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Notes to Accounts of MindTree Ltd.
Mar 31, 2022
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Cash Generating Units (CGU) or groups of CGUs, which benefit from the synergies of the acquisition. The Chief Operating Decision Maker reviews the goodwill for any impairment at the operating segment level, which is represented through groups of CGUs.
The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. The fair value of a CGU is determined based on the market capitalization. The value-in-use is determined based on specific calculations. These calculations use pre-tax cash flow projections over a period of five years, based on financial budgets approved by management and an average of the range of each assumption mentioned below.
The Company does its impairment evaluation on an annual basis and based on such evaluation as at March 31, 2022, the estimated recoverable amount of the CGU exceeded its carrying amount, hence impairment is not triggered. The Company has performed sensitivity analysis for all key assumptions, including the cash flow projections consequent to the change in estimated future economic conditions arising from the possible effects due to COVID-19 and is unlikely to cause the carrying amount of the CGU exceed its estimated recoverable amount. The key assumptions used for the calculations were as follows:
c) The Company has only one class of shares referred to as equity shares having a par value of '' 10 each.
Terms/rights attached to equity shares
Each holder of the equity share, as reflected in the records of the Company as of the date of the shareholders meeting, is entitled to one vote in respect of each share held for all matters submitted to vote in the shareholders meeting.
The Company declares and pays dividends in Indian rupees and foreign currency. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company after distribution of amounts payable to preference shareholders. However, no such preference shares exist currently. The distribution will be in proportion to the number of equity shares held by the shareholders.
e) In the period of five years immediately preceding March 31, 2022:
i) Pursuant to the approval of the Board and the Administrative Committee at its meetings held on June 28, 2017 and July 20, 2017 respectively, the Company bought back 4,224,000 equity shares of '' 10 each on a proportionate basis, at a price of '' 625 per equity share for an aggregate consideration of '' 2,640 (Rupees Two thousand six hundred and forty million only), and completed the extinguishment of the equity shares bought back. Capital redemption reserve has been created to the extent of nominal value of share capital extinguished amounting to '' 42. The buyback and creation of capital redemption reserve was effected by utilizing the securities premium and free reserves.
g) Employee stock based compensation
The Company instituted the Employees Stock Option Plan (''ESOP'') in fiscal 2000, which was approved by the Board of Directors (''the Board''). The Company administers below mentioned restricted stock purchase plan and stock options plan.
Employee Restricted Stock Purchase Plan 2012 (''ERSP 2012'')
ERSP 2012 was instituted with effect from July 16, 2012 to issue equity shares of nominal value of '' 10 each. Shares under this program are granted to employees at an exercise price of not less than '' 10 per equity share or such higher price as determined by the Nomination and Remuneration Committee. Shares shall vest over such term as determined by the Nomination and Remuneration Committee not exceeding ten years from the date of the grant. All shares will have a minimum lock in period of one year from the date of allotment.
Employee Stock Option Plan 2021 (''ESOP 2021'')
On May 22, 2021, the shareholders of the Company have approved the Employee Stock Option Plan 2021 (''ESOP 2021'') for the issue of upto 2,000,000 options (including the unutilized options under ERSP 2012) to employees of the Company. The Nomination and Remuneration Committee (''NRC'') administers the plan through a trust established specifically for this purpose, called the Mindtree Employee Welfare Trust (''ESOP Trust'').
The ESOP Trust shall subscribe to the equity shares of the Company using the proceeds from loans obtained from the Company, other cash inflows from allotment of shares to employees under the ESOP Plan, to the extent of number of shares as is necessary for transferring to the employees. The NRC shall determine the exercise price which will not be less than the face value of the shares. Options under this program are granted to employees at an exercise price periodically determined by the NRC. All stock options have a four-year vesting term. The options vest and become fully exercisable at the rate of 25% each over a period of 4 years from the date of grant. Each option is entitled to 1 equity share of '' 10 each. These options are exercisable within 6 years from the date of vesting.
On May 22, 2021, the shareholders of the Company, through postal ballot, have approved the Grant of loan to Mindtree Employee Welfare Trust (''ESOP Trust''), the value of which, shall not exceed the statutory ceiling of five (5%) percent of the paid-up capital and free reserves of the Company as on March 31, 2021. Further, the Company has obtained in-principle approval for listing of upto a maximum of 2,000,000 equity shares of '' 10 each to be issued under ESOP 2021 from NSE and BSE on June 10, 2021 and June 14, 2021 respectively. The trust deed was executed effective May 25, 2021 and registered on August 24, 2021.
13.1 Distributions made and proposed
The amount of per share dividend recognized as distributions to equity shareholders for the year ended March 31, 2022 and March 31, 2021 was '' 27.5 and '' 17.5 respectively.
The Board of Directors at its meeting held on April 16, 2021 had recommended a final dividend of 175% ('' 17.5 per equity share of par value '' 10 each) for the financial year ended March 31, 2021 which was approved by the shareholders at the Annual General Meeting held on July 13, 2021. The aforesaid dividend was paid during the year ended March 31, 2022.
The Board of Directors have recommended a final dividend of 270% ('' 27 per equity share of par value '' 10 each) for the financial year ended March 31, 2022 which is subject to the approval of shareholders at the Annual General Meeting.
The Company has units at Bengaluru, Hyderabad, Chennai and Bhubaneshwar registered as Special Economic Zone (SEZ) units which are entitled to a tax holiday under Section 10AA of the Income Tax Act, 1961. The Company also has STPI units at Bengaluru and Pune which are registered as 100 percent Export Oriented Units, which were earlier entitled to a tax holiday under Section 10B and Section 10A of the Income Tax Act, 1961.
A portion of the profits of the Company''s India operations are exempt from Indian income taxes being profits attributable to export operations from undertakings situated in Special Economic Zone (SEZ). Under the Special Economic Zone Act, 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 the 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.
Dividend income from certain category of investments is exempt from tax. The difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax.
Pursuant to the changes in the Indian income tax laws in fiscal year 2007, Minimum Alternate Tax (MAT) has been extended to income in respect of which deduction is claimed under the tax holiday schemes discussed above; consequently, the Company has calculated its tax liability for current domestic taxes after considering MAT, as applicable. 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 is also subject to tax on income attributable to its permanent establishments in foreign jurisdictions due to operation of its foreign branches.
The Company has applied practical expedient and has not disclosed information about remaining performance obligations in contracts where the original contract duration is one year or less or where the entity has the right to consideration that corresponds directly with the value of entity''s performance completed to date. The above revenue is subject to change in transaction price, if any.
The Company has evaluated the impact of COVID-19 resulting from (i) the possibility of constraints to render services which may require revision of estimations of costs to complete the contract because of additional efforts (ii) onerous obligations (iii) penalties relating to breaches of service level agreements and (iv) termination or deferment of contracts by customers. The Company has concluded that the impact of COVID-19 is not material based on such evaluation. Due to the nature of the pandemic, the Company will continue to monitor developments to identify significant uncertainties relating to revenue in future periods.
''Includes net gain/(loss) on sale of investments for the year ended March 31, 2022''728 (For the year ended March 31, 2021''348). ''â¢''"''â¢''Includes net gain/(loss) on disposal of property, plant and equipment for the year ended March 31, 2022''9 (For the year ended March 31, 2021''45). Further includes net gain/(loss) on termination of right-of-use assets for the year ended March 31, 2022 '' Nil (For the year ended March 31, 2021''33).
''Includes contribution to defined contribution plans for the year ended March 31, 2022''3,942 (For the year ended March 31, 2021 '' 3,832). Also refer note 36(f).
**The employees of the Company are eligible for shares under Employee Stock Option Plans of L&T Limited. The Company has recorded for the year ended March 31, 2022 an amount of '' 8 (For the year ended March 31, 2021 '' Nil) as cost of such stock option plans, based on amounts cross-charged by the Parent Company. Also refer note 35.
a) Company as a lessee
Leases not yet commenced to which the Company is committed, amounts to '' 349 as at March 31, 2022 for a lease term of 2 to 5.5 years (As at March 31, 2021: '' 839 for a lease term of 10 years).
The Management assessed that fair value of cash and short-term deposits, trade receivables, other current financial assets, lease liabilities, trade payables, book overdrafts and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The fair-value of the financial-instruments factor the uncertainties arising out of COVID-19, where applicable.
The following methods and assumptions were used to estimate the fair values:
i) Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.
ii) The fair value of the quoted bonds and mutual funds are based on price quotations at reporting date. The fair value of unquoted instruments and other financial liabilities, as well as other non-current financial liabilities, as applicable, is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value.
iii) Fair values of the Company''s interest-bearing borrowings and loans are determined by using Discounted Cash Flow (DCF) method using discount rate that reflects the issuer''s borrowing rate as at the end of the reporting year. The own non-performance risk as at March 31, 2022 is assessed to be insignificant.
iv) The fair values of the unquoted equity and preference shares have been estimated using a DCF model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility/ the probabilities of the various estimates within the range can be reasonably assessed and are used in management''s estimate of fair value for these unquoted equity investments.
v) The Company enters into derivative financial instruments with various counterparties, principally banks with investment grade credit ratings. Foreign exchange forward contracts and option contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March 31, 2022 the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk, as applicable. 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 recognised at fair value. Also refer note 32.
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 table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2022 and March 31, 2021.
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and certain Highly Probable Forecast Exposures (HPFE) denominated in foreign currency. The Company follows established risk management policies, including the use of derivatives to hedge foreign currency assets/ liabilities and HPFE. The Company regularly reviews its foreign exchange forward and option positions both on a standalone basis and in conjunction with its underlying foreign currency related exposures. Hence, the movement in Mark To Market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HPFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts will impact the Balance Sheet of the Company. The Company monitors the potential risk arising out of the market factors like exchange rates on a regular basis. The counterparty in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material. For on balance sheet exposures, the Company monitors the risks on net unhedged exposures. The Company has evaluated the impact of the COVID-19 event on its highly probable forecasted transactions and concluded that there was no impact on the probability of occurrence of the hedged transaction. The Company has considered the effect of changes, if any, in both counterparty credit risk and its own credit risk in assessing hedge effectiveness and measuring hedge ineffectiveness.
The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. AH derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''s policy that no trading in derivative for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
Trade and other receivables
The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Ratings of customers are periodically monitored. The Company has considered the latest available credit-ratings of customers in view of COVID-19 to ensure the adequacy of allowance for expected credit loss towards trade and other receivables.
One customer accounted for more than 10% of the revenue for the year ended March 31, 2022 and March 31, 2021. Further, one customer accounted for more than 10% of the receivables as at March 31, 2022 and March 31, 2021.
Investments
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks.
The Company''s corporate 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.
Foreign Currency risk
The Company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses and foreign currency borrowings (primarily in U.S. Dollars, British Pound Sterling and Euros). A significant portion of the Company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian Rupees. As a result, if the value of the Indian Rupee appreciates relative to these foreign currencies, the Company''s revenues measured in Rupees may decrease. The exchange rate between the Indian Rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company has a foreign exchange hedging committee which meets on a periodic basis to formulate the strategy for foreign currency risk management.
Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts and option contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward contracts and option contracts are given under the derivative financial instruments section.
In respect of the Company''s forward contracts and option contracts, a 1% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately '' 140 increase and '' 140 decrease in the Company''s net profit in respect of its fair value hedges and '' 1,167 increase and '' 1,167 decrease in the Company''s effective portion of cash flow hedges as at March 31, 2022;
b) an approximately '' 97 increase and '' 97 decrease in the Company''s net profit in respect of its fair value hedges and '' 741 increase and '' 741 decrease in the Company''s effective portion of cash flow hedges as at March 31, 2021.
The following table presents foreign currency risk from non-derivative financial instruments as of March 31, 2022 and March 31,
For the year ended March 31, 2022, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the Company would impact operating margins by 0.3%/ (0.3)%. For the year ended March 31, 2021, the impact on operating margins would be 0.3%/ (0.3)%.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company''s exposure to the risk of changes in market interest rates relates primarily to the Company''s debt obligations with floating interest rates and investments. The Company''s borrowings and investments are primarily short-term, which do not expose it to significant interest rate risk.
The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company''s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
1Mr. MiLind Sarwate, Independent Director resigned from the Board with effect from April 24, 2020.
2Mr. Senthil Kumar resigned as Chief Financial Officer and Key Managerial Personnel with effect from June 15, 2020 and continues as AVP & Finance Controller with effect from June 15, 2020.
3Mr. Vinit Ajit Teredesai was appointed as Chief Financial Officer and Key Managerial Personnel with effect from June 15, 2020.
4The Nomination and Remuneration Committee and the Board of Directors have approved the appointment of Mr. Chandrasekaran Ramakrishnan as Independent Director with effect from July 15, 2020 for a term of five years upto July 14, 2025 and the same was approved by shareholders through Postal Ballot on December 09, 2020.
5The Nomination and Remuneration Committee and the Board of Directors have approved the appointment of Mr. Dayapatra Nevatia, Chief Operating Officer as Executive Director of the Company with effect from October 15, 2020 for a term of five years upto October 14, 2025 and the same was approved by shareholders through Postal Ballot on December 09, 2020.
''â¢''â¢Â¦Resigned as Executive Director and Chief Operating Officer with effect from January 3, 2022.
6The Nomination and Remuneration Committee and the Board of Directors have approved the appointment of Mr. Venugopal Lambu, President - Global Markets as Executive Director of the Company with effect from October 15, 2020 for a term of five years upto October 14, 2025 and the same was approved by shareholders through Postal Ballot on December 09, 2020.
7Mr. Jayant Damodar Patil, Non-Executive Director has resigned from the Board of Directors of the Company with effect from the close of business hours on October 15, 2020, due to other commitments and the Board of Directors have accepted the same.
8Ms. Vedavalli Sridharan has resigned as the Company Secretary of the Company and Compliance Officer and her resignation is effective from the close of business hours on October 31, 2020. The Nomination and Remuneration Committee and the Board of Directors have appointed Mr. Subhodh Shetty as Company Secretary and Compliance Officer effective November 01, 2020.
9The Board of Directors at its meeting held on April 16, 2021 have approved the re-appointment of Mr. Akshaya Bhargava, Independent Director, for a second-term of 5 years from October 1, 2021 upto September 30, 2026 and the same was approved by the shareholders at the Annual General Meeting held on July 13, 2021.
10The Board of Directors at its meeting held on April 16, 2021 have approved the re-appointment of Mr. Bijou Kurien, Independent Director, for a second-term of 5 years from July 17, 2021 upto July 16, 2026 and the same was approved by the shareholders at the Annual General Meeting held on July 13, 2021.
nMr. Prasanna Rangacharya Mysore, Independent Director ceased as a Director with effect from April 1, 2022 on completion of his tenure.
Transactions with key managerial personnel
Dividends paid to key managerial personnel during the year ended March 31, 2022 amounts to '' 1 (For the year ended March 31, 2021''0). Further, during the year ended March 31, 2022, 45,100 (March 31, 2021: 23,255) shares were allotted to key managerial personnel.
a) The Company has received income tax assessment order for financial years 2006-07 and 2007-08 for the erstwhile subsidiary Mindtree Technologies Private Limited (MTPL) with demands amounting to '' 11 and '' 10 respectively on account of certain disallowances/ adjustments made by income tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company had filed an appeal with Commissioner of Income Tax (Appeals) against the demand received. The Company has not deposited the amount of demand with the department. The department has adjusted pending refunds amounting to '' 18 against these demands. For the financial year 2006-07, Commissioner of Income Tax (Appeals) has passed an order during the year, pursuant to which substantial relief has been granted. The Company is awaiting the order giving effect from the Commissioner of Income Tax (Appeals).
b) The Company has received income tax assessment order under Section 143(3) of the Income-Tax Act 1961 pertaining to erstwhile subsidiary Aztecsoft Limited for the financial years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2007-08 and 2008-09 wherein demand of '' 215, '' 49, '' 61, '' 28, '' 58,'' 214 and '' 63 respectively has been raised against the Company. These demands have arisen mainly on account of transfer pricing adjustments made in the order. The Company has not accepted these orders and has been advised by its legal counsel/ advisors to prefer appeals before appellate authorities and accordingly the Company has filed appeals before the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal (ITAT). The Company has deposited '' 15 with the department against these demands. The department has adjusted pending refunds amounting to '' 556 against these demands.
The Company received a favourable order from the Commissioner of Income Tax (Appeals) for the financial year 2001-02 where in the Commissioner of Income Tax (Appeals) accepted the Company''s contentions and quashed the demand raised. The income tax department appealed against the above mentioned order with ITAT. ITAT, in an earlier year passed an order setting aside both the orders of the Commissioner of Income Tax (Appeals) as well as the Assessing Officer and remanded the matter back to the Assessing Officer for re-assessment. The Company preferred an appeal with the Hon''ble High Court of Karnataka against the order of the ITAT. The Hon''ble High Court of Karnataka has dismissed the appeal filed against the order of ITAT and upheld the order passed by the ITAT and accordingly the case is pending before Assessing Officer for re-assessment. The Deputy Commissioner of Income Tax has completed the reassessment and has issued a Final assessment order with a revised demand amounting to '' 202 due to transfer pricing adjustments. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals).
The Company has received the order from the Commissioner of Income Tax (Appeals) for the financial year 2004-05 and on the unfavourable grounds, the Company had filed an appeal with ITAT, Bengaluru. ITAT has issued a favourable order in connection with TP proceedings. The department preferred an appeal with the Hon''ble High Court of Karnataka against the order of the ITAT.
The Company has received the order from ITAT for the financial year 2005-06 and ITAT has remanded the matter back to the Assessing Officer for re-assessment. The Company has filed an appeal with the Hon''ble High Court of Karnataka. The Hon''ble High Court has dismissed the appeal and this matter was pending with Assessing Officer. The Assessing Officer has passed the final assessment order and the Company has filed an appeal against the same before the ITAT.
The Company has received the order from ITAT for the financial year 2007-08 and ITAT has quashed the order of the Assessing Officer. Order giving effect to the ITAT order is yet to be received.
The Company has received revised order for the financial year 2008-09 under section 263 from Assessing Officer raising an additional demand of '' 61, taking the total demand to ''124. The Company had filed an appeal before ITAT. Subsequently, the Company has received the order from ITAT for the financial year 2008-09 and ITAT has quashed the order of the Assessing Officer. Order giving effect to the ITAT order is yet to be received. During the year ended March 31, 2020, the Company filed a writ petition with the Hon''ble High Court of Karnataka to stay the proceedings of the assessing officer for the financial years 2007-08 and 2008-09.
The Company has appealed against the demands received for financial years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 200708 and 2008-09. Based on favourable order received by the Company for the financial year 2001-02 from the Commissioner of Income Tax (Appeals) and an evaluation of the facts and circumstances, no provision has been made against the above orders in the financial statements.
c) The Company received an assessment order for financial year 2006-07 for the erstwhile subsidiary Mindtree Wireless Private Limited from the Assistant Commissioner of Income-tax (''ACIT'') with a demand amounting to '' 39 on account of certain other disallowances/ transfer pricing adjustments made by income tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals) against the demand received.
The Company has received the order from the Commissioner of Income Tax (Appeals) wherein the Commissioner of Income Tax (Appeals) accepted the grounds in part and in respect of unfavourable grounds, the Company has filed an appeal before ITAT. The final order giving effect by the Assessing Officer is completed and the demand is reduced to '' 33. The Company has deposited '' 5 with the department against this demand.
d) The Company has received the revised order under section 263 for financial year 2009-10 from Assessing Officer reducing the demand to '' 6. The Company has filed an appeal before ITAT. ITAT has dismissed the appeal. Order giving effect has been received. The Company has filed a rectification request against the order giving effect.
e) The Company has received a final assessment order for financial year 2012-13 from the Deputy Commissioner of Income Tax with a demand amounting to '' 15 on account of certain disallowances. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company had filed an appeal with Commissioner of Income Tax (Appeals) and during the year, the Company has received an order wherein partial relief has been provided. The Company has filed an appeal against the same with the ITAT and the order giving effect to the Commissioner of Income Tax (Appeals) order is awaited.
f) During the year ended March 31, 2018, the Company received an order passed under section 7A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 from Employees Provident Fund Organisation (EPFO) claiming provident fund contribution aggregating to '' 250 for dues up to June 2016, and excludes any additional interest that may be determined by the authorities from that date till resolution of the dispute, on (a) full salary paid to International Workers and (b) special allowance paid to employees. Based on a legal advice obtained, the Company has assessed that it has a legitimate ground for appeal, and has contested the order by filing an appeal with the Employees'' Provident Funds Appellate Tribunal. In view of the changes in the regulations with the new wage code and social security code, the Company, supported by legal advice, continues to re-estimate the probability of any liability arising from this matter and has accordingly recognized a provision of '' 709 (March 31, 2021: '' 659), including estimated interest, as on the date of the balance sheet.
Estimated amount of contracts remaining to be executed on capital account and not provided for as at March 31, 2022 is '' 753 (As at March 31, 2021: '' 431).
The CEO & MD of the Company has been identified as the Chief Operating Decision Maker (CODM) as defined by Ind AS 108, Operating Segments. The CODM evaluates the Company''s performance and allocates resources based on an analysis of various performance indicators by industry classes. Accordingly, segment information has been presented for industry classes.
