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Brigade Enterprises

BSE: 532929|NSE: BRIGADE|ISIN: INE791I01019|SECTOR: Construction & Contracting - Real Estate
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Notes to Accounts Year End : Mar '18

1. CORPORATE INFORMATION

Brigade Enterprises Limited (‘BEL’ or the ‘Company’) is a public company domiciled in India and is incorporated on November 8, 1995 under the provisions of the Companies Act applicable in India. Its shares are listed on the National Stock Exchange of India Limited and Bombay Stock Exchange Limited. The registered office of the Company is located at 29th & 30th Floors, World Trade Center, Brigade Gateway Campus, 26/1, Dr. Rajkumar Road, Malleswaram - Rajajinagar, Bangalore 560 055.

The Company is carrying on the business of real estate development, leasing and hospitality and related services.

The standalone Ind AS financial statements were authorized for issue in accordance with a resolution of the directors on May 16, 2018.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation

In accordance with the notification issued by the Ministry of Corporate Affairs, the Company has adopted Indian Accounting Standards (‘Ind AS’) Specified under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015 as amended. The standalone financial statements of the Company are prepared and presented in accordance with Ind AS.

The standalone financial statements have been prepared on the historical cost basis, except for certain financial instruments which are measured at fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

2.2 Significant accounting judgments, estimates and assumptions

The preparation of financial statements in conformity with the recognition and measurement principles of Ind AS requires management to make judgments, estimates and assumptions that affect the reported balances of revenues, expenses, assets and liabilities and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

In the process of applying the Company’s accounting policies, management makes judgement, estimates and assumptions which have the most significant effect on the amounts recognized in the financial statements.

(a) Judgments

In the process of applying the Company’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements:

Classification of property

The Company determines whether a property is classified as investment property or inventory as below.

Investment property comprises land and buildings (principally office and retail properties) that are not occupied substantially for use by, or in the operations of, the Company, nor for sale in the ordinary course of business, but are held primarily to earn rental income and capital appreciation. These buildings are substantially rented to tenants and not intended to be sold in the ordinary course of business.

Inventory comprises property that is held for sale in the ordinary course of business. Principally, this is residential and commercial property that the Company develops and intends to sell before or during the course of construction or upon completion of construction.

(b) Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

Revenue recognition and valuation of unbilled revenue The Company uses the percentage-of-completion method for recognition of revenue, accounting for unbilled revenue and contract cost thereon for its real estate and contractual projects. The percentage of completion is measured by reference to the stage of the projects and contracts determined based on the proportion of contract costs incurred for work performed to date bear to the estimated total contract costs. Use of the percentage-of-completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Significant assumptions are required in determining the stage of completion, the extent of the contract cost incurred, the estimated total contract revenue and contract cost and the recoverability of the contracts. These estimates are based on events existing at the end of each reporting date.

Accounting for revenue and land cost for projects executed through joint development arrangements (JDA)

For projects executed through joint development arrangements, the revenue from the development and transfer of constructed area/revenue sharing arrangement and the corresponding land/ development rights received under JDA is measured at the fair value of the estimated construction service rendered to the land owner and the same is accounted on launch of the project. The fair value is estimated with reference to the terms of the JDA (whether revenue share or area share) and the related cost that is allocated to discharge the obligation of the Company under the JDA. Fair value of the construction is considered to be the representative fair value of the revenue transaction and land so obtained. Such assessment is carried out at the launch of the real estate project and is not reassessed at each reporting period. The Management is of the view that the fair value method and estimates are reflective of the current market condition.

Estimation of net realizable value for inventory (including land advance)

Inventory is stated at the lower of cost and net realizable value (NRV).

NRV for completed inventory property is assessed by reference to market conditions and prices existing at the reporting date and is determined by the Company, based on comparable transactions identified by the Company for properties in the same geographical market serving the same real estate segment.

NRV in respect of inventory property under construction is assessed with reference to market prices at the reporting date for similar completed property, less estimated costs to complete construction and an estimate of the time value of money to the date of completion.

With respect to Land advance given, the net recoverable value is based on the present value of future cash flows, which depends on the estimate of, among other things, the likelihood that a project will be completed, the expected date of completion, the discount rate used and the estimation of sale prices and construction costs.

Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to disclosure of fair value of investment property recorded by the Company.

