Hindalco Industries Limited (“the Company”) was incorporated in India in the year 1958 having its registered office at Century Bhavan, 3rd Floor, Dr. Annie Besant Road, Worli, Mumbai 400 030.
The Company has two main stream of business Aluminium and Copper. In Aluminium, the Company caters to the entire value chain starting from mining of bauxite and coal through production of value added products for various application. The Company also has one of the largest single location Copper smelting facility in India.
The equity shares of the Company are listed on the Indian Stock Exchanges (National Stock Exchange & Bombay Stock Exchange) and GDRs are listed on the Luxemburg Stock Exchange.
‘1’ Basis of Preparation and Significant Accounting Policies
I. Basis of Preparation
The standalone financial statements of Hindalco Industries Limited (“the Company”) comply in all material aspects with Indian Accounting Standards (“Ind-AS”) as prescribed under section 133 of the Companies Act, 2013 (“the Act”), as notified under the Companies (Indian Accounting Standards) Rules, 2015, Companies (Indian Accounting Standard) Amendment Rules 2016 and other accounting principles generally accepted in India.
These financial statements are the first financial statement of the Company prepared under Ind-AS.
The financial statements for all periods up to and including the year ended March 31, 2016, were prepared in accordance with the accounting standards notified under Section 133 of the Companies Act, 2013, read with Rule 7 of The Companies (Accounts) Rules 2014, the Companies Act, 2013 and in accordance with the Generally Accepted Accounting Principal in India.
The Company followed the provisions of Ind-AS 101 in preparing its Opening Ind-AS Balance Sheet (OBS) as of the date of transition i.e. 1st April 2015. Certain of the Company’s Ind-AS accounting policies used in the opening Balance Sheet differed from its Indian GAAP policies applied as at 31st March, 2015 and accordingly the adjustments were made to restate the opening balances as per Ind-AS. The resulting adjustment arose from events and transactions before the date of transition to Ind-AS were recognized directly through retained earnings as at 1st April, 2015 as required by Ind-AS 101.
The financial statements for the year ended 31st March 2017 have been approved by the Board of Directors of the Company in their meeting held on 30th May, 2017.
The financial statements have been prepared on historical cost convention on accrual basis except for following assets and liabilities which have been measured at fair value or revalued amount:
- Financial instruments - Measured at fair value;
- Assets held for sale - Measured at fair value less cost of sale;
- Plan assets under defined benefit plans - Measured at fair value; and
- Employee share-based payments - Measured at fair value
In addition, the carrying values of recognised assets and liabilities designated as hedged items in fair value hedges that would otherwise be carried at amortised cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationship.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for employee share-based payment, leasing transactions, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in Inventories or value in use in Impairment of Assets. The basis of fair valuation of these items are given as part of their respective accounting policies.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
The Financial Statements have been presented in Indian Rupees (INR), which is the Company’s functional currency. All financial information presented in INR has been rounded off to the nearest two decimals of Crore unless otherwise stated.
Use of Estimates and Management Judgement
In preparing the financial statements in conformity with accounting principles generally accepted in India, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent liabilities as at the date of the financial statements and the amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Any revision to such estimates is recognised in the period in which the same is determined.
II. Measurement of fair value
A. Financial instruments
The estimated fair value of the Company’s financial instruments is based on market prices and valuation techniques. Valuations are made with the objective to include relevant factors that market participants would consider in setting a price, and to apply accepted economic and financial methodologies for the pricing of financial instruments. References for less active markets are carefully reviewed to establish relevant and comparable data.
B. Marketable and non-marketable equity securities
Fair value for listed shares is based on quoted market prices as of the reporting date. Fair value for unlisted shares is calculated based on commonly accepted valuation techniques utilizing significant unobservable data, primarily cash flow based models. If fair value cannot be measured reliably unlisted shares are recognized at cost.
Fair value of financial derivatives is estimated as the present value of future cash flows, calculated by reference to quoted price curves and exchange rates as of the balance sheet date. Options are valued using appropriate option pricing models and credit spreads are applied where deemed to be significant.
D. Embedded derivatives
Embedded derivatives that are separated from the host contract are valued by comparing the forward curve at contract inception to the forward curve as of the balance sheet date. Changes in the present value of the cash flows related to the embedded derivative are recognized in the Balance Sheet and in the Statement of Profit and Loss.
III. Critical accounting judgment and key sources of estimation uncertainty
The application of accounting policies requires management to make estimates and judgments in determining certain revenues, expenses, assets, and liabilities. The following paragraphs explains areas that are considered more critical, involving a higher degree of judgment and complexity.
