1. New standards that are not yet effective and have not been early adopted:
As set out below, amendments to standards are effective for annual periods beginning on or after April 1, 2017, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the Financial Statements of the Company:
Amendments to Ind AS 102, Share-based Payment
The amendment to Ind AS 102 clarifies the measurement basis for cash-settled share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled.
Since the Company does not have any cash-settled share based payments outstanding at the reporting date, the above mentioned amendment will not have any impact on the Financial Statements of the Company.
Amendments to Ind AS 7, Statement of Cash Flows
The amendment to Ind AS 7 introduces an additional disclosure that will enable users of Financial Statements to evaluate changes in liabilities arising from financing activities. The said amendment will not have any impact on the Company''''s Cash Flow Statement.
There are no other Ind ASs that are not yet effective that would be expected to have a material impact on the Consolidated Cash Flow Statement.
it''''s Material Subsidiaries (2) First pari-passu charge on all Current Assets of the HCL Info systems Ltd & it''''s Material Subsidiaries (except Lease Rental Receivables). (3) Negative lien on Two Identified Properties (4) Exclusive charge on Debt Service Reserve Account created by way of lien on mutual funds of Rs, 70.42 Crs . The Hypothecation of the movable assets has been created on 22nd May''''2017 and the mortgage of the immovable assets is under process. The loan is repayable in 13 quarterly installments starting from September 2016 and carries interest @ 11 % to 11.10% p.a.
(ii) Secured Long Term Loan of Nil ( 2016- Nil, 2015 - Rs, 5.73 Crores ) out of which Nil (2016 - Nil, 2015 - Rs, 5.73 Crores ) is shown under current maturity of debt, is secured by way of subservient charge on stock and receivables of the Company. It also carries a lien on Mutual Funds of Rs, 50.31 Crores (2016 - Rs, 50.16 Crores, 2015 - Rs, 49.99 Crores). Short Term Loan of Rs, 74.14 Crores is repayable in one year from the date of disbursement and carries interest @ 9.50 % p.a. and Rs, 25 Crores is repayable in three months from the date of disbursement and carries interest @ 11.50 % p.a.
(iii) Secured Term Loan from Banks amounting to Nil (2016 - Nil, 2015 - Rs, 143.48 Crores), out of which Nil (2016 - Nil, 2015 - Rs, 143,48 Crores) is shown under current maturity of long term debt, was secured by way of subservient charge on current assets of the Company. It had a lien on Mutual Funds of Rs, 100.01 Crores . The loan was repayable in 23 monthly equal installments starting from July 2014 and carries interest @ 11.25 %.
(iv) Secured Term Loan from Banks amounting to Nil (2016 - Nil, 2015 - Rs, 99.07 Crores), out of which Nil (2016 - Nil, 2015 - Rs, 19.92 Crores ) is shown under current maturity of long term debt, was secured by way of Hypothecation over the receivable from a particular project. The loan was repayable in 15 quarterly equal installments having a moratortium of 3 months and carries interest @ 11.25 % p.a.
2. (i) Unsecured Term loans from Others amounting to Rs, 191.87 Crores (2016 - Rs, 154.85 Crores, 2015 - Rs, 142.05 Crores), out of which Rs, 82.93 Crores (2016 - Rs, 89.89 Crores, 2015 - Rs, 73.32 Crores) is shown under current maturity of long term debt, is repayable in 12 to 20 equal quarterly installments from the date of the disbursement which carries interest @ 11.25% to 12.50% p.a.
(ii) Unsecured Term loans from Others amounting to Rs, 3.72 Crores (2016 - Rs, 19.34 Crores, 2015 - Rs, 41.70 Crores), out of which Rs, 2.02 Crores (2016 - Rs, 15.63 Crores, 2015 - Rs, 26.07 Crores) is shown under current maturity of long term debt, is repayable in 1 quarterly, 1 half yearly and balance 16 quarterly installments from the date of the disbursement which carries interest @ 13.04 % p.a.
