Notes to Accounts of HCL Technologies Ltd.
Mar 31, 2023
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the CGU, which benefit from the synergies of the acquisition.
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired. Impairment is recognized, when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The estimated value-in-use of the CGU is based on the future cash flow forecasts for 5 to 7 years and then on perpetuity on the basis of certain assumptions which include revenue growth, earnings before interest and taxes, taxes, capital outflow and working capital requirement. The assumptions are taken on the basis of past trends and management estimates and judgement. Future cash flows are discounted with "Weighted Average Cost of Capital". The key assumptions are as follows:
The primary objective of the Company''s capital management is to support business continuity and growth of the company while maximizing the shareholder value. The Company has been declaring quarterly dividend for last 20 years. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements have been generally met through operating cash flows generated.
Restricted Stock Unit Plan 2021 (âRSU 2021â or âPlanâ)
In November 2021, the Company instituted the Restricted Stock Unit Plan 2021 to provide equity-based incentives to all eligible employees of the Company and its subsidiaries. The Plan is administered by the Nomination and Remuneration Committee (NRC) of the Company through a controlled Trust. A maximum of 11,100,000 Restricted stock units (RSU) may be granted under the Plan. Each RSU granted under the plan entitles the holder to one equity share of the Company at an exercise price, which is approved by the Nomination and Remuneration Committee.
NRC granted RSUs to the eligible employees of the Company and its subsidiaries under the Plan. Subsequent to this grant, the Trust acquired shares from secondary market for the purpose of implementation of the Plan.
Total number of RSUs granted include 1,524,526 (31 March 2022, 1,476,879) performance based RSUs, including those linked to relative performance parameters against select industry peers, given to certain senior employees. Number of shares expected to vest will be based on actual performance for each of the performance parameters. All other RSUs will vest if the employee continues to be in service on the roles of the Company or its subsidiaries on the vesting date.
Outstanding performance based RSUs includes 282,008 (31 March 2022, 356,383) RSUs granted for which performance targets will be finalized and communicated in subsequent years. Cost for these RSUs will be accounted from date of finalization of performance targets.
The fair value of the awards are determined using the Black-Scholes Model for RSUs with time and non-market performance-based vesting conditions and Monte Carlo simulation model is used for RSUs with market performance based vesting conditions. The inputs to the model include the share price at date of grant, exercise price, expected volatility, expected dividends, expected term and the risk-free rate of interest. Expected volatility during the term of the RSUs is based on historical volatility of the observed market prices of the Company''s publicly traded equity shares during a period equivalent to the expected term of the RSUs. Expected volatility of the selected industry peers have been modelled based on historical movements in the market prices of their publicly traded equity shares during a period equivalent to the expected term of the RSUs. Correlation coefficient is calculated between each peer entity based on the historical weekly share prices of the companies.
Remaining performance obligations
Remaining performance obligations are subject to variability due to several factors such as terminations, changes in scope of contracts, periodic revalidations of the estimates, economic factors (changes in currency rates, tax laws etc). As at 31 March 2023, the aggregate amount of transaction price allocated to remaining performance obligation as per the requirements of Ind AS 115 was R 43,633 crores (31 March 2022, R 39,747 crores) out of which, approximately 40% (31 March 2022, 42%) is expected to be recognized as revenues within one year and the balance beyond one year. These amounts are not adjusted for variable consideration allocated to remaining performance obligation, which are not probable. These amounts also exclude contracts for which we recognize revenues based on the right to invoice for services performed and contracts where consideration is in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
Contract assets : R 162 crores of contract assets as on 31 March 2023, pertains to current year.
The company has benefited from certain tax incentives that the Government of India has provided for the units situated in Special Economic Zones (SEZs) under the Special Economic Zone Act, 2005, which began providing services on or after April 1,2005. The eligible units are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from the year of commencement of operations and 50% of such profits and gains for the next five years. Certain tax benefits are also available for a further period of five years subject to meeting reinvestment conditions. The aforesaid tax benefits will not be available to units setup after 31 March 2021.
The Company is subject to Minimum Alternate Tax (MAT) on its book profits, which gives rise to future economic benefits in the form of adjustment of future income tax liability. MAT paid for a year can be set-off against the normal tax liability within fifteen subsequent years, expiring between the years 2023 to 2035.
Corporate taxpayers can opt for a specified lower tax rate in lieu of current applicable tax rate subject to taxpayers not claiming any specified tax incentives including tax incentives available to special economic zone units and carryover of unutilized MAT credit (''new tax regime''). The Company will opt for new tax regime in the year new tax regime is beneficial to the Company.
The tax returns are subject to examination by the tax authorities in the jurisdictions where the Company conducts business. Regular tax examination is open for India, for tax years beginning 1 April 2019 onward and certain matters relating to prior years for which the tax assessment has already got concluded are subject to ongoing litigations, appeals and reassessment proceedings. The Company has significant intercompany transactions with its subsidiaries and has also filed for bilateral advance pricing agreements in certain jurisdictions starting from 1 April 2017 for which the resolutions are yet to be reached. These may result in assessment of additional taxes that may need to be resolved with the authorities or through legal proceedings. Resolution of these matters involves some degree of uncertainty; accordingly, the Company recognizes income tax liability that it believes will ultimately result from the proceedings.
(a) Derivatives
The Company is exposed to foreign currency fluctuations on assets / liabilities and forecast cash flows denominated in foreign currency. The use of derivatives to hedge the risk is governed by the Company''s strategy, which provides principles on the use of such forward contracts and currency options consistent with the Company''s Risk Management Policy. The counterparty in these derivative instruments is a bank and the Company considers the risks of nonperformance by the counterparty as insignificant. The Company has entered into a series of foreign exchange forward contracts and options that are designated as cash flow hedges and the related forecasted transactions extend through March 2028. The Company does not use these derivative instruments for speculative purposes.
The Company has entered into derivatives instrument not designated as hedging relationship by way of foreign exchange forwards, currency options and futures contracts. As at 31 March 2023 and 2022, the notional principal amount of outstanding contracts aggregated to R 4,733 crores and R 4,240 crores, respectively and the respective balance sheet exposure of these contracts have a net gain of R 6 crores and net loss of R 1 crores.
The notional amount is a key element of derivative financial instrument agreements. However, notional amounts do not represent the amount exchanged by counterparties and do not measure the Company''s exposure to credit risk as these contracts are settled at their fair values at the maturity date.
The balance sheet exposure denotes the fair values of these contracts at the reporting date and is presented in R crores. The Company presents its foreign exchange derivative instruments on a net basis in the financial statements due to the right of offset by its individual counterparties under master netting agreements.
The Company in the normal course of business sells certain trade receivables to banks. Under the terms of arrangements, the Company surrenders control over these assets and transfer is on a non-recourse basis.
During the year ended 31 March 2023 and 2022, the Company has sold certain trade receivables on non-recourse basis. Gains or losses on the sales are recorded at the time of transfers of these receivables and are immaterial.
There have been no transfers between Level 1 and Level 2 during the current and previous year Valuation methodologies
Investments: The Company''s investments consist of investment in debt linked mutual funds which are determined using quoted prices or identical quoted prices of assets or liabilities in active markets and are classified as Level 1. Fair value of corporate debt securities is determined using observable markets'' inputs and is classified as Level 2.
Derivative financial instruments: The Company''s derivative financial instruments consist of foreign currency forward exchange contracts and options. Fair values for derivative financial instruments are based on counter party quotations and are classified as Level 2.
The company assessed that fair value of cash and cash equivalent, loans, short-term deposits, trade receivables, other current financial assets, trade payables, bank overdrafts and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
(c) Financial risk management
The Company is exposed to market risk, credit risk and liquidity risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage and mitigate these risks.
The Company''s risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Company''s business plan along with reasonable participation in market movement.
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 of currency risk and interest rate risk. The Company is primarily exposed to fluctuation in foreign currency exchange rates.
(i) 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 exchange rates. The Company''s exposure to the risk of changes in exchange rates relates primarily to the Company''s operations and the Company''s net investments in foreign branches.
The exchange rate risk primarily arises from assets and liabilities denominated in currencies other than the functional currency of the respective branches and foreign currency forecasted revenue and cash flows. A significant portion of the Company revenue is in US Dollar, Pound Sterling (GBP) and Euro while a large portion of costs are in Indian rupees. The fluctuation in exchange rates in respect to the Indian rupee may have potential impact on the statement of profit and loss and other comprehensive income and equity.
To mitigate the foreign currency risk the Company uses derivatives as governed by the Companyâs strategy, which provides principles on the use of such forward contracts and currency options consistent with the Companyâs Risk Management Policy.
Appreciation/depreciation of 1 % in respective foreign currencies with respect to functional currency of the Company and its branches would result in increase/decrease in the Company''s profit before tax by approximately R 98 crores (31 March 2022, R 70 crores) for the year ended 31 March 2023.
The rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rates shift of all the currencies by 1% against the respective functional currencies of the Company and its branches. The sensitivity analysis presented above may not be representative of the actual change.
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 investments are primarily in fixed rate interest bearing investments. Hence the Company is not significantly exposed to interest rate risk.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and bank balances, inter-corporate deposits, trade receivables, finance lease receivables, investment securities and derivative instruments. The cash resources of the Company are invested with mutual funds, banks, financial institutions and corporations after an evaluation of the credit risk. By their nature, all such financial instruments involve risks, including the credit risk of nonperformance by counterparties.
The customers of the Company are primarily corporations based in the United States of America and Europe and accordingly, trade receivables, unbilled receivables and finance lease receivables are concentrated in the respective countries. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of trade receivables, contract assets, unbilled receivables and finance lease receivables. The Company also outsourced selected client related credit risks to financial markets through "Non-recourse assignmentâ of receivables.
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities. The investment philosophy of the Company is capital preservation and liquidity in preference to returns. The Company consistently generates sufficient cash flows from operations and has access to multiple sources of funding to meet the financial obligations and maintain adequate liquidity for use.
No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other persons or entities, including foreign entities (âIntermediariesâ), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (âUltimate Beneficiariesâ) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
The Company has not received any funds from any persons or entities, including foreign entities (âFunding Partiesâ), with the understanding, whether recorded in writing or otherwise, that the Company shall whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Parties (âUltimate Beneficiariesâ) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(a) The Indian Parliament has approved the Code on Social Security, 2020 which would impact the contributions by the Company towards Provident Fund and Gratuity. The effective date from which the changes are applicable is yet to be notified and the final rules are yet to be notified. The Company will carry out an evaluation of the impact and record the same in the financial statements in the period in which the Code becomes effective and the related rules are published.
(b) The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business, the outcome of which is inherently uncertain. Some of these matters include speculative and frivolous claims for substantial or indeterminate amounts of damages. The Company records a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions at least quarterly and adjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The Company believes that the amount or estimable range of reasonably possible loss, will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, results of the Company, or cash flows with respect to loss contingencies for legal and other contingencies as at 31 March 2023.
(c) Guarantees have been given by the Company on behalf of various subsidiaries against credit facilities, financial assistance and office premises taken on lease amounting to R 2,573 crores (USD 270 million and GBP 35 million) (31 March 2022, R 4,365 crores (USD 530 million and GBP 35 million)). These guarantees have been given in the normal course of the Company''s operations and are not expected to result in any loss to the Company, on the basis of the beneficiaries fulfilling their ordinary commercial obligations.
Explanation where change in the ratio is more than 25%Inventory turnover ratio
Inventory turnover Ratio has decreased from 7.3 times in FY 21-22 to 5.4 times in FY 22-23 primarily due to increase in average inventory by R 12 crores.
Trade payable turnover Ratio has increased from 2.9 times in FY 21-22 to 4.1 times in FY 22-23 primarily due to decrease in average trade payables.
Return on investment - Unquoted
Return on unquoted investment has increased from 4.2% in FY 21-22 to 5.8% in FY 22-23, primarily on account of higher realized return.
The Board of Directors at its meeting held on 20 April 2023 has declared an interim dividend of R 18 per share.
Mar 31, 2022
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the CGU, which benefit from the synergies of the acquisition.
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired. Impairment is recognized, when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The estimated value-in-use of the CGU is based on the future cash flow forecasts for 5 to 7 years and then on perpetuity on the basis of certain assumptions which include revenue growth, earnings before interest and taxes, taxes, capital outflow and working capital requirement. The assumptions are taken on the basis of past trends and management estimates and judgement. Future cash flows are discounted with âWeighted Average Cost of Capitalâ. The key assumptions are as follows:
Change in authorised equity share capital
During the previous year, pursuant to the Scheme of amalgamation effective 13 July 2020 between the Company and its four wholly owned subsidiaries, the authorised shares of the erstwhile transferor companies were clubbed with the authorised shares of the Company. Consequently, as of 31 March 2021, the authorised share capital of the Company increased to 3,017,000,000 equity shares of face value of '' 2 each.
The primary objective of the Company''s capital management is to support business continuity and growth of the company while maximizing the shareholder value. The Company has been declaring quarterly dividend for last 19 years. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements have been generally met through operating cash flows generated.
Restricted Stock Unit Plan 2021 (âRSU 2021â or âPlanâ)
In November 2021, the Company instituted the Restricted Stock Unit Plan 2021 to provide equity-based incentives to all eligible employees of the Company and its subsidiaries. The Plan is administered by the Nomination and Remuneration Committee (NRC) of the Company through a controlled Trust. A maximum of 11,100,000 Restricted stock units (RSU) may be granted under the Plan. Each RSU granted under the plan entitles the holder to one equity share of the Company at an exercise price, which is approved by the Nomination and Remuneration Committee.
On 20 December 2021, NRC has granted RSUs to the eligible employees of the Company and its subsidiaries under the Plan. Subsequent to this grant, the Trust acquired 6,320,000 shares from secondary market for the purpose of implementation of the Plan.
Total number of RSUs granted include 1,476,879 (Nil as on 31 March 2021) performance based RSUs, including those linked to relative performance parameters against select industry peers, given to certain senior employees. Number of shares expected to vest will be based on actual performance for each of the performance parameters. All other RSUs will vest if the employee continues to be in service on the roles of the Company or its subsidiaries on the vesting date.
Outstanding performance based RSUs includes 356,383 (Nil as on 31 March 2021) RSUs granted for which performance targets will be finalized and communicated in subsequent years. Cost for these RSUs will be accounted from date of finalization of performance targets.
The fair value of the awards are determined using the Black-Scholes Model for RSUs with time and non-market performance-based vesting conditions and Monte Carlo simulation model is used for RSUs with market performance based vesting conditions. The inputs to the model include the share price at date of grant, exercise price, expected volatility, expected dividends, expected term and the risk-free rate of interest. Expected volatility during the term of the RSUs is based on historical volatility of the observed market prices of the Company''s publicly traded equity shares during a period equivalent to the expected term of the RSUs. Expected volatility of the selected industry peers have been modelled based on historical movements in the market prices of their publicly traded equity shares during a period equivalent to the expected term of the RSUs. Correlation coefficient is calculated between each peer entity based on the historical weekly share prices of the companies.
Remaining performance obligations
Remaining performance obligations are subject to variability due to several factors such as terminations, changes in scope of contracts, periodic revalidations of the estimates, economic factors (changes in currency rates, tax laws etc). As at 31 March 2022, the aggregate amount of transaction price allocated to remaining performance obligation as per the requirements of Ind AS 115 was '' 39,747 crores (31 March 2021, '' 32,656 crores) out of which, approximately 42% (31 March 2021, 40%) is expected to be recognized as revenues within one year and the balance beyond one year. These amounts are not adjusted for variable consideration allocated to remaining performance obligation, which are not probable. These amounts also exclude contracts for which we recognize revenues based on the right to invoice for services performed and contracts where consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
Contract assets : Out of '' 122 crores of contract assets as on 31 March 2022, 100 % pertain to current year.
* In previous year, pursuant to a tax law amendment in India (enacted on 28 March 2021), the tax amortizable goodwill has become non-tax amortizable from financial year ended 31 March 2021. The amended law states that goodwill of a business or profession will not be considered as a depreciable asset and no depreciation on goodwill will be allowed from 1 April 2020.
The company has benefited from certain tax incentives that the Government ofIndia has provided for the units situated in Special Economic Zones (SEZs) under the Special Economic Zone Act, 2005, which began providing services on or after April 1,2005. The eligible units are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from the year of commencement of operations and 50% of such profits and gains for next five years. Certain tax benefits are also available for a further period of five years subject to meeting reinvestment conditions. The aforesaid tax benefits will not be available to units setup after 31 March 2021.
The Company is subject to Minimum Alternate Tax (MAT) on its book profits, which gives rise to future economic benefits in the form of adjustment of future income tax liability. MAT paid for a year can be set-off against the normal tax liability within fifteen subsequent years, expiring between the years 2023 to 2035.
Corporate taxpayers can opt for a specified lower tax rate in lieu of current applicable tax rate subject to taxpayers not claiming any specified tax incentives including tax incentives available to special economic zone units and carryover of unutilized MAT credit (''new tax regime''). The Company will opt for new tax regime in the year new tax regime is beneficial to the Company.
The tax returns are subject to examination by the tax authorities in the jurisdictions where the Company conducts business. The tax examination is open for annual year beginning 1 April 2017 onwards. There is significant intercompany transactions between India and USA. The Company has also filed for bilateral advance pricing agreements in these jurisdictions starting from 1 April 2017 for which the resolutions are yet to be reached. These may result in assessment of additional taxes that may need to be resolved with the authorities or through legal proceedings. Resolution of these matters involves some degree of uncertainty; accordingly, the Company recognizes income tax liability that it believes will ultimately result from the proceedings.
(a) Derivatives
The Company is exposed to foreign currency fluctuations on assets / liabilities and forecast cash flows denominated in foreign currency. The use of derivatives to hedge the risk is governed by the Company''s strategy, which provides principles on the use of such forward contracts and currency options consistent with the Company''s Risk Management Policy. The counterparty in these derivative instruments is a bank and the Company considers the risks of nonperformance by the counterparty as insignificant. The Company has entered into a series of foreign exchange forward contracts and options that are designated as cash flow hedges and the related forecasted transactions extend through March 2027. The Company does not use these derivative instruments for speculative purposes.
The Company has entered into derivatives instrument not designated as hedging relationship by way of foreign exchange forward, currency options and futures contracts. As at 31 March 2022 and 2021, the notional principal amount of outstanding contracts aggregated to '' 4,240 crores and '' 1,862 crores, respectively and the respective balance sheet exposure of these contracts have a net (loss) of ''(1) crores and net gain of '' 10 crores.
The notional amount is a key element of derivative financial instrument agreements. However, notional amounts do not represent the amount exchanged by counterparties and do not measure the Company''s exposure to credit risk as these contracts are settled at their fair values at the maturity date.
The balance sheet exposure denotes the fair values of these contracts at the reporting date and is presented in '' crores. The Company presents its foreign exchange derivative instruments on a net basis in the financial statements due to the right of offset by its individual counterparties under master netting agreements.
The Company in the normal course of business sells certain accounts receivables to banks. Under the terms of arrangements, the Company surrender control over these assets and transfer is on a non-recourse basis.
During the year ended 31 March 2022 and 2021, the Company has sold certain accounts receivables on non-recourse basis. Gains or losses on the sales are recorded at the time of transfers of these receivables and are immaterial.
Investments: The Company''s investments consist of investment in debt linked mutual funds which are determined using quoted prices or identical quoted prices of assets or liabilities in active markets and are classified as Level 1. Fair value of corporate debt securities is determined using observable markets'' inputs and is classified as Level 2.
Derivative financial instruments: The Company''s derivative financial instruments consist of foreign currency forward exchange contracts and options. Fair values for derivative financial instruments are based on counter party quotations and are classified as Level 2.
The Company assessed that fair value of cash and cash equivalents and short-term deposits, trade receivables, trade payables, bank overdrafts and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
(c) Financial risk management
The Company is exposed to market risk, credit risk and liquidity risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage and mitigate these risks.
The Company''s risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Company''s business plan along with reasonable participation in market movement.
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 of currency risk and interest rate risk. The Company is primarily exposed to fluctuation in foreign currency exchange rates.
(i) 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 exchange rates. The Company''s exposure to the risk of changes in exchange rates relates primarily to the Company''s operations and the Company''s net investments in foreign branches.
