u) Provisions and Contingent Liabilities
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to a provision is presented in the Statement of Profit and Loss.
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 cost.
i. Asset Retirement Obligation (ARO)
ARO is provided for those lease arrangements where the Company has a binding obligation to restore the said location / premises at the end of the period in a condition similar to inception of the arrangement. The restoration and decommissioning costs are provided at the present value of expected costs to settle the obligation using estimated cash flows and are recognised as part of the cost of the particular asset. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognised in the Statement of Profit and Loss as a finance cost. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset.
ii. Contingent Liabilities
A Contingent Liability is disclosed where there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Contingent Assets are not recognised.
iii. Onerous Contract
An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Company cannot avoid because it has the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it
and any compensation or penalties arising from failure to fulfil it.
If the Company has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision. However, before a separate provision for an onerous contract is established, the Company recognises any impairment loss that has occurred on assets dedicated to that contract.
v) Business Combinations
Business Combinations are accounted for using Ind AS 103 ‘Business Combination'. Acquisitions of businesses are accounted for using the acquisition method unless the transaction is between entities under common control.
Business Combinations arising from transfer of interests in entities that are under common control, are accounted using pooling of interest method wherein, assets and liabilities of the combining entities are reflected at their carrying value. No adjustment is made to reflect fair values, or recognize any new assets or liabilities other than those required to harmonise accounting policies. The identity of the reserves is preserved and appears in the financial statements of the transferee in the same form in which they appeared in the financial statements of the transferor.
w) Segment Information
The Chief Operating Decision maker primarily focusses on Mobility business in making decisions on operating matters and on allocating resources in evaluating performance. Accordingly, the Company operates only in one reportable segment
i.e. Mobility and hence no separate disclosure is required for Segment.
x) Recent pronouncements
Amendments to Ind As
MCA vide notification no. G.S.R. 242(E) dated March 31, 2023 has issued Companies (Indian Accounting Standards) Amendment Rules, 2023 which amends following Ind AS:
- Ind AS 101 First Time Adoption of Indian Accounting Standards
- Ind AS 102 Shared based Payment
- Ind AS 12 Income Taxes
- Ind AS 107 Financial Instrument Disclosures
- Ind AS 103 Business Combinations
- Ind AS 109 Financial Instruments
- Ind AS 115 Revenue from Contracts with Customers
- Ind AS 1 Presentation of Financial Statements
- Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- Ind AS 34 Interim Financial Reporting
The amendments are applicable for annual periods beginning on or after April 1, 2023, however, these do not have material impact on the Financial Statements of the Company.
6. USE OF ESTIMATES, ASSUMPTIONS 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 including the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require an adjustment to the carrying amount of assets or liabilities in future periods. Difference between actual results and estimates are recognised in the periods in which the results are known / materialise.
The Company has based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
Estimates and Assumptions
i. Taxes
The company provide for tax considering the
applicable tax regulations and based on reasonable
estimates. Management periodically evaluates
positions taken in the tax returns giving due
considerations to tax laws and establishes provisions in the event if required as a result of differing interpretation or due to retrospective amendments, if any.
Deferred tax asset (DTA) is recognized only when and to the extent there is convincing evidence that the company will have sufficient taxable profits in future against which such assets can be utilized. Significant management judgment 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, recent business performance and developments.
Minimum alternative tax (MAT) is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax and will be able to utilize such credit during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset, the said asset is created by way of a credit to the Statement of Profit and loss and is included in Deferred Tax Assets. The Company review the same at each Balance Sheet date and if required, writes down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that Company will be able to absorb such credit during the specified period. Further details about taxes refer note 55 and 56.
ii. Defined benefit plans (gratuity and compensated absences benefits)
The Company's obligation on account of gratuity and compensated absences is determined based on 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, attrition rate and mortality rates. Due to the complexities involved in the valuation and its long-term nature, these liabilities are highly sensitive to changes in these assumptions.
All assumptions are reviewed at each reporting date. The parameter subject to frequent changes is the discount rate. In determining the appropriate
discount rate, the management considers the interest rates of government bonds in currencies consistent with the currencies of the postemployment benefit obligation.
