j. Provisions, contingent liabilities and contingent assets
Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources embodying economic benefits in respect of which a reliable estimate can be made.
Provisions are discounted if the effect of the time value of money is material, using pre-tax rates that reflects the risks specific to the liability. When discounting is used, an increase in the provisions due to the passage of time is recognized as finance cost.
Insurance claims are accounted on the basis of claims admitted or expected to be admitted and to the extent that the amount recoverable can be measured reliably and it is reasonable to expect ultimate collection. Any subsequent change in the recoverability is provided for.
A provision for onerous & other contractual obligations are measured at the present value of the lower of the expected cost of terminating the contract and expected net cost of continuing with the contract considering the incremental cost of fulfilling the obligations.
Contingent liability is a possible obligation arising from past events and whose existence 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 but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. The Company does not recognize such liability and only discloses the same in the financial statements.
Contingent asset is not recognized in the financial statements as it may result in the recognition of income that may never be realized.
Provisions, contingent liabilities and contingent assets are reviewed at each Balance Sheet date.
k. Segment reporting
The Company’s business operation comprises of single operating segment viz., Software and related solutions. The operating segment has been identified on the basis of nature of products and reported in a manner consistent with the internal reporting provided to Chief Operating Decision Maker.
7 SIGNIFICANT ESTIMATES AND JUDGMENTS
The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures, and the disclosure of contingent liabilities. Actual results could vary from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to estimates are recognized prospectively.
Information about judgments made in applying accounting policies that have the material effects on the amounts recognized in the financial statements is included in the following notes:
Revenue recognition
The Company exercises judgments in determining whether the performance obligation is satisfied at a point in time or over a period of time.
The Company applies the percentage of completion method using the input (cost expended) method to measure progress towards completion in respect of fixed price contracts, which are performed over a period of time. The Company exercises judgment to estimate the future cost-to-completion of the contracts which is used to determine the degree of completion of the performance obligation.
The Company’s contracts with customers could include promises to transfer multiple products and services to a customer. The Company assesses the products / services promised in the contract and identifies distinct performance obligations in the contract. Identification of distinct performance obligation involves judgment to determine the deliverables and the ability of the customer to benefit independently from such deliverables. Judgment is also required to determine the transaction price for the contract.
The Company uses judgment to determine an appropriate standalone selling price for a performance obligation. The Company allocates the transaction price to each performance obligation on the basis of the relative standalone selling price of each distinct product or service promised in the contract. Where standalone selling price is not observable, the Company uses the expected cost-plus margin approach to allocate the transaction price to each distinct performance obligation. Provision for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
Defined benefit plans and other long term benefits
The cost of the defined benefit plan and other longterm benefits, and the present value of such obligation are determined by the independent actuarial valuer. An actuarial valuation involves making various assumptions that may differ from actual developments in future. Management believes that the assumptions used by the actuary in determination of the discount rate, future salary increases, mortality rates and attrition rates are reasonable. Due to the complexities involved in the valuation and its long-term nature, this obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
Current taxes
Calculations of income taxes for the current period are done based on applicable tax laws and management’s judgment by evaluating positions taken in tax returns and interpretations of relevant provisions of law and applicable judicial precedents.
Deferred tax asset
Significant management judgment is exercised by reviewing the deferred tax assets, including MAT credit entitlement, at each reporting date to determine the amount of deferred tax assets that can be retained / recognized, based upon the likely timing and the level
of future taxable profits together with future tax planning strategies.
Property, plant and equipment (PPE) and intangible assets
The residual values and estimated useful life of PPEs and intangible assets are assessed by the technical team at each reporting date by taking into account the nature of asset, the estimated usage of the asset, the operating condition of the asset, past history. Upon review, the management accepts the assigned useful life and residual value for computation of depreciation / amortization / impairment.