Defined benefit plans - Gratuity The cost of the defined benefit gratuity plan and other post-employment medical benefits and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds. The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases are based on expected future inflation rates and expected salary increase thereon.

Fair value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and market risk. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Measurement of financial instruments at amortized cost Financial instrument are subsequently measured at amortized cost using the effective interest (‘EIR’) method. The computation of amortized cost is sensitive to the inputs to EIR including effective rate of interest, contractual cash flows and the expected life of the financial instrument. Changes in assumptions about these inputs could affect the reported value of financial instruments.

Evaluation of control, joint control or significant influence by the Company over its investee entities for disclosure: Judgment is involved in determining whether the Company has control over an investee entity by assessing the Company’s exposure/rights to Variable returns from its involvement with the investee and its ability to affect those returns through its power over the investee entity. The Company considers all facts and circumstances when assessing whether it controls an investee entity and reassess whether it controls an investee entity if facts and circumstances indicate that there are changes to one or more elements of control. In assessing whether the Company has joint control over an investee the Company assesses whether decisions about the relevant activities require the unanimous consent of the parties sharing control. Further, in assessing whether Company has significant influence over an investee, the Company assesses whether it has the power to participate in the financial and operating policy decisions of the investee, but is not in control or joint control of those policies.

Useful life and residual value of property, plant and equipment, investment property and intangible assets The useful life and residual value of property, plant and equipment, investment property and intangible assets are determined based on evaluation made by the management of the expected usage of the asset, the physical wear and tear and technical or commercial obsolescence of the asset. Due to the judgments involved in such estimates the useful life and residual value are sensitive to the actual usage in future period.

Provision for litigations and contingencies Provision for litigations and contingencies is determined based on evaluation made by the management of the present obligation arising from past events the settlement of which is expected to result in outflow of resources embodying economic benefits, which involves judgments around estimates the ultimate outcome of such past events and measurement of the obligation amount. Due to judgments involved in such estimation the provision is sensitive to the actual outcome in future periods.

Capitalised borrowing costs

The amount of borrowing costs capitalised during the year ended March 31, 2018 was Rs.1,476 lakhs (March 31, 2017: Rs.52 lakhs). The rate used to determine the amount of borrowing costs eligible for capitalisation was 8-12%, which is the effective interest rate of the specific borrowing.

Land and buildings

Refer Note 15 for details of property, plant and equipment pledged as security for borrowings.

Under the DCF method, fair value is estimated using assumptions regarding the benefits and liabilities of ownership over the asset’s life including an exit or terminal value. This method involves the projection of a series of cash flows on a real estate property interest. To this projected cash flow series, a market-derived discount rate is applied to establish the present value of the income stream associated with the asset. The duration of the cash flows and the specific timing of inflows and outflows are determined by events such as rent reviews, lease renewal and related re-letting, redevelopment, or refurbishment. The appropriate duration is typically driven by market behaviour that is a characteristic of the class of real estate property. Periodic cash flow is typically estimated as gross income, non-recoverable expenses, collection losses, lease incentives, maintenance cost and other operating and management expenses. The series of periodic net operating income, along with an estimate of the terminal value anticipated at the end of the projection period, is then discounted.

(b) Terms/ rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs.10 per share. Each holder of equity share is entitled to one vote per share. The Company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of director is subject to the approval of the shareholders in the ensuing Annual General meeting.

In event of liquidation of the Company, the holders of equity shares would be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

As per records of the Company, including its register of shareholders/ members and other declaration received from shareholders regarding beneficial interest, the above shareholding represent both legal and beneficial ownership of shares.

(d) Shares issued for consideration other than cash and reserved for issue under options

The Company has issued total 17 Lakhs shares (March 31, 2017:13 Lakhs shares) during the period of 5 years immediately preceding the reporting date on exercise of options granted under Employee Stock Option Plan (ESOP) wherein part consideration was received in the form of employee services.

For details of shares reserved for issue under the ESOP of the Company, refer note 35.

Note 2: Includes term loan from banks and working capital loan from bank by way of mortgage of project properties and future lease rentals Rs.136,556 lakhs (March 31, 2017: Rs.90,135 lakhs). The loans carry interest rate in the range of 8-12% and are repayable within 12-144 instalments of upto Rs.300 lakhs.

