Notes to Accounts of Mindteck (India) Ltd.
Mar 31, 2018
1. Corporate Information
Mindteck (India) Limited (âMindteckâ or âthe Companyâ), a public limited company incorporated in the year 1991 and is engaged in the business of rendering engineering and IT services to customers across various industry verticals in specific service horizontals. Mindteckâs core offerings are in Product Engineering, Application Software, Electronic Design, Testing and Enterprise Business services.
In the Product Engineering space, Mindteck renders Electronic Design, Firmware and Software in key vertical areas of Life Sciences and Analytical Instruments, Semiconductor Fab Equipment, Medical Instruments and in the high-end Storage Products segment. The Enterprise Business services line provides services in the areas of support and maintenance of enterprise-wide applications. Application Software services are centered around providing solutions to independent software vendors in the Banking and Financial Services Industry (BFSI) space and a broad range of services for custom Application Development, Application Management, Re-engineering, Validation and Verification across the spectrum.
The Company also provides offshore-based employee resourcing, marketing and pre-sales support and other services to its subsidiaries.
Mindteck has its registered office in Bengaluru, India and is headquartered in Bengaluru with a branch office in Kolkata and Mumbai. The software development centres in Bengaluru and Kolkata are 100% Export Oriented Units (âEOUâ) set up under the Software Technology Parks of India (STPI) Scheme of the Government of India.
Mindteck has subsidiaries (including step-down subsidiaries) in the United States of America, Singapore, Philippines, Malaysia, Bahrain, United Kingdom, Netherlands, Germany and India. Mindteck is listed in India on the Bombay Stock Exchange and National Stock Exchange.
These standalone financial statements for the year ended March 31, 2018 are approved by the Board of Directors on May 29, 2018.
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES:
2.1. Basis of preparation:
In accordance with the notification issued by the Ministry of Corporate Affairs, the Company has adopted Indian Accounting Standards (âInd ASâ) notified under The Companies (Indian Accounting Standards) Rules, 2015 (amended from time to time). For all periods up to and including the year ended March 31, 2017, the Company prepared its financial statements in accordance accounting standards notified under the section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Indian GAAP). These financial statements for the year ended March 31, 2018 are the first the Company has prepared in accordance with Ind AS. Refer to note no. 46 for information on how the Company adopted Ind AS.
In accordance with Ind AS 101 First-time Adoption of Indian Accounting Standards, the Company has presented a reconciliation from the presentation of standalone financial statements under Accounting Standards notified under section 133 of the Companies Act, 2013 read with the Companies (Accounting Standards) Rules, 2014 (âPrevious GAAPâ) to Ind AS in respect of Shareholdersâ equity as at March 31, 2017 and April 01, 2016 and in respect of comprehensive net income for the year ended March 31, 2017 (refer note no. 46 for reconciliations and effects of transition).
These standalone financial statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at fair value at the end of each reporting period, as explained further in the accounting policies below.
- certain financial assets and liabilities that is measured at fair value/amortized cost,
- defined benefit plans - plan assets measured at fair value
- Employee stock option contracts - measured at grant date fair value, and
- Investment property - fair value for disclosure purpose
The standalone financial statements are presented in Rs. (âfâ) and all the values are rounded off to the nearest lakhs (Rs. 00,000) except when otherwise indicated.
Notes:
a. Deconsolidation of the Mindteck Employees Welfare Trust (âTrustâ)
Effective January 01, 2015, the Trust was deconsolidated subsequent to the SEBI (Share Based Employee Benefits) Regulations, issued on October 28, 2014.
b. On April 01, 2008, the Company acquired 100% equity in its fellow subsidiary Chendle Holdings Limited, BVI (âChendle Holdingsâ) including its wholly owned subsidiary Primetech Solutions Inc., USA at an agreed valuation of USD 6,600,000 (approximately Rs 264,664,741) and the purchase consideration was agreed to be settled by a fresh issue of the equity shares of the Company to the shareholders of Chendle Holdings. The issue of equity shares to discharge the purchase consideration has been recorded at a price of Rs 73.54 per equity share, being the fair value of the equity shares issued as per the valuation carried out by the independent valuer.
Of the total purchase consideration payable, 38,579 equity shares (March 31, 2017: 102,878 equity shares; April 01, 2016: 102,878 equity shares) have been reserved for allotment to certain shareholders of Chendle Holdings, subject to the furnishing of Permanent Account Number (âPANâ) and other requirements by these shareholders. The submission of PAN is a pre-requisite to complete the allotment of shares. The Company is in the process of following up with the shareholders of Chendle Holdings to obtain the PAN and upon receiving the PAN, the Company would allot the remaining shares to these shareholders.
d. Terms/rights attached to equity and preference shares
The Company has two class of shares referred to as equity shares having a par value of Rs 10 and cumulative, non-convertible, redeemable preference shares having a par value of Rs 100. Each holder of the equity share, as reflected in the records of the Company as of the date of the shareholders meeting, is entitled to one vote in respect of each share held for all matters submitted to vote in the shareholders meeting.
The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company after distribution of all preferential amounts. However, no such preferential amounts exists currently. The distribution will be in proportion to the number of equity shares held by the shareholders.
g. The Company has not allotted any fully paid up equity shares by way of bonus shares nor has bought back any class of equity shares during the period of five years immediately preceding the balance sheet date.
h. Shares reserved for issue
Terms attached to stock options granted to employees are described in Note no. 41 regarding share based payments. Also, refer Note no. 17(b) above.
Notes:
i. Capital reserve
The Company has in the past created capital reserve in accordance with the provisions of the Act.
ii. Securities premium
Security premium is used to record the premium received on issue of shares. It is utilized in accordance with the provisions of the Companies Act, 2013.
iii. Employee stock option reserve account
The Company has established various equity settled share based payment plans for certain categories of employees of the Company and subsidiaries. Refer Note no. 41 for further details on these plans.
3. Employee benefits
A. Gratuity
The Company offers Gratuity benefits to employees, a defined benefit plan, Gratuity plan is governed by the Payment of Gratuity Act, 1972. Under gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy.
The following tables set out the funded status of the gratuity plan and the amount recognized in the Companyâs financial statements as at and for the year ended March 31, 2018 and March 31, 2017:
The Companyâs Gratuity Fund is managed by Life Insurance Corporation of India (LIC). The plan assets under the fund are deposited under approved securities.
The expected rate of return on assets is based on the expectation of the average long term rate of return on investment of the fund, during the estimated term of obligation.
The expected contribution in next year is Rs. Nil (March 31, 2017: Rs. Nil).
The obligations are measured at the present value of estimated future cash flows by using a discount rate that is determined with reference to the market yields at the Balance Sheet date on Government Bonds which is consistent with the estimated terms of the obligation.
The estimate of future salary increase, considered in the actuarial valuation, takes account of inflation, security, promotion and other relevant factors such as supply and demand in the employment market.
B. Contribution to provident fund
The Company makes contributions, determined as a specified percentage of employee salaries, in respect of qualifying employees towards Provident Fund, which is a defined contribution plan. The Company has no obligations other than to make the specified contributions. The contributions are charged to the Statement of Profit and Loss as they accrue. The amount recognized as an expense towards contribution to Provident Fund for the year aggregated to Rs. 240.93 lakhs (year ended March 31, 2017: Rs. 231.23 lakhs).
4. Related party disclosures
(i) Names of related parties and description of relationship:
A. Enterprises who exercise Control
Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding company Embtech Holdings Ltd., Mauritius - Holding company
B. Enterprises where control exists - Subsidiaries (including step down subsidiaries)
Mindteck, Inc., USA (formerly Infotech Consulting, Inc.)
Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SPC, Kingdom of Bahrain Mindteck (UK) Limited, United Kingdom Mindteck Singapore Pte. Limited, Singapore Mindteck Solutions Philippines, Inc.
Mindteck Netherlands BV, Netherlands Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI
Hitech Parking Solutions Private Limited w.e.f. March 14, 2018
C. Enterprises where control exists - Other than subsidiaries
Mindteck Employees Welfare Trust
D. Key management personnel
* The remuneration to the key managerial personnel does not include the provision/ accruals made on best estimate basis as they are determined for the Company as a whole.
e. In respect of ceiling on managerial remuneration prescribed under section 197 of the Companies Act, 2013, read with Schedule V of the Act, the Company has relied on opinion obtained from external legal counsel for non-inclusion of perquisite value of Employee Stock Options exercised during the year by non-executive director in managerial remuneration computation.
f. Refer to Note no. 41 (h) for grant of stock options to employees of the subsidiary companies.
5. Segment information
In accordance with Ind AS 108, Operating segments, segment information has been provided in the consolidated financial results of the Company and therefore no separate disclosure on segment information is given in these standalone financial results.
6. Employee stock options
As at March 31, 2018, the Company has the following share-based payment arrangements:
a. Employee Share Incentive Scheme 2000
The Company has an Employee Share Incentive Scheme 2000 (âESIS 2000â) for the benefit of its employees administered through the Mindteck Employees Welfare Trust (âThe Trustâ). The Trust, which was constituted for this purpose, subscribed to 416,000 equity shares renounced in its favour by the Companyâs promoters/directors in the Companyâs earlier rights issue. These shares are to be distributed amongst the employees, based on the recommendations made by the Companyâs Nomination & Remuneration Committee. No equity shares have been distributed under the ESIS 2000 and therefore, no stock compensation expense has been recorded.
b. Mindteck Employees Stock Option Scheme 2005 (ESOP 2005)
During the year ended March 31, 2006, the Company introduced the âMindteck Employees Option Scheme 2005â (âthe Option Scheme 2005â) for the benefit of the employees of the Company and its subsidiaries, as approved by the Board of Directors in its meeting held on July 04, 2005 and the shareholders meeting held on July 29, 2005. The Option Scheme 2005 provides for the creation and issue of 500,000 options that would eventually convert into equity shares of Rs 10 each in the hands of the employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Compensation Committee of the Board of Directors. The options vest annually in a graded manner over a three year period and are exercisable during a maximum period of 5 years from the date of vesting.
During the year ended March 31, 2018, the Company has granted 9,600 options on May 22, 2017 at an exercise price of Rs. 81.55 per share and 30,900 options on August 08, 2017 at an exercise price of Rs. 71.85 per share.
