2.17 Provisions, contingent liabilities & contingent assets
A provision is recognized when the Company has a present obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance costs.
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount cannot be made. Contingent assets are neither recognised nor disclosed in the financial statements.
2.18 Recent pronouncements
Ministry of Corporate Affairs (“MCA”) notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. For the year ended March 31, 2024, MCA has not notified any new standards or amendments to the existing standards applicable to the Company.
Description of reserves
(a) Capital reserve: This reserve was created towards the forfeiture of monies received for share warrants issued in earlier years.
(b) Share application money pending allotment: Represents the amount of adjustments towards issue of employee stock options.
(c) Securities premium: Consists of the difference between the face value of the equity shares and the consideration received in respect of shares issued.
(d) Share option outstanding account: Represents the fair value of services received against employees stock options outstanding as at balance sheet date. These will be transferred to securities premium account after the exercise of the underlying options.
(e) Retained earnings: Represents previous years undistributed profits / losses.
(f) Other comprehensive income: Represents the actuarial gain / (loss) recognised on defined benefit plans and will not be reclassified to retained earning.
Fixed price:
Fixed price arrangements with customers have defined delivery milestones with agreed scope of work and pricing for each milestone. Revenue from fixed-price contracts, where the performance obligations are satisfied over time and when there is no uncertainty as to measurement or collectability of consideration, is recognised as per the ‘percentage-of-completion' method. When there is uncertainty as to measurement or ultimate collectability, revenue is recognised when such uncertainty is resolved. Percentage of completion is determined based on the project costs incurred to date as a percentage of total estimated project costs required to complete the project. The input method has been used to measure the progress towards completion as there is direct relationship between input and productivity. In certain projects, a fixed quantum of service or output units is agreed at a fixed price for a fixed term. In such contracts, revenue is recognised with respect to the actual output achieved till date as a percentage of total contractual output. Any residual service unutilised by the customer is recognised as revenue on completion of the term.
Time and material:
Revenue from time and material contracts are recognised as and when services are rendered to the customer. These are based on the efforts spent and rates agreed with the customer. [Revenue from the end of the last invoicing to the reporting date is recognised as unbilled revenue.]
35 Segment information
Ind AS 108 establishes standards for the way that companies report information about their operating segments and related disclosures, as applicable about products and services, geographic areas, and major customers. Based on the “management approach” as defined in Ind AS 108, the management evaluates the Company's performance and allocates resources based on an analysis of various performance indicators by business segments and geographical segments. Accordingly, information has been presented as per business segments. The accounting principles used in the preparation of the standalone financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the significant accounting policies. Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Certain expenses such as depreciation and finance cost, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. Management believes that it is not practical to provide segment disclosures relating to those expenses, and accordingly these expenses are separately disclosed as “unallocated” and adjusted against the operating income of the Company. Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the decision maker, in deciding how to allocate resources and assessing performance. The Company decision maker is the Chief Executive Officer. The Company has identified business segments as reportable segments. Accordingly, Semiconductor and Embedded have been disclosed as business segments.
Segregation of assets (except for specific assets), liabilities (except for specific segment liabilities), depreciation and other non-cash expenses into various business segments have not been done as the assets are used interchangeably between segments and the Company is of the view that it is not practical to reasonably allocate liabilities and other non-cash expenses to individual segments and an ad-hoc allocation will not be meaningful.
Information on reportable segments for the year ended 31 March 2024 and 31 March 2023 is given below
40 Employee Stock Option Plans (Continued..)
Valuation of stock options:
The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under various schemes have been measured using the Black-Scholes-Merton model at the date of the grant.
The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behaviour of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company's publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management's best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company's control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years.
The estimated fair value of stock options is recognised in the statement of profit and loss on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.
41 Financial risk management framework (continued)
(b) Financial risk management objectives and policies
The Company is exposed to market risk, credit risk and liquidity risk. The Company's senior management oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Financial instruments affected by market risk include loans and borrowings and refundable deposits. The sensitivity analysis in the following sections relate to the position as at 31 March 2024 and 31 March 2023. The sensitivity analyses have been prepared on the basis that the amount of net debt and the interest rates of the debt.
The analysis excludes the impact of movements in market variables on: the carrying values of gratuity and other post retirement obligations; provisions.
The below assumption has been made in calculating the sensitivity analysis:
The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 March 2024 and 31 March 2023.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to the risk of changes in market interest rates relates primarily to the Company's debt obligations with interest rates.
Interest rate sensitivity
If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company's profit for the year ended March 31, 2024 would decrease/(increase) by ^29.15 (31 March 2023: decrease/increase by ?43.38. This is mainly attributable to the Company’s exposure to interest rates on its variable rate borrowings.
Credit risk
Credit risk is the risk of financial loss arising from counterparty failure to repay or service debt according to the contractual terms or obligations. Credit risk encompasses of both, the direct risk of default and the risk of deterioration of creditworthiness as well as concentration of risk. Credit risk is controlled by analysing credit limits and creditworthiness of customers on a continuous basis to whom the credit has been granted after obtaining necessary approvals for credit.
Credit risk on cash and cash equivalents is limited as the Company generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk was ? 11,027.52 and ? 9,090.70 as of 31 March 2024 and 31 March 2023 respectively, being the total of the carrying amount of trade receivables, investments, cash and cash equivalents, other balance with banks, loans and other financial assets.
