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Notes to Accounts of Bharat Forge Ltd.

Mar 31, 2017

1 Corporate information

Bharat Forge Limited (“the Company”) is a public Company domiciled in India and incorporated under the provisions of Companies Act, 1956. The Company’s shares are listed on two stock exchanges in India. The Company is engaged in the manufacturing and selling of forged and machined components for auto and industrial sector. The Company caters to both domestic and international markets. The registered office of the Company is located at Bharat Forge Limited, Mundhwa, Pune. Also the Company has manufacturing facilities at Mundhwa, Baramati, Chakan and Satara locations. The Company’s CIN is L25209PN1961PLC012046. The financial statements were authorized for issue in accordance with a resolution of the directors on May 24, 2017.

2 Significant accounting policies

2.1 Basis of preparation

These financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 as amended thereafter. For all periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with the accounting standards notified under the section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). These financial statements for the year ended March 31, 2017 are the first the Company has prepared in accordance with Ind AS. Refer to note 53 and note 55 for information on how the Company adopted Ind AS.

The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value:

- Derivative financial instruments;

- Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments).

In addition, the carrying values of recognized assets and liabilities designated as hedged items in fair value hedges that would otherwise be carried at amortized cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships.

3. Investment property

Information regarding income and expenditure of investment property

The Company’s investment properties consist of three parcels of land situated at Mundhwa, Satara and Chakan. Management determined that the investment properties consist of only one class of assets - free hold land - based on the nature, characteristics and risks of each property.

As at March 31, 2017, March 31, 2016 and April 1, 2015, the fair values of the properties are Rs.430.31 million, Rs.412.02 million and Rs.370.53 million respectively. The Company obtains independent valuations for its investment properties at least annually. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the Company considers ready reckoner rates. The fair values of investment properties have been determined by an independent valuer. The main input used is the ready reckoner rate. All resulting fair value estimates for investment properties are included in Level 2.

The Company has no restrictions on the realisability of its investment properties and no contractual obligations to either purchase, construct or develop investment properties or for repairs, maintenance and enhancements.

Freehold land includes 25 acres of land situated at Pune and 24.13 acres of land situated at Satara and 8.40 acres of land situated at chakan which have been given on lease. Due to certain matters being sub-judice, the Company has not executed lease deed with related party for one of the said land.

(a) Bharat Forge Global Holding GmbH

Contributions to the capital reserves of Bharat Forge Global Holding GmbH as per the German Commercial Code (code), forms a part of the equity share capital and accordingly has been considered as an investment and is redeemable subject to provisions of the code.

(b) Bharat Forge America Inc.

During the current year, the Company through Bharat Forge America Inc., USA, has completed acquisition of Walker Forge Tennessee LLC (renamed as “Bharat Forge PMT Technologie LLC”) and PMT Holdings Inc. (renamed as “Bharat Forge Tennessee Inc.”).

(c) Bharat Forge International Limited

During the current year, the Company has purchased 64,000 ordinay shares of Bharat Forge International Limited from Bharat Forge Global Holding GmbH.

(d) Merger of BF Infrastructure Limited (BFIL) and BF Infrastructure Ventures Limited (BFIVL) (wholly owned Subsidiaries)

The Board of Directors of BFIL and BFIVL approved a Scheme of Amalgamation (Scheme) on July 9, 2015 with BFIVL being transferor company. The Scheme is approved by Hon’ble High Court of Bombay on August 18, 2016 with appointed date April 1, 2015. Persuant to the merger shares of BFIL at fair value of Rs.110.50 million have been alloted to the shareholder of BFIVL in the ratio of 1:1.

During the Current year, the Company has made further Investment in BFIL of Rs.279.58 million by acquiring 27.958.100 shares of Rs.10/- each.

(e) Kalyani Startegic Systems Limited (KSSL)

During the Current year, the company has made further investment in KSSL of Rs.85.47 million by acquiring 8,547,600 shares of Rs.10/- each.

(f) Analogic Controls India Limited (ACIL)

During the current year, the Company has identified impairment of Rs.16.55 million in investment in equity instrument of ACIL. The impairment is recognised as an exceptional item in the statement of profit and loss.

(g) BF NTPC Energy Systems Limited (BFNTPCESL)

During the current year, the Company has made further investment in BFNTPCESL of Rs.7.19 million by acquiring 719.100 shares of Rs.10/- each.

During the current year, the Company has identified impairment of Rs.7.19 million in investment in equity instrument of BFNTPCESL. The impairment is recognised as an exceptional item in the statement of profit and loss.

(h) ALSTOM Bharat Forge Power Private Limited

During the current year the Company has divested its 49% stake in ALSTOM Bharat Forge Power Private Limited, which was formed as a JV, resulting in to net gain of Rs.540.07 million which is shown as an exceptional item in the statement of profit and loss.

(i) Kalyani Polytechnic Private Limited (KPPL)

During the current year the Company has divested its 100% of its stake in KPPL, which was a wholly owned subsidiary, resulting in to a net loss of Rs.0.15 million.

(a) Gupta Energy Private Limited

Shares of Gupta Energy Private Limited pledged against the facility obtained by Gupta Global Resources Private Limited.

(b) Khed Economic Infrastructure Private Limited

During the current year, the Company has made further investment in Khed Economic Infrastructure Private Limited of Rs.173.16 million by acquiring 17,316,308 shares of Rs.10/- each.

(c) Paragon Partners Growth Fund - I

During the current year, the The Company has made further investment in Paragon Partners Growth Fund - I of Rs.44.00 million by acquiring 440,000 units of Rs.100/- each.

(d) Investments at fair value through OCI (fully paid) reflect investment in quoted and unquoted equity securities. Refer note 47 for determination of their fair values.

(e) Investments at fair value through PL (fully paid) reflect investment in quoted and unquoted debt instruments and unquoted equity securities. Refer note 47 for determination of their fair values.

The carrying amount of trade receivables includes receivables which are discounted with banks. The Company has transferred the relevant receivables to the discounting bank in exchange for cash. However, the Company has retained the late payment and credit risk.

Accordingly, the Company continues to recognise the transferred assets in entirely in its balance sheet.

The amount repayable under the bill discounting arrangement is presented as borrowing. The relevant carrying amounts are as follows:

Bank deposits earns interest at fixed rates. Short-term deposits are generally made for varying periods between seven days to twelve months, depending on the cash requirements of the Company, and earn interest at the respective deposit rates.

Disclosure on Specified Bank Notes (SBNs)

During the year, the Company had specified bank notes or other denomination note as defined in the MCA notification G.S.R. 308(E) dated March 31, 2017. The details of Specified Bank Notes (SBN) held and transacted during the period from November 8, 2016 to December 30, 2016 and the denomination wise SBNs and other notes as per the notification is given below:

* For the purposes of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the November 8, 2016.

** Permitted receipts and payments of other denomination notes disclosed above should not be construed as permitted receipts and payments as permitted by RBI from time to time persuant to the introduction of the demonetisation scheme by the Government vide RBI circular-RBI/2016-17/112 dated November 8, 2016.

(a) Terms / rights attached to equity shares

The Company has only one class of issued equity shares having a par value of Rs.2/- per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of equity shares will 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.

(b) Reconciliation of equity shares outstanding at the beginning and at the end of the reporting year

(c) Shares held by holding/ ultimate holding company and /or their subsidiaries/ associates

The Company being ultimate holding company, there are no shares held by any other holding, ultimate holding company and their subsidiaries/associates.

(d) Aggregate number of bonus shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date

There are no bonus shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date.

(e) Details of shareholders holding more than 5% shares in the Company

* The shareholding information has been extracted from the records of the Company including register of shareholders/ members and is based on legal ownership of shares.

(f) Shares reserved for issue under option

(g) Global depository receipts

The Company had issued 3,636,500 equity shares of Rs.10/- each (later sub-divided into 18,182,500 equity shares of Rs.2/- each) in April 2005 represented by 3,636,500 Global Depository Receipts (GDR) (on sub division 18,182,500 GDRs) evidencing “Master GDR Certificates” at a price of USD 27.50 per GDR (including premium). GDRs outstanding at the close of the year are 9,200 (March 31, 2016: 9,200; April 1, 2015: 9,200). The funds raised had been utilized towards the object of the issue.

Holders of GDRs will have no voting rights or other direct rights of a shareholder with respect to the shares underlying the GDRs.

(a) Special capital incentive:

Special capital incentive is created during the financial year 1999-00, amounting to Rs.2.50 million under the 1988 Package Scheme of Incentives.

(b) Capital reserves:

The Company had issued and allotted to Qualified Institutional Buyers, 10,000,000 equity shares of Rs.2/- each at a price of Rs.272/- per share aggregating to Rs.2,720 million on April 28, 2010, simultaneous with the issue of 1,760, 10.75% Non-Convertible Debentures (NCD) of a face value of Rs.1,000,000/- at par, together with 6,500,000 warrants at a price of Rs.2/- each entitling the holder of each warrant to subscribe for 1 equity share of Rs.2/- each at a price of Rs.272/- at any time within 3 years from the date of allotment. Following completion of three years term, the subscription money received on issue of warrants was credited to capital reserve as the same is not refundable / adjustable. Further the warrants had lapsed and ceased to be valid from April 28, 2013.

(c) Capital redemption reserve:

Capital redemption reserve is created by amount set aside on redemption of preference shares.

(d) Securities premium account:

Securities premium account is used to record the premium on issue of equity shares. The same is utilised in accordance with the provisions of The Companies Act, 2013.

(e) Debenture redemption reserve (DRR):

Debenture redemption reserve was created in accordance with circular No. 9/2002 dated April 18, 2002 issued by the Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India and Section 117(C) of the Companies Act, 1956 at 25% of the maturity amount equally over the terms of the debentures privately placed. Pursuant to MCA circular no. 04/2013 dated February 11, 2013, the Company had created reserve as per the erstwhile Companies Act, 1956.

During the current year the Company has redeemed outstanding debentures and balance of DRR has been transferred to surplus in the statement of profit and loss.

(a) Debentures (secured)

The Company has issued the following secured redeemable non-convertible debentures:

(i) Nil (March 31 2016: 2,500; April 1, 2015: 2,500) - 11.95 % Redeemable secured non-convertible debenturesc Sixteenth series) of Rs.Nil (March 31, 2016: Rs.333,400/- each; April 1, 2015: Rs.666,700/- each) redeemable at par on January 5, 2017.

Above debentures are secured by (i) First pari passu mortgage in favour of the Trustees, of all rights and interest on the Company’s immovable properties (also refer note 3 & note 4) situated at Mundhwa, Satara and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, present and future both such as all plant and machinery, equipments, tools, furniture and fixtures etc.(also refer note 3), as described in Debenture Trust-cum-Mortgage Deed dated April 30, 2009 and a revised Mortgage Deed dated April 30, 2014, when the immovable property situated at Jalgaon was removed as a security.

Charge created for above loan was satisfied on February 15, 2017.

(ii) Nil (March 31, 2016: 1,760; April 1, 2015: 1,760) - 10.75 % Redeemable secured non-convertible debentures (Eighteenth series) of Rs.Nil (March 31, 2016: Rs.300,000; April 1, 2015: Rs.650,000/- each) redeemable at par on April 28, 2016.

Above debentures are secured by (i) First pari-passu mortgage in favour of Trustees, of all rights and interest on the Company’s immovable properties (also refer note 3 & 4), present and future situated at Mundhwa and Chakan, Satara with negative lien on properties situated at Jejuri and Baramati as per Debenture Trust-cum-Mortgage Deed dated June 28, 2010; and (ii) First pari-passu charge in favour of the Trustees on moveable properties (also refer note 3), present and future as described in Schedule-II as per Debenture Trust-cum-Mortgage Deed dated June 28, 2010 and a revised Mortgage Deed dated April 30, 2014, when the immovable property situated at Jalgaon was removed as a security.

Charge created for above loan was satisfied on June 17, 2016.

(b) Foreign currency term loans

Foreign currency term loans on Syndicated basis (Unsecured)

Repayable in 3 half yearly / yearly instalments from date of start of repayment, along with interest ranging from LIBOR 65 bps to LIBOR 225 bps.

(c) Buyers line of credit for import of goods from banks (Unsecured)

Balance outstanding USD 13.34 million(Rs.864.80 million) (March 31, 2016 : USD 20 million (Rs.1325.20 million), April 1, 2015: Nil) Repayable in 3 equal yearly instalments starting from May 2016, along with interest @ LIBOR 135 bps

(d) IGSTC R&D project loan (Secured)

Balance outstanding Rs.8.10 million (March 31, 2016 : Rs.6.08 million, April 1, 2015: Rs.6.08 million) The loan is secured by bank guarantee executed by the Company in favour of IGSTC. Repayable in 10 half yearly instalments from January 14, 2017, along with interest @ 3.00% per annum.

(e) Preshipment packing credit

The loan is secured against hypothecation of stocks of semi finished and finished goods, raw materials, finished dies and die blocks (included in property, plant and equipment), work-in-progress, consumable stores and spares(also refer note 3 & note 11), book debts (also refer note 9), etc.