The mortality rate is based on publicly available mortality tables in India. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases are based on expected future inflation rates.
Further details about gratuity obligations are given in note 52 (A).
iii. Allowance for Trade receivable
For the purpose of measuring the expected credit loss for trade receivables, the Company estimates irrecoverable amounts based on the ageing of the receivable balances and historical experience. Further, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively depending on their significance. Individual trade receivables are written off when management deems them not to be collectible on assessment of facts and circumstances. Refer note 14.
iv. Useful life of Property, Plant and Equipment and Intangible assets
The useful life to depreciate or amortise property, plant and equipment and Intangible assets respectively is based on technical obsolescence, nature of assets, estimated usage of the assets, operating conditions of the asset, and manufacturers' warranties, maintenance and support period, etc. The charge for the depreciation or amortisation is derived after considering the expected residual value at end of the useful life.
The residual values, useful lives and methods of depreciation or amortisation of property, plant and equipment and Intangible assets respectively are reviewed by the management at each financial year
end and adjusted prospectively over the remaining useful life.
v. Leases - Estimating the incremental borrowing rate
The Company cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The Company estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain specific estimates such as Company's credit rating.
vi. Leases-Estimate of lease period
Ind AS 116 requires lessees to determine the lease term as the non-cancellable period of a lease adjusted with any option to extend or terminate the lease, if the use of such option is reasonably certain. The Company makes an assessment on the expected lease term on a lease-by-lease basis and thereby assesses whether it is reasonably certain that any options to extend or terminate the contract will be exercised.
vii. Provisions and Contingent Liabilities
Provisions and contingent liabilities are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Evaluations of uncertain provisions and contingent liabilities and assets requires judgement and assumptions regarding the probability of realization and the timing and amount, or range of amounts, that may ultimately be incurred. Such estimates may vary from the ultimate outcome as a result of differing interpretations of laws and facts. Refer note 45 for details about Contingent liabilities.
NOTE 43: SIGNIFICANT TRANSACTIONS / NEW DEVELOPMENTS
i) During the previous year, the Board of Directors of the Company at its meeting held on July 22, 2022 approved issuance of 427,656,421 warrants each convertible into one fully paid-up equity share of face value of ' 10/- for cash at a price of ' 10.20/- to an entity forming part of the promoter group, aggregating upto ' 4,362 Mn, which were allotted on July 25, 2022. Pursuant to the exercise of the right of conversion attached to the warrants, the Board of Directors of the Company at its meeting held on February 14, 2023 approved conversion of these warrants into equity shares and consequently allotted 427,656,421 equity shares to the promoter group entity.
ii) During the previous year, the Board of Directors of the Company at its meeting held on January 31, 2023 has re-approved issuance of upto 16,000 optionally convertible, unsecured, unrated and unlisted Indian Rupee denominated debentures (OCDs) having a face value of ' 1,000,000 each, in one or more tranches, aggregating upto ' 16,000 Mn, each convertible into 100,000 equity shares of face value of ' 10/- each at a conversion price of ' 10/- to ATC Telecom Infrastructure Private Limited (‘ATC’), a non-promoter of the Company, on a preferential basis. The Capital Raising Committee of the Board of Directors of the Company has, at its meeting held on February 27, 2023 and February 28, 2023, allotted a total of 16,000 number of OCDs to ATC which was redeemable in two equal instalments in August 2023 and August 2024. During the year, the Company and ATC have agreed to extend the period of redemption of 8,000 OCDs from 6 months from date of allotment i.e. August 2023 to 18 months from date of allotment i.e. August 2024. Further, as per terms of the agreement, holder of OCDs is entitled to convert OCDs into equity shares of the Company at all time and the Company also has right to convert the outstanding OCDs into equity shares after 1 year of the issuance subject to the Company’s equity shares price being equal to or higher than the pre agreed share price.