During the year ended March 31, 2017, the Company has granted 14,400 options on November 11, 2016 at an exercise price of Rs. 85.05 per share and 14,400 options on February 10, 2017 at an exercise price of Rs. 92.10 per share.
c. Mindteck Employees Stock Option Scheme 2008 (ESOP 2008)
During the year ended March 31, 2009, the Company introduced âMindteck Employees Stock Option Scheme 2008â (âthe Option Scheme 2008â) for the benefit of the employees of the Company and its subsidiaries, as approved by the Board of Directors in its meeting held on May 27, 2008 and the shareholders meeting held on July 30, 2008. The Option Scheme 2008 provides for the creation and issue of 1,200,000 options that would eventually convert into equity shares of Rs. 10 each in the hands of the employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination & Remuneration Committee of the Board of Directors. The options will vest after the expiry of a period of twelve months from the date on which the options are granted. The vesting term and the period over which the options are exercisable is to be decided by the Nomination & Remuneration Committee.
During the year ended March 31, 2018, the Company has granted 118.600 options on November 08, 2017 at an exercise price of Rs. 79.65 per share and 193,400 options on February 13, 2018 at an exercise price of Rs.73.60 per share.
During the year ended March 31, 2017, the Company has granted 69.600 options on May 20, 2016 at an exercise price of Rs. 103.90 per share and 239,000 options on August 10, 2016 at an exercise price of Rs. 90.75 per share.
d. Mindteck Employees Stock Option Scheme 2014 (ESOP 2014)
During the year ended March 31, 2015, the Company introduced âMindteck Employees Stock Option Scheme 2014â (âthe Option Scheme 2014â) for the benefit of the employees of the Company and its subsidiaries, as approved by the Board of Directors in its meeting held on May 29, 2014 and the shareholders meeting held on August 14, 2014. The Option Scheme 2014 provides for the creation and issue of 2,500,000 options that would eventually convert into equity shares of Rs. 10 each in the hands of the employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination and Remuneration Committee of the Board of Directors. The options will vest after the expiry of a period of twelve months from the date on which the options are granted. The vesting term and the period over which the options are exercisable is to be decided by the Nomination and Remuneration Committee.
During the year ended March 31, 2018, the Company has granted 250.000 options on April 10, 2017 at an exercise price of Rs. 81.30 per share.
During the year ended March 31, 2017, the Company has granted 250.000 options on March 30, 2017 at an exercise price of Rs. 78.10 per share.
7 Financial risk management
The Company has exposure to following risks arising from financial instruments-
- credit risk
- market risk
- interest risk
- liquidity risk
a. Risk management framework
The Companyâs Board of Directors has overall responsibility for the establishment and oversight of the Companyâs risk management framework. The Companyâs risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Companyâs activities.
The Companyâs audit committee oversees how management monitors compliance with the Companyâs risk management policies and procedures and reviews the adequacy of the risk management framework in relations to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and adhoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.
b. Credit risk
Credit risk is the risk that counter party will not meet its obligations under a financial instruments or customer contract leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables and unbilled revenue) from its financing activities including deposits with banks and financial institutions.
i) Trade and other receivables:
Credit risk is managed by each business unit subject to the Companyâs established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored.
The impairment analysis is performed at each reporting date on an individual basis for major customers. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security.
Expected credit loss (ECL) assessment for corporate customers as at April 01, 2016, March 31, 2017 and March 31, 2018
The Company allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of loss (including but not limited to past payment history, security by way of deposits, external ratings, audited financial statements, management accounts and cash flow projections and available press information about customers) and applying experienced credit judgement.
ii) Other financial assets and deposits with banks:
Credit risk on cash and cash equivalent is limited as (including bank balances, fixed deposits and margin money with banks) the Company generally transacts with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.
c. Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the Companyâs income and its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters.
Currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Companyâs exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States Dollars (âUSDâ)). The Companyâs exposure to the risk of changes in foreign exchange rates relates primarily to the Companyâs operating activities. The Company also has exposures to Great Britain Pound (âGBPâ) and Singapore Dollar (âSGDâ).
Sensitivity analysis
Every 1% increase or decrease of the respective foreign currencies compared to functional currency of the Company would cause the profit before tax in proportion to revenue to decrease or increase respectively by 1.80% (profit before exceptional items for the year ended March 31, 2017 by 0.90%).
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companyâs exposure to the risk of changes in market interest rates relates primarily to its short term borrowings in nature of working capital loans, which carry floating interest rates. Accordingly, the Companyâs risk of changes in interest rates relates primarily to the Companyâs debt obligations with floating interest rates.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant. The impact on entityâs loss before tax due to change in the interest rate/ fair value of financial liabilities are as disclosed below:
d. Liquidity risk
Liquidity is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Companyâs approach to managing the liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Companyâs reputation.
The Companyâs principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company believes that the cash and cash equivalents is sufficient to meet its current requirements. Accordingly no liquidity risk is perceived.
Exposure to liquidity risk
The table below details the Companyâs remaining contractual maturity for its financial liabilities. The contractual cash flows reflect the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay
8 Capital management
The Companyâs objective is to maintain a strong capital base to ensure sustained growth in business and to maximise the shareholders value. The capital management focusses to maintain an optimal structure that balances growth and maximizes shareholder value.
9 First-time adoption of Ind AS
These financial statements, for the year ended March 31, 2018, have been prepared in accordance with Ind AS. For the periods upto and including the year ended March 31, 2017, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (âIndian GAAPâ or â Previous GAAPâ).
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for year ending on March 31, 2018 together with the comparative period data, as described in the summary of significant accounting policies. In preparing these financial statements, the Companyâs opening balance sheet was prepared as at April 01, 2016, the Companyâs date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 01, 2016 and the financial statements as at and for the year ended March 31, 2017.
A. Exemptions availed
In preparing these standalone financial statements, the Company has applied the below mentioned exemptions:
(i) Property, plant & equipment, intangible assets and investment properties
As permitted by Ind AS 101, the Company has elected to continue with the carrying values under previous GAAP for all the items of property, plant and equipment. The same election has been made in respect of intangible assets and investment property also.
(ii) Leases
Ind AS 101 includes an optional exemption that permits an entity to apply the relevant requirements in Appendix C of Ind AS 17 for determining whether an arrangement existing at the date of transition contains a lease by considering the facts and circumstances existing at the date of transition (rather than at the inception of the arrangement).
(iii) Investments in subsidiaries
The Company has chosen to avail the exemption provided by Ind AS 101 and value all its investments in subsidiaries at deemed cost being the previous GAAP carrying amount at the transition date subject to adjustments made due to adoption of other Ind AS.
(iv) Share-based payments
Ind AS 102 Share-based Payment has not been applied to equity instruments in share-based payment transactions that vested before April 01, 2016.
D. Reconciliation of Cash flow for the year ended March 31, 2017
There were no significant reconciliation items between cash flows prepared under Indian GAAP and those prepared under Ind AS.
Note 1: Investment property
Based on Ind AS 40, the Company has reclassified the leased assets office premise to investment property. Under the previous GAAP, this was disclosed as a part of property, plant and equipment.
Note 2: Security deposits and rent equalization reserve
Under Ind AS interest free security deposits are carried at amortized cost by, discounting the same using interest rates applicable to the counter party. The difference between transaction cost and fair value is recognised as prepaid lease and amortized over the period of the lease on a straight-line basis. Further, interest income is recognised on the amortized cost of the security deposits over the lease period.
Under pervious GAAP operating lease expenses were recognised in the âstandalone statement of profit and lossâ on a straight line basis over the lease term. The difference between lease expense recognised in the âstandalone statement of profit and lossâ and contractual lease payments was recognised as ârent equalization reserveâ.
Note 3: Deferred taxes
Under Ind AS, deferred taxes are accounted using balance sheet approach based on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of balance sheet approach has resulted in recognition of deferred tax on new temporary differences which was not required under IGAAP. Under IGAAP, the deferred taxes are accounted using income statement approach i.e. differences between taxable profits and accounting profits for the period.
Note 4: Leased deposit
The Company receives interest free refundable lease deposit from its customer. Under previous GAAP, these deposits were recorded at the transaction value. However, in accordance with Ind AS 109, financial liabilities in the form of lease deposits are recorded initially at the fair value and subsequently discounted over the lock-in period using the effective interest rate method.
Note 5: Provision for expected credit loss
Under the previous GAAP, the Company had provided for trade receivables based on managements assessment regarding recoverability of such balances as at March 31, 2017. Under Ind AS, the Company has provided for the expected credit loss on aged trade receivables based on past history of losses and forward looking information. Provision for expected losses on trade receivables as at April 01, 2016 was charged to âSurplus/ (deficit) in the statement of profit and lossâ as provision for doubtful receivables (expected credit loss).
Note 6: Employee benefits
Under previous GAAP, actuarial gains and losses were recognized in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of net defined benefit liability/asset which is recognized in other comprehensive income in the respective periods.
Note 7: Employee share based payments
Under previous GAAP, employee share based payments were recognized based on intrinsic value method. Under Ind AS, the same has been recognized as per fair value method.
10. Standards issued but not yet effective
The amendments to standards that are issued, but not yet effective, up to the date of issuance of the Companyâs financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.
The Ministry of Corporate Affairs (MCA) has issued the Companies (Indian Accounting Standards) Amendment Rules, 2017 and Companies (Indian Accounting Standards) Amendment Rules, 2018 amending the following standard:
(i) Appendix B to Ind AS 21, Foreign currency transactions and advance consideration:
The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a nonmonetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or nonmonetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration.
Entities may apply the Appendix requirements on a fully retrospective basis. Alternatively, an entity may apply these requirements prospectively to all assets, expenses and income in its scope that are initially recognised on or after:
(i) The beginning of the reporting period in which the entity first applies the Appendix, or
(ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix.
The standard is effective for annual periods beginning on or after April 01, 2018. The Company is currently evaluating the requirements and impact of the aforesaid on its financial statements.
(ii)Ind AS 115 - Revenue from contracts with customers:
Ind AS 115 was notified on March 28, 2018 and is applicable to the Company from financial year 2018-19 beginning April 01, 2018.
