Notes to Accounts of L&T Technology Services Ltd.
Mar 31, 2023
18.6 Shares reserved for issue under options
I nformation relating to L&T Technology Services Limited Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 18.8 of the standalone financial statements.
18.7 In the period of five years immediately preceding March 31, 2023 :
Aggregate number and class of shares allotted as fully paid up pursuant to contract without payment being received in cash - Nil (previous year: Nil).
Aggregate number and class of shares allotted as fully paid up by way of bonus shares - Nil (previous year: Nil) Aggregate number and class of shares bought back - Nil (previous year: Nil)
18.8 Share based payments
i) The objective of the ESOP Scheme, 2016 is to reward those employees who contribute significantly to the company''s profitability and shareholder''s value as well as encourage improvement in performance and retention of talent. In Series A, the options are vested equally over a period of 5 years and in Series B options are vested equally over period of 4 years, subject to the discretion of the management and fulfillment of certain conditions.
ii) The exercise period for the options granted under the ESOP Scheme, 2016 would be seven years (84 months) from the date of grant of options or six years from the date of first vesting or three years (36 months) from the date of retirement/death, whichever is earlier, subject to any change as may be approved by the Board. The exercise price may be decided by the Board, in such manner, during such period, in one or more tranches and on such terms and conditions as it may deem fit, provided that the exercise price per option shall not be less than the par value of the equity share of our Company and shall not be more than the market price as defined in the SEBI (Share Based Employee Benefits) Regulations,2021 and shall be subject to compliance with accounting policies under the said regulation. The number of shares to be allotted on exercise of options should not exceed the total number of unexercised vested options that may be exercised by the employee.
18.9 Dividends
The final dividend on shares is recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
The Company declares and pays dividends in Indian rupees. Companies are required to pay/distribute dividend after deducting applicable withholding income taxes. The remittance of dividends outside India is governed by Indian law on foreign exchange and is also subject to withholding tax at applicable rates.
The amount of per share dividend recognized as distribution to equity shareholders in accordance with Companies Act, 2013 is as follows:
(a) During the year ended March 31, 2023, the Company paid the final dividend of '' 15 per equity share for the year ended March 31, 2022.
(b) The Company paid, on November 10, 2022 an Interim dividend of '' 15 per equity share for the year ended March 31, 2023.
(c) On April 26, 2023, the Board of Directors of the Company have recommended the final dividend of '' 30 per equity share for the year ended March 31, 2023 subject to approval by the shareholders at the forthcoming annual general meeting. On approval, the total dividend payment based on number of shares outstanding as on March 31, 2023 is expected to be '' 3,168 million.
Nature and Purpose of reserves.
Securities Premium Account
Amounts received on issue of shares in excess of the par value has been classified as securities premium, net of utilisation. Share options outstanding account
Employee Share options reserve represents the cumulative expense to be recognized for equity-settled transactions at each reporting date until the employee share options are vested/expired upon which such amount is transferred to Profit and Loss.
Retained Earnings
This reserve represents undistributed accumulated earnings of the Company as on the balance sheet date.
Capital Reserve
The Company recognizes difference between the amount of consideration paid and net worth of acquired business as capital reserve for common control business combination transactions.
Cash flow hedge reserve
When a derivative is designated as cashflow hedging instrument, the effective portion of changes in the fair value of derivative is recognised in Other Comprehensive Income (OCI) and accumulated in cashflow hedge reserve.
Cumulative gains or losses previously recognised in cashflow hedge reserve are recognised in the statement of profit and loss in the period in which such transaction occurs/hedging instruments are settled/ cancelled.
|
33. Contingent liability |
('' million) |
|
|
Year ended |
Year ended |
|
|
March 31, 2023 |
March 31, 2022 |
|
|
Corporate guarantee |
1,356 |
1,251 |
|
1,356 |
1,251 |
Corporate guarantee of USD 16.5 million (previous year: USD 16.5 million) issued to Bank of America for securing borrowings of L&T Technology Services LLC, USA.
35. Corporate social responsibility expenditure
a) As per section 135 of the Act, a company meeting the applicability threshold, needs to spend atleast 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (''CSR'') activities. The Company''s CSR ambit covers skill development, water, health & education and environment and it is continuously investing in welfare initiatives and programmes to provide support to people in the communities where the Company has presence. A CSR committee has been formed by the Company as per the Act.
b) Amount required to be spent by the Company on CSR related activities during the year is '' 199 million (previous year: '' 174 million).
d) Details of related party transactions in relation to CSR expenditure as per relevant Accounting Standards - '' 3.36 million (previous year'' 3.83 million) spent on CSR through L&T Public Charitable Trust on Education and Skill development.
The key objective of the Company''s capital management is to ensure that it maintains a stable capital structure with the focus on total equity to uphold investor, creditor, and customer confidence and to ensure future development of its business. The Company determines the capital requirement based on annual operating plans and long term and other strategic investment plans. The funding requirements are met through operating cash flows generated, and equity. The Company is not subject to any externally imposed capital requirements.
As evident from the above table, the Company is predominantly equity-financed. Also, the company has been generating healthy free cash flow along with major investments in liquid instruments. The Company continues its policy of a conservative capital structure which has ensured that it retains the highest credit rating. Low gearing levels also equip the Company with the ability to navigate business stresses on one hand and raise growth capital on the other. This policy also provides flexibility of fund raising options for future, which is especially important in times of global economic volatility.
(a) Description of segments and principal activities
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker, in deciding how to allocate resources and assessing performance. The Company''s chief operating decision maker is the Chief Executive Officer.
The company has identified business segments as reportable segments. The business segments comprise of :-
⢠Transportation
⢠Industrial products
⢠Hi-Tech communications and media
⢠Plant Engineering
⢠Medical Devices
Brief description of each segment and principal activities are as under:
1: Transportation: Transportation segment partners with OEMs and Tier 1 suppliers serving aerospace,automotive, rail, commercial vehicles, off-highway and polymer segments. The segment delivers end-to-end services from concept to detailed design through manufacturing and sourcing support and helps OEMs develop cost effective vehicles.
2: Industrial Products: Industrial Products engineering partners with OEM customers across building automation, home and office products, energy, process control and machinery. This segment offers end-to-end product development counsel, leveraging expertise spanning software, electronics, connectivity, mechanical engineering, industrial networking protocols, user interface/user experience (UI/UX), test frameworks and enterprise control solutions.
3: Hi-Tech communications and media: Hi-Tech communications and media caters to OEM/ODMs, chipset vendors,telecom carriers and ISVs delivering end-to-end embedded software design and development, hardware platform design and development, product maintenance,enhancement and sustenance, testing and validation, system integration for communication and related solutions and systems and field implementation services.
4: Plant engineering: Plant engineering segment provides end-to-end engineering services for leading plant operators across the globe. The industry span and services are broadly for chemical, consumer packaged goods (FMCG) and energy and utility sector clients.
5: Medical devices: Medical devices engineering is a dedicated practice that is revolutionizing delivery of healthcare by providing product development solutions across a variety of Class I, II and III devices, with concept design, embedded systems, hardware and software, mechanical engineering services, application software, value analysis and value engineering, manufacturing engineering and regulatory compliance. Medical device industry comprises of diagnostic, life sciences, surgical, cardiovascular, home healthcare, general medical and other devices.
The management primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA, see below) to assess the performance of the operating segments.
i) Market risk management
The Company regularly reviews its foreign exchange forward and option positions, both on a standalone basis and in conjunction with its underlying foreign currency related exposures. The Company follows cash flow hedge accounting for highly probable forecasted exposures (HPFE) hence the movement in mark to market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HPFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts are accumulated in the balance sheet of the Company. The Company manages its exposures normally for a period of up to three years based on the estimated exposures over that period. As the period increases, the cash flows hedged as a percentage of the total expected cash flows diminish, as there is increased uncertainty of the total cash flows materializing over a longer period of time. The recognition of the gains and losses related to these instruments may not always coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company''s financial condition and operating results. Hence, the Company monitors the potential risk arising out of the market factors like exchange rates, interest rates, price of traded investment products etc. on a regular basis. For on balance sheet exposures, the Company monitors the risks on net un-hedged exposures.
ii) Price risk management
The Company''s investment policy and strategy are focused on preservation of capital and supporting the Company''s liquidity requirements. The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives. The Company typically invests in money market funds, under a limits framework which governs the credit exposure to any one issuer as defined in its investment policy. To provide a meaningful assessment of the price risk associated with the Company''s investment portfolio, the Company performed a sensitivity analysis to determine the impact of change in prices of the securities that would have on the value of the investment portfolio assuming a 0.25% move in debt funds and debt securities. Based on the investment position a hypothetical 0.25% change in the fair market value of debt securities would result in a value change of /- '' 21.68 million as of March 31, 2023, and /- '' 9.72 million as of March 31, 2022. The investments in money market funds are for the purpose of liquidity management only and are held only overnight and hence not subject to any material price risk.
iii) Foreign currency risk management
In general, the Company is a net receiver of foreign currency. Accordingly, changes in exchange rates, and in particular a strengthening of the Indian Rupee, will negatively affect the Company''s net sales and gross margins as expressed in Indian Rupees.
The Company may enter into foreign currency forward contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. The Company''s practice is to hedge a portion of its material net foreign exchange exposures with tenors in line with the projected exposure based on future business growth. However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures. The Company may also not hedge 100% given the uncertainty with business projections and hence the exposure gets hedged progressively in lower amounts.
To provide a meaningful assessment of the foreign currency risk associated with the Company''s foreign currency derivative positions against off balance sheet exposures and unhedged portion of on-balance sheet exposures, the Company uses a multi-currency correlated value-at-risk ("VAR") model. The VAR model uses a Monte Carlo simulation
to generate thousands of random market price paths for foreign currencies against Indian rupee taking into account the correlations between them. The VAR is the expected loss in value of the exposures due to overnight movement in spot exchange rates, at 95% confidence interval. The VAR model is not intended to represent actual losses but is used as a risk estimation tool. The model assumes normal market conditions and is a historical best fit model. The overnight VAR for the Company at 95% confidence level is '' 233 million as of March 31, 2023 and '' 254 million as of March 31, 2022.
Actual future gains and losses associated with the Company''s investment portfolio and derivative positions may differ materially from the sensitivity analysis performed as of March 31, 2023 due to the inherent limitations associated with predicting the timing and amount of changes in foreign currency exchange rates and the Company''s actual exposures and position.
iv) Credit/counter-party risk management
The principal credit risk that the Company is exposed to is non-collection of trade receivables and late collection of receivables leading to credit loss. The risk is mitigated by reviewing creditworthiness of the prospective customers prior to entering into contract and post contracting, through continuous monitoring of collections by a dedicated team.
The Company reviews trade receivables on periodic basis and makes provision for doubtful debts if collection is doubtful. The Company also calculates the expected credit loss (ECL) for non-collection and for delay in collection of receivables. The Company makes additional provision if the ECL amount is higher than the provision made for doubtful debts. In case the ECL amount is lower than the provision made for doubtful debts, the Company retains the provision made for doubtful debts without any adjustment.
The percentage of revenue from its top five customers is 16% for 2022-23 (18% for 2021-22).
The counter-party risk that the Company is exposed to is principally for financial instruments taken to hedge its foreign currency risks. The counter-parties are mainly banks and the Company has entered into contracts with the counterparties for all its hedge instruments.
The Company invests its surplus funds in liquid investments and mitigates the risk of counter-party failure by investing with institutions having good credit rating.
v) Liquidity risk Management
The Company manages liquidity risk by maintaining sufficient cash and marketable securities and by having access to funding through an adequate amount of committed credit lines.
Management regularly monitors the position of cash and cash equivalents vis-a-vis projections. Assessment of maturity profiles of financial assets and liabilities including debt financing plans and maintenance of balance sheet liquidity ratios are considered while reviewing the liquidity position.
(i) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanantion of each level follows underneath the table:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs 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 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
There were no transfers between the levels during the year.
The Company''s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
(ii) Valuation technique used to determine fair value
Specific valuation technique used to value financial instruments include :
- the use of quoted market prices or dealer quotes for similar instruments
- the fair value of forward foreign exchange contracts and principal swap is determined using forward exchange rates at the balance sheet date.
(iii) Valuation processes
The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. The fair valuation of level 1 and level 2 classified assets and liabilities are readily available from the quoted prices in the open market and rates available in secondary market respectively. The valuation method applied for various financial assets and liabilities are as follows -
- Quoted price in the primary market (net asset value) considered for the fair valuation of the current investment i.e mutual funds. Gain/(loss) on fair valuaiton is recognised in statement of profit and loss.
- The carrying amounts of trade receivable, unbilled revenue, trade payable, cash and bank balances, short term loans and advances, statutory dues/receivable, short term borrowing, employee dues are considered to be the same as their fair value owing to their short-term nature.
- The fair value of premuim receivable on financial guarantee contract is derived by discounting premuim receivable over the period of contract.Thereafter, the same is carried at the amount initially recognised less the cumulative amortisation of income over the period of the contract.
- The fair value of non-current security deposits are calculated by discounting future cash inflows.
(iv) Fair value of financial assets and financial liabilities measured at amortised cost:
The carrying amounts of all financial assets and financial liabilities are considered to be the same as their fair values
owing to their short term nature.
Risk exposure
i. Gratuity
The Company operates gratuity plan through a trust wherein every employee is entitled to the benefit equivalent to fifteen days last salary drawn for each completed year of service. The same is payable on termination of service or retirement whichever is earlier. The benefit vests after five years of continuous service. The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations.
ii. Post retirement medical benefits plan
The post-retirement medical care plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling sanctioned based on cadre of the employee at the time of retirement. The plan is unfunded. Employees do not contribute to the plan.
General descriptions of defined benefit plans:
a Gratuity plan
The Company makes contributions to the employees'' group gratuity-cum-life assurance scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service.
b Post-retirement medical benefit plan
The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement.
c Provident Fund trust managed by the holding company
The Company''s provident fund plan is managed by its holding company through a trust permitted under The Employees'' Provident Funds and Miscellaneous Provisions Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service.
Employee benefit plan outside India
I n January 2018, the Company established the L&T Technology Services 401k Plan (the "Plan") for the benefit of its employees in USA. As allowed under section 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary contributions for eligible employees of L&T Technology Services Limited. The Plan allows the employee and Company''s contributions to vest 100% immediately. During the year ended March 31, 2023, the Company contributed '' 111 million towards the Plan (Previous year: '' 117 million) .
*represents value less than 0.5 million.
