Preliminary Placement Document Not for Circulation Private and Confidential Serial No. [●]
CESC LIMITED Incorporated in the Republic of India as a company under the Companies Act, 1956 with corporate identification number L31901WB1978PLC031411. Registered Office and Corporate Office: CESC House, Chowringhee Square, Kolkata, 700 001, India. Telephone: +91 033 2225 6040; Fax: +91 033 2225 5155, email: [email protected]; website: www.cesc.co.in .
CESC Limited (the “ Company” or the “Issuer” ) is issuing up to [ ●] equity shares of face value of Rs. 10 each (“ Equity Shares ”) at a price of Rs. [●] per Equity Share, including a
Equity Shares premium of Rs. [●] per Equity Share, aggregating to Rs. [●] million (“ Issue ”).
ISSUE IN THE RELIANCE UPON SECTIONS 42 AND 62 OF THE COMPANIES ACT, 2013 AND CHAPTER VIII OF THE SECURITIES AND EXCHANGE is not permitted. The BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (“SEBI ICDR REGULATIONS”).
THIS ISSUE AND THE DISTRIBUTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IS BEING MADE TO QUALIFIED INSTITUTIONAL BUYERS (“QIB”) AS DEFINED IN SEBI ICDR REGULATIONS IN RELIANCE UPON CHAPTER VIII OF SEBI ICDR REGULATIONS, AS AMENDED AND SECTION 42 OF THE COMPANIES ACT, 2013 AND RULES MADE THEREUNDER. THIS PRELIMINARY PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC OR TO ANY OTHER PERSON OR CLASS OF INVESTORS WITHIN OR OUTSIDE INDIA OTHER THAN QIB. THIS PRELIMINARY PLACEMENT DOCUMENT WILL BE CIRULATED ONLY TO SUCH QIBS WHOSE NAMES ARE RECORDED BY OUR COMPANY PRIOR TO MAKING AN INVITATION TO SUBSCRIBE TO EQUITY SHARES.
Invitations, offers and sales of the Equity Shares shall only be made pursuant to this Preliminary Placement Document, the Placement Document, the Application Form and the Confirmation of Allocation Note. See the “Issue Procedure”. The distribution of this Preliminary Placement Document or the disclosure of its contents to any person, other than QIBs and persons retained by QIBs to advise them with respect to their purchase of the Equity Shares, is unauthorized and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document, agrees to observe the foregoing restrictions and to make no copies of this Preliminary Placement Document or any documents referred to in this Preliminary Placement Document. the the sole purpose of inviting Bids from QIBs for the Copies of this Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4 (as defined hereinafter)) have been delivered to the National Stock
ities in any jurisdiction where such offer or sale Exchange of India Limited (“ NSE ”), the Calcutta Stock Exchange Limited (“ CSE ”) and the BSE Limited (“ BSE ”) (collectively the “Stock Exchanges ”). This Preliminary Placement Document has not been reviewed by the Securities and Exchange Board of India (“ SEBI ”), the Reserve Bank of India (“RBI ”), the Stock Exchanges or any other regulatory or listing authority and is intended only for use by QIBs. Our Company shall make the requisite filings with the Registrar of Companies, West Bengal (“ ROC ”) and the SEBI within the stipulated period as required under the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014. This Preliminary Placement Document has not been and will not be registered as a prospectus with the RoC, and will not be circulated or distributed to the public in India or any other jurisdiction and will not constitute a public offer in India or any other jurisdiction. The Issue is meant only for QIBs by way of a private placement and is not an offer to the public or to any other class of investors.
The information in this Preliminary Placement Document is not complete and may be changed. This Preliminary Placement Document is not an offer to sell any Equity Shares and is not soliciting an offer to subscribe to or buy the Equity Shares in any jurisdiction where such offer, sale or subscription is not permitted. It is being issued for the sole purpose of information or discussion relating to the Equity Shares that may be Allotted through the Placement Document.
INVESTMENTS IN THE EQUITY SHARES INVOLVE A HIGH DEGREE OF RISK AND PROSPECTIVE INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS ISSUE UNLESS THEY ARE PREPARED TO TAKE THE RISK OF LOSING ALL OR PART OF THEIR INVESTMENTS. PROSPECTIVE INVESTORS ARE ADVISED TO READ THE “RISK FACTORS” CAREFULLY BEFORE TAKING AN INVESTMENT DECISION IN THIS ISSUE. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS ADVISORS ABOUT THE PARTICULAR CONSEQUENCES TO IT OF AN INVESTMENT IN THE EQUITY SHARES BEING ISSUED PURSUANT TO THIS PRELIMINARY PLACEMENT DOCUMENT.
uity uity Shares of our Company and is being issued for rities, and is not soliciting an offer to buy secur The information on our Company’s website or any website directly or indirectly linked to our Company‘s website does not form part of this Preliminary Placement Document and prospective investors should not rely on such information contained in, or available through, such websites.
Our Company’s Equity Shares are listed on the Stock Exchanges. The closing price of the outstanding Equity Shares on the BSE and the NSE on October 28, 2014 was Rs. 664.60 and Rs. 664.20 per Equity Share, respectively. No Equity Shares of our Company were traded on the CSE on October 28, 2014. In-principle approvals under Clause 24(a) of the
Listing Agreement for listing of the Equity Shares have been received from the BSE, NSE and CSE on October 28, 2014. Applications to the Stock Exchanges will be made for obtaining final listing and trading approvals for the Equity Shares offered through this Preliminary Placement Document. The Stock Exchanges assume no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Equity Shares to trading on the Stock Exchanges should not be taken as an indication of the merits of our business or the Equity Shares.
YOU MAY NOT BE AND ARE NOT AUTHORIZED TO (1) DELIVER THIS PRELIMINARY PLACEMENT DOCUMENT TO ANY OTHER PERSON; (2) REPRODUCE THIS PRELIMINARY PLACEMENT DOCUMENT IN ANY MANNER WHATSOEVER; OR (3) RELEASE ANY PUBLIC ADVERTISEMENTS OR UTILISE ANY MEDIA, MARKETING OR DISTRIBUTION CHANNELS OR AGENTS TO INFORM THE PUBLIC AT LARGE ABOUT THE ISSUE. ANY DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS INSTRUCTION MAY RESULT IN A VIOLATION OF APPLICABLE LAWS OF INDIA AND OTHER JURISDICTIONS.
THIS PRELIMINARY PLACEMENT DOCUMENT HAS BEEN PREPARED BY OUR COMPANY SOLELY FOR PROVIDING INFORMATION IN CONNECTION
ute a public offer to any person to purchase the Eq WITH THE PROPOSED ISSUE OF THE EQUITY SHARES DESCRIBED IN THIS PRELIMINARY PLACEMENT DOCUMENT.
is not complete may and be changed. ary Placement Document is not an offer to sell secu The Equity Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the ‘‘ Securities Act’ ’) and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold (a) in the United States only to persons who are both qualified institutional buyers (as defined in Rule 144A under the Securities Act (“ Rule 144A ”) and referred to in this Preliminary Placement Document as “ U.S. QIBs ”; for the avoidance of doubt, the term U.S. QIBs does not refer to a category of institutional investors defined under applicable Indian regulations and referred to in this Preliminary Placement Document as “ QIBs ”) and (b) outside the United States in compliance with Regulation S under the Securities Act. Prospective purchasers in the United States are hereby notified that we are relying on the exemption under Section 4(a)(2) of the Securities Act. For further information, see section “Selling Restrictions” on page 199 and “Purchaser Representations and Transfer Restrictions” on page 206.
GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS
This Preliminary Placement Document is dated October 28, 2014. The The Preliminary Placement Document does not constit information thisin Preliminary Placement Document being being offered pursuant to this Issue. This Prelimin
TABLE OF CONTENTS
NOTICE TO INVESTORS ...... 1 REPRESENTATIONS BY INVESTORS ...... 3 OFF-SHORE DERIVATIVE INSTRUMENTS ...... 8 DISCLAIMER CLAUSE OF THE STOCK EXCHANGES ...... 9 PRESENTATION OF FINANCIAL AND OTHER DATA ...... 10 MARKET AND INDUSTRY DATA ...... 11 AVAILABLE INFORMATION ...... 12 FORWARD LOOKING STATEMENTS ...... 13 ENFORCEMENT OF CIVIL LIABILITIES ...... 15 EXCHANGE RATES ...... 16 DEFINITIONS AND ABBREVIATIONS ...... 17 DISCLOSURE REQUIREMENTS UNDER FORM PAS-4 PRESCRIBED UNDER THE COMPANIES ACT, 2013 ...... 22 SUMMARY OF BUSINESS ...... 24 SUMMARY OF THE ISSUE ...... 26 SUMMARY FINANCIAL INFORMATION ...... 28 RISK FACTORS ...... 39 MARKET PRICE INFORMATION ...... 68 USE OF PROCEEDS ...... 71 CAPITALIZATION AND INDEBTEDNESS ...... 72 CAPITAL STRUCTURE ...... 73 DIVIDEND POLICY ...... 75 INDUSTRY OVERVIEW ...... 76 BUSINESS ...... 101 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 127 HISTORY AND OTHER CORPORATE MATTERS ...... 153 REGULATIONS AND POLICIES ...... 156 BOARD OF DIRECTORS AND SENIOR MANAGEMENT ...... 176 PRINCIPAL SHAREHOLDERS AND OTHER INFORMATION ...... 184 ISSUE PROCEDURE ...... 186 PLACEMENT ...... 197 SELLING RESTRICTIONS ...... 199 PURCHASER REPRESENTATIONS AND TRANSFER RESTRICTIONS ...... 206 THE SECURITIES MARKET OF INDIA ...... 209 DESCRIPTION OF EQUITY SHARES ...... 213 INDEPENDENT AUDITORS ...... 218 STATEMENT OF TAX BENEFITS ...... 219 LEGAL PROCEEDINGS ...... 234 GENERAL INFORMATION ...... 239 FINANCIAL INFORMATION ...... 240 DECLARATION ...... 241
NOTICE TO INVESTORS
Our Company has furnished and accept full responsibility for the information contained in this Preliminary Placement Document and confirm that, to the best of our knowledge and belief, having made all reasonable enquiries, the Preliminary Placement Document contains all information with respect to us and the Equity Shares which is material in the context of this Issue. The statements contained in this Preliminary Placement Document relating to us and the Equity Shares are, in all material respects, true and accurate and not misleading. The opinions and intentions expressed in this Preliminary Placement Document with regard to us and the Equity Shares are honestly held, have been reached after considering all relevant circumstances, are based on information presently available to us and are based on reasonable assumptions. There are no other facts in relation to us and the Equity Shares, the omission of which would, in the context of this Issue, make any statement in this Preliminary Placement Document misleading in any material respect. Further, all reasonable enquiries have been made by us to ascertain such facts and to verify the accuracy of all such information and statements.
The Global Coordinators and Book Running Lead Managers (“ GC-BRLMs”) have not separately verified all of the information contained in this Preliminary Placement Document (financial, legal or otherwise). Accordingly, neither the GC-BRLMs nor any of their respective affiliates including any of their respective members, directors, officers, employees, counsel, representatives, or agents make any express or implied representation, warranty or undertaking, and no responsibility or liability is accepted by any of the GC-BRLMs or any of their respective members, directors, officers, employees, counsel, representatives, agents or officials as to the accuracy or completeness of the information contained in this Preliminary Placement Document or any other information supplied in connection with the issue of Equity Shares or their distribution. Each person receiving this Preliminary Placement Document acknowledges that such person has not relied on the GC-BRLMs or any of their respective affiliates including any of their respective members, directors, officers, employees, counsel, representatives, agents or affiliates in connection with its investigation of the accuracy of such information or its investment decision, and each such person must rely on its own examination of us and the merits and risks involved in investing in the Equity Shares issued pursuant to this Issue. Prospective investors should not construe the contents of this Preliminary Placement Document as legal, tax, accounting or investment advice.
The Equity Shares to be issued pursuant to the Issue have not been approved, disapproved or recommended by the U.S. Securities and Exchange Commission, any other federal or state authorities in the United States or the securities authorities of any non-U.S. jurisdiction or any other U.S. or non-U.S. regulatory authority. No authority has passed on or endorsed the merits of the Issue or the accuracy or adequacy of this Preliminary Placement Document. Any representation to the contrary is a criminal offense in the United States and may be a criminal offense in other jurisdictions.
The Equity Shares have not been and will not be registered under the Securities Act, and may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
No person is authorized to give any information or to make any representation not contained in this Preliminary Placement Document and any information or representation not so contained must not be relied upon as having been authorized by or on behalf of us or any of the GC-BRLMs. The delivery of this Preliminary Placement Document at any time does not imply that the information contained in it is correct as at any time subsequent to its date.
The distribution of this Preliminary Placement Document or the disclosure of its contents without the prior consent of our Company to any person, other than QIBs whose names are recorded by our Company prior to the invitation to subscribe to this Issue (in consultation with the GC-BRLMs or their representatives) and those retained by QIBs to advise them with respect to their purchase of the Equity Shares is unauthorised and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document, agrees to observe the foregoing restrictions and to make no copies of this Preliminary Placement Document or any documents referred to in this Preliminary Placement Document.
The distribution of this Preliminary Placement Document and the issuance of Equity Shares pursuant to this Issue may be restricted by law in certain jurisdictions. As such, this Preliminary Placement Document does not constitute, and may not be used for, or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer
1 or solicitation. In particular, no action has been taken by us or the GC-BRLMs which would permit an Issue of the Equity Shares or distribution of this Preliminary Placement Document in any jurisdiction, other than India, where action for that purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Preliminary Placement Document nor any other Issue related materials in connection with the Equity Shares may be distributed or published, in or from any country or jurisdiction except under circumstances that will be in compliance with any applicable rules and regulations of any such country or jurisdiction. The Equity Shares are being offered and sold outside India only in accordance with the restrictions described in “Selling Restrictions” on page 199. All purchasers will be required to make the applicable representations set forth in “Purchaser Representations and Transfer Restrictions” on page 206.
Within the United States, this Preliminary Placement Document is being provided only to persons who are “qualified institutional buyers” as defined in Rule 144A. Distribution of this Preliminary Placement Document to any person other than the offeree(s) specified by the GC-BRLMs or their representatives, and those persons, if any, retained to advise such offeree(s) with respect thereto, is unauthorized and any disclosure of its contents, without the prior written consent of our Company, is prohibited. Any reproduction or distribution of this Preliminary Placement Document in the United States, in whole or in part, and any disclosure of its contents to any other person is prohibited.
In making an investment decision, prospective investors must rely on their own examination of us and the terms of this Issue, including the merits and risks involved. Investors should not construe the contents of this Preliminary Placement Document as legal, tax, accounting or investment advice. Investors should consult their own counsel and advisors as to business, legal, tax, accounting and related matters concerning the Issue. In addition, neither we nor any of the GC-BRLMs are making any representation to any offeree or purchaser of the Equity Shares regarding the legality of an investment in the Equity Shares by such offeree or purchaser under applicable legal, investment or similar laws or regulations.
Each purchaser of the Equity Shares in this Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in the Equity Shares under Indian law, including Chapter VIII of the SEBI ICDR Regulations and is not prohibited by SEBI or any other statutory authority from buying, selling or dealing in securities including Equity Shares Each purchaser of Equity Shares in this Issue also acknowledges that it has been afforded an opportunity to request from us and has reviewed information relating to us and the Equity Shares. Investor should not rely on the information contained in, or available through such websites.
The information on our website, www.cesc.co.in or on the respective websites of the GC-BRLMs or their respective affiliates does not constitute or form a part of this Preliminary Placement Document. Prospective investors should not rely on the information contained in, or available through, any such websites. This Preliminary Placement Document contains a summary of some terms of certain documents which are qualified in their entirety by the terms and conditions of those documents.
