A Oneindia Venture
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Notes to Accounts of HDFC Asset Management Company Ltd.
Mar 31, 2025
b) Terms/Rights attached to Equity Shares
1. The Company had issued only one class of equity shares referred to as equity share having face value of '' 10 each which was sub-divided to '' 5 each w.e.f. February 13, 2018. Each holder of equity shares is entitled to one vote per share.
2. The holders of equity shares are entitled to dividends, if any, proposed by the board of directors and approved by the Shareholders at the Annual General Meeting, except in case of interim dividends which is approved by board of directors and confirmed by the Shareholders at the Annual General Meeting.
3. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of preferential amount. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the Shareholders.
c) 11,21,79,830 equity shares of '' 5 each (Previous Year 11,21,79,830 equity shares of '' 5 each) are held by HDFC Bank Limited
(Holding Company)$.
Note 18 Other equityNature and purpose of reserves
Share application pending allotment
Until the shares are allotted, the amount received is shown under the Share Application Money Pending Allotment.
Capital redemption reserve
Whenever there is a buy-back or redemption of share capital, the nominal value of the capital is transferred to a reserve called Capital Redemption Reserve so as to retain the capital.
Securities premium
Securities Premium is used to record the premium (amount received in excess of face value of equity shares) on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013. The securities premium also includes amount transferred from Share options outstanding account upon exercise of options by employees and directors and subsequent allotment of shares to them.
General reserve
Pursuant to the provisions of Companies Act,1956, the Company had transferred a portion of its net profit before declaring dividend, to general reserve. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
Share options outstanding account
The grant date fair value of equity-settled share based payment transactions with employees and directors are recognised in the Standalone Statement of Profit and Loss with the corresponding credit to this account over the vesting period. The amounts recorded in Share options outstanding account are transferred to securities premium upon exercise of stock options and subsequent allotment of shares and transferred to retained earnings on account of stock options not exercised.
Retained earnings
Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to the Shareholders, net of utilisation as permitted under applicable regulations.
Debt instruments through Other Comprehensive Income
This comprises the changes in the fair value of debt instruments recognised in Other Comprehensive Income and accumulated within equity. The Company transfers the amounts from such component of equity to Standalone Statement of Profit and Loss when the relevant debt instruments are derecognised.
Refer ''Other Equity'' section in ''Standalone Statement of Changes in Equity'' for movement in reserves and surplus during the year.
b) Defined Benefit Plan - Gratuity
In accordance with the applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments. The plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment, which requires contributions to be made to a separately administered fund.
The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.
The amounts are based on the respective employee''s last drawn salary and the years of employment with the Company. Liabilities in respect of the gratuity plan are determined by an actuarial valuation, based upon which the Company makes annual contributions to the plan. The plan is funded with a life insurance company in the form of a qualifying insurance policy.
The following tables summaries the components of net employee benefit expense recognised in the Standalone Statement of Profit and Loss, the funded status and amounts recognised in Standalone Balance Sheet.
The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The sensitivity analysis presented above may not be representative of the actual change in the Defined Benefit Obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the Defined Benefit Obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the Defined Benefit Obligation as recognised in the Standalone Balance Sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
Risks associated with Defined Benefit Plan:
(i) Interest Rate Risk
A fall in the discount rate which is linked to the G.Sec. rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
(ii) Salary Risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan''s liability.
(iii) Investment Risk
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities and other debt instruments.
(iv) Asset Liability Matching (ALM) Risk
The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
(v) Mortality Risk
Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.
(vi) Concentration Risk
Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very low as insurance companies have to follow stringent regulatory guidelines which mitigate risk.
During the year, there were no plan amendments, curtailments and settlements.
Accounting for Employee Share Based Payments
All the below said stock options have been granted under the Employees Stock Option Scheme 2020 (''ESOS 2020'') of the Company. Each stock option represents one equity share of '' 5/- each. The said stock options have been granted at the market price as defined in SEBI (Share Based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at the latest available closing price of the shares of the Company on National Stock Exchange of India Limited on the trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee of the Board of Directors of the Company (''Nomination & Remuneration Committeeâ).
In terms of ESOS 2020, the options shall vest in three tranches. Each of these tranches consisting of 1/3 of the options granted shall vest on the completion of the 1st, 2nd and 3rd year from the date of the grant respectively. Any fractional residue shall be settled in the 3rd tranche. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2017 - Series I (ESOS 2017 - Series I), the Company had on July 28, 2017 granted 1,58,875 stock options at an exercise price of '' 5,353.00/- per option, representing 1,58,875 equity shares of '' 10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series I, the options vest over a period of1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Pursuant to the terms of respective Employees Stock Option Schemes (ESOS), in case of a corporate action like bonus shares, rights issue, buyback of shares, split of shares, reduction of capital etc., the number of options outstanding as at the date of the corporate action and the exercise price under all the relevant ESOS shall stand modified accordingly, so as to ensure that the paid-up value of the total shares that can be issued under them remains unchanged. Accordingly, the Nomination and Remuneration Committee of the Company has resolved, vide its circular resolution passed in February 2018, to make appropriate adjustments to the outstanding options and now each option represents one equity share of '' 5/- each.
Total expense arising from equity settled share based payment transaction for the stock options granted to the eligible employees of the Company, amounting to '' 22.49 Crore (Previous Year '' 47.05 Crore) has been charged to Standalone Statement of Profit and Loss. Further, the cost of stock options granted to the eligible employees of WOS, amounting to '' 0.03 Crore (Previous Year '' Nil) is recognised as a capital contribution to the subsidiary.
The weighted average share price for options exercised during the year under various Series''/Grants was '' 4,122.11 (Previous Year '' 1,964.13)
Fair value methodology
The fair value of options used to compute net income and earnings per equity share has been estimated on the date of grant using Black-Scholes model.
Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black - Scholes Model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time.
As on the date of grant in case of ESOS 2017-Series I, the Company being an unlisted company and in the absence of listed comparable companies, volatility had been considered to be Nil.
As on the respective dates of grant in case of ESOS 2020, wherever the trading history of the Company and/or its comparable company(s) listed on the Stock exchange were less than the life of the option, Nifty Financial Services Index was also considered for deriving the volatility.
Basic earnings per share (EPS) is calculated by dividing the profit after tax for the year attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS is calculated by dividing the profit after tax for the year attributable to equity shareholders of the Company adjusted for the effects of all dilutive potential ordinary shares by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. There is no effect of dilutive potential ordinary shares on profit after tax for the year attributable to equity shareholders of the Company.
The Company has framed Car Policy to provide use of the Company owned car for the commute from residence to workplace, for the discharge of their official functions and for personal use to certain selected employees of the Company. As per the Car Policy of the Company, the car is registered in the name of the Company and will remain the property of the Company till it is duly transferred to employee in accordance with the Car Policy and after recovery of all lease receivables. In case of separation of employee from the Company, outstanding lease receivables are recovered/adjusted from employee''s full and final settlement in accordance with the Car Policy.
(a) Description of segments and principal activities
The Company is in the business of providing asset management services to HDFC Mutual Fund & alternative investment funds and portfolio management & advisory services to clients. The Company''s financial statements are largely reflective of the asset management business and accordingly there are no separate reportable segments as per Ind AS 108, Operating Segment.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The CODMâs function is to allocate the resources of the entity and assess the performance of the operating segment of the Company.
Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMEDA) which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro and Small enterprises. On the basis of the information and records available with the management, the following disclosures are made for the amounts due to the Micro and Small enterprises, which have registered with the competent authorities.
Equity share capital and other equity are considered for the purpose of Companyâs capital management. The Company manages its capital in a manner which enables it to safeguard its ability to continue as a going concern and to optimise returns to the Shareholders. The capital structure of the Company is based on managementâs judgement of its strategic and day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence. The funding requirements are met through operating cash flows and other equity. The management monitors the return on capital and the board of directors monitors the level of dividends paid to shareholders of the Company. The Company may take appropriate steps in order to maintain, or if necessary adjust, its capital structure. As of March 31, 2025 and March 31, 2024, the Company has only one class of equity shares and has no debt. In the absence of any debt, the monitoring of debt equity ratio may not be appropriate for the Company. As of March 31, 2025 the Equity Share Capital is '' 106.90 Crore (Previous Year: '' 106.74 Crore) and Other Equity is '' 8,027.24 Crore (Previous Year: '' 6,972.33 Crore). Certain minimum networth requirements for the business have been laid down by SEBI. The same is monitored on regular basis and have been complied with.
B. Fair value hierarchy
As per Ind AS 107, ''Financial Instruments: Disclosures'', the fair values of the financial assets or financial liabilities are defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs.
The hierarchy used is as follows:
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Investment in open ended Mutual Funds are included in Level 1.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Lease liabilities and Investment in close ended Mutual Funds, Alternative Investment Fund and Debt Securities that are not traded in active market are included in Level 2.
Level 3 â Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. Investment in unlisted Debt Securities, unlisted Equity Instruments, Alternative Investment Funds and Venture Capital Fund are included in Level 3.
In order to assess Level 3 valuations as per Companyâs investment policy, the management reviews the performance of the investee companies (including unlisted portfolio companies of venture capital fund and alternative investment funds) on a regular basis by tracking their latest available information, valuation report of independent valuers, recent transaction results, investor reports etc. which are considered in valuation process.
The finance department of the Company includes the team that performs the valuation of financial assets and liabilities required for financial reporting purposes, including level 3 fair value. The team reports directly to the Chief Financial Officer (CFO) of the Company. Discussions of valuation processes and results are held between the valuation team and the senior management at least once every three months which is in line with the Companyâs quarterly reporting periods.
D. Valuation inputs and relationship to fair value
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurement.
F. Financial Risk Management
Risk management is an integral part of the business practices of the Company. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The financial risks are managed in accordance with the Company''s policy on enterprise risk management which has been approved by its Board of Directors. The Companyâs Board of Directors has ultimate responsibility for monitoring the risk profile of the Company. The purpose of risk management is to identify potential problems before they occur, so that riskhandling activities may be planned and invoked as needed to manage adverse impacts on achieving objectives.
The Audit Committee of the Company reviews the development and implementation of the policy on enterprise risk management of the Company on periodic basis. The Audit Committee provides guidance on the risk management activities, review the results of the risk management process and reports to the Board of Directors on the status of the risk management initiatives.
i. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company''s trade and other receivables, cash and cash equivalents, other bank balances, other financial assets measured at amortised cost and debt securities measured at FVOCI.
Exposure to credit risk is mitigated through regular monitoring of collections, counterpartyâs creditworthiness and diversification in exposure.
Exposure to credit risk
The carrying amount of financial assets represents maximum amount of credit exposure. The maximum exposure to credit risk is as per the table below, it being total of carrying amount of cash and cash equivalent, other bank balances, trade and other receivables, other financial assets measured at amortised cost and debt securities measured at FVOCI.
Expected Credit Loss (ECL) on Financial Assets
The Company continuously monitors all financial assets subject to ECLs. In order to determine whether an instrument is subject to 12 month ECL (12mECL) or life time ECL (LTECL), the Company assesses whether there has been a significant increase in credit risk or the asset has become credit impaired since initial recognition. The Company applies following quantitative and qualitative criteria to assess whether there is significant increase in credit risk or the asset has been credit impaired:
⢠Historical trend of collection from counterparty
⢠Companyâs contractual rights with respect to recovery of dues from counterparty
⢠Credit rating of counterparty and any relevant information available in public domain
ECL is a probability weighted estimate of credit losses. It is measured as the present value of cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with contract and the cash flows that the Company expects to receive).
The Company has four types of financial assets that are subject to the expected credit loss:
⢠Trade & other receivables and other financial assets
⢠Cash and cash equivalents and other bank balances
⢠Investment in debt securities measured at amortised cost
⢠Investment in debt securities measured at FVOCI Trade & Other Receivables and Other Financial Assets
Exposures to customers'' outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of collection from counterparties on timely basis reflects low level of credit risk. As the Company has a contractual right to such receivables as well as control over preponderant amount of such funds due from customers, the Company does not estimate any credit risk in relation to such receivables. Further, management believes that the unimpaired amounts that are past due by more than 180 days are still collectible in full, based on historical payment behaviour.
The Company has placed security deposit with lessors for premises leased by the Company. The Company does not perceive any significant decline in credit risk profile of the lessors where the amount of security deposit is material and hence expected probability of default is considered as zero.
Cash and Cash Equivalents and Other Bank Balances
The Company holds cash and cash equivalents and other bank balances as per note 4 and 5. The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be high.
Investment in Debt Securities measured at amortised cost
The Company has made investments in tax free bonds. Funds are invested after taking into account parameters like safety, liquidity and post tax returns etc. The Company avoids concentration of credit risk by spreading them over several counterparties with good credit rating profile and sound financial position. The Companyâs exposure and credit ratings of its counterparties are monitored on an ongoing basis.
I nvestment in debt securities that are in tax free bonds do not carry any credit risk, being sovereign in nature. Accordingly, the expected probability of default is low.
Investment in Debt Securities measured at FVOCI
The Company has made investments in non-convertible debentures. Funds are invested after taking into account parameters like liquidity, credit rating, safety and sound financial position of the counterparties. The Companyâs exposure and credit ratings of its counterparties are monitored on an ongoing basis. Accordingly, the expected probability of default is low.
ii. Liquidity Risk
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios could occur when funding needed for illiquid asset positions is not available to the Company on acceptable terms.
To limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. The Company has developed internal control processes for managing liquidity risk.
The Company maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption in cash flow. The Company assesses the liquidity position under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Company.
Exposure to Liquidity Risk
The table below analyses the Company''s financial liabilities into relevant maturity pattern based on their contractual maturities for all financial liabilities.
iii. Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows related to financial instrument that may result from adverse changes in market rates and prices (such as foreign exchange rates, interest rates, other prices). The Company is exposed to market risk primarily related to currency risk, interest rate risk and price risk.
Currency Risk
The Company has insignificant amount of foreign currency denominated assets. Accordingly, the exposure to currency risk is insignificant.
Interest Rate Risk
The Company''s investments are primarily in fixed rate interest instruments. Accordingly, the exposure to interest rate risk is also insignificant.
Price Risk
Price risk is the risk that the value of the financial instrument will fluctuate as a result of changes in market prices and related market variables including interest rate for investments in debt oriented mutual funds and debt securities, whether caused by factors specific to an individual investment, its issuer or the market. The Companyâs exposure to price risk arises from investments in equity securities, debt securities, units of mutual funds, venture capital fund and alternative investment funds which are classified as financial assets at Fair Value Through Profit or Loss and debt securities classified at Fair Value Through Other Comprehensive Income are as follows:
(iii) The Company is in compliance with number of layers of companies, as prescribed under clause (87) of Section 2 of the Act read with the Companies (Restriction on number of Layers) Rules, 2017.
(iv) The Company does not have any transactions which were not recorded in the books of accounts, but offered as income during the year in the income tax assessment.
(v) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(vi) No funds have been advanced/loaned/invested (from borrowed funds or from share premium or from any other sources/ kind of funds) by the Company to any other person(s) or entity(ies), including foreign entities (Intermediaries), with the understanding (whether recorded in writing or otherwise) that the Intermediary shall (i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.
No funds have been received by the Company from any person(s) or entity(ies), including foreign entities (Funding Parties), with the understanding (whether recorded in writing or otherwise) that the Company shall (i) directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
The Code on Social Security, 2020 (''Codeâ) relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period in which the Code becomes effective.
Mar 31, 2024
b) Terms/Rights attached to Equity Shares
1. The Company had issued only one class of equity shares referred to as equity share having face value of ''10 each which was sub-divided to ''5 each w.e.f. February 13, 2018. Each holder of equity shares is entitled to one vote per share.
2. The holders of equity shares are entitled to dividends, if any, proposed by the board of directors and approved by the Shareholders at the Annual General Meeting.
3. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of preferential amount. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the Shareholders.
c) 11,21,79,830 equity shares of ''5 each (Previous Year 11,21,79,830 equity shares of ''5 each) are held by HDFC Bank Limited
(Previous Year: Housing Development Finance Corporation Limited) - Holding Company$.
e) 23,16,200 equity shares of ''5 each are reserved for issuance towards outstanding employee stock options.
f) No equity shares were bought back during last five years.
g) No shares were allotted as fully paid-up âpursuant to any contract without payment being received in cashâ in last five years.
h) No bonus shares were issued during the period of five years immediately preceding the reporting date.
$HDFC Bank Limited (''HDFC Bank'') has become the Holding Company and Promoter of HDFC Asset Management Company Limited, in place of Housing Development Finance Corporation Limited (''HDFC Ltd.''), with effect from July 01, 2023, pursuant to the Composite scheme of amalgamation of: (i) HDFC Investments Limited and HDFC Holdings Limited, wholly owned subsidiaries of HDFC Ltd. with and into HDFC Ltd.; and (ii) HDFC Ltd. with and into HDFC Bank.
Nature and purpose of reserves
Share application pending allotment
Until the shares are allotted, the amount received is shown under the Share Application Money Pending Allotment.
Capital redemption reserve
Whenever there is a buy-back or redemption of share capital, the nominal value of the capital is transferred to a reserve called Capital Redemption Reserve so as to retain the capital.
Securities premium
Securities Premium is used to record the premium (amount received in excess of face value of equity shares) on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013. The securities premium also includes amount transferred from Share options outstanding account upon exercise of options by employees and subsequent allotment of shares to them.
General reserve
Pursuant to the provisions of Companies Act,1956, the Company had transferred a portion of its net profit before declaring dividend, to general reserve. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
Share options outstanding account
The grant date fair value of equity-settled share based payment transactions with employees and directors are recognised in the Standalone Statement of Profit and Loss with the corresponding credit to this account over the vesting period. The amounts recorded in Share options outstanding account are transferred to securities premium upon exercise of stock options by the employees and subsequent allotment of shares to them.
Retained earnings
Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to the Shareholders, net of utilisation as permitted under applicable regulations.
Refer ''Other Equity'' section in ''Standalone Statement of Changes in Equity'' for movement in reserves and surplus during the year.
b) Defined Benefit Plan - Gratuity
In accordance with the applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments. The plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment, which requires contributions to be made to a separately administered fund.
The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.
