Notes to Accounts of Polaris Consulting & Services Ltd.

Mar 31, 2017

1 Reporting entity

Polaris Consulting & Services Limited (formerly known as Polaris Financial Technology Limited) (“Polaris” or “the Company”) is primarily engaged in the business of IT services and IT-enabled services delivering customized software solutions and products in the domain of contemporary services which include banking and financial services. The Company (CIN: L65993TN1993PLC024142) is a public limited Company domiciled and incorporated in India and its equity shares are listed on the National Stock Exchange and Bombay Stock Exchange. The Company is a subsidiary of Virtusa Consulting Services Private Limited (“holding company” or “Virtusa India”) and its ultimate holding company is Virtusa Corporation (“Virtusa”).

2 Standards issued but not yet effective

In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, Statement of cash flows and Ind AS 102, Share-Based Payment. These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, Statement of cash flows and IFRS 2, Share-Based Payment, respectively. The amendments are applicable to the Company from April 1, 2017.

Amendments to Ind AS 7

The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financial activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the Balance Sheet for liability arising from financing activities, to meet the disclosure requirement.

The Company has evaluated the disclosure requirements of the amendment and the effect on the financial statements is not expected to be material.

Amendments to Ind AS 102

The amendment to Ind AS 102 provides specific guidance for the measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes.

It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market-based performance conditions and non-vesting conditions are reflected in the ‘fair values’ but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled, share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that include a net settlement feature in respect of with holding taxes to be treated as equity-settled in its entirety. The case payment to the tax authority is treated as if it was part of an equity settlement.

The Company has evaluated the disclosure requirements of the amendment and no effect on the financial statements is expected.

A Measurement of fair values

i. Fair value hierarchy

Investment property comprises of land in Gurgaon. The fair value of investment property has been determined based on the current prices in an active market for similar properties.

The fair value measurement for the investment property has been categorised as a Level 2 (see Note 2(a)(v)).

ii. Valuation technique

The Company follows a sales comparison approach. The valuation model estimates the value based on what other purchasers and sellers have agreed to as a price of land in the same locality. The model has taken in to consideration, the sales price and the estimated transaction cost to sale in arriving at the value of the land.

B. Unrecognised deferred tax liabilities

As at April 1, 2015, March 31, 2016 and March 31, 2017, deferred tax liability on the undistributed reserves of the subsidiaries has not been recognised because the Company controls the dividend policy of its subsidiaries i.e., the Company controls the timing of reversal of the related taxable temporary differences and management is satisfied that they will not reverse in the foreseeable future.

C. Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future taxable profit will be available against which the Company can use the benefits therefrom:

3A. Other equity

(i) Securities premium

Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013. Securities premium also includes gains/losses arising from sale of the Company’s shares by the trusts.

(ii) Share based payments reserve

The Company has established various equity-settled share-based payment plans for certain categories of employees of the Company. Refer to Note 19 for further details on these plans.

(iii) Treasury shares

Own equity instruments that are reacquired [treasury shares] are recognised at cost and deducted from equity.

3B. Analysis of accumulated OCI, net of tax

b. Disaggregation of changes in items of OCI Exchange differences on translation of foreign operations

These comprise of all exchange differences arising from translation of financial statements of foreign operations.

Effective portion of cash flow hedges

This comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Investments through OCI

This comprises changes in the fair value of investments recognised in other comprehensive income and accumulated within equity. The Company transfers amounts from such component of equity to retained earnings when the relevant investments are derecognised.

Remeasurements of defined benefit liability (asset)

Remeasurements of defined benefit liability (asset) comprises actuarial gains and losses and return on plan assets (excluding interest income).

Gain on sale of equity instruments classified as FVOCI

The Company may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income (FVOCI). This sub-head comprises of the gain on sale of such equity instruments subsequently classified as FVOCI.

4. Share-based payments

A. Description of share-based payment arrangements

At March 31, 2017, the Company has the following share-based payment arrangements

Associate Stock Option Plan 2003

The Shareholders of the Company at the Extra-ordinary General Meeting (EGM) held on March 12, 2004 approved an Associate Stock Option Plan (the 2003 Plan). The 2003 Plan provides for issuance of 3,895,500 options, convertible to equivalent number of equity shares of Rs.5 each, to the employees including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the Securities and Exchange Board of India (SEBI) Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date. No options were granted under this plan during the year.

Associate Stock Option Plan 2004

The Shareholders of the Company in the AGM held on July 22, 2005 approved an Associate Stock Option Plan (the 2004 plan). The 2004 plan provides for issuance of 1,084,745 options, convertible to equivalent number of equity shares of Rs.5 each, to the associates including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the SEBI Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date. No options were granted under this plan during the year.

Associate Stock Option Plan 2011

The Shareholders of the Company in the Extraordinary General Meeting held on October 28, 2011 approved an Associate Stock Option Plan (the 2011 plan). The 2011 plan provides for issuance of 4,960,000 options convertible into equivalent number of equity shares of INR 5 each. The 2011 plan shall be administered under 4 different schemes based on the following terms:

The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered.

The option vests over a period of 5 years from the date of grant in a graded manner, subject to fulfilment of vesting conditions as follows:

Associate Stock Option Plan 2015

The Shareholders of the Company in the Extraordinary General Meeting held on March 19, 2015 approved an Associate Stock Option Plan (the 2015 plan). The 2015 plan provides for issuance of 5,000,000 options convertible into equivalent number of equity shares of INR 5 each. The plan shall be administered under 5 different schemes based on the following terms:

The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. No options were granted under this plan during the year.

During September 15 2014, the Products business was demerged / spun of into a separate legal entity, Intellect Design Arena Limited (IDAL) through a court approved demerger scheme. As per the scheme of arrangement, the exercise price of stock options for the above plans, held by employees, were modified to 72% of the erstwhile exercise price and the employees were granted an equivalent number of options in IDAL. The balance exercise price represented the price of the stock options issued by IDAL to the employees.

Associate Stock Option Plan (Trust) 2011

The Shareholders of the Company in the Extraordinary General Meeting held on October 28, 2011 approved an Associate Stock Option Plan (TRUST) 2011 [the 2011(Trust) plan]. The 2011(Trust) plan provides for issuance of 1,984,000 options, convertible to equivalent number of equity shares of INR 5 each. The options shall be granted at the market price if the market price is below INR 175 or at discount of 10% on market price if the market price is INR 175 or above. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 60 calendar months from the relevant vesting date. No options were granted under this plan during the year.

Restricted stock units

Certain employees of the Company received stock options of the ultimate holding company, Virtusa Corporation, USA, under the Employee Stock option plans instituted by Virtusa Corporation.

In May 2015, the Virtusa Corporation adopted the 2015 Stock Option and Incentive Plan (“2015 Plan”) which was also approved by the Virtusa Corporation’s stockholders on September 1, 2015. The 2015 Plan permits the granting of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, unrestricted stock awards, performance share awards, performance-based awards to covered employees, cash-based awards and dividend equivalent rights. During the year, the employees of the Company were allotted 151,945 units under the above 2015 Plan.

Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behavior.

C. Reconciliation of outstanding share options

The number and weighted-average exercise prices of share options under the share option plans are as follows

The options outstanding at March 31, 2017 have an exercise price in the range of INR 49.03 to INR 133.88 (March 31, 2016: INR 24.73 to INR 150.30) and a weighted average remaining contractual life of 2.06 years (March 31, 2016: 2.92 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 193.28 (2015-16: INR 187.15)

The options outstanding at March 31, 2017 have an exercise price in the range of INR 124.42 to INR 140.08 (March 31, 2016: INR 92.52 to INR 133.88) and a weighted average remaining contractual life of 2.20 years (March 31, 2016: 3.09 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 185.06 (2015-16: INR 200.07)

The options outstanding at March 31, 2017 have an exercise price in the range of INR 78.48 to INR 126 (March 31, 2016: INR 78.48 to INR 175) and a weighted average remaining contractual life of 5.44 years (March 31, 2016: 6.27 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 183.39 (2015-16: INR 204.70)

The options outstanding at March 31, 2017 have an exercise price of INR 130.22 to INR 179.95 (March 31, 2016: INR 130.22 to INR 168.56) and a weighted average remaining contractual life of 6.59 years (March 31, 2016: 7.53 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 181.55 (2015-16: INR 212.59)

D. Expense recognised in Statement of Profit and Loss

For details on the employee benefits expense, see Note 25.