The core principle of Ind AS 115 is to recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Ind AS 115 establishes a five-step model to identify the contract(s) with the customers, identifying performance obligations, estimating variable consideration included in the transaction price and allocating the transaction price to each separate performance obligation and recognizing revenue when (or as) each performance obligation is satisfied. The new standard also provides guidance on recognition of incremental cost of obtaining and fulfilling a contract with a customer.
Ind AS 115 will supersede all current revenue recognition requirements under Ind AS. The standard permits two methods of transition: i) full retrospective method: retrospective application to each prior reporting period with the option to elect certain practical expedients as defined within Ind AS 115; or, ii) modified retrospective method: retrospective application with cumulative effect of initially applying Ind AS 115 recognized at the date of initial application (i.e. April 01, 2018) and providing certain additional disclosures as defined in Ind AS 115.
The Company will adopt the new standard effective April 01, 2018 using the modified retrospective method and is in the process of evaluating its contractual arrangements as per the five-step model required by Ind AS 115. The ultimate impact on revenue resulting from the application of Ind AS 115 will be subject to assessments that are dependent on many variables, including, but not limited to, the terms of the contractual arrangements and the mix of business. The Company is currently assessing the impact of adopting Ind AS 115 on the financial statements.
11. The Company has entered into âInternational transactionsâ with âAssociated Enterprisesâ which are subject to Transfer Pricing regulations in India. The Company is in the process of carrying out transfer pricing study for the year ended March 31, 2018 in this regard, to comply with the requirements of the Income Tax Act, 1961. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at armâs length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the standalone financial statements, particularly on account of tax expense and that of provision for taxation.
Mar 31, 2017
1. Deconsolidation of the Mindteck Employees Welfare Trust (''Trust'')
Effective January 1, 2015, the Trust has been deconsolidated subsequent to the SEBI (Share Based Employee Benefits) Regulations, issued on October 28, 2014.
2. On April 1, 2008, the Company acquired 100% equity in its fellow subsidiary Chendle Holdings Limited, BVI (''Chendle Holdings'') including its wholly owned subsidiary Primetech Solutions Inc., USA.
At an agreed valuation of USD 6,600,000 (approximately Rs. 264,664,741), the purchase consideration was agreed to be settled by a fresh issue of the equity shares of the Company to the shareholders of Chendle Holdings. The issue of equity shares to discharge the purchase consideration has been recorded at a price of Rs. 73.54 per equity share, being the fair value of the equity shares issued, in accordance with the requirements of paragraph 10 of AS-13 , ''Accounting for Investments''.
Of the total purchase consideration payable, 102,878 equity shares (Previous year: 102,878 equity shares) have been reserved for allotment to certain shareholders of Chendle Holdings, subject to the furnishing of Permanent Account Number (PAN) and other requirements by these shareholders. The submission of PAN is a pre-requisite to complete the allotment of shares. The Company is in the process of following up with the shareholders of Chendle Holdings to obtain the PAN and upon receiving the PAN, the Company would allot the shares to these shareholders.
3. The Company has two class of shares referred to as equity shares having a par value of Rs. 10 and cumulative, non-convertible, redeemable preference shares having a par value of Rs. 100. Each holder of the equity share, as reflected in the records of the Company as of the date of the shareholders meeting, is entitled to one vote in respect of each share held for all matters submitted to vote in the shareholders meeting.
The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.
The Board of Directors, at its meeting held on May 22, 2017, has recommended a dividend of 10% (Re. 1 per equity share of par value Rs. 10 each) for the year ended March 31, 2017 (Previous year 10%).
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the remaining assets of the Company after distribution of all preferential amounts. However, no such preferential amounts exists currently. The distribution will be in proportion to the number of equity shares held by the shareholders.
4. The Company has not allotted any fully paid up equity shares by way of bonus shares nor has bought back any class of equity shares during the period of five years immediately preceding the balance sheet date.
5. There are no equity shares which are allotted as fully paid-up without payment being received in cash during the period of five years immediately preceding the balance sheet date.
6. Employee stock options
7. Employee Share Incentive Scheme 2000
The Company has an Employee Share Incentive Scheme 2000 (''ESIS 2000'') for the benefit of its employees administered through the Mindteck Employees Welfare Trust (''The Trust''). The Trust, which was constituted for this purpose, subscribed to 416,000 equity shares renounced in its favour by the Company''s promoters/directors in the Company''s earlier Rights Issue. These shares are to be distributed amongst the Company''s employees, based on the recommendations made by the Company''s Nomination and Remuneration Committee. No equity shares have been distributed under the ESIS 2000 and therefore, no stock compensation expense has been recorded.
8. Mindteck Employee Stock Option Scheme 2005
During the year ended March 31, 2006, the Company introduced the ''Mindteck Employees Option Scheme 2005'' (''the Option Scheme 2005'') for the benefit of the employees, as approved by the Board of Directors in its meeting held on July 4, 2005 and the shareholders meeting held on July 29, 2005. The Option Scheme 2005 provides for the creation and issue of 500,000 options that would eventually convert into equity shares of Rs. 10 each in the hands of the Company''s employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination and Remuneration Committee. The options vest annually in a graded manner over a three year period and are exercisable during a maximum period of five years from the date of vesting.
During the year ended March 31, 2017, the Company has granted 14,400 options on 11 November, 2016 at an exercise price of Rs 85.05 per share and 14,400 options on 10 February, 2017 at an exercise price of Rs.92.10 per share.
9. Mindteck Employee Stock Option Scheme 2008
During the year ended March 31, 2009, the Company introduced ''Mindteck Employees Stock Option Scheme 2008'' (''the Option Scheme 2008'') for the benefit of the employees, as approved by the Board of Directors in its meeting held on May 27, 2008 and the shareholders meeting held on July 30, 2008. The Option Scheme 2008 provides for the creation and issue of 1,200,000 options that would eventually convert into equity shares of Rs. 10 each in the hands of the Company''s employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination and Remuneration Committee of the Board of Directors. The options will vest after the expiry of a period of twelve months from the date on which the options are granted. The vesting term and the period over which the options are exercisable is to be decided by the Nomination and Remuneration Committee.
During the year ended March 31, 2017, the Company has granted 69,600 options on 20 May, 2016 at an exercise price of Rs. 103.90 per share and 239,000 options on 10 August, 2016 at an exercise price of Rs. 90.75 per share.
10. Mindteck Employee Stock Option Scheme 2014
During the year ended March 31, 2015, the Company introduced ''Mindteck Employees Stock Option Scheme 2014'' (''the Option Scheme 2014'') for the benefit of the employees, as approved by the Board of Directors in its meeting held on May 29, 2014 and the shareholders meeting held on August 14, 2014. The Option Scheme 2014 provides for the creation and issue of 2,500,000 options that would eventually convert into equity shares of Rs. 10 each in the hands of the Company''s employees. The options are to be granted to the eligible employees at the discretion of and at the exercise price determined by the Nomination and Remuneration Committee of the Board of Directors. The options will vest after the expiry of a period of twelve months from the date on which the options are granted. The vesting term and the period over which the options are exercisable is to be decided by the Nomination and Remuneration Committee.
The weighted average remaining contractual life of the options outstanding as at March 31, 2017 is 6.02 years (Previous year 5.92 years).
The Company uses the intrinsic value method to account for the stock compensation cost. The exercise price has been determined as the closing price of the Company''s shares traded on the Bombay Stock Exchange on the day prior to the date of grant of options and thus there is no stock compensation expense under the intrinsic value method for the options granted during the year.
The Guidance Note on ''Accounting for Employee Share-based Payments'' issued by the ICAI requires the disclosure of pro-forma net results and EPS, both basic and diluted, had the Company adopted the fair value approach described in the guidance note. Had the Company accounted for compensation cost under the fair value method, the reported profit after taxation for the year ended March 31, 2017 would have been Rs. 54,105,208 (Previous year Rs. 81,286,524), i.e. lower by Rs. 228,995 (Previous year lower by Rs. 729,474), and the basic and diluted EPS for the year would have been Rs. 2.14 and Rs. 2.10 (Previous year Rs. 3.24 and Rs. 3.16), respectively.
The fair value of stock based awards to employees is calculated through the use of option pricing models, requiring subjective assumptions which greatly affect the calculated values. The said fair value of the options has been calculated using Black-Scholes option pricing model, considering the expected term of the options to be 4 years, an expected dividend yield of 5-10% on the underlying equity shares, volatility in the share price of 40-100% and a risk free rate of 7-9.5%. The Company''s calculations are based on a single option valuation approach. The expected volatility is based on historical volatility of the share price during the period after eliminating abnormal price fluctuations.
11. Employee Benefits: Post-employment Benefit Plans Defined contribution plans
The Company makes contributions, determined as a specified percentage of employee salaries, in respect of qualifying employees towards Provident Fund, which is a defined contribution plan. The Company has no obligations other than to make the specified contributions. The contributions are charged to the Statement of Profit and Loss as they accrue. The amount recognized as an expense towards contribution to Provident Fund for the year aggregated to Rs. 23,122,676 (Previous year: Rs. 20,367,460).
Defined benefit plans
The Company operates post-employment defined benefit plans that provide gratuity. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half month''s salary for each year of completed service at the time of retirement/exit. The Scheme is funded by the plan assets.
12. Contingent Liabilities and Commitments
13. Corporate Guarantee of Rs. 129,760,940, i.e. USD 2 million (Previous year: Rs. 132,51 1,600, i.e. USD 2 million), has been provided by the Company in favour of a banking institution in the United States of America with respect to the extension of credit facilities by the banking institution to Mindteck, Inc., a wholly owned subsidiary of the Company.
14. Income tax matters of the Company aggregating to Rs. 32,814,050 (Previous year: Rs. 123,117,414) are pending at various forums. The management believes that the Company has a good case to defend and no liability is expected in this regard.
15. Company has utilized bank guarantee facilities of Rs.12,579,463 (Previous year: Rs. 8,868,660) against the bank guarantees provided to Customers, Customs and Excise Departments for Software Technology Park of India (STPI) bonding facilities.
16. Quantitative Details
The Company is engaged in providing software, IT-enabled and related services. Such services are not capable of being expressed in any generic unit and hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 5 (viii) (c) of general instructions for preparation of the statement of profit and loss as per revised Schedule III to the Companies Act, 2013.
