Bharti Airtel

1.  Background
 
 Bharti Airtel Limited (Bharti Airtel or the Company) incorporated
 in India on July 7, 1995, is a Company promoted by Bharti Telecom
 Limited (BTL), a Company incorporated under the laws of India.
 
 2.  New Operations
 
 a) During the year ended March 31, 2009, the scheme of amalgamation
 (Scheme) for amalgamation of Bharti Aquanet Limited (Aquanet) with
 the Company has been approved by the Honble High Court and filed with
 the Registrar of Companies, National Capital Terrritory of Delhi &
 Haryana, (ROC) on January 1, 2009.  Accordingly, all assets and
 liabilities of Aquanet are recorded by the Company under pooling of
 interest method effective January 1, 2009.
 
 i) The difference between the carrying value of Investment in Aquanet
 and value of net assets acquired under the Scheme of Rs. 55,028
 thousand has been credited to Reserve and Surplus.
 
 ii) The Company has not issued any shares to give an effect to the
 above scheme.
 
 b) During the year ended March 31, 2008, the Company had transferred
 its telecom infrastructure undertaking worth Rs. 57,396,005 thousand
 into a separate legal entity Bharti Infratel Limited (BIL) at nil
 value pursuant to scheme sanctioned by The Honble High Court of Delhi,
 effective from January 31, 2008. The Company had revalued its
 investment in BIL and recorded it at its fair value of Rs. 82,181,203
 thousand.  The reserve arising on business restructuring stand at Rs.
 24,785,198 thousand in the balance sheet of the Company as of March 31,
 2008.
 
 During the year ended March 31, 2009, the Company has, based on final
 reconciliation with BIL, transferred in/out certain assets and
 accounted these in accordance with the accounting prescribed in the
 Scheme resulting into net increase in the Business Restructuring
 Reserve (BRR) and decrease in the net liabilities of the Company by
 Rs. 126,831 thousand for year ended March 31, 2009. This reconciliation
 has no impact on the profits for the year ended March 31, 2009.
 
 c) During the year ended March 31, 2009, Bharti Airtel invested Rs.
 1,106,553 thousands in equity shares of its wholly owned subsidiary
 Bharti Airtel Holdings Singapore Pte Limited towards equity. As of
 March 31, 2009, the amount is pending allotment by the subsidiary.
 
 d) On September 9, 2008, Bharti Airtel Limited subscribed to 5,717
 thousand right shares of Bharti Hexacom Limited for an aggregate
 consideration of Rs. 343,062 thousand.
 
 e) Further, on February 19, 2009, the Company increased its stake in
 Bharti Hexacom Limited by 1.11% through acquisition of 27,80,306 equity
 shares for an aggregate consideration of Rs. 166,818 thousand.
 
 f) During the year ended March 31, 2009, the Company invested Rs.
 2,049,411 thousand in its wholly owned subsidiary Bharti Airtel Lanka
 (Private) Limited towards equity.
 
 g) On March 4, 2009, the Company subscribed to 1470,000 equity shares
 (49% stake) in Bharti Teleports Limited for an aggregate consideration
 of Rs. 14,700 thousand.
 
 3.  Contingent liabilities
 
 a) Total Guarantees outstanding as at March 31, 2009 amounting to Rs.
 20,895,580 thousand (March 31, 2008 Rs. 13,686,627 thousand) have been
 issued by banks and financial institutions on behalf of the Company.
 