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA 421 B”) WITH THE STATE OF NEW HAMPSHIRE, NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE, CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT, NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION, MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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REPRESENTATIONS BY INVESTORS
All references to “you” or “your” in this section are to the prospective investors in this Issue. By bidding for and subscribing to any of the Equity Shares under this Issue, you are deemed to have represented, warranted, acknowledged and agreed to us and the GC-BRLMs as follows:
(a) you (i) are an eligible QIB as defined hereinafter and are not excluded as an eligible investor in the Issue pursuant to Regulation 86(1)(b) of the SEBI ICDR Regulations; (ii) have a valid and existing registration under applicable laws of India (as applicable); and (iii) undertake to acquire, hold, manage or dispose of any Equity Shares that are Allocated to you for the purposes of your business in accordance with Chapter VIII of the SEBI ICDR Regulations and undertake to comply with the SEBI Regulations, the Companies Act, 2013 and the Companies Act, 1956 to the extent applicable, and all other applicable laws, including in respect of reporting requirements, if any;
(b) if you are not a resident of India, (i) you are an eligible QIB, (ii) you are a an FPI including an FII (including a sub-account other than a sub-account which is a foreign corporate or a foreign individual) and (iii) have a valid and existing registration with SEBI under the applicable laws in India and are investing in this Issue and will make all necessary filings with the appropriate regulatory authorities including with the RBI, as required, pursuant to applicable laws;
(c) that you are eligible to invest in India under applicable laws, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended and any notification, circulars or clarification issued thereunder, and have not been prohibited by SEBI or any other regulatory authority from buying, selling or dealing in securities;
(d) if you are Allotted Equity Shares pursuant to this Issue, you shall not, for a period of one year from the date of Allotment (hereinafter defined), sell the Equity Shares so acquired except on the Stock Exchanges. Additional restrictions apply if you are within the United States, please see “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions;
(e) you are aware that this Preliminary Placement Document has not been, and will not be, registered as a prospectus under the Companies Act, 2013 as amended (“ Companies Act ”), and the SEBI ICDR Regulations or under any other law in force in India. Further, you are aware that, this Preliminary Placement Document has not been reviewed or affirmed by SEBI, RBI or the Stock Exchanges or any other regulatory or listing authority and is intended for use only by QIBs. This Preliminary Placement Document has been filed with the Stock Exchanges for record purposes only and has been displayed on the websites of our Company and the Stock Exchanges. The Placement Document will be filed with the Stock Exchanges;
(f) you are entitled to acquire/subscribe for the Equity Shares under the laws of all relevant jurisdictions which apply to you and that you have fully observed such laws and obtained all such governmental and other consents in each case which may be required there under and complied with all necessary formalities and have obtained all necessary consents and authorities to enable you to commit to participation in this Issue and to perform your obligations in relation thereto (including, in the case of any person on whose behalf you are acting, all necessary consents and authorizations to agree to the terms set out or referred to in this Preliminary Placement Document), and will honor such obligations;
(g) neither we nor the GC-BRLMs nor any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates is making any recommendation to you or, advising you regarding the suitability of any transactions it may enter into in connection with this Issue; your participation in this Issue is on the basis that you are not, and will not, upto Allotment, be a client of any of the GC-BRLMs and that neither the GC-BRLMs nor any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates have any duty or responsibilities to you for providing the protection afforded to their clients or customers for providing advice in relation to this Issue and are not in any way acting in any fiduciary capacity;
(h) you confirm that, either: (i) you have not participated in or attended any investor meetings or presentations by us or our agents (“ Company Presentations ”) with regard to us or this Issue; or (ii) if you have participated in or attended any Company Presentations: (a) you understand and acknowledge that the GC- BRLMs may not have knowledge of the statements that we or our agents may have made
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at such Company Presentations and are therefore unable to determine whether the information provided to you at such Company Presentations may have included any material misstatements or omissions, and, accordingly you acknowledge that the GC-BRLMs has advised you not to rely in any way on any information that was provided to you at such Company Presentations, and (b) confirm that you have not been provided any material information that was not publicly available;
(i) you are aware and understand that the Equity Shares are being offered only to eligible QIBs and are not being offered to the general public and the allotment of the Equity Shares shall be on a discretionary basis at the discretion of our Company in consultation with the GC-BRLMs;
(j) you have made, or been deemed to have made, as applicable, the representations set forth in “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions”;
(k) you have been provided a serially numbered copy of this Preliminary Placement Document and have read this Preliminary Placement Document in its entirety including, in particular “Risk Factors”;
(l) that in making your investment decision (i) you have relied on your own examination of our Company on a standalone and consolidated basis and the terms of this Issue, including the merits and risks involved; (ii) you have made your own assessment of our Company, the Equity Shares and the terms of this Issue based solely on the information contained in this Preliminary Placement Document and no other representation by us or any other party; (iii) you have consulted your own independent advisors (including tax advisors) or otherwise have satisfied yourself concerning, without limitation, the effects of local laws and taxation matters; (iv) you have relied solely on the information contained in this Preliminary Placement Document and no other disclosure or representation by us or any other party; (v) you have received all information that you believe is necessary or appropriate in order to make an investment decision in respect of us and the Equity Shares; (vi) relied upon your investigation and resources in deciding to invest in this Issue. You are seeking to subscribe to the Equity Shares in this Issue for your own investment and not with a view to resale or distribution;
(m) You are a sophisticated investor and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Equity Shares and you and any accounts for which you are subscribing to the Equity Shares (i) are each able to bear the economic risk of the investment in the Equity Shares; (ii) will not look to us, the GC-BRLMs or their respective shareholders, directors, officers, employees, counsels, representatives, agents or affiliates for all or part of any such loss or losses that may be suffered including losses arising out of non- performance by our Company of any of its respective obligations or any breach of any representations and warranties by our Company, whether to you or otherwise; (iii) are able to sustain a complete loss on the investment in the Equity Shares; (iv) have no need for liquidity with respect to the investment in the Equity Shares; and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Equity Shares;
(n) Neither the GC-BRLMs nor any of their shareholders, investors, officers, employees, counsel, agents, representatives or affiliates has provided you with any tax advice or otherwise made any representations regarding the tax consequences of purchase, ownership or disposal of the Equity Shares (including, but not limited, to this Issue and the use of the proceeds from the Equity Shares). You will obtain your own independent tax advice from a reputable service provider and will not rely on the GC- BRLMs or any of its shareholders, investors, officers, employees, counsel, agents, representatives or affiliates when evaluating the tax consequences of the Equity Shares (including, but not limited to, this Issue and the use of the proceeds from the Equity Shares). You waive and agree not to assert any claim against us, the GC-BRLMs or any of its shareholders, investors, officers, employees, counsel, agents, representatives or affiliates with respect to the tax aspects of the Equity Shares or as a result of any tax audits by tax authorities, wherever situated;
(o) that where you are acquiring the Equity Shares for one or more managed accounts, you represent and warrant that you are authorized in writing, by each such managed account to acquire the Equity Shares for each managed account and to make (and you hereby make) the representations, warranties, acknowledgements and agreements herein for and on behalf of each such account, reading the reference to “you” to include such accounts;
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(p) You agree and acknowledge that in terms of Section 42(7) of the Companies Act, 2013, we shall file the list of QIBs (to whom this Preliminary Placement Document are circulated) along with other particulars with the RoC and SEBI within 30 days of circulation of the Preliminary Placement Document and other filings required under the Companies Act, 2013;
(q) you are not a ‘Promoter’ of our Company, as defined under the SEBI ICDR Regulations and are not a person related to the Promoter or to group companies of the Promoter, either directly or indirectly and your Bid does not directly or indirectly represent the Promoter or Promoter Group or persons related to the Promoter of our Company or to group companies of the Promoter of our Company;
(r) you have no rights under a shareholders’ agreement or voting agreement with the Promoter or persons related to the Promoter, no veto rights or right to appoint any nominee director on the Board of Directors of our Company other than such rights acquired, if any, in the capacity of a lender not holding any Equity Shares of our Company, the acquisition of which shall not deem you to be a Promoter;
(s) you have no right to withdraw your Bid after the Issue Closing Date;
(t) you are eligible to Bid and hold the Equity Shares so Allotted together with any Equity Shares held by you prior to this Issue. You further confirm that your aggregate holding upon this Issue of the Equity Shares shall not exceed the level permissible as per any applicable regulations;
(u) the Bid submitted by you would not eventually result in triggering a tender offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “ Takeover Code ”);
(v) your aggregate holding, together with other QIBs participating in this Issue that belong to the same group or are under common control as you, pursuant to the Allotment under the present Issue, shall not exceed 50% of this Issue. For the purposes of this representation:
(a) the expression “ belongs to the same group ” shall be interpreted by applying the concept of “companies under the same group ” as provided in sub-section (11) of Section 372 of the Companies Act, 1956; and
(b) “Control ” shall have the same meaning as is assigned to it under Regulation 2 (i)(e)of the Takeover Code;
(w) you shall not undertake any trade in the Equity Shares credited to your beneficiary account until such time that the final listing and trading approvals for the Equity Shares are issued by the BSE and the NSE and the CSE;
(x) you are aware that the pre and post issue shareholding pattern of our Company in the format prescribed in clause 35 of the Listing Agreements will be filed by our Company with the Stock Exchanges, and that if you are Allotted more than 5.0% of the Equity Shares in this Issue, we shall be required to disclose your name and the number of Equity Shares Allotted to you to the Stock Exchanges and the Stock Exchanges will make the same available on their website and you consent to such disclosure being made by us;
(y) you are aware that our Company shall make necessary filings with the RoC pursuant to the Allotment (which shall include certain details such as your name, address and number of Equity Shares Allotted) and if the Allotment of Equity Shares in the Issue results in you being one of the top ten shareholders of our Company, we shall also be required to disclose your name and shareholding details to the RoC within 15 days of Allotment, and you consent to such disclosure being made by us;
(z) you are aware that (i) applications for in-principle approval, in terms of Clause 24(a) of the Listing Agreements, for listing and admission of the Equity Shares and for trading on the BSE, NSE and CSE, were made and an approval has been received from BSE, NSE and CSE, and (ii) the applications for the final listing and trading approvals will be made only after Allotment. There can be no assurance that the final approvals for listing and trading in the Equity Shares will be obtained in time or at all. We
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shall not be responsible for any delay or non-receipt of such final approvals for listing and trading or any loss arising from such delay or non-receipt.
(aa) you are aware and understand that the GC-BRLMs will have entered into a placement agreement with our Company (“ Placement Agreement ”) whereby the GC-BRLMs have, subject to the satisfaction of certain conditions set out therein, undertaken severally and not jointly to use their reasonable endeavours to procure subscriptions for the Equity Shares on terms and conditions set forth herein;
(bb) that the contents of this Preliminary Placement Document are our exclusive responsibility and that neither the GC-BRLMs nor any person acting on their behalf, nor any of their respective shareholder, directors, officers, employees, counsels, advisors, representatives, agents or affiliates has, or shall have, any liability for any information, representation or statement contained in this Preliminary Placement Document or any information previously published by or on behalf of us and will not be liable for your decision to participate in this Issue based on any information, representation or statement contained in this Preliminary Placement Document or otherwise. By accepting a participation in this Issue, you agree and confirm that you have neither received nor relied on any other information, representation, warranty or statement made by or on behalf of either of the GC-BRLMs or us or any other person and neither the GC-BRLMs, nor we or our respective directors, officers, employees, counsels, advisors, representatives, agents or affiliates or any other person will be liable for your decision to participate in this Issue based on any other information, representation, warranty or statement that you may have obtained or received;
(cc) that the only information you are entitled to rely on, and on which you have relied in committing yourself to acquire the Equity Shares, is contained in this Preliminary Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Equity Shares issued in pursuance of this Issue and that you have neither received nor relied on any other information given or representations, warranties or statements made by GC-BRLMs (including any view, statement, opinion or representation expressed in any research published or distributed by any of the GC-BRLMs or its affiliates or any view, statement, opinion or representation expressed by any staff (including research staff) of any of the GC-BRLMs or its respective affiliates) or our Company or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates and neither the GC-BRLMs nor our Company or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates will be liable for your decision to accept an invitation to participate in the Issue based on any other information, representation, warranty, statement or opinion;
(dd) you understand that neither the GC-BRLMs no their affiliates have any obligation to purchase or acquire all or any part of the Equity Shares purchased by you in this Issue or to support any losses directly or indirectly sustained or incurred by you for any reason whatsoever in connection with this Issue, including non-performance by us of any of our obligations or any breach of any representations or warranties by us, whether to you or otherwise;
(ee) you agree to indemnify and hold us and the GC-BRLMs and their respective affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements and agreements made by you in this Preliminary Placement Document including in this section and “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions”. You agree that the indemnity set forth in this section shall survive the resale of the Equity Shares by, or on behalf of, the managed accounts;
(ff) that each of the representations, warranties, acknowledgements and agreements set forth above shall continue to be true and accurate at all times up to and including the Allotment and listing and trading of the Equity Shares on the Stock Exchanges;
(gg) that we, the GC-BRLMs, their respective affiliates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements and agreements which are given to the GC- BRLMs on their own behalf and on behalf of us and are irrevocable;
(hh) that you are a sophisticated investor who is seeking to purchase the Equity Shares for your own investment and not with a view to distribution. In particular, you acknowledge that (i) an investment in
6
the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment, (ii) you have sufficient knowledge, sophistication and experience in financial and business matters so as to be capable of evaluating the merits and risk of the purchase of the Equity Shares, and (iii) you are experienced in investing in private placement transactions of securities of companies in a similar stage of development and in similar jurisdictions and have such knowledge and experience in financial, business and investment matters that you are capable of evaluating the merits and risks of your investment in the Equity Shares; and
(ii) any dispute arising in connection with this Issue will be governed by and construed in accordance with the laws of the Republic of India and the courts at Kolkata, India shall have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Preliminary Placement Document and the Placement Document.
(jj) You understand that the Equity Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state of the United States and accordingly, may not be offered or sold within the United States, except in reliance on an exemption from the registration requirements of the Securities Act.
(kk) If you are within the United States, you are a U.S. QIB who is, or are acquiring the Equity Shares for your own account or for the account of an institutional investor who also meets the requirement of a U.S. QIB, for investment purposes only and not with a view to, or for resale in connection with, the distribution (within the meaning of any United States securities laws) thereof, in whole or in part and are not our affiliate or a person acting on behalf of such an affiliate;
(ll) If you are outside the United States, you are not a U.S. person (within the meaning of Regulation S) and are purchasing the Equity Shares in an offshore transaction within the meaning of Regulation S under the Securities Act, and are not our affiliate or a person acting on behalf of such an affiliate;
(mm) You are not acquiring or subscribing for the Equity Shares as a result of any general solicitation or general advertising (as those terms are defined in Regulation D under the Securities Act) or directed selling efforts (as defined in Regulation S) and you understand and agree that offers and sales are being made in reliance on an exemption to the registration requirements of the Securities Act provided by Section 4(2) under the Securities Act or Regulation S and the Equity Shares may not be eligible for resales under Rule 144A thereunder. You understand and agree that the Equity Shares are transferable only in accordance with the restrictions described under the section “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on page 206, and represent and agree that you will only reoffer, resell, pledge or otherwise transfer the Equity Shares in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S.
(nn) If you are outside the United States, you are not a U.S. person (within the meaning of Regulation S) and are purchasing the Equity Shares in an offshore transaction within the meaning of Regulation S under the Securities Act, and are not our affiliate or a person acting on behalf of such an affiliate;
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OFF-SHORE DERIVATIVE INSTRUMENTS
Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 22 of the SEBI (FPI ) Regulations, an FPI (other than a Category III FPI and unregulated broad based funds which are classified as FPI by virtue of their investment manager being appropriately regulated), including the affiliates of the GC-BRLMs, may issue, subscribe or otherwise deal in offshore derivative instruments as defined under the SEBI (FPI) Regulations as any instrument, by whatever name called, which is issued overseas by a FPI against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying (all such offshore derivative instruments are referred to herein as “P- Notes” ) for which they may receive compensation from the purchasers of such P-Notes, listed or proposed to be listed on any recognized stock exchange in India only in favour of those entities which are regulated by any appropriate foreign regulatory authorities in the countries of their incorporation or establishment subject to compliance with “know your client” requirements. An FPI shall also ensure that further issue or transfer of any instrument referred to above issued by or on behalf of it, is made only to persons who are regulated by appropriate foreign regulatory authorities. P-Notes have not been and are not being offered or sold pursuant to this Preliminary Placement Document. This Preliminary Placement Document does not contain any information concerning P-Notes, including, without limitation, any information regarding any risk factors relating thereto.
Any P-Notes that may be issued are not securities of our Company and do not constitute any obligations of, claim on, or interests in our Company. Our Company has not participated in any offer of any P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to any P-Notes. Any P- Notes that may be offered are issued by, and are solely the obligations of, third parties that are unrelated to our Company. Our Company and the GC-BRLMs do not make any recommendation as to any investment in P- Notes and do not accept any responsibility whatsoever in connection with any P-Notes. Any P-Notes that may be issued are not securities of the GC-BRLMs and do not constitute any obligations of, or claims on, the GC- BRLMs. FPI affiliates (other than Category III FPI and unregulated broad based funds which are classified as FPI by virtue of their investment manager being appropriately regulated) of the GC-BRLMs may purchase, to the extent permissible under law, Equity Shares in this Issue, and may issue P-Notes in respect thereof. Affiliates of the GC-BRLMs which are FPIs may purchase, to the extent permitted by applicable laws, the Equity Shares in the Issue and any P-Notes thereof.
Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosure as to the issuer(s) of such P-Notes and the terms and conditions of any such P-Notes from the issuer(s) of such P-Notes. Neither SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult with their own financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations.
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DISCLAIMER CLAUSE OF THE STOCK EXCHANGES
As required, a copy of this Preliminary Placement Document has been submitted to the Stock Exchanges. The Stock Exchanges do not in any manner:
1. warrant, certify or endorse the correctness or completeness of any of the contents of this Preliminary Placement Document;
2. warrant that the Equity Shares issued pursuant to this Issue will be listed or will continue to be listed on the Stock Exchanges; and
3. take any responsibility for the financial or other soundness of this Company, its management or any scheme or project of this Company.
It should not for any reason be deemed or construed to mean that this Preliminary Placement Document has been cleared or approved by the Stock Exchanges. Every person who desires to apply for or otherwise acquires any Equity Shares may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock Exchanges whatsoever by reason of any loss which may be suffered by such person consequent to, or in connection with, such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever.
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PRESENTATION OF FINANCIAL AND OTHER DATA
In this Preliminary Placement Document, unless the context otherwise indicates or implies references to:
• “you” “your”, “offeree”, “purchaser”, “subscriber”, “recipient”, “investors” and “potential investor” are to the prospective investors of the Equity Shares issued pursuant to this Issue.
• “we” “us” and “our” refer to CESC Limited along with its Subsidiaries and Joint Venture on a consolidated basis; and unless otherwise specified “our Company” refers to CESC Limited on a standalone basis.
References in this Preliminary Placement Document to “India” are to the Republic of India and the “Government” or the “Central Government” or the “State Government” are to the Government of India, Central or State, as applicable. In this Preliminary Placement Document, references to “USD” and “U.S. Dollars” are to the legal currency of the United States and references to “ `”, “Rs.” and “Rupees” are to the legal currency of the Republic of India. All references herein to the “U.S.” or the “United States” are to the United States of America and its territories and possessions, and all references to “India” are to the Republic of India and its territories and possessions.
Financial Data
Our Company publishes its financial statements in Indian Rupees. Our Company prepares its financial statements in accordance with Indian Generally Accepted Accounting Principles (“ Indian GAAP ”). Indian GAAP differs in certain respects from International Financial Reporting Standards (“ IFRS ”) and U.S. Generally Accepted Accounting Principles (“ U.S. GAAP ”). We do not provide a reconciliation of our financial statements to IFRS or U.S. GAAP. We also do not provide a summary of differences between Indian GAAP, IFRS and U.S. GAAP. Each of U.S. GAAP and IFRS differs in significant respects from Indian GAAP. Accordingly, the degree to which the financial statements prepared in accordance with Indian GAAP included in this Preliminary Placement Document will provide meaningful information is entirely dependent on the reader’s level of familiarity with the respective accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Preliminary Placement Document should accordingly be limited and we urge you to consult your own advisors regarding such differences and their impact on the financial data.
In this Preliminary Placement Document, certain monetary thresholds have been subject to rounding adjustments; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.
Unless stated otherwise, the financial data in this Preliminary Placement Document is derived from our consolidated financial statements. Our fiscal year commences on April 1 of each year and ends on March 31 of the succeeding year, so all references to a particular “fiscal year” or “Fiscal” or “Financial Year” are to the 12 month period ended on March 31 of that year. Our audited consolidated financial statements for the financial years March 2014, March 2013 and March 2012 (“ Audited Consolidated Financial Statements ”) and our unaudited interim condensed consolidated financial statements for the three month period ended June 30, 2014 that appear in this Preliminary Placement Document have been prepared by our Company in accordance with Indian GAAP. The Audited Consolidated Financial Statements and the unaudited interim condensed consolidated financial statements for the three month period ended June 30, 2014 are collectively referred to herein as the (“Financial Statements ”).
