Notes forming part of the Financial Statements A GENERAL INFORMATION Welspun Enterprises Limited (Formerly known as Welspun Projects Limited) ('WEL' or 'the Company') is a public limited company incorporated in India. Its shares are listed on three stock exchanges in India. The company is engaged in the business of engineering, procurement & construction ('EPC') in the field of infrastructure sector, trading, investment activities, oil & gas and corporate support to various infrastructure Special Purpose Vehicles ('SPV'). It is also engaged in carrying out operation and maintenance ("O&M") activities for the transportation sector projects. B BASIS OF brPARATION OF FINANCIAL STATEMENTS These financial statements have been brpared in accordance with the generally accepted accounting principles in India under the historical cost convention on accrual basis. Pursuant to Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, till the standards of accounting or any addendum thereto are brscribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply. Consequently, these financial statements have been brpared to comply in all material aspects with the accounting standards notified under Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as amended] and other relevant provisions of the Companies Act, 2013, and Accounting Standard 30, Financial Instruments: Recognition and Measurement issued by the Institute of Chartered Accountants of India to the extent it does not contradict any other accounting standard referred to in sub-section (3C) of Section 211 of the Act. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year. All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of services products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current or non-current classification of assets and liabilities. 1. SIGNIFICANT ACCOUNTING POLICIES a) USE OF ESTIMATES The brparation of the financial statements requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities as at the date of the financial statements and the reported amount of revenue and expenses of the year. The estimates and assumptions used in the accompanying financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. The examples of such estimates include the useful life of the tangible and intangible assets, allowance for doubtful debts/advances, future obligations in respect of retirement benefit plan etc. Actual results could differ from those estimates and in such case the difference is recognised when known or materialised. b) REVENUE RECOGNITION Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. All revenues are accounted on accrual basis except to the extent stated otherwise. Sale of goods Revenue from sale of goods is recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on delivery of the goods. The company collects Value Added Tax (VAT) and Central Sales Tax (CST) on behalf of the government and, therefore, these are not economic benefits flowing to the company. Hence, they are excluded from revenue. Toll Collections Toll revenue from operations is recognized on an accrual basis which coincides with the collection of toll. Construction revenue The Company follows the percentage completion method, based on the stage of completion at the Balance Sheet date taking into account the contractual price and revision thereto by estimating total revenue and total cost till completion of the contract and profit so determined has been accounted for proportionate to the percentage of the actual work done. In case of lump-sum contract, revenue is recognized on the completion of milestone as specified in the contract or as identified by the management. Foreseeable losses are accounted for as and when they are determined except to the extent they are expected to be recovered through claims brsented or to be brsented to the customer or in arbitration. Amount due in respect of the price escalation claim and/or variation in contract work approved by the customers are recognized as revenue only when there are conditions stipulated in the contracts for such claims or variations and/or the same are evidenced inter-alia by way of confirmation or the same are accepted by the customers. Advances received from customers in respect of contracts are treated as liability. Progress payments received are adjusted against receivables from customers in respect of the contract work performed. Amount(s) retained by the customers until the satisfactory completion of the contract are recognized in the final statement as receivables. Where such retention has been released by the customers against submission of bank guarantee, the amount so released is adjusted against receivables from the customers and value of bank guarantees is disclosed as contingent liability under bank guarantees outstanding. Disputed amount under the contract works are recognized as revenue when the same are finally settled and there is reasonable assurance that the amount will be received. Liquidated damages payable, if any, as per the terms of the contract, for the delays, if any, are accounted only when such delay is attributable to the Company. Income from services Revenues from maintenance contracts are recognized pro-rata over the period of the contract as and when services are rendered. The company collects service tax on behalf of the government and, therefore, it is not an economic benefit flowing to the company. Hence, it is excluded from revenue. Interest Interest income is recognized on a time proportion basis taking into account the amount outstanding and the applicable interest rate. Interest income is included under the head "other income" in the statement of profit and loss. Dividends Dividend income is recognized when the company's right to receive dividend is established by the reporting date. c) EXTRAORDINARY AND EXCEPTIONAL ITEMS Income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the Company are classified as extraordinary items. Specific disclosure of such events/transactions is made in the financial statements. Similarly, any external event beyond the control of the Company, significantly impacting income or expense, is also treated as extraordinary item and disclosed as such. On certain occasions, the size, type or incidence of an item of income or expense, pertaining to the ordinary activities of the Company, is such that its disclosure improves an understanding of the performance of the Company. Such income or