Preshipment packing credit - foreign currency (secured & unsecured) is repayable within 180 days and carries interest @ LIBOR 10 bps to LIBOR 45 bps

(f) Bill discounting with banks

The loan is secured against hypothecation of stocks of semi finished and finished goods, raw materials, finished dies and die blocks (included in property, plant and equipment), work-in-progress, consumable stores and spares(also refer note 3 & note 11), book debts (also refer note 9) etc.

Bill discounting (secured & unsecured) with banks is repayable within 210 days and carries interest LIBOR 10 bps to LIBOR 45 bps.

(g) Cash credits (secured)

Cash credit from banks is secured against hypothecation of stocks of semi finished and finished goods, raw materials, finished dies and die blocks (included in property, plant and equipment), work-in-progress, consumable stores and spares(also refer note 3 & note 11), book debts (also refer note 9) etc.

Cash credit is repayable on demand and carries interest @ 9.45% to 14.50% per annum.

4. Income and deferred taxes :

Deferred tax

(a) Adjustment to general reserve includes deferred tax impact relating to revesion of depreciation as per Schedule II of Companies Act, 2013 in earlier period.

(b) The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

(c) During the year ended March 31, 2017 and March 31, 2016 the Company has paid dividend to its shareholders. This has resulted in payment of Dividend Distribution Tax (DDT) to the taxation authorities. The Company believes that DDT represents additional payment to taxation authority on behalf of the shareholders. Hence, DDT paid is charged to equity.

(d) The Company has tax losses which arose due to capital loss of Rs.132.90 million (March 31, 2016: Rs.17.98 million, April 1, 2015: Rs.17.98 million) that are available for offsetting for eight years against future taxable profits of the companies under the head capital gains. This loss will expire in eight years from the end of the respective year to which it pertains. Deferred tax assets have not been recognised in respect of the above mentioned loss as they may not be used to offset taxable profits, they have arisen on account of loss on sale of investment and there are no other tax planning opportunities or other evidence of recoverability in the near future. If the Company were able to recognise all unrecognised deferred tax assets, the profit would increase by Rs.45.99 million (March 31, 2016 : Rs.6.22 million).

5. Exceptional items

(a) Gain on sale of investment in joint venture (JV)

During the current year the Company has divested its 49% stake in ALSTOM Bharat Forge Power Private Limited, which was formed as a JV, resulting in a net gain of Rs.540.07 million.

(b) Provision for diminution in value of investment in subsidiary and joint venture

- Analogic Controls India Limited (ACIL) - Subsidiary

Considering the significant decline in business activities and losses incurred by ACIL, the Company has provided an amount of Rs.16.55 million towards diminution in carrying cost of its investments in current year.

- BF NTPC Energy Systems Limited (BFNTPCESL) - JV

Considering the losses from business activities carried out by BFNTPCESL, the Company has provided an amount of Rs.7.19 million towards diminution in carrying cost of its investments in current year.

(c) Loss on fair valuation of financial instruments

This includes loss on fair valuation of financial instruments amounting to Rs.136.09 million on account of significant decline in fair value of 0% compulsory Convertible Debentures of ACIL as explained above.

(d) Provision for statutory employee cost relating to earlier period

It represents certain statutory employee costs that have become applicable retrospectively from the financial year 2014-15.

(a) Operating leases : Company as lessee

The Company has entered into agreements in the nature of lease/leave and license agreement with different lessors/ licensors for the purpose of establishment of office premises/residential accommodations etc. These are generally in the nature of operating lease/leave and license. There are no transactions in the nature of sublease. Period of agreements are generally up to three years and renewal at the options of the lessee. There are no escalation clauses or restrictions placed upon the Company by entering into these leases.

The Company has entered into non-cancellable operating leases for building, with lease term 4 years. The Company has an option to extend the lease by mutual consent. The lease includes escalation clause. Future minimum rentals payable under non-cancellable operating leases as at 31 March are, as follows:

(b) Operating leases : Company as lessor

The Company has entered into agreements in the nature of lease/leave and license agreement with different lessees/ licensees for the purpose of land. These are generally in the nature of operating lease. Period of agreements are generally for three years to ten years and cancellable with a notice of thirty days to six months and renewal at the options of the lessee/lessor.

6. Segment information

In accordance with paragraph 4 of notified Ind AS 108 “Operating segments”, the Company has disclosed segment information only on the basis of the consolidated financial statements.

37. Gratuity and other post-employment benefit plans

(a) Gratuity plan

Funded scheme

The Company has a defined benefit gratuity plan for its employees. The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Act, every employee who has completed five years of service is entitled to specific benefit. The level of benefits provided depends on the employee’s length of service and salary at retirement age. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn) for each completed year of service as per the provisions of the Payment of Gratuity Act, 1972. The scheme is funded with insurance companies in the form of a qualifying insurance policy.

Risk exposure and asset-liability matching

Provision of a defined benefit scheme poses certain risks, some of which are detailed hereunder, as companies take on uncertain long term obligations to make future benefit payments.

1) Liability risks

a) Asset-liability mismatch risk

Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the Company is successfully able to neutralize valuation swings caused by interest rate movements.

b) Discount rate risk

Variations in the discount rate used to compute the present value of the liabilities may seem small, but in practice can have a significant impact on the defined benefit liabilities.

c) Future salary escalation and inflation risk

Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management’s discretion may lead to uncertainties in estimating this increasing risk.

2) Asset risks

All plan assets are maintained in a trust fund managed by a public sector insurer viz. LIC of India and other insurance companies. LIC has a sovereign guarantee and has been providing consistent and competitive returns over the years. The Company has opted for a traditional fund wherein all assets are invested primarily in risk averse markets. The Company has no control over the management of funds but this option provides a high level of safety for the total corpus. A single account is maintained for both the investment and claim settlement and hence 100% liquidity is ensured. Also interest rate and inflation risk are taken care of.

The following table summarises the components of net benefit expense recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for the gratuity plan.

Weighted average duration of the plan (based on discounted cash flows using mortality, withdrawal and interest rate) is 6.7 years.

(b) Special gratuity

The Company has a defined benefit special gratuity plan. Under the gratuity plan, every eligible employee who has completed ten years of service gets an additional gratuity on departure which will be salary of five months based on last drawn basic salary. The scheme is unfunded.

1) Liability risks

a) Asset-liability mismatch risk

Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities, the Company is successfully able to neutralize valuation swings caused by interest rate movements.

b) Discount rate risk

Variations in the discount rate used to compute the present value of the liabilities may seem small, but in practice can have a significant impact on the defined benefit liabilities.

c) Future salary escalation and inflation risk

Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management’s discretion may lead to uncertainties in estimating this increasing risk.

2) Asset risks

This represents unmanaged risk and a growing liability. There is an inherent risk here that the Company may default on paying the benefits in adverse circumstances. Funding the plan removes volatility in the Company’s financials and also helps the Company to manage the defined benefit risk through increased return on the funds made available for the plan.

(c) Provident fund

In accordance with the law, all employees of the Company are entitled to receive benefits under the provident fund. The Company operates two plans for its employees to provide employee benefits in the nature of provident fund, viz. defined contribution plan and defined benefit plan.

Under the defined contribution plan, provident fund is contributed to the government administered provident fund. The Company has no obligation, other than the contribution payable to the provident fund.

Under the defined benefit plan, the Company contributes to the “Bharat Forge Company Limited Staff Provident Fund Trust”. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate.

1) Liability risks:

a. Asset-liability mismatch risk

Risk which arises if there is a mismatch in the duration of the assets relative to the liabilities. By matching duration with the defined benefit liabilities ,the company is successfully able to neutralize valuation swings caused by interest rate movements. Hence, companies are encouraged to adopt asset-liability management.

b. Discount rate risk

Variations in the discount rate used to compute the present value of the liabilities may seem small, but in practice can have a significant impact on the defined benefit liabilities.

c. Future salary escalation and inflation risk

Since price inflation and salary growth are linked economically, they are combined for disclosure purposes. Rising salaries will often result in higher future defined benefit payments resulting in a higher present value of liabilities especially unexpected salary increases provided at management’s discretion may lead to uncertainties in estimating this increasing risk.

* Does not include gratuity and leave encashment since the same is considered for all employees of the Company as a whole.

Outstanding balances at the year end are unsecured with a short term duration and interest free except for loans and settlement occurs in cash. For the year ended March 31, 2017 the Company has not recorded any impairment of receivables relating to amount owed by related parties (March 31, 2016 : Nil, April 1, 2015 : Nil). This assessement is undertaken in each financial year through examining the financial position of the related party & the market in which the related party operates.

All transactions were made on normal commercial terms and conditions and at market rates.

For details of guarantees given to group companies refer note 46.

The Company has various welfare trusts to administer the long term benefit for its employees. Further the Company operates defined benefit plans by way of gratuity trusts, provident fund trusts etc. For details also refer note 37.

(e) Performance guarantee:

The Company along with its joint venture partner has given an irrecoverable and unconditional joint undertakings to the customers of joint venture company - ALSTOM Bharat Forge Power Private Limited (ABFPPL), for transfer of technology, training, execution of steam turbines generator sets and auxiliary equipment and for successful performance of the projects awarded to ABFPPL.

7. Deferral/Capitalisation of exchange differences

The Company has availed the option under Ind AS 101 para D13AA, continuing the policy adopted for accounting for exchange differences arising from translation of foreign currency monetary items recognised in financial statements on the date of transition.

Accordingly foreign exchange gain/(loss) adjusted against:

# For the loan given in FY 2010-11

$ Merged with BF Infrastructure Limited w.e.f. April 1, 2015

* Receivable on demand

** Receivable in 3 years from the date of origination of loan

- All advances are unsecured

- Details of investments made are given in Note 6 & 7

- Guarantee given on behalf of

- Bharat Forge Kilsta AB, step down subsidiary company, of Rs.1,244.70 million (March 31, 2016: Rs.1,356.84 million; April 1, 2015 : Nil) for working capital requirement.

- Bharat Forge Global Holding GmbH, Wholly owned subsidiary company, of Rs.Nil (March 31, 2016: Nil; April 1, 2015: 1,314.90 million) for working capital requirement and term loan.

- Bharat Forge America Inc., wholly owned subsidiary company, of Rs.259.40 million (March 31, 2016: Nil; April 1, 2015: Nil) for term loan.

8. Financial instruments by category

Set out below is a comparison, by class, of the carrying amounts and fair value of the Company’s financial instruments as of March 31, 2017, other than those with carrying amounts that are reasonable approximates of fair values:

The management assessed that the fair value of cash and cash equivalent, trade receivables, derivative instruments, trade payables and other current financial assets and liabilities approximate their carrying amounts largely due to the short term maturities of these instruments.

Further the management assessed that the fair value of security deposits and other non current recievables approximate their carrying amounts largely due to discounting at rates which are an approximation of current lending rates.

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

(i) Long-term fixed-rate and variable-rate receivables are evaluated by the Company based on parameters such as individual creditworthiness of the customer. Based on this evaluation, allowances are taken into account for the expected credit losses of these receivables.

(ii) The fair values of quoted instruments are based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or the discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value.

(iii) 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.

(iv) The Company enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies and forward rate curves of the underlying. All derivative contracts are fully cash collateralised, thereby eliminating both counterparty and the Company’s own non-performance risk. As at March 31, 2017 the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value.

(v) The fair values of the Company’s interest-bearing borrowings and loans are determined by using DCF method using discount rate that reflects the issuer’s borrowing rate as at the end of the reporting period. The own non performance risk as at March 31, 2017 was assessed to be insignificant.

Description of significant unobservable inputs to valuation:

The significant unobservable inputs used in the fair value measurements categorised within Level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis as at March 31, 2017 are as shown below

(a) Gupta Energy Private Limited (GEPL)

The Company has an investment in equity instrument of GEPL. The same is classified as fair value through profit and loss. Over the years GEPL has been making consistent losses. The management of the Company has made attempts to obtain latest information for the purpose of valuation. However, such information is not availabe as GEPL has not filed the financial statements with MCA since FY 2014-15. In view of the above, the management believes that the fair value of the investment is Nil as at April 1, 2015.

(b) Bharat Forge Infrastructure Limited (BFIL)

The Company has an investment in preference shares of BFIL. The same is classified as fair value through profit and loss. These preference shares were completely provided for under previous GAAP due to permanent diminution in the value of the instrument. The management believes that the fair value of such preference shares is Nil considering the fact that BFIL is still in the initial phase and the nature of business in which it operates involves relatively longer gestation period. The said preference shares are redeemable on June 30, 2017 and the management does not believe that BFIL would be in a position to meet the repayment obligation.

9. Significant accounting judgements, estimates and assumptions

The preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures, including 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.

Judgements

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

1) Significant judgement is required to apply lease accounting rules under Appendix C to Ind AS 17 determining whether an arrangement contains a lease. In assessing the applicability to arrangements entered into by the Company with its various sub-contractors regarding providing of certain services, the Company has exercised judgment to evaluate the right to use the underlying assets, substance of the transaction including legally enforced arrangements, and other significant terms and conditions of the arrangement to conclude whether the arrangements meets the criteria under Appendix C to Ind AS 17. Based on the evaluation, the Company has concluded that the arrangements do not meet the definition of lease as specified under appendix C to Ind AS 17.