Note 3: Cash credit facilities from banks are secured by way of mortgage of project properties and are personally guaranteed by the directors of the Company. The facilities carry interest rate in the range of 10-12% and are repayable on demand.

*Refer note 47

** Represent amounts repayable within the operating cycle. Amount repayable within twelve months is Rs.57,197 lakhs (March 31, 2017: Rs.44,587 lakhs)

3 EARNINGS PER SHARE

Basic earnings per share (EPS) amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.

Diluted EPS amounts are calculated by dividing the profit attributable to equity holders by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares.

The following reflects the income and share data used in the basic and diluted EPS computations:

4 COMMITMENTS AND CONTINGENCIES

a. Leases

Operating lease: Company as lessee

The Company has taken office and commercial space under cancellable and non-cancellable operating leases. These leases have life of upto twenty four years with renewal option and include a clause to enable upward revision of the lease rental on periodical basis.

Operating lease commitments - Company as lessor

The Company has entered into operating leases (cancellable and non-cancellable) on its investment property portfolio consisting of certain office and retail buildings with varying lease terms of upto eighteen years and with escalation and renewal clauses. All leases include a clause to enable upward revision of the lease rental on periodical basis and includes variable rent determined based on percentage of sales of lessee in certain cases. The Company is also required to maintain the property over the lease term.

*Includes:

(a) income from certain commercial properties, which are held as inventory and leased out during the interim period until such properties are sold.

(b) income based on percentage of sales is Rs.1,301 lakhs (March 31, 2017: Rs.578 lakhs).

b. Other commitments

(i) As at March 31, 2018, the estimated amount of contracts (net of capital advance) remaining to be executed on capital account not provided for was Rs.7,391 lakhs (March 31, 2017: Rs.8,582 lakhs)

(ii) As at March 31, 2018, the Company has given Rs.32,920 lakhs (March 31, 2017: Rs.24,815 lakhs) as advances/deposits for purchase of land/ joint development. Under the agreements executed with the land owners, the Company is required to make further payments and/or give share in area/ revenue from such development in exchange of undivided share in land based on the agreed terms/ milestones.

(iii) In connection with Company’s investments in certain subsidiaries, the Company has entered into shareholders agreement with other shareholders wherein it has certain commitments including further investment in accordance with the terms of the agreement.

(iv) The Company has entered into a power purchase agreement with a party wherein the Company has committed minimum purchase of power.

(v) The Company is committed to provide financial support to some of its subsidiaries to ensure that these entities operate on going concern basis and are able to meet their debts and liabilities as they fall due.

Other Litigations:

The Company is also subject to certain legal proceedings and claims, which have arisen in the ordinary course of business, including certain litigation for commercial development or land parcels held for construction purposes, either through joint development arrangements or through outright purchases, the impact of which is not quantifiable. These cases are pending with various courts and are scheduled for hearings. After considering the circumstances and legal evaluation thereon, the management believes that these cases will not have an adverse effect on the financial statements.

Note: The Company does not expect any reimbursement in respect of the above contingent liabilities and it is not practicable to estimate the timing of the cash outflows, if any, in respect of aforesaid matters and it is not probable that an outflow of resources will be required to settle the above obligations/claims.

Further, the Company has given a letter of comfort on behalf of its subsidiary Brookefield Real Estates and Projects Private Limited (‘BBREPL’) for the loan availed from banks aggregating to Rs.86,000 lakhs to indemnify the banks against any losses, damages, costs and claims that may arise on account of default by BBREPL. The Company has also received a counter letter of comfort from Brigade Properties Private Limited (‘BPPL’) for the aforesaid loan indemnifying the Company against any losses, damages, costs and claims incurred on behalf of BBREPL.

d. Other transactions:

1. The Company has invested ‘ Nil (March 31, 2017: Rs.75 lakhs) in Equity shares Rs.10/- each fully paid up in BGPPL. Also refer note 6.

2. The Company has invested ‘ Nil (March 31, 2017: 5 Lakhs) in Equity shares Rs.10/- each fully paid up in ACPL. Also refer note 6.

3. The Company has contributed Rs.50 lakhs (March 31, 2017: 499 Lakhs) as Capital Contribution in BILLP. Also refer note 6.