References to “lakhs” and “crores” in this Preliminary Placement Document are to the following: • one lakh represents 100,000 (one hundred thousand); • ten lakhs represents 1,000,000 (one million); • one crore represents 10,000,000 (ten million); • ten crores represents 100,000,000 (one hundred million); and • one hundred crores represents 1,000,000,000 (one thousand million or one billion).
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MARKET AND INDUSTRY DATA
Information regarding market size, market share, market position, growth rates and other industry data pertaining to our business contained in this Preliminary Placement Document consists of estimates based on data reports compiled by governmental bodies, professional organisations and analysts and on data from other external sources, and on our knowledge of markets in which our Company competes. The statistical information included in this Preliminary Placement Document has been reproduced from various trade, industry and government publications and websites.
This data is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. In many cases, there is no readily available external information (whether from trade or industry associations, government bodies or other organisations) to validate market-related analysis and estimates, so we have relied on internally developed estimates. Industry publications generally state that the information they generally contain has been obtained from sources believed to be reliable but that the accuracy and completeness of the information is not guaranteed.
Neither we nor the GC-BRLMs has independently verified this data and neither we nor the GC-BRLMs make any representation regarding the accuracy or completeness of such data. Similarly, while we believe our internal estimates to be reasonable, such estimates have not been verified by any independent source and we cannot assure potential investors as to their accuracy. Similarly, internal estimates and surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified and neither our Company nor the GC-BRLMs make any representation as to the accuracy and completeness of information based on trade, industry and government publications and websites, data reports compiled by government bodies, professional organisations and analysts, or from other external sources.
The extent to which the market and industry data used in this Preliminary Placement Document is meaningful depends on the reader’s familiarity with and understanding of the methodologies used in compiling such data.
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AVAILABLE INFORMATION
Our Company has agreed that, for so long as any Equity Shares are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, our Company will, during any period in which it is neither subject to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended, nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, the information required to be provided by Rule 144A(d)(4) under the Securities Act, subject to compliance with the applicable provisions of Indian law.
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FORWARD LOOKING STATEMENTS
All statements contained in this Preliminary Placement Document that are not statements of historical fact constitute “forward-looking statements.” Investors can generally identify forward-looking statements by terminology such as “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “can”, “could”, “may”, “objective”, “plan”, “potential”, “project”, “pursue”, “shall”, “should”, “will”, “would”, “will likely result”, “is likely”, “are likely”, “believe”, “expect”, “expected to”, “will continue”, “will achieve”, or other words or phrases of similar import. Similarly, statements that describe our strategies, objectives, plans or goals are also forward-looking statements. However, these are not the exclusive means of identifying forward- looking statements. All statements regarding our expected financial condition and results of operations and business plans and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, planned projects, revenue and profitability (including, without limitation, any financial or operating projections or forecasts), new business and other matters discussed in this Preliminary Placement Document that are not historical facts.
These forward-looking statements and any other projections contained in this Preliminary Placement Document (whether made by us or any third party) are predictions and involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements or other projections.
Important factors that could cause our actual results, performances and achievements to be materially different from any of the forward-looking statements include, among others:
• Demand for power in our distribution area
• Development status of our power projects
• Our ability to procure adequate fuel supplies for our power plants
• Our ability to enter into off-take arrangements for power on acceptable terms
• Our ability to arrange cost-effective funding
• Regulatory framework applicable to power sector
• Our ability to Plant Availability and operational efficiency
• Demand for BPM Services globally
• New regulatory framework which drives need for BPM services
• Competition in organized retail
• Tariff regulations being subject to regulatory scrutiny and being determined based on policies formulated by the Government and/or the relevant regulatory authority;
By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains, losses or impact on net income could materially differ from those that have been estimated, expressed or implied by such forward-looking statements or other projections. All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Additional factors that could cause our actual results, performance or achievements to differ include but are not limited to, those discussed under “Risk Factors”, “Our Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
The forward-looking statements contained in this Preliminary Placement Document are based on the beliefs of the management, as well as the assumptions made by and information currently available to the management. Although we believe that the expectations reflected in such forward-looking statements are reasonable at this
13 time, we cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place reliance on such forward-looking statements. In any event, these statements speak only as of the date of this Preliminary Placement Document or the respective dates indicated in this Preliminary Placement Document, and our we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise. If any of these risks and uncertainties materialize, or if any of our underlying assumptions prove to be incorrect, our actual results of operations or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements.
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ENFORCEMENT OF CIVIL LIABILITIES
Our Company is a company incorporated under the laws of India. The Board of Directors of our Company comprises of 10 Directors all of them are Indian citizens. All of our key managerial personnel are residents of India and the majority of the assets of our Company and such persons are located in India. As a result, it may not be possible for investors outside India to effect service of process upon our Company or such persons in India, or to enforce against them judgments obtained in courts outside India.
India is not a signatory to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments is provided for under section 13 and section 44A of the Code of Civil Procedure, 1908 (“ Civil Code” ).
Section 13 of the Civil Code provides that a foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon except:
(a) where it has not been pronounced by a court of competent jurisdiction; (b) where it has not been given on the merits of the case; (c) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases where such law is applicable; (d) where the proceedings in which the judgment was obtained were opposed to natural justice; (e) where it has been obtained by fraud; or (f) where it sustains a claim founded on a breach of any law then in force in India.
A foreign judgment which is conclusive under Section 13 of the Civil Procedure Code can be enforced in India (i) by instituting execution proceedings; or (ii) by instituting a suit on such judgment. Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court (within the meaning of that section) in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the foreign judgment had been rendered by the relevant court in India. Under the Civil Code, a court in India will, upon the production of any document purporting to be a certified copy of a foreign judgment, presume that the foreign judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on record but such presumption may be displaced by proving want of jurisdiction. However, section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty and is not applicable to arbitration awards.
Each of the United Kingdom, Singapore and Hong Kong has been declared by the Government to be a reciprocating territory for the purposes of section 44A of the Civil Code but the United States has not been so declared. A foreign judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a new suit based upon the foreign judgment and not by proceedings in execution. Such a suit has to be filed in India within three years from the date of the foreign judgment in the same manner as any other suit filed to enforce a civil liability in India. Accordingly, a judgment of a court in the United States may be enforced only by a fresh suit upon the foreign judgment and not by proceedings in execution.
It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with public policy, and is uncertain whether an Indian court would enforce foreign judgments that would contravene or violate Indian law. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to repatriate outside India any amount recovered pursuant to execution, and any such amount may be subject to tax in accordance with applicable laws. Any judgment for payment of amounts denominated in a foreign currency would be converted into Rupees on the date of the judgment and not on the date of the payment. Our Company cannot predict whether a suit brought in an Indian court will be disposed off in a timely manner or be subject to considerable delays.
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EXCHANGE RATES
Fluctuations in the exchange rate between the Rupee and foreign currencies will affect the foreign currency equivalent of the Rupee price of the Equity Shares on the Stock Exchanges. These fluctuations will also affect the conversion into foreign currencies of any cash dividends paid in Rupees on the Equity Shares.
The following table sets forth information with respect to the exchange rates between the Rupee and the U.S. dollar (Rs. per US$), for the periods indicated. The exchange rates are based on the reference rates released by RBI, which are available on the website of RBI. No representation is made that any Rupee amounts could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated below, or at all.
On October 28, 2014, the exchange rate (RBI reference rate) was Rs. 61.35 to US$ 1.
(Source: www.rbi.org.in)
Period end Average(1) High Low Financial Year: (Rs. per US$) 2014 60.10 60.50 68.36 53.74 2013 54.39 54.45 57.22 50.56 2012 51.16 47.95 54.24 43.95 Quarter ended: September 30, 2014 61.61 60.59 61.61 59.72 June 30, 2014 60.09 59.77 61.12 58.43 March 31, 2014 60.10 61.79 62.99 60.10 Month ended: September 30, 2014 61.61 60.86 61.61 60.26 August 31, 2014 60.47 60.90 61.56 60.43 July 31, 2014 60.25 60.06 60.33 59.72 June 30, 2014 60.09 59.73 60.37 59.06 May 31, 2014 59.03 59.31 60.23 58.43 April 30, 2014 60.34 60.36 61.12 59.65
(1) Average of the official rate for each working day of the relevant period.
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DEFINITIONS AND ABBREVIATIONS
This Preliminary Placement Document uses the definitions and abbreviations set forth below, which you should consider when reading the information contained herein.
Unless otherwise specified, the capitalised terms used in this Preliminary Placement Document shall have the meaning as defined hereunder. Further any references to any statute or regulations or policies shall include amendments thereto, from time to time.
All reference to “We” “us” and “our” refer to CESC Limited along with its Subsidiaries and Joint Venture on a consolidated basis; and unless otherwise specified “our Company” and “the Company” refers to CESC Limited on a standalone basis.
Definitions and Abbreviations
Term Description “Act” or “Companies Act” The Companies Act, 2013, to the extent notified, read with the rules framed thereunder, as amended from time to time. “AGM” Annual General Meeting “AIF(s)” Alternative investment funds, registered with SEBI as defined under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, as amended “Allocated /Allocation” The allocation of Equity Shares in consultation w ith the GC -BRLMs following the determination of the Issue Price to QIBs on the basis of Application Forms submitted by them, in compliance with Chapter VIII of the SEBI ICDR Regulations “Allotment/Allotted” Unless the context otherwise requires, the issue and allotment of Equity Shares pursuant to this Issue “Allottee(s)” Bidders who are Allotted Equity Shares pursuant to this Issue “Application Form” The form (including any revisions thereof) pursuant to which a Bidder shall submit a Bid in the Issue “Articles” or “Articles of The articles of association of our Company, as amended from time to time Association” “AS” Accounting standards issued under the Companies (Accounting Standards) Rules, 2006 by the Institute of Chartered Accountants of India “Associates” With reference to any company, the associate of that company would mean any other company within the meaning of section 2(6) of the Companies Act. “Auditors” The statutory auditors of our Company, Lovelock & Lewes, Chartered Accountants “Bid” An indication of interest by a QIB, including all revisions and modifications of interest, as provided in the Application Form, to subscribe for Equity Shares to be issued pursuant to this Issue “Bidder” A QIB who have made a Bid pursuant to the terms of the Preliminary Placement Document and the Application Form “Bidding Period”/ “Issue The period between the Issue Opening Date and Issue Closing Date inclusive Period” of both dates during which Bidders can submit their Bids “Bo ard of Directors” or The Board of Directors of our Company, or a duly constituted committee “Board” thereof “BOLT” BSE On-Line Trading “BSE” BSE Limited “CAN/Confirmation of Note or advice or intimation to QIBs confirming the allocation of Equity Allocation Note” Shares to such QIBs after determination of the Issue Price, and requiring such Bidders to pay the entire Issue Price for all the Equity Shares Allocated to such Bidders “CAGR” Compounded Annual Growth Rate Category III foreign portfolio FPIs who are registered as “Category II foreign portfolio investors” under the investor(s) SEBI (FPI) Regulations
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Term Description “CCI” Competition Commission of India “CDSL” Central Depository Services (India) Limited “CIN” Corporate Identification Number “Closing Date” The date on which the Allotment of the Equity Shares offered pursuant to this Issue shall be made, i.e. on or about [ ●] “CPL” CESC Properties Limited “CSE” The Calcutta Stock Exchange Limited “Depositories Act” The Depositories Act, 1996, as amended from time to time “Depository” A body corporate registered under SEBI (Depositories and Participant) Regulations, 1996, as amended “Designated Date The date of credit of Equity Shares pursuant to the Issue to the Allottee’s demat account, as applicable to the relevant Allottee. “DIN” Director Identification Number “DP / Depository Participant” A depository participant as defined under the Depositories Act “DIPP” Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India “Director(s)” Director(s) of our Company, unless otherwise specified “EGM” Extraordinary General Meeting “Equity Listing Agreement” The equity listing agreements entered into between our Company and the Stock Exchanges “Equity Shares” The equity shares of face value Rs. 10 each of our Company “Escrow Account” The account titled ‘CESC Limited – QIP Escrow Account ’ to be opened with the Escrow Agent, subject to the terms of the Escrow Agreement, into which the application monies payable by Bidders in connection with subscription to Equity Shares pursuant to the Issue shall be deposited . “Escrow Bank”/ “Escrow ICICI Bank Limited Agent” “Escrow Agreement” Agreement dated October 28, 2014 , entered into amongst our Company, the Escrow Agent and the GC-BRLMs “FDI” Foreign Direct Investment “FEMA” Foreign Exchange Management Act, 1999 of India, as amended, and the regulations framed thereunder “FEMA 20” The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended “FSL” Firstsource Solutions Limited “Foreign Portfolio Foreign portfolio investors as defined under the SEBI (FPI) Regulations and Investor(s)/ FPI(s)” includes persons who have been registered under the SEBI (FPI) Regulations.
Any foreign institutional investor or qualified foreign investor who holds a valid certificate of registration shall be deemed to be a Foreign Portfolio Investor till the expiry of the block of three years for which fees have been paid as per the SEBI FII Regulations Form PAS -IV Form of private placement offer letter as prescribed under the Companies (Prospectus and Allotment of Securities) Rules, 2014 “Financial year” / “Fiscal A period of 12 months ending March 31, unless otherwise stated Year” “Floor Price” The floor price of Rs. 677.84 per Equity Share, which has been calculated in accordance with Chapter VIII of the SEBI ICDR Regulations. Our Company may offer a discount of not more than 5% on the Floor Price in terms of Regulation 85 of the SEBI ICDR Regulations. “FVCI” Foreign venture capital investors, registered with SEBI as defined under the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, as amended “GDP” Gross Domestic Product
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Term Description “GC- BRLMs” CLSA India Private Limited, Citigroup Global Markets India Private Limited, Credit Suisse Securities (India) Private Limited, ICICI Securities Limited, Kotak Mahindra Capital Company Limited, and IDFC Securities Limited. “GoI” or “Government” Government of India, unless otherwise specified “ICAI” The Institute of Chartered Accountants of India “IFRS” International Financial Reporting Standards of the International Accounting Standards Board “Income Tax Act” or “IT The Income Tax Act, 1961, as amended from time to time Act” “Insider Trading Regulations” The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, as amended “Indian GAAP” Generally accepted accounting principles in India “Issue” The offer and issue of up to [ ●] Equity Shares each at a price of Rs. [●] per Equity Share, including a premium of Rs. [●] per Equity Share, aggregating Rs. [●] million pursuant to chapter VIII of the SEBI ICDR Regulations and the provisions of the Companies Act, 2013. “Issue Closing Date” [●], the last date up to which the Application Forms shall be accepted by our Company (or the GC-BRLMs, on behalf of our Company) “Issue Opening Date” October 28, 2014 , the date on which the acceptance of the Application Forms shall have commenced by our Company (or the GC-BRLMs, on behalf of our Company) “Issue Price” Rs. [●] per Equity Share “Issue Size” The aggregate size of the Issue, aggregating to Rs. [●] millio n “Listing Agreements” The agreement executed by a listed company with each of the Stock Exchanges “Memorandum” or The Memorandum of Association of our Company, as amended from time to “Memorandum of time Association” “Mutual Fund” A mutual fund registered with SEBI under the SEBI (Mutual Funds) Regulations, 1996, as amended “Non -Resident Indian(s) or Non -Resident Indian, as defined under F oreign Exchange Management NRI” (Deposit) Regulations “NSDL” National Securities Depository Limited “NSE” National Stock Exchange of India Limited “p.a.” Per annum “PAT” Profit After Tax “PAN” Permanent Account Number “Pay-In Date” Last date specified in the CAN for the payment of application monies by the QIBs, in the Issue “PBT” Profit Before Tax “Placement Agreement” The agreement dated October 28, 2014 between our Company and the GC- BRLMs “Placement Document” The Placement Document to be issued in accordance with Chapter VIII of the SEBI ICDR Regulations and section 42 of the Companies Act, 2013, and the rules made thereunder “Preliminary Placement This Preliminary Placement Document dated October 28, 2014 issued in Document” or “PPD” accordance with Chapter VIII of the SEBI ICDR Regulations and section 42 of the Companies Act, 2013, and the rules made thereunder “Promoters” The promoters of CESC Limited being Mr. Sanjiv Goenka, Rainbow Investments Limited and Universal Industrial Fund Limited. “Promoter Group” Unless the context requires otherwise, the entities forming part of our promoter group in accordance with SEBI ICDR Regulations “QIBs” or “Qualified A qualified institutional buyer as defined under Regulation 2(1)(zd) of the Institutional Buyers” SEBI ICDR Regulations “RBI” The Reserve Bank of India
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Term Description “Registered Office” The registered office of our Company located at, CESC House, Chowringhee Square, Kolkata, 700 001, India . “Regulation S” Regulation S under the U.S. Securities Act “Relevant Date” October 28, 2014, which is the date of the meeting wherein the Board of Directors or a duly authorised committee, decide to open the Issue “RoC” Registrar of Companies, West Bengal “Rule 144A” Rule 144A under the U.S. Securities Act “Rs”, “Rupees”, “ `” or The legal currency of India “Indian Rupees” “SEBI” The Securities and Exchange Board of India constituted under the SEBI Act “SEBI Act” The Securities and Exchange Board of India Act, 19 92, as amended “SEBI (FPI) Regulations” Securities And Exchange Board Of India (Foreign Portfolio Investors) Regulations, 2014, as amended “SEBI ICDR Regulations” SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended, including instructions and clarifications issued by SEBI from time to time “SENSEX” An index of 30 constituent stocks traded on BSE representing a sample of large, liquid and representative companies “SRL” Spencer’s Retail Limited “Stock Exchanges” The BSE, the CSE and the NSE “STT” Securities Transaction Tax “Subsidiaries” Subsidiaries of our Company, as defined under section 2(87) of the Companies Act namely: Spencer’s Retail Limited, Au Bon Pain Café India Limited, Music World Retail Limited, CESC Properties Limited, Metromark Green Commodities Pvt. Ltd, CESC Infrastructure Limited, Haldia Energy Limited, Dhariwal Infrastructure Limited, Surya Vidyut Limited, Nalanda Power Company Limited, CESC Projects Limited, Bantal Singapore Pte. Limited, Ranchi Power Distribution Company Limited, Pachi Hydropower Projects Limited, Papu Hydropower Projects Limited, Spen Liq Private Limited, Firstsource Solution Limited, Firstsource Group USA, Inc., Firstsouce BPO Ireland Ltd., Firstsource Solutions U.K Ltd, Anunta Tech Infrastructure Services Ltd, Firstsource Dialog Solutions Pvt. Ltd., MedAssist Holding, Inc, Firstsource Business Process services, LLC, Firstsource Solutions USA, LLC, Firstsource Advantage, LLC, Firstsource Transaction Services, LLC and Firstsource Solutions S. A (Argentina) “Takeover Code” The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended from time to time “U.S. GAAP” Generally accepted accounting principles in the U.S. “U.S. QIB” A qualified institutional buyer, as defined under Rule 144A “U.S. Securities Act” U.S. Securities Act of 1933, as amended
Technical and Industry Terms
Term Description “ACQ” Annual contracted quantity “AMR” Automated meter reading “APTEL” Appellate Tribunal for Electricity “BFSI” Banking, financial services and insurance industries “BPM ” Business process management “BPO” Business process outsourcing “CEA” Central Electricity Authority “CERC” Central Electricity Regulatory Commission “CPU” Central Power Utilities “Discoms” Distribution companies
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Term Description “DTH” Direct-to-home “FMCG” Fast moving consumer goods “GW” Giga watts “HT” High tension “KSDF” Kalighat Society for Development Facilitation “kWh” Kilo watt hour “IEX” Indian Energy Exchange “IPP” Independent Power Producers “LABS” Livelihood Advancement Business School “LCC” Local control center “MCC” Master control center “MDMS” Meter Data Management System “MNRE” Ministry of New and Renewable Energy “mmscmd” Million standard cubic meters per day “MVCA” Multi variable cost adjustment “MW” Mega watts “MYT” Multi year tariff “NASSCOM” National Association of Software and Services Companies “NTP” National tariff policy “PGCIL” Power Grid Corporation of India Limited “PLF” Plant load factor “PPA” Power purchase agreement “SCADA” Supervisory control and data acquisition “SEB” State electricity boards “SPU” State power utilities “SERC” State Electricity Regulatory Commissions “STU” State transmission utilities “TANGEDCO” Tamil Nadu generation and distribution corporation “T&D” Transmission and distribution “T&M” Telecom and media “VVVF” Variable-voltage, variable-frequency “WBERC” West Bengal Electricity Regulatory Commission “WESEDCL” West Bengal State Electricity Distribution Company Limited “ZCC” Zonal control center
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DISCLOSURE REQUIREMENTS UNDER FORM PAS-4 PRESCRIBED UNDER THE COMPANIES ACT, 2013
The table below sets out the disclosure requirements as provided in PAS-4 and the relevant pages in this Preliminary Placement Document where these disclosures, to the extent applicable, have been provided.