For details about the related employee benefit expenses, see Note 25

The Company has a defined benefit gratuity plan in India, governed by the Payment of Gratuity Act, 1972. The plan entitles an employee, who has rendered at least five years of continuous service, to gratuity at the rate of fifteen days wages for every completed year of service or part thereof in excess of six months, based on the rate of wages last drawn by the employee concerned. A trust by name “Polaris Software Lab group gratuity trust” has been constituted to administer the gratuity fund.

These defined benefit plans expose the Company to actuarial risks, such as longevity risk, interest rate risk and market (investment) risk.

The Company provides the gratuity benefit through annual contribution to Life Insurance Corporation of India (LIC).

A. Reconciliation of the net defined benefit (asset) liability

The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit (asset) liability and its components.

Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

As at March 31, 2017, the Company had no outstanding dues to Micro and Small enterprises (for March 31, 2016: Rs Nil; April 1, 2015: Nil). The list of Micro and Small enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

5. Exceptional items

(a) Transaction expenses

On March 3, 2016, Virtusa Consulting Services Private Limited, a subsidiary of Virtusa Corporation, completed the acquisition of 52.9% of the outstanding share capital of Polaris from certain shareholders of the Company for approximately INR 113,642.83 lakhs (USD 174 million) in cash (the “Polaris SPA Transaction”). In addition, under applicable Securities and Exchange Board of India (Substantial acquisition and take over regulations) 2015, Virtusa India made an unconditional mandatory offer to the public shareholders of the Company to purchase up to an additional 26% of the outstanding shares of the Company. Virtusa India accepted the purchase of 26,719,942 shares of Polaris for INR 220.73 per share (USD 3.25 per share) for an aggregate purchase price of INR 58,980 lakhs (USD 86.8 million). The mandatory open offer began on March 11, 2016 and closed on March 28, 2016 and was fully subscribed. As a result, Virtusa India now holds approximately 79% of the total outstanding share capital of Polaris. In connection with this transaction, Polaris incurred a costs of INR 1,517.55 lakhs for the year ended March 31, 2016 and the same is disclosed under exceptional items-others, being significant and non-recurring.

6. Earnings per share

A. Basic earnings per share

The calculations of basic earnings per share based on profit attributable to equity shareholders and weighted average number of equity shares outstanding are as follows:

B. Diluted earnings per share

The calculation of diluted earnings per share is based on profit attributable to equity shareholders and weighted average number of equity shares outstanding, after adjustment for the effects of all dilutive potential equity shares as follows:

7. Financial instruments - Fair values and risk management

A. Accounting classifications and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy

For all of the Company’s assets and liabilities which are not carried at fair value, disclosure of fair value is not required as the carrying amounts approximates the fair values.

B. Measurement of fair values

i. Valuation techniques and significant unobservable inputs

The following table shows the valuation techniques used in measuring Level 2 fair values for financial instruments measured at fair value in the balance sheet. Related valuation processes are described in Note 2(a)(v).

C. Financial risk management

The Company has exposure to the following risks arising from financial instruments:

- credit risk (see (C)(ii));

- liquidity risk (see (C)(iii)); and

- market risk (see (C)(iv)).

8. Financial instruments - Fair values and risk management

i. Risk management framework

The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations

The Company’s audit committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and adhoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

ii. Credit risk

Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The carrying amounts of financial assets represent the maximum credit risk exposure.

Trade receivables and unbilled revenue are typically unsecured and are derived from revenue earned from customers primarily Citi Bank Group. Credit risk has always been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

On account of adoption of Ind AS 109, the Company uses Expected Credit Loss model to assess the impairment loss or gain. The Company allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of loss (including but not limited to external ratings, audited financial statements, management accounts and cash flow projections and available press information about customers) and applying experienced credit judgment. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of loss.

Credit risk on cash and cash equivalents is limited as the Company generally invests in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in mutual fund units, bonds and preference shares.

iii. Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company has no outstanding bank borrowings. The Company believes that the working capital is sufficient to meet its current requirements.

As of March 31, 2017, the Group had a working capital of INR 70,705.90 lakhs including cash and bank balances of INR 16,685.55 lakhs and investments of INR 17,253.07 lakhs. As of March 31, 2016, the Group had a working capital of INR 59,365.68 lakhs including cash and bank balances of INR 4,385.66 lakhs and investments of INR 20,475.96 lakhs.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include contractual interest payments and exclude the impact of netting agreements.

iv. Market risk

The Company operates internationally and a major portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales and services in the United States and elsewhere. The Company holds derivative financial instruments such as foreign exchange forward to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Company’s operations are adversely affected as the rupee appreciates / depreciates against these currencies.

Exposure to currency risk

The summary quantitative data about the Company’s exposure to currency risk (based on notional amounts) as reported to the management is as follows

Sensitivity analysis

A reasonably possible strengthening (weakening) of the INR against USD or GBP at March 31 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

Hedge accounting

The Company holds derivative financial instruments such as foreign currency forward to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank. These derivative financial 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.

Cash flow hedges

At March 31, 2017, the Group holds the following instruments to hedge exposures to changes in foreign currency rates.

D. Capital management

The key objective of the Company’s capital management is to ensure that it maintains a stable capital structure with the focus on total equity to uphold investor, creditor, and customer confidence and to ensure future development of its business. The Company focused on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required without impacting the risk profile of the Company.

There are no borrowings in the Company as at March 31, 2017, March 31, 2016 and April 1, 2015.

9. Operating leases

Leases as lessee

The Company has taken on lease a number of offices and guest houses for the employees under operating leases. The leases typically expires at various dates in future years. There are no significant restrictions imposed by the lease arrangements. Some leases agreements have price escalation clauses.

i. Future minimum lease payments

At March 31, the future minimum lease payments to be made under non-cancellable operating leases are as follows

Notes

i. Pending resolution of the respective proceedings, it is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above as it is determinable only on receipt of judgments/decisions pending with various forums/authorities.

ii. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial position.

iii. As at March 31, 2017, the Company is committed to spend INR 746.18 lakhs (March 31, 2016: 236 lakhs) under a contract to purchase property, plant and equipment.

iv. The Company is also involved in a law suit with and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

* Amount attributable to post employment benefits and compensated absences have not been disclosed as the same cannot be identified distinctly in the actuarial valuation.

Compensation of the Company’s key managerial personnel includes salaries, non-cash benefits and contributions to postemployment defined benefit plan (see Note 20).

Executive officers also participate in the Group’s share option plan (see Note 19).

10. Associate Stock Option Plan (ASOP) Trust and Orbitech Employee Welfare Trust (OEWT)

The Company does not hold any interest in two trusts, Associate Stock Option Plan (ASOP) Trust and Orbitech Employee Welfare Trust (OEWT). However, these entities have been created for the benefit of the employees and administered by the trustees appointed by the Company. Consequently, the Company consolidates the entities.

11. Operating segments

A. Basis for segmentation

Accounting pronouncements establish standards for the manner in which public companies report information about operating segments in annual and interim financial statements. Operating segments are component of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker on deciding on how to allocate resources and in assessing performance. The Company’s operations predominantly relate to IT services only and accordingly this is the only business segment. The Company’s chief operating decision-maker (CODM) is considered to be the Company’s Chief Executive Officer. The Company’s CODM reviews financial information presented, for making operating decisions and assessing financial performance of the Company. Therefore, the Company has determined that it operates in a single operating and reportable segment.