17. Segmental Reporting
The Company''s operations predominantly relate to providing software and IT-enabled services which constitute the Company''s two primary business segments. The Company considers the business segment as the primary segment and geographical segment based on the location of customers as the secondary segment.
The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments.
Income and direct expenses in relation to segments is categorized based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as unallocable and directly charged against total income.
Segment assets excluding trade receivables have not been identified to any reportable segment, as these are used interchangeably between segments and hence Management believes that it is currently not practical to provide segment disclosures relating to total carrying amount of segment assets, liabilities and fixed assets, since a meaningful segregation is not possible.
18. Lease Transactions
The Company leases office and residential facilities and certain equipment under operating lease arrangements.
Lease rental expense for office facilities under non-cancellable operating leases during the year ended March 31, 2017 amounted to Rs. Nil (Previous year Rs. Nil).
19. Related Party Transactions
20. Related parties where control exists
The related parties where control exists are the holding companies (including ultimate and intermediary holding companies), subsidiaries and the Mindteck Employees Welfare Trust.
21. Holding companies
Tran company Ltd., British Virgin Islands (BVI) - Ultimate holding company Vanguard Group Holding Ltd., BVI - Intermediary holding company Mindteck Holdings Ltd., BVI - Intermediary holding company Business Holdings Ltd., BVI - Intermediary holding company Garrington Investments Ltd., BVI - Intermediary holding company Infotech Ventures Ltd. - Subsidiary of Intermediary holding company Embtech Holdings Ltd., Mauritius - Holding company
22. Subsidiaries (including step subsidiaries)
Mindteck, Inc., USA (formerly Infotech Consulting, Inc.)
Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SOC, Kingdom of Bahrain Mindteck UK Limited, United Kingdom Mindteck Singapore Pte. Limited, Singapore Mindteck Solutions Philippines Inc.
Mindteck Netherlands BV, Netherlands Mindteck Solutions Philippines Inc.
Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI
23. Mindteck Employees Welfare Trust
24. Key Managerial Personnel
Yusuf Lanewala Chairman and Managing Director (Appointed as Non-Executive Chairman effective from April 01, 2017)
Meenaz Dhanani Executive Director
Sanjeev Kathpalia Managing Director and Chief Executive Officer (Appointed with effect from March 01, 2017)
Anand Balakrishnan Chief Financial Officer
Avneet Gupta Chief Operating Officer (Resigned with effect from August 08, 2016)
Shivarama Adiga S. Company Secretary
Mar 31, 2015
1 BACKGROUND
Mindteck (India) Limited ('Mindteck' or 'the Company') was incorporated
to render engineering and IT services to customers across various
industry verticals in specific service horizontals. Mindteck's core
offerings are in Product Engineering, Application Software, Electronic
Design, Testing and Enterprise Business services.
In the Product Engineering space, Mindteck renders Electronic Design,
Firmware and Software in key vertical areas of Life Sciences and
Analytical Instruments, Semiconductor Fab Equipment, Medical
Instruments and in the high-end Storage Products segment. The
Enterprise Business services line provides services in the areas of
support and maintenance of enterprise-wide applications. Application
Software services are centered around providing solutions to
independent software vendors in the Banking and Financial Services
Industry (BFSI) space and a broad range of services for custom
Application Development, Application Management, Re-engineering,
Validation and Verification across the spectrum.
Through IT-enabled services, the Company provides offshore- based
employee resourcing, marketing and pre-sales support services to its
subsidiaries.
Mindteck is headquartered in Bengaluru with a branch office in Kolkata.
The software development centres in Bengaluru and Kolkata are 100%
Export Oriented Units ('EOU') set up under the Software Technology
Parks of India (STPI) Scheme of the Government of India. Mindteck has
subsidiaries in the United States of America, United Kingdom,
Singapore, Malaysia and Bahrain.
1.1.1 Employee Benefits: Post-employment Benefit Plans
Defined contribution plans
The Company makes contributions, determined as a specified percentage
of employee salaries, in respect of qualifying employees towards
Provident Fund, which is a defined contribution plan. The company has
no obligations other than to make the specified contributions. The
contributions are charged to the Statement of Profit and Loss as they
accrue. The amount recognized as an expense towards contribution to
Provident Fund for the year aggregated to Rs 16,364,981 (previous year:
Rs 14,526,034).
Defined benefit plans
The Company operates post-employment defined benefit plans that provide
gratuity. The gratuity plan entitles an employee, who has rendered at
least five years of continuous service, to receive one-half month's
salary for each year of completed service at the time of
retirement/exit. The Scheme is funded by the plan assets.
The following table set out the status of the gratuity plan as required
under AS-15 Employee Benefits
Amount in Rs.
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 factors in the employment
market.
2.1 Contingent Liabilities and Commitments
a) Corporate Guarantee of Rs 125,396,000 i.e. USD 2 million (previous
year: Rs 119,726,000 i.e. USD 2 million) in favour of a banking
institution in the United States of America with respect to the
extension of credit facilities by the banking institution to Mindteck
Inc., a wholly owned subsidiary of the Company.
b) Income tax matters aggregating to Rs 135,694,569 (previous year: Rs
118,682,320) are pending at various forums. The management believes
that the Company has a good case to defend and no liability is expected
in this regard.
c) Company has utilised bank guarantee facilities of Rs. 3,554,053
(previous year Rs 4,715,401) from Axis Bank against the bank guarantees
provided to Customs and Excise Departments for Software Technology Park
of India (STPI) bonding facilities.
2.2 Quantitative Details
The Company is engaged in providing software, IT-enabled and related
services. Such services are not capable of being expressed in any
generic unit and hence, it is not possible to give the quantitative
details of sales and certain information as required under paragraphs 5
(viii) (c) of general instructions for preparation of the statement of
profit and loss as per revised Schedule III to the Companies Act, 2013.
2.3 Segmental Reporting
The Company's operations predominantly relate to providing software and
IT-enabled services which constitute the Company's two primary business
segments. The Company considers the business segment as the primary
segment and geographical segment based on the location of customers as
the secondary segment.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments is categorized based
on items that are individually identifiable to that segment, while the
remainder of costs are apportioned on an appropriate basis. Certain
expenses are not specifically allocable to individual segments as the
underlying services are used interchangeably. The Company therefore
believes that it is not practical to provide segment disclosures
relating to such expenses and accordingly such expenses are separately
disclosed as unallocable and directly charged against total income.
Segment assets excluding trade receivables, segment liabilities and
fixed assets used in the Company's business have not been identified to
any reportable segment, as these are used interchangeably between
segments and hence Management believes that it is currently not
practical to provide segment disclosures relating to total carrying
amount of segment assets, liabilities and fixed assets, since a
meaningful segregation is not possible.
Additionally, the Company leases office facilities, residential
facilities and equipment under cancellable operating leases. The rental
expense under cancellable operating leases during the year ended March
31, 2015 amounted to Rs 7,404,192 (previous year Rs 7,682,441).
2.4 Related Party Transactions
a) Related parties where control exists
The related parties where control exists are the holding companies
(including ultimate and intermediary holding companies), subsidiaries
and the Mindteck Employees Welfare Trust.
(i) Holding companies
Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding
company Vanguard Group Holding Ltd., BVI - Intermediary holding company
Mindteck Holdings Ltd., BVI - Intermediary holding company Business
Holdings Ltd., BVI - Intermediary holding company Garrington
Investments Ltd., BVI - Intermediary holding company Infotech Ventures
Ltd. - Subsidiary of Intermediary holding company Embtech Holdings
Ltd., Mauritius - Holding company
(ii) Subsidiaries (including step subsidiaries)
Mindteck Inc., USA [formerly Infotech Consulting Inc.]
Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East
Limited SOC, Kingdom of Bahrain Mindteck UK Limited, United Kingdom
Mindteck Singapore Pte. Limited, Singapore Mindteck Netherlands BV,
Netherlands Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI
(iii) Mindteck Employees Welfare Trust ('MEWT')
b) Key Managerial Personnel
Yusuf Lanewala Managing Director
Dayananda Shetty Executive Director (Resigned w.e.f
August 14,2014)
Meenaz Dhanani Executive Director
Anand Balakrishnan Chief Financial Officer (Appointed w.e.f
November 7, 2014)
Avneet Gupta Chief Operating Officer (Appointed w.e.f
January 2, 2015)
Shivarama Adiga . S Company Secretary
(c) Transactions with related parties for the year ended are as
follows:
As per the Guidance Note on 'Accounting for Employee Share-Based
Payments' issued by the ICAI, 416,000 (previous year 416,000) weighted
average number of equity shares held by the Mindteck Employees Welfare
Trust have been reduced from the equity shares outstanding in computing
basic and diluted earnings per share.
2.5 The Ministry of Micro, Small and Medium Enterprises has issued an
Office Memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum in accordance with the 'Micro, Small and Medium
Enterprises Development Act, 2006' ('the Act'). Accordingly, the
disclosure in respect of the amounts payable to such enterprises as at
March 31, 2015 has been made in the financial statements based on
information received and available with the Company. Further in view of
the management, the impact of interest, if any, that may be payable in
accordance with the provisions of the Micro, Small and Medium
Enterprises Development Act is not expected to be material. The Company
has not received any claim for interest from any supplier as at the
balance sheet date.
2.6 Comparatives presented have been regrouped, where necessary, to
conform to the current year's classification.
Mar 31, 2014
1. CONTINGENT LIABILITIES AND COMMITMENTS
a) Corporate Guarantee of Rs 119,726,000 i.e. USD 2 million (previous
year: Rs 109,310,000 i.e. USD 2 million) in favour of a banking
institution in the United States of America with respect to the
extension of credit facilities by the banking institution to Mindteck
Inc., a wholly owned subsidiary of the Company.
b) Income tax matters aggregating to Rs 118,682,320 (previous year: Rs
84,826,398) are pending at various forums. The management believes that
the Company has a good case to defend and no liability is expected in
this regard.
c) Company has utilised bank guarantee facilities of Rs 4,715,401 from
Axis Bank against the bank guarantees provided to Customs and Excise
Departments for STPI bonding facilities.
2. QUANTITATIVE DETAILS
The Company is engaged in providing software, IT-enabled and related
services. Such services are not capable of being expressed in any
generic unit and hence, it is not possible to give the quantitative
details of sales and certain information as required under paragraphs 5
(viii) (c) of general instructions for preparation of the statement of
profit and loss as per revised Schedule VI to the Companies Act, 1956.