The transactions with related parties are made on terms equivalent to those that prevail in arm''s length transactions. Outstanding balances at the year-end are unsecured and interest free except for borrowings and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended March 31, 2023, the Company has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
Arepresents value less than 0.5 million.
b) Transaction price allocated to remaining performance obligation
i) The aggregate value of performance obligations that are completely or partially unsatisfied as of March 31, 2023, other than those meeting the exclusion criteria mentioned below in (ii), is '' 8,670 million. Out of this, the Company expects to recognize revenue of '' 7,352 million within the next one year. Remaining performance obligation estimates are subject to change and are affected by several factors, including changes in the scope of contracts, periodic revalidations, and adjustments for currency.
ii) The Company has applied practical expedient and has not disclosed information about remaining performance obligations in contracts where the entity has the right to consideration that corresponds directly with the value of entity''s performance completed to date, typically those contracts where invoicing is on time and material basis.
c) Movement in contract balances
i) The Company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for time and material jobs where right to consideration is unconditional upon passage of time. Unbilled revenue for fixed price contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
A. During the year ended March 31, 2023, there has been no case of reversal of government grant against export of services. (previous year '' 320 million.) which is disclosed as export incentive as part of other income.
B. The Company has received incentives amounting to '' 17 million (previous year '' 26 million) from government of UK against money spent on research and development and has accounted for it under other income.
C. The Company has received government grants amounting to '' 6 million (previous year '' 34 million) from governments of various countries on compliance with several employment-related conditions consequent to the outbreak of COVID-19 pandemic and accordingly, accounted it as a credit to employee benefits expense.
49. Disclosures pursuant to Indian accounting standard (IND AS) 103 "Business combinations"
On January 12, 2023, L&T Technology Services Limited ("Company") executed Business Transfer Agreement for the acquisition of Smart World & Communication ("SWC") Business of Larsen & Toubro Limited through a slump sale for a cash consideration of '' 8 billion.
The Company''s acquisition of SWC of Larsen & Toubro Limited was consummated on April 1, 2023, being the closing date on which consideration of INR 8 billion was transferred and the net assets of SWC were transferred to Company.
Dues to Micro and Small Enterprises as defined in Micro, Small and Medium Enterprises Development Act, 2006, have been determined to the extent such parties have been identified on the basis of information collected by the Management.
51. I n December 2019, Officers of the U.S. Department of Homeland Security came to our offices in New Jersey and Illinois seeking information regarding Company''s non-immigrant visa program. It was subsequently learned by Company that this was part of larger inquiry by the U.S. Department of Homeland Security and South Carolina U.S. Attorney''s office. In response, Company has made certain procedural changes in Visa program documentation in consultation with U.S. legal counsel.
I n March 2023, the Company resolved the Government''s investigation by entering into a $9.9 million civil settlement. The claims resolved by the settlement are allegations only, and there has been no determination of liability.
52. The Company did not have significant long-term contracts including derivative contracts for which there were any material foreseeable losses.
53. There are no amounts due and outstanding to be credited to Investor Education & Protection Fund as at March 31, 2023 (previous year: '' Nil).
54. Previous year''s figures have been regrouped / reclassified wherever necessary.
Mar 31, 2022
18.5 Shares reserved for issue under options
I nformation relating to L&T Technology Services Limited Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 18.8
18.6 In the period of five years immediately preceding March 31, 2022:
Aggregate number and class of shares allotted as fully paid up pursuant to contract without payment being received in cash - Nil (previous year: Nil)
Aggregate number and class of shares allotted as fully paid up by way of bonus shares - Nil (previous year: Nil) Aggregate number and class of shares bought back - Nil (previous year: Nil)
18.7 Capital management
The Company continues its policy of a conservative capital structure which has ensured that it retains the highest credit rating. Low gearing levels also equip the Company with the ability to navigate business stresses on one hand and raise growth capital on the other. This policy also provides flexibility of fund raising options for future, which is especially important in times of global economic volatility. The gross debt equity ratio is 0:1 (as at 31-3-2021: 0:1)
18.8 Share based payments
i) The objective of the ESOP Scheme, 2016 is to reward those employees who contribute significantly to the Company''s profitability and shareholder''s value as well as encourage improvement in performance and retention of talent. The options are vested equally over a period of 5 years subject to the discretion of the management and fulfillment of certain conditions.
ii) The exercise period for the options granted under the ESOP Scheme, 2016 would be seven years (84 months) from the date of grant of options or six years from the date of first vesting or three years (36 months) from the date of retirement/death, whichever is earlier, subject to any change as may be approved by the Board. The exercise price may be decided by the Board, in such manner, during such period, in one or more tranches and on such terms and conditions as it may deem fit, provided that the exercise price per option shall not be less than the par value of the equity share of our Company and shall not be more than the market price as defined in the SEBI (Share Based Employee Benefits) Regulations, 2014 and shall be subject to compliance with accounting policies under the said regulation. The number of shares to be allotted on exercise of options should not exceed the total number of unexercised vested options that may be exercised by the employee.
vi) Weighted average share price at the date of exercise for stock options exercised during the year is '' 4770.17 per share. (previous year '' 1763.19 per share).
vii) No options expired during the periods covered in the above table.
viii) Expense on Employee Stock Option Schemes debited to the statement of profit and loss during 2021-22 is '' 55 Mn (previous year: '' 126 Mn).
ix) There are no new options granted duing the year ended 31-03-2022. The fair value at grant date of options granted during previous year: '' 1,378.40. The fair value at grant date is determined using the Black Scholes Model which takes into account the exercise price, term of option, share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for options granted during the year included:
18.9 Dividends
The final dividend on shares is recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
The Company declares and pays dividends in Indian rupees. Companies are required to pay/distribute dividend after deducting applicable withholding income taxes. The remittance of dividends outside India is governed by Indian law on foreign exchange and is also subject to with holding tax at applicable rates.
The amount of per share dividend recognized as distribution to equity shareholders in accordance with Companies Act 2013 is as follows:
(a) During the year ended March 31, 2022, the Company paid the final dividend of '' 14.50 per equity share for the year ended March 31, 2021.
(b) The Company paid, on November 10, 2021 a special dividend of '' 10 per equity share and on February 8, 2022 interim dividend of '' 10 for the year ended March 31, 2022.
(c) On April 21, 2022, the Board of Directors of the Company have recommended the final dividend of ''15 per equity share for the year ended March 31, 2022 subject to approval by the shareholders at the forthcoming annual general meeting. On approval, the total dividend payment based on number of shares outstanding as on March 31, 2022 is expected to be '' 1583 million.
35. Corporate social responsibility expenditure
a) As per section 135 of the Act, a company meeting the applicability threshold, needs to spend atleast 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (''CSR'') activities. The Company''s CSR ambit covers skill development, water, health & education and environment and it is continuously investing in welfare initiatives and programmes to provide support to people in the communities where the Company has presence. A CSR committee has been formed by the Company as per the Act.
b) Amount required to be spent by the Company on CSR related activities during the year is '' 174 million (previous year: '' 156 million).
(a) Description of segments and principal activities
L&T Technology Services Limited (LTTS) operates in five industry segments namely - transportation, industrial products, telecom and hi-tech, plant engineering and medical devices. The Company also has five horizontals namely - embedded systems, mechanical, digital manufacturing services, digital products and services and VLSI design services which caters to all the vertical segments.
1: Transportation: Transportation segment partners with OEMs and Tier 1 suppliers serving aerospace,automotive, rail, commercial vehicles, off-highway and polymer segments. The segment delivers end-to-end services from concept to detailed design through manufacturing and sourcing support and helps OEMs develop cost effective vehicles.
2: Industrial products: Industrial products engineering partners with OEM customers across building automation, home and office products, energy, process control and machinery. This segment offers end-to-end product development counsel, leveraging expertise spanning software, electronics, connectivity, mechanical engineering, industrial networking protocols, user interface/user experience (UI/UX), test frameworks and enterprise control solutions.
3: Telecom and hi-tech: Telecom and hi-tech caters to OEM/ODMs, chipset vendors,telecom carriers and ISVs delivering end-to-end embedded software design and development, hardware platform design and development, product maintenance,enhancement and sustenance, testing and validation, system integration for communication and related solutions and systems and field implementation services.
4: Plant engineering: Process industry segment provides end to end engineering services for leading plant operators across the globe. The industry span and services are broadly for chemical,consumer packaged goods (FMCG) and energy and utility sector clients.
5: Medical devices: Medical devices engineering is a dedicated practice that is revolutionizing delivery of healthcare by providing product development solutions across a variety of Class I, II and III devices, with concept design, embedded systems, hardware and software,mechanical engineering services, application software, value analysis and value engineering, manufacturing engineering and regulatory compliance. Medical device industry comprises of diagnostic, life sciences, surgical, cardiovascular, home healthcare, general medical, and other devices.
The management primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA, see below) to assess the performance of the operating segments.
Property, Plant and Equipment ("PPE") used and liabilities contracted for performing the Company''s business have not been identified to any of the above reported segments as the PPE and services are used inter-changeably among segments.
(iii) No single customer represents 10% or more of the Company''s total revenue for the year ended 31 March 2022 and 2021.
i) Market risk management
The Company regularly reviews its foreign exchange forward and option positions, both on a standalone basis and in conjunction with its underlying foreign currency related exposures. The Company follows cash flow hedge accounting for highly probable forecasted exposures (HPFE) hence the movement in mark to market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HPFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts are accounted in the balance sheet of the Company. The Company manages its exposures normally for a period of up to three years based on the estimated exposures over that period. As the period increases, the cash flows hedged as a percentage of the total expected cash flows diminish, as there is increased uncertainty of the total cash flows materializing over a longer period of time. The recognition of the gains and losses related to these instruments may not always coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company''s financial condition and operating results. Hence, the Company monitors the potential risk arising out of the market factors like exchange rates, interest rates, price of traded investment products etc. on a regular basis. For on balance sheet exposures, the Company monitors the risks on net un-hedged exposures.
ii) Price risk management
The Company''s investment policy and strategy are focused on preservation of capital and supporting the Company''s liquidity requirements. The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives. The Company typically invests in money market funds, under a limits framework which governs the credit exposure to any one issuer as defined in its investment policy. To provide a meaningful assessment of the price risk associated with the Company''s investment portfolio, the Company performed a sensitivity analysis to determine the impact of change in prices of the securities that would have on the value of the investment portfolio assuming a 0.25% move in debt funds and debt securities. Based on the investment position a hypothetical 0.25% change in the fair market value of debt securities would result in a value change of /- ''9.72 million as of March 31, 2022, and /- ''19.24 million as of March 31, 2021. The investments in money market funds are for the purpose of liquidity management only and are held only overnight and hence not subject to any material price risk.
iii) Foreign currency risk management
In general, the Company is a net receiver of foreign currency. Accordingly, changes in exchange rates, and in particular a strengthening of the Indian Rupee, will negatively affect the Company''s net sales and gross margins as expressed in Indian Rupees.
The Company may enter into foreign currency forward contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. The Company''s practice is to hedge a portion of its material net foreign exchange exposures with tenors in line with the projected exposure based on future business growth. However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures. The Company may also not hedge 100% given the uncertainty with business projections and hence the exposure gets hedged progressively in lower amounts.
To provide a meaningful assessment of the foreign currency risk associated with the Company''s foreign currency derivative positions against off balance sheet exposures and unhedged portion of on-balance sheet exposures, the
Company uses a multi-currency correlated value-at-risk ("VAR") model. The VAR model uses a Monte Carlo simulation to generate thousands of random market price paths for foreign currencies against Indian rupee taking into account the correlations between them. The VAR is the expected loss in value of the exposures due to overnight movement in spot exchange rates, at 95% confidence interval. The VAR model is not intended to represent actual losses but is used as a risk estimation tool. The model assumes normal market conditions and is a historical best fit model. The overnight VAR for the Company at 95% confidence level is '' 254 million as of March 31, 2022 and '' 316 million as of March 31, 2021.
Actual future gains and losses associated with the Company''s investment portfolio and derivative positions may differ materially from the sensitivity analyses performed as of March 31, 2022 due to the inherent limitations associated with predicting the timing and amount of changes in foreign currency exchanges rates and the Company''s actual exposures and position.
iv) Credit/counter-party risk management
The principal credit risk that the Company is exposed to is non-collection of trade receivables and late collection of receivables leading to credit loss. The risk is mitigated by reviewing creditworthiness of the prospective customers prior to entering into contract and post contracting, through continuous monitoring of collections by a dedicated team.
The Company reviews trade receivables on periodic basis and makes provision for doubtful debts if collection is doubtful. The Company also calculates the expected credit loss (ECL) for non-collection and for delay in collection of receivables. The Company makes additional provision if the ECL amount is higher than the provision made for doubtful debts. In case the ECL amount is lower than the provision made for doubtful debts, the Company retains the provision made for doubtful debts without any adjustment.
The provision for doubtful debts including ECL allowances for non-collection of receivables and delay in collection, on a combined basis, was '' 173 million as at March 31, 2022 and '' 123 million as at March 31, 2021. The movement in allowances for doubtful accounts comprising provision for both non-collection of receivables and delay in collection is as follows:
|
('' million) |
||
|
2021-22 |
2020-21 |
|
|
Opening balance of allowances for doubtful accounts |
123 |
484 |
|
Allowances recognized (reversed) |
50 |
(361) |
|
Closing balance of allowances for doubtful accounts |
173 |
123 |
The percentage of revenue from its top five customers is 18% for 2021-22 (16% for 2020-21).
The counter-party risk that the Company is exposed to is principally for financial instruments taken to hedge its foreign currency risks. The counter-parties are mainly banks and the Company has entered into contracts with the counterparties for all its hedge instruments.
The Company invests its surplus funds in liquid investments and mitigates the risk of counter-party failure by investing with institutions having good credit rating.
v) Liquidity risk management
The Company manages liquidity risk by maintaining sufficient cash and marketable securities and by having access to funding through an adequate amount of committed credit lines.
Management regularly monitors the position of cash and cash equivalents vis-a-vis projections. Assessment of maturity profiles of financial assets and liabilities including debt financing plans and maintenance of balance sheet liquidity ratios are considered while reviewing the liquidity position.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs 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 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
There were no transfers between the levels during the year.
The Company''s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
(ii) Valuation technique used to determine fair value
Specific valuation technique used to value financial instruments include :
- the use of quoted market prices or dealer quotes for similar instruments
- the fair value of forward foreign exchange contracts and principal swap is determined using forward exchange rates at the balance sheet date.
(iii) Valuation processes
The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. The fair valuation of level 1 and level 2 classified assets and liabilities are readily available from the quoted prices in the open market and rates available in secondary market respectively. The valuation method applied for various financial assets and liabilities are as follows:
- Quoted price in the primary market (net asset value) considered for the fair valuation of the current investment i.e mutual funds. Gain/(loss) on fair valuation is recognised in statement of profit and loss.
- The carrying amounts of trade receivable, unbilled revenue, trade payable, cash and bank balances, short term loans and advances, statutory dues/receivable, short term borrowing, employee dues are considered to be the same as their fair value owing to their short-term nature.
- The fair value of premuim receivable on financial guarantee contract is derived by discounting premuim receivable over the period of contract. Thereafter, the same is carried at the amount initially recognised less the cumulative amortisation of income over the period of the contract.
- The fair value of non-current security deposits are calculated by discounting future cash inflows.
(iv) Fair value of financial assets and financial liabilities measured at amortised cost:
The carrying amounts of all financials assets and financial liabilities are considered to be the same as their fair values owing to their short term nature.