2) Embedded derivative - The Company has entered into certain hybrid contracts i.e. where an embedded derivative is a component of a non-derivative host contract, in the nature of financial liability. The Company has exercised judgement to evaluate if the economic characteristics and risks of the embedded derivative are closely related to the economic characteristics and risks of the host. Based on the evaluation, the Company has concluded, that these economic characteristics and risks of the embedded derivatives are closely related to the economic characteristics and risks of the host and thus not separated from the host contract and not accounted for separately.

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.

Impairment of non-financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. It is determined for an individual asset, unless the asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. In determining the fair value less costs to disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

Defined benefit plans

The cost of the defined benefit gratuity plan and other post-employment plans 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 mortality rate is based on publicly available mortality tables for India. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates for India.

Further details about gratuity obligations are given in Note 37.

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 judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. See Note 48 for further disclosures.

Impairment of financial assets

The impairment provisions for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Company’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

Operating lease commitments - Company as lessor

The Company has given land on lease to certain entities. The Company has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a major part of the economic life of such land and the fair value of the asset, that it retains all the significant risks and rewards of ownership of these lands and accounts for the contracts as operating leases.

Income tax and deferred tax

Deferred tax assets are not recognised for unused tax losses as it is not probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

The Company has Rs.132.90 million (March 31, 2016: Rs.17.98 million; April 1, 2015: Rs.17.98 million) of tax losses carried forward. These losses relate to loss under the head capital gain, which will expire in 8 years and may not be available to offset taxable income under the same head. On this basis, the Company has determined that it cannot recognise deferred tax assets on the tax losses carried forward.

If the Company was able to recognise all unrecognised deferred tax assets, profit and equity would have increased by Rs.45.99 million (March 31, 2016 : Rs.6.22 million). Further details on taxes are disclosed in note 21.

Provision for Inventories

Management reviews the inventory age listing on a periodic basis. This review involves comparision of the carrying value of the aged inventory item with the respective net realisable value. The purpose is to ascertain whether and allowance is required to be maid in the financial statements for any obsolete and slow-moving items. Management satisfied that adequate allowance for absolute and slow-moving inventories has been made in the financial statement.

10. Hedging activities and derivatives

Derivatives not designated as hedging instruments

The Company has used foreign exchange forward contracts to manage repayment of some of its foreign currency denominated borrowings. These foreign exchange forward contracts are not designated as cash flow hedges and are entered into for periods consistent with foreign currency exposure of the underlying transactions i.e. the repayments of foreign currency denominated borrowings.

Cash flow hedges Foreign currency risk

Foreign exchange forward contracts measured at fair value through OCI are designated as hedging instruments in cash flow hedges of forecast sales in US Dollar and Euro. These forecast transactions are highly probable.

The foreign exchange forward contract balances vary with the level of expected foreign currency sales and changes in foreign exchange forward rates.

The terms of the foreign currency forward contracts match the terms of the expected highly probable forecast transactions. As a result, no hedge ineffectiveness arise requiring recognition through profit or loss. Notional amounts of outstanding forward contracts are as as follows

The cash flow hedges of the expected future sales during the year ended March 31, 2017 were assessed to be highly effective and a net unrealised gain of Rs.3,377.78 million, with a deferred tax liability of Rs.1,168.98 million relating to the hedging instruments, is included in OCI. Comparatively, the cash flow hedges of the expected future sales during the year ended March 31, 2016 were assessed to be highly effective and an unrealised gain of Rs.1,694.12 million with a deferred tax liability of Rs.586.30 million was included in OCI in respect of these contracts.

The amount removed from OCI during the year and included in the carrying amount of the hedging items as a basis adjustment for the year ended March 31, 2017 is detailed in Note 33, totalling Rs.872.70 million (net of deferred tax) (March 31, 2016: Rs.2,139.59 million). The amounts retained in OCI at March 31, 2017 are expected to mature and affect the statement of profit and loss till year ended March 31, 2020.

Reclassifications to profit or loss during the year gains or losses included in OCI are shown in Note 33.

The Company’s principal financial liabilities other than derivatives, comprise loans and borrowings, trade payables and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include loans, trade and other receivables and cash and cash equivalents that derive directly from its operations. The Company also holds FVTOCI and FVTPL investments and enters into derivative transactions.

The Company is exposed to market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s senior management is supported by a Finance and Risk Management Committee (FRMC) that advises on financial risks and the appropriate financial risk governance framework for the Company. The FRMC provides assurance 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 experienced members from the senior management who have the relevant expertise, appropriate skills and supervision. It is the Company’s policy that no trading in derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised as below.

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 three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, investment in mutual funds, FVTOCI investments and derivative financial instruments.

The sensitivity analysis in the following sections relate to the position as at March 31, 2017 and March 31, 2016.

The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant and on the basis of hedge designations in place as at March 31, 2017.

The analysis exclude the impact of movements in market variables on: the carrying values of gratuity and other postretirement obligations and provisions.

The following assumptions have 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, 2017 and March 31, 2016 including the effect of hedge accounting

Interest rate risk

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 Company’s long-term debt obligations with floating interest rates.

The Company generally borrows in Foreign Currency, considering natural hedge it has against its export. Long-term and short-term foreign currency debt obligations carry floating interest rates.

The Company avails short term debt in foreign currency up to tenor of 9 months, in the nature of export financing for its working capital requirements. LIBOR or EURIBOR for the said debt obligations is fixed for the entire tenor of the debt, at the time of availment.

The Company has an option to reset LIBOR or EURIBOR either for 6 Months or 3 months for its long term debt obligations. To manage its interest rate risk, the Company evaluates the expected benefit from either of the LIBOR resetting options and accordingly decides. The Company also has an option for its long term debt obligations to enter into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable interest rate amounts calculated by reference to an agreed-upon notional principal amount. However, there were no interest rates swaps entered in to by the Company during any of the periods reported. At March 31, 2017, the Company’s entire long term borrowings are at a floating rate of interest (March 31, 2016: 91%).

Interest rate sensitivity

The Company’s total interest cost the year ended March 31, 2017 was Rs.727.70 million and for year ended March 31, 2016 was Rs.905.06 million. The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected, with all other variables held constant, the Company’s profit before tax is affected through the impact on floating rate borrowings, as follows:

* During the year, EURIBOR was trading in negative zone and Euro borrowings were floored at zero.

The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment, showing a significantly higher volatility than in prior years.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s export revenue and long term foreign currency borrowings.

The Company manages its foreign currency risk by hedging its forecasted sales up to 4 years to the extent of 25%-65% on rolling basis and Company keep its long term foreign currency borrowings un-hedged which will be natural hedge against its un-hedged exports. The Company may hedge its long term borrowing near to the repayment date to avoid rupee volatility in short term.

When a derivative is entered into for the purpose of being a hedge, the Company negotiates the terms of those derivatives to match the terms of the hedged exposure. For hedges of forecast transactions the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in the foreign currency.

Foreign currency sensitivity

The following tables demonstrate the sensitivity to a reasonably possible change in USD and EUR exchange rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of un-hedged monetary assets and liabilities. The impact on the Company’s pre-tax equity is due to changes in the fair value of forward exchange contracts designated as cash flow hedges and net investment hedges. The Company’s exposure to foreign currency changes for all other currencies is not material.

Commodity price risk

Company is affected by the price volatility of certain commodities. Its operating activities require the on-going purchase of steel. Due to significant volatility of the price of the steel, the Company has agreed with its customers for pass through of increase/decrease in prices of steel. There may be lag effect in case of such pass-through arrangement.

Commodity price sensitivity

As the Company has a back to back pass through arrangements for volatility in raw material prices there is no impact on the profit and loss and equity of the Company.

Equity price risk

The Company is exposed to price risk in equity investments and classified on the balance sheet as fair value through profit or loss and through other comprehensive income. To manage its price risk arising from investments in equity, the Company diversifies its portfolio. Diversification and investment in the portfolio is done in accordance with the limits set by the Board.

At the reporting date, the exposure to unlisted equity securities at fair value was Rs.597.50 million. Sensitivity analysis of these investments have been provided in Note 48.

At the reporting date, the exposure to listed equity securities at fair value was Rs.79.50 million. A decrease of 10% on the NSE market index could have an impact of approximately Rs.7.95 million on the OCI or equity attributable to the Company. An increase of 10% in the value of the listed securities would also impact OCI and equity. These changes would not have an effect on profit or loss.

Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, investment in mutual funds, other receivables and deposits, foreign exchange transactions and other financial instruments.

Trade receivables

Customer credit risk is managed by the Company’s established policy, procedures and control relating to customer credit risk management. Further, Company’s customers includes marquee OEMs and Tier I companies, having long standing relationship with the Company. Outstanding customer receivables are regularly monitored and reconciled. At March 31, 2017, receivable from Company’s top 5 customers accounted for approximately 34% (March 31, 2016: 24%) of all the receivables outstanding. An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The calculation is based on historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 12. The Company does not hold collateral as security except in case of few customers. The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets.

Other receivables, deposits with banks and loans given

Credit risk from balances with banks, financial institutions and mutual funds is managed in accordance with the Company’s approved investment policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Company’s Board of Directors on regular basis and the said limits gets revised as and when appropriate. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.

The Company’s maximum exposure to credit risk for the components of the balance sheet at March 31, 2017 and March 31, 2016 is the carrying amounts as illustrated in the respective notes except for financial guarantees and derivative financial instruments. The Company’s maximum exposure relating to financial guarantees and financial derivative instruments is noted in Note 46.

Liquidity risk

Cash flow forecasting is performed by Treasury function. Treasury monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration the compliance with internal cash management. The Company’s treasury invests surplus cash in marketable securities as per the approved policy, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-mentioned forecasts. At the reporting date, the Company held mutual funds of Rs.11,238.45 million (March 31, 2016: Rs.7,633.18 million; April 1, 2015: Rs.4,564.63 million) and other liquid assets of Rs.2,747.87 million (March 31, 2016: Rs.3,697.54 million; April 1, 2015: Rs.5,892.74 million) that are expected to readily generate cash inflows for managing liquidity risk.

As per the Company’s policy, there should not be concentration of repayment of loans in a particular financial year. In case of such concentration of repayment, the Company evaluates the option of refinancing entire or part of repayments for extended maturity. The Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. The Company has access to a sufficient variety of sources of funding and debt maturing within 12 months can be rolled over with existing lenders and the Company is also maintaining surplus funds with short term liquidity for future repayment of loans.

For the purpose of the Company’s capital management, capital includes issued equity capital, share premium and all other equity reserves attributable to the equity holders of the Company. The primary objective of the Company’s capital management is to maximise the shareholder value.

The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using a net debt equity ratio, which is net debt divided by equity. The Company’s policy is to keep the net debt equity ratio below 1.00. The Company includes within its borrowings net debt and interest bearing loans less cash and cash equivalents.

In order to achieve this overall objective, the Company’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current period.

No changes were made in the objectives, policies or processes for managing capital during the years ended March 31, 2017 and March 31, 2016.

11. First time adoption

These financial statements, for the year ended March 31, 2017, are the first the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (‘Indian GAAP’).

Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for periods ending on March 31, 2017, together with the comparative period data as at and for the year ended March 31, 2016, as described in the summary of significant accounting policies. In preparing these financial statements, the Company’s opening balance sheet was prepared as at April 1, 2015, the Company’s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 1,2015 and the financial statements as at and for the year ended March 31, 2016.

Exceptions applied

The Company has applied all the mandatory exceptions in accordance with Ind AS


Mar 31, 2014

1. Corporate information

Bharat Forge Limited ("the Company") is a public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on three stock exchanges in India. The Company is engaged in the manufacturing and selling of forged components.The Company caters to both domestic and international markets.The Company''s CIN is L25209PN1961PLC012046.

2. basis of preparation

These financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material aspects with accounting principles generally accepted in India, including the accounting standards notifed under the Companies Act, 1956 read with general circular 8/ 2014 dated April 4, 2014 issued by the Ministry of Corporate Afairs. The financial statements have been prepared on an accrual basis under the historical cost convention except for derivative financial instruments which have been measured at fair value.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year.

3. gratuity and other post-employment benefit plans (a) gratuity plan funded scheme

The Company has a Defined benefit gratuity plan. Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure at 15 days last drawn basic salary for each completed year of service. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for the respective plan.

(c) Provident fund

In accordance with law, all employees of the Company are entitled to receive benefits under the provident fund. The Company operates two plans for its employees to provide employee benefits in the nature of provident fund, viz. Defined contribution plan and Defined benefit plan.

Under Defined contribution plan, provident fund is contributed to the government administered provident fund.The Company has no obligation, other than the contribution payable to the provident fund.

Under Defined benefit plan, the Company contributes to the "Bharat Forge Company Limited Staf Provident Fund Trust". The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notifed interest rate.