The exchange rate risk primarily arises from assets and liabilities denominated in currencies other than the functional currency of the respective branches and foreign currency forecasted revenue and cash flows. A significant portion of the Company revenue is in US Dollar, Pound Sterling (GBP) and Euro while a large portion of costs are in Indian rupees. The fluctuation in exchange rates in respect to the Indian rupee may have potential impact on the statement of profit and loss and other comprehensive income and equity.
To mitigate the foreign currency risk the Company uses derivatives as governed by the Company''s strategy, which provides principles on the use of such forward contracts and currency options consistent with the Company''s Risk Management Policy.
Appreciation/depreciation of 1% in respective foreign currencies with respect to functional currency of the Company and its branches would result in increase/decrease in the Company''s profit before tax by approximately '' 70 crores for the year ended 31 March 2022.
The rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rates shift of all the currencies by 1% against the respective functional currencies of the Company and its branches. The sensitivity analysis presented above may not be representative of the actual change.
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 investments are primarily in fixed rate interest bearing investments. Hence the Company is not significantly exposed to interest rate risk.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and bank balances, inter-corporate deposits, trade receivables, finance lease receivables, investment securities and derivative instruments. The cash resources of the Company are invested with mutual funds, banks, financial institutions and corporations after an evaluation of the credit risk. By their nature, all such financial instruments involve risks, including the credit risk of non-performance by counterparties.
The customers of the Company are primarily corporations based in the United States of America and Europe and accordingly, trade receivables, unbilled receivables and finance lease receivables are concentrated in the respective countries. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of trade receivables, contract assets unbilled receivables and finance lease receivables. The Company also outsourced selected client related credit risks to financial markets through â Non-recourse assignmentâ of receivables.
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities. The investment philosophy of the Company is capital preservation and liquidity in preference to returns. The Company consistently generates sufficient cash flows from operations and has access to multiple sources of funding to meet the financial obligations and maintain adequate liquidity for use.
The estimates of future salary increases, considered in the actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. Inherent risk exists for the Company that any adverse salary growth or demographic experience or inadequate returns on underlying plan assets can result in an increase in cost of providing these benefits to employees in future. Since the benefits are lump sum in nature the plan is not subject to any longevity risks.
Discount rate and future salary escalation rate are the key actuarial assumptions to which the defined benefit obligation are particularly sensitive. The following table summarizes the impact on defined benefit obligation as at 31 March 2022 arising due to an increase/decrease in key actuarial assumptions by 50 basis points:
Employerâs contribution to provident fund
The actuary has provided a valuation for provident fund liabilities on the basis of guidance issued by Actuarial Society of India based on the assumption mentioned below.
(a) The Indian Parliament has approved the Code on Social Security, 2020 which would impact the contributions by the Company towards Provident Fund and Gratuity. The effective date from which the changes are applicable is yet to be notified and the final rules are yet to be framed. The Company will carry out an evaluation of the impact and record the same in the financial statements in the period in which the Code becomes effective and the related rules are published.
(b) The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business, the outcome of which is inherently uncertain. Some of these matters include speculative and frivolous claims for substantial or indeterminate amounts of damages. The Company records a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions at least quarterly and adjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The Company believes that the amount or estimable range of reasonably possible loss, will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, results of the Company, or cash flows with respect to loss contingencies for legal and other contingencies as at 31 March 2022.
(c) Guarantees have been given by the Company on behalf of various subsidiaries against credit facilities, financial assistance and office premises taken on lease amounting to '' 4,365 crores (USD 530 million and GBP 35 million) (31 March 2021, '' 4,228 crores (USD 530 million and GBP 35 million)). These guarantees have been given in the normal course of the Company''s operations and are not expected to result in any loss to the Company, on the basis of the beneficiaries fulfilling their ordinary commercial obligations.
(1) Total debts consists of borrowings and lease liabilities
(2) Earning availables for debt services = Profit for the year depreciation, amortisation and impairment interest loss on sale of property,plant and equipments Provision for doubtful debts share based payment to employees non cash charges
(3) Debt service = Interest payment for lease liabilities principal repayments
(4) Cost of goods sold includes purchase of stock in trade and change in inventories of stock in trade
(5) Net credit purchase includes purchase of stock-in-trade , change in inventories of stock-in-trade, outsourcing costs and other expenses
(6) Working capital = current assets - current liabilities
(7) Capital employed = Tangible net worth includes acquired goodwill and other intangibles assets total debt - deferred tax assets
(8) Average is calculated based on simple average of opening and closing balances.
Explanation where change in the ratio is more than 25%
Debt service coverage ratio
Debt service coverage ratio has improved due to increase in profit for the year.
Note : CSR activities includes Education, Environment, Skill Development & Livelihood, Water & Sanitation, Promoting sustainable health, nutrition and hygiene interventions, Gender & Inclusion, Early Childhood Care & Development, Disaster relief.
As per Ind AS 108 âOperating Segments'', the Company has disclosed the segment information only as part of the consolidated financial statement.
During the year ended 31 March 2022, the Company revised the presentation of âcontract liabilities'' from âother liabilities'' to face of the standalone balance sheet for better presentation. Comparative amounts in the notes to the standalone financial statements were reclassified for consistency.
During the year ended 31 March 2022, the Company has revised the presentation of certain notes to the standalone financial statements for better presentation. Comparative amounts in the notes to the standalone financial statements were reclassified for consistency.
Mar 31, 2021
ORGANIZATION AND NATURE OF OPERATIONS
HCL Technologies Limited (hereinafter referred to as âthe Companyâ) is primarily engaged in providing a range of IT and business services, engineering and R&D services and products & platforms services. The Company was incorporated under the provisions of the Companies Act applicable in India in November 1991, having its registered office at 806, Siddharth, 96, Nehru Place, New Delhi- 110019. The Company leverages its global technology workforce and intellectual properties to deliver solutions across following verticals - financial services, manufacturing, life sciences & healthcare, public services, retail & CPG, technology & services and telecom, media, publishing and entertainment.
The standalone financial statements for the year ended 31 March 2021 were approved and authorized for issue by the Board of Directors on 23 April 2021.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
These standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) prescribed under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules as amended from time to time and presentation requirements of Schedule III (Division II) to the Companies Act, 2013, as applicable to the standalone financial statements.
These standalone financial statements have been prepared under the historical cost convention on an accrual and going concern basis except for the following assets and liabilities which have been measured at fair value:
(a) Derivative financial instruments,
(b) Certain financial assets and liabilities (refer accounting policy regarding financial instruments),
(c) Defined benefit plans
The accounting policies adopted in the preparation of these standalone financial statements are consistent with those of the previous year except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy.
The Hon''ble National Company Law Tribunal of New Delhi and Bengaluru have approved the Scheme of Amalgamation providing for the merger of four direct /step-down wholly-owned subsidiaries engaged in providing IT and IT related services viz. HCL Eagle Limited, HCL Comnet Limited, HCL Technologies Solutions Limited and Concept2Silicon Systems Private Limited (the âTransferor companiesâ) with and into HCL Technologies Limited (the âTransferee Companyâ) with effect from 01 April 2019, the appointed date. The scheme has become effective on 13 July 2020 on filling of the certified true copy of the Orders of the Delhi and the Bengaluru NCLT with the Registrar of Companies on 13 March 2020 and 13 July 2020 respectively.
Since the Transferor Companies are the wholly-owned subsidiaries of the Transferee Company, there will be no issue and allotment of shares as consideration. The difference amount of '' 14 crores between the amounts recorded as investments of the Company (Transferee Company) and the amount of share capital of the aforesaid amalgamating subsidiaries (Transferor Companies) has been adjusted in the Common Control Transaction Capital Reserve in accordance with the guidance under Appendix C of IND AS 103 âBusiness Combinationsâ using the pooling of interest method. For the acquired subsidiaries, carrying value of assets, liabilities and reserves appearing in the consolidated financial statements has been carried. Accordingly, the comparative numbers have been restated to give effect of the Scheme.
The impact of the scheme is not material on the standalone financial statement of the Company.
All assets and liabilities have been classified as current and non-current as per the Company''s normal operating cycle of 12 months. The statement of cash flows has been prepared under indirect method.
The Company uses the Indian rupee (T) as its reporting currency.
(b) Use of estimates
The preparation of standalone financial statements in conformity with Ind AS requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and other comprehensive income (OCI) that are reported and disclosed in the financial statements and accompanying notes. These estimates are based on the management''s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in the standalone financial statements in the year in which the changes are made.
Significant estimates and assumptions are used for, but not limited to,
(i) Accounting for costs expected to be incurred to complete performance under fixed price projects and determination of stand-alone selling prices for each distinct performance obligation in respect of proprietary software products, refer note 1(f)
(ii) Allowance for uncollectible accounts receivables, refer note 1(q)(i)
(iii) Fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed, measured on a provisional basis in case of business combination, refer note 1(c)
(iv) Recognition of income and deferred taxes, refer note 1(g) and note 3.25
(v) Key actuarial assumptions for measurement of future obligations under employee benefit plans, refer note 1(p) and note 3.30
(vi) Useful lives of property, plant and equipment, refer note 1(h)
(vii) Lives of intangible assets, refer note 1(i)
(viii) Key assumptions used for impairment of goodwill, refer note 1(n) and note 3.2
(ix) Identification of leases and measurement of lease liabilities and right of use assets, refer note 1(l)
(x) Provisions and contingent liabilities, refer note 1(o) and note 3.33
In view of pandemic relating to COVID-19, the Company has considered and taken into account internal and external information and has performed sensitivity analysis based on current estimates in assessing the recoverability of receivables, unbilled receivables, goodwill, intangible assets, other financial assets, impact on revenues and costs, impact on leases and effectiveness of its hedging relationships including but not limited to the assessment of liquidity and going concern assumption. However, the actual impact of COVID-19 on the Company''s financial statements may differ from that estimated and the Company will continue to closely monitor any material changes to future economic conditions.
(c) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred measured at fair value at the acquisition date. Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as financial liability is measured at fair value with changes in fair value recognized in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the excess is recognized as capital reserve after reassessing the fair values of the net assets.
(d) Foreign currency and translation
The financial statements are presented in Indian Rupee (''), which is also the Company''s functional currency. For each foreign operation, the Company determines the functional currency which is its respective local currency.
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date of the transaction. Foreign-currency denominated monetary assets and liabilities are translated to the relevant functional currency at exchange rates in effect at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are recognized in the statement of profit and loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of initial transaction. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the year. Revenue, expenses and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of foreign operations from respective functional currency into INR (the reporting currency) for assets and liabilities is performed using the exchange rates in effect at the balance sheet date, and for revenue, expenses and cash flows is performed using an appropriate daily weighted average exchange rate for the respective years. The exchange differences arising on translation are reported as a component of âother comprehensive income (loss)''. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in the statement of profit and loss.
(e) Fair value measurement
The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability.
The Company holds certain fixed income securities, equity securities and derivatives, which must be measured using the guidance for fair value hierarchy and related valuation methodologies. The guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company''s assumptions about current market conditions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are directly or indirectly observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable inputs which are supported by little or no market activity.
In accordance with Ind AS 113, assets and liabilities are to be measured based on the following valuation techniques:
(a) Market approach - Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
(b) Income approach - Converting the future amounts based on market expectations to its present value using the discounting method.
(c) Cost approach - Replacement cost method.
Certain assets are measured at fair value on a non-recurring basis. These assets consist primarily of non-financial assets such as goodwill and intangible assets. Goodwill and intangible assets recognized in business combinations are measured at fair value initially and subsequently when there is an indicator of impairment, the impairment is recognized.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant who would use the asset in its highest and best use.
(f) Revenue recognition
Contracts involving provision of services and material
Revenue is recognized when, or as, control of a promised service or good transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. To recognize revenues, the following five step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. A contract is accounted when it is legally enforceable through executory contracts, approval and commitment from all parties, the rights of the parties are identified, payment terms are defined, the contract has commercial substance and collectability of consideration is probable.
Time-and-material / Volume based / Transaction based contracts
Revenue with respect to time-and-material, volume based and transaction based contracts is recognized as the related services are performed through efforts expended, volume serviced transactions are processed etc. that correspond with value transferred to customer till date which is related to our right to invoice for services performed.
Fixed Price contracts
Revenue related to fixed price contracts where performance obligations and control are satisfied over a period of time like technology integration, complex network building contracts, system implementations and application development are recognized based on progress towards completion of the performance obligation using a cost-to-cost measure of progress (i.e., percentage-of-completion (POC) method of accounting). Revenue is recognized based on the costs incurred to date as a percentage of the total estimated costs to fulfill the contract. Any revision in cost to complete would result in increase or decrease in revenue and such changes are recorded in the period in which they are identified. Provisions for estimated losses, if any, on contracts-in-progress are recorded in the period in which such losses become probable based on the current contract estimates. Contract losses are determined to be the amount by which the estimated incremental cost to complete exceeds the estimated future revenues that will be generated by the contract and are included in cost of revenues and recorded in other accrued liabilities.
Revenue related to other fixed price contracts providing maintenance and support services, are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above.
In arrangements involving sharing of customer revenues, revenue is recognized when the right to receive is established.
Revenue from product sales are shown net of applicable taxes, discounts and allowances. Revenue related to product with installation services that are critical to the product is recognized when installation of product at customer site is completed and accepted by the customer. If the revenue for a delivered item is not recognized for non-receipt of acceptance from the customer, the cost of the delivered item continues to be in inventory.
Proprietary Software Products
Revenue from distinct proprietary perpetual license software is recognized at a point in time at the inception of the arrangement when control transfers to the client. Revenue from proprietary term license software is recognized at a point in time for the committed term of the contract. In case of renewals of proprietary term licenses with existing customers, revenue from term license is recognized at a point in time when the renewal is agreed on signing of contracts. Revenue from support and subscription (S&S) is recognized over the contract term on a straight-line basis as the Company is providing a service of standing ready to provide support, when-and-if needed, and is providing unspecified software upgrades on a when-and-if available basis over the contract term. In case software are bundled with one year of support and subscription either for perpetual or term based license, such support and subscription contracts are generally priced as a percentage of the net fees paid by the customer to purchase the license and are generally recognized as revenues ratably over the contractual period that the support services are provided. Revenue from these proprietary software products is classified under sale of services.
Multiple performance obligation
When a sales arrangement contains multiple performance, such as services, hardware and Licensed IPs (software) or combinations of each of them revenue for each element is based on a five step approach as defined above. To the extent a contract includes multiple promised deliverables, judgment is applied to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations or series of distinct performance obligations, consideration is allocated among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which the Company would sell a promised good or service separately to the customer. When not directly observable, we estimate standalone selling price by using the expected cost plus a margin approach. We establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change. If the arrangement contains obligations related to License of Intellectual property (Software) or Lease deliverable, the arrangement consideration allocated to the Software deliverables, lease deliverable as a group is then allocated to each software obligation and lease deliverable.
Revenue recognition for delivered elements is limited to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Revenue from certain activities in transition services in outsourcing arrangements are not capable of being distinct or represent separate performance obligation. Revenues relating to such transition activities are classified as Contract liabilities and subsequently recognized over the period of the arrangement. Direct and incremental costs in relation to such transition activities which are expected to be recoverable under the contract and generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future are considered as contract fulfillment costs classified as Deferred contract cost and recognized over the period of arrangement. Certain upfront non-recurring incremental contract acquisition costs and other upfront fee paid to customer are deferred and classified as Deferred contract cost and amortized to revenue or cost, usually on a straight line basis, over the term of the contract unless revenues are earned and obligations are fulfilled in a different pattern. The undiscounted future cash flows from the arrangement are periodically estimated and compared with the unamortized costs. If the unamortized costs exceed the undiscounted cash flow, a loss is recognized.
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably being company control the goods or service before it is transferred to customer, latitude in deciding the price being charged to customer. Revenue is recognized net of discounts and allowances, value-added and service taxes, and includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues.
Volume discounts, or any other form of variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration realizable. Transaction price includes variable consideration only to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.
Revenue recognized but not billed to customers is classified either as contract assets or unbilled receivable in our standalone balance sheet. Contract assets primarily relate to unbilled amounts on those contracts utilizing the cost to cost method of revenue recognition and right to consideration is not unconditional. Unbilled receivables represent contracts where right to consideration is unconditional (i.e. only the passage of time is required before the payment is due). A contract liability arises when there is excess billing over the revenue recognized.
Revenue from sales-type leases is recognized when risk of loss has been transferred to the client and there are no unfulfilled obligations that affect the final acceptance of the arrangement by the client. Interest attributable to sales-type leases and direct financing leases included therein is recognized on an accrual basis using the effective interest method and is recognized as other income.
Interest income
Interest income for all financial instruments measured at amortized cost is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
(g) income taxes
Income tax expense comprises current and deferred income tax.
Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Provision for income tax includes the impact of provisions established for uncertain income tax positions.
Deferred income tax assets and liabilities recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are recognized for those temporary differences which originate during the tax holiday period are reversed after the tax holiday period. For this purpose, reversal of timing differences is determined using first in first out method.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the year that includes the enactment or the substantive enactment date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in the statement of profit and loss.
(h) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The Company identifies and determines separate useful lives for each major component of the property, plant and equipment, if they have a useful life that is materially different from that of the asset as a whole.
Expenses on existing property, plant and equipment, including day-to-day repairs, maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred.
Gains or losses arising from derecognition of assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Property, plant and equipment under construction and cost of assets not ready for use at the year end are disclosed as capital-work-in-progress.
Depreciation on property, plant and equipment is provided on the straight-line method over their estimated useful lives, as determined by the management. Depreciation is charged on a pro-rata basis for assets purchased/sold during the year.
(i) intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is measured at their fair value at the date of acquisition. Subsequently, following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting year. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of profit and loss.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
The intangible assets are amortized over the estimated useful life of the assets as mentioned below except certain Licensed IPRs which include the right to modify, enhance or exploit are amortized in proportion to the expected benefits over the useful life which could range up to 15 years:
(j) Research and development costs
Research costs are expensed as incurred. Development expenditure, on an individual project, is recognized as an intangible asset when the Company can demonstrate:
⢠The technical feasibility of completing the intangible asset so that it will be available for use or sale
⢠Its intention to complete and its ability and intention to use or sell the asset
⢠How the asset will generate future economic benefits
⢠The availability of resources to complete the asset
⢠The ability to measure reliably the expenditure during development
Subsequently, following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.
(k) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
(l) Leases
A lease is a contract that contains right to control the use of an identified asset for a period of time in exchange for consideration. Company as a lessee
Company is lessee in case of leasehold land, office space, accommodation for its employees & IT equipment. These leases are evaluated to determine whether it contains lease based on principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors as defined in Ind AS 116 effective from 1 April 2019.
Right-of-use asset represents the Company''s right to control the underlying assets under lease and the lease liability is the obligation to make the lease payments related to the underlying asset under lease. Right-of-use asset is measured initially based on the lease liability adjusted for any initial direct costs, prepaid rent and lease incentives. Right-of-use asset is depreciated based on straight line method over the lease term or useful life of right-of-use asset, whichever is less. Subsequently, right-of-use asset is measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of lease liability.
The lease liability is measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and the Company''s incremental borrowing rate, which approximates the rate at which the Company would borrow, in the country where the lease was executed. The Company has used a single discount rate for a portfolio of leases with reasonably similar characteristics. The lease payment comprises fixed payment less any lease incentives, variable lease payment that depends on an index or a rate, exercise price of a purchase option if the Company is reasonably certain to exercise the option and payment of penalties for terminating the lease, if the lease term reflects the Company exercising an option to terminate the lease. Lease liability is subsequently measured by increase the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payment made and remeasuring the carrying amount to reflect any reassessment or modification, if any.
The Company has elected to not recognize leases with a lease term of 12 months or less in the balance sheet, including those acquired in a business combination, and lease costs for those short-term leases are recognized on a straight-line basis over the lease term in the statement of profit and loss. For all asset classes, the Company has elected the lessee practical expedient to combine lease and non-lease components and account for the combined unit as a single lease component in case there is no separate payment defined under the contract.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the year in which they are earned or contingency is resolved.
Leases in which the Company transfers substantially all the risk and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the present value of lease receivable. After initial recognition, the Company apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance leases. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal cost, brokerage cost etc. are recognized immediately in the statement of profit and loss.
