchange rate between the rupee and these currencies has fluctuated significantly in recent years and may continue to fluctuate in the future. Appreciation of the rupee against these currencies can adversely affect the Company’s results of operations.
The Company evaluates exchange rate exposure arising from these transactions and enters into foreign currency derivative instruments to mitigate such exposure. The Company follows established risk management policies, including the use of derivatives like foreign exchange forward/option contracts to hedge forecasted cash flows denominated in foreign currency.
The Company has designated certain derivative instruments as cash flow hedges to mitigate the foreign exchange exposure of forecasted highly probable cash flows. The Company has also designated foreign currency borrowings as hedge against respective net investments in foreign operations.
As of March 31, 2017, March 31, 2016 and April 1, 2015 respectively, a Rs, 1 increase/decrease in the spot exchange rate of the Indian rupee with the U.S. dollar would result in approximately 1,155, 1,398 and 1,495 respectively decrease/increase in the fair value of foreign currency dollar denominated derivative instruments.
As at March 31, 2017 and March 31, 2016, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the Company would impact result from operating activities by approximately Rs, 21 and Rs, 356 respectively.
Interest rate risk
Interest rate risk primarily arises from floating rate borrowing, including various revolving and other lines of credit. The Company’s investments are primarily in short-term investments, which do not expose it to significant interest rate risk. The Company manages its net exposure to interest rate risk relating to borrowings by entering into interest rate swap agreements, which allows it to exchange periodic payments based on a notional amount and agreed upon fixed and floating interest rates. Certain borrowings are also transacted at fixed interest rates. If interest rates were to increase by 100 bps from March 31, 2017, additional net annual interest expense on floating rate borrowing would amount to approximately Rs, 502.
Credit risk arises from the possibility that customers may not be able to settle their obligations as agreed. To manage this, the Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of accounts receivable. Individual risk limits are set accordingly. No single customer accounted for more than 10% of the accounts receivable as of March 31, 2017 and March 31, 2016, respectively and revenues for the year ended March 31, 2017 and March 31, 2016, respectively. There is no significant concentration of credit risk.
Financial assets that are neither past due nor impaired
Cash and cash equivalents, unbilled revenues, investment in liquid mutual fund units, certificates of deposits and interest bearing deposits with corporate are neither past due nor impaired. Cash and cash equivalents with banks and interest-bearing deposits are placed with corporate, which have high credit-ratings assigned by international and domestic credit-rating agencies. Certificates of deposit represent funds deposited with banks or other financial institutions for a specified time period.
Counterparty risk encompasses issuer risk on marketable securities, settlement risk on derivative and money market contracts and credit risk on cash and time deposits. Issuer risk is minimized by only buying securities which are at least AA rated in India based on Indian rating agencies. Settlement and credit risk is reduced by the policy of entering into transactions with counterparties that are usually banks or financial institutions with acceptable credit ratings. Exposure to these risks are closely monitored and maintained within predetermined parameters. There are limits on credit exposure to any financial institution. The limits are regularly assessed and determined based upon credit analysis including financial statements and capital adequacy ratio reviews.
Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company’s corporate treasury department is responsible for liquidity and funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management. Management monitors the Company’s net liquidity position through rolling forecasts on the basis of expected cash flows. As of March 31, 2017, cash and cash equivalents are held with major banks and financial institutions.
The table below provides details regarding the remaining contractual maturities of significant financial liabilities at the reporting date. The amounts include estimated interest payments and exclude the impact of netting agreements, if any.
Deferred taxes on unrealized foreign exchange gain / loss relating to cash flow hedges, fair value movements in investments and actuarial gains/losses on defined benefit plans are recognized in other comprehensive income and presented within equity. Other than these, the change in deferred tax assets and liabilities is primarily recorded in the statement of profit and loss.