The amounts are based on the respective employee''s last drawn salary and the years of employment with the Company. Liabilities in respect of the gratuity plan are determined by an actuarial valuation, based upon which the Company makes annual contributions to the plan. The plan is funded with a life insurance company in the form of a qualifying insurance policy.
The following tables summaries the components of net employee benefit expense recognised in the Standalone Statement of Profit and Loss, the funded status and amounts recognised in Standalone Balance Sheet.
The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The sensitivity analysis presented above may not be representative of the actual change in the Defined Benefit Obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the Defined Benefit Obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the Defined Benefit Obligation as recognised in the Standalone Balance Sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
Risks associated with Defined Benefit Plan:
(i) Interest Rate Risk
A fall in the discount rate which is linked to the G.Sec. rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
(ii) Salary Risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the plan''s liability.
(iii) Investment Risk
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities and other debt instruments.
(iv) Asset Liability Matching (ALM) Risk
The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
(v) Mortality Risk
Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.
(vi) Concentration Risk
Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very low as insurance companies have to follow stringent regulatory guidelines which mitigate risk.
During the year, there were no plan amendments, curtailments and settlements.
Accounting for Employee Share Based Payments
Under Employees Stock Option Scheme 2020 (ESOS 2020), the Company had on January 10, 2024 granted 38,800 stock options, representing 38,800 equity shares of ''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share Based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''3,415.25 per option, being the latest available closing price of the shares of the Company on National Stock Exchange ofIndia Limited, on January 09, 2024 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee of the Board of Directors of the Company (''Nomination & Remuneration Committeeâ).
Under ESOS 2020, the Company had on April 25, 2023 granted 10,50,000 stock options, representing 10,50,000 equity shares of''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share Based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''1,780.90 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on April 24, 2023 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee.
Under ESOS 2020, the Company had on July 21, 2022 granted 50,000 stock options, representing 50,000 equity shares of ''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share Based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''1,921.70 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on July 20, 2022 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee.
Under ESOS 2020, the Company had on January 24, 2022 granted 1,82,000 stock options, representing 1,82,000 equity shares of''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share Based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''2,369.40 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on January 21, 2022 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee.
Under ESOS 2020, the Company had on February 22, 2021 granted 11,45,000 stock options, representing 11,45,000 equity shares of ''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share Based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''2,934.25 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on February 19, 2021 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee.
In terms of ESOS 2020, the options shall vest in three tranches. Each of these tranches consisting of 1/3 of the options granted shall vest on the completion of the 1st, 2nd and 3rd year from the date of the grant respectively. Any fractional residue shall be settled in the 3rd tranche. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2017 - Series I (ESOS 2017 - Series I), the Company had on July 28, 2017 granted 1,58,875 stock options at an exercise price of ''5,353/- per option, representing 1,58,875 equity shares of ''10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series I, the options vest over a period of1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Pursuant to the terms of respective Employees Stock Option Schemes (ESOS), in case of a corporate action like bonus shares, rights issue, buyback of shares, split of shares, reduction of capital etc., the number of options outstanding as at the date of the corporate action and the exercise price under all the relevant ESOS shall stand modified accordingly, so as to ensure that the paid-up value of the total shares that can be issued under them remains unchanged. Accordingly, the Nomination and Remuneration Committee of the Company has resolved, vide its circular resolution passed in February 2018, to make appropriate adjustments to the outstanding options and now each option represents one equity share of ''5/- each.
The weighted average share price for options exercised during the year under various Series''/Grants was ''1,964 (Previous Year ''2,012)
Fair Value Methodology
The fair value of options used to compute net income and earnings per equity share has been estimated on the date of grant using Black-Scholes model.
Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black - Scholes Model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time.
As on the date of grant in case of ESOS 2017-Series I, the Company being an unlisted company and in the absence of listed comparable companies, volatility had been considered to be Nil.
As on the respective dates of grant in case of ESOS 2020, wherever the trading history of the Company and/or its comparable company(s) listed on the Stock exchange were less than the life of the option, Nifty Financial Services Index was also considered for deriving the volatility.
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
Significant management judgment is required in determining provision for income tax, deferred tax assets and liabilities and recoverability of deferred tax assets. The recoverability of deferred tax assets is based on estimates of taxable income and the period over which deferred tax assets will be recovered. Any changes in future taxable income would impact the recoverability of deferred tax assets.
Basic earnings per share (EPS) is calculated by dividing the profit after tax for the year attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS is calculated by dividing the profit after tax for the year attributable to equity shareholders of the Company adjusted for the effects of all dilutive potential ordinary shares by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. There is no effect of dilutive potential ordinary shares on profit after tax for the year attributable to equity shareholders of the Company.
A. The Company has entered into leasing arrangements for premises. Majority of the leases are cancellable by the Company. Right of Use asset has been included under the line ''Property, Plant and Equipment'' and Lease liability has been included under ''Other Financial Liabilities'' in the Standalone Balance Sheet.
The Company has framed Car Policy to provide use of the Company owned car for the commute from residence to workplace, for the discharge of their official functions and for personal use to certain selected employees of the Company. As per the Car Policy of the Company, the car is registered in the name of the Company and will remain the property of the Company till it is duly transferred to employee in accordance with the Car Policy and after recovery of all lease receivables. In case of separation of employee from the Company, outstanding lease receivables are recovered/adjusted from employee''s full and final settlement in accordance with the Car Policy.
(a) Description of segments and principal activities
The Company is in the business of providing asset management services to HDFC Mutual Fund & alternative investment fund and portfolio management & advisory services to clients. The Company''s financial statements are largely reflective of the asset management business and accordingly there are no separate reportable segments as per Ind AS 108, Operating Segment.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The CODMâs function is to allocate the resources of the entity and assess the performance of the operating segment of the Company.
Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMEDA) which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro and Small enterprises. On the basis of the information and records available with the management, the following disclosures are made for the amounts due to the Micro and Small enterprises, which have registered with the competent authorities.
Equity share capital and other equity are considered for the purpose of Companyâs capital management. The Company manages its capital in a manner which enables it to safeguard its ability to continue as a going concern and to optimise returns to the Shareholders. The capital structure of the Company is based on managementâs judgement of its strategic and day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence. The funding requirements are met through operating cash flows and other equity. The management monitors the return on capital and the board of directors monitors the level of dividends paid to shareholders of the Company. The Company may take appropriate steps in order to maintain, or if necessary adjust, its capital structure.
B. Fair value hierarchy
As per Ind AS 107, ''Financial Instruments: Disclosures'', the fair values of the financial assets or financial liabilities are defined as the price that would be received on sale of asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs.
The hierarchy used is as follows:
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Investment in open ended Mutual Funds are included in Level 1.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Lease liabilities and Investment in close ended Mutual Funds, Alternative Investment Fund and Debt Securities that are not traded in active market are included in Level 2.
Level 3 â Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. Investment in unlisted Debt Securities, unlisted Equity Instruments, Alternative Investment Funds and Venture Capital Fund are included in Level 3.
In order to assess Level 3 valuations as per Companyâs investment policy, the management reviews the performance of the investee companies (including unlisted portfolio companies of venture capital funds and alternative investment funds) on a regular basis by tracking their latest available financial statements/financial information, valuation report of independent valuers, recent transaction results etc. which are considered in valuation process.
The finance department of the Company includes the team that performs the valuation of financial assets and liabilities required for financial reporting purposes, including level 3 fair value. The team reports directly to the Chief Financial Officer (CFO) of the Company. Discussions of valuation processes and results are held between the valuation team and the senior management at least once every three months which is in line with the Companyâs quarterly reporting periods.
F. Financial Risk Management
Risk management is an integral part of the business practices of the Company. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The financial risks are managed in accordance with the Company''s risk management policy which has been approved by its Board of Directors. The Companyâs Board of Directors has overall responsibility for managing the risk profile of the Company. The purpose of risk management is to identify potential problems before they occur, so that risk-handling activities may be planned and invoked as needed to manage adverse impacts on achieving objectives.
The Audit Committee of the Company reviews the development and implementation of the risk management policy of the Company on periodic basis. The Audit Committee provides guidance on the risk management activities, review the results of the risk management process and reports to the Board of Directors on the status of the risk management initiatives.
i. Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company''s trade and other receivables, cash and cash equivalents, and financial assets measured at amortised cost.
Exposure to credit risk is mitigated through regular monitoring of collections, counterparty''s creditworthiness and diversification in exposure.
Exposure to Credit Risk
The carrying amount of financial assets represents maximum amount of credit exposure. The maximum exposure to credit risk is as per the table below, it being total of carrying amount of cash and cash equivalent, other bank balances, trade and other receivables and financial assets measured at amortised cost.
Expected Credit Loss (ECL) on Financial Assets
The Company continuously monitors all financial assets subject to ECLs. In order to determine whether an instrument is subject to 12 month ECL (12mECL) or life time ECL (LTECL), the Company assesses whether there has been a significant increase in credit risk or the asset has become credit impaired since initial recognition. The Company applies following quantitative and qualitative criteria to assess whether there is significant increase in credit risk or the asset has been credit impaired:
⢠Historical trend of collection from counterparty
⢠Company''s contractual rights with respect to recovery of dues from counterparty
⢠Credit rating of counterparty and any relevant information available in public domain.
ECL is a probability weighted estimate of credit losses. It is measured as the present value of cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with contract and the cash flows that the Company expects to receive).
The Company has three types of financial assets that are subject to the expected credit loss:
⢠Trade & other receivables and other financial assets
⢠Cash and cash equivalents and other bank balances
⢠Investment in debt securities measured at amortised cost Trade & Other Receivables and Other Financial Assets
Exposures to customers'' outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of collection from counterparties on timely basis reflects low level of credit risk. As the Company has a contractual right to such receivables as well as control over preponderant amount of such funds due from customers, the Company does not estimate any credit risk in relation to such receivables. Further, management believes that the unimpaired amounts that are past due by more than 180 days are still collectible in full, based on historical payment behaviour.
The Company has placed security deposit with lessors for premises leased by the Company. The Company does not perceive any significant decline in credit risk profile of the lessors where the amount of security deposit is material and hence expected probability of default is considered as zero.
Cash and Cash Equivalents and Other Bank Balances
The Company holds cash and cash equivalents and other bank balances as per note 4 and 5. The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be high.
Investment in Debt Securities measured at amortised cost
The Company has made investments in tax free bonds. Funds are invested after taking into account parameters like safety, liquidity and post tax returns etc. The Company avoids concentration of credit risk by spreading them over several counterparties with good credit rating profile and sound financial position. The Companyâs exposure and credit ratings of its counterparties are monitored on an ongoing basis.
Investment in debt securities that are in tax free bonds do not carry any credit risk, being sovereign in nature. Credit risk from other financial assets has not increased significantly since initial recognition. Accordingly, the expected probability of default is low.
ii. Liquidity Risk
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios could occur when funding needed for illiquid asset positions is not available to the Company on acceptable terms.
To limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. The Company has developed internal control processes for managing liquidity risk.
The Company maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption in cash flow. The Company assesses the liquidity position under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Company.
iii. Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows related to financial instrument that may result from adverse changes in market rates and prices (such as foreign exchange rates, interest rates, other prices). The Company is exposed to market risk primarily related to currency risk, interest rate risk and price risk.
Currency Risk
The Company has insignificant amount of foreign currency denominated assets. Accordingly, the exposure to currency risk is insignificant.
Interest Rate Risk
The Company''s investments are primarily in fixed rate interest instruments. Accordingly, the exposure to interest rate risk is also insignificant.
Price Risk
Price risk is the risk that the value of the financial instrument will fluctuate as a result of changes in market prices and related market variables including interest rate for investments in debt oriented mutual funds and debt securities, whether caused by factors specific to an individual investment, its issuer or the market. The Companyâs exposure to price risk arises from investments in equity securities, debt securities, units of mutual funds, venture capital fund and alternative investment funds which are classified as financial assets at Fair Value Through Profit or Loss and is as follows:
(iv) The Company does not have any transactions which were not recorded in the books of account, but offered as income during the year in the income tax assessment.
(v) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(vi) No funds have been advanced/loaned/invested (from borrowed funds or from share premium or from any other sources/ kind of funds) by the Company to any other person(s) or entity(ies), including foreign entities (Intermediaries), with the understanding (whether recorded in writing or otherwise) that the Intermediary shall (i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.
No funds have been received by the Company from any person(s) or entity(ies), including foreign entities (Funding Parties), with the understanding (whether recorded in writing or otherwise) that the Company shall (i) directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
The Code on Social Security, 2020 (''Codeâ) relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period in which the Code becomes effective.
Mar 31, 2023
3. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of
the Company, after distribution of preferential amount. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the Shareholders.
c) 11,21,79,830 equity shares of ''5 each (Previous Year 11,21,79,830 equity shares of ''5 each) are held by Housing Development
Finance Corporation Limited (Holding Company).
e) 13,56,484 equity shares of ''5 each are reserved for issuance towards outstanding employee stock options.
f) No equity shares were bought back during last five years.
g) No shares were allotted as fully paid-up ''pursuant to any contract without payment being received in cashâ in last five years.
h) 7,89,58,200fully paid up equity shares of ''10 each were issued by way of bonus shares during the period offive years immediately preceding the reporting date.
b) Terms/Rights attached to Equity Shares
1. The Company had issued only one class of equity shares referred to as equity share having face value of ''10 each which was sub-divided to ''5 each w.e.f. February 13, 2018. Each holder of equity shares is entitled to one vote per share.
2. The holders ofequity shares are entitled to dividends, ifany, proposed by the board ofdirectors and approved by the Shareholders at the Annual General Meeting.
Note 18 Nature and purpose of reserves
Share application pending allotment
Until the shares are allotted, the amount received is shown under the Share Application Money Pending Allotment.
Capital redemption reserve
Whenever there is a buy-back or redemption of share capital, the nominal value of the capital is transferred to a reserve called Capital Redemption Reserve so as to retain the capital.
Securities premium
Securities Premium is used to record the premium (amount received in excess of face value of equity shares) on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013. The securities premium also includes amount transfered from Share options outstanding account upon exercise ofoptions by employees and subsequent allotment of shares to them.
General reserve
Pursuant to the provisions of Companies Act,1956, the Company had transferred a portion of its net profit before declaring dividend, to general reserve. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
Share options outstanding account
The grant date fair value of equity-settled share-based payment transactions with employees and directors are recognised in the Standalone Statement of Profit and Loss with the corresponding credit to this account over the vesting period. The amounts recorded in Share options outstanding account are transferred to securities premium upon exercise of stock options by the employees and subsequent allotment of shares to them.
Retained earnings
Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to the Shareholders, net of utilisation as permitted under applicable regulations.
b) Defined Benefit Plan - Gratuity
In accordance with the applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments. The plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment, which requires contributions to be made to a separately administered fund.
The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.
The amounts are based on the respective employee''s last drawn salary and the years of employment with the Company. Liabilities in respect of the gratuity plan are determined by an actuarial valuation, based upon which the Company makes annual contributions to the plan. The plan is funded with a life insurance company in the form of a qualifying insurance policy.
The following tables summaries the components of net employee benefit expense recognised in the Standalone Statement of Profit and Loss, the funded status and amounts recognised in Standalone Balance Sheet.
The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The sensitivity analysis presented above may not be representative of the actual change in the Defined Benefit Obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value ofthe Defined Benefit Obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the Defined Benefit Obligation as recognised in the standalone balance sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
Risks associated with Defined Benefit Plan:
() Interest Rate Risk
A fall in the discount rate which is linked to the G.Sec. Rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
(ii) Salary Risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the planâs liability.
(iii) Investment Risk
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities and other debt instruments.
(iv) Asset Liability Matching (ALM) Risk
The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
(v) Mortality Risk
Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.
(vi) Concentration Risk
Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very low as insurance companies have to follow stringent regulatory guidelines which mitigate risk.
During the year, there were no plan amendments, curtailments and settlements.
Accounting for Employee Share-based Payments
Under Employees Stock Option Scheme 2020 (ESOS 2020), the Company had on July 21, 2022 granted 50,000 stock options, representing 50,000 equity shares of ''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share -based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''1,921.70 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on July 20, 2022 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee of the Board of Directors of the Company (''Nomination & Remuneration Committeeâ).
Under Employees Stock Option Scheme 2020 (ESOS 2020), the Company had on January 24, 2022 granted 1,82,000 stock options, representing 1,82,000 equity shares of ''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share-based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''2,369.40 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on January 21, 2022 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee.
Under ESOS 2020, the Company had on February 22, 2021 granted 11,45,000 stock options, representing 11,45,000 equity shares of ''5/- each to few employees ofthe Company. The said stock options have been granted at the market price as defined in SEBI (Share-based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''2,934.25 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on February 19, 2021 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee.
In terms of ESOS 2020, the options shall vest in three tranches. Each of these tranches consisting of 1/3 of the options granted shall vest on the completion of the 1st, 2nd and 3rd year from the date of the grant respectively. Any fractional residue shall be settled in the 3rd tranche. The options can be exercised over a period offive years from the date of respective vesting.
Under Employees Stock Option Scheme 2017 - Series II (ESOS 2017 - Series II), the Company had on January 17, 2018 granted 6,000 stock options at an exercise price of ''7,936/- per option, representing 6,000 equity shares of ''10/- each to few employees of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms ofESOS 2017 - Series II, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date ofvesting.
Under Employees Stock Option Scheme 2017 - Series I (ESOS 2017 - Series I), the Company had on July 28, 2017 granted 1,58,875 stock options at an exercise price of ''5,353/- per option, representing 1,58,875 equity shares of ''10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series I, the options vest over a period of1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I), the Company had on December 10, 2015 granted 10,00,000 stock options at an exercise price of ''3,944/- per option, representing 10,00,000 equity shares of ''10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of three years from the date ofvesting
Pursuant to the terms of respective Employees Stock Option Schemes (ESOS), in case of a corporate action like bonus shares, rights issue, buyback of shares, split of shares, reduction of capital etc., the number of options outstanding as at the date of the corporate action and the exercise price under all the relevant ESOS shall stand modified accordingly, so as to ensure that the paid-up value of the total shares that can be issued under them remains unchanged. Accordingly, the Nomination and Remuneration Committee of the Company has resolved, vide its circular resolution passed in February 2018, to make appropriate adjustments to the outstanding options and now each option represents one equity share of ''5/- each.
