A Corporate Information
The Company is an infrastructure development company formed primarily to develop, invest in and manage various initiatives in the infrastructure sector. It is presently engaged in the development of various infrastructure projects in sectors like transportation, energy and urban infrastructure through several special purpose vehicles (“SPVs”). It is also engaged in carrying out operation and maintenance (“O&M”) activities for the transportation sector projects.
The financial statements were authorised for issue in accordance with the resolution passed at the meeting of the board of directors on June 13, 2018.
B Recent accounting pronouncements
Appendix B to Ind AS 21, Foreign currency transactions and advance consideration: On March 28, 2018, Ministry of Corporate Affairs (““MCA”“) has notified the Companies (Indian Accounting Standards) Amendment Rules, 2018 containing Appendix B to Ind AS 21, Foreign currency transactions and advance consideration which clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income, when an entity has received or paid advance consideration in a foreign currency. The amendment will come into force from April 1, 2018. The Company has evaluated the effect of this on the financial statements and expects no impact on profit before tax.
Ind AS 115- Revenue from Contract with Customers: On March 28, 2018, Ministry of Corporate Affairs (“MCA”) has notified the Ind AS 115, Revenue from Contract with Customers. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Further the new standard requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.
The standard permits two possible methods of transition:
- Retrospective approach - Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8- Accounting Policies, Changes in Accounting Estimates and Errors
- Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach)
The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1, 2018.
The Company will adopt the standard on April 1, 2018 by using the cumulative catch-up transition method and accordingly comparatives for the year ending or ended March 31, 2018 will not be retrospectively adjusted. This will have no significant effect on the financials statements on adoption of Ind AS 115 .
C Significant Accounting Policies
I Basis of Preparation
These financial statements are Standalone Financial Statements and are prepared in accordance with Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Companies Act 2013 read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016.
The standalone financial statements are presented in INR and all values are rounded to the nearest Rupees in lacs, except otherwise stated.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
The classification of assets and liabilities of the Company is done into current and non-current based on the operating cycle of the business of the Company. The operating cycle of the business of the Company is less than twelve months and therefore all current and non-current classifications are done based on the status of realisability and expected settlement of the respective asset and liability within a period of twelve months from the reporting date as required by Schedule III to the Companies Act, 2013.
II Use of estimates
The preparation of the financial statememts in conformity with Ind AS requires management to make estimates, judgements and assumptions. These estimates,judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of circumstances surrounding the estimates. Changes in estimates are reflected in the finacial statement in the period in which changes are made and if material, their effects are disclosed in the notes to the financial statements.
1 The Company has carried out the exercise of assessment of any indications of impairment to its property, plant and equipment as on the Balance Sheet date. Pursuant to such exercise it is determined that there has been no impairment to its property, plant and equipment during the year.
b) Pledge of Shares
The Company has pledged the following shares in favour of the lenders to the projects as part of the terms of financing agreements for facilities taken by GIPL or its project SPV’s as indicated below:
Expected Credit Loss:
The Company uses a provision matrix to determine impairment loss on portfolio of its trade receivable. The provision matrix is based on its historically observed default rates over the expected life of the trade receivable and is adjusted for forward- looking estimates. At every reporting date, the historical observed default rates are updated and changes in forward-looking estimates are analysed. Based on the past experience of receivables the Company has not provided for expected credit loss since the amounts are receivable from its SPV and there are no experience of losses on receivable in the past . The only case of provision is due to termination of contract with NHAI which has a separate receivable and not in normal course of business.
(*) Others considered good includes Rs. 1,514.01 lacs Due from Western Coalfields on account of wrongful encashment of bank guarantee against which the company has filed a suit and is legally advised that it has a good case of recovery. Refer detailed note no. 33
(**) Advance for Purchase of Shares:- The Company had entered into an Agreement for Sale and Subscription of Shares (SSA) with IFCI Limited for 8,64,80,000 equity shares of Rajahmundry Godavari Bridge Limited (RGBL) . However the company could not adhere to the terms of the aforesaid arrangement. The advance for purchase of shares represents advance paid to IFCI for purchase of equity shares of RGBL held by IFCI. The company has an obligation to pay an additional amount of Rs 3,500 Lacs representing the balance consideration as per terms of one time settlement, after discharge of which, RGBL shares held by IFCI would be transferred to the company. The Company has defaulted in fulfilling its obligation under the one time settlement (OTS) with IFCI Limited. The Company was required to pay the entire outstanding by September 30, 2017. The Company has been unable to discharge the liability and has not been able to get further extension for the payment of the outstanding although it is actively engaged with IFCI Limited for the extension of the time period for the payment of the outstanding. In terms of the original arrangement, the benefits received under the one time settlement of Rs. 3,776.69 lacs is to be reversed. The management is hopeful of receiving the extension with non-reversal of the benefits of OTS. Pending that no adjustments have been made in these financial results. The Company has however provided interest at the rate of 11.50% p.a. as per the agreement. The interest payable on the outstanding amount before reversal of the aforesaid benefit as on balance sheet date is Rs 158.13 lacs.
