Notes to financial statements for the year ended March 31, 2015 1. Corporate Information Sadbhav Infrastructure Project Limited ('the Company') is engaged in development, construction as well as operation & maintenance of infrastructure projects and related consulting and advisory services. The Company undertakes development of infrastructure projects directly or indirectly through Special Purpose Vehicles (SPVs) as per the concession agreements in the form of subsidiaries, jointly controlled entities and associates. The Company is a subsidiary of Sadbhav Engineering Limited ("SEL"), a listed company, engaged in providing engineering, procurement and construction services ("EPC") in the road and other infrastructure projects. In terms of Reserve Bank of India directive with regards to Systematically Important Core Investment Companies (Reserve Bank) Directions, 2011, the Company is not required to be registered with Reserve Bank of India as on March 31, 2014 based on eligibility criteria. 2. Basis of brparation The financial statements of the company have been brpared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been brpared on an accrual basis, under the historical cost convention. The accounting policies have been consistently applied by the company and are consistent with those used in the brvious year. 2.1Summary of significant accounting policies a. Use of Estimates The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period. Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future years. b. Tangible fixed assets Fixed assets are stated at cost, net of accumulated debrciation and accumulated impairment losses if any. The cost comprises the purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. Gains or losses arising from de-recognition 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. c. Debrciation on tangible fixed assets Upto March 31, 2014, the debrciation on Tangible Assets is provided using the Written Down Value method at rates brscribed under Schedule XIV to the Companies Act, 1956 and with effect from April 1, 2014, the debrciation is provided based on useful life brscribed under Schedule II of the Companies Act 2013. In respect of fixed assets purchased during the year, debrciation is provided on a pro-rata basis from the date on which such asset is ready to be put to use. All categories of assets costing less than Rs. 5,000 each is fully debrciated in the year of purchase. d. Impairment I. The company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an assets net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. The Company's impairment tests of Investments are based on value in use. The Company has used expected future cash flows of projects in respect of SPV's which generally covering period of the concession agreement using long term growth rate applied to future cash flows. II. After impairment, debrciation is provided on the revised carrying amount of the asset over its remaining useful life. e. Leases Where the Company is the lessee Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term. f. Borrowing Cost Borrowing cost includes interest and amortization of ancillary costs incurred in connection with the arrangement of borrowings and brmium payable on redemptions and discount on issue of debenture. 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 year they occur. g. Investment 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. h. 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. The following are specific recognition criteria must also be met before income is recognized; I. Income from sale of services Revenue in respect of arrangements made for rendering services over specific contractual term is recognized on a straight line basis over the contractual term of the arrangement. I n respect of arrangements, which provide for an upfront payment followed by additional payments as certain conditions are met (milestone payments); the amount of revenue recognized is based on the services delivered in the year as stated in the contract. In respect of arrangements where fees for services rendered are success based, revenue is recognized only when the factors on which the fee is based, actually occurs. 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. II. Contractual Income Contract revenue and costs associated with project related activities is recognized as by reference to the stage of completion of the projects at the reporting date. The stage of completion of a project is determined by the proportion that the contract cost incurred for work performed up to the reporting date bears to the estimated total contract costs. Any excess revenue recognized in accordance with the stage of completion of the project, in comparison to the amounts billed to the clients in accordance with the milestones completed as per the respective project, is carried forward as "Unearned Revenue". Any short revenue recognized in accordance with the stage of completion of the project, in comparison to the amounts billed to the clients in accordance with the milestones completed as per the respective project, is carried forward as "Unbilled Revenue". An expected loss on construction contract is recognized as an expense immediately when it is certain that total contract costs will exceed the total contract revenue. Price escalation and other claims and/or variation in the contract work are included in contract revenue only when it probable that customer will accept the claim and the amount that is probable will be accepted by the customer can be measured reliably. III. Dividend Dividend income is recognized when the company's right to receive payment is established by the reporting date. IV. 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. i. Foreign Currency Transactions I. Initial Recognition: Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction II. Conversion Foreign currency monetary items are retranslated using the exchange rate brvailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. III. Exchange Difference The company accounts for exchange differences arising on translation/settlement of foreign currency monetary items as below: 1. Exchange differences arising on long-term foreign currency monetary items related to acquisition of a fixed asset are capitalized and debrciated over the remaining useful life of the asset. 2. Exchange differences arising on other long-term foreign currency monetary items are accumulated in the "Foreign Currency Monetary Item Translation Difference Account" and amortized over the remaining life of the concerned monetary item. 3. All other exchange differences are recognized as income or as expenses in the year in which they arise. j. Retirement and other employee benefits I. 