The weighted average share price for options exercised during the year under various Series''/Grants was J 2,012 (Previous Year J 2,687)
Fair value methodology
The fair value of options used to compute net income and earnings per equity share has been estimated on the date of grant using Black-Scholes model.
Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black-Scholes Model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time.
As on the date of grant, in case of schemes ESOS 2015-Series I and ESOS 2017-Series I, the Company being an unlisted company and in the absence of listed comparable companies, volatility had been considered to be NIL.
As on the date of grant in case of ESOS 2017-Series II, the sector had only one listed stock which was listed during that year. The volatility derived from this stock had been annualised for the purpose of this valuation.
As on the date of grant in case of ESOS 2020 (Grant Date February 22, 2021, Grant Date January 24, 2022 and Grant Date July 21, 2022), the trading history of the Company and its comparable company(s) listed on the Stock exchange are less than the life of the option. Hence, Nifty Financial Services Index is also considered for deriving the volatility.
Details of modifications in terms and conditions of ESOS:
No modifications were made in the terms and conditions of ESOS during the current year. The Nomination & Remuneration Committee at its meeting held on July 20, 2016 had approved few modifications, viz. change in nomenclature of Employees Stock Option Scheme 2015 (ESOS 2015) to Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I) and change in the period over which, the options granted under ESOS 2015 - Series I can be exercised from the date of their respective vesting.
By virtue of the said modifications, the options granted under ESOS 2015 - Series I can now be exercised over a period of five years from the date of respective vesting. There was no change in any other parameters of the scheme.
The options thus modified have been fair valued as at July 20, 2016, being the modification date. The key assumptions considered in the pricing model for calculating fair value under ESOS 2015 - Series I as on the date of modification were:
Basic earnings per share (EPS) is calculated by dividing the profit after tax for the year attributable to equity shareholders of company by the weighted average number of equity shares outstanding during the year.
Diluted EPS is calculated by dividing the profit after tax for the year attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
A. The Company has entered into leasing arrangements for premises. Majority of the leases are cancellable by the Company. Right of
Use asset has been included under the line ''Property, Plant and Equipment'' and Lease liability has been included under ''Other Financial Liabilities'' in the Standalone Balance Sheet.
The Company has framed Car Policy to provide use of the Company owned car for the commute from residence to workplace, for the discharge of their official functions and for personal use to certain selected employees of the Company. As per the Car Policy of the Company, the car is registered in the name of the Company and will remain the property of the Company till it is duly transferred to employee in accordance with the Car Policy and after recovery of all lease receivables. In case of separation of employee from the Company, outstanding lease receivables are recovered/adjusted from employee''s full and final settlement in accordance with the Car Policy.
(a) Description of segments and principal activities
The Company is in the business of providing asset management services to HDFC Mutual Fund & alternative investment fund and portfolio management & advisory services to clients. The primary segment is identified as asset management services. As such, the Company''s financial statements are largely reflective of the asset management business and accordingly there are no separate reportable segments as per Ind AS 108, Operating Segment.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The CODMâs function is to allocate the resources of the entity and assess the performance of the operating segment of the Company.
Equity share capital and other equity are considered for the purpose of Companyâs capital management. The Company manages its capital in a manner which enables it to safeguard its ability to continue as a going concern and to optimise returns to the Shareholders. The capital structure of the Company is based on managementâs judgement of its strategic and day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence. The funding requirements are met through operating cash flows and other equity. The management monitors the return on capital and the board of directors monitors the level of dividends paid to shareholders of the Company. The Company may take appropriate steps in order to maintain, or if necessary adjust, its capital structure.
B. Fair value hierarchy
As per Ind AS 107, ''Financial Instruments: Disclosuresâ, the fair values of the financial assets or financial liabilities are defined as the price that would be received on sale ofasset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs.
The hierarchy used is as follows:
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Investment in open ended Mutual Funds are included in Level 1.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Investment in close ended Mutual Funds and Debt Securities that are not traded in active market are included in Level 2.
Level 3 â Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. Investment in unlisted Debt Securities, unlisted Equity Instruments, Alternative Investment Funds and Venture Capital Fund are included in Level 3.
In order to assess Level 3 valuations as per Companyâs investment policy, the management reviews the performance of the investee companies (including unlisted portfolio companies of venture capital funds and alternative investment funds) on a regular basis by tracking their latest available financial statements/financial information, valuation report of independent valuers, recent transaction results etc. which are considered in valuation process.
The finance department of the Company includes the team that performs the valuation of financial assets and liabilities required for financial reporting purposes, including level 3 fair value. The team reports directly to the Chief Financial Officer (CFO) ofthe Company. Discussions of valuation processes and results are held between the valuation team and the senior management at least once every three months which is in line with the Companyâs quarterly reporting periods.
D. Valuation inputs and relationship to fair value
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurement.
F. Financial Risk Management
Risk management is an integral part of the business practices of the Company. The Companyâs primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The financial risks are managed in accordance with the Companyâs risk management policy which has been approved by its Board of Directors. The Companyâs Board of Directors has overall responsibility for managing the risk profile ofthe Company. The purpose of risk management is to identify potential problems before they occur, so that risk-handling activities may be planned and invoked as needed to manage adverse impacts on achieving objectives.
The Audit Committee of the Company reviews the development and implementation of the risk management policy of the Company on periodic basis. The Audit Committee provides guidance on the risk management activities, review the results of the risk management process and reports to the Board ofDirectors on the status of the risk management initiatives.
i. Credit Risk
Credit risk is the risk offinancial loss to the Company ifa customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Companyâs trade and other receivables, cash and cash equivalents, and financial assets measured at amortised cost.
Exposure to credit risk is mitigated through regular monitoring of collections, counterpartyâs creditworthiness and diversification in exposure.
Exposure to credit risk
The carrying amount of financial assets represents maximum amount of credit exposure. The maximum exposure to credit risk is as per the table below, it being total of carrying amount of cash and cash equivalent, other bank balances, trade and other receivables and financial assets measured at amortised cost.
Expected Credit Loss (ECL) on Financial Assets
The Company continuously monitors all financial assets subject to ECLs. In order to determine whether an instrument is subject to 12 month ECL (12mECL) or life time ECL (LTECL), the Company assesses whether there has been a significant increase in credit risk or the asset has become credit impaired since initial recognition. The Company applies following quantitative and qualitative criteria to assess whether there is significant increase in credit risk or the asset has been credit impaired:
- Historical trend of collection from counterparty
- Companyâs contractual rights with respect to recovery of dues from counterparty
- Credit rating of counterparty and any relevant information available in public domain
ECL is a probability weighted estimate of credit losses. It is measured as the present value of cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with contract and the cash flows that the Company expects to receive).
The Company has three types of financial assets that are subject to the expected credit loss:
- Trade & other receivables
- Cash and cash equivalents and other bank balances
- Investment in debt securities measured at amortised cost
Trade and Other Receivables
Exposures to customers'' outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of collection from counterparties on timely basis reflects low level of credit risk. As the Company has a contractual right to such receivables as well as control over preponderant amount of such funds due from customers, the Company does not estimate any credit risk in relation to such receivables. Further, management believes that the unimpaired amounts that are past due by more than 180 days are still collectible in full, based on historical payment behaviour.
Cash and Cash Equivalents and Other Bank Balances
The Company holds cash and cash equivalents and other bank balances as per note 4 and 5. The credit worthiness ofsuch banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be high.
Investment in Debt Securities measured at amortised cost
iii. Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows related to financial instrument that may result from adverse changes in market rates and prices (such as foreign exchange rates, interest rates, other prices). The Company is exposed to market risk primarily related to currency risk, interest rate risk and price risk.
Currency Risk
The Company has insignificant amount of foreign currency denominated assets. Accordingly, the exposure to currency risk is insignificant.
Interest Rate Risk
The Companyâs investments are primarily in fixed rate interest instruments. Accordingly, the exposure to interest rate risk is also insignificant.
The Company has made investments in tax free bonds. Funds are invested after taking into account parameters like safety, liquidity and post tax returns etc. The Company avoids concentration of credit risk by spreading them over several counterparties with good credit rating profile and sound financial position. The Companyâs exposure and credit ratings of its counterparties are monitored on an ongoing basis.
Investment in debt securities that are in tax free government bonds do not carry any credit risk, being sovereign in nature. Credit risk from other financial assets has not increased significantly since initial recognition. Accordingly, the expected probability of default is low.
ii. Liquidity Risk
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios could occur when funding needed for illiquid asset positions is not available to the Company on acceptable terms.
To limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. The Company has developed internal control processes for managing liquidity risk.
The Company maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption in cash flow. The Company assesses the liquidity position under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Company.
(iii) The Company is in compliance with number of layers of companies, as prescribed under clause (87) of Section 2 of the Act read with the Companies (Restriction on number ofLayers) Rules, 2017.
(iv) The Company does not have any transactions which were not recoded in the books of account, but offered as income during the year in the income tax assessment.
(v) The Company has not traded or invested in Crypto currency or Virtual Currency during the financial year.
(vi) No funds have been advanced/loaned/invested (from borrowed funds or from share premium or from any other sources/ kind of funds) by the Company to any other person(s) or entity(ies), including foreign entities (Intermediaries), with the understanding (whether recorded in writing or otherwise) that the Intermediary shall (i) directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like to or on behalf of the Ultimate Beneficiaries.
No funds have been received by the Company from any person(s) or entity(ies), including foreign entities (Funding Parties), with the understanding (whether recorded in writing or otherwise) that the Company shall (i) directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or (ii) provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
The Code on Social Security, 2020 (''Codeâ) relating to employee benefits during employment and post-employment benefits received
Presidential assent in September 2020. The Code has been published in the Gazette ofIndia. However, the date on which the Code will
come into effect has not been notified. The Company will assess the impact of the Code when it comes into effect and will record any
related impact in the period in which the Code becomes effective.
Previous year figures have been regrouped/reclassified wherever necessary, in order to make them comparable.
Mar 31, 2022
Terms/Rights attached to Equity Shares
The Company had issued only one class of equity shares referred to as equity share having face value of ''10 each which was sub-divided to ''5 each w.e.f. February 13, 2018. Each holder of equity shares is entitled to one vote per share.
The holders of equity shares are entitled to dividends, if any, proposed by the board of directors and approved by the Shareholders at the Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any ofthe remaining assets of the Company, after distribution of preferential amount. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the Shareholders.
11,21,79,830 equity shares of ''5 each (Previous Year: 11,21,79,830 equity shares of ''5 each) are held by Housing Development Finance Corporation Limited (Holding Company).
14,52,648 equity shares of ''5 each are reserved for issuance towards outstanding employee stock options.
No equity shares were bought back during last five years.
No shares were allotted as fully paid-up ''pursuant to any contract without payment being received in cashâ in last five years.
7,89,58,200 fully paid-up equity shares of ''10 each were issued by way of bonus shares during the period of five years immediately preceding the reporting date.
Note 18 Nature and purpose of reserves
Share application pending allotment
Until the shares are allotted, the amount received is shown under the Share Application Money Pending Allotment.
Capital redemption reserve
Whenever there is a buy-back or redemption of share capital, the nominal value of the capital is transferred to a reserve called Capital Redemption Reserve so as to retain the capital.
Securities premium
Securities Premium is used to record the premium (amount received in excess of face value of equity shares) on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013. The securities premium also includes amount transfered from Share options outstanding account upon exercise of options by employees and subsequent allotment of shares to them.
General reserve
Pursuant to the provisions of Companies Act,1956, the Company had transferred a portion of the net profit of the Company before declaring dividend, to general reserve. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
Share options outstanding account
The grant date fair value of equity-settled share-based payment transactions with employees and directors are recognised in the Statement of Profit and Loss with the corresponding credit to this account over the vesting period. The amounts recorded in Share options outstanding account are transferred to securities premium upon exercise of stock options by the employees and subsequent allotment of shares to them.
Retained earnings
Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to the Shareholders, net of utilisation as permitted under applicable regulations.
* Accounting for equity settled share-based payment transaction (ESOPs) at fair value increases the non-cash component of Employee Benefits Expenses and is also reflected in Share Options Outstanding Account under Other Equity. This balance of Share Options Outstanding Account is transferred to Securities Premium as and when the stock options are exercised by the employees and subsequent allotment of shares to them. Hence, this charge is neutral to Equity of the Company.
b) Defined Benefit Plan - Gratuity
In accordance with the applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments. The plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment, which requires contributions to be made to a separately administered fund.
The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.
The amounts are based on the respective employee''s last drawn salary and the years of employment with the Company. Liabilities in respect of the gratuity plan are determined by an actuarial valuation, based upon which the Company makes annual contributions to the plan. The plan is funded with a life insurance company in the form of a qualifying insurance policy.
The following tables summaries the components of net employee benefit expense recognised in the Statement of Profit and Loss, the funded status and amounts recognised in Balance Sheet.
The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The sensitivity analysis presented above may not be representative of the actual change in the Defined Benefit Obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the Defined Benefit Obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the Defined Benefit Obligation as recognised in the balance sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
Risks associated with Defined Benefit Plan:
(i) Interest Rate Risk
A fall in the discount rate which is linked to the G. Sec. Rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
(ii) Salary Risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the planâs liability.
(iii) Investment Risk
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities and other debt instruments.
(iv) Asset Liability Matching (ALM) Risk
The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines of Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
(v) Mortality Risk
Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.
(vi) Concentration Risk
Plan is having a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very low as insurance companies have to follow stringent regulatory guidelines which mitigate risk.
During the year, there were no plan amendments, curtailments and settlements.
Accounting for Employee Share-based Payments
Under Employees Stock Option Scheme 2020 (ESOS 2020), the Company had on January 24, 2022 granted 1,82,000 stock options, representing 1,82,000 equity shares of ''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share-based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''2,369.40 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on January 21, 2022 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee of the Board of Directors of the Company (''Nomination & Remuneration Committeeâ).
Under ESOS 2020, the Company had on February 22, 2021 granted 11,45,000 stock options, representing 11,45,000 equity shares of ''5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share-based Employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at ''2,934.25 per option, being the latest available closing price of the shares of the Company on National Stock Exchange of India Limited, on February 19, 2021 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee.
In terms of ESOS 2020, the options shall vest in three tranches. Each of these tranches consisting of 1/3 of the options granted shall vest on the completion of the 1st, 2nd and 3rd year from the date of the grant respectively. Any fractional residue shall be settled in the 3rd tranche. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2017 - Series II (ESOS 2017 - Series II), the Company had on January 17, 2018 granted 6,000 stock options at an exercise price of ''7,936/- per option, representing 6,000 equity shares of ''10/- each to few employees of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series II, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2017 - Series I (ESOS 2017 - Series I), the Company had on July 28, 2017 granted 1,58,875 stock options at an exercise price of ''5,353/- per option, representing 1,58,875 equity shares of ''10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I), the Company had on December 10, 2015 granted 10,00,000 stock options at an exercise price of ''3,944/- per option, representing 10,00,000 equity shares of ''10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of three years from the date of vesting.
Pursuant to the terms of respective Employees Stock Option Schemes (ESOS), in case of a corporate action like bonus shares, rights issue, buyback of shares, split of shares, reduction of capital etc., the number of options outstanding as at the date of the corporate action and the exercise price under all the relevant ESOS shall stand modified accordingly, so as to ensure that the paid-up value of the total shares that can be issued under them remains unchanged. Accordingly, the Nomination and Remuneration Committee of the Company has resolved, vide its circular resolution passed in February 2018, to make appropriate adjustments to the outstanding options and now each option represents one equity share of ''5/- each.
The weighted average share price for options exercised during the year under various Series''/Grants was ''2,687 (Previous Year: ''2,408)
Fair value methodology
The fair value of options used to compute net income and earnings per equity share has been estimated on the date of grant using Black-Scholes model.
Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black-Scholes Model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time.
As on the date of grant, in case of schemes ESOS 2015-Series I and ESOS 2017-Series I, the Company being an unlisted company and in the absence of listed comparable companies, volatility had been considered to be NIL.
As on the date of grant in case of ESOS 2017-Series II, the sector had only one listed stock which was listed during that year. The volatility derived from this stock had been annualised for the purpose of this valuation.
As on the date of grant in case of ESOS 2020 (Grant Date February 22, 2021 and Grant Date January 24, 2022), the trading history of the Company and its comparable company(s) listed on the Stock exchange are less than the life of the option. Hence, Nifty Financial Services Index is also considered for deriving the volatility.
Details of modifications in terms and conditions of ESOS:
No modifications were made in the terms and conditions of ESOS during the current year. The Nomination & Remuneration Committee at its meeting held on July 20, 2016 had approved few modifications, viz. change in nomenclature of Employees Stock Option Scheme 2015 (ESOS 2015) to Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I) and change in the period over which, the options granted under ESOS 2015 - Series I can be exercised from the date of their respective vesting.
By virtue of the said modifications, the options granted under ESOS 2015 - Series I can now be exercised over a period of five years from the date of respective vesting. There was no change in any other parameters of the scheme.
The options thus modified have been fair valued as at July 20, 2016, being the modification date. The key assumptions considered in the pricing model for calculating fair value under ESOS 2015 - Series I as on the date of modification were:
Note: The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
Significant managementjudgement is required in determining provision for income tax, deferred tax assets and liabilities and recoverability of deferred tax assets. The recoverability of deferred tax assets is based on estimates of taxable income and the period over which deferred tax assets will be recovered. Any changes in future taxable income would impact the recoverability of deferred tax assets.
Basic earnings per share (EPS) is calculated by dividing the profit after tax for the year attributable to equity shareholders of company by the weighted average number of equity shares outstanding during the year.
Diluted EPS is calculated by dividing the profit after tax for the year attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
A. The Company has entered into leasing arrangements for premises. Majority of the leases are cancellable by the Company. Right of Use asset has been included under the line ''Property, Plant and Equipmentâ and Lease liability has been included under ''Other Financial Liabilitiesâ in the Balance Sheet.
The Company has framed Car Policy to provide use of the Company owned car for the commute from residence to workplace, for the discharge of their official functions and for personal use to certain selected employees of the Company. As per the Car Policy of the Company, the car is registered in the name of the Company and will remain the property of the Company till it is duly transferred to employee in accordance with the Car Policy and after recovery of all lease receivables. In case of separation of employee from the Company, outstanding lease receivables are recovered/adjusted from employee''s full and final settlement in accordance with the Car Policy.