The details of the Defined benefit plan based on actuarial valuation report is as follows:

The Company has provided Rs. Nil towards shortfall in the interest payment on provident fund as per actuary report during the year ended March 31, 2014 (March 31, 2013: Rs.4.92 million).

The actuary has followed Black Scholes Option Pricing approach.

The following tables summarize the components of net benefit expense recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for the respective plans.

4. Leases

Operating leases: Company as lessee

The Company has entered into agreements in the nature of lease/ leave and license agreement with diferent lessors/ licensors for the purpose of establishment of ofce premises / residential accommodations etc. These are generally in nature of operating lease/ leave and license. There are no transactions in the nature of sub lease. Period of agreements are generally for three years and renewal at the option of the lessee. There are no escalation clauses or restrictions placed upon the Company by entering into these leases.

5. Segment information

In accordance with paragraph 4 of notifed Accounting Standard 17 (AS-17) "Segment Reporting", the Company has disclosed segment information only on the basis of the consolidated financial statements.

6. Related Party disclosures

(i) names of the related parties and related party relationship related parties where control exists

Subsidiaries

CDP Bharat Forge GmbH

Bharat Forge America Inc.

BF-NTPC Energy Systems Limited

Kalyani ALSTOM Power Limited

BF Infrastructure Limited

BF Infrastructure Ventures Limited

Kalyani Strategic Systems Limited (formerly known as BF Power

Equipment Limited) BF Elbit Advanced Systems Private Limited Kalyani Polytechnic Private Limited (Section 25 Company) Analogic Controls India Limited (w.e.f. May 14, 2013)

Step down subsidiaries

Bharat Forge Holding GmbH

Bharat Forge Aluminiumtechnik GmbH & Co. KG

Bharat Forge AluminiumtechnikVerwaltungs GmbH

Bharat Forge Beteiligungs GmbH

Bharat Forge Kilsta AB

Bharat Forge Scottish Stampings Limited

Bharat Forge Hong Kong Limited

FAW Bharat Forge (Changchun) Co. Limited

Bharat Forge International Limited

Bharat Forge Daun GmbH

BF New Technologies GmbH

Related parties with whom transactions have taken place during the year

Joint ventures

ALSTOM Bharat Forge Power Limited Impact Automotive Solutions Limited

Step down joint venture

David Brown Bharat Forge Gear Systems India Limited

Enterprises owned or significantly infuenced by key management personnel or their relatives

Kalyani Carpenter Special Steels Limited Kalyani Steels Limited BF Utilities Limited Automotive Axle Limited

Key management personnel

Mr. B. N. Kalyani

Mr. A. B. Kalyani

Mr. G. K. Agarwal

Mr. B. P. Kalyani

Mr. S. E. Tandale

Mr. S. K. Chaturvedi (up to December 31, 2013)

7. Capitalization of expenditure

During the year, the Company has capitalised the following expenses of revenue nature to the cost of fixed asset / capital work- in- progress (CWIP). Consequently, expenses disclosed under the respective notes are net of amounts capitalised by the Company

8. Contingent liabilities

In Rs. Million

As at As at March 31, 2014 March 31, 2013

Sales bills discounted 7,103.34 5,584.61 Of which:

Bills since realised 1,674.57 1,231.55

- Matured, overdue and outstanding since close of the period Guarantees given by the Company on behalf of other companies:

Balance Outstanding 1,457.92 1,898.71

(Maximum Amount) (1,952.14) (2,269.38)

Claims against the Company not acknowledged as Debts - to the extent ascertained * # 118.97 138.83

Excise/Service tax demands - matters under dispute # 358.51 176.39

Customs demands - matters under dispute # 50.97 50.97

* The Claim against the Company comprise of dues in respect to personnel claims (amount unascertainable), local taxes etc.

# The Company is contesting the demands and the management, including its tax/ legal advisors, believe that its position will likely be upheld in the appellate process. No tax expense has been accrued in the financial statements for the tax demand raised.

The management believes that the ultimate outcome of this proceeding will not have a material adverse efect on the Company''s financial position and results of operations

9. Capital and other commitments

(d) Performance guarantee

The Company has along with ALSTOM Power Holdings S.A. given an irrecoverable and unconditional undertaking to NTPC Limited for technology transfer, training, execution and successful performance of steam turbines generator and auxiliary equipments supplied by ALSTOM Bharat Forge Power Limited, joint venture of the Company.

Cross currency swap

On August 5, 2009, the Company had entered into a Cross Currency Swap (CCS) for a period of five years by converting a Long Term Rupee NCD liability ofRs. 250 million (out of 10.75% XVth Series NCD ofRs. 2,500 million) into an equivalent USD liability at the prevailing spot rate. Under this structure, the Company will receive a fixed interest coupon on a quarterly basis on the rupee amount swapped and will pay foating rate interest (which is subject to a cap) on the USD notional amount. On maturity of the swap, the Company will pay the contracted USD loan liability at prevailing rate and receive the original rupee amount swapped.

10. Deferral / Capitalisation of exchange diferences

The Ministry of Corporate Afairs (MCA) has issued the amendment dated December 29, 2011 to AS 11 "The Efects of Changes in Foreign Exchange Rates", to allow companies deferral/capitalization of exchange diferences arising on long-term foreign currency monetary items. In accordance with the amendment/ earlier amendment to AS 11, the Company has capitalised exchange loss, arising on long-term foreign currency loan to the cost of plant and equipments. The Company also has other long-term foreign currency monetary item, where the gain / (loss) due to fuctuation in foreign currency is accounted for as FCMITDA and disclosed under reserve and surplus.

11. (a) exchange diference gain / (loss) on account of fuctuations in foreign currency rates

The net exchange diferences gain / (losses) arising during the year on highly probable forecasted transaction relating to exports as a part of sales recognised in the statement of profit and loss is Rs. (522.37) million (March 31,2013Rs. (461.76) million).

(b) deferred payment liabilities

Sales tax deferral incentives attached to the erstwhile windmill division, which was demerged to BF Utilities Limited (BFUL) under section 392 and 394 of the Companies Act, 1956 sanctioned by the High Court of the Judicature at Mumbai, have been passed on thereafter from year to year by the Company to the latter, under an arrangement, with all liabilities and obligations attached thereto taken over completely by BFUL. The net liability outstanding of BFUL after such pass on amounts to Rs. 708 million (March 31, 2013: Rs. 775 million).

12. The financial statements are presented in Rs. million and decimal thereof except for per share information or as otherwise stated.

13. Previous year figures have been regrouped / reclassified, where necessary, to confirm to the current year''s classification.


Mar 31, 2013

1. Corporate information

Bharat Forge Limited ("the Company") is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company is engaged in the manufacturing and selling of forged components. The Company caters to both domestic and international markets.

2. Basis of preparation

These financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material aspects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. These financial statements have been prepared on an accrual basis under the historical cost convention except for derivative financial instruments which have been measured at fair value.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year.

3. Gratuity and other post-employment benefit plans

(a) Gratuity plan Funded scheme

The Company has a defined benefit gratuity plan. Under the gratuity plan, every employee who has completed atleast five years of service get a gratuity on departure at 15 days last drawn basic salary for each completed year of service. The scheme is funded with an insurance Company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for the respective plans.

(b) Special gratuity

The Company has a defined benefit special gratuity plan. Under the gratuity plan, every eligible employee who has completed ten years of service get an additional gratuity on departure which will be salary of five months based on last drawn basic salary. The scheme is unfunded.

The following table summarize the components of net benefit expense recognised in the statement of profit and loss and amounts recognised in the balance sheet.

(c) Provident fund

In accordance with law, all employees of the Company are entitled to receive benefits under the provident fund. The Company operates two plans for its employees to provide employee benefits in the nature of provident fund, viz. defined contribution plan and defined benefit plan.

Under defined contribution plan provident fund is contributed to the government administered provident fund. The Company has no obligation, other than the contribution payable to the provident fund.

Under defined benefit plan, the Company contributes to the "Bharat Forge Company Limited Staff Provident Fund Trust". The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate.

The details of the defined benefit plan based on actuarial valuation report is as follows:

The Company has provided Rs. 4.92 Million towards shortfall in the interest payment on provident fund as per actuary report during the year ended March 31, 2013 (March 31, 2012: Rs. Nil)

The actuary has followed Black Scholes Option Pricing approach

The following tables summarize the components of net benefit expense recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for the respective plans.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

Amount for the current and previous year are as follows:

Till the year ended March 31, 2011 the interest shortfalls could not be computed by the actuaries since The Institute of Actuaries of India has not issued the final guidance on valuation of the same. In the year 2011-12 The Institute of Actuaries of India has issued the guidance note for measurement of provident fund liabilities, accordingly the Company has started providing for interest shortfalls based on actuarial valuation since last year. Hence earlier years data is not available.

4. Operating leases - Company as lessee

The Company has entered into agreements in the nature of lease/leave and license agreement with different lessors/ licensors for the purpose of establishment of office premises/residential accommodations etc. These are generally in nature of operating lease/leave and license. There are no transactions in the nature of sub lease. Period of agreements are generally for three years and renewal at the options of the lessee. There are no escalation clause or restrictions placed upon the company by entering into these leases.

5. Segment information

In accordance with paragraph 4 of notified Accounting Standard 17 (AS-17) "Segment Reporting" the Company has disclosed segment information only on the basis of the consolidated financial statements.

6. Related Party Disclosures

(i) Names of the related parties and related party relationship Related parties where control exists

Subsidiaries CDP Bharat Forge GmbH

Bharat Forge America Inc.

BF-NTPC Energy Systems Limited

Kalyani ALSTOM Power Limited

BF Infrastructure Limited

BF Infrastructure Ventures Limited

BF Power Equipment Limited

BF Elbit Advanced Systems Private Limited

Kalyani Polytechnic Private Limited

Step down subsidiaries Bharat Forge Holding GmbH

Bharat Forge Aluminiumtechnik GmbH & Co. KG

Bharat Forge Aluminiumtechnik Verwaltungs GmbH

Bharat Forge Beteiligungs GmbH

Bharat Forge Kilsta AB

Bharat Forge Scottish Stampings Limited

Bharat Forge Hong Kong Limited

FAW Bharat Forge (Changchun) Co. Limited

Bharat Forge International Limited

Bharat Forge Daun GmbH

BF New Technologies GmbH

Related parties with whom transactions have taken place during the year

Associates Technica U.K. Limited (Investment through wholly owned subsidiary]

Joint Ventures ALSTOM Bharat Forge Power Limited

Impact Automotive Solutions Limited

Step down joint venture David Brown Bharat Forge Gear Systems India Limited

Enterprises owned or significantly influenced by key management personnel or their relation

Kalyani Carpenter Special Steels Limited

Kalyani Steels Limited

BF Utilities Limited

Automotive Axle Limited

Key management personnel Mr. B. N. Kalyani

Mr. A. B. Kalyani

Mr. G. K. Agarwal

Mr. P. K. Maheshwari

Mr. B. P. Kalyani

Mr. S. E. Tandale

Mr. S. K. Chaturvedi

7. Capitalization of expenditure

During the year, the Company has capitalised the following expenses of revenue nature to the cost of fixed asset/capital work-in-progress (CWIP). Consequently, expenses disclosed under the respective notes are net of amounts capitalised by the Company.

8. Deferral/Capitalisation of exchange differences

The Ministry of Corporate Affairs (MCA) has issued the amendment dated December 29, 2011 to AS 11 "The Effects of Changes in Foreign Exchange Rates", to allow companies deferral/capitalization of exchange differences arising on long-term foreign currency monetary items. In accordance with the amendment/earlier amendment to AS 11, the Company has capitalised exchange loss, arising on long-term foreign currency loan to the cost of plant and equipments. The Company also have other long-term foreign currency monetary item, where the gain/(loss) due to fluctuation in foreign currency is accounted for as FCMITDA and disclosed under reserve and surplus.

9. (a) Exchange difference gain/(loss) on account of fluctuations in foreign currency rates

The net exchange differences [gain/(losses)] arising during the year on highly probable forecasted transaction relating to exports as a part of sales recognised in the statement of profit and loss account is Rs. (461.76) Million (March 31, 2012 Rs. (173.04) Million)

(b) Deferred payment liabilities

Sales tax deferral incentives attached to the erstwhile windmill division, which was demerged to BF Utilities Limited (BFUL) under section 392 and 394 of the Companies Act, 1956 sanctioned by the High Court of the Judicature at Mumbai, have been passed on thereafter from year to year by the Company to the latter, under an arrangement, with all liabilities and obligations attached thereto taken over completely by BFUL. The net liability outstanding of BFUL after such pass on amounts to Rs. 775 Million (March 31, 2012: Rs. 821 Million).

10. The financial statements are presented in Rs. Million and decimal thereof except for per share information or as otherwise stated.

11. Previous year financial statements were audited by another firm of Chartered Accountants and previous year''s figures have been regrouped or reclassified, where necessary, to confirm to the current year''s classification.