b) Terms / rights attached to equity shares
The Company has only one class of equity shares having a par value of Rs. 2/- per share. Each holder of equity shares is entitled to one vote per share. The shareholders are entitled to dividend in the proportion of their shareholding. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the company, after payment of all external liabilities. The distribution will be in proportion to the number of equity shares held by the shareholders.
c) Shares held by holding / ultimate holding company and /or their subsidiaries / associates
Out of equity shares issued by the Company, shares held by its holding / ultimate holding Company and /or their subsidiaries / associates are as follows:
e) As per the records of the Company, including its register of shareholders/members and other declarations received from shareholders, the above shareholding represents legal ownerships of the shares.
f) During the year Gammon Power Limited sold its shares thereby reducing its sharholding to 38.54% and Gactel Turnkey Projects Limited sold its entire shares. Gammon India limited ceased to be ultimate holding company and Gammon power limited ceased to be holding company w.e.f. September 7, 2017.
g) The Company had issued bonus shares in the year ended Mar’13 to the shareholders other than the promoter group in the ratio of 1:34 (with the fractions being rounded-off to the next higher whole number) aggregating to 5,262,820 equity shares of Rs. 2 each as fully paid by utilising securities premium account aggregating to Rs. 105.26 lacs/-
h) Shares reserved under options to be given:
60,000 equity shares (March 31, 2017 : 1,20,000 equity shares ) have been reserved for issue as Employee Stock Options. For details refer Note 8A .
A Employees Stock Options Scheme (‘ESOP’):-
During the financial period ending Dec’13 the Company had instituted an ESOP Scheme “GIPL ESOP 2013”, approved by the shareholders vide their resolution dated September 20, 2013, as per which the Board of Directors of the Company granted 6,160,000 equity-settled stock options to the eligible employees. Pursuant to the ESOP Scheme each options entitles an employee to subscribe to 1 equity share of Rs. 2 each of the Company at an exercise price of Rs 2 per share upon expiry of the respective vesting period which ranges from one to four years commencing from October 1, 2014.
Of the aforesaid vested options of 1,20,000 ( March 17: 2,40,000 option) , 60,000 options (March 17: 1,20,000 options vested) were lapsed during the year .
The Company has used intrinsic value method for valuation of options by reducing the exercise price from the market value. However if the compensation cost would have been determined using the alternative approach to value options at fair value, the Company’s net loss would have been changed to amounts indicated below:
a) Details of ICD from VSPL :
Based on the revised terms with VSPL :- Moratorium in repayment of the principal and interest overdue outstanding of Rs 10,976.97 lacs and Rs 264.09 lacs as on March 31, 2018 is granted for a period of 12 months and 9 months respectively from April 1, 2018 to the Company. Accordingly entire ICD outstanding shall be fully repaid on or before March 31, 2019 and interest shall be paid on or before December 31, 2018. Interest shall be paid at a rate equal to interest rate of IDFC charged on VSPL plus a markup of 0.5% i.e., applicable interest rate of IDFC charged on VSPL plus a margin of 50 bps. In case of interest default a penalty of 1% and liquidated damages of 1% as charged by IDFC on VSPL is payable by GIPL.
b) Term Loans from Others
a) This secured term loan carries an interest rate of 14.50% p.a. It’s repayment is in 7 semi-annual structured instalments from June 2014 to June 2017.
