Bharti Airtel
BSE: 532454 | NSE: BHARTIARTL | ISIN: INE397D01024 | Telecommunications - Service
- Directors Report
- Chairman's Speech
- Auditors Report
- Notes To Accounts
- Accounting Policy
- Finished Products
- Raw Materials
| Notes to Accounts | Year End : Mar '09 |
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. |
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| Source : Religare Technova | |
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