3. SEGMENTAL REPORTING
The Company''s operations predominantly relate to providing software and
IT-enabled services which constitute the Company''s two primary business
segments. The Company considers the business segment as the primary
segment and geographical segment based on the location of customers as
the secondary segment.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments is categorized based
on items that are individually identifiable to that segment, while the
remainder of costs are apportioned on an appropriate basis. Certain
expenses are not specifically allocable to individual segments as the
underlying services are used interchangeably. The Company therefore
believes that it is not practical to provide segment disclosures
relating to such expenses and accordingly such expenses are separately
disclosed as unallocable and directly charged against total income.
Segment assets excluding trade receivables, segment liabilities and
fixed assets used in the Company''s business have not been identified to
any reportable segment, as these are used interchangeably between
segments and hence Management believes that it is currently not
practical to provide segment disclosures relating to total carrying
amount of segment assets, liabilities and fixed assets, since a
meaningful segregation is not possible.
4. LEASE TRANSACTIONS
The Company leases office and residential facilities and certain
equipment under operating lease arrangements.
Lease rental expense for office facilities under non-cancellable
operating leases during the year ended March 31, 2014 amounted to Rs
49,856,801 (previous year Rs 11,889,630).
Additionally, the Company leases office facilities, residential
facilities and equipment under cancellable operating leases. The rental
expense under cancellable operating leases during the year ended March
31, 2014 amounted to Rs 7,682,441 (previous year Rs 36,467,117).
5. RELATED PARTY TRANSACTIONS
a) Related parties where control exists
The related parties where control exists are the holding companies
(including ultimate and intermediary holding companies), subsidiaries
and the Mindteck Employees Welfare Trust.
(i) Holding companies
Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding
company Vanguard Group Holding Ltd., BVI - Intermediary holding company
Mindteck Holdings Ltd., BVI - Intermediary holding company Business
Holdings Ltd., BVI - Intermediary holding company Garrington
Investments Ltd., BVI - Intermediary holding company Infotech Ventures
Ltd. - Subsidiary of Intermediary holding company Embtech Holdings
Ltd., Mauritius - Holding company
(ii) Subsidiaries (including step subsidiaries)
Mindteck Inc., USA [formerly Infotech Consulting Inc.] Mindteck
Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SOC,
Kingdom of Bahrain Mindteck UK Limited, United Kingdom Mindteck
Singapore Pte. Limited, Singapore Mindteck Netherlands BV, Netherlands
Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI
(iii) Mindteck Employees Welfare Trust (''MEWT'')
6. The Ministry of Micro, Small and Medium Enterprises has issued an
Office Memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum in accordance with the ''Micro, Small and Medium
Enterprises Development Act, 2006'' (''the Act''). Accordingly, the
disclosure in respect of the amounts payable to such enterprises as at
March 31, 2014 has been made in the financials statements based on
information received and available with the Company. Further in view of
the management, the impact of interest, if any, that may be payable in
accordance with the provisions of the Micro, Small and Medium
Enterprises Development Act is not expected to be material. The Company
has not received any claim for interest from any supplier as at the
balance sheet date.
7. LONG-TERM BORROWINGS
As at March 31, 2013, Mindteck (India) Limited had an outstanding term
loan of Rs 31,325,178 to Axis Bank Ltd., repayable in 21 quarterly
installments commencing April 1, 2013. The interest rate on the term
loan facility was base rate plus 3.25% (base rate was 13.25%). The term
loan facility with Axis Bank Ltd., was secured by equitable mortgage of
property at Kolkata, charge on fixed assets of the company and
hypothecation charge on the entire current assets of the company.
During the year, the company repaid the term loan in full and the
balance outstanding as at March 31, 2014 is Rs Nil.
8. Comparatives presented have been regrouped, where necessary, to
conform to the current year''s classification.
Mar 31, 2013
1 BACKGROUND
Mindteck (India) Limited (''Mindteck'' or ''the Company'') was incorporated
to render engineering and IT services to customers across various
industry verticals in specific service horizontals. Mindteck''s core
offerings are in Product Engineering, Application Software, Electronic
Design, Testing and Enterprise Business services.
In the Product Engineering space, Mindteck renders Electronic Design,
Firmware and Software in key vertical areas of Life Sciences and
Analytical Instruments, Semiconductor Fab Equipment, Medical
Instruments and in the high-end Storage Products segment. The
Enterprise Business services line provides services in the areas of
support and maintenance of enterprise-wide applications. Application
Software services are centered around providing solutions to
independent software vendors in the Banking and Financial Services
Industry (BFSI) space and a broad range of services for custom
Application Development, Application Management, Re-engineering,
Validation and Verification across the spectrum. Through IT-enabled
services, the Company provides offshore-based employee resourcing,
marketing and pre-sales support services to its subsidiaries.
Mindteck is headquartered in Bengaluru with a branch office in Kolkata.
The software development centers in Bengaluru and Kolkata are 100%
Export Oriented Units (''EOU'') set up under the Software Technology
Parks of India (STPI) Scheme of the Government of India. Mindteck has
subsidiaries in the United States of America, United Kingdom,
Singapore, Malaysia and Bahrain.
2.1 CONTINGENT LIABILITIES AND COMMITMENTS
a) Corporate Guarantee of Rs 109,310,000 i.e. USD 2 million (previous
year: Rs 104,061,600 i.e. USD 2 million) in favour of a banking
institution in the United States of America with respect to the
extension of credit facilities by the banking institution to Mindteck
Inc., a wholly owned subsidiary of the Company.
b) Income tax matters aggregating to Rs 84,826,398 (previous year: Rs
32,685,747) are pending at various forums. The management believes that
the Company has a good case to defend and no liability is expected in
this regard.
2.2 QUANTITATIVE DETAILS
The Company is engaged in providing software, IT-enabled and related
services. Such services are not capable of being expressed in any
generic unit and hence, it is not possible to give the quantitative
details of sales and certain information as required under paragraphs 5
(viii) (c) of general instructions for preparation of the statement of
profit and loss as per revised Schedule VI to the Companies Act, 1956.
2.3 MANAGERIAL REMUNERATION
Mr. Wayne Mitchell Berkowitz was appointed as the Company''s Managing
Director with effect from February 6, 2012. No remuneration is payable
to the Managing Director by the Company in the current year as well as
in the previous year. Further, no remuneration has been paid to
Non-Executive directors during the current year as well as in the
previous year. Mr. Wayne Mitchell Berkowitz is a non- resident foreign
citizen and is therefore unable to satisfy the condition mentioned in
Part 1(e) of Schedule XIII of the Companies Act, 1956. Accordingly the
Company vide its letter dated March 23, 2012 filed an application in
Form 25A seeking approval of the Central Government to the appointment
of Mr. Wayne Mitchell Berkowitz as the Managing Director of the Company
pursuant to Section 269 of the Companies Act, 1956. Approval was
received from the Government vide their letter dated September 17,
2012. Mr. Wayne Mitchell Berkowitz is an employee of subsidiary company
Mindteck Inc., USA. The total salary paid to him by Mindteck Inc.,
during the year ended March 31, 2013 is USD 250,000 (Approximately Rs
13,637,357) and the same is not recharged to the Company.
2.4 SEGMENTAL REPORTING
The Company''s operations predominantly relate to providing software and
IT-enabled services which constitute the Company''s two primary business
segments. The Company considers the business segment as the primary
segment and geographical segment based on the location of customers as
the secondary segment.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments is categorized based
on items that are individually identifiable to that segment, while the
remainder of costs are apportioned on an appropriate basis. Certain
expenses are not specifically allocable to individual segments as the
underlying services are used interchangeably. The Company therefore
believes that it is not practical to provide segment disclosures
relating to such expenses and accordingly such expenses are separately
disclosed as unallocable and directly charged against total income.
Segment assets excluding sundry debtors, segment liabilities and fixed
assets used in the Company''s business have not been identified to any
reportable segment, as these are used interchangeably between segments
and hence Management believes that it is currently not practical to
provide segment disclosures relating to total carrying amount of
segment assets, liabilities and fixed assets, since a meaningful
segregation is not possible.
2.5 LEASE TRANSACTIONS
The Company leases office and residential facilities and certain
equipment under operating lease arrangements.
Lease rental expense for office facilities under non-cancellable
operating leases during the year ended March 31, 2013 amounted to Rs
11,889,630 (previous year Rs 3,811,471).
Additionally, the Company leases office facilities, residential
facilities and equipment under cancellable operating leases. The rental
expense under cancellable operating leases during the year ended March
31, 2013 amounted to Rs 36,467,117 (previous year Rs 44,463,471).
2.6 RELATED PARTY TRANSACTIONS
a) Related parties where control exists
The related parties where control exists are the holding companies
(including ultimate and intermediary holding companies), subsidiaries
and the Mindteck Employees Welfare Trust.
(i) Holding companies
Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding
company
Vanguard Group Holding Ltd., BVI - Intermediary holding company
Mindteck Holdings Ltd., BVI - Intermediary holding company
Business Holdings Ltd., BVI - Intermediary holding company
Garrington Investments Ltd., BVI - Intermediary holding company
Embtech Holdings Ltd., Mauritius - Holding company
Infotech Ventures Ltd. - Subsidiary of Intermediary holding company
(ii) Subsidiaries (including step subsidiaries)
Mindteck Inc., USA [formerly Infotech Consulting Inc.] Mindteck
Software Malaysia SDN. BHD, Malaysia Mindteck Middle East Limited SPC,
Kingdom of Bahrain Mindteck UK Limited, United Kingdom Mindteck
Singapore Pte. Limited, Singapore Mindteck Netherlands BV, Netherlands
Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI
(iii) Mindteck Employees Welfare Trust (''MEWT'')
b) Key Managerial Personnel
Wayne Mitchell Berkowitz - Managing Director
Javed Gaya - Non-Executive Director
Narayan Ambat Menon - Non-Executive Director
Yusuf Lanewala - Non-Executive Director (appointed as Additional
Director with effect from February 13, 2013)
2.7 The Ministry of Micro, Small and Medium Enterprises has issued an
Office Memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum in accordance with the ''Micro, Small and Medium
Enterprises Development Act, 2006'' (''the Act''). Accordingly, the
disclosure in respect of the amounts payable to such enterprises as at
March 31, 2013 has been made in the financials statements based on
information received and available with the Company. Further in view of
the management, the impact of interest, if any, that may be payable in
accordance with the provisions of the Micro, Small and Medium
Enterprises Development Act is not expected to be material. The Company
has not received any claim for interest from any supplier as at the
balance sheet date.