 Corporate Guarantees outstanding as at March 31, 2009 amounting to Rs.
 1,576,542 thousand (March 31, 2008 Rs. 1,198,890 thousand) have been
 given to banks and financial institutions as mentioned above on behalf
 of Group Companies.
 
 c) Sales tax
 
 The claims for sales tax as of March 31, 2009 comprised the cases
 relating to:
 
 i. the appropriateness of the declarations made by the Company under
 the relevant sales tax legislations which was primarily procedural in
 nature; and
 
 ii.  the applicable sales tax on disposals of certain property and
 equipment items.
 
 d) Service tax
 
 The service tax demands as at March 31, 2009 relate to: i.  roaming
 revenues charged from other operators; and ii.  subscriber receivables
 written off.
 
 e) Income tax demand under appeal
 
 Income tax demands under appeal mainly included the appeals filed by
 the Company before various appellate authorities against the
 disallowance of certain expenses being claimed under tax by income tax
 authorities.  The management believes that, based on legal advice, it
 is probable that its tax positions will be sustained and accordingly,
 recognition of a reserve for those tax positions will not be
 appropriate.
 
 f) Custom duty
 
 The custom authorities, in some states, demanded Rs. 2,198,348 thousand
 as at March 31, 2009 (March 31, 2008 - Rs. 31,194 thousand) for the
 imports of special software on the ground that this would form part of
 the hardware along with which the same has been imported. The view of
 the Company is that such imports should not be subject to any custom
 duty as it would be an operating software exempt from any custom duty.
 The management is of the view that the probability of the claims being
 successful is remote.
 
 g) Entry tax
 
 In certain states an entry tax is levied on receipt of material from
 outside the state. This position has been challenged by the Company in
 the respective states, on the grounds that the specific entry tax is
 ultra vires the constitution. Classification issues have been raised
 whereby, in view of the Company, the material proposed to be taxed not
 covered under the specific category. The amount under dispute as at
 March 31, 2009 was Rs. 1,020,873 thousand (March 31, 2008 - Rs. 44,829
 thousand) included in Note 3 (b) above.
 
 h) DoT Demands
 
 i) The Company has received demands from DoT pertaining to Bharti
 Broadband Limited (now merged with Bharti Airtel Limited) amounting to
 Rs. 50,563 thousand against which an appeal has been filed before
 Honble TDSAT (included in note 3 (b) above). The erstwhile promoter of
 Bharti Broadband Limited has undertaken to reimburse the Company in the
 event of the claim being payable.
 
 ii) The Company has not been able to meet its roll out obligations
 fully due to certain non-controllable factors like Telecommunication
 Engineering Center testing, Standing Advisory Committee of Radio
 Frequency Allocations clearance, non availability of spectrum,
 operational hazards, etc. The Company has received show cause notices
 from DoT for 14 of its circles for non-fulfillment of its roll out
 obligations.  The Company is confident that this show cause notice
 would not result into liability.
 
 i) Access charges/Port Charges
 
 The Company has several claims from BSNL relating to transit charges,
 access charges (pre-IUC period) and Non-CLI calls. These claims are
 under litigation at various forum or at stages of mutual discussion for
 settlement. Pending settlement of these claims, the Company has
 disclosed the related amount as contingent liability.
 
 The management believes that the outcome of these contingencies would
 not result into any liability.  Accordingly, no amounts have been
 accrued although some have been paid under protest.
 
 j) Others
 
 Others mainly include disputed demands for consumption tax, disputes
 before consumer forum and with respect to labour cases and a potential
 claim for liquidated damages.
 
 The management believes that, based on legal advice, the outcome of
 these contingencies will be favourable and that a loss is not probable.
 No amounts have been paid or accrued towards these demands.
 