B. Geographical information

C. Major customer

Revenue from one customer of the Company is INR 72,066.50 lakhs (2015-2016: INR 78,499.28 lakhs) which is more than 40 percent of the Company’s total revenue.

12. Disposal group held for sale

In February 2016, management committed to a plan to sell the Business Process Outsourcing (BPO) division. Accordingly, that part of the division is presented as a disposal group held for sale. Efforts to sell the disposal group were started post March 2016 and the sale consummated in the second quarter of the financial year ended March 31, 2017.

A. Impairment losses (write-down) relating to the disposal group held for sale

A loss of INR 666.03 lakhs in the financial year 2015-2016, for write down of the disposal group to the lower of its carrying amount and its fair value less costs to sell has been recognised in ‘Exceptional items’ (see Note 28). The loss has been applied to reduce the carrying amount of property, plant and equipment and other non-current assets within the disposal group.

B. Assets and liabilities of the disposal group held for sale

At March 31, 2016, the disposal group has been stated at fair value less costs to sell (being lower of their carrying amount) and comprises the following assets and liabilities

C. Measurement of fair values

i. Fair value hierarchy

The non-recurring fair value measurement for the disposal group of INR 200 lakh has been categorised as a Level 3 fair value based on the inputs to the valuation technique used.

ii. Valuation technique and significant unobservable inputs

The pricing of the transaction has been determined by knowledgable parties based on valuation of business, which has been arrived taking into consideration the forecasted growth, budgeted capital expenditure and risk adjusted discount rates.

13. Explanation of transition to Ind AS

As stated in Note 2(a)(i), these are the Company’s first financial statements prepared in accordance with Ind AS. For the year ended March 31, 2016, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act and other relevant provisions of the Act (‘previous GAAP’).

The accounting policies set out in Note 2(b) - 2(q) have been applied in preparing these Standalone financial statements for the year ended March 31, 2017 including the comparative information for the year ended March 31, 2016 and the opening Ind AS balance sheet on the date of transition i.e. April 1, 2015.

In preparing its Ind AS balance sheet as at April 1, 2015 and in presenting the comparative information for the year ended March 31, 2016, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with previous GAAP, and how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

Optional exemptions availed and mandatory exceptions

In preparing these financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.

A. Optional exemptions availed

1. Property plant and equipment, intangible assets and investment properties

As per Ind AS 101 an entity may elect to:

(i) measure an item of property, plant and equipment at the date of transition at its fair value and use that fair value as its deemed cost at that date

(ii) use a previous GAAP revaluation of an item of property, plant and equipment at or before the date of transition as deemed cost at the date of the revaluation, provided the revaluation was, at the date of the revaluation, broadly comparable to:

- fair value;

- or cost or depreciated cost under Ind AS adjusted to reflect, for example, changes in a general or specific price index. The elections under (i) and (ii) above are also available for intangible assets that meets the recognition criteria in Ind AS 38,Intangible Assets, (including reliable measurement of original cost); and criteria in Ind AS 38 for revaluation (including the existence of an active market).

(iii) use carrying values of property, plant and equipment, intangible assets and investment properties as on the date of transition to Ind AS (which are measured in accordance with previous GAAP and after making adjustments relating to decommissioning liabilities prescribed under Ind AS 101) if there has been no change in its functional currency on the date of transition.

As permitted by Ind AS 101, the Company has elected to continue with the carrying values under previous GAAP for all the items of property, plant and equipment. The same election has been made in respect of intangible assets and investment property also.

2. Designation of previously recognised financial instruments

Ind AS 101 permits an entity to designate particular equity investments (other than equity investments in subsidiaries, associates and joint arrangements) as at fair value through other comprehensive income (FVOCI) based on facts and circumstances at the date of transition to Ind AS (rather than at initial recognition). Other equity investments are classified at fair value through profit or loss (FVTPL).

The Company has opted to apply this exemption for its investments in equity instruments

3. Share based payments

As per Ind AS 101, a first-time adopter is encouraged, but not required, to apply Ind AS 102 Share-based payment to equity instruments that vested before date of transition to Ind ASs. However, if a first-time adopter elects to apply Ind AS 102 to such equity instruments, it may do so only if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date, as defined in Ind AS 102. If a first-time adopter modifies the terms or conditions of a grant of equity instruments to which Ind AS 102 has not been applied, the entity is not required to apply modification accounting as specified in paragraphs 26-29 of Ind AS 102 if the modification occurred, before the date of transition to Ind ASs.

The Company has elected to apply Ind AS 102 to equity instruments that remain unvested as at the date of transition. Also, for modifications that occurred before the date of transition to Ind ASs, the requirements of Ind AS 102 have been applied to the extent that the equity instruments remain unvested on the date of transition.

4. Investment in subsidiaries and joint venture

As per Ind AS 101, When an entity prepares separate financial statements, Ind AS 27 requires it to account for its investments in subsidiaries, joint ventures and associates either:

(a) at cost; or

(b) in accordance with Ind AS 109

If a first-time adopter measures such an investment at cost in accordance with Ind AS 27, it shall measure that investment at one of the following amounts in its separate opening Ind AS Balance Sheet:

(a) cost determined in accordance with Ind AS 27; or

(b) deemed cost. The deemed cost of such an investment shall be its:

(i) fair value at the entity’s date of transition to Ind ASs in its separate financial statements; or

(ii) previous GAAP carrying amount at that date.

A first-time adopter may choose either (i) or (ii) above to measure its investment in each subsidiary, joint venture or associate that it elects to measure using a deemed cost.

The Company has opted for deemed cost (previous GAAP carrying amount) of the investment in subsidiaries and joint venture

B. Mandatory exemptions

1. Estimates

As per Ind AS 101, an entity’s estimates in accordance with Ind AS at the date of transition to Ind AS, should be consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error. However, the estimates should be adjusted to reflect any differences in accounting policies.

As per Ind AS 101, where application of Ind AS requires an entity to make certain estimates that were not required under previous GAAP, those estimates should be made to reflect conditions that existed at the date of transition (for preparing opening Ind AS balance sheet) or at the end of the comparative period (for presenting comparative information as per Ind AS).

The Company’s estimates under Ind AS are consistent with the above requirement. Key estimates considered in preparation of the Standalone financial statements that were not required under the previous GAAP are listed below:

- Fair valuation of financial instruments carried at FVTPL and/ or FVOCI.

- Impairment of financial assets based on the expected credit loss model.

2. Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition.

3. Hedge accounting

The Company had designated various hedging relationships as cash flow hedges under the previous GAAP. On date of transition to Ind AS, the entity has assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to Ind AS.

The following reconciliations provide the effect of transition to Ind AS from previous GAAP in accordance with Ind AS 101 - First time adoption of Ind AS

C. Difference on account of revenue recognition

Difference on account of revenue recognition is primarily due to difference in timing of revenue recognition under Ind AS a s compared to the previous GAAP.

D. Fair valuation of investments

In accordance with Ind AS, financial assets representing investment in equity shares of entities other than subsidiaries and joint venture as well as debt securities, preference shares and mutual funds have been fair valued. The Group has designated certain investments classified as fair value through profit or loss with certain others designated as at fair value through other comprehensive income as permitted by Ind AS 109. Under the previous GAAP, the application of the relevant accounting standard resulted in all these investments being carried at cost.

E. Consolidation of trusts

As detailed in Note 34, Associate Stock Option Plan (ASOP) Trust and Orbitech Employee Welfare Trust (OEWT) are consolidated as part of the Company under Ind AS. These entities were not consolidated under the previous GAAP. Accordingly, the assets and liabilities of the trusts and the profit or loss items have been consolidated as part of the financial statements.

F. Actuarial gain / loss

Under Ind AS, all actuarial gains and losses are recognised in other comprehensive income. Under previous GAAP the Group recognised actuarial gains and losses in profit or loss. However, this has no impact on the total comprehensive income and total equity as on April 1, 2015 or as on March 31, 2016.

