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Moneycontrol.com India | Notes to Account > Construction & Contracting - Real Estate > Notes to Account from Sunteck Realty - BSE: 512179, NSE: SUNTECK
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Sunteck Realty

BSE: 512179|NSE: SUNTECK|ISIN: INE805D01034|SECTOR: Construction & Contracting - Real Estate
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Notes to Accounts Year End : Mar '18

Background

Sunteck Realty Limited (‘The Company’) is primarily engaged in the business of real estate/ real estate development and incidental services

1. Critical estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the company’s accounting policies.

This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted clue to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the financial statements.

The said estimates are based on the facts and events, that existed as at the reporting date, or that occurred after that date but provide additional evidence about conditions existing as at the reporting date.

Critical estimates and judgements

The areas involving critical estimates or judgements are:

- Recognition of revenue and related real estate development cost

- Estimated Fairvalueof financial instruments

- Estimated credit loss of trade receivables

Estimation of fair value :

The fair valuation is based on current prices in the active market for similar properties. The main inputs used are quantum, area, location, demand, restrictive entry to the complex, age of building.

This valuation is based on valuations performed by an accredited independent valuer. The main inputs used by them are the prevalent market rate. The fair value measurement is categorised in level 3 fair value hierarchy.

Refer note no. 41 for information on investment property pledged as security by the company.

Refer note no. 38 for information regarding future lease rentals receivable.

Nature & purpose of other equity and reserves :

(a) Capital reserve :

Capital reserve is created out of capital profits and are usually not distributed as dividends to shareholders.

(b) Securities premium account :

Securities premium reserve is used to record the premium on issue of financial securities such as equity shares, preference shares, compulsory convertible debentures. The reserve is utilised in accordance with the provision of the Act.

(c) General reserve:

General Reserves are created out of profits and kept aside for general purpose and financial strengthening of the company, they don’t have any special purpose to fulfill and can be used for any purpose in future.

(d) Share based payment reserve:

Share based payment reserve is used to recognise the fair value of options on the grant date, issued to employees under value employee stock option plan.

(e) Debenture redemption reserve:

The Company creates a debenture redemption reserve out of the profits under Companies Act, 2013 which is available for distribution to share holders for the purpose of redemption of debentures.

(f) Share application money pending allotment

Share application money received towards employee stock option plan 2013.

2 Income tax expense

This note provides an analysis of the Company’s income tax expense, shows amounts that are recognised directly in equity and how the tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the Company’s tax positions.

Note : The Company’s pending litigations comprise mainly claims against the Company, property disputes, proceedings pending with tax and other authorities. The Company has reviewed all its pending litigations and proceedings and has made adequate provisions, wherever required and disclosed the contingent liabilities, wherever applicable, in its financial statements. The Company does not reasonably expect the outcome of these proceedings to have a material impact on its financial statements.

3 Leases

(a) Initial direct cost such as legal cost, brokerage cost etc. are charged immediately to statement of profit and loss.

The total future minimum lease rentals receivable for non - cancellable operating leases at balance sheet date is as under :

4 Share-based payments

Employee stock option plan

The establishment of the Sunteck Realty Limited “Employee Stock Option Plan (ESOP 2013)” and “Employee Stock Option Scheme (ESOS 2017)” was approved by shareholders at the annual general meeting held on 28th March, 2013 and 26th September 2017 respectively. The ESOP 2013 and ESOS 2017 are designed to provide incentives to eligible directors and employees of the Company and its subsidiaries. These are equity settled share based payments. The details of which are given here under :

When exercisable, each option is convertible into one equity share. Options are granted without any consideration and carry no dividend or voting rights.

Set out below is a summary of options granted under each plan:

The fair value at grant date is determined by a valuer using the Black Scholes Model which takes into account the exercise price, the term of the option, the share price at grant date, expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.

The fair value of each option is estimated on the date of grant based on the following assumptions :

*The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information.