In assessing the reliability of deferred tax assets, the Company considers the extent to which it is probable that the deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable profits during the periods in which those temporary differences and tax loss carry forwards become deductible. The Company considers the expected reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on this, the Company believes that it is probable that the Company will realize the benefits of these deductible differences. The amount of deferred tax asset considered realizable, however, could be reduced in the near term if the estimates of future taxable income during the carry-forward period are reduced.
Pursuant to the changes in the Indian income tax laws, Minimum Alternate Tax (MAT) has been extended to income in respect of which deduction is claimed under Section 10A, 10B and 10AA of the Income Tax Act, 1961; consequently, the Company has calculated its tax liability for current domestic taxes after considering MAT. The excess tax paid under MAT provisions over and above normal tax liability can be carried forward and set-off against future tax liabilities computed under normal tax provisions. The Company was required to pay MAT and accordingly, a deferred tax asset of Rs, 1,469, Rs, 1,490 and Rs, 1,842 has been recognized in the balance sheet as of March 31, 2017, March 31, 2016 and April 1, 2015 respectively, which can be carried forward for a period of ten years from the year of recognition.
A substantial portion of the profits of the Company’s India operations are exempt from Indian income taxes being profits attributable to export operations and profits from units established under Special Economic Zone, 2005 scheme. Units in designated special economic zones providing service on or after April 1, 2005 will be eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent of such profits and gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. Profits from certain other undertakings are also eligible for preferential tax treatment. The tax holiday period being currently available to the Company expires in various years through fiscal 2030-31. The expiration period of tax holiday for each unit within a SEZ is determined based on the number of years that have lapsed following year of commencement of production by that unit. The impact of tax holidays has resulted in a decrease of current tax expense of Rs, 9,109 and Rs, 10,212 for the year ended March 31, 2017 and 2016, respectively, compared to the effective tax amounts that we estimate we would have been required to pay if these incentives had not been available. The effect of these tax incentives on earnings per share for the year ended March 31, 2017 and 2016 was Rs, 3.75 and Rs, 4.16 respectively.
Deferred income tax liabilities are recognized for all taxable temporary differences except in respect of taxable temporary differences associated with US branch where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Accordingly, deferred income tax liabilities on branch profit tax @ 15% of the US branch profits have not been recognized as the Company intends to reinvest the earnings in the branch operations. Further, it is not practicable to estimate the amount of the unrecognized deferred tax liabilities for these undistributed earnings.
The expected return on plan assets is based on expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
The discount rate is based on the prevailing market yields of Indian government securities for the estimated term of the obligations. The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors. Attrition rate considered is the management’s estimate, based on previous years’ employee turnover of the Company.
The Company has invested the plan assets in the insurer managed funds. The expected rate of return on plan assets is based on expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligation.
The Company has established an income tax approved irrevocable trust fund to which it regularly contributes to finance the liabilities of the plan. The fund’s investments are managed by certain insurance companies as per the mandate provided to them by the trustees and the asset allocation is within the permissible limits prescribed in the insurance regulations.
The expected benefits are based on the same assumptions used to measure the Company’s benefit obligations as of March 31, 2016.
Sensitivity for significant actuarial assumptions is computed to show the movement in defined benefit obligation by 0.5 percentage.
As of March 31, 2017, every 0.5 percentage point increase/ (decrease) in discount rate will result in (decrease)/ increase of gratuity benefit obligation by approximately Rs, (187) and Rs, 207 respectively.
As of March 31, 2017 every 0.5 percentage point increase/ (decrease) in expected rate of salary will result in increase/ (decrease) of gratuity benefit obligation by approximately Rs, 176 and Rs, (169) respectively.
(c) Provident fund:
In addition to the above, all employees receive benefits from a provident fund. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust established by the Company, while the remainder of the contribution is made to the Government administered pension fund.
The interest rate payable by the trust to the beneficiaries is regulated by the statutory authorities. The Company has an obligation to make good the shortfall, if any, between the returns from its investments and the administered rate.