On March 18, 2024, in accordance with the terms of the OCDs, ATC has requested the Company for conversion of 14,400 OCDs into 1,440,000,000 fully paid-up Equity Shares and accordingly, on March 23, 2024, the Company allotted 1,440,000,000 equity shares of face value of ' 10/- each at an issue price of ' 10/- per equity share to ATC.
iii) During the previous year, the DoT conducted auctions for various spectrum bands which got concluded on August 1, 2022. The Company successfully bid for its spectrum requirements at a total cost of ' 187,863 Mn as under:
- 3300 MHz band in 17 priority circles (for providing 5G services)
- 26 GHz band in 16 circles (for providing 5G services)
- Additional 4G spectrum acquisition in 3 circles i.e. Andhra Pradesh, Karnataka and Punjab
The validity of the above spectrum is for a 20 year period starting from the effective date as mentioned in the Frequency Assignment Letter for respective service areas. As per the payment options available, the Company has chosen the deferred payment option. In the previous year, the Company has capitalised the cost pertaining to additional 4G spectrum amounting to ' 17,348 Mn and has recorded cost pertaining to 5G spectrum amounting to ' 170,515 Mn and related borrowing cost of ' 4,875 Mn as ‘Intangible assets under development’. As on March 31, 2024, ‘Intangible assets under development’ includes ' 175,390 Mn related to 5G spectrum.
iv) The Implementation Agreement entered between the parties defines a settlement mechanism between the Company and the promoters of erstwhile Vodafone India Limited (“VInL”) for any cash inflow/outflow that could possibly arise to/by the Company towards settlement of certain outstanding disputes pertaining to the period until May 31, 2018. As at March 31, 2024, the Company had recognized settlement assets amounting to ' 63,939 Mn. The settlement of such assets recognized was to happen periodically based on cash inflow/ outflow incurred as defined in the Implementation Agreement starting from June 2020 but not beyond June 2025. The receivables of ' 63,939 Mn as at March 31, 2024 (March 31, 2023: settlement asset of ' 81,209 Mn and settlement liability of ' 17,270 Mn) is subject to further cash inflows / outflows incurred till June 2025 and hence, classified as non-current financial assets. The Company believes that it will be able to recover this amount in terms of the Implementation Agreement even if the related liabilities are paid beyond June 2025 based on the deferment of AGR dues availed by the Company. The settlement between the Company and VInL promoters for any cash outflow that could possibly arise shall be subject to requisite approvals, if any, which would be evaluated/obtained at the time of settlement to VInL promoters.
v) One Time Spectrum Charges (Beyond 4.4 MHz):
During the financial year 2012-13, DoT had issued demand notices towards one time spectrum charges (hereinafter referred to as “OTSC”). The demands on the Company i.e. formerly Idea Cellular Limited have been challenged by way of writ petition before the Bombay High Court (BHC). The erstwhile Vodafone India Limited (VInL) and erstwhile Vodafone Mobile Services Limited (VMSL) had challenged the demands before the TDSAT. The grounds taken before BHC and TDSAT were different though.
On July 4, 2019 TDSAT in its judgement quashed the demands levied on erstwhile VInL and VMSL and inter alia held that:
- For spectrum up to 6.2 MHz, OTSC is not chargeable and accordingly demand set aside.
- For spectrum beyond 6.2 MHz,
• Allotment after July 1, 2008, OTSC shall be levied from the date of allotment of such spectrum.
• Allotment before July 1, 2008, OTSC shall be levied from January 1, 2013 till the date of expiry of license.
• Conditions as stated in para 1 (v) of the impugned order dated December 28, 2012 (given hereunder) is arbitrary and illegal and is accordingly set aside, i.e. Upfront charges in the case of spectrum holding in multiple bands (900 MHz and 1800 MHz), spectrum in 1800 MHz band will be accounted for first, towards the limit of 4.4 MHz was held to be arbitrary and illegal and accordingly set aside.
Thereafter VIL filed an appeal before the Honourable Supreme Court against the TDSAT judgement. On March 16, 2020, Honourable Supreme Court dismissed the petition filed by the Company challenging the levy of OTSC beyond 6.2 MHz. Following the dismissal of the Company’s appeal by the Honourable Supreme Court on March 16, 2020, the Company is yet to receive any demand from DoT in line with the TDSAT order. VIL proceedings before the BHC in respect of Idea Cellular Limited remains pending. DoT preferred an appeal against the entire TDSAT judgement and sought stay on the impugned judgement. The matter is pending before the Honourable Supreme Court.