The Company is structured into five reportable business segments - RCM, BFSI, CMT, TTH and HCARE. With effect from April 1, 2021, the Company has expanded its foray into Healthcare industry and has revisited the classification of existing customers. This has resulted in HCARE being introduced as a new segment and expanding the TTH segment to include customers who were involved directly or indirectly with the real estate sector. Accordingly, the Company has regrouped certain customers between the segments and the comparative numbers have been restated to give effect to such change. The reportable business segments are in line with the segment-wise information which is being presented to the CODM.
Each segment item is presented at the measure used to report to the CODM for the purposes of making decisions about allocating resources to the segment and assessing its performance.
Geographic information is based on business sources from that geographic region and delivered from both on-site and off-shore. The geographic regions comprise of North America, Continental Europe, UK and Ireland and Asia Pacific (includes Rest of the World). Income and direct expenses in relation to segments are categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Management therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as ''unallocated'' and directly charged against total income.
CODM does not review assets and liabilities at reportable segments level, hence segment disclosure relating to total assets and liabilities has not been provided. Geographical information on revenue and industry revenue information is collated based on individual customer invoices or in relation to which the revenue is otherwise recognized.
Note:
Management believes that it is currently not practicable to provide disclosure of assets by geographical location, as meaningful segregation of the available information is onerous. Refer note 33 on financial risk management for information on revenue from major customers.
39. Total expenditure incurred on Corporate Social Responsibility (CSR) activities during the year ended March 31, 2022 is '' 171 (during the year ended March 31, 2021 is '' 80). This includes '' 77 towards provision for unspent amount pertaining to ongoing projects (during the year ended March 31, 2021: Nil). This amount will be transferred to ''Unspent CSR account'' within 30 days from the end of the financial year, in accordance with the CSR rules. The Company''s CSR activities primarily focuses on programs that benefit the differently abled, promote education and create sustainable livelihood opportunities. Refer Note 35 for details of related party transactions.
The contribution made by the Company to PM CARES Fund during FY 2019-20, post the set off of '' 56 considered in FY 2020-21, of '' 144 has not been considered as available for set off against the Company''s CSR obligation for FY 2021-22, pending clarification requested from MCA as regards its eligibility. The Company has a further excess spend of '' 3 during FY 2021-22.
40. The Company, in an earlier year, had entered into a lease arrangement with a lessor for lease of a piece of land for a period of 30 years. Also, the Company had purchased two buildings constructed by the lessor on the above referred land vide a separate purchase agreement and capitalized in the books of account. During the financial year 2019-20, the Company received a communication from the lessor wherein it was mentioned that the lessor would like to convert the existing lease into a regular commercial lease agreement and cash flowwould like to refund the residual value of the deposits and the value of the buildings under the present agreements and enter into a fresh agreement. During the previous year, the Company has completed the sale of the said buildings and termination of lease for the said land for a price equivalent to their written down values. Accordingly, the said buildings and the land have been derecognised. On entering into a regular commercial lease agreement, right-of-use asset and lease liability has been accounted in accordance with Ind AS 116 ''Leases''. Accordingly, in the previous year, the improvements made to buildings earlier was reclassified to "leasehold improvements" (refer notes 3 and 5).
41. The Code on Social Security, 2020 (the Code) has been enacted, which would impact the contributions by the Company towards Provident Fund and Gratuity. The effective date from which the changes are applicable is yet to be notified. The Ministry of Labour and Employment (the Ministry) has released draft rules for the Code on November 13, 2020. The Company will complete its evaluation and will give appropriate impact in its financial statements in the period in which the Code becomes effective and the related rules are published.
43. Pursuant to the approval by the Board of Directors on May 14, 2021, the Company entered into a Business Transfer Agreement on May 20, 2021 to acquire the digital transformation business undertaking, incubated and conducted under L&T-NxT (''NxT Digital Business'') from Larsen & Toubro Limited (L&T) to enhance the Company''s Cloud based IoT and AI capabilities for Industry 4.0, for a cash consideration of '' 1,980 (determined based on an independent valuation) and net working capital as on the closing date. The Company has consummated the above transfer of business on July 1, 2021.
The transaction between the Parent (L&T) and Subsidiary (the Company) has been recorded in the books of the Company in accordance with Appendix C - ''Business combinations of entities under common control'' of Ind AS 103 - ''Business Combinations'' using the pooling of interests method. Accordingly, the assets and liabilities transferred has been accounted at the carrying amounts as reflected in the books of L&T as at June 30, 2021 and no adjustments have been made to reflect the fair values, or recognize any new assets or liabilities. The difference between the purchase consideration of '' 2,065 and the carrying amounts of the net assets transferred of '' 209 has been adjusted to reserves. The financial information pertaining to the transfer of business is not material and accordingly, financial statements of the Company in respect of the prior periods has not been restated. Details of the transfer of business is as follows:
44. Subsequent to the balance sheet date, the Company has agreed to acquire a 6.64% stake in COPE Healthcare Consulting Inc., USA (''COPE'') pursuant to a Stock Purchase Agreement entered on April 4, 2022. COPE is a healthcare consulting, implementation and co-management leader in population health management, value-based care and payment, workforce development and data analytics.
Mar 31, 2021
The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. The fair value of a CGU is determined based on the market capitalization. the value-in-use is determined based on specific calculations. these calculations use pre-tax cash flow projections over a period of five years, based on financial budgets approved by management and an average of the range of each assumption mentioned below.
the company does its impairment evaluation on an annual basis and as of March 31, 2021, the estimated recoverable amount of the cGU exceeded its carrying amount, hence impairment is not triggered. the company has performed sensitivity analysis for all key assumptions, including the cash flow projections consequent to the change in estimated future economic conditions arising from the possible effects due to cOVID-19 and is unlikely to cause the carrying amount of the cGU exceed its estimated recoverable amount. the key assumptions used for the calculations were as follows:
c) The Company has only one class of shares referred to as equity shares having a par value of '' 10 each.
Terms/rights attached to equity shares
Each holder of the equity share, as reflected in the records of the Company as of the date of the shareholders meeting, is entitled to one vote in respect of each share held for all matters submitted to vote in the shareholders meeting.
The company declares and pays dividends in Indian rupees and foreign currency. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the company after distribution of amounts payable to preference shareholders. However, no such preference shares exist currently. the distribution will be in proportion to the number of equity shares held by the shareholders.
e) In the period of five years immediately preceding March 31, 2021:
i) The company has allotted 83,893,088 and 41,765,661 fully paid up equity shares during the quarter ended March 31, 2016 and June 30, 2014 respectively, pursuant to 1:1 bonus share issue approved by shareholders. consequently, options/ units granted under the various employee share based plans are adjusted for bonus share issue.
ii) Pursuant to the approval of the Board and the Administrative committee at its meetings held on June 28, 2017 and July 20, 2017 respectively, the company bought back 4,224,000 equity shares of '' 10 each on a proportionate basis, at a price of '' 625 per equity share for an aggregate consideration of '' 2,640 (Rupees Two thousand six hundred and forty million only), and completed the extinguishment of the equity shares bought back. capital redemption reserve has been created to the extent of nominal value of share capital extinguished amounting to '' 42. the buyback and creation of capital redemption reserve was effected by utilizing the securities premium and free reserves.
iii) The Company has not allotted any other equity shares as fully paid up without payment being received in cash.
f) Employee stock based compensation
the company instituted the Employees Stock Option Plan (''ESOP'') in fiscal 2000, which was approved by the Board of Directors (''the Board''). The company administers below mentioned restricted stock purchase plan and phantom stock options plan.
Employee Restricted Stock Purchase Plan 2012 (''ERSP 2012'')
ERSP 2012 was instituted with effect from July 16, 2012 to issue equity shares of nominal value of '' 10 each. Shares under this program are granted to employees at an exercise price of not less than '' 10 per equity share or such higher price as determined by the Nomination and Remuneration Committee. Shares shall vest over such term as determined by the Nomination and Remuneration committee not exceeding ten years from the date of the grant. All shares will have a minimum lock in period of one year from the date of allotment.
The amount of per share dividend recognized as distributions to equity shareholders for the year ended March 31, 2021 and March 31, 2020 was '' 17.5 and '' 30 respectively.
the Board of Directors at its meeting held on April 24, 2020 had recommended a final dividend of 100% ('' 10 per equity share of par value '' 10 each) for the financial year ended March 31, 2020 which was approved by the shareholders at the annual General Meeting held on July 14, 2020. the aforesaid dividend was paid during the year.
the Board of Directors have recommended a final dividend of 175% ('' 17.5 per equity share of par value '' 10 each) for the financial year ended March 31, 2021 which is subject to the approval of shareholders at the annual General Meeting.
The Company also has STPI units at Bengaluru and Pune which are registered as 100 percent Export Oriented Units, which were earlier entitled to a tax holiday under Section 10B and Section 10A of the Income tax Act, 1961.
A portion of the profits of the company''s India operations are exempt from Indian income taxes being profits attributable to export operations from undertakings situated in Special Economic Zone (SEZ). Under the Special Economic Zone act, 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 the 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.
Dividend income from certain category of investments is exempt from tax. the difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax.
Pursuant to the changes in the Indian income tax laws in fiscal year 2007, Minimum alternate tax (Mat) has been extended to income in respect of which deduction is claimed under the tax holiday schemes discussed above; consequently, the company has calculated its tax liability for current domestic taxes after considering MAT, as applicable. 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 is also subject to tax on income attributable to its permanent establishments in foreign jurisdictions due to operation of its foreign branches.
The company has applied practical expedient and has not disclosed information about remaining performance obligations in contracts where the original contract duration is one year or less or where the entity has the right to consideration that corresponds directly with the value of entity''s performance completed to date. The above revenue is subject to change in transaction price, if any.
The company has evaluated the impact of cOVID - 19 resulting from (i) the possibility of constraints to render services which may require revision of estimations of costs to complete the contract because of additional efforts (ii) onerous obligations (iii) penalties relating to breaches of service level agreements and (iv) termination or deferment of contracts by customers. The Company has concluded that the impact of cOVID - 19 is not material based on such evaluation. Due to the nature of the pandemic, the company will continue to monitor developments to identify significant uncertainties relating to revenue in future periods.
The Management assessed that fair value of cash and short-term deposits, trade receivables, other current assets, trade payables, book overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. the fair-value of the financial-instruments factor the uncertainties arising out of cOVID-19, where applicable.
the following methods and assumptions were used to estimate the fair values:
i) Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.
ii) The fair value of the quoted bonds and mutual funds are based on price quotations at reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value.
iii) Fair values of the company''s interest-bearing borrowings and loans are determined by using Discounted cash Flow (DcF) method using discount rate that reflects the issuer''s borrowing rate as at the end of the reporting period. The own non-performance risk as at March 31, 2021 was assessed to be insignificant.
iv) The fair values of the unquoted equity and preference shares have been estimated using a DCF model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility/ the probabilities of the various estimates within the range can be reasonably assessed and are used in management''s estimate of fair value for these unquoted equity investments.
v) the company enters into derivative financial instruments with various counterparties, principally banks with investment grade credit ratings. Interest rate swaps, foreign exchange forward contracts and option contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March 31, 2021 the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk, as applicable. 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 recognised at fair value. AIso refer note 31.
30. Fair value hierarchy
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).
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and certain Highly Probable Forecast Exposures (HPFE) denominated in foreign currency. the company follows established risk management policies, including the use of derivatives to hedge foreign currency assets/ liabilities and HPFE. the company regularly reviews its foreign exchange forward and option positions both on a standalone basis and in conjunction with its underlying foreign currency related exposures. Hence, the movement in Mark To Market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HPFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts will impact the Balance Sheet of the Company. The Company monitors the potential risk arising out of the market factors like exchange rates on a regular basis. the counterparty in these derivative instruments is a bank and the company considers the risks of non-performance by the counterparty as non-material. For on balance sheet exposures, the company monitors the risks on net unhedged exposures. the company has evaluated the impact of the cOVID-19 event on its highly probable forecasted transactions and concluded that there was no impact on the probability of occurrence of the hedged transaction. The Company has considered the effect of changes, if any, in both counterparty credit risk and its own credit risk in assessing hedge effectiveness and measuring hedge ineffectiveness.
31. Financial risk management
The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. the primary market risk to the company is foreign exchange risk. the company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the company''s policy that no trading in derivative for speculative purposes may be undertaken. the Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Credit risk
credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. the maximum exposure to credit risk is equal to the carrying value of the financial assets. the objective of managing counterparty credit risk is to prevent losses in financial assets. the company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
Trade and other receivables
the company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. the demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Ratings of customers are periodically monitored. The Company has considered the latest available credit-ratings of customers in view of cOVID-19 to ensure the adequacy of allowance for expected credit loss towards trade and other receivables.
One customer accounted for more than 10% of the revenue for the year ended March 31, 2021. Further, one customer accounted for more than 10% of the receivables as at March 31, 2021. One customer accounted for more than 10% of the revenue for the year ended March 31, 2020. Further, one customer accounted for more than 10% of the receivables as at March 31, 2020.
Investments
The company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. the company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the company will not be able to meet its financial obligations as they become due. the company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the company has unutilized credit limits with banks.
The Company''s corporate 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.
Foreign currency risk
the company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. Dollars, British Pound Sterling and Euros) and foreign currency borrowings (in U.S. Dollars). a significant portion of the company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian Rupees. As a result, if the value of the Indian Rupee appreciates relative to these foreign currencies, the company''s revenues measured in Rupees may decrease. the exchange rate between the Indian Rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company has a foreign exchange hedging committee which meets on a periodic basis to formulate the strategy for foreign currency risk management.
consequently, the company uses derivative financial instruments, such as foreign exchange forward contracts and option contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
the details in respect of the outstanding foreign exchange forward contracts and option contracts are given under the derivative financial instruments section.
In respect of the company''s forward contracts and option contracts, a 1% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately '' 97 increase and '' 97 decrease in the company''s net profit in respect of its fair value hedges and '' 741 increase and '' 741 decrease in the company''s effective portion of cash flow hedges as at March 31, 2021;
b) an approximately '' 105 increase and '' 105 decrease in the company''s net profit in respect of its fair value hedges and '' 741 increase and '' 741 decrease in the company''s effective portion of cash flow hedges as at March 31, 2020.
For the year ended March 31, 2021, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the company would impact operating margins by 0.3%/ (0.3)%. For the year ended March 31, 2020, the impact on operating margins would be 0.2%/ (0.2)%.
interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. the company''s exposure to the risk of changes in market interest rates relates primarily to the company''s debt obligations with floating interest rates and investments. the company''s borrowings and investments are primarily short-term, which do not expose it to significant interest rate risk.
32. Capital management
The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. the company''s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
* KMP subsequent to July 2,2019, when the Company has become a subsidiary of L&T.
1 Mr. Milind Sarwate, Independent Director resigned from the Board with effect from April 24, 2020.
2 Mr. Senthil Kumar resigned as Chief Financial Officer and Key Managerial Personnel with effect from June 15,2020 and continues as AVP & Finance Controller with effect from June 15,2020.
3 Mr. Vinit Ajit Teredesai was appointed as Chief Financial Officer and Key Managerial Personnel with effect from June 15,2020.
4 Mr. Krishnakumar Natarajan, Executive Chairman, Mr. N S Parthasarathy, Executive Vice Chairman and Chief Operating Officer and Mr. Rostow Ravanan, CEO and Managing Director of the Company have resigned from the Board on July 17,2019.
5 Mr. Subroto Bagchi, Non-Executive Director of the Company, retired from the Board on July 16, 2019.
6 Resigned on November 15, 2019.
7 The Nomination and Remuneration Committee and the Board of Directors have approved the appointment of Mr. Chandrasekaran Ramakrishnan as Independent Director with effect from July 15, 2020for a term of five years upto July 14, 2025 and the same was approved by shareholders through Postal Ballot on December 09,2020.
8 The Nomination and Remuneration Committee and the Board of Directors have approved the appointment of Mr. Dayapatra Nevatia, Chief Operating Officer as Executive Director of the Company with effect from October 15, 2020for a term of five years upto October 14, 2025 and the same was approved by shareholders through Postal Ballot on December 09, 2020.
9 The Nomination and Remuneration Committee and the Board of Directors have approved the appointment of Mr. Venugopal Lambu, President - Global Markets as Executive Director of the Company with effect from October 15, 2020for a term of five years upto October 14,2025 and the same was approved by shareholders through Postal Ballot on December 09, 2020.
10 Mr. Jayant Damodar Patil, Non-Executive Director has resigned from the Board of Directors of the Company with effect from the close of business hours on October 15,2020, due to other commitments and the Board of Directors have accepted the same.
11 Ms. Vedavalli Sridharan has resigned as the Company Secretary of the Company and Compliance Officer and her resignation is effective from the close of business hours on October 31,2020. The Nomination and Remuneration Committee and the Board of Directors have appointed Mr. Subhodh Shetty as Company Secretary and Compliance Officer effective November 01, 2020.
a) The Company has received income tax assessment order for financial years 2006-07 and 2007-08 for the erstwhile subsidiary Mindtree technologies Private Limited (MTPL) with demands amounting to '' 11 and '' 10 respectively on account of certain disallowances/ adjustments made by income tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. the company has filed an appeal with commissioner of Income tax (Appeals) against the demand received. the company has not deposited the amount of demand with the department. the department has adjusted pending refunds amounting to '' 18 against these demands.
b) the company has received income tax assessment order under Section 143(3) of the Income-tax act 1961 pertaining to erstwhile subsidiary Aztecsoft Limited for the financial years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2007-08 and 2008-09 wherein demand of '' 215, '' 49, '' 61, '' 28, '' 58, '' 214 and '' 63 respectively has been raised against the company. these demands have arisen mainly on account of transfer pricing adjustments made in the order. the company has not accepted these orders and has been advised by its legal counsel/ advisors to prefer appeals before appellate authorities and accordingly the company has filed appeals before the commissioner of Income tax (appeals) and Income tax appellate tribunal (ITAT). the company has deposited '' 15 with the department against these demands. the department has adjusted pending refunds amounting to '' 556 against these demands.
the company received a favourable order from the commissioner of Income tax (appeals) for the financial year 2001-02 where in the commissioner of Income tax (appeals) accepted the company''s contentions and quashed the demand raised. the income tax department appealed against the above mentioned order with ITAT. ITAT, in an earlier year passed an order setting aside both the orders of the commissioner of Income tax (appeals) as well as the assessing Officer and remanded the matter back to the assessing Officer for re-assessment. the company preferred an appeal with the Hon''ble High court of Karnataka against the order of the ITAT. the Hon''ble High court of Karnataka has dismissed the appeal filed against the order of ITAT and upheld the order passed by the ITAT and accordingly the case is pending before assessing Officer for re-assessment. The Deputy commissioner of Income Tax has completed the reassessment and has issued a Final assessment order with a revised demand amounting to '' 202 due to transfer pricing adjustments. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The company has filed an appeal with commissioner of Income Tax (Appeals).
The company has received the order from the commissioner of Income Tax (Appeals) for the financial year 2004-05 and on the unfavorable grounds, the company had filed an appeal with ITAT, Bengaluru. ITAT has issued a favourable order in connection with TP proceedings. Order giving effect to the ITAT order is yet to be received.
The company has received the order from ITAT for the financial year 2005-06 and ITAT has remanded the matter back to the Assessing Officer for re-assessment. The company has filed an appeal with the Hon''ble High court of Karnataka. The Hon''ble High court has dismissed the appeal and this matter is pending with Assessing Officer.
The company has received the order from ITAT for the financial year 2007-08 and ITAT has quashed the order of the Assessing Officer. Order giving effect to the ITAT order is yet to be received.
The company has received revised order for the financial year 2008-09 under section 263 from Assessing Officer raising an additional demand of '' 61, taking the total demand to '' 124. The company had filed an appeal before ITAT. Subsequently, the company has received the order from ITAT for the financial year 2008-09 and ITAT has quashed the order of the Assessing Officer. Order giving effect to the ITAT order is yet to be received. During the year ended March 31, 2020, the company filed a writ petition with the Hon''ble High court of Karnataka to stay the proceedings of the assessing officer for the financials years 2007-08 and 2008-09.
The Company has appealed against the demands received for financial years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 200708 and 2008-09. Based on favourable order received by the company for the financial year 2001-02 from the commissioner of Income tax (Appeals) and an evaluation of the facts and circumstances, no provision has been made against the above orders in the financial statements.
c) the company received an assessment order for financial year 2006-07 for the erstwhile subsidiary Mindtree Wireless Private Limited from the assistant commissioner of Income-tax (''AcIT'') with a demand amounting to '' 39 on account of certain other disallowances/ transfer pricing adjustments made by income tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The company has filed an appeal with commissioner of Income Tax (Appeals) against the demand received.
The company has received the order from the commissioner of Income Tax (Appeals) wherein the commissioner of Income Tax (Appeals) accepted the grounds in part and in respect of unfavorable grounds, the company has filed an appeal before ITAT. The final order giving effect by the Assessing Officer is completed and the demand is reduced to '' 33. The company has deposited '' 5 with the department against this demand.
d) The company has received the revised order under section 263 for financial year 2009-10 from Assessing Officer reducing the demand to '' 6. The company has filed an appeal before ITAT. ITAT has dismissed the appeal. Order giving effect has been received. The company has filed an appeal before commissioner of Income Tax (Appeals).
e) The company has received a final assessment order for financial year 2012-13 from the Deputy commissioner of Income Tax with a demand amounting to '' 15 on account of certain disallowances. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The company has filed an appeal with commissioner of Income Tax (Appeals).
f) During the year ended March 31, 2018, the company received an order passed under section 7A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 from Employees Provident Fund Organisation (EPFO) claiming provident fund contribution aggregating to '' 250 for dues up to June 2016, and excludes any additional interest that may be determined by the authorities from that date till resolution of the dispute, on (a) full salary paid to International Workers and (b) special allowance paid to employees. Based on a legal advice obtained, the Company has assessed that it has a legitimate ground for appeal, and has contested the order by filing an appeal with the Employees'' Provident Funds Appellate Tribunal. The company has, during the year, in view of the changes in the regulations with the new wage code and social security code, supported by legal advice, re-estimated the probability of any liability arising from this matter and has accordingly recognized a provision of '' 659 (March 31, 2020: '' Nil), including estimated interest, as on the date of the balance sheet.