Relevant Page of this Sr. Disclosure Requirements Preliminary Placement No. Document 1. GENERAL INFORMATION (a). Name, address, website and other contact details of the company indicating Cover page both registered office and corporate office. (b). Date of incorporation of the company. 239 (c. ) Business carried on by the company and its subsidiaries with the details of 101 -126 branches or units, if any. (d.) Brief particulars of the management of the company. 176-183 (e.) Names, addresses, DIN and occupations of the directors. 176-178 (f. ) Management's perception of risk factors. 39 -67 (g.) Details of default, if any, including therein the amount involved, duration 234, 238 of default and present status, in repayment of: (i) Statutory dues; (ii) Debentures and interest thereon; (iii) Deposits and interest thereon; and (iv) Loan from any bank or financial institution and interest thereon. (h). Names, designation, address and phone number, email ID of the nodal/ 239 compliance officer of the company, if any, for the private placement offer process. 2. PARTICULARS OF THE OFFER (a.) Date of passing of board resolution. 26 (b). Date of passing of resolution in the general meeting, authorising the offer 26 of securities. (c). Kinds of securities offered (i.e. whether share or debenture) and class of 27 security. (d). Price at which the security is being offered including the premium, if any, 26 along with justification of the price. (e.) Name and address of the valuer who performed valuation of the security Not applicable offered. (f.) Amount which the company intends to raise by way of securities. 71 (g. ) Terms of raising of securities: (i) Duration, if applicable; Not applicable (ii) Rate of dividend or rate of interest Not applicable (iii) Mode of payment Not applicable (iv) Repayment Not applicable (h). Proposed time schedule for which the offer letter is valid 27 (i. ) Purposes and objects of the offer 71 (j). Contribution being made by the promoters or directors either as part of the Not applicable offer or separately in furtherance of such objects (k.) Principle terms of assets charged as security, if applicable Not applicable 3. DISCLOSURES WITH REGARD TO INTEREST OF DIRECTORS, LITIGATION ETC. (i) Any financial or other material interest of the directors, promoters or key 183 managerial personnel in the offer and the effect of such interest in so far as it is different from the interests of other persons (ii.) details of any litigation or legal action pending or taken by any Ministry or 238 Department of the Government or a statutory authority against any promoter of the offeree company during the last three years immediately preceding the year of the circulation of the offer letter and any direction issued by such
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Relevant Page of this Sr. Disclosure Requirements Preliminary Placement No. Document Ministry or Department or statutory authority upon conclusion of such litigation or legal action shall be disclosed (iii). remuneration of directors (during the current year and last three financial 179-180 years) (iv). Related party transactions entered during the last three financial years F-29 immediately preceding the year of circulation of offer letter including with regard to loans made or, guarantees given or securities provided (v.) Summary of reservations or qualifications or adverse remarks of auditors in 30-34 the last five financial years immediately preceding the year of circulation of offer letter and of their impact on the financial statements and financial position of the company and the corrective steps taken and proposed to be taken by the company for each of the said reservations or qualifications or adverse remark (vi. ) Details of any inquiry, inspections or investigations initiated or conducted 234 -238 under the Companies Act or any previous company law in the last three years immediately preceding the year of circulation of offer letter in the case of company and all of its subsidiaries. Also if there were any prosecutions filed (whether pending or not) fines imposed, compounding of offences in the last three years immediately preceding the year of the offer letter and if so, section-wise details thereof for the company and all of its subsidiaries (vii.) Details of acts of material frauds committed against the company in the last 238 three years, if any, and if so, the action taken by the company 4. FINANCIAL POSITION OF THE COMPANY a. the capital structure of the company in the following manner in a tabular 73 form: (i.) (a) the authorised, issued, subscribed and paid up capital (number of securities, 73 description and aggregate nominal value) (b). size of the present offer 73 (c.) paid up capital: 73 A. after the offer B. after conversion of convertible instruments (if applicable) 73 (d.) share premium account (before and after the offer) 73 (ii.) the details of the existing share capital of the issuer company in a tabular 73-74 form, indicating therein with regard to each allotment, the date of allotment, the number of shares allotted, the face value of the shares allotted, the price and the form of consideration
Provided that the issuer company shall also disclose the number and price at which each of the allotments were made in the last one year preceding the date of the offer letter separately indicating the allotments made for considerations other than cash and the details of the consideration in each case (b. ) Profits of the company, before and after making provision for tax, for the F-1 to F - 130 three financial years immediately preceding the date of circulation of offer letter (c). Dividends declared by the company in respect of the said three financial 75 years; interest coverage ratio for last three years (Cash profit after tax plus interest paid/interest paid) (d. ) A summary of the financial position of the company as in the thr ee audited 28 -30 balance sheets immediately preceding the date of circulation of offer letter (e.) Audited Cash Flow Statement for the three years immediately preceding the F pages date of circulation of offer letter (f. ) Any change in accounting policies during the last three years and their effect 34 on the profits and the reserves of the company. 5. DECLARATION BY THE DIRECTORS 242
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SUMMARY OF BUSINESS
Overview
We operate a diverse set of businesses consisting of (i) power generation and distribution, (ii) business process management (" BPM "), (iii) retail; and (iv) property development. Our power, retail and property development operations are located in India and its BPM business has operations both domestically and internationally.
The Company operates a power utility engaged in the generation and distribution of electricity across 567 square kilometres of licensed area in Kolkata and Howrah and in the adjoining areas, West Bengal. The Company's license expires on September 2, 2038. As at March 31, 2014, the Company supplied electricity to approximately 2.8 million customers, including domestic, industrial and commercial users. In the year ended March 31, 2014, 82% of the units delivered to the Company's distribution system was electricity generated from the Company's own power plants in West Bengal and 18% was electricity purchased from third parties.
As of September 30, 2014, we own and operate five coal-based power plants with an aggregate capacity of 1,825 MW in the State of West Bengal and State of Maharashtra. We also own and operate a 24 MW wind power plant in the State of Rajasthan. We are in the process of developing a 600 MW coal-based power project in West Bengal, a 26 MW wind power project in the State of Gujarat and 90 MW and 45 MW hydro electric power projects in the East Kameng district of Arunachal Pradesh.
The Company owns and operates the distribution network in the cities of Kolkata and Howrah and in the adjoining areas, West Bengal through which it supplies electricity to consumers. The Company's total revenues from its power generation and distribution business for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.18.9 billion and Rs.56.1 billion, Rs.54.1 billion and Rs.47.8 billion, respectively. In the three months ended June 30, 2014 and the years ended March 31, 2014, 2013 and 2012, the Company's profit after income tax on a standalone basis was Rs.1,622.8 million, Rs. 6,518.9 million, Rs. 6,185.0 million and Rs. 5,543.1 million, respectively.
In addition to the electricity generation and distribution business, we have expanded into other businesses over time.
In 2012, the Company, through its wholly owned subsidiary Spen Liq Pvt. Ltd., acquired through primary issuance and secondary purchase, 56.86% of the issued share capital of Firstsource Solutions Ltd. (" FSL "), which operates an information technology and BPM business in the areas of customer management, transaction processing and collection service to Fortune 500 and FTSE 100 companies in the US and UK that operate in the telecom and media (" T&M ") and banking, financial services and insurance industries (" BFSI "). As of September 30, 2014, FSL had 26,923 employees supporting clients from 46 services facilities located in the United States, United Kingdom, Ireland, the Philippines, India and Sri Lanka. FSL's consolidated gross revenues for the three months ended June 30, 2014 and the year ended March 31, 2014, and for the period December 5, 2012 to March 31, 2013 was Rs.7.55 billion and Rs. 31.08 billion and Rs.9.18 billion respectively and its profit after income tax on a consolidated basis for the three months ended June 30, 2014 and for the year ended March 31, 2014 and for the period December 5, 2012 to March 31,2013 was Rs.0.53 billion, Rs.1.93 billion and Rs.0.50 billion respectively.
The Company's wholly-owned subsidiary, Spencer's Retail Limited (" SRL "), operates 125 retail stores across India, including 33 hypermarkets as of September 30, 2014. These stores cater to family needs with products ranging from groceries, home and personal care products, apparel and accessories and consumer durables and lifestyle products. SRL expects to open eight to ten hypermarkets during the course of 2015. As of September 30, 2014, SRL owned and operated 31 Au Bon Pain coffee and casual dining establishments through its subsidiary, Au Bon Pain Cafe India Limited, the master franchisee of Au Bon Pain in India. SRL's Au Bon Pain outlets are located in Bengaluru, Kolkata and NCR with additional outlets planned in NCR and West Bengal during the course of 2015. SRL's total revenues on a standalone basis for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 were Rs.4.16 billion and Rs. 14.58 billion, Rs.13.47 billion and Rs.12.06 billion, respectively and its loss after tax for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.0.36 billion, Rs.1.66 billion, Rs.2.09 billion and Rs.2.55 billion, respectively.
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We have also developed and operate a luxury mall in the City of Kolkata, the "Quest", through its wholly owned subsidiary CESC Properties Limited (“ CPL ”). The Quest houses shops, retail outlets, an entertainment zone, multiplex, food court and fine dining in eight floors along with a multi-level car park. The Quest was inaugurated on September 30, 2013 and houses volume retailers such as Spencer's as well as international luxury labels.
Our gross revenues for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 were Rs.31,693.8 million and Rs.10,2842.0 million, Rs.77,003.8 million and Rs.60,239.8 million, respectively and its consolidated profits after income tax for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.650.3 million, Rs. 4,916.4 million, Rs. 4,593.8 million and Rs. 2,458.8 million, respectively.
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SUMMARY OF THE ISSUE
The following is the general summary of the terms of the Issue. The summary should be read in conjunction with, and is qualified in its entirety by, more detailed terms appearing in this Preliminary Placement Document, including under “Risk Factors”, “Use of Proceeds”, “Issue Procedure” “Placement” and “Description of Shares” on pages 39, 71, 186, 197 and 213, respectively.
Issuer CESC Limited Issue Size Up to [ ●] Equity Shares aggregating up to Rs. [•] million.
A minimum of 10% of the Issue Size shall be available for Allocation to Mutual Funds only, and the balance Equity Shares shall be available for Allocation to all QIBs, including Mutual Funds.
In case of under-subscription or no subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allocated to other QIBs. Face Value Rs. 10 per Equity Share Issue Price Rs. [●] per Equity Share Minimum Offer Size Minimum value of offer or invitation to subscribe to each QIB is Rs. 20,000 of the face value of the Equity Shares Floor Price The floor price for the Issue calculated on the basis of Chapter VIII of the SEBI ICDR Regulations is Rs. 677.84 per Equity Share. Our Company may offer a discount of not more than 5% on the Floor Price in terms of Regulation 85 of the SEBI ICDR Regulations. Eligible Investors QIBs as defined in Regulation 2(1)(zd) of the SEBI ICDR Regulations and Rule 144A of the Securities Act, to whom the Preliminary Placement Document and the Application Form is circulated.
For further details, see “Issue Procedure – Qualified Institutional Buyers” on page 189. Dividend See “Description of Equity Shares”, “Dividend Policy” and “Statement of Tax Benefits” on pages 213, 75 and 219. Indian Taxation See “ Statement of Tax Benef its ”. Issue Procedure The Issue is being made only to QIBs in reliance on Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, and Chapter VIII of the SEBI ICDR Regulations. See “Issue Procedure” on page 186. Date of Board Resolution September 22, 2014 authorizing the Issue Date of Shareholders October 18, 2014 Resolution authorizing the issue Equity Shares issued and 124,935,925 Equity Shares outstanding immediately prior to the issue Equity Shares issued and [●] Equity Shares outstanding immediately after the issue Listing Our Company has received in principle approvals, dated October 28, 2014 from the BSE, NSE and CSE, under Clause 24(a) of the Listing Agreements. Our Company shall apply to the Stock Exchanges for the listing approvals and the final listing and trading approvals, after the Allotment and after the credit of Equity Shares to the beneficiary account with the Depository Participant, respectively. Lock-up Please see the sub-section titled “Lock-up” of “Placement” on page 197 for a description of restrictions on our Company and our Promoters in relation to Equity Shares. Transferability The Equity Shares being Allotted pursuant to this Issue shall not be sold for a
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Issuer CESC Limited Restriction period of one year from the date of Allotment, except on the Stock Exchanges. For details in relation to other transfer restrictions, see “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on page 199 and 206. Use of Proceeds The net proceeds of the Issue, after deduction of fees, commissions and expenses in relation to the Issue, are expected to total approximately Rs. [●] million. Please see “Use of Proceeds” on page 71. Risk Factors Please see “Risk Factors” on page 39 for a discussion of factors that you should consider before participating in the Issue. Pay-In Date The last date specified in the CAN sent to the QIBs for payment of application money for the Equity Shares pursuant to this Issue Closing Date The Allotment is expected to be made on or about [ ●] Ranking The Equity Shares being issued pursuant to the Issue shall be subject to the provisions of the Memorandum and Articles of Association and shall rank pari passu in all respects with the existing Equity Shares including rights in respect of dividends after the closing. The holders of such Equity Shares will be entitled to participate in dividends and other corporate benefits, if any, declared by our Company after the Closing Date, in compliance with the Companies Act, 2013. The holders of such Equity Shares may attend and vote in shareholders’ meetings in accordance with the provisions of the Companies Act, 2013. Please see “Description of Equity Shares” on page 213. Voting Rights of Share See “ Description of Equity Shares - Voting Rights” on page 215 Holders Security Codes for the ISIN : INE 486A 01013 Equity Shares BSE Code: 500084 NSE Code: CESC CSE Code: 10000034
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SUMMARY FINANCIAL INFORMATION
The following selected information is extracted from and should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014 and audited consolidated financial statements and notes thereto of our Company as at, and for the, Fiscal Years ended March 31, 2014, 2013 and 2012 prepared in accordance with Indian GAAP, each included elsewhere in this preliminary placement document. You should refer to “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”, for further discussion and analysis of the financial statements of our Company.
The financial information included in this Preliminary Placement Document does not reflect our Company’s result of operations, financial position and cash flows for the future and its past operating results are no guarantee of its future operating performance.
CESC Limited
Please note that the financial information for the Fiscal Year 2012 and Fiscal Year 2013 has been regrouped to align it with the form of disclosures of financial information for the Fiscal Year 2014.