The Company, on prudence basis, has recognized a charge for spectrum holding beyond 6.2 MHz in line with the TDSAT order. The amount has been calculated basis the demand computation that was raised by DoT in July 2018 for Bank Guarantees to be given for OTSC in line with the M&A guidelines at the time of merger. Accordingly, the Company has recognised interest cost of ' 8,961 Mn (March 31, 2023: ' 6,877 Mn) in Statement of Profit and loss. Accordingly, the Company has disclosed an accrual towards One Time Spectrum Charges of ' 65,410 Mn (March 31, 2023: ' 56,449 Mn) under Other current financial liabilities.
vi) During the previous year, on March 28, 2023, the Company has entered into a term sheet with a prospective buyer for assignment of certain leasehold rights of land. Accordingly, the Company has reclassified such leasehold land from RoU assets to Assets held for sale (AHFS). As the carrying value of the asset is higher than the expected fair value less cost of sell, the Company has adjusted carrying value of AHFS and recognised re-measurement loss of ' 224 Mn equivalent to such differences under Exceptional Items in financial year 2022-23. The transaction is subject to conditions precedent mentioned in term sheet and expected to be completed in financial year 2024-2025.
vii) On 16th October, 2023, the Honourable Supreme Court of India pronounced a judgement regarding the tax treatment of annual Revenue Share License Fee (RSLF) paid to DOT since July 1999 and held that it merits the same tax treatment as the upfront fee that is paid at the time of acquisition of a telecom license. The Company has been treating RSLF as revenue expenses for the purpose of taxation. This decision does not result in a permanent disallowance but leads to a staggered allowance of RSLF over the balance period of the license resulting into lower taxable deduction in the initial years of a license and a higher deduction in the later period of the license.
Over the years, the Company has acquired various licenses from DoT and also acquired companies having telecom licenses and merged these entities into the Company resulting in cancellation of licenses pertaining to those entities on merger. Based on initial evaluation, after considering the allowable deductions for the period and on a best estimate basis, a tax provision of ' 8,220 Mn and interest of ' 2,630 Mn are recorded under “Current tax” and “Finance costs” respectively, and corresponding effect has been recorded as Current tax liability of ' 5,217 Mn and adjusted ' 5,633 Mn in Other Non-Current Assets in the financial statements. Due to tax losses carried forward, higher deductions in future periods do not meet the criteria for the recognition of deferred tax assets under Ind AS 12 - Income Taxes.
viii) On July 23, 2018, the Company had paid an amount of ' 39,263 Mn under protest for the differential amount of entry fees paid and market determined price of 4.4 Mhz, as demanded by the DoT. The Company had thereafter filed a petition with TDSAT disputing ' 13,636 Mn as excess amount calculated by the DoT. Based on probability assessment of ultimate outflow, the Company had capitalised ' 39,263 Mn, paid under protest, along with the respective spectrum of the circles and amortised substantially over the balance life of the respective spectrum.
The DoT accepted the Company’s contention to the extent of ' 7,555 Mn resulting in TDSAT issuing order dated December 15, 2023, directing the DoT to adjust this amount. The DoT vide letter dated December 27, 2023 has communicated such adjustment. Accordingly, the Company has recognised the same as an Exceptional Items in the statement of profit and loss.
NOTE 44: CAPITAL AND OTHER COMMITMENTS
Estimated amount of commitments are as follows:
• Contracts remaining to be executed for capital expenditure (net of advances) and not provided for are ' 23,361 Mn (March 31, 2023: ' 32,055 Mn).
• Long term contracts remaining to be executed including early termination commitments (if any) are ' 17,219 Mn (March 31, 2023: ' 26,788 Mn).