b) It is secured by the following:
(i) Pledge of 26% shares of SSRPL including pledge of 26% of the incremental share capital as and when the same is issued;
(ii) Hypothecation over the O&M Fees from AEL deposited in the Escrow Account;
(iii) Hypothecation over the income from the O&M Fees income arising from the GIL O&M Sub-contract
(iv) Hypothecation over the O&M Fees to be received from AEL in the Borrower and deposited in the Escrow Account;
(v) Hypothecation over the developer fee payable by SSRPL to the Borrower under the SSRPL Developer Fee Agreement and deposited in the Escrow Account; and
(vi) Hypothecation over the developer fee payable by VGRPPL to the Borrower under the VGRPPL Developer Fee Agreement and deposited in the Escrow Account.
c) As the event of certain covenants related to underlying security has been breached the entire outstanding amount has been recalled by the lender and accordingly the outstanding sum due has been classified as current.The amount has been paid during the year.
e) The ICD from VSPL has since been renegotiated on June 08, 2018 and the entire ICD as at 31st March, 2018 of Rs.10,976.97 lacs is due for repayment on or before March 31, 2019. Accordingly the same is not shown as continuing default as at 31st March, 2018.
f) The default of IREP Credit Capital Private Limited on account of Principal and interest was paid subsequently.
(*) The interest on ICD from VSPL due on March 31, 2018 has since been renegotiated on June 08, 2018 and the entire interest as at March 31, 2018 of Rs.264.09 lacs and also the interest for the period upto December 2018 is due for payment on or before December 31, 2018. Accordingly the same is not shown as continuing default as at 31st March, 2018.
Margin money received of 100 lacs (Previous year 100 lacs) was received towards a Performance Bank Guarantee issued by Gammon Infrastructure Projects Limited in favour of MbPT as required in the L.A. The margin money deposit carries an interest of 6% p.a.
The company has carried out the actuarial valuation of Gratuity and Leave Encashment liability under actuarial principle, in accordance with Ind AS 19 - Employee Benefits.
Gratuity is a defined benefit plan under which employees who have completed five years or more of service are entitled to gratuity on departure from employment at an amount equivalent to 15 days salary (based on last drawn salary) for each completed year of service. The Company’s gratuity liability is unfunded.
The estimates of rate of escalation in salary considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant factors including supply and demand in the employment market. The above information is certified by the actuary.
There is no minimum funding requirement for a gratuity plan in India and there is no compulsion on the part of the company fully or partially pre-fund the liabilities under the plan. Since the liabilities are un funded there is no asset liability matching strategy devised for the plan.
a) Bank of India has sanctioned facility of Rs. 8,000 lacs to Gammon Infrastructure Projects Limited (GIPL). This involves Rs. 2500 lacs of overdratft facility and Rs. 5,500 lacs of non fund facilities ( Bank Guarantee). The BOI sanction dated 31st August 2016 stipulated the requirement of second charge on the project assets of Patna Highway Projects Limited, wholly owned subsidiary of GIPL. The second charge on the PHPL assets for the above mentioned facility was executed on 9th February 2018 in favour of BOI.
b) Company has taken interest free loan from Ras c Cities and Townships Pvt Ltd (subsidiary) for short term purposes repayable within next one year.
c) List of principal defaults incurred during the year and remedied by the balance sheet date
a) Amounts due to Micro, Small and Medium Enterprises
As per the information available with the Company, there are no Micro, Small and Medium Enterprises, as defined in the Micro, Small, Medium Enterprises Development Act, 2006, to whom the Company owes dues on account of principal amount together with interest and accordingly no additional disclosures have been made.
The above information regarding Micro, Small and Medium Enterprises have been determined to the extent such parties have been identified on the basis of information available with the Company. This is relied upon by the auditors.
a) The disclosures as per provisions of INDAS 11”Construction Contracts”
Method used to determine the contract revenue : stage of completion method
Method used to determine the stage of completion of contract : stage of completion is determined as a proportion of costs incurred upto the reporting date to the total estimated cost to complete
a) Due to inadequacy of profits, Managerial remuneration amounting to Rs. 497.17 lacs for the period upto March 2017 was paid in excess of the limits specified under Schedule XIII of the Companies Act 1956 and Schedule V of the Companies Act 2013 wherever applicable. The Payment of Excess Managerial remuneration has been approved by the Nomination & Remuneration Committee, Board of Directors and also by the shareholders at the last Annual General Meetings held on 30th September, 2016 & 19th December,2017. The Company has made representation to the Ministry of Corporate Affairs (MCA) to reconsider its earlier decision wherein the applications made by the Company for approval for waiver of recovery of the said excess remuneration Rs. 388.45 lacs for the period upto March 2016 was rejected. For the balance amount of Rs. 108.72 lacs paid for the previous financial year ended 31st March, 2017 the Company has made an application to the Ministry of Corporate Affairs (MCA) for approval of the same. Pending these, no adjustments have been made to the financial statements for the remuneration.