G. Share-based payments measurement

The Group granted equity-settled share-based payments to certain employees. The Group accounted for these share-based payment arrangements by reference to their intrinsic value under previous GAAP. Under Ind AS, the related liability has been adjusted to reflect the fair value of the outstanding equity-settled shared-based payments.

H. Proposed dividend

Under previous GAAP, dividends proposed by the Board of Directors after the reporting date but before the approval of financial statements were considered to be adjusting event and accordingly recognised (along with related dividend distribution tax) as liabilities at the reporting date. Under Ind AS, dividends so proposed by the board are considered to be non-adjusting event. Accordingly, provision for proposed dividend and dividend distribution tax recognised under previous GAAP has been reversed.

I. Allowance for credit loss

On transition to Ind AS, the Group has recognised impairment loss on trade receivables based on the expected credit loss model as required by Ind AS 109. Consequently, trade receivables has been reduced with a corresponding decrease in retained earnings on the date of transition.

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Mar 31, 2016

1. Investments in subsidiaries

During the year ended March 31, 2012, pursuant to the Approved Scheme of Arrangement with Optimus Global Services Limited ("Optimus"), a subsidiary of the Company (with 99.94% holding), the Company had merged the BPO division of Optimus into the Company with effect from October 1, 2011. Consequent to the scheme, as at March 31, 2016, the company holds 8,49,997 equity shares and 14,92,030 preference shares in the reorganised capital structure of the subsidiary. Further, the Company had taken over net assets aggregating to Rs. 1,652.33 lakhs and accumulated losses of Rs. 3,033.72 lakhs and credited the same to the Company''s investment in equity and preference shares of Optimus, resulting in the carrying value of the respective investments in Optimus to be Nil

2. COMMITMENTS AND CONTINGENT LIABILITIES

(i) The estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) as at March 31, 2016 is Rs 236 Lakhs (March 31, 2015 : Rs 678 Lakhs)

(ii). Claims against the Company, not acknowledged as debts includes:

1. Demand from Indian income tax authorities as at March 31, 2016 is Rs 10,957.34 Lakhs (March 31, 2015: Rs. 6,895.50 Lakhs).

2. Sales Tax demand from Commercial Tax Officer Chennai as at March 31, 2016 is Rs.520 Lakhs (March 31, 2015: Rs.520 Lakhs).

3. Sales Tax demand from Commercial Tax Officer, Hyderabad as at March 31, 2016 is Rs.42.4 Lakhs (March 31, 2015: Rs 107 Lakhs). Against the said liability the Company has made a deposit of Rs.21.20 lakhs (March 31, 2015 : Rs 27.91 lakhs)

4. Service tax demand from Commissioner of Central Excise, Chennai as at March 31, 2016 is Rs. Nil (March 31, 2015: Rs. 201 Lakhs) Against the said liability the Company has made a deposit of Rs.Nil ( March 31, 2015 Rs 68.28 lakhs)

The Company is contesting the demands raised by the respective tax authorities, and the management, including its tax advisers, believes that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company''s financial position and results of operations.

The Company has received draft assessment order for Assessment Year 2012-13 and since the order is in the draft stage, the same has not been disclosed as contingent liability.

(iii) There is a claim for damages by the vendor for an amount of Rs 90 lakhs towards alleged breach of intellectual property rights which the Company has not accepted and is defending itself appropriately.

(iv) The Company is also involved in a law suit with and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

3. HEDGING OF FOREIGN CURRENCY EXPOSURES

The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes.

4. SEGMENT REPORTING

The company''s operations predominantly relates to IT services only and accordingly this is the only primary reportable segment as per AS-17

Secondary segmental information is based on geographical location of the customers.

5. SCHEME OF ARRANGEMENT (DE-MERGER) BETWEEN THE COMPANY AND INTELLECT DESIGN ARENA LIMITED

The Company (Demerged Company) had entered into a Scheme of Arrangement (''the Scheme'') with Intellect Design Arena Limited (''Resulting Company'', ''Intellect'') to demerge the Product Business Undertaking into Intellect. In consideration for the vesting of the Product business undertaking to Intellect as per the terms of the Scheme, each member of the demerged company shall receive one equity share of Rs 5/- each in the resulting company for every one equity share of Rs 5/- each held in the demerged company.

6. EXCEPTIONAL ITEMS

public shareholders of the Company to purchase up to an additional 26.0% of the outstanding shares of the Company. Virtusa India accepted the purchase of 26,719,942 shares of Polaris common stock for Rs. 220.73 per share ($3.25 per share) for an aggregate purchase price of Rs. 589.8 Crore ($86.8 million). The mandatory open offer began on March 11, 2016 and closed on March 28, 2016 and was fully subscribed. As a result, Virtusa India now holds approximately 79% of the total outstanding share capital of Polaris. In connection with this transaction, Polaris incurred a costs of Rs.1,517.55 lakhs for the year ended March 31, 2016 and the same is disclosed under exceptional items-others, being significant and non-recurring.

** The Company entered into a Business Transfer Agreement with M/s Gamma Process Hub India Limited on February 25, 2016 to transfer all its legal and beneficial ownership in the BPO business as a going concern for a consideration of Rs 200 Lakhs. The Company has recognised an impairment loss of Rs 666 Lakhs during the quarter ended March 31, 2016, which included a commitment to infuse working capital in cash prior to transfer amounting to Rs. 400 Lakhs pursuant to the terms of the Business Transfer Agreement.

7. DETAILS OF DUES TO MICRO AND SMALL ENTERPRISES AS DEFINED UNDER THE MSMED ACT, 2006

As at March 31, 2016, the Company had no outstanding dues to Micro and Small enterprises (for March 31, 2015: Rs Nil). The list of Micro and Small enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

8. SALE OF STAKE IN INTELLECT POLARIS DESIGN LLC

On December 31, 2015, the Company divested 45% of its membership interest in Intellect Polaris Design LLC for a consideration of Rs. 1,380.15 lakhs to Intellect Design Arena Limited. After the divestment, Intellect Design Arena Limited and Polaris Software Lab Inc. ("PSL") (a wholly owned subsidiary of Intellect Design Arena Limited, which already owns 5% of the membership interest in Intellect Polaris Design LLC) together holds 50% of the membership interest in Intellect Polaris Design LLC and the Company holds the remaining 50%. On December 31, 2015, a principal shareholder of the Company was also a principal owner of Intellect Design Arena Limited. For a period of twelve months commencing on March 3, 2016, PSL has an option to purchase all, but not less than all, of the membership interest in Intellect Polaris Design LLC held by the Company for consideration equal to the product of USD 5,000,000 and the percentage interest held by the Company. If the option is not exercised, for the next twelve months, the Company has the option to purchase all, but not less than all, of the membership interest in Intellect Polaris Design LLC held by PSL for consideration equal to the product of USD 5,000,000 and the percentage interest held by the Company. As the Company held 95% shareholding in Intellect Polaris Design LLC till December 31, 2015, the same has been treated as a subsidiary till December 31, 2015 and with effect from January 01, 2016, the same been treated as a joint venture and accounted under proportionate consolidation method

9. PREVIOUS PERIOD COMPARATIVES

Previous year figures have been regrouped/reclassified, wherever material and necessary to conform to current year presentation

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Mar 31, 2013

1. Corporate Information

Polaris Financial Technology Limited (formerly known as Polaris Software Lab Limited), a public limited company domiciled in India and incorporated under the provision of the Companies Act, 1956, was founded in 1993 and is headquartered in Chennai. The Company''s shares are listed on Madras Stock Exchange, The National Stock Exchange and The Bombay Stock Exchange in India. The Company, with its comprehensive portfolio of products, smart legacy modernization services and consulting offers state-of-the-art solutions for Core Banking, Corporate Banking, Wealth & Asset Management and Insurance.