Mar 31, 2012

1 (a) Terms / rights attached to equity shares:

The company has only one class of issued equity shares having a par value of Rs 2/- per share. Each holder of equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors and approved by the shareholders in the Annual General Meeting is paid in Indian rupees. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amount. The distribution will be in proportion to the number of equity shares held by the shareholders.

1 (b) Terms of securities convertible into equity shares:

(i) The Company issued and allotted to Qualified Institutional Buyers, 10,000,000 Equity Shares of Rs 2/- each at a price of Rs 272/- per share aggregating to Rs 2,720 million on 28th April, 2010, simultaneous with the issue of 1,760 10.75% Non Convertible Debentures (NCD) of a face value of Rs 1,000,000/- at par , together with 6,500,000 warrants at a price of Rs 2/- each entitling the holder of each warrant to subscribe for 1 equity share of Rs 2/- each at a price of Rs 272/- at any time within 3 years form the date of allotment. The subscription money received on issue of warrants has been credited to Capital Reserve as the same is not refundable / adjustable. Out of the funds raised, Rs 2,365 million has been temporarily deployed in Fixed Deposits with Banks and in Mutual Funds and the Balance has been utilised towards the object of the issue.

(ii) See Note 4(d) regarding Foreign Currency Convertible Bonds.

1 (c) Other information:

The Company had issued 3,636,500 Equity Shares of Rs 10/- each ( later sub-divided into 18,182,500 Equity Shares of Rs 2/- each) in April and May 2005 represented by 3,636,500 Global Depository Receipts (GDR) (on sub division 18,182,500 GDRs) evidencing 'Master GDR Certificates' at a price of USD 27.50 per GDR (including premium). GDRs outstanding at the close of the year are 9,200. The Funds raised has been utilised towards the object of the issue.

2 (a) Sales Tax Deferral Incentive:

The Company, upto March, 2006, had prematurely retired its obligations of the Sales Tax Deferral Incentive availed under the package scheme of Incentives 1993, thereby generating a cumulative surplus of Rs 108.63 million. Since the incentive was fundamentally provided to encourage capital investments in designated underdeveloped zones and thereby defray, to some extent, deficiencies, the same has been, as per the opinion of the 'Expert Advisory Committee', set up by the Institute of Chartered Accountants of India, credited to 'Capital Reserve' to be apportioned to 'Revenue Reserves' over the future/ balance life of the underlying investments, at the end of each financial year.

2 (b) Subsidy for setting up new Industrial Unit:

The Company's manufacturing facility at Baramati has been granted 'Mega Project' status by Government of Maharashtra and therefore is eligible for Industrial Promotion Subsidy (IPS) under Packaged Scheme of Incentive (PSI) 2007. The company has been granted Eligibility Certificate issued by the Directorate of Industries, Government of Maharashtra in this regard.

IPS consists of the following:

a. Electricity Duty exemption for the period of 7 years from the date of commencement of the project i.e. 1st April, 2009,

b. 100% exemption from payment of Stamp duty for the Leasehold land acquired for the Baramati Plant, and

c. VAT and CST payable to the State Government (before adjustment of Set-off) on sales made from Baramati plant, within a period of 7 years starting from 1st April, 2009 to 31st March, 2016.

IPS will however be restricted to 75% of the eligible fixed capital investments made from 11th May, 2005 to 10th May, 2010. The Eligibility Certificate issued allows maximum subsidy of Rs 3,198.20 million.

The Packaged Scheme of Incentive (PSI) 2007 is for intensifying and accelerating the process of dispersal of industries to the less developed regions and promoting high tech industries in the developed areas of the State coupled with the object of generating mass employment opportunities.

Further, in terms of the Accounting Standard (AS 12) 'Accounting for Government Grants' prescribed by Companies (Accounting Standards) Amendment Rules, 2006, eligible incentive is considered to be in the nature of promoters' contribution. Therefore incentive of Rs 34.08/- million received during the year (P.Y. Rs Nil) has been credited to the Capital Reserve.

2 (c) Debenture Redemption Reserve:

Debenture Redemption Reserve has been created in accordance with circular No.9/2002 dated 18th April, 2002 issued by Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India and Section 117(C) of the Companies Act, 1956 at 25% of the maturity amount equally over the terms of the Debentures Privately placed. Amount set aside for the year represents for full year in respect of Debentures issued in earlier years.

2 (d) Foreign Currency Monetary Item Translation Difference Account (FCMITDA):

The Accounting Standard (AS 11) 'The effects of changes in Foreign Exchange Rates' prescribed by Companies (Accounting Standards) Rules, 2006 was amended on 31st March, 2009, vide a notification dated 31st March, 2009, by the Ministry of Corporate Affairs. The said amendment offered an option to Companies to recognise Foreign Exchange Gains and Losses arising on translation of all long term monetary assets and liabilities acquired upto 31st March, 2009, retrospectively from accounting periods commencing after 7th December, 2006 ( i.e. from 1st April, 2007 for the company) upto 31st March, 2011, The Company had chosen to exercise the option in preparation of financial statements in the year ended 31st March, 2009.

The Company continues, upon the extension granted by the Ministry of Corporate Affairs, to exercise the option offered in paragraph 46 of the Accounting Standard (AS 11) relating to ''The effects of changes in foreign exchange rates'' to capitalise foreign exchange difference on translation of long term monetary liabilities to cost of Assets where used to acquire such assets and in case of other long term monetary item to Foreign Currency Monetary Item Translation Difference Account (FCMITDA). The amount so recognised as capital cost of acquisition of assets is to be depreciated over the balance life of the relevant assets. In case of the amount recognised in the FCMITDA to be amortised over the balance term of the monetary asset or liability but not beyond 31st March, 2020, aggregate Rs 28.32 million.

Accordingly Foreign exchange differences adjusted against the cost of the assets/ CWIP aggregates Rs 588.23 million (loss), amount in ''Foreign Currency Monetary Item Translation Difference Account'' (FCMITDA) aggregates Rs 66.50 million (loss) and amortised in the current year amounts to Rs 38.18 million.

2 (e) Hedge Reserve:

In order to recognise the impact of fluctuation in foreign currency rates arising out of instruments acquired to hedge highly probable forecast transactions, in appropriate accounting periods, the company applies the principles of recognition set out in the Accounting Standard 30- Financial Instruments - Recognition and Measurement (AS-30) as suggested by the Institute of Chartered Accountants of India. Accordingly, the unrealised gain/(loss) (net) consequent to foreign currency fluctuations, in respect of effective hedging instruments , represented by simple forward covers, to hedge future exports, are carried as a Hedging Reserve and ultimately set off in the Profit and Loss account when the underlying transaction arises.

The amount outstanding in the Hedge Reserve at the close of the year is Rs 381.64 Million (Debit Balance / Valuation Loss).

2(f) The Equity Shares allotted on exercise of option to convert FCCBs by the Bondholders, and the 10,000,000 equity shares of Rs 2/- each allotted as detailed in Note 2(d) and equity shares issued and allotted on conversion of warrants , if any, before the record date/ book closure for dividend would rank pari passu with the existing share capital reflected in Note 2 in all respect including dividend declared for the year. Dividend for the year has been provided for on 232,794,316 equity shares of Rs 2/- each at the rate recommended by the Board of Directors on the basis of equity shares issued and allotted up to 27th May, 2012.

However, as the Company is unable to estimate further conversions upto the record date set for determining the said eligibility, any further amounts required to be distributed as dividend will be adjusted against the balance in the Profit and Loss account carried forward to the subsequent financial year.

3 (a) Debentures:

The Company has issued the following secured redeemable non-convertible debentures:

(i) 3,500 - 10.75% Redeemable Secured Non-Convertible Debentures Seventeenth Series of Rs 1,000,000/- each redeemable @ 25.00% on 22nd March, 2015; @ 50.00% on 22nd September, 2014; & @ 25.00% on 22nd March, 2014.

Above Debentures are secured by a (i) First pari passu Mortgage in favour of the Trustees, of all rights and interest on the Company's immovable properties situated at Mundhwa, Satara, Jalgaon and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, present and future both such as all plant and machinery, equipments, tools, furniture & fixtures etc., as described in Debenture Trust - cum -Mortgage Deed dated 14th December, 2009.

(ii) 1,760 - 10.75 % Redeemable Secured Non-Convertible Debentures Eighteenth Series of Rs 1,000,000/- each redeemable at 35.00% on 28th April, 2016; @ 35.00% on 28th April, 2015; & @ 30.00% on 28th April, 2014.

Above Debentures are secured by a (i) First pari-passu Mortgage in favour of Trustees, of all rights and interest on the Company's immovable properties, present and future situated at Mundhwa, Chakan, Satara and Jalgaon with negative lien on properties situated at Jejuri and Baramati as described in schedule-I as per Debenture Trust-cum-Mortgage Deed dated 28th June, 2010 and (ii) First pari-passu Charge in favour of the Trustees on moveable properties, present & future as described in Schedule-II as per Debenture Trust-cum-Mortgage Deed dated 28th June, 2010.

3 (a) Debentures (contd.):

(iii) 2,500 - 11.95 % Redeemable Secured Non-Convertible Debentures Sixteenth Series of Rs 1,000,000/- each redeemable at 33.34% on 5th January, 2017; @ 33.33% on 5th January, 2016; & @ 33.33% on 5th January, 2015.

Above Debentures are secured by a (i) First pari passu Mortgage in favour of the Trustees, of all rights and interest on the Company's immovable properties situated at Mundhwa, Satara, Jalgaon and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, present and future both such as all plant and machinery, equipments, tools, furniture & fixtures etc., as described in Debenture Trust-cum - Mortgage Deed dated April 30, 2009.

3 (b) Foreign Currency Term Loans:

I. From Bank of India, London

Balance outstanding USD 2.50 million (Previous year USD 5.00 million)

Secured By (i) First charge by way of Hypothecation of the whole of the movable properties including its movable plant and machinery, machinery spares, tools and accessories and other movables, both present and future, whether installed or not and whether now lying loose or in cases or now lying or stored in or about or shall from time to time during the continuance of the security be brought into or upon or be stored or be in or about all the factories, premises and godowns situate at Mundhwa, District Pune; Chakan, District Pune; Vaduth, District Satara; Village Kusumbe, District Jalgaon, all in the state of Maharashtra or wherever else the same may be or be held by any party to the order of disposition or in the course of transit or on high seas or on order, or delivery, howsoever and wheresoever in the possession and either by way of substitution or addition except specific movable plant and machinery consisting of Wind Energy converter of 600 K.V. 7 Nos at Village Boposhi, District Satara, exclusively hypothecated to Standard Chartered Bank, as described under the Deed of Hypothecation dated 17th March, 2005 and; (ii) Equitable Mortgage by deposit of title deeds of Immovable properties situate at Village Mundhwa, Pune; Village Vaduth, Taluka and District Satara; Village Kusumbe Khurd, Taluka and District Jalgaon and Village Chakan, Pune all in the state of Maharashtra, together with all buildings and structures thereon and all Plant and Machinery attached to the earth or permanently fastened to anything attached to the earth, as described under Memorandum of Entry dated 17th March, 2005.

II. From Credit Agricole Corporate & Investment Bank, Singapore

Balance outstanding USD 50 million (Previous year USD 50 million)

Secured By First Pari passu charge over present and future movable fixed assets viz. Plant and Machinery, Computers, Furnitures and Fixtures, whether installed or not and whether now lying loose or in cases or otherwise or being on or upon or at any time, hereafter being on or upon about the premises and godowns at Mundhwa, Pune; Village Kuruli, Chakan; Taluka Khed, District Pune; Village Vaduth, Taluka & District Satara and at Baramati, Pune or anywhere else.

Repayable in 6 equal yearly installments from date of its' origination, i.e. 14th October, 2012, along with interest of 3M Libor 280 bps p.a.

3 (c) Rupee Term Loans:

From Axis Bank

Balance outstanding Rs 330.56 million (Previous year Rs 225 million)

Above loan is to be secured against (i) First pari-passu charge on the Company's immovable properties, present & future Situate at Mundhwa, Chakan, Satara and Jalgaon with negative lien on properties situated at Jejuri and Baramati and (ii) First pari-passu Charge on moveable properties, present & future including Land & Building.

Repayable in 18 equal half yearly installments from date of its' origination i.e. 20th March, 2012 along with interest of Base Rate 2% p.a.

3 (d) Foreign Currency Convertible Bonds:

The Company had issued Foreign Currency Convertible Bonds (FCCB) in two tranches aggregating USD 79.90 million, detailed in the table below, to finance Capital Expenditure and Global Acquisitions. The said bonds are optionally convertible into GDR/ Equity Shares to be exercised at any time during the exercise period at a pre determined initial price subject to adjustments upon occurrence of certain events.

However, the Company has option to redeem the balance of the above Bonds if such balance is less than 10% in aggregate of principal amount of such tranche of bonds originally issued in respect of each tranche, during the redemption exercise period in the manner specified in the offering circular at a premium so as to provide a predetermined yield to the Bondholders.