 k) Bharti Mobinet Limited (BMNL) litigation
 
 Bharti Airtel is currently in litigation with DSS Enterprises Private
 Limited (DSS) (0.34 per cent equity interest in erstwhile Bharti
 Cellular Limited (BCL)) for an alleged claim for specific performance
 in respect of alleged agreements to sell the equity interest of DSS in
 erstwhile BMNL to Bharti Airtel. The case filed by DSS to enforce the
 sale of equity shares before the Delhi High Court had been transferred
 to District Court and was pending consideration of the Additional
 District Judge. This suit was dismissed in default on the ground of
 non-prosecution. DSS had filed an application for restoration of the
 suit but has subsequently withdrawn the restoration application. In
 respect of the same transaction, Crystal Technologies Private Limited
 (Crystal), an intermediary, has initiated arbitration proceedings
 against the Company demanding Rs. 194,843 thousand included in Note 3
 (b) above regarding termination of its appointment as a consultant to
 negotiate with DSS for the sale of DSS stake in erstwhile BMNL to
 Bharti Airtel. DSS has also filed a suit against a previous shareholder
 of BMNL and Bharti Airtel challenging the transfer of shares by that
 shareholder to Bharti Airtel. The suit was subsequently dismissed as
 frivolous, which has been appealed to in the Delhi High Court by DSS
 and subsequently transferred to District Court. DSS has also initiated
 arbitration proceedings seeking direction for restoration of the
 cellular license and the entire business associated with it including
 all assets of BCL/BMNL to DSS or alternatively, an award for damages.
 An interim stay has been granted by the Delhi High Court with respect
 to the commencement of arbitration proceedings. The liability, if any,
 of Bharti Airtel arising out of above litigation cannot be currently
 estimated. Since the amalgamation of BCL and erstwhile Bharti Infotel
 Limited (BIL) with Bharti Airtel, DSS, a minority shareholder in BCL,
 has been issued 2,722,125 equity shares of Rs. 10 each bringing the
 share of DSS in Bharti Airtel down to 0.14% as at March 31, 2009. The
 management believes that, based on legal advice, the outcome of these
 contingencies will be favourable and that a loss is not probable.
 Accordingly, no amounts have been accrued or paid in regard to this
 dispute.
 
 4.  Export Obligation
 
 Bharti Airtel has obtained licenses under the Export Promotion Credit
 Guarantee (EPCG) Scheme for importing capital goods at a concessional
 rate of customs duty against submission of bank guarantee and bonds.
 
 Under the terms of the respective schemes, the Company is required to
 export goods of FOB value equivalent to, or more than, five times the
 CIF value of imports in respect of certain licenses and eight times the
 duty saved in respect of licenses where export obligation has been
 refixed by the order of Director General Foreign Trade, Ministry of
 Finance, as applicable within a period of eight years from the import
 of capital goods. The Export Promotion Capital Goods Scheme, Foreign
 Trade Policy 2004-2009 as issued by the Central Government of India,
 covers both manufacturer exporters and service providers. Accordingly,
 in accordance with Clause 5.2 of the Policy, export of
 telecommunication services would also qualify.
 
 Accordingly, the Company was required to export goods and services of
 FOB value of Rs. 2,596,473 thousand (March 31, 2008 Rs. 1,087,184
 thousand).
 
 5.  a) Estimated amount of contracts to be executed on capital account
 and not provided for (net of advances)
 
 Rs. 29,526,399 thousand (March 31, 2008- Rs. 63,603,778 thousand).
 
 b) Under the IT Outsourcing Agreement, the Company has commitments to
 pay Rs. 7,563,213 thousand (March 31, 2008 Rs. 8,009,806 thousand).
 
 Defined Benefit Plans
 
 Gratuity liability and leave encashment liability are defined benefit
 obligations and are provided for on the basis of an actuarial valuation
 on projected unit credit method made at the end of each financial year.
 
 d) The expected rate of return on plan assets was based on the average
 long-term rate of return expected to prevail over the next 15 to 20
 years on the investments made by the LIC. This was based on the
 historical returns suitably adjusted for movements in long-term
 government bond interest rates. The discount rate is based on the
 average yield on government bonds of 20 years.
 
 e) 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.
 
 f) The Company made annual contributions to the LIC of an amount
 advised by the LIC. The Company was not informed by LIC of the
 investments made by the LIC or the break-down of plan assets by
 investment type.
 
 g) Estimated amounts of benefits payable within next year are Rs.
 242,918 thousand (March 31, 2008 Rs. 220,206 thousand).
 