A. Impairment of Non-current Assets
Ind AS 36 requires that the Company assesses conditions that could cause an asset or a Cash Generating Unit (CGU) to become impaired and to test recoverability of potentially impaired assets. These conditions include internal and external factors such as the Company’s market capitalization, significant changes in the Company’s planned use of the assets or a significant adverse change in the expected prices, sales volumes or raw material cost. The identification of CGUs involves judgment, including assessment of where active markets exist, and the level of interdependency of cash inflows. CGU is usually the individual plant, unless the asset or asset Company is an integral part of a value chain where no independent prices for the intermediate products exist, a Company of plants is combined and managed to serve a common market, or where circumstances otherwise indicate significant interdependencies.
In accordance with Ind-AS 36, goodwill and certain intangible assets are reviewed at least annually for impairment. If a loss in value is indicated, the recoverable amount is estimated as the higher of the CGU’s fair value less cost to sell, or its value in use. Directly observable market prices rarely exist for the Company’s assets, however, fair value may be estimated based on recent transactions on comparable assets, internal models used by the Company for transactions involving the same type of assets or other relevant information. Calculation of value in use is a discounted cash flow calculation based on continued use of the assets in its present condition, excluding potential exploitation of improvement or expansion potential.
Determination of the recoverable amount involves management estimates on highly uncertain matters, such as commodity prices and their impact on markets and prices for upgraded products, development in demand, inflation, operating expenses and tax and legal systems. The Company uses internal business plans, quoted market prices and the Company’s best estimate of commodity prices, currency rates, discount rates and other relevant information. A detailed forecast is developed for a period of three to five years with projections thereafter. The Company does not include a general growth factor to volumes or cash flows for the purpose of impairment tests, however, cash flows are generally increased by expected inflation and market recovery towards previously observed volumes is considered.
B. Employee retirement plans
The Company provides both defined benefit employee retirement plans and defined contribution plans. Measurement of pension and other superannuation costs and obligations under such plans require numerous assumptions and estimates that can have a significant impact on the recognized costs and obligation, such as future salary level, discount rate, attrition rate and mortality.
C. Environmental liabilities and Asset Retirement Obligation (ARO)
Estimation of environmental liabilities and ARO require interpretation of scientific and legal data, in addition to assumptions about probability and future costs.
The Company calculates income tax expense based on reported income.. Deferred income tax expense is calculated based on the differences between the carrying value of assets and liabilities for financial reporting purposes and their respective tax basis that are considered temporary in nature. Valuation of deferred tax assets is dependent on management’s assessment of future recoverability of the deferred benefit. Expected recoverability may result from expected taxable income in the future, planned transactions or planned tax optimizing measures. Economic conditions may change and lead to a different conclusion regarding recoverability.
E. Classification of leases
The Company enters into leasing arrangements for various assets. The classification of the leasing arrangement as a finance lease or operating lease is based on an assessment of several factors, including, but not limited to, transfer of ownership of leased asset at end of lease term, lessee’s option to purchase and estimated certainty of exercise of such option, proportion of lease term to the asset’s economic life, proportion of present value of minimum lease payments to fair value of leased asset and extent of specialized nature of the leased asset.
F. Useful lives of depreciable/ amortisable assets (tangible and intangible)
Management reviews its estimate of the useful lives of depreciable/ amortisable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical and economic obsolescence that may change the utility of certain software, customer relationships, IT equipment and other plant and equipment.
G. Recoverability of advances/ receivables
At each balance sheet date, based on discussions with the respective counter-parties and internal assessment of their credit worthiness, the management assesses the recoverability of outstanding receivables and advances. Such assessment requires significant management judgement based on financial position of the counter-parties, market information and other relevant factor.
H. Fair value measurements
The Company applies valuation techniques to determine the fair value of financial instruments (where active market quotes are not available) and non-financial assets. This involves developing estimates and assumptions consistent with the market participants to price the instrument. The Company’s assumptions are based on observable data as far as possible, otherwise on the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date.
I. Contingent assets and liabilities, uncertain assets and liabilities
Liabilities that are uncertain in timing or amount are recognized when a liability arises from a past event and an outflow of cash or other resources is probable and can be reasonably estimated. Contingent liabilities are possible obligations where a future event will determine whether Company will be required to make a payment to settle the liability, or where the size of the payment cannot be determined reliably. Material contingent liabilities are disclosed unless a future payment is considered remote. Evaluation of uncertain liabilities and contingent liabilities and assets requires judgment and assumptions regarding the probability of realization and the timing and amount, or range of amounts, that may ultimately be incurred. Such estimates may vary from the ultimate outcome as a result of differing interpretations of laws and facts.