expense is classified as an exceptional item and accordingly disclosed in the notes to accounts. d) EXPENDITURE IN RESPECT OF BUILD, OPERATE & TRANFER PROJECTS: Expenditure incurred on construction of Build, Operate and Transfer (BOT) Project which does not rebrsent Company's own assets is classified as "BOT PROJECT EXPENDITURE" (Toll Collection right) and shown under the head 'Intangible Assets'. e) FIXED ASSETS i. Tangible Assets: Fixed assets are stated at cost, net of accumulated debrciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred. The company adjusts exchange differences arising on translation/ settlement of long-term foreign currency monetary items pertaining to the acquisition of a debrciable asset to the cost of the asset and debrciates the same over the remaining life of the asset. In accordance with MCA circular dated 09 August 2012, exchange differences adjusted to the cost of fixed assets are total differences, arising on long-term foreign currency monetary items pertaining to the acquisition of a debrciable asset, for the period. Gains or losses arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. ii. Intangible Assets: Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in an amalgamation in the nature of purchase is their fair value as at the date of amalgamation. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. f) DEbrCIATION / AMORTISATION. Debrciation is provided on written down value basis at the rate derived on the basis of useful life and method brscribed under Schedule - II of the Companies Act 2013. Intangible Assets i.e. BOT Cost (Toll Collection right) is amortized over the period of concession, using revenue based amortization. Under this methodology, the Carrying value is amortized in the proportion of actual toll revenue for the year to projected revenue for the balance toll period, to reflect the pattern in which the assets' economic benefits will be consumed. At each Balance sheet date, the projected revenue for the balance toll period is reviewed by the management. If there is any change in the projected revenue from brvious estimates, the amortization of toll collection rights is changed prospectively to reflect any change in the estimates. Intangible assets rebrsenting BOT Costs are amortised over the concession period, ranging from 10 years to 30 years, which is beyond the maximum period of 10 years as specified in AS 26 on Intangible Assets, as the economic benefits from the underlying assets would be available to the Group over such period as per the respective concessionaire agreements. The amortization period and the amortization method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from brvious estimates, the amortization period is changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, the amortization method is changed to reflect the changed pattern. Such changes are accounted for in accordance with AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. The Company uses a rebuttable brsumption that the useful life of an intangible asset (excluding BOT assets) will not exceed ten years from the date when the asset is available for use. g) IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS If internal / external indications suggest that an asset of the Company may be impaired, the recoverable amount of asset / cash generating asset is determined on the Balance Sheet date and if it is less than its carrying amount of the asset / cash generating unit the carrying amount of asset is reduced to the said recoverable amount. The recoverable amount is measured as the higher of net selling price and value in use of such asset / cash generating unit, which is determined by the brsent value of carrying amount of the estimated future cash flow. h) VALUATION OF INVENTORIES Raw materials and components are valued at lower of cost and net realizable value. Cost is determined on FIFO basis. Traded goods are valued at lower of cost and net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their brsent location and condition. Cost is determined on a FIFO basis. Unbilled Cost are carried as Construction Work in Progress which is valued considering the stage of completion and foreseeable losses in accordance with the AS 7. Stores and spares are written off in the year of purchase. GOVERNMENT GRANTS AND SUBSIDIES: Grants and subsidies from the government are recognized when there is reasonable assurance that (i) the company will comply with the conditions attached to them, and (ii) the grant/subsidy will be received. Government grants of the nature of promoters' contribution are credited to capital reserve and treated as a part of the shareholders' funds. INVESTMENTS Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments. On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties. Current investments are carried in the financial statements at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments. On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss. k) PROVISION FOR DOUBTFUL DEBTS / LOANS ADVANCES: Provision is made in accounts for doubtful debts / advances which in the opinion of the management are considered doubtful of recovery. l) AMALGAMATION ACCOUNTING An amalgamation in the nature of purchase is accounted for using the purchase method. The cost of acquisition/ amalgamation is measured as the aggregate of the consideration transferred, measured at fair value. Other aspects of accounting are as below: (i) The assets and liabilities of the transferor company are recognized at their fair values at the date of amalgamation. The reserves, whether capital or revenue, of the transferor company, except statutory reserves, are not recognized. (ii) Any excess consideration over the value of the net assets of the transferor company acquired is recognized as goodwill. If the amount of the consideration is lower than the value of the net assets acquired, the difference is treated as capital reserve. m) RETIREMENT AND OTHER EMPLOYEE BENEFITS Short Term Employee benefits: Short Term Employee Benefits are recognized in the period during which the services have been rendered. Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. Long Term Employee benefits: Provident Fund, Family Pension fund As Per Provident Fund Act 1952 all employees of the Company are entitled to receive benefits under the provident fund and family pension fund which is defined contribution plan. These contributions are made to the plan administered and managed by Government of India. Retirement benefit in the form of provident fund is a defined contribution scheme. The company has no obligation, other than the contribution payable to the provident fund. The company recognizes contribution payable to the provident fund scheme as an expenditure, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid,the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the br payment will lead to, for example, a reduction in future payment or a cash refund. Leave encashment: The company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The company brsents the leave as a current liability in the balance sheet, to the extent it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Where company has the unconditional legal and contractual right to defer the settlement for a period beyond 12 months, the same is brsented as non-current liability. Gratuity : The Company provides for gratuity obligations through a Defined benefits retirement plan ("The Gratuity Plan") covering all employees. The brsent value of the obligation under such defined benefit plan is determined based on the actuarial valuation using the project unit credit method, which recognizes each period of service as giving rise to additional unit of employees benefits entitlement and measure each unit separately to build up final obligation. The obligation is measured at the brsent value of the estimated cash flows. The discount rate used for determining brsent value of the defined obligation under the defined benefit plan is based on the market yield on Government Securities as at the balance sheet date. Actuarial gains and losses are recognized in Profit and Loss Account as and when determined. The Company makes annual contribution to LIC for the gratuity plan in respect of all the employees. n) EMPLOYEE STOCK COMPENSATION COST Employees (including senior executives) of the company receive remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Guidance Note on Accounting for Employee Share-based Payments, the cost of equity-settled transactions is measured using the intrinsic value method. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the company's best estimate of the number of equity instruments that will ultimately vest. The expense or credit recognized in the statement of profit and loss for a period rebrsents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense. The intrinsic value of the Stock Option calculated at the average rate per Share is amortized on the straight line basis over the vesting period in accordance with SEBI (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guideline 1999. Accordingly proportionate expense is shown as "Employees Compensation Expenses" in statement of profit & loss account. o) BORROWING COST Borrowing cost includes interest and amortization of ancillary costs incurred in connection with the arrangement of borrowings. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur. p) PROVISION FOR CURRENT AND DEFERRED TAX Tax Expenses i. Provision for current tax is made based on taxable income for the current accounting year and in accordance with the provisions of the Income tax Act, 1961. ii. Deferred tax resulting from "timing difference" between book and taxable profit for the year is accounted for using the tax rates and laws that have been enacted or substantially enacted as on the balance sheet date. The deferred tax asset is recognized and carried forward only to the extent that there is a virtual certainty that the assets will be adjusted in future. iii. Minimum Alternate Tax (MAT) credit is recognized as an assets only when and to the extent there is convincing evidence that the Company will pay normal Income Tax during the specified period. q) FOREIGN CURRENCY TRANSACTION Transaction in foreign currency is recorded at the exchange rate brvailing on the date of the transaction, exchange rate differences resulting from foreign exchange transaction settled during the period including year- end transaction of current assets and liabilities are recognized in the statement of profit & loss. Exchange rates differences arising in relation to liabilities incurred for acquisition of fixed assets are adjusted to the carrying value of the fixed assets. In respect of forward exchange contract, except in case of fixed assets, the difference between forward rate and the exchange rate at the inception of the forward exchange contract is recognized as income / expenses over the life of the contract. r) LEASE Operating Lease Lease of assets under which all the risk and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognized as expenses on accrual basis in accordance with respective lease agreements. Finance Lease Assets acquired under leases where Company has substantially all the risk and rewards of ownership are classified as finance lease. Assets acquired under finance are capitalized and corresponding lease liability is recorded at an amount equal to the fair value of the leased assets at the inception of the lease. Initial costs incurred in connection with the specific leasing activities directly attributable to activities performed by the Company are included as part of the amount recognized as an asset under the lease. s) CASH AND CASH EQUIVALENTS Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less. t) EARNINGS PER SHARE ('EPS') Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders (after deducting brference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares. u) PROVISIONS A provision is recognized when the company has a brsent obligation as a result of 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. Provisions are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates. Where the company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is brsented in the statement of profit and loss net of any reimbursement. v) CONTINGENT LIABILITIES A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The company does not recognize a contingent liability but discloses its existence in the financial statements. 2 Security Deposits and Retention money deducted from contract receipt are subject to confirmation and adjustment, if any, on finalization of account. 