Determination of lease term of contracts as noncancellable term
Significant management judgment is exercised in determining the lease term as non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised, by considering all relevant factors that create an economic incentive for it to exercise either the renewal or termination. Intangible asset
Significant management judgment is exercised in
identifying an intangible asset and estimating its useful life, which is based on a number of factors including the effects of obsolescence, demand, competition and other economic factors and the level of maintenance expenditures required to obtain the expected future cash flows from such asset. Amortization methods and useful lives are reviewed at each financial year end.
Impairment
Impairment of assets
Significant management judgment is exercised in
determining whether the investment in subsidiaries are impaired or not is on the basis of its nature of long-term strategic investments and business projections.
The impairment for trade receivables / unbilled licenses / unbilled services / loans and other receivables are done based on assumptions about risk of default and expected loss rates. The assumptions, selection of inputs for calculation of impairment are based on management
judgment considering the past history, market conditions and forward-looking estimates at the end of each reporting date.
The impairment of non-financial assets is determined based on estimation of recoverable amount of such assets. The assumptions used in computing the recoverable amount are based on management judgment considering the timing of future cash flows, discount rates and the risks specific to the asset.
Fair value measurement of financial instruments When the fair values of financial assets and financial liabilities could not be measured based on quoted prices in active markets, management uses valuation techniques including the Discounted Cash Flow (DCF) model, to determine its fair value. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is exercised in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Provisions
The timing of recognition requires application of judgment to existing facts and circumstances that may be subject to change. The litigations and claims to which the Company is exposed are assessed by the management and in certain cases with the support of external experts. The amounts are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability.
Contingent liabilities
Management judgment is exercised for estimating the possible outflow of resources, if any, in respect of contingencies / claims / litigations against the Company as it is not possible to predict the outcome of pending matters with accuracy.
Share based payments
The Company initially measures the stock options granted to the employees, using a fair value model. This requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including volatility, dividend yield and making assumptions.
17.1 Borrowings (Contd.)
The Company had availed borrowing facilities from Axis Bank Limited, IDBI Bank Limited, Kotak Mahindra Bank Limited (previous year from Axis Bank Limited, IDBI Bank Limited, Kotak Mahindra Bank Limited, ICICI Bank Limited and HDFC Bank Limited) and also had repayments during the current year. The borrowings were in the form of Term Loan, Packing Credit in Foreign Currency (PCFC), Working Capital Demand Loan (WCDL) and Cash Credit. The interest rates on the borrowings during the year from Banks, ranged from 6.47% p.a. to 9.40% p.a. (PY 1.28% p.a. to 9.10% p.a.).
1. Loans from Banks, secured
a. Borrowing facilities from Axis Bank Limited, IDBI Bank Limited and Kotak Mahindra Bank Limited are secured by pari-passu first charge on the current assets, both present and future of the Company (Borrowing facilities for the previous year from Axis Bank Limited are secured by pari-passu first charge on the current assets, both present and future of the Company. Borrowing facilities for the previous year from IDBI Bank Limited are secured by pari-passu first charge on the receivables (i.e., trade receivables, both current and non-current), both present and future of the Company).
b. With respect to the borrowings from banks on the basis of security, the periodical returns / statements filed by the Company with banks are in agreement with the books of accounts.
17.2 LEASES
The Company has adopted Ind AS 116 “Leases” with the date of initial application being April 01, 2019, using the modified retrospective approach. The Company has lease contracts for various items of Building, Land and Office equipments used in its operations. There are several lease contracts that include extension and termination options and variable lease payments.
Disclosures in respect of leases are given below:
20.4 Ind AS 115 - revenue from contract with customers
The Company derives revenue from Software Solutions & Services. The accounting policies are mentioned in note no.6.a
1. Remaining performance obligations
The remaining performance obligation disclosure provides the aggregate amount of transaction price yet to be recognized as at the end of the reporting period and an explanation as to when the Company expects to recognize these amounts in revenue. Remaining performance obligation estimates are subject to change and are affected by various factors including termination, changes in scope of contracts, adjustments for revenue that are not materialized and adjustments for currency. Applying the practical expedient as given in Ind AS 115, the Company has not disclosed the following:
a) t he remaining performance obligations for contracts where revenue recognized corresponds directly with the value to the customer of the entity’s performance completed to date including time and material, support service and subscription contracts and
b) the remaining performance obligations in respect of other contracts, since those performance obligations have an original expected duration of one year or less in most of the cases.