NOTE 45: CONTINGENT LIABILITIES NOT PROVIDED FOR A) Licensing Disputes:
i. OTSC (Less than 4.4 MHz) - ' 38,570 Mn (March 31, 2023: ' 38,570 Mn):
In FY 2015-16 erstwhile VMSL received demands from DoT towards One time spectrum charges for less than 4.4 MHz pursuant to the transfer of licenses of certain subsidiaries amounting to ' 33,495 Mn. The Company believes the charges levied by DoT are not tenable, since the merger guidelines are not applicable considering that the said merger did not involve any intra-circle merger and did not result in increase in spectrum holding of the Company. The Demand is challenged and remains sub-judice at TDSAT.
Also, in FY 2015-16, erstwhile VMSL received demand from DoT towards extension of license of Tamil Nadu circle for making it co-terminus with license of Chennai circle amounting to ' 5,075 Mn. The Company believes the charges levied by DoT are not tenable, considering the merger of licenses is as per the guidelines issued by DoT in 2005 and as such does not get covered under as per clause 3 (i) and (m) of the M&A guidelines dated February 20, 2014. The Demand is challenged and remains sub-judice at TDSAT.
ii. Other Licensing Disputes - ' 97,805 Mn (March 31, 2023: ' 104,033 Mn):
In December 2016, Company had challenged the TRAI recommendation of levying penalty for allegedly denying points of interconnect (PoIs) to Reliance Jio, citing Telecom Regulatory Authority of India’s (TRAI) move “arbitrary and biased” and one which exceeds the sectorial watchdog‘s jurisdiction. The Honorable Delhi High Court suggested that DoT could consider objections raised by VIL in its plea along with the TRAI recommendations. On September 29, 2021, DoT had issued demand notice for imposition of financial penalty amounting to ' 20,000 Mn for violation of the provisions of license agreements and standards of Quality of service of basic telephone service (wireline) and SMTS regulation 2009. On October 11, 2021 The Company has filed petition with Honourable TDSAT challenging the demand raised by DoT. In the recent hearing, interim relief has been granted stating no coercive action shall be taken for realisation of penalty under challenge. The matter remains litigated and subsequent date of hearing is not decided.
- Additional demands towards AGR dues for which the company has written to DoT requesting corrections of certain computational errors, admissible pass-through not considered based on the principles laid down in the AGR judgement (Refer note no 3)
- Disputes relating to alleged non-compliance of licensing conditions & other disputes with DoT (including those towards CAF Audit and EMF), either filed by or against the Company or pending before Honourable Supreme Court / TDSAT.
- Demands on account of alleged violations in license conditions relating to amalgamation of erstwhile Spice Communications Limited currently sub-judice before the Honourable TDSAT.
- Demand with respect to upfront spectrum amounts for continuation of services from February 2, 2012 till various dates in the service areas where the licenses were quashed following the Honourable Supreme Court Order.
In October 2015, DoT issued interim guidelines, wherein Microwave Spectrum held by expired /expiring licenses was declared as being held on a provisional basis subject to final outcome of DoT’s decision on recommendation by TRAI on the allocation and pricing of Microwave Spectrum. The interim guidelines issued by DoT are not in line with the understanding provided during the earlier auctions as part of Notice Inviting Application (NIA) for the spectrum auction. Basis the interim guidelines, DoT has instructed the Company to provide an undertaking that the pricing and allocation decisions of DoT would be considered final in this respect. The Company has not provided the said undertaking or signed the agreement being against the express and binding confirmations under NIA. Further TDSAT vide its order dated March 13, 2019 set aside the Impugned guidelines and stated 2006 rates hold to be valid, which should be applied from future date as and when notified by DoT as per the judgment. The Honourable Supreme Court vide its order dated November 8, 2019 stayed the TDSAT order and directed the Company to furnish bank guarantee till the next date of hearing. The matter was last listed on October 18, 2022, where Supreme Court directed the Company to file its reply/ counter to DOT’s appeal. The matter will be listed in due course. Accordingly, the implication of the said order is not considered in the financial statement.
i. Income Tax Matters (including Tax deducted at source)
- Appeals filed by the Company against the demands raised by the Income Tax Authorities relates to disputes on non-applicability of tax deductions at source on prepaid margin allowed to prepaid distributors, disputes relating to denial of tax holiday benefit from certain business receipts etc.