When arrangements include multiple performance obligations, the Company allocates the consideration in the contract between the lease components and the non-lease components on a relative standalone selling price basis.
(m) Inventory
Stock-in-trade, stores and spares are valued at the lower of the cost or net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Cost of stock-in-trade procured for specific projects is assigned by identifying individual costs of each item. Cost of stock in trade, that are interchangeable and not specific to any project and cost of stores and spare parts are determined using the weighted average cost formula.
(n) Impairment of non-financial assets
Goodwill
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Company''s cash generating units (CGU) expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU. Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU, pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill recognized in the statement of profit and loss is not reversed in the subsequent period. Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the CGU to which the asset belongs. If such assets are considered to be impaired, the impairment to be recognized in the statement of profit and loss is measured by the amount by which the carrying value of the asset exceeds the estimated recoverable amount of the asset.
(o) Provisions and contingent liabilities
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.
The Company uses significant judgement to disclose contingent liabilities. Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount cannot be made. Contingent assets are neither recognized nor disclosed in the financial statements.
(p) Retirement and other employee benefits
(i) Provident fund: Employees of the Company receive benefits under the provident fund, a defined benefit plan. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust managed by the Company or Government administered provident fund; while the balance contribution is made to the Government administered pension fund. For the contribution made by the Company to the provident fund trust managed by the Company, the Company has an obligation to fund any shortfall on the yield of the Trust''s investments over the administered interest rates. The liability is actuarially determined (using the projected unit credit method) at the end of the year. The funds contributed to the Trust are invested in specific securities as mandated by law and generally consist of federal and state government bonds, debt instruments of government-owned corporations and, equity other eligible market securities.
(ii) In respect of superannuation, a defined contribution plan for applicable employees, the Company contributes to a scheme administered on its behalf by appointed fund managers and such contributions for each year of service rendered by the employees are charged to the statement of profit and loss. The Company has no further obligations to the superannuation plan beyond its contributions.
(iii) Gratuity liability: The Company provide for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s base salary and the tenure of employment (subject to a maximum of '' 20 lacs per employee). The liability is actuarially determined (using the projected unit credit method) at the end of each year. Actuarial gains/losses are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the year in which they occur.
In respect to certain employees in India, the Company contributes towards gratuity liabilities to the Gratuity Fund Trust. Trustees of the Company administer contributions made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law.
(iv) Compensated absences: The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The employees can carry forward up to the specified portion of the unutilized accumulated compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The expected cost of accumulating compensated absences is determined by actuarial valuation (using the projected unit credit method) based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expense on non-accumulating compensated absences is recognized in the statement of profit and loss in the year in which the absences occur. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred.
(v) State Plan: The contribution to State Plans in India, a defined contribution plan namely Employee State Insurance Fund is charged to the statement of profit and loss as and when employees render related services.
(vi) Contributions to other defined contribution plans in branches outside India are recognized as expense when employees have rendered services entitling them to such benefits.
(q) Financial instruments
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
All financial assets are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets (other than financial assets at fair value through profit or loss) are added to the fair value measured on initial recognition of financial asset. Purchase and sale of financial assets are accounted for at trade date.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash in banks and short-term deposits and investments with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are considered net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company''s cash management system. In the statement of financial positions, bank overdrafts are presented under borrowings within current liabilities.
Financial assets at amortized cost
A financial asset is measured at the amortized cost if both the following conditions are met:
(a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
(b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category includes cash and bank balances, loans, unbilled receivables, trade and other receivables.
Financial assets at Fair Value through Other Comprehensive Income (OCI)
A financial asset is classified and measured at fair value through OCI if both of the following criteria are met:
(a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
(b) The asset''s contractual cash flows represent solely payments of principal and interest.
Financial asset included within the OCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in OCI. Interest income is recognized in statement of profit and loss for debt instruments. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from OCI to statement of profit and loss.
Financial assets at Fair Value through Profit and Loss
Any financial asset, which does not meet the criteria for categorization at amortized cost or at fair value through other comprehensive income, is classified at fair value through profit and loss. Financial assets included at the fair value through profit and loss category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
Equity investments in subsidiaries are measured at cost less impairment if any.
Derecognition of financial assets
A financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset.
Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit and loss. Lifetime ECL allowance is recognized for trade receivables with no significant financing component. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case they are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognized in statement of profit and loss.
ii. Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The subsequent measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. Changes in fair value of such liability are recognized in the statement of profit or loss.
Financial liabilities at amortized cost
The Company''s financial liabilities at amortized cost are initially recognized at net of transaction costs and includes trade payables, borrowings including bank overdrafts and other payables.
After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest rate (EIR) method except for deferred consideration recognized in a business combination which is subsequently measured at fair value through profit and loss. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
iii. Derivative financial instruments and hedge accounting
Foreign exchange forward contracts and options are purchased to mitigate the risk of changes in foreign exchange rates associated with forecast transactions denominated in certain foreign currencies.
The Company recognizes all derivatives as assets or liabilities measured at their fair value. Changes in fair value for derivatives not designated in a hedge accounting relationship are marked to market at each reporting date and the related gains (losses) are recognized in the statement of profit and loss as âforeign exchange gains (losses)''.
The foreign exchange forward contracts and options in respect of forecast transactions which meet the hedging criteria are designated as cash flow hedges. Changes in the fair value of derivative (net of tax) that are designated as effective cash flow hedges are deferred and recorded in the hedging reserve account as a component of accumulated âother comprehensive income (loss)'' until the hedged transaction occurs and are then recognized in the statement of profit and loss. The ineffective portion of hedging derivatives is immediately recognized in the statement of profit and loss.
In respect of derivatives designated as hedges, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. The Company determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency, amount and timing of their respective cash flows.
Hedge accounting is discontinued prospectively from the last testing date when (1) it is determined that the derivative financial instrument is no longer effective in offsetting changes in the fair value or cash flows of the underlying exposure being hedged; (2) the derivative financial instrument matures or is sold, terminated or exercised; or (3) it is determined that designating the derivative financial instrument as a hedge is no longer appropriate. When hedge accounting is discontinued the deferred gains or losses on the cash flow hedge remain in âother comprehensive income (loss)'' until the forecast transaction occurs. Any further change in the fair value of the derivative financial instrument is recognized in current year earnings.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis to realize the assets and settle the liabilities simultaneously.
(r) Dividend
Final dividend proposed by the Board of Directors are recognized upon approval by the shareholders who have the right to decrease but not increase the amount of dividend recommended by the Board of Directors. Interim dividends are recognized on declaration by the Board of Directors.
(s) Earnings per share (EPS)
Basic EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The diluted potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value
of the outstanding shares). Dilutive potential equity shares are deemed converted as at the beginning of the year, unless issued at a later date. Dilutive potential equity shares are determined independently for each year presented.
The number of shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for bonus shares.
(t) Nature and purpose of reserves Securities premium reserve
Securities premium reserve is used to record the premium on issue of shares. The reserve can be utilized only for limited purposes such as issuance of bonus shares and buyback of shares in accordance with the provisions of the Companies Act, 2013.
Capital redemption reserve
The Company recognizes cancellation of the Company''s own equity instruments to capital redemption reserve.
Share based payment reserve
The share options based payment reserve is used to recognize the grant date fair value of options issued to employees under Employee stock option plan.
Special economic zone re-investment reserve
The Company has created Special economic zone re-investment reserve out of profits of the eligible SEZ Units in terms of the specific provisions of Section 10AA(1) of the Income Tax Act, 1961 (âthe Actâ). The said reserve should be utilized by the Company for acquiring plant and machinery in terms of Section 10AA(2) of the Act.
Foreign currency translation reserve
Exchange differences arising on translation of the foreign operations are recognized in other comprehensive income as described in accounting policy and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed-off.
Cash flow hedging reserve
For hedging foreign currency risk, the Company uses foreign currency forward and option contracts. To the extent these hedges are effective, the change in fair value of the hedging instrument is recognized in the cash flow hedging reserve. Amounts recognized in the cash flow hedging reserve is reclassified to the statement of profit or loss when the hedged item affects profit or loss.
Debt instruments through other comprehensive income
The Company recognizes changes in the fair value of debt instruments held with business objective of collect and sell in other comprehensive income. The Company transfers amounts from this reserve to the statement of profit and loss when the debt instrument is sold.
Common control transaction capital reserve
The Company has created Common Control Transaction Capital Reserve in accordance with the guidance under Appendix C of IND AS 103 âBusiness Combinationsâ. This reserve is not freely available for distribution.
(u) Recently issued accounting pronouncements
On 24 March 2021, the Ministry of Corporate Affairs (MCA), notified amendments in Schedule III to the Companies Act, 2013 effective from 1 April 2021. Following are key amended provisions which may have an impact on the presentation of standalone financial statements of the Company:
Balance sheet:
⢠Current maturities of long-term borrowings shall be disclosed separately under âBorrowings'' against current presentation of âOther financial liabilities''.
⢠Certain additional disclosures in the statement of changes in equity such as changes in equity share capital due to prior period errors and restated balances at the beginning of the current reporting period.
⢠Specified format for disclosure of shareholding of promoters.
⢠Specified format for ageing schedule of trade receivables, trade payables and capital work-in-progress.
⢠If a company has not used funds for the specific purpose for which it was borrowed from banks and financial institutions, then disclosure of details of where it has been used.
⢠Specific disclosure under âadditional regulatory requirement'' such as compliance with approved schemes of arrangements, compliance with number of layers of companies, title deeds of immovable property not held in name of company, loans and advances to promoters, directors, key managerial personnel (KMP) and related parties, details of benami property held etc.
Statement of profit and loss:
⢠Additional disclosures relating to undisclosed income, Corporate Social Responsibility (CSR) and crypto or virtual curre
Mar 31, 2019
ORGANIZATION AND NATURE OF OPERATIONS
HCL Technologies Limited (hereinafter referred to as âthe Companyâ) is primarily engaged in providing a range of software development services, business process outsourcing services and IT infrastructure services. The Company was incorporated under the provisions of the Companies Act applicable in India in November 1991, having its registered office at 806, Siddharth, 96, Nehru Place, New Delhi- 110019. The Company leverages its extensive infrastructure and professionals to deliver solutions across select verticals including financial services, manufacturing (automotive, aerospace, Hi-tech, semi-conductors), life sciences & healthcare, public services (oil and gas, energy and utility, travel, transport and logistics), retail and consumer products, telecom, media, publishing and entertainment.
The financial statements for the year ended 31 March 2019 were approved and authorized for issue by the Board of Directors on 9 May 2019.
1. Notes to financial statements 2.1 Property, plant and equipment
The changes in the carrying value for the year ended 31 March 2019
Goodwill is tested for impairment at least annually. Impairment is recognised, when the carrying amount of cash generating units (CGU) including goodwill, exceeds the estimated recoverable amount of CGU. Future cash flows are forecast for 5 years & then on perpetuity on the basis of certain assumptions which includes revenue growth, earnings before interest and taxes, taxes, capital outflow and working capital requirements. The assumptions are taken on the basis of past trends and management estimates and judgement. Future cash flows are discounted with âWeighted Average Cost of Capitalâ. The key assumptions are as follows:
As at 31 March 2019 and 31 March 2018 the estimated recoverable amount of CGU exceeded its carrying amount and accordingly, no impairment was recognized.
An analysis of the sensitivity of the computation to a change in key assumptions based on reasonable probability did not identify any probable scenario in which the recoverable amount of the CGU would decrease below its carrying amount.
Terms / rights attached to equity shares
The Company has only one class of shares referred to as equity shares having a par value of Rs. 2/-. Each holder of equity shares is entitled to one vote per share.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the 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.
During the year ended 31 March 2019, the Company has carried out the share buyback of 36,363,636 fully paid-up equity shares of face value of Rs. 2 each at a price of Rs. 1,100 per share paid in cash for an aggregate consideration of Rs. 4,000 crores. Same has been recorded as reduction in equity share capital by Rs. 7 crores, securities premium by Rs. 10 crores, general reserve by Rs. 2,387 crores and retained earnings by Rs. 1,596 crores.
As required by the Companies Act, 2013, capital redemption reserve of Rs. 7 crores has been created out of general reserve to the extent of share capital extinguished. The expenses of Rs. 12 crores relating to buyback has been adjusted against retained earnings.
During the previous year ended 31 March 2018, the Company carried out the share buyback of 35,000,000 fully paid-up equity shares of face value of Rs. 2 each at a price of Rs. 1,000 per share paid in cash for an aggregate consideration of Rs. 3,500 crores. Same was recorded as reduction in equity share capital by Rs. 7 crores, securities premium by Rs. 3,248 crores and general reserve by Rs. 245 crores.
As required by the Companies Act, 2013, capital redemption reserve of Rs. 7 crores was created out of general reserve to the extent of share capital extinguished. The expenses of Rs. 14 crores relating to buyback has been adjusted against retained earnings.
Capital management
The primary objective of the Companyâs capital management is to support business continuity and growth of the company while maximizing the shareholder value. The company has been declaring quarterly dividend for last 16 years. The Company determines the capital requirement based on long-term and other strategic investment plans. The funding requirements are generally met through operating cash flows generated.
Employee Stock Option Plan (ESOP)
The Company has provided share-based payment schemes to its employees. During the year ended 31 March 2019 and 31 March 2018, the following scheme was in operation:
Each option granted under the above plans entitles the holder to eight equity shares of the Company at an exercise price, which is approved by the Nomination and Remuneration Committee.
Note:-
1. The Company has availed of term loans of Rs. 50 crores (31 March 2018, Rs. 48 crores) secured by hypothecation of gross block of vehicles of Rs. 113 crores (31 March 2018, Rs. 109 crores) at interest rates ranging from 8.50% p.a. to 10.40% p.a. The loans are repayable over a period of 3 to 5 years on a monthly basis.
Remaining performance obligations
As at 31 March 2019, the aggregate amount of transaction price allocated to remaining performance obligations as per the requirements of Ind AS 115 was Rs. 17,413 crores out of which, approximately 43% is expected to be recognized as revenues within one year and the balance beyond one year. This is after exclusions of below:
a) Contracts for which we recognize revenues based on the right to invoice for services performed,
b) Variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation,or
c) Variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
Contract balances
Contract assets : A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are recognized where there is excess of revenue over the billings. Revenue recognized but not billed to customers is classified either as contract assets or unbilled receivable in our balance sheet. Contract assets primarily relate to unbilled amounts on fixed price contracts using the cost to cost method of revenue recognition. Unbilled receivable represents contracts where right to consideration is unconditional (i.e. only the passage of time is required before the payment is due).
During the year, out of Rs. 36 crores contract assets as on 1 April 2018, invoicing for 100 % has been done.
Contract liablities : A contract liability arises when there is excess billing over the revenue recognized.
The below table discloses the significant movement in contract liabilities :
The company has benefited from certain tax incentives that the Government of India has provided for the units situated in Special Economic Zones (SEZs) under the Special Economic Zone Act, 2005, which began providing services on or after April 1, 2005. The eligible units are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits and gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. The aforesaid tax benefits will not be available to Units commencing operations on or after April 1, 2020.
The Company is subject to Minimum Alternate Tax (MAT) on its book profits, which gives rise to future economic benefits in the form of adjustment of future income tax liability. MAT paid for a year can be set-off against the normal tax liability within fifteen subsequent years, expiring between the years 2023 to 2034.
2.1 Leases
i) Operating lease
The Companyâs significant leasing arrangements are in respect of operating leases for office spaces and accommodation for its employees. The aggregate lease rental expense recognized in the statement of profit and loss for the year amounts to Rs. 246 crores (previous year, Rs. 217 crores).
The lease equalization amount for non-cancellable operating lease payable in future years and accounted for by the Company is Rs. 90 crores (31 March 2018, Rs. 85 crores). Future minimum lease payments and the payment profile of non-cancellable operating leases are as follows:
ii) Finance lease: In case of assets given on lease
The Company has given IT equipments to its customers on a finance lease basis. The future lease receivables in respect of assets given on finance lease are as follows:
1.2 Financial instruments (a) Derivatives
The Company is exposed to foreign currency fluctuations on foreign currency assets / liabilities and forecast cash flows denominated in foreign currency. The use of derivatives to hedge foreign currency forecast cash flows is governed by the Companyâs strategy, which provides principles on the use of such forward contracts and currency options consistent with the Companyâs Risk Management Policy. The counterparty in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as insignificant. The Company has entered into a series of foreign exchange forward contracts and options that are designated as cash flow hedges and the related forecasted transactions extend through June 2023. The Company does not use forward covers and currency options for speculative purposes.
The following table presents the aggregate notional principal amounts of the outstanding derivative forward covers together with the related balance sheet exposure:
The notional amount is a key element of derivative financial instrument agreements. However, notional amounts do not represent the amount exchanged by counterparties and do not measure the Companyâs exposure to credit risk as these contracts are settled at their fair values at the maturity date.
The balance sheet exposure denotes the fair values of these contracts at the reporting date and is presented in Rs. crores. The Company presents its foreign exchange derivative instruments on a net basis in the financial statements due to the right of offset by its individual counterparties under master netting agreements.
The fair value of the derivative instruments presented on a gross basis as at each date indicated below is as follows:
Transfer of financial assets
The Company and its subsidiaries have revolving accounts receivables based facilities of Rs. 767 crores permitting it to sell certain accounts receivables to banks on a non-recourse basis in the normal course of business. The aggregate maximum capacity utilized by the Company at any time during the year was Rs. 140 crores (previous year, nil). Outstanding utilization by the company against this facility as of 31 March 2019 is Rs. 140 crores (previous year, nil).
Fair value hierarchy
The assets and liabilities measured at fair value on a recurring basis as at 31 March 2019 and the basis for that measurement is as below:
Valuation methodologies
Investments: The Companyâs investments consist of investment in debt securities in the form of bonds,debentures and mutual funds which are determined using quote prices or identical quoted prices of assets or liabilities in active markets and are classified as Level 1.
Derivative financial instruments: The Companyâs derivative financial instruments consist of foreign currency forward exchange contracts. Fair values for derivative financial instruments are based on broker quotations and are classified as Level 2.
The Company assessed that fair value of cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
(c) Financial risk management
The Company is exposed to market risk, credit risk and liquidity risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage & mitigate these risks.
The Companyâs risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Companyâs business plan along with reasonable participation in market movement.
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 of currency risk and interest rate risk. The Company is primarily exposed to fluctuation in foreign currency exchange rates.
(i) 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 exchange rates. The Companyâs exposure to the risk of changes in exchange rates relates primarily to the Companyâs operations and the Companyâs net investments in foreign branches.
The exchange rate risk primarily arises from assets and liabilities denominated in currencies other than the functional currency of the respective branches and foreign currency forecasted revenue and cash flows. A significant portion of the Company revenue is in US Dollar, Pound Sterling (GBP) and Euro while a large portion of costs are in Indian rupees. The fluctuation in exchange rates in respect to the Indian rupee may have potential impact on the statement of profit and loss and other comprehensive income and equity.
To mitigate the foreign currency risk the Company uses derivatives as governed by the Companyâs strategy, which provides principles on the use of such forward contracts and currency options consistent with the Companyâs Risk Management Policy.
Appreciation/depreciation of 1% in respective foreign currencies with respect to functional currency of the Company and its branches would result in decrease/increase in the Companyâs profit before tax by approximately Rs. 12 crores for the year ended 31 March 2019.
The rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rates shift of all the currencies by 1% against the respective functional currencies of the Company and its branches. The sensitivity analysis presented above may not be representative of the actual change.
Non-derivative foreign currency exposure as of 31 March 2019 and 31 March 2018 in major currencies is as below:
(ii) 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 Companyâs investments are primarily in fixed rate interest bearing investments. Hence the Company is not significantly exposed to interest rate risk.
Credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and bank balances, inter-corporate deposits, trade receivables, unbilled revenue, finance lease receivables, investment securities and derivative instruments. The cash resources of the Company are invested with mutual funds, banks, financial institutions and corporations after an evaluation of the credit risk. By their nature, all such financial instruments involve risks, including the credit risk of non-performance by counterparties.
The customers of the Company are primarily corporations based in the United States of America and Europe and accordingly, trade receivables and finance lease receivables are concentrated in the respective countries. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of accounts receivables.