2.8 DERIVATIVE INSTRUMENTS
The Company takes forward contracts to mitigate its risks associated
with foreign currency fluctuations in respect of highly probable
forecast transactions. The Company does not enter into any forward
contract, which is intended for trading or speculative purposes. The
details of forward contracts outstanding as at March 31, 2013 and March
31, 2012 are as follows:
2.9 LONG-TERM BORROWINGS
As at March 31, 2013, Mindteck (India) Limited owes Rs 31,325,178
(previous year Rs Nil) to Axis Bank Ltd towards the term loan repayable
in 21 quarterly installments commencing from April 1, 2013. The
interest rate on the term loan facility was base rate plus 3.25%
(presently 13.25%). The term loan facility with Axis Bank Ltd., is
secured by equitable mortgage of property at Kolkata, charge on fixed
assets of the Company and hypothecation charge on the entire current
assets of the Company.
2.10 Corresponding figures for the previous year presented have been
regrouped, where necessary, to conform to the current year''s
classification.
Mar 31, 2012
1 BACKGROUND
Mindteck (India) Limited ('Mindteck' or 'the Company') was incorporated
to render engineering and IT services to customers across various
industry verticals in specific service horizontals. Mindteck's core
offerings are in Product Engineering, Application software, Electronic
Design, Testing and Enterprise Business services.
In the product engineering space, Mindteck renders electronic design,
firmware and software in key vertical areas of Life Sciences and
analytical instruments, semiconductor fab equipments, medical
instruments and in the high-end storage products segment. The
enterprise business services line provides services in the areas of
support and maintenance of enterprise wide applications. Application
software services are centered around providing solutions to
independent software vendors in the Banking and Financial Services
Industry (BFSI) space and a broad range of services for custom
application development, application management, re-engineering,
validation and verification across the spectrum.
Through IT-enabled services, the Company provides offshore based
employee resourcing, marketing and pre-sales support services to its
subsidiaries.
Mindteck is headquartered in Bangalore with branch offices in Kolkata
and Gurgaon. The software development centers in Bangalore and Kolkata
are 100% Export Oriented Units ('EOU') set up under the Software
Technology Parks of India (STPI) Scheme of the Government of India.
Mindteck has subsidiaries in the United States of America, United
Kingdom, Singapore, Malaysia and Bahrain.
a) Consolidation of the Mindteck Employees Welfare Trust
In March 2008, the Company had sought a legal opinion regarding
consolidation of the financial statements of the Trust in accordance
with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase
Scheme) Guidelines, 1999 dated June 30, 2003 ('the Guidelines'). The
Company was advised that the financial statements of the Trust should
be consolidated with the standalone financial statements of the
Company. Accordingly, the Company has consolidated the financial
statements of the Trust with its own standalone financial statements to
comply with the requirements of the Guidelines.
The investment in the equity shares of the Company held by the Trust
has been reduced from the share capital and securities premium account.
Further, the opening retained earnings of the Trust has been included
in the Company's opening retained earnings. Balances, after
inter-company eliminations, have been appropriately consolidated in the
Company's financial statements on a line by line basis.
b) On April 1, 2008, the Company acquired 100% equity in its fellow
subsidiary Chendle Holdings Limited, BVI ('Chendle Holdings') including
its wholly owned subsidiary Primetech Solutions Inc., USA.
At an agreed valuation of USD 6,600,000 (approximately Rs.
264,664,741), the purchase consideration was agreed to be settled by a
fresh issue of the equity shares of the Company to the shareholders of
Chendle Holdings. The issue of equity shares to discharge the purchase
consideration has been recorded at a price of Rs 73.54 per equity
share, being the fair value of the equity shares issued, in accordance
with the requirements of paragraph 10 of AS-13 , 'Accounting for
Investments'.
Of the total purchase consideration payable, 167,177 equity shares
(Previous year: 270,056 equity shares) have been reserved for allotment
to certain shareholders of Chendle Holdings, subject to the furnishing
of Permanent Account Number ('PAN') and other requirements by these
shareholders. The submission of PAN is a pre-requisite to complete the
allotment of shares. The Company is in the process of following up with
the shareholders of Chendle Holdings to obtain the PAN and upon
receiving the PAN, the Company will allot the shares to these
shareholders. During the year, the Company, on receipt of the PAN, has
allotted 102,879 shares of Rs. 10 par value at the aforesaid price of
Rs. 73.54, which has been described in the preceding paragraph.
Accordingly, an amount of Rs. 6,536,932, i.e., Rs. 63.54 per equity
share, has been recorded as securities premium in the current year. The
remaining 167,177 shares aggregating Rs. 12,294,204 (at a price of Rs.
73.54 each) shall be issued on receipt of PAN from the shareholders.
d) The Company has two class of shares referred to as equity shares
having a par value of Rs.10 and cumulative, non-convertible, redeemable
preference shares having a par value of Rs.100. Each holder of the
equity share, as reflected in the records of the Company as of the date
of the shareholder meeting, is entitled to one vote in respect of each
share held for all matters submitted to vote in the shareholder
meeting.
The Company declares and pays dividends in Indian rupees. The dividend
proposed by the Board of Directors is subject to the approval of the
shareholders in the Annual General Meeting.
In the event of liquidation of the Company, the holders of equity
shares will be entitled to receive any of the remaining assets of the
Company after distribution of all preferential amounts. However, no
such preferential amounts exists currently. The distribution will be in
proportion to the number of equity shares held by the shareholders.
i) Employee stock options
i) Employee Share Incentive Scheme 2000
The Company has an Employee Share Incentive Scheme 2000 ('ESIS 2000')
for the benefit of its employees administered through the Mindteck
Employees Welfare Trust ('The Trust'). The Trust, which was constituted
for this purpose, subscribed to 416,000 equity shares renounced in its
favour by the Company's promoters/directors in the Company's earlier
Rights Issue. These shares are to be distributed amongst the Company's
employees, based on the recommendations made by the Company's Appraisal
Committee. No equity shares have been distributed under the ESIS 2000
and therefore, no stock compensation expense has been recorded.
ii) Mindteck Employee Stock Option Scheme 2005
During the year ended March 31, 2006, the Company introduced the
'Mindteck Employees Option Scheme 2005' ('the Option Scheme 2005') for
the benefit of the employees, as approved by the Board of Directors in
its meeting held on July 4, 2005 and the shareholders meeting held on
July 29, 2005. The Option Scheme 2005 provides for the creation and
issue of 500,000 options that would eventually convert into equity
shares of Rs. 10 each in the hands of the Company's employees. The
options are to be granted to the eligible employees at the discretion
of and at the exercise price determined by the Compensation Committee
of the Board of Directors. The options vest annually in a graded manner
over a three year period and are exercisable during a maximum period of
5 years from the date of vesting.
During the year ended March 31, 2012, the Company has granted 301,200
options on August 11, 2011 at an exercise price of Rs.19.10 per share
and 15,000 options on February 2, 2012 at Rs. 15.42 per share.
Option activity during the year and weighted average exercise price of
stock options under the Option Scheme 2005 is given as below:
The Company uses the intrinsic value method to account for the stock
compensation cost. The exercise price has been determined as the
closing price of the Company's shares traded on the Bombay Stock
Exchange on the day prior to the date of grant of options and thus
there is no stock compensation expense under the intrinsic value method
for the options granted during the year.
The Guidance Note on 'Accounting for Employee Share-Based Payments'
issued by the ICAI requires the disclosure of pro-forma net results and
EPS, both basic and diluted, had the Company adopted the fair value
approach described in the guidance note. Had the Company accounted for
compensation cost under the fair value method, the reported profit
after taxation for the year ended March 31, 2012 would have been Rs
6,944,510 (previous year Rs 57,041,292) i.e. lower by Rs 457,680
(previous year lower by Rs 180,713) and the basic and diluted EPS for
the year would have been Rs. 0.28 and Rs. 0.28 (previous year Rs. 2.34
and Rs. 2.32) respectively.
The fair value of stock based awards to employees is calculated through
the use of option pricing models, requiring subjective assumptions
which greatly affect the calculated values. The said fair value of the
options has been calculated using Black-Scholes option pricing model,
considering the expected term of the options to be 4 years, an expected
dividend yield of 5-10% on the underlying equity shares, volatility in
the share price of 55-100% and a risk free rate of 7-9.5%. The
Company's calculations are based on a single option valuation approach.
The expected volatility is based on historical volatility of the share
price during the period after eliminating abnormal price fluctuations.
iii) Mindteck Employee Stock Option Scheme 2008
During the year ended March 31, 2009, the Company introduced 'Mindteck
Employees Stock Option Scheme 2008' ('the Option Scheme 2008') for the
benefit of the employees, as approved by the Board of Directors in its
meeting held on May 27, 2008 and the shareholders meeting held on July
30, 2008. The Option Scheme 2008 provides for the creation and issue of
1,200,000 options that would eventually convert into equity shares of
Rs. 10 each in the hands of the Company's employees. The options are to
be granted to the eligible employees at the discretion of and at the
exercise price determined by the Compensation Committee of the Board of
Directors. The options will vest after the expiry of a period of twelve
months from the date on which the options are granted. The vesting term
and the period over which the options are exercisable is to be decided
by the Compensation Committee.
No options have been granted under the Option Scheme 2008.
2.1 CONTINGENT LIABILITIES AND COMMITMENTS
a) Guarantees given by the Company's bankers as at March 31, 2012 is
Rs. Nil (previous year: Rs. Nil).
b) Corporate Guarantee of Rs. 104,061,600 i.e. USD 2 million (previous
year: Rs. 181,141,600 i.e. USD 4 million) in favour of a banking
institution in the United States of America with respect to the
extension of credit facilities by the banking institution to Mindteck,
Inc., a wholly owned subsidiary of the Company.
c) Estimated amount of contracts remaining to be executed on capital
account (net of advances) and not provided for as at March 31, 2012 is
Rs. NIL (previous year: Rs. NIL).
d) Claims against the Company not acknowledged as debt as at March 31,
2012 is Nil (previous year: Nil).
e) Income tax matter aggregating to INR 32,685,747 (previous year: INR
35,747,102) are pending at various forums. The management believes that
the Company has a good case to defend and no liability is expected in
this regard.