J. Recent Accounting Pronouncements:
Amendments to Standards issued but not yet effective
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, ‘Statement of cash flows’ and Ind AS 102, ‘Share-based payment.’ These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, ‘Statement of cash flows’ and IFRS 2, ‘Share-based payment,’ respectively. The amendments are applicable to the Company from April 1, 2017. Amendment to Ind AS 7, Statement of Cash Flows:
The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.
The Company is evaluating the requirements of the amendment and the effect on the financial statements is being evaluated.
Amendment to Ind AS 102, Share-Based Payment:
The amendment to Ind AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of Withholding taxes.
It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market-based performance conditions and non-vesting conditions are reflected in the ‘fair values’, but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that includes a net settlement feature in respect of withholding taxes to be treated as equity-settled in its entirety. The cash payment to the tax authority is treated as if it was part of an equity settlement.
The Company is evaluating the requirements of the amendment and the impact on the financial statements is being evaluated.
2. This abridged Financial Statements have been compiled from Audited Standalone Financial Statements of the Company and containing the salient features of the Balance Sheet,Statement of Profit and Loss and Statement of Change in Equity OCE as per the first proviso to sub-section 1 of section 136 of the Companies Act,2013 and Rule 10 of Companies (Accounts) Rules,2014. Complete set of Balance Sheet , Statement of Profit and Loss , Cash Flow Statement , Statement of Change in Equity and notes thereto prepared as per the requirements of Division II of Schedule III of the Companies Act,2013 are available at the Company’s website at link www.hindalco.com.
Aggregate book value of Quoted and Unquoted Investments, market value of Quoted Investments and aggregate provision for dinumination in value of Investments are given below:
3. Note No. 16(d) of Audited Standalone Financial Statements
On 9th March 2017, the Company has issued and allotted 17,68,27,659 Equity Shares of Rs.1/- each at an issue price of Rs.189.45 per share to raise Rs.3,350 Crore by way of Qualified Institutional Placement (“QIP”) under Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities Rules, 2014). Expenses related to the issue amounting to Rs.42.67 Crore have been adjusted against Securities Premium.
Use of the net proceeds of the Qualified Institutional Placement is intended for business purposes such as meeting working capital requirements, repayment or prepayment of debt, exploring acquisition opportunities and general corporate purposes. Pending utilisation, the proceeds (net of issue expenses) have been invested in short term liquid investments and included in Cash and Cash Equivalents as at 31/03/2017. However, the entire amount has since been utilised for prepayment of long term debt.
4. Note No. 16(i) of Audited Standalone Financial Statements
The Board of Directors of the Company has recommended dividend of Rs.1.10 per share for the year ended 31st March 2017.
Information related to Micro and Small Enterprises, as per the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Development Act), are given below. The information given below have been determined to the extent such enterprises have been identified on the basis of information available with the Company:
Mahan Coal Limited and Tubed Coal Mines Limited, joint operations of the Company, have been classified as discontinued operations since going concern of these joint operations vitiated following de-allocation of coal blocks earlier allotted to them. Assets and liabilities of these joint operations have been classified as held for sale.
The Company has two reportable segments viz. Aluminium and Copper which have been identified taking into account the business activities it engages in. No operating segments have been aggregated to form these reportable segments. Description of each of the reporting segments is as under:
i. Aluminium Segment: This part of business manufactures and sells Hydrate and Alumina, Aluminium and Aluminium Products.
ii. Copper Segment: This part of business manufactures and sells Copper Cathode, Continuous Cast Copper Rods, Sulphuric Acid, DAP & Complexes, Gold, Silver and other precious metals.
The chief operating decision maker (CODM) primarily uses earnings before interest, tax, depreciation and amortisation (EBITDA) as performance measure to assess the performance of the operating segments. However, the CODM also receives information about the segment’s revenues, segment assets and segment liabilities on regular basis.
A. Segment Profit or Loss:
(i) Segment’s performance are measured based on Segment EBITDA. Segment EBITDA is defined as “Earnings from Continuing Operations before Finance Costs, Exceptional Items, Tax Expenses, Depreciation and Amortization, Impairment of non-current Assets, Investment income and Fair value gains or losses on financial assets but after allocation of Corporate Expenses”. Segment EBITDA are as follows:
B. Segment Revenue:
(i) The segment revenue is measured in the same way as in the Statement of Profit and Loss. However, sales between operating segments are on arm’s length basis in a manner similar to transactions with third parties and are eliminated on consolidation. Segment Revenue and reconciliation of the same with total revenue as follows:
(ii) Revenue of approximately Rs.4,359.88 crore (31/03/2016: Rs.1,195.36 crore) included in revenue from Copper Segment are arose from a single external customer which is more than 10% of the Company’s total revenue during the reported period.