(iii) Unsecured Term loans from others amounting to Nil (2016 - Nil, 2015 - Rs, 2.36 Crores), out of which Nil (2016 - Nil, 2015
- Rs, 2.36 Crores) is shown under current maturity of long term debt, were repayable in 19 equal quarterly installments from the date of the loans.
2. Long term borrowings, Short term borrowings and Current maturities of long term debts is net of the loan amounting to Rs, 2.16 Crores (2016 - Rs, 23.09 Crores, 2015 - Rs, 46.46 Crores), Nil (2016 - Nil, 2015 - Rs, 26.13 Crores) and Rs, 19.87 Crores (2016
- Rs, 29.51 Crores, 2015 - Rs, 68.94 Crores) respectivley that the Company has transferred to its subsidaries pursuant to the scheme of arrangement. However Company shall make repayments of such principal amounts and payments of interest or any other dues thereon on behalf of the respective Transferee Companies (HCL Infotech Ltd, HCL Services Ltd and HCL Learning Ltd) and the respective Transferee Companies shall be under an obligation to place with HCL Infosystems Limited funds at the relevant time so as to enable HCL Infosystems Ltd to make payments to the lenders on or before their respective due dates
Note: As per Ind AS provisions, the term loan balances are adjusted with the transaction/processing fees paid on the facility. Note: Material Subsidiaries include HCL Infotech Ltd., HCL Services Ltd. and HCL Learning Ltd.
1. (i) Secured Term Loan from Banks amounting to Rs, 124.78 Crores (2016 - Rs, 124.61 Crores, 2015 - Rs, 139.90 Crores) is secured by way of (1) First pari passu charge on all immovable, movable and intangible assets of the HCL Infosystems Ltd and itRs,s Material Subsidiaries (2) First pari-passu charge on all Current Assets of the HCL Infosystems Ltd & it''''s Material Subsidiaries (except Lease Rental Receivables). (3) Negative lien on Two Identified Properties, along with non-fund based facilities from Bank.The Hypothecation of the movable assets has been created post balance sheet date and the mortgage of the immovable assets is under process. It carries interest @ 11.50 % p.a.
(ii) Short Term Loan of Rs, 99.14 Crores (2016 - Rs, 100.00 Crores, 2015 - Rs, 75 Crores ) is secured by way of subservient charge on stock and receivables of the Company and against Support from promoter company. It also carries a lien on Mutual Funds of Rs, 49.97 Crores (2016 - Rs, 49.97 Crores). Short Term Loan of Rs, 74.14 Crs is repayable in one year from the date of disbursement and carries interest @ 9.50 % p.a. and Rs, 25 Crs is repayable in three months from the date of disbursement and carries interest @ 11.50 % p.a. (Refer Note 21).
(iii) Secured Loan from Banks amounting to Nil (2016 - Rs, 73.92 Crores, 2015 - Rs, 61.08 Crores) are secured by way of (1) First pari passu charge on all immovable, movable and intangible assets of the HCL Infosystems Ltd and it''''s Material Subsidiaries (2) First pari-passu charge on all Current Assets of the HCL Infosystems Ltd & it''''s Material Subsidiaries (except Lease Rental Receivables). (3) Negative lien on Two Identified Properties. The Hypothecation of the movable assets has been created on 30th March ''''2017 and the mortgage of the immovable assets is under process.
(iv) Unsecured Term loans from Others amounting to Rs, 149.36 Crores (2016 - Nil, 2015 - Nil) and against support from promoter company, is repayable in 1 yearly installments from the date of the disbursement which carries interest @ 9.50% p.a.
(v) Unsecured commercial papers from Others amounting to Rs, 195.00 Crores (2016 - Rs, 125.00 Crores, 2015 - Rs, 300.00 Crores ) is repayable in next 3 to 6 months from the date of availament of each tranche, which carries interest @ 10.50% to 11% p.a.