Consolidated Balance Sheet (Rs. in millions ) As at June 30, As at March 31, As at March 31, As at March 31, Particulars 2014 2014 2013 2012 I. EQUITY AND LIABILITIES Shareholders' funds Share capital 1,256.0 1,256.0 1,256.0 1,256.0 Reserves and surplus 55,685.5 55,094.1 50,179.7 47,167.0 56,941.5 56,350.1 51,435.7 48,423.0
Minority Interest 9,383.5 9,079.3 7,425.0 26.9 Non-current liabilities Long-term borrowings 88,717.3 91,323.4 78,112.8 43,007.3 Advance against 8,007.9 7,769.0 7,142.3 5,660.3 Depreciation Consumers' Security 13,105.7 12,795.3 11,387.8 10,509.0 Deposit Other long term 16,240.0 17,768.3 18,697.6 14,737.1 liabilities Long-term provisions 1,872.3 1,673.4 1,359.8 945.5 1,27,943.2 1,31,329.4 1,16,700.3 74,859.2 Current liabilities Short -term borrowings 12,085.1 10,530.8 10,526.3 10,198.3 Trade Payables 6,459.8 5,317.5 5,774.8 3,917.4 Other current liabilities 37,193.2 34,699.1 19,569.7 12,863.3 Short-term provisions 2,438.9 2,125.5 1,419.4 1,025.8 58,177.0 52,672.9 37,290.2 28,004.8 TOTAL 252,445.2 249,431.7 212,851.2 151,313.9 II. ASSETS Non-current assets Fixed assets Tangible assets 119,738.5 119,828.3 86,204.9 79,145.2 Intangible assets 25,360.7 25,282.7 22,921.7 3,551.0 Capital work-in-progress 56,908.5 53,117.4 51,096.7 24,542.1 202,007.7 198,228.4 160,223.3 107,238.3
Non-current investments 737.3 736.6 975.6 913.6
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As at June 30, As at March 31, As at March 31, As at March 31, Particulars 2014 2014 2013 2012 Deferred tax assets (net) 2,754.3 2,773.6 2,820.3 3,215.5 Long-term loans and 5,881.5 5,398.5 5,613.9 5,951.3 advances Other non -current assets 2,123.1 2,377.2 3,390.0 3,658.0 213,503.9 209,514.3 173,023.1 120,976.7 Current assets Current Investments 604.3 323.3 1,147.4 850.0 Inventories 5,315.0 5,383.0 4,342.3 4,077.4 Trade receivables 17,357.5 15,301.5 16,201.0 9,940.8 Cash and bank balances 8,213.5 12,098.8 13,166.1 13,267.5 Short -term loans and 3,093.3 2,416.8 2,005.4 1,480.8 advances Other Current Assets 4,357.7 4,394.0 2,965.9 720.7 38,941.3 39,917.4 39,828.1 30,337.2 TOTAL 252,445.2 249,431.7 212,851.2 151,313.9
Consolidated Statement of Profit and Loss
(Rs. in millions, except per share data ) For the three For the year For the year For the year months period Particulars ended March ended March ended March ended June 30, 31, 2014 31, 2013 31, 2012 2014 Revenue from operations 31,390.8 101,108.5 75,566.5 58,827.3 Other income 303.0 1,733.5 1,437.3 1,412.5 Total Revenue 31,693.8 102,842.0 77,003.8 60,239.8 Expenses Cost of electrical energy purchased 4,228.5 8,910.4 9,451.6 6,360.5 for Power Business Cost of materials consumed for 33.1 97.8 62.4 27.1 Retail Business Purchases of stock-in -trade for 3,376.4 11,989.6 10,835.3 10,053.0 Retail Business Changes in inventories of finished (21.4) (320.1) 124.9 2.8 goods, stock-in-trade and work- in - progress for Retail Business Cost of fuel for Power Business 6,225.0 19,246.0 17,967.5 17,619.7 Employee benefit expenses 7,574.0 29,600.8 13,073.6 5,986.2 Finance costs 1,987.2 5,660.2 4,304.1 3,450.9 Depreciation and amortisation 1,415.0 4,714.1 3,645.3 3,400.5 expenses Other expenses 5,438.3 15,358.4 11,390.2 9,146.0 Total expenses 30,256.1 95,257.2 70,854.9 56,046.7 Profit before Taxation, Exceptional 1,437.7 7,584.8 6,148.9 4,193.1 Items and Minority Interest Exceptional Items - - 417.7 (257.1) Profit before Taxation and Minority 1,437.7 7,584.8 6,566.6 3,936.0 Interest Tax expenses: Current tax (620.7) (2,147.2) (1,694.5) (1,491.5) MAT Credit 76.7 269.0 76.7 - Current tax (net) (544.0) (1,878.2) (1,617.8) (1,491.5) Deferred tax (net) (390.7) (1,704.9) (1,920.0) (360.0) Recoverable/(Payable) 373.8 1,727.2 1,780.0 360.0 Profit after Taxation and 876.8 5,728.9 4,808.8 2,444.5 Exceptional Items before Minority
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For the three For the year For the year For the year months period Particulars ended March ended March ended March ended June 30, 31, 2014 31, 2013 31, 2012 2014 Interest Minority Interest (226.5) (812.5) (215.0) 14.3 Profit for the year - transferred to 650.3 4,916.4 4,593.8 2,458.8 Surplus Earnings per share(Face Value of Rs. 10 per share) : Basic and Diluted before 5.2 39.4 33.4 21.7 Exceptional Items (in Rs. ) Basic and Diluted after Exceptional 5.2 39 .4 36 .8 19 .7 Items (in Rs. )
Condensed Consolidated Cash Flow Statement (Rs. in millions ) For the three For the For the For the months period year ended year ended year ended Particulars ended June 30, March 31, March 31, March 31, 2014 2014 2013 2012 (a). Net cash flow from operating activities 4,058.4 22,510.6 18,306.1 8,810.3 (b). Net cash used in investing activities (5,357.1) (31,802.7) (39,407.3) (21,325.6) (c). Net cash flow from financing activities (2,586.6) 8,224.8 19,235.9 13,491.7 (d). Net Increase / (Decrease) in cash and cash (3,885.3) (1,067.3) (1,865.3) 976.4 equivalents (e) Cash and Cash equivalents - Opening 12,098.8 13,166.1 13,267.5 12,291.1 Balance (f). Cash and cash equivalents on acquisition of - - 1,763.9 - subsidiaries (g). Cash and Cash equivalents - Closing 8,213.5 12,098.8 13,166.1 13,267.5 Balance
Reservations, qualifications and adverse remarks in the last five financial years
Corrective steps taken Reservation, qualification and adverse remark and their impact Period and proposed to be taken on the financial statements and financial position of the company by the Company For the three Qualification month period ended June Attention is drawn to Paragraph 6 of the Review Report on Interim The subsidiary, Spencers 30, 2014 Condensed Financials, being the qualification included in the review Retail Limited, has ceased report issued by the auditors of Spencer’s Retail Limited, a to recognise for deferred subsidiary of the Company which states that : tax assets since 31 March, 2011 as a matter of “We draw your attention to the following qualification included in prudence. However, based the review report of Spencer’s Retail Limited, a subsidiary of the on future profitability Company issued by an Independent Firm of Chartered Accountants projections, the subsidiary vide its report dated October 21, 2014, reproduced by us as under: believes that there would be sufficient taxable Attention is drawn to note no. 12 to the condensed consolidated income in future, and interim financial statements regarding continuation of net deferred hence continues to carry tax asset (DTA) of Rs. 31,053.45 lakhs (Rs. 31,053.45 lakhs) in the the deferred tax assets accounts based on the future profitability projections made by the recognised till 31 March, management. However, in the absence of virtual certainty as stated 2011. Such deferred tax in Accounting Standard 22 on Deferred Taxes, we are unable to asset will be reviewed at
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Corrective steps taken Reservation, qualification and adverse remark and their impact Period and proposed to be taken on the financial statements and financial position of the company by the Company express any opinion on the projections. every balance sheet date and write down in carrying Had the above asset been reversed, there would be a loss of Rs. 35, amount, if any, will be 089.62 Lakhs as against the reported loss of Rs. 4,036.17 lakhs and recognised. shareholder’s funds would have reduced by Rs. 31,053.45 lakhs. This had also caused us to qualify our audit opinion on the consolidated financial statements relating to the preceding year.
Had the deferred tax asset, referred to above, been reversed in the consolidated interim financial statements, the profit of the group would have been reduced by 310.53 crore resulting in a loss of 245.50 crores as against the reported profit of Rs. 65.03 crores and shareholder’s funds would have been reduced by Rs 310.53 crores.”
Emphasis of Matter
We draw attention to Note no. 23B of the Consolidated Interim Financial Statements, relating to cancellation of Sarsathali coal block Having obtained legal by the Hon'ble Supreme Court of India and levy of additional advices it has been pecuniary charges on the coal extracted therefrom. The Company contemplated to initiate plans to initiate legal proceedings to seek appropriate relief from the appropriate proceedings additional pecuniary charges, if any, and depending on the final before the Hon’ble Apex outcome of the matter proceed for recovery thereof. The financial Court seeking among other implication of the above is not ascertainable at this stage and the reliefs also a relief to company intends to evaluate alternative sources of fuel for its distinguish the above coal existing generating stations. Our conclusion is not qualified in block from the operating respect of this matter. boundaries / parameters of the judgement. We draw your attention to the following emphasis of matter paragraph included in the audit report of First Source Solutions As this is an early adoption Limited, a step-down subsidiary of the Company issued by an of the accounting standard, Independent Firm of Chartered Accountants vide its report dated no corrective action is August 1, 2014, reproduced by us as under: required “Without qualifying our opinion, we draw attention to Note 3 to the consolidated financial results that describes the early adoption by the Company of AS 30, Financial Instruments: Recognition and Measurement, read with AS 31, Financial Instruments — Presentation along with prescribed limited revisions to other Accounting Standards, issued by the Institute of Chartered Accountants of India, as in management's opinion, it more appropriately reflects the nature/ substance of the related transactions. AS 30, along with limited revisions to the other accounting standards, has not currently been notified by the National Advisory Committee on Accounting Standards (NACAS) pursuant to the Companies (Accounting Standards) Rules, 2006 which continues to apply under Section 133 of the Companies Act, 2013. Consequent to early adoption of AS 30 and the related limited revisions, consolidated profit after taxation for the quarter ended 30 June 2014 is higher by Rs 44 million.”
Our conclusion is not qualified in respect of this matter. Fiscal Year Qualification 2014 Attention is drawn to Paragraph 6 of the Audit Report on The subsidiary, Spencers Consolidated Financials, being the qualification included in the audit Retail Limited, has ceased report issued by the auditors of Spencer’s Retail Limited, a to recognise for deferred subsidiary of the Company which states that : tax assets since 31 March,
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Corrective steps taken Reservation, qualification and adverse remark and their impact Period and proposed to be taken on the financial statements and financial position of the company by the Company “Attention is drawn to note no 34 to the consolidated financial 2011 as a matter of statements regarding continuation of net deferred tax asset (DTA) of prudence. However, based Rs. 310.53 crores in the accounts of certain subsidiaries based on the on future profitability future profitability projections made by the management. However, projections, the subsidiary in the absence of virtual certainty as stated in Accounting Standard believes that there would 22 on Deferred taxes, we are unable to express any opinion on the be sufficient taxable projections and their consequent impact if any, on such Deferred tax income in future, and Asset. hence continues to carry Had the above asset been reversed the profit of the group would be the deferred tax assets Rs. 181.11 Crores as against the reported profit of Rs. 491.64 Crores recognised till 31 March, and the shareholders fund would have reduced by Rs. 310.53 2011. Such deferred tax Crores.” asset will be reviewed at every balance sheet date and write down in carrying amount, if any, will be recognised Fiscal Year Emphasis of matter 2014 Without qualifying our opinion, we draw attention to Note 40 to the As this is an early adoption consolidated financial statements that describes the early adoption by of the accounting standard, the Group of Accounting Standard (AS) 30, Financial Instruments: no corrective action is Recognition and Measurements, read with AS 31, Financial required. Instruments - Presentation along with prescribed limited revisions to other accounting standards issued by the Institute of Chartered Accountants of India, as in management's opinion, it more appropriately reflects the nature/ substance of the related transactions. AS 30, along with prescribed limited revisions to other accounting standards, has not yet been notified under the Companies (Accounting Standards) Rules, 2006. Consequent to early adoption of AS 30 and the related limited revisions, the profit after taxation for the period and reserves and surplus as at the balance sheet date is higher by Rs. 16.90 Crores and by Rs. 0.30 Crores respectively. Fiscal Year Qualification 2013 Attention is drawn to Paragraph 6 of the Audit Report on The subsidiary has ceased Consolidated Financials, being the qualification included in the audit to recognise for deferred report issued by the auditors of Spencer’s Retail Limited, a tax assets since 31 March, subsidiary of the Company which states that : 2011 as a matter of “In respect of one of the subsidiaries, the auditors had made the prudence. However, based following observation: on future profitability Attention is drawn to note no. 13 to the financial statements projections, the subsidiary regarding continuation of net deferred tax asset (DTA) of Rs. believes that there would 31,053.45 lakhs (Rs. 32,154.69 lakhs) in the accounts based on the be sufficient taxable future profitability projections made by the management. However, income in future, and in the absence of virtual certainty as stated in Accounting Standard hence continues to carry 22 on Deferred Taxes, we are unable to express any opinion on the the deferred tax assets above projections and their consequent impact if any, on such recognised till 31 March, Deferred Tax Asset. 2011. Such deferred tax Had the above asset been reversed, there would be a loss of Rs. asset will be reviewed at 51,967.53 lakhs as against the reported loss of Rs. 20,914.08 lakhs every balance sheet date and shareholder’s funds would have reduced by Rs. 31,053.45 lakhs. and write down in carrying This had also caused us to qualify our audit opinion on the financial amount, if any, will be statements relating to the preceding year.” recognised.
Fiscal Year Emphasis of matter 2013 In respect of one of the subsidiaries, the auditors had made the As this is an early adoption
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Corrective steps taken Reservation, qualification and adverse remark and their impact Period and proposed to be taken on the financial statements and financial position of the company by the Company following observation: of the accounting standard, Without qualifying our opinion, we draw attention to Note 38 to the no corrective action is consolidated financial statements that describes the early adoption by required the Group of Accounting Standard (AS) 30, Financial Instruments: Recognition and Measurements, read with AS 31, Financial Instruments – Presentation along with prescribed limited revisions to other accounting standards issued by the Institute of Chartered Accountants of India, as in management’s opinion, it more appropriately reflects the nature/ substance of the related transactions. AS 30, along with prescribed limited revisions to other accounting standards, has not yet been notified under the Companies (Accounting Standards) Rules, 2006. Consequent to early adoption of AS 30 and the related limited revisions, the profit after taxation for the period and reserves and surplus as at the balance sheet date is lower by Rs. 279 million and is higher by Rs. 20 million respectively. Fiscal Year Qualification 2012 Attention is drawn to Paragraph 4 of the Audit Report on The subsidiary, Spencers Consolidated Financials, being the qualification included in the audit Retail Limited, has ceased report issued by the auditors of Spencer’s Retail Limited, a to recognise for deferred subsidiary of the Company which states that : tax assets since 31 March, “In respect of one of the subsidiaries, the auditors had made the 2011 as a matter of following observation: prudence. However, based Attention is drawn to note no. 13 to the financial statements on future profitability regarding recognition of net deferred tax asset (DTA) of Rs. projections, the subsidiary 32,154.69 lakhs (Rs. 32,154.69 lakhs) in the accounts up to 31st believes that there would March, 2011 based on the future profitability projections made by be sufficient taxable the management. The Company has not recognised DTA of Rs. income in future, and 7,920.15 lakhs for the current year as a matter of prudence. hence continues to carry However, we are unable to express any opinion on the above the deferred tax assets projections and their consequent impact if any, on such Deferred Tax recognised till 31 March, Asset. This had also caused us to qualify our audit opinion on the 2011. Such deferred tax financial statements relating to the preceding year. asset will be reviewed at Had the impact of above item been considered, there would be a loss every balance sheet date of Rs. 57,692.18 lakhs (after adjusting DTA of Rs. 32,154.69 lakhs and write down in carrying recognised up to 31st March, 2011) as against the reported loss of amount, if any, will be Rs. 25,537.49 lakhs and shareholder’s funds would have been recognised reduced by Rs. 32,154.69 lakhs.” Fiscal Year Qualification 2011 Attention is drawn to Paragraph 4 of the Audit Report on The subsidiary, Spencers Consolidated Financials, being the qualification included in the audit Retail Limited, has ceased report issued by the auditors of Spencer’s Retail Limited, a to recognise for deferred subsidiary of the Company which states that : tax assets since 31 March, 2011 as a matter of “In respect of one of the subsidiaries, the auditors had made the prudence. However, based following observation : on future profitability Attention is drawn to note no. 16 on Schedule Q regarding projections, the subsidiary recognition of net deferred tax asset (DTA) of Rs.3 2,154.69 lakh believes that there would (including Rs.7,5 23.38 lakh for the year) in the accounts up to 31 be sufficient taxable March, 2011 based on the future profitability projections made by income in future, and the management. However, we are unable to express any opinion on hence continues to carry the above projections and their consequent impact, if any, on such the deferred tax assets Deferred Tax Asset. This had also caused us to qualify our audit recognised till 31 March, opinion on the financial statements relating to the preceding year. 2011. Such deferred tax Had the impact of above item been considered, there would be a loss asset will be reviewed at
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Corrective steps taken Reservation, qualification and adverse remark and their impact Period and proposed to be taken on the financial statements and financial position of the company by the Company of Rs. 26,833. 24 lakh as against the reported loss of Rs.19,309.86 every balance sheet date lakh for the year and the Profit and Loss Account debit balance and write down in carrying would have been Rs.1,09,906.74 lakh as against the reported debit amount, if any, will be balance of Rs.77,752.05 lakh.” recognised Fiscal Year Qualification 2010 Attention is drawn to Paragraph 4 of the Audit Report on The subsidiary, Spencers Consolidated Financials, being the qualification included in the audit Retail Limited, has ceased report issued by the auditors of Spencer’s Retail Limited, a to recognise for deferred subsidiary of the Company which states that : tax assets since 31 March, “In respect of one of the subsidiaries, the auditors had made the 2011 as a matter of following observation : prudence. However, based Attention is drawn to note no.16 on Schedule Q regarding on future profitability recognition of net deferred tax asset (DTA) of Rs. 24,631.31 lakhs projections, the subsidiary (including Rs. 7,185.77 lakhs for the year) in the accounts up to 31 believes that there would March, 2010 based on the future profitability projections made by be sufficient taxable the management. However, we are unable to express any opinion on income in future, and the above projections and their consequent impact, if any, on such hence continues to carry Deferred Tax Asset. This had also caused us to qualify our audit the deferred tax assets opinion on the financial statements relating to the preceding year. recognised till 31 March, Had the impact of above item been considered, there would be a loss 2011. Such deferred tax of Rs. 33,034.42 lakhs as against the reported loss of Rs. 25,848.65 asset will be reviewed at lakhs for the year and the Profit and Loss Account debit balance every balance sheet date would have been Rs. 83,073.50 lakhs as against the reported debit and write down in carrying balance of Rs. 58,442.19 lakhs.” amount, if any, will be recognised
Change in accounting policies in the last three years
In Fiscal Year 2014, in respect of some of the Subsidiaries, the method of providing depreciation was changed from Written Down Value Method to Straight Line Method. Consequent to adoption of straight line basis for depreciation, charge on account of depreciation for the Fiscal Year 2014 is lower by an amount of Rs. 397.8 million. In respect of one of the Subsidiaries, the method of providing depreciation was changed from Written Down Value Method to Straight Line Method, as per the rates prescribed in the West Bengal Electricity Commission (Terms and Conditions of Tariff) Regulations, 2011. Consequent to this change in policy, charge on account of depreciation for Fiscal Year 2014 is lower by an amount of Rs. 3.2 million.
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Spencer’s Retail Limited
The following selected information is extracted from the unaudited reviewed condensed standalone financial statements for quarter ended June 30, 2014 and audited standalone financial statements and notes thereto of Spencer’s Retail Limited as at, and for the, Fiscal Years ended March 31, 2014, 2013 and 2012 prepared in accordance with Indian GAAP. The said financial statements are not included in the Preliminary Placement Document.