2 Disclosure as required by Accounting Standard - IND AS 33 “Earning Per Share” of the Companies (Indian Accounting Standards) Rules 2015.
Net Profit / (loss) attributable to equity shareholders and the weighted number of shares outstanding for basic and diluted earnings per share are as summarised below:
3 Contingent Liabilities
1 Guarantees:
i) The Company has issued Corporate Guarantees as a security for loan availed by its subsidiaries, amounting to Rs.331,320.00 lacs (previous period Rs. 333,320.00 lacs)
ii) Counter Guarantees given to the bankers for the guarantees given by them on our behalf Rs.14,803.30 lacs (previous period Rs.13,735.18 lacs).
2 Other Contingent liability :
3 The Company have received a letter for transfer of shares of one of its divested subsidiary from a party who has paid advance for the same. The Company does not acknowledge the Claim due to non satisfaction of certain conditions and is in the process of refunding the said advance to the party.
4 Vijayawada Gundugolanu Road Project Private Limited (SPV) had received termination notice from NHAI on 26th Aug 2016 and consequently NHAI took possession of the Toll Plazas at the Project Site on 27th August 2016. As a result of the Company’s efforts and dialogues with top officials of NHAI and MORTH, NHAI has agreed to revoke the termination notice vide letter dated 16th Jan, 2017 and also agreed to handover of Toll plazas subject to completing financial closure and fulfilling other commitments as specified in the letter within the stipulated time frame. Pursuant to the requirements stipulated by NHAI, the SPV had entered into a binding agreement with a Strategic investor for a committed equity participation of 49% in the Project. However the SPV could not achieve financial closure and consequently its agreement with the Strategic investor was terminated. The SPV has finally made an application to NHAI for mutual exit from the Project vide letter dated September 08, 2017 with terms including return of bank guarantee and non-levy of any charges or claims by either parties. The decision of NHAI in response to the SPV’s aforesaid letter of mutual exit is pending. No effects have been given in the financial statements of the SPV pending the decision of NHAI. The Auditors of the SPV have highlighted the going concern matter in the case of the SPV as in either case the entity would not be continuing the project and would be eventually wound up. In case the mutual exit proposal is accepted then the exposure of the Company is likely to be capped at Rs.7,246.13 lacs as the Bank Guarantee would be released as requested by the Company in its letter dated 8th September 2017. In case the proposal is not accepted then the entire exposure of Rs. 15,666.13 lacs of the Company in the SPV needs to be tested for impairment. Accordingly, the decision of NHAI is more likely to have adverse impact on the Statement of Profit and Loss. No effects have been given in the financial statements of the SPV pending the decision of NHAI.
5 The Company has defaulted in fulfilling its obligation under the one time settlement (OTS) with IFCI Limited. The Company was required to pay the entire outstanding by September 30, 2017. The Company has been unable to discharge the liability and has not been able to get further extension for the payment of the outstanding although it is actively engaged with IFCI Limited for the extension of the time period for the payment of the outstanding. In terms of the original arrangement, the benefits received under the one time settlement of Rs. 3,776.69 lacs is to be reversed. The management is hopeful of receiving the extension with non-reversal of the benefits of OTS. Pending that no adjustments have been made in these financial results. The Company has however provided interest at the rate of 11.50% p.a. as per the agreement. The interest payable on the outstanding amount before reversal of the aforesaid benefit as on balance sheet date is Rs 158.13 lacs
6 Material Uncertainty related to Going Concern
The Company had divested some of its subsidiaries in the previous periods for a cash surplus, which reduced the current liability and current asset mismatch. However there is a continuing mismatch of cash flows including the dues to the subsidiary which are due for repayment pursuant to negotiation by March 31, 2019. Further various projects of the Company as stated in note 32 below are under stress and the outcome of the continuance of these projects would be dependent upon a favourable decision being received by the management on the litigations outstanding. In view of the matters detailed in note 8 and as aforesaid, there are material uncertainties which cast significant doubt on the ability of the Company to continue as a going concern. The auditors of the following SPVs have carried a separate paragraph on the Material Uncertainty related to Going Concern in its auditors report
- Indira Container Terminal Private Limited
- Vijayawada Gundugolanu Road Projects Private Limited
- Rajahmundry Godavari Bridge Limited
The management however is confident that the going concern assumption and the carrying values of the assets and liabilities in these Standalone Financial Results are appropriate. Accordingly the financial results do not include any adjustments that may result from these uncertainties.