(a) Description of segments and principal activities
The Company is in the business of providing asset management services to HDFC Mutual Fund and portfolio management & advisory services to clients. The primary segment is identified as asset management services. As such, the Company''s financial statements are largely reflective of the asset management business and accordingly there are no separate reportable segments as per Ind AS 108, Operating Segment.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The CODM''s function is to allocate the resources of the entity and assess the performance of the operating segment of the Company.
Trade Payables do not include any amount payable to Small Scale Industrial Undertakings and Micro, Small and Medium Enterprises. Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMEDA) which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. On the basis of the information and records available with the management, the following disclosures are made for the amounts due to the Micro, Small and Medium enterprises, which have registered with the competent authorities.
Equity share capital and other equity are considered for the purpose of Companyâs capital management. The Company manages its capital in a manner which enables it to safeguard its ability to continue as a going concern and to optimise returns to the Shareholders. The capital structure of the Company is based on managementâs judgement of its strategic and day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence. The funding requirements are met through operating cash flows and other equity. The management monitors the return on capital and the board of directors monitors the level of dividends paid to shareholders of the Company. The Company may take appropriate steps in order to maintain, or if necessary adjust, its capital structure.
B. Fair value hierarchy
As per Ind AS 107, ''Financial Instruments: Disclosuresâ, the fair values of the financial assets or financial liabilities are defined as the price that would be received on sale of asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs.
The hierarchy used is as follows :
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Investment in open ended Mutual Funds are included in Level 1.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Investment in close ended Mutual Funds and Debt Securities that are not traded in active market are included in Level 2.
Level 3 â Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data. Investment in unlisted Debt Securities, unlisted Equity Instruments, Alternative Investment Funds and Venture Capital Fund are included in Level 3.
C. Valuation techniques used to determine fair value
Financial instrument Valuation technique
Mutual Funds Net Asset Value (NAV) declared by the mutual fund at which units are issued or redeemed.
Debt Securities Discounted cash flow based on present value of the expected future economic benefit.
Equity Instruments in Others Discounted cash flow based on present value of the expected future economic benefit and/or price of
recent investment.
Alternative Investment Funds and Net Asset Value (NAV) provided by issuer fund which is arrived at based on valuation from independent
Venture Capital Fund valuer for unlisted portfolio companies, quoted price of listed portfolio companies and price of recent
investments.
Lease Liabilities Discounted cash flows based on present value of expected payments, discounted using a risk-adjusted
discount rate.
In order to assess Level 3 valuations as per Companyâs investment policy, the management reviews the performance of the investee companies (including unlisted portfolio companies of venture capital funds and alternative investment funds) on a regular basis by tracking their latest available financial statements/financial information, valuation report of independent valuers, recent transaction results etc. which are considered in valuation process.
The finance department of the Company includes the team that performs the valuation offinancial assets and liabilities required for financial reporting purposes, including level 3 fair value. The team reports directly to the Chief Financial Officer (CFO) of the Company. Discussions of valuation processes and results are held between the valuation team and the senior management at least once every three months which is in line with the Companyâs quarterly reporting periods.
D. Valuation inputs and relationship to fair value
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurement.
F. Financial Risk Management
Risk management is an integral part of the business practices of the Company. The Companyâs primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The financial risks are managed in accordance with the Companyâs risk management policy which has been approved by its Board of Directors. The Companyâs Board of Directors has overall responsibility for managing the risk profile of the Company. The purpose of risk management is to identify potential problems before they occur, so that risk-handling activities may be planned and invoked as needed to manage adverse impacts on achieving objectives.
The Audit Committee of the Company reviews the development and implementation of the risk management policy of the Company on periodic basis. The Audit Committee provides guidance on the risk management activities, review the results of the risk management process and reports to the Board of Directors on the status of the risk management initiatives.
The Company has exposure to the following risks arising from Financial Instruments:
Risk Exposure arising from
Credit Risk Cash and cash equivalents, trade & other receivables, financial assets measured at amortised cost
Liquidity Risk Financial liabilities
Market Risk - Foreign Exchange Recognised financial assets not denominated in ''
Market Risk - Interest Rate Investments in debt securities
Market Risk - Price Investments in equity securities, units of mutual funds, debt securities measured at FVTPL, venture capital fund
and alternative investment funds
i. Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Companyâs trade and other receivables, cash and cash equivalents, and financial assets measured at amortised cost.
Exposure to credit risk is mitigated through regular monitoring of collections, counterpartyâs creditworthiness and diversification in exposure.
Expected Credit Loss (ECL) on Financial Assets
The Company continuously monitors all financial assets subject to ECLs. In order to determine whether an instrument is subject to 12 month ECL (12mECL) or life time ECL (LTECL), the Company assesses whether there has been a significant increase in credit risk or the asset has become credit impaired since initial recognition. The Company applies following quantitative and qualitative criteria to assess whether there is significant increase in credit risk or the asset has been credit impaired:
- Historical trend of collection from counterparty
- Companyâs contractual rights with respect to recovery of dues from counterparty
- Credit rating of counterparty and any relevant information available in public domain.
ECL is a probability weighted estimate of credit losses. It is measured as the present value of cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with contract and the cash flows that the Company expects to receive).
The Company has three types of financial assets that are subject to the expected credit loss:
- Cash and cash equivalent
- Trade & other receivables
- Investment in debt securities measured at amortised cost.
Trade and Other Receivables
Exposures to customers'' outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of collection from counterparties on timely basis reflects low level of credit risk. As the Company has a contractual right to such receivables as well as control over preponderant amount of such funds due from customers, the Company does not estimate any credit risk in relation to such receivables. Further, management believes that the unimpaired amounts that are past due by more than 180 days are still collectible in full, based on historical payment behaviour.
Cash and Cash Equivalents
The Company holds cash and cash equivalents and other bank balances as per note 4 and 5. The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be high.
Investment in Debt Securities measured at amortised cost
The Company has made investments in tax free bonds. Funds are invested after taking into account parameters like safety, liquidity and post tax returns etc. The Company avoids concentration of credit risk by spreading them over several counterparties with good credit rating profile and sound financial position. The Companyâs exposure and credit ratings of its counterparties are monitored on an ongoing basis.
Investment in debt securities that are in tax free government bonds do not carry any credit risk, being sovereign in nature. Credit risk from other financial assets has not increased significantly since initial recognition. Accordingly, the expected probability of default is low.
ii. Liquidity Risk
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios could occur when funding needed for illiquid asset positions is not available to the Company on acceptable terms.
To limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. The Company has developed internal control processes for managing liquidity risk.
The Company maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption in cash flow. The Company assesses the liquidity position under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Company.
iii. Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows related to financial instrument that may result from adverse changes in market rates and prices (such as foreign exchange rates, interest rates, other prices). The Company is exposed to market risk primarily related to currency risk, interest rate risk and price risk.
Currency Risk
The Company has insignificant amount of foreign currency denominated assets. Accordingly, the exposure to currency risk is insignificant.
Interest Rate Risk
The Companyâs investments are primarily in fixed rate interest instruments. Accordingly, the exposure to interest rate risk is also insignificant.
Price Risk
Price risk is the risk that the value of the financial instrument will fluctuate as a result of changes in market prices and related market variables including interest rate for investments in debt oriented mutual funds and debt securities, whether caused by factors specific to an individual investment, its issuer or the market. The Companyâs exposure to price risk arises from
COVID-19 was declared a pandemic in March 2020 and since then it has had a sizable impact on the economies of various countries. Nations across the globe at this juncture seem to be returning to normalcy as a result of waning infection levels. An aggressive vaccination drive by the government in India has led to significant improvement in the situation which has provided a pathway to the normalisation of economic activity. However, the situation will have to be monitored till the pandemic is finally put to rest.
While the Companyâs operations have shown resilience, the extent to which the pandemic may impact its future results financial statements will depend on ongoing developments. The Company continues to closely monitor material changes in economic conditions, markets and the operating environment.
Further, during the year ended March 31, 2022, there has been no material change in the controls or processes followed in the preparation of the financial statements.
The Code on Social Security, 2020 (''Codeâ) relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period in which the Code becomes effective.
Previous year figures have been regrouped/reclassified wherever necessary, in order to make them comparable.
Mar 31, 2021
Terms/Rights attached to Equity Shares
1. The Company had issued only one class of equity shares referred to as equity share having face value of '' 10 each which was sub-divided to '' 5 each w.e.f. February 13, 2018. Each holder of equity shares is entitled to one vote per share.
2. The holders of equity shares are entitled to dividends, if any, proposed by the board of directors and approved by the Shareholders at the Annual General Meeting.
3. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of preferential amount. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the Shareholders.
Share application pending allotment
Until the shares are allotted, the amount received is shown under the Share Application Money Pending Allotment.
Capital redemption reserve
Whenever there is a buy-back or redemption of share capital, the nominal value of the capital is transferred to a reserve called Capital Redemption Reserve so as to retain the capital.
Securities premium
Securities Premium is used to record the premium (amount received in excess of face value of equity shares) on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013.
General reserve
Pursuant to the provisions of Companies Act, 1956, the Company had transferred a portion of the net profit of the Company before declaring dividend, to general reserve. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
Share options outstanding account
The grant date fair value of equity-settled share-based payment transactions with employees and directors are recognised in the Statement of Profit and Loss with the corresponding credit to this account over the vesting period. The amounts recorded in Share options outstanding account are transferred to securities premium upon exercise of stock options by the employees.
Retained earnings
Retained earnings are the profits that a Company has earned to date, less any dividends or other distributions paid to the Shareholders, net of utilisation as permitted under applicable regulations.
In accordance with the applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments. The plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment, which requires contributions to be made to a separately administered fund.
The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.
The amounts are based on the respective employee''s last drawn salary and the years of employment with the Company. Liabilities in respect of the gratuity plan are determined by an actuarial valuation, based upon which the Company makes annual contributions to the plan. The plan is funded with a life insurance company in the form of a qualifying insurance policy.
The following tables summaries the components of net employee benefit expense recognised in the Statement of Profit and Loss, the funded status and amounts recognised in Balance Sheet.
(i) Interest Rate Risk
A fall in the discount rate which is linked to the G-Sec rate will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.
(ii) Salary Risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level will increase the planâs liability.
(iii) Investment Risk
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in money market instruments and public deposits.
(iv) Asset Liability Matching (ALM) Risk
The plan faces the ALM risk as to the matching cash flow. Since the plan is invested in lines with Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
(v) Mortality Risk
Since the benefits under the plan is not payable for life time and are payable till retirement age only, the plan does not have any longevity risk.
(vi) Concentration Risk
The plan has a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very less as insurance companies have to follow stringent regulatory guidelines which mitigate risk.
During the year, there were no plan amendments, curtailments and settlements.
Note 25 Share based payments
Accounting for Employee Share Based Payments
Under Employees Stock Option Scheme 2020 (ESOS 2020), the Company had on February 22, 2021 granted 11,45,000 stock options, representing 11,45,000 equity shares of '' 5/- each to few employees of the Company. The said stock options have been granted at the market price as defined in SEBI (Share Based employees Benefits) Regulations, 2014. Accordingly, the stock options have been granted at '' 2,934.25 per option, being the latest available closing price of the shares of the Company on National Stock exchange of India Limited, on February 19, 2021 being the previous trading day immediately preceding the date on which Grant of Options was approved by the Nomination & Remuneration Committee of the Board of Directors of the Company (''Nomination & Remuneration Committeeâ).
In terms of ESOS 2020, the options shall vest in three tranches. Each of these tranches consisting of 1/3 of the options granted shall vest on the completion of the 1st, 2nd and 3rd year from the date of the grant respectively. Any fractional residue shall be settled in the 3rd tranche. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2017 - Series II (ESOS 2017 - Series II), the Company had on January 17, 2018 granted 6,000 stock options at an exercise price of '' 7,936/- per option, representing 6,000 equity shares of '' 10/- each to few employees of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series II, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2017 - Series I (ESOS 2017 - Series I), the Company had on July 28, 2017 granted 1,58,875 stock options at an exercise price of '' 5,353/- per option, representing 1,58,875 equity shares of '' 10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I), the Company had on December 10, 2015 granted 10,00,000 stock options at an exercise price of '' 3,944/- per option, representing 10,00,000 equity shares of '' 10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of three years from the date of vesting
Pursuant to the terms of respective Employees Stock Option Schemes (ESOS), in case of a corporate action like bonus shares, rights issue, buyback of shares, split of shares, reduction of capital etc., the number of options outstanding as at the date of the corporate action and the exercise price under all the relevant ESOS shall stand modified accordingly, so as to ensure that the paid-up value of the total shares that can be issued under them remains unchanged. Accordingly, the Nomination
As on the date of grant, in case of schemes ESOS 2015-Series I and ESOS 2017-Series I, the Company being an unlisted Company and in the absence of listed comparable companies, volatility had been considered to be NIL.
As on the date of grant in case of ESOS 2017-Series II, the sector had only one listed stock which was listed during that year. The volatility derived from this stock had been annualised for the purpose of this valuation.
As on the date of grant in case of ESOS 2020 (Grant Date February 22, 2021), the trading history of the Company and its comparable Company listed on the Stock exchange are less than the life of the option. Hence, Nifty Financial Services Index is also considered for deriving the volatility.
Details of modifications in terms and conditions of ESOS:
No modifications were made in the terms and conditions of ESOS during the current year. The Nomination & Remuneration Committee at its meeting held on July 20, 2016 had approved few modifications, viz; change in nomenclature of Employees Stock Option Scheme 2015 (ESOS 2015) to Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I) and change in the period over which, the options granted under ESOS 2015 - Series I can be exercised from the date of their respective vesting.
By virtue of the said modifications, the options granted under ESOS 2015 - Series I can now be exercised over a period of five years from the date of respective vesting. There was no change in any other parameters of the scheme.
The options thus modified have been fair valued as at July 20, 2016, being the modification date. The key assumptions considered in the pricing model for calculating fair value under ESOS 2015 - Series I as on the date of modification were:
* Effective April 01, 2019, the Company had adopted Ind AS 116 - Leases. On transition, the adoption of the new standard resulted in recognition of Right-of-Use asset (ROU) of '' 114.93 Crore (including '' 2.96 Crore reclassified from other non-financial assets) and a lease liability of '' 125.23 Crore. As a result, on April 01, 2019, a deferred tax liability of '' 40.16 Crore (including '' 1.03 Crore transferred from Other deferred tax liabilities) and a deferred tax asset of '' 43.76 Crore was created on ROU and lease liabilities respectively.
Consequently, the cumulative deferred tax benefit of '' 4.63 Crore had been taken to retained earnings on the date of initial application i.e. April 01, 2019.
Note:
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set-off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
Significant management judgement is required in determining provision for income tax, deferred tax assets and liabilities and recoverability of deferred tax assets. The recoverability of deferred tax assets is based on estimates of taxable income and the period over which deferred tax assets will be recovered. Any changes in future taxable income would impact the recoverability of deferred tax assets.
A. Implementation of Ind AS 116
This note explains the impact of the adoption of Ind AS 116 Leases on the financial statements in the year ended March 31, 2020.
Under the erstwhile standard, IND AS 17 - Leases, the leases in which a substantial portion of the risk and rewards of the ownership were retained by the lessor were classified as operating leases. Under Ind AS 116, the Company recognises right-of-use assets and lease liabilities for leases i.e. these leases are on the balance sheet. Lease liabilities as at April 01, 2019 were measured at the present value of the remaining lease payments, discounted using the lesseeâs incremental borrowing rate. The weighted average of lesseeâs incremental borrowing rate applied to the lease liabilities as at April 01, 2019 was 7.78%. This change was in accordance with the transitional provisions of Ind AS 116.
Effective April 01, 2019, the Company had adopted Ind AS 116 - Leases and applied it to all lease contracts existing on April 01, 2019 using the modified retrospective method. Consequently, the cumulative adjustment had been taken to retained earnings on the date of initial application i.e. April 01, 2019.
On transition, the adoption of the new standard resulted in recognition of Right-of-Use asset (ROU) of '' 114.93 Crore (including '' 2.96 Crore reclassified from other non-financial assets) and a lease liability of '' 125.23 Crore. The cumulative effect of applying the standard resulted in '' 8.63 Crore (net of taxes) being debited to retained earnings.
The effect of this adoption was not material to the profit and earnings per share for the year ended March 31, 2020. The current accounting policy is disclosed in Note 3.9 Leases.
(i) Practical expedients applied
The Company had elected not to reassess the previously identified leases applying Ind AS 17 - Leases as to whether a contract is, or contains a lease at the date of initial application. Further, In applying Ind AS 116 for the first time, the Company had also used the following practical expedients permitted by the standard:
⢠applying a single discount rate to a portfolio of leases with reasonably similar characteristics.
⢠relying on its previous assessment of whether leases are onerous under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review. There were no onerous contracts as at April 01, 2019.
⢠excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application.
⢠using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
B. The Company has entered into leasing arrangements for premises. Majority of the leases are cancellable by the Company. Right of Use asset has been included under the line ''Property, Plant and Equipmentâ and Lease liability has been included under ''Other Financial Liabilitiesâ in the Balance Sheet.
(a) Description of Segments and Principal Activities
The Company is in the business of providing asset management services to HDFC Mutual Fund and portfolio management & advisory services to clients. The primary segment is identified as asset management services. As such, the Companyâs financial statements are largely reflective of the asset management business and accordingly there are no separate reportable segments as per Ind AS 108, Operating Segment.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The CODMâs function is to allocate the resources of the entity and assess the performance of the operating segment of the Company.
Equity share capital and other equity are considered for the purpose of Companyâs capital management. The Company manages its capital in a manner which enables it to safeguard its ability to continue as a going concern and to optimise returns to the Shareholders. The capital structure of the Company is based on managementâs judgement of its strategic and day-today needs with a focus on total equity so as to maintain investor, creditors and market confidence. The funding requirements are met through operating cash flows and other equity. The management monitors the return on capital and the board of directors monitors the level of dividends paid to shareholders of the Company. The Company may take appropriate steps in order to maintain, or if necessary adjust, its capital structure.