35 capital commitments
Estimated amount of contracts remaining to be executed on capital account and not provided for as at March 31, 2021 is '' 431 (As at March 31, 2020: '' 511).
36. Segment information
The cEO & MD of the company has been identified as the chief Operating Decision Maker (cODM) as defined by Ind AS 108, Operating Segments. The cODM evaluates the company''s performance and allocates resources based on an analysis of various performance indicators by industry classes. Accordingly, segment information has been presented for industry classes.
The company is structured into four reportable business segments - RcM, BFSI, cMT and TH. The reportable business segments are in line with the segment wise information which is being presented to the cODM.
Each segment item reported is measured at the measure used to report to the chief Operating Decision Maker for the purposes of making decisions about allocating resources to the segment and assessing its performance.
Geographic information is based on business sources from that geographic region and delivered from both on-site and off-shore. The geographic regions comprise of North America, continental Europe, UK and Ireland and Asia Pacific (includes Rest of the World). For prior years, the geographic regions were classified as America comprising of United States of America and canada, Europe including continental Europe and United Kingdom; Rest of the world comprising of all other geographies except those mentioned above and India. Accordingly, the comparative numbers have been restated to give effect to the change in geographic information.
Income and direct expenses in relation to segments are categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Management therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as "unallocated" and directly charged against total income.
37. Total expenditure incurred on Corporate Social Responsibility (CSR) activities during the year ended March 31, 2021 is '' 80 (during the year ended March 31, 2020 is '' 343).
38. Non-current assets held for sale
The Company, in an earlier year, had entered into a lease arrangement with a lessor for lease of a piece of land for a period of 30 years. Also, the Company had purchased two buildings constructed by the lessor on the above referred land vide a separate purchase
agreement and capitalized in the books of account. During the previous year, the Company received a communication from the lessor wherein it is mentioned that the lessor would like to convert the existing lease into a regular commercial lease agreement and would like to refund the residual value of the deposits and the value of the buildings under the present agreements and enter into a fresh agreement. During the year, the company has completed the sale of the said buildings and termination of lease for the said land for a price equivalent to their written down values. Accordingly, the said buildings and the land have been derecognised. On entering into a regular commercial lease agreement, right-of-use asset and lease liability has been accounted in accordance with Ind As 116 ''Leases''. accordingly, the improvements made to buildings earlier has been reclassified to "leasehold improvements" (refer note 3 & 4).
39. The new Code on Social Security, 2020 (the Code) has been enacted, which would impact the contributions by the Company towards Provident Fund and Gratuity. The effective date from which the changes are applicable is yet to be notified. The Ministry of Labour and Employment (the Ministry) has released draft rules for the Code on November 13, 2020 and has invited suggestions from stake holders which are under active consideration by the Ministry. The Company will complete its evaluation and will give appropriate impact in its financial statements in the period in which the Code becomes effective and the related rules are published.
Mar 31, 2019
1. Operating lease
The Company has various operating leases, mainly for office buildings including land. Lease rental expense under such non-cancellable operating lease during the year ended March 31, 2019 amounted to '' 560 (For the year ended March 31, 2018 amounted to '' 400).
Additionally, the Company leases office facilities and residential facilities under cancellable operating leases. The rental expense under cancellable operating lease during the year ended March 31, 2019 amounted Rs, 661 (For the year ended March 31, 2018 amounted to Rs, 563).
The Company has sublet one of the leased premises. Lease rental income under such non-cancellable operating lease during the year ended March 31, 2019 amounted to Rs, 5 (For the year ended March 31, 2018 amounted to Rs, Nil).
The Management assessed that fair value of cash and short-term deposits, trade receivables, other current assets, trade payables, book overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
i) Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.
ii) The fair value of the quoted bonds and mutual funds are based on price quotations at reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value.
iii) Fair values of the Company''s interest-bearing borrowings and loans are determined by using Discounted Cash Flow (DCF) method using discount rate that reflects the issuer''s borrowing rate as at the end of the reporting period. The own non-performance risk as at March 31, 2019 was assessed to be insignificant.
iv) The fair values of the unquoted equity and preference shares have been estimated using a DCF model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility/ the probabilities of the various estimates within the range can be reasonably assessed and are used in management''s estimate of fair value for these unquoted equity investments.
v) The Company enters into derivative financial instruments with various counterparties, principally banks with investment grade credit ratings. Interest rate swaps, foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March 31, 2019 the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. 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.
2. Fair value hierarchy
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 table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2019, March 31, 2018 and April 1, 2017.
Quantitative disclosures of fair value measurement hierarchy for financial assets as at March 31, 2019:
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and forecasted cash flows denominated in foreign currency. The Company follows established risk management policies, including the use of derivatives to hedge foreign currency assets/ liabilities and foreign currency forecasted cash flows. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material.
The following table presents the aggregate contracted principal amounts of the Company''s derivative contracts outstanding:
3. Financial risk management
The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''s policy that no trading in derivative for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below:
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
Trade and other receivables
The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.
The following table gives details in respect of revenues generated from top customer and top 5 customers:
One customer accounted for more than 10% of the revenue for the year ended March 31, 2019, however none of the customers accounted for more than 10% of the receivables as at March 31, 2019. One customer accounted for more than 10% of the revenue for the year ended March 31, 2018, however none of the customers accounted for more than 10% of the receivables as at March 31, 2018.
Investments
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company
has unutilized credit limits with banks.
The Company''s corporate 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.
Foreign Currency risk
The Company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. Dollars, British Pound Sterling and Euros) and foreign currency borrowings (in U.S. Dollars). A significant portion of the Company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian Rupees. As a result, if the value of the Indian Rupee appreciates relative to these foreign currencies, the Company''s revenues measured in Rupees may decrease. The exchange rate between the Indian Rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company has a foreign currency advisory committee which meets on a periodic basis to formulate the strategy for foreign currency risk management.
Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward contracts are given under the derivative financial instruments section. In respect of the Company''s forward contracts, a 1% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately '' 36 increase and '' 36 decrease in the Company''s net profit as at March 31, 2019;
b) an approximately '' 14 increase and '' 41 decrease in the Company''s net profit as at March 31, 2018
The following table presents foreign currency risk from non-derivative financial instruments as of March 31, 2019, March 31, 2018 and April 1, 2017:
* Others include currencies such as Singapore $, Australian $, Canadian $, Japanese Yen, Malaysian Ringgit, etc.
For the year ended March 31, 2019, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the Company would impact operating margins by 0.2%/ (0.2)% respectively. For the year ended March 31, 2018, the impact on operating margins would be 0.2%/ (0.2)% respectively.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company''s exposure to the risk of changes in market interest rates relates primarily to the Company''s debt obligations with floating interest rates and investments.
The Company''s borrowings and investments are primarily short-term, which do not expose it to significant interest rate risk.
32. Capital management
The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company''s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
The Company is predominantly equity financed which is evident from the capital structure table. Further, the Company has always been a net cash company with cash and bank balances along with investment which is predominantly investment in liquid and short term mutual funds being far in excess of debt.
The amount outstanding are unsecured and will be settled in cash. No guarantee has been given or received.
Key Managerial Personnel:
Krishnakumar Natarajan Executive Chairman
Rostow Ravanan CEO and Managing Director
N.S. Parthasarathy1 Executive Vice Chairman, President and Chief Operating Officer
Subroto Bagchi Non-Executive Director
Apurva Purohit2 Independent Director
Manisha Girotra3 Independent Director
Prof. Pankaj Chandra4 Independent Director
Milind Sarwate Independent Director
Akshaya Bhargava Independent Director
Bijou Kurien5 Independent Director
V.G.Siddhartha6 Non-Executive Director
1 The Nomination and Remuneration Committee and the Board of Directors of the Company at their meeting held on October 17, 2018, have approved and recommended reappointment as Executive Vice Chairman for a period commencing from January 01,2019 to January 31,2021 and the same is approved by shareholders through Postal Ballot on December 17, 2018.
2 The Nomination and Remuneration Committee and the Board of Directors of the Company at their meeting held on October 17, 2018, have approved and recommended reappointment as Independent Director for a second term of five years commencing from January 01, 2019 to December 31, 2023 and the same is approved through shareholders by Postal Ballot on December 17, 2018.
3 Resigned on April 18, 2018
4 Retired on April 01, 2018
5 The Nomination and Remuneration Committee and the Board of Directors of the Company have approved and recommended the appointment of Bijou Kurien, as Independent director of the Company for a term of three years from July 17, 2018 to July 16, 2021 and the shareholders have approved the same at the Nineteenth Annual General meeting of the Company held on July 17, 2018.
6 Resigned on March 09, 2018
7 Resigned on July 20, 2018
8 Appointed with effect from September 24, 2018
Transactions with key managerial personnel
Dividends paid to directors during the year ended March 31, 2019 amounts to Rs, 162 and for the year ended March 31, 2018 amounts
to Rs, 235. Further, during the year ended March 31, 2019, 4,255 (March 31, 2018: 4,665) shares were allotted to the key management
personnel.
a) The Company has received income tax assessment order for financial years 2006-07 and 2007-08 for the erstwhile subsidiary Mindtree Technologies Private Limited (MTPL) with demands amounting to Rs, 11 and Rs, 10 respectively on account of certain disallowances/ adjustments made by income tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal against the demand received. The Company has not deposited the amount of demand with the department. The department has adjusted pending refunds amounting to Rs, 18 against these demands.
b) The Company has received income tax assessment order under Section 143(3) of the Income-Tax Act 1961 pertaining to erstwhile subsidiary Aztecsoft Limited for the financial years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2007-08 and 2008-09 wherein demand of Rs, 215, Rs, 49, Rs, 61, Rs, 28, Rs, 58, Rs, 214 and Rs, 63 respectively has been raised against the Company. These demands have arisen mainly on account of transfer pricing adjustments made in the order. The Company has not accepted these orders and has been advised by its legal counsel/ advisors to prefer appeals before appellate authorities and accordingly the Company has filed appeals before the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal (ITAT). The Company has deposited Rs, 15 with the department against these demands. The department has adjusted pending refunds amounting to Rs, 556 against these demands.
The Company received a favourable order from the Commissioner of Income Tax (Appeals) for the year 2001-02 where in the Commissioner of Income Tax (Appeals) accepted the Company''s contentions and quashed the demand raised. The income tax department appealed against the above mentioned order with ITAT. ITAT, in an earlier year passed an order setting aside both the orders of the Commissioner of Income Tax (Appeals) as well as the Assessing Officer and remanded the matter back to the Assessing Officer for re-assessment. The Company preferred an appeal with the Hon''ble High Court of Karnataka against the order of the ITAT. The Hon''ble High Court of Karnataka has dismissed the appeal filed against the order of ITAT and upheld the order passed by the ITAT and accordingly the case is pending before Assessing Officer for re-assessment. The Deputy Commissioner of Income Tax has completed the reassessment and has issued a Final assessment order with a revised demand amounting to '' 202 due to transfer pricing adjustments. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals).
The Company has received the order from the Commissioner of Income Tax (Appeals) for the year 2004-05 and on the unfavorable grounds, the Company has filed an appeal with ITAT, Bengaluru.
The Company has received the order from ITAT for the FY 2005-06 and ITAT has remanded the matter back to the Assessing Officer for re-assessment. The Company has filed an appeal with the Hon''ble High Court of Karnataka. The Hon''ble High Court has dismissed the appeal and this matter is pending with Assessing Officer.
The Company has received the order from ITAT for the FY 2007-08 and ITAT has quashed the order of the Assessing Officer. Order giving effect to the ITAT order is yet to be received.
The Company has received revised order for the FY 2008-09 under section 263 from Assessing Officer raising an additional demand of '' 61, taking the total demand to '' 124. The Company had filed an appeal before ITAT. Subsequently, the Company has received the order from ITAT for the FY 2008-09 and ITAT has quashed the order of the Assessing officer. Order giving effect to the ITAT order is yet to be received.
The Company has appealed against the demands received for financial years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. Based on favorable order received by the Company for the financial year 2001-02 from the Commissioner of Income Tax (Appeals) and an evaluation of the facts and circumstances, no provision has been made against the above orders in the financial statements.
c) The Company received an assessment order for financial year 2006-07 for the erstwhile subsidiary Mindtree Wireless Private Limited from the Assistant Commissioner of Income-tax (''ACIT'') with a demand amounting to '' 39 on account of certain other disallowances/ transfer pricing adjustments made by income tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals) against the demand received.
The Company has received the order from the Commissioner of Income Tax (Appeals) wherein the Commissioner of Income Tax (Appeals) accepted the grounds in part and in respect of unfavorable grounds, the Company has filed an appeal before ITAT. The final order giving effect by the Assessing Officer is completed and the demand is reduced to Rs, 33. The Company has deposited Rs, 5 with the department against this demand.
d) The Company has received the revised order under section 263 for financial year 2009-10 from Assessing Officer reducing the demand to '' 6. The Company has filed an appeal before ITAT. ITAT has dismissed the appeal. Order giving effect has been received. The Company has filed an appeal before Commissioner of Income Tax (Appeals).
e) The Company has received a final assessment order for financial year 2012-13 from the Deputy Commissioner of Income Tax with a demand amounting to '' 15 on account of certain disallowances. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals).
f) During the year ended March 31, 2018, the Company received an order passed under section 7A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 from Employees Provident Fund Organization (EPFO) claiming provident fund contribution aggregating to '' 250 on (a) full salary paid to International Workers and (b) special allowance paid to employees. Based on a legal advice obtained, the Company has assessed that it has a legitimate ground for appeal, and has contested the order by filing an appeal with the Employees'' Provident Funds Appellate Tribunal.
4. Capital commitments
Estimated amount of contracts remaining to be executed on capital account and not provided for as at March 31, 2019 is Rs, 843 (As at March 31, 2018: Rs, 450 and As at April 1, 2017: Rs, 242).
5. a) The Board of Directors at its meeting held on October 06, 2017, had approved the Scheme of Amalgamation ("the Scheme") of its wholly owned subsidiary, Magnet 360, LLC ("Magnet") ("Transferor Company") with Mindtree Limited ("Transferee Company") with an appointed date of April 01, 2017. The Company had filed an application with the National Company Law Tribunal (NCLT), Bengaluru Bench. The Scheme has been approved by NCLT during the year ended March 31, 2019 vide order dated November 29, 2018 and the effect of the Scheme has been given in these financial statements. The amalgamation has been accounted under the pooling of interests'' method based on the carrying value of the assets and liabilities of Magnet as included in the consolidated Balance Sheet of the Company as at the earliest period presented.
* Magnet was in the business of Information Technology services.
b) During the year ended March 31, 2018, the Reserve Bank of India approved the proposal to transfer the business and net assets ("the Scheme") of the Company''s wholly owned subsidiary, Bluefin Solutions Limited, UK (''Bluefin'') to the Company against the cancellation and extinguishment of the Company''s investment in Bluefin. Further, the National Company Law Tribunal (NCLT) approved the Composite Scheme of Amalgamation ("the Scheme'''') of Discoverture Solutions LLC (''Discoverture'') and Relational Solutions Inc., wholly owned subsidiaries of the Company (together "the Transferor Companies"), with the Company with an appointed date of April 1, 2015. Both of these schemes were accounted under the ''pooling of interests'' method based on the carrying value of the assets and liabilities of the said entities as included in the consolidated Balance Sheet of the Company for the comparative periods.
Since both the above transactions results in a common control business combination, considering the requirements of Ind AS 103 -Business Combinations, the accounting for the above transactions have been given effect retrospectively by the Company. Accordingly, the financial statements for the corresponding periods in 2017-18 and year ended March 31, 2018 as well as the opening balances as of April 1, 2017 have been restated to give effect to the above Schemes.
7. Segment information
The CEO & MD of the Company has been identified as the Chief Operating Decision Maker (CODM) as defined by Ind AS 108, Operating Segments. The CODM evaluates the Company''s performance and allocates resources based on an analysis of various performance indicators by industry classes. Accordingly, segment information has been presented for industry classes.
The Company is structured into four reportable business segments - RCM, BFSI, Hi-tech and TH. The reportable business segments are in line with the segment wise information which is being presented to the CODM.
Each segment item reported is measured at the measure used to report to the Chief Operating Decision Maker for the purposes of making decisions about allocating resources to the segment and assessing its performance.
Geographic information is based on business sources from that geographic region and delivered from both on-site and off-shore. America comprises of United States of America and Canada, Europe includes continental Europe and United Kingdom; the Rest of the world comprises of all other geographies except those mentioned above and India.
Income and direct expenses in relation to segments are categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Management therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as "unallocated" and directly charged against total income.
CODM does not review assets and liabilities at reportable segments level, hence segment disclosure relating to total assets and liabilities has not been provided. Geographical information on revenue and industry revenue information is collated based on individual customer invoices or in relation to which the revenue is otherwise recognized.
Note:
Management believes that it is currently not practicable to provide disclosure of assets by geographical location, as meaningful segregation of the available information is onerous.
Please refer to Note No. 31 on Financial risk management for information on revenue from major customers.
8. Total of expenditure incurred on Corporate Social Responsibility activities during the year ended March 31, 2019 is Rs, 150 (during the year ended March 31, 2018 is Rs, 124).
9. Dues to micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an office memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum in accordance with the ''Micro, Small and Medium Enterprises Development Act, 2006'' (''the Act''). Accordingly, the disclosure in respect of the amounts payable to such enterprises as at March 31, 2019 and March 31, 2018 has been made in the financial statements based on information received and available with the Company. Further in view of the Management, the impact of interest, if any, that may be payable in accordance with the provisions of the Act is not expected to be material. The Company has not received any claim for interest from any supplier as at the balance sheet date.
10. The standalone financial statements are presented in Rs,in million. Those items which are required to be disclosed
Mar 31, 2018
* Refer Note 32
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash generating units (CGU) or groups of CGU''s, which benefit from the synergies of the acquisition. The chief operating decision maker reviews the goodwill for any impairment at the operating segment level, which is represented through groups of CGU''s.
The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. The fair value of a CGU is determined based on the market capitalization. The value-in-use is determined based on specific calculations. These calculations use pre tax cash flow projections over a period of five years, based on financial budgets approved by management and an average of the range of each assumption mentioned below.
* Refer note 9 (e)
c) The Company has only one class of shares referred to as equity shares having a par value of '' 10 each.
T erms/rights attached to equity shares
Each holder of the equity share, as reflected in the records of the Company as of the date of the shareholder meeting, is entitled to one vote in respect of each share held for all matters submitted to vote in the shareholders meeting.
The Company declares and pays dividends in Indian rupees and foreign currency. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company after distribution of all preferential amounts. However, no such preferential amounts exist currently. The distribution will be in proportion to the number of equity shares held by the shareholders.
e) In the period of five years immediately preceding March 31, 2018:
i) The Company has allotted 83,893,088 and 41,765,661 fully paid up equity shares during the quarter ended March 31, 2016 and June 30, 2014 respectively, pursuant to 1:1 bonus share issue approved by shareholders. Consequently, options/ units granted under the various employee share based plans are adjusted for bonus share issue.
ii) Pursuant to the approval of the Board and the Administrative Committee at its meetings held on June 28, 2017 and July 20, 2017 respectively, the Company bought back 4,224,000 equity shares of '' 10 each on a proportionate basis, at a price of '' 625 per equity share for an aggregate consideration of '' 2,640 (Rupees Two thousand six hundred and forty million only), and completed the extinguishment of the equity shares bought back. Capital redemption reserve has been created to the extent of nominal value of share capital extinguished amounting to '' 42 million. The buyback and creation of capital redemption reserve was effected by utilizing the securities-premium and free reserves.
iii) The Company has not allotted any equity shares as fully paid up without payment being received in cash.
f) Employee stock based compensation
The Company instituted the Employees Stock Option Plan (''ESOP'') in fiscal year 2000, which was approved by the Board of Directors (''the Board''). The Company currently administers seven stock option programs, a restricted stock purchase plan and a phantom stock option plan. Program 1 [ESOP 1999]
This plan was terminated on September 30, 2001 and there are no options outstanding as at March 31, 2018, March 31, 2017 and April 1, 2016.
Program 2 [ESOP 2001]
Options under this program have been granted to employees at an exercise price of '' 50 per option ('' 12.5 per option post bonus issue). All stock options have a four-year vesting term and vest and become fully exercisable at the rate of 15%, 20%, 30% and 35% at the end of 1, 2, 3 and 4 years respectively from the date of grant. Each option is entitled to 1 equity share of '' 10 each. This program extends to employees who have joined on or after October 1, 2001 or have been issued employment offer letters on or after August 8, 2001 or options granted to existing employees with grant date on or after October 1, 2001. This plan was terminated on April 30, 2006. The contractual life of each option is 11 years after the date of grant.
Program 3 [ESOP 2006 (a)]
This plan was terminated on October 25, 2006 and there are no options outstanding as at March 31, 2018, March 31, 2017 and April 1, 2016.