Overseas taxes are on account of income taxes payable overseas, principally in the United States of America. In India, the Company has benefited from certain tax incentives that the Government of India has provided to the export of software for the units registered under the Special Economic Zones Act, 2005(SEZ). SEZ units which commenced operations on or after April 1, 2005 are eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50 percent of such profits or gains for further five years. Upto 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-Investment Reserve out of the profit of the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income-tax Act, 1961.
43. Disclosure pursuant to Ind AS 19 âEmployee benefitsâ i) Defined contribution plan
The Company has recognised '' 1601 million (previous year '' 1548 million) towards defined contribution plan as an expense, which includes contribution to social security and employee state insurance scheme in statement of profit and loss account.
Risk exposure
i. Gratuity
The Company operates gratuity plan through a trust wherein every employee is entitled to the benefit equivalent to fifteen days last salary drawn for each completed year of service. The same is payable on termination of service or retirement whichever is earlier. The benefit vests after five years of continuous service. The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations.
ii. Post retirement medical benefits plan
The post-retirement medical care plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling sanctioned based on cadre of the employee at the time of retirement. The plan is unfunded. Employees do not contribute to the plan.
General descriptions of defined benefit plans:
a Gratuity plan
The Company makes contributions to the employees'' group gratuity-cum-life assurance scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service.
b Post-retirement medical benefit plan
The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement.
c Provident Fund trust managed by the holding company
The Company''s provident fund plan is managed by its holding company through a trust permitted under The Employees'' Provident Funds and Miscellaneous Provisions Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service.
Employee benefit plan outside India
In January 2018, the Company established the L&T Technology Services 401k Plan (the "Plan") for the benefit of its employees in USA. As allowed under section 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary contributions for eligible employees of L&T Technology Services Limited, L&T Technology Services LLC and Esencia Technologies Inc. The Plan allows the employee and Company''s contributions to vest 100% immediately. During the year ended March 31, 2022, the Company contributed ''117 million towards the Plan (Previous year: '' 111 million)
b) Transaction price allocated to remaining performance obligation
i) The aggregate value of performance obligations that are completely or partially unsatisfied as of March 31, 2022, other than those meeting the exclusion criteria mentioned below in (ii), is '' 8108 million. Out of this, the Company expects to recognize revenue of around 100% within the next one year. Remaining performance obligation estimates are subject to change and are affected by several factors, including changes in the scope of contracts, periodic revalidations, and adjustments for currency.
ii) The Company has applied practical expedient and has not disclosed information about remaining performance obligations in contracts where the entity has the right to consideration that corresponds directly with the value of entity''s performance completed to date, typically those contracts where invoicing is on time and material basis.
c) Movement in contract balances
i) The Company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for time and material jobs where right to consideration is unconditional upon passage of time. Unbilled revenue for fixed price contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones
A. During the year ended March 31, 2022, the Company has reversed Government grant against export of services, amounting to '' 320 million (previous year '' 548 million) which is disclosed as export incentive as part of other income.
B. The Company has received incentives amounting to '' 26 million (previous year '' Nil) from governments of various countries against money spent on research and development and has accounted for it under other income.
C. The Company has received government grants amounting to '' 34 million (previous year '' 57 million) from governments of various countries on compliance with several employment-related conditions consequent to the outbreak of COVID-19 pandemic and accordingly, accounted it as a credit to employee benefits expense.
Dues to Micro and Small Enterprises as defined in Micro, Small and Medium Enterprises Development Act, 2006, have been determined to the extent such parties have been identified on the basis of information collected by the Management.
49. I n the year 2019, the U.S. Department of Homeland Security followed by the Assistant United States Attorney''s office had initiated an investigation concerning the Company''s nonimmigrant visas program. The Govt agencies have sought information, which the Company is providing and thereby fully cooperating on this matter. To date, the US Government agencies have not filed formal allegations or charges against the Company.
50. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
51. There are no amounts due and outstanding to be credited to Investor Education & Protection Fund as at March 31, 2022 (previous year: '' Nil).
52. Previous year''s figures have been regrouped / reclassified wherever necessary.
Mar 31, 2021
18.3 Terms/rights attached to equity shares
The Company has only one class of equity shares having a par value of '' 2 per share. They entitle the holder to participate in the dividends, and to share in the proceeds of the winding up the Company in proportion to the number of and amounts paid on the shares held. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees.
18.5 Shares reserved for issue under options
I nformation relating to L&T Technology Services Limited Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 18.8
18.6 In the period of five years immediately preceding March 31, 2021:
Aggregate number and class of shares allotted as fully paid up pursuant to contract without payment being received in cash - Nil (previous year: Nil)
Aggregate number and class of shares allotted as fully paid up by way of bonus shares - Nil (previous year: Nil) Aggregate number and class of shares bought back - Nil (previous year: Nil)
18.7 Capital management
The Company continues its policy of a conservative capital structure which has ensured that it retains the highest credit rating. Low gearing levels also equip the Company with the ability to navigate business stresses on one hand and raise growth capital on the other. This policy also provides flexibility of fund raising options for future, which is especially important in times of global economic volatility. The gross debt equity ratio is 0:1 (as at 31-3-2020: 0:1)
18.8 Share based payments
i) The objective of the ESOP Scheme, 2016 is to reward those employees who contribute significantly to the Company''s profitability and shareholder''s value as well as encourage improvement in performance and retention of talent. The options are vested equally over a period of 5 years subject to the discretion of the management and fulfillment of certain conditions.
ii) The exercise period for the options granted under the ESOP Scheme, 2016 would be seven years (84 months) from the date of grant of options or six years from the date of first vesting or three years (36 months) from the date of retirement/death, whichever is earlier, subject to any change as may be approved by the Board. The exercise price may be decided by the Board, in such manner, during such period, in one or more tranches and on such terms and conditions as it may deem fit, provided that the exercise price per option shall not be less than the par value of the equity share of our Company and shall not be more than the market price as defined in the SEBI (Share Based Employee Benefits) Regulations, 2014 and shall be subject to compliance with accounting policies under the said regulation. The number of shares to be allotted on exercise of options should not exceed the total number of unexercised vested options that may be exercised by the employee.
v) Weighted average share price at the date of exercise for stock options exercised during the year is '' 1763.19 per share (previous year '' 1619.53 per share).
vi) No options expired during the periods covered in the above table.
vii) Expense on Employee Stock Option Schemes debited to the statement of profit and loss during 2020-21 is '' 126 million (previous year: '' 207 million).
viii) The fair value at grant date of options granted during the year ended 31-03-2021 was '' 1,378.40 (previous year: '' 1,588.88 & '' 1527.59). The fair value at grant date is determined using the Black Scholes Model which takes into account the exercise price, term of option, share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for options granted during the year included:
18.9 Dividends
(a) During the year ended March 31, 2021, the Company paid the final dividend of '' 13.50 per equity share for the year ended March 31, 2020.
(b) On November 10, 2020, the Company paid an interim dividend of '' 7.50 per equity share for the year ended March 31, 2021.
(c) On May 03, 2021, the Board of Directors of the Company have recommended the final dividend of ''14.50 per equity share for the year ended March 31, 2021 subject to approval by the shareholders at the forthcoming annual general meeting. On approval, the total dividend payment based on number of shares outstanding as on March 31, 2021 is expected to be '' 1,523 million.
E6 Corporate social responsibility expenditure
a) As per section 135 of the Act, a company meeting the applicability threshold , needs to spend atleast 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (''CSR'') activities. The Company''s CSR ambit covers skill development, innovation & technology, water, health & education, and environment and it is continuously investing in welfare initiatives and programmes to provide support to people in the communities where the Company has presence. A CSR committee has been formed by the Company as per the Act.
b) Amount required to be spent by the Company on CSR related activities during the year is '' 156 million (previous year: '' 127 million).
During the previous year, the Company entered into agreement with its wholly owned subsidiary, Graphene Semiconductor Services Private Limited (''Graphene''), for purchase of its business. The agreement was effective from 1st October 2019 and a cash consideration of '' 206 million was paid to Graphene under this agreement.
Graphene provides end to end solutions - from chip design and embedded software, through providing support to mass manufacturing, thereby being a one-stop service and solution provider. Further, the transfer has been accounted using pooling of interest method, involving the following:
a. The assets and liabilities of Graphene has been recognised at their carrying amounts. No adjustment has been made to reflect the fair values or recognize any new asset or liability.
b. The excess amount of investment by the Company in Graphene over the Net assets of Graphene as on acquisition date has been treated as Capital reserve in Company''s Financial statements and presented separately from other Capital reserve [Refer Note no. 2(cc)]
The Company entered into agreement with its subsidiaries for purchase of investments in step-down subsidiaries.
(a) Description of segments and principal activities
The Company''s management examines the Company''s performance both from industry and geographic perspective
and has identified five reportable segments of its business:
1: Transportation: The Company offers engineering services and solutions over the complete spectrum of the transportation industry, that includes original equipment manufacturer ''OEM'' and Tier 1 suppliers in automotive, trucks and off-highway vehicles, aerospace and rail industries. The segment delivers end-to-end services from concept to detailed design through manufacturing, testing, after-market and sourcing support helping OEMs and Tier 1s develop products in a cost-effective manner. The Company also helps its clients develop cutting-edge transportation technologies such as autonomous driving, electric vehicle and drones. The Company''s domain expertise, globalized and customer centric approach, proprietary solutions and a repository of over 150 coauthored patents drive innovation and sustained business growth. The adherence to safety protocols, design and processes and use of cross-disciplinary engineering facilitates superlative experience to the Company''s customers.
2: Industrial products: Industrial products practice helps original equipment manufacturer (OEM) customers across building automation, home and office products, energy, process control and machinery. The Company''s expertise in engineering industrial products helps customer drive innovation and efficiency, and retain a competitive edge. The Company helps streamline the product development value chain, enabling customers spearhead business growth.
This Industrial Products segment offers end-to-end product development counsel, leveraging expertise spanning software, electronics, connectivity, mechanical engineering, industrial networking protocols, user interface/user experience (UI/UX), test frameworks and enterprise control solutions.
3: Telecom & Hi-tech: The Company''s expertise in digital engineering such as the cloud, internet of things (loT), artificial intelligence, data analytics and other areas in telecom domain enables its partners to leverage the right telecommunications strategy. With expertise in product variant development, 5G capabilities, simulations and automation, and product and mid of life support, the Company is a one stop-solution for the clients. It also provides futuristic solutions and IP Cores that address some of the pressing needs of the semiconductor industry. The Company''s narrow band IoT (nBIoT) solution provides the complete IoT device management designed with low memory and low power footprint enabling easy integration to custom target platforms. The Company''s experience in product development, digitalization, user experience engineering, and testing
and certification enables the customers to expand to new markets, innovate newer and smarter products, and roll-out products faster and cheaper. The Company''s designs for 3D cameras, speech recognition, smart glasses and connectivity programs involving wireless mesh networks are seeing increasing traction from the industry.
4: Plant engineering: The plant engineering practice provides end to end engineering services for leading plant operators across the globe. The Company provides services in E/EPCM, engineering reapplication and global rollouts, plant sustenance and management, regulatory compliance engineering along with chemical, consumer packaged goods (FMCG) and energy and utility sector clients. The Company specializes in traditional engineering procurement construction management (EPCM) and operational maintenance projects, as well as contemporary digital engineering enterprises. The Company is advancing its engineering footprint to encompass the digital sphere and working with customers on ''Smart Manufacturing'' technologies such as automation, IoT, analytics, and augmented reality (AR).
5: Medical devices: The Company''s domain expertise, supported by robust technological capabilities, helps medical device OEMs address industry challenges, accelerate time to market, and optimize costs. The Company focuses on delivering solutions in diagnostics, patient mobility services, musculoskeletal services, life sciences, surgical services, cardiovascular, home healthcare and general medical.
The management primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA, see below) to assess the performance of the operating segments.
i) Market risk management
The Company regularly reviews its foreign exchange forward and option positions, both on a standalone basis and in conjunction with its underlying foreign currency related exposures. The Company follows cash flow hedge accounting for highly probable forecasted exposures (HPFE) hence the movement in mark to market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HPFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts will impact the balance sheet of the Company. The Company manages its exposures normally for a period of up to three years based on the estimated exposures over that period. As the period increases, the cash flows hedged as a percentage of the total expected cash flows diminish, as there is increased uncertainty of the total cash flows materializing over a longer period of time. The recognition of the gains and losses related to these instruments may not always coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company''s financial condition and operating results. Hence, the Company monitors the potential risk arising out of the market factors like exchange rates, interest rates, price of traded investment products etc. on a regular basis. For on balance sheet exposures, the Company monitors the risks on net un-hedged exposures.
ii) Price risk management
The Company''s investment policy and strategy are focused on preservation of capital and supporting the Company''s liquidity requirements. The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives. The Company typically invests in money market funds, under a limits framework which governs the credit exposure to any one issuer as defined in its investment policy. To provide a meaningful assessment of the price risk associated with the Company''s investment portfolio, the Company performed a sensitivity analysis to determine the impact of change in prices of the securities that would have on the value of the investment portfolio assuming a 0.25% move in debt funds and debt securities Based on the investment position a hypothetical 0.25% change in the fair market value of debt securities would result in a value change of /- '' 19.24 million as of March 31, 2021, and /- '' 8 million as of March 31,2020. The investments in money market funds are for the purpose of liquidity management only and are held only overnight and hence not subject to any material price risk.
iii) Foreign currency risk management
In general, the Company is a net receiver of foreign currency. Accordingly, changes in exchange rates, and in particular a strengthening of the Indian Rupee, will negatively affect the Company''s net sales and gross margins as expressed in Indian Rupees.
The Company may enter into foreign currency forward contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. The Company''s practice is to hedge a portion of its material net foreign exchange exposures with tenors in line with the projected exposure based on future business growth. However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures. The Company may also not hedge 100% given the uncertainty with business projections and hence the exposure gets hedged progressively in lower amounts.
To provide a meaningful assessment of the foreign currency risk associated with the Company''s foreign currency derivative positions against off balance sheet exposures and unhedged portion of on-balance sheet exposures, the Company uses a multi-currency correlated value-at-risk ("VAR") model. The VAR model uses a Monte Carlo simulation to generate thousands of random market price paths for foreign currencies against Indian rupee taking into account the correlations between them. The VAR is the expected loss in value of the exposures due to overnight movement in spot exchange rates, at 95% confidence interval. The VAR model is not intended to represent actual losses but is used as a risk estimation tool. The model assumes normal market conditions and is a historical best fit model. The overnight VAR for the Company at 95% confidence level is '' 316 million as of March 31, 2021 and '' 205 million as of March 31, 2020.
Actual future gains and losses associated with the Company''s investment portfolio and derivative positions may differ materially from the sensitivity analyses performed as of March 31, 2021 due to the inherent limitations associated with predicting the timing and amount of changes in foreign currency exchanges rates and the Company''s actual exposures and position.
iv) Credit/counter-party risk management
The principal credit risk that the Company is exposed to is non-collection of trade receivables and late collection of receivables leading to credit loss. The risk is mitigated by reviewing creditworthiness of the prospective customers prior to entering into contract and post contracting, through continuous monitoring of collections by a dedicated team.