3. Earnings per equity share
A reconciliation of profit for the year and equity shares used in the computation of basic and diluted earnings per equity share is set out below:
Basic: Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year, excluding equity shares purchased by the Company and held as treasury shares.
Diluted: Diluted earnings per share is calculated by adjusting the weighted average number of equity shares outstanding during the year for assumed conversion of all dilutive potential equity shares. Employee share options are dilutive potential equity shares for the Company.
The calculation is performed in respect of share options to determine the number of shares that could have been acquired at fair value (determined as the average market price of the Company’s shares during the year). The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
4. Dividends and Buy back of equity shares
According to the Companies Act, 2013 any dividend should be declared out of accumulated distributable profits. A company may, before the declaration of any dividend, transfer a percentage of its profits for that financial year as it may consider appropriate to the reserves.
During the year ended March 31, 2017, the Company has concluded the buyback of 40 million equity shares as approved by the Board of Directors on April 20, 2016. This has resulted in a total cash outflow of '''' 25,000. In line with the requirement of the Companies Act 2013, an amount of Rs, 14,254 and Rs, 10,666 has been utilized from the share premium account and retained earnings respectively. Further, a capital redemption reserves of Rs, 80 (representing the nominal value of the shares bought back) has been created as an apportionment from retained earnings. Consequent to such buy back, share capital has been reduced by Rs, 80.
The cash dividends paid per equity share were Rs, 3 and Rs, 12 during the years ended March 31, 2017 and 2016, respectively, including an interim dividend of Rs, 2 and Rs, 5 for the years ended March 31, 2017 and 2016.
The Board of Directors in their meeting held on April 25, 2017 approved issue of bonus shares in India, in the proportion of 1:1, i.e. 1 (One) equity share of Rs, 2 each for every 1 (one) fully paid-up equity share held (including ADS holders) as on the record date, subject to approval by the Members of the Company through postal ballot/ e-voting. The bonus issue, if approved, will not affect the ratio of ADSs to equity shares, such that each ADS after the bonus issue will continue to represent one equity share of par value of Rs, 2 per share.
5. Additional capital disclosures
The key objective of the CompanyRs,s capital management is to ensure that it maintains a stable capital structure with the focus on total equity to uphold investor, creditor, and customer confidence and to ensure future development of its business. The Company focused on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required without impacting the risk profile of the Company.
Loans and borrowings represented 14%, 17% and 17% of total capital as of March 31, 2017, March 31, 2016, and April 1, 2015 respectively. The Company is not subject to any externally imposed capital requirements.
6. Employee stock option
Employees covered under Stock Option Plans and Restricted Stock Unit (RSU) Option Plans (collectively “stock option plans”) are granted an option to purchase shares of the Company at the respective exercise prices, subject to requirements of vesting conditions. These options generally vest in tranches over a period of three to five years from the date of grant. Upon vesting, the employees can acquire one equity share for every option. The maximum contractual term for aforementioned stock option plans is generally 10 years.
The stock compensation cost is computed under the intrinsic value method and amortized on accelerated vesting period. The intrinsic value on the date of grant approximates the fair value. For the year ended March 31, 2017, the Company has recorded stock compensation expense of Rs, 1,687 (March 31, 2016: Rs, 1,493).
The compensation committee of the board evaluates the performance and other criteria of employees and approves the grant of options. These options vest with employees over a specified period subject to fulfillment of certain conditions. Upon vesting, employees are eligible to apply and secure allotment of Company’s shares at a price determined on the date of grant of options. The particulars of options granted under various plans are tabulated below. (The numbers of shares in the table below are adjusted for any stock splits and bonus shares issues).
Wipro Equity Reward Trust (“WERT”)
In 1984, the Company established a controlled trust called the Wipro Equity Reward Trust (“WERT”). In the earlier years, WERT purchased shares of the Company out of funds borrowed from the Company. The Company’s Board Governance, Nomination and Compensation Committee recommends to WERT certain officers and key employees, to whom WERT grants shares from its holdings at nominal price. Such shares are then held by the employees subject to vesting conditions.