 h) The table below illustrates experience adjustment disclosure as per
 para 120 (n) (ii) of Accounting Standard 15, Employee Benefits
 
 Joint Ventures
 
 b) The Company entered into a Joint Venture with 9 other overseas
 mobile operators to form a regional alliance called the Bridge Mobile
 Alliance incorporated in Singapore as Bridge Mobile Pte Limited. The
 principal activity of the venture is creating and developing regional
 mobile services and managing the Bridge Mobile Alliance Programme. The
 Company has invested USD 2,200 thousand, amounting to Rs. 92,237
 thousand, in 2,200 thousand ordinary shares of USD 1 each which is
 equivalent to an ownership interest of 10.00% as at March 31, 2008
 (March 31, 2007: USD 2,200 thousand, Rs. 92,237 thousand, ownership
 interest 10.00%)
 
 6. During the year ended March 31, 2005 the Company issued USD
 115,000,000 Zero Coupon Convertible Bonds due 2009 (the “FCCBs”). The
 FCCBs are convertible at any time on or after June 12, 2004 (or such
 earlier date as is notified to the holders of the FCCBs by the Issuer)
 up to April 12, 2009 by holders into fully paid equity shares with full
 voting rights with a par value of Rs. 10 each of the Issuer (“Shares”)
 at an initial Conversion Price (as defined in the “Terms and Conditions
 of the FCCBs”) of Rs. 233.17 per share with a fixed rate of exchange on
 conversion of Rs. 43.56 = USD 1.00. The Conversion Price is subject to
 adjustment in certain circumstances.
 
 The FCCBs could be redeemed, in whole or in part, at the option of the
 Issuer at any time on or after May 12, 2007 and prior to April 12,
 2009, subject to satisfaction of certain conditions, at their “Early
 Redemption Amount” (as defined in the “Terms and Conditions of the
 FCCBs”) at the date fixed for such redemption if the “Closing Price”
 (as defined in the “Terms and Conditions of the FCCBs”) of the Shares
 translated into U.S.  dollars at the “prevailing rate” (as defined in
 the “Terms and Conditions of the FCCBs”) for each of 30 consecutive
 “Trading Days” (as defined in the “Terms and Conditions of the FCCBs”),
 the last of which occurs not more than five days prior to the date upon
 which notice of such redemption is published, is greater than 120 per
 cent of the “Conversion Price” (as defined in the “Terms and Conditions
 of the FCCBs”) then in effect translated into U.S.  dollars at the rate
 of Rs. 43.56 = USD 1.00.
 
 The FCCBs could also be redeemed in whole, and not in part, at any time
 at the option of the Issuer at their Early Redemption Amount if less
 than 5 per cent in aggregate principal amount of the FCCBs originally
 issued is outstanding.
 
 The FCCBs could also be redeemed in whole, at any time at the option of
 the Issuer at their Early Redemption Amount in the event of certain
 changes relating to taxation in India.
 
 The Issuer will, at the option of any holder of any FCCBs, repurchase
 at the Early Redemption Amount such FCCBs at such time as the Shares
 cease to be listed or admitted to trading on the NSE or upon the
 occurrence of a “Change of Control” (as defined in the Terms and
 Conditions of the FCCBs) in respect of the Issuer. These FCCBs were
 listed in the Singapore Exchange Securities Trading Limited (the
 “SGX-ST”).
 
 The Company has during the year ended March 31, 2009, converted FCCBs
 equivalent to USD 500,000 into 93,408 equity shares of the Company at
 the option exercised by the bond holders which is as follows:
 
 Before April 12, 2009 the Company has received notices for conversion
 of the FCCBs, equivalent to USD 350,000 convertible into 65,385 equity
 shares of the company.
 
 The balance FCCBs equivalent to USD 50,000 will be redeemed in US
 Dollars at 111.84% of their principal amount after completion of the
 statutory formalities.
 