Program 4 [ESOP 2006 (b)]
Options under this program are granted to employees at an exercise price periodically determined by the Nomination and Remuneration Committee. All stock options have a four-year vesting term and vest and become fully exercisable at the rate of 15%, 20%, 30% and 35% at the end of 1, 2, 3 and 4 years respectively from the date of grant. Each option is entitled to 1 equity share of '' 10 each. This program extends to employees to whom the options are granted on or after October 25, 2006. The contractual life of each option is 5 years after the date of grant. There are no outstanding options as at March 31, 2018, March 31, 2017 and April 1, 2016.
Program 5 [ESOP 2008A]
Options under this program were granted to employees of erstwhile Aztecsoft Limited as per swap ratio of 2:11 as specified in the merger scheme. Each new option is entitled to 1 equity share of '' 10 each.
Directors'' Stock Option Plan, 2006 (''DSOP 2006'')
Options under this program have been granted to independent directors at an exercise price periodically determined by the Nomination and Remuneration Committee. All stock options vest and become fully exercisable equally over three year vesting term at the end of 1, 2 and 3 years respectively from the date of the grant. Each option is entitled to 1 equity share of '' 10 each. The contractual life of each option is 4 years after the date of the grant.
Program 7 [ESOP 2010A]
In-principle approvals for administering the seventh stock option program i.e. ESOP 2010A have been received by the Company from the BSE and NSE for 1,135,000 equity shares of Rs, 10 each. No options have been granted under the program as at March 31, 2018, March 31, 2017 and April 1, 2016.
Employee Restricted Stock Purchase Plan 2012 (''ERSP 2012'')
ERSP 2012 was instituted with effect from July 16, 2012 to issue equity shares of nominal value of Rs, 10 each. Shares under this program are granted to employees at an exercise price of not less than Rs, 10 per equity share or such higher price as determined by the Nomination and Remuneration Committee. Shares shall vest over such term as determined by the Nomination and Remuneration Committee not exceeding ten years from the date of the grant. All shares will have a minimum lock in period of one year from the date of allotment.
* Based on Letter of Intent
** Does not include direct allotment of shares
The following tables summarize information about the options/ shares outstanding under various programs as at March 31, 2018, March 31,
2017 and April 1, 2016 respectively:
10.1 Distributions made and proposed
The amount of per share dividend recognized as distributions to equity shareholders for the year ended March 31, 2018 and year ended March 31, 2017 was Rs, 9 and Rs, 10 respectively.
The Board of Directors at its meeting held on April 20, 2017 had recommended a final dividend of 30% (Rs, 3 per equity share of par value Rs, 10 each). The proposal was approved by shareholders at the Annual General Meeting held on July 18, 2017. This has resulted in a cash outflow of Rs, 607 inclusive of dividend distribution tax of Rs, 103. The Board of Directors at its meeting held on October 25, 2017 had declared an interim dividend of 20% (Rs, 2 per equity share of par value Rs, 10 each) and special dividend of 20% (Rs, 2 per equity share of par value Rs, 10 each) due to completion of ten years of Initial Public Offering (IPO). Also, the Board of Directors at its meeting held on
January 17, 2018 had declared an interim dividend of 20% (Rs, 2 per equity share of par value Rs, 10 each). The aforesaid interim and special dividends were paid during the year.
The Board of Directors at its meeting held on April 18, 2018, have declared an interim dividend of 20% (Rs, 2 per equity share of par value Rs, 10 each) and recommended a final dividend of 30% (Rs, 3 per equity share of par value Rs, 10 each) which is subject to approval of shareholders.
* Unsecured long term borrowings represent the amount received from Council for Scientific and Industrial Research (CSIR) to develop a project under"Development of Intelligent Video Surveillance Server (IVSS) system".
The loan is an unsecured loan carrying a simple interest of 3% p.a on the outstanding amount of loan. Repayment of loan is in 10 equal annual installments from June 2011. Any delay in repayment entails a liability of 12% p.a. compounded monthly for the period of delay. The loan carries an effective interest rate of 3% p.a and is repayable in full in June 2021. There is no default in the repayment of the principal loan and interest amounts.
* During the year, the Company has obtained working capital loan of Rs, 3,000from HDFC Bank.
**Other loans from bank (unsecured) represent the commercial paper offering from HDFC Bank obtained during the previous year ended March
31, 2017 and the same was repaid during the year.
* The details of interest rates, repayment and other terms are disclosed under note 11.1 and 13.1 ** Represents interim dividend declared on March 27, 2017 and March 23, 2016
* Refer note 18 for details of gratuity plan as per Ind A5 19.
** Includes deferred revenue arising from Government grant as at March 31, 2018 Rs, Nil (As at March 31, 2017 Rs, 10 and April 1, 2016 Rs, 10).
* Represents disputed tax dues provided pursuant to unfavourable order received from the tax authorities against which the Company has preferred an appeal with the relevant authority. In respect of the provisions of Ind A5 37, the disclosures required have not been provided pursuant to the limited exemption provided under paragraph 92 of Ind A5 37.
The disclosure of provisions movement as required under the provisions of Ind AS 37 is as follows:-Provision for post contract support services
Provision for post contract support services represents cost associated with providing sales support services which are accrued at the time of recognition of revenues and are expected to be utilized within a period of 1 year.
Provision for discount
Provision for discount are for volume discounts and pricing incentives to customers accounted for by reducing the amount of revenue recognized at the time of sale.
Provision for foreseeable losses on contracts
Provision for foreseeable losses on contracts represents excess of estimated cost over the future revenues to be recognized and expected to be utilized within a period of one year
The Company has units at Bengaluru, Hyderabad, Chennai and Bhubaneshwar registered as Special Economic Zone (SEZ) units which are entitled to a tax holiday under Section 10AA of the Income Tax Act, 1961.
The Company also has STPI units at Bengaluru and Pune which are registered as a 100 percent Export Oriented Unit, which were earlier entitled to a tax holiday under Section 10B and Section 10A of the Income Tax Act, 1961.
A substantial portion of the profits of the CompanyRs,s India operations are exempt from Indian income taxes being profits attributable to export operations from undertakings situated in Special Economic Zone (SEZ). Under the Special Economic Zone Act, 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.
Dividend income from certain category of investments is exempt from tax. The difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax.
Pursuant to the changes in the Indian income tax laws in fiscal 2007, Minimum Alternate Tax (MAT) has been extended to income in respect of which deduction is claimed under the tax holiday schemes discussed above; 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 is also subject to tax on income attributable to its permanent establishments in foreign jurisdictions due to operation of its foreign branches.
* Includes net gain on disposal of property, plant and equipment for the year ended March 31, 2018 Rs, 6. (For the year ended March 31, 2017 Rs, 9) and also includes income from Government grants for the year ended March 31, 2018 Rs, 10. (For the year ended March 31, 2017 Rs, 10)
** During the year ended March 31, 2018, the Company has written back earn out payable towards acquisition of business to the erstwhile shareholders of Bluefin 5olutions Limited, Relational 5olutions Inc. and Magnet 360 LLC amounting to Rs, 916.
* includes contribution to defined contribution plans for the year ended March 31, 2018 Rs, 1,943. (For the year ended March 31, 2017 Rs, 1,757)
The estimates of future salary increases, considered in actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.
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 following table sets out the status of the gratuity plan.
The Company expects to contribute Rs, 116 to its defined benefit plans during the next fiscal year.
As at March 31, 2018, March 31, 2017 and April 1, 2016, 100% of the plan assets were invested in insurer managed funds.
The Company has established an income tax approved irrevocable trust fund to which it regularly contributes to finance 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.
Additionally, the Company leases office facilities and residential facilities under cancellable operating leases. The rental expense under cancellable operating lease during the year ended March 31, 2018 amounted to Rs, 546. (For the year ended March 31, 2017 amounted to Rs,438.)
The management assessed that fair value of cash and short-term deposits, trade receivables, trade payables, book overdrafts and other
current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
i) Long-term fixed-rate receivables/borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.
ii) The fair value of the quoted bonds and mutual funds are based on price quotations at reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value.
iii) Fair values of the Company''s interest-bearing borrowings and loans are determined by using Discounted Cash Flow (''DCF'') method using discount rate that reflects the issuer''s borrowing rate as at the end of the reporting period. The own non- performance risk as at March 31, 2018 was assessed to be insignificant.
iv) The fair values of the unquoted equity and preference shares have been estimated using a DCF model. The valuation requires
management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility, the probabilities of the various estimates within the range can be reasonably assessed and are used in management''s estimate of fair value for these unquoted equity investments.
v) The Company enters into derivative financial instruments with various counterparties, principally banks with investment grade credit ratings. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing model, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March 31, 2018, the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognized at fair value.
28. Fair value hierarchy
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 table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring
basis as at March 31, 2018, March 31, 2017 and April 1, 2016.
Derivative financials instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace.
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and forecasted cash flows denominated in foreign currency. The Company follows established risk management policies, including the use of derivatives to hedge foreign currency assets/ liabilities and foreign currency forecasted cash flows. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material.
29. Financial risk management
The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''s policy that no trading in derivative for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
Trade and other receivables
The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.
One customer accounted for more than 10% of the revenue for the year ended March 31, 2018, however none of the customers accounted for more than 10% of the receivables as at March 31, 2018. One customer accounted for more than 10% of the revenue for the year ended March 31, 2017, however none of the customers accounted for more than 10% of the receivables as at March 31, 2017.
Investments
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks.
The Company''s corporate 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.
Foreign Currency risk
The Company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. Dollars, British Pound Sterling and Euros) and foreign currency borrowings (in U.S. Dollars). A significant portion of the Company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian Rupees. As a result, if the value of the Indian Rupee appreciates relative to these foreign currencies, the Company''s revenues measured in Rupees may decrease. The exchange rate between the Indian Rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company has a foreign currency advisory committee which meets on a periodic basis to formulate the strategy for foreign currency risk management.
Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward contracts are given under the derivative financial instruments section. In respect of the Company''s forward contracts, a 1% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately Rs, 14 increase and Rs, 41 decrease in the Company''s net profit as at March 31, 2018;
b) an approximately Rs, 52 increase and Rs, 22 increase in the Company''s net profit as at March 31, 2017
The following table presents foreign currency risk from non-derivative financial instruments as of March 31, 2018, March 31, 2017 and April 1, 2016.
* Others include currencies such as Singapore $, Australian $, Canadian $, Japanese Yen, Malaysian Ringgit, etc.
* Others include currencies such as Singapore $, Australian $, Canadian $, Japanese Yen, Malaysian Ringgit, etc.
For the year ended March 31, 2018, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the Company would impact operating margins by 0.2%/ (0.2)% respectively. For the year ended March 31, 2017, the impact on operating margins would be 0.2%/(0.2)% respectively.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company''s exposure to the risk of changes in market interest rates relates primarily to the Company''s debt obligations with floating interest rates and investments.
The Company''s borrowings and investments are primarily short-term, which do not expose it to significant interest rate risk.
30. Capital management
The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company''s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
The Company is predominantly equity financed which is evident from the capital structure table. Further, the Company has always been a net cash Company with cash and bank balances along with investment which is predominantly investment in liquid and short term mutual funds being far in excess of debt.
2 Retired on April 01, 2018
3 Resigned on March 09, 2018
4 Resigned on April 18, 2018
Transactions with key management personnel
Dividends paid to directors during the year ended March 31, 2018 amounts to '' 235 and for the year ended March 31, 2017 amounts to '' 222. Further, during the year ended March 31, 2018, 4,665 shares were allotted to the key management personnel.
* The above post employment benefits excludes gratuity and compensated absences which cannot be separately identified from the composite amount advised by the actuary.
32. The Board of Directors at its meeting held on October 06, 2017, have approved the Scheme of Amalgamation ("the Scheme") of its wholly owned subsidiary, Magnet 360, LLC ("Transferor Company") with Mindtree Limited ("Transferee Company") with an appointed date of April
01, 2017. During the year, the Company has filed an application with the National Company Law Tribunal (NCLT), Bengaluru Bench. Pending the required approvals, the effect of the Scheme has not been given in the financial statements.
During the quarter ended September 30, 2017, the Reserve Bank of India approved the proposal to transfer the business and net assets ("the Scheme") of the Company''s wholly owned subsidiary, Bluefin Solutions Limited, UK (''Bluefin'') to the Company against the cancellation and extinguishment of the Company''s investment in Bluefin. The Company has given effect to this scheme during the quarter ended September 30, 2017 and has accounted it under the ''pooling of interests'' method based on the carrying value of the assets and liabilities of Bluefin as included in the consolidated Balance Sheet of the Company for the comparative periods.
During the quarter ended June 30, 2017, the National Company Law Tribunal (NCLT) approved the Composite Scheme of Amalgamation ("the Scheme'''') of Discoverture Solutions L.L.C. (''Discoverture'') and Relational Solutions Inc., wholly owned subsidiaries of the Company (together "the Transferor Companies"), with the Company with an appointed date of April 1, 2015. The Company has given effect to the Scheme during the quarter ended June 30, 2017 and the merger has been accounted under the ''pooling of interests'' method based on the carrying value of the assets and liabilities of the Transferor Companies as included in the consolidated Balance Sheet of the Company as at the beginning of April 1, 2015.
Since both the above transactions result in a common control business combination, considering the requirements of Ind AS 103 - Business Combinations, the accounting for the transactions has been given effect retrospectively by the Company. Accordingly, the financial statements for the corresponding periods in 2016-17 and year ended March 31, 2017 have been restated to give effect to the above Schemes.
* The subsidiaries of the Company were in to the business of Information Technology services.
33. Contingent liabilities
a) The Company has received income tax assessment order for financial years 2006-07 and 2007-08 for the erstwhile subsidiary Mindtree Technologies Private Limited (MTPL) with demands amounting to Rs, 11 and Rs, 10 respectively on account of certain disallowances/ adjustments made by Income Tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal against the demand received. The Company has not deposited the amount of demand with the department. The department has adjusted pending refunds amounting to Rs, 18 against these demands.
b) The Company has received income tax assessment order under Section 143(3) of the Income-Tax Act, 1961 pertaining to erstwhile subsidiary Aztecsoft Limited for the financial years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 200809 wherein demand of Rs, 215, Rs, 49, Rs, 61, Rs, 28, Rs, 58, Rs, 119, Rs, 214 and Rs, 63 respectively has been raised against the Company. These demands have arisen mainly on account of transfer pricing adjustments made in the order. The Company has not accepted these orders and has been advised by its legal counsel/ advisors to prefer appeals before appellate authorities and accordingly the Company has filed appeals before the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal (ITAT). The Company has deposited Rs, 15 with the department against these demands. The department has adjusted pending refunds amounting to Rs, 563 against these demands.
The Company received a favourable order from the Commissioner of Income Tax (Appeals) for the year 2001-02 where in the Commissioner of Income Tax (Appeals) accepted the Company''s contentions and quashed the demand raised. The income tax department appealed against the above mentioned order with ITAT. ITAT, in an earlier year passed an order setting aside both the orders of the Commissioner of Income Tax (Appeals) as well as the Assessing Officer and remanded the matter back to the Assessing Officer for re-assessment. The Company preferred an appeal with the Hon''ble High Court of Karnataka against the order of the ITAT. The Hon''ble High Court of Karnataka has dismissed the appeal filed against the order of ITAT and upheld the order passed by the ITAT and accordingly the case is pending before Assessing Officer for re-assessment. The Deputy Commissioner of Income Tax has completed the reassessment and has issued a Final assessment order with a revised demand amounting to '' 202 due to transfer pricing adjustments. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals).
The Company has received the order from the Commissioner of Income Tax (Appeals) for the year 2004-05 and on the unfavorable grounds, the Company has filed an appeal with ITAT, Bengaluru.
The Company has received the order from ITAT for the FY 2005-06 and ITAT has remanded the matter back to the Assessing Officer for re-assessment. The Company has filed an appeal with Hon''ble High Court of Karnataka. The Hon''ble High Court has dismissed the appeal and this matter is pending with Assessing Officer.
The Company has received the order from ITAT for the FY 2006-07 and ITAT has remanded the matter back to the Assessing Officer for re-assessment. The Transfer Pricing Officer has passed the favorable order. Order giving effect to the ITAT order is received and demand is Nil.
The Company has received the order from ITAT for the FY 2007-08 and ITAT has quashed the order of the Assessing Officer. Order giving effect to the ITAT order is yet to be received.
The Company has received revised order for the FY 2008-09 under section 263 from Assessing Officer raising an additional demand of Rs, 61, taking the total demand to Rs, 124. The Company has filed an appeal before ITAT. The order giving effect to the said order has been received and appeal is filed with Commissioner Appeals. The Company has received the order from ITAT for the FY 2008-09 and ITAT has quashed the order of the Assessing Officer. Order giving effect to the ITAT order is yet to be received.
The Company has appealed against the demands received for financial years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. Based on favourable order received by the Company for the financial year 2001-02 from the Commissioner of Income Tax (Appeals) and an evaluation of the facts and circumstances, no provision has been made against the above orders in the financial statements.
c) The Company received an assessment order for financial year 2006-07 for the erstwhile subsidiary Mindtree Wireless Private Limited from the Assistant Commissioner of Income-tax (''ACIT'') with a demand amounting to Rs, 39 on account of certain other disallowances/ transfer pricing adjustments made by Income Tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals) against the demand received.
The Company has received the order from the Commissioner of Income Tax (Appeals) wherein the Commissioner of Income Tax (Appeals) accepted the grounds in part and in respect of unfavorable grounds, the Company has filed an appeal before ITAT. The final order giving effect by the Assessing Officer is completed and the demand is reduced to Rs, 33. The Company has deposited Rs, 5 with the department against this demand.
d) The Company has received the revised order under section 263 for financial year 2009-10 from Assessing Officer reducing the demand to Rs, 6. The Company has filed an appeal before ITAT. ITAT has dismissed the appeal. Order giving effect has been received. The Company has filed an appeal before Commissioner of Income Tax (Appeals).
e) The Company has received a final assessment order for financial year 2012-13 from the Deputy Commissioner of Income Tax with a demand amounting to Rs, 15 on account of certain disallowances. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals).
f) During the period, the Company received an order passed under section 7A of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 from Employees Provident Fund Organization (EPFO) claiming provident fund contribution aggregating to Rs, 250 on
(a) full salary paid to International Workers and (b) special allowance paid to employees. Based on a legal advice obtained, the Company has assessed that it has a legitimate ground for appeal, and has contested the order by filing an appeal with the Employees'' Provident Funds Appellate Tribunal.
34. Capital commitments
Estimated amount of contracts remaining to be executed on capital account and not provided for as at March 31, 2018 is Rs, 450 (March 31, 2017: Rs, 242 and April 1, 2016: Rs, 262).
35. Segmental reporting
The CEO & MD of the company has been identified as the Chief Operating Decision Maker (CODM) as defined by Ind AS 108, Operating Segments. The CODM evaluates the Company''s performance and allocates resources based on an analysis of various performance indicators by industry classes. Accordingly, segment information has been presented for industry classes.
The Company is structured into four reportable business segments - RCM, BFSI, TMS and TH. The reportable business segments are in line with the segment wise information which is being presented to the CODM.
Each segment item reported is measured at the measure used to report to the chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance.
Geographic information is based on business sources from that geographic region and delivered from both on-site and off-shore. America comprises of United States of America and Canada, Europe includes continental Europe and United Kingdom; the rest of the world comprises of all other geographies except those mentioned above and India.
Income and direct expenses in relation to segments are categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The management therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as "unallocated" and directly charged against total income.
CODM does not review assets and liabilities at reportable segments level hence segment disclosure relating to total assets and liabilities has not been provided.
Geographical information on revenue and industry revenue information is collated based on individual customer invoices or in relation to which the revenue is otherwise recognized.
Note:
Management believes that it is currently not practicable to provide disclosure of assets by geographical location, as meaningful segregation of the available information is onerous.
Please refer to Note 29 on Financial Instruments for information on revenue from major customers.
36. Total of expenditure incurred on Corporate Social Responsibility activities during the year ended March 31, 2018 is '' 124 (during the year ended March 31, 2017 is '' 109).
37. Dues to micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an office memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum in accordance with the ''Micro, Small and Medium Enterprises Development Act, 2006'' (''the Act'').
Accordingly, the disclosure in respect of the amounts payable to such enterprises as at March 31, 2018 has been made in the financial statements based on information received and available with the Company. Further in view of the Management, the impact of interest, if any, that may be payable in accordance with the provisions of the Act is not expected to be material. The Company has not received any claim for interest from any supplier as at the balance sheet date.
38. The financial statements are presented in '' million. Those items which are required to be disclosed and which were not presented in the financial statements due to rounding off to the nearest '' million are as follows:
* Payable to NuvePro Technologies Private Limited as at March 31, 2018 is Rs, 56,413 (As at March 31, 2017: Rs, Nil).
Mar 31, 2017
1. Company overview
Mindtree Limited (âMindtreeâ or âthe Companyâ) is an international Information Technology consulting and implementation company that delivers business solutions through global software development. The Company is structured into four industry verticals - Retail, CPG and Manufacturing (RCM), Banking, Financial Services and Insurance (BFSI), Technology, Media and Services (TMS) and Travel and Hospitality (TH). The Company offers services in the areas of agile, analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, digital business, independent testing, infrastructure management services, mobility, product engineering and SAP services.