Note: As per Ind AS provisions, the term loan balances are adjusted with the transaction/processing fees paid on the facility.
Note: Material Subsidiaries means HCL Services Ltd., HCL Infotech Ltd. and HCL Learning Ltd.
Fair Value hierarchy
This section explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value. To provide an indication about the reliability of the inputs used in determining fair values, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.
*There were no transfers between the Level 1, Level 2 and Level 3 during the year.
* There is no change in the valuation technique during the year.
Valuation techniques used to derive Level 2 fair values
a) Investment in mutual funds have been fair valued using published statement for NAV''''s.
3 Financial Risk Management
The Company''''s activities expose it to market risk, liquidity risk and credit risk. The Company''''s financial risk management is an integral part of how to plan and execute its business strategies.
In order to minimize any adverse effects on the financial performance of the Company, derivative financial instruments, such as foreign exchange forward contracts are entered to hedge certain foreign currency exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments.
This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the impact of hedge accounting in the financial statements.
The Company''''s risk management is carried out by the Treasury and Credit Control department under policies approved by the senior management and audit committee.
Financial Risk Management
Credit risk arise from possibility that customer may default on its obligation resulting into financial loss. The maximum exposure to the credit risk is primarily from trade receivables.
Credit risk on cash and cash equivalent and Bank balances is not significant as it majorly includes Deposits with Bank and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.
Investment primarily includes investment in Mutual funds
The credit risk is managed by the group through Credit approvals, establishing the financial reliability of the customers taking into account the financial condition, analysis of historical bad debts and ageing of accounts receivables. Individual limits are set accordingly by the group credit control department.
The Company uses a provision matrix to compute the expected credit loss for trade receivables. The provision matrix takes into consideration historical credit loss experience and other relevant available external and internal credit risk factors.
Following table provides age wise breakup of Receivables
Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Company. The Company categorizes a trade receivable for write off when a debtor fails to make contractual payments greater than 3 years past due. Where loans or receivables have been written off, the company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized in profit or loss.
Financial Risk Management Liquidity risk:
Liquidity risk is 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 treasury department is responsible for liquidity, 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.
Financial Risk Management
(i) Interest rate risk
The Company''''s main interest rate risk arise from borrowings with variable interest rates, which expose the Company to Cash flow interest rate risk. As on March 31, 2017 the Company has Rs, 38.75 Crores (2016- Rs, 123.93 Crores, 2015- Rs, 163.69 Crores) of borrowings with variable interest rates. In order to optimize the Company''''s position with regards to interest expenses and to manage the interest rate risk, treasury performs a comprehensive corporate interest rate risk management by balancing of fixed rate and floating rate financial instruments in its total portfolio.
(ii) Foreign currency risk
The Company''''s major operations are in India and are in INR and therefore, the Company is not exposed to significant foreign currency risk. The Company evaluates the exchange rate exposure arising from foreign currency transactions and the Company follows established risk management policies which are approved by the senior management and the Audit Committee, including the use of derivatives like foreign exchange forward contracts to hedge exposure to foreign currency risk.
(b) The Company''''s foreign currency exposure as at the reporting date is not significant, hence, sensitivity analysis has not been reported.
4 Capital Management
(a) Risk Management
The Company''''s objective when managing capital are to safeguard their ability to continue as going concern so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Company is not subject to any externally imposed capital requirements for the year ended March 31, 2017, nine months ended March 31, 2016 and year ended June 30, 2015
a) Land & Building was sold during the nine months period ended March 31, 2016 which management believes was of exceptional nature.
b) In respect to Investment in HCL Learning Limited, the Company in 2015-16 recognized an impairment charge of Rs, 122 Crores , being excess of carrying value of investment over the recoverable value. This impairment was due to modification in the business model and changes in the overall business environment for the segment
Recoverable value of business was calculated based on value in use and discounting rate used for the ''''value in use'''' calculation was 12-18%, based on the pre tax risk adjusted weighted average cost of capital.