(iii) The Company’s operations is located outside India. The amount of its revenue from external customers analysed by the country in which customers are located, are given below:
C. Segment Assets:
Segment assets are measured in the same way as in the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset. However, certain assets like investments, loans, assets classified as held for sale, current and deferred tax assets etc. are not considered to be segment assets as they are managed at corporate level. Further, corporate administrative assets are not allocated to individual segments as they are also managed at corporate level and these are not linked to any specific segment.
(i) Segment assets and reconciliation of the same with total assets are as under:
(ii) The total of non-current assets excluding financial assets and deferred tax assets analysed by the country in which assets are located are given below:
D. Segment Liabilities:
Segment liabilities are measured in the same way as in the financial statements. These liabilities are allocated based on the operations of the segment. In measurement of Aluminium and Copper segment’s liabilities, items like borrowings, current and deferred tax liabilities, liabilities associated with assets classified as held for sale etc. are not considered to be segment liabilities as they are managed at corporate level. Further, corporate administrative liabilities are not allocated to individual segments as they also managed at corporate levels and does not linked to any specific segment.
5. Note No. 43 of Audited Standalone Financial Statements
The Company had formulated a scheme of financial restructuring under sections 391 to 394 of the Companies Act 1956 (“the Scheme”) between the Company and its equity shareholders approved by the High Court of judicature of Bombay to deal with various costs associated with its organic and inorganic growth plan. Pursuant to this, a separate reserve account titled as Business Reconstruction Reserve (“BRR”) was created during the year 2008-09 by transferring balance standing to the credit of Securities Premium Account of the Company for adjustment of certain expenses as prescribed in the Scheme. Accordingly, the Company had transferred Rs.8,647.37 crore from Securities Premium Account to BRR. Till 31st March, 2015, sum of Rs.250.33 crore have been adjusted with BRR. During the year NIL (previous year Rs.682.27 crore (net of tax)) have been adjusted with BRR.
Had the scheme not prescribed the aforesaid treatment, the reported profit for the previous year would have been lower by Rs.682.27 crore.
For the purpose of calculating earning per share, amounts transferred to Business Reconstruction Reserve have been appropriately considered in earnings attributable to equity shareholders.
6. Note No. 46 of Audited Standalone Financial Statements Related Party Transactions
The following transactions were carried out with the Related Parties in the ordinary course of business:
(I) Subsidiaries, Associates and Joint Ventures
(i) Including excise duty.
(ii) Excluding excise duty.
(iii) At fair value (through other comprehensive income).
(iv) Classified as assets held for sale.
(v) Net of provision for diminution in carrying value of investment.
(vi) With respect to fair valuation of Financial Guarantees.
(vii) Includes foreign exchange gain/loss on return of Capital.
(viii) Financial Guarantees have been returned during April 2017.
(iii) Corporate Guarantee of USD 215 Million issued in favour of M/s Volkswagen AG on behalf of M/s Novelis Inc. to ensure Novelis will supply as per its future commitments to Volkswagen AG and its subsidiaries.
(iv) The Company has received a notice dated 24th March, 2007 from Collector (Stamp), Kanpur, Uttar Pradesh, alleging that stamp duty of Rs.252.96 crore is payable in view of order dated 18 November, 2002, of the Hon’ble High Court of Allahabad approving the scheme of arrangement for merger of Copper business of Indo Gulf Corporation Limited with the Company. The Company is of the opinion that it has a very strong case as there is no substantive/computation provision for levy/calculation of stamp duty on court order approving the scheme of arrangement under the Companies Act, 1956, within the provisions of Uttar Pradesh Stamp Act, moreover, the properties in question are located in the State of Gujarat and, thus, the Collector (Stamp), Kanpur, has no territorial jurisdiction to make such a demand. It is pertinent to note that the Company in 2003-04 has already paid the stamp duty which has been accepted as per the provisions of the Bombay Stamp Act, 1958, with regard to transfer of shareholding of Indo Gulf Corporation Limited as per the Scheme of Arrangement. Furthermore, the demand made is on an incorrect assumption. The Company’s contention, amongst the various other grounds made, is that the demand is illegal, against the principles of natural justice, incorrect, bad in law and malafide. The Company has filed a writ petition before the Hon’ble High Court of Allahabad, inter alia, on the above said grounds, which is pending determination.