4. The Company has invested ‘ Nil (March 31, 2017: 400 Lakhs) in Equity shares Rs.10/- each fully paid up in MPPL. Also refer note 6.

5. The Company has invested ‘ Nil (March 31, 2017: 100 Lakhs) in Equity Shares of Rs.10/- each fully paid up in BHVL. Also refer note 6.

6. The Company has invested ‘ Nil (March 31, 2017: 50 Lakhs) in Equity Shares of Rs.10/- each fully paid up in OMMCL. Also refer note 6.

7. The Company has invested ‘ Nil (March 31, 2017: 8,100 Lakhs) in 0.01% A series Compulsory Convertible Preference Shares of Rs.100/- each fully paid up in MPPL. Also refer note 6.

8. The Company has invested ‘ Nil (March 31, 2017: Rs.3,300 Lakhs) in 0.01% A series Compulsory Convertible Preference Shares of Rs.100/- each fully paid up in BGPPL. Also refer note 6.

9. The Company has invested ‘ Nil (March 31, 2017: Rs.3,800 Lakhs) in 0.01% A series Compulsory Convertible Preference Shares of Rs.100/- each fully paid up in BEPPL. Also refer note 6.

10. The Company has invested ‘ Nil in (March 31, 2017: Rs.500 Lakhs) 11% Fully Convertible Debentures (FCD) Rs.100/- each of Perungudi Real Estates Private Limited.

11. The Company has converted Nil (March 31, 2017: 59.41 Lakh Shares) of A series Optionally Convertible Debentures (OCDs) of Rs.100 each into 594.12 lakhs no. of Class B Equity shares of Rs.10 each fully paid up in PREPL.

12. The Company has converted Nil (March 31, 2017: 7.33 Lakhs No) of A series Optionally Convertible Debentures (OCDs) of Rs.100 each into 73.28 lakhs no. of Class C Equity shares of Rs.10 each fully paid up in BPPL.

13. The Company has converted Nil (March 31, 2017: 10.74 Lakhs No) of B series Optionally Convertible Debentures (OCDs) of Rs.100 each into 107.41 lakhs no. of Class C Equity shares of Rs.10 each fully paid up in BPPL.

14. The Company has converted (March 31, 2017: 21.09 Lakhs no.) of B series Optionally Convertible Debentures (OCDs) of Rs.100 each into 210.89 lakhs no. of Redeemable preference shares of Rs.10 each fully paid up in BPPL.

15. The Company has converted (March 31, 2017: 95.90 Lakhs No) of Optionally Convertible Preference Shares (OCPs) of Rs.10 each into 95.90 lakhs no. of Redeemable preference shares of Rs.10 each fully paid up in BPPL.

16. The Company has made donation to IMET of Rs.300 lakhs (March 31, 2017: Rs.50 lakhs) and BFT of ‘ Nil (March 31, 2017: Rs.430 lakhs).

17. The Company has invested Rs.7,200 Lakhs (March 31, 2017: Nil) in 0.01% A Series Compulsory Convertible Preference shares of Rs.100/- each fully paid up in BTPL. Also refer note 6.

18. The Company has invested Rs.2,500 Lakhs (March 31, 2017: Nil) in 14.10% B series Non Convertible Debentures of Rs.10,00,000/- each fully paid up in BPPL. Also refer note 6.

19. The Company has invested Rs.1,500 Lakhs (March 31, 2017: Nil) in 12% A12 Series Optionally Convertible Debentures of Rs.100/- each fully paid in PREPL. Also refer note 6.

20. The Company has invested Rs.24,000 Lakhs (March 31, 2017: Nil) in 0.001% Fully convertible debentures of Rs.100/- each paid up in BIPPL. Also refer note 6.

21. Pursuant to scheme of amalgamation, the Company has following amounts as below.

22. Also refer note 6 as regards to investments held as at year-end.

23. The company has invested ‘ Nil ( March 31, 2017 : 21.50 Lakhs no.) of Rs.100 each in 12% Fully Convertible Debentures (FCDs) in PHVL. Also refer note 47)

24. The company has given ‘ Nil (March 31, 2017: 1085 Lakhs) to PHVL as share application money and the same has been refunded to the company by PHVL . Also refer note 47)

e. Other information:

Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables, other than those disclosed above. The Company has not recorded any provision/ write-off of receivables relating to amounts owed by related parties.