The weighted-average grant-date fair value of options granted during the year ended March 31, 2017, March 31, 2016 and April 1, 2015 was Rs, 569.52, Rs, 699.96 and Rs, 658.12 for each option, respectively. The weighted average share price of options exercised during the year ended March 31, 2017, March 31, 2016 and April 1, 2015 was Rs, 536.80, Rs, 608.62 and 603.58 for each option, respectively.
7. Assets taken on lease Finance leases:
Obligation under finance lease is secured by underlying assets leased. The legal title of these assets vests with the lessors. These obligations are repayable in monthly, quarterly and yearly installments up to year ending March 31, 2021. The interest rate for these obligations ranges from 1.82% to 17.19%.
The Company leases office and residential facilities under cancelable and non-cancelable operating lease agreements that are renewable on a periodic basis at the option of both the lessor and the lessee. Rental payments under such leases are Rs, 2,878, Rs, 2,905 and Rs, 2,682 during the years ended March 31, 2017, March 31, 2016 and April 1, 2015.
(1) 51% of equity securities of Wipro Doha LLC are held by a local shareholder. However, the beneficial interest in these holdings is with the Company.
The Company controls ‘The Wipro SA Broad Based Ownership Scheme Trust’ and ‘Wipro SA Broad Based Ownership Scheme SPV (RF) (PTY) LTD incorporated in South Africa.
(2) All the above direct subsidiaries are 100% held by the Company except that the Company holds 66.67% of the equity securities of Wipro Arabia Limited Co and 74% of the equity securities of Wipro Airport IT Services Limited
(3) Step Subsidiary details of Wipro Information Technology Austria GmbH, Wipro Europe Limited, Wipro Portugal
S.A, Wipro Digital Aps, Cellent Gmbh, HPH Holdings Corp. and Appirio, Inc. are as follows:
Name of the related parties__Nature_
Azim Premji Foundation Entity controlled by Director
Azim Premji Foundation for Development Entity controlled by Director
Azim Premji education trust Entity controlled by Director
Hasham Traders Entity controlled by Director
Prazim Traders Entity controlled by Director
Zash Traders Entity controlled by Director
Hasham Investment and Trading Co. Pvt. Ltd Entity controlled by Director
Azim Premji Philanthropic Initiatives Pvt. Ltd Entity controlled by Director
Azim Premji Trust Entity controlled by Director
Wipro Enterprises (P) Limited Entity controlled by Director
Wipro GE Healthcare Private Limited Entity controlled by Director
Key management personnel
Azim H. Premji Chairman and Managing Director
T K Kurien Executive Vice Chairman(7)
Abidali Z. Neemuchwala Chief Executive Officer and Executive Director®
Rishad Azim Premji Chief Strategy Officer and Executive Director(1)
Dr. Ashok Ganguly Non-Executive Director
Narayanan Vaghul Non-Executive Director
Dr. Jagdish N Sheth Non-Executive Director®
William Arthur Owens Non-Executive Director
M.K. Sharma Non-Executive Director
Vyomesh Joshi Non-Executive Director®
Ireena Vittal Non-Executive Director®
Dr. Patrick J. Ennis Non-Executive Director®
Patrick Dupuis Non-Executive Director®
Jatin Pravinchandra Dalal Chief Financial Officer®
M Sanaulla Khan__Company Secretary (9)_
(1) Effective May 1, 2015 ® Effective April 1, 2015 ® Up to July 19, 2016
(4) Effective October 1, 2013
(5) Effective February 1, 2016
(6) Effective April 1, 2016
(7) Up to January 31, 2017 ® Up to July 18, 2016
(9) Effective June 3, 2015
8. Commitments and contingencies
As at March 31, 2017, March 31, 2016 and April 1, 2015, the Company had committed to spend approximately Rs, 11,340, Rs, 10,109 and '''' 863 respectively, under agreements to purchase/contract property and equipment. These amounts are net of capital advances paid in respect of these purchases.