(v) The Company has an agreement with Uttar Pradesh Power Corporation Limited (UPPCL), under which banking of surplus energy with UPPCL is permitted and such banked energy may be drawn as and when required at free of cost. However, UPPCL has raised demand of Rs.55.32 crore with retrospective effect from 1 April 2009 on the alleged ground that drawal of energy against the banked energy is not permissible during peak hours. The UPPCL has also included Rs.32.15 crore in the bill as late payment surcharge up to 31 March 2016. Thus, the total amount outstanding till 31 March 2016 is Rs.87.47 crore. However, if the case is decided against the Company, 107.4 million units valuing Rs.22.97 crore will be treated as energy banked with UPPCL and, accordingly the net liability will be Rs.64.50 crore. The Company has challenged the demand by filing a petition on 27 December 2013 under section 86(i)(f) read with other relevant provisions of Electricity Act, 2003 seeking quashing/setting aside the demand. The matter has been heard on 12 February 2014 and the Hon’ble Uttar Pradesh Electricity Regulatory Commission (UPERC), vide its order dated 24 February 2014, has directed the UPPCL to restrain from taking any coercive action till final order of UPERC. The Company believes that it has a strong case and no provision towards this is required.
(vi) The Company received a demand notice from Deputy Director of Mines (DDM), Sambalpur, vide letter No. 474/Mines, dated 19.03.2015 under section 21(5) of the Mine and Mineral (Development and Regulation) Act, 1957 (“MMDR Act, 1957”), to deposit an amount of Rs.310.40 crore towards cost price of Coal for the period from 2004-05 to 2010-11 towards alleged excess production of coal over and above the quantity approved under Mining Plan, Environment Clearance and Consent to Operate in respect of Talabira-I Coal Mine during the said period. The Company challenged the said order before the Hon’ble Revisional Authority, Ministry of Coal, Government of India, New Delhi on the ground that the DDM has no jurisdiction or authority to call upon the Company to pay the cost of coal for alleged violation, if any and the said demand is arbitrary and without lawful authority. Further, the Company has not carried out mining operation outside mining lease area and hence provisions of Section 21(5) of the MMDR Act, 1957 is not applicable. Hence, the said demand is contrary to the provisions of the MMDR Act, 1957 and Mineral Concession Rules, 1960. Interim stay has been granted by the Hon’ble Divisional Authority, Ministry of Coal and matter is pending hearing. In view of the above Management is of the view that no provision is required.
(vii) The Company has furnished bank guarantees to Nominated Authority of Ministry of Coal towards fulfilment of certain conditions of the agreements signed by it in respect of the four coal blocks awarded to it through auction. Two of the above awarded coal blocks have already achieved the peak rated capacity and hence fulfilled the required conditions for return of the respective bank guarantees for which the Company has already represented and submitted applications to the designated authorities. For balance two coal blocks some of the conditions could not be fulfilled despite best efforts for reasons beyond its control as certain approvals/clearances that are under the purview of the concerned State Government have been delayed. The Company has made representation with the Nominated Authority in this regard and is confident that its request will be considered favourably. Accordingly, no provision has been made for this.
(a) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances)
(b) The Company, along with Aditya Birla Nuvo Limited, Grasim Industries Limited and Birla TMT Holdings Pvt. Limited (the Sponsors), being promoters of Idea Cellular Limited (Idea), has given the following undertakings to the Facility Agent:
(i) The Sponsors shall collectively continue to hold at least 33% of the equity capital of Idea till the end of FY 2015-16 and shall not, without prior written approval of the Facility Agent, divest, transfer, assign, dispose of, pledge, charge, create any lien or in any way encumber 33% of shareholdings in Idea. Consequent upon the infusion of fresh equity capital of Idea, if the Sponsors’ stake gets diluted from 40% to 33% in the equity capital of Idea, the Sponsors agree and undertake to obtain the prior consent of the Rupee Facility Agent and, in other circumstances, the Sponsors agree and undertake to obtain the prior consent of the secured lenders representing 51% of the aggregate outstanding secured loans.
(ii) The Sponsors shall collectively continue to hold 26% of the equity capital of Idea after FY 201516 and shall not, without the prior written approval of the Rupee Facility Agent, divest, transfer, assign, dispose of, pledge, charge, create any lien or in any way encumber 26% shareholdings in the capital of Idea.
(iii) Not divest, without prior approval of the Facility Agent in writing, the shareholdings in the equity capital of Idea that may result in a single investor along with its affiliates holding more than 25% of the equity capital of Idea.
(iv) “The Board of Directors of Idea Cellular Limited (Idea), an Associate of the Company have approved the amalgamation of Vodafone India Limited (VIL) and it’s wholly owned subsidiary Vodafone Mobile Services Limited (VMSL) with the Idea subject to requisite regulatory and other approvals. As a promoter of Idea, the Company has undertaken to indemnify (liable jointly and severally with other promoters of Idea) to the promoters of VIL and its wholly owned subsidiary VMSL up to US$ 500 Million, if Idea fails to meet some of its indemnity obligation under the implementation agreement for proposed amalgamation of VIL and VMSL with Idea.”