Note: In respect of the transactions with the related parties, the Company has complied with the provisions of Section 177 and 188 of the Companies Act, 2013 where applicable, and the details have been disclosed above, as required by the applicable accounting standards.

5 SHARE BASED PAYMENT

The Company provides share-based payment schemes to its employees. During the year ended March 31, 2018, an employee stock option plan (ESOP) was in existence. The relevant details of the scheme and the grant are as below.

The Company instituted an Employees Stock Option Scheme (‘ESOP 2011’) pursuant to the Board of Directors and Shareholders’ resolution dated May 04, 2011 and August 11, 2011, respectively. As per ESOP 2011, the Company granted 2,494,300 (till March 31, 2017: 2,424,300) options comprising equal number of equity shares in one or more tranches to the eligible employees of the Company and its subsidiaries. The options under this grant would vest to the employees equally as 25% of the total grant every year at the end of first, second, third and fourth year from the date of the grant respectively, with an exercise period of five years from the date of respective vesting. The contractual life (comprising the vesting period and the exercise period) of options granted is 9 years from date of such grant. The other relevant terms of the grant are as below:

The fair value of the share options is estimated at the grant date using Black Scholes Model taking into account the terms and conditions upon which the share options are granted and there are no cash settled alternatives for employees.

* There were no cancellations or modifications to the plan during the year ended March 31, 2018 and March 31, 2017. Movements during the year

The following table illustrates the number and weighted average exercise price of share options during the year. The details of activity under the Scheme are summarized below:

*Weighted Average Exercise Price

For options exercised during the period, the weighted average share price at the exercise date was Rs.282.10 per share (March 31, 2017: Rs.159.96 per share). The weighted average remaining contractual life for the stock options outstanding as at March 31, 2018 is 3.90 years (March 31, 2017: 5.68 years)

The Black Scholes valuation model has been used for computing the weighted average fair value considering the following inputs:

6 FAIR VALUE MEASUREMENTS

The details of fair value measurement of Company’s financial assets/liabilities are as below:

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. There have been no transfers between levels during the period.

The management assessed that the carrying values of cash and cash equivalents, trade receivables, investments, loans, trade payables, borrowings and other financial assets and liabilities approximate their fair values largely due to the short-term maturities.

The following methods and assumptions were used to estimate the fair values:

- The quoted investments (mutual funds) are valued using the quoted market prices in active markets.

- The fair values of the unquoted equity shares have been estimated using a DCF model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted equity investments.

7 CAPITAL MANAGEMENT

The Company’s objectives of capital management is to maximize the shareholder value. In order to maintain or adjust the capital structure, the Company may adjust the return to shareholders, issue/ buyback shares or sell assets to reduce debt. The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants.

The Company monitors capital using a gearing ratio, which is net debt divided by total equity plus net debt as below.

- Equity includes equity share capital and all other equity components attributable to the equity holders

- Net debt includes borrowings (non-current and current), trade payables and other financial liabilities, less cash and cash equivalents (including bank balances other than cash and cash equivalents and margin money deposits with banks).

In order to achieve the objective of maximize shareholders value, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing borrowings that define capital structure requirements. Any significant breach in meeting the financial covenants would allow the bank to call borrowings. There have been no breaches in the financial covenants of above-mentioned interest-bearing borrowing.

No changes were made in the objectives, policies or processes for managing capital during the current and previous years.

8 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company’s principal financial liabilities, other than derivatives, comprise borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include loans, trade, other receivables and cash and cash equivalents that derive directly from its operations.

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s management oversees the management of these risks and ensures that the Company’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision and are used exclusively for hedging purposes and not as trading or speculative instruments.

i. Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises two types of risk: interest rate risk and other price risk, such as equity price risk and commodity/ real-estate risk.

The sensitivity analysis in the following sections relate to the position as at March 31, 2018 and March 31, 2017. The sensitivity analysis has been prepared on the basis that the amount of net debt and the ratio of fixed to floating interest rates of the debt. The analysis excludes the impact of movements in market variables on the carrying values of gratuity and other post retirement obligations/provisions.

The below assumption has been made in calculating the sensitivity analysis:

The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at March 31, 2018 and March 31, 2017.