The Company reviews trade receivables on periodic basis and makes provision for doubtful debts if collection is doubtful. The Company also calculates the expected credit loss (ECL) for non-collection and for delay in collection of receivables. The Company makes additional provision if the ECL amount is higher than the provision made for doubtful debts. In case the ECL amount is lower than the provision made for doubtful debts, the Company retains the provision made for doubtful debts without any adjustment.
The provision for doubtful debts including ECL allowances for non-collection of receivables and delay in collection, on a combined basis, was '' 123 million as at March 31, 2021 and '' 484 million as at March 31, 2020. The movement in allowances for doubtful accounts comprising provision for both non-collection of receivables and delay in collection is as follows:
The counter-party risk that the Company is exposed to is principally for financial instruments taken to hedge its foreign currency risks. The counter-parties are mainly banks and the Company has entered into contracts with the counterparties for all its hedge instruments.
The Company invests its surplus funds in liquid investments and mitigates the risk of counter-party failure by investing with institutions having good credit rating.
v) Liquidity risk management
The Company manages liquidity risk by maintaining sufficient cash and marketable securities and by having access to funding through an adequate amount of committed credit lines.
Management regularly monitors the position of cash and cash equivalents vis-a-vis projections. Assessment of maturity profiles of financial assets and liabilities including debt financing plans and maintenance of balance sheet liquidity ratios are considered while reviewing the liquidity position.
The Company has no borrowings as on 31 -Mar-21 but it has credit facilities with banks that will help it to generate funds for the business if required. The contractual maturities of financial assets and financial liabilities is as follows:
(i) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measuread at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanantion of each level follows underneath the table.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs 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 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
There were no transfers between the levels during the year.
The Company''s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
(ii) Valuation technique used to determine fair value
Specific valuation technique used to value financial instruments include :
- the use of quoted market prices or dealer quotes for similar instruments
- the fair value of forward foreign exchange contracts and principal swap is determined using forward exchange rates at the balance sheet date.
(iii) Valuation processes
The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. The fair valuation of level 1 and level 2 classified assets and liabilities are readily available from the quoted prices in the open market and rates available in secondary market respectively. The valuation method applied for various financial assets and liabilities are as follows -
- Quoted price in the primary market (net asset value) considered for the fair valuation of the current investment i.e Mutual fund. Gain/(loss) on fair valuaiton is recognised in statement of profit and loss.
- The carrying amounts of trade receivable, unbilled revenue, trade payable, cash and bank balances, short term loans and advances, statutory dues/receiable, short term borrowing, employee dues are considered to be the same as their fair value owing to their short-term nature.
- The fair value of premuim receivable on financial guarantee contract is derived by discounting premuim receivable over the period of contract.Thereafter, the same is carried at the amount initially recognised less the cumulative amortisation of income over the period of the contract.
- The fair value of non-current security deposits are calculated by discounting future cash inflows.
(iv) Fair value of financial assets and financial liabilities measured at amortised cost:
The carrying amounts of all financials assets and financial liabilities are considered to be the same as their fair values
owing to their short term nature.
Overseas taxes are on account of income taxes payable overseas, principally in the United States of America. In India, the Company has benefited from certain tax incentives that the Government of India has provided to the export of software for the units registered under the Special Economic Zones Act, 2005(SEZ). SEZ units which commenced operations on or after April 1, 2005 are eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50 percent of such profits or gains for further five years. Upto 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-Investment Reserve out of the profit of the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income tax Act, 1961.
EQ Disclosure pursuant to Ind AS 19 âEmployee benefitsâ i) Defined Contribution Plan
The Company has recognised '' 1,340 million (PY '' 1,383 million) towards defined contribution plan as an expense, which includes contribution to social security and employee state insurance scheme in the Profit and Loss Account.
Risk exposure
i. Gratuity
The Company operates gratuity plan through a trust wherein every employee is entitled to the benefit equivalent to fifteen days last salary drawn for each completed year of service. The same is payable on termination of service or retirement whichever is earlier. The benefit vests after five years of continuous service. The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations.
ii. Post retirement medical benefits plan
The Post-retirement medical care plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling sanctioned based on cadre of the employee at the time of retirement. The plan is unfunded. Employees do not contribute to the plan.
General descriptions of defined benefit plans:
a Gratuity plan
The Company makes contributions to the employees'' group gratuity-cum-life assurance scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service.
b Post-retirement medical benefit plan
The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement.
c Provident Fund trust managed by the holding company
the Company''s provident fund plan is managed by its holding company through a trust permitted under The Employees'' Provident Funds and Miscellaneous Provisions Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service.
Employee benefit plan
In January 2018, the Company established the L&T Technology Services 401k Plan (the "Plan") for the benefit of its employees in USA. As allowed under section 401 (k) of the Internal Revenue Code, the Plan provides for tax-deferred salary contributions for eligible employees of L&T Technology Services Limited, L&T Technology Services LLC and Esencia Technologies Inc. The Plan allows the employee and Company''s contributions to vest 100% immediately. During the year ended March 31, 2021, the Company contributed '' 111 million towards the Plan (Previous year: '' 37 million)
b) Transaction price allocated to remaining performance obligation
i) The aggregate value of performance obligations that are completely or partially unsatisfied as of March 31, 2021, other than those meeting the exclusion criteria mentioned below in (ii), is '' 9,923 million. Out of this, the Company expects to recognize revenue of around 100% within the next one year. Remaining performance obligation estimates are subject to change and are affected by several factors, including changes in the scope of contracts, periodic revalidations, and adjustments for currency.
ii) The Company has applied practical expedient and has not disclosed information about remaining performance obligations in contracts where the entity has the right to consideration that corresponds directly with the value of entity''s performance completed to date, typically those contracts where invoicing is on time and material basis.
c) Movement in contract balances
i) The Company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for time and material jobs where right to consideration is unconditional upon passage of time. Unbilled revenue for fixed price contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
A. During the year ended March 31, 2021, the Company has received Government grant against export of services, amounting to '' 548 million. (PY '' 931 million.) which is disclosed as export incentive as part of other income.
B. The Company has received government grants amounting to '' 57 million. (PY '' Nil) from governments of various countries on compliance with several employment-related conditions consequent to the outbreak of COVID-19 pandemic and accordingly, accounted it as a credit to employee benefits expense.
Dues to Micro and Small Enterprises as defined in Micro, Small and Medium Enterprises Development Act, 2006, have been determined to the extent such parties have been identified on the basis of information collected by the Management.
There are no amounts due and outstanding to be credited to Investor Education & Protection Fund as at March 31, 2021 (previous year: '' Nil).
Previous year''s figures have been regrouped / reclassified wherever necessary.
Mar 31, 2019
1. Corporate information
L&T Technology Services Limited (âthe Companyâ) is a leading global pure-play Engineering Research and Development (ER&D) services company. ER&D services are a set of services provided to manufacturing, technology and process engineering companies, to help them develop and build products, processes and infrastructure required to deliver products and services to their end customers.
The Company is a public company incorporated and domiciled in India and has its registered office at L&T House, N.M. Marg, Ballard Estate, Mumbai 400 001. As at March 31, 2019, Larsen & Toubro Limited, the holding company owns 78.88% of the Companyâs equity share capital.
2.1 Terms/rights attached to equity shares
The Company has only one class of equity shares having face value of Rs. 2 per share. They entitle the holder to participate in the dividends, and to share in the proceeds of the winding up the Company in proportion to the number of and amounts paid on the shares held. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees.
2.2 Shares reserved for issue under options
Information relating to L&T Technology Services Limited Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 18.8
2.3 In the period of five years immediately preceding March 31, 2019:
Aggregate number and class of shares allotted as fully paid up pursuant to contract without payment being received in cash - Nil (previous year: Nil)
Aggregate number and class of shares allotted as fully paid up by way of bonus shares - Nil (previous year: Nil)
Aggregate number and class of shares bought back - Nil (previous year: Nil)
2.4 Capital management
The Company continues its policy of a conservative capital structure which has ensured that it retains the highest credit rating. Low gearing levels also equip the Company with the ability to navigate business stresses on one hand and raise growth capital on the other. This policy also provides flexibility of fund raising options for future, which is especially important in times of global economic volatility. The gross debt equity ratio is 0:1 (as at 31-3-2018: 0:1)
2.5 Share based payments
i) The objective of the Employee Stock Option (ESOP) Scheme, 2016 is to reward those employees who contribute significantly to the Companyâs profitability and shareholderâs value as well as encourage improvement in performance and retention of talent. The options are vested equally over a period of 5 years subject to the discretion of the management and fulfillment of certain conditions.
ii) The exercise period for the options granted under the ESOP Scheme, 2016 would be seven years (84 months) from the date of grant of options or six years from the date of first vesting or three years (36 months) from the date of retirement/death, whichever is earlier, subject to any change as may be approved by the Board. The exercise price may be decided by the Board, in such manner, during such period, in one or more tranches and on such terms and conditions as it may deem fit, provided that the exercise price per option shall not be less than the par value of the equity share of our Company and shall not be more than the market price as defined in the SEBI (Share Based Employee Benefits) Regulations, 2014 and shall be subject to compliance with accounting policies under the said regulation. The number of shares to be allotted on exercise of options should not exceed the total number of unexercised vested options that may be exercised by the employee.
iii) Weighted average share price at the date of exercise for stock options exercised during the year is Rs. 1435.59 per share. (previous year Rs. 849.70 per share).
iv) No options expired during the periods covered in the above table.
v) Expense on Employee Stock Option Schemes debited to the statement of profit and loss during 2018-19 is Rs. 184 million. (previous year: Rs. 209 million).
vi) The fair value at grant date of options granted during the year ended 31-03-2019 was Rs. 1,281.80 (previous year: Rs. 737.10). The fair value at grant date is determined using the Black Scholes Model which takes into account the exercise price, term of option, share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for options granted during the year included:
2.6 Dividends
(a) During the year ended March 31, 2019, the Company paid the final dividend of Rs. 12 per equity share for the year ended March 31, 2018.
(b) On October 25, 2018, the Company paid an interim dividend of Rs. 7.50 per equity share for the year ended March 31, 2019.
(c) On May 3, 2019, the Board of Directors of the Company have recommended the final dividend of Rs. 13.50 per equity share for the year ended March 31, 2019 subject to approval by the shareholders at the forthcoming annual general meeting. On approval, the total dividend payment based on number of shares outstanding as on March 31, 2019 is expected to be Rs. 1,404 million and the payment of dividend distribution tax is expected to be Rs. 289 million.
3 Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for: Rs. 179 million (previous year: Rs. 99 million).
(Corporate Guarantee of USD 16.5 million ( previous year: USD 16.5 million) issued to Bank of America for securing borrowings of L&T Technology Services LLC, USA and USD 0.8 million (previous year: USD 0.8 million) issued to Bank of America for securing borrowings of Esencia Technologies Inc., USA.)
4 Corporate social responsibility expenditure
a) As per section 135 of the Act, a company meeting the applicability threshold, needs to spend atleast 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (âCSRâ) activities. The Companyâs CSR ambit covers skill development, innovation & technology, water, health & education, and environment and it is continuously investing in welfare initiatives and programmes to provide support to people in the communities where the Company has presence. A CSR committee has been formed by the Company as per the Act.
b) Amount required to be spent by the Company on CSR related activities during the year is Rs. 102.65 million (previous year: Rs. 83.85 million).
c) Amount spent during the year:
5 Particulars in respect of loans and advances in nature of loans to related parties as required by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:
*Notes:
i) Interest on inter company borrowings has been paid on monthly basis and there is no interest accrued and due as at the year end.
ii) Loans to employees (including directors) under various schemes of the Company (such as housing loan etc.) have been considered to be outside the purview of of the disclosure requirements.
6 Segment reporting
(a) Description of segments and principal activities
The Companyâs management examines the Companyâs performance both from industry and geographic perspective and has identified five reportable segments of its business:
1. Transportation: The Company offers engineering services and solutions over the complete spectrum of the transportation industry, that includes OEM and Tier 1 suppliers in automotive, trucks and off-highway vehicles, aerospace and rail industries. The segment delivers end-to-end services from concept to detailed design through manufacturing, testing, after-market and sourcing support helping OEMs and Tier 1s develop products in a cost-effective manner. The Company also helps its clients develop cutting-edge transportation technologies such as autonomous driving, electric vehicle and drones.
2. Process industry: The plant engineering practice provides end to end engineering services for leading plant operators across the globe. The Company provides services in E/EPCM, engineering reapplication and global rollouts, plant sustenance and management, regulatory compliance engineering along with chemical, consumer packaged goods (FMCG) and energy and utility sector clients. The Company specializes in traditional engineering procurement construction management (EPCM) and operational maintenance projects, as well as contemporary digital engineering enterprises. The Company is advancing its engineering footprint to encompass the digital sphere and working with customers on âSmart Manufacturingâ technologies such as automation, IoT, analytics, and augmented reality (AR).
3. Industrial products: Industrial products practice helps original equipment manufacturer (OEM) customers across building automation, home and office products, energy, process control and machinery. The Companyâs expertise in engineering industrial products helps customers drive innovation and efficiency, and retain a competitive edge. The Company helps streamline the product development value chain, enabling customers spearhead business growth.
This Industrial Products segment offers end-to-end product development counsel, leveraging expertise spanning software, electronics, connectivity, mechanical engineering, industrial networking protocols, user interface/user experience (UI/UX), test frameworks and enterprise control solutions.â
4. Medical devices: The Companyâs domain expertise, supported by its technological capabilities, helps medical device OEMs address industry challenges, accelerate time to market, and optimize costs. The Company focuses on delivering solutions in diagnostics, patient mobility services, musculoskeletal services, life sciences, surgical services, cardiovascular, home healthcare and general medical.
5. Telecom: The Companyâs expertise in digital engineering such as the cloud, internet of things (IoT), artificial intelligence, data analytics and other areas in telecom domain enables its partners to leverage the right telecommunications strategy. With expertise in product variant development, 5G capabilities, simulations and automation, product and mid of life support, the Company is a one stop-solution for the clients. It also provides futuristic solutions and IP Cores that address some of the pressing needs of the semiconductor industry. The Companyâs narrow band IoT (nBIoT) solution provides the complete IoT device management designed with low memory and low power footprint enabling easy integration to custom target platforms.
The Companyâs experience in product development, digitalization, user experience engineering, and testing and certification enables the customers to expand to new markets, innovate newer and smarter products, and rollout products faster and cheaper. The Companyâs designs for 3D cameras, speech recognition, smart glasses and connectivity programs involving wireless mesh networks are seeing increasing traction from the industry.â
The management primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA, see below) to assess the performance of the operating segments.
(i) Primary segments are defined based on the industries from which revenues are derived and segmental results are as under:
Numbers in italics are for the previous year.
Fixed assets used and liabilities contracted for performing the Companyâs Business have not been identified to any of the above reported segments as the fixed assets and services are used inter-changeably among segments.