The Company is a public limited company incorporated and domiciled in India and has its registered office at Bengaluru, Karnataka, India and has offices in India, United States of America, United Kingdom, Japan, Singapore, Malaysia, Australia, Germany, Switzerland, Sweden, South Africa, UAE, Netherlands, Canada, Belgium, France, Ireland, Poland and Republic of China. The Company has its primary listings on the Bombay Stock Exchange and National Stock Exchange in India. The financial statements were authorized for issuance by the Companyâs Board of Directors on April 20, 2017.
2.1 Distributions made and proposed
The amount of per share dividend recognized as distributions to equity shareholders for the year ended March 31, 2017, year ended March 31, 2016 and March 31, 2015 was Rs.10 , Rs.23 and Rs.17 respectively.
The Board of Directors at its meeting held on April 18, 2016 had recommended a final dividend of 30% ( Rs.3 per equity share of par value Rs.10 each). The proposal was approved by shareholders at the Annual General Meeting held on July 19, 2016, this has resulted in a cash outflow of Rs.589, inclusive of dividend distribution tax of Rs.86. Also, the Board of Directors at its meeting held on October 21, 2016, January 19, 2017 and March 27, 2017 had declared an interim dividend of 30% (Rs.3 per equity share of par value of Rs.10 each) for the quarter ended September 30, 2016, 20% (Rs.2 per equity share of par value of Rs.10 each) for the quarter ended December 31, 2016 and 20% (Rs.2 per equity share of par value of Rs.10 each) for the quarter ended March 31, 2017. Further, the Board of Directors at its meeting held on April 20, 2017 have recommended a final dividend of 30% (Rs.3 per equity share of par value Rs.10 each) which is subject to approval of shareholders. If approved, this would result in a cash outflow of approximately Rs.607, inclusive of dividend distribution tax.
The loan is an unsecured loan carrying a simple interest of 3% p.a on the outstanding amount of loan. Repayment of loan is in 10 equal annual installments from June 2011. Any delay in repayment entails a liability of 12% p.a. compounded monthly for the period of delay. The loan carries an effective interest rate of 3% p.a and is repayable in full on June 2021. There is no default in the repayment of the principal loan and interest amounts.
The Company has units at Bengaluru, Hyderabad, Chennai and Bhubaneshwar registered as Special Economic Zone (SEZ) units which are entitled to a tax holiday under Section 10AA of the Income Tax Act, 1961.
The Company also has STPI units at Bengaluru and Pune which are registered as a 100 percent Export Oriented Unit, which were earlier entitled to a tax holiday under Section 10B and Section 10A of the Income Tax Act, 1961.
A substantial portion of the profits of the Companyâs India operations are exempt from Indian income taxes being profits attributable to export operations from undertakings situated in Special Economic Zone (SEZ). Under the Special Economic Zone Act, 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.
Dividend income from certain category of investments is exempt from tax. The difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax.
Pursuant to the changes in the Indian income tax laws in fiscal 2007, Minimum Alternate Tax (MAT) has been extended to income in respect of which deduction is claimed under the tax holiday schemes discussed above; 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 is also subject to tax on income attributable to its permanent establishments in foreign jurisdictions due to operation of its foreign branches.
3. Operating lease
The Company has various operating leases, mainly for office buildings including land. Lease rental expense under non-cancellable operating lease during the year ended March 31, 2017 amounted to Rs.400 (for the year ended March 31, 2016: Rs.460). Future minimum lease payments under non-cancellable operating lease are as below:
4. Financial instruments
The carrying value and fair value of financial instruments by categories as at March 31, 2017, March 31, 2016 and April 1, 2015 is as follows:
The management assessed that fair value of cash and short-term deposits, trade receivables, trade payables, book overdrafts and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
i) Long-term fixed-rate receivables/borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.
ii) The fair value of the quoted bonds and mutual funds are based on price quotations at reporting date. The fair value of unquoted instruments , loans from banks and other financial liabilities, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value.
iii) Fair values of the Companyâs interest-bearing borrowings and loans are determined by using DCF method using discount rate that reflects the issuerâs borrowing rate as at the end of the reporting year. The own non-performance risk as at March 31, 2017 was assessed to be insignificant.
iv) The fair values of the unquoted equity and preference shares have been estimated using a discounted cash flow model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility, the probabilities of the various estimates within the range can be reasonably assessed and are used in managementâs estimate of fair value for these unquoted equity investments.
v) The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing model, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March31, 2017, the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognised at fair value.
5. Fair value hierarchy
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 table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2017, March 31, 2016 and April 1, 2015.
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and forecasted cash flows denominated in foreign currency. The Company follows established risk management policies, including the use of derivatives to hedge foreign currency assets/ liabilities and foreign currency forecasted cash flows. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material.
6. Financial risk management
The Companyâs activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Companyâs primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Companyâs policy that no trading in derivative for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companyâs receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
Trade and other receivables
The Companyâs exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.
One customer accounted for more than 10% of the revenue for the year ended March 31, 2017, however none of the customers accounted for more than 10% of the receivables for the year ended March 31, 2017. One customer accounted for more than 10% of the revenue for the year ended March 31, 2016, however none of the customers accounted for more than 10% of the receivables for the year ended March 31, 2016.
Investments
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks.
The Companyâs corporate 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.
Foreign Currency risk
The Companyâs exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. dollars, British pound sterling and euros) and foreign currency borrowings (in U.S. dollars). A significant portion of the Companyâs revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Companyâs revenues measured in rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company has a foreign currency advisory committee which meets on a periodic basis to formulate the strategy for foreign currency risk management.
Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward contracts are given under the derivative financial instruments section. In respect of the Companyâs forward contracts, a 1% decrease/ increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately Rs.52 increase and Rs.22 decrease in the Companyâs net profit as at March 31, 2017;
b) an approximately Rs.50 increase and Rs.25 decrease in the Companyâs net profit as at March 31, 2016
For the year ended March 31, 2017, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the Company would impact operating margins by 0.2%/ (0.3)%. For the year ended March 31, 2016, the impact on operating margins would be 0.2%/ (0.3)%.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companyâs exposure to the risk of changes in market interest rates relates primarily to the Companyâs debt obligations with floating interest rates and investments. The Companyâs borrowings and investments are primarily short-term, which do not expose it to significant interest rate risk.
7. Capital management
The Companyâs policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Companyâs objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
The Company is predominantly equity financed which is evident from the capital structure table. Further, the Company has always been a net cash Company with cash and bank balances along with investment which is predominantly investment in liquid and short term mutual funds being far in excess of debt.
8. The Company had filed an application before the Honâble High Court of Karnataka for a composite scheme of amalgamation (âthe schemeâ) of Discoverture Solutions L.L.C. and Relational Solutions Inc., wholly owned subsidiaries of the Company, with the Company with an appointed date of April 1, 2015. Pursuant to the notification of certain sections of the Companies Act, 2013 on amalgamation, the application has been transferred to the National Company Law Tribunal (NCLT). Pending requisite approvals, no effect has been given for the scheme in the financial statements.
The Board of Directors at its meeting held on January 19, 2017 has approved the proposal to transfer the business and net assets of its wholly owned subsidiary, Bluefin Solutions Limited (âBluefinâ) to Mindtree against the cancellation and extinguishment of Mindtreeâs investment in Bluefin. This is subject to the approval of Reserve Bank of India (RBI) and other statutory authorities, as may be required.
9. Contingent liabilities
a) The Company has received an income tax assessment order for the financial year 2008-09 wherein demand of Rs.24 has been raised against the Company on account of certain disallowances, adjustments made by the Income Tax department. A significant portion of this amount arises from the manner of adjustment of brought forward losses in arriving at the taxable profits of the Company and disallowance of portion of profit earned outside India from the STP and SEZ units.
Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals) (âCIT(A)â) against the demands received.
The Company has received a favourable order from the Commissioner of Income Tax (Appeals) for majority of grounds and considering the order passed, there will not be any demand on the Company. On the other grounds which are not favourable, the Company has filed an appeal before the Income Tax Appellate Tribunal (âITATâ). The Company has received a favourable order from ITAT. The assessment was reopened under section 148 and order has been passed under section 147 wherein demand of Rs.630 has been raised against the Company on account of certain disallowance made by the Income Tax department. The Company has filed for rectification application for arithmetical error in the computation of demand, once rectified there will be no demand. The Company has also filed a writ application with Honorable High Court of Karnataka against the order. During the year ended March 31, 2017 the Company has received the revised order giving effect for the above order, reducing the demand to Nil.
b) The Company has received income tax assessment order for financial years 2006-07 and 2007-08 for the erstwhile subsidiary Mindtree Technologies Private Limited (MTPL) with demands amounting to Rs.11 and Rs.10 respectively on account of certain disallowances/ adjustments made by Income Tax department. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal against the demand received. The Company has not deposited the amount of demand with the department. The department has adjusted pending refunds amounting to Rs.18 against these demands.
c) The Company has received income tax assessment order under Section 143(3) of the Income-tax Act 1961 pertaining to erstwhile subsidiary Aztecsoft Limited for the financial years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 200809 wherein demand of Rs.215, Rs.49, Rs.61, Rs.28, Rs.58, Rs.119, Rs.214 and Rs.63 respectively has been raised against the Company. These demands have arisen mainly on account of transfer pricing adjustments made in the order. The Company has not accepted these orders and has been advised by its legal counsel/ advisors to prefer appeals before appellate authorities and accordingly the Company has filed appeals before the Commissioner of Income Tax (Appeals) and ITAT. The Company has deposited Rs.15 with the department against these demands. The department has adjusted pending refunds amounting to Rs.563 against these demands.
The Company received a favourable order from the Commissioner of Income Tax (Appeals) for the year 2001-02 wherein the Commissioner of Income Tax (Appeals) accepted the Companyâs contentions and quashed the demand raised. The Income Tax department appealed against the above mentioned order with ITAT. ITAT passed an order setting aside both the orders of the Commissioner of Income Tax (Appeals) as well as the Assessing Officer and remanded the matter back to the Assessing Officer for re-assessment. The Company preferred an appeal with the Honâble High Court of Karnataka against the order of the ITAT. The Honâble High Court of Karnataka has dismissed the appeal filed against the order of ITAT and upheld the order passed by the ITAT and accordingly the case is pending before Assessing Officer for re-assessment. The Deputy Commissioner of Income Tax has completed the reassessment & has issued a Final assessment order with a revised demand amounting to Rs.202 due to transfer pricing adjustments. Management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals).
The Company has received the order from the Commissioner of Income Tax (Appeals) for the year 2004-05 and on the unfavorable grounds, the Company has filed an appeal with ITAT. Bengaluru.
The Company has received the order from ITAT for the FY 2006-07 and ITAT has remanded the matter back to the Assessing Officer for re-assessment. The Transfer pricing officer has passed the favorable order. Order giving effect to the ITAT order is yet to be received.
The Company has received revised order for the FY 2008-09 under section 263 from Assessing Officer raising an additional demand of Rs.61, taking the total demand to Rs.124. The Company has filed an appeal before ITAT. The order giving effect to the said order has been received and appeal is filed with Commissioner Appeals.
The Company has appealed against the demands received for financial years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. Based on favourable order received by the Company for the financial year 2001-02 from the Commissioner of Income Tax (Appeals) and an evaluation of the facts and circumstances, no provision has been made against the above orders in the financial statements.
d) The Company received an assessment order for financial year 2006-07 for the erstwhile subsidiary Mindtree Wireless Private Limited from the Assistant Commissioner of Income-tax (âACITâ) with a demand amounting to Rs.39 on account of certain other disallowances/ transfer pricing adjustments made by Income Tax department. The management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals) against the demand received.
The Company has received the order from the Commissioner of Income Tax (Appeals) wherein the Commissioner of Income Tax (Appeals) accepted the grounds in part and in respect of unfavorable grounds, the Company has filed an appeal before Income Tax Appellate Tribunal. The final order giving effect by the Assessing Officer is completed and the demand is reduced to Rs.33. The Company has deposited Rs.5 with the department against this demand.
e) The Company has received a final assessment order for financial year 2009-10 from the Deputy Commissioner of Income Tax with a demand amounting to Rs.61 due to non-adjustment of brought forward losses and transfer pricing adjustments. The management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) has passed the order in our favour.
During the quarter ended March 31, 2017 the Company has received the order giving effect to the said order and there is no demand. The Company has received the revised order under section 263 for financial year 2009-10 from Assessing Officer reducing the demand to Rs.6. The Company has filed an appeal before ITAT. ITAT has dismissed the appeal. Order giving effect has been received. The Company has filed an appeal before Commissioner of Income Tax (Appeals).
f) The Company has received a final assessment order for financial year 2012-13 from the Deputy Commissioner of Income Tax with a demand amounting to Rs.15 on account of certain disallowances. The management believes that the position taken by it on the matter is tenable and hence, no adjustment has been made to the financial statements. The Company has filed an appeal with Commissioner of Income Tax (Appeals).
10. Capital commitments
Estimated amount of contracts remaining to be executed on capital account and not provided for as at March 31, 2017 is Rs.242 (March 31, 2016: Rs.262 and April 1, 2015: Rs.508).
11. Segmental reporting
The CEO & MD of the Company has been identified as the Chief Operating Decision Maker (CODM) as defined by Ind AS 108, Operating Segments. The CODM evaluates the Companyâs performance and allocates resources based on an analysis of various performance indicators by industry classes. Accordingly, segment information has been presented for industry classes.
The Company is structured into four reportable business segments - RCM, BFSI, TMS and TH. During the year, the Company has restructured its verticals and accordingly, as required by accounting standards, comparatives have been restated and presented in line with the current segments. The reportable business segments are in line with the segment wise information which is being presented to the CODM.
Each segment item reported is measured at the measure used to report to the Chief Operating Decision Maker for the purposes of making decisions about allocating resources to the segment and assessing its performance.
Geographic information is based on business sources from that geographic region and delivered from both on-site and off-shore. America comprises of United States of America and Canada, Europe includes continental Europe and United Kingdom; the rest of the world comprises of all other geographies except those mentioned above and India.
Income and direct expenses in relation to segments are categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The management therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as âunallocatedâ and directly charged against total income.
CODM does not review assets and liabilities at reportable segments level hence segment disclosure relating to total assets and liabilities has not been provided.
Geographical information on revenue and industry revenue information is collated based on individual customer invoices or in relation to which the revenue is otherwise recognized.
12. Total of expenditure incurred on Corporate Social Responsibility activities during the year ended March 31, 2017 is Rs.109 (during the year ended March 31, 2016 is Rs.94).
13. Dues to micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an office memorandum dated August 26, 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrepreneurs Memorandum Number as allocated after filing of the Memorandum in accordance with the âMicro, Small and Medium Enterprises Development Act, 2006â (âthe Actâ). Accordingly, the disclosure in respect of the amounts payable to such enterprises as at March 31, 2017 has been made in the financial statements based on information received and available with the Group. Further in view of the Management, the impact of interest, if any, that may be payable in accordance with the provisions of the Act is not expected to be material. The Group has not received any claim for interest from any supplier as at the balance sheet date.
14. Transition to Ind AS
The Companyâs financial statements for the year ended March 31, 2017 are prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015. The adoption of Ind AS was carried out in accordance with Ind AS 101, using April 1, 2015 as the transition date. Ind AS 101 requires that all Ind AS standards and interpretations that are effective for the Ind AS financial statements for the year ended March 31, 2017, be applied consistently and retrospectively for all fiscal years presented. All applicable Ind AS have been applied consistently and retrospectively wherever required. The resulting difference between the carrying amounts of the assets and liabilities in the financial statements under both Ind AS and Indian GAAP as at the transition date have been recognized directly in equity at the transition date.
In preparing these financial statements, the Company has availed itself of certain exemptions and exceptions in accordance with Ind AS 101 as explained below:
a) Exceptions from full retrospective application:
A. Estimates exception: Upon an assessment of the estimates made under Indian GAAP, the Company has concluded that there was no necessity to revise such estimates under Ind AS, except where estimates were required by Ind AS and not required by Indian GAAP.
B. Government loans: In accordance with Ind AS 101, on application of Ind AS 20, âAccounting for Government Grants and Disclosure of Government Assistanceâ, the Company has used its previous GAAP carrying amount at the date of transition to Ind ASs as the carrying amount in the opening Ind AS balance sheet.
b) Exemptions from retrospective application:
A. Share-based payment exemption: The Company has availed exemption available under Ind AS 101 on application of Ind AS 102, âShare Based Paymentâ, to equity instruments that vested before the date of transition to Ind AS.
c) Reconciliations:
The following reconciliations provide a quantification of the effect of significant differences arising from the transition from Indian GAAP to Ind AS in accordance with Ind AS 101:
- equity as at April 1, 2015;
- equity as at March 31, 2016;
- total comprehensive income for the year ended March 31, 2016; and
- explanation of material adjustments to cash flow statements.
Notes:
1. Business combination:
Under Ind AS, contingent consideration payable on business combination is measured at fair value while under previous GAAP it is recognised at cost.
2. Fair valuation of investments:
a) Under Ind AS, financial assets and financial liabilities designated at fair value through profit and loss (FVTPL) are fair valued at each reporting date with changes in fair value recognized in the statement of profit and loss. Under previous GAAP, they are measured at lower of cost or net realisable value. Mutual fund investments have been classified as FVTPL. Consequently, increase in fair value of such investments in quoted mutual funds has resulted in a gain.
b) Under Ind AS, financial assets designated at fair value through other comprehensive income (FVTOCI) are fair valued at each reporting date with changes in fair value (net of deferred taxes) recognized directly in other comprehensive income. Under previous GAAP, they are measured at cost with provision for diminution other than temporary. Investments in equity instruments have been classified as FVTOCI. Consequently, fair value of such equity instruments designated at FVTOCI has resulted in a gain in other comprehensive income.
3. Under Ind AS, liability for dividend is recognized in the period in which the obligation to pay is established. Under previous GAAP, a liability is recognized in the period to which the dividend relates, even though the dividend may be approved by the shareholders subsequent to the reporting date. Consequently, dividend payable under Ind AS is lower and retained earning is higher.
4. Under previous GAAP, actuarial gains and losses were recognised in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability/ asset which is recognised in other comprehensive income. Consequently, the tax effect of the same has also been recognised in other comprehensive income under Ind AS instead of the statement of profit and loss.
5. Under Ind AS, the deferred consideration on sale of land is measured at fair value. Under previous GAAP, such consideration is carried at initial transaction value. The difference between initial transaction value and fair value on the date of sale is reduced from profit on sale of land and subsequent change in the fair value of such deferred consideration is recognised as notional interest income in the statement of profit and loss.
6. Under Ind AS, leases of land are classified as operating leases unless the title to the leasehold land is expected to be transferred to the Company at the end of the lease term. Lease rentals paid in advance and lease deposits are recognized as other assets. Under previous GAAP, the lease rentals paid in advance and lease deposits are recognized in property, plant and equipment. The lease rentals paid in advance are charged to the statement of profit and loss over the lease term.
Under Ind AS, financial instruments other than those designated at FVTPL and FVTOCI are measured at amortised cost. Under previous GAAP, they are recognised at cost. Security deposits are carried at amortised cost using effective interest method.
7. Under Ind AS, grant specific to property, plant and equipment should be treated as deferred income which is recognised in statement of profit and loss over the periods and in proportion to depreciation on related assets. Under previous GAAP, such non-monetary grant was deducted from the gross value of the asset.
Mar 31, 2015
1. Background
Mindtree Limited (''Mindtree'' or ''the Company'') is an international
Information Technology consulting and implementation company that
delivers business solutions through global software development. The
Company is structured into five verticals - Retail, CPG and
Manufacturing (RCM), Banking, Financial Services and Insurance (BFSI),
Hitech and Media Services (HTMS), Travel and Hospitality (TH) and
Others. The Company offers services in the areas of agile, analytics
and information management, application development and maintenance,
business process management, business technology consulting, cloud,
digital business''s, independent testing, infrastructure management
services, mobility, product engineering and SAP services.
The Company is head quartered in Bangalore and has offices in India,
United States of America, United Kingdom, Japan, Singapore, Malaysia,
Australia, Germany, Switzerland, Sweden, UAE, Netherlands, Canada,
Belgium, France, Ireland and Republic of China.
2.1 Shareholders'' funds
c) The Company has only one class of shares referred to as equity
shares having a par value of Rs. 10 each.
Each holder of the equity share, as reflected in the records of the
Company as of the date of the shareholder meeting, is entitled to one
vote in respect of each share held for all matters submitted to vote in
the shareholder meeting.
The Company declares and pays dividends in Indian rupees and foreign
currency. The dividend proposed by the Board of Directors is subject to
the approval of the shareholders in the Annual General Meeting.
The Board of Directors at its meeting held on October 15, 2014 declared
an interim dividend of 30% (Rs. 3 per equity share of par value Rs. 10/-
each) for the quarter ended September 30, 2014. At its meeting held on
January 19, 2015, the Board declared a second interim dividend of 40%
(Rs. 4 per equity share of par value Rs. 10/- each) for the quarter ended
December 31, 2014. Further, the Board of Directors at its meeting held
on April 16, 2015 have recommended a final dividend of 100% (Rs. 10 per
equity share of par value Rs. 10 each).
During the year ended March 31, 2014, the amount of per share dividend
recognized as distributions to equity shareholders was Rs. 25 per equity
share.