7 In respect of the following projects / SPV of the Company there are legal issues, arbitration proceedings or negotiations with the grantor for which the management is taking necessary steps to resolve the matters. These issues are commonly encountered in the Infrastructure business and the management is confident of a favorable resolution in due course.
a) Bridge project at Cochin - the Greater Cochin Development Authority has sought to end the toll collection by unilaterally sealing the toll booth. The subsidiary has initiated arbitration / settlement. The Company has also in parallel filed a writ in the matter before the Hon’ble Kerala High Court for specific performance. However Government of Kerala approached the Hon’ble High Court for further extension of time and the Court granted extension to settle the matter subsequent to which Company has filled amended plaint. The said SPV pursuant to court proceedings filed a fresh writ for recovery of dues. The bankers of the said SPV have initiated action under SARFAESI Act and have taken symbolic possession of the property of the SPV. They have also initiated proceedings under DRT against which the Company is taking necessary legal steps. The SPV has filed for keeping the proceedings on hold sine die till the disposal of the matter before the Hon’ble Kerala High Court. The Company has in parallel applied for a One time settlement of dues to its lenders which is under consideration of their respective competent authorities for approval and implementation. Exposure of the Company in the SPV is Rs. 2,856.96 lacs (funded and non-funded).
b) Hydro power project at Himachal Pradesh - the project is stalled due to local agitation relating to environment issues. The matter with State Government is under active negotiation to restart the project or reimburse the costs incurred. The Company has invoked arbitration on 19.02.2018 but is yet to receive the nomination of arbitrators from GOHP. The Company has received letter from GOHP to discuss the matter mutually towards amicable resolution. The management is hopeful of an early settlement in the matter and is confident of recovering the amount of exposure. The exposure of the Company in the SPV is Rs. 7,119.23 lacs.
c) Container terminal at Mumbai -The project was delayed due to non-fulfilment of certain conditions by the Mumbai Port Trust. This has resulted in the SPV incurring losses and default in repayment of debt obligation. The matter with the MBPT was under active discussions for resolving the outstanding issues and the Project being re-organized with change in Cargo Mix (i.e. all Clean cargo including containers). Pursuant to detailed negotiation with MBPT on the concession agreement for the Offshore Container Terminal, the parties have agreed in principle to enter into a joint supplementary agreement between Board of Trustees of MBPT, SPV and the lenders. The draft supplementary agreement is subject to clearance from the Ministry of Shipping, Government of India. The project is proposed for re-bid and the draft agreement provides for a mix of cargo of containers, steel and RORO. The SPV has a Right Of First Refusal (ROFR) to match the winning bid within a pre-defined margin. The draft agreement also provides for waiver of Outstanding Interest. The management has during the current financial year acquired further stake from the JV partner and has obtained control over the JV. It currently holds 74% of the equity of the SPV Company. The RORO (Roll On Roll Off) operation which was allowed by MBPT as an alternate use of the two berths is continuing. However the same is inadequate for repayment of principal and interest of the lenders. There exists material uncertainty relating to the rebid fructifying in favour of the SPV. The auditors of the SPV have highlighted the material uncertainty regards going concern issue. In case the management is unable to match the bid and win the contract, the cash flows would be sufficient to pay its debts as well as exposure of the Holding Company. However the Company will not continue in the said case and would be eventually wound up. The management is hopeful that it will successfully match the bid and win the concession and continue to operate the facility, which would be operationally viable under the revised terms. The exposure of the Company in the SPV is Rs. 13,831.00 lacs (funded and non-funded).
d) The actual toll collections of the tolling bridge project at Rajahmundry Godavari Bridge across river Godavari are significantly lower than the forecasted revenue at the time of bid, resulting in inadequate cash flow to meet the debt / Interest servicing obligations of the Lenders. Consequently, the debt facility has been classified as a NonPerforming Asset (NPA) by the Lenders. The Company had earlier submitted a proposal under the Scheme for Sustainable Structuring of Stressed Assets (S4A) to the Lenders, which was cleared by the Lenders for approval of the Overseeing Committee (OC) set up by the Indian Banking Association (IBA), in consultation with the Reserve Bank of India (RBI). The Company provided its response to the observations of the Lenders and the OC on the S4A proposal and was awaiting the OC/lenders’ approval. In the interim, RBI vide its circular dated 12th February 2018, discontinued with immediate effect all restructuring schemes for stressed assets (including S4A). As per this circular, all schemes, including S4A which have been invoked but not implemented, shall be governed by the new circular. Thus the restructuring proposal by the Company is no longer being pursued by the Lenders.
