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Birlasoft

BSE: 532400|NSE: BSOFT|ISIN: INE836A01035|SECTOR: Computers - Software Medium & Small
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Notes to Accounts Year End : Mar '18

30.

(i) The above loan is secured by way of first charge by way of hypothecation of Company''s entire book debts, both present and future, on pari passu basis, carrying an average interest rate upto 6 months LIBOR plus 0.58% p.a.

(ii) The loan from other than banks was secured by way of first and exclusive charge on fixed assets acquired under the loan arrangement. This loan has been repaid during the year.

(iii) Information about Company''s exposure to interest rate risk, foreign currency risk & liquidity risk is disclosed in note 30.

Note:

(i) Information about the Company''s exposure to interest rate risk, foreign currency risk and liquidity risk is disclosed in note 30.

30.2 Fair value hierarchy

Financial assets and liabilities include cash and cash equivalents, other balances with banks, trade receivables, loans, unbilled revenue, other financial assets, trade payables and other financial liabilities whose fair values approximate their carrying amounts largely due to the short term nature of such assets and liabilities.

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

The following table presents fair value hierarchy of financial assets and liabilities as on 31 March 2018:

* Since denominated in '' million.

Valuation technique and significant unobservable inputs:

Level 2:

(i) Derivative financial assets are valued based on inputs that are directly or indirectly observable in the market.

(ii) Borrowings and loans given are valued using the discounted cash flow method, the net cash flows expected to be generated are discounted using the cost of borrowing that are directly or indirectly observable in the market.

Level 3:

Valuation techniques Significant unobservable inputs

For valuation of investment in equity instruments, discounted - Budgeted revenue growth rate (5%) cash flow method is used to capture the present value of

expected future economic benefits. Under the discounted cash - Weighted average cost °f capital (19%) flow method, the net cash flows expected to be generated are discounted using the weighted average cost of capital.

Significant increase in discount rates and spreads above risk free rate, in isolation would result in lower fair values. A significant increase in volatility in revenue growth rates will result in higher fair value.

30.3 Financial risk management

The board of directors has overall responsibility for the establishment and oversight of the Company risk management framework. The board of directors has established the Risk Management Committees, which is responsible for developing and monitoring the Company''s risk management policies.

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

a. Credit risk

Credit risk is the risk of financial losses to the Company if a customer or counterparty to financial instruments fails to discharge its contractual obligations and arises primarily from the Company''s receivables from customers amounting to Rs, 5,477.33 million and Rs, 5,005.65 million and unbilled revenue amounting to Rs, 464.50 million and Rs, 323.71 million as on 31 March 2018, 31 March 2017 respectively. To manage this, the Company periodically assesses the key accounts receivable balances. As per Ind-AS 109 : Financial Instruments, the Company uses expected credit loss model to assess the impairment loss or gain.

The carrying amount of trade and other receivables and other financial assets represents the maximum credit exposure. i. Trade receivables

The management has established accounts receivable policy under which customer accounts are regularly monitored. The Company has a dedicated sales team at each geography which is responsible for collecting dues from the customer within stipulated period. The management reviews status of critical accounts on a regular basis.

c. Market risk

Market risk is a risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

i. Foreign currency risk

Significant portion of the Company''s revenues are in foreign currencies, while a significant portion of the costs are in Indian rupee i.e. functional currency of the Company. The foreign currencies to which the Company is majorly exposed to are US Dollars, Euros and Pound Sterling.

The Company evaluates net exchange rate exposure based on current revenue projections and expected volatility in the market and covers its exposure up to 75% on net basis. For this purpose the Company uses foreign currency derivative instruments such as forward covers to mitigate the risk. The counterparty to these derivative instruments is a bank. The Company has designated certain derivative instruments as cash flow hedge to mitigate the foreign exchange exposure of highly probable forecasted cash flows.

ii. Derivative assets and liabilities designated as cash flow hedges

In accordance with its risk management policy and business plan the Company has hedged its cash flows. The Company enters into derivative contracts to offset the foreign currency risk arising from the amounts denominated in currencies other than in Indian rupees. The counter party to the Company''s foreign currency contracts is a bank. These contracts are entered into to hedge the foreign currency risks of firm commitments (sales orders) and highly probable forecast transactions. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.

The following are the outstanding GBP/USD/EUR: INR Currency Exchange Contracts entered into by the Company which has been designated as Cash Flow Hedges:

31 Other equity

(i) Capital reserve

Any profit or loss on purchase, sale, issue or cancellation of the Company''s own equity instruments is transferred to capital reserve.