The allowance for lifetime expected credit loss on customer balances is as below:
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities. The investment philosophy of the Company is capital preservation and liquidity in preference to returns. The Company consistently generates sufficient cash flows from operations and has access to multiple sources of funding to meet the financial obligations and maintain adequate liquidity for use.
2.3 Employee benefits
The Company has calculated the various benefits provided to employees as given below:
A. Defined contribution plans and state plans
Superannuation Fund
Employerâs contribution to Employees State Insurance Employerâs contribution to Employee Pension Scheme
During the year the Company has recognized the following amounts in the statement of profit and loss :-
The Company has contributed Rs. 19 crores (previous year, Rs. 18 crores) towards other foreign defined contribution plans.
B. Defined benefit plans
a) Gratuity
b) Employerâs contribution to provident fund Gratuity
The following table sets out the status of the gratuity plan :
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.
The principal assumptions used in determining gratuity for the Companyâs plans are shown below:
Discount rate and future salary escalation rate are the key actuarial assumptions to which the defined benefit obligations are particularly sensitive. The following table summarizes the impact on defined benefit obligations as at 31 March 2019 arising due to an increase/decrease in key actuarial assumptions by 50 basis points:
The sensitivity analysis presented may not be representative of the actual change in the defined benefit obligations as sensitivities have been calculated to show the movement in defined benefit obligations in isolation and assuming there are no other changes in market conditions. There have been no changes from the previous years in the methods and assumptions used in preparing the sensitivity analysis.
The defined benefit obligations are expected to mature after 31 March 2019 as follows:
Employerâs contribution to provident fund
The actuary has provided a valuation and based on the assumptions mentioned below, there is no shortfall as at 31 March 2019 and 31 March 2018.
During the year ended 31 March 2019, the Company has contributed Rs. 141 crores (previous year, Rs. 121 crores) towards employerâs contribution to provident fund.
Employee benefit trusts
Hindustan Instruments Limited Employees Provident Fund Trust
HCL Consulting Limited Employees Superannuation Scheme
HCL Comnet System and Services Limited Employees Provident Fund Trust.
Geometric Gratuity Trust
HCL South Africa Share Ownership Trust
HCL Technologies Stock Options Trust
C3i Support Services Employees Gratuity Trust
Key Management Personnel
Mr. Shiv Nadar - Chairman and Chief Strategy Officer
Mr. C. Vijayakumar - President and Chief Executive Officer
Mr. Prateek Aggarwal - Chief Financial Officer (w.e.f. 1 October 2018)
Mr. Manish Anand - Company Secretary
Mr. Anil Chanana - Chief Financial Officer (upto 1 October 2018)
Non-Executive & Independent Directors
Mr. Ramanathan Srinivasan
Mr. Keki Mistry (ceased to be Director w.e.f. 30 April 2018)
Ms. Robin Ann Abrams Dr. Sosale Shankara Sastry Mr. Subramanian Madhavan Mr. Thomas Sieber Ms. Nishi Vasudeva Mr. Deepak Kapoor
Mr. James Philip Adamczyk (appointed w.e.f. 26 July 2018)
Non-Executive & Non-Independent Directors
Ms. Roshni Nadar Malhotra
Mr. Sudhindar Krishan Khanna (ceased to be Director w.e.f. 8 April 2019)
The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business, the outcome of which is inherently uncertain. Some of these matters include speculative and frivolous claims for substantial or indeterminate amounts of damages. The Company records a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions at least quarterly and adjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The Company believes that the amount or estimable range of reasonably possible loss, will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, results of the Company, or cash flows with respect to loss contingencies for legal and other contingencies as at 31 March 2019.
Guarantees have been given by the Company on behalf of various subsidiaries against credit facilities, financial assistance and office premises taken on lease amounting to Rs. 352 crores (31 March 2018, Rs. 471 crores). These guarantees have been given in the normal course of the Companyâs operations and are not expected to result in any loss to the Company, on the basis of the benefciaries fulflling their ordinary commercial obligations.
The Company is required to comply with the transfer pricing regulations, which are contemporaneous in nature. The Company appoints independent consultant annually for conducting transfer pricing studies to determine whether transactions with associate enterprises undertaken during the financial year, are on an armâs length basis. Adjustments, if any, arising from the transfer pricing studies will be accounted for when the study is completed for the current financial year. The management is of the opinion that its transactions with associates are at armâs length so that the outcome of the studies to corroborate compliance with legislation will not have any material adverse impact on the financial statements.
2.4 Micro and small enterprises
As per information available with the management, the dues payable to enterprises covered under âThe Micro, Small and Medium Enterprises Development Act, 2006â are as follows:
2.5 Corporate social responsibility
As required by the Companies Act, 2013, the gross amount required to be spent by the Company on CSR activities is Rs. 144 crores (31 March 2018, Rs. 134 crores) and the amount spent during the year is Rs. 125 crores (31 March 2018, Rs. 91 crores).
2.6 Segment Reporting
As per Ind AS 108 âOperating Segmentsâ, the Company has disclosed the segment information only as part of the consolidated financial results.
Mar 31, 2018
Note:
1. Â Â Â During previous year, a subsidiary of the Company has entered into an agreement to acquire 100% membership interest of Butler America Aerospace, LLC (Butler Aerospace).
Butler Aerospace has one design center in India, the Company has acquired the India business of Butler Aerospace at a purchase price of Rs,4 crores.
The purchase consideration of Rs,4 crores has been allocated to goodwill Rs,3 crores and residual Rs,1 crores allocated to tangible assets and other current assets. The resultant goodwill has been allocated to the Software Services segment.
2. Â Â Â Capital work in progress includes Rs,27 crores interest on extended interest bearing suppliers credit and during the year Rs,23 crores have been capitalized by the Company.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash generating units (CGU), which benefit from the synergies of the acquisition.
Goodwill is tested for impairment at least annually. Impairment is recognized, if present value of the future cash flows is less than the carrying value of goodwill. Future cash flows are forecast for 5 years &Â then on perpetuity on the basis of certain assumptions which includes revenue growth, earnings before interest and taxes, taxes, capital outflow and working capital requirements. The
As at 31 March 2018 and 31 March 2017 the estimated recoverable amount of the CGU exceeded its carrying amount and accordingly, no impairment was recognized.
Notes:-
(i) Â Â Â During the year the Company has acquired the remaining 8,000 equity shares of Rs,10/- each of HCL Eagle Limited for a purchase consideration of Rs,80,000/- thereby making it a wholly owned subsidiary.
(ii) Â Â Â During the year as part of internal restructuring the Company has sold the entire share capital of HCL Training &Â Staffing Services Private Limited for a total consideration of Rs,2 crores to HCL Comnet Limited, a wholly owned subsidiary of the Company.
(iii) Â Â Â On 1 April 2016, these companies were acquired by way of merger through court approved scheme (refer note 2).
During the year ended 31 March 2018, the Company has carried out the share buyback of 35,000,000 fully paid-up equity shares of face value of Rs,2/- each at a price of Rs,1,000/- per share paid in cash for an aggregate consideration of Rs,3500 crores. Same has been recorded as reduction in equity share capital by Rs,7 crores, securities premium by Rs,3,248 crores and general reserve by Rs,245 crores.
As required by the Companies Act, 2013, capital redemption reserve of Rs,7 crores has been created out of general reserve to the extent of share capital extinguished.
The expenses of Rs,14 crores relating to buyback has been adjusted against retained earnings.
Capital management
The primary objective of the Company's capital management is to support business continuity and growth of the company while maximizing the shareholder value. The company has been declaring quarterly dividend for last 15 years. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are generally met through operating cash flows generated.
Employee Stock Option Plan (ESOP)
The Company has provided share-based payment schemes to its employees. During the year ended 31 March 2018 and 2017, the following scheme was in operation:
Each option granted under the above plans entitles the holder to eight equity shares of the Company at an exercise price, which is approved by the Nomination and Remuneration Committee.
The company has benefited from certain tax incentives that the Government of India has provided for the units situated in Special Economic Zones (SEZs) under the Special Economic Zone Act, 2005, which began providing services on or after April 1, 2005. The eligible units are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits and gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. The aforesaid tax benefits will not be available to Units commencing operations on or after April 1, 2020.
The Company is subject to Minimum Alternate Tax (MAT) on its book profits, which gives rise to future economic benefits in the form of adjustment of future income tax liability. MAT paid for a year can be set-off against the normal tax liability within fifteen subsequent years, expiring between the years 2023 to 2033.
3.29 Financial instruments (a) Derivatives
The Company is exposed to foreign currency fluctuations on foreign currency assets / liabilities and forecast cash flows denominated in foreign currency. The use of derivatives to hedge foreign currency forecast cash flows is governed by the Company's strategy, which provides principles on the use of such forward contracts and currency options consistent with the Company's Risk Management Policy. The counterparty in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as insignificant. The Company has entered into a series of foreign exchange forward contracts that are designated as cash flow hedges and the related forecasted transactions extend through December 2022. The Company does not use forward covers and currency options for speculative purposes.
The following table presents the aggregate notional principal amounts of the outstanding derivative forward covers together with the related balance sheet exposure:
The notional amount is a key element of derivative financial instrument agreements. However, notional amounts do not represent the amount exchanged by counterparties and do not measure the Company's exposure to credit risk as these contracts are settled at their fair values at the maturity date.
The balance sheet exposure denotes the fair values of these contracts at the reporting date and is presented in Rs,crores. The Company presents its foreign exchange derivative instruments on a net basis in the financial statements due to the right of offset by its individual counterparties under master netting agreements.
Valuation methodologies
Investments: The Company's investments consist primarily of investment in debt linked mutual funds which are classified as fair value through profit and loss are determined using quoted prices for identical assets or liabilities in active markets and are classified as Level 1.
Quoted market prices in active markets are available for investments in securities and, as such, these investments are classified within Level 1.
Derivative financial instruments: The Company's derivative financial instruments consist of foreign currency forward exchange contracts. Fair values for derivative financial instruments are based on broker quotations and are classified as Level 2.
The Company assessed that fair value of cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
(c) Financial risk management
The Company is exposed to market risk, credit risk and liquidity risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage &Â mitigate these risks.
The Company's risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Company's business plan along with reasonable participation in market movement.
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 of currency risk and interest rate risk. The Company is primarily exposed to fluctuation in foreign currency exchange rates.
(i) 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 exchange rates. The Company's exposure to the risk of changes in exchange rates relates primarily to the Company's operations and the Company's net investments in foreign branches.
The exchange rate risk primarily arises from assets and liabilities denominated in currencies other than the functional currency of the respective branches and foreign currency forecasted revenue and cash flows. A significant portion of the Company revenue is in US Dollar, Pound Sterling (GBP) and Euro while a large portion of costs are in Indian rupees. The fluctuation in exchange rates in respect to the Indian rupee may have potential impact on the statement of profit and loss and other comprehensive income and equity.
To mitigate the foreign currency risk the Company uses derivatives as governed by the Company's strategy, which provides principles on the use of such forward contracts and currency options consistent with the Company's Risk Management Policy.
Appreciation / depreciation of 1% in respective foreign currencies with respect to functional currency of the Company and its branches would result in decrease / increase in the Company's profit before tax by immaterial amount for the year ended 31 March 2018.
The rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rates shift of all the currencies by 1% against the respective functional currencies of the Company and its branches. The sensitivity analysis presented above may not be representative of the actual change.
(ii) 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 investments are primarily in fixed rate interest bearing investments. Hence the Company is not significantly exposed to interest rate risk.
Credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and bank balances, inter-corporate deposits, trade receivables, unbilled revenue, finance lease receivables, investment securities and derivative instruments. The cash resources of the Company are invested with mutual funds, banks, financial institutions and corporations after an evaluation of the credit risk. By their nature, all such financial instruments involve risks, including the credit risk of non-performance by counterparties.
The customers of the Company are primarily corporations based in the United States of America and Europe and accordingly, trade receivables and finance lease receivables are concentrated in the respective countries. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of accounts receivables.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities. The investment philosophy of the Company is capital preservation and liquidity in preference to returns. The Company consistently generates sufficient cash flows from operations and has access to multiple sources of funding to meet the financial obligations and maintain adequate liquidity for use.
3.30 Employee benefits
The Company has calculated the various benefits provided to employees as given below:
A. Defined contribution plans and state plans
Superannuation Fund
Employer's contribution to Employees State Insurance Employer's contribution to Employee Pension Scheme
B. Defined benefit plans
a) Â Â Â Gratuity
b) Â Â Â Employer's contribution to provident fund
The estimates of future salary increases, considered in the actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
Discount rate and future salary escalation rate are the key actuarial assumptions to which the defined benefit obligations are particularly sensitive. The following table summarizes the impact on defined benefit obligations as at 31 March 2018 arising due to an increase / decrease in key actuarial assumptions by 50 basis points:
The sensitivity analysis presented may not be representative of the actual change in the defined benefit obligations as sensitivities have been calculated to show the movement in defined benefit obligations in isolation and assuming there are no other changes in market conditions. There have been no changes from the previous years in the methods and assumptions used in preparing the sensitivity analysis.
The weighted average duration of the payment of these cash flows is 6.02 years.
Employer's contribution to provident fund
The actuary has provided a valuation and based on the assumptions mentioned below, there is no shortfall as at 31 March 2018 and 31 March 2017.
$ The objective of the parent is not to obtain economic benefit from the Company, it has not been considered for the purpose of preparation of consolidated financial statements.
! Dissolved during the year
* Â Â Â Merged during the year with âHCL America Inc.â
** The Group has equity interest of 49% and 100% dividend rights and control A Incorporated during the year
# Â Â Â Acquired during the year
@ During the year, this entity becomes step down subsidiary of the company. Earlier, it was direct subsidiary of the company. ## Change in shareholding from 92% to 100% is due to discontinuation of JV agreement.
Employee benefit trusts
Hindustan Instruments Limited Employees Provident Fund Trust
HCL Consulting Limited Employees Superannuation Scheme
HCL Comnet System and Services Limited Employees Provident Fund Trust.
Geometric Gratuity Trust
HCL South Africa Share Ownership Trust
HCL Technologies Stock Options Trust
b) Related parties with whom transactions have taken place during the current year Key Management Personnel
Mr. Shiv Nadar - Chairman and Chief Strategy Officer
Mr. C. Vijayakumar - President and Chief Executive Officer
Mr. Anil Chanana - Chief Financial Officer
Mr. Manish Anand - Company Secretary
Mr. Anant Gupta - Ex - President and Chief Executive Officer
Non-Executive &Â Independent Directors
Mr. Ramanathan Srinivasan Mr. Keki Mistry Ms. Robin Ann Abrams Dr. Sosale Shankara Sastry Mr. Subramanian Madhavan Mr. Thomas Sieber Ms. Nishi Vasudeva Mr. Deepak Kapoor
Non-Executive &Â Non-Independent Directors
Ms. Roshni Nadar Malhotra Mr. Sudhindar Krishan Khanna
Associates
CeleritiFintech Services Limited (and its subsidiaries) - ceased to be associate w.e.f. 30 September 2017
Others (Significant influence)
HCL Infosystems Limited
HCL Avitas Private Limited
Vama Sundari Investments (Delhi) Private Limited
HCL Corporation Private Limited
SSN Investments (Pondi) Private Limited
Naksha Enterprises Private Limited
HCL Services Limited
HCL TalentCare Pvt. Ltd.
HCL Insys. Pte. Limited, Singapore Easyaccess Financial Services Limited HCL IT City Lucknow Private Limited HCL Infotech Limited Shiv Nadar University HCL Holding Private Limited
The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business, the outcome of which is inherently uncertain. Some of these matters include speculative and frivolous claims for substantial or indeterminate amounts of damages. The Company records a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions at least quarterly and adjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The Company believes that the amount or estimable range of reasonably possible loss, will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, results of the Company, or cash flows with respect to loss contingencies for legal and other contingencies as at 31 March 2018.
Guarantees have been given by the Company on behalf of various subsidiaries against credit facilities, financial assistance and office premises taken on lease amounting to Rs,471 crores (31 March 2017, Rs,625 crores). These guarantees have been given in the normal course of the Company's operations and are not expected to result in any loss to the Company, on the basis of the beneficiaries fulfilling their ordinary commercial obligations.
The Company is required to comply with the transfer pricing regulations, which are contemporaneous in nature. The Company appoints independent consultant annually for conducting transfer pricing studies to determine whether transactions with associate enterprises undertaken during the financial year, are on an arm's length basis. Adjustments, if any, arising from the transfer pricing studies will be accounted for when the study is completed for the current financial year. The management is of the opinion that its transactions with associates are at arm's length so that the outcome of the studies to corroborate compliance with legislation will not have any material adverse impact on the financial statements.
This has been determined on the basis of responses received from vendors on specific confirmation sought by the Company.
3.36 Â Â Â Corporate social responsibility
As required by the Companies Act, 2013, the gross amount required to be spent by the Company on CSR activities is Rs,134 crores (31 March 2017, Rs,129 crores) and the amount spent during the year is Rs,91 crores (31 March 2017, Rs,40 crores).
3.37 Â Â Â Segment Reporting
As per Ind AS 108 'Operating Segments', the Company has disclosed the segment information only as part of the consolidated financial results.
3.38 Â Â Â Previous year comparatives
The Company has changed its presentation from â' in crores upto two decimalsâ to â' in croresâ and accordingly, amounts less than Rs,0.50 crore are rounded off to Nil.
Â
Â
Mar 31, 2017
HCL Technologies Limited (hereinafter referred to as âthe Companyâ) is primarily engaged in providing a range of software services, business process outsourcing services and IT infrastructure services. The Company was incorporated under the provisions of the Companies Act applicable in India in November 1991, having its registered office at 806, Siddharth, 96, Nehru Place, New Delhi-110019. The Company leverages its extensive offshore infrastructure and global network of offices and professionals located in various countries to deliver solutions across select verticals including financial services, manufacturing (automotive, aerospace, hi-tech and semi-conductors) telecom, retail and consumer packaged goods services, media, publishing and entertainment, public services, energy and utility, healthcare and travel, transport and logistics.
The financial statements for the year ended 31 March, 2017 were approved and authorized for issue by the Board of Directors on 11 May, 2017.
1. Acquisition of Business of Geometric Limited
On 1st April 2016, the Company entered into a composite scheme of arrangement and amalgamation for acquisition of the IT enabled engineering services, PLM (âProduct Lifecycle Managementâ) services and engineering design productivity software tools business of Geometric Limited by way of demerger through a Court approved scheme of arrangement under Sections 391 to 394 and other relevant provisions of the Companies Act, 1956 (including those of the Companies Act, 2013). The acquisition will help the Company to create a unique portfolio of end-to-end engineering and R&D capabilities across the full product lifecycle - hardware, software, manufacturing engineering and PLM consulting.
The scheme has come into effect from 2 March, 2017 post all regulatory approvals required for completion of the scheme and is accounted from 1 April 2016.
The purchase consideration as per the scheme has been settled by issue of 10 equity shares of Rs.2 each (aggregating to 15,563,430 equity shares) for every 43 fully paid equity shares of Rs.2 each held by equity shareholders of Geometric Limited. The total purchase price of Rs.1,267.02 crores has been allocated to the acquired assets and liabilities as follows:
The purchase consideration has been allocated preliminarily based on managementâs estimates. The Company is in the process of making a final determination of the fair value of assets and liabilities. Finalization of the purchase price allocation may result in certain adjustments to the above allocation.
2. Notes to financial statements
2.1 property, plant and equipment
The changes in the carrying value for the year ended 31 March 2017
Notes:
1. On 3 January, 2017, a subsidiary of the Company has entered into an agreement to acquire 100% membership interest of Butler America Aerospace, LLC (Butler Aerospace).
Butler Aerospace has one design center in India, the Company has acquired the India business of Butler Aerospace at a purchase price of Rs.3.64 crores.
The purchase consideration of Rs.3.64 crores has been allocated to tangible assets of Rs.0.07 crores and other current assets of Rs.0.35 crores with the residual Rs.3.22 crores allocated to goodwill. The resultant goodwill has been allocated to the Software Services segment.
2. Capital work in progress includes Rs.26.58 crores interest on extended interest bearing suppliers credit and during the year Rs.22.62 crores have been capitalised by the Company.