In the event of liquidation of the Company, the holders of equity
shares will be entitled to receive any of the remaining assets of the
Company after distribution of all preferential amounts. However, no
such preferential amounts exist currently. The distribution will be in
proportion to the number of equity shares held by the shareholders.
d) Equity shareholder holding more than 5 percent of equity shares
along with the number of equity shares held at the beginning and at the
end of the year is as given below:
e) In the period of five years immediately preceding March 31, 2015:
a. The Company has allotted 41,765,661 fully paid up equity shares
during the quarter ended June 30, 2014 pursuant to 1:1 bonus share
issue approved by shareholders. Consequently, options/ units granted
under the various employee share based plans are adjusted for bonus
share issue.
b. The Company has not bought back any class of equity shares.
c. The Company has allotted a total of 1,300,965 equity shares as fully
paid up without payment being received in cash. These shares were
allotted to the shareholders of erstwhile Aztecsoft Limited pursuant to
the scheme of amalgamation during the financial year ended March 31,
2010.
f) Employee stock based compensation
The Company instituted the Employees Stock Option Plan (''ESOP'') in
fiscal 2000, which was approved by the Board of Directors (''the
Board''). The Company currently administers seven stock option
programs, a restricted stock purchase plan and a phantom stock option
plan.
Program 1 [ESOP 1999]
Options under this program are exercisable at an exercise price of Rs. 10
per option. All stock options have a four-year vesting term and vest at
the rate of 15%, 20%, 30% and 35% at the end of 1, 2, 3 and 4 years
respectively from the date of grant and become fully exercisable. Each
option is entitled to 1 equity share of Rs. 10 each. This program extends
to employees who have joined on or before September 30, 2001 or have
been issued employment offer letters on or before August 7, 2001. This
plan was terminated on September 30, 2001. The contractual life of each
option is 11 years after the date of grant. There are no options
outstanding as at the reporting date.
Program 2 [ESOP 2001]
Options under this program have been granted to employees at an
exercise price of Rs. 50 per option (Rs. 25 per option post bonus issue).
All stock options have a four-year vesting term and vest at the rate of
15%, 20%, 30% and 35% at the end of 1, 2, 3 and 4 years respectively
from the date of grant and become fully exercisable. Each option is
entitled to 1 equity share of Rs 10 each. This program extends to
employees who have joined on or after October 1, 2001 or have been
issued employment offer letters on or after August 8, 2001 or options
granted to existing employees with grant date on or after October 1,
2001. This plan was terminated on April 30, 2006. The contractual life
of each option is 11 years after the date of grant.
Program 3 [ESOP 2006 (a)]
Options under this program have been granted to employees at an
exercise price of Rs. 250 per option. AH stock options have a four-year
vesting term and vest at the rate of 15%, 20%, 30% and 35% at the end
of 1, 2, 3 and 4 years respectively from the date of grant and become
fully exercisable. Each option is entitled to 1 equity share of Rs. 10
each. This program extends to employees to whom the options are granted
on or after May 1, 2006. This plan was terminated on October 25, 2006.
The contractual life of each option is 5 years after the date of grant.
There are no options outstanding as at the reporting dates.
Program 4 [ESOP2006 (b)]
Options under this program are granted to employees at an exercise
price periodically determined by the Nomination and Remuneration
Committee. All stock options have a four-year vesting term and vest at
the rate of 15%, 20%, 30% and 35% at the end of 1, 2, 3 and 4 years
respectively from the date of grant and become fully exercisable. Each
option is entitled to 1 equity share of Rs. 10 each. This program extends
to employees to whom the options are granted on or after October 25,
2006. The contractual life of each option is 5 years after the date of
grant.
Directors'' Stock Option Plan, 2006 (''DSOP 2006'')
Options under this program have been granted to independent directors
at an exercise price periodically determined by the Nomination and
Remuneration Committee. All stock options vest equally over three year
vesting term at the end of 1, 2 and 3 years respectively from the date
of the grant and become fully exercisable. Each option is entitled to 1
equity share of Rs. 10 each. The contractual life of each option is 4
years after the date of the grant.
Program 7 [ESOP 2010 A]
In-principle approvals for administering the seventh stock option
program i.e. ESOP 2010 (A) has been received by the Company from the
BSE and NSE for 1,135,000 equity shares of Rs. 10 each. No options have
been granted under the program as at March 31, 2015.
Employee Restricted Stock Purchase Plan 2012 (''ERSP 2012'')
ERSP 2012 was instituted with effect from July 16, 2012 to issue equity
shares of nominal value of Rs. 10 each. Shares under this program are
granted to employees at an exercise price of not less than Rs. 10 per
equity share or such higher price as determined by the Nomination and
Remuneration Committee. Shares shall vest over such term as determined
by the Nomination and Remuneration Committee not exceeding ten years
from the date of the grant. All shares will have a minimum lock in
period of one year from the date of allotment.
During the year ended March 31, 2015, the Phantom stock units which
were expected to vest during the financial years 2015-16 and 2016-17
have been cancelled by the Company. As a result of the cancellation of
these units, the Company has reversed the stock based compensation
recorded in earlier years of Rs. 57 in the statement of profit and loss
for the year ended March 31, 2015.
The following table summarizes information about the weighted average
exercise price of options/ shares exercised under various programs:
g) The Company has received Rs. 4 towards allotment of 15,000 equity
shares and 276 equity shares at exercise prices of Rs. 285 each and Rs. 25
each respectively and is shown under Share application money pending
allotment. The Company expects to make the allotment during the quarter
ended June 30, 2015. The Company has sufficient authorized share
capital to cover the share capital amount on allotment of shares out of
share application money.
3.2 Non-current Liabilities 3.2.1Long-term borrowings
Long-term borrowings represent the amount received from Council for
Scientific and Industrial Research (CSIR) to develop a project under
"Development of Intelligent Video Surveillance Server (IVSS) system".
The loan is an unsecured loan carrying a simple interest of 3% p.a on
the outstanding amount of loan. Repayment of loan is in 10 equal annual
installments from June 2011. Any delay in repayment entails a liability
of 12% p.a. compounded monthly for the period of delay.
There is no continuing default in the repayment of the principal loan
and interest amounts.
*The details of interest rates, repayment and other terms are disclosed
under note 3.2.1.
"Includes derivative liability of Rs. 3 (As at March 31, 2014: Rs. 44).
As at March 31, 2015, the Company has outstanding forward contracts
amounting to USD 32 million (As at March 31, 2014: USD 47. 5 million),
GBP 2.25 million (As at March 31, 2014: Nil) and Euro 4.5 million (As
at March 31, 2014: Euro 5 million). These derivative instruments have
been entered to hedge highly probable forecasted sales.
In accordance with the provisions of AS 30, those forward contracts
which qualify for cash flow hedge accounting have been fair valued at
balance sheet date and the resultant exchange gain/ (loss) has been
credited/ (debited) to hedge reserve (Refer Note 3.1.2). Other
derivative instruments have been fair valued at the balance sheet date
and resultant exchange gain of Rs. 21 for the year ended March 31, 2015
(for the year ended March 31, 2014: Nil) has been recorded in the
statement of profit and loss.
The Company has acquired 100% equity interest in Discoverture Solutions
L.L.C. (Discoverture), a US based IT solution provider to the insurance
industry, for a consideration of Rs. 1,091. The consideration includes
future payments which are based on achievement of certain specific
milestones which have currently been provided for based on best
estimate of the Company. The transfer of membership interests and
control of Discoverture is effective February 13, 2015 and
consequently, Discoverture has become a 100% subsidiary of the Company
effective that date.
3.4.3 Taxes
The Company has units at Bangalore, Hyderabad, Chennai and Bhubaneshwar
registered as Special Economic Zone (SEZ) units which are entitled to a
tax holiday under Section 10AA of the Income Tax Act, 1961.
The Company also has STPI units at Bangalore and Pune which are
registered as a 100 percent Export Oriented Unit, which were earlier
entitled to a tax holiday under Section 10B and Section 10A of the
Income Tax Act, 1961.
3.8 Contingent Liabilities and commitments
a) Estimated amount of contracts remaining to be executed on capital
account and not provided for as at March 31, 2015 is Rs. 508 (March 31,
2014: Rs. 854).
b) The Company has received an income tax assessment for the financial
year 2008-09 wherein demand of Rs. 24 has been raised against the Company
on account of certain disallowances, adjustments made by the income tax
department. A significant portion of this amount arises from the manner
of adjustment of brought forward losses in arriving at the taxable
profits of the Company and disallowance of portion of profit earned
outside India from the STP and SEZ units.
Management believes that the position taken by it on the matter is
tenable and hence, no adjustment has been made to the financial
statements. The Company has filed an appeal against the demands
received.
The Company has received a favourable order from the Commissioner of
Income tax (Appeals) for majority of grounds and considering the order
passed, there will not be any demand on the Company. On the other
grounds which are not favourable, the Company has filed an appeal
before the Income Tax Appellate Tribunal (''ITAT'').
c) The Company has received income tax assessments for financial years
2006-07 and 2007-08 for the erstwhile subsidiary Mindtree Technologies
Private Limited (MTPL) with demands amounting to Rs. 11 and Rs. 10 on
account of certain disallowances/ adjustments made by income tax
department. Management believes that the position taken by it on the
matter is tenable and hence, no adjustment has been made to the
financial statements. The Company has filed an appeal against the
demand received. The Company has not deposited the amount of demand
with the department.
d) The Company has received income tax assessments under Section 143(3)
of the Income-tax Act 1961 pertaining to erstwhile subsidiary Aztecsoft
Limited for the financial years 2001-02, 2002-03, 2003-04, 2004-05,
2005-06, 2006-07, 2007-08 and 2008-09 wherein demand of Rs. 198, Rs. 49, Rs.
61, Rs. 28, Rs. 58, Rs. 119, Rs. 214 and Rs. 63 respectively has been raised
against the Company. These demands have arisen mainly on account of
transfer pricing adjustments made in the order. The Company has not
accepted these orders and has been advised by its legal counsel/
advisors to prefer appeals before appellate authorities and accordingly
the Company has filed appeals before the Commissioner of Income Tax
(Appeals) and ITAT. The Company has deposited Rs. 15 with the department
against these demands. The department has adjusted pending refunds
amounting to Rs. 450 against these demands.
The Company received a favourable order from the Commissioner of Income
Tax (Appeals) for the year 2001-02 where in the Commissioner of Income
Tax (Appeals) accepted the Company''s contentions and quashed the demand
raised. The Income tax department appealed against the above mentioned
order with ITAT. ITAT, in an earlier year passed an order setting aside
both the orders of the Commissioner of Income Tax (Appeals) as well as
the Assessing Officer and remanded the matter back to the Assessing
Officer for re- assessment. The Company preferred an appeal with the
Hon''ble High Court of Karnataka against the order of the ITAT. The
Hon''ble High Court of Karnataka has dismissed the appeal filed against
the order of ITAT and upheld the order passed by the ITAT and
accordingly the case is pending before Assessing Officer for
re-assessment. The Assistant Commissioner of Income tax has completed
the reassessment & has issued a draft assessment order with a revised
demand amounting to Rs. 198 due to transfer pricing adjustments.
Management believes that the position taken by it on the matter is
tenable and hence, no adjustment has been made to the financial
statements. The Company will file an appeal with Dispute Resolution
Panel.
During the year, the Company has received the order from the
Commissioner of Income Tax (Appeals) for the year 2004-05 and on the
unfavorable grounds, the Company has a filed an appeal with ITAT,
Bangalore.
The Company has appealed against the demands received for financial
years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09.
Based on favourable order received by the Company for the financial
year 2001-02 from the Commissioner of Income Tax (Appeals) and an
evaluation of the facts and circumstances, no provision has been made
against the above orders in the financial statements.
e) The Company received an assessment order for financial year 2006-07
for the erstwhile subsidiary Mindtree Wireless Private Limited from the
Assistant Commissioner of Income-tax (''ACIT'') with a demand amounting
to Rs. 39 on account of certain other disallowances/ transfer pricing
adjustments made by income tax department. Management believes that the
position taken by it on the matter is tenable and hence, no adjustment
has been made to the financial statements. The Company has filed an
appeal with Commissioner of Income Tax (Appeals) against the demand
received.
The Company has received the order from the Commissioner of Income Tax
(Appeals) wherein the Commissioner of Income Tax (Appeals) accepted the
grounds in part and in respect of unfavorable grounds, the Company has
filed an appeal before Income Tax Appellate Tribunal. The final order
giving effect by the Assessing Officer is completed and the demand is
reduced to Rs. 33. The Company has deposited Rs. 5 with the department
against this demand.
f) The Company has received a final assessment order for financial year
2009-10 from the Deputy Commissioner of Income Tax with a demand
amounting to Rs. 61 due to non-adjustment of brought forward losses and
transfer pricing adjustments. Management believes that the position
taken by it on the matter is tenable and hence, no adjustment has been
made to the financial statements. The Company has filed an appeal with
Commissioner of Income Tax (Appeals).
3.9 Quantitative details
The Company is engaged in software development services. Such services
are not capable of being expressed in any generic unit and hence, it is
not possible to give the quantitative details required under paragraphs
5(viii)(c) of general instructions for preparation of the statement of
profit and loss as per Schedule III to the Companies Act, 2013.
3.14 Segmental reporting
The Company is structured into five verticals - RCM, BFSI, HTMS, TH and
Others. During the year, the Company has classified results of Media
Services in HTMS. The results were previously classified with TH
segment. Accordingly, as required by the accounting standards,
comparatives have been restated and presented in line with the current
segments. The Company considers business segment as the primary segment
and geographical segment based on the location of customers as the
secondary segment.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments are categorised
based on items that are individually identifiable to that segment,
while the remainder of costs are apportioned on an appropriate basis.
Certain expenses are not specifically allocable to individual segments
as the underlying services are used interchangeably. The Company
therefore believes that it is not practical to provide segment
disclosures relating to such expenses and accordingly such expenses are
separately disclosed as unallocable and directly charged against total
income.
The assets of the Company are used interchangeably between segments,
and the management believes that it is currently not practical to
provide segment disclosures relating to total assets and liabilities
since a meaningful segregation is not possible.
3.20 Dues to micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an
office memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum in accordance with the ''Micro, Small and Medium
Enterprises Development Act, 2006'' (''the Act''). Accordingly, the
disclosure in respect of the amounts payable to such enterprises as at
March 31, 2015 has been made in the financial statements based on
information received and available with the Company. Further in view of
the Management, the impact of interest, if any, that may be payable in
accordance with the provisions of the Act is not expected to be
material. The Company has not received any claim for interest from any
supplier as at the balance sheet date.
3.21Total of expenditure incurred on Corporate Social Responsibility
activities during the year ended March 31, 2015 is Rs. 40.
3.22 The financial statements are presented in Rs. in million. Those
items which are required to be disclosed and which are not presented in
the financial statement due to rounding off to the nearest Rs. in million
are given as follows:
3.23 As of the balance sheet date, the Company''s net foreign currency
exposure that is not hedged by a derivative instrument or otherwise is
Rs. 6,319 (March 31, 2014: Rs. 5,683).
3.24 Corresponding figures for the previous year presented have been
regrouped, where necessary, to conform to the current year''s
classification. As per our report of even date attached
Mar 31, 2014
1. Notes to the accounts
a) The Company has only one class of shares referred to as equity
shares having a par value of Rs. 10 each.
Each holder of the equity share, as reflected in the records of the
Company as of the date of the shareholder meeting, is entitled to one
vote in respect of each share held for all matters submitted to vote in
the shareholder meeting.
The Board of Directors at their meeting held on April 16, 2014, have
recommended an issue of bonus shares on the company''s equity shares in
the ratio of 1:1 (one additional equity share for every one existing
equity share). The Company is in the process of complying with
necessary formalities.
The Company declares and pays dividends in Indian rupees and foreign
currency. The dividend proposed by the Board of Directors is subject to
the approval of the shareholders in the Annual General Meeting.
The Board of Directors at its meeting held on October 16, 2013 had
declared an interim dividend of 50% (Rs. 5 per equity share on a par
value of Rs. 10 each). At its meeting held on January 16, 2014, the Board
declared a second interim dividend of 50% (Rs. 5 per equity share of par
value Rs. 10 each). The Board of Directors at its meeting held on April
16,2014 have recommended a third interim dividend of 50% (Rs. 5 per
equity share of par value Rs. 10 each). Further, the Board has
recommended a final dividend of 50% (Rs. 5 per equity share of par value
Rs. 10 each) for the year ended March 31, 2014 and a special dividend of
50% (Rs. 5 per equity share of par value Rs. 10 each) for completion of
15 years in business. If the proposed1:1 bonus share issue is approved by
shareholders prior to the date of the AGM, the final & special dividend
amounts would be accordingly reduced to 25% (Rs. 2.5 per equity share of
Rs. 10 each). The total dividend appropriation for the year ended March
31, 2014 amounted to Rs.1,221, including corporate dividend tax of Rs. 180.
During the year ended March 31, 2013, the amount of per share dividend
recognized as distributions to equity shareholders was Rs. 12. The
dividend for the year ended March 31, 2013 includes Rs. 5 per share of
final dividend, Rs. 7 per share of interim dividend. The total dividend
appropriation for the year ended March 31, 2013 amounted to Rs. 578,
including corporate dividend tax of Rs. 81.
In the event of liquidation of the Company, the holders of equity
shares will be entitled to receive any of the remaining assets of the
Company after distribution of all preferential amounts. However, no
such preferential amounts exist currently. The distribution will be in
proportion to the number of equity shares held by the shareholders.
e) The Company has not allotted any fully paid up equity shares by way
of bonus shares nor has bought back any class of equity shares during
the period of five years immediately preceding the balance sheet date.
Number of equity shares allotted as fully paid up without payment being
received in cash is 1,300,965 during the period of five years
immediately preceding March 31, 2014 and March 31, 2013. These shares
were allotted to the shareholders of erstwhile Aztecsoft Limited
pursuant to the scheme of amalgamation for the financial year ended
March 31, 2010.
f) Employee stock based compensation
The Company instituted the Employees Stock Option Plan (''ESOP'') in
fiscal 2000, which was approved by the Board of Directors (''the
Board''). The Company currently administers seven stock option
programs, a restricted stock purchase plan and a stock appreciation
rights plan.
Program 1 [ESOP 1999]
Options under this program are exercisable at an exercise price of Rs. 10
per option. All stock options have a four-year vesting term and vest at
the rate of 15%, 20%, 30% and 35% at the end of 1, 2, 3 and 4 years
respectively from the date of grant and become fully exercisable. Each
option is entitled to 1 equity share of Rs. 10 each. This program extends
to employees who have joined on or before September 30, 2001 or have
been issued employment offer letters on or before August 7, 2001. This
plan was terminated on September 30, 2001. The contractual life of each
option is 11 years after the date of grant.
Program 3 [ESOP 2006 (a)]
Options under this program have been granted to employees at an
exercise price of Rs. 250 per option. All stock options have a four-year
vesting term and vest at the rate of 15%, 20%, 30% and 35% at the end
of 1, 2, 3 and 4 years respectively from the date of grant and become
fully exercisable. Each option is entitled to 1 equity share of Rs. 10
each. This program extends to employees to whom the options are granted
on or after May 1, 2006. This plan was terminated on October 25, 2006.
The contractual life of each option is 5 years after the date of grant.
There are no options outstanding as at the reporting dates.
Program 4 [ESOP 2006 (b)]
Options under this program are granted to employees at an exercise
price periodically determined by the Compensation Committee. All stock
options have a four-year vesting term and vest at the rate of 15%, 20%,
30% and 35% at the end of 1, 2, 3 and 4 years respectively from the
date of grant and become fully exercisable. Each option is entitled to
1 equity share of Rs. 10 each. This program extends to employees to whom
the options are granted on or after October 25, 2006. The contractual
life of each option is 5 years after the date of grant.
Directors'' Stock Option Plan, 2006 (''DSOP 2006'')
Options under this program have been granted to independent directors
at an exercise price periodically determined by the Compensation
Committee. All stock options vest equally over three year vesting term
at the end of 1, 2 and 3 years respectively from the date of the grant
and become fully exercisable. Each option is entitled to 1 equity share
of Rs. 10 each. The contractual life of each option is 4 years after the
date of the grant.
1 Contingent liabilities and commitments
a) Estimated amount of contracts remaining to be executed on capital
account and not provided for as at March 31, 2014 is Rs. 854 (March 31,
2013: Rs. 470).
b) As of the balance sheet date, the Company''s net foreign currency
exposure that is not hedged by a derivative instrument or otherwise is
Rs. 5,683 (March 31, 2013: Rs. 4,018).
c) The Company has received an income tax assessment for the financial
year 2008-09 wherein demand of Rs. 24 has been raised against the Company
on account of certain disallowances, adjustments made by the income tax
department. A significant portion of this amount arises from the manner
of adjustment of brought forward losses in arriving at the taxable
profits of the Company and disallowance of portion of profit earned
outside India from the STP and SEZ units.
Management believes that the position taken by it on the matter is
tenable and hence, no adjustment has been made to the financial
statements. The Company has filed an appeal against the demands
received.