Trade receivables
Ind AS requires expected credit losses to be measured through a loss allowance. The Company assesses at each Balance Sheet date whether a financial asset or a Company of financial assets is impaired.
The Company has used a practical expedient by computing the expected credit loss allowance for trade receivables based on a provision matrix. The provision matrix takes into account historical credit loss experience and adjusted for forward-looking information.
The expected credit loss allowance is based on the ageing of receivables and the rates in the provision matrix. Movement in the expected credit loss allowance is as follows:
Concentration risk
Credit risk on cash and cash equivalent is limited as the Company generally transacts with banks with high credit ratings assigned by credit rating agencies.“Trade receivable - The Company's exposure to credit risk is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customers. Exposure to customers is diversified and there is a single customer contributing more than 10% of outstanding trade receivables and unbilled revenues.
Liquidity risk
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
42 Goodwill (continued)
For the purpose of impairment testing, goodwill is allocated to a cash generating unit, representing the lowest level within the Company at which goodwill is monitored for internal management purposes and which is not higher than the Company's operating segment. The recoverable amounts of the above cash generating units have been assessed using a value-in-use model. Value-in-use is generally calculated as the net present value of the projected post-tax cash flows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially, a discount rate is applied to calculate the net present value of the post-tax cash flows. Key assumptions upon which the Company has based its determinations of value-in-use include:
a) The values assigned to the assumption reflect past experience and are consistent with the management's plans for focusing operations in these markets. The management believe that the planned market share growth per year for the next five years is reasonably achievable.
b) Average gross margins achieved in the period immediately before the budget margin period, increased for expected efficiency improvements. This reflects past experience, except for efficiency improvements.
c) A terminal value arrived at by extrapolating the last forecasted year cash flows to perpetuity, using a constant long-term growth rate of 0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector.
d) The after tax discount rates used are based on the Company's weighted average cost of capital.
e) The after tax discount rates used for various cash generating units.
The Company believes that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.
43 Taxes
The Company has carried forward unabsorbed depreciation amounting to ? 5,343,54 (as at 31 March 23 ? 5,413.61) under the Income tax Act, 1961, for which there is no expiry date for tax utilisation. Futher, the Company also has carried forward losses aggregating to ? 1,089.33 (as at 31 March 2023 ^ 1,006.38) under the Income tax Act, 1961 which gets expired within 8 years of the respective years, The carried forward losses will get expired mainly during the years 2030 to 2031.
Accordingly, deferred tax asset has not been recognised in respect of unabsorbed losses as athey may not be used to offset taxable profits and there are no other tax planning opportunities or other evidence of recoverability in the near future.
44 Business combinations during the year 2023-24:
Softnautics Inc.,
On March 28, 2023, the Company entered into a Share Purchase Agreement (SPA) to acquire 100% of the issued capital of Softnautics Inc. Softnautics Inc became a subsidiary of the Company 07 June 2024 on satisfactory completion of the closing conditions under the SPA.
45 Additional regulatory information
a. Details of benami property held
The company does not hold any benami property as defined under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and the rules made thereunder. No proceedings has been initiated or pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and the rules made thereunder.
b. Relationship with struck off Companies
The Company doesn't have any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of Companies Act, 1956
c. Revaluation of property, plant and equipment, intangible assets and investment property
The Company has not done revaluation of property, plant and equipment / intangible assets/ investment property.
d. The Company has not been declared as wilful defaulter by any bank or financial institution or RBI or other lenders.
e. Undisclosed income
The Company does not have any such transactions which is not recorded in the boods of accounts that has been surrender or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (Such as, search or survey or any other relevant provisions of the Income Tax Act, 1961.)
f. Details of crypto currency or virtual currency
The Company has not traded or invested in crypto currency or virtual currency during the financial year.
g. Registration of charges or satisfaction with registrar of companies
The company does not have any charges or satisfaction, which is yet to be registered with ROC beyond the statutory period.
h. Compliance with number of layers of companies
The Company is in compliance with the number of layers prescribed under clause (87) of section 2 of the Companies Act read with the Companies ( Restriction on number of Layers) Rules, 2017
i. The comapany has not advanced any loan / advances in the nature of loan to promoters, directors, KMP's or related parties as defined under Companies Act, 2013 either jointly or serverally with any persons except a demand loan to a wholly owned subsidiary company with an interest.
j. The company has borrowings from Banks are Financial Institutions on the basis of security current assets, Monthly returns or Statement of the current assets filed by the Company with Banks or Financial Institutions are agreement with the Books of Accounts.
k. There are no Schemes of Arrangements approved by the Competent Authority in terms of sections 230 to 237 of the companies Act, 2013.
l. For ratios refer note 48
49 Figures have been rounded off to nearest lakhs and previous year figures have been regrouped wherever necessary, to correspond with the current period classification / disclosure.
As per our report of even date attached
For ST Mohite & Co For and on behalf of the Board
Chartered Accountants MosChip Technologies Limited
ICAI Firm Registration No: 011410S
Hima Bindu Sagala Srinivasa Rao Kakumanu Damodar Rao Gummadapu
Partner Managing Director & CEO Director
Membership No.: 231056 DIN : 06726305 DIN : 07027779
ICAI UDIN: 24231056BKFSLW4085
Jayaram Susarla Suresh Bachalakura
Chief Financial Officer Company Secretary
M. No: ACS 39381
Place: Hyderabad Place: Hyderabad
Date: 06 May 2024 Date: 06 May 2024
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