Honourable Supreme Court vide its order dated February 28, 2024 upheld Company’s appeal regarding non-applicability of tax deductions at source on prepaid margin allowed to prepaid distributors. As on March 31, 2024, the Company has given effect of the same under the head Income tax matters.
Rest of the above matters contested by the Company are pending at various appellate authorities against the tax authorities.
ii. Sales Tax and Entertainment Tax
- Sales Tax demands mainly relates to the demands raised by the VAT/Sales Tax authorities of few states on SIM cards etc. on which the Company has already paid Service Tax.
- Demand of tax for non-submission of Declaration forms viz. C forms & F forms in stipulated time limit.
- In one state entertainment tax is being demanded on revenue from value added services.
NOTE 51: SHARE BASED PAYMENTS
a) Employee stock option plan - options granted by Vodafone Idea Limited
The Company has granted stock options and restricted stock units (RSU’s) under ESOS 2013 to the eligible employees of the Company and its subsidiaries (“Group”) from time to time. These options, subject to fulfilment of vesting conditions, would vest in 4 equal annual instalments after one year of the grant and the RSU’s will vest after 3 years from the date of grant. The maximum period for exercise of options and RSU’s is 5 years from the date of vesting. Each option and RSU when exercised would be converted into one fully paid-up equity share of ' 10 each of the Company. The options and options RSUs granted under the ESOS 2013 scheme carry no rights to dividends and no voting rights till the date of exercise.
The fair value of the share options is estimated at the grant date using Black and Scholes Model, taking into account the terms and conditions upon which the share options were granted.
There were no modifications to the options/RSU’s during the year ended March 31, 2024 and March 31, 2023. During the year, certain unvested options were cancelled on non-fulfilment of certain vesting conditions under ESOS 2013. In the current year, ' 4 Mn (March 31, 2023: ' 12 Mn) is adjusted against Retained earnings in respect of cancellation/expiration of vested stock option.
NOTE 52: EMPLOYEE BENEFITS A. Defined Benefit Plan (Gratuity)
General description and benefits of the plan
The Company operates a defined benefit final salary gratuity plan through a trust. The gratuity benefits payable to the employees are based on the employee’s service and last drawn salary at the time of leaving. The benefit is payable on termination of service or retirement, whichever is earlier. The employees do not contribute towards this plan and the full cost of providing these benefits are borne by the Company.
Regulatory framework, funding arrangement and governance of the Plan
The gratuity plan is governed by the Payment of Gratuity Act, 1972 (Gratuity Act). The trustees of the gratuity fund have a fiduciary responsibility to act according to the provisions of the trust deed and rules. Since the fund is income tax approved, the Company and the trustees have to ensure that they are at all times fully compliant with the relevant provisions of the income tax act and rules. The Company is bound to pay the statutory minimum gratuity as prescribed under Gratuity Act. There are no minimum funding requirements for a gratuity plan in India. The Company’s philosophy is to fund the benefits based on its own liquidity and tax position as well as level of underfunding of the plan vis-a-vis settlements. The trustees of the trust are responsible for the overall governance of the plan. The trustees of the plan have outsourced the investment management of the fund to insurance companies which in turn manage these funds as per the mandate provided to them by the trustees and applicable insurance and other regulations.
Inherent risks
The plan is of a final salary defined benefit in nature which is funded by the Company and hence it underwrites all the risks pertaining to the plan. In particular, there is a risk for the Company that any significant change in salary growth or demographic experience or inadequate returns on underlying plan assets can result in an increase in cost of providing these benefits to employees in future.
The following tables summarizes the components of net benefit expense recognized in the Statement of Profit and Loss and the funded status and amounts recognized in the Balance Sheet for gratuity:
C) Valuation Technique used to determine fair value:
Investments traded in active markets are determined by reference to quotes from the financial institutions; for example: Net asset value (NAV) for investments in mutual funds declared by mutual fund house.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between knowledgeable and willing parties, other than in a forced or liquidation sale. The valuation techniques used to determine the fair values of financial assets and financial liabilities classified as level 2 include use of quoted market prices or dealer quotes for similar instruments and generally accepted pricing models based on a discounted cash flow analysis using rates currently available for debt on similar terms, credit risk and remaining maturities.