(c) The Company has given the following undertakings in connection with the loan of Utkal Aluminium
International Limited (UAIL), a wholly owned subsidiary:
(i) To hold minimum 51% equity shares in UAIL.
(ii) To ensure to meet the Financial Covenants, except Fixed Asset Coverage Ratio, as provided in the loan agreements.
7. Note No. 49 of Audited Standalone Financial Statements
The Company has entered in to leasing arrangements under operating lease:
(a) For material handling lease expenses that are renewable on a periodic basis and some of which are cancellable in nature. Minimum rent for cancellable and non-cancellable operating leases included in the statement of profit and loss for the year is Rs.59.92 Crore (March 31, 2016 Rs.52.59 Crore).
(b) Land for original lease period ranging up to 99 years. Amortisation of leasehold land included in the statement of profit and loss for the year is Rs.14.32 Crore (March 31, 2016: Rs.11.83 Crore).
8. Note No. 55 of Audited Standalone Financial Statements
A. As per Section 135 of Companies Act 2015, a Corporate Social Responsibility Committee has been formed. As per the provisions of Companies Act 2013, amount not less than Rs.20.97 crore (previous year Rs.31.00 crore) should have been incurred during the year under CSR. The Company has incurred expenses amounting to Rs.28.36 Crore ( Previous Year Rs.34.15 Crore), in alignment of the CSR policy which is in conformity with the activities specified in Schedule VII of the Companies Act 2013.
B. Details of loans given, investment made and guarantee given covered under section 186(4) of the Companies Act. 2013:
i. Details of investments made have been given as part of Note ‘6’ Investment in Subsidiary and Note ‘7’ Investments Accounted For Using Equity Method.
ii. Loans and Financial Guarantees given below:
iii. Disclosure relating to amount outstanding at year end and maximum outstanding during the year of loans and advances, in nature of loan, required under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
9. Note No. 56 of Audited Standalone Financial Statements
These financial statements, for the year ended 31 March 2017, are the first financial statements the Company has prepared in accordance with Ind AS. For periods up to and including the year ended 31 March 2016, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2006 (as amended) notified under Section 133 of the Companies Act 2013 (hereinafter referred to as ‘Previous GAAP’).
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for the year ended 31 March, 2017 and other accounting principles generally accepted in India, together with the comparative period data as at and for the year ended 31 March 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at 1 April, 2015, the Company’s date of transition to Ind AS.
This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with previous GAAP, and how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.
A. Optional exemptions availed and Mandatory Exceptions
(i) Optional Exemptions
(a) Share-based payment transactions
As per Ind AS 101, at the date of transition, an entity may elect to:
i. Apply Ind AS 102 Share-based Payment to equity instruments that vested before date of transition to Ind-ASs.
ii. Not apply Ind AS 102 to equity instruments that vested before date of transition to Ind-ASs.
As permitted by Ind AS 101, the Company has elected the option (i) above to apply requirements of Ind AS 102 to equity instruments that vested before date of transition i.e. 1st April 2015.
As per Ind AS 101, and entity may apply paragraphs 6-9 of Appendix C of Ind AS 17 determining whether an arrangement contains a Lease 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.
As permitted by Ind AS 101, the Company has elected to avail the exemption as provided in paragraph D9. If an arrangement is determined to be classified as lease, the classification of lease as operating or finance has been made from inception of the arrangement.
(c) Investments in subsidiaries, joint ventures and associates
As per paragraph D14 of Ind AS 101, when an entity prepares separate financial statements, Ind AS 27 requires it to account for its investments in subsidiaries, joint ventures and associates either at cost or in accordance with Ind AS 109.
As per paragraph D15 of Ind AS 101, If a first-time adopter measures such an investment at amortised cost in accordance with Ind AS 27, it shall measure that investment at one of the following amounts in its separate opening Ind AS Balance Sheet:
a. cost determined in accordance with Ind AS 27; or
b. deemed cost. The deemed cost of such an investment shall be its
i. fair value at the entity’s date of transition to Ind ASs in its separate financial statements; or
ii. previous GAAP carrying amount at that date
As permitted by Ind AS 101, Company has elected to measure its investments in subsidiaries and joint ventures in accordance with Ind AS 27 at deemed cost based on previous GAAP carrying amount. However, Company has elected to account for its investments in associates in accordance with Ind AS 109 and designated such investments in associates as Fair Value through Other Comprehensive Income (FVTOCI).