7 Financial risk management
i) Market risk management
The Company regularly reviews its foreign exchange forward and option positions, both on a standalone basis and in conjunction with its underlying foreign currency related exposures. The Company follows cash flow hedge accounting for highly probable forecasted exposures (HPFE) hence the movement in mark to market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HPFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts will impact the balance sheet of the Company. The Company manages its exposures normally for a period of up to three years based on the estimated exposures over that period. As the period increases, the cash flows hedged as a percentage of the total expected cash flows diminish, as there is increased uncertainty of the total cash flows materializing over a longer period of time. The recognition of the gains and losses related to these instruments may not always coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Companyâs financial condition and operating results. Hence, the Company monitors the potential risk arising out of the market factors like exchange rates, interest rates, price of traded investment products etc. on a regular basis. For on balance sheet exposures, the Company monitors the risks on net un-hedged exposures.
ii) price risk management
The Companyâs investment policy and strategy are focused on preservation of capital and supporting the Companyâs liquidity requirements. The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives. The Company typically invests in money market funds, under a limits framework which governs the credit exposure to any one issuer as defined in its investment policy. To provide a meaningful assessment of the price risk associated with the Companyâs investment portfolio, the Company performed a sensitivity analysis to determine the impact of change in prices of the securities that would have on the value of the investment portfolio assuming a 0.25% move in debt funds and debt securities Based on the investment position a hypothetical 0.25% change in the fair market value of debt securities would result in a value change of /-Rs. 9 million as of March 31, 2019, and /- Rs. 4 million as of March 31, 2018. The investments in money market funds are for the purpose of liquidity management only and are held only overnight and hence not subject to any material price risk.
iii) Foreign currency risk management
In general, the Company is a net receiver of foreign currency. Accordingly, changes in exchange rates, and in particular a strengthening of the Indian Rupee, will negatively affect the Companyâs net sales and gross margins as expressed in Indian Rupees.
The Company may enter into foreign currency forward contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. The Companyâs practice is to hedge a portion of its material net foreign exchange exposures with tenors in line with the projected exposure based on future business growth. However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures. The Company may also not hedge 100% given the uncertainty with business projections and hence the exposure gets hedged progressively in lower amounts.
To provide a meaningful assessment of the foreign currency risk associated with the Companyâs foreign currency derivative positions against off balance sheet exposures and unhedged portion of on-balance sheet exposures, the Company uses a multi-currency correlated value-at-risk (âVARâ) model. The VAR model uses a Monte Carlo simulation to generate thousands of random market price paths for foreign currencies against Indian rupee taking into account the correlations between them. The VAR is the expected loss in value of the exposures due to overnight movement in spot exchange rates, at 95% confidence interval. The VAR model is not intended to represent actual losses but is used as a risk estimation tool. The model assumes normal market conditions and is a historical best fit model. The overnight VAR for the Company at 95% confidence level is Rs. 255.0 million as of March 31, 2019 and Rs. 143.0 million as of March 31, 2018.
Actual future gains and losses associated with the Companyâs investment portfolio and derivative positions may differ materially from the sensitivity analyses performed as of March 31, 2019 due to the inherent limitations associated with predicting the timing and amount of changes in foreign currency exchanges rates and the Companyâs actual exposures and position.
iv) Credit/counter-party risk management
The principal credit risk that the Company is exposed to is non-collection of trade receivables and late collection of receivables leading to credit loss. The risk is mitigated by reviewing creditworthiness of the prospective customers prior to entering into contract and post contracting, through continuous monitoring of collections by a dedicated team.
The Company reviews trade receivables on periodic basis and makes provision for doubtful debts if collection is doubtful. The Company also calculates the expected credit loss (ECL) for non-collection and for delay in collection of receivables. The Company makes additional provision if the ECL amount is higher than the provision made for doubtful debts. In case the ECL amount is lower than the provision made for doubtful debts, the Company retains the provision made for doubtful debts without any adjustment.
The provision for doubtful debts including ECL allowances for non-collection of receivables and delay in collection, on a combined basis, was Rs. 245 million as at March 31, 2019 and Rs. 98 million as at March 31, 2018. The movement in allowances for doubtful accounts comprising provision for both non-collection of receivables and delay in collection is as follows:
The percentage of revenue from its top five customers is 27.26% for 2018-19 (27.1% for 2017-18).
The counter-party risk that the Company is exposed to is principally for financial instruments taken to hedge its foreign currency risks. The counter-parties are mainly banks and the Company has entered into contracts with the counterparties for all its hedge instruments.
The Company invests its surplus funds in liquid investments and mitigates the risk of counter-party failure by investing with institutions having good credit rating.
v) Liquidity risk management
The Company manages liquidity risk by maintaining sufficient cash and marketable securities and by having access to funding through an adequate amount of committed credit lines.
Management regularly monitors the position of cash and cash equivalents vis-a-vis projections. Assessment of maturity profiles of financial assets and liabilities including debt financing plans and maintenance of balance sheet liquidity ratios are considered while reviewing the liquidity position.
The Company has no borrowings as on 31-Mar-19 but it has credit facilities with banks that will help it to generate funds for the business if required. The contractual maturities of financial assets and financial liabilities is as follows:
i) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measuread at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanantion of each level follows underneath the table.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs 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 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
There were no transfers between the levels during the year.
The Companyâs policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
ii) Valuation technique used to determine fair value
Specific valuation technique used to value financial instruments include :
- the use of quoted market prices or dealer quotes for similar instruments
- the fair value of forward foreign exchange contracts and principal swap is determined using forward exchange rates at the balance sheet date.
iii) Valuation processes
The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. The fair valuation of level 1 and level 2 classified assets and liabilities are readily available from the quoted prices in the open market and rates available in secondary market respectively. The valuation method applied for various financial assets and liabilities are as follows -
- Quoted price in the primary market (net asset value) considered for the fair valuation of the current investment i.e Mutual fund. Gain/(loss) on fair Valuation is recognised in statement of profit and loss.
- The carrying amounts of trade receivable, unbilled revenue, trade payable, cash and bank balances, short term loans and advances, statutory dues/receiable, short term borrowing, employee dues are considered to be the same as their fair value owing to their short-term nature.
- The fair value of premium receivable on financial guarantee contract is derived by discounting premium receivable over the period of contract.Thereafter, the same is carried at the amount initially recognised less the cumulative amortisation of income over the period of the contract.
- The fair value of non-current security deposits are calculated by discounting future cash inflows.
iv) Fair value of financial assets and financial liabilities measured at amortised cost:
The carrying amounts of all financials assets and financial liabilities are considered to be the same as their fair values owing to their short term nature.
8 Tax reconciliation statement
A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized below:
The applicable Indian statutory tax rate for fiscal 2019 and fiscal 2018 is 34.94% and 34.61% respectively.
Overseas taxes are on account of income taxes payable overseas, principally in the United States of America. In India, the Company has benefited from certain tax incentives that the Government of India has provided to the export of software for the units registered under the Special Economic Zones Act, 2005(SEZ). SEZ units which commenced operations on or after April 1, 2005 are eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50 percent of such profits or gains for further five years. Upto 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-Investment Reserve out of the profit of the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income tax Act, 1961.
9 Employee benefits
a) The amounts recognised in balance sheet are as follows:
i. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated.
ii. The method and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
g) The major categories of plan assets as a percentage of total plan assets are as follows:
Risk exposure
i. Gratuity
The Company operates gratuity plan through a trust wherein every employee is entitled to the benefit equivalent to fifteen days last salary drawn for each completed year of service. The same is payable on termination of service or retirement whichever is earlier. The benefit vests after five years of continuous service. The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations.
ii. Post retirement medical benefits plan
The Post-retirement medical care plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling sanctioned based on cadre of the employee at the time of retirement. The plan is unfunded. Employees do not contribute to the plan.
General descriptions of defined benefit plans: a Gratuity plan
The Company makes contributions to the employeesâ group gratuity-cum-life assurance scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service.
b post-retirement medical benefit plan
The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement.
c Self-managed provident fund plan
The Companyâs provident fund plan is managed by its holding company through a trust registered under the Provident Fund Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service.
Employee benefit plan
I n January 2018, the Company established a 401(k) retirement plan (the âPlanâ) for the benefit of its employees in USA. As allowed under section 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary contributions for eligible employees. The Plan allows employees to contribute a percentage of their annual compensation to the Plan on a pre-tax and after-tax basis. Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Code. At its discretion, the Company may match pre-tax and after-tax employee contributions up to 100% of the first 3% and 50% of next 2% of eligible earnings that are contributed by employees. Both, the employee contributions and the Companyâs matching contributions vest 100%, immediately. During the year ended March 31, 2019, the Company contributed Rs. 30 million towards the Plan (Previous year: Rs. 5 million)
10 Leases
The lease rentals charged during the period are as under:
The Company avails office space under non-cancellable operating leases. The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term. Future minimum lease rentals payable under non-cancellable operating leases as per the rentals stated in the respective agreements are as follows:
The operating lease arrangements, are renewable on a periodic basis and for most of the leases extend upto a maximum of ten years from their respective dates of inception and relates to rented premises. Some of these lease agreements have price escalation clauses.
11 Change in useful life
Effective from April 01, 2018, the Company changed estimated useful life of specialised softwares from 6 years to 5 years. This change was implemented to better match revenues and expenses, taking into account the nature of the assets and business. Effect of such change in current period recognized in statement of profit and loss is Rs. 28.90 million. Amortisation for the future periods will be lower to the extent of Rs. 28.90 million.
12 (1) (v) Name of post-employment benefit plans with whom transactions were carried out during the year:
Larsen & Toubro Officers & Supervisory Staff Provident Fund L&T Technology Services Limited Employee Group Gratuity Scheme
13 Disclosure pursuant to Ind AS 115 âRevenue from contract with customersâ:
a) Disaggregation of revenue
The nature of contract impacts the method of revenue recognition and the contracts are classified as fixed-price contracts and time & material contracts.
i) Revenue by contract type
ii) Refer note 39 for disaggregation of revenue by industry and geographical segments.
iii) The Company believes that this disaggregation best depicts how the nature, amount, timing of its revenues and cash flows are affected by industry, market and other economic factors.
b) Transaction price allocated to remaining performance obligation
i) The aggregate value of performance obligations that are completely or partially unsatisfied as of March 31, 2019, other than those meeting the exclusion criteria mentioned below in (ii), is Rs. 9509 million. Out of this, the Company expects to recognize revenue of around 100% within the next one year. Remaining performance obligation estimates are subject to change and are affected by several factors, including changes in the scope of contracts, periodic revalidations, and adjustments for currency
ii) The Company has applied practical expedient and has not disclosed information about remaining performance obligations in contracts where the entity has the right to consideration that corresponds directly with the value of entityâs performance completed to date, typically those contracts where invoicing is on time and material basis.
c) Movement in contract balances
i) The Company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for time and material jobs where right to consideration is unconditional upon passage of time. Unbilled revenue for fixed price contracts is classifed as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
d) Impact on adoption of Ind AS 115
The Company adopted Ind AS 115 âRevenue from Contracts with Customersâ on April 1, 2018 by using the modified retrospective approach and accordingly comparatives for the year ending or ended March 31, 2018 are not retrospectively adjusted. The impact on account of applying Ind AS 115 Revenue from Contract with Customers instead of the erstwhile Ind AS 18 Revenue on the financials results of the Company for year ended as of March 31, 2019 is not material. On account of adoption of Ind AS 115, unbilled revenues of Rs. 571 million as of March 31, 2019 have been considered as financial assets.
14 There are no amounts due and outstanding to be credited to Investor Education & Protection Fund as at March 31, 2019 (previous year: Rs. Nil).
15 Previous yearâs figures have been regrouped / reclassified wherever necessary
Mar 31, 2018
1. Corporate information
L&T Technology Services Limited (âthe Companyâ) is a leading global pure-play Engineering Research and Development (âER&Dâ) services company. ER&D services are a set of services provided to manufacturing, technology and process engineering companies, to help them develop and build products, processes and infrastructure required to deliver products and services to their end customers.
The Company is a public company incorporated and domiciled in India and has its registered office at L&T House, N.M. Marg, Ballard Estate, Mumbai 400 001. As at March 31, 2018, Larsen & Toubro Limited, the holding company owns 88.64% of the Companyâs equity share capital.
2. Recent accounting pronouncements
Ministry of Corporate Affairs (âMCAâ) through Companies (Indian Accounting Standards) Amendment Rules, 2018 has notified the following new and amendments to Ind ASs which the Company has not applied as they are effective for annual periods beginning on or after April 1, 2018:
Ind AS 115 - Revenue from contracts with customers
The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entityâs contracts with customers.
The standard permits two possible methods of transition:
- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
- Modified retrospective approach - Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach)
The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1, 2018.
The Company will adopt the standard on April 1, 2018 by using the modified retrospective approach and accordingly comparatives for the year ending or ended March 31, 2018 will not be retrospectively adjusted. The effect on adoption of Ind AS 115 is expected to be insignificant.
Appendix B to Ind AS 21 - Foreign currency transactions and advance consideration
Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency
The amendment will come into force from April 1, 2018.
The Company has evaluated the effect of this on the financial statements and the impact is not material.
3.1 In the period of five years immediately preceding March 31, 2018
Aggregate number and class of shares allotted as fully paid up pursuant to contract without payment being received in cash -Nil (previous year: Nil)
Aggregate number and class of shares allotted as fully paid up by way of bonus shares - Nil (previous year: Nil)
Aggregate number and class of shares bought back - Nil (previous year: Nil)
3.2 Terms/rights attached to equity shares
The Company has only one class of equity shares having a par value of Rs.2 per share. They entitle the holder to participate in the dividends and to share in the proceeds of the winding up the Company in proportion to the number of and amounts paid on the shares held. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees.
3.3 Shares reserved for issue under options
Information relating to L&T Technology Services Limited Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 18.10
Note - The promoter, Larsen & Toubro Limited, had sold 169,000 shares on March 28, 2018, however since the stock exchanges were closed on March 30, 2018 on account of Good Friday and March 31, 2018 (Saturday), the sale of these 169,000 shares by the promoter on March 28, 2018 got effected on April 2, 2018 and thus the same has not got reflected in the BENPOS statement of March 31, 2018 as provided by the registrar and transfer agent of the Company. Due to this, the shareholding of Larsen & Toubro Limited as on March 31, 2018 in the shareholding pattern is appearing higher by 169,000 as 90,991,100 shares, instead of 90,822,100 shares in BENPOS.