The Company enters into derivative financial instruments such as forward exchange contracts with various counterparties. The fair value of such derivatives instruments are determined using forward exchange rates.
NOTE 61: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company’s principal financial liabilities comprise of borrowings, lease liabilities, trade and other payables. The main purpose of these financial liabilities is to finance and support the Company’s operations. The Company’s principal financial assets comprise of current investments, cash and bank balance, trade and other receivables. The Company also enters into derivative transactions such as foreign forward exchange contracts as a part of Company’s financial risk management policies. It is the Company’s policy that no trading in derivatives for speculative purposes may be undertaken.
The Company is exposed to various financial risks such as market risk, credit risk and liquidity risk. The Company’s senior management comprising of a team of qualified finance professionals with appropriate skills and experience oversees management of these risks and provides assurance to the management that financial risks are identified, measured and managed in accordance with the Company’s policies and risk objectives. All derivative activity for risk management purposes are carried by specialist team having appropriate skills and experience. The risks and measures to mitigate such risks is reviewed by the committee of Board of Directors periodically.
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 three types of risk: interest rate risk, currency risk and other price risk. Financial instruments affected by market risk include borrowings, bank deposits, current investments and derivative financial instruments.
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 March 31, 2024 and March 31, 2023.
a) 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 long-term debt obligations with floating interest rates.
The Company manages its interest rate risk by having a balanced portfolio of fixed and floating rate loans from banks & others. At March 31, 2024, approximately 98.06% of the Company’s borrowings are at a fixed rate of interest (March 31, 2023: 95.74% ).
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, after the impact of hedge accounting. With all other variables held constant, the Company’s profit/(loss) before tax is affected through the impact on floating rate borrowings, as follows:
b) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a foreign currency), payables for capital expenditure denominated in foreign currency and foreign currency borrowing.
The Company’s foreign currency risks are identified, measured and managed at periodic intervals in accordance with the Company’s policies.
When a derivative contract is entered into for the purpose of hedging any foreign currency exposure, the Company negotiates the terms of those derivatives contracts to match the terms of the hedged exposure. The Company has major foreign currency risk in USD, EURO and GBP.
The Company has hedged Nil % (March 31, 2023: 29.73%) of its foreign currency trade payables and other financial liabilities in USD and Nil % (March 31, 2023: 100.00%) of its foreign currency loans in USD. This foreign currency risk is hedged by using foreign currency forward contracts (refer note 48). The Company has not hedged the foreign currency trade payables and other financial liabilities in EURO and GBP.
Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in foreign currency rates, with all other variables held constant. The impact on the Company’s profit/(loss) before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives. The Company’s exposure to foreign currency changes for all other currencies other than USD, EURO and GBP is not material
c) Price risk
The Company invests its surplus funds in various debt instruments and debt mutual funds. These comprise of mainly liquid schemes of mutual funds (overnight liquid investments).
Mutual fund investments are susceptible to market price risk, mainly arising from changes in the interest rates or market yields which may impact the return and value of such investments. However due to the very short tenor of the underlying portfolio in the liquid schemes, these do not pose any significant price risk.
d) Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade and other receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments.
- Trade receivables
Customer credit risk is managed in accordance with the Company’s established policy, procedures and controls relating to customer credit risk management. Trade receivables are non-interest bearing and are generally on 15 to 30 days’ credit terms. Outstanding customer receivables are regularly monitored.
The Company follows a ‘simplified approach’ (i.e. based on lifetime Expected credit losses (ECL)) for recognition of impairment loss allowance on Trade receivables. A large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. For the purpose of measuring lifetime ECL allowance for trade receivables, the Company estimates irrecoverable amounts based on the ageing of the receivable balances and historical experience. The Company, based on past trends, recognizes allowance for trade receivables: a) for retail subscribers (net of security deposit) remaining unpaid beyond 90/120 days from date of billing and b) for other trade receivables on account of Interconnect, Roaming, Fixed line Voice and data service etc. remaining unpaid beyond 180/365 days. Further, allowance is also recognised for cases indicating any specific trail of credit loss within the ageing brackets mentioned above. Individual trade receivables are written off when management deems them not to be collectible. Any subsequent recovery is recognized as Income in the Statement of Profit and Loss. Refer Note 14 for the carrying amount of credit exposure as on the Balance Sheet date.