B. Fair Value Hierarchy
As per Ind AS 107, ''Financial Instruments: Disclosuresâ, the fair values of the financial assets or financial liabilities are defined as the price that would be received on sale of asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs.
The hierarchy used is as follows:
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 â Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or
in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.
|
C. Valuation Techniques used to Determine Fair Value |
|
|
Financial instrument |
Valuation technique |
|
Mutual Funds |
Net Asset Value (NAV) declared by the mutual fund at which units are issued or redeemed |
|
Debt Securities |
Discounted cash flow based on present value of the expected future economic benefit |
|
Equity Instruments in Others |
Discounted cash flow based on present value of the expected future economic benefit |
|
Alternative Investment Funds and Venture Capital Fund |
Net Asset Value (NAV) provided by issuer fund which is arrived at based on valuation from independent valuer for unlisted portfolio companies, quoted price of listed portfolio companies and price of recent investments |
|
Lease Liabilities |
Discounted cash flows based on present value of expected payments, discounted using a risk-adjusted discount rate |
In order to assess Level 3 valuations as per Companyâs investment policy, the management reviews the performance of the investee companies (including unlisted portfolio companies of venture capital funds and alternative investment funds) on a regular basis by tracking their latest available financial statements/financial information, valuation report of independent valuers, recent transaction results etc. which are considered in valuation process.
The finance department of the Company includes the team that performs the valuation of financial assets and liabilities required for financial reporting purposes, including level 3 fair value. The team reports directly to the Chief Financial Officer (CFO) of the Company. Discussions of valuation processes and results are held between the valuation team and the senior management at least once every three months which is in line with the Companyâs quarterly reporting periods.
* The Company holds investments in certain debt securities with fair value of '' 25.62 Crore as at March 31, 2021 (March 31,2020''25.67 Crore). The fair value of these investments were categorised as Level 3 as at March 31,2020. This was because of the illiquidity factor applied to the underlying collateral while valuing these investments. These debt securities matured during the year ended March 31, 2021. As at March 31, 2021, the residual amount of the said debt securities are categorised as Level 2 as the cash flows will now be expected from the collaterals which are listed and the collateral attributable to these debt securities has been sold with minimal impact cost during the FY 2020-21. No illiquidity factor is therefore being considered for the valuation of these investments.
F. Financial Risk Management
The Companyâs primary focus is to foresee the unpredictability of financial markets and seek to minimise potential adverse effects on its financial performance. The financial risks are managed in accordance with the Companyâs risk management policy which has been approved by its Board of Directors. The Companyâs Board of Directors has overall responsibility for managing the risk profile of the Company. The purpose of risk management is to identify potential problems before they occur, so that risk-handling activities may be planned and invoked as needed to manage adverse impacts on achieving objectives.
The Audit Committee of the Company reviews the development and implementation of the risk management policy of the Company on periodic basis. The Audit Committee provides guidance on the risk management activities, review the results of the risk management process and reports to the Board of Directors on the status of the risk management initiatives.
i. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Companyâs trade and other receivables, cash and cash equivalents, and financial assets measured at amortised cost.
Exposure to credit risk is mitigated through regular monitoring of collections, counterpartyâs creditworthiness and diversification in exposure.
Exposure to credit risk
The carrying amount of financial assets represents maximum amount of credit exposure. The maximum exposure to credit risk is as per the table below, it being total of carrying amount of cash and cash equivalent, trade and other receivables and financial assets measured at amortised cost.
Expected Credit Loss (ECL) on Financial Assets
The Company continuously monitors all financial assets subject to ECLs. In order to determine whether an instrument is subject to 12 month ECL (12mECL) or life time ECL (LTECL), the Company assesses whether there has been a significant increase in credit risk or the asset has become credit impaired since initial recognition. The Company applies following quantitative and qualitative criteria to assess whether there is significant increase in credit risk or the asset has been credit impaired:
- Historical trend of collection from counterparty
- Companyâs contractual rights with respect to recovery of dues from counterparty
- Credit rating of counterparty and any relevant information available in public domain
ECL is a probability weighted estimate of credit losses. It is measured as the present value of cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with contract and the cash flows that the Company expects to receive).
The Company has three types of financial assets that are subject to the expected credit loss:
- Cash and cash equivalent
- Trade & other receivables
- Investment in debt securities measured at amortised cost Trade and Other Receivables
Exposures to customersâ outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of collection from counterparties on timely basis reflects low level of credit risk. As the Company has a contractual right to such receivables as well as control over preponderant amount of such funds due from customers, the Company does not estimate any credit risk in relation to such receivables. Further, management believes that the unimpaired amounts that are past due by more than 180 days are still collectible in full, based on historical payment behaviour.
Cash and Cash Equivalents
The Company holds cash and cash equivalents and other bank balances as per note 4 and 5. The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be high.
Investment in Debt Securities measured at amortised cost
The Company has made investments in tax free bonds. Funds are invested after taking into account parameters like safety, liquidity and post tax returns etc. The Company avoids concentration of credit risk by spreading them over several counterparties with good credit rating profile and sound financial position. The Companyâs exposure and credit ratings of its counterparties are monitored on an ongoing basis.
Investment in debt securities that are in tax free government bonds do not carry any credit risk, being sovereign in nature. Credit risk from other financial assets has not increased significantly since initial recognition. Accordingly, the expected probability of default is low.
The following tables show reconciliation from the opening to the closing balance of the loss allowance for financial assets measured at amortised cost.
ii. Liquidity Risk
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios could occur when funding needed for illiquid asset positions is not available to the Company on acceptable terms.
To limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. The Company has developed internal control processes for managing liquidity risk.
The Company maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption in cash flow. The Company assesses the liquidity position under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Company.
Exposure to Liquidity Risk
The table below analyses the Companyâs financial liabilities into relevant maturity pattern based on their contractual maturities for all financial liabilities.
iii. Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows related to financial instrument that may result from adverse changes in market rates and prices (such as foreign exchange rates, interest rates, other prices). The Company is exposed to market risk primarily related to currency risk, interest rate risk and price risk.
Currency Risk
The Company has insignificant amount of foreign currency denominated assets. Accordingly, the exposure to currency risk is insignificant.
Interest Rate Risk
The Companyâs investments are primarily in fixed rate interest instruments. Accordingly, the exposure to interest rate risk is also insignificant.
Price Risk
Price risk is the risk that the value of the financial instrument will fluctuate as a result of changes in market prices and related market variables including interest rate for investments in debt oriented mutual funds and debt securities, whether caused by factors specific to an individual investment, its issuer or the market. The Companyâs exposure to price risk arises from investments in equity securities, debt securities, units of mutual funds, venture capital fund and alternative investment funds which are classified as financial assets at Fair Value Through Profit and Loss and is as follows:
During the year ended March 31, 2020, the Company and its certain employees along with HDFC Trustee Company Limited received show cause notices from SEBI for matters related to Essel group exposure in certain fixed maturity plans of HDFC Mutual Fund. All the concerned parties along with the Company had filed an application for Settlement with SEBI and had received a Settlement Order dated April 16, 2020. The Company being the Investment Manager to HDFC Mutual Fund, has already compensated the unit holders of the affected mutual fund schemes and has also paid the settlement amount to SEBI.
The COVID-19 pandemic and consequent lockdown imposed in March 2020 impacted a whole range of economic activities adversely. The phase wise opening up initiated in the quarter ended June 30, 2020 led to a recovery in varied measures across different sectors of the economy, industries and businesses.
While the situation looked quite upbeat in Jan-Feb 2021, due to the onset of the ''second waveâ, things have deteriorated quickly since then. An accelerated increase in the number of COVID-19 cases has necessitated imposition of restrictions which may once again inhibit economic activity and affect markets.
The extent to which the second wave of COVID-19 pandemic will impact the Companyâs financial statements will depend on ongoing as well as future developments, which at this juncture are highly uncertain.
While it is expected that economic activity will improve once restrictions are eased, the situation will have to be closely monitored till the pandemic is put to rest.
The Company has assessed the impact of the pandemic on its operations and its assets including the value of its investments and trade receivables as at March 31, 2021. The management does not, at this juncture, believe that the impact on the value of the Companyâs assets is likely to be material. However, since the revenue of the Company is ultimately dependent on the value of the Assets Under Management (AUM) it manages, changes in market conditions and the trend of flows into mutual funds have an impact on the operations of the Company. Since the situation is still uncertain, its effect on the operations of the Company may be, to some extent, different from that estimated as at the date of approval of these financial statements. The Company continues to closely monitor material changes in markets and future economic conditions.
Further, during the year ended March 31, 2021, there has been no material change in the controls or processes followed in the preparation of the financial statements.
The Code on Social Security, 2020 (''Codeâ) relating to employee benefits during employment and post-employment benefits received Presidential assent in September 2020. The Code has been published in the Gazette of India. However, the date on which the Code will come into effect has not been notified. The Company will assess the impact of the Code when it comes into effect and will record any related impact in the period in which the Code becomes effective.
Previous year figures have been regrouped/reclassified wherever necessary, in order to make them comparable.
Mar 31, 2019
1. Company overview
HDFC Asset Management Company Limited (''the Companyâ) is a Public Limited Company domiciled in India and its registered office is situated at HDFC House, 2nd Floor, H. T. Parekh Marg, 165-166, Backbay Reclamation, Churchgate, Mumbai - 400 020. The Company has been incorporated under the Companies Act, 1956 on December 10, 1999 and was approved to act as the Asset Management Company for HDFC Mutual Fund by Securities and Exchange Board of India (SEBI) vide its letter dated July 03, 2000. HDFC Trustee Company Limited (''the Trusteeâ) has appointed the Company to act as the investment manager of HDFC Mutual Fund.
The Company is also registered under the SEBI (Portfolio Managers) Regulations, 1993 and provides Portfolio Management Services.
As at March 31, 2019, Housing Development Finance Corporation Limited, the holding company owned 52.77% of the Companyâs equity share capital.
During the year, the Company has completed its Initial Public Offering (IPO) through an offer for sale of equity shares. The equity shares of the Company were listed on National Stock Exchange of India Limited and BSE Limited on August 06, 2018.
2. Basis of preparation and recent accounting developments
2.1 Basis of preparation:
a) Statement of compliance
These financial statements have been prepared in accordance with the Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of the Companies Act, 2013, (the ''Actâ) and other relevant provisions of the Act, as amended from time to time.
The Companyâs financial statements up to and for the year ended March 31, 2018 were prepared in accordance with Rule 7 of the Companies (Accounts) Rules, 2014, notified under Section 133 of the Act, other relevant provisions of the Act and other accounting principles generally accepted in India, to the extent applicable (Previous GAAP).
As these are the Companyâs first financial statements prepared in accordance with Ind AS, Ind AS 101, First-time Adoption of Indian Accounting Standards has been applied. An explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance and cash flows of the Company is provided in Note 39.
The financial statements were approved for issue by the Companyâs Board of Directors on April 26, 2019.
Details of the Companyâs accounting policies are included in Note 3.
b) Presentation of financial statements
The Company presents its balance sheet in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date and more than 12 months after the reporting date is presented in Note 38.
c) Functional and presentation currency
Indian Rupee (Rs.) is the Companyâs functional currency and the currency of the primary economic environment in which the Company operates. Accordingly, the management has determined that financial statements are presented in Indian Rupees (''). All amounts have been rounded-off to the nearest Crore upto two decimal places, unless otherwise indicated.
d) Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following items:
e) Use of estimates and judgements
In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
Assumptions and estimation uncertainties
Information about critical judgements, assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended March 31, 2019 is included in the following notes:
- Note 11 - impairment test of non-financial assets: key assumptions underlying recoverable amounts including the recoverability of expenditure on intangible assets;
- Note 27 - recognition of deferred tax assets;
- Note 25 - measurement of defined benefit obligations: key actuarial assumptions;
- Note 37 - Financial instruments - Fair values, risk management and impairment of financial assets;
- Note 26 - Share based payments;
- Note 11- estimates of useful lives and residual value of Property, Plant and Equipment and Other Intangible Assets;
- Note 31 - recognition and measurement of provisions and contingencies; key assumptions about the likelihood and magnitude of an outflow of resources, if any.
f) Measurement of fair values
A number of the Companyâs accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The Company has an established control framework with respect to the measurement of fair values. Measurement of fair values includes determining appropriate valuation techniques.
The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received on sale of asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.
Valuation models that employ significant unobservable inputs require a higher degree of judgement and estimation in the determination of fair value. Judgement and estimation are usually required for selection of the appropriate valuation methodology, determination of expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and selection of appropriate discount rates.
The management regularly reviews significant unobservable inputs and valuation adjustments.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques.
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
- Note 26 - Share based payment
- Note 37 - Financial instruments - Fair values and risk management
2.2 Recent Accounting Developments:
Standards issued but not yet effective
Following are the new standards and amendments to existing standards (as notified by Ministry of Corporate Affairs (MCA) on March 30, 2019 as part of the Companies (Ind AS) Amendment Rules, 2019) which are effective for the annual period beginning from April 01, 2019. The Company intends to adopt these standards and amendments from the effective date.
Ind AS 116 - Leases:
Ind AS 116 is applicable for financial reporting periods beginning on or after April 01, 2019 and replaces existing lease accounting guidance, namely Ind AS 17 Leases. Ind AS 116 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use ("ROU") asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The nature of expenses related to those leases will change as Ind AS 116 replaces the operating lease expense (i.e. rent) with depreciation charge for ROU assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases.
The Company plans to apply Ind AS 116 on April 01, 2019, using the modified retrospective approach. Therefore, the impact (if any) on adoption of the new standard will be recognised as an adjustment to the opening balance of retained earnings as at April 01, 2019, with no restatement of comparative information.
The Company is in the process of analysing the impact of new lease standard on its financial statements.
Amendments to existing Ind AS:
The following amended standards are not expected to have a significant impact on the Companyâs financial statements. This assessment is based on currently available information and is subject to changes arising from further reasonable and supportable information being made available to the Company when it adopts the respective amended standards.
(i) Amendment to Ind AS 12 Income Taxes:
Income tax consequences of distribution of profits (i.e dividends), including payments on financial instruments classified as equity, should be recognised when a liability to pay dividend is recognised.
The income tax consequences should be recognised in the Statement of Profit and Loss, Other
Comprehensive Income or equity according to where the past transactions or events that generated distributable profits were originally recognised.
Appendix C has been added to Ind AS 12 which seeks to bring clarity to the accounting for uncertainties on income tax treatments that are yet to be accepted by tax authorities and to reflect it in the measurement of current and deferred taxes.
(ii) Amendments to Ind AS 109 Financial Instruments:
A financial asset would be classified and measured at amortised cost or at Fair Value Through Other Comprehensive Income (FVOCI) if its contractual cash flows are solely in the nature of principal and interest on the principal amount outstanding (SPPI criterion).
An exception has been prescribed to the classification and measurement requirements with respect to the SPPI criterion for financial assets that:
- Have a prepayment feature which results in a negative compensation.
- Apart from the prepayment feature, other features ofthe financial asset would have contractual cash flows which would meet the SPPI criterion, and
- The fair value of the prepayment feature is insignificant when the entity initially recognises the financial asset. If this is impracticable to assess based on facts and circumstances that existed on initial recognition of the asset, then the exception would not be available.
Such financial assets could be measured at amortised cost or at FVOCI based on the business model within which they are held.
(iii) Amendments to Ind AS 19 Employee Benefits:
When a defined benefit plan is amended, curtailed or settled, entities would be required to use updated actuarial assumptions to determine its current service cost and net interest for the remainder of the annual reporting period (post the plan amendment, curtailment or settlement).
The effect of the asset ceiling would not be considered while calculating the gain or loss on any settlement of the plan. Subsequently, it would be recognised in Other Comprehensive Income.
The amendments that are not yet effective, made to the following existing standards, does not have any impact on the Companyâs financial statements:
- Ind AS 23 Borrowing Costs
-Ind AS 28 Investments in Associate and Joint Ventures
- Ind AS 103 Business Combinations
- Ind AS 111 Joint Arrangements
The Company has availed the deemed cost exemption as per Ind AS 101 in relation to the Property Plant and Equipment, Goodwill and Other Intangible Assets as on the date of transition (April 01, 2017) and hence the net block of carrying amount as at March 31, 2017 has been considered as the gross block of carrying amount on the date of transition. Refer note below for the gross block value and the accumulated depreciation as at March 31, 2017 under the previous GAAP.
Impairment testing
The Goodwill relates to acquisition of rights to operate, administer and manage schemes of the erstwhile Morgan Stanley Mutual Fund. The recoverable amount is the management fee income based on the present value of the future cash flows expected to be derived from the asset (value in use). Management fee income is assumed to be generated at a constant rate and is discounted using a pre-tax discount rate of 7.31% based on 5 year Government security (G-sec) yield.
An analysis of sensitivity of the computation to a change in key parameters based on reasonably probable assumptions did not identify any probable scenarios in which the recoverable amount would decrease below the carrying amount of goodwill. Consequently, no impairment is required.
The Shareholders of the Company had, at the Extraordinary General Meeting (EGM) held on February 06, 2018, accorded their consent to the following:
1. Increase in the authorised share capital of the Company from Rs. 80 Crore divided into 3,00,00,000 equity shares of Rs. 10 each and 5,00,00,000 preference shares of Rs. 10 each to Rs. 350 Crore divided into 30,00,00,000 equity shares of Rs. 10 each and 5.00.00.000 preference shares of Rs. 10 each.
2. Issue and allotment of bonus shares in the ratio of 3 equity shares of Rs. 10 each for every 1 equity share of Rs. 10 each. The record date for the issue of bonus shares was February 05, 2018.
3. Subdivision of the authorised and issued share capital of the Company by decreasing the face value of the equity share from Rs. 10 each to Rs. 5 each. The record date for the sub division was February 13, 2018.
4. Accordingly, the revised authorised share capital of the Company as at March 31, 2018 stood at Rs. 350 Crore divided into 60.00.00.000 equity shares of Rs. 5 each and 5,00,00,000 preference shares of Rs. 10 each and issued, subscribed and paid up share capital at Rs. 105.28 Crore comprising of 21,05,55,200 equity shares of Rs. 5 each.