c) The Company has made provision of Rs, 70.19 Crores (2015-16 - Rs, 39.79 Crores) against loan given to HCL Infotech Limited. The Company, considering that HCL Infotech Limited has negative net worth as on March 31, 2017 due to continuous loss incurred by entity and based on future plan of this entity, may not be able to recover the loans given to HCL Infotech Ltd upto the value of its negative net worth.
d) In respect to Investment in HCL Services Limited, the Company considering the past business performance in the markets wherein Group operates in, changes in the market dynamics, current business strategy and focus areas in the future years, the management has computed recoverable value based on value in use and provided for an impairment charge of Rs, 250 crores, being excess of carrying value over the recoverable value. Though the group is optimistic about the future growth prospects, the management has taken a holistic view of its past performance while designing the future outlook, with renewed strategy. No impairment was identified during the nine months period ended March 31, 2016.
Discounting rate used for the ''''value in use'''' calculation was 16.5-20%, based on the pre tax risk adjusted weighted average cost of capital.
"* Includes sum of Rs, 102.24 Crores (2016 - Rs, 84.69 Crores, 2015 - Rs, 20.83 Crores) deposited by the Company against the above.
The amounts shown in item (a) represents the best possible estimates arrived at on the basis of available information. The uncertainties and possible reimbursements are dependent on the outcome of the different legal processes which have been initiated by the Company or the claimants as the case may be and therefore cannot be predicted accurately. 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.
b) Corporate Guarantees :
(i) Corporate Guarantee of Rs, 484.40 Crores (2016 - Rs, 663.92 Crores, 2015 - Rs, 624.52 Crores) was given to Banks and Financial Institutions for working capital facilities sanctioned to subsidiaries of which the total amount utilised as at March 31, 2017 is Rs, 143.40 Crores (2016 - Rs, 183.55 Crores, 2015 - Rs, 164.80 Crores).
(ii) Corporate Guarantee of Nil (2016 - Rs, 40.76 Crores, 2015 - Rs, 20.8 Crores) was given by the Company, on behalf of its subsidiaries, to third parties for assigning credit limit to subsidiaries."
c) Other Litigations :
(i) The Company has been named in a supplementary charge sheet filed with the Court with respect to a Contract awarded to the Company in 2009 by the UP state Government, amounting to Rs, 4.94 Crores, for the supply of computer hardware and related services under the National Rural Health Mission and therefore summons have been issued by the Court. The matter is currently pending for adjudication before the Special Court CBI . The management is of the view that the company has not been engaged in any wrong doing.
(ii) The Company has certain sales tax and other related litigation amounting to Rs, 1.62 Crores (2016 Rs, 1.58 Crores,
2015 - Rs, 1.65 Crores) against which provision have been made. Provision amounting to Rs, 0.04 Crores was created during the year."
d) Commitments :
Estimated value of contracts on capital account for Property, plant & equipment, excluding capital advances, remaining to be executed and not provided for amount to Nil (2016 - Nil, 2015 - Rs, 6.85 Crores).
The warranty provision has been recognized for expected warranty claims for the first year of warranty on products sold during the year. Due to the very nature of such costs, Outflows of economic benefits against this provision is expected to happen within one year.
5 As per provisions of Section 135 of the Companies Act, 2013, the Company has to provide at least 2% of average net profits of the preceding three financial years towards Corporate Social Responsibility ("CSR"). Accordingly, a CSR Committee has been formed for carrying out CSR activities as per Schedule VII of the Companies Act, 2013. The Company was not required to spend/contribute to CSR Activity during the year as per Section 135 of the Companies Act, 2013 as average net profit for the last three financial year is negative.
* Excluding service tax.