The selected financial information stated below does not reflect Spencer’s Retail Limited’s result of operations, financial position and cash flows for the future and its past operating results are no guarantee of its future operating performance.
Standalone Balance Sheet (Rs. in millions ) As at June 30, As at March 31, As at March 31, As at March Particulars 2014 2014 2013 31, 2012 EQUITY AND LIABILITIES Shareholders' funds Share capital 1,734.28 1,734.28 1,040.57 260.14 Reserves and surplus -12,801.99 -12,407.05 -11,095.87 -9,160.54 -11,067.71 -10,672.77 -10,055.30 -8,900.40 Share application money 13,787.43 11,337.43 11,417.99 10,684.50 pending allotment Minority Interest Non-current liabilities Long-term borrowings 2,252.50 2,360.00 2,250.00 862.50 Other long term liabilities 1.51 1.75 3.21 440.45 Long -term provisions 46.19 49.89 51.20 43.95 2,300.20 2,411.64 2,304.41 1,346.90 Current liabilities Short-term borrowings 385.03 2,316.07 2,000.00 3,500.00 Trade Payables 1,858.41 1,829.69 1,341.88 1,337.12 Other current liabilities 854.85 752.21 531.24 651.99 Short -term provisions 117.09 115.20 122.22 93.33 3,215.38 5,013.17 3,995.34 5,582.44 TOTAL 8,235.30 8,089.47 7,662.44 8,713.44
ASSETS Non-current assets Fixed assets Tangible assets 1,813.97 1,861.05 1,722.76 2,126.08 Intangible assets 87.37 90.55 92.80 86.74 Capital work-in-progress 48.31 5.87 16.04 - 1,949.65 1,957.47 1,831.60 2,212.82 Non-current investments 320.10 320.10 280.10 1,042.50 Deferred tax assets (net) 3,105.35 3,105.35 3,105.35 3,215.47 Long -term loans and advances 762.18 708.49 748.40 700.39 Other non-current assets 254.34 254.36 167.88 155.39 4,441.97 4,388.30 4,301.73 5,113.75 Current assets Current Investments Inventories 1,420.53 1,405.94 1,064.51 1,078.77 Trade receivables 279.41 209.28 212.20 162.64 Cash and bank balances 43.85 61.00 179.07 69.42 Short-term loans and advances 95.33 64.78 70.47 72.30 Other Current Assets 4.56 2.70 2.86 3.74 1,843.68 1,743.70 1,529.11 1,386.87 TOTAL 8,235.30 8,089.47 7,662.44 8,713.44
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Standalone Statement of Profit and Loss (Rs in millions) For the year For the For the three month For the year ended year ended PARTICULARS period ended June ended March March 31, March 31, 30, 2014 31, 2014 2013 2012 Revenue from operations 4,148.70 14,512.82 13,377.53 11,989.48 Other income 14.05 67.34 92.25 73.07 Total Revenue 4,162.75 14,580.16 13,469.78 12,062.55
Expenses Purchase of traded goods 3,373.41 11,978.82 10,687.35 9,843.43 (Increase)/Decrease in Inventories -21.22 -335.06 96.21 -64.53 Raw materials consumed 13.81 48.25 27.38 - Employee Benefit Expenses 311.59 1,139.67 1,148.65 1,154.92 Other Expenses 633.54 2,449.54 2,351.98 2,532.47 Total expenses 4,311.13 15,281.22 14,311.57 13,466.29
Profit before Interest, Tax, Depreciation -148.38 -701.06 -841.79 -1,403.74 & Amortisation Depreciation, Amortisation & Impairment 88.69 319.33 319.80 504.48 Finance Cost 118.61 433.74 435.02 486.44
Loss before exceptional Items & Tax -355.68 -1,454.13 -1,596.61 -2,394.66 Exceptional Items - 203.92 384.68 159.10 Loss before tax -355.68 -1,658.05 -1,981.29 -2,553.76
Tax expenses: Deferred tax (reversed) - - 110.12 - Loss for the year -355.68 -1,658.05 -2,091.41 -2,553.76
Firstsource Solutions Limited
The following selected information is extracted from audited condensed consolidated financial statements for quarter ended June 30, 2014, audited consolidated financial statements and notes thereto of Firstsource Solutions Limited as at, and for the Fiscal Year ended March 31, 2014 and audited financial statements as at, and for the period from December 5, 2012 to March 31, 2013 and prepared in accordance with Indian GAAP. The said financial statements are not included in the Preliminary Placement Document.
The selected financial information stated below does not reflect Firstsource Solutions Limited’s result of operations, financial position and cash flows for the future and its past operating results are no guarantee of its future operating performance.
Consolidated Balance Sheet (Rs. in millions ) As at March 31, As at March 31, Particulars As at June 30, 2014 2014 2013 EQUITY AND LIABILITIES Shareholders' funds Share capital 6,614.21 6,597.35 6,576.74 Reserves and surplus 14,935.71 14,316.86 10,559.64 21,549.92 20,914.21 17,136.38 Share application money 0.89 0.66 - received under ESOP Scheme Minority Interest 15.1 14.35 11.36 Non-current liabilities
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As at March 31, As at March 31, Particulars As at June 30, 2014 2014 2013 Long -term borrowings 6,016.16 6,641.50 8,500.64 Deferred Tax Liabilities (net) 323.93 317.17 282.90 Other Long Term Liabilities 205.18 199.53 328.92 Long Term Provisions 250.72 239.83 223.59 6,795.99 7,398.03 9,336.05
Current liabilities Short-term borrowings 3,046.52 2,458.83 1,628.60 Trade Payables 1,333.18 1,129.31 1,361.22 Other current liabilities 4,394.46 4,786.89 4,163.17 Short-term provisions 195.15 192.25 87.10 8,969.31 8,567.28 7,240.09 TOTAL 37,331.21 36,894.53 33,723.88 ASSETS Non-current assets Goodwill on consolidation 26,049.81 25,940.39 23,601.03 Fixed assets Tangible assets 809.87 855.45 1,091.90 Intangible assets 477.06 508.44 451.45 Capital work-in-progress 14.71 4.01 18.20 1,301.64 1,367.90 1,561.55
Non-current investments 27.05 26.39 26.81 Long -term loans and 1,163.07 1,179.07 1, 339.37 advances Other non-current assets 972.49 899.54 657.10 2,162.61 2,105.00 2,017.28 Current assets Current Investments 27.00 26.00 - Trade receivables 3,124.48 3,019.26 3,865.84 Cash and bank balances 2,072.56 1,863.21 901.01 Short-term loans and 416.41 410.28 319.73 advances Other Current Assets 2,176.70 2,162.48 1,4 57 .44 7,817.15 7,481.23 6,544.02 TOTAL 37,331.21 36,894.52 33,723.88
Consolidated Statement of Profit and Loss (Rs. in millions ) For the three month For the year For the period from Particulars period ended June 30, ended March 31, December 5, 2012 to 2014 2014 March 31, 2013 Revenue from operations 7,556.04 31,058.76 9,152.40 Other income -10.25 20.04 23.42 Total Revenue 7,545.79 31,078.80 9,175.82
Expenses Employee Benefit Expenses 5,074.92 21,294.05 6,224.73 Finance Costs 183.73 851.47 262.58 Depreciation & Amortisation 175.46 757.02 280.11 Other Expenses 1,550.69 6,143.46 1,883.90 Total expenses 6,984.80 29,046.00 8,651.32
Profit before Taxation and 560.99 2,032.80 524.50 minority interest Less - Provision for taxation:
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For the three month For the year For the period from Particulars period ended June 30, ended March 31, December 5, 2012 to 2014 2014 March 31, 2013 Current Tax including MAT 100.19 404.77 74.61 Less - MAT Credit Entitlement -76.69 -269.04 -76.74 Net Current Tax 23.50 135.73 -2.13 Deferred Tax (Credit)/Charge 4.35 -34.84 27.84 Profit after Taxation and 533.14 1,931.91 498.79 before Minority Interest Minority Interest 0.66 2.29 -5.55 Profit After Taxation and 532.48 1,929.62 504.34 Minority Interest
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RISK FACTORS
Prospective investors should carefully consider the risks described below, in addition to the other information contained in this PPD, before making any investment decision relating to the Equity Shares. The occurrence of any of the following events and any additional risks and uncertainties not presently known to the Company could have a material adverse effect on the Company’s business, results of operations, financial condition, cash flows and future prospects and cause the market price of the Equity Shares to fall significantly.
Risks Associated with the Company’s Power Business
The Supreme Court of India has cancelled the allocation of the coal block operated by ICML,(the Company owns 26% of ICML) by its judgment and order dated August 25, 2014 and September 24, 2014, respectively (the “SC Orders”), and has also imposed a levy on the allottees. The SC Orders adversely affect the Company as a majority of its coal requirements are sourced from ICML and the levy imposed by the SC Orders may have to be borne by the Company which may adversely affect the Company’s business, profitability, results of operations and financial condition.
The majority of the Company's coal requirements have historically been met through the coal mine owned by ICML, an RP-Sanjiv Goenka Group company. In the year ended March 31, 2014, 54% of the Company’s coal requirements were obtained from the coal mine operated by ICML, and the remaining coal requirements were met through coal obtained from subsidiaries of CIL and imports (which are typically more costly than domestic purchases).
Pursuant to a writ petition filed before the Supreme Court of India, the Supreme Court issued the SC Orders, which cancelled the allocations of all but four coal block allocations made between 1993 and 2010 on the grounds that the allotment of coal blocks made by the Screening Committee of the Central Government, in addition to dispensation routes granted by the Central Government, are arbitrary and illegal.
The allocation of the mine to ICML has also been cancelled by the SC Orders, effective as of March 31, 2015. The Supreme Court has further directed the allotees of the cancelled coal mines to pay an additional levy of Rs. 295 per metric ton on the coal extracted from the mines since the extraction date, by December 31, 2014. The Company (and not ICML) has been mentioned as an allottee for the coal mine operated by ICML in the SC Orders. Accordingly, the Company may have to bear the additional levy.
As of June 30, 2014, the total additional levy based on the coal extracted amounts is estimated at Rs. 9,770 million. The Company's auditors have highlighted this additional levy as a matter of emphasis in their audit report for the three months ending June 30, 2014. The Company and its auditors are yet to determine the accounting treatment of this levy, which is dependent on the outcome of any legal remedies pursued by the Company and also on the ability of the Company to recover the additional levy from its consumers through its tariff which is subject to regulations and applicable law. If the additional levy is to be treated as an expense or liability by the Company's auditors, such treatment could adversely affect the Company's profit and loss statement. Furthermore, there is no assurance that the Company will be able to build in the impact of the additional levy in its tariff and pass it on to the customers, partially or entirely. Payment of the additional levy by the Company and any failure to pass it on to end consumers may adversely impact the Company’s profitability, results of operations and financial condition. For further information, please see, “Management's Discussion and Analysis of Financial Condition and Results of Operation—Factors Affecting our Results of Operations—Availability and price of fuel supply .”
While the Company has filed a writ petition before the Supreme Court of India seeking relief from the SC Orders, there is no assurance that the Company will succeed in obtaining a suitable judgement on its petition or any other legal remedies it decides to pursue. The cancellation of coal mine allotted to ICML adversely affects the Company's business and operations as it has been heavily reliant on the coal sourced from the ICML coal mine and currently has no alternative long-term arrangement to source coal for its operations. The Company will continue to use coal from the ICML coal mine until March 31, 2015 as permitted by the SC Orders and in the meantime, will look for alternative sources of coal. However, given the scarcity of coal in the country, there can be no assurance that the Company will be able to identify any alternative source for coal at an affordable cost or at all. If the Company is not able to obtain a continuous supply of coal at competitive prices, it may have a material adverse affect on the Company’s business, financial condition and results of operations, including in relation to the Company's tariffs. Moreover, if the Company cannot procure a sufficient and continuous supply of coal, it may be unable to undertake certain of its expansion plans. Inability to procure continuous supply of coal for the Company's operations coupled with the impact of levy on its financial position could result in the
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Company being unable to continue operations in a sustainable manner or at all.
The Coal Mines (Special Provisions) Ordinance, 2014 (the “ Ordinance ”) was promulgated on October 21, 2014 to provide for the allocation of coal mines cancelled by the SC Orders. Pursuant to the Ordinance, prior allottees can participate in the auction of coal mines only after paying the levy imposed by the SC Orders. Therefore, if the Company were to delay payment of the levy, it may not be eligible to participate in the auction of coal mines under the Ordinance. Further, the Ordinance opens up all the de-allocated mines for auction and the Company's competitors might participate in the auction and may be allocated mines, which might adversely impact its competitive positioning.
Lastly, the policy framework governing the acquisition and/or cancellation of coal mines in India is yet to be formulated and there exists considerable uncertainty around its scope and content. As a result, the Company may not be able to successfully acquire coal mines in the future, which may adversely affect its ability to ensure the availability of coal for the operation of its thermal power plants, and an inability to do so may adversely affect its business, financial condition, cash flows and results of operations.
The Company’s business could be adversely affected by the revision of the Company’s tariffs by the regulatory authorities.
The Company’s tariff is determined by the WBERC under the provisions of the Electricity Act and the associated regulations. This currently provides for a multi-year tariff framework whereby tariffs are determined on a normative basis with reference to efficiency parameters determined by the WBERC. The Company’s inability to meet the prescribed efficiency norms may lead to the disallowance of costs incurred and the imposition of penalties. Although the Company’s performance levels currently exceed those required, there can be no assurance that the Company will continue to meet such standards or that such standards will not be made more stringent. There can also be no assurance that tariffs will increase at an adequate rate to cover the Company’s costs. All of the foregoing could have material adverse effects on the Company’s business, results of operations and financial condition.
The Company’s cash flow is affected by the tariff-setting mechanism.
Under the multi-year tariff framework, the WBERC will determine the tariff for a number of years. At the end of each year within the period covered by the tariff then in force, the Company will submit an annual performance review to the WBERC in response to which the WBERC may adjust the tariff to reflect certain unforeseeable items of expenditure and/or lower than expected income. The Company may experience liquidity constraints, as it is unable to adjust its tariff during the year at the time of the incurrence of the unforeseeable expense and, accordingly, the funds received from sales may be inadequate to pay expenses during the period from the time of incurrence of the unforeseeable expense until the time the tariffs are adjusted. Although the Company may be entitled to tariff adjustments in subsequent periods to compensate for lower sales or increased costs, the billing of such adjusted tariffs and the collection of the related funds will take place in subsequent periods. The delay of cash inflows from operations could have a material adverse effect on the Company’s operations and could limit the Company’s ability to service its indebtedness in a timely fashion. The Company’s capital expenditure program may exceed that which is approved by the WBERC. A refusal by the WBERC to adjust the tariff to cover the total cost of such capital expenditure program could have a material adverse effect on the permitted return and liquidity position of the Company with a consequential material adverse effect on the Company’s ability to service its indebtedness in a timely fashion.
The Tariff Regulations encourage the Company to continue the Company’s investment in capital and to fund such capital by increased indebtedness.
Due to regulatory provisions, the Company generally funds its capital expenditure with a debt to equity ratio of 70:30, as up to 30% of approved capital expenditure is allowed towards earning the permitted return on equity. The Company’s substantial expansion plan can render its capital structure highly leveraged, which may increase the debt servicing obligations of the Company. Although the Company believes that “advance drawal of depreciation” allowed under the Tariff Regulations (which allows the Company to claim advances against depreciation under certain circumstances) would enable it to service any higher debt repayment obligations, it may also lead to the tariff being set at a higher level, which may adversely affect the Company’s competitiveness and therefore its profitability.
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The Company is dependent on its electricity distribution/supply license.
The Company has a license, originally granted under the former Indian Electricity Act, 1910, to supply electricity in Kolkata and Howrah and in the adjoining areas. The Company is a deemed distribution licensee under the West Bengal Electricity Regulatory Commission (Licensing and Conditions of Licence) Regulations, 2013, for a term which expires on September 2, 2038. Pursuant to the Electricity Act, the license may be extended for subsequent periods at the discretion of the WBERC. The license is not exclusive, and the terms may be amended or the license may be revoked on not less than three months’ written notice by the WBERC in certain circumstances, including a willful and prolonged default under the Electricity Act or if, in the opinion of the WBERC, the Company’s financial position is such that the Company is unable to discharge fully and efficiently the duties imposed on it by the license. In such circumstances, the WBERC may require the Company to sell its assets to a purchaser whose application has been accepted by the WBERC in accordance with the provisions of the Electricity Act. In the event such sale does not occur, the Company may be required to pay for the removal of its assets from public land.
There can be no assurance that WBERC will not revoke the Company’s license or that it will extend the license beyond September 2, 2038 or any subsequent license period.
The Company’s plans to create additional generating capacity and to extend the transmission/distribution network involves substantial capital expenditure and other risks associated with major projects which may adversely affect the Company’s business .
In order to expand the Company’s business, the Company plans to increase its generating capacity by constructing additional generating units. The Company intends to use the proceeds of this offering in part to finance these projects. The remaining financing for such projects will be provided through internal cash flow, and the Company intends to obtain borrowings under term loans or secured debt facilities in due course.
The construction and expansion of power plants and the setting up of transmission lines involve substantial capital expenditure and other risks associated with major projects, such as cost overruns, delays in or failure of implementation, technical and economic viability, changes in market conditions, difficulty or delays in acquiring required land, and the obtaining of necessary consents and approvals (including rights of way) any of which may have a material adverse effect on the Company’s business, results of operations and financial condition.
In light of the SC Orders and the consequences therefrom, the Company intends to acquire certain coal mines and the risks involving in owning and operating coal mines may adversely affect the Company's business.
The Company intends to use part of the proceeds from the Issue to acquire coal mines in light of the SC Orders. Mining risks include the uncertainties associated with projected continuity of an ore deposit, fluctuations in grades and values of the product being mined, and unforeseen operational and technical problems. Exploration and mining may be adversely affected or hampered by a variety of non-technical issues such as limitations on activities due to seasonal changes, industrial disputes, land claims, heritage and environmental matters and legislation, mining legislation and many other factors beyond the control of the Company, including many that are partly or wholly unforeseeable. The cost of maintaining exploration and mining properties, which depends on the Company having access to sufficient development capital, poses another form of risk. As such, owning and operating coal mines may have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company has substantial borrowings from various agencies and lenders and is obliged to comply with certain loan covenants.