3.4 Capital management
The Company continues its policy of a conservative capital structure which has ensured that it retains the credit rating. Low gearing levels also equip the Company with the ability to navigate business stresses on one hand and raise growth capital on the other. This policy also provides flexibility of fund raising options for future, which is especially important in times of global economic volatility. The gross debt equity ratio is 0:1 (as at 31-3-2017: 0:1)
3.5 Share based payments
i) The objective of the ESOP Scheme, 2016 is to reward those employees who contribute significantly to the Companyâs profitability and shareholderâs value as well as encourage improvement in performance and retention of talent. The options are vested equally over a period of 5 years subject to the discretion of the management and fulfillment of certain conditions.
ii) The exercise period for the options granted under the ESOP Scheme, 2016 would be seven years (84 months) from the date of grant of options or six years from the date of first vesting or three years (36 months) from the date of retirement/death, whichever is earlier, subject to any change as may be approved by the Board. The exercise price may be decided by the Board, in such manner, during such period, in one or more tranches and on such terms and conditions as it may deem fit, provided that the exercise price per option shall not be less than the par value of the equity share of our Company and shall not be more than the market price as defined in the SEBI (Share Based Employee Benefits) Regulations, 2014 and shall be subject to compliance with accounting policies under the said regulation. The number of shares to be allotted on exercise of options should not exceed the total number of unexercised vested options that may be exercised by the employee.
iv) Options granted on July 28, 2016 includes 1,500,000 and 500,000 options granted to non-executive directors and key managerial personel respectively. Options granted on August 27, 2016 includes 50,000 options granted to key managerial personnel. No options were granted to key managerial personnel during the current year
v) The number and weighted average exercise price of stock options are as follows
vi) Weighted average share price at the date of exercise for stock options exercised during the year is Rs.849.70 per share.
vii) No options expired during the periods covered in the above table.
viii) In respect of stock options granted pursuant to the Companyâs stock options schemes, the fair value of the options is treated as discount and accounted as employee compensation over the vesting period. Unamortised balance is accumulated in balance sheet in share options outstanding account.
ix) Expense on Employee Stock Option Schemes debited to the statement of profit and loss during 2017-18 is Rs.209 million (previous year: Rs.193 million).
x) The fair value at grant date of options granted during the year ended 31-3-2018 was Rs.737.10 (previous year: Rs.281). The fair value of grant date is determined using the Black Scholes Model which takes into account the exercise price, term of option, share price at grant date and expected price volatility of the underlying share, the expected dividend yeild and the risk free interest rate for the term of the option. The model inputs for options granted during the year included:
3.6 Dividends
Dividend paid during the year ended March 31, 2018 include an amount of Rs.4 per equity share towards final dividend for the year ended March 31, 2017 and Rs.4 per equity share towards interim dividend for the year ended March 31, 2018 . Dividend paid during the year ended March 31, 2017 include an amount of Rs.7.95 per equity share towards interim dividend for the year ended March 31, 2017 and an amount of Rs.0.13 per preference share towards dividend on preference shares.
The dividends declared by the Company are based on the profits available for distribution as reported in the financial statements of the Company. Accordingly, the retained earnings reported in these financial statements may not be fully distributable. On 22 May, 2018, the Board of Directors of the Company have proposed a final dividend of Rs.12 per share in respect of the year ended 31 March, 2018 subject to the approval of shareholders at the sixth annual general meeting.
4 Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for: Rs.99 million (previous year: Rs.65 million).
(Corporate Bank Gurantee of USD 16.5 million (previous year: USD 16.5 million) issued to Bank of America for securing borrowings of L&T Technology Services LLC, USA and USD 0.8 million (previous year: N.A.) issued to Bank of America for securing borrowings of Esencia Technologies Inc., USA.)
5 Corporate social responsibility expenditure
As per Section 135 of the Act ,a company meeting the applicability threshold , needs to spend atleast 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (âCSRâ) activities. Our CSR ambit covers skill development, innovation and technology, water, health and education and environment and we are continuously investing in welfare initiatives and programmes to provide support to people in the communities of our presence across these areas. A CSR committee has been formed by the Company as per the Act.
Amount required to be spent by the Company on CSR related activities during the year is Rs.83.85 Mn. (previous year: Rs.50.87 Mn.).
(i) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanantion of each level follows the table.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs 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 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
There were no transfers between the levels during the year
The Companyâs policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
(ii) Valuation technique used to determine fair value
Specific valuation technique used to value financial instruments include :
- the use of quoted market prices or dealer quotes for similar instruments
- the fair value of forward foreign exchange contracts and principal swap is determined using forward exchange rates at the balance sheet date.
(iii) Valuation processes
The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. The fair valuation of level 1 and level 2 classified assets and liabilities are readily available from the quoted prices in the open market and rates available in secondary market respectively. The valuation method applied for various financial assets and liabilities are as follows -
- Quoted price in the primary market (net asset value) considered for the fair valuation of the current investment i.e Mutual fund. Gain/(loss) on fair valuaiton is recognised in statement of profit and loss.
- The carrying amounts of trade receivable, trade payable, cash and bank balances, short term loans and advances, statutory dues/receivable, short term borrowing, employee dues are considered to be the same as their fair value due to their short-term nature.
- The fair value of premium receivable on financial guarantee contract is derived by discounting premium receivable over the period of contract. Thereafter, the same is carried at the amount initially recognised less the cumulative amortisation of income over the period of the contract.
- The fair value of security deposit is calculated by discounting future cash inflows.
(iv) Fair value of financial assets and financial liabilities measured at amortised cost:
The carrying amounts of all financial assets and financial liabilities are considered to be the same as their fair values due to their short term nature.
6 Financial risk management
i) Market risk management
The Company regularly reviews its foreign exchange forward and option positions and interest rate swaps, both on a standalone basis and in conjunction with its underlying foreign currency and interest rate related exposures. The Company follows cash flow hedge accounting for highly probable forecasted exposures (HPFE) hence the movement in mark to market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HPFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts will impact the balance sheet of the Company. The Company manages its exposures normally for a period of up to three years based on the estimated exposures over that period. As the period increases, the cash flows hedged as a percentage of the total expected cash flows diminish, as there is increased uncertainty of the total cash flows materializing over a longer period of time. The recognition of the gains and losses related to these instruments may not always coincide with the timing of gains and losses related to the underlying economic exposures and therefore, may adversely affect the Companyâs financial condition and operating results. Hence, the Company monitors the potential risk arising out of the market factors like exchange rates, interest rates, price of traded investment products etc. on a regular basis. For On-balance sheet exposures, the Company monitors the risks on net un-hedged exposures.
ii) Price risk management
The Companyâs investment policy and strategy are focused on preservation of capital and supporting the Companyâs liquidity requirements. The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives. The Company typically invests in money market funds, under a âlimits frameworkâ which governs the credit exposure to any one issuer as defined in its investment policy. To provide a meaningful assessment of the price risk associated with the Companyâs investment portfolio, the Company performed a sensitivity analysis to determine the impact of change in prices of the securities that would have on the value of the investment portfolio assuming a 0.25% move in debt funds and debt securities Based on the investment position a hypothetical 0.25% change in the fair market value of debt securities would result in a value change of /- Rs.4 million as of March 31, 2018, and /- Rs.3 million as of March 31, 2017. The investments in money market funds are for the purpose of liquidity management only and are held only overnight and hence, not subject to any material price risk.
iii) Foreign currency risk management
In general, the Company is a net receiver of foreign currency. Accordingly, changes in exchange rates and in particular a strengthening of the Indian Rupee, will negatively affect the Companyâs net sales and gross margins as expressed in Indian Rupees.
The Company may enter into foreign currency forward contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. The Companyâs practice is to hedge a portion of its material net foreign exchange exposures with tenors in line with the projected exposure based on future business growth.
However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures. The Company may also not hedge 100% given the uncertainty with business projections and hence the exposure gets hedged progressively in lower amounts.
To provide a meaningful assessment of the foreign currency risk associated with the Companyâs foreign currency derivative positions against off balance sheet exposures and unhedged portion of on-balance sheet exposures, the Company uses a multi-currency correlated value-at-risk (âVARâ) model. The VAR model uses a Monte Carlo simulation to generate thousands of random market price paths for foreign currencies against Indian rupee taking into account the correlations between them. The VAR is the expected loss in value of the exposures due to overnight movement in spot exchange rates, at 95% confidence interval. The VAR model is not intended to represent actual losses but is used as a risk estimation tool. The model assumes normal market conditions and is a historical best fit model. The overnight VAR for the Company at 95% confidence level is Rs.143.0 million as of March 31, 2018 and Rs.140.9 million as of March 31, 2017.
Actual future gains and losses associated with the Companyâs investment portfolio and derivative positions may differ materially from the sensitivity analyses performed as of March 31, 2018 due to the inherent limitations associated with predicting the timing and amount of changes in foreign currency exchanges rates and the Companyâs actual exposures and position.
iv) Credit/counter-party risk management
The principal credit risk that the Company is exposed is non-collection of trade receivables and late collection of receivables leading to credit loss. The risk is mitigated by reviewing creditworthiness of the prospective customers prior to entering into contract and post contracting, through continuous monitoring of collections by a dedicated team.
The Company reviews trade receivables on periodic basis and makes provision for doubtful debts if collection is doubtful. The Company also calculates the expected credit loss (ECL) for non-collection and for delay in collection of receivables. The Company makes additional provision if the ECL amount is higher than the provision made for doubtful debts. In case the ECL amount is lower than the provision made for doubtful debts, the Company retains the provision made for doubtful debts without any adjustment.
The provision for doubtful debts including ECL allowances for non-collection of receivables and delay in collection, on a combined basis, was Rs.98 million as at March 31, 2018 and Rs.155 million as at March 31, 2017. The movement in allowances for doubtful accounts comprising provision for both non-collection of receivables and delay in collection is as follows:
The percentage of revenue from its top five customers is 27.1% for 2017-18 (previous year: 24.2%).
The counter-party risk that the Company is exposed to is principally for financial instruments taken to hedge its foreign currency risks. The counter-parties are mainly banks and the Company has entered into contracts with the counterparties for all its hedge instruments.
The Company invests its surplus funds in liquid investments and mitigates the risk of counter-party failure by investing with institutions having good credit rating.
v) Liquidity risk management
The Company manages liquidity risk by maintaining sufficient cash and marketable securities and by having access to funding through an adequate amount of committed credit lines.
Management regularly monitors the position of cash and cash equivalents vis-a-vis projections. Assessment of maturity profiles of financial assets and liabilities including debt financing plans and maintenance of balance sheet liquidity ratios are considered while reviewing the liquidity position.
The Company has no borrowings as on 31-Mar-18 but it has credit facilities with banks that will help it to generate funds for the business if required. The contractual maturities of financial assets and financial liabilities is as follows:
7 Tax reconciliation statement
A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized below:
The applicable Indian statutory tax rate for fiscal 2018 and fiscal 2017 is 34.61%.
Overseas taxes are on account of income taxes payable overseas, principally in the United States of America. In India, the Company has benefited from certain tax incentives that the Government of India has provided to the export of software for the units registered under the Special Economic Zones Act, 2005(SEZ). SEZ units which commenced operations on or after April 1, 2005 are eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50 percent of such profits or gains for further five years. Upto 50% of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone Re-investment Reserve out of the profit of the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income tax Act, 1961.
Risk exposure
i. Gratuity
The Company operates gratuity plan through a trust wherein every employee is entitled to the benefit equivalent to fifteen days last salary drawn for each completed year of service. The same is payable on termination of service or retirement whichever is earlier. The benefit vests after five years of continuous service. The trustees of the plan have outsourced the investment management of the fund to an insurance company. The insurance company in turn manages these funds as per the mandate provided to them by the trustees and the asset allocation which is within the permissible limits prescribed in the insurance regulations.
ii. Post retirement medical benefits plan
The Post-retirement medical care plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling sanctioned based on cadre of the employee at the time of retirement. The plan is unfunded. Employees do not contribute to the plan.
iii. The weighted average duration of the gratuity plan is 5.54 years ( previous year: 6.27 years) and post retirement medical benefits plan is 19.31 years (previous year: 22.75 years).
General description of defined benefit plans:
a Gratuity plan
The Company makes contributions to the employeesâ group gratuity-cum-life assurance scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service.
b Post-retirement medical benefit plan
The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement.
c Self-managed provident fund plan
The Companyâs provident fund plan is managed by its holding company through a trust permitted under the Provident Fund Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service.
Employee benefit plan
In January 2018, the Company established a 401(k) retirement plan (the âPlanâ) for the benefit of its employees in USA. As allowed under section 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary contributions for eligible employees. The Plan allows employees to contribute a percentage of their annual compensation to the Plan on a pre-tax and after-tax basis. Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Code. At its discretion, the Company may match pre-tax and after-tax employee contributions up to 100% of the first 3% and 50% of next 2% of eligible earnings that are contributed by employees. Both, the employee contributions and the Companyâs matching contributions vest 100%, immediately. During the year ended March 31, 2018, the Company contributed Rs. 5 million towards the Plan.
42 (3) All outstanding balances are unsecured and are repayable in cash.
8 Segment reporting
(a) Description of segments and principal activities
The Companyâs management examines the Companyâs performance both from industry and geographic perspective and has identified five reportable segments of its business:
1: Transportation: The Company offers engineering services and solutions over the complete spectrum of the transportation industry, that includes OEM and Tier 1 suppliers in automotive, trucks and off-highway vehicles, aerospace and rail industries. The segment delivers end-to-end services from concept to detailed design through manufacturing, testing, aftermarket and sourcing support helping OEMs and Tier 1s develop products in a cost-effective manner. The Company also helps its clients develop cutting-edge transportation technologies such as autonomous driving, electric vehicle and drones.
The Companyâs domain expertise, globalized and customer centric approach, proprietary solutions and a repository of over 150 co-authored patents drive innovation and sustained business growth. The adherence to safety protocols, design and processes and use of cross-disciplinary engineering facilitates superlative experience to the Companyâs customers.
2: Process engineering: The plant engineering practice provides end to end engineering services for leading plant operators across the globe. The Company provides services in E/EPCM, engineering reapplication and global rollouts, plant sustenance and management, regulatory compliance engineering along with chemical, consumer packaged goods (FMCG) and energy and utility sector clients. The Company specializes in traditional engineering procurement construction management (EPCM) and operational maintenance projects, as well as contemporary digital engineering enterprises. The Company is advancing its engineering footprint to encompass the digital sphere and working with customers on âSmart Manufacturingâ technologies such as automation, IoT, analytics, and augmented reality (AR).
3: Industrial products: Industrial products practice helps original equipment manufacturer (OEM) customers across building automation, home and office products, energy, process control and machinery. The Companyâs expertise in engineering industrial products helps customer drive innovation and efficiency, and retain a competitive edge. The Company helps streamline the product development value chain, enabling customers spearhead business growth.
This Industrial Products segment offers end-to-end product development counsel, leveraging expertise spanning software, electronics, connectivity, mechanical engineering, industrial networking protocols, user interface/user experience (UI/UX), test frameworks and enterprise control solutions.
4: Medical devices: The Companyâs domain expertise, supported by robust technological capabilities, helps medical device OEMs address industry challenges, accelerate time to market, and optimize costs. The Company focuses on delivering solutions in diagnostics, patient mobility services, musculoskeletal services, life sciences, surgical services, cardiovascular, home healthcare and general medical.