(ii) Capital redemption reserve

Represents the nominal amount of the preference share capital on redemption of 400,000, 0.01% cumulative redeemable preference shares.

(iii) Amalgamation reserve

Represents the amount credited on account of cancellation of stock options issued pursuant to the scheme of amalgamation and acquisition.

(iv) Securities premium reserve

Securities premium is used to record the premium received on issue of shares. It is utilized in accordance with the provisions of the Companies Act, 2013.

(v) Share based payment reserve

The Company has established various equity-settled share based payment plans for certain categories of employees of the Company. Refer note 42 for further details.

32 Disclosure as per the requirement of section 22 of the Micro, Small and Medium Enterprise Development Act, 2006:

a. Principal amount payable to Micro and Small Enterprises (to the extent identified by the Company from available information) as at 31 March 2018 is Rs, 0.99 million (Previous year - Rs, 0.46 million). Estimated interest due thereon is Rs, Nil (Previous year - Rs, Nil).

b. Amount of payments made to suppliers beyond the appointed date during the year is Rs, 0.74 million (Previous year - Rs, 0.34 million). Interest paid thereon is Rs, Nil (Previous year - Rs, Nil) and the estimated interest due and payable thereon is Rs, 0.01 million (Previous year - Rs, 0.00 million).

c. The amount of estimated interest accrued and remaining unpaid as at 31 March 2018 is Rs, 0.68 million (Previous year -Rs, 0.67 million).

d. The amount of further estimated interest due and payable for the period from 1 April 2018 to actual date of payment or 20 April 2018 (whichever is earlier) is Rs, 0.00 million.

35 Details of employee benefits as required by Ind-AS 19 - Employee benefits are as under:

1 Defined contribution plan - Provident fund

Amount recognized as an expense in the Statement of Profit and Loss in respect of defined contribution plan is Rs, 278.34 million (Previous year Rs, 240.07 million)

2 Defined benefit plan

i) The defined benefit plan comprises gratuity, which is un-funded.

ii) Actuarial gains and losses in respect of defined benefit plans are recognized in the Other Comprehensive Income (OCI).

The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Gratuity is a benefit to an employee in India based on 15 days last drawn salary for each completed year of service with a vesting period of five years.

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

37 Related party disclosures

A. Relationship between the parent and its subsidiaries:

Relationship Name of related party

Subsidiary Companies KPIT Technologies (UK) Limited

(Direct holding) Kpit Infosystems Incorporated, USA

KPIT Technologies France SAS

KPIT (Shanghai) Software Technology Co. Limited, China

KPIT Technologies Netherlands B.V.

SYSTIME Computer Corporation, USA

KPIT Infosystems ME FZE, Dubai

Impact Automotive Solutions Limited

KPIT Engineering Limited (w.e.f 08 January 2018)

Subsidiary Companies KPIT Technologies GmbH, Germany (Through KPIT Technologies (UK)

(Indirect holding) Ltd)

KPIT medini Technologies AG (Through KPIT Technologies GmbH, Germany)*

KPIT Solutions GmbH (Through KPIT Technologies GmbH, Germany)

Sparta Consulting Inc., USA (Through KPIT Infosystems Incorporated, USA)

KPIT Technologies Soluqoes EM Informatica Ltda. (Through KPIT Infosystems Incorporated, USA)

MicroFuzzy KPIT TECNOLOGIA LTDA, Brazil (Through SYSTIME Computer Corporation, USA)

KPIT Technologies Corporation, Canada (Through SYSTIME Computer Corporation, USA)

MicroFuzzy Industrie-Elektronic GmbH, Germany (w.e.f. 01 December 2016 through KPIT Technologies GmbH, Germany)

Associate Yantra Digital Services Private Limited, India (w.e.f. 05 October 2016

and upto 31 January 2018 through Impact Automotive Solutions Limited)

Joint Venture Yantra Digital Services Private Limited, India (w.e.f. 01 February 2018

through Impact Automotive Solutions Limited)****

* During previous year, KPIT Technologies GmbH sold the investment in KPIT medini Technologies AG, its subsidiary company. The transaction resulted in loss of control with effect from November 1, 2016.