6 Employee Stock Option Plan (ESOP):
(a) The Company has established Employee Stock Option Scheme 2000 and Employee Stock Based Compensation Plan 2005, for which a total grant of 31,90,200 and 33,35,487 options have been set aside respectively for the employees of the Company and its subsidiaries. These options vest on a graded basis over a period of 42 and 60 months respectively from the date of grant and are to be exercised within a maximum period of 5 years from the date of vesting.
The Board of Directors/Committee approves the grant of options, including the grant of options that lapse out of each grant. Each option of Rs, 10/- confers on the employee a right to five equity shares of Rs, 2/- each.
Exercise price is market price as specified in the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by the Securities and Exchange Board of India(""SEBI"").
1. Volatility: Based on historical volatility in the share price movement of the Company.
2. Risk Free Rate: Being the interest rate applicable for maturity equal to the expected life of options based on yield curve for Government Securities.
3. Time to Maturity: Vesting period and volatility of the underlying equity shares have been considered for estimation.
4. Dividend Yield: Based on historical dividend payouts.
a) Cancelable Operating Leases As Lessee:
(i) The Company has taken various residential/commercial premises under cancelable operating leases. These leases are for a period of eleven months to three years and are normally renewable on expiry.
(ii) The rental expense in respect of operating leases is Rs, 7.57 Crores (2016 - Rs, 7.46 Crores) which is disclosed as Rent expense under ''''Other expenses''''.
Note: Previous year''''s/period''''s figures are given in brackets.
8 Loss per share (EPS)
Basic loss per share is calculated by dividing the net loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. The loss considered in ascertaining the company''''s EPS represent loss for the period after tax. Diluted EPS is computed and disclosed using the weighted average number of equity and dilutive equivalent shares outstanding during the year except when results would be anti-dilutive.
9 Segment Reporting
The Company publishes standalone financial statements along with the consolidated financial statements in the annual report. In accordance with Indian Accounting Standard 108, Operating Segments, the Company has disclosed the segment information in the consolidated financial statements.
10 The Company has calculated the various benefits provided to employees as under:
(a) Defined Contribution
During the year, the Company has recognized the following amounts in the Statement of Profit and Loss:
(b) Defined Benefit
(ii) Provident Fund#
The Company contributes to the employee provident fund trust "Hindustan Computers Limited Employees Provident Fund Trust" which is managed by the Company. The Company''''s Provident Fund Trust is exempted under Section 17 of Employees'''' Provident Fund Act, 1952. Conditions for grant of exemptions stipulate that the employer shall make good deficiency, if any, in the interest rate declared by the trust vis-a-vis statutory rate. As per Ind AS - 19, Employee Benefits, provident funds set up by employers, which requires interest shortfall to be met by the employer, needs to be treated as defined benefit plan.
The Trust includes employees of the Company as well as of its Indian wholly owned subsidiaries and of HCL Corporation Private Limited, a related party. In view of the same, it is a multi employer defined benefit plan.
The Trust has been investing the Provident fund contributions of the employees of all the six companies in a composite manner and the same cannot be separately identified entity wise.
In view of the same an actuarial valuation, in accordance with the Ind AS-19, was carried out at composite level. As per actuarial certificate there is no shortfall in the earning of fund against statutorily required "interest rate guarantee" and accordingly, the "liability on account of interest rate guarantee"" is nil.
In accordance with Ind AS 19, an actuarial valuation was carried out in the respect of the aforesaid defined benefit plan based on the following assumptions:
As of March 31, 2017, every 0.5 percentage point increase / decrease in discount rate will affect our gratuity benefit obligation by approximately by Rs, 0.06 Crores.
As of March 31, 2017, every 0.5 percentage point increase / decrease in weighted average rate of increase in compensation levels will affect our gratuity benefit obligation by approximately Rs, 0.06 Crores
The estimates of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.
Description of Risk Exposures:
Valuations are based on certain assumptions, which are dynamic in nature and vary over time. As such company is exposed to various risks as follow -
A) Salary Increases- Actual salary increases will increase the Plan''''s liability. Increase in salary increase rate assumption in future valuations will also increase the liability.