Subsequently the Company has issued a cure period notice to Andhra Pradesh Road Development Corporation (APRDC or the Client) on 26th February 2018 under clause 37.2.1 of the Concession Agreement to cure the breaches of APRDC which includes provision of Revenue shortfall loan along with other mentioned breaches. In the event that the client is unable to correct the breaches in the project, the management would need to decide on the ability to continue or terminate the agreement. Management discussion is currently underway with APRDC. The Company is hopeful that the breaches would be cured by the Client and the Company would be able to continue to operate the Project. The Management estimates the revenue from the project would meet the levels as forecasted post cure of defaults and thus would make the project viable. In addition, the management also estimates reduction of the operating & finance costs. In the event of termination, the Company is confident of recovery of compensation / Payment of outstanding dues to Lenders from the client in terms of the Concession Agreement. Pending disposal of the matter by APRDC, there exists material uncertainty with respect to the future of the Project and that cast significant doubt on the Company’s ability to continue as a going concern. The auditors of the SPV have highlighted the material uncertainty regards to going concern issue in their audit report.
However, based on the on-going discussions with the client, the Company is hopeful that breaches would be cured and the Company will continue to operate the Project. The Management is also of the opinion that the Project will be viable post cure of defaults and on optimising the operating and finance costs and improved traffic / revenue due to major infrastructure development proposed by the State Government around the Project route. In view of above, no impairment of assets has been accounted as per Ind AS 36 in the hands of the SPV or towards the Investment by the Company in the SPV. In the event, the breaches are not cured by the client as envisaged by the management, the Company would be required to reassess the ability of the SPV to continue as a going concern. The exposure of the Company to the SPV is Rs. 95,578.24 lacs (funded and non-funded).
e) In respect of an Annuity Road project : The project has obtained pre-COD on September 1, 2016. In respect of the project on annuity basis of the Company, has recorded the project in accordance with the requirement of Appendix A to Ind AS 11, titled “Service Concession Arrangement” with retrospective period in accordance with the requirements of Ind AS 101- First Time Adoption. Accordingly, the Company has recognized “Trade Receivables” being financial asset. The Company will have cost overrun on account of issue beyond the scope of the Company and attributable to the Grantor. This will not result in any changes in the Annuity from the grantor. Based on certification of delay period attributable to the Grantor certified by the Independent Engineer, the Company expects a sizeable claim on this amount and has obtained legal support for the validity of its claim from an Independent Expert on claim and litigation. However this amount has been treated separately as receivable from the Grantor. The Company had also applied to the lenders for 5/25 flexible Structuring Scheme. However, in view of the RBI vide its circular dated 12th February 2018, the application became infructuous.
During the year, the management, although having a valid claim for compensation, supported by Independent Engineer’s assessment, has decided to account the finance income under the annuity model on the basis of the original plan. No finance income is accounted on such cost overrun in the annuity model on a conservative basis till the final decision of the realisability is settled pursuant to arbitration and other legal proceedings. The exposure of the Company to the SPV is Rs 1,30,254.07 lacs (funded and non funded).
f) The Company has incorporated a SPV for developing Rangit II Hydroelectric Power Project in Sikkim on BOOT basis. The project involves the development of a 66 MW run-of-the-river Hydroelectric Power Project on Rimbi River, a tributary of River Rangit. Concession period for the project is 35 years from the date of COD. The project cost is estimated to be Rs 496 Crores. Though the project has received all major clearances and approvals including environmental clearances from MoEF and all major contracts for the project have been awarded, Power purchase agreement is yet to be signed. Over a period of time, the scenario in power sector changed substantially and in absence of financial closure, funding of the Project has been a major issue leading to frequent stoppages of work. The Proposed Hydro power Policy is eagerly awaited which will hopefully bring more opportunity in this sector. The Company is hopeful that power purchase agreement would be signed under the new policy which will also enable the financial closure to be done. Policy initiatives taken by the Government to address key concern facing the power sector will enable the sector to keep pace with the growing demand. The Management is of the view that the present situation in power business is temporary and does not foresee any need for impairment. The exposure of the Company in the SPV is Rs. 9,622.91 lacs.