(d) Designation of previously recognized financial instruments
At the date of transition to Ind AS i.e., 1 April 2015, As per paragraph D19, D19A and D19B, a financial liability can be designated as at fair value through profit and loss provided it meets the criteria in paragraph 4.2.2 of Ind AS 109 and financial asset can be designated at fair value through profit and loss if requirements of paragraph 4.1.5 of Ind AS 109 are met and an equity investments can be designated as at fair value through other comprehensive income if requirements of paragraph 5.7.5 of Ind AS 109 are met.
As permitted by Ind AS 101, Company has elected to avail the option. This has resulted in assessment of classification for all categories based on facts and circumstances that exist on the date of transition. Resulting classifications have been applied retrospectively.
(e) Fair value measurement of financial assets or financial liabilities at initial recognition
As per paragraph D20 of Ind AS 101, Despite the requirements of paragraphs 7 and 9 of Ind AS 101, an entity may apply the requirements in paragraph B5.1.2A (b) of Ind AS 109 prospectively to transactions entered into on or after the date of transition to Ind ASs.
Paragraph B5.1.2A (b) of Ind AS 109 requires entity to recognize day one gain or loss on initial recognition of the financial instrument if the fair value at initial recognition is different from transaction price and is based on a valuation technique that only uses observable market data or current market transactions.
As permitted by Ind AS 101, Company has elected to avail the option and has applied the requirements prospectively to transactions entered into on or after transition date of 1st April 2015.
(f) Decommissioning liabilities included in the cost of Property, Plant and Equipment
As per paragraph D21 of Ind AS 101, A first-time adopter need not comply with the requirements Appendix ‘A’ of Ind AS 16 Changes in Existing Decommissioning, Restoration and Similar Liabilities, for changes in such liabilities that occurred before the date of transition to Ind ASs. If a first-time adopter uses this exemption, it shall:
i. measure the liability as at the date of transition to Ind ASs in accordance with Ind AS 37;
ii. to the extent that the liability is within the scope of Appendix A of Ind AS 16, estimate the amount that would have been included in the cost of the related asset when the liability first arose, by discounting the liability to that date using its best estimate of the historical risk adjusted discount rate(s) that would have applied for that liability over the intervening period; and
iii. calculate the accumulated depreciation on that amount, as at the date of transition to Ind ASs, on the basis of the current estimate of the useful life of the asset, using the depreciation policy adopted by the entity in accordance with Ind ASs.
As permitted by Ind AS101, Company has elected to avail the exemption and accounted for the decommission liabilities as per paragraph (i), ii, and iii above on the date of transition.
(g) Designation of previously recognised financial instruments
As permitted by Ind AS 101, when changing from proportionate consolidation method to equity method, an entity may measure its investment in a joint venture at date of transition as the aggregate of the carrying amounts of the assets and liabilities that the entity had previously proportionately consolidated, including any goodwill arising from acquisition. The resultant amount is regarded as the deemed cost of the investment in the joint venture at initial recognition. The Company has availed the option.
(ii) Mandatory Exceptions
As per paragraph 14 of Ind AS 101, An entity’s estimates in accordance with Ind ASs at the date of transition to Ind ASs 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.
The estimates at 1 April 2015 and at 31 March 2016 are consistent with those made for the same dates in accordance with Previous GAAP (after adjustments to reflect any differences in accounting policies) apart from the following items where application of Indian - GAAP did not require estimation:
- Fair valuation of financial instruments carried at FVTPL and/or FVTOCI
- Impairment of financial assets based on expected credit loss model
- Determination of the discounted value for financial instruments carried at amortised cost
- Discounted value of liability for decommissioning costs.
The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at 1 April 2015, the date of transition to Ind AS and as of 31 March 2016.
(b) Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing As at the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on the facts and circumstances existing at the date of transition if retrospective application is impracticable. The Company has accordingly determined the classification of financial assets based on the facts and circumstances that exist on the date of transition. Measurement of financial assets accounted at amortised cost has been done retrospectively.
(v) Notes to first time adoption of Ind AS:
1. The Company’s share held by Trident Trust has been classified as treasury shares. Trident Trust is a trust created wholly for the benefit of the Company and is being managed by trustees appointed by it.
2. Under Ind AS, the Company has recognized the financial instruments under three categories e.g. Fair Value through Profit and Loss (FVTPL), Fair Value through Other Comprehensive Income (FVTOCI) and at amortized cost. On the date of transition, the fair value impact on FVTPL and FVTOCI instruments has been taken in “Retained Earning” and “OCI” respectively. As at 31 March,2016 the fair value impact on FVTPL instruments has been taken in statement of profit and loss whereas fair value on FVTOCI instruments has been routed through OCI. As at 01 April,2015 the Company has exercised one time option and classified the investments in equity instruments as FVTOCI. The gain/(loss) on any future extinguishment of such equity investments will not be reflected in statement of profit and loss.