5: Telecom: The Companyâs expertise in digital engineering such as the cloud, internet of things (IoT), artificial intelligence, data analytics and other areas in telecom domain enables its partners to leverage the right telecommunications strategy. With expertise in product variant development, 5G capabilities, simulations and automation, and product and mid of life support, the Company is a one stop-solution for the clients. It also provides futuristic solutions and IP Cores that address some of the pressing needs of the semiconductor industry. The Companyâs narrow band IoT (nBIoT) solution provides the complete IoT device management designed with low memory and low power footprint enabling easy integration to custom target platforms.
The Companyâs experience in product development, digitalization, user experience engineering, and testing and certification enables the customers to expand to new markets, innovate newer and smarter products, and roll-out products faster and cheaper. The Companyâs designs for 3D cameras, speech recognition, smart glasses and connectivity programs involving wireless mesh networks are seeing increasing traction from the industry.
The management primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA, see below) to assess the performance of the operating segments.
The Company avails office space under non-cancelable operating leases. The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term. Future minimum lease rentals payable under non-cancellable operating leases as per the rentals stated in the respective agreements are as follows:
The operating lease arrangements, are renewable on a periodic basis and for most of the leases extend upto a maximum of ten years from their respective dates of inception and relates to rented premises. Some of these lease agreements have price escalation clauses.
9 There are no amounts due and outstanding to be credited to Investor Education and Protection Fund as at March 31, 2018 (previous year: Rs. Nil).
10 Previous yearâs figures have been regrouped / reclassified wherever necessary.
Mar 31, 2017
1. FIRST TIME ADOPTION OF IND AS Transition to Ind AS
These standalone financial statements for the year ended March 31, 2017 are the first the Company has prepared in accordance with Ind AS.
The accounting policies set out in note 2 have been applied in preparing financial statements for the year ended March 31, 2017, the comparative information presented in these financial statements for the year ended March 31, 2016 and in preparation of opening Ind AS balance sheet at April 1, 2015 (the Company''s date of transition to Ind AS). In preparing its opening Ind AS balance sheet the company has adjusted amount reported previously in financial statements prepared in accordance with accounting standards notified under Companies(Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the act (previous GAAp). An explanation of how transition from previous GAAp to Ind AS has affected the Company''s financials position, financial performance and cash flow is set out in following tables and notes.
2. Exemptions and exceptions availed
a) Ind AS 101 permits a first time adopter to elect to continue with carrying value for all of its property, plant and equipment as recognized in the financial statements as at date of transition to Ind AS, measured as per previous GAAp and use that as deemed cost as at date of transition after making necessary adjustments. Accordingly, company has elected to measure all of its property, plant and equipment at their previous GAAp carrying value.
3. Notes to first time adoption of Ind AS
a) Deferred tax assets (net)
Tax adjustments include deferred tax impact on account of differences between previous GAAP and Ind AS which are mainly gain on fair valuation of investment, expected credit loss allowance & employee benefit provisions. Further, Minimum Alternated Tax (MAT) balance was grouped under short term loans and advances under previous GAAp which has been presented under deferred tax assets as per Ind AS.
b) Current investments
As per Ind AS, investments in liquid mutual funds have been revalued at fair value which was being accounted at cost under previous GAAR The resulting fair value changes of these investments have been recognized in profit and loss.
c) Trade receivables
Under previous GAAR, provisions were made for specific receivables if collection was doubtful. Under Ind AS 109, the Company has applied expected credit loss model for recognizing allowance for doubtful debt. Expected credit loss model reflects an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes and also includes loss for the time value of money.
d) Other bank balances and other financial assets
Fixed deposits were all classified under âCash & Bank" category under previous GAAR Under Ind AS, the Company has classified fixed deposits into current and non-current based on maturity duration. Accordingly, fixed deposits having maturity date after 12 months from reporting date have been classified as non-current financial assets.
e) Other financial assets & other non current assets
Under previous GAAR, interest free lease security deposits (that are refundable in cash on completion of lease term) are recorded at their transaction value. Under Ind AS, financial assets are required to be recognized at fair value. Accordingly, the Company has measured the security deposits at fair value under Ind AS. The difference between fair value and transaction value of security deposit has been recognized as prepaid rent and is being expensed on straight line basis over term of lease. The Company also recognizes interest income using internal rate of return through its profit and loss over the life of the deposit.
f) Short term loans, financial assets and other current assets
Under previous GAAR, the financial guarantee given on behalf of subsidiary was disclosed by way of contingent liability in the standalone financial statements of the Company. As per Ind AS 109, para 5.1.1 the Company has recognized the financial guarantee at fair value at inception. Under previous GAAR, specific classification of various assets under head âfinancial assets" was not made. Under Ind-AS, assets covered by nature as defined under Ind AS 32 have been regrouped from short term loans to financial asset category. Assets classified as non-financial in nature have been regrouped under other current assets.
g) Other financial liabilities and other current liabilities
Constructive obligation is not defined under previous GAAR due to which certain employee related expenses were recognized as and when they occur. Under Ind AS 37, the same is covered under definition of constructive obligation and all such employee related expenses needs to be provided for. Under previous GAAP, specific classification of various liabilities under head âfinancial liabilities" was not made and no liability were presented under category âfinancial liabilities". Under Ind-AS 32, financial liability has been defined and accordingly, liabilities covered by nature as defined under Ind AS 32 has been regrouped from other current liabilities to financial liabilities category. Liability classified as non-financial in nature has been regrouped under other current liability. Consequent to transition, all employee relevant liabilities has been classified under financial liability as per new disclosure requirements. Interest accrued but no due in respect of short term borrowings regrouped from other current liability to borrowing as per disclosure requirements of Ind AS.
h) Short term provisions and Tax liabilities (net)
Under previous GAAP, current year tax liability/asset was disclosed under category âshort term provisions" or âshort term advance". However, as per Ind AS disclosure requirements, current year tax liabilities and advances needs to be adjusted and net balance to be disclosed separately.
i) Hedge Accounting impact on other income
Under previous GAAP, the Company was accounting the premia income over the period of the forward contract. However, under Ind AS, the Company does not account the premia incoma. As per Ind-AS109, changes in the fair value of the derivative hedging instrument which are designated as âCash flow hedges" have been recognized under Other Comprehensive Income and held in Hedging Reserve (net of taxes) to the extent the hedges are effective.
j) Remeasurement of post employment benefit obligations
As per Ind AS, re-measurement of defined benefit plans has been disclosed under âOther Comprehensive Income" (OCI), which was being debited to statement of profit and loss under previous GAAP
k) Amortization of prepaid rent & notional interest income on lease deposits
Impact of Ind AS transition on lease deposit has been covered under note (e). Accordingly, lease deposits were fair valued and notional interest income is recognized on lease deposit using internal rate of return over life of deposit.
l) Accounting of cash discount given to customers
Under previous GAAP, cash discounts were accounted as finance cost. Under Ind AS, cash discounts are reduced from the revenue from operations.
m) Current year income tax charge
Consequent to Ind AS adjustments which are mainly on account of post employment benefit obligations and tax impact on premia/exchange gain / loss reversal, respective tax adjustments have been made in the statement of profit and loss for the year ended March 31, 2016.
n) Other Comprehensive Income
As per Ind AS, re-measurement of defined benefit plans and effective portions of gains and losses on cash flow hedges have been disclosed under âOther Comprehensive Income" (OCI). The re-measurement of defined benefit plans was being earlier recognized in the statement of profit and loss under previous GAAP
4. The Company consolidated 300,000,000 equity shares of Rs. 10/- each to 75,000,000 equity shares of Rs.40/-each with effect from January 13, 2016. pursuant to the order dated April 1, 2016 of the High Court of Judicature at Bombay sanctioning the Scheme of Arrangement for reduction in the face value of the equity shares of the Company, the Company reduced the face value of its equity shares from Rs.40 each to Rs.2 each. Therefore, with effect from April 1, 2016, the cumulative number of equity shares of the Company pursuant to the sub-division was 75,000,000 equity shares of Rs.2 each.
Consequent to the reduction of the face value of the equity shares of the Company from Rs.40 to Rs.2 each, an amount of Rs.2,850 million was transferred to the securities premium account of the Company. Subsequently, the Company allotted 26,690,392 equity shares of Rs.2 each on June 3, 2016 to its Promoter, Larsen & Toubro Limited, by way of a rights issue at a premium of Rs.279 per equity share, for a total consideration of '' 7,500 million (the âL&T Allotment"). From the proceeds received for the L&T Allotment, all 750,000,000 preference shares outstanding as at April 1, 2016, of face value of Rs.10 each were redeemed in May 2016.
Consequently, the issued, subscribed and paid-up equity share capital of the Company aggregates to Rs.203 million consisting of 101,690,392 equity shares of Rs.2 each. There are no outstanding preference shares as on date.
5. In the period of five years immediately preceding March 31, 2017:
Aggregate number and class of shares allotted as fully paid up pursuant to contract without payment being received in cash - Nil
Aggregate number and class of shares allotted as fully paid up by way of bonus shares - Nil Aggregate number and class of shares bought back - Nil
6. Terms/rights attached to equity shares
The Company has only one class of equity shares having a par value of Rs.2 per share. They entitle the holder to participate in the dividends, and to share in the proceeds of the winding up the company in proportion to the number of and amounts paid on the shares held. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian rupees.
7. Shares reserved for issue under options
Information relating to L&T Technology Services Limited Employee Option plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 39.
8. Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for: Rs.65 million (previous year: Rs.177 million)
(i) Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognized and measured at fair value and (b) measured at amortized cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs 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 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
There were no transfers between the levels during the year.
The Company''s policy is to recognize transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.
(ii) Valuation technique used to determine fair value
Specific valuation technique used to value financial instruments include :
- the use of quoted market prices or dealer quotes for similar instruments
- the fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.
- the fair value of remaining financial instrument is determined using discounted cash flow analysis.
(iii) Valuation processes
The finance department of the Company includes a team that performs the valuations of financial assets and liabilities required for financial reporting purposes, including level 3 fair values. The fair valuation of level 1 and level 2 classified assets and liabilities are readily available from the quoted prices in the open market and rates available in secondary market respectively. The valuation method applied for various financial assets and liabilities are as follows -
- Quoted price in the primary market (NAV) considered for the fair valuation of the current investment i.e. Mutual fund. Gain/(loss) on fair valuation is recognized in profit and Loss.
- The carrying amounts of trade receivable, trade payable, cash and bank balances, short term loans and advances, statutory dues/receivable, short term borrowing, employee dues are considered to be the same as their fair value due to their short-term nature.
- The fair value of premium receivable on financial guarantee contract is derived by discounting premium receivable over the period of contract. Thereafter, the same is carried at the amount initially recognized less the cumulative amortization of income over the period of the contract.
9. SHARE BASED PAYMENTS
(a) Employee stock option plan (ESOp)
The establishment of the ESOp scheme, 2016 was done pursuant to the resolutions passed by the Board and the Shareholders on January 21, 2016 for issue of options to eligible employees which may result in issue of not more than 6,000,000 equity shares. In terms of the ESOp Scheme, 2016, the Company can grant options aggregating to not more than 8.0% of the paid up equity share capital of the Company as on April 1, 2016. The eligible employees include permanent employees (including executive directors and non-executive directors, but excluding the independent directors) of the Company, its subsidiaries, or holding company. However, unless otherwise decided by the Board, in the event the subsidiaries or the holding company have implemented a stock option scheme, the employees of such entities will not be eligible for grant of options under the ESOp Scheme, 2016. Further, the employees (i) holding 10.0% of the outstanding share capital of the Company at any time after the commencement of the ESOp Scheme, 2016, or (ii) who are promoters or persons belonging to promoter group, or directors, who either by themselves or through their relatives or any body corporate, directly or indirectly, hold more than 10.0% of the outstanding equity shares of the Company, will not be eligible for grant of options under the ESOp Scheme, 2016
The objective of the ESOp Scheme, 2016 is to reward those employees who contribute significantly to the Company''s profitability and shareholder''s value as well as encourage improvement in performance and retention of talent.
The vesting of options granted under the ESOP Scheme, 2016 will commence one year after the date of grant of options at the rate of 20.0% of options granted each year, or at such other rates as may be fixed by the Board and may extend up to five years from the date of grant of options, unless otherwise varied in accordance with the employee stock option rules to be framed under the ESOp Scheme, 2016. The exercise period for the options granted under the ESOp Scheme, 2016 would be seven years (84 months) from the date of grant of options or six years from the date of first vesting or three years (36 months) from the date of retirement/death, whichever is earlier, subject to any change as may be approved by the Board. The exercise price may be decided by the Board, in such manner, during such period, in one or more tranches and on such terms and conditions as it may deem fit, provided that the exercise price per option shall not be less than the par value of the equity share of our Company and shall not be more than the market price as defined in the SEBI ESOp Regulations and shall be subject to compliance with accounting policies under the ESOp Regulations. The number of shares to be allotted on exercise of options should not exceed the total number of unexercised vested options that may be exercised by the employee.
Further, on resignation / termination of the eligible employees, only the vested options would be exercisable. All other grants if unvested for any reason whatsoever shall be deemed lapsed. Such eligible employee is required to exercise the options within a period of 90 days from the last date of employment or such other period as may be decided by the Board at the time of such separation. In the event an eligible employee retires or is permanently incapacitated, all unvested options will vest in the said employee immediately. The eligible employee has to exercise options within a period of three years from the date of retirement or the date of permanent incapacitation, as the case may be, or such other period as may be decided by the Board. In case of voluntary or pre-mature retirement, the eligible employee will exercise only the vested options within 180 days from the last date of employment. All other unvested options will lapse. However, the Board will have the discretion to vest the unvested options in deserving cases and where the employee has crossed the age of 55 years. The retiring age for non-executive directors shall be 75 years or as may be decided by Board and on attainment of which, all the unvested options of the nonexecutive directors shall be vested with them immediately. In event of death of the eligible employee, unvested options shall be vested immediately in the nominees or legal heirs, as the case may be, and in the event of death of any of the nominees, his share shall vest in the surviving nominees or legal heirs, pro-rata.
Options granted on July 28, 2016 includes 1,500,000 and 500,000 options alloted to non-executive directors and key managerial personnel respectively.
Options granted on August 28, 2016 includes 50,000 options alloted to key managerial personnel.
(i) Fair value of options granted
The fair value at grant date of options granted during the year ended 31-03-2017 was INR 281 ( 31-03-2016 - Nil). The fair value of grant date is determined using the Black Scholes Model which takes into account the exercise price, term of option, share price at grant date and expected price volatility of the underlying share, the expected dividend yeild and the risk free interest rate for the term of the option.
The model inputs for options granted during the year ended 31-03-2017 included:
a) weighted average exercise price: INR 2 (31-03-2016 - nil)*
b) grant date : 28-07-2016 and 27-08-2016
c) expiry date: 27-07-2023 & 26-08-2023 ( 31-03-2016 - nil)
d) weighted average share price at grant date: INR 281 ( 31-03-2016 - nil)#
e) weighted average expected price volatility of company''s share: 25.17% ( 31-03-2016 - nil)
f) weighted average expected dividend yield over life of option: 18.5% ( 31-03-2016 - nil)
g) weighted average risk-free interest: 6.95% ( 31-03-2016 - nil)
The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information.