The Company has received a favourable order from the Commissioner of
Income tax (Appeals) for majority of grounds and considering the order
passed, there will not be any demand on the Company. On the other
grounds which are not favourable, the Company has filed an appeal
before the Income Tax Appellate Tribunal (''ITAT'').
d) The Company has received income tax assessments for financial years
2006-07 and 2007-08 for the erstwhile subsidiary Mindtree Technologies
Private Limited (MTPL) with demands amounting to Rs. 11 and Rs. 10 on
account of certain disallowances/ adjustments made by income tax
department. Management believes that the position taken by it on the
matter is tenable and hence, no adjustment has been made to the
financial statements. The Company has filed an appeal against the
demand received. The Company has not deposited the amount of demand
with the department.
e) The Company has received income tax assessments under Section 143(3)
of the Income-tax Act 1961 pertaining to erstwhile subsidiary Aztecsoft
Limited for the financial years 2001-02, 2002-03, 2003-04, 2004-05,
2005-06, 2006-07, 2007-08 and 2008-09 wherein demand of Rs. 91,
Rs. 49, Rs. 61, Rs. 28, Rs. 58, Rs. 119, Rs. 214 and Rs. 63
respectively has been raised against the Company. These demands have
arisen mainly on account of transfer pricing adjustments made in the
order. The Company has notaccepted these orders and has been advised
by its legal counsel/advisors to prefer appeals before appellate
authorities and accordingly the Company has filed appeals before the
Commissioner of Income Tax(Appeals) and ITAT. The Company has deposited
Rs. 15 with the departmentagainst these demands. The department has
adjusted pending refunds amounting to Rs. 363 against these demands.
The Company received a favourable order from the Commissioner of Income
Tax (Appeals) for the year 2001-02 where in the Commissioner of Income
Tax (Appeals) accepted the Company''s contentions and quashed the demand
raised. The Income tax department appealed against the above mentioned
order with ITAT. ITAT, in an earlier year passed an order setting aside
both the orders of the Commissioner of Income Tax (Appeals) as well as
the Assessing Officer and remanded the matter back to the Assessing
Officer for re-assessment. The Company preferred an appeal with the
Hon''ble High Court of Karnataka against the order of the ITAT. The
Hon''ble High Court of Karnataka has dismissed the appeal filed against
the order of ITAT and upheld the order passed by the ITAT and
accordingly the case is pending before Assessing Officer for
re-assessment
The Company has appealed against the demands received for financial
years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09.
Based on favourable order received by the Company for the financial
year 2001-02 and an evaluation of the facts and circumstances, no
provision has been made against the above orders in the financial
statements.
f) The Company received an assessment order for financial year 2006-07
for the erstwhile subsidiary Mindtree Wireless Private Limited from the
Assistant Commissioner of Income-tax (''ACIT'') with a demand amounting
to Rs. 39 on account of certain other disallowances/ transfer pricing
adjustments made by income tax department. Management believes that the
position taken by it on the matter is tenable and hence, no adjustment
has been made to the financial statements. The Company has filed an
appeal with Commissioner of Income Tax (Appeals) against the demand
received.
The Company has received the order from the Commissioner of Income Tax
(Appeals) wherein the Commissioner of Income Tax (Appeals) accepted the
grounds in part and in respect of unfavourable grounds, the Company has
filed an appeal before Income Tax Appellate Tribunal. The final order
giving effect by the Assessing Officer is completed and the demand is
reduced to Rs. 33. The Company has deposited Rs. 5 with the department
against this demand.
g) The Company has received a draft assessment order for financial year
2009-10 from the Deputy Commissioner of Income Tax with a demand
amounting to Rs. 60 due to non-adjustment of brought forward losses and
transfer pricing adjustments. Management believes that the position
taken by it on the matter is tenable and hence, no adjustment has been
made to the financial statements. The Company will file an appeal with
Commissioner of Income Tax (Appeals) once the final order is received.
2. Quantitative details
The Company is engaged in software development services. Such services
are not capable of being expressed in any generic unit and hence, it is
not possible to give the quantitative details required under paragraphs
5(viii)(c) of general instructions for preparation of the statement of
profit and loss as per revised Schedule VI to the Companies Act, 1956.
3. Segmental reporting
Effective April 1, 2013, the Company has restructured its
organisational and management structure and its internal financial
reporting structure to be better aligned to market needs. Pursuant to
such re-organization, the Company has identified Manufacturing, BFSI,
Hitech, Travel and Transport and Others as its reportable business
segments. Accordingly, as required by the accounting standards,
comparatives have been restated and presented in line with the current
segments.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments are categorised
based on items that are individually identifiable to that segment,
while the remainder of costs are apportioned on an appropriate basis.
Certain expenses are not specifically allocable to individual segments
as the underlying services are used interchangeably. The Company
therefore believes that it is not practical to provide segment
disclosures relating to such expenses and accordingly such expenses are
separately disclosed as unallocable and directly charged against total
income.
The assets of the Company are used interchangeably between segments,
and the management believes that it is currently not practical to
provide segment disclosures relating to total assets and liabilities
since a meaningful segregation is not possible.
The Company has availed a non-monetary grant of USD 950,000 for
renovation of project facility in the previous year. This grant is
subject to fulfilment of certain conditions such as creation of
minimum employment with specified average salary and capital investment
at the development center at Gainesville, Florida, US. 3.20 Dues to
micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an
office memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum in accordance with the ''Micro, Small and Medium
Enterprises Development Act, 2006'' (''the Act''). Accordingly, the
disclosure in respect of the amounts payable to such enterprises as at
March 31, 2014 has been made in the financial statements based on
information received and available with the Company. Further in view of
the Management, the impact of interest, if any, that may be payable in
accordance with the provisions of the Act is not expected to be
material. The Company has not received any claim for interest from any
supplier as at the balance sheet date.
4. Corresponding figures for the previous year presented have been
regrouped, where necessary, to conform to the current year''s
classification.
Mar 31, 2013
1. Background
Mindtree Limited (''Mindtree'' or ''the Company'') is an international
Information Technology consulting and implementation company that
delivers business solutions through global software development. The
Company is structured into two business units - Information Technology
(''IT'') Services and Product Engineering (''PE'') Services. IT Services
offer consulting and implementation and post production support for
customers in manufacturing, financial services, travel and leisure and
other industries, in the areas of e-business, data warehousing and
business intelligence, supply chain management, ERP and maintenance and
re-engineering of legacy mainframe applications. PE Services provides
full life cycle product engineering, professional services and
sustained engineering services. It also enables faster product
realization by leveraging the expertise in the areas of hardware
design, embedded software, middleware and testing and through
Mindtree''s own IP building blocks in the areas of Bluetooth, VOIP,
IVP6, iSCSI and others in datacom, telecom, wireless, storage,
industrial automation, avionics, consumer products and computing.
The Company is head quartered in Bangalore and has offices in India,
United States of America, United Kingdom, Japan, Singapore, Malaysia,
Australia, Germany, Switzerland, Sweden, UAE, Netherlands, Canada,
Belgium and France.
2.1 Contingent liabilities and commitments
a) Estimated amount of contracts remaining to be executed on capital
account and not provided for as at March 31, 2013 is Rs. 470 million
(March 31, 2012: Rs. 420 million).
b) As of the balance sheet date, the Company''s net foreign currency
exposure that is not hedged by a derivative instrument or otherwise is
Rs. 4,018 million (March 31, 2012: Rs. 3,709 million).
c) The Company has received income tax assessment for the financial
year 2008-09 wherein demand of Rs. 24 million has been raised against
the Company on account of certain disallowances, adjustments made by
the income tax department. A significant portion of this amount arises
from the manner of adjustment of brought forward losses in arriving at
the taxable profits of the Company. The tax demand for financial year
2008-09 also includes disallowance of portion of profit earned outside
India from the STP and SEZ units. Management believes that the
position taken by it on the matter is tenable and hence, no adjustment
has been made to the financial statements. The Company has filed an
appeal against the demands received.
d) The Company has received income tax assessments for financial years
2006-07 and 2007-08 for the erstwhile subsidiary i.e. Mindtree
Technologies Private Limited (MTPL) with demands amounting to Rs. 11
million and Rs. 10 million on account of certain disallowances/
adjustments made by income tax department. Management believes that the
position taken by it on the matter is tenable and hence, no adjustment
has been made to the financial statements. The Company has filed an
appeal against the demand received. The Company has not deposited the
amount of demand with the department.
e) The Company has received income tax assessments under Section 143(3)
of the Income-tax Act 1961 which pertain to erstwhile Aztecsoft Limited
for the financial years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06,
2006-07 and 2007-08 wherein demand of Rs. 91 million, Rs. 49 million,
Rs. 61 million, Rs. 28 million, Rs. 58 million, Rs. 119 million and Rs.
214 million respectively has been raised against the Company. These
demands have arisen mainly on account of transfer pricing adjustments
made in the order. The Company has not accepted these orders and had
been advised by its legal counsel/ advisors to prefer appeals before
appellate authorities and accordingly the Company has filed appeals
before the Commissioner of Income Tax (Appeals) and ITAT. The Company
has deposited Rs. 15 million with the department against these demands.
During the current year, the Company has received draft assessment
order under Section 143(3) of the Income-tax Act 1961 for the financial
year 2008-09 wherein demand of Rs. 65 million has been raised on
account of transfer pricing adjustments and the Company is in the
process of filing an appeal before the Dispute Resolution Panel.
The Company had received a favourable order from the Commissioner of
Income Tax (Appeals) for the year 2001-02 where in the Commissioner of
Income Tax (Appeals) has accepted the Company''s contentions and quashed
the demand raised. The Income tax department had appealed against the
above mentioned order with ITAT. ITAT, in an earlier year have passed
an order setting aside both the Order of the Commissioner of Income Tax
(Appeals) as well as the Assessing Officer and has remanded the matter
back to the assessment officer for re-assessment. The Company has
preferred an appeal with the Hon''ble High Court of Karnataka against
the order of the ITAT. Further, the Hon''ble High Court of Karnataka has
stayed the operation and all further proceedings pursuant to the order
passed by the ITAT.
During the current year, the Hon''ble High Court of Karnataka has
dismissed the appeal filed against the order of ITAT and upheld the
order passed by the ITAT and accordingly the case is pending before
assessing officer for re-assessment.
The Company had appealed against the demands received for financial
years 2002- 03, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08. Based
on favourable order received by the Company for the financial year
2001-02 and an evaluation of the facts and circumstances, no provision
has been made against the above orders in the financial statements.
f) The Company has received an assessment order for financial year
2006-07 for the erstwhile subsidiary Mindtree Wireless Private Limited
from the Assistant Commissioner of Income-tax (''ACIT'') with a demand
amounting to Rs. 39 million on account of certain other disallowances/
transfer pricing adjustments made by income tax department. Management
believes that the position taken by it on the matter is tenable and
hence, no adjustment has been made to the financial statements. The
Company has filed an appeal with Commissioner of Income Tax (Appeals)
against the demand received. The Company has deposited Rs.5 million
with the department against this demand.
2.2 Quantitative details
The Company is engaged in software development services. Such services
are not capable of being expressed in any generic unit and hence, it is
not possible to give the quantitative details required under paragraphs
5(viii)© of general instructions for preparation of the statement of
profit and loss as per revised Schedule VI to the Companies Act, 1956.
2.3 Segmental reporting
The Company''s operations predominantly relate to providing IT Services
and PE Services. Accordingly, the Company considers the business
segment as the primary segment and geographical segment based on the
location of customers as the secondary segment.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments are categorised
based on items that are individually identifiable to that segment,
while the remainder of costs are apportioned on an appropriate basis.
Certain expenses are not specifically allocable to individual segments
as the underlying services are used interchangeably. The Company
therefore believes that it is not practical to provide segment
disclosures relating to such expenses and accordingly such expenses are
separately disclosed as unallocable and directly charged against total
income.
The assets of the Company are used interchangeably between segments,
and the management believes that it is currently not practical to
provide segment disclosures relating to total assets and liabilities
since a meaningful segregation is not possible.
2.4 Lease transactions
Lease rental expense under non-cancellable operating lease during the
year ended March 31, 2013 amounted to Rs. 161 million (for the year
ended March 31, 2012: Rs. 88 million). Future minimum lease payments
under non-cancellable operating lease are as below:
2.5 Dues to micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an
office memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum in accordance with the ''Micro, Small and Medium
Enterprises Development Act, 2006'' (''the Act''). Accordingly, the
disclosure in respect of the amounts payable to such enterprises as at
March 31, 2013 has been made in the financial statements based on
information received and available with the Company. Further in view of
the management, the impact of interest, if any, that may be payable in
accordance with the provisions of the Act is not expected to be
material. The Company has not received any claim for interest from any
supplier as at the balance sheet date.
2.6 Corresponding figures for the previous year presented have been
regrouped, where necessary, to conform to the current year''s
classification.
Mar 31, 2012
1. Background
MindTree Limited ('MindTree' or 'the Company') is an international
Information Technology consulting and implementation company that
delivers business solutions through global software development. The
Company is structured into two business units Information Technology
('IT') Services and Product Engineering ('PE') Services. IT Services
offer consulting and implementation and post production support for
customers in manufacturing, financial services, travel and leisure and
other industries, in the areas of e-business, data warehousing and
business intelligence, supply chain management, ERP and maintenance and
re-engineering of legacy mainframe applications. PE Services provides
full life cycle product engineering, professional services and
sustained engineering services. It also enables faster product
realization by leveraging the expertise in the areas of hardware
design, embedded software, middleware and testing and through
MindTree's own IP building blocks in the areas of Bluetooth, VOIP,
IVP6, iSCSI and others in datacom, telecom, wireless, storage,
industrial automation, avionics, consumer products and computing.
The Company is head quartered in Bangalore and has offices in India,
United States of America, United Kingdom, Japan, Singapore, Australia,
Germany, Switzerland, Sweden, UAE, Netherlands, Canada, Belgium and
France.
a The Company has only one class of shares referred to as equity shares
having a par value of Rs. 10.
Each holder of the equity share, as reflected in the records of the
Company as of the date of the shareholder meeting, is entitled to one
vote in respect of each share held for all matters submitted to vote in
the shareholder meeting.
The Company declares and pays dividends in Indian rupees. The dividend
proposed by the Board of Directors is subject to the approval of the
shareholders in the Annual General Meeting.
The Board of Directors, in their meeting on October 17, 2011, declared
an interim dividend Rs. 1.50 per equity share and a special dividend of
Rs. 1 per equity share on the occasion of the Company crossing $100
million in revenues and 10,000 MindTree minds during the quarter ended
September 30, 2011. Further the Board of Directors, in their meeting on
April 16, 2012, proposed a final dividend of Rs. 1.50 per equity share.
The proposal is subject to the approval of shareholders at the Annual
General Meeting to be held on July 16, 2012. The total dividend
appropriation for the year ended March 31, 2012 amounted to Rs. 188
million including corporate dividend tax of Rs. 26 million.
During the year ended March 31, 2011, the amount of per share dividend
recognized as distributions to equity shareholders was Rs. 2.50. The
dividend for the year ended March 31, 2011 includes Rs. 1.25 per share
of final dividend and Rs. 1.25 per share of interim dividend. The total
dividend appropriation for the year ended March 31, 2011 amounted to
Rs. 117 million including corporate dividend tax of Rs. 17 million.
In the event of liquidation of the Company, the holders of equity
shares will be entitled to receive any of the remaining assets of the
Company after distribution of all preferential amounts. However, no
such preferential amounts exist currently. The distribution will be in
proportion to the number of equity shares held by the shareholders.
b Employee stock options
The Company instituted the Employees Stock Option Plan ('ESOP') in
fiscal 2000, which was approved by the Board of Directors ('Board').
Under the ESOP, the Company currently administers seven stock option
programs.
Program 1 [ESOP 1999]
Options under this program are exercisable at an exercise price of Rs.
10 per option. All stock options have a four-year vesting term and vest
at the rate of 15%, 20%, 30% and 35% at the end of 1, 2, 3 and 4 years
respectively from the date of grant and become fully exercisable. Each
option is entitled to 1 equity share of Rs. 10 each. This program
extends to employees who have joined on or before September 30, 2001 or
have been issued employment offer letters on or before August 7, 2001.
This plan was terminated on September 30, 2001. The contractual life of
each option is 11 years after the date of grant.
Program 2 [ESOP 2001]
Options under this program have been granted to employees at an
exercise price of Rs. 50 per option. All stock options have a four-year
vesting term and vest at the rate of 15%, 20%, 30% and 35% at the end
of 1, 2, 3 and 4 years respectively from the date of grant and become
fully exercisable. Each option is entitled to 1 equity share of Rs. 10
each. This program extends to employees who have joined on or after
October 1, 2001 or have been issued employment offer letters on or
after August 8, 2001 or options granted to existing employees with
grant
Program 3 [ESOP 2006 (a)]
Options under this program have been granted to employees at an
exercise price of Rs. 250 per option. All stock options have a four-
year vesting term and vest at the rate of 15%, 20%, 30% and 35% at the
end of 1, 2, 3 and 4 years respectively from the date of grant and
become fully exercisable. Each option is entitled to 1 equity share of
Rs. 10 each. This program extends to employees to whom the options are
granted on or after May 1, 2006. This plan was terminated on October
25, 2006. The contractual life of each option is 5 years after the date
of grant.
Program 4 [ESOP 2006 (b)]
Options under this program are granted to employees at an exercise
price periodically determined by the Compensation Committee. All stock
options have a four-year vesting term and vest at the rate of 15%, 20%,
30% and 35% at the end of 1, 2, 3 and 4 years respectively from the
date of grant and become fully exercisable. Each option is entitled to
1 equity share of Rs. 10 each. This program extends to employees to
whom the options are granted on or after October 25, 2006. The
contractual life of each option is 5 years after the date of grant.
Directors' Stock Option Plan, 2006 ('DSOP 2006')
Options under this program have been granted to independent directors
at an exercise price periodically determined by the compensation
committee. All stock options vest equally over three year vesting term
at the end of 1, 2 and 3 years respectively from the date of the grant
and become fully exercisable. Each option is entitled to 1 equity share
of Rs. 10 each. The contractual life of each option is 4 years after
the date of the grant.
Program 7 [ESOP 2010 (A)]
In-principle approvals for administering the seventh stock option
program i.e. ESOP 2010 (A) has been received from the BSE and NSE
during the previous year for 1,135,000 equity shares of Rs. 10 each. No
options have been granted under the program as at March 31, 2012.
The Company has recorded compensation cost for all grants using the
intrinsic value- based method of accounting, in line with prescribed
SEBI guidelines.
Had compensation been determined under the fair value approach
described in the Guidance Note on, "Accounting for employee share
based payments" issued by ICAI, the Company's net profit and basic
and diluted earnings per share would have reduced to the proforma
amounts as indicated:
Long term borrowings under other loans and advances represent the
amount received from Council for Scientific and Industrial Research
(CSIR) to develop a project under "Development of Intelligent Video
Surveillance Server (IVSS) system".
The loan is an unsecured loan carrying a simple interest of 3% p.a on
the outstanding amount of loan. Repayment of loan is in 10 equal annual
installments commencing from June 2011. The project implementation
period was a moratorium period ending May 2011 and was not liable for
repayment of installments and interest during the said period. However,
the interest accrued during the period is amortized and is payable in 3
equal annual installments commencing from June 2011. Any delay in
repayment entails a liability of 12% p.a. compounded monthly for the
period of delay.
There is no continuing default in the repayment of the principal loan
and interest amounts.
As at March 31, 2012, the Company has outstanding forward contracts
amounting to USD 112.5 million (As at March 31, 2011: USD 62 million)
and Euro 9 million (As at March 31, 2011: Euro 4.6 million), option
contracts USD and Euro Nil (As at March 31, 2011: USD Nil and Euro 0.3
million), forward strips and leverage option contracts amounting to USD
29.25 million (As at March 31, 2011: USD 67.5 million). These
derivative instruments have been entered to hedge highly probable
forecasted sales.
In accordance with the provisions of AS 30, these derivative
instruments qualify for cash flow hedge accounting and have been fair
valued at the balance sheet date and the resultant exchange loss has
been debited to hedge reserve (Refer Note 3.1.2). Other derivative
instruments that do not qualify for hedge accounting have been fair
valued at the balance sheet date and resultant exchange gain of Rs 10
million for the year ended March 31, 2012 (year ended March 31, 2011:
gain of Rs. 136 million) has been recorded in the statement of profit
and loss.
Fair value of the above derivative instruments expected to be settled
after 12 months from the date of the balance sheet have been classified
under long term liabilities and amounts to Rs. Nil (As at March 31,
2011: Rs. 179 million).
During the year, the Company has availed a packing credit loan of USD 8
million secured against the trade receivables of the Company. The
Company has taken a forward exchange contract with respect to this
loan. In accordance with 'AS 11' the forward premium arising at
inception is amortized as an expense over the life of the contract.
The estimates of future salary increases, considered in actuarial
valuation, take into account inflation, seniority, promotion and other
relevant factors such as supply and demand factors in the employment
market.
The disclosure of provisions movement as required under the provisions
of Accounting Standard - 29 'Provisions, Contingent Liabilities and
Contingent Assets' ('AS 29') is as follows:-
These provisions are expected to be utilized over a period of one year.
* Represents disputed tax dues provided during the current year
pursuant to unfavourable order received from the tax authorities
against which the Company has preferred an appeal with relevant
authority. In respect of this provision, the disclosures required by AS
29 have not been provided in accordance with paragraph 72 of AS 29.
The Company has units at Bangalore and Chennai registered as Special
Economic Zone (SEZ) units which are entitled to a tax holiday under
Section 10AA of the Income Tax Act, 1961.
The Company also has STPI units at Bangalore, Hyderabad and Pune which
are registered as a 100 percent Export Oriented Unit, which were
earlier entitled to a tax holiday under Section 10B and Section 10A of
the Income Tax Act, 1961. However, certain units have completed the 10
year tax holiday period and are not eligible for deduction of profits
under Section 10A/10B of the Income Tax Act, 1961.