Private Placement:
In accordance with Sections 62(1)(c), 42 and 179 of the Companies Act, 2013 including the rules and regulations framed thereunder and pursuant to approval by the Board of Directors of the Company at its meeting held on April 17, 2018 and by the Shareholders of the Company at the Extraordinary General Meeting held on April 18, 2018, 14,33,600 equity shares of face value of Rs. 5 each were issued and allotted to applicants at a premium of Rs. 1,045 per share on a private placement basis.
Initial Public Offering
The Company has completed the Initial Public Offering (''IPO'') through an offer for sale of 2,54,57,555 equity shares (85,92,970 equity shares by Housing Development Finance Corporation Limited and 1,68,64,585 equity shares by Standard Life Investments Limited) of face value of Rs. 5 each at a price of Rs. 1,100 per equity share aggregating up to Rs. 2,800.33 Crore. The equity shares of the Company were listed on National Stock Exchange of India Limited (''NSE'') and BSE Limited (''BSE'') on August 06, 2018.
b) Terms / Rights attached to Equity Shares
1. The Company had issued only one class of equity shares referred to as equity share having face value of Rs. 10 each which was sub-divided to Rs. 5 each w.e.f. February 13, 2018. Each holder of equity shares is entitled to one vote per share.
2. The holders of equity shares are entitled to dividends, if any, proposed by the board of directors and approved by the Shareholders at the Annual General Meeting.
3. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of preferential amount. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the Shareholders.
c) 11,21,79,830 equity shares of Rs. 5 each (Previous Year 12,07,72,800 equity shares ofRs. 5 each) are held by Housing Development Finance Corporation Limited (Holding Company) and its nominees.
e) 9,10,990 equity shares of Rs. 5 each are reserved for issuance towards outstanding employee stock options.
f 7,85,400 equity shares of Rs. 10 each (Previous Year 9,26,900 equity shares of Rs. 10 each) were bought back during last five years.
g) No shares were allotted as fully paid-up ''pursuant to any contract without payment being received in cash'' in last five years.
h) 7,89,58,200 fully paid up equity shares of Rs. 10 each were issued by way of bonus shares during the period of five years immediately preceding the reporting date.
Note 3 Nature and purpose of reserves Share application pending allotment
Until the shares are allotted, the amount received is shown under the Share Application Money Pending Allotment.
Capital redemption reserve
Whenever there is a buy-back or redemption of share capital, the nominal value of the capital is transferred to a reserve called Capital Redemption Reserve so as to retain the capital.
Securities premium
Securities Premium is used to record the premium (amount received in excess of face value of equity shares) on issue of shares. The reserve can be utilised only for limited purposes such as issuance of bonus shares in accordance with the provisions of the Companies Act, 2013.
General reserve
Pursuant to the provisions ofCompanies Act,1956, the Company had transferred a portion ofthe net profitofthe Company before declaring dividend to general reserve. Mandatory transfer to general reserve is not required under the Companies Act, 2013.
Share options outstanding account
The grant date fair value of equity-settled share-based payment transactions with employees and directors are recognised in the Statement of Profit and Loss with the corresponding credit to this account.
Reserve for social / philanthropic causes & investor centric initiatives
This reserve was created with the object of participating and supporting projects undertaken by Non-Governmental organisations, community groups and others for social / philanthropic causes and investor centric initiatives.
Retained earnings
Retained earnings are the profits that a company has earned to date, less any dividends or other distributions paid to the Shareholders, net of utilisation as permitted under applicable regulations.
Note 4 Employee Benefits
a) Defined Contribution Plan
The Company has recognised the following amounts in the Statement of Profit and Loss, which are included under Contributions to Provident Fund:
b) Defined Benefit Plan - Gratuity
In accordance with the applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments. The plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment, which requires contributions to be made to a separately administered fund.
The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.
The amounts are based on the respective employee''s last drawn salary and the years of employment with the Company. Liabilities in respect of the gratuity plan are determined by an actuarial valuation, based upon which the Company makes annual contributions to the plan. The plan is funded with a life insurance company in the form of a qualifying insurance policy.
The following tables summaries the components of net employee benefit expense recognised in the Statement of Profit and Loss, the funded status and amounts recognised in Balance Sheet.
The sensitivity analysis has been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The sensitivity analysis presented above may not be representative of the actual change in the projected benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognised in the Balance Sheet.
Risks associated with Defined Benefit Plan:
(i) Interest Rate Risk
A fall in the discountrate which islinkedtotheG-Secratewillincreasethepresentvalueoftheliabilityrequiring higher provision. A fall in the discount rate generally increases the fair value of the assets depending on the duration of asset.
(ii) Salary Risk
The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than the assumed level will increase the plan''s liability.
(iii) Investment Risk
The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the gratuity plan in India, it has a relatively balanced mix of investments in money market instruments and public deposits.
(iv) Asset Liability Matching (ALM) Risk
The plan faces the ALM risk as to the matching cash flow. Since the gratuity plan is invested in lines with Rule 101 of Income Tax Rules, 1962, this generally reduces ALM risk.
(v) Mortality Risk
Since the benefits under the plan are not payable for life time and are payable till retirement age only, the plan does not have any longevity risk.
(vi) Concentration Risk
The plan has a concentration risk as all the assets are invested with the insurance company and a default will wipe out all the assets. Although probability of this is very low as insurance companies have to follow stringent regulatory guidelines which mitigate risk.
During the year, there were no plan amendments, curtailments and settlements.
Note 5 Share based payments
Accounting for Employee Share Based Payments
Under Employees Stock Option Scheme 2017 - Series II (ESOS 2017 - Series II), the Company had on January 17, 2018 granted 6.000 stock options at an exercise price of Rs. 7,936/- per option, representing 6,000 equity shares of Rs. 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee of the Board of Directors of the Company (''Nomination & Remuneration Committee'') i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series II, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2017 - Series I (ESOS 2017 - Series I), the Company had on July 28, 2017 granted 1,58,875 stock options at an exercise price of Rs. 5,353/- per option, representing 1,58,875 equity shares of Rs. 10/- each to few employees & directors of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series III (ESOS 2015 - Series III), the Company had on March 16, 2017 granted 14.000 stock options at an exercise price of Rs. 4,721/- per option, representing 14,000 equity shares of Rs. 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series III, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series II (ESOS 2015 - Series II), the Company had on June 22, 2016 granted 7.000 stock options at an exercise price of Rs. 4,078/- per option, representing 7,000 equity shares of Rs. 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series II, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of three years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I), the Company had on December 10, 2015 granted 10,00,000 stock options at an exercise price of Rs. 3,944/- per option, representing 10,00,000 equity shares of Rs. 10/each to few employees & directors of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of three years from the date of vesting
Under Employees Stock Option Scheme 2013 - Series I (ESOS 2013 - Series I), the Company had on June 26, 2013 granted 22,000 stock options at an exercise price of Rs. 2,496/- per option, representing 22,000 equity shares of Rs. 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Remuneration Committee of the Board of Directors of the Company (''Remuneration Committee'') i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2013 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2012 - Series I (ESOS 2012 - Series I) and Employees Stock Option Scheme 2012 -Series II (ESOS 2012 - Series II), the Company had on September 14, 2012 granted 8,70,000 stock options at an exercise price of Rs. 2,129/- per option under ESOS 2012 - Series I, representing 8,70,000 equity shares of Rs. 10/- each and 90,000 stock options at an exercise price of Rs. 2,129/- per option under ESOS 2012 - Series II, representing 90,000 equity shares of Rs. 10/- each to few employees and directors of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2012 - Series I and ESOS 2012 - Series II, the options vest over a period of 1-2 years and 3-4 years respectively from the date of grant. The options can be exercised over a period of five years from the date of respective vesting.
Pursuant to the terms of respective Employees Stock Option Schemes (ESOS), in case of a corporate action like bonus shares, rights issue, buyback of shares, split of shares, reduction of capital etc., the number of options outstanding as at the date of the corporate action and the exercise price under all the relevant ESOS shall stand modified accordingly, so as to ensure that the paid-up value of the total shares that can be issued under them remains unchanged. Accordingly, the Nomination and Remuneration Committee of the Company has resolved, vide its circular resolution passed in February 2018, to make appropriate adjustments to the outstanding options and now each option represents one equity share of Rs. 5/- each.
Modifications, if any made to the terms and conditions of Employees Stock Option Schemes (ESOS), as approved by the Nomination & Remuneration Committee are disclosed separately.
The Remuneration Committee was renamed as Nomination & Remuneration Committee by the Board of Directors at their meeting held on April 16, 2014.
Since all the options were granted at the same exercise price per option under the respective Series, the weighted average exercise price per option under the respective Series is the same.
Fair value methodology
The fair value of options used to compute net income and earnings per equity share has been estimated on the date of grant using Black-Scholes model.
The key assumptions used in Black-Scholes model for calculating fair value under ESOS 2012 - Series I, ESOS 2012 - Series II, ESOS 2013 - Series I, ESOS 2015 - Series I, ESOS 2015 - Series II, ESOS 2015 - Series III, ESOS 2017 - Series I and ESOS 2017
- Series II as on the date of grant were:
Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black - Scholes Model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time.
In case of schemes other than ESOS 2017-Series II, as on the date of grant, the Company being an unlisted company and in the absence of listed comparable companies, volatility has been considered to be NIL.
As on the date of grant in case of ESOS 2017-Series II, the sector had only one listed stock which was listed during that year. The volatility derived from this stock has been annualised for the purpose of this valuation.
Details of modifications in terms and conditions of ESOS:
No modifications were made in the terms and conditions of ESOS during the current year. The Nomination & Remuneration Committee at its meeting held on July 20, 2016 had approved few modifications, viz. change in nomenclature of Employees Stock Option Scheme 2015 (ESOS 2015) to Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I) and change in the period over which, the options granted under ESOS 2015 - Series I and ESOS 2015 - Series II, can be exercised from the date of their respective vesting.
By virtue of the said modifications, the options granted under ESOS 2015 - Series I and ESOS 2015 - Series II can now be exercised over a period of five years from the date of respective vesting. There was no change in any other parameters of these schemes.
The options thus modified have been fair valued as at July 20, 2016, being the modification date. The key assumptions considered in the pricing model for calculating fair value under ESOS 2015 - Series I and ESOS 2015 - Series II as on the date of modification were:
The incremental share based compensation determined under fair value method amounts to Rs. 161 (Rs. 20 post corporate action) per option under ESOS 2015 - Series I and Rs. 162 (Rs. 20 post corporate action) per option under ESOS 2015 - Series
II. The incremental fair value granted is taken into consideration for the purpose of computing the net income and earnings per equity share.
Note:
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.
Significant management judgement is required in determining provision for income tax, deferred tax assets and liabilities and recoverability of deferred tax assets. The recoverability of deferred tax assets is based on estimates of taxable income and the period over which deferred tax assets will be recovered. Any changes in future taxable income would impact the recoverability of deferred tax assets.
Note 6 Earnings Per Share
Basic earnings per share (EPS) is calculated by dividing the profit after tax for the year attributable to equity shareholders of company by the weighted average number of equity shares outstanding during the year.
Diluted EPS is calculated by dividing the profit after tax for the year attributable to equity shareholders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Note 7 Segment Information
(a) Description of segments and principal activities
The Company is in the business of providing asset management services to HDFC Mutual Fund and portfolio management & advisory services to clients. The primary segment is identified as asset management services. As such, the Company''s financial statements are largely reflective of the asset management business and accordingly there are no separate reportable segments as per Ind AS 108, Operating Segment.
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). The CODMâs function is to allocate the resources of the entity and assess the performance of the operating segment of the Company.
Note 8 Trade Payables
Trade Payables do not include any amount payable to Small Scale Industrial Undertakings and Micro, Small and Medium Enterprises. Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMEDA) which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. On the basis of the information and records available with the management, the following disclosures are made for the amounts due to the Micro, Small and Medium enterprises, which have registered with the competent authorities.
Note 9 Leases
(a) Operating lease
The Company has entered into non-cancellable leasing arrangements for certain premises. The total lease payments recognised in the Statement of Profit and Loss towards the said leases are as follows:
(b) Finance Lease
The Company has provided vehicles to its employees which have been treated as finance leases. The following is the summary of future minimum lease payments receivables for assets given on finance leases by the Company:
The Board of Directors of the Company, on March 19, 2018, approved declaration of interim dividend of Rs. 16 per equity share and recommended the same as the final dividend for the year ended March 31, 2018 which was confirmed by the Shareholders of the Company in Annual General Meeting dated April 17, 2018.
Note 10 Capital Management
Equity share capital and other equity are considered for the purpose of Companyâs capital management. The Company manages its capital so as to safeguard its ability to continue as a going concern and to optimise returns to the Shareholders. The capital structure of the Company is based on managementâs judgement of its strategic and day-to-day needs with a focus on total equity so as to maintain investor, creditors and market confidence. The funding requirements are met through equity and operating cash flows generated. The management monitors the return on capital and the board of directors monitors the level of dividends to shareholders of the Company. The Company may take appropriate steps in order to maintain, or if necessary adjust, its capital structure.
Note 11 Financial Instruments
A. Classification and Fair Values of Financial Assets & Liabilities
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy.
*Fair value of cash and cash equivalents, bank balances, trade & other receivables, other financial assets, trade payables and other financial liabilities approximate their carrying amounts largely due to current maturities of these instruments. Accordingly, fair value hierarchy for these financial instruments have not been presented above.
For the purpose of disclosure, quoted price is considered as the fair value of financial assets that are measured at amortised cost. However, they are shown under level 2 in the fair value hierarchy as they are thinly traded.
B. Fair value hierarchy
As per Ind AS 107, ''Financial Instruments: Disclosures'', the fair values of the financial assets or financial liabilities are defined as the price that would be received on sale of asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs.
The hierarchy used is as follows :
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 â Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.
In order to assess Level 3 valuations as per Companyâs investment policy, the management reviews the performance of the investee companies (including unlisted portfolio companies of venture capital funds and alternative investment funds) on a regular basis by tracking their latest available financial statements / financial information, valuation report of independent valuers, recent transaction results etc. which are considered in valuation process.
The finance department of the Company includes the team that performs the valuation of financial assets and liabilities required for financial reporting purposes, including level 3 fair value. The team reports directly to the Chief Financial Officer (CFO) of the Company. Discussions of valuation processes and results are held between the valuation team and the senior management at least once every three months which is in line with the Companyâs quarterly reporting periods.
D. Valuation inputs and relationship to fair value
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurement.
F. Financial Risk Management
The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The financial risks are managed in accordance with the Company''s risk management policy which has been approved by its Board of Directors. The Companyâs Board of Directors has overall responsibility for managing the risk profile of the Company. The purpose of risk management is to identify potential problems before they occur, so that risk-handling activities may be planned and invoked as needed to manage adverse impacts on achieving objectives.
The Audit Committee of the Company reviews the development and implementation of the risk management policy of the Company on periodic basis. The Audit Committee provides guidance on the risk management activities, review the results of the risk management process and report to the Board of Directors on the status of the risk management initiative.
i. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company''s trade and other receivables, cash and cash equivalents, and financial assets measured at amortised cost.
Exposure to credit risk is mitigated through regular monitoring of collections, counterpartyâs creditworthiness and diversification in exposure.
Exposure to credit risk
The carrying amount of financial assets represents maximum amount of credit exposure. The maximum exposure to credit risk is as per the table below, it being total of carrying amount of cash and cash equivalent, trade and other receivables and financial assets measured at amortised cost.
Expected Credit Loss (ECL) on Financial Assets
The Company continuously monitors all financial assets subject to ECLs. In order to determine whether an instrument is subject to 12 month ECL (12mECL) or life time ECL (LTECL), the Company assesses whether there has been a significant increase in credit risk or the asset has become credit impaired since initial recognition. The Company applies following quantitative and qualitative criteria to assess whether there is significant increase in credit risk or the asset has been credit impaired:
- Historical trend of collection from counterparty
- Companyâs contractual rights with respect to recovery of dues from counterparty
- Credit rating of counterparty and any relevant information available in public domain
ECL is a probability weighted estimate of credit losses. It is measured as the present value of cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with contract / as estimated by the Company and the cash flows that the Company expects to receive).
The Company has three types of financial assets that are subject to the expected credit loss:
- Cash and cash equivalent
- Trade & other receivables
- Investment in debt securities and preference shares Trade and Other Receivables
Exposures to customers'' outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of collection from counterparties on timely basis reflects low level of credit risk. As the Company has a contractual right to such receivables as well as the control over such funds due from customers, the Company does not estimate any credit risk in relation to such receivables. Further, management believes that the unimpaired amounts that are past due by more than 180 days are still collectible in full, based on historical payment behaviour.
Cash and Cash Equivalents
The Company holds cash and cash equivalents and other bank balances as per note 4 and 5 . The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be high.
Investment in Debt Securities and Preference Shares
The Company has made investments in tax free bonds and preference shares. Funds are invested after taking into account parameters like safety, liquidity and post tax returns etc. The Company avoids concentration of credit risk by spreading them over several counterparties with good credit rating profile and sound financial position. The Companyâs exposure and credit ratings of its counterparties are monitored on an ongoing basis.
Investment in debt securities that are in tax free government bonds do not carry any credit risk, being sovereign in nature. Credit risk from other financial assets has not increased significantly since initial recognition. Accordingly, the expected probability of default is low except for investments where credit rating has reduced to non-investment grade exposing significant increase in credit risk since initial recognition.
ii. Liquidity Risk
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due as a result of mismatches in the timing of the cash flows under both normal and stress circumstances. Such scenarios could occur when funding needed for illiquid asset positions is not available to the Company on acceptable terms.
To limit this risk, management has adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a regular basis. The Company has developed internal control processes for managing liquidity risk.
The Company maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption in cash flow. The Company assesses the liquidity position under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Company.
iii. Market Risk
Market risk is the risk of loss of future earnings, fair values or future cash flows related to financial instrument that may result from adverse changes in market rates and prices (such as foreign exchange rates, interest rates, other prices). The Company is exposed to market risk primarily related to currency risk, interest rate risk and price risk.
Currency Risk
The Company has insignificant amount of foreign currency denominated assets and liabilities. Accordingly, there is no significant exposure to currency risk.
Interest Rate Risk
The Company''s investments are primarily in fixed rate interest / dividend bearing instruments. Accordingly, there is no significant exposure to interest rate risk.