2. During the year ended March 31, the Company recognized revenue of Rs. 21758 Mln. (PY Rs.152.70 Mln.) arising from opening unearned revenue of Rs.268.79 Mln. (PY Rs.174.90 Mln.) as at April 01.
3. During the year ended March 31, the Company recognized revenue of Rs. 1.46 Mln. (PY Rs. 20.63 Mln.) arising from advance from customers out of the opening advances of Rs. 11.97 Mln. (PY Rs. 30.34 Mln.) as at April 01.
4. Considering the form of engagement with customers and very strong inter despondencies between Parent and Subsidiaries, it is more appropriate for us to disclose the revenue from software services from fixed-price and time-and-material contracts at consolidated level. The percentage of revenue from software services from fixed-price contracts was 73% and 73% for each of the year ended March 31,2024 and March 31,2023, respectively, at a consolidated basis.
30. DISCLOSURE OF FAIR VALUE MEASUREMENTS
The fair values of financial assets and liabilities are determined at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value of cash & cash equivalents, trade and other short term receivables, trade payables, borrowings and other financial instruments approximate their carrying amounts largely due to the short term maturities of these instruments.
31. CAPITAL MANAGEMENT
For the purpose of the Company’s capital management, capital means the Total Equity as per the Balance Sheet. The primary objective of the Company’s capital management is to maximize the Shareholder’s wealth.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. The Company monitors capital using a gearing ratio, which is net debt divided by the total equity.
* Further to the appeal filed, CESTAT has adjudicated the case by a) set aside the penalty imposed in the Order in Original b) remanded the main issue to the Jurisdictional Assistant Commissioner as to the eligibility of CENVAT credit in the light of documentary evidences produced by us and also in the light of final orders of the CESTAT for the previous period on similar issues.
Note: The Company is engaged in development of software products, which are marketed by the Company and its overseas subsidiaries. The intellectual property rights are held by the Company. There are in-built warranties for performance and support. Claims which may arise out of these are not quantifiable and hence not provided for.
The Company has undertaken to provide continued financial support to its subsidiaries, Ramco Systems Pte. Ltd., Singapore, Ramco Systems Australia Pty Ltd., Australia, Ramco Systems Sdn. Bhd., Malaysia, Ramco Systems FZ-LLC, Dubai and Ramco System Vietnam Company Limited, Vietnam for their operations and have also undertaken to ensure the going concern status of above subsidiaries and also that of Ramco Systems Sdn. Bhd., Malaysia and Ramco Systems Australia Pty Ltd., Australia with respect to debt dues, if any, to Ramco Systems Ltd., Switzerland.
33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Board of Directors has constituted a Risk Management committee, with responsibility including, formulation, monitoring and review of risk management policy, identification of risk mitigation measures and establishment of business continuity plan. The Company has already developed and implemented a risk management policy. The risk management systems are reviewed periodically. The Internal Audit reviews the risk management controls & procedures and reports to the Audit Committee.
The Company’s financial risks comprise of market risk, credit risk and liquidity risk.
A. 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. Market risk comprises of two types of risk: interest rate risk and foreign currency risk.
A.1 Interest rate risk
The Company has borrowed debt at variable rates to finance its operations including capital expenditure, which exposes it to interest rate risk. The Company’s interest rate risk management planning includes achieving the lowest possible cost of debt financing, while managing volatility of interest rates, applying a prudent mix of fixed and floating debt, either directly or through the use of derivative financial instruments affecting a shift in interest rate exposures between fixed and floating.
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 Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s transactions denominated in a foreign currency including trade receivables and unbilled revenues, loans given to overseas subsidiaries, trade payables and bank balances.
33. Financial Risk Management Objectives and Policies (Contd.)
A. 3 Other price risk
The Company is exposed to equity price risks arising from equity investments. Company's equity investments are primarily in its subsidiaries which are held for strategic rather than trading purposes.