The Company also has the option to call the Bondholders of Tranche A & Tranche B to mandatorily convert the Bonds into Equity Shares if the Market Price on the specified date provided the holder a gain of at least a 30% over the Early Redemption amount.

# Tranche A of the above FCCBs amounting to USD 40.00 Million outstanding as at April 26, 2012 were redeemed on April 27, 2012 along with the redemption premium amounting to USD 17.03 Million. The premium on redemption aggregating Rs 994.06 Million, (including withholding Tax amounting to Rs 98.96 Million) since crystalised has been adjusted to securities premium account, net of deferred tax asset amounting to Rs 322.52 million, in terms of Section 78(2) (d) of the Companies Act, 1956.

Due to variables currently indeterminate, the premium on actual redemption for Tranche B is not computable and hence will be recognised if and as and when the redemption option is exercised, as a charge to the securities premium account in terms of Section 78(2)(d) of the Companies Act,1956.

The Company has been legally advised by an eminent law firm that the above mentioned Convertible Bonds issued upon terms and conditions set out in the offering circular dated 19th April, 2005, would be outside the purview of Section 117 (C) of the Companies Act, 1956 as regards creation of Debenture Redemption Reserve. The Auditors have relied upon the said legal opinion.

3 (e) Term Loans from Banks:

Foreign Currency Term Loans on Syndicated basis

Balance outstanding USD 80 million (Previous year NIL)

Repayable in 3 half yearly installments from date of its' origination i.e. 31st October, 2016, along with interest of 6M Libor 280 bps p.a.

3 (f) Deferred payment liabilities:

Sales tax deferral incentives attached to the erstwhile windmill division, which was demerged to BF Utilities Ltd. under Section 392 and 394 of the Companies Act, 1956 sanctioned by the High Court of the Judicature at Mumbai, have been passed on thereafter from year to year by the Company to the latter, under an arrangement, with all liabilities and obligations attached thereto. Consequently sales tax deferral liability represents net liability to the Company after such pass on aggregating to Rs 821 million (Previous year Rs 845 million).

NOTES:

(a) At cost, except lease hold land which is at cost less amounts written off.

(b) Buildings include premises on ownership basis in co-operative Societies Rs 32.81 million and also cost of hangar jointly owned with other Companies Rs 0.12 million.

(c) See Note 1 - clause 2 for accounting policy on Fixed Assets and Depreciation.

(d) Includes 25 acres land given on lease.

(e) Documents for the ownership premises at Sai Nagari & Surajban Apartments, Lullanagar at Pune, Antriksha Bhawan at New Delhi, Land at Keshavnager, Mundhawa and Lease deed for Land at Baramati & Jejuri still continue to be under execution.

(f) Cost incurred by the Company. Ownership vests with Maharashtra State Electricity Distribution Company Ltd.

(g) Represents amount amortised upto 31 st March, 2012

$ Refer Note 1 - Clause 6(a) for accounting policy.

@ Joint Ventures:- Company holds 50% of the Share Capital

* Company holds 5% of the share capital

# Joint Ventures:- Company holds 49% of the share capital

1 (a) Contribution to Capital Reserve Credited in favour of Bharat Forge Ltd.:

Contributions in to the Capital Reserves of CDP - Bharat Forge GmbH as per the German Commercial Code, forms a part of the Equity Share Capital and accordingly has been considered as an investment and is redeemable subject to provisions of the code.

1 (b) Bharat Forge America Inc.:

Bharat Forge America Inc. (BFA), a wholly owned subsidiary has registered losses which have substantially eroded its Net worth. The auditors of the BFA have, given current adverse conditions prevailing in the American auto industry, disclaimed expression of any opinion on the validity of the assumption of going concern, the basis on which the financial statements have been prepared. Given the uncertainties in the American economy and its further impact on the auto industries slow revival, the Company has, as a matter of prudence, tested the investment in BFA for impairment / diminution with reference to the value of assets. Accordingly the Company has provided for impairment aggregating Rs 704.16 Million during the year which has been recognised as an exceptional item in the statement of profit and loss.

2 (a) Loan to a company:

Interest free loan of Rs 309.09 million given to a Company which has given an undertaking to hold the shares solely for the purpose and obligations of the ''BFL Executives Welfare and Share Option Trust'' in terms of clause (b) of the proviso to Section 77(2) of the Companies Act, 1956, which in the opinion of an eminent Counsel, obtained by a Group Company, falls within the purview of the said proviso to the above mentioned section.

# Included in Market value at NAV as on 31st March, 2012 & 31st March, 2011 respectively, as there was no trade for the schemes, hence, quotations are not available.

* Refer Note 1 - clause 6(b) of Accounting Policy.

(Rs in Million)

As at As at

3 Contingent Liabilities not provided for in respect of : 31st March, 2012 31st March, 2011

(i) Sales Bills Discounted 7,222.08 4,911.08 Of Which:

Bills since realised 2,410.02 1,739.26

Matured, Overdue & outstanding since close of the period - -

(ii) Guarantees given by the Company on behalf of other companies Balance Outstanding 1,996.82 1,845.43

(Maximum Amount) (2,193.50) (2,025.61)

(iii) Claims against the Company not acknowledged as Debts- to the extent ascertained 140.48 142.00

(iv) Excise/Service Tax Demands - matters under dispute 180.37 184.65

(v) Customs Demands - matters under dispute 50.97 50.97

ii) On 5th August, 2009, the Company has entered into a Cross Currency Swap (CCS) for a period of five years by converting a Long Term Rupee NCD liability of Rs250 million (out of 10.75% XVth Series NCD of Rs2,500 million) into an equivalent USD liability at the prevailing spot rate. Under this structure, the Company will receive a fixed interest coupon on a quarterly basis on the rupee amount swapped and will pay floating rate interest (which is subject to a cap) on the USD notional amount. On maturity of the swap, the Company will pay the contracted USD loan liability at prevailing rate and receive the original rupee amount swapped.

4 Guarantees given by Company's Bankers on behalf of the Company, against sanctioned guarantee limit aggregating to Rs 3,250.00 million (Previous Year Rs 3,250 .00 million) for contracts undertaken by the Company and other matters are secured by extension of charge by way of joint hypothecation of stock-in-trade, stores and spares etc., book debts, subject to prior charge in their favour. Amount outstanding Rs 711.05 million (Previous Year Rs 856.83 million)

5 The Company has entered into agreements in the nature of lease / leave and license agreement with different lessors / licensors for the purpose of establishment of office premises/Residential Accommodations. These are generally in nature of operating lease / leave and license, disclosure required as per Accounting Standard 19 with regard to the above is as under:

i) Payment under operating lease / leave and license for period

1) Not later than one year Rs 4.09 million

2) Later than one year but not later than five years Rs 1.63 million

3) Later than five years Rs 0.81 million

ii) There are no transactions in the nature of sub-lease.

iii) Payments recognised in the Profit and Loss Account for the year ended 31st March, 2012 Rs 5.54 million

iv) Period of agreement is generally for three years and renewable at the option of the Lessee.

6 Segment information based on consolidated financial statements has been disclosed in a statement annexed thereto. Primary Segments have been determined by the management in light of the dominant source and nature of risks and returns of the consolidated group and relied upon by the auditors.

7 Related Party disclosures have been set out in a separate statement annexed to this Note. The related parties, as defined by Accounting Standard 18 'Related Party Disclosures' issued by The Companies Accounting Standard Amendment Rules, 2006, in respect of which the disclosures have been made, have been identified on the basis of disclosures made by the key managerial persons and taken on record by the Board.

8 Information on Joint Ventures is set out in a separate statement annexed to this Note.

9 Figures less than Rs 5,000/- have been shown at actuals in bracket as the figures have been rounded off to the nearest second decimal to millions.

10 The financial statements for the year ended 31 March, 2011 had been prepared as per the then applicable, pre-revised Schedule VI to the Companies Act, 1956. Consequent to the notification of Revised Schedule VI under the Companies Act, 1956, the financial statements for the year ended 31 March, 2012 are prepared as per Revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year's classification. The adoption of Revised Schedule VI for previous year figures does not impact recognition and measurement principles followed for preparation of financial statements.


Mar 31, 2011

(Rs in Million)

As at 31st As at 31st

March, 2011 March, 2010

A. Contingent Liabilities not provided for in respect of:

(a) Sales Bills Discounted 4,911.08 3,799.81 of which:

Bills since realised 1,739.26 904.16

Matured, Overdue & outstanding since close of the period - -

(b) Guarantees given by the Company on behalf of other companies:

Balance Outstanding 1,845.43 570.09

(Maximum Amount) (2,025.61) (830.94)

(c) Claims against the Company not acknowledged as Debts - to the extent ascertained 142.00 147.49

(d) Disputed Income Tax matters - 104.32

(e) Excise/Service Tax Demands - matters under dispute 184.65 281.85

(f) Customs Demands - matters under dispute 50.97 322.15

B. The Company has imported Capital Goods under the Export Promotion Capital Goods Scheme, of the Government of India, at concessional rates of Duty on an understanding to fulfill quantified exports against which remaining future obligation aggregates USD 147.02 million, over a period of next five years, while maintaining average export of USD 159.54 million per annum. Minimum Export obligation to be fulfilled by the Company under the said scheme by 31st March, 2011, has been fulfilled. Non fulfillment of the balance of such future obligations, in the manner required, if any, entails options/ rights to the Government to confiscate Capital Goods imported under the said Licences and other penalties under the above referred scheme.

ii) On 5th August, 2009, the Company has entered into a Cross Currency Swap (CCS) for a period of five years by converting a Long Term Rupee NCD liability of Rs 250 million (out of 10.75% XVth Series NCDs of Rs 2,500 million) into an equivalent USD liability at the prevailing spot rate. Under this structure, the Company will receive a fixed interest coupon on a quarterly basis on the rupee amount swapped and will pay floating rate interest (which is subject to a cap) on the USD notional amount. On maturity of the swap, the Company will pay the contracted USD loan liability at prevailing rate and receive the original rupee amount swapped.

10. The Equity Shares allotted on exercise of option to convert to FCCBs by the Bondholders, and the 10,000,000 equity shares of Rs 2/- each allotted as detailed in footnote B(iii) to schedule ‘A’ and equity shares issued and allotted on conversion of warrants, if any, before the record date/book closure for dividend, would rank pari passu with the existing share capital reflected in Schedule ‘A’ in all respect including dividend declared for the year. Accordingly, Dividend has been provided for on 232,794,316 equity shares of Rs 2/- each at the rate recommended by the Board of Directors on the basis of equity shares issued and allotted up to 23rd May, 2011.

However, as the Company is unable to estimate further conversions upto the record date set for determining the said eligibility, any further amounts required to be distributed as dividend will be adjusted against the balance in the Profit and Loss Account carried forward to the subsequent financial year.

11. Sales tax deferral incentives attached to the erstwhile windmill division, which was demerged to BF Utilities Ltd. under section 392 and 394 of the Companies Act, 1956 sanctioned by the High Court of the Judicature at Mumbai, have been passed on thereafter from year to year by the Company to the latter, under an arrangement, with all liabilities and obligations attached thereto. Consequently, sales tax deferral liability represents net liability to the Company after such pass on aggregating to Rs 845 million (Previous year Rs 851 million).

12. (a) Non Convertible Debentures (NCDs):

(i) 11.95 % Secured Redeemable Non-Convertible Debentures (NCDs) of face value of Rs 1,000,000 each, aggregating Rs 2,500,000,000/- (Rupees Two thousand five hundred million) were issued on private placement basis to Life Insurance Corporation of India. In terms of Debenture Trust-cum-Mortgage Deed dated April 30, 2009, NCDs are to be redeemed in three Annual installments starting at the end of sixth year from the date of allotment (viz. 5th January, 2009) i.e. @ 33.33% on 5th January, 2015, @ 33.33% on 5th January, 2016, and @ 33.34% on 5th January, 2017. Above Debentures are secured by a (i) First pari passu Mortgage in favour of the Trustees, of all rights and interest on the Company’s immovable properties situated at Mundhwa, Satara, Jalgaon and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, both present and future, such as all plant and machinery, equipments, tools, furniture & fixtures etc. as described in Debenture Trust-cum-Mortgage Deed dated April 30, 2009.

(ii) 10.75 % Secured Redeemable Non Convertible Debentures (NCDs) of face value of Rs 1,000,000/- each, aggregating Rs 3,500,000,000/- (Rupees Three thousand five hundred million) were issued on private placement basis to various debentureholders. In terms of Debenture Trust-cum-Mortgage Deed dated December 14, 2009, NCDs are to be redeemed in three installments starting at the end of 54th month i.e. on 22nd March, 2014, @ 25%, at the end of 60th month i.e. on 22nd September, 2014 @ 50% and at the end of 66th month i.e. 22nd March, 2015 @ 25%. Above Debentures are secured by a (i) First pari passu Mortgage in favour of the Trustees, of all rights and interest on the Company’s immovable properties situated at Mundhwa, Satara, Jalgaon and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, both present and future, such as all plant and machinery, equipments, tools, furniture & fixtures etc, as described in Debenture Trust-cum-Mortgage Deed dated December 14, 2009.