 7.  Rs. 3,424,931 thousand (March 31, 2008 Rs. 3,478,690 thousand)
 included under Current Liabilities, represents refundable security
 deposits received from subscribers on activation of connections granted
 thereto and are repayable on disconnection, net of outstanding, if any
 and security deposits received from channel partners.  Sundry debtors
 are secured to the extent of the amount outstanding against individual
 subscribers by way of security deposit received from them.
 
 8.  As at March 31, 2009 2,090,245 equity shares (March 31, 2008
 2,317,645 equity shares) of the Company are held by Bharti
 Tele-Ventures Employees Welfare Trust issued at the rate of Rs. 51.36
 per equity share fully paid up.
 
 9.  Sales and Marketing under Schedule 17 includes goodwill waivers
 which are other than trade discount, of Rs. 340,299 thousand (March 31,
 2008 Rs. 286,177 thousand).
 
 10.  (a) Loans and advances in the nature of loans have been given to
 subsidiaries. Refer note 23 below for amount outstanding and maximum
 amount outstanding during the year.
 
 (b) Loan and advance in the nature of loan bearing nil interest given
 to Bharti Telemedia Limited Rs. 6,384,291 thousand.
 
 Note : Following shall be excluded from Securities as mentioned above:-
 a) Intellectual properties of Bharti Airtel.
 
 b) Investment in subsidiaries of Bharti Airtel.
 
 c) Licenses issued by DoT to provide various telecom services.
 
 11. Amounts due to micro, and small enterprises under Micro, Small and
 Medium Enterprises Development Act, 2006 aggregate to Rs. 44,258
 thousand (March 31, 2008 - Rs. Nil) based on the information available
 with the Company and the confirmation received from the creditors till
 the year end. :
 
 12. The Company uses various premises on lease to install the
 equipment. A provision is recognized for the costs to be incurred for
 the restoration of these premises at the end of the lease period. It is
 expected that this provision will be utilized at the end of the lease
 period of the respective sites as per the respective lease agreements.
 The movement of Provision in accordance with AS-29 Provisions,
 Contingent Liabilities and Contingent Assets notified under Companies
 Accounting Standards Rules, 2006 (as amended) , is given below:
 
 Operating Lease – As a Lessor
 
 i) The Company has entered into a non-cancelable lease arrangement to
 provide approximately 100,000 Fiber pair kilometers of dark fiber on
 indefeasible right of use (IRU) basis for a period of 18 years. The
 lease rental receivable proportionate to actual kilometers accepted by
 the customer is credited to the Profit and Loss Account on a straight -
 line basis over the lease term. Due to the nature of the transaction,
 it is not possible to compute gross carrying amount, depreciation for
 the year and accumulated depreciation of the asset given on operating
 lease as at March 31, 2009 and accordingly, disclosures required by AS
 19 is not provided.
 
 13. Finance Lease - as a Lessee
 
 The Company entered into a composite IT outsourcing agreement, whereby
 the vendor supplied fixed assets and IT related services to the
 Company. Based on the risks and rewards incident to the ownership, the
 fixed asset and liability are recorded at the fair value of the leased
 assets at the time of receipt of the assets, since it is not possible
 for the Company to determine the extent of fixed assets and services
 under the contract at the inception of the contract. These assets are
 depreciated over their useful lives as in the case of the Companys own
 assets.
 
 Since the entire amount payable to the vendor towards the supply of
 fixed assets and services during the year is accrued, the disclosures
 as per AS 19 are not applicable.
 
 There are no restrictions imposed on lease arrangements.
 
 14. Employee stock compensation
 
 (i) Pursuant to the shareholders resolutions dated February 27, 2001
 and September 25, 2001, the Company introduced the Bharti
 Tele-Ventures Employees Stock Option Plan (hereinafter called the
 Old Scheme) under which the Company decided to grant, from time to
 time, options to the employees of the Company and its subsidiaries. The
 grant of options to the employees under the ESOP Scheme is on the basis
 of their performance and other eligibility criteria.
 