2. Basis of preparation of financial statements

The financial statements of the company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on an accrual basis and under the historical cost convention. The accounting policies adopted in the preparation of financial statements are consistent with those used in the previous year.

3. Related party transactions

List of related parties

Subsidiaries

1. Polaris Software Lab Pte Limited, Singapore (''PSL Singapore'')

2. Polaris Software Lab Canada Inc (''PSL Canada'')

3. Polaris Software Lab Limited, UK (''PSL UK'')

4. Polaris Software Lab GmbH, Germany (''PSL Germany'')

5. Polaris Software Lab SA, Switzerland (''PSL Switzerland'')

6. Polaris Software Lab FZ-LLC (''PSL Dubai'')

7. Polaris Software Pty Ltd, Australia (''PSL Australia'')

8. Polaris Software Lab Ireland Ltd., Ireland (''PSL Ireland'')

9. Polaris Software Lab Japan KK (''PSL Japan'')

10. Polaris Enterprise Solution Limited, India (''PESL'')

(Formerly Polaris Retail Infotech Limited)

11. Optimus Global Services limited (''Optimus'')

12. Polaris Software Lab B.V, Netherlands* (''PSL Netherlands'')

13. Polaris Software lab Limitada, Chile* (''PSL Chile'')

14. Polaris Software Lab Inc (''PSL Inc. - SEEUS'')**

15. SEEC Technologies Asia Private Limited (''Seec Asia'') ***

16. Polaris Software Lab (Shanghai) Limited (''PSL China'')**

17. Laser Soft Infosystems Limited, India (''Laser Soft'')

18. Indigo TX Software Private Ltd India (''Indigo TX'')

19. Polaris Software Lab Vietnam Co. Ltd, Vietnam (''PSL Vietnam)

20. Polaris Software Lab Sdn Bhd, Malaysia (''PSL Malaysia'')**

21. SFL Properties Private Ltd, India (''SFL Properties'')

22. Polaris Software Lab (Philippines) Company Inc.(''PSL Philippines'')**

23. Iden Trust Inc, US (''Iden Trust'')

24. Sonali Polaris FT Limited, Bangladesh (''Sonali Polaris FT'')

25. FinTech Grid Limited, India (''FinTech'')

26. FT Grid Pte Ltd., Singapore**

* Subsidiaries of Polaris Software Lab Limited, UK

** Subsidiaries of Polaris Software Lab Pte Limited, Singapore

*** Subsidiary of Intellect SEEC Inc., USA

Associates

1. NMS Works Software Private Limited (NMS)

2. Adrenalin eSystems Limited (Adrenalin esystems)

Others

(a) Enterprises that directly, or indirectly through one or more intermediaries, control the Company and enterprise of which the Company is an associate

1. Polaris Holdings Private Limited

2. Orbitech Limited

3. Orbitech Employees Welfare Trust

4. Associate Stock Option Plan (Trust) 2011 (''ASOP Trust 2011'')

(b) Key managerial person

Mr. Arun Jain, Chairman and Managing Director

21. Commitments and contingent liabilities

i) The estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) as at March 31, 2013 is Rs. 1,214 Lakhs (March 31, 2012 : Rs 1,369 Lakhs).

ii) Claims against the Company, not acknowledged as debts includes:

1. Demand from Indian income tax authorities as at March 31, 2013 is Rs. 7,537.45 Lakhs (March 31, 2012: Rs 10,828.42 Lakhs). The Company is contesting these demands at various higher appellate levels and the Company believes that the final outcome of the dispute will be in favour of the company and will not have any material impact on the financial results of the Company.

2. Sales Tax demand from Commercial Tax Officer Chennai as at March 31, 2013 is Rs. 520 Lakhs (March 31, 2012: Rs.520 Lakhs);

3. Sales Tax demand from Commercial Tax Officer, Hyderabad as at March 31, 2013 is Rs 98 Lakhs (March 31, 2012: Rs 98 Lakhs); and

4. Service tax demand from Commissioner of Central Excise, Chennai as at March 31, 2013 is Rs 32 Lakhs (March 31, 2012: Rs. 32 Lakhs)

The Company is contesting the demands raised by the respective tax authorities, and the management, including its tax advisers, believes that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company''s financial position and results of operations.

iii) The Company is also involved in other law suit and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

4. Hedging of foreign currency exposures

The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes.

The following are the outstanding Forward Exchange Contracts entered into by the Company as at March 31, 2013 including forward cover taken for forecasted revenue receivable transactions:

5. Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

As at March 31, 2013, the Company had no outstanding dues to Micro and Small enterprises (for March 31, 2012: Rs Nil). The list of Micro and Small enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

6. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. A trust by name "Polaris Software Lab group gratuity trust" has been constituted to administer the gratuity fund.

The following tables summarise the components of net benefit expense recognised in the Statement of profit and loss and the funded status and amounts recognized in the Balance Sheet for the respective plans.

The amount expected to be contributed to the gratuity fund in the next financial year is Rs. 330.87 Lakhs

The funds are invested in the form of a prescribed insurance policy with ICICI prudential and Life Insurance Corporation of India ("LIC"). The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

7. Lease payments

The Company has taken certain offices and residential premises for the employees under operating leases, which expires at various dates in future years. There are no restrictions imposed by the lease arrangements. The minimum lease rental payments to be made in respect of these leases are as follows.

8. Segment reporting

The Company''s operations predominantly relate to providing IT services to customers operating in various industry segments globally. Accordingly, IT service revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is based on the geographical location of customers.

The accounting policies consistently used in the preparation of the financial statements are also applied to record revenue and expenditure in individual segments.

Business (primary) segments of the Company are:

a) Banking and financial services; and

b) Emerging verticals

Revenue and direct expenses in relation to segments are categorised based on items that are individually identifiable to that segment, while other costs, wherever allocable, are apportioned to the segments on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company believes that it is not practicable to provide segment disclosures relating to such expenses, and accordingly such expenses are separately disclosed as ''unallocated'' and directly charged against total income. Fixed assets used in the Company''s business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments. The Company believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Customer relationships are driven based on the location of the respective client. The geographical segments comprise:

a) United States of America;

b) Europe;

c) Asia Pacific; and

d) India and Middle East

9. Research and Development Expenditure

The Company has incurred the following expenditure towards Research & Development (including expenditure incurred at DSIR recognized centers at Chennai): Revenue expenditure amounting to Rs.8,643.08 Lakhs (Previous Year Rs 8,324.74 Lakhs) and capital expenditure of Rs. 1,356.79 Lakhs (Previous year Rs Nil) for the year ended March 31, 2013.

10. Prior year Comparatives

Previous year figures have been regrouped / reclassified, wherever necessary to conform to current year presentation.

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Mar 31, 2012

1. Corporate Information

Polaris Financial Technology Limited (formerly known as Polaris Software Lab Limited), a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956, was founded in 1993 and is headquartered in Chennai. The Company's shares are listed on Madras Stock Exchange, The National Stock Exchange and The Bombay Stock Exchange in India. The Company, with its comprehensive portfolio of products, smart legacy modernization services and consulting offers state-of-the-art solutions for Core Banking, Corporate Banking, Wealth & Asset Management and Insurance.

2. Basis of preparation of financial statements

The financial statements of the company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on an accrual basis and under the historical cost convention. The accounting policies adopted in the preparation of financial statements are consistent with those used in the previous year.

With effect from the current year, the revised Schedule VI notified under the Companies Act 1956, has become applicable to the company, for preparation and presentation of its financial statements. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of financial statements. However, it has significant impact on presentation and disclosures made in the financial statements. The company has also reclassified the previous year figures in accordance with the requirements applicable in the current year.

The Company had filed a petition before The Hon'ble High Court of Madras ("High Court") on 23/04/2012 for the demerger of the BPO division, of its subsidiary Company Optimus Global Services Limited into the Company, subsequent to the shareholders consent obtained at a meeting convened on 09/04/2012 under the direction of the High Court. The High Court has sanctioned the Scheme of Arrangement (demerger) with effect from October 1, 2011. Accordingly, the financial statements for the current year reflect the effect of the demerger. The Scheme and its effect on the financial statements have been discussed in Note 12.III (a) below.