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. II. The company operates one defined benefit plan for its employees, viz., gratuity liability. The costs of providing benefits under this plan are determined on the basis of actuarial valuation at each year-end. Actuarial valuation is carried out using the projected unit credit method made at the end of each reporting date. Actuarial gains and losses for the defined benefit plans are recognized in full in the year in which they occur in the statement of profit and loss. III. Compensated absences which accrue to the employees, and which is expected to be utilized or encashed within the next 12 months from reporting date, 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. As per Company policy, no leave are expected to be carried forward beyond 12 months from the reporting date. k. Income taxes Tax expense comprises of current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred tax liabilities are recognized for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the company has unabsorbed debrciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. The carrying amount of deferred tax assets are reviewed at each reporting date. The company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. l. Segment Reporting Identification of segments The Company's operating businesses are organized and managed separately according to the nature of services provided, with each segment rebrsenting a strategic business unit that offers different services, the risk return profile of individual business unit, the organizational structure and internal reporting system of the company. The analysis of geographical segments is not required as the company's operations are within single geographical segment i.e. India. Allocation of common costs Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs. Unallocated items Unallocated items include general corporate income and expense items, which are not allocated to any business segment. Assets and liabilities (including investments made in infrastructure projects through special purpose vehicle) that cannot be allocated between the segments are shown as a part of unallocated corporate assets and liabilities respectively. Segment Policies The company brpares its segment information in conformity with the accounting policies adopted for brparing and brsenting the financial statements of the company as a whole. m. Earnings per share Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting dividend on cumulative brference shares and attributable taxes) by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. n. Provisions, Contingent liabilities and Contingent Assets I. 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 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. II. 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. Contingent Assets are neither recognized nor disclosed in the financial statements. o. Cash and Cash Equivalent Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank (including demand deposits) and in hand and short-term investments with an original maturity of three months or less. p. Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting brference share dividend and attributable taxes) by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year is adjusted for the effect of all dilutive potential equity shares. q. Measurement of EBITDA As permitted by the Guidance Note on the Revised Schedule VI to the Companies Act, 1956, the company has elected to brsent earnings before interest, tax, debrciation and amortization (EBITDA) as a separate line item on the face of the statement of profit and loss. The company measures EBITDA on the basis of profit/ (loss) from continuing operations. In its measurement, the company does not include debrciation and amortization expense, finance costs and tax expenses. 2 Leases Office space at Ahmedabad is obtained on operating leases. During the year, the Company has incurred Rs. 1.01 Million (Previous year Rs. 1.01 Million) (inclusive of service tax) towards rent for office space. There are no sub-leases and the leases are cancellable in nature. There are no restrictions imposed by the lease arrangements. There is neither any contingent rent, nor any escalation clause in the lease agreements. 3 As per intimation available with the Company, there are no micro, small and medium enterprises as defined in the Micro, Small and Medium Enterprise Development Act, 2006 to whom the Company owes dues on account of principal amount together with interest and accordingly no related additional disclosure have been made. 4 During the year 2013-14, minority shareholders of Bijapur Hungud Tollway Private Limited ('BHTPL') (a subsidiary of the Company) has filed company petition under section 397 and 398 of the Companies Act, 1956 with the Company Law Board - Mumbai Bench against Sadbhav Engineering Ltd. (SEL), a holding Company and its associates/affiliates wherein the company is also defendant. The minority shareholders has pleaded that BHTPL awarded EPC and other contracts to SEL / affiliates which are brjudicial to the interest of BHTPL and hence should be terminated. The Company Law Board (CLB) passed an order in favour of the minority shareholder although Company pleaded that matter should be referred for arbitration as per terms of shareholder agreement (SHA). Against the CLB order the Company filed Special Civil Application (SCA) with Hon'ble High Court of Gujarat that matter of minority shareholder should be dealt as per SHA. Hon'ble High Court accepted SCA of the Company and granted interim relief whereby further proceeding of CLB have been stayed. Hon'ble High Court then upheld the order of the Company Law Board, vacated the interim order and dismissed the SCA. The Company had filed an appeal under Letters Petent Act (LPA) before the Division Bench of Hon'ble Gujarat High Court ("the Bench"). The Bench ordered a stay on the further proceedings of CLB. The Company, based on the rebrsentations made before the Hon'ble Gujarat High Court, has defended the matter stating that the dispute is there between the shareholders of BHTPL instead of relating to opbrssion and mismanagement in BHTPL. Further, it is rebrsented that such dispute should be resolved through arbitration agreement. The LPA is pending for final hearing before division bench of Hon'ble Gujarat High Court. The management rebrsents that no liability is likely to devolve in the matter on the Company. 5 During the year 2013-14, one of the Company's subsidiary i.e. Solapur Bijapur Tolllway Private Limited (SBTPL) has foreclosed the concession agreement with NHAI. Accordingly, sub-ordinate debt given by the Company to the SBTPL was waived off and provision was provided in the books in the year ended March 31, 2014, for diminution in value of Investment in the Subsidiary. During the year, SBTPL has filed winding up petition with Registrar of the Company, Gujarat, under Section 560 of the Companies Act 1956 on November 10, 2014. Against petition, the Company has received Notice under sub section (3) of Section 560 of The Companies Act, 1956 dated March 11, 2015, whereby it has mentioned that the name of the SBTPL will be struck off upon expiry of thirty days from the date of Notice. Hence, the Company has written off its investment in the subsidiary during the year and adjusted against the provision. 6 During the year, the Company has accounted Contract Income towards cost escalation claim, of Rs. 72.87 Million (31 March 2014: Rs. 294.88 Million) in line with cost inflation index principles (cost escalation formula) approved by independent consultant of the customer. 7 CSR Expenditure: Gross amount required to be spent during the year: Rs. 4.21 million Amount spent during the year (promoting education and others) paid in cash: Rs. 5.99 million 8 Previous year figures have been regrouped/reclassified wherever necessary, to confirm this year's classification. As per our report of even date For Manubhai & Shah Chartered Accountants ICAI Firm Registration No.: 106041W K. C. Patel Partner Membership No. 30083 For S R B C & CO LLP Chartered Accountants ICAI Firm Registration No.: 324982E Arpit K. Patel Partner Membership No. 34032 For and on behalf of Board of Directors Sadbhav Infrastructure Project Limited Vasistha C. Patel Managing Director DIN : 00048324 Gaurav Vesasi Company Secretary Vishnubhai M. Patel Director DIN : 00048287 Varun Mehta Chief Financial Officer Date : 30 May, 2015 Place : Ahmedabad |