 (ii) On August 31, 2001 and September 28, 2001, the Company issued a
 total of 1,440,000 equity shares at a price of Rs 565 per equity share
 to the Trust. The Company issued bonus shares in the ratio of 10 equity
 shares for every one equity share held as at September 30, 2001, as a
 result of which the total number of shares allotted to the trust
 increased to 15,840,000 equity shares.
 
 (iii) Pursuant to the shareholders further resolution dated September
 6, 2005, the Company announced a new Employee Stock Option Scheme
 (hereinafter called the New Scheme) under which the maximum quantum
 of options was determined at 9,367,276 options to be granted to
 employees from time to time on the basis of their performance and other
 eligibility criteria.
 
 (iv) All above options are planned to be settled in equity at the time
 of exercise and have maximum period of 7 years from the date of
 respective grants. The plans existing during the year are as follows:
 
 The Company had followed the accounting policy to adjust foreign
 exchange fluctuation on loans/liability for fixed assets till June 30,
 2008, as per the requirement of Schedule VI of the Companies Act, 1956
 based on a legal advice. During the period, effective April 1, 2008,
 the Company has adopted the treatment prescribed in Accounting Standard
 (AS-11) Effect of Changes in Foreign exchange Rates notified under
 Companies (Accounting Standard) Rules 2006 (as amended) dated
 December 7, 2006. Instead of capitalizing/decapitalizing such
 fluctuation, as per policy hitherto followed, the Company has, with
 effect from the April 1, 2008, charged/ credited such fluctuations
 directly to the Profit & Loss Account.
 
 Had the Company continued with its earlier policy, net profit after tax
 would have been higher by Rs. 12,550,657 thousand for year ended March
 31, 2009 (lower by Rs. 2,923,206 thousand for the year ended March 31,
 2008), and net fixed assets would have been higher by Rs. 16,359,617
 thousand and deferred tax asset would have been lower by Rs. 3,562,639
 thousand.
 
 The Company has accounted for derivatives, which are covered under the
 Announcement issued by the ICAI, on marked-to-market basis and has
 recorded reversals of losses for earlier period of Rs. 1,835,399
 thousand for the year ended March 31, 2009 (including reversal of
 losses recognised in earlier periods Rs. 1,230,080 thousand towards
 embedded derivatives) (March 31, 2008 recorded Marked to Market loss of
 Rs. 2,044,991 thousand (including loss of Rs 1,230,080 thousand towards
 embedded derivatives).
 
 15.  The Board of directors in its meeting held on April 29, 2009 have
 approved sub-division (share split) of existing equity shares of Rs. 10
 each into 2 equity shares of Rs. 5 each, subject to the approval of its
 shareholders.
 
 16.  The Board of Directors recommended a final dividend of Rs. 2.00
 per equity share of Rs. 10.00 each (20% of face value) for financial
 year 2008-09. The payment is subject to the approval of the
 shareholders in the ensuing Annual General Meeting of the Company.
 
 17.  The Company has undertaken to provide financial support, to its
 subsidiaries Bharti Airtel Services Limited, Bharti Airtel (USA)
 Limited, Bharti Airtel (Canada) Limited, Bharti Airtel Hongkong
 Limited, Bharti Infratel Ventures Limited, Bharti Telemedia Limited,
 Bharti Airtel (Singapore) Private Limited, Bharti Airtel Holdings
 (Singapore) Pte Limited and Bharti Airtel (UK) Limited.
 
 18.  Previous year figures have been regrouped/reclassified where
 necessary to conform to current years classification.
 
 19. Forward Contracts & Derivative Instruments
 
 The Companys activities expose it to a variety of financial risks,
 including the effects of changes in foreign currency exchange rates and
 interest rates. The Company uses derivative financial instruments such
 as foreign exchange contracts, Option contracts and interest rate swaps
 to manage its exposures to interest rate and foreign exchange
 fluctuations.