Interest rate risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in Interest rate. The entity’s exposure to the risk of changes in Interest rates relates primarily to the entity’s operating activities (when receivables or payables are subject to different interest rates) and the entity’s net receivables or payables.

The Company is affected by the price volatility of certain commodities/ real estate. Its operating activities require the ongoing development of real estate. The Company’s management has developed and enacted a risk management strategy regarding commodity/ real estate price risk and its mitigation. The Company is subject to the price risk variables, which are expected to vary in line with the prevailing market conditions.

Interest rate sensitivity

The following tables demonstrate the sensitivity to a reasonably possible change in interest rates, with all other variables held constant. The impact on the entity’s profit before tax is due to changes in the fair value of financial assets and liabilities.

ii. Credit risk

Credit risk is the risk of loss that may arise on outstanding financial instruments if a counterparty default on its obligations. The Company’s exposure to credit risk arises majorly from trade receivables/ unbilled revenue and other financial assets.

Other financial assets like security deposits, loans and bank deposits are mostly with employees, government bodies and banks and hence, the Company does not expect any credit risk with respect to these financial assets.

With respect to trade receivables/ unbilled revenue, the Company has constituted teams to review the receivables on periodic basis and to take necessary mitigations, wherever required. The Company creates allowance for all unsecured receivables based on lifetime expected credit loss.

The following table summarizes the change in the loss allowance measured using ECL

iii. Liquidity risk

“The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company believes that the cash and cash equivalents is sufficient to meet its current requirements. Accordingly no liquidity risk is perceived.

The break-up of cash and cash equivalents, deposits and investments is as below.

The table below summarises the maturity profile of the Company’s financial liabilities at the reporting date. The amounts are based on contractual undiscounted payments.

9 STANDARDS ISSUED BUT NOT YET EFFECTIVE

The standards issued, but not yet effective up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these standards when they become effective.

The Ministry of Corporate Affairs (“MCA”) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 with effect from April 1, 2018. Companies (Indian Accounting Standards) Amendment Rules, 2018 includes Ind AS 115 Revenue from Customers, Appendix D to Ind AS 115 Service Concession Arrangements and Appendix B to Ind AS 21, Foreign Currency Transactions and Advance Consideration. Ind AS 11 Construction Contracts and Ind AS 18 Revenue will be omitted from April 1, 2018.

a) Ind AS 115 - Revenue from contracts with customers

On March 28, 2018, the Ministry of Corporate Affairs (MCA) has notified Indian Accounting Standard (Ind AS) 115, Revenue from Contracts with Customers Ind AS 115 introduces a five-step model to revenue recognition:

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Under Ind AS 115, revenue is recognised when (or as) the entity satisfies a performance obligation by transferring a promised good or service (i.e., an asset) to a customer (i.e., when (or as) the customer obtains control of that asset) at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under Ind AS. Either a full retrospective application or a modified retrospective application is required for accounting periods commencing on or after April 01, 2018.

The Company will adopt Ind AS 115 effective from April 01, 2018. As at the date of issuance of the Company’s financial statements, the Company is in the process of evaluating the requirements of the said standard and the impact on its financial statements in the period of initial application.

b) Appendix B to Ind AS 21 Foreign Currency Transactions and Advance Consideration

The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration.

Entities may apply the Appendix requirements on a fully retrospective basis. Alternatively, an entity may apply these requirements prospectively to all assets, expenses and income in its scope that are initially recognised on or after:

(i) The beginning of the reporting period in which the entity first applies the Appendix, or

(ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix.

The Appendix is effective for annual periods beginning on or after April 01, 2018.

The Company’s operation primarily relate to operations in India, The directors of the Company do not anticipate that the application of the new standard in future will have significant impact on the financial statement.

c) Amendments to Ind AS 12 Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

These amendments are effective for annual periods beginning on or after April 01, 2018.

d) Transfers of Investment Property — Amendments to Ind AS 40

The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use.

Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with Ind AS 8 is only permitted if it is possible without the use of hindsight.

These amendments are effective for annual periods beginning on or after 1 April 2018.