8 Other Financial Assets includes Rs 1,514.01 lacs due from Western Coalfields Limited on account of wrongful encashment of bank guarantee against which the Company has filed a suit for Recovery of damages. During the year ended September 2017, Western Coalfields Limited (WCL) had encashed Bank Guarantee amounting Rs 1,514.01 lacs given in favour of Aparna Infraenergy India Private Limited (one of the SPV’s sold to BIF India Holding Pte ltd on February 29, 2016) towards the coal linkages to be granted by WCL. Subsequent to the encashment, Company has filed an application for converting earlier injunction application to suit for recovery of damages. The Company has sought a legal opinion in this matter and has been advised that it has a good case of recovery. The management is hopeful of getting favourable decision on the matter and recovery of damages based on legal advice on the matter. Pending the outcome, the Company has shown guarantee encashment amount as receivable from Western Coal Fields and not debited the same to the statement of profit and loss for the year ended March 31, 2018.
9 Disclosure in accordance with Ind AS - 17 “Leases”, of the Companies (Indian Accounting Standards) Rules, 2015.
a) The Company has taken office premises on leave and license basis which are cancellable contracts.
b) The company has leased out crusher upto March 31, 2018 and is renewable by mutual consent.
10 Disclosure in accordance with Ind AS - 108 “Operating Segments”, of the Companies (Indian Accounting Standards) Rules, 2015.
The Company’s operations constitutes a single business segment namely “Infrastructure Development” as per INDAS 108. Further, the Company’s operations are within single geographical segment which is India. As such, there is no separate reportable segment under Ind AS - 108 on Operating Segments.
Revenue contributed by two customers in the operating segments exceeds ten percent each of the Company’s total revenue aggregating to Rs 15,078.88 lacs
11 Disclosure in accordance with Ind AS - 24 “Related Party Disclosures”, of the Companies ( Indian Accounting Standards) Rules, 2015
Details are given in Annexure -1
12 Derivative Instruments and Unhedged Foreign Currency Exposure
There are no derivative instruments outstanding as at March 31, 2018 and March 31, 2017 . The Company has no foreign currency exposure towards liability outstanding as at March 31, 2018 and March 31, 2017.
13 Significant accounting judgements, estimates and assumptions
The financial statements require management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosures of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods
Judgements
In the process of applying the company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the separate financial statements.
Taxes
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Defined benefit plans (gratuity benefits)
The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation. The underlying bonds are further reviewed for quality. Those having excessive credit spreads are excluded from the analysis of bonds on which the discount rate is based, on the basis that they do not represent high quality corporate bonds.
14 Financial Instruments
i) The carrying value and fair value of financial instruments by categories as at March 31, 2018 & March 31, 2017 is as follows:
The management assessed that fair value of cash and short-term deposits, trade receivables, trade payables, book overdrafts and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
15 Fair Value Hierarchy
This section explains the judgments and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs)
The following table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2018 and March 31, 2017
16 Financial Risk Management
The Company is in the business of infrastructure development and it undertakes projects in multiple infrastructure segments. The nature of the business is complex and the Company is exposed to multiple sector specific and generic risks.
PPP projects which the Company undertakes are capital intensive and have gestation periods ranging between 3 to 5 years; coupled with longer ownership periods of 15 to 35 years. Given the nature of the segments in which the company operates, be it in the Road Sector, Power Sector, Ports or Urban Development, it is critical to have a robust, effective and agile Risk Management Framework to ensure that the Company’s operational objectives are met and continues to deliver sustainable business performance. Over the years, several initiatives have been taken by the Company to strengthen its risk management process. An enterprise wide comprehensive risk management policy including risk appetite, tolerance and risk limits for more effective, informed and measurable risk management has been developed and it continues to evolve.