Tax provision for the year ended March 31, 2012 includes a charge of
Rs. 37.2 million relating to earlier periods in a foreign jurisdiction.
2.1 Acquisition and amalgamation of MindTree Wireless Private Limited
a) The Company acquired 412,500 equity shares of MindTree Wireless
Private Limited (MWPL) [formerly Kyocera Wireless (India) Private
Limited] in the fiscal year 2009-10, representing 100% of equity share
capital of MWPL at a consideration of Rs.. 437 million (including a
contingent consideration of Rs. 144 million). Consequently, MWPL became
a 100% subsidiary of the Company with effect from October 1, 2009. The
Company had subsequently reassessed contingent consideration payable
based on forecast of estimated future revenue and during the previous
year ended March 31, 2011, reduced it by Rs. 100 million. Consequently,
the cost of investment was reduced to Rs. 337 million as at March 31,
2011.
b) The Company filed a scheme of Amalgamation ("the Scheme") with
the Hon'ble High Court of Karnataka for the merger of MWPL with the
Company effective April 1, 2010 ('the Appointed Date'). In January
2011, the Hon'ble High Court of Karnataka approved the aforesaid Scheme
vide its Order dated December 10, 2010 ('Order').
As per the terms of the Scheme, MWPL was amalgamated with the Company
with effect from April 1, 2010. The Company has accounted for the
amalgamation as amalgamation in the nature of purchase under AS-14,
Accounting for Amalgamations ('AS 14'). Following were the salient
features of the Scheme:
a) 412,500 equity shares held by the Company in MWPL were cancelled and
extinguished, from the effective date of the Scheme.
b) All the assets and liabilities of MWPL were recorded in the books of
the Company at their respective book value as on April 1, 2010.
c) All the profits, income, expenditure and losses accruing to MWPL
with effect from the Appointed Date were treated as the profits or
income or expenditure or losses, as the case may be, of the Company.
Consequent to the Order, the Company has effected the Scheme in its
financial statements for the previous year ended March 31, 2011. The
cost of investment in excess of net book value of MWPL as on April 1,
2010 amounted to Rs. 21 million and was recorded as goodwill in the
financial statements for the previous year ended March 31, 2011.
In the current year, the Company reassessed the contingent
consideration payable for the financial year 2010-11 and has written
back contingent consideration amounting to Rs. 37 million as liability
no longer required as the annual revenue threshold was not met by the
Kyocera Group.
3.1 Impairment of goodwill
The management had assessed whether there is an indication that the
goodwill may be impaired. Considering the restructuring of business
model i.e. conversion of wireless products business into a design
service business and anticipated decline in the future revenues of
MWPL, the entire goodwill arising on amalgamation amounting to Rs. 21
million (referred to in note above) was considered to be impaired and
an impairment loss to that extent was recognized and disclosed under
depreciation and amortization in its financial statements for the
previous year ended March 31, 2011.
3.2 Purchase of assets
During the previous year, the Company acquired certain fixed assets,
RAPID software platform, customer contracts and employment contracts
for a cash consideration of Rs. 72 million from Sevenstrata IT Services
Private Limited. The acquisition was carried out by entering into an
Agreement to Sell Assets ('Agreement') with Sevenstrata IT Services
Private Limited. The RAPID software acquired pursuant to the Agreement
has been accounted for as an intangible as per AS-26 'Intangible
Assets' ('AS 26') and valued at Rs. 67 million as determined by an
independent external expert. The customer contracts and employment
contracts have not been assigned any value as they do not meet the
criteria of an intangible asset as per AS 26. The remaining
consideration represents the net book value of the assets taken over.
The Management believes the useful life of the aforesaid intangible to
be 5 years as it represents the period over which the asset is expected
to contribute directly or indirectly to the future cash flows of the
Company.
3.3 Contingent liabilities and commitments
a) Estimated amount of contracts remaining to be executed on capital
account and not provided for as at March 31, 2012 is Rs. 420 million
(March 31, 2011: Rs. 122 million).
b) As of the balance sheet date, the Company's net foreign currency
exposure that is not hedged by a derivative instrument or otherwise is
Rs. 3,709 million (March 31, 2011: Rs. 2,454 million).
c) The Company has received income tax assessments for the financial
years 2004-05 and 2008-09 wherein demand of Rs. 6 million and Rs. 24
milllion respectively has been raised against the Company on account of
certain disallowances, adjustments made by the income tax department. A
significant portion of this amount arises from the manner of adjustment
of brought forward losses in arriving at the taxable profits of the
Company. The tax demand for financial year 2008-09 also includes
disallowance of portion of profit earned outside India from the STP and
SEZ units.
Management believes that the position taken by it on the matter is
tenable and hence, no adjustment has been made to the financial
statements. The Company has filed an appeal against the demands
received.
d) The Company has received income tax assessments for financial years
2006-07 and 2007-08 for the erstwhile subsidiary i.e. MindTree
Technologies Private Limited (MTPL) with demands amounting to Rs.11
million and Rs. 10 million on account of certain disallowances/
adjustments made by income tax department. Management believes that the
position taken by it on the matter is tenable and hence, no adjustment
has been made to the financial statements. The Company has filed an
appeal against the demand received. The Company has not deposited the
amount of demand with the department.
e) The Company has received income tax assessments under Section 143(3)
of the Income-tax Act 1961 which pertain to erstwhile Aztecsoft Limited
for the financial years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06,
2006-07 and 2007-08 (draft)
wherein demand of Rs. 91 million, Rs. 49 million, Rs. 61 million, Rs.
45 million, Rs. 58 million, Rs. 119 million and Rs. 219 million
respectively has been raised against the Company. These demands have
arisen mainly on account of transfer pricing adjustments made in the
order. The Company has not accepted these orders and had been advised
by its legal counsel/ advisors to prefer appeals before the
Commissioner of Income Tax (Appeals).
The Company had received a favourable order from the Commissioner of
Income Tax (Appeals) for the year 2001-02 where in the Commissioner of
Income Tax (Appeals) has accepted the Company's contentions and quashed
the demand raised. The Income tax department had appealed against the
above mentioned order with ITAT. ITAT, in an earlier year have passed
an order setting aside both the Order of the Commissioner of Income Tax
(Appeals) as well as the Assessing Officer and has remanded the matter
back to the assessment officer for re-assessment. The Company has
preferred an appeal with the Hon'ble High Court of Karnataka against
the order of the ITAT. Further, the Hon'ble High Court of Karnataka has
stayed the operation and all further proceedings pursuant to the order
passed by the ITAT.
The Company had appealed against the demands received for financial
year 2002-03, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08. Based on
favourable order received by the Company for the financial year 2001-02
and an evaluation of the facts and circumstances, no provision has been
made against the above orders in the financial statements.
f) During the previous year, the Company has received an assessment
order for financial year 2006-07 for the erstwhile subsidiary MindTree
Wireless Private Limited from the Assistant Commissioner of Income-tax
('ACIT') with a demand amounting to Rs. 39 million on account of
certain other disallowances/ Transfer Pricing adjustments made by
income tax department. Management believes that the position taken by
it on the matter is tenable and hence, no adjustment has been made to
the financial statements. The Company has filed an appeal with
Commissioner of Income Tax (Appeals) against the demand received. The
Company has deposited Rs. 5 million with the department against this
demand.
3.4 Quantitative details
The Company is engaged in the software development services. Such
services are not capable of being expressed in any generic unit and
hence, it is not possible to give the quantitative details required
under paragraphs 5(viii)é of general instructions for preparation of
the statement of profit and loss as per revised Schedule VI to the
Companies Act, 1956.
3.5 Segmental reporting
The Company's operations predominantly relate to providing IT Services
and PE Services. The Company considers the business segment as the
primary segment and geographical segment based on the location of
customers as the secondary segment.
Effective April 1, 2011, the Company has reorganized its business units
to be better aligned to market needs. Consequently the financial
reporting of the business unit performance to the Management has also
been updated with the new organization structure. Pursuant to such
re-organization, Wireless business unit which was a separate reportable
segment is now considered as part of PE services for the purpose of
evaluating the unit's performance and for making decisions about future
allocations of resources (as these are now part of same services).
Consequently, Wireless business unit is no longer considered a separate
business segment. The Company has presented its segment results under
IT services and PE services which are the only reportable business
segments. The previous year figures have been presented after
incorporating the necessary reclassification pursuant to this change in
reportable segments.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments are categorised
based on items that are individually identifiable to that segment,
while the remainder of costs are apportioned on an appropriate basis.
Certain expenses are not specifically allocable to individual segments
as the underlying services are used interchangeably. The Company
therefore believes that it is not practical to provide segment
disclosures relating to such expenses and accordingly such expenses are
separately disclosed as unallocable and directly charged against total
income.
The assets of the Company are used interchangeably between segments,
and the management believes that it is currently not practical to
provide segment disclosures relating to total assets and liabilities
since a meaningful segregation is not possible.
Remuneration paid to key managerial personnel during the year ended
March 31, 2012 amounts to Rs. 73 million (year ended March 31, 2011
amounts to Rs. 44 million). Amounts payable by directors in the nature
of travel and business expenses as at March 31, 2012 amounted to Rs.
Nil (March 31, 2011: Nil). Dividends paid to directors during the year
ended March 31, 2012 amounts to Rs. 19 million (year ended March 31,
2011 amounts to Rs. 24 million).
The above remuneration excludes gratuity and compensated absences which
cannot be separately identified from the composite amount advised by
the actuary.
3.6 During the previous year, the Company has dissolved its two
subsidiaries viz., Aztecsoft Disha Inc and Aztec Software Inc. Pursuant
to the
dissolution, the surplus in excess of the book value of investment in
the subsidiaries amounting to Rs. 221 million was recognised as other
income in the statement of profit and loss.
Further, during the previous year, MindTree Benefit Trust and Aztec
Software and Technology Services Limited Employees' Welfare Trust were
dissolved as per the resolution passed by the trustees. Consequently,
the funds available with these trusts amounting to Rs. 85 million were
received by the Company. Since these funds were primarily in the nature
of capital surplus, the Company has credited the above amount to
capital reserve.
3.7 Dues to micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an
office memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum in accordance with the 'Micro, Small and Medium
Enterprises Development Act, 2006' ('the Act'). Accordingly, the
disclosure in respect of the amounts payable to such enterprises as at
March 31, 2012 has been made in the financial statements based on
information received and available with the Company. Further in view of
the Management, the impact of interest, if any, that may be payable in
accordance with the provisions of the Act is not expected to be
material. The Company has not received any claim for interest from any
supplier as at the balance sheet date.
3.8 The Company has prepared these financial statements as per the
format prescribed by Revised Schedule VI to the Companies Act, 1956
('the schedule') issued by Ministry of Corporate Affairs. Previous
years' figures have been recasted/restated to conform to the
classification required by the Revised Schedule VI.
Mar 31, 2010
1. Background
MindTree Limited (MindTree or the Company) is an international
Information Technology ("IT") consulting and implementation company
that delivers business solutions through global software development.
MindTree is structured into two business units that focus on software
development - Product Engineering (PE) Services and Information
Technology (IT) Services. PE Services comprises Research 6 Development
(R&D) Services and Software Product Engineering (SPE). R&D Services
enables faster product realization by leveraging the expertise in the
areas of hardware design, embedded software, middleware and testing and
through MindTrees own IP building blocks in the areas of Bluetooth,
VOIP, IVP6, iSCSI and others in datacom, telecom, wireless, storage,
industrial automation, avionics, consumer products and computing. SPE
provides full life cycle product engineering, professional services and
sustained engineering services. IT Services offer consulting and
implementation and post production support for customers in
manufacturing, financial services, travel and leisure and other
industries, in the areas of e-business, data warehousing and business
intelligence, supply chain management, ERP and maintenance and
re-engineering of legacy mainframe applications. MindTree is head
quartered in Bangalore and has offices in India, United States of
America, United Kingdom, Japan, Singapore, Australia, Germany,
Switzerland, Sweden, UAE, Netherlands, Canada and France.
2. Capital commitments and contingent liabilities
a) Estimated amount of contracts remaining to be executed on capital
account and not provided for as at March 31, 2010 is Rs244,235,362
(previousyear-Rs78,979,164).
b) Guarantees given by the Companys bankers as at March 31, 2010areRs.
121,689,404 (previous year- Rs 30,902,359).
c) On September 19, 2007, the Company received a notice from the
Honorable High court of Karnataka to appear before the Honorable court
in respect of assessment of income for Assessment Year (A.Y) 2001-02.
The Assessing Officer (AO) has held that interest receipts are not
eligible for deduction under Section 10B of the Act even though they
are business income and disallowed the same and raised a demand of Rs
616,530. Further AO also mentioned that losses from export earnings
cannot be set off against other income. The AO also rejected the claim
of carry forward of business loss and unabsorbed depreciation. The
order of the AO was not upheld by Income Tax Appellate Tribunal (ITAT)
and the AO preferred an appeal with the Honorable High Court of
Karnataka against the order of the ITAT. Management believes that the
position taken by it on the matter is tenable and hence, no adjustment
has been made to the financial statements for year ended March 31,
2010.
d)On January 2, 2008, the Company has received an assessment order for
A.Y 2005-06 from the AO with a demand amounting to Rs 6,479,880 on
account of certain disallowances / adjustments made by income tax
department. A significant portion of this amount arose from manner of
adjustment of brought forward losses in arriving at the taxable profits
of the Company. Management believes that the position taken by it on
the matter is tenable and hence, no adjustment has been made to the
financial statements for the year ended March 31, 2010. The Company has
filed an appeal against the order received. The Income-tax department
has adjusted the amount of demand against the refund due for A.Y
2006-07.
e)On January 5, 2009, the Company has received an assessment order for
A.Y 2006-07 from the Assistant Commissioner of Income-tax (ACIT) with
a demand amounting to Rs 51,446,560 on account of certain disallowances
/ adjustments made by income tax department. A significant portion of
this amount arises from manner of adjustment of brought forward losses
in arriving at the taxable profits of the Company. Management believes
that the position taken by it on the matter is tenable and hence, no
adjustment has been made to the financial statements for the year ended
March 31, 2010. The Company has filed an appeal against the demand
received.
f) On January 2, 2010, the Company has received an assessment order for
A.Y 2007-08 from the Assistant Commissioner of Income-tax (ACIT) with
a demand amounting to Rs. 32,236,229 on account of certain
disallowances / adjustments made by income tax department. A
significant portion of this amount arises from manner of adjustment of
brought forward losses in arriving at the taxable profits of the
Company. Management believes that the position taken by it on the
matter is tenable and hence, no adjustment has been made to the
financial statements for the year ended March 31, 2010. The Company has
filed an appeal against the demand received. The Company has not
deposited the amount of demand with the department.
g)On January 2, 2010, the Company has received an assessment order for
A.Y 2007-08 for the erstwhile subsidiary MindTree Technologies Private
Limited from the Assistant Commissioner of Income-tax (ACIT) with a
demand amounting to Rs. 11,162,792 on account of certain disallowances/
adjustments made by income tax department. Management believes that the
position taken by it on the matter is tenable and hence, no adjustment
has been made to the financial statements for the year ended March 31,
2010. The Company has filed an appeal against the demand received. The
Company has not deposited the amount of demand with the department.
h)MindTree has received orders under Section 143(3) of the Income-tax
Act 1961 which pertain to erstwhile Aztecsoft Limited for the financial
years 2001 -02, 2002-03, 2003-04 and 2004-05 wherein demand of Rs
91,481,000, Rs 49,264,000, Rs 60,837,000 and Rs 28,484,000 respectively
has been raised against the Company. These demands have arisen mainly
on account of transfer pricing adjustments made in the order. The
Company has not accepted these orders and had been advised by its legal
counsel/ advisors to prefer appeals before the Commissioner of Income
Tax (Appeals).
The Company had received a favourable order from the Commissioner of
Income Tax (Appeals) for the year 2001-02 where in the Commissioner of
Income Tax (Appeals) has accepted the Companys contentions and quashed
the demand raised. The Income tax department had appealed against the
above mentioned order with ITAT. ITAT, during the current year have
passed an order setting aside both the Order of the Commissioner of
Income Tax (Appeals) as well as the Assessing Officer and has remanded
the matter back to the assessment officer for re-assessment. The
Company has preferred an appeal with the High Court of Karnataka
against the order of the ITAT. Further, during the year the High Court
of Karnataka has stayed the operation and all further proceedings
pursuant to the order passed by the ITAT.
The Company has appealed against the demands received for financial
year 2002-03, 2003-04 and 2004-05 to the Commissioner of Income-tax
(Appeals) where the matter is pending conclusion. Based on favourable
order received by the Company for the financial year 2001-02 and an
evaluation of the facts and circumstances, no provision has been made
against the above orders in the financial statements for the year ended
March 31,2010.
i) During the year, the Company has received an assessment order under
Section 92CA of the Income Tax Act, 1961. The assessment order pertains
to erstwhile Aztecsoft Limited wherein the Joint Director of Income tax
has made a transfer pricing adjustment under Section 92CA for payment
of Rs. 112,188,319 made for selling and marketing support services and
excess deduction claimed under Section 10A. The Company has filed an
application with the Deputy Commissioner of Income Tax against the
order received. The Company is yet to receive an assessment order under
Section 143(3) giving effect to the above adjustments and hence no
adjustment has been made to the financial statements for theyear ended
31 March 2010.
3 Quantitative details
The Company is engaged in the software development services. Such
services are not capable of being expressed in any generic unit and
hence, it is not possible to give the quantitative details required
under paragraphs 3 and 4C of Part II of the Schedule VI to the
Companies Act, 1956.
4. Dues to micro, small and medium enterprises
The Ministry of Micro, Small and Medium Enterprises has issued an
office memorandum dated 26 August 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of
5. Segmental reporting
The Companys operations predominantly relate to providing IT services
in two primary business segments viz. IT Services and PE Services. The
Company considers the business segment as the primary segment and
geographical segment based on the location of customers as the
secondary segment.
The accounting principles consistently used in the preparation of the
financial.statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments are categorised
based on items that are individually identifiable to that segment,
while the remainder of costs are apportioned on an appropriate basis.
Certain expenses are not specifically allocable to individual segments
as the underlying services are used interchangeably. The Company
therefore believes that it is not practical to provide segment
disclosures relating to such expenses and accordingly such expenses are
separately disclosed as unallocable and directly charged against total
income.
The assets of the Company are used interchangeably between segments,
and the management believes that it is currently not practical to
provide segment disclosures relating to total assets and liabilities
since a meaningful segregation is not possible.
6. Related party transactions
Name of related party Nature of relationship
MindTree Benefit Trust The Trust is effectively
controlled by the Company
Aztecsoft Limited, India Subsidiary merged with the
Company effective April 1, 2009
Aztec Software Inc, USA Subsidiary
Aztecsoft Disha Inc, USA Subsidiary
MindTree Wireless Private Subsidiary effective
Limited (MWPL), India October 1, 2009
MindTree Software
(Shenzhen) Co Ltd (MSSL), Subsidiary
Republic of China
Key managerial personnel:
Ashok Soota Executive Chairman effective
April 1, 2009
Subroto Bagchi Gardener and Vice Chairman of
MindTree
N Krishnakumar CEO & Managing Director effective
April 1,2009
S Janakiraman President & Group-CEO effective
April 1, 2009
Dr. Albert Hieranimous Non executive Director of MindTree
George M. Scalise Non executive Director of MindTree
Mark A. Runacres Non executive Director of MindTree
N. Vittal Non executive Director of MindTree
R. Srinivasan Non executive Director of MindTree
V.G.Siddhartha Non executive Director of MindTree
David B. Yoffie Non executive Director of MindTree
Rajesh SubramaniamNon executive Director of MindTree
Remuneration paid to key managerial personnel amounts to Rs.
38,724,526 (Rs 30,861,603 for previous year). Amounts payable to
directors in the nature of travel and business expenses as at March 31,
2010 amounted to Rs.784,353 (previous year: Rs 582,711).
7. Lease transactions
All assets leased on a finance lease basis on or after April 1, 2001
are capitalized in the books of the Company with a corresponding
liability recognising future liability on these leases. The Company has
acquired certain vehicles on finance lease. The legal title to these
vehicles under finance lease vests in the lessors.
8. Derivatives
Forward and option contracts
As at March 31, 2010, the Company has outstanding forward contracts
amounting to USD 79 million (previous year USD 34.5 million), and CHF
MIL (previous year CHF 0.05 million), option contracts USD 7 million
(previous year USD 5 million), forward strips and leverage option
contracts amounting to USD 100 million (previous year USD 130 million).
These derivative instruments have been entered to hedge highly probable
forecast sales.
In accordance with the provisions of AS 30, those derivative
instruments which qualify for cash flow hedge accounting have been fair
valued at balance sheet date and the resultant exchange gain/ (loss) of
Rs 199,861,899 (previous year: loss of Rs 84,627,323) has been
credited/ debited to hedge reserve. Other derivative instruments that
do not qualify for hedge accounting have been fair valued at balance
sheet date and resultant exchange gain/ (loss) of Rs 980,697,270
(previous year: loss of Rs 1,432,554,634) has been recognized in the
profit and loss account for the year.
9. Prior period comparatives ,
Previous years figures have been regrouped /reclassified wherever
necessary, to conform to current years classification. However, the
current years figures include the figures of Aztecsoft Limited and are
not strictly comparable with those of previous years as Aztecsoft
Limited has been amalgamated with the Company w.e.f 1 April, 2009
(Refer Note 4 of Schedule 16).
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