Of the total authorized capital of the company referred above, the company has issued only one class of equity shares having a face value of Rs.5 per share. Each holder of such equity share is entitled to one vote per share. In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company. The distribution will be in proportion to the number of equity shares held by the shareholders.

Share capital suspense

The company has issued total 277 (31st March 2011 - Nil) equity shares of Rs. 5/- each fully paid-up for consideration other than cash pursuant to the Scheme of Arrangement (demerger) of the BPO division of Optimus Global Service Ltd into the Company (As more fully discussed in Note 12.III (a)). The Company is yet to complete the allotment and issue of share certificates with respect to these shares, accordingly these have been shown under share capital suspense account.

Share application money pending allotment

The company has received share application money during the month of March 2012 for issue of 2000 Equity shares at Rs.140.90 each (face value of Rs.5/- each with a premium of Rs.135.90) (31st March 2011 - Nil) under the scheme of ASOP 2003. These have been subsequently allotted during the month of April 2012.

Stock option plans

The Company has four stock option plans that provide for the granting of stock options to employees including directors of the Company (not being promoter directors and not holding more than 10% of the equity shares of the Company).

The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire equity shares. The option plans are summarized below:

Associate Stock Option Plan 2003

The Shareholders of the Company at the EGM held on March 12, 2004 approved an Associate Stock Option Plan (the 2003 Plan). The 2003 Plan provides for issuance of 3,895,500 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed.

If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.

No compensation cost has been recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. A summary of the status of the options granted under 2003 plan as at March 31, 2012 is presented below.

Associate Stock Option Plan 2004

The Shareholders of the Company in the AGM held on the 22 July 2005 approved an Associate Stock Option Plan (the 2004 plan). The 2004 plan provides for issuance of 1,084,745 options, convertible to equivalent number of equity shares of Rs 5 each, to the associates including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.

No compensation cost has been recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. A summary of the status of the options granted under 2004 plan at March 31, 2012 is presented on below

Associate Stock Option Plan 2011

The Shareholders of the Company in the Extraordinary General Meeting held on the 28th October 2011 approved an Associate Stock Option Plan (the 2011 plan). The 2011 plan provides for issuance of 4,960,000 options convertible into equivalent number of equity shares of Rs 5 each. The plan shall be administered under 4 different schemes based on the following terms:

The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the intrinsic value model.

The exercise period shall commence from the date of vesting and expires within 60 calendar months from the relevant vesting date.

During the current year the Company has granted options under Swarnam 11 scheme. As the market price on the date of the grant was less that Rs 175, no option discount has been provided as per the scheme terms and the options are issued at the market price. Accordingly no compensation cost has been recorded. A summary of the status of the options granted under 2011 plan at March 31, 2012 is presented on below

Associate Stock Option Plan (TRUST) 2011

The Shareholders of the Company in the Extraordinary General Meeting held on the 28th October 2011 approved an Associate Stock Option Plan (TRUST) 2011 [the 2011(Trust) plan]. The 2011(Trust) plan provides for issuance of 1,984,000 options, convertible to equivalent number of equity shares of Rs 5 each. The options shall be granted at the market price if the market price is below Rs. 175 or at discount of 10% on market price if the market price is Rs. 175 or above. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 60 calendar months from the relevant vesting date. The Company has not granted any options under the plan as on March 31, 2012.

Pro forma Disclosure

The Company follows the intrinsic value model for valuation of its options under the various plans. In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for associate stock option plans been recognized based on the fair value at the date of grant in accordance with Black- Scholes model, the pro forma amounts of the Company's net profit and earnings per share would have been as follows:

The expected life of stock is based on historical data and current expectation and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

I. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES

a. Scheme of Arrangement between Optimus Global Service Limited and the Company

Optimus Global Services Limited ("Demerged Company" or "Optimus") was incorporated on September 25, 2002 and is a subsidiary of the Company (99.94% holding). Optimus has two undertakings; Undertaking 1 is engaged in the business of facilitating procurement and sale of equipments and software products and Undertaking 2 ("demerged undertaking" or "BPO division") is engaged in the activity of Business Process Outsourcing (BPO).

The Company had entered into a Scheme of Arrangement with Optimus for the demerger of its BPO division into the Company with effect from October 1, 2011. The Scheme was approved by the Hon'ble High Court of Judicature of Madras on 20/07/2012. The Company has filed the order approved by High court order with the Registrar of Companies, Chennai (ROC) on October 5, 2012. The ROC has approved the said registration on October 9, 2012 and as of that date; the BPO division of Optimus has been demerged with the Company. The scheme has accordingly been given effect to in these financial statements with retrospective effect from October 1, 2011.

In accordance with the scheme the Company has accounted for the demerger as follows:

(I) The Company has taken over net assets aggregating to Rs. 1,652.33 Lacs and accumulated losses of Rs.3,032.72 Lacs as on October 1, 2011. These have been transferred to and vested in the Company at the carrying values as appearing in the financial statements of the demerged undertaking.

(ii) The Company has allotted to shareholders comprising 0.06% of the paid up equity share capital of the demerged Company on the record date, 1 equity share of Rs 5 each in the Company in respect of every 200 shares of Rs 2 each held by them in the demerged Company. Accordingly the company has issued 277 equity shares of Rs 5/- each, fully paid up to the shareholders of the demerged Company. These shares have not yet been allotted, accordingly the same has been disclosed as capital suspense account.

(iii) The book value of net assets and accumulated losses taken over as per (i) above, after adjusting the aggregate value of the shares issued to the minority as per (ii) above, has been credited to the Company's investment in equity and preference capital of Optimus.

Further, consequent to the demerger scheme, there has been a reorganization of the share capital of Optimus. As per the reorganized capital structure, the Company holds 8,50,500 equity shares and 14,92,030 preference shares of Optimus on March 31, 2012.

b. The Company's equity ownership interest in Adrenalin e-systems Limited is 40.25% as at March 31, 2012. Adrenalin e-Systems Limited ("ASL") is primarily engaged in the business of providing specific solutions relating to Human resource and payroll management. The Accumulated losses to the extent of Rs 2,861.31 Lacs on March 31, 2012, (Rs.2,936.33 Lacs - March 31, 2011) have eroded the Companies share of investment in the associate. The Company has started showing marginal profits over the last two years. The management is positive about the future outlook, see growing acceptance of the product among top players in the market, and is confident of recouping its losses and breaking even in the coming years. Accordingly, the management believes that there is no other than temporary diminution in the value of its investments in ASL and hence, it is stated at cost.

c. The Company's equity ownership interest in NMS Works Software Private Limited ("NMS") is 36.54% as at March 31, 2012. NMS is primarily engaged in the business of designing network management in Telecommunication and Internet Services. NMS had been incurring losses since its inception accordingly the Company has determined and recorded a provision of Rs 415 Lacs in the earlier year for other than temporary diminution in the value of its equity investment in NMS. The Company has made significant profits in the current year and its accumulated losses as on March 31, 2012 have reduced to Rs 56.29 Lacs (Rs.267.42 Lacs - March 31, 2011)

d. The Company has acquired 85.30% equity stake in IdenTrust Inc, a US based Global leader in trusted Identity solutions and one of the premier providers of digital identity authentication services with effect from April 27, 2011. The total consideration for the acquisition is Rs 8,813 Lacs.

e. The Company has acquired the balance 49% equity stake in Indigo TX Software Private Limited, a SAAS Software developer on November 22, 2011 for a consideration of Rs. 902.22 Lacs. Consequently, Indigo TX became a 100% subsidiary of the company.

f. During the current year, the Company has entered into a JV agreement with Sonali Bank to implement online real time core banking solution for Sonali bank and Bangladesh commerce bank, and offer services to other banks and financial institutions in Bangladesh. Accordingly, the Company has incorporated a subsidiary company with 51% holding, named Sonali Polaris FT limited in terms of the JV agreement.