- Other financial assets and cash deposits
Credit risk from balances with banks is managed by the Company’s treasury department. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counter party. Counterparty credit limits are reviewed by the Company’s Treasury Department periodically, and may be updated throughout the year. The limits are intended to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
The Company’s maximum exposure to credit risk for the components of the balance sheet as at March 31, 2024 and March 31, 2023 on its carrying amounts as disclosed in notes 10, 13, 14, 15, 16, 17 and 18 except for derivative financial instruments. The Company’s maximum exposure relating to financial derivative instrument is noted in liquidity table below note 61 (e).
e) Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its present and future cash and collateral obligations without incurring unacceptable losses. The Company’s objective is to, at all times maintain optimum levels of liquidity to meet its cash and collateral requirements. The Company monitors its risk of a shortage of funds using a liquidity planning tool.
The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans. As at March 31, 2024, approximately 1.26% of the Company’s debt excluding interest will mature in less than one year, without considering reclassification into current maturity of debt due to covenant breach (March 31, 2023: 4.26%) based on the carrying value of borrowings reflected in the financial statements.
As the Company has already availed the moratorium with respect to AGR and Deferred Spectrum Obligation as referred in Note 3, funding raised as explained in Note 4 and based on the past performance and future expectation, the Company believes that cash generated from operations, working capital management, successful negotiations with lenders, vendors and DoT for continued support will satisfy its cash flow requirement associated with repayment of borrowings and other liabilities from its operations.
NOTE 64
The Company uses accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the respective software. The Company also uses certain other peripheral applications that support the recording of revenue, related subscriber acquisition costs, and vendor invoice validation, wherein, the audit trail feature is fully enabled through the year at application level for all transactions except for few of the other peripheral software application, for which audit trail is not enabled.
Further, the Company uses software applications which are operated by third-party software service providers, for processing the payroll and for roaming revenue accounting. The Management has obtained the Service Organisation Controls (“SOC”) from the payroll service provider covering audit trail feature at application level and is in process of obtaining SOC reports for roaming revenue accounting service provider and revised SOC report for payroll vendor covering audit trail at database level.
NOTE 65:SUBSEQUENT EVENT
The Board of Directors of the Company, in its meeting held on February 27, 2024, and subsequently the shareholders at extra ordinary general meeting (EGM) held on April 2, 2024 have approved raising of funds up to ' 200,000 Mn by issuance of equity shares or any other instrument or security.
Further, the Board at its meeting held on April 11, 2024, approved a Further Public Offer (FPO) issue of ' 180,000 Mn. On April 23, 2024, the Company has allotted 16,363,636,363 Equity Shares of face value of ' 10 each to the equity shareholders at a price of ' 11.00 (including a premium of ' 1.00) per equity share aggregating to ' 180,000 Mn.
Additionally, the Shareholders on May 8, 2024 have approved issuance of 1,395,427,034 equity shares of ' 10/- each at an issue price of ' 14.87 per equity share (including a premium of ' 4.87 per equity share) aggregating to ' 20,750 Mn on a preferential basis to an existing shareholder entity forming part of the promoter group.
NOTE 66
Previous year figures have been regrouped/rearranged wherever necessary to conform to the current year grouping.
As per our report of even date
For S.R. Batliboi & Associates LLP For and on behalf of the Board of Directors of Vodafone Idea Limited
Chartered Accountants
|CA| Firm Registration No: 101049W/E300004 Ravinder Takkar Himanshu Kapania
Non-Executive Chairman Non-Executive Director
(DIN : 01719511) (DIN : 03387441)
Nilangshu Katriar Akshaya Moondra Murthy G.V.A.S. Pankaj Kapdeo
Partner Chief Executive Officer Chief Financial Officer Company Secretary
Membership No.: 58814
Place: Mumbai Date : May 16, 2024
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