(iii) 10.75 % Secured Redeemable Non Convertible Debentures (NCDs) of face value of Rs 1,000,000/- each, aggregating Rs 1,760,000,000/- (Rupees One thousand seven hundred sixty million) were issued on private placement basis to Qualified Institutional Buyers, under QIP issue. In terms of Debenture Trust-cum-Mortgage Deed dated 28th June, 2010, NCDs are to be redeemed in three annual installments starting at the end of fourth year from the date of allotment (viz.28th April, 2010) i.e. @ 35% on 28th April, 2014, @ 35% on 28th April, 2015, and @ 30% on 28th April, 2016.

Above Debentures are secured by a (i) First pari-passu Mortgage in favour of Trustees, of all rights and interest on the Company’s immovable properties, present and future situated at Mundhwa, Chakan, Satara and Jalgaon with negative lien on properties situated at Jejuri and Baramati as described in Schedule-I as per Debenture Trust-cum-Mortgage Deed dated 28th June, 2010 and (ii) First pari-passu Charge in favour of the Trustees on moveable properties, both present and future, as described in Schedule-II as per Debenture Trust-cum-Mortgage Deed dated 28th June, 2010.

(b) Foreign Currency Loans:

(i) Bank of India, London, Foreign Currency Term Loan; Balance outstanding USD 5.00 million (Previous year USD 7.50 million).

(ii) Credit Agricole Corporate & Investment Bank, Singapore, Foreign Currency Term Loan; Balance outstanding USD 50 million (Previous year USD 50 million).

The loans at Sr. No (i) above is secured by:

1. First charge by way of Hypothecation of the whole of the movable properties including its movable plant and machinery, machinery spares, tools and accessories and other movables, both present and future, whether installed or not and whether now lying loose or in cases or now lying or stored in or about or shall from time to time during the continuance of the security be brought into or upon or be stored or be in or about all the factories, premises and godowns situated at Mundhwa, District Pune; Chakan, District Pune; Vaduth, District Satara; Village Kusumbe, District Jalgaon, all in the state of Maharashtra or wherever else the same may be or be held by any party to the order of disposition or in the course of transit or on high seas or on order, or delivery, howsoever and wheresoever in the possession and either by way of substitution or addition except specific movable plant and machinery consisting of Wind Energy Converter of 600 K.V. 7 Nos. at Village Boposhi, District Satara, exclusively hypothecated to Standard Chartered Bank, as described under the Deed of Hypothecation dated 17th March, 2005 and;

2. Equitable Mortgage by deposit of title deeds of immovable properties situated at Village Mundhwa, Pune; Village Vaduth, Tal. and Dist. Satara; Village Kusumbe Khurd, Tal. and District Jalgaon and Village Chakan, Pune all in the state of Maharashtra, together with all buildings and structures thereon and all Plant and Machinery attached to the earth or permanently fastened to anything attached to the earth, as described under Memorandum of Entry dated 17th March, 2005.

The loan at Sr. No. (ii) above is secured by:

First Pari passu charge over present and future movable fixed assets viz. Plant and Machinery, Computers, Furnitures and Fixtures, whether installed or not and whether now lying loose or in cases or otherwise or being on or upon or at any time, hereafter being on or upon about the premises and godowns at Mundhwa, Pune; Village Kuruli, Chakan; Taluka Khed, Dist. Pune; Village Vaduth, Taluka & District Satara and at Baramati, Pune or anywhere else.

(c) Rupee Loans:

Axis Bank, Pune, Long Term Rupee Term Loan; Balance outstanding Rs 225 million (Previous year Rs Nil). Above loan is to be secured against (i) First pari-passu charge on the Company’s immovable properties, both present and future situated at Mundhwa, Chakan, Satara and Jalgaon with negative lien on properties situated at Jejuri and Baramati and (ii) First pari-passu Charge on moveable properties, both present & future including Land & Building.

(d) Guarantees given by Company’s Bankers on behalf of the Company, against sanctioned guarantee limit aggregating to Rs 3,250 million (Previous Year Rs 3,250 million) for contracts undertaken by the Company and other matters are secured by extension of charge by way of joint hypothecation of stock-in-trade, stores and spares etc., book debts, subject to prior charge in their favour. Amount outstanding Rs 856.83 million (Previous Year Rs 635.43 million).

13. The company has recognised Deferred Taxes, which result from timing difference between the Book Profits and Tax Profits for the year aggregating Rs 491.20 million in the Profit and Loss Account, the details of which are as under:

14. Capital Work-in-Progress includes advances for supply of Capital Goods aggregating Rs 826.57 million (Previous Year Rs 345.94 million).

15. Advances recoverable in cash or in kind or for value to be received in schedule "G" includes: Loans aggregating Rs 0.59 million (Previous year Rs 0.77 million) granted to one executive who subsequently was, appointed as Whole Time Director of the Company. Maximum balance outstanding during the year Rs 0.79 million (previous year Rs 0.79 million).

16. Interest free loan of Rs 309.09 million given to a Company which has given an undertaking to hold the shares solely for the purpose and obligations of the "BFL Executives Welfare and Share Option Trust" in terms of clause (b) of the proviso to Section 77(2) of the Companies Act, 1956, which in the opinion of an eminent Counsel, obtained by a Group Company, falls within the purview of the said proviso to the above mentioned section.

Note: The information has been given in respect of such vendors to the extent they could be identified as "Micro and Small" enterprises on the basis of information available with the Company.

18. The Company had issued Foreign Currency Convertible Bonds (FCCBs) in two tranches aggregating USD 79.90 million, detailed in the table below, to finance Capital Expenditure and Global Acquisitions. The said bonds are optionally convertible into GDRs/ Equity Shares to be exercised at any time during the exercise period at a pre determined initial price subject to adjustments upon occurrence of certain events.

However, the Company has option to redeem the balance of the above Bonds, if such balance is less than 10% in aggregate of principal amount of such tranch of bonds originally issued in respect of each tranch, during the redemption exercise period in the manner specified in the offering circular, at a premium, so as to provide a predetermined yield to the Bondholders.

The Company also has the option to call the Bondholders of Tranche A & Tranche B to mandatorily convert the Bonds into Equity Shares, if the Market Price on the specified date, provided the holder a gain of atleast a 30% over the Early Redemption amount.

Due to variables currently indeterminate, the premium on actual redemption for Tranche A & B is not computable and hence, will be recognised if and as and when the redemption option is exercised, as a charge to the securities premium account in terms of Section 78(2)(d) of the Companies Act,1956.

The Company has been legally advised by an eminent law firm that, the above mentioned Convertible Bonds issued upon terms and conditions set out in the offering circular dated 19th April, 2005, would be outside the purview of Section 117(C) of the Companies Act, 1956 as regards creation of Debenture Redemption Reserve. The Auditors have relied upon the said legal opinion. The unutilised amounts of money raised, as at 31st March, 2011 is Rs Nil.

19. Debenture Redemption Reserve has been created in accordance with circular No. 9/2002 dated 18th April, 2002 issued by Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India and Section 117(C) of the Companies Act,1956 at 25% of the maturity amount equally over the terms of the Debentures Privately placed. Amount set aside for the year represents for full year in respect of Debentures issued in earlier year and proportionate amount for a period of 11 months for Debentures issued during the year.

21. The Accounting Standard (AS-11) "The effects of changes in Foreign Exchange Rates" prescribed by Companies (Accounting Standards) Rules, 2006 was amended on 31st March, 2009, vide a notification dated 31st March, 2009, by the Ministry of Corporate Affairs. The said amendment offered an option to Companies to recognise Foreign Exchange Gains and Losses arising on translation of all long term monetary assets and liabilities acquired upto 31st March, 2009, retrospectively from accounting periods commencing after 7th December, 2006 (i.e. from 1st April, 2007 for the Company) upto 31st March, 2011, as capital cost of acquisition of assets where they relate to acquisition of assets or to a Translation Reserve viz. "Foreign Currency Monetary Item Translation Difference Account" (FCMITDA) in other cases. The amount so recognised as capital cost of acquisition of assets is to be depreciated over the balance life of the relevant assets and in case of the amount recognised in the FCMITDA is to be amortised, over the balance term of the monetary assets or liability, but not beyond 31st March, 2011.

The Company had chosen to exercise this option in preparation of its financial statements from the year ended 31st March, 2009. Accordingly, Foreign exchange differences adjusted against the cost of the assets/ CWIP aggregates Rs 34.88 million (gain), amount in "Foreign Currency Monetary Item Translation Difference Account " (FCMITDA) aggregates Rs 4.44 million (gain) and amortised in the current year amounts to Rs 39.20 million.

22. Bharat Forge America Inc. (BFA), a wholly owned subsidiary, has registered losses which have substantially eroded its Net worth. The Auditors of the Company have, given current adverse conditions prevailing in the American auto industry, disclaimed expression of any opinion on the validity of the assumption of going concern, the basis on which the financial statements have been prepared. In November 2010, the Management of BFA has successfully negotiated union contract resulting in considerable wage decrease for each of the next 3 years. This will help BFA in correcting the cost structure and targeting new business. Also, the Management of BFA, as at 31st December, 2010, has tested the assets for impairment, the results of which do not indicate any impairment losses and hence, the dimunition in the value of the Company’s investment in this subsidiary is not considered to be of permanent nature.

23. In order to recognise the impact of fluctuation in foreign currency rates arising out of instruments acquired to hedge highly probable forecast transactions, in appropriate accounting periods, the Company applies the principles of recognition set out in the Accounting Standard-30 - Financial Instruments - Recognition and Measurement (AS-30) as suggested by the Institute of Chartered Accountants of India. Accordingly, the unrealised gain/(loss) (net) consequent to foreign currency fluctuations, in respect of effective hedging instruments, represented by simpleforward covers, to hedge future exports, are carried as a Hedging Reserve and ultimately set off in the Profit and Loss Account when the underlying transaction arises.

The amount outstanding in the Hedge Reserve at the close of the year is Rs 13.98 million.

30. Significant accounting policies followed by the Company are as stated in the statement annexed to this schedule.

31. Figures less than Rs 5,000/- have been shown at actuals in bracket as the figures have been rounded off to the nearest second decimal to millions.

32. Previous financial year’s figures have been regrouped wherever necessary to make them comparable with those of the current year.


Mar 31, 2010

(Rs. in Million)

As at 31st As at 31st March, 2010 March, 2009

1. A. Contingent liabilities not provided for in respect of:

(a) Sales Bills discounted 3 799.81 4 575.13 of Which:

Bills since realised 904.16 1 238.09

Matured, Overdue & outstanding since close of the period - -

(b) Guarantees given by the Company on behalf of other companies:

Balance outstanding 570.09 735.28

(Maximum amount) (830.94) (1 520.33)

(c) Claims against the Company not acknowledged as Debts- to the extent ascertained 147.49 73.38

(d) Disputed Income Tax matters 104.32 104.32

(e> Excise/Service Tax Demands - matters under dispute 281.85 277.53

(f) Customs demands - matters under dispute 322.15 317.93 B. The Company has imported Capital goods under the Export Promotion Capital Goods Scheme, of the Government of India, at concessional rates of duty on an understanding to fulfi ll quantifi ed exports against which remaining future obligation aggregates USD 291.80 million, over a period of next seven years, while maintaining average export of USD 145.34 million per annum. Minimum export obligation to be fulfi lled by the Company under the said scheme by 31st March, 2010, has not been fulfi lled. Non fulfi llment of the balance of such future obligations, in the manner required, if any entails options / rights to the Government to confi scate Capital Goods imported under the said Licences and other penalties under the above referred scheme

2. The Company, upto March, 2006, had prematurely retired its obligations of the Sales Tax Deferral Incentive availed under the package scheme of Incentives 1993, thereby generating a cumulative surplus of Rs. 108.63 million. Since the incentive was fundamentally provided to encourage capital investments in designated underdeveloped zones and thereby defray, to some extent, defi ciencies, the same has been, as per the opinion of the “Expert Advisory Committee” set up by the Institute of Chartered Accountants of India, credited to “Capital Reserve“ to be apportioned to Revenue Reserves over the future/balance life of the underlying investments, at the end of each fi nancial year.

3. Sales Tax Deferral Incentives attached to the erstwhile windmill division, which was demerged to BF Utilities Ltd. under section 392 and 394 of the Companies Act, 1956, sanctioned by the High Court of the Judicature at Mumbai, have been passed on thereafter from year to year by the Company to the latter, under an arrangement, with all liabilities and obligations attached thereto. Consequently, sales tax deferral liability represents net liability to the Company after such pass on aggregating to Rs. 851 million (Previous year Rs. 851 million).

4. (a) Non Convertible Debentures:

(i) 11.95% Secured Redeemable Non-Convertible Debentures (NCDs) of face value of Rs. 1 000 000/- each, aggregating Rs. 2 500 000 000/- (Rupees two thousand fi ve hundred million) were issued on private placement basis to Life Insurance Corporation of India. In terms of Debenture Trust-cum-Mortgage Deed dated April 30, 2009, NCDs are to be redeemed in three annual instalments starting at the end of sixth year from the date of allotment (viz. 5th January, 2009) i.e 33.33% on 5th January, 2015, 33.33% on 5th January, 2016, and 33.34% on 5th January, 2017.