B. Credit risk
Credit risk is the risk of financial loss to the Company, if the customer or counter party to the financial instruments or supplier fail to meet its contractual obligations and arises principally from the Company’s receivables and treasury operations.
Customer credit risk is managed by Company’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables and unbilled revenues are regularly monitored and the Company creates a provision based on expected credit loss model.
B.1 Trade receivables, unbilled revenues and advance to suppliers and service providers
(i) Trade receivables
Trade receivables of the Company include a) dues from its overseas subsidiaries amounting to 64% as at March 31, 2024 (61% as at March 31, 2023), of total trade receivables which are risk free and b) dues from others which are exposed to credit risk. The number of external customers (excluding subsidiaries) and the percentage they owed exceeding Rs.5.00 Mln. individually, out of the outstanding as at March 31, 2024, were 12 and 60% respectively (20 and 79% as at March 31, 2023). External customers who accounted for more than 10% of the trade receivable from them, is Nil as at March 31,2024 (one as at March 31,2023).
The Company evaluates credit worthiness of each customer.
The Company tracks changes in credit risk of trade receivable using simplified approach as per Ind AS 109. The Company calculates the expected credit losses on trade receivables using a provision matrix on the basis of its historical credit loss experience.
Trade receivables are written off when there is no reasonable expectation of recovery, such as a debtor declaring bankruptcy or failing to engage in a repayment plan with the Company.
Where trade receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized in profit or loss.
(ii) Unbilled revenues
Unbilled revenues (Unbilled licenses revenue grouped under financial asset and unbilled services revenue grouped under nonfinancial assets i.e., other assets) of the Company are also exposed to risk in the event of the inability to bill the customer. Unbilled royalty revenue is in respect of overseas subsidiaries, which are risk free.
Number of external customers constituting more than 10% of the unbilled revenues in respect of them, is four as at March 31,2024 (two as at March 31,2023).
(iii) Advance to suppliers and service providers
Advance to suppliers and service providers are also exposed to risk in the event of inability to adjust such advances from their billing or otherwise recover the same.
B.2 Financial instruments and cash deposits
Investments of surplus funds are made only with approved counterparties. The Company is exposed to counter party risk relating to deposits with banks and investments in mutual funds. The Company places its cash equivalents based on the creditworthiness of the financial institutions.
There are no fixed deposits and investment in mutual fund as at the end of current year. (In the previous year, Fixed deposits of Rs. 46739 Mln. have been placed with 2 Banks having high credit rating. Investment in mutual funds of Rs.100.31 Mln. have been placed in bond, ultra short duration and liquid funds with 3 mutual fund institutions).
Liquidity risks are those risks that the Company will not be able to settle or meet its obligations on time or at reasonable price. In the management of liquidity risk, the Company monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Company’s operations and to mitigate the effects of fluctuations in cash flows. Due to the dynamic nature of the underlying business, the Company aims at maintaining flexibility in funding by keeping the credit lines available.
36. OTHER NOTES
a. The Company’s shares are listed on BSE Limited and The National Stock Exchange of India Limited
In line with the provisions of the listing agreement with the stock exchanges, the listing fee for the FY 2023-24 have been paid to the BSE Limited and The National Stock Exchange of India Limited.
b. Figures for the previous year have been regrouped / restated wherever necessary to make them comparable with the figures for the current year.
As per our report annexed
For M S JAGANNATHAN & N KRISHNASWAMI P R VENKETRAMA RAJA SOUNDARA KUMAR
Chartered Accountants Chairman Director
Firm Registration No.: 001208S Rajapalayam Coimbatore
P V ABINAV RAMASUBRAMANIAM RAJA SUBRAMANIAN SUNDARESAN
Whole Time Director Chief Executive Officer
K SRINIVASAN R RAVI KULA CHANDRAN N E VIJAYARAGHAVAN
Partner Chief Financial Officer Company Secretary
Membership No.: 021510
Place: Chennai Date: May 21,2024
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