Expense arising from share-based payment transactions

Expenses arising from share-based payment transactions (Employee Stock Option Plan) recognised in statement of profit and loss as part of employee benefit expense Rs. 65.80 lakhs (Previous Year Rs. 11.19 lakhs).

(i) Compensated absences

The Compensated absences cover the Company’s liability for sick and earned leave.

Out of total provision, the amount of the provision of Rs. 2.20 lakhs (Previous Year Rs. 2.21 lakhs) is presented as current, since the Company does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Company does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months.

(ii) Post-employment obligations Gratuity

The Company provides for gratuity for the employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity.

(iii) Defined contributions plans

The Company also has certain defined contribution plans . Contributions are made to provident fund in India for employees at the rate of 12% of basic salary as per regulations. The contributions are made to registered provident fund administered by the government. The obligation of the Company is limited to the amount contributed and it has no further contractual nor any constructive obligation. Amount recognised as an expense during the year towards defined contribution plan is Rs. 31.71 lakhs (Previous Year Rs. 26.35 lakhs).

Balance sheet amounts - Gratuity

The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over the year are as follows:

5 Related Party Disclosures as per Ind As 24 Name of entity

1 Relationships :

(i) Name of related parties where control exists irrespective of whether transaction has occurred or not

a Subsidiaries

Advaith Infraprojects Private Limited Amenity Software Private Limited

Celina Buildcon and Infra Private Limited (for the period from 20th February, 2017 to 27th March, 2017)

Clarissa Facility Management LLP

Eleanor Lifespaces Private Limited (upto 17th June, 2016)

Denise Realties Private Limited (upto 12th December, 2016)

Magenta Computer Software Private Limited

Mithra Buildcon LLP

Sahrish Construction Private Limited Satguru Corporate Services Private Limited.

Satguru Infocorp Services Private Limited Skystar Buildcon Private Limited Starlight Systems (I) LLP Starlight Systems Private Limited Starteck Lifestyles Private Limited Sunteck Fashions & Lifestyles Private Limited Sunteck Infraprojects Private Limited Sunteck Lifestyle International Private Limited Sunteck Lifestyle Management DMCC Sunteck Lifestyles Limited Sunteck Property Holding Private Limited Sunteck Real Estates Private Limited Sunteck Realty Holdings Private Limited

b Associates:

Topzone Mercantile Company LLP (upto 1st October, 2016)

c Joint Venture

Assable Buildcon LLP (upto 25th March, 2017)

GGICO Sunteck Limited

Kanaka & Associates (Partnership Firm) (refer note no. 54)

Nariman Infrastructure LLP

Pathway Buildcon LLP (upto 25th March, 2017)

Piramal Sunteck Realty Private Limited Uniworth Realty LLP

(ii) List of other related parties with whom transaction has been entered into in the ordinary course of business a Key managerial personnel

Mr. Kamal Khetan - Chairman & Managing Director

Mr. AtulPoopal -ExecutiveDirector

Mrs. Rachana Hingarajia - Company Secretary

Mr. Sumesh Mishra - Chief Operating Officer

Mr. Jitendra Mehta - Chief Financial Officer (w.e.f. 16th August, 2017)

b Entities over which Key Managerial Personnel with his relative having significant influence:

Eskay Infrastructure Development Private Limited Glint Infraprojects Private Limited Astha Trust

Nivedita Mercantile and Financing Limited SW Capital Private Limited SW Commodities Private Limited Starteck Infraprojects Private Limited SW Investment Limited

Assable Buildcon LLP (w.e.f. 26th March, 2017)

Pathway Buildcon LLP (w.e.f. 26th March, 2017)

Notes:

(i) No balances in respect of the related parties has been provided for/written off / written back,

(ii) The provisions (including disclosure requirement) of Section 186 of the Companies Act, 2013 with respect to loans made, guarantee given or security provided, are not applicable to the Company, since the Company is engaged in the business of providing infrastructure facilities.

(iii) Related party relationship is as identified by the management and relied upon by the auditors.