2.2 QUANTITATIVE DETAILS
The Company is engaged in providing software, IT-enabled and related
services. Such services are not capable of being expressed in any
generic unit and hence, it is not possible to give the quantitative
details of sales and certain information as required under paragraphs 5
(viii) (c) of general instructions for preparation of the statement of
profit and loss as per revised Schedule VI to the Companies Act, 1956.
2.3 MANAGERIAL REMUNERATION
Mr. Pankaj Agarwal was appointed as the Company's Managing Director
with effect from April 1, 2008 and resigned with effect from February
6, 2012. Subsequently, Mr. Wayne Mitchell Berkowitz was appointed as
the Company's Managing Director with effect from February 6, 2012. No
remuneration is payable to the Managing Director by the Company in the
current as well as in the previous year. Further, no remuneration has
been paid to non-executive directors during the current as well as
previous year. Mr. Wayne Mitchell Berkowitz is a non-resident Indian
and foreign citizen and is therefore unable to satisfy condition
mentioned in Part 1(e) of Schedule XIII of the Companies Act, 1956.
Accordingly the Company vide its letter dated March 23, 2012 has filed
an application in Form 25A seeking approval of the Central Government
to the appointment of Mr. Wayne Mitchell Berkowitz as the Managing
Director of the Company pursuant to Section 269 of the Companies Act,
1956 and awaiting approval.
2.4 SEGMENTAL REPORTING
The Company's operations predominantly relate to providing software and
IT-enabled services which constitute the Company's two primary business
segments. The Company considers the business segment as the primary
segment and geographical segment based on the location of customers as
the secondary segment.
The accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
Income and direct expenses in relation to segments is categorized based
on items that are individually identifiable to that segment, while the
remainder of costs are apportioned on an appropriate basis. Certain
expenses are not specifically allocable to individual segments as the
underlying services are used interchangeably. The Company therefore
believes that it is not practical to provide segment disclosures
relating to such expenses and accordingly such expenses are separately
disclosed as unallocable and directly charged against total income.
Segment assets excluding sundry debtors, segment liabilities and fixed
assets used in the Company's business have not been identified to any
reportable segment, as these are used interchangeably between segments
and hence Management believes that it is currently not practical to
provide segment disclosures relating to total carrying amount of
segment assets, liabilities and fixed assets, since a meaningful
segregation is not possible.
2.5 LEASE TRANSACTIONS
The Company leases office and residential facilities and certain
equipment under operating lease arrangements.
Lease rental expense for office facilities under non-cancellable
operating leases during the year ended March 31, 2012 amounted to Rs.
3,811,471 (previous year Rs. 46,560,001).
Additionally, the Company leases office facilities, residential
facilities and equipment under cancellable operating leases. The rental
expense under cancellable operating leases during the year ended March
31, 2012 amounted to Rs. 44,463,471 (previous year Rs. 15,753,447).
Rental income from sub-leasing of building and office facilities during
the year ended March 31, 2012 was Rs. Nil (previous year Rs.
16,659,591).
2.6 RELATED PARTY TRANSACTIONS
a) Related parties where control exists
The related parties where control exists are the holding companies
(including ultimate and intermediary holding companies), subsidiaries
and the Mindteck Employees Welfare Trust.
(i) Holding companies
Transcompany Ltd., British Virgin Islands (BVI) - Ultimate holding
company Vanguard Investments Ltd., BVI - Intermediary holding company
Mindteck Holdings Ltd., BVI - Intermediary holding company Business
Holdings Ltd., BVI - Intermediary holding company Garrington
Investments Ltd., BVI - Intermediary holding company Embtech Holdings
Ltd., Mauritius - Holding company
(ii) Subsidiaries (including step subsidiaries)
Mindteck, Inc., USA [formerly Infotech Consulting Inc.]
Mindteck Software Malaysia SDN. BHD, Malaysia Mindteck Middle East
Limited SPC, Kingdom of Bahrain Mindteck (UK) Limited, United Kingdom
Mindteck Singapore Pte. Limited, Singapore Mindteck Netherlands BV,
Netherlands Mindteck Germany GmbH, Germany Chendle Holdings Ltd, BVI
(iii) Mindteck Employees Welfare Trust ('MEWT')
b) Key managerial personnel
Wayne Mitchell Berkowitz - Managing Director (appointed with effect
from February 6, 2012)
Pankaj Agarwal - Managing Director (resigned with effect from February
6, 2012)
Vivek Malhotra - Non-Executive Director Indresh Narain - Non-Executive
Director Javed Gaya - Non-Executive Director
Narayan Ambat Menon - Non-Executive Director (appointed with effect
from September 30, 2011)
2.7 The Ministry of Micro, Small and Medium Enterprises has issued an
Office Memorandum dated August 26, 2008 which recommends that the Micro
and Small Enterprises should mention in their correspondence with its
customers the Entrepreneurs Memorandum Number as allocated after filing
of the Memorandum. Accordingly, the disclosure in respect of the
amounts payable to such enterprises as at March 31, 2012 has been made
in the financials statements based on information received and
available with the Company. Further in view of the management, the
impact of interest, if any, that may be payable in accordance with the
provisions of the Micro, Small and Medium Enterprises Development Act
is not expected to be material. The Company has not received any claim
for interest from any supplier under the Micro, Small and Medium
Enterprises Development Act.
2.8 TRANSFER PRICING
The Company has established a comprehensive system of maintenance of
information and documents as required by the transfer pricing
legislation under sections 92-92F of the Income-Tax Act, 1961. Since
the law required existence of such information and documentation to be
contemporaneous in nature, the Company is in the process of updating
the documentation for the international transactions entered into with
the associated enterprise during the financial year and expects such
records to be in existence latest by the due date, as required by law.
The Management is of the opinion that its international transactions
are at arm's length so that the aforesaid legislation will not have any
impact on the financial statements, particularly on the amount of tax
expenses and that of provision for taxation.
2.9 The Company has prepared these financial statements as per the
format prescribed by Revised Schedule VI to the Companies Act, 1956
('the schedule') issued by Ministry of Corporate Affairs. Previous
periods' figures have been recast/restated to conform to the
classification required by the Revised Schedule VI.
Mar 31, 2010
1 BACKGROUND
Mindteck (India) Limited (ÃMindteckà or Ãthe CompanyÃ) was incorporated
to render engineering and it services to customers across various
countries. MindteckÃs core offerings are in product engineering in the
embedded space, enterprise business and professional consulting
services. in the product engineering space, Mindteck renders
electronics design, firmware and software in key vertical areas of
analytica instruments, semiconductor fab equipments, medica instruments
and in high-end storage products segment. the enterprise business
services line provides services in the areas of implementation, roll
outs, application integration and support, upgrades and data archival.
these services are focused in the discrete manufacturing, construction,
oil & gas and consumer products sectors. Mindteck offers a broad range
of professional consulting services for custom application development,
application management, re- engineering, validation and verification
across the spectrum. through it-enabled services, the company provides
employee, marketing and sales support to other organizations.
Mindteck is head quartered in Bangalore with an office in Gurgaon and
has 100% Export Oriented Units (ÃEOUÃ) at kolkata and in Bangalore set
up under the software technology park (stp) scheme of the Government of
india. Mindteck has subsidiaries in united states of america, united
kingdom, singapore, Malaysia, india and Bahrain.
2 ACQUISITION
during the previous year, on april 1, 2008, the company acquired 100%
equity in its fellow subsidiary chendle holdings Limited, BVI (ÃChendle
HoldingsÃ) including its wholly owned subsidiary primetech solutions
inc., usa. at an agreed valuation of usd 6,600,000 (approximately rs
264,664,741), the purchase consideration was agreed to be settled by a
fresh issue of the equity shares of the company [2,640,000 equity
shares of the company at an agreed value of usd 2.50 (rs 100.30) per
equity share] to the shareholders of chendle holdings. of the total
purchase consideration payable, 270,056 equity shares are yet to be
allotted as at the balance sheet date and have been reserved for
allotment to certain shareholders of chendle holdings, subject to the
furnishing of Permanent Account Number (ÃPANÃ) by these shareholders.
the submission of paN is a pre-requisite to complete the allotment of
shares. during the year, seBi vide its circular dated april 24, 2009
amended the equity listing agreement and prescribed a uniform procedure
for dealing with unclaimed shares. as per the circular, unclaimed
shares are to be credited to a dematerialized suspense account with a
restriction on the voting rights until the rightful owner claims the
shares. the company had sought clarification from the Bombay stock
Exchange (ÃBSEÃ) whether the said circular would apply in its present
case and is awaiting the BseÃs clarification on the matter.
The issue of equity shares to discharge the purchase consideration has
been recorded at a price of rs 73.54 per equity share, being the fair
value of the equity shares issued, in accordance with the requirements
of paragraph 10 of AS-13, ÃAccounting for InvestmentsÃ. Additionally,
transaction costs, where applicable, have been included in the cost of
investment.
3 in the previous year, companyÃs wholly owned, non-operational
subsidiary, Mindteck Bpo services private Limited (ÃMindteck BPOÃ)
commenced proceedings to wind up its operations under section 560 of
the companies act, 1956. on april 2, 2010, Mindteck Bpo filed an
application with the registrar of companies for striking its name off
the register. the company does not expect to realize any amounts from
the winding-up of Mindteck Bpo and has consequently written-off the
entire value of the investment as at March 31, 2010.