Notes:
1. On 31 March 2016, a subsidiary of the Company has acquired the IT divisions of Volvo IT AB (âVolvo ITâ), a subsidiary of AB Volvo, the holding company of the Volvo Group providing IT services to the Volvo group as well as non-Volvo group customers. Total purchase price for the acquisition was Rs.893.59 crores
Volvo IT has its presence in several countries including India. As a result of above acquisition, the Company has acquired the Indian business of Volvo IT at a purchase price of Rs.26.22 crores.
The purchase consideration of Rs.26.22 crores has been allocated to tangible assets of Rs.7.93 crores and intangible assets of Rs.0.13 crores with the residual Rs.18.16 crores allocated to goodwill. The resultant goodwill has been allocated to the IT Infrastructure Services segment.
2. Capital work in progress includes Rs.38.78 crores interest on extended interest bearing suppliers credit and during the year Rs.12.00 crores have been capitalised by the Company.
2.2 Goodwill
The changes in the carrying value of goodwill balances by reportable segment, for the year ended 31 March 2017
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash generating units (CGU) , which benefit from the synergies of the acquisition.
Goodwill is tested for impairment at least annually. Impairment is recognised, if present value of the future cash flows is less than the carrying value of goodwill. Future cash flows are forecast for 5 years & then on perpetuity on the basis of certain assumptions which includes revenue growth, earnings before interest and taxes, taxes, capital outflow and working capital requirements. The assumptions are taken on the basis of past trends and management estimates and judgement. Future cash flows are discounted with âWeighted Average Cost of Capitalâ. The key assumptions are as follows:
As at 31 March, 2017 , 31 March 2016 and 1 July, 2015 the estimated recoverable amount of the CGU exceeded its carrying amount and accordingly, no impairment was recognized.
2.3 other intangible assets The changes in the carrying value for the year ended 31 March 2017
Notes:-
(i) During the year, 261,500,000 preference shares of HCL Bermuda Limited were converted into 35,821,918 equity shares at fair value.
(ii) During the previous year,the Company has acquired the entire equity share capital of HCL Training & Staffing Services Private Limited for a total purchase consideration of Rs.2.35 crores. The acquisition will enable the Company to supplement its capabilities in hiring of trained resources.
(iii) On 1 April 2016, these companies were acquired by way of merger through court approved scheme (refer note 2).
Terms / rights attached to equity shares
The Company has only one class of shares referred to as equity shares having a par value of Rs.2 / -. Each holder of equity shares is entitled to one vote per share.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the 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.
The Board of Directors of the Company, in its meeting held on 20 March, 2017 have approved the buy-back of up to 35,000,000 fully paid up equity shares of the Company at a price of Rs.1,000 per equity share for an aggregate amount not exceeding Rs.3,500 crores. The buy-back is subject to approval of the shareholders by way of special resolution through postal ballot and all other applicable statutory approvals.
Capital management
The primary objective of the Companyâs capital management is to support business continuity and growth of the company while maximizing the shareholder value. The company has been declaring quarterly dividend for last 14 years. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are generally met through operating cash flows generated.
Employee stock option plan (Esop)
The Company has provided share-based payment schemes to its employees. During the year ended 31 March 2017 and 2016, the following scheme was in operation:
Each option granted under the above plans entitles the holder to eight equity shares (four equity shares prior to 1:1 bonus issue) of the Company at an exercise price, which is approved by the Nomination and Remuneration Committee.
Notes:-
1. The Company has availed of term loans of Rs.44.87 crores (31 March 2016: Rs.41.63 crores, 1 July 2015: Rs.40.63 crores) secured by hypothecation of gross block of vehicles of Rs.99.91 crores (31 March 2016: Rs.94.90 crores, 1 July 2015: Rs.89.20 crores) at interest rates ranging from 9.15% p.a. to 10.50% p.a.. The loans are repayable over a period of 3 to 5 years on a monthly basis
2. Current borrowings were primarily on account of bank overdrafts required for management of working capital.
The company has benefited from certain tax incentives that the Government of India has provided for the units situated in Special Economic Zones (SEZs) under the Special Economic Zone Act, 2005, which began providing services on or after April 1, 2005. The eligible units are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits and gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. The aforesaid tax benefits will not be available to Units commencing operations on or after April 1, 2020.
The Company is subject to Minimum Alternate Tax (MAT) on its book profits, which gives rise to future economic benefits in the form of adjustment of future income tax liability. MAT paid for a year can be set-off against the normal tax liability within fifteen subsequent years, expiring between the years 2023 to 2032.
2.3 Leases
i) Operating lease
The Companyâs significant leasing arrangements are in respect of operating leases for office spaces and accommodation for its employees. The aggregate lease rental expense recognized in the statement of profit and loss for the year amounts to Rs.217.27 crores [Previous year (nine months) Rs.119.18 crores].
The lease equalization reserve amount for non-cancellable operating lease payable in future years and accounted for by the Company is Rs.83.54 crores (31 March 2016: Rs.85.49 crores, 1 July 2015: Rs.115.20 crores). Future minimum lease payments and the payment profile of non-cancellable operating leases are as follows:
ii) Finance lease: in case of assets given on lease
The Company has given IT equipments to its customers on a finance lease basis. The future lease receivables in respect of assets given on finance lease are as follows:
2.4 Financial instruments
(a) Derivatives
The Company is exposed to foreign currency fluctuations on foreign currency assets / liabilities and forecast cash flows denominated in foreign currency. The use of derivatives to hedge foreign currency forecast cash flows is governed by the Companyâs strategy, which provides principles on the use of such forward contracts and currency options consistent with the Companyâs Risk Management Policy. The counterparty in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as insignificant. The Company has entered into a series of foreign exchange forward contracts that are designated as cash flow hedges and the related forecasted transactions extend through January 2019. The Company does not use forward covers and currency options for speculative purposes.
The following table presents the aggregate notional principal amounts of the outstanding derivative forward covers together with the related balance sheet exposure:
The notional amount is a key element of derivative financial instrument agreements. However, notional amounts do not represent the amount exchanged by counterparties and do not measure the Companyâs exposure to credit risk as these contracts are settled at their fair values at the maturity date.
The balance sheet exposure denotes the fair values of these contracts at the reporting date and is presented in â crores. The Company presents its foreign exchange derivative instruments on a net basis in the financial statements due to the right of offset by its individual counterparties under master netting agreements.
The fair value of the derivative instruments presented on a gross basis as at each date indicated below is as follows:
The estimated net amount of existing gain that is expected to be reclassified into the statement of profit and loss within the next twelve months is Rs.435.05 crores (Previous year loss of Rs.18.16 crores).
(b) Financial assets and liabilities
The carrying value of financial instruments by categories as at 31 March, 2017 is as follows:
There have been no transfers between Level 1 and Level 2 during the year
The following table discloses the assets and liabilities measured at fair value on a recurring basis as at 31 March, 2016 and the basis for that measurement:
There have been no transfers between Level 1 and Level 2 during the year
The following table discloses the assets and liabilities measured at fair value on a recurring basis as at 1 July, 2015 and the basis for that measurement:
There have been no transfers between Level 1 and Level 2 during the year Valuation methodologies
Quoted market prices in active markets are available for investments in securities and, as such, these investments are classified within Level 1.
Investments: The Companyâs investments consist primarily of investment in debt linked mutual funds. Fair values of investment securities classified as fair value through profit and loss are determined using quoted prices for identical assets or liabilities in active markets and are classified as Level 1. Fair value of term deposits with banks and corporates is determined using observable marketsâ inputs and is classified as Level 2.
Derivative financial instruments: The Companyâs derivative financial instruments consist of foreign currency forward exchange contracts. Fair values for derivative financial instruments are based on broker quotations and are classified as Level 2.
The Company assessed that fair value of cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
(c) Financial risk management
The Company is exposed to market risk, credit risk and liquidity risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage & mitigate these risks.
The Companyâs risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Companyâs business plan along with reasonable participation in market movement.
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 of currency risk and interest rate risk. The Company is primarily exposed to fluctuation in foreign currency exchange rates.
(i) 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 exchange rates. The Companyâs exposure to the risk of changes in exchange rates relates primarily to the Companyâs operations and the Companyâs net investments in foreign branches.
The exchange rate risk primarily arises from assets and liabilities denominated in currencies other than the functional currency of the respective branches and foreign currency forecasted revenue and cash flows. A significant portion of the Company revenue is in US Dollar, Pound Sterling (GBP) and Euro while a large portion of costs are in Indian rupees. The fluctuation in exchange rates in respect to the Indian rupee may have potential impact on the statement of profit and loss and other comprehensive income and equity.
To mitigate the foreign currency risk the Company uses derivatives as governed by the Companyâs strategy, which provides principles on the use of such forward contracts and currency options consistent with the Companyâs Risk Management Policy.
Appreciation / depreciation of 1% in respective foreign currencies with respect to functional currency of the Company and its branches would result in decrease / increase in the Companyâs profit before tax by approximately Rs.17.15 crores for the year ended 31 March, 2017.
The rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rates shift of all the currencies by 1% against the respective functional currencies of the Company and its branches. The sensitivity analysis presented above may not be representative of the actual change.
Non-derivative foreign currency exposure as of 31 March, 2017 , 31 March 2016 and 1 July 2015 in major currencies is as below:
(ii) 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 Companyâs investments are primarily in fixed rate interest bearing investments. Hence the Company is not significantly exposed to interest rate risk.
Credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and bank balances, inter-corporate deposits, trade receivables, unbilled revenue, finance lease receivables, investment securities and derivative instruments. The cash resources of the Company are invested with mutual funds, banks, financial institutions and corporations after an evaluation of the credit risk. By their nature, all such financial instruments involve risks, including the credit risk of non-performance by counterparties.
The customers of the Company are primarily corporations based in the United States of America and Europe and accordingly, trade receivables and finance lease receivables are concentrated in the respective countries. The Company periodically assesses the financial reliability of customers, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of accounts receivables.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities. The investment philosophy of the Company is capital preservation and liquidity in preference to returns. The Company consistently generates sufficient cash flows from operations and has access to multiple sources of funding to meet the financial obligations and maintain adequate liquidity for use.
2.5 Employee benefits
The Company has calculated the various benefits provided to employees as given below:
A. Defined contribution plans and state plans
Superannuation Fund
Employerâs contribution to Employees State Insurance Employerâs contribution to Employee Pension Scheme
During the year the Company has recognized the following amounts in the statement of profit and loss :-
B. Defined benefit plans
a) Gratuity
b) Employerâs contribution to provident fund Gratuity
The following table sets out the status of the gratuity plan : Statement of profit and loss
The estimates of future salary increases, considered in the actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
Discount rate and future salary escalation rate are the key actuarial assumptions to which the defined benefit obligations are particularly sensitive. The following table summarizes the impact on defined benefit obligations as at 31 March 2017 arising due to an increase / decrease in key actuarial assumptions by 50 basis points:
The sensitivity analysis presented may not be representative of the actual change in the defined benefit obligations as sensitivities have been calculated to show the movement in defined benefit obligations in isolation and assuming there are no other changes in market conditions. There have been no changes from the previous years in the methods and assumptions used in preparing the sensitivity analysis.
The defined benefit obligations are expected to mature after 31 March 2017 as follows:
Employerâs contribution to provident fund
The actuary has provided a valuation and based on the assumptions mentioned below, there is no shortfall as at 31 March 2017, 31 March 2016 and 1 July 2015.
The details of the fund and plan asset position are given below:-
Assumptions used in determining the present value obligation of the interest rate guarantee under the Deterministic Approach:
During the year ended 31 March 2017, the Company has contributed Rs.107.90 crores (previous year (nine months), Rs.66.21 crores) towards employerâs contribution to provident fund.
2.6 Related party transactions
a) Related parties where control exists
List of subsidiaries as at 31 March 2017, 31 March 2016 and 1 July 2015 is as below:
Employee benefit trusts
Hindustan Instruments Limited Employees Provident Fund Trust
HCL Consulting Limited Employees Superannuation Scheme
HCL Comnet System and Services Limited Employees Provident Fund Trust.
HCL South Africa Share Ownership Trust HCL Technologies Stock Options Trust
b) Related parties with whom transactions have taken place during the current year Key Management personnel
Mr. Shiv Nadar - Chairman and Chief Strategy Officer
Mr. C. Vijayakumar - President and Chief Executive Officer (w.e.f. 20 October, 2016) Mr. Anant Gupta - President and Chief Executive Officer (upto 20 October, 2016)
Mr. Anil Chanana - Chief Financial Officer Mr. Manish Anand - Company Secretary
Non executive & independent Directors
Mr. Amal Ganguli Mr. Keki Mistry Mr. Ramanathan Srinivasan Ms. Robin Ann Abrams Dr. Sosale Shankara Sastry Mr. Subramanian Madhavan Mr. Thomas Sieber
Ms. Nishi Vasudeva (appointed w.e.f. 1 August 2016)
Non-executive & non-independent Directors
Ms. Roshni Nadar Malhotra Mr. Sudhindar Krishan Khanna
Others (Significant influence)
HCL Infosystems Limited
HCL Avitas Private Limited
Vama Sundari Investments (Delhi) Private Limited
HCL Corporation Private Limited
SSN Investments (Pondi) Private Limited
Naksha Enterprises Private Limited
HCL Services Limited
HCL TalentCare Pvt. Ltd.
HCL Learning Limited
HCL IT City Lucknow Private Limited
HCL Infotech Limited
Shiv Nadar Foundation
HCL Holding Private Limited
The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business, the outcome of which is inherently uncertain. Some of these matters include speculative and frivolous claims for substantial or indeterminate amounts of damages. The Company records a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company reviews these provisions at least quarterly and adjusts these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The Company believes that the amount or estimable range of reasonably possible loss, will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, results of the Company, or cash flows with respect to loss contingencies for legal and other contingencies as at 31 March, 2017.
Guarantees have been given by the Company on behalf of various subsidiaries against credit facilities, financial assistance and office premises taken on lease amounting to Rs.625.44 crores (Previous year Rs.715.43 crores). These guarantees have been given in the normal course of the Companyâs operations and are not expected to result in any loss to the Company, on the basis of the beneficiaries fulfilling their ordinary commercial obligations.
The Company is required to comply with the transfer pricing regulations, which are contemporaneous in nature. The Company appoints independent consultant annually for conducting transfer pricing studies to determine whether transactions with associate enterprises undertaken during the financial year, are on an armâs length basis. Adjustments, if any, arising from the transfer pricing studies will be accounted for when the study is completed for the current financial year. The management is of the opinion that its transactions with associates are at armâs length so that the outcome of the studies to corroborate compliance with legislation will not have any material adverse impact on the financial statements.
2.7 Micro and small enterprises
As per information available with the management, the dues payable to enterprises covered under âThe Micro, Small and Medium Enterprises Development Act, 2006â are as follows:
This has been determined on the basis of responses received from vendors on specific confirmation sought by the Company.
2.8 Corporate social responsibility
As required by the Companies Act, 2013, the gross amount required to be spent by the Company on CSR activities is Rs.129.16 crores (previous year Rs.122.13 crores) and the amount spent during the year is Rs.40.12 crores (previous year Rs.13.04 crores).
2.9 Disclosure on Specified Bank Notes
During the period from 8 November, 2016 to 30 December, 2016, the company held and transacted in Specified Bank Notes (SBN) or other denomination note as defined in the MCA notification G.S.R. 308(E) dated 30 March, 2017. The detail of same is as below in absolute rupees (â).
3. First-time adoption of ind As
The adoption of Ind AS was carried out in accordance with Ind AS 101, using 1 July, 2015 as the transition date. Ind AS 101 requires that all Ind AS standards that are effective for the first Ind AS Financial Statements be applied consistently and retrospectively for all periods presented. The resulting difference between the carrying amounts of the assets and liabilities in the financial statements under Ind AS and Previous GAAP as at the transition date are recognized directly in equity.
In preparing these financial statements, the Company has availed of certain exemptions and exceptions in accordance with Ind AS 101 as explained below:
i. exemptions from retrospective application:
Following are the optional exemptions which the Company has opted to apply / not to apply:
i. cumulative translation differences exemption - The Company had accumulated foreign exchange translation gains and losses on branches in a separate component of equity under Previous GAAP. Upon transition to Ind AS, the treatment of recording translation differences on branches in equity did not undergo any change and consequently the optional exemption of setting cumulative translation reserve to zero as at transition date was not required to be applied.
ii. Share-based payment transaction exemption - Ind AS 102 Share-based Payment has not been applied to equity instruments in share-based payment transactions that vested before the transition date.
iii. Changes in decommissioning liabilities included in the cost of property, plant and equipment exemption -
The Company does not have material decommissioning, restoration and similar liabilities in the cost of property, plant and equipment and hence the exemption is not applicable.
ii. exceptions from full retrospective application
i. Estimates exception - Upon review of the estimates made under Previous GAAP, the Company concluded that there was no necessity to revise the estimates under Ind AS except where estimates were required by Ind AS and not required by Previous GAAP.
ii. Derecognition of financial assets and liabilities exception - Financial assets and liabilities derecognized in accordance with Previous GAAP are not re-recognized under Ind AS. The Company has chosen not to apply the Ind AS 109 derecognition criteria to an earlier date. No arrangements were identified that had to be assessed under this exception.
iii. Hedge accounting exception - The Company had followed hedge accounting under Previous GAAP which is aligned to Ind AS. Accordingly, this exception of not reflecting in its opening Ind AS balance sheet a hedging relationship of a type that does not qualify for hedge accounting under Ind AS 109, is not applicable to the Company.
iii. Reconciliations:
The following reconciliations provide a quantification of the effect of the transition to Ind AS from Previous GAAP in accordance with Ind AS 101:
- Equity as at 1 July, 2015 (Transition date)
- Equity as at 31 March, 2016
- Statement of profit and loss for the year ended 31 March, 2016
a. Leasehold deposits
Under Ind AS, long term lease deposits are required to be initially measured at fair value and subsequently at amortized cost using the effective interest method. Accordingly, fair value adjustment of Rs.66.39 crores (1 July 2015) and Rs.64.07 crores (31March 2016) on security deposits has been recognized against increase in prepaid assets of Rs.56.34 crores (1 July 2015) and Rs.53.50 crores (31 March 2016) and decrease in retained earnings of Rs.10.05 crores (1 July 2015) and Rs.10.57 crores (31 March 2016). Additionally, for the year ended 31 March 2016, interest income on deposit of Rs.3.56 crores and rent expense of Rs.4.08 crores is recognized in the statement of profit and loss. No such accounting was prescribed under Previous GAAP.
b. Fair value through profit and loss financial assets
Under Previous GAAP, the Company accounted for investments in mutual funds as investment measured at the lower of cost and fair value. Under Ind AS, the company has measured these investments at fair value through profit and loss. Accordingly, difference of Rs.2.97 crores as at the transition date and difference of Rs.0.86 crores as at 31 March 2016 between the instrumentsâ fair value under Ind AS and Previous GAAP carrying amount has been identified and recognized through statement of profit and loss (after netting of related deferred taxes of Rs.1.03 crores as at transition date and Rs.0.30 crore as at 31 March 2016) for Rs.2.11 crores.
c. Defined benefit obligations
Both under Previous GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Previous GAAP, the entire cost, including actuarial gains and losses, are charged to the statement of profit and loss. Under Ind AS, re-measurements [comprising of actuarial gains and losses] are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI. Thus the employee benefit cost for the year ended 31 March 2016 has increased by Rs.11.30 crores and re-measurement gain / loss on defined benefit plan net of related deferred taxes of Rs.2.33 crores has been recognized in the retained earnings.
d. Share-based payments
Under Previous GAAP, the Company recognized the intrinsic value of the share options as expense over the vesting period. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model and to be recognized as expense over the vesting period. Accordingly, additional expense of Rs.1.40 crores has been recognized in the statement of profit and loss for the difference between the fair value and intrinsic value for the year ended 31 March 2016.