3 The Company has given Inter corporate deposits of Rs. 28,52,00,000/- to ARSS Infrastructure Limited and Rs.2,50,00,000 to Anil Construction P Ltd, during the year 2012-13 and also charged interest of Rs. 4,15,00,000 thereon, which is not received. No interest is charged on the said ICD's during the year 2013-14 & 2014-15. The matter is constantly pursued by the company and legal proceeding is also initiated for recovery of the said amount. There is no need to make any provision for the said amount as the Company is hopeful for the recovery in near future. 4 The useful life of the Fixed Assets has been revised in accordance with Schedule II to the Companies Act 2013, which is applicable from accounting period commencing on or after April 1 2014, consequently an amount of Rs. 51,85,713/-rebrsenting Assets beyond useful life as on April 1 2014 has been charged to retained earnings. In other cases carrying amount has been debrciated / amortized over the remaining useful life of the assets. 5 The Company has obtained the contract on Build, Operate and Transfer basis from MPSIDC for execution for Dewas Water Supply projects, However the Company could not achieve the optimum capacity due to certain problem and defects in pipe line hence to achieve a desired and specified result the Company had decided to expand the capacity and to undertake reconstruction of the Project. Accordingly the Company had decided to capitalize the entire expenditure (net of revenue) incurred for reconstruction. Accordingly the Company had Capitalized Rs. 25,73,09,647/- during the financial years from 2011-12 to 2013-14 and shown under the head "Intangible Assets under Development". However, based on current status of the project and negotiations with MPSIDC, the planned augmentation of the existing project seems unlikely. Considering these facts the company has written off 'Intangible asset under development' and charged the same to Statement of Profit and Loss. The current year expenditure and revenue are charged/ credited respectively to Statement of Profit and Loss. Further, MPSIDC has decided to issue bids (pursuant to Swiss challenge) for laying new pipeline for changing the sourcing of water supply. The Company will review the accounting treatment of the carrying amount of BOT expenditure on outcome of the bid process. 6 Various suppliers' accounts had debit/ credit balance outstanding for more than 3 years. On scrutiny of the said accounts it is found that certain Credit Balances standing to the Supplier accounts are not payable and Debit Balance Standing to the Supplier Account are not receivable. Accordingly, the Company has written back / off unclaimed Credit Balance of Rs.5,16,35,083/- and Debit Balance of Rs. 3,44,49,013/- not receivable and net unpaid amount of Rs.1,71,86,070/- is shown as unclaimed liabilities written back under the head "Other Income" in Statement of Profit & Loss. 7 The Company has obtained Jalandhar Bus Terminal Projects on BOT Basis, The Concession period to collect Toll is over during Apr 2014 as per the Concession Agreement. However the Company has continued to collect the Toll after Apr 2014 to Jan 2015. Toll collected during these period is Rs.4,87,30,984/-. There is dispute in respect of Date of Commencement and also extension of the Concession period between Department of Transport, Jalandhar and the Company, matter is pending with the Hon'ble High Court Chandigarh. Meanwhile as per the order of the High Court the Company has deposited Rs 4,35,64,407/- of Toll Revenue with the Punjab National Bank in "Fixed Deposits". 8 Based on expert's opinion obtained by the Company, the Company's operation comprises of only one segment namely Infrastructure Development. 9 Based on the legal opinion taken by the Company, Subsidy of Rs.82,87,29,840/- (PY. 82,87,29,840/-) received from Madhya Pradesh Rajya Setu Nirman Nigam Limited, against the Build, Operate & Transfer Project Expenditure is in the nature of promoter contribution and accordingly treated as Capital Reserve in the books of accounts of the Company. 10 Confirmations of certain parties for amounts due from them as per accounts of the company are not obtained. Amount due from customers include amounts due/with held on account of various claims. The claims will be verified and necessary adjustments, if any, shall be made in the year of settlement. Subject to this, company is confident of recovering the dues and accordingly they have been classified as "debt considered good" and therefore no provision is considered necessary, there against. 11 Under the Micro, Small and Medium Enterprise Development Act, 2006 ("MSMED Act") which came into force effective from October 2, 2006, certain disclosures relating to amounts due to micro, small and medium enterprises and remained unpaid after the appointed date etc. of principal and interest amounts are required to be made. The Company is in the process of compiling the relevant information. As the relevant information is not yet readily available and / or not given or confirmed by such enterprises, it is not possible to give required information in the accounts. However, in view of the management, the impact of interest, if any, which may subsequently become payable to such enterprise in accordance with the provisions of the Act, would not be material and the same, if any, would be disclosed in the year of payment of interest. In the absence of the necessary information with the Company relating to the registration status of the suppliers under the Micro, Small and Medium Enterprises Development Act' 2006, the information required under the said Act could not be compiled and disclosed. 12. Previous year figures are not comparable in view of the scheme referred in Note 31. Figures for the brvious year are reclassified/ re - arranged / re -grouped, wherever necessary so as to be in conformity with the figures of the current years' classification/ disclosure. 13. In the opinion of the Board of Directors, Current Assets, Loans and Advances have value at which they are stated in the Balance Sheet, if realized in the ordinary course of business. The provision for debrciation and for all known liabilities is adequate and not in excess of the amount reasonably necessary. As per our report of even date For Chandrakant & Sevantilal & J. K. Shah & Co. Chartered Accountants Firm Registration No.: 101676W H. B. Shah Partner Membership No.: 16642 Balkrishan Goenka Chairman DIN : 00270175 Sandeep Garg Managing Director DIN : 00036419 For and on behalf of the Board of Directors Shriniwas Kargutkar Chief Financial Officer Rajendra Sawant Company Secretary Date : May 29, 2015 Place: Baroda |