(iv) # less than Rs. 500

Note :

1 None of the above mentioned parties hold shares of the Company, except Starlight Systems Private Limited and Sat-guru Infocorp Services Private Limited which holds 3,000,000 (adjusted for share sub-division as stated in note no. 19) shares each (previous year 1,500,000 shares) in the Company.

2 For investments refer note no. 6 and 10.

6 Fair value measurements

(i) Fair value hierarchy

This section explains the judgments and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, traded bonds and mutual funds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges are valued using the closing price as at the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, traded bonds, over-the counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

(ii) Valuation technique used to determine fair value

Specific valuation techniques used to value financial instruments include:

- the use of quoted market prices or dealer quotes for similar instruments

- the use of discounted cash flow for fair value at amortised cost

The Company’s activities expose it to business risk, interest rate risk, liquidity risk and credit risk. In order to minimise any adverse effects on the financial performance, the Company’s risk management is carried out by a corporate treasury and corporate finance department under policies approved by the board of directors and top management. Company’s treasury identifies, evaluates and mitigates financial risks in close cooperation with the Company’s operating units. The board provides guidance for overall risk management, as well as policies covering specific areas.

(A) Credit Risk

Credit risk arises from the possibility that the counter party may not be able to settle their obligations as agreed. To manage this, the Company periodically assess financial reliability of customers, taking into account the financial condition, current economic trends, and analysis of historical bad debts and ageing of accounts receivable. Individual risk limits are set accordingly.

The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis through out each reporting period. To assess whether there is a significant increase in credit risk the Company compares the risk of default occurring on asset as at the reporting date with the risk of default as at the date of initial recognition. It considers reasonable and supportive forwarding-looking information such as:

i) Actual or expected significant adverse changes in business,

ii) Actual or expected significant changes in the operating results of the counterparty,

iii) Financial or economic conditions that are expected to cause a significant change to the counterparty’s ability to meet its obligations,

iv) Significant changes in the value of the collateral supporting the obligation or in the quality of the third-party guarantees or credit enhancements.

Financial assets are written off when there is no reasonable expectations of recovery, such as a debtor failing to engage in a repayment plan with the Company. Where loans or receivables have been written off, the Company continues engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized in profit or loss.

Credit risk is managed at segment as well as Company level. For banks and financial institutions, only high rated banks/institutions are accepted.

For other financial assets, the Company assesses and manages credit risk based on internal control and credit management system. The finance function consists of a separate team who assess and maintain an internal credit management system. Internal credit control and management is performed on a Company basis for each class of financial instruments with different characteristics.

The Company considers whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. It considers available reasonable and supportive forward-looking information.

Macroeconomic information (such as regulatory changes, market interest rate or growth rates) are also considered as part of the internal credit management system.

A default on a financial asset is when the counterparty fails to make payments as per contract. This definition of default is determined by considering the business environment in which entity operates and other macroeconomic factors.

Financial assets are written off when there is no reasonable expectations of recovery, such as a debtor failing to engage in a repayment plan with the Company. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized as income in the statement of profit and loss.

The Company measures the expected credit loss of trade receivables and loan from individual customers based on historical trend, industry practices and the business environment in which the entity operates. Loss rates are based on actual credit loss experience and past trends. Based on the historical data, loss on collection of receivable is not material hence no additional provision considered.

(B) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding to meet obligations when due. Due to the dynamic nature of the underlying businesses, Company’s treasury maintains flexibility in funding by maintaining sufficient cash and bank balances available to meet the working capital requirements. Management monitors rolling forecasts of the Company’s liquidity position (comprising the unused cash and bank balances along with liquid investments) on the basis of expected cash flows. This is generally carried out at Company level in accordance with practice and limits set by the Company. These limits vary to take into account the liquidity of the market in which the Company operates.

(i) Maturities of financial liabilities

The tables below analyse the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for: all non-derivative financial liabilities, and the amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

(C) Market risk

(i) Price Risk

- Exposure

The Company’s exposure to equity securities price risk arises from investments held by the Company and classified in the balance sheet at “fair value through other comprehensive income”.