B. List of Key Management Personnel:

Key Management Personnel Mr. S.B.(Ravi) Pandit Executive Director

(KMP) Mr. Kishor Patil Executive Director

Mr. Sachin Tikekar Executive Director Dr. Raghunath Anant Mashelkar(upto 23 August 2017) Independent Director

Ms. Lila Poonawalla Independent Director

Prof. Alberto Sangiovanni Vincentelli Independent Director

Mr. Sanjay Kukreja (upto 15 September 2017) Non- executive Director

Mr. Anant Talaulicar Independent Director

Mr. Adi Engineer Independent Director

Mr. B V R Subbu Non- executive Director

Dr. Klaus Blickle (w.e.f. 24 January 2018) Non- executive Director

Mr. Nickhil Jakatdar (w.e.f. 24 January 2018) Independent Director

Mr. Anil Patwardhan Chief Financial Officer

Ms. Sneha Padve Company Secretary

C. List of other related parties with whom there are transactions

Relative of KMP Mr. Chinmay Pandit

Ms. Jayada Pandit Mr. Shreyas Patwardhan Enterprise over which KMP have significant influence KP Corporate Solutions Limited

Proficient FinStock LLP Kirtane & Pandit LLP

40 The Company has received recognition from Department of Scientific and Industrial Research, Ministry of Science and Technology DSIR on 1 April 2014 for its Research and Development (R&D) facility at its premises in Hinjewadi which is effective from 1 April 2014 to 31 March 2018. During the year, the R&D facility is approved for the purpose of section 35(2AB) of the Income Tax Act, 1961, from 1 April 2014 to 31 March 2018.

Research and development expenditure debited to the Statement of Profit and Loss aggregating to Rs, 199.11 million (Previous year Rs, 188.53 million) has been incurred by the Company and disclosed under appropriate account heads. Out of total R & D expenditure incurred during the year Rs, 141.94 million (Previous year Rs, 125.61 million) is towards eligible R & D expenditure under section 35 (2AB). Also refer note 43.

The Company has set up a new facility for its R & D activities. Total capital expenditure on this facility is as follows, which is disclosed in respective fixed assets blocks: the period October 2006 to March 2015 demanding service tax relating to:

- Rs, 169.34 million (Previous year Rs, 524.11 million) towards Service Tax on the amount received by branches from overseas clients on behalf of the Company, under the head ''Business Auxiliary Services''.

- Rs, 46.56 million (Previous year Rs, 117.88 million) towards the amount of expenditure made in foreign currency in respect of category II and III services.

- Rs, 4.79 million (Previous year Rs, 4.79 million) towards the amount of expenditure against reimbursement of expenses from April 2010 to June 2012.

The Company has filed an Appeal in the Mumbai Tribunal.

b. The Company has received a show cause cum demand notice from Directorate General of Central Excise Intelligence Mumbai for the period October 2006 to March 2012 challenging the correctness of service tax input credit availed and correctness of discharge of service tax liability.

The contingent liability in respect of this notice is Rs, 90.47 million (Previous year Rs, 90.47 million).

3. Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for:-

a. Property, plant and equipment - Rs, 171.00 million (31 March 2017 Rs, 240.97 million).

b. Intangible assets - Rs, 8.94 million (31 March 2017 Rs, 26.98 million).

42 Share based payments

1 Employee Stock Option Plan - 2004

The Board of Directors and the shareholders of the Company approved the Employees Stock Option Plan at their meeting in August 2001 and in September 2001, respectively. Pursuant to this approval, the Company instituted ESOP 2004, Plan in July, 2004. The compensation committee of the Company administers this Plan. Each option carries with it the right to purchase one equity share of the Company. The Options have been granted to employees of the Company and its subsidiaries at an exercise price that is not less than the fair market value. The vesting of the options is 33%, 33% and 34% of total options granted after end of first, second and third year respectively from the date of grant. The maximum exercise period is 5 years from the date of vesting.

Number and weighted average exercise prices of options granted, exercised and cancelled/lapsed during the financial year

The fair value of each option granted during the year is estimated on the date of grant using Black and Scholes option pricing model. There has been no grant of option under the plan for the year ended 31 March 2018 and 31 March 2017.

The Company recorded an employee compensation cost of Rs, Nil (Previous year Rs, Nil) in the Statement of Profit and Loss.

The expected price volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly available information.

2 Employee Stock Option Plan - 2006

The Board of Directors and the shareholders of the Company approved another Employees Stock Option Plan at their meeting in July 2006 and in August 2006, respectively. Pursuant to this approval, the Company instituted ESOP 2006, Plan in October, 2006. The compensation committee of the Company administers this Plan. Each option carries with it the right to purchase one equity share of the Company. The Options have been granted to employees of the Company and its subsidiaries at an exercise price that is not less than the fair market value. The vesting of the options is 30%, 30% and 40% of total options granted after end of first, second and third year respectively from the date of grant. The maximum exercise period is 5 years from the date of vesting.