Fair value adjustment of Rs.8.01 crores on share options which were granted before and unvested as at the transition date have also been recognized as a benefit in retained earnings with the corresponding decrease in share based payment reserve.
e. Leasehold land
Leasehold land was not classified as lease arrangement on account of specific exclusion under Previous GAAP. However, as per Ind AS 17 it is accounted for as operating lease as the arrangement does not satisfy the conditions for classification as finance lease. Accordingly, written down value of leasehold land as at transition date of Rs.258.05 crores and 31 March 2016 of Rs.257.53 crores has been reclassified from property, plant and equipments to prepaid expenses and similarly capital advance of Rs.85.75 crores paid towards purchase of leasehold land has been reclassified from capital advances to advances to suppliers. This change also has a reclassification impact of Rs.2.26 crores on the statement of profit and loss for the year ended 31 March 2016 from depreciation to rent expense.
f. Classification of provision for employee leave benefit
Under Previous GAAP, where the employee had unconditional right to avail accumulated leave, the same was classified as âcurrentâ even though it is measured as non-current under the prescribed guidance. Under Ind AS, provision for employee leave benefit is measured under the prescribed guidance as determined by a qualified actuary. Accordingly, non-current provision for leave benefits of Rs.106.52 crores and Rs.124.63 crores as on 1 July 2015 and 31 March 2016 respectively has been reclassified as non-current provision for leave benefits.
g. Revenue recognition
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably whether the Company is the primary obligor to the customer, has established its own pricing, and has inventory and credit risks.
Under Previous GAAP, the Company recognized the reimbursement of out-of-pocket expenses net of corresponding revenue. However, under Ind AS, Revenue includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues in the statement of profit and loss. Accordingly, this change has resulted in increase in ârevenue from operationsâ and âoutsourcing costsâ by Rs.1.29 crores with net NIL impact in the statement of profit and loss.
h. interest to / from the taxing authority
Under Previous GAAP, interest and penalties levied under income tax legislations were treated as expense in arriving at profit before tax and was presented under Other Expenses. Under Ind AS, the Company under Ind AS has adopted the accounting policy of treating the same as part of âTax Expenseâ. Accordingly, this change has resulted in decrease in âOther Expensesâ by Rs.31.06 crores with corresponding increase in âCurrent Taxâ with net NIL impact in the statement of profit and loss.
i. Statement of cash flows
The transition from Previous GAAP to Ind AS has not had a material impact on the statement of cash flows.
4. Segment Reporting
As per Ind AS 108 âOperating Segmentsâ, the Company has disclosed the segment information only as part of the consolidated financial results.
5. Previous year comparatives
The previous financial year of the Company was for nine months from 1 July 2015 to 31 March 2016. The figures for the current financial year are therefore not comparable with those of the previous year.
Mar 31, 2016
1. Leases
i) Operating lease
The Company leases office space and accommodation for its employees
under operating lease agreements. The lease rental expense recognized
in the statement of profit and loss for the year (nine months) is ''
112.84 crores [Previous year (twelve months) Rs. 211.99 crores]. The
lease equalization reserve amount for non-cancellable operating lease
payable in future years and accounted for by the Company is Rs. 85.49
crores (previous year Rs. 115.20 crores). Future minimum lease payments
and the payment profile of non-cancellable operating leases are as
follows:
2. Segment Reporting
Identification of segments
The Company''s operating businesses are organized and managed according
to the nature of products and services provided, with each segment
representing a strategic business unit that offers different products
and services and is subject to risks and returns that are different
from other strategic business units.
(i) Business segments
The Company''s operations predominantly relate to providing a range of
IT and Business process outsourcing (BPO) services targeted at Global
2000 companies spread across USA, Europe and the Rest of the World. IT
Services include software services and IT infrastructure management
services. Within software services, the Company provides application
development and maintenance, enterprise application, next generation
SAAS (Software As A Service) application services and engineering and
research and development (R&D) services to several global customers.
Infrastructure management services involve managing customers'' IT
assets effectively. Business process outsourcing services include the
traditional contact centre and help desk services and next generation
services around platform BPO and BPAAS (Business Process As A Service)
delivered through a global delivery model.
The Chairman of the Company, who is the Chief Strategy Officer,
evaluates the Company''s performance and allocates resources based on an
analysis of various performance indicators by types of services
provided by the Company and geographic segmentation of customers.
Accordingly, revenue from service segments comprises the primary basis
of segmental information set out in these financial statements.
Accordingly, revenue from service segments comprises the primary basis
of segmental information set out in these financial statements.
Secondary segmental reporting is performed on the basis of the
geographical location of customers and assets.
(ii) Geographic segments
Segment revenue from customers by geographical areas is stated based on
the geographical location of the customer and segment assets by the
geographical location of the assets.
The principal geographical segments are classified as America, Europe,
India and Others. Europe comprises business operations conducted by the
Company in the United Kingdom, Sweden, Germany, Italy, Belgium,
Netherlands, Northern Ireland, Finland, Poland and Switzerland. Since
services provided by the Company within these European entities are
subject to similar risks and returns, their operating results have been
reported as one segment, namely Europe. India has been identified as a
separate segment. All other customers, mainly in Japan, Australia, New
Zealand, Singapore, Malaysia, Israel, South Korea, China, Czech
Republic, Macau, UAE, Portugal, Russia and Hong Kong are included in
Others.
(iii) Segment accounting policies
The accounting principles consistently used in the preparation of the
financial statements and consistently applied to record revenue and
expenditure in individual segments are as set out in note 1 to the
financial statements on significant accounting policies. The accounting
policies in relation to segment accounting are as under:
a) Segment revenue and expenses
Segment revenue is directly attributable to the segment and segment
expenses have been allocated to various segments on the basis of
specific identification. However, segment revenue does not include
other income. Segment expenses do not include, premium amortized on
bonds, diminution allowance in respect of current and trade
investments, other than temporary diminution in the value of long term
investments, and finance cost.
b) Segment assets and liabilities
Assets and liabilities are not identified to any reportable segments,
since these are increasingly used interchangeably across segments and
consequently, the management believes that it is not practicable or
meaningful to provide segment disclosures relating to total assets and
liabilities.
3. Derivative Financial Instruments
The Company is exposed to foreign currency fluctuations on foreign
currency assets / liabilities and forecast cash flows denominated in
foreign currency. The use of derivatives to hedge foreign currency
forecast cash flows is governed by the Company''s strategy, which
provides principles on the use of such forward contracts and currency
options consistent with the Company''s Risk Management Policy. The
counter parties in these derivative instruments are banks and the
Company considers the risks of non-performance by the counterparty as
insignificant. The Company has entered into a series of foreign
exchange forward contracts that are designated as cash flow hedges and
the related forecasted transactions extend through April 2018. The
Company does not use forward contracts and currency options for
speculative purposes.
4. Employee Benefit Plans
The Company has calculated the various benefits provided to employees
as shown below:
A. Defined Contribution Plans and State Plans
Superannuation Fund
Employer''s contribution to Employees State Insurance Employer''s
contribution to Employee Pension Scheme
5. Corporate social responsibility
As required by the Companies Act, 2013, the gross amount required to be
spent by the Company on CSR activities is Rs. 122.13 crores (Previous
year Rs. 89.99 crores) and the amount spent during the year is Rs.
13.04 crores (Previous year Rs. 6.22 crores).
6. Subsequent event
On 1st April 2016, the Company has entered into an agreement for
acquisition of the IT enabled engineering services, PLM (''Product
Lifecycle Management'') services and engineering design productivity
software tools business of Geometric Limited by way of demerger through
a Court approved scheme of arrangement under Sections 391 to 394 and
other relevant provisions of the Companies Act, 1956 (including those
of the Companies Act, 2013) to be effective from 31st March 2016.
The acquisition will be accounted for in the books of the Company on
approval of the scheme by the Court and simultaneously with the
acquisition of the demerged business, the Company will issue 10 equity
shares of Rs. 2 each for every 43 fully paid equity shares of Rs. 2
each held by equity shareholders of Geometric Limited
7. Previous year comparatives
The current financial year of the Company is for a nine months period
from 1 July 2015 to 31 March 2016. The figures for the current
financial year are therefore not comparable with those of the previous
year. Previous year figures have been rearranged to conform to the
current year''s classification.
Jun 30, 2015
1. Segment Reporting
Identification of segments
The Company's operating businesses are organized and managed according
to the nature of products and services provided, with each segment
representing a strategic business unit that offers different products
and services.
(i) Business segments
The operations of the Company predominately relate to providing a range
of IT and Business Process Outsourcing (BPO) services targeted at
Global 2000 companies spread across USA, Europe and the Rest of the
World. IT Services include software services and IT infrastructure
management services. Within software services, the Company provides
application development and maintenance, enterprise application, next
generation SAAS (Software As A Service) application services and
engineering and research and development services to several global
customers. IT Infrastructure management services involve managing
customers' IT assets effectively. The Company's 'Enterprise of the
Future' (EOF) framework helps customers not just run IT effectively but
also migrate to next generation IT. EOF involves services around cloud,
next generation data centres, business productivity services,
integrated service management layer and an integrated application
development & operations services. Business process outsourcing
services include the traditional contact centre and help desk services
and next generation services around platform BPO and BPAAS (Business
Process As A Service) delivered through a strong global delivery model.
The Company's trademarked EFAAS ( Enterprise Function As A Service)
helps customers reduce business cost rather than just the process cost
as was the case in traditional BPO.
The Chairman of the Company, who is the Chief Strategy Officer,
evaluates the Company's performance and allocates resources based on an
analysis of various performance indicators by types of services
provided by the Company and geographic segmentation of customers.
Accordingly, revenue from service segments comprises the primary basis
of segmental information set out in these financial statements.
Secondary segmental reporting is performed on the basis of the
geographical location of customers and assets.
(ii) Geographic segments
Segment revenue from customers by geographical areas is stated based on
the geographical location of the customer and segment assets by the
geographical location of the assets.
The principal geographical segments are classified as America, Europe,
India and Others. Europe comprises business operations conducted by the
Company in the United Kingdom, Sweden, Germany, Italy, Belgium,
Netherlands, Northern Ireland, Finland, Poland and Switzerland. Since
services provided by the Company within these European entities are
subject to similar risks and returns, their operating results have been
reported as one segment, namely Europe. India has been identified as a
separate segment. All other customers, mainly in Japan, Australia, New
Zealand, Singapore, Malaysia, Israel, South Korea, China, Czech
Republic, Macau, UAE, Portugal, Russia and Hong Kong are included in
Others.
(iii) Segment accounting policies
The accounting principles consistently used in the preparation of the
financial statements and consistently applied to record revenue and
expenditure in individual segments are as set out in note 1 to the
financial statements on significant accounting policies. The accounting
policies in relation to segment accounting are as under:
a) Segment revenue and expenses
Segment revenue is directly attributable to the segment and segment
expenses have been allocated to various segments on the basis of
specific identification. However, segment revenue does not include
other income. Segment expenses do not include, premium amortized on
bonds, diminution allowance in respect of current and trade
investments, other than temporary diminution in the value of long term
investments, and finance cost.
b) Segment assets and liabilities
Assets and liabilities are not identified to any reportable segments,
since these are increasingly used interchangeably across segments and
consequently, the management believes that it is not practicable or
meaningful to provide segment disclosures relating to total assets and
liabilities.
Jun 30, 2013
Company Overview
HCL Technologies Limited (hereinafter referred to as ''HCL'' or the
''Company'') is primarily engaged in providing a range of software
services, business process outsourcing and infrastructure services. The
Company was incorporated in India in November 1991. The Company
leverages an extensive offshore infrastructure and its global network
of offices in various countries and professionals to deliver solutions
across select verticals including Financial Services, Manufacturing
(Automotive, Aerospace, Hi-tech and Semi conductor), Telecom, Retail
and Consumer packaged goods services , Media publishing and
entertainment, Public services, Energy and utility, Healthcare, Travel,
Transport and Logistics.
1.1 Related party transactions
a) Related parties where control exists
Direct Subsidiaries
HCL Comnet Systems & Services Limited
HCL Comnet Limited
HCL Bermuda Limited
HCL Technologies (Shanghai) Limited
HCL Eagle Limited
Step down Subsidiaries
HCL Great Britain Limited
HCL (Netherlands) BV
HCL Belgium NV
HCL GmbH
HCL Singapore Pte. Limited
HCL Sweden AB
HCL Italy SLR
HCL Australia Services Pty. Limited
HCL (New Zealand) Limited
HCL Hong Kong SAR Limited
HCL Japan Limited
HCL America Inc.
HCL Holdings GmbH
HCL Global Processing Services Limited
HCL BPO Services (NI) Limited
HCL (Malaysia) Sdn. Bhd.
HCL Technologies Solutions Limited (formerly known as HCL EAI Services
Limited)
HCL Poland sp. z o.o
HCL EAS Limited
HCL Insurance BPO Services Limited
HCL Expense Management Services Inc.
Axon Group Limited
Bywater Limited
Axon Solutions Schweiz Gmbh
Axon Solutions Pty. Limited
Axon Solutions Inc.
Axon Acquisition Company, Inc.
Axon Solutions Limited
Axon Solutions Sdn. Bhd.
Axon Solutions Singapore Pte. Limited
Axon Solutions (Shanghai) Co. Limited
HCL Axon (Proprietary) Limited
JSPC- I Solutions Sdn. Bhd.
JSP Consulting Sdn. Bhd.
Axon Solution (Canada) Inc.*
HCL Argentina s.a.
HCL Mexico S. de R.L.
HCL Technologies Romania s.r.l.
HCL Hungary Limited
HCL Latin America Holding LLC
HCL (Brazil) Technologia da informacao Ltda.
HCL Technologies Denmark Apps
HCL Technologies Norway AS
PT. HCL Technologies Indonesia Limited
HCL Technologies Philippines Inc.
HCL Technologies South Africa (Proprietary) Limited
HCL Arabia LLC
HCL Technologies France
Filial Espanola De HCL Technologies S.L. (Spain)
Anzospan Investments Pty Limited
HCL Investments (UK) Limited
HCL America Solutions Inc. (Formerly known as HCL
Technologies Product Design Services inc.)
* HCL Technologies Canada Inc. and Axon Solution
(Canada) Inc. amalgamated w.e.f. 1 July 2012 and formed a new entity
Axon Solutions (Canada) Inc.
Employee benefit trusts
HCL Technologies Limited Employees Trust Axon Group Plc Employee
Benefit Trust No. 3 Axon Group Plc Employee Benefit Trust No. 4 HCL
South Africa Share Ownership Trust (incorporated w.e.f 22 February
2013)
b) Related parties with whom transactions have taken place during the
year
Direct Subsidiaries
HCL Comnet Systems & Services Limited
HCL Comnet Limited
HCL Bermuda Limited
HCL Technologies (Shanghai) Limited
HCL Eagle Limited
Step down subsidiaries HCL Great Britain Limited HCL (Netherlands) BV
HCL Belgium NV HCL GmbH
HCL Singapore Pte. Limited HCL Sweden AB HCL Italy SLR
HCL Australia Services Pty. Limited
HCL (New Zealand) Limited
HCL Hong Kong SAR Limited
HCL Japan Limited
HCL America Inc.
HCL (Malaysia) Sdn. Bhd.
HCL Technologies Solutions Limited (formerly known as HCL EAI Services
Limited)
HCL Poland sp. z o.o
HCL EAS Limited
HCL Insurance BPO Services Limited
Axon Solutions (Canada) Inc.
Axon Solutions Pty. Limited
Axon Solutions Inc.
Axon Solutions Limited
Axon Solutions Sdn. Bhd.
Axon Solutions (Shanghai) Co. Limited
HCL Axon (Proprietary) Limited
HCL Argentina s.a.
HCL Mexico S. de R.L.
HCL Hungary Limited
HCL (Brazil) Technologia da informacao Ltda.
HCL Technologies Denmark Apps
HCL Technologies Norway AS
PT. HCL Technologies Indonesia Limited
HCL Technologies Philippines Inc.
HCL Technologies South Africa (Proprietary) Limited
HCL Arabia LLC
HCL Technologies France
Filial Espanola De HCL Technologies S.L. (Spain)
HCL Holdings Gmbh
HCL Technologies Romania s.r.l.
HCL America Solutions Inc. (Formerly known as HCL
Technologies Product Design Services inc.)
Jointly controlled entities
NEC HCL System Technologies Limited, India (up to 26 April, 2013)
Associates
Statestreet HCL Services (India) Private Limited
Significant influence
Vama Sundari Investments (Delhi) Private Limited
(Slocum investments (Delhi) Private Limited merged with Vama Sundari
Investments (Delhi) Private Limited w.e.f 22 March 2013)
HCL Corporation Private Limited
HCL Infosystems Limited
HCL Holding Private Limited
HCL Insys Pte Ltd., Singapore
Digilife Distribution and Marketing Services Limited
c) Key Management Personnel
Shiv Nadar, Chairman and Chief Strategy Officer Vineet Nayar,
Vice-Chairman and Joint Managing Director
1.2 Commitments and Contingent liabilities
a)
i) Capital and other commitments
Capital commitments
Estimated amount of unexecuted capital
contracts (net of advances) 1,139.47 528.43
ii) Contingent Liabilities
Others 5.29 4.29
Total 1,144.76 532.72
The amounts shown in the items above represent best possible estimates
arrived at on the basis of available information. The uncertainties and
possible reimbursements are dependent on the outcome of the different
legal processes which have been invoked by the Company or the claimants
as the case may be and therefore cannot be predicted accurately. The
Company engages reputed professional advisors to protect its interest
and has been advised that it has strong legal positions against such
disputes.
b) Guarantees have been given by the Company on behalf of various
subsidiaries against credit facilities, financial assistance and office
premises taken on lease amounting to Rs. 1,852.21 crores (Previous year Rs.
3,087.56 crores). These guarantees have been given in the normal
course of the Company''s operations and are not expected to result in
any loss to the Company on the basis of the beneficiaries fulfilling
their ordinary commercial obligations.
c) Bank guarantees of Rs. 45.94 crores (Previous year Rs. 14.25 crores).
These guarantees have been given in the normal course of the Company''s
operations and are not expected to result in any loss to the Company,
on the basis of the Company fulfilling its ordinary commercial
obligations.
d) During the year ended 30 June 2013, the Company has negotiated
extended interest bearing credit terms with certain vendors and issued
Rs. 430.33 crores of letters of credit in this respect for extended
payment terms up to 360 days. The interest rate on these arrangements
ranges from 1.2% to 10.0%.
The Company also has letters of credit amounting to Rs. 0.29 crores
outstanding for year ended 30 June 2013 in other normal course of
business.
e) The Company has a comprehensive system of maintenance of information
and documents as required by the transfer pricing legislation under
sections 92-92F of the Income Tax Act, 1961. Since the law requires
existence of such information and documentation to be contemporaneous
in nature, the Company appoints independent consultants for conducting
a Transfer Pricing Study to determine whether the transactions with
associated enterprises are undertaken, during the financial year, on an
"arms length basis". Adjustments, if any, arising from the transfer
pricing study in the respective jurisdictions are accounted for as and
when the study is completed for the current financial year. However the
management is of the opinion that its international transactions are at
arms'' length so that the aforesaid legislation will not have any impact
on the financial statements.
1.3 Derivative Financial Instruments
The Company is exposed to foreign currency fluctuations on foreign
currency assets / liabilities, forecast cash flows denominated in
foreign currency. The use of derivatives to hedge foreign currency
forecast cash flows is governed by the Company''s strategy, which
provide principles on the use of such forward contracts and currency
options consistent with the Company''s Risk Management Policy. The
counter parties in these derivative instruments are banks and the
Company considers the risks of non-performance by the counterparty as
non-material. A majority of the forward foreign exchange/option
contracts mature within one to twelve months and the forecast
transactions are expected to occur during the same period. The Company
does not use forward contracts and currency options for speculative
purposes.
1.4 Joint Venture
The Company has an interest in the following jointly controlled
entities:
NEC HCL System Technologies Ltd.
In June, 2005 ,the Company entered into a Joint Venture Agreement with
NEC Corporation ,Japan ("NEC") and NEC System Technologies limited
("NECST"), Japan, a subsidiary of NEC, whereby the Company holds a 49%
stake in established joint venture entity, NEC HCL System Technologies
Limited("NECH") and NEC and NECST holds a 51% stake.
In March, 2013 Company entered into an agreement with NEC for the sale
of its 49% stake in equity affiliate NECH at gross consideration of Rs.
66.32 crores (USD 12 million).The sale was completed during the year on
26 April, 2013. The Company has recorded a gain of Rs. 55.54 crores in
the statement of profit and loss during the year.