10 DISCONTINUED OPERATIONS

The Scheme of Arrangement between the Company and its wholly owned subsidiaries engaged in hospitality business - Brigade Hotel Ventures Limited (‘BHVL’), Brigade Hospitality Services Limited (‘BHSL’)and Augusta Club Private Limited (‘ACPL’) and their respective shareholders and creditors in terms of the provisions of Sections 230 to 233 of the Companies Act, 2013 to transfer the hotels business, integrated clubs and convention centre business and ‘Augusta Club’ business, to its wholly owned subsidiaries (hereinafter referred to as “the Scheme”) has been approved by National Company Law Tribunal (‘NCLT’) in March 2018 with an appointed date of October 01, 2016. The hospitality business was an operating segment until October 01, 2016. Being a discontinued operation, that segment is no longer presented in the segment note.

11 On April 28, 2017, the Company launched the offering of its equity shares through a qualified institutions placement (“QIP”) in accordance with the provisions of Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (the “SEBI ICDR Regulations”). Pursuant to QIP, the Company has received an amount of Rs.49,999 lakhs as on May 03, 2017 against the issue of 21,978,021 equity shares of face value of Rs.10 each to qualified institutional buyers and the same were listed and admitted for trading on the National Stock Exchange of India Limited and BSE Limited. Further, the Company has adjusted share issue expenses of Rs.960 lakhs against the securities premium on such issue.

The details of utilisation of proceeds raised through QIP are as below

12 SCHEME OF ARRANGEMENT

The Scheme of Arrangement between the Company and its wholly owned subsidiaries engaged in hospitality business - Brigade Hotel Ventures Limited (‘BHVL’), Brigade Hospitality Services Limited (‘BHSL’)and Augusta Club Private Limited (‘ACPL’) and their respective shareholders and creditors in terms of the provisions of Sections 230 to 233 of the Companies Act, 2013 to transfer the hotels business, integrated clubs and convention centre business and ‘Augusta Club’ business, to its wholly owned subsidiaries (hereinafter referred to as “the Scheme”) has been approved by National Company Law Tribunal (‘NCLT’) in March 2018 with an appointed date of October 01, 2016. The Scheme has been filed with the Registrar of Companies, Karnataka on April 01, 2018.

In accordance with the provisions of the aforesaid scheme -

a. The Scheme, being a common control business combination, has been accounted for using the pooling of interests method from the appointed date specified under the Scheme. As per Ind AS 103 - Business Combinations, common control business combination shall be accounted for using the pooling of interests method and the financial information in the financial statements in respect of prior periods should be restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination. Therefore, the aforesaid accounting from the appointed date is not in accordance with Ind AS 103. However, the aforesaid accounting from the appointed date does not have an impact on the profit or loss for the current year.

b. The purchase consideration under the Scheme is being received by way of issuance of Optionally Convertible Redeemable Preference Shares (‘OCRPS’) of Rs.29,827 lakhs and payment of cash of Rs.1,700 lakhs. As the OCRPS have been allotted subsequent to March 31, 2018, the same has been disclosed as ‘Investment in subsidiaries pending allotment’ under Other Non Current Financial Assets and the consideration receivable in cash as at March 31, 2018 has been shown as ‘Receivable pursuant to scheme of arrangement’ under Other Current Financial Assets.

c. The assets and liabilities as at October 01, 2016 (the appointed date) transferred by the Company at book value are summarized below:

The accounting of the Scheme in the current quarter from the appointed date of October 01, 2016 has resulted in restatement [increase/ (decrease)) of the previously published Ind AS financial information of the Company by the figures summarized below:

* Net profit/loss from operations pertaining to the above demerged business prior to the appointed date, i.e., for the period April 01, 2016 to September 30, 2016, has been disclosed as profit/loss from discontinued operations during the year ended March 31, 2017.

The figures of previous period have been restated, wherever necessary, to give effect to aforesaid scheme of arrangement.

The aforesaid restatement is not on account of Ind AS 8 - Accounting policies and hence restated balance sheet for April 01, 2016 has not been disclosed by the management.

13 In November 2017, a search under Section 132(1) of the Income Tax Act, 1961, was conducted at various premises of the Company. The management has complied with / responded to the notices received in this regard and does not expect any additional liability beyond the amounts already provided for, on final assessment of the aforesaid matter.

14 As per the transfer pricing rules prescribed under the Income-tax Act, 1961, the Company is examining the domestic and international transactions and documentation in respect thereof to ensure compliance with the said rules. The management does not anticipate any material adjustment with regard to the transactions involved.

Source : Dion Global Solutions Limited
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