The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk, and interest rate risk, regulatory risk and business risk. The Company’s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the company is interest rate risk.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below: Financial risk factors
i) Business / Market Risk
Business/ Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. One of the first and foremost business risk is the achievement of the traffic projections made at the time of the bid. This will include the introduction of alternate roads by the state or central government which impacts the traffic projected to ply on the asset under the control of the Company. The concession agreement provides some safeguards in this regard but many of them are unforeseen and exposes the Company / SPV to risk.
ii) Capital and Interest rate Risk
Infrastructure projects are typically capital intensive and require high levels of long-term debt financing. The Company intends to pursue a strategy of continued investment in infrastructure development projects. In the past, the Company was able to infuse equity and arrange for debt financing to develop infrastructure projects on acceptable terms at the SPV-level of relevant projects. However, the Company believes that its ability to continue to arrange for capital requirements is dependent on various factors. These factors include: timing and internal accruals generation; timing and size of the projects awarded; credit availability from banks and financial institutions; the success of its current infrastructure development projects. Besides, there are also several other factors outside its control. However, the Company’s track record has enabled it to raise funds at competitive rates. The Company’s average cost of debt remains at 13.78% p.a.
iii) Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Companies profit before tax is affected through the impact on floating rate borrowings, as follows:
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently observable market environment, showing a significantly higher volatility than in prior years.
iv) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets.
a) Trade and Other Receivables
The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to Rs. 5,136.34 lacs as at March 31, 2018 and Rs 6,511.75 lacs as at March 31, 2017 , which is primarily from the SPV of the Company.
Since the primary customer is the SPV the credit risk is remote. In the absence of any bad debts from the SPV in the past the expected credit loss is zero and the Company is making no provisions on account any expected credit loss.
The credit risk from customers in the case of the SPV is very low as without payment of upfront toll the vehicles is not allowed to pass. However there are frequent local political issues which result in leakages which is a credit risk for the Company.
(v) Liquidity risk
The company’s principal sources of liquidity are cash and bank balances and the cash flow that is generated from operations.
The company has outstanding borrowings of Rs 14,499.29 lacs as at March 31, 2018 and Rs 14,671.18 lacs as at March 31, 2017.
The companies’ working capital is not sufficient to meet its current requirements. Accordingly, liquidity risk is perceived. The Current Liabilities of the Company exceeds current Assets by Rs 33,898.04 lacs as at March 31, 2018 and by Rs. 30,906.57 lacs as at March 31, 2017. These conditions indicate the existence of an uncertainty as to timing and realization of cash flow of the company.
The achievement of the projections in the traffic and the toll rates by the SPV is critical for the liquidity to pay the lenders.
Timely completion of the project has a major impact on the liquidity of the SPV. The delay caused due to the grantor and the timely receipt of compensation from the grantor impacts liquidity of the SPV and the holding company materially and is one of the major reasons for the liquidity issue of the group.
(vi) Competition Risk:
The Company is operating in a highly competitive environment with various Companies wanting a pie in the project. This invariably results in bidding for projects at low margins to maintain a steady flow of the projects to enable the group to retain the projects team and to maintain sustainable operations for the Company and the SPVs. The ability of the Company to build the infrastructure at a competitive price and the ability to start the tolling operations is very important factor in mitigating the competition risk for the group.
(vii) Input cost risk
Raw materials, such as bitumen, stone aggregates cement and steel, need to be supplied continuously to complete projects undertaken by the group. As mentioned in the earlier paragraph of the business risk and the competition risk the input cost is a major risk to attend to ensure that the Company is able to contain the project cost within the estimate projected to the lenders and the regulators. To mitigate this the group sub-contracts the construction of the facility at a fixed price contract to various subcontractor within and without the group.
(viii) Exchange risk
Since the operations of the group are within the country the group is not exposed to any exchange risk directly. The group also does not take any foreign currency borrowings to fund its project and therefore the exposure directly to exchange rate changes is minimal. However there are indirect effects on account of exchange risk changes, as the price of bitumen, which is a by-product of the crude, is dependent upon the landed price of crude in the country.
17 Capital management
For the purpose of the Group’s capital management, capital includes issued equity capital, convertible preference shares, share premium and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to maximise the shareholder value.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The gearing ratio in the infrastructure business is generally high. The Group includes within net debt, interest bearing loans and borrowings, trade and other payables, less cash and cash equivalents, excluding discontinued operations.
18 The balance sheet, statement of profit and loss, cash flow statement, statement of changes in equity, statement of significant accounting policies and the other explanatory notes forms an integral part of the financial statements of the Company for the year ended March 31, 2018.
Transactions pertaining to contract revenue and contract expenses with related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured . This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
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