* The first vesting is due on 27-07-2017.
# As the Company was not listed on the date of grant, price at grant date has been taken as per the valuation done by a category 1 merchant banker.
10. DIVIDENDS
Dividends paid during the year ended March 31, 2017 include an amount of 7.95 per equity share towards interim dividend for the year ended March 31, 2017 and an amount of 0.13 per preference share towards dividend on preference shares. Dividends paid during the year ended March 31, 2016 include an amount of 14.32 per equity share towards interim dividend for the year ended March 31, 2016 and an amount of 1 per preference share towards dividend on preference shares.
The dividends declared by the holding Company are based on the profits available for distribution as reported in the financial statements of the holding Company. Accordingly, the retained earnings reported in these financial statements may not be fully distributable. On May 3, 2017, the Board of Directors of the holding Company have proposed a final dividend of '' 4 per share in respect of the year ended March 31, 2017 subject to the approval of shareholders at the Annual General Meeting. If approved, the dividend would result in a cash outflow of Rs. 490 Mn inclusive of dividend distribution tax of Rs. 83 Mn.
11. FINANCIAL RISK MANAGEMENT
Market risk management
The Company regularly reviews its foreign exchange forward and option positions and interest rate swaps, both on a standalone basis and in conjunction with its underlying foreign currency and interest rate related exposures. The Company follows cash flow hedge accounting for highly probable forecasted exposures (HpFE) hence the movement in mark to market (MTM) of the hedge contracts undertaken for such exposures is likely to be offset by contra movements in the underlying exposures values. However, till the point of time that the HpFE becomes an on-balance sheet exposure, the changes in MTM of the hedge contracts will impact the balance sheet of the Company. The Company manages its exposures normally for a period of up to three years based on the estimated exposures over that period. As the period increases, the cash flows hedged as a percentage of the total expected cash flows diminish, as there is increased uncertainty of the total cash flows materializing over a longer period of time. The recognition of the gains and losses related to these instruments may not always coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company''s financial condition and operating results. Hence, the Company monitors the potential risk arising out of the market factors like exchange rates, interest rates, price of traded investment products etc. on a regular basis. For on balance sheet exposures, the Company monitors the risks on net un-hedged exposures.
Price risk
The Company''s investment policy and strategy are focused on preservation of capital and supporting the Company''s liquidity requirements. The Company uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives. The Company typically invests in money market funds, under a limits framework which governs the credit exposure to any one issuer as defined in its investment policy. To provide a meaningful assessment of the price risk associated with the Company''s investment portfolio, the Company performed a sensitivity analysis to determine the impact of change in prices of the securities that would have on the value of the investment portfolio assuming a 0.25% move in debt funds and debt securities Based on the investment position a hypothetical 0.25% change in the fair market value of debt securities would result in a value change of /- 3 INR Mn. as of March 31, 2017 and /- 0.9 INR Mn. as of March 31, 2016. The investments in money market funds are for the purpose of liquidity management only and are held only overnight and hence not subject to any material price risk.
Foreign currency risk
In general, the Company is a net receiver of foreign currency. Accordingly, changes in exchange rates, and in particular a strengthening of the Indian Rupee, will negatively affect the Company''s net sales and gross margins as expressed in Indian Rupees.
The Company may enter into foreign currency forward contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. The Company''s practice is to hedge a portion of its material net foreign exchange exposures with tenors in line with the projected exposure based on future business growth. However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures. The Company may also not hedge 100% given the uncertainty with business projections and hence the exposure gets hedged progressively in lower amounts.
To provide a meaningful assessment of the foreign currency risk associated with the Company''s foreign currency derivative positions against off balance sheet exposures and unhedged portion of on-balance sheet exposures, the Company uses a multi-currency correlated value-at-risk (âVAR") model. The VAR model uses a Monte Carlo simulation to generate thousands of random market price paths for foreign currencies against Indian rupee taking into account the correlations between them. The VAR is the expected loss in value of the exposures due to overnight movement in spot exchange rates, at 95% confidence interval. The VAR model is not intended to represent actual losses but is used as a risk estimation tool. The model assumes normal market conditions and is a historical best fit model. The overnight VAR for the Company at 95% confidence level is 140.9 INR Mn. as of March 31, 2017 and 69.9 INR Mn. as of March 31, 2016.
Actual future gains and losses associated with the Company''s investment portfolio and derivative positions may differ materially from the sensitivity analyses performed as of March 31, 2017 due to the inherent limitations associated with predicting the timing and amount of changes in foreign currency exchanges rates and the Company''s actual exposures and position.
Credit/counter-party risk
The principal credit risk that the Company is exposed to is non-collection of trade receivables and late collection of receivables leading to credit loss. The risk is mitigated by reviewing creditworthiness of the prospective customers prior to entering into contract and post contracting, through continuous monitoring of collections by a dedicated team.
The Company reviews trade receivables on periodic basis and makes provision for doubtful debts if collection is doubtful. The Company also calculates the expected credit loss (ECL) for non-collection and for delay in collection of receivables. The Company makes additional provision if the ECL amount is higher than the provision made for doubtful debts. In case the ECL amount is lower than the provision made for doubtful debts, the Company retains the provision made for doubtful debts without any adjustment.
The provision for doubtful debts including ECL allowances for non-collection of receivables and delay in collection, on a combined basis, was Rupees 155 million as at March 31, 2017 and Rupees 348 million as at March 31, 2016. The movement in allowances for doubtful accounts comprising provision for both non-collection of receivables and delay in collection is as follows
The percentage of revenue from its top five customers is 24.2% for 2016-17 (24.2% for 2015-16).
The counter-party risk that the Company is exposed to is principally for financial instruments taken to hedge its foreign currency risks. The counter-parties are mainly banks and the Company has entered into contracts with the counterparties for all its hedge instruments.
The Company invests its surplus funds in liquid investments and mitigates the risk of counter-party failure by investing with institutions having good credit rating.
Liquidity risk management
The Company manages liquidity risk by maintaining sufficient cash and marketable securities and by having access to funding through an adequate amount of committed credit lines.
Management regularly monitors the position of cash and cash equivalents vis-a-vis projections. Assessment of maturity profiles of financial assets and liabilities including debt financing plans and maintenance of balance sheet liquidity ratios are considered while reviewing the liquidity position.
The Company has no borrowings as on March 31, 2017 but it has credit facilities with banks that will help it to generate funds for the business if required. The contractual maturities of financial assets and financial liabilities is as follows
The applicable Indian statutory tax rate for fiscal 2017 and fiscal 2016 is 34.61%.
The foreign tax expenses are due to income taxes payable overseas, principally in the United States of America. In India, the Company has benefited from certain tax incentives that the Government of India has provided to the export of software for the units registered under the Special Economic Zones Act, 2005(SEZ). SEZ units which began the provision of services on or after April 1, 2005 are eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50 percent of such profits or gains for further five years. Upto 50 percent of such profits or gains is also available for a further five years subject to creation of a Special Economic Zone re-investment reserve out of the profit of the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income tax Act, 1961.
General descriptions of defined benefit plans:
a.) Gratuity plan
The Company makes contributions to the Employees'' Group Gratuity-cum-Life Assurance Scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service.
b.) post-retirement medical benefit plan
The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement.
c.) Self-managed provident fund plan
The Company''s provident fund plan is managed by its holding company through a Trust permitted under the Provident Fund Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service.
12. SEGMENT REPORTING
(a) Description of segments and principal activities
The Company''s management examines the Company''s performance from industry perspective and has identified five reportable segments of its business:
1: Transportation: The transportation segment partners with OEMs and Tier 1 suppliers serving aerospace, automotive, rail, commercial vehicles, off-highway and polymer segments. The segment delivers end-to-end services from concept to detailed design through manufacturing and sourcing support and helps OEMs develop cost effective vehicles.
2: Process Engineering: process engineering segment provides end to end engineering services for leading plant operators across the globe. This segment works across the lifecycle of the project covering concept and basic engineering to detail engineering and start-up support.
3: Industrial Products: Industrial Products engineering partners with OEM customers across building automation, home and office products, energy, process control and machinery. This segment offers end-to-end product development counsel, leveraging expertise spanning software, electronics, connectivity, mechanical engineering, industrial networking protocols, user interface/user experience (UI/UX), test frameworks and enterprise control solutions.
4: Medical Devices: Medical Devices engineering is a dedicated practice that is revolutionizing delivery of healthcare by providing product development solutions across a variety of Class I, II and III devices, with concept design, embedded systems, hardware and software, mechanical engineering services, application software, value analysis and value engineering, manufacturing engineering and regulatory compliance.
5: Telecom: Telecom segment caters to OEM/ODMs, Chipset vendors, Telecom carriers and ISVs delivering end-to-end embedded software design and development, hardware platform design and development, product maintenance, enhancement & sustenance, Testing & Validation, System Integration for communication and related solutions & systems and field implementation services.
The management primarily uses a measure of earnings before interest, tax, depreciation and amortization (EBITDA, see below) to assess the performance of the operating segments.
Dues to Micro and Small Enterprises as defined in Micro, Small and Medium Enterprises Development Act, 2006, have been determined to the extent such parties have been identified on the basis of information collected by the Management.
13. There are no amounts due and outstanding to be credited to Investor Education & protection Fund as at March 31, 2017.
14. previous year''s figures have been regrouped / reclassified wherever necessary.
Mar 31, 2016
a) Segment revenue includes sales and other income directly identifiable with/allocable to the segment.
b) Expenses that are directly identifiable with/allocable to segments are considered for determining the segment results. Expenditure which relate to the company as a whole and not allocable to segments are included under âun-allocable corporate expenditure".
c) Income which relates to the Company as a whole and not allocable to is included in "unallowable corporate incomeâ.
d) Fixed assets used and liability contracted for performing the Companyâs business have not been identified to any of the above reported segments as the fixed assets and services are used inter-changeably among segments.
Terms/rights attached to equity shares
The Company has only one class of equity shares having a par value of Rs, 40 per share, Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend fn Indian rupees.
fl(Jv) Terms ft conditions attached to preference shares
As at March 31, 2015, the preference shares are non - convertible and redeemable at par at the end of 10 years from the date of allotment. The Company has anytime call option and Larsen 6. Toubro Limited has anytime put option after 5 years.
With effect from April 1,2015, the preference shares are convertible anytime, at the option of the issuer or redeemable at par at the end of 10 years from the date of Allotment. The Company reserves the right to convert the preference shares, anytime, partly or fully, to equity shares of face value of Rs. 2 each at a premium of Rs. 279 per share. The conversion terms will be suitably adjusted for any changes in the face value of its equity share, post re-organization of its equity share capital any).The put option given to L&T stands cancelled. Refer Note 0 (vii).
B (vii) Pursuant the approval received from the High Court of Judicature at Bombay, the Company has
reorganize'', its share capital from April 1, 2016, as follows:
(a) The . horised equity share capital of the Company remains unchanged at Rs. 300,00,00,000 (Rup; three hundred crores) but with revised number of 1,50,00,00,000 equity shares at Rs. 2 each;
(b) The company shall reduce the existing issued, subscribed and paid up equity share capital from Rs. 3; 00,00,000 (Rupees three hundred crores) divided into 7,50,00,000 equity shares of Rs. 40 each Rs. 15,00,00,000 (Rupees fifteen crores) divided into 7,50,00,000 equity shares of Rs. 2 each paid up;
(c) Con rent to the reduction an amount of Rs. 285,00,00,000 (Rupees two hundred and eighty five rupees) will be transferred to the "Securities Premium Account" of the Company; and
The Company consolidated 300,000,000 equity shares of Rs. 10/- each to 75,000,000 equity shares of Rs, 40/- each with effect from 13 January 2016, Accordingly the earning per share for the previous year has been restated. Refer note B(V)
Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for: Rs. 177,455,316(previous year: Rs. 125,376,382)
Dr. Keshab Panda Chief Executive Officer £t Managing Director1
Mr. Amit Chadha Whole Time Director
Mr. Kumar Prabhas Whole Time Director2
Mr. P. Ramakrishnan Chief Financial Officer3
Mr. Y. V. S. Sravankumar Company Secretary4
Mr, M, V. Govindarajan Manager5
The estimates of future salary increases considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
Although the obligation of the Company under the post-retirement medical benefit plan is limited to the overall ceiling limits, assumed healthcare cost trend rates may affect the amounts recognized in the statement of profit and loss. At present, healthcare costs, as indicated in the principal actuarial assumption given above, are expected to increase at 5% p.a. A one percentage point change in assumed healthcare cost trend rates would have the following effects on the aggregate of the service cost and interest cost and defined benefit obligation:
General descriptions of defined benefit plans: a Gratuity plan
The Company makes contributions to the Employees'' Group Gratuity-cum-Life Assurance Scheme of the Life insurance Corporation of India, a funded defined benefit plan for qualifying employees, The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service.
b Post-retirement medical benefit plan
The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement, The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement,
c Self-managed provident fund plan
The Company''s provident fund plan is managed by its holding company through a Trust permitted under the Provident Fund Act, 1952, The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service.
Ll(3) !n line with the Companyâs risk management policy, financial risks relating to changes in the exchange rates, are hedged by using a combination of forward and options contracts, besides the natural hedges. The loss on fair valuation of the derivative contracts which are designated and are effective as hedges, amounting to Rs. 223,177,179 (net) {195,473,732) has been accounted in retained earnings in balance sheet. The gain of Rs. 509,725,790 (gain Rs 105,105,883) on settlement of the forwards is recognized in statement of profit and toss.
U(1) Based on the information and records available with the Company, there are no amounts payable to micro and small enterprises as defined in Micro, Small and Medium Enterprises Development Act, 2006
U(2) There were no amount which were required to be transferred to the Investor Education and Protection Fund by the company.
U(3) Total expenditure incurred on Corporate Social Responsibility activities during the year ended March 31, 2016 is Rs. 11,865,122 disclosed in note O(iii) - sales.administration and other expenses. U(12) Previous yearâs figures have been regrouped / reclassified wherever necessary.
Disclaimer: This is 3rd Party content/feed, viewers are requested to use their discretion and conduct proper diligence before investing, GoodReturns does not take any liability on the genuineness and correctness of the information in this article
More Information on L&T Technology Services Ltd.
-
L&T Technology Services Ltd. Tools
- Block Deals
-
L&T Technology Services Ltd. Company Details
- Company Profile
- Company History
- Management Team
- Capital Structure
- Product Mix
- Banker/Auditor/Registrar
-
Company History
- BSE Price History
- NSE Price History
-
L&T Technology Services Ltd. Key Financial Ratios
- Ratios
-
L&T Technology Services Ltd. Results
- Quarterly Results
- Half Yearly Results
- Nine Months Results
- Annual Results
-
L&T Technology Services Ltd. Financial Data
- Audited Results
- Cash Flow
- Balance Sheet
-
L&T Technology Services Ltd. Reports
- Accounting Policies
- Auditors Report
- Directors Report
- Notes To Account
-
L&T Technology Services Ltd. Corporate Announcements
- Book Closure
- Dividend
- Board Meetings