Price Risk
Price risk is the risk that the value of the financial instrument will fluctuate as a result of changes in market prices and related market variables including interest rate for investments in debt oriented mutual funds and debt securities, whether caused by factors specific to an individual investment, its issuer and market. The Companyâs exposure to price risk arises from investments in equity securities, debt securities, units of mutual funds, venture capital fund and alternative investment funds which are classified as financial assets at Fair Value Through Profit and Loss and amounts to as follows:
Note 12 First-time Adoption of Ind AS
These financial statements, for the year ended March 31, 2019, are the first financial statements which the Company has prepared in accordance with Ind AS. For periods up to and including the year ended March 31, 2018, the Company has prepared its financial statements in accordance with Previous GAAP.
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for years ended on March 31, 2019, together with the comparative period data as at and for the year ended March 31, 2018, as described in the significant accounting policies. In preparing these financial statements, the Companyâs opening balance sheet was prepared as at April 01, 2017, the Companyâs date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Previous GAAP financial statements, including the Balance Sheet as at April 01, 2017 and the financial statements as at and for the year ended March 31, 2018.
Optional exemptions availed and mandatory exceptions
In preparing these Ind AS financial statements, the Company has availed certain exemptions and exceptions in accordance with Ind AS 101, as explained below. The resulting difference between the carrying values of the assets and liabilities in the financial statements as at the transition date under Ind AS and Previous GAAP is recognised directly in equity (retained earnings or another appropriate category of equity).
A. Exemptions and exceptions availed
A.1 Ind AS mandatory exceptions
A.1.1 Estimates
On assessment of the estimates made under the Previous GAAP financial statements, the Company has concluded that there is no necessity to revise the estimates under Ind AS. However, estimates that were required under Ind AS but not required under Previous GAAP are made by the Company for the relevant reporting dates reflecting conditions existing as at that date.
A.1.2 Classification and measurement of financial assets
The Company has determined the classification and measurement of financial assets based on facts and circumstances that existed on the date of transition.
A.2 Ind AS optional exemptions
A.2.1 Deemed cost - Property Plant and Equipment and Other Intangible Assets
The Company has elected to continue with the carrying value for all of its Property, Plant and Equipment and Other Intangible Assets as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition.
A.2.2 Business combinations
The Company has opted to apply Ind AS 103 ''Business Combinations'', prospectively to business combinations occurring after the transition date. Business combinations occurring prior to the transition date have not been restated. As at the date of transition, the carrying amount of Goodwill under the Previous GAAP has been considered as it carrying amount under Ind AS.
A.2.3 Share based payment
The Company has elected to apply Ind AS 102 Share-based payment to ESOS that were unvested on the date of transition to Ind AS.
B. Reconciliations between Previous GAAP and Ind AS
For the purposes of reporting as set out in note 2, the Company has transitioned its basis of accounting from Previous GAAP to Ind AS. The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended March 31, 2019, the comparative information presented in these financial statements for the year ended March 31, 2018 and in the preparation of an opening Ind AS balance sheet at April 01, 2017 (the ''transition date'').
In preparing the opening Ind AS balance sheet, amounts reported in financial statements prepared in accordance with Previous GAAP have been adjusted. An explanation of how the transition from Previous GAAP to Ind AS has affected the financial performance and financial position is set out in the following tables and the notes that accompany the tables.
III. Cash Flow reconciliation :
There is no significant impact on cash flow from operating, investing and financing activities for the year ended March 31, 2018 on transition to Ind AS.
Notes to reconciliation
(i) Investments
Under the Previous GAAP, current investments were valued at the lower of cost or market value. Long-term investments were stated at cost of acquisition or at amortised cost, if acquired at a premium over face value. Premium over face value was amortised over the remaining period to maturity on a straight-line basis. Provision for diminution was recognised for a decline, if any, which was other than temporary in the value of Long Term investments.
a) Investments in units of Mutual Funds, Alternative Investment Funds and Venture Capital Fund
Under Ind AS, Investments in units of Mutual Funds, Alternative Investment Funds and Venture Capital Fund are measured at FVTPL as they do not meet the SPPI criterion (solely payments of principal and interest).
b) Investments in Tax Free Bonds and Cumulative Redeemable Preference Shares
The Company has investment in Tax Free Bonds and Cumulative Redeemable Preference Shares. Since the contractual cash flows meet SPPI criterion, they are measured at amortised cost.
c) Investments in Equity Shares
Under Ind AS, investments in equity instruments other than subsidiaries are to be measured at FVTPL.
d) Investments in compulsorily convertible debentures
The Company has invested in 0.0001% Compulsorily Convertible debenture (CCD) of another company. The shares are convertible into equity shares at the option of the investor at any time during the 10 year from the date of their issuance. Under Ind AS, the CCD are measured at FVTPL as they are convertible and do not meet the SPPI criterion.
The resulting fair value changes and effect of amortisation of these respective investments have been recognised in retained earnings as at the date of transition April 01, 2017 and subsequently in the Statement of Profit and Loss for the year ended March 31, 2018.
(ii) Share-based payments
Under Previous GAAP, the Company followed intrinsic value method for accounting compensation expense of employee stock options. Under Ind AS, in case of equity settled share based payment transactions with employees, the fair value as on the grant date should be estimated and recognised as an expense over the vesting period. The Company has followed fair value method only for unvested equity options as on the transition date.
The resulting employee compensation cost has been recognised in retained earnings as at the date of transition April 01, 2017 and subsequently in the Statement of Profit and Loss for the year ended March 31, 2018.
(iii) Actuarial gain and loss
Under the Previous GAAP, the actuarial gains and losses arising on defined benefit plan were forming part of the Statement of Profit and Loss for the year. Under Ind AS, remeasurement i.e. actuarial gains and losses are recognised in Other Comprehensive Income (net of tax). The concept of Other Comprehensive Income did not exist under Previous GAAP.
(iv) Other Items
Others include adjustments with respect to reversal of amortisation of goodwill from the transition date till March 31, 2018 under Previous GAAP as the same has to be tested for impairment, discounting of interest free deposits etc.
(v) Deferred tax
Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the year. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.
In addition, the various transitional adjustments lead to temporary differences. According to the accounting policies, the Company has to account for such differences.
Note 13
The Previous GAAP figures have been reclassified to conform to Ind AS presentation requirements.
Mar 31, 2018
Note (Continued)
(ii) Following is the reconciliation between basic and diluted earnings per equity share:
The shareholders of the Company had, at the Extraordinary General Meeting (EGM) held on February 06, 2018, accorded their consent to the following:
1. Increase in the authorized share capital of the Company from Rs, 80,00,00,000 divided into 3,00,00,000 equity shares of Rs, 10 each and 5,00,00,000 preference shares of Rs, 10 each to Rs, 350,00,00,000 divided into 30,00,00,000 equity shares of Rs, 10 each and 5,00,00,000 preference shares of Rs, 10 each.
2. Issue and allotment of bonus shares in the ratio of 3 equity shares of Rs, 10 each for every 1 equity share of Rs, 10 each. The record date for the issue of bonus shares was February 05, 2018.
3. Sub division of the authorized and issued share capital of the Company by decreasing the face value of the equity share from Rs, 10 each to Rs, 5 each. The record date for the sub division was February 13, 2018.
4. Accordingly, the revised authorized share capital of the Company now stands at Rs, 350,00,00,000 divided into 60,00,00,000 equity shares of Rs, 5 each and 5,00,00,000 preference shares of Rs, 10/- each and issued, subscribed and paid up share capital at Rs, 105,27,76,000 comprising of 21,05,55,200 equity shares of Rs, 5/- each.
Under the bonus issue and the share split, equity shares were issued to existing shareholders for no additional consideration and hence, the number of equity shares outstanding increased without an increase in resources. As per AS-20, the number of equity shares outstanding before such event is to be adjusted for the proportionate change in the number of equity shares outstanding as if such event had occurred at the beginning of the earliest period reported. Pursuant to the shareholders'' consent to the issue of bonus equity shares and sub division of the equity shares (hereinafter referred to as the ''corporate action'') at the EGM mentioned above, number of equity shares outstanding during the previous year, which were considered for the computation of Basic earnings per share (as reported and pro forma) and Diluted earnings per share (as reported and pro forma) have been adjusted in the financial statements.
In compliance with the Accounting Standard on âAccounting for Taxes on Incomeâ (AS-22) notified under Section 133 of the Act, the Company has made net deferred tax adjustment of '' 37,92,136 (Previous Year Rs, 4,53,67,512) as per details given below. The amount has been credited (Previous Year debited) to the Statement of Profit and Loss.
5 Contingent Liabilities and Commitments
a) Disputed Income Tax demand Rs, 64,25,409 (Previous Year Rs, 26,55,623).
b) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) is Rs, 59,85,10,280 (Previous Year Rs, 41,69,36,912).
6 Sundry Creditors
Sundry Creditors do not include any amount payable to Small Scale Industrial Undertakings and Micro, Small and Medium Enterprises. Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMEDA) which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. On the basis of the information and records available with the management, the following disclosures are made for the amounts due to the Micro, Small and Medium enterprises, which have registered with the competent authorities.
Under Employees Stock Option Scheme 2017 - Series II (ESOS 2017 - Series II), the Company had on 17 January 2018 granted 6,000 stock options at an exercise price of Rs, 7,936/- per option, representing 6,000 equity shares of Rs, 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee of the Board of Directors of the Company (''Nomination & Remuneration Committee'') i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series II, the options vest over a period of 1-2 years from the date of grant. Accordingly, during the period Nil options under ESOS 2017 - Series II vested. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2017 - Series I (ESOS 2017 - Series I), the Company had on 28 July 2017 granted 1,58,875 stock options at an exercise price of Rs,5,353/- per option, representing 1,58,875 equity shares of Rs, 10/- each to few employees & directors of the Company. The fair value of the CompanyRs,s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2017 - Series I, the options vest over a period of 1-2 years from the date of grant. Accordingly, during the period Nil options under ESOS 2017 - Series I vested. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series III (ESOS 2015 - Series III), the Company had on 16 March 2017 granted 14,000 stock options at an exercise price of Rs, 4,721/- per option, representing 14,000 equity shares of Rs, 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series III, the options vest over a period of 1-2 years from the date of grant. Accordingly, during the period 14,000 options under ESOS 2015 - Series III vested. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series II (ESOS 2015 - Series II), the Company had on 22 June 2016 granted 7,000 stock options at an exercise price of Rs, 4,078/- per option, representing 7,000 equity shares of Rs, 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series II, the options vest over a period of 1-2 years from the date of grant. Accordingly, during the period 7,000 options under ESOS 2015 - Series II vested. The options can be exercised over a period of three years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I), the Company had on 10 December 2015 granted 10,00,000 stock options at an exercise price of Rs, 3,944/- per option, representing 10,00,000 equity shares of Rs, 10/- each to few employees & directors of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series I, the options vest over a period of 1-2 years from the date of grant. During the period Nil options under ESOS 2015 - Series I vested. The options can be exercised over a period of three years from the date of vesting.
Under Employees Stock Option Scheme 2013 - Series I (ESOS 2013 - Series I), the Company had on 26 June 2013 granted 22,000 stock options at an exercise price of Rs, 2,496/- per option, representing 22,000 equity shares of Rs, 10/- each to few employees of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Remuneration Committee of the Board of Directors of the Company (''Remuneration Committee'') i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2013 - Series I, the options vest over a period of 1-2 years from the date of grant. During the period Nil options under ESOS 2013 - Series I vested. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2012 - Series I (ESOS 2012 - Series I) and Employees Stock Option Scheme 2012 - Series II (ESOS 2012 - Series II), the Company had on 14 September 2012 granted 8,70,000 stock options at an exercise price of Rs, 2,129/- per option under ESOS 2012 - Series I, representing 8,70,000 equity shares of Rs, 10/- each and 90,000 stock options at an exercise price of Rs, 2,129/- per option under ESOS 2012 - Series II, representing 90,000 equity shares of Rs,10/- each to few employees and directors of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2012 - Series I and ESOS 2012 - Series II, the options vest over a period of 1-2 years and 3-4 years respectively from the date of grant. During the period Nil options under ESOS 2012 - Series I vested. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2009 - Series I (ESOS 2009 - Series I), the Company had on 25 August 2009 granted 1,54,000 stock options at an exercise price of Rs, 527/- per option, representing 1,54,000 equity shares of Rs, 10/- each to few employees and directors of the Company. The fair value of the Companyâs underlying equity share was determined in accordance with the pricing formula approved by the (Remuneration Committee) i.e. based on the Profit Earning Capacity Valuation (PECV) method and the Assets Under Management (AUM) method.
In terms of ESOS 2009 - Series I, the options vest over a period of 1-2 years from the date of grant. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2008 - Series I (ESOS 2008 - Series I) and Employees Stock Option Scheme 2008 - Series II (ESOS 2008 - Series II), the Company had on 10 March 2008 granted 5,24,000 stock options at an exercise price of Rs, 390/- per option under ESOS 2008 - Series I, representing 5,24,000 equity shares of Rs, 10/- each and 10,76,000 stock options at an exercise price of Rs, 750/- per option under ESOS 2008 - Series II, representing 10,76,000 equity shares of Rs, 10/- each to few employees and directors of the Company. The fair value of the Company''s underlying equity share was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Profit Earning Capacity Valuation (PECV) method and the Assets Under Management (AUM) method.
In terms of ESOS 2008 - Series I and ESOS 2008 - Series II, the options vest over a period of 3-4 years from the date of grant. The options can be exercised over a period of five years from the date of respective vesting.
Pursuant to the terms of respective Employees Stock Option Schemes (ESOS), in case of a corporate action like bonus shares, rights issue, buyback of shares, split of shares, reduction of capital etc., the number of options outstanding as at the date of the corporate action and the exercise price under all the relevant ESOS shall stand modified accordingly, so as to ensure that the paid-up value of the total shares that can be issued under them remains unchanged. Accordingly, the Nomination and Remuneration Committee of the Company has resolved, vide its circular resolution passed in February 2018, to make appropriate adjustments to the outstanding options and now each option represents one equity share of Rs, 5/- each.
Modifications, if any made to the terms and conditions of Employees Stock Option Schemes (ESOSs), as approved by the Nomination & Remuneration Committee are disclosed separately.
The Remuneration Committee was renamed as Nomination & Remuneration Committee by the Board of Directors at their meeting held on 16 April, 2014.
Method used for accounting for share based payment plan:
The Company has adopted intrinsic value method to account for the compensation cost of stock options granted to the employees and directors of the Company. Intrinsic value is the amount by which the fair value of the underlying equity share of the Company exceeds the exercise price of the option. Since options under ESOS 2008 - Series I were granted at an exercise price less than the fair value of the underlying equity shares of the Company, the intrinsic value of each option under ESOS 2008 - Series I was ''360/-. Options under ESOS 2008 - Series II, ESOS 2009 - Series I, ESOS 2012 - Series I, ESOS 2012 - Series II, ESOS 2013 - Series I, ESOS 2015 - Series I, ESOS 2015 - Series II, ESOS 2015 - Series III, ESOS 2017 - Series I and ESOS 2017
- Series II were granted at the fair value of the underlying equity shares of the Company.
Since all the options were granted at the same exercise price per option under the respective Series, the weighted average exercise price per option under the respective Series is the same.
Fair value methodology:
The fair value of options used to compute pro forma net income and earnings per equity share has been estimated on the date of grant using Black-Scholes model.
The key assumptions used in Black-Scholes model for calculating fair value under ESOS 2008 - Series I, ESOS 2008 - Series II, ESOS 2009 - Series I, ESOS 2012 - Series I, ESOS 2012 - Series II, ESOS 2013 - Series I, ESOS 2015 - Series I, ESOS 2015 - Series II, ESOS 2015 - Series III, ESOS 2017 - Series I and ESOS 2017
- Series II as on the date of grant were:
Details of modifications in terms and conditions of ESOSs:
No modifications were made in the terms and conditions of ESOSs during the current year. The Nomination & Remuneration Committee at its meeting held on 20 July 2016 had approved few modifications, viz; change in nomenclature of Employees Stock Option Scheme 2015 (ESOS 2015) to Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I) and change in the period over which, the options granted under ESOS 2015 - Series I and ESOS 2015 - Series II, can be exercised from the date of their respective vesting.
By virtue of the said modifications, the options granted under ESOS 2015 - Series I and ESOS 2015 - Series
II can now be exercised over a period of five years from the date of respective vesting. There was no change in any other parameters of these schemes.
The incremental share based compensation determined under fair value method amounts to Rs, 161/- (Rs, 20/post corporate action) per option under ESOS 2015 - Series I and Rs, 162/- (Rs, 20/- post corporate action) per option under ESOS 2015 - Series II. The incremental fair value granted is taken into consideration for the purpose of computing the pro forma net income and earnings per equity share.
The Remuneration Committee at its meeting held on 25 August 2009 had approved few modifications in exercise price and vesting schedule of the options granted under ESOS 2008 - Series I and ESOS 2008 -Series II. Based on an independent valuation of the fair value of the underlying equity shares of the Company, the exercise price of Rs, 390/- per option under ESOS 2008 - Series I and exercise price of Rs, 750/- per option under ESOS 2008 - Series II was revised to Rs, 274/- per option under ESOS 2008 - Series I and to Rs, 527/- per option under ESOS 2008 - Series II. The fair value of the Company''s underlying equity shares was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Profit Earning Capacity Valuation (PECV) method and the Assets Under Management (AUM) method.
The options granted under ESOS 2008 - Series I and ESOS 2008 - Series II vest over a period of 3-4 years from the date of grant and can be exercised over a period of five years from the date of respective vesting.
Since options under ESOS 2008 - Series I were granted at an exercise price less than the fair value of the underlying equity shares of the Company, the intrinsic value of each option under ESOS 2008 - Series I stands revised to Rs, 253/-. Options under ESOS 2008 - Series II were granted at the fair value of the underlying equity shares of the Company.