1.5 In accordance with the terms of a Scheme of arrangement under
Sections 391 to 394 of the Companies Act, 1956, approved by the Hon''ble
High Court of Delhi vide its order dated 12 April 2013, the IT enabled
services division of HCL Comnet Systems & Services Limited, a
subsidiary, has been demerged and transferred to the Company on going
concern basis with effect from 1 April 2012, the appointed date.
The consideration for transfer as per the above mentioned scheme has
been settled by issue of 10,125 equity shares of Rs. 2 each in the ratio
of 227 equity shares of the Company of Rs. 2 each for every 100 equity
shares of Rs. 10/- each held by outside shareholders of HCL Comnet
Systems & Services Limited.
In view of the above, the net profit of the transferred division for
the period 1 April 2012 to 30 June 2012 have been reflected in the
statement of profit of loss of the Company after profit after tax and a
sum of Rs. 119.54 crores being the excess of net assets of the
transferred division over the consideration paid, has been included in
the balance sheet of the Company as on 30 June 2013 as Capital Reserve
and the results of the operation of the transferred division for the
current year have been included in the statement of profit and loss for
the year ended on that date.
1.6 The current year''s figures in statement of profit and loss
includes results of operations of transferred division for the period
from 1 July, 2012 to 30 June, 2013 and the net profit of the
transferred division for the period 1 April 2012 to 30 June 2012 have
been reflected in the statement of profit of loss of the Company after
profit after tax (refer note 2.36 above). Therefore, corresponding
figures of previous year are not comparable with those of current year.
1.7 Previous year figures have been rearranged to conform to the
current year''s classification.
Jun 30, 2012
Company Overview
HCL Technologies Limited (hereinafter referred to as 'HCL' or the
'Company') is primarily engaged in providing a range of software
services, business process outsourcing and infrastructure services. The
Company was incorporated in India in November 1991. The Company
leverages an extensive offshore infrastructure and its global network
of offices in various countries and professionals to deliver solutions
across select verticals including Financial Services, Manufacturing
(Automotive, Aerospace, Hi-tech and Semi conductor), Telecom, Retail &
CPG , Media publishing & entertainment, Public services, Energy &
utility, Healthcare, Travel, Transport and Logistics.
1. Segment Reporting
Identification of Segments
The Company's operating businesses are organized and managed according
to the nature of products and services provided, with each segment
representing a strategic business unit that offers different products
and serves different markets. The analysis of geographical segments is
based on the areas in which major divisions of the Company operate.
(i) Business Segments
The operations of the Company predominately relate to providing
software services, infrastructure services including sale of networking
equipment and business processing outsourcing services, which are in
the nature of customer contact centres and technical help desks. The
Chairman of the Company, who is the Chief Strategy Officer, evaluates
the Company's performance and allocates resources based on an analysis
of various performance indicators by types of service provided by the
Company and geographic segmentation of customers.
Accordingly, revenue from service segments comprises the primary basis
of segmental information set out in these financial statements.
Secondary segmental reporting is performed on the basis of the
geographical location of customers.
Revenue in relation to service segments is categorized based on items
that are individually identifiable to that segment, while expenditure
is categorized in relation to the associated turnover of the segment.
Assets and liabilities are also identified to service segments.
(ii) Geographic Segments
Segment revenue from customers by geographical area based on
geographical location of the customer and segment assets are by
geographical location of the assets .
The principal geographical segments are classified as America, Europe,
India and others. Europe comprises business operations conducted by the
Company in the United Kingdom, Sweden, Germany, Italy, Belgium,
Netherlands, Northern Ireland, Finland, Poland and Switzerland. Since
services provided by the Company within these European entities are
subject to similar risks and returns, their operating results have been
reported as one segment, namely Europe. India has been identified as a
separate segment. All other customers, mainly in Japan, Australia, New
Zealand, Singapore, Malaysia, Israel, South Korea, China, Czech
Republic, Macau, UAE, Portugal, Russia and Hong Kong are included in
others.
(iii) Segment accounting policies
The accounting principles consistently used in the preparation of the
financial statements and consistently applied to record revenue and
expenditure in individual segments are as set out in note 1 to the
financial statements on significant accounting policies. The accounting
policies in relation to segment accounting are as under:
a) Segment assets and liabilities
All segment assets and liabilities have been allocated to the various
segments on the basis of specific identification.
Segment assets consist principally of allocable fixed assets, trade
receivables, loans and advances and unbilled receivables. Segment
assets do not include unallocated corporate assets, treasury assets,
net deferred tax assets, advance taxes and Minimum Alternate Tax.
Segment liabilities include trade payable, other liabilities. Segment
liabilities do not include share capital, reserves, borrowings and
provision for taxes.
b) Segment revenue and expenses
Segment revenue is directly attributable to the segment and segment
expenses have been allocated to various segments on the basis of
specific identification. However, segment revenue does not include
other income. Segment expenses do not include premium amortized on
bonds, diminution allowance in respect of current and trade
investments, other than temporary diminution in the value of long term
investments, charge taken for stock options issued to employees,
corporate expenses and finance cost.
2. Related party transactions
a) Related parties where control exists
Subsidiaries
HCL Comnet Systems & Services Limited
HCL Bermuda Limited
HCL Technologies (Shanghai) Limited
HCL GmbH
HCL Eagle Limited (Incorporated w.e.f 14 September 2011)
HCL Great Britain Limited
HCL (Netherlands) BV
HCL Belgium NV
HCL Sweden AB
HCL Italy SLR
HCL Australia Services Pty. Limited
HCL Singapore Pte. Limited
HCL (New Zealand) Limited
HCL Hong Kong SAR Limited
HCL Japan Limited
HCL Comnet Limited
HCL America Inc.
HCL Holdings GmbH
HCL Global Processing Services Limited
HCL BPO Services (NI) Limited
HCL (Malaysia) Sdn. Bhd.
HCL EAI Services Limited
HCL Poland sp. z o.o
HCL EAS Limited
HCL Insurance BPO Services Limited
HCL Expense Management Services Inc.
Axon Group Limited
Axon Solutions (Canada) Inc.
Bywater Limited
Axon Solutions Schweiz Gmbh
Axon Solutions Pty. Limited
Axon Solutions Inc.
Axon Acquisition Company, Inc.
Axon Solutions Limited
Axon Solutions Sdn. Bhd.
Axon Solutions Singapore Pte. Limited
Axon Solutions (Shanghai) Co. Limited
HCL Axon (Proprietary) Limited
JSPC- I Solutions Sdn. Bhd.
JSP Consulting Sdn. Bhd.
HCL Technologies Canada Inc.
HCL Argentina s.a.
HCL Mexico S. de R.L.
HCL Technologies Romania s.r.l.
HCL Hungary Limited
HCL Latin America Holding LLC
HCL (Brazil) Technologia da informacao Ltda.
HCL Technologies Denmark Apps
HCL Technologies Norway AS
PT. HCL Technologies Indonesia Limited
HCL Technologies Philippines Inc.
HCL Technologies South Africa (Proprietary) Limited
HCL Arabia LLC
HCL Technologies France (Incorporated w.e.f 7 March 2011)
Filial Espanola De HCL Technologies S.L. (Spain)
Anzospan Investments Pty Limited
HCL Investments (UK) Limited (Incorporated w.e.f 9 November 2011)
Employee benefit trusts
HCL Technologies Limited Employees Trust Axon Group Plc Employee
Benefit Trust No. 3 Axon Group Plc Employee Benefit Trust No. 4
Jointly controlled entities
NEC HCL System Technologies Limited, India Axon Puerto Rico Inc. -
through subsidiary
Associates
State street Holding UK Limited-through subsidiary Statestreet Services
(India) Private Limited- through subsidiary
b) Related parties with whom transactions have taken place during the
year
Subsidiaries
HCL Comnet Systems & Services Limited
HCL Bermuda Limited
HCL Technologies (Shanghai) Limited
HCL GmbH
HCL Eagle Limited
HCL Great Britain Limited
HCL (Netherlands) BV
HCL Belgium NV
HCL Sweden AB
HCL Italy SLR
HCL Australia Services Pty. Limited
DSI Financial Solutions Pte. Limited (Ceased to exist w.e.f. 11 April
2012)
HCL Singapore Pte. Limited
HCL (New Zealand) Limited
HCL Hong Kong SAR Limited
HCL Japan Limited
HCL Comnet Limited
HCL America Inc.
HCL Global Processing Services Limited
HCL BPO Services (NI) Limited
HCL (Malaysia) Sdn. Bhd.
HCL EAI Services Limited
HCL Poland sp. z o.o
Capital Stream, Inc. (Merged with HCL America w.e.f. 1 January 2012)
HCL EAS Limited
HCL Insurance BPO Services Limited
HCL Jones Technologies LLC (Liquidated w.e.f 29 June 2012)
HCL Expense Management Services Inc.
Axon Solutions (Canada) Inc.
Axon Solutions Schweiz Gmbh
Axon Solutions Pty. Limited
Axon Solutions Inc.
Axon Solutions Limited
Axon Solutions Sdn. Bhd.
Axon Solutions Singapore Pte. Limited
Axon Solutions (Shanghai) Co. Limited
HCL Axon (Proprietary) Limited
HCL Technologies Canada Inc.
HCL Argentina s.a.
HCL Mexico S. de R.L.
HCL Hungary Limited
HCL (Brazil) Technologia da informacao Ltda.
HCL Technologies Denmark Apps
HCL Technologies Norway AS
PT. HCL Technologies Indonesia Limited
HCL Technologies Philippines Inc.
HCL Technologies South Africa (Proprietary) Limited
HCL Arabia LLC
HCL Technologies France
Filial Espanola De HCL Technologies S.L. (Spain)
Jointly controlled entities
NEC HCL System Technologies Limited, India
Associates
Statestreet HCL Services (India) Private Limited (incorporated w.e.f 6
January 2012)
Others (Significant influence)
Slocum investments (Delhi) Private Limited
HCL Corporation Private Limited [Formerly Guddu
Investments (Pondi) Private Limited]
HCL Infosystems Limited
HCL Infinet Limited (Ceased to be related party w.e.f.
10 November 2011)
HCL Holding Private Limited
HCL Insys Pte Ltd., Singapore
Digilife Distribution and Marketing Services Limited.
(Formerly HCL Security Limited)
c) Key Management Personnel
Shiv Nadar, Chairman and Chief Strategy Officer Vineet Nayar, Vice
Chairman and CEO
3. Commitments and Contingent liabilities
As at As at
30 June 2012 30 June 2011
i) Capital and other commitments
a) Capital commitments
Estimated amount of unexecuted
capital contracts (net of advances) 528.43 391.33
b) Outstanding letter of credit 9.83 -
538.26 391.33
ii) Contingent Liabilities
a) Others 4.29 2.30
4.29 2.30
b) Guarantees have been given by the Company on behalf of various
subsidiaries against credit facilities, financial assistance and office
premises taken on lease amounting to Rs. 3,087.56 crores (Previous year Rs.
2,283.36 crores). These guarantees have been given in the normal
course of the Company's operations and are not expected to result in
any loss to the Company on the basis of the beneficiaries fulfilling
their ordinary commercial obligations.
c) Bank guarantees of Rs. 14.25 crores (Previous year Rs. 24.39 crores).
These guarantees have been given in the normal course of the Company's
operations and are not expected to result in any loss to the Company,
on the basis of the Company fulfilling its ordinary commercial
obligations.
The amounts shown in the items above represent best possible estimates
arrived at on the basis of available information. The uncertainties and
possible reimbursements are dependent on the outcome of the different
legal processes which have been invoked by the Company or the claimants
as the case may be and therefore cannot be predicted accurately. The
Company engages reputed professional advisors to protect its interest
and has been advised that it has strong legal positions against such
disputes.
iii) The Company has a comprehensive system of maintenance of
information and documents as required by the transfer pricing
legislation under sections 92-92F of the Income Tax Act, 1961. Since
the law requires existence of such information and documentation to be
contemporaneous in nature, the Company appoints independent consultants
for conducting a Transfer Pricing Study to determine whether the
transactions with associated enterprises are undertaken, during the
financial year, on an "arms length basis". Adjustments, if any, arising
from the transfer pricing study in the respective jurisdictions are
accounted for as and when the study is completed for the current
financial year. However the management is of the opinion that its
international transactions are at arms' length so that the aforesaid
legislation will not have any impact on the financial statements.
4. Derivative Financial Instruments
The Company is exposed to foreign currency fluctuations on foreign
currency assets / liabilities, forecast cash flows denominated in
foreign currency. The use of derivatives to hedge foreign currency
forecast cash flows is governed by the Company's strategy, which
provide principles on the use of such forward contracts and currency
options consistent with the Company's Risk Management Policy. The
counter parties in these derivative instruments are banks and the
Company considers the risks of non-performance by the counterparty as
non-material. A majority of the forward foreign exchange/option
contracts mature within one to twelve months and the forecast
transactions are expected to occur during the same period. The Company
does not use forward contracts and currency options for speculative
purposes.
As of the balance sheet date, the Company's net foreign currency
exposure that is not hedged is Rs. 1,758.84 crores (Previous year Rs.
1,399.20 crores).
Notes:
1. Balance as at year end is inclusive of deferred tax assets of Rs.
93.94 crores (Previous year deferred tax liability of Rs. 4.27 crores).
2. At 30 June 2012, the estimated net amount of existing loss that is
expected to be reclassified into the income statement within the next
twelve months is Rs. 211.86 crores (Previous year gain of Rs. 23.51
crores).
5. Employee Benefit Plans
The Company has calculated the various benefits provided to employees
as under:
A. Defined Contribution Plans and State Plans
Superannuation Fund
Employer's contribution to Employees' State Insurance
Employer's contribution to Employees' Pension Scheme.
B. Defined Benefit Plans
a) Gratuity
b) Employers Contribution to Provident Fund
Gratuity
The Company has a unfunded defined benefit gratuity plan. Every
employee who has completed five years or more of service gets a
gratuity on departure at 15 days salary (last drawn salary) for each
completed year of service.
Employer's Contribution to Provident Fund
The guidance note on implementing AS-15, Employee Benefits (revised
2005) issued by Accounting Standard board (ASB) states that benefits
involving employer established provident funds, which require interest
shortfalls to be recompensed are to be considered as defined benefit
plans. The Actuarial Society of India has issued the final guidance for
measurement of provident fund liabilities during the current year. The
actuary has accordingly provided a valuation and based on the
assumption mentioned below there is no shortfall as at 30 June 2012.
6. During the previous year, a scheme of Amalgamation ("Scheme")
under sections 391 to 394 of the Companies Act, 1956 for amalgamation
without issue of shares of HCL Technopark Limited, a wholly owned
subsidiary ("Transferor Company"), held directly, with the Company has
been approved by the Hon'ble High Court of Delhi on 16 August 2010 and
is effective from 1 April 2009. The Transferor Company was engaged in
the business of a developer of facilities for the IT industry. The
amalgamation is expected to channelize synergies and lead to optimum
utilization of available resources and result in greater economies of
scale.
The Company has accounted for the amalgamation under the 'pooling of
interest method' being an amalgamation in the nature of merger, as
prescribed by the Accounting standard "AS-14", "Accounting for
Amalgamations" as per Accounting Standards notified by Companies
(Accounting Standards) Rules, 2006, (as amended).
7. Previous year comparatives
The previous year's figures have been re-classified/re-grouped to
conform to current year's classification.
Jun 30, 2011
Company Overview
HCL Technologies Limited (hereinafter referred to as 'HCL' or the
'Company') is primarily engaged in providing a range of software
services, business process outsourcing and infrastructure services. The
Company was incorporated in India in November 1991. The Company
leverages an extensive offshore infrastructure and its global network
of offices in various countries and professionals to deliver solutions
across select verticals including Retail, Aerospace and defense,
Automotive, Telecom, Financial Services, Government, Hi-tech, Media and
Entertainment, Travel, Transportation and Logistics, Energy and
utilities, Life Sciences and Healthcare.
4. Segment reporting
Identification of Segments
The Company's operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
(i) Business Segments
The operations of the Company predominately relate to providing
Software services, infrastructure services including sale of networking
equipment and business processing outsourcing services, which are in
the nature of customer contact centers and technical help desks. The
Chairman of the Company, who is the Chief Strategy Officer, evaluates
the Company's performance and allocates resources based on an analysis
of various performance indicators by types of service provided by the
Company and geographic segmentation of customers.
Accordingly, revenue from service segments comprises the primary basis
of segmental information set out in these financial statements.
Secondary segmental reporting is performed on the basis of the
geographical location of customers.
Revenue in relation to service segments is categorised based on items
that are individually identifiable to that segment, while expenditure
is categorised in relation to the associated turnover of the segment.
Assets and liabilities are also identified to service segments.
(ii) Geographic Segments
Geographic segmentation is based on the location of the respective
client. The principal geographical segments have been classified as
America, Europe and others. Europe comprises business operations
conducted by the Company in the United Kingdom, Sweden, Germany, Italy,
Belgium, Netherlands, Finland, Switzerland, Ireland and Poland. Since
services provided by the Company within these European entities are
subject to similar risks and returns, their operating results have been
reported as one segment, namely Europe. All other customers, mainly in
Japan, Australia, New Zealand, Singapore, Malaysia, Israel, South
Korea, India, China, Hong Kong, Czech Republic, Macau, UAE, Portugal
and Russia are included in others.
(iii) Segment accounting policies
The accounting principles consistently used in the preparation of the
financial statements and consistently applied to record revenue and
expenditure in individual segments are as set out in Note 1 to this
schedule on significant accounting policies. The accounting policies in
relation to segment accounting are as under:
a) Segment assets and liabilities
All segment assets and liabilities have been allocated to the various
segments on the basis of specific identification.
Segment assets consist principally of fixed assets, sundry debtors,
loans and advances, cash and bank balances and unbilled receivables.
Segment assets do not include unallocated corporate and treasury
assets, net deferred tax assets and advance taxes.
Segment liabilities include sundry creditors and other liabilities.
Segment liabilities do not include share capital, reserves, secured
loans, unsecured loan and provision for taxes.
b) Segment revenue and expenses
Segment revenue is directly attributable to the segment and segment
expenses have been allocated to various segments on the basis of
specific identification. However, segment revenue does not include
miscellaneous income, income from investments and other income. Segment
expenses do not include premium amortized on bonds, diminution
allowance in respect of current and trade investments, other than
temporary diminution in the value of long term investment, charge taken
for stock options issued to employees, corporate expenses and finance
cost.
5. Related party transactions
a) Related parties where control exists
Subsidiaries
HCL Comnet Systems and Services Limited
HCL Bermuda Limited
HCL Technologies (Shanghai) Limited
HCL Great Britain Limited
HCL (Netherlands) BV
HCL GmbH
HCL Belgium NV
HCL Sweden AB
HCL Italy SLR
HCL Australia Services Pty. Limited
HCL (New Zealand) Limited
HCL Hong Kong SAR Limited
HCL Japan Limited
HCL Comnet Limited
HCL America Inc.
HCL Holdings GmbH
HCL Global Processing Services Limited (formerly Intelicent India
Limited)
DSI Financial Solutions Pte. Limited
HCL BPO Services (NI) Limited
HCL Jones Technologies LLC
HCL Singapore Pte. Limited
HCL (Malaysia) Sdn. Bhd.
HCL EAI Services Limited
HCL Poland sp. z o.o
Capital Stream, Inc.
HCL EAS Limited
HCL Insurance BPO Services Limited
HCL Expense Management Services Inc.
Axon Group Limited.
Axon Solutions (Canada) Inc.
Bywater Limited
Axon Solutions Schweiz Gmbh
Axon Solutions Pty. Limited
Axon Solutions Inc.
Axon Acquisition Company, Inc.
Axon Solutions Limited
Axon Solutions Sdn. Bhd.
Axon Solutions Singapore Pte. Limited
Axon Solutions (Shanghai) Co. Limited
HCL Axon (Proprietary) Limited
JSPC- I Solutions Sdn. Bhd.
JSP Consulting Sdn. Bhd.
HCL Technologies Canada Inc.
HCL Argentina s.a.
HCL Mexico S. de R.L.
HCL Technologies Romania s.r.l.
HCL Hungary Limited
HCL Latin America Holding LLC
HCL (Brazil) Technologia da informacao Ltda.