The Company is obliged to comply with certain covenants under loan agreements with various agencies and lenders, including a requirement to obtain permission for dividend payments upon the occurrence of an event of default, amendments to key agreements and financial covenants. The Company is currently in compliance with these covenants in all material respects but there is no assurance that the Company will continue to be in compliance in all material respects with these covenants or at all. If the Company is not able to comply with its financial covenants, it may have to apply for amendments to the covenants or seek waivers in respect of any events of default, including cross defaults arising from the breach of the covenants. The Company cannot assure you that it will be able to obtain such amendments or waivers on satisfactory terms, or at all. If the Company’s debt obligations are accelerated as described above, it will face significant liquidity constraints, and may be
41 unable to comply with all of its repayment obligations. In addition, the Company’s borrowings are secured by its assets, and the acceleration of loan repayments could result in foreclosure on the mortgages or security interests held by lenders over such assets.
The Company’s ability to incur additional debt in the future (which it intends to do) is subject to a variety of uncertainties, including the amount of capital that other Indian entities may seek to raise in the domestic and foreign capital markets, economic and other conditions in India that may affect investor demand for the Company’s securities and those of other Indian entities, the liquidity of Indian capital markets, and the Company’s financial condition and results of operations.
Past results will not necessarily be indicative of future results due to the changing regulatory environment in the Indian electricity industry.
The Company’s current profitability includes the impact of its operational efficiency in relation to the norms set by the WBERC. There is no assurance that more stringent norms will not be set by the WBERC in the future or that future operations and new plants and equipment commissioned by the Company will be able to comply with those norms. Therefore, the Company’s future results will be more significantly influenced by the Company’s operating performance than its past results. In addition, to the extent that the Company enters into non-tariff- regulated businesses, such as setting up merchant power plants and making investments therein, the revenues and profits from these businesses will not be as predictable as the revenues and profits from the Company’s tariff-regulated business. Moreover, the Company is subject to the general risk that the regulations to which it is subject may be changed from time to time in a manner that is adverse to the Company.
Changes in the regulatory environment of the Indian electricity industry may increase competition.
The Electricity Act removed licensing requirements for thermal generators, provided for multiple licensing and open access to transmission and distribution networks, and removed restrictions on the right to build captive generation plants. In addition, the Electricity Act promoted electricity trading. While the Company is currently the sole distribution licensee in its license distribution area in West Bengal, other utilities may seek open access or obtain licenses to distribute electricity in the Company’s license distribution area, which may adversely affect the Company’s business, results of operations and financial condition. Although the Company believes that its present tariff is competitive and continually tries to keep it so, there is no assurance that the Company would be able to maintain a sufficiently competitive tariff.
The Company depends on WBSEDCL for part of its electricity supply.
In the year ended March 31, 2014 and for the three months ended June 30, 2014, 13.8% and 21.1%, respectively, of the electricity the Company delivered to the system was purchased from the WBSEDCL pursuant to a power sale agreement which provides that WBSEDCL is required to make up to 705,000 KvA of electricity available to the Company pursuant to the actual requirements of the Company and availability of power in WBSEDCL’s system. There can be no assurance that WBSEDCL will supply electricity at the time and in the quantities the Company requires, and if the Company is unable to improve the Company’s own generating capacity or procure electricity from other sources, this will adversely affect the Company’s ability to supply electricity to consumers. The contract for the supply of electricity between the Company and WBSEDCL is in effect until June 30, 2025, which includes a provision for the annual increase of the rate payable thereunder, and there can be no guarantee that prices will not increase or that recovery will not be delayed, which may have a material adverse effect on the Company’s business, results of operations and financial condition.
We may not be able to secure coal linkage for Chandrapur Power Plant of Dhariwal Infrastructure Limited, our 100% owned subsidiary.
One of our wholly owned subsidiary, CESC Infrastructure Limited, acquired 100% shareholding in Dhariwal Infrastructure Private Limited in August 2009. Post the acquisition, the name of Dhariwal Infrastructure Private Limited was changed to Dhariwal Infrastructure Limited (“DIL”). Prior to our acquisition South Eastern Coalfields Limited (“SECL”) had issued two LOAs to Dhariwal Infrastructure Private Limited for supply of coal. Post the change of name, from Dhariwal Infrastructure Private Limited to DIL, an application was made to Ministry of Coal (“MOC”) for change of name in the LOAs. MOC did not agree to change of name inter alia on the grounds that, share transfer (in Dhariwal Infrastructure Private Limited) was in violation of clause 5 of the LOA, which stipulated that prior permission of MOC is required for assignment of LOA’s. DIL has represented to MOC requesting it to allow the name change and signing of FSA. The representation by DIL is pending with
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MOC. In the absence of FSA, DIL is currently sourcing coal from inter alia e-auction, various traders and import which is typically costlier than the coal supplied under FSA. Any delay in execution of FSA, will affect the Company’s ability to secure coal at cost effective prices which may consequentially impact the profitability and cash flow which would have an adverse effect on the business, results of operations, cash flows, financial conditions and prospectus the Company.
The Company has entered into a single PPA for the Chandrapur power project only. This PPA is for 100MW out of the project's 600MW capacity. The Company may be unable to secure long term PPAs for the uncommitted power of the Chandrapur power project, which could expose the Company's sales to increased volatility.
The Company may not be able to secure long-term PPAs for the balance available 450MW of power in relation to the Chandrapur power project. If the Company is unable to secure this type of agreement, its sales volumes would be exposed to increased volatility. Without the benefit of a long-term PPA for the Chandrapur power project, the Company cannot assure you that it will be able to sell the power generated by the facility or that the facility will be able to operate profitably. The inability to secure such agreements could materially adversely affect the Company's results from operations and business
Construction, development and operation of power projects involves many risks which may result in delays or interruptions of operations, lost revenue, increased maintenance costs and damages due to failure to perform under the Company's PPA for the Chandrapur power project.
Constructing, developing and operating power projects involves many risks and hazards which may materially adversely affect the Company's profitability, including but not limited to:
• breakdown, failure or substandard performance of the Company's equipment or the transmission and distribution system;
• improper design, installation, operation or maintenance of equipment;
• mechanical, technical and design problems;
• unforeseen design, engineering, environmental, or geological problems;
• shortages of equipment, materials or labor;
• work stoppages and labor disputes;
• delays or failure in receiving requisite approvals, licenses or permits;
• weather conditions;
• accidents;
• natural disasters;
• new technologies;
• environmental hazards; and
• industrial accidents, including fires and explosions.
The occurrence of any of the above or similar problems may cause delays, interruption of operations or cost overruns which may have a material adverse effect on the Company's business, financial condition or results of operations.
WBERC may not approve the revised estimates of the investment in the Haldia power plant being set-up by our 100% subsidiary Haldia Energy Limited (“HEL”). HEL has entered into a PPA with Our Company for the entire power which will be generated by it.
The Haldia power plant (2 X 300 MW) is a coal-based thermal power plant located in the district of East Medinipur, in the State of West Bengal. The project is being set-up by HEL. HEL has signed a PPA with Our
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Company for the entire output of the plant. The same has been approved by WBERC. HEL has submitted the revised estimated investment in the project to WBERC for its approval and is presently under review by WBERC. In case such approval is delayed or not granted, it could have an adverse effect on the business, results of operations, cash flows, financial conditions and prospectus of HEL
Post full commissioning of the plant, sale of the entire available energy to Our Company would depend on the demand for power in Our Company’s distribution area and price of power available in the market and any shortfall in the offtake of power by Our Company could have an adverse effect on the business, results of operations, cash flows, financial conditions and prospectus the Company.
We are dependent on the coal supplied by the subsidiaries of Coal India Limited for a portion of our coal requirement and the fuel supply agreements with them contain certain terms not favorable to us.
We are dependent on the fuel supply agreement with the subsidiaries of Coal India Limited to meet a part of our coal requirement. These fuel supply agreements usually contain certain terms which may not be very favourable to us. For example, the fuel supply agreements mandate a minimum level of purchase to be undertaken by the Company in a year and if the level of purchase falls below the annual contracted quantity then the Company is liable to the seller for the shortfall and the seller may also terminate the agreement. The seller is entitled to sell a certain percentage of imported coal every year to us. The imported coal usually works out as more expensive coal. We have limited bargaining power while entering into these fuel supply agreements and any unfavorable term may adversely affect our business and operations.
The Company suffers transmission and distribution losses in the delivery of the Company’s electricity.
T&D Losses refers to the electricity distributed through a network which is not billed by the distributor. These losses are generally caused by technical effects such as energy losses in the form of transformer loss, heat given off by cables, faulty metering and theft. The Company’s T&D Losses amounted to 11.8% of total electricity delivered to the system in the year ended March 31, 2014. There can be no assurance that the Company will be able to reduce T&D Losses or that they will not increase in the future. In addition, if T&D Losses exceed the WBERC thresholds, the Company's revenues may be adversely affected.
Failure to deliver electricity to the Company’s customers may adversely affect the Company’s revenues and results of operations.
Unplanned outages at generating stations and in distribution networks generally occur in the Company’s industry. However, in the event of prolonged unplanned outages at any of the Company’s generating stations or continued failures in the Company’s distribution network, the Company may be unable to supply electricity to consumers. This could have a material adverse effect on the Company’s business, results of operations and financial condition.
A considerable amount of the Company’s receivables are due from municipalities and other public bodies.
Settlement of electricity dues by certain municipalities and other public bodies takes place after significant delays. As of June 30, 2014, outstanding amounts payable by such municipalities and other public bodies amounted to approximately Rs. 6,345 million. Given the nature of activities of these entities, the Company does not generally consider the disconnection of supply. Final settlement usually takes place through the State Government. In the past, several settlement packages have been entered into to the satisfaction of the Company. On the basis of continued negotiation, a sum of Rs. 2,162.2 million has been realized from municipalities and other public bodies between March 1, 2014 and September 30, 2014. However, there is no assurance that the State Government will enter into settlement packages in the future, which may have a material adverse effect on the Company’s financial condition and results of operations.
Development and acquisition of power projects and businesses may be subject to various regulatory approvals and there can be no assurance that these regulatory approvals will be obtained in time or at all.
The Company intends to develop and expand its business through the development of new power projects, including coal-based power plants in the States of Orissa and Bihar and hydro power plants in the State of Arunachal Pradesh, in addition to the acquisitions of power projects and related operating companies and businesses from third parties. Such development and acquisitions may be subject to various governmental and regulatory approvals, consents, reports and filings. Approvals required to develop a power project include, among others, environmental approvals from the MOEF and concerned State Government department or body,
44 consent to establish a project and authorization for withdrawal of water from the relevant department or body of a State Government, as well as height approvals from the Airports Authority of India. There can be no assurance that any governmental and regulatory approvals for the development of new power projects and the acquisitions of power projects and related operating companies and businesses can be obtained in time or at all. If the Company cannot obtain all necessary governmental and regulatory approvals in time for the development of a new power project or for a proposed acquisition, it may not proceed with such development or acquisition or it may take the Company a long time to undertake such development or acquisition which may have a material adverse effect on the undertaking and realization of the Company's development and expansion plans, as well as the implementation of its business strategies and the achievement of improved financial performance.
In addition, the Company's government approvals and licenses are subject to numerous conditions, some of which are onerous and require it to incur substantial expenditure. If the Company fails to comply or a regulator or the relevant counterparty claims that the Company has not complied with such or any other conditions to the Company's approvals, licenses and agreements, the Company may be forced to make substantial expenditures to retain or replace, and the Company may even lose, such approval, license or the ability to operate the relevant project, the occurrence of any of which could adversely affect the Company's business, financial condition and results of operations. Any failure to renew the approvals that have expired or apply for and obtain the required approvals, licenses, registrations or permits, or any suspension or revocation of any of the approvals, licenses, registrations and permits that have been or may be issued to the Company, may adversely affect its business, financial condition and results of operations.
The Company depends on various contractors or specialist agencies to construct and develop its power projects, some of which supply sophisticated and complex machinery and the Company is exposed to risks relating to the timing or quality of their services, equipment and supplies.
The Company depends on the availability of skilled third party contractors for the development and construction of its proposed power projects and supply of certain key equipment. The Company has limited direct control over the timing or quality of services, equipment or supplies provided by these contractors. In addition, as a result of increased industrial development in India in recent years, the demand for contractors with specialist design, engineering and project management skills and services has increased manifold, resulting in a shortage of and increasing costs of such contractors. The Company cannot assure investors that such skilled and experienced contractors will continue to be available at reasonable rates in the areas in which it is constructing its projects and conducting its operations, and the Company may be exposed to risks relating to the quality of their services, equipment and supplies.
In addition, the Company requires the continued and timely support of certain original equipment manufacturers to supply necessary services and parts to maintain the power projects at affordable cost. If the Company is unable to procure the required services or parts from these manufacturers (for example, as a result of the shutting down of operations of the manufacturer, insolvency, etc.), or if the cost of these services or parts exceed the budgeted cost, there may be a material adverse effect on the Company's business, financial condition and results of operations. While contractors and suppliers are generally subject to liquidated damages payments for failure to achieve timely completion or performance shortfalls, the Company may not be able to recover from a contractor or supplier the full amount of losses that may be suffered by it due to such failure to achieve timely completion or performance shortfalls, which may adversely impact its business, financial condition and results of operations.
The Company may not be able to identify or correct any defects or irregularities in title to the lands upon which it intends to develop its power projects.
In the future, there may be various legal defects and irregularities in title to the lands on which the Company intends to develop its power projects, which it may not be able to fully identify or assess. The Company's rights in respect of such land may be compromised by improperly executed, unregistered or insufficiently stamped conveyance instruments in the property‘s chain of title, unregistered encumbrances in favor of third parties, rights of adverse possessors, ownership claims of family members of prior owners, or other defects that the Company may not be aware of. Any defects or irregularities of title may result in loss of development rights over land, which will prejudice the success of the Company's power projects and may require it to write off substantial expenditures in respect of a project. Any inability to identify defects or irregularities of title, and any inability to correct any such defects or irregularities of title may have a material adverse effect on the Company's business, financial condition and results of operations. Any decision to acquire land based on inaccurate, incomplete or dated information may result in risks and liabilities associated with acquiring and owning such parcels of land.
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Some of the Company's generating stations are also partially held on a leasehold basis. While these are long- term leases, the Company may not be able to renew these leases on commercially acceptable terms or at all. Also, typically, renewal of a lease is subject to compliance with the terms of the existing lease. The Company could also be subject to interest on rent in arrears or cancellation of the lease for failure to comply with its terms.
The Company may be unable to avail certain tax benefits in relation to its power business in future.
In accordance with Section 80 IA of the Income Tax Act, 1961, a company is entitled to deduction of 100% of performance derived from the generation, distribution or transmission of power for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking generated power or commences transmission or distribution of power before March 31, 2017. In case the Company's plants are not commissioned before the designated date and the commercial production of its power projects, including power generation and transmission of power, does not commence before March 31, 2017, the Company will not be eligible to receive the tax benefits for the projects that are commissioned after the designated date. The Company cannot assure you that the Central Government will extend the period of availability for such tax benefits and if such tax benefits become unavailable, the Company's business, financial condition and results of operations could be materially and adversely affected. Additionally, the Company may be eligible for certain tax and other benefits under the special economic zone policy, concessions and benefits available to mega power projects and also deemed export benefit available to power projects. The Company cannot assure you that it would be able to avail of such tax benefit and other fiscal concessions.
In the event the technology used at the Company's power projects becomes less competitive or obsolete in the near future, its financial performance and profitability could be adversely affected.
The Company's future success will depend in part on its ability to respond to technological advances and emerging power generation industry standards and practices on a cost-effective and timely basis. Changes in technology and high fuel costs of thermal power projects may make newer generation power projects or equipment more competitive than the Company's power projects or may require it to make additional capital expenditures to upgrade its facilities. In addition, there are other technologies that can produce electricity, most notably fuel cells, micro turbines, windmills and photovoltaic (solar) cells. If the Company is unable to adapt in a timely manner to changing market conditions, customer requirements or technological changes, its business, financial performance and profitability could be adversely affected.
The Company's inability to effectively manage its growth or to successfully implement its business plan and growth strategy could have a material adverse effect on its operations, results and financial condition.
The Company expects that its growth strategy will place significant demands on its management, financial and other resources. In particular, continued expansion increases the challenges involved in financial and technical management, recruitment, training and retaining sufficiently skilled technical and management personnel, and developing and improving the Company's internal administrative infrastructure. The Company intends to continue its expansion in the foreseeable future and to pursue existing and potential market opportunities.
In order to manage growth effectively, the Company must implement and improve operational systems, procedures and internal controls on a timely basis. If the Company fails to implement these systems, procedures and controls on a timely basis, or if there are weaknesses in its internal controls that would result in inconsistent internal standard operating procedures, the Company may not be able to meet its customers‘ needs, hire and retain new employees, pursue new business opportunities, complete future strategic agreements or operate its business effectively. There can be no assurance that the Company's existing or future management, operational and financial systems, procedures and controls will be adequate to support future operations or establish or develop business relationships beneficial to future operations. The Company's inability to manage its business plan effectively and execute its growth strategy could have a material adverse effect on its operations, results, financial condition and cash flows.
The Company's success depends on stable and reliable transportation infrastructure, the disruption of which could adversely affect its operations.
The Company depends on various forms of transport, such as roadways and railways to receive fuel, raw materials and water during construction of its power projects and during their operation. The building of transportation infrastructure entails obtaining approvals of and development by the Central Government or the State Governments and their nominated agencies and the Company. As a result, the Company does not have total control over the construction, operation and maintenance of the transportation infrastructure. There can be
46 no assurance that such transportation infrastructure will be constructed in a timely manner, operated on a cost effective basis and maintained at adequate levels, which may affect the estimated commissioning dates for the Company's power projects. Undertaking such development will require significant capital expenditures and active engagement with the Central and State Governments and their agencies responsible for organizing transport infrastructure and related technologies. Furthermore, disruptions of transportation services because of weather-related problems, strikes, lock-outs, inadequacies in the road or rail infrastructure, or other events could impair the ability of the Company's suppliers to deliver fuel and raw materials. The Company can provide no assurance that such disruptions due to the occurrence of any of the factors cited above will not occur in the future. Any disruptions of transportation services could adversely affect the Company's business, financial condition and results of operations.
The Company’s operations are subject to environmental regulations.