B) Investment Risk - If Plan is funded then assets liabilities mismatch & actual investment return on assets lower than the discount rate assumed at the last valuation date can impact the liability.
C) Discount Rate : Reduction in discount rate in subsequent valuations can increase the plan''''s liability.
D) Mortality & disability - Actual deaths & disability cases proving lower or higher than assumed in the valuation can impact the liabilities.
E) Withdrawals - Actual withdrawals proving higher or lower than assumed withdrawals and change of withdrawal rates at subsequent valuations can impact Plan''''s liability
52 Disclosure of related parties and related party transactions:
a) Company having substantial interest:
HCL Corporation Private Limited
b) List of parties where control exists/existed:
HCL Infotech Limited HCL Learning Limited HCL Services Limited
Digilife Distribution and Marketing Services Limited HCL Computing Products Limited
Pimpri Chinchwad eServices Limited (85% Shareholding of HCL Infosystems Limited)
RMA Software Park Private Limited (up to September 24 , 2014)
HCL Insys Pte. Limited, Singapore HCL Investments Pte. Limited, Singapore HCL Touch Inc., USA HCL Infosystems MEA FZE, Dubai
HCL Infosystems LLC, Dubai (49% Shareholding of HCL Infosystems MEA FZE)
HCL Infosystems MEA LLC, Abu Dhabi (49% Shareholding of HCL Infosystems MEA FZE)
HCL Infosystems Qatar, WLL (49% Shareholding of HCL Infosystems MEA FZE)
HCL Infosystems South Africa Pty. Limited Joint Venture :
Nokia HCL Mobile Internet Services Limited
(The Company has sold its investments in Nokia HCL Mobile Internet Services Limited during the current year)
c) Others (Enterprises over which, individual having indirect significant influence over the company, has significant influence) and with whom transactions have taken place during the year and/or where balances exist:
HCL Technologies Limited HCL Comnet Limited
HCL Comnet Systems and Services Limited HCL Avitas Private Limited HCL Talent Care Private Limited HCL IT City Lucknow Private Limited SSN Trust
RMA Software Park Private Limited (with effect from September 25, 2014)
Vama Sundari Investments (Pondi) Private Limited
Shiv Nadar Foundation
Naksha Enterprises Private Limited
d) Key Management Personnel:
Mr. Premkumar Seshadri * (Executive Vice Chairman Managing Director)
Mr. SG Murali (Group CFO with effect from April 1, 2015)
Mr Sushil Jain (Company Secretary)
*Remuneration has been paid by HCL Corporation Private Limited
Note: Parties with whom transactions are more than 10% of the total value have been disclosed separately.
(a) Provision for taxation has been computed by applying the Income Tax Act, 1961 and other relevant tax regulations in the jurisdiction where the Company conducts the business to the profit for the year. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relates to the same taxable entity and the same taxation authority.
(b) Deferred Tax:
Major components of Deferred tax arising on account of timing difference along with their movement as at March 31, 2017 are:
Note: MAT credit movement for the financial year 2015-16 includes adjustment of ''''5.60 Crores. There is no impact on Statement of Profit & Loss for this adjustment as this is a Balance Sheet movement.
12. 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 nine months period ended 31 March 2016 and the opening Ind AS balance sheet at 1 July 2015 (the Company''''s 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 group''''s financial position, financial performance and cash flows is set out in the following tables and notes.
Reconciliation between previous GAAP and IND AS
13. In compliance with the Section 2(41) of Companies Act, 2013, during 2015-16 , the company had changed its accounting period from July - June to April - March in 2015-16. Therefore, the previous year''''s figures are for the nine month period from July 1, 2015 to March 31, 2016 as against twelve months in the 2016-17, hence are not comparable. Previous year''''s figures have also been regrouped / recasted, wherever necessary, to conform to the current year''''s presentation.