HCL Technologies Denmark Apps
HCL Technologies Norway AS
HCL Technologies South Africa (Proprietary) Limited
PT. HCL Technologies Indonesia Limited
HCL Arabia LLC
HCL Technologies France
Anzospan Investments PTY Limited
FILIAL ESPAÃOLA DE HCL TECHNOLOGIES, S.L(Spain)
Employee benefit trusts
HCL Technologies Limited Employees Trust Axon Group Plc Employee
Benefit Trust No. 3 Axon Group Plc Employee Benefit Trust No. 4
Jointly controlled entities
NEC HCL System Technologies Limited, India
Axon Puerto Rico Inc., Puerto Rico- through subsidiary
b) Related parties with whom transactions have taken place during the
year
Subsidiaries
HCL America Inc., United States of America
HCL Great Britain Limited, United Kingdom
HCL (Netherlands) BV, Netherlands
HCL GmbH, Germany
HCL Belgium NV, Belgium
HCL Sweden AB, Sweden
HCL Australia Services Pty. Limited, Australia
HCL (New Zealand) Limited, New Zealand
HCL Hong Kong SAR Limited, Hong Kong
HCL Comnet Systems and Services Limited, India
HCL Comnet Limited, India
HCL Bermuda Limited, Bermuda
HCL Technologies (Shanghai) Limited, Shanghai
HCL BPO Services (NI) Limited, Northern Ireland
HCL Singapore Pte. Limited, Singapore
HCL (Malaysia) Sdn. Bhd., Malaysia
HCL EAI Services Limited, India
HCL Global Processing Services Limited(formerly Intelicent India
Limited)
HCL Poland Sp.z.o.o., Poland
Capital Stream Inc., United States of America
HCL Axon (Pty) Limited
Axon Solutions Inc. , United States of America
Axon Solutions Limited, UK
Axon Solutions Singapore Pte Limited
Axon Solutions Sdn. Bhd., Malaysia
HCL Insurance BPO Services Limited, UK
Axon Solutions (Canada) Inc., Canada
HCL Technologies Canada Inc.
Axon Group Limited.
HCL France
HCL EAS Limited, UK
Jointly controlled entities
NEC HCL System Technologies Limited, India
Others (Significant influence)
HCL Corporation Limited
HCL Infosystems Limited
HCL Security Limited
HCL Infinet Limited.
HCL Holding Pvt. Limited.
HCL Insys Pte Limited., Singapore
c) Key Management Personnel
Shiv Nadar, Chairman and Chief Strategy Officer
Vineet Nayar, Chief Executive Officer and Whole-time Director
c) Guarantees have been given by the Company on behalf of various
subsidiaries against credit facilities, financial assistance and office
premises taken on lease amounting to Rs 2,283.86 crores (previous year Rs
2,219.44 crores). These guarantees have been given in the normal
course of the Company's operations and are not expected to result in
any loss to the Company on the basis of the beneficiaries fulfilling
their ordinary commercial obligations.
d) Bank guarantees of Rs 24.39 crores (previous year Rs 6.39 crores).
These guarantees have been given in the normal course of the Company's
operations and are not expected to result in any loss to the Company,
on the basis of the Company fulfilling its ordinary commercial
obligations.
The amounts shown in the items above represent best possible estimates
arrived at on the basis of available information. The uncertainties
and possible reimbursements are dependent on the outcome of the
different legal processes which have been invoked by the Company or the
claimants as the case may be and therefore cannot be predicted
accurately. The Company engages reputed professional advisors to
protect its interest and has been advised that it has strong legal
positions against such disputes.
iii) The Company has a comprehensive system of maintenance of
information and documents as required by the transfer pricing
legislation under sections 92-92F of the Income Tax Act, 1961. Since
the law requires existence of such information and documentation to be
contemporaneous in nature, the Company appoints independent consultants
for conducting a Transfer Pricing Study to determine whether the
transactions with associated enterprises are undertaken, during the
financial year, on an "arms length basis". Adjustments, if any, arising
from the transfer pricing study in the respective jurisdictions are
accounted for as and when the study is completed for the current
financial year. However the management is of the opinion that its
international transactions are at arms' length so that the aforesaid
legislation will not have any impact on the financial statements.
11. Derivative Financial Instruments
The Company is exposed to foreign currency fluctuations on foreign
currency assets / liabilities, forecasted cash flows denominated in
foreign currency. The use of derivatives to hedge foreign currency
forecasted cash flows is governed by the CompanyÃs strategy, which
provide principles on the use of such forward contracts and currency
options consistent with the CompanyÃs Risk Management Policy. The
counter party in these derivative instruments are banks and the Company
considers the risks of non-performance by the counterparty as
non-material. A majority of the forward foreign exchange / option
contracts mature between one to twenty months and the forecasted
transactions are expected to occur during the same period. The Company
does not use forward contracts and currency options for speculative
purposes.
As of the balance sheet date, the Company's net foreign currency
exposure that is not hedged is Rs 1399.20 crores (previous year Rs
3,754.76 crores).
Notes:
1. Balance as at year end is inclusive of deferred tax liability of Rs
4.27 crores (previous year deferred tax assets of Rs 7.51 crores).
2. At 30 June 2011, the estimated net amount of existing gain that is
expected to be reclassified into the income statement within the next
twelve months is Rs 23.51 crores (previous year loss of Rs 99.97 crores).
14. Micro, Small and Medium Enterprises
As per information available with the management, the dues payable as
at any time during the year ended 30 June 2011 and 2010 to enterprises
covered under "The Micro, Small and Medium Enterprises Development Act,
2006" is Rs Nil crores.
This has been determined on the basis of responses received from
vendors on specific confirmation sought by the Company in this regard.
15. Employee Benefit Plans
The Company has calculated the various benefits provided to employees
as under:
A. Defined Contribution Plans and State Plans
Superannuation Fund
EmployerÃs contribution to Employeesà State Insurance
EmployerÃs contribution to Employeesà Pension Scheme.
B. Defined Benefit Plans
a) Gratuity
b) Employers Contribution to Provident Fund
Gratuity
The Company has a defined benefit gratuity plan. Every employee who has
completed five years or more of service gets a gratuity on departure at
15 days salary (last drawn salary) for each completed year of service.
The Company expects to contribute Rs 20.31 crores to gratuity in
2011-12.
EmployerÃs Contribution to Provident Fund
The Guidance on implementing AS 15, Employee Benefits (revised 2005)
issued by the Accounting Standard Board (ASB) states that benefits
involving employer-established provident funds, which require interest
shortfall to be recompensed are to be considered as defined benefits
plans. Pending the issuance of the guidance note from the Actuarial
Society of India, the Company's actuary has expressed his inability to
reliably measure provident fund liabilities. Accordingly the Company is
unable to provide the related information.
During the year ended 30 June 2011, the Company has contributed Rs 58.77
crores (Previous year Rs 48.13 crores) towards employersà contribution
to the Provident Fund.
16. Joint Venture
The Company has an interest in the following jointly controlled
entities:
17. A scheme of Amalgamation ("Scheme") under sections 391 to 394 of
the Companies Act, 1956 for amalgamation without issue of shares of HCL
Technopark Limited, a wholly owned subsidiary ("Transferor Company"),
held directly, with the Company has been approved by the Hon'ble High
Court of Delhi on August 16, 2010 and is effective from April 1, 2009.
The Transferor Company was engaged in the business of a developer of
facilities for the IT industry. The amalgamation is expected to
channelize synergies and lead to optimum utilisation of available
resources and result in greater economies of scale.
The Company has accounted for the amalgamation under the 'pooling of
interest method' being an amalgamation in the nature of merger, as
prescribed by the Accounting standard "AS-14", "Accounting for
Amalgamations" as per Accounting Standards notified by Companies
(Accounting Standards) Rules, 2006, (as amended).
19. Previous year comparatives
The previous year's figures have been re-classified/re-grouped to
conform to current year's classification.
I. Registration details
Registration No. 55-46369
Balance Sheet Date 30 June 2011
State Code 55
II. Capital raised during the year
Public issue Rights issue
Nil Nil
Bonus issue Private Placement
Nil 2,162,171
Note: Capital raised during the year includes share application money.
III. Position of mobilisation and deployment of funds
Total liabilities Total assets
68,893,077 68,893,077
Sources of funds Paid-up capital 1,387,419*
Secured loans 10,298,674
*Includes Rs 10,042 in respect of share application money.
Reserves and surplus 57,204,053
Unsecured loans 2,905
Application of funds
Net fixed assets Investments
18,646,590** 26,532,707
Net current assets Misc. expenditure
22,383,246 Nil
Accumulated losses Deferred tax
Nil 1,330,605
** Includes Rs 5,687,337 thousands in respect of capital
work-in-progress.
IV. Performance of Company
Turnover Total expenditure
69,607,473 56,708,697
Profit before tax Profit after tax
12,898,776 11,982,791
Earnings per share (in Rs) Dividend rate (%)
17.53 (Basic) 375% 17.18 (Diluted)
V. Generic names of Principal Products/Services of Company (as per
monetary terms) Product description: Software
Item code (ITC code): 852490
Jun 30, 2010
Company Overview
HCL Technologies Limited (hereinafter referred to as HCL or the
Company) is primarily engaged in providing a range of software
services, business process outsourcing and infrastructure services. The
Company was incorporated in India in November 1991. The Company
leverages an extensive offshore infrastructure and its global network
of offices in various countries and professionals to deliver solutions
across select verticals including Retail, Aerospace and defense,
Automotive, Telecom, Financial Services, Government, Hi-tech, Media and
Entertainment, Travel, Transportation and Logistics, Energy and
utilities, Life Sciences and Healthcare.
1. Segment reporting
Identification of Segments
The Companys operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
i) Business Segments
The operations of the Company and its subsidiaries predominately relate
to providing Software services, infrastructure services including sale
of networking equipment and business processing outsourcing services,
which are in the nature of customer contact centers and technical help
desks. The Chairman of the Company, who is the Chief Strategy Officer,
evaluates the Companys performance and allocates resources based on an
analysis of various performance indicators by types of service provided
by the Company and geographic segmentation of customers.
Accordingly, revenue from service segments comprises the primary basis
of segmental information set out in these financial statements.
Secondary segmental reporting is performed on the basis of the
geographical location of customers.
Revenue in relation to service segments is categorised based on items
that are individually identifiable to that segment, while expenditure
is categorised in relation to the associated turnover of the segment.
Assets and liabilities are also identified to service segments.
ii) Geographic Segments
Geographic segmentation is based on the location of the respective
client. The principal geographical segments have been classified as
America, Europe and others. Europe comprises business operations
conducted by the Company in the United Kingdom, Sweden, Germany, Italy,
Belgium, Netherlands, Finland, Switzerland, Ireland and Poland. Since
services provided by the Company within these European entities are
subject to similar risks and returns, their operating results have been
reported as one segment, namely Europe. All other customers, mainly in
Japan, Australia, New Zealand, Singapore, Malaysia, Israel, South
Korea, India, China, Hong Kong, Czech Republic, Macau, UAE, Portugal
and Russia are included in others.
iii) Segment accounting policies
The accounting principles consistently used in the preparation of the
financial statements and consistently applied to record revenue and
expenditure in individual segments are as set out in Note 1 to this
schedule on significant accounting policies. The accounting policies
in relation to segment accounting are as under:
a) Segment assets and liabilities
All segment assets and liabilities have been allocated to the various
segments on the basis of specific identification.
Segment assets consist principally of fixed assets, sundry debtors,
loans and advances, cash and bank balances and unbilled receivables.
Segment assets do not include unallocated corporate and treasury
assets, net deferred tax assets and advance taxes.
Segment liabilities include sundry creditors and other liabilities.
Segment liabilities do not include share capital, reserves, secured
loans, unsecured loan and provision for taxes.
b) Segment revenue and expenses
Segment revenue is directly attributable to the segment and segment
expenses have been allocated to various segments on the basis of
specific identification. However, segment revenue does not include
miscellaneous income, income from investments and
other income. Segment expenses do not include premium amortized on
bonds, diminution allowance in respect of current and trade
investments, other than temporary diminution in the value of long term
investment, charge taken for stock options issued to employees,
corporate expenses and finance cost.
2. Related party transactions
a) Related parties where control exists
Subsidiaries
HCL Comnet Systems and Services Limited
HCL Bermuda Limited
HCL Technologies (Shanghai) Limited
HCL Technoparks Limited
HCL Great Britain Limited
HCL (Netherlands) BV
HCL GmbH
HCL Belgium NV
HCL Sweden AB
HCL Italy SLR
HCL Australia Services Pty. Limited
HCL (New Zealand) Limited
HCL Hong Kong SAR Limited
HCL Japan Limited
HCL Comnet Limited
HCL America Inc.
HCL Holdings GmbH
Intelicent India Limited
DSI Financial Solutions Pte. Limited
HCL BPO Services (Nl) Limited
HCL Jones Technologies LLC
HCL Singapore Pte. Limited
HCL (Malaysia) Sdn. Bhd.
HCL EAI Services Limited
HCL Poland sp. z o.o
Capital Stream, Inc.
HCL EAS Limited
HCL Insurance BPO Services Limited
HCL Expense Management Services Inc.
Axon Group Limited, (formerly Axon Group Pic.)
Axon EBT Trustee Limited
Axon Solutions (Canada) Inc.
By water Limited
Axon Solutions Schweiz Gmbh
Axon International Limited
Axon Solutions Pty. Limited
Axon Solutions Inc.
Axon Acquisition Company, Inc.
Axon Solutions Limited
Axon Solutions Sdn. Bhd.
Axon Solutions Singapore Pte. Limited
Axon Solutions (Shanghai) Co. Limited
HCL Axon (Proprietary) Limited
JSPC-1 Solutions Sdn. Bhd.
JSP Consulting Sdn. Bhd.
Aspire Solutions Sdn. Bhd.
HCL Technologies Canada Inc.
HCL Argentina s.a.
HCL Mexico S. de R.L.
HCL Technologies Romania s.r.l.
HCL Hungary Limited
HCL Latin America Holding LLC
HCL (Brazil) Technologia da informacao Ltda.
HCL Retail Solutions Australia Pty Limited HCL Technologies Denmark
Apps HCL Technologies Norway AS
Employee benefit trusts
HCL Technologies Limited Employees Trust Axon Group Pic Employee
Benefit Trust No. 3 Axon Group Pic Employee Benefit Trust No. 4 jointly
controlled entities
NEC HCL System Technologies Limited, India Axon Balance LLC, United
States of America Axon Puerto Rico Inc., Puerto Rico
b) Related parties with whom transactions have taken place during the
year
Subsidiaries
HCL America Inc., United States of America
HCL Great Britain Limited, United Kingdom
HCL (Netherlands) BV, Netherlands
HCL GmbH, Germany
HCL Belgium NV, Belgium
HCL Sweden AB, Sweden
HCL Australia Services Pty. Limited, Australia
HCL (New Zealand) Limited, New Zealand
HCL Hong Kong SAR Limited, Hong Kong
HCL Comnet Systems and Services Limited, India
HCL Comnet Limited, India
HCL Bermuda Limited, Bermuda
HCL Technologies (Shanghai) Limited, Shanghai
HCL BPO Services (Nl) Limited, Northern Ireland
HCL Singapore Pte. Limited, Singapore
HCL (Malaysia) Sdn. Bhd., Malaysia
HCL EAI Services Limited, India
HCL Technoparks Limited, India
HCL Poland Sp.z.o.o., Poland
Capital Stream Inc., United States of America
HCL Axon (Pty) Limited
Axon Solutions Inc., United States of America
Axon Solutions Limited, U K
Axon Solutions Singapore Pte Limited
Axon Solutions Sdn. Bhd., Malaysia
HCL Insurance BPO Services Limited, U K
Axon Solutions (Canada) Inc., Canada
HCL Technologies Canada Inc.
Axon Group PLC
HCL France
HCL EAS Limited, U K
Jointly controlled entities
NEC HCL System Technologies Limited, India Others (Significant
influence)
HCL Corporation Limited*
HCL Infosystems Limited
HCL Security Limited
HCL Infinet Limited.
*HCL Corporation ceases to be holding company from 24 June, 2010. As on
June 30,2010 HCL Corporation held 323,082,542 shares in the Company
being 47.6% holding in HCL Technologies Limited
c) Key Management Personnel
Shiv Nadar, Chairman and Chief Strategy Officer
Vineet Nayar, Chief Executive Officer and Whole-time Director
3. Commitments and Contingent liabilities
As at As at
30 June 2010 30 June 2009
i) Capital and other commitments
a) Capital commitments
Estimated amount of unexecuted capital 274.15 244.09
contracts (net of advances)
b) Outstanding letter of credit 1.76 21.20
275.91 265.29
ii) Contingent Liabilities
a) Guarantees have been given by the Company on behalf of various
subsidiaries against credit facilities, financial assistance and office
premises taken on lease amounting to Rs. 2,219.44 crores (previous year
Rs. 3,063.38 crores). These guarantees have been given in the normal
course of the Companys operations and are not expected to result in
any loss to the Company on the basis of the beneficiaries fulfilling
their ordinary commercial obligations.
b) Bank guarantees of Rs. 6.39 crores (previous year Rs. 11.34 crores).
These guarantees have been given in the normal course of the Companys
operations and are not expected to result in any loss to the Company,
on the basis of the Company fulfilling its ordinary commercial
obligations.
c) Income Tax demands (excluding interest) of Rs. 9.99 crores (previous
year Rs. 9.99 crores)
d) Indirect Tax demands of Rs 1.63 crores (previous year Rs Nil crores)
The amounts shown in the item (c) above represent best possible
estimates arrived at on the basis of available information. The
uncertainties and possible reimbursements are dependent on the outcome
of the different legal processes which have been invoked by the Company
or the claimants as the case may be and therefore cannot be predicted
accurately. The Company engages reputed professional advisors to
protect its interest and has been advised that it has strong legal
positions against such disputes.
iii) The Company has a comprehensive system of maintenance of
information and documents as required by the transfer pricing
legislation under sections 92-92F of the Income Tax Act, 1961. Since
the law requires existence of such information and documentation to be
contemporaneous in nature, the Company appoints independent consultants
for conducting a Transfer Pricing Study to determine whether the
transactions with associated enterprises are undertaken, during the
financial year, on an "arms length basis". Adjustments, if any, arising
from the transfer pricing study in the respective jurisdictions are
accounted for as and when the study is completed for the current
financial year. However the management is of the opinion that its
international transactions are at arms length so that the aforesaid
legislation will not have any impact on the financial statements.
4. Derivative Financial Instruments
The Company is exposed to foreign currency fluctuations on foreign
currency assets / liabilities, forecasted cash flows denominated in
foreign currency. The use of derivatives to hedge foreign currency
forecasted cash flows is governed by the Companys strategy, which
provide principles on the use of such forward contracts and currency
options consistent with the Companys Risk Management Policy. The
counter party in these derivative instruments are banks and the Company
considers the risks of non-performance by the counterparty as
non-material. A majority of the forward foreign exchange/option
contracts mature between one to twelve months and the forecasted
transactions are expected to occur during the same period. The Company
does not use forward contracts and currency options for speculative
purposes.
5. Micro, Small and Medium Enterprises
As per information available with the management, the dues payable to
enterprises covered under "The Micro, Small and Medium Enterprises
Development Act, 2006" as at 30 June 2009 and 2010 is Rs Nil crores.
This has been determined on the basis of responses received from
vendors on specific confirmation sought by the Company in this regard.
15. Employee Benefit Plans
The Company has calculated the various benefits provided to employees
as under:
A. Defined Contribution Plans and State Plans
Superannuation Fund
Employers contribution to Employees State Insurance
Employers contribution to Employees Pension Scheme.
Employers Contribution to Provident Fund
The Guidance on implementing AS 15, Employee Benefits (revised 2005)
issued by Accounting Standard Board (ASB) states benefits involving
employer established provident funds, which requires interest shortfall
to be recompensed are to be considered as defined benefits plans.
Pending the issuance of the guidance note from the Actuarial Society of
India, the Companys actuary has expressed an inability to reliable
measure provident fund liabilities. Accordingly the company is unable
to exhibit the related information. During the year ended 30 June
2010, the Company has contributed Rs. 48.13 crores (Previous year Rs.
35.78 crores) towards Employers contribution to the Provident Fund.
7. Previous year comparatives
The figures of previous year were audited by a firm of chartered
accountants other than S.R. Batliboi & Co. The previous years figures
have been re-classified/re-grouped to conform to current years
classification.
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