*Has been pledged as a security by the Company for availing non-fund based facilities from the banker. The deposit carries interest rate at 7.25% per Annum.

3. Commitments and contingent Liabilities

i. The estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) as at March 31, 2012 is Rs.1,369 Lacs (March 31, 2011 : Rs 3,171 Lacs).

ii. Claims against the Company, not acknowledged as debts includes:

1. Demand from Indian income tax authorities as at March 31, 2012 is Rs 10,828.42 Lacs (March 31, 2011: Rs. 755 Lacs) The Company is contesting these demands at various higher appellate levels and the Company believes that the final outcome of the dispute will be in favour of the company and will not have any material impact on the financial results of the Company.

2. Sales Tax demand from Commercial Tax Officer Chennai as at March 31, 2012 is Rs. 520 Lacs (March 31, 2011: Rs.520 Lacs);

3. Sales Tax demand from Commercial Tax Officer, Hyderabad as at March 31, 2012 is Rs 98 Lacs (March 31, 2011: Rs 98 Lacs); and

4. Service tax demand from Commissioner of Central Excise, Chennai as at March 31, 2012 is Rs 32 Lacs (March 31, 2011: Rs. 32 Lacs)

The Company is contesting the demands raised by the respective tax authorities, and the management, including its tax advisers, believes that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company's financial position and results of operations.

iii. The Company is also involved in other law suit and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

4. Hedging of foreign currency exposures

The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes.

5. Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

As at March 31, 2012, the Company had no outstanding dues to Micro and Medium enterprises (for March 31, 2011: Rs Nil). The list of Micro and Medium enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

6. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. A trust by name "Polaris Software Lab group gratuity trust" has been constituted to administer the gratuity fund.

The amount expected to be contributed to the gratuity fund in the next financial year is Rs. 279.53 Lacs.

The funds are invested in the form of a prescribed insurance policy with ICICI prudential and Life Insurance Corporation of India ("LIC"). The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

7. Lease payments

The Company has taken certain offices and residential premises for the employees under operating leases, which expires at various dates in future years. There are no restrictions imposed by the lease arrangements. The minimum lease rental payments to be made in respect of these leases are as follows.

8. Segment reporting

The Company's operations predominantly relate to providing IT services to customers operating in various industry segments globally. Accordingly, IT service revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is based on the geographical location of customers.

The accounting policies consistently used in the preparation of the financial statements are also applied to record revenue and expenditure in individual segments.

Business (primary) segments of the Company are:

a) Banking and financial services; and

b) Emerging verticals

Revenue and direct expenses in relation to segments are categorised based on items that are individually identifiable to that segment, while other costs, wherever allocable, are apportioned to the segments on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company believes that it is not practicable to provide segment disclosures relating to such expenses, and accordingly such expenses are separately disclosed as 'unallocated' and directly charged against total income.

Fixed assets used in the Company's business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments. The Company believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Customer relationships are driven based on the location of the respective client. The geographical segments comprise:

a) Americas;

b) Europe;

c) ANZ & Asia Pacific; and

d) India and Middle East

9. Prior year Comparatives

Till the year ended March 31, 2011, the company was using pre-revised Schedule VI to the Companies Act 1956, for the preparation and presentation of its financial statements. During the year ended March 31, 2012, the revised Schedule VI notified under the Companies Act 1956, has become applicable to the company. The company has reclassified previous year figures to conform to this year's classification. As stated in Note 12.III (a), in view of the Scheme of Arrangement between the demerged undertaking and the Company with effect from October 1, 2011, the figures for the year ended March 31, 2012 are not comparable with those for the year ended March 31, 2011.

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Mar 31, 2011

1. [B15] Investments in subsidiaries and associates

a) The Companys subsidiary Optimus Global Services Limited (`Optimus) incorporated in September 2002, is engaged in the business processing outsourcing services. Optimus has accumulated losses amounting to Rs.2,822.35 as at March 31, 2011 on account of initial/set up stage operation in earlier years and on account of slowdown in BPO industry during the last three years. The management is optimistic about the future growth of Optimus and expects that Optimus will earn profits in the future. Accordingly, management believes that there is no other than temporary diminution in the value of its investments in the subsidiary and hence it is stated at cost.

b) The Companys equity ownership interest in Adrenalin eSystems Limited ("ASL") is 40.25% as at March 31, 2011. ASL is primarily engaged in the business of providing specific solutions relating to Human Relations suite of software solutions. The accumulated losses to the extent of Rs.2,941.10 as per the unaudited financial statements of ASL as on March 31, 2011 are on account of initial / start-up stage of operations. ASL has earned nominal profits in current year. As per the valuation of ASL as at March 31, 2011 carried out by the independent valuation expert, there is no diminution in the carrying value of investments. Accordingly, management believes that there is no other than temporary diminution in the value of its investments in ASL and hence it is stated at cost.

c) The Companys equity ownership interest in NMSWorks Software Private Limited ("NMS") is 39.59% as at March 31, 2011. NMS is primarily engaged in the business of designing network management in Telecommunication and Internet Services. The Company has made substantial profits of Rs. 363.04 during the year. The orders secured during the year have reduced the accumulated losses. NMS had accumulated losses aggregating to Rs. 180.46 as per the unaudited financial statements of NMS as on March 31, 2011. Accordingly, the Company had determined and recorded a provision of Rs. 415, in the earlier years, for other than temporary diminution in the value of equity investment in NMS.

d) The Company has acquired entire equity interest in Laser Soft Infosystems Limited (Laser Soft), a leading Banking software services company specializing in serving the unique needs of India & emerging markets with effect from November 16, 2009. The total consideration for acquisition is Rs.5,201.05 subject to price adjustment conditions based on future financial performance of Laser Soft over the next two years. The Company has paid a sum of Rs.4,322.94 for 94.29% equity interest as at March 31, 2011. The Company has accrued for the consideration payable for the balance equity shares, as the management expects the payment is probable in accordance with the term of the agreement and a reasonable estimate of the amount can be made as at March 31, 2011.

e) The Company has acquired 51% equity stake in Indigo Tx Software Private Limited, a SAAS Software developer of Rs.800.75 on May 10, 2010. The company has the obligation to acquire the balance equity at a price to be determined based on future financial performance over a period of 6 years.

f) The Company has acquired 100% equity in SFL Properties Ltd. The total consideration for acquisition is Rs. 984.53.

g) Laser Soft Infosystem Limited & SFL Properties Private Limited, subsidiaries of the company are proposed to be merged with the company with effect from April 1, 2011.

2. [B9] As at March 31, 2011, the Company had no outstanding dues to Micro and Medium enterprises (March 31, 2010: Rs.Nil). The list of Micro and Medium enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

3. [B20] Previous year figures have been regrouped/reclassified, wherever necessary, to conform to current year presentation.

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Mar 31, 2010

1. All amounts in the financial statements are presented in Rupees Lacs, except for per share data and as otherwise stated.

2. Capital commitments and contingent liabilities

(i) The estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) as at March 31, 2010 is Rs.1,689.85 (March 31, 2009: Rs.218.79).

(ii) As at March 31, 2010, the Group has outstanding guarantees and counter guarantees of Rs.1,683.86 (March 31, 2009: Rs.589.02) issued to various banks, in respect of the guarantees given by the banks in favour of various Government Authorities and others.