The Company’s Indian operations have been established as units in Special Economic Zone and Software Technology Park Unit under plans formulated by the Government of India. As per the plan, the Company’s India operations have export obligations to the extent of net positive foreign exchange (i.e. foreign exchange inflow - foreign exchange outflow should be positive) over a five year period. The consequence of not meeting this commitment in the future would be a retroactive levy of import duties on certain hardware previously imported duty free. As at March 31, 2016, the Company believes that it has met all the commitments substantially required under the plan.
The Company is subject to legal proceedings and claims (including tax assessment orders/ penalty notices) which have arisen in the ordinary course of its business. Some of the claims involve complex issues and it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of such proceedings. However, the resolution of these legal proceedings is not likely to have a material and adverse effect on the results of operations or the financial position of the Company. The significant of such matters are discussed below.
In March 2004, the Company received a tax demand for year ended March 31, 2001 arising primarily on account of denial of deduction under section 10A of the Income Tax Act, 1961 (Act) in respect of profit earned by the Company’s undertaking in Software Technology Park at Bangalore. The same issue was repeated in the successive assessments for the years ended March 31, 2002 to March 31, 2011 and the aggregate demand is Rs, 47,583 (including interest of Rs, 13,832). The appeals filed against the said demand before the Appellate authorities have been allowed in favor of the Company by the second appellate authority for the years up to March 31, 2008. Further appeals have been filed by the Income tax authorities before the Hon’ble High Court. The Hon’ble High Court has heard and disposed-off majority of the issues in favor of the Company up to years ended March 31, 2004. Department has filed a Special Leave Petition (SLP) before the Supreme Court of India for the year ended March 31, 2001 to March 31, 2004.
On similar issues for years up to March 31, 2000, the Hon’ble High Court of Karnataka has upheld the claim of the Company under section 10A of the Act. For the year ended March 31, 2009, the appeals are pending before Income Tax Appellate Tribunal (Tribunal). For years ended March 31, 2010 and March 31, 2011, the Dispute Resolution Panel (DRP) allowed the claim of the Company under section 10A of the Act. The Income tax authorities have filed an appeal before the Tribunal.
The Company received the draft assessment order for the year ended March 31, 2012 in March 2016 with a proposed demand of '''' 4,241 (including interest of '''' 1,376). Based on the DRP’s direction, allowing majority of the issues in favor of the Company, the assessing officer has passed the final order with Nil demand. However, on similar issue for earlier years, the Income Tax authorities have appealed before the Tribunal.
For year ended March 31, 2013 the Company received the draft assessment order in December 2016 with a proposed demand of Rs, 4,118 (including interest of Rs, 1,278), arising primarily on account of section 10AA issues with respect to exclusion from Export Turnover. The Company has filed an objection before the DRP within the prescribed timelines.
Considering the facts and nature of disallowance and the order of the appellate authority / Hon’ble High Court of Karnataka upholding the claims of the Company for earlier years, the Company believes that the final outcome of the above disputes should be in favor of the Company and there should not be any material adverse impact on the financial statements.
The contingent liability in respect of disputed demands for excise duty, custom duty, sales tax and other matters amounts to Rs, 2,585, Rs, 2,654 and Rs, 2,560 as of March 31, 2017, March 31, 2016 and April 1, 2015. However, the resolution of these legal proceedings is not likely to have a material and adverse effect on the results of operations or the financial position of the Company.
This information has been determined to the extent such parties have been identified on the basis of information available with the Company.
9. Corporate Social Responsibility
a. Gross amount required to be spent by the Company during the year Rs, 1,764 (March 31, 2016: Rs, 1,560)
10. Segment information
The Company publishes this financial statement along with the consolidated financial statements. In accordance with Ind AS 108, Operating Segments, the Company has disclosed the segment information in the consolidated financial statements.