The incremental share based compensation determined under fair value method amounts to Rs, 95/- (Rs, 12/post corporate action) per option under ESOS 2008 - Series I and Rs, 66/- (Rs, 8/- post corporate action) per option under ESOS 2008 - Series II. The incremental fair value granted is taken into consideration for the purpose of computing the pro forma net income and earnings per equity share. an amount of Rs, 16,98,55,488 (Previous Year Rs, 12,33,44,500) was spent during the year. Out of the same, Rs, 14,38,78,414 (Previous Year Rs, 12,33,44,500) has been charged to the Statement of Profit and Loss and balance amount of Rs, 2,59,77,074 (Previous Year Rs, Nil) has been utilized from Reserve for social / philanthropic causes & investor centric initiatives.
The said spend was on purposes other than construction / acquisition of any asset.
7 Merger of HDFC Children Gift Fund - Saving Plan (âHDFC CGF SPâ) into HDFC Childrenâs Gift Fund - Investment Plan (âHDFC CGF IPâ) was approved by Board of Directors of the Company and the Board of Directors of HDFC Trustee Company Limited (Trustees to HDFC Mutual Fund), at their respective board meetings dated 28 April 2017. The aforesaid merger was carried out in compliance with the applicable regulations and guidelines issued under the SEBI (Mutual Funds) Regulations, 1996. Accordingly, the investment in HDFC CGF SP has been merged with that of HDFC CGF IP.
8 Pursuant to the approval granted by shareholders, the Company has initiated the Initial Public Offer by way of Offer for Sale subject to regulatory and other approvals. In this connection, the Company has filed a Draft Red Herring Prospectus with SEBI on March 15, 2018.
Mar 31, 2017
A) COMPANY OVERVIEW
HDFC Asset Management Company Limited (âthe Companyâ) was incorporated under the Companies Act, 1956 on December 10,1999 and was approved to act as an Asset Management Company for the HDFC Mutual Fund by Securities and Exchange Board of India (SEBI) vide its letter dated July 3, 2000. In terms of the Investment Management Agreement, the Trustee has appointed the Company to manage the Mutual Fund.
The Company is also registered under the SEBI (Portfolio Managers) Regulations, 1993 and provides Portfolio Management Services.
The Company has issued only one class of shares referred to as equity share having Face Value of Rs. 10 each, each holder of equity shares is entitled to one vote per share.
The holders of equity shares are entitled to dividends, if any, proposed by the board of directors and approved by the shareholders at the Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of preferential amount. However, no such preferential amount exists currently. The distribution will be in proportion to the number of equity shares held by the shareholders.
11,76,500 (Previous Year 11,78,200) equity shares of RS.10 each are reserved for issuance towards outstanding employee stock options.
14,11,550 equity shares of RS.10 each were bought back during last five years.
Pursuant to the approval of the shareholders at the Extraordinary General Meeting and in accordance with the provisions of the Companies Act, 2013 (Act) and rules made thereunder, the Company bought back NIL equity shares during the Year (Previous Year 7,85,400) at an aggregate value of Rs. NIL (Previous Year Rs. 309,76,17,600). The Company had utilised the Securities Premium Account & Free Reserves for this purpose. A sum of Rs. NIL (Previous Year Rs. 78,54,000) had been transferred to Capital Redemption Reserve in terms of Section 69(1) of the Act.
Note 2
2.1 Employee Benefits
In accordance with the Accounting Standard on âEmployee Benefitsâ (AS-15) (Revised 2005) issued by the Institute of Chartered Accountants of India, the Company has classified the various benefits provided to the employees as under:
(A) Defined Contribution Plan
Provident Fund
The Company has recognized the following amounts in the Statement of Profit and Loss, which are included under Contributions to Provident Fund:
(B) Defined Benefit Plan
Contribution to Gratuity Fund (Funded Scheme)
The details of the Companyâs post-retirement benefit plan for its employees are given below and certified by an independent actuary.
As the gratuity fund is managed by a life insurance company, details of investment are not available with the Company.
Actuarial Assumptions:
Actuarial valuation was performed in respect of the aforesaid defined benefit plan based on the following assumptions:
In accordance with the Accounting Standard on âSegment Reportingâ (AS-17) issued by the Institute of Chartered Accountants of India, the Company has determined business segments as under:
The Companyâs operations predominantly relate to providing Asset Management Services. It acts as an Investment Manager to schemes launched by HDFC Mutual Fund. It also provides Portfolio Management Services (PMS) to Corporates and High Net Worth Individuals. Accordingly, the Company has recognized âMutual Fundâ and âPortfolio Managementâ as Primary business segments. Secondary segment reporting does not require separate disclosure as most of the activities of the Company are within India.
The accounting principles used in the preparation of the financial statements are also consistently applied to record income and expenditure of individual segments. These are as set out in the note on Significant Accounting Policies.
The basis of reporting is as follows:
1. Revenue and expenses distinctly identifiable to a segment are recognized in that segment.
2. Certain expenses are not specifically allocable to specific segments as the underlying services are used interchangeably. Hence it is not practical to provide segment disclosures relating to such items and accordingly they are separately disclosed as âunallocable expensesâ.
3. Fixed assets used in the Companyâs business have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between the segments. Accordingly depreciation / amortization has been treated as an unallocable expense.
4. Assets and liabilities to the extent directly identifiable to a business segment have been categorized as âAllocable assets/liabilitiesâ, others have been shown as âUnallocable assets/liabilitiesâ.
5. Other balance sheet items such as investments and deferred tax asset are similarly not allocated to business segments.
As per the Accounting Standard on âRelated Party Disclosuresâ (AS-18) issued by the Institute of Chartered Accountants of India, the related parties of the Company are as follows:
A) Holding Company : Housing Development Finance Corporation Limited
B) Investing Party : Standard Life Investments Limited
C) Fellow Subsidiaries where : HDFC Trustee Company Limited
Company has transactions HDFC Standard Life Insurance Company Limited duringthe year HDFC ERGO General Insurance Company Limited
HDFC Realty Limited HDFC Capital Advisors Limited
D) Key Management Personnel : Mr. Milind Barve, Managing Director
The nature and volume of transactions of the Company with the above related parties were as follows: (Figures in bracket pertain to the Previous Year)
Reimbursement of expenses amounting to Rs. Nil paid (Previous Year Rs.15,00,000 received) to / from the Holding Company respectively is not considered above.
The above remuneration excludes perquisite value ofRs. Nil (Previous Years. 19,96,50,000) towards the value of stock options exercised which were granted under Employees Stock Option Scheme 2012.
The company has entered into non-canceilable leasing arrangements for certain premises. The total lease payments recognized in the Statement of Profit and Loss towards the said leases amounts to RS.2,72,03,612 (Previous Year Rs. 1,39,90,200).
The future lease payments in respect of the above are as follows:
2.2 Earnings Per Equity Share
In accordance with the Accounting Standard on âEarnings Per Shareâ (AS-20) issued by the Institute of Chartered Accountants of India:
(i) The basic earnings per equity share has been calculated based on the net profit after tax of Rs. 550,24,56,650 (Previous Year Rs. 477,87,95,118) and 2,51,65,576 (Previous Year 2,52,70,444) number of weighted average equity shares outstanding during the year.
(ii) Following is the reconciliation between basic and diluted earnings per equity share:
(iii) Basic earnings per equity share has been computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year. Diluted earnings per equity share has been computed by dividing net profit after tax by the sum of weighted average number of equity shares and dilutive potential equity shares outstanding during the year. The relevant details as described above are as follows:
In compliance with the Accounting Standard on âAccounting for Taxes on Incomeâ (AS-22) issued by the Institute of Chartered Accountants of India, the Company has made net deferred tax adjustment of Rs. 453,67,512 (Previous Years. 60,96,757) as per details given below. The amount has been debited (Previous Year credited) to the Statement of Profit and Loss.
2.3 Provisions
In compliance with the Accounting Standard on âProvisions, Contingent Liabilities and Contingent Assetsâ (AS-29) issued by the Institute of Chartered Accountants of India, balance under Provision for Contingencies amounting to Nil (Previous Year Rs. 15,00,00,000) represented provision against all contingencies in the business such as open matters with the regulators & claims, if any, with regards to the PMS business. Movement in Provision for Contingencies account duringthe year is as under:
2.4 Contingent Liabilities and Commitments
(a) Disputed Income Tax demand Rs. 26,55,623 (Previous Year Rs. 26,55,623).
(b) Claims against the Company not acknowledged as debts estimated to be Nil (Previous Year Rs. 34,59,941)
(c) Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) is Rs. 41,69,36,912 (Previous Year Rs. 27,02,60,325).
2.5 Sundry Creditors
Sundry Creditors do not include any amount payable to Small Scale Industrial Undertakings and Micro, Small and Medium Enterprises. Under the Micro, Small and Medium Enterprises Development Act, 2006, (MSMEDA) which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. On the basis of the information and records available with the management, the following disclosures are made for the amounts due to the Micro, Small and Medium enterprises, which have registered with the competent authorities.
Under Employees Stock Option Scheme 2015 - Series III (ESOS 2015 - Series III), the Company had on 16th March 2017 granted 14,000 stock options at an exercise price ofRs. 4,721/- per option, representing 14,000 equity shares of Rs. 10/- each to few employees of the Company. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series III, the options vest over a period of 1-2 years from the date of grant. Accordingly, during the year Nil options under ESOS 2015 - Series III (Previous Year Nil) vested. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series II (ESOS 2015 - Series II), the Company had on 22nd June 2016 granted 7,000 stock options at an exercise price ofRs. 4,078/- per option, representing 7,000 equity shares of Rs.10/- each to few employees of the Company. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series II, the options vest over a period of 1-2 years from the date of grant. Accordingly, during the year Nil options under ESOS 2015 - Series II (Previous Year Nil) vested. The options can be exercised over a period of three years from the date of vesting.
Under Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I), the Company had on 10th December 2015 granted 10,00,000 stock options at an exercise price of Rs. 3,944/- per option, representing 10,00,000 equity shares of Rs.10/- each to few employees & directors of the Company. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Nomination & Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2015 - Series I, the options vest over a period of 1-2 years from the date of grant. Accordingly, during the year 9,82,000 options under ESOS 2015 - Series I (Previous Year Nil) vested. The options can be exercised over a period of three years from the date of vesting.
Under Employees Stock Option Scheme 2013 - Series I (ESOS 2013 - Series I), the Company had on 26th June 2013 granted 22,000 stock options at an exercise price ofRs. 2,496/- per option, representing 22,000 equity shares of Rs. 10/- each to few employees of the Company. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2013 - Series I, the options vest over a period of 1-2 years from the date of grant.
Accordingly, during the year Nil options under ESOS 2013 - Series I (Previous Year Nil) vested. The options can be exercised over a period of five years from the date of vesting.
Under Employees Stock Option Scheme 2012 - Series I (ESOS 2012 - Series I) and Employees Stock Option Scheme 2012 - Series II (ESOS 2012 - Series II), the Company had on 14th September 2012 granted 8.70.000 stock options at an exercise price ofRs. 2,129/- per option under ESOS 2012 - Series I, representing 8.70.000 equity shares of Rs. 10/- each and 90,000 stock options at an exercise price of Rs. 2,129/- per option under ESOS 2012 - Series II, representing 90,000 equity shares of Rs.10/- each to few employees and directors of the Company. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Price Earning Multiple method and the Assets Under Management (AUM) method.
In terms of ESOS 2012 - Series I and ESOS 2012 - Series II, the options vest over a period of 1-2 years and 3-4 years respectively from the date of grant. Accordingly, during the year Nil options under ESOS 2012 - Series I (Previous Year Nil) vested and Nil options under ESOS 2012 - Series II (Previous Year 42,500) vested. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2009 - Series I (ESOS 2009 - Series I), the Company had on 25th August 2009 granted 1,54,000 stock options at an exercise price ofRs. 527/- per option, representing 1.54.000 equity shares of Rs. 10/- each to few employees and directors of the Company. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Remuneration Committee of the Board of Directors of the Company (âRemuneration Committeeâ) i.e. based on the Profit Earning Capacity Valuation (PECV) method and the Assets Under Management (AUM) method. In terms of ESOS 2009 - Series I, the options vest over a period of 1-2 years from the date of grant. Accordingly, duringthe year Nil options (Previous Year Nil) vested. The options can be exercised over a period of five years from the date of respective vesting.
Under Employees Stock Option Scheme 2008 - Series I (ESOS 2008 - Series I) and Employees Stock Option Scheme 2008 - Series II (ESOS 2008 - Series II), the Company had on 10th March 2008 granted 5,24,000 stock options at an exercise price of Rs. 390/- per option under ESOS 2008 - Series I, representing 5,24,000 equity shares of Rs. 10/- each and 10,76,000 stock options at an exercise price of Rs. 750/- per option under ESOS 2008 - Series II, representing 10,76,000 equity shares ofRs. 10/- each to few employees and directors of the Company. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Profit Earning Capacity Valuation (PECV) method and the Assets Under Management (AUM) method.
In terms of ESOS 2008 - Series I and ESOS 2008 - Series II, the options vest over a period of 3-4 years from the date of grant. Accordingly, during the year Nil options under ESOS 2008 - Series I (Previous Year Nil) vested and Nil options under ESOS 2008 - Series II (Previous Year Nil) vested. The options can be exercised over a period of five years from the date of respective vesting.
Modifications, if any made to the terms and conditions of Employees Stock Option Schemes (ESOSs), as approved by the Nomination & Remuneration Committee are disclosed separately.
Method used for accounting for share based payment plan:
The Company has used intrinsic value method to account for the compensation cost of stock options granted to the employees and directors of the Company. Intrinsic value is the amount by which the fair value of the underlying equity share of the Company exceeds the exercise price of the option. Since options under ESOS 2008 - Series I were granted at an exercise price less than the fair value of the underlying equity shares of the Company, the intrinsic value of each option under ESOS 2008 - Series I was Rs. 360/-. Options under ESOS 2008 - Series II, ESOS 2009 - Series I, ESOS 2012 - Series I, ESOS 2012 - Series II, ESOS 2013 -Series I, ESOS 2015 - Series I, ESOS 2015 - Series II and ESOS 2015 - Series III were granted at the fair value of the underlying equity shares of the Company.
Since all the options were granted at the same exercise price per option under the respective Series, the weighted average exercise price per option under the respective Series is the same.
Fair value methodology:
The fair value of options used to compute pro forma net income and earnings per equity share has been estimated on the date of grant using Black-Scholes model.
The key assumptions used in Black-Scholes model for calculating fair value under ESOS 2008 - Series I, ESOS 2008 - Series II, ESOS 2009 - Series I, ESOS 2012 - Series I, ESOS 2012 - Series II, ESOS 2013 -Series I, ESOS 2015 - Series I and ESOS 2015 - Series II as on the date of grant were:
Details of modifications in terms and conditions of ESOSs:
The Nomination & Remuneration Committee at its meeting held on 20th July 2016 had approved few modifications, viz; change in nomenclature of Employees Stock Option Scheme 2015 (ESOS 2015) to Employees Stock Option Scheme 2015 - Series I (ESOS 2015 - Series I) and change in the period over which, the options granted under ESOS 2015 - Series I and ESOS 2015 - Series II, can be exercised from the date of their respective vesting.
By virtue of the said modifications, the options granted under ESOS 2015 - Series I and ESOS 2015 â Series II can now be exercised over a period of five years from the date of respective vesting. There was no change in any other parameters of these schemes.
The options thus modified have been fair valued as at 20th July 2016, being the modification date. The key assumptions considered in the pricing model for calculating fair value under ESOS 2015 - Series I and ESOS 2015 - Series II as on the date of modification were:
The incremental share based compensation determined under fair value method amounts to Rs. 161/- per option under ESOS 2015 - Series I and Rs. 162/- per option under ESOS 2015 - Series II. The incremental fair value granted is taken into consideration for the purpose of computing the pro forma net income and earnings per equity share.
The Remuneration Committee at its meeting held on 25thAugust 2009 had approved few modifications in exercise price and vesting schedule of the options granted under ESOS 2008 - Series I and ESOS 2008 - Series II. Based on an independent valuation of the fair value of the underlying equity shares of the Company, the exercise price of Rs. 390/- per option under ESOS 2008 - Series I and exercise price of Rs. 750/- per option under ESOS 2008 -Series II was revised to Rs. 274/- per option under ESOS 2008 - Series I and to Rs. 527/- per option under ESOS 2008 - Series II. The fair value of the Companyâs underlying equity shares was determined in accordance with the pricing formula approved by the Remuneration Committee i.e. based on the Profit Earning Capacity Valuation (PECV) method and the Assets Under Management (AUM) method.
The options granted under ESOS 2008 - Series I and ESOS 2008 - Series II vest over a period of 3-4 years from the date of grant and can be exercised over a period of five years from the date of respective vesting.
Since options under ESOS 2008 - Series I were granted at an exercise price less than the fair value of the underlying equity shares of the Company, the intrinsic value of each option under ESOS 2008 - Series I stands revised to Rs.253/-. Options under ESOS 2008 - Series II were granted at the fair value of the underlying equity shares of the Company.
The options thus modified have been fair valued as at 25th August 2009, being the modification date. The key assumptions considered in the pricing model for calculating fair value under ESOS 2008 - Series I and ESOS 2008 - Series II as on the date of modification were:
The incremental share based compensation determined under fair value method amounts to Rs.95/- per option under ESOS 2008 - Series I and Rs.66/- per option under ESOS 2008 - Series II. The incremental fair value granted is taken into consideration for the purpose of computing the pro forma net income and earnings per equity share.
Impact of fair value method on net profit and earning per share:
Had compensation cost for the Company''s stock options outstanding been determined based on the fair value approach, the Companyâs net profit and earning per share would have been as per the pro forma amounts indicated below:
2.6 The gross amount required to be spent by the Company during the year towards Corporate Social Responsibility as per Sec 135 (5) of the Companies Act, 2013 was Rs. 12,02,14,982 (Previous Year Rs. 10,07,52,725). Accordingly, an amount of Rs. 12,33,44,500 was spent during the year (Previous Year Rs. 9,02,03,000) on purposes other than construction / acquisition of any asset.
2.7 Details of Specified Bank Notes (SBN) held and transacted during the period from 8th November, 2016 to 30th December, 2016 is provided in the table below. The SBN shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.0.3407(E), dated 8th November, 2016.
* Returned by an employee against settlement of advance given for routine business activities.
2.8 Comparatives Figures
Figures for the Previous Year have been regrouped / rearranged, wherever necessary.
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