Above Debentures are secured by a (i) First pari passu Mortgage in favour of the Trustees, of all rights and interest on the Company’s immovable properties situated at Mundhwa, Satara, Jalgaon and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, present and future both such as all plant and machinery, equipments, tools, furniture & fi xtures etc, as described in Debenture Trust-cum-Mortgage Deed dated April 30, 2009.

(ii) 10.75% Secured Redeemable Non-Convertible Debentures (NCDs) of face value of Rs. 1 000 000/- each, aggregating Rs. 3 500 000 000/- (Rupees three thousand fi ve hundred million) were issued on private placement basis to various debentureholders. In terms of Debenture Trust-cum-Mortgage Deed dated December 14, 2009 NCDs are redeemable in three instalments starting at the end of 54th month i.e on 22nd March, 2014, @25%, at the end of 60th month, i.e on 22nd September, 2014 @ 50% and at the end of 66th month, i.e 22nd March, 2015 @ 25%.

Above Debentures are secured by a (i) First pari passu Mortgage in favour of the Trustees, of all rights and interest on the Company’s immovable properties situated at Mundhwa, Satara, Jalgaon and Chakan with negative lien on properties situated at Jejuri and Baramati; and (ii) First pari passu charge in favour of the Trustees by way of hypothecation of movable properties, present and future both such as all plant and machinery, equipments, tools, furniture & fi xtures etc, as described in Debenture Trust-cum -Mortgage Deed dated December 14, 2009.

(b) Foreign Currency Loans:

(i) Bank of India, London, Foreign Currency Term Loan; Balance outstanding USD 7.50 million (Previous year USD 10.00 million).

(ii) Calyon, Singapore, Foreign Currency Term Loan; Balance outstanding USD 50 million (Previous year USD 50 million).

The loans at Sr. No (i) above is secured by:

1. First charge by way of Hypothecation of the whole of the movable properties including its movable plant and machinery, machinery spares, tools and accessories and other movables, both present and future, whether installed or not and whether now lying loose or in cases or now lying or stored in or about or shall from time to time during the continuance of the security be brought into or upon or be stored or be in or about all the factories, premises and godowns situate at Mundhwa, District Pune; Chakan, District Pune ; Vaduth, District Satara; Village Kusumbe, District Jalgaon, all in the state of Maharashtra or wherever else the same may be or be held by any party to the order of disposition or in the course of transit or on high seas or on order, or delivery, howsoever and wheresoever in the possession and either by way of substitution or addition except specifi c movable plant and machinery consisting of Wind Energy converter of 600 K .V. 7 Nos. at Village Boposhi, District Satara, exclusively hypothecated to Standard Chartered Bank, as described under the Deed of Hypothecation dated 17th March, 2005 and;

2 Equitable Mortgage by deposit of title deeds of Immovable properties situate at Village Mundhwa, Pune; Village Vaduth, Tal and Dist Satara; Village Kusumbe Khurd, Ta l and District Jalgaon and Village Chakan, Pune all in the state of Maharashtra, together with all buildings and structures thereon and all Plant and Machinery attached to the earth or permanently fastened to anything attached to the earth, as described under Memorandum of Entry dated 17th March, 2005.

The loan at Sr. No (ii) above is secured by:

First Pari passu charge over present and future movable fi xed assets, viz. Plant and Machinery, Computers, Furnitures and Fixtures, whether installed or not and whether now lying loose or in cases or otherwise or being on or upon or at any time, hereafter being on or upon about the premises and godowns at Mundhwa, Pune; Village Kuruli, Chakan; Taluka Khed, Dist. Pune; Village Vaduth, Taluka & District Satara and at Baramati, Pune or anywhere else.

(iii) Standard Chartered Bank, Mauritius, Term Loan, Balance outstanding Nil, previous year (USD 16 million). The above loan was secured by exclusive fi rst charge by way of hypothecation of Aircraft.

(c) Guarantees given by Company’s Bankers on behalf of the Company, against sanctioned guarantee limit aggregating to Rs. 3 250 million (Previous year Rs. 3 250 million) for contracts undertaken by the Company and other matters are secured by extension of charge by way of joint hypothecation of stock-in-trade, stores and spares etc., book debts, subject to prior charge in their favour. Amount outstanding Rs. 635.43 million (Previous year Rs. 453.73 million).

5. Capital Work-in-Progress includes advances for supply of Capital Goods aggregating Rs. 345.94 million (Previous year Rs. 535.90 million).

6. Advances recoverable in cash or in kind or for value to be received in schedule ‘H’ includes:

Loans aggregating Rs. 0.77 million (Previous year Rs. 0.79 million) granted to one executive who subsequently was, appointed as Whole Time Director of the Company. Maximum balance outstanding during the year Rs. 0.79 million, (previous year Rs. 10.83 million).

7. Interest free loan of Rs. 309.09 million given to a Company which has given an undertaking to hold the shares solely for the purpose and obligations of the “BFL Executives Welfare and Share Option Trust” in terms of clause (b) of the proviso to Section 77(2) of the Companies Act, 1956, which in the opinion of an eminent Counsel, obtained by a Group Company, falls within the purview of the said proviso to the above mentioned section.

8. The Company had issued Foreign Currency Convertible Bonds (FCCBs) in four tranches aggregating USD 199.90 million, detailed in the table below, to fi nance Capital Expenditure and Global Acquisitions. The said bonds are optionally convertible into GDR/Equity Shares to be exercised at any time during the exercise period at a pre determined initial price subject to adjustments upon occurrence of certain events.

However, the Company has option to redeem the balance of the above Bonds if such balance is less than 10% in aggregate of principal amount of such tranche of bonds originally issued in respect of each tranche, during the redemption exercise period in the manner specifi ed in the offering circular at a premium so as to provide a predetermined yield to the Bondholders.

The Company also has the option to call the Bondholders of Tranche A & Tranche B to mandatorily convert the Bonds into Equity Shares, if the Market Price on the specifi ed date provided the holder a gain of atleast a 30% over the Early Redemption amount.

(*) Tranche 1 & 2 of the above FCCBs amounting to USD 102.25 million outstanding as at April 20, 2010 (i.e. after conversion into equity shares through the option period) were redeemed on April 20, 2010 along with the redemption premium amounting to USD 29.24 million. The Premium on redemption aggregating Rs. 1 460.45 million, (including tax amounting to Rs. 154.92 million) since crystalised has been adjusted to securities premium account, net of deferred tax asset amounting to Rs. 485.13 million, in terms of Section 78(2)(d) of the Companies Act, 1956.

Due to variables currently indeterminate, the premium on actual redemption for Tranche A & B is not computable and hence, will be recognised if and as and when the redemption option is exercised, as a charge to the securities premium account in terms of Section 78(2)(d) of the Companies Act, 1956.

The Company has been legally advised by an eminent law fi rm that the above mentioned Convertible Bonds issued upon terms and conditions set out in the offering circular dated 19th April, 2005, would be outside the purview of Section 117(C) of the Companies Act, 1956 as regards creation of Debenture Redemption Reserve. The Auditors have relied upon the said legal opinion. The unutilised amounts, of money raised, as at 31st March, 2010 is Rs. Nil.

9. Debenture Redemption Reserve has been created in accordance with circular No. 9/ 2002 dated 18th April, 2002 issued by Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India and Section 117 (C) of the Companies Act, 1956 at 25% of the maturity amount equally over the terms of the Debentures privately placed. Amount set aside for the year represents for full year in respect of Debentures issued in earlier year and proportionate amount for a period of 6 months for Debentures issued during the year.

10. The Accounting Standard (AS-11) “ The effects of changes in Foreign Exchange Rates” prescribed by Companies (Accounting Standards) Rules, 2006 was amended on 31st March, 2009, vide a notifi cation dated 31st March, 2009, by the Ministry of Corporate Affairs. The said amendment offered an option to Companies to recognise Foreign Exchange Gains and Losses arising on translation of all long term monetary assets and liabilities acquired upto 31st March, 2009, retrospectively from accounting periods commencing after 7th December, 2006 (i.e from 1st April, 2007 for the Company) upto 31st March, 2011, as capital cost of acquisition of assets where they relate to acquisition of assets or to a Translation Reserve viz. “Foreign Currency Monetary Item Translation Difference Account (FCMITDA) in other cases. The amount so recognised as capital cost of acquisition of assets is to be depreciated over the balance life of the relevant assets and in case of the amount recognised in the FCMITDA is to be amortised over the balance term of the monetary asset or liability but not beyond 31st March, 2011.

11. Bharat Forge America Inc. (BFA), a wholly owned subsidiary has registered losses which have substantially eroded its Net worth. The auditors of the Company have, given current adverse conditions prevailing in the American auto industry, disclaimed expression of any opinion on the validity of the assumption of going concern, the basis of which the fi nancial statements have been prepared. However, the management of BFA, as at 31st December, 2009, has tested the assets for impairment, the results of which do not indicate any impairment losses and hence the dimunition in the value of the company’s investment in this subsidiary is not considered to be of permanent nature.

12. In order to recognise the impact of fl uctuation in foreign currency rates arising out of instruments acquired to hedge highly probable forecast transaction, in appropriate accounting periods, the company applies the principles of recognition set out in the Accounting Standard 30-Financial Instruments - Recognition and Measurement (AS-30) as suggested by the Institute of Chartered Accountants of India. Accordingly, the unrealised gain/(loss) (net) consequent to foreign currency fl uctuations, in respect of effective hedging instruments, represented by simple forward covers, to hedge future exports, are carried as a Hedging Reserve and ultimately set off in the profi t and loss account when the underlying transaction arises.

The amount outstanding in the Hedge Reserve at the close of the year is Rs.171.52 million.

13. The Company has entered into agreements in the nature of lease/leave and license agreement with different lessors/licensors for the purpose of establishment of offi ce premises/Residential Accommodations. These are generally in nature of operating lease/leave and licence, disclosure required as per Accounting Standard 19 with regard to the above is as under:

i) Payment under operating lease/leave and license for period:

1) Not later than one year Rs. 3.78 million.

2) Later than one year but not later than fi ve years Rs. 1.62 million.

ii) There are no transactions in the nature of sub-lease.

iii) Payments recognised in the Profi t and Loss Account for the year ended 31st March, 2010 Rs. 12.51 million.

iv) Period of agreement is generally for three years and renewable at the option of the Lessee.

14. Information required in terms of part IV of Schedule VI to the Companies Act, 1956 is attached.

15. Segment information based on consolidated fi nancial statements has been disclosed in a statement annexed thereto. Primary Segments have been determined by the management in light of the dominant source and nature of risks and returns of the consolidated group and relied upon by the auditors.

16. Related Party disclosures have been set out in a separate statement annexed to this schedule. The related parties, as defi ned by Accounting Standard 18 ‘Related Party Disclosures’ issued by The Companies Accounting Standard Amendment Rules 2006, in respect of which the disclosures have been made, have been identifi ed on the basis of disclosures made by the key managerial persons and taken on record by the Board.

17. The Company has during the year entered in to a Joint Venture with ALSTOM Power Holdings SA which culminated into the incorporation of ALSTOM Bharat Forge Power Ltd. and Kalyani ALSTOM Power Ltd. wherein the Company holds 49% and 51% of the total equity share capital, respectively. Since the First Financial year of the Company is for a period of 15 months ending on 31st March, 2011, no fi nancial information thereof has been disclosed herein.

18. Signifi cant accounting policies followed by the Company are as stated in the statement annexed to this schedule.

19. Figures less than Rs. 5 000/- have been shown at actuals in bracket as the fi gures have been rounded off to the nearest second decimal to millions.

20. Previous fi nancial year’s fi gures have been regrouped wherever necessary to make them comparable with those of the current year.

Note: Names of the related parties and description of relationship

Sr. No. ParticularsName of the Party

1. Subsidiary Companies CDP Bharat Forge GmbH

Bharat Forge Beteiligungs GmbH

Bharat Forge America Inc

Bharat Forge Holding GmbH

Bharat Forge Aluminiumtechnik GmbH & Co. KG

Bharat Forge Aluminiumtechnik Verwaltungs GmbH

Bharat Forge Hong Kong Ltd.

Bharat Forge Kilsta AB

Bharat Forge Scottish Stampings Ltd.

FAW Bharat Forge (Changchun) Co. Ltd.

Bharat Forge Daun GmbH

BF New Technologies GmbH

BF-NTPC Energy Systems Ltd.

Kalyani ALSTOM Power Limited

2. Associates Kalyani Carpenter Special Steels Limited

Technica U. K. Limited

ALSTOM Bharat Forge Power Limited

3. Key Management Personnel Mr. B. N. Kalyani

Mr. A. B. Kalyani Mr. G. K. Agarwal Mr. P. K. Maheshwari Mr. B. P. Kalyani Mr. S. E. Tandale Mr. S. K. Chaturvedi

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