The Company’s power stations are subject to environmental regulations promulgated by the MOEF and respective State Government pollution control boards. While the Company has an extensive environment policy to ensure compliance with all applicable legal and regulatory requirements, and all pulverized fuel stations of the Company are ISO 14001:2004 certified in respect of their environmental management systems, in the event that one of the Company’s power stations deviates from the statutory limits prescribed in any environmental regulation applicable to the Company’s operations, the State Government and other third parties subject the Company to substantial penalties. Compliance with such environmental regulations could restrict the Company’s operations or result in a material increase in the Company’s operating costs. It is also possible that increasingly strict environmental regulations in relation to power plants in India may be imposed in the future, compliance with which could require capital expenditure, which may have a material adverse effect on the Company’s financial condition and results of operations. Moreover, the Company would require environmental consents and approvals for certain of its potential expansion projects, and its inability to procure such consents or approvals (or a delay in obtaining them) could materially impact its ability to develop such projects, which could adversely affect its business, results of operations and financial condition.
The Company’s results of operations could be adversely affected by strikes, work stoppages or increased wage demands by the Company’s employees or any other kind of disputes with the Company’s employees. In addition, the Company’s business could be harmed if key management personnel with significant experience and expertise in the electricity industry terminate their employment with the Company.
As of June 30, 2014, the Company's power generation and distribution operations had a total of 10,241 employees, approximately 9,000 of which are unionized. In addition to the Company’s internal work force, the Company also employs laborers for offsite projects.
There can be no assurance that the Company will not experience disruptions to its operations due to disputes or other problems with the Company’s work force, which may adversely affect the Company’s business, results of operations and financial condition. Further, efforts by labor unions to organize the Company’s employees may divert management’s attention and increase operating expenses and the Company may be unable to negotiate acceptable collective bargaining agreements with those who have chosen to be represented by unions, which could lead to union-initiated work stoppages, including strikes, which could adversely affect the Company’s business, results of operations and financial condition.
The Company has a team of professionals to oversee the operations and growth of the Company’s business. The Company’s performance and success depends largely on the Company’s management team and skilled personnel and the Company’s ability to attract and retain such persons. In order to sustain the Company’s business, the Company needs to attract and retain such key managerial and other skilled personnel. The Company faces a continuing challenge to recruit and retain a sufficient number of suitably skilled personnel, particularly as the Company continues to grow. There is significant competition for management and other skilled personnel in the Company’s industry, and it may be difficult to attract and retain the personnel it needs in the future. The loss of services of one or more members of the Company’s key management team could adversely affect its business, results of operations and financial condition.
The Company’s operations may be adversely affected if there is a failure in its critical IT systems or control systems.
The Company has a number of critical IT applications and control systems both in its operational areas as well as in its support functions. These include generation control, system control, distribution of electricity including fault location and remote operations, payroll applications, billing, procurement to pay and accounting functions.
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Although there are fall-back mechanisms in place, a failure in these systems may adversely affect the operations of the Company.
The Company may not have adequate insurance to cover all losses incurred in the Company’s business operations.
The Company’s business operations have the potential to cause personal injury and loss of life, damage to or destruction of property, plant and equipment and the environment and are subject to risks such as fire, theft, flood, earthquakes and terrorism. Although the Company implements safety measures to reduce the risk of these occurrences, the Company cannot eliminate these risks completely. The Company maintains insurance coverage in such amounts and against such risks which the Company believes are in accordance with industry practice and the requirements of the Company’s loan agreements. However, such insurance may not be adequate to cover all losses or liabilities that may arise from the Company’s operations, and in the future, the Company may be unable to maintain insurance of the types or at levels which the Company deems necessary or adequate or at rates which the Company considers reasonable. This may adversely impact the results of operations and business of the Company.
Activities in the power generation business can be dangerous and can cause injury to people or property in certain circumstances. This could subject the Company to significant disruptions in business, legal and regulatory actions, which could adversely affect its business, financial condition and results of operations.
The power generation business requires the Company's employees and workers, as well as those of the subcontractors that it employs, to work under potentially dangerous circumstances, with highly flammable and explosive materials. As of March, 31, 2012, 2013 and 2014 there were 2 fatal and 12 non-fatal, 2 fatal and 9 non-fatal accidents and no fatal but 7 non-fatal accidents within the power generation division, respectively. The Company is involved in legal proceedings relating to some of these accidents and has paid out compensation pursuant to these accidents. Despite compliance with requisite safety requirements and standards, the operations of the Company's power generation business are subject to hazards associated with handling of such dangerous materials. If improperly handled or subjected to unsuitable conditions, these materials could injure the Company's employees or other persons, damage the Company's properties, and that of others, and harm the environment. In event any calamity takes place, the Company may be liable for certain costs related to hazardous materials, including cost for health related claims, or removal or treatment of such substances, including claims and litigation from the Company's current or former employees or other persons for injuries arising from exposure to materials or other hazards at the power plants. This could subject the Company to significant disruption in its business, legal and regulatory actions, which could adversely affect the Company's business, financial condition and results of operations.
Risks Relating to the Group
The Company is involved in a number of legal proceedings which, if determined against the Company, could adversely affect its financial condition and results of operations.
The Company is party to various legal proceedings which arise in the ordinary course of the Company’s operations. Such proceedings could divert management time and attention, and consume financial resources in their defense or prosecution. In addition, should any new developments arise such as changes in Indian law or rulings against the Company by appellate court or tribunals, the Company may need to make provisions in its financial statements which could increase its expenses and current liabilities. Furthermore, if any claims are determined against the Company and the Company is required to pay all or a portion of the disputed amounts as determined, this could have a material adverse effect on the Company's business, results of operations and financial condition. For details of outstanding material legal proceedings, see section titled "Legal Proceedings" on page 234 of this PPD
The Company is under the control of the RP-Sanjiv Goenka Group
The Company is part of the RP-Sanjiv Goenka Group, which is controlled by the Sanjiv Goenka family. The RP-Sanjiv Goenka Group may consider undertaking power and energy projects outside of the Company’s license area although not necessarily through the Company. There can be no assurance that these potential power and energy projects will not directly or indirectly compete with the Company’s business or limit future opportunities for the Company to grow its business. It is possible that the RP-Sanjiv Goenka Group may undertake additional projects or ventures that could compete directly or indirectly with businesses in which the Company and its subsidiaries are engaged. Furthermore, in the event the RP-Sanjiv Goenka Group undertakes
48 expansion in business lines that are unrelated to those in which the Company operates, such expansion could divert management time and attention, and consume financial resources, in each case, that may not be invested in or in relation to the Company. The Company, and not the RP-Sanjiv Goenka Group, is the owner of the "Spencer's" brand.
As of the date of this PPD, the RP-Sanjiv Goenka Group beneficially owns 52.48% of the Company’s existing Equity Shares. Following the Issue, the RP-Sanjiv Goenka Group’s interest will be diluted to approximately [•]% but the RP-Sanjiv Goenka Group will still control the Company. Accordingly, it has, and will continue to have, the ability to influence the Company’s business. There can be no assurance that the RP-Sanjiv Goenka Group will not take positions with which the Company or the holders of the Equity Shares do not agree, and such positions could have an adverse effect on the Company or the holders of the Equity Shares. Moreover, the RP-Sanjiv Goenka Group may exercise its control to approve actions and to reject certain corporate opportunities which may not be in the best interests of the holders of the Equity Shares.
The Company may not be able to expand its business effectively through acquisitions, investments and alliances and there can be no assurance that all or any of the Company's proposed acquisitions, investments or alliances will be consummated on commercially acceptable terms, if at all.
The Company's business strategy includes selective acquisition of new assets or businesses and entering into new strategic alliances. The Company's ability to achieve and benefit from such acquisitions, investments and alliances will depend upon a number of factors, some of which are beyond the Company's control. These factors include, but are not limited to, the Company's ability to: identify assets or businesses for acquisition, investments or alliances that suit its development strategy; execute the acquisition or alliance or complete the investments within the time frame or budget anticipated or integrate any business it acquires; identify additional new markets; understand the regulatory and other complexities of new markets and fuel types with partners or other shareholders; lack of prior experience in new industries; and train and retain qualified personnel to manage and operate its growing business. New acquisitions, investments and alliances will also be subject to all of the business risks to which the Company's existing projects are subject.
Acquisitions and strategic investments involve numerous risks both prior to and after completion of the acquisition or investment. Risks prior to completion include regulatory restrictions, the incurrence of debt, the diversion of management’s attention from other business matters, delays in board approval and the possibility that conditions to complete an acquisition may not be satisfied by the Company or the seller. Post-acquisition difficulties may include the assimilation of operations, corporate culture and personnel of the acquired business, diversion of management’s attention from other business concerns, risks of entering into new markets and fuel types, the uncertainty of the regulatory structure of new markets, the incurrence of additional debt, the impairment or amortization of expenses related to goodwill and other intangible assets and the potential loss of key employees of the acquired business. Integrating new assets or businesses into the Company's operational framework and ensuring their proper management may involve unanticipated delays, costs and operational problems, in particular with respect to new markets and fuel types with which the Company has not had extensive experience. The Company may encounter unexpected problems or difficulties in realizing anticipated synergies or have disagreements or conflicting interests with its alliance partners or the other shareholders of its acquisitions. The Company may also be prohibited or delayed from consummating business transactions due to its inability to receive the required governmental and other approvals, acquisition documents, construction contracts, fuel supply and transportation agreements, power sales contracts and dispatch agreements in a timely fashion, or at all. As a result, the Company may be unable to derive profit from acquired businesses. Any of these problems may impair the Company's competitiveness or growth prospects and have a material adverse effect on its business, financial condition, results of operations and prospects.
Furthermore, there can be no assurance that all or any of the proposed acquisitions, investments or alliances will be consummated on commercially acceptable terms, if at all. In addition, any expansion will require the Company to continuously upgrade and improve its risk management controls and systems. Failure to manage any of these factors effectively may have a material adverse effect on the Company's business, financial position, results of operations and prospects. Acquisitions also pose the risk that the Company may be exposed to successor liability relating to actions by an acquired company and its management before and after the acquisition. The due diligence that the Company conducts in connection with an acquisition may not be sufficient to discover unknown liabilities, and any contractual guarantees or indemnities that the Company receives from the sellers of acquired companies may not be sufficient to protect the Company from, or compensate it for, actual liabilities. A material liability associated with an acquisition could adversely affect the Company's reputation and reduce the benefits of the acquisition and may have a material adverse effect on the Company's business, financial condition and results of operations.
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We and our Subsidiaries require certain regulatory approvals in the ordinary course of business, and the failure to obtain them in a timely manner or at all may adversely affect our operations.
We and our Subsidiaries require regulatory approvals, licenses, registrations and permissions to operate our businesses. These approvals, licenses, registrations and permissions are required from a range of Central and State Governments and their agencies. In addition, some of the regulatory approvals, licenses, registrations and permissions required for operating our businesses expire from time to time. We generally apply for renewals of such regulatory approvals, licenses, registrations and permissions prior to or upon their expiry. However, we cannot assure you that we will obtain all regulatory approvals, licenses, registrations and permissions, or receive renewals of existing or future approvals, licenses, registrations and permissions in the time frames required for our operations or at all, which could adversely affect our business.
Risks Associated with the Retail Business conducted by SRL
If SRL is unable to manage its rapid growth effectively, the Company’s business and financial results could be adversely affected.
SRL’s stores under operation have decreased from 182 stores as of March 31, 2012, to 128 stores as of March 31, 2014, and 126 stores as of June 30, 2014. SRL's store count has been decreasing because SRL is closing smaller store locations and simultaneously re-focusing its efforts on developing hyper stores. SRL's number of hyper stores increased from 26 as of March 31, 2012 to 34 and 33 as of March 31, 2014 and June 30, 2014, respectively. SRL is looking to grow its business to benefit from the evolution in the Indian retail sector, caused by higher disposable incomes in certain sectors of Indian society, the growth in urban populations and changing shopping habits among customers, among other things. SRL is looking to open an additional eight to ten hyper stores in 2015 in existing clusters and up to 10 stores by 2016. SRL’s expansion plans make it dependent on economic conditions and several other factors.
The growth plans for SRL are considerable and will put significant demands on SRL’s and the Company’s management team and other resources. The successful implementation of this growth strategy depends on SRL’s ability to locate and acquire appropriate sites on commercially reasonable terms, opening new stores in a timely manner, employ, train and retain additional store and supervisory personnel, and integrate the new stores in SRL’s existing operations on a profitable basis. There can be no assurance that SRL will achieve the planned growth or that new stores will operate satisfactorily. Furthermore, any delay by landlords in handing over the possession of store sites to SRL may lead to delays in the opening of stores and impact SRL’s time schedules and cause cost and time overruns. Rising real estate costs and acquisition, construction and development costs could also inhibit SRL’s ability to grow. In addition, SRL’s expansion in new and existing markets in India may present distribution and merchandising challenges that differ from those in SRL’s current operations. To ensure operating efficiency throughout such growth will require, among other things, continued development of financial, operational and management systems and increased marketing activities. These factors could cause diversion of management attention from the expansion plans leading to delays and cost overruns and may adversely impact SRL’s, and therefore the Company’s business, results of operations and financial condition.
In addition, SRL may face public opposition to new store openings, especially from small and medium-sized shopkeepers who, as well as political groups, may seek to exert political pressure to prevent stores from opening in their region. Certain retail competitors of SRL have been prevented from opening new stores on schedule and even closed some stores as a result of demonstrations organized by such shopkeepers. SRL cannot confirm that it will not be subject to any such or similar situation in the future.
SRL has been loss-making since it initiated its store expansion plan, and it may continue to incur losses for an indefinite period as it further expands the number of its stores.
SRL has pursued a large format/hyper store expansion strategy since 2011, with the number of its hyper stores growing from 26 as of March 31, 2012 to 34 and 33 as of March 31, 2014 and June 30, 2014, respectively. SRL’s store roll-out program affected its results of operations, given the start-up costs involved with new stores and the time lag before new stores typically achieve profitability, which can take between six and 24 months (depending on the size of the store). This is one of the primary reasons that SRL has been loss-making since it initiated its store expansion plan and while it is a going concern it currently has a negative net worth. SRL may continue to incur losses as it further expands the number of its stores and also continue to have a negative net worth. Such losses and negative net worth could have a material adverse effect on the business, results of operations, financial condition, cash flows and prospects of the Company for an indefinite period of time. The Company cannot predict with any certainty when or even whether SRL will begin to generate profit.
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SRL faces significant competition in the retail industry.
The Indian retail industry is highly competitive. Competition is characterized by many factors, including assortment, advertising, price, quality, service, location, reputation and credit availability and availability of retail space. SRL also faces competition from other forms of retail other than through stores, including e- commerce, market stall vendors and other sole traders. E-commerce through Flipkart, Amazon and certain other companies is gradually being introduced in India.
SRL may face competition from international competitors if foreign participation in the retail sector is further liberalized. Moreover, as the industry is highly fragmented, SRL also faces competition from local stores, who may, for a variety of reasons (such as easier customer access and pre-existing personal relationships between store owner and customer), be able to cater to local demands better than SRL.
SRL’s inability to compete successfully in its industry would materially affect SRL’s, and therefore the Company’s, business, results of operations, financial condition and prospects.
SRL’s revenue stream is subject to seasonal and cyclical trends that are largely beyond SRL’s control and an inability to address such trends could adversely affect SRL’s business, results of operations and financial condition.
SRL’s business is subject to seasonal peaks (for example, during the run-up to religious festivals), and seasonality of market demand for various products could cause significant changes in SRL’s performance throughout the year. Poor trading performance during slower seasons could adversely affect SRL’s full-year results.
SRL’s business depends on SRL’s ability to obtain and retain appropriate retail spaces.
SRL’s success in its business depends on SRL’s ability to identify and lease appropriate retail space on commercially reasonable terms and conditions. In addition, SRL is increasingly focusing on hyper stores that require it to take large spaces in malls in city centers and agree to act as an anchor tenant in malls. SRL competes with other large retailers for leasing such retail spaces. SRL’s ability to lease appropriate retail space in sufficient quantities will be affected by the prevailing performance of the real estate markets (including real estate prices) in the regions in which SRL operates. If SRL fails to lease targeted properties or renew existing leases, SRL would face delays in the execution of its strategies, which may result in cost overruns, may restrict SRL’s expansion plans or otherwise adversely affect SRL’s, and therefore the Company’s, business, results of operations and financial condition.
All SRL properties are subject to long-term leases ranging from 9 to 21 years, which may or may not be renewed. Some of the lease formats have specified base rates for the entire term of the lease, which means SRL is bound to the rates agreed from the effective date of such lease for the entire duration thereof. The termination of SRL’s leases or licenses, or disputes that may arise with owners of such properties, or SRL’s inability to negotiate new leases on acceptable terms, may result in the closure of SRL’s stores, thus affecting SRL’s, and therefore the Company’s, business and profitability.
The success of SRL’s business is dependent on supply chain management.
A strong supply chain system is essential to ensure the availability of goods at the stores. Ensuring shelf availability for SRL’s products requires quick turnaround times and high levels of coordination with suppliers, re-packers, warehouses and the rest of SRL's supply-chain. Food and grocery items require efficient supply chain management, as such items are perishable or have limited shelf life. SRL relies on its supply chain and adopts operational processes to optimize its inventory position and reduce cost. SRL tries to maintain optimal inventory levels at its stores and distribution centers to control its working capital requirements. Inefficient supply chain management and supply bottlenecks could adversely affect SRL’s, and therefore the Company’s, business, results of operations and financial condition.
SRL’s brand names and other intellectual property are critical to its business.
As SRL’s success depends to a significant extent upon brand recognition and the goodwill associated with it, the SRL brand name and trademark are key assets of SRL’s business. Maintaining the reputation of SRL’s brand name and trademark is critical to SRL’s success. Substantial erosion in the value of SRL’s brand name due to product recalls, customer complaints, adverse publicity, legal action or other factors could have a material adverse effect on SRL’s, and therefore the Company’s, business, operating results and financial condition.
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There can be no assurance that SRL’s strategy and its implementation will maintain the value of these brands. See also “— Risks Associated with the Company’s Retail Business — The sale of food products exposes SRL to the risk of product liability claims and adverse publicity ”. The Company owns the Spencer's brand and it has given permission to SRL to use such brand for commercial purposes.
India generally offers a lower level of intellectual property rights enforcement than countries in Europe and North America. The Company believes it and SRL have taken appropriate steps to protect SRL’s trademark and other intellectual property rights (including those that are pending) but cannot be certain that such steps will be sufficient or that third parties will not infringe or challenge such rights. If the Company and/or SRL is unable to protect such intellectual rights against infringement, such infringement could have a material adverse effect on SRL's, and therefore the Company’s, business, operating results and financial condition.
The sale of food products exposes SRL to the risk of product liability claims and adverse publicity.
The packaging, marketing, distribution and sale of food products entail an inherent risk of contamination or deterioration, which could potentially lead to product liability, product recall and resultant adverse publicity