(iii) Claims against the Group, not acknowledged as debts include:

a. Demand from Indian income tax authorities as at March 31, 2010 is Rs.1,366.09 (March 31, 2009: Rs.1,199.16). The tax demand mainly on account of disallowance of a portion of the deduction claimed by the Company under Section 10A of the Income Tax Act;

b. Sales Tax demand from Commercial Tax Officer, Chennai is Rs.520/- as at March 31, 2010 (March 31, 2009: Rs.520/-);

c. Sales Tax demand from Commercial Tax Officer, Hyderabad is Rs.42.40 as at March 31, 2010 (March 31, 2009: Rs.42.40) and

d. Service Tax demand from Commissioner of Central Excise, Chennai as at March 31, 2010 is Rs.32.25 (March 31, 2009: Nil)

The Group is contesting the demands raised by the respective tax authorities and the management, including its tax advisers, believes that its position will likely be upheld in the Appellate process. No tax expense has been accrued in the financial statements for the tax demand raised. Management believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Group’s financial position and results of operations.

(iv) The Company is also involved in other law suit and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

4. Gratuity

The Group has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is partially funded with an insurance company in the form of a qualifying insurance policy.

The following table summarises the components of net benefit expense recognised in the profit and loss account and the funded status and amounts recognised in the balance sheet for the respective plans.

The fund is partly administered by Life Insurance Corporation of India (“LIC”). The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

5. Stock Option Plans

The Company has four stock option plans that provide for the granting of stock options to employees including Directors of the Company (not being Promoter Directors and not holding more than 10% of the equity shares of the Company). The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire equity shares.

The option plans are summarized below:

Associate Stock Option Plan 2000

On 9 March 2000, the Company’s shareholders approved in the Extraordinary General Meeting (EGM) an Associate Stock Option Plan (“the 2000 Plan”). The 2000 Plan provides for issuance of 938,400 equity shares of Rs.5/- each to the employees including Directors. Employee Remuneration and Compensation Committee administers the 2000 Plan. Under the Plan, based on the recommendation of Employee Remuneration and Compensation Committee, the options were granted at a discount not exceeding 25% of the market price of shares on the date of grant. The option vests over a period of five years from the grant date.

Subsequently, the shareholders of the Company approved the following modifications to the 2000 Plan:

• At the EGM held on 7 March 2001, the Plan was modified to permit cancellation/ accept surrender of options and

• At the Annual General Meeting held on 6 September 2002, the exercise price of the options to be granted will be the market price of the shares on the date of the grant.

At the Ninth Annual General Meeting held on 6 September 2002, a special resolution was passed, effective 7 March 2001, wherein the total number of options to be granted under the 2000 Plan and 2001 Plan along with options already granted by the Company and outstanding under the schemes shall not at any time exceed 6.25% (2.75% under the 2000 Plan and 3.5% under the 2001 Plan) of the total shares issued by the Company on the date(s) of grant of such options.

The options exercisable at the end of the year have become nil and hence ceases to exist.

Associate Stock Option Plan 2003

The Shareholders of the Company at the EGM held on March 12, 2004 approved an Associate Stock Option Plan (“the 2003 Plan”). The 2003 Plan provides for issuance of 3,895,500 options, convertible into equivalent number of equity shares of Rs.5/- each, to the employees including Directors. No compensation cost has been recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.

Associate Stock Option Plan 2004

The Shareholders of the Company in the AGM held on 22 July 2005 approved an Associate Stock Option Plan (“the 2004 plan”). The 2004 plan provides for issuance of 1,084,745 options, convertible in to equivalent number of equity shares of Rs.5/- each, to the associates including Directors. No compensation cost has been recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.

Pro forma Disclosure:

In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for associate stock option plans been recognized based on the fair value at the date of grant in accordance with Black-Scholes model, the Pro forma amounts of the Group’s net profit and earnings per share would have been as follows:

6. Segment Reporting

The Group’s operations predominantly relate to providing IT services and IT Enabled services, delivered to customers operating in various industry segments globally. Accordingly, IT service revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the geographical location of customers.

The accounting policies consistently used in the preparation of the financial statements are also applied to record revenue and expenditure in individual segments.

Business (primary) segments of the Group are:

a) Banking and financial services and

b) Emerging verticals

Revenue and direct expenses in relation to segments are categorized based on items that are individually identifiable to that segment, while other costs, wherever allocable, is apportioned to the segments on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Group believes that it is not practicable to provide segment disclosures relating to such expenses, and accordingly such expenses are separately disclosed as ‘unallocated’ and directly charged against total income.

Total assets used in the Group’s business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments. The Group believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Customer relationships are driven based on the location of the respective client. The geographical segments comprise:

a) United States of America

b) Europe

c) Asia Pacific

d) India and Middle East

8. Related party transactions

List of related parties:

Associates

NMS Works Software Private Limited (‘NMS’) Adrenalin eSystems Limited (‘Adrenalin eSystems’)

Others

(a) enterprises that directly, or indirectly through one or more intermediaries, control the Group and enterprise of which the Group is an associate.

Citi Bank and its branches Orbitech Limited

Polaris Holdings Private Limited Orbitech Employees welfare trust

(b) enterprises that have a member of Key Management in common with that of the Group Ullas Trust

Key Management Personnel

Mr. Arun Jain, Chairman and Managing Director

Mr. Arup Gupta, Executive Director and Chief Operating Officer

(resigned on July 16, 2009)

9. Investments in Associates and Subsidiaries

a) The Companys equity ownership interest in Adrenalin eSystems Limited ("ASL") is 40.25% as at March 31, 2010. ASL is primarily engaged in the business of providing specific solutions relating to Human Relations suite of software solutions. The accumulated losses to the extent of Rs.3,001.03 as per the unaudited financial statements of ASL as on March 31, 2010 are on account of initial / start-up stage of operations. ASL has earned nominal profits in current year. As per the valuation of ASL as at March 31, 2010 carried out by the independent valuation expert, there is no diminution in the carrying value of investments. Accordingly, management believes that there is no other than temporary diminution in the value of its investments in the ASL and hence it is stated at cost, less share of losses to the extent of equity.

The Consolidated Financial Statements include Rs.833.88 as share of accumulated losses, and a share of loss of Rs.41.61 for the current year of, Adrenalin eSystems Limited which is accounted under equity method as per AS 23 – Accounting for Investment in Associates. The Financial Statements of Adrenalin are yet to be audited. In the opinion of the management, the impact that may arise upon completion of the audit of the financial statements of Adrenalin, if any, will not be material.

b) The Company’s equity ownership interest in NMS Works Software Private Limited (“NMS”) is 39.56% as at March 31, 2010. NMS is primarily engaged in the business of designing network management in Telecommunication and Internet Services. The orders secured during the year have reduced the accumulated losses. NMS had accumulated losses aggregating to Rs.551.31 as per the unaudited financial statements as on March 31, 2010. Accordingly, the Company had determined and recorded a provision of Rs.415, in the earlier years, for other than temporary diminution in the value of its equity investment in NMS.

c) The Company has acquired entire equity interest in Laser Soft Infosystems Limited (‘Laser Soft’), a leading banking software services company specializing in serving the unique needs of India & emerging markets with effect from November 16, 2009. The total consideration for acquisition is Rs.5,201.05 subject to price adjustment conditions based on future financial performance of Laser Soft over the next two years. The company has paid a sum of Rs.3,471.95 for 89% equity interest as at March 31, 2010. The company accured for the consideration payable for the balance equity shares, as the managements expects the payment is probable in accordance with the term of the agreement and a reasonable estimate of the amount can be made as at March 31, 2010. The excess of purchase consideration over the net assets of Laser Soft to the extent Rs.3,069.83 is recognized as goodwill. The profit and loss account for the year includes revenue of Rs.1,913.22 and profit of Rs.659.16 of Laser Soft.

d) The Company has entered into a definitive agreement on March 26, 2010 to acquire equity stake in Indigo TX Software Private Limited, a SaaS Software developer. The acquisition will be completed on compliance of closing conditions as per the agreement. The company has paid Rs.500.00 as a part of acquisition cost subsequent to the date of the balance sheet.

11. Derivative Instruments

The Group uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted revenue receivable transactions. The Group does not use forward contracts for speculative purposes.

12. Previous year figures have been regrouped/reclassified, wherever necessary, to conform to current year’s presentation.