3. Under Ind AS, the Company has recognised fair value of financial guarantee provided to its subsidiary companies. The fair value of such guarantee as at April 01, 2015 has been recognised as additional capital investment in its subsidiaries Company and is amortised over tenure of the loan. Subsequently in the year ended March 31, 2016, increase in the fair value of financial guarantee on account of refinancing of borrowings was recognised as additional investment in its subsidiary. The impact of amortisation of such fair value of guarantee has been recognised in the statement of profit and loss as interest income for the year ended March 31, 2016.
4. Under the Previous GAAP, the Company had recognised the cost of equity-settled employee share-based payment using the intrinsic value method. Under Ind AS, the cost of equity settled share-based plan is recognised based on the fair value of the options as at the grant date. Adjustment has been done to take additional charge arising due to change from intrinsic value to fair value of ESOSs outstanding.
5. Property Plant and Equipments
(a) As per Ind AS 16, Property Plant and Equipment, Company has decapitalised certain costs which were capitalised as a part of cost of fixed assets under previous GAAP. Such costs along with accumulated depreciation on such costs have been decapitalised on the date of transition. During the year ended 31 March 2016 depreciation expense was derecognised under Ind AS for such items of Property Plant and Equipments which was charged to statement of profit and loss under previous GAAP.
(b) Under Ind AS, the Company has recognised the asset retirement obligations on the basis of present value of expected outflow at the end of useful life of the asset with debit to Property Plant and Equipment. During the year ended 31 March 2016 depreciation expense was recognised under Ind AS for such items of Property Plant and Equipments and finance cost was recognised for unwinding of discount on provision for asset retirement obligation.
(c) As per Ind AS 16, Property Plant and Equipment, Company has capitalised certain costs which were not required to be capitalised as a part of cost of Property, Plant and Equipment/capital work in progress under previous GAAP. During the year ended 31 March 2016 depreciation expense on such costs were recognised in the statement of profit and loss.
(d) As per Ind AS 16, Property Plant and Equipment, Company has decapitalised certain items of Property Plant and Equipments over which Company did not have exclusive right to use. During the year ended 31 March 2016 depreciation expense was reversed in the statement of profit and loss.
6. Under Previous GAAP, the Company had recognised transaction costs incurred in respect of borrowings in the statement of profit and loss or capitalised as part of cost of Property, Plant and Equipment/Capital work progress in the year in which costs were incurred. Under Ind AS 109, such transaction costs are adjusted against carrying value of borrowing and are amortised using effective interest rate method over the tenure of the loan. Accordingly loan were debited and corresponding credit was given to retained earnings or property plant and equipment on date of transition. Under Ind AS, finance cost has been charged to statement of profit and loss for amortisation of such transaction cost during the year ended 31 March 2016. A portion of such transaction cost that would be eligible for capitalisation as borrowing cost has been capitalised using effective interest rate method.
7. The Company has classified certain arrangements as finance lease under Ind AS which was treated as operating lease under Previous GAAP. This classification resulted in recognition of Property Plant and Equipment on lease with corresponding credit to finance lease obligation. During the year ended March 31, 2016 there is increase in depreciation and finance cost whereas there is decrease in rental expense.
8. Other Significant Adjustments:
(a) Under Previous GAAP, provision was created for proposed dividend considering it as an adjusting event. Under Ind AS, provision for proposed dividend was reversed as under Ind AS this does not qualify as an adjusting event. Dividends were adjusted with retained earnings when paid.
(b) Company purchased machinery spares under terms of contract where inventory of spares was delivered by supplier against payment in periodic equalised instalments. Though title of such inventory was not passed on to the Company, the Company exercise effective control on the inventory of spares. Under Ind AS, as effective control over inventory remains with Company, same has been recognised as purchased inventory. After discounting, gross amount outstanding has been recognised as liability on OBS date. During the year ended 31 March 2016, periodic instalment payments charged to profit and loss under Previous GAAP has been reversed. Under Ind AS, actual consumption of spares had been charged to Statement of Profit and Loss and Interest expenses recognised for unwinding of discount.
9. Under Ind AS, all items of income and expense recognised 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 recognised in the profit or loss but are shown in the statement of profit and loss as “Other Comprehensive Income”. Net Profit along with Other Comprehensive Income constitute Total Comprehensive Income. The concept of Other Comprehensive Income did not exist under the Indian GAAP.
10. Note No. 57 of Audited Standalone Financial Statements
Previous GAAP figures have been reclassified/regrouped to conform to the presentation requirements under Ind AS and the requirements laid down in Division-II to the Schedule-III of the Companies Act 2013.