4 EMPLOYEE STOCK OPTIONS
a) employee share incentive scheme 2000
the company has an employee share incentive scheme 2000 (ÃESIS 2000Ã)
for the benefit of its employees administered through the Mindteck
employees Welfare Trust (The TrustÃ). The Trust, which was constituted
for this purpose, subscribed to 416,000 equity shares renounced in its
favour by the companyÃs promoters/directors in the companyÃs earlier
rights issue. these shares are to be distributed amongst the companyÃs
employees, based on the recommendations made by the companyÃs appraisa
committee. No equity shares have been distributed under the esis 2000
and therefore, no stock compensation expense has been recorded.
b) consolidation of the Mindteck employees Welfare trust
in March 2008, the company had sought a legal opinion regarding
consolidation of the financial statements of the trust in accordance
with the seBi (employee stock option scheme and employee stock purchase
scheme) Guidelines, 1999 dated June 30, 2003 (Ãthe GuidelinesÃ). the
company was advised that the financial statements of the trust should
be consolidated with the standalone financial statements of the
company. accordingly, the company has consolidated the financial
statements of the trust with its own standalone financial statements
to comply with the requirements of the Guidelines.the investment in
the equity shares of the company held by the trust has been reduced
from the share capital and securities premium account. further, the
opening retained earnings of the trust has been included in the
companyÃs opening retained earnings. Balances, after inter-company
eliminations, have been appropriately consolidated in the companyÃs
financial statements on a line by line basis.
c) Mindteck employee stock option scheme 2005
During the year ended March 31, 2006, the company introduced the
ÃMindteck Employees Option Scheme 2005Ã (Ãthe Option Scheme 2005Ã) for
the benefit of the employees, as approved by the Board of directors in
its meeting held on July 4, 2005 and the shareholders meeting held on
July 29, 2005. The Option Scheme 2005 provides for the creation and
issue of 500,000 options that would eventually convert into equity
shares of rs 10 each in the hands of the companyÃs employees. the
options are to be granted to the eligible employees at the discretion
of and at the exercise price determined by the compensation committee
of the Board of directors. the options vest annually in a graded manner
over a three year period and are exercisable during a maximum period of
5 years from the date of vesting. during the year ended March 31,
2010, the company has granted 45,000 options on May 15, 2009 at an
exercise price of rs.16.55 per share, 15,000 options on october 29,
2009 at an exercise price of rs.27.35 per share and 25,200 options on
January 29, 2010 at an exercise price of rs.31.50 per share. the
weighted average remaining contractual life of the options outstanding
as at March 31, 2010 is 4.49 years (previous year 4.92 years). the
company uses the intrinsic value method to account for the stock
compensation cost. the exercise price has been determined as the
closing price of the companyÃs shares traded on the Bombay stock
exchange on the day prior to the date of grant of options and thus
there is no stock compensation expense under the intrinsic value method
for the options granted during the year.
The Guidance Note on ÃAccounting for Employee Share-Based paymentsÃ
issued by the icai requires the disclosure of pro- forma net results
and eps, both basic and diluted, had the company adopted the fair value
approach described in the guidance note. had the company accounted for
compensation cost under the fair value method, the reported profit
after taxation for the year ended March 31, 2010 would have been rs
18,015,960 (previous year rs 34,522,250) i.e. lower by rs 248,676
(previous year lower by rs 1,106,417) and the basic and diluted eps for
the year would have been rs 0.74 and rs 0.73 (previous year rs 1.44 and
rs 1.40) respectively. the fair value of stock based awards to
employees is calculated through the use of option pricing models,
requiring subjective assumptions which greatly affect the calculated
values. the said fair value of the options has been calculated using
Black- scholes option pricing model, considering the expected term of
the options to be 4 years, an expected dividend yield of 5-10 % on the
underlying equity shares, volatility in the share price of 55-100% and
a risk free rate of 7-9.5%. the companyÃs calculations are based on a
single option valuation approach. the expected volatility is based on
historical volatility of the share price during the period after
eliminating abnormal price fluctuations.
d) Mindteck employee stock option scheme 2008
during the year ended March 31, 2009, the company introduced ÃMindteck
Employees Stock Option Scheme 2008Ã (Ãthe Option Scheme 2008Ã) for the
benefit of the employees, as approved by the Board of directors in its
meeting held on May 27, 2008 and the shareholders meeting held on July
30, 2008. The Option Scheme 2008 provides for the creation and issue of
1,200,000 options that would eventually convert into equity shares of
rs 10 each in the hands of the companyÃs employees. the options are to
be granted to the eligible employees at the discretion of and at the
exercise price determined by the compensation committee of the Board of
directors. the options will vest after the expiry of a period of
twelve months from the date on which the options are granted. the
vesting term and the period over which the options are exercisable is
to be decided by the compensation committee.
No options have been granted under the option scheme 2008.
5 proVisioN for taXatioN
a) provision for income tax for the year relates to income tax on
taxable income under the provisions of section 115JB of the Income Tax
Act, 1961 relating to Minimum Alternate Tax (ÃMATÃ).
6 CONTINGENT LIABILITIES AND COMMITMENTS
a) Guarantees given by the companyÃs bankers as at March 31, 2010 is rs
Nil (previous year: rs Nil).
b) corporate Guarantee of rs 180,560,000 i.e. usd 4 million (previous
year: rs 203,020,000 i.e. usd 4 million) in favour of a banking
institution in the united states of america with respect to the
extension of credit facilities by the banking institution to Mindteck
inc., a wholly owned subsidiary of the company.
c) estimated amount of contracts remaining to be executed on capital
account (net of advances) and not provided for as at March 31, 2010 is
rs 75,240 (previous year: rs Nil).
d) claims against the company not acknowledged as debt as at March 31,
2010 is Nil (previous year: Nil).
e) the company has received a draft assessment order for the assessment
year 2006-07 wherein an additional amount of tax of rs 15,590,456
(including interest of rs 4,838,414) has been assessed as payable. the
additional tax is primarily towards the price adjustments carried out
by the transfer pricing officer amounting to rs 25,070,787 under
section 92ca of the income-tax act, 1961. the company has filed an
appeal before the dispute resolution panel (drp) against the said order
and management believes that the company has a good case to defend and
no liability is expected in this regard.
7 MANAGERIAL RENUMERATION
during the previous year, Mr pankaj agarwal was appointed as the
companyÃs Managing director with effect from april 1, 2008. No
remuneration is payable to the Managing director by the company in the
current as well as previous year. further, no remuneration has been
paid to non-executive directors during the current as well as previous
year.
8 SEGMENT REPORTING
the companyÃs operations predominantly relate to providing software and
it-enabled services which constitute the companyÃs two primary business
segments. the company considers the business segment as the primary
segment and geographical segment based on the location of customers as
the secondary segment.
the accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income and
expenditure in individual segments.
income and direct expenses in relation to segments is categorized based
on items that are individually identifiable to that segment, while the
remainder of costs are apportioned on an appropriate basis. certain
expenses are not specifically allocable to individual segments as the
underlying services are used interchangeably. the company therefore
believes that it is not practical to provide segment disclosures
relating to such expenses and accordingly such expenses are separately
disclosed as unallocable and directly charged against total income.
segment assets excluding sundry debtors, segment liabilities and fixed
assets used in the companyÃs business have not been identified to any
reportable segment, as these are used interchangeably between segments
and hence Management believes that it is currently not practical to
provide segment disclosures relating to total carrying amount of
segment assets, liabilities and fixed assets, since a meaningful
segregation is not possible.
9 Related party traNsactioNs
a) Related parties where control exists
The related parties where control exists are the holding companies
(including ultimate and intermediary holding companies),
subsidiaries and the Mindteck employees Welfare trust.
(i) holding companies
- Transcompany Ltd., British Virgin Islands (BVI) Ã ultimate holding
company
- Vanguard Investments Ltd., BVI Ã Intermediary holding company
- Mindteck Holdings Ltd., BVI - Intermediary holding company
- Business Holdings Ltd., BVI - Intermediary holding company
- Garrington Investments Ltd., BVI - Intermediary holding company
- Embtech Holdings Ltd., Mauritius - Holding company
(ii) subsidiaries (including step subsidiaries)
- Mindteck Inc., USA [formerly Infotech Consulting
inc.]
- Mindteck BPO Services Private Limited, India
- Mindteck Software Malaysia SDN. BHD, Malaysia
- Mindteck Middle East Ltd SPC, Kingdom of Bahrain
- Mindteck UK Limited, United Kingdom
- Mindteck Singapore Pte. Limited, Singapore
- Mindteck Netherlands BV, Netherlands
- Mindteck Germany GmbH, Germany
- Chendle Holdings Ltd, BVI
- Primetech Solutions Inc, USA [upto September 30, 2008]
(iii) Mindteck Employee Welfare Trust (ÃMEWTÃ)
b) key Managerial personnel
- Pankaj Agarwal à Managing Director
- Guhan Subramaniam à Non-executive director
- Vivek Malhotra à Non-executive director
- Indresh Narain à Non-executive director
- Javed Gaya à Non-executive director
10 the Ministry of Micro, small and Medium enterprises has issued an
office Memorandum dated august 26, 2008 which recommends that the Micro
and small enterprises should mention in their correspondence with its
customers the entrepreneurs Memorandum Number as allocated after filing
of the Memorandum. accordingly, the disclosure in respect of the
amounts payable to such enterprises as at March 31, 2010 has been made
in the financial statements based on information received and available
with the company. further in view of the management, the impact of
interest, if any, that may be payable in accordance with the provisions
of the Micro, small and Medium enterprises development act is not
expected to be material. the company has not received any claim for
interest from any supplier under the Micro, small and Medium
enterprises development act.
11 QUANTATIVE DETAILS
The company is engaged in providing software, it-enabled and related
services. such services are not capable of being expressed in any
generic unit and hence, it is not possible to give the quantitative
details required under paragraphs 3 and 4c of part ii of the schedule
Vi to the companies act, 1956.
12 TRANSFER PRICING
The company has established a comprehensive system of maintenance of
information and documents as required by the transfer pricing
legislation under sections 92-92f of the income-tax act, 1961. since
the law required existence of such information and documentation to be
contemporaneous in nature, the company is in the process of updating
the documentation for the international transactions entered into with
the associated enterprise during the financial year and expects such
records to be in existence latest by the end of september 30, 2010, as
required by law. the Management is of the opinion that its
international transactions are at armÃs length so that the aforesaid
legislation will not have any impact on the financial statements,
particularly on the amount of tax expenses and that of provision for
taxation.
13 preVious yearÃs fiGures haVe BeeN reGrouped/reclassified WhereVer
Necessary to coNforM to the curreNt yearÃs preseNtatioN.
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