-Sensitivity

The table below summarizes the impact of increases/decreases of the BSE index on the Company’s equity and gain/loss for the period. The analysis is based on the assumption that the index has increased by 5 % or decreased by 5 % with all other variables held constant, and that all the Company’s equity instruments moved in line with the index.

(ii) Foreign Currency Risk

The Company operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Company’s functional currency (Rs.). The risk is measured through a forecast of highly probable foreign currency cash flows. The Company does not cover foreign currency exposure with any derivative instruments. The Company also imports certain materials which are denominated in USD which exposes it to foreign currency risk

(iii) Cash flow and fair value interest rate risk

- Interest rate risk management

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the companies long-term debt obligations with floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings.

- Interest rate risk exposure

The exposure of the Company’s borrowings to interest rate changes at the end of the reporting period are as follows:

* Sensitivity is calculated based on the assumption that amount outstanding as at reporting dates were utilised for the whole financial year.

7 Capital management

(a) Risk management

The Company’s objectives when managing capital are to :

1. Safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and

2. Maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, reduce debt or sell assets.

8 Details regarding project-in-progress

The Completion of projects and Management estimation of future cost to be incurred on projects in progress for calculating their net realizable value have been relied upon by the auditors, these being matters of technical nature and owing to the future uncertainties.

9 Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.

The Company’s Chief operating officer (COO) and Chairman and Managing director (CMD) are identified as the Chief Operating Decision Maker (CODM) as defined by Ind AS 108, Operating Segments. The CODM evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators, however the Company is primarily engaged in only one segment viz., ‘Real Estate/Real Estate Development and Related Activities’ and that most of the operations are in India. Hence the Company does not have any reportable Segments as per Indian Accounting Standard 108 “Operating Segments”.

10 The Company’s normal operating cycle in respect of operations relating to under construction real estate projects may vary from project to project depending upon the size of the project, type of development, project complexities and related approvals. Operating cycle for all completed projects and other business is based on 12 months period. Assets and liabilities have been classified into current and non-current based on the operating cycle of respective businesses.

11 The accounts of certain trade receivables, trade payables, loans and advances and banks are, however, subject to formal confirmations or reconciliations and consequent adjustments, if any. However, there is no indication of dispute on these accounts, other than those mentioned in the financial statements. The management does not expect any material difference affecting the current year’s financial statements on such reconciliation/adjustments.

12 The Company is a partner in a partnership firm, Kanaka & Associates, in which the Company has total exposure comprising of capital invested, loans given and other receivables aggregating to Rs. 949.23 lakhs (Previous Year Rs. 902.05 Lakhs). Since, there is some dispute with the other partner, the financial statements of the firm are not available and therefore, the Company has not accounted for its share of profit or loss for the year from the said firm. The management is hopeful of recovering/ realising the aforesaid exposure in due course of time, as the Company has received the favourable arbitration award and hence, no provision is considered necessary at this stage.

13 The Company has overdue trade receivables of Rs. 1,203.50 Lakhs in respect of which necessary steps for its recovery has been taken including filing of legal case. The management is confident of recovering the said due and therefore no provision, in their opinion, is considered necessary at this stage.

14 Event occurring after balance sheet date:

The Board of Directors has recommended equity dividend of Rs. 1.50 per share (Previous year Rs. 3.00) for the financial year 2017-18. (refer note no. 45).

15 Ind AS 115 Revenue from Contracts with Customer (the new revenue recognition standard) has been notified by Ministry of Corporate Affairs (MCA) on March 28, 2018 and will be effective from April 1, 2018. Ind AS 115 will supersede all current revenue recognition requirements under Ind AS, including the “Guidance Note on Accounting for Real Estate Transactions”. Ind AS 115 provides guidance on how the entity shall recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company is currently assessing the impact of application of Ind AS 115 on Company’s financial statements.

16 Figures pertaining to previous year have been regrouped / reclassified wherever found necessary to conform to current year’s presentation.

Source : Dion Global Solutions Limited
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