Number and weighted average exercise prices of options granted, exercised and cancelled/lapsed during the financial year

The Company recorded an employee compensation cost of Rs, 13.21 million (Previous year Rs, 29.52 million) in the Statement of Profit and Loss.

The expected price volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly available information.

3 Employee Stock Option Plan - 2014

The Board of Directors and the shareholders of the Company approved another Employees Stock Option Plan at their meeting in February 2014 and in April 2014, respectively. Pursuant to this approval, the Company instituted ESOP 2014 Plan in April 2014. The compensation committee of the Company administers this Plan. Each option carries with it the right to purchase one equity share of the Company. The Options have been granted to employees of the Company and its subsidiaries at an exercise price of Rs, 2 per option. The vesting of the options is 30%, 30% and 40% of total options granted after end of first, second and third year respectively from the date of grant. The maximum exercise period is 5 years from the date of vesting.

The Company recorded an employee compensation cost of Rs, 0.15 million (Previous year Rs, 0.31 million) in the Statement of Profit and Loss.

The expected price volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly available information.

4. Employee Stock Option Plan - 2015

The Board of Directors and the shareholders of the Company approved another Employee Stock Option Plan at their meeting in April 2015 and August, 2015, respectively. Pursuant to this approval, the Company instituted ESOP 2015 Plan in August 2015. The compensation committee of the Company administers this Plan. Each option carries with it the right to purchase one equity share of the Company. The Options have been granted to employees of the Company and its subsidiaries at an exercise price that is not less than the fair market value. The vesting of the options is 30%, 30% and 40% of total options granted after end of first, second and third year respectively from the date of grant. The maximum exercise period is 5 years from the date of vesting.

During the year ended March 31, 2018 and March 31, 2017, the company has claimed weighted tax deduction on eligible research and development expenditures based on the approval received from Department of Scientific and Industrial Research (DSIR) on June 2, 2011 which has been renewed till March 2018. The weighted tax deduction is equal to 150% of such expenditures incurred.

Additionally, the company benefits from the tax holiday available for units set up under the Special Economic Zone Act, 2005(SEZ). Accordingly, units in designated SEZ are eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50 percent of such profits or gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. The tax holiday period being currently available to the Company expires in various years through fiscal 2025. From April 1, 2011 units set up under SEZ scheme are subject to Minimum Alternate Tax (MAT).

The credit relating to temporary differences during the year ended March 31, 2018 are primarily on account of provision for doubtful debts & bad debts, provision for gratuity & property,plant and equipment . The charge relating to temporary differences during the year ended March 31, 2017 are primarily on account of property, plant and equipment and provision for doubtful debts partially offset by credit on account of provision for gratuity and leave encashment.

44 Other disclosures and explanatory notes

1 The Company was required to spend Rs, 45.93 million towards Corporate Social Responsibility. During the year the Company has spent and paid Rs, 27.17 million (Previous year Rs, 25.61 million) towards Corporate Social Responsibility, in various activities as specified in Schedule VII of the Companies Act, 2013, read with the Rules there under, as direct spend for purposes other than construction/acquisition of any asset.

Also, refer Annexure 7 of the Director''s Report.

2 The Board of Directors of the Company at its meeting held on 29 January, 2018 have approved a draft composite scheme (Draft Scheme) for: (a) amalgamation of Birlasoft (India) Limited (Birlasoft) with the Company (Proposed Merger); and (b) demerger of the engineering business of the Company into KPIT Engineering Limited (KEL), a wholly owned subsidiary of the Company, (Proposed Demerger), to be renamed as KPIT Technologies Limited, in terms of the Draft Scheme and an implementation agreement, and other agreements that are executed between the Company, Birlasoft and other parties. During the year, the Company has incurred expenditure of '' 163.19 million towards enabling the execution of this transaction. The Company is in progress to obtain approvals from various regulatory authorities.

3 During the year, the Company has infused further equity of '' 367.50 million in its wholly owned subsidiary, Impact Automotive Solutions Limited.

4 The Company has consolidated the KPIT Technologies Limited Employee Welfare Trust.

5 During the year, the Company has sold of its entire stake in Sankalp Semiconductors Private Limited. The gain on disposal is recorded under exceptional items in the Statement of Profit and Loss.

6 The Company has established a system of maintenance of information and documents as required by the transfer pricing legislation under Section 92-92F of the Income Tax Act, 1961. The Company is in the process of updating the documentation for the Financial Year 2017-2018.

The management is of the opinion that international transactions are at arm''s length and accordingly the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for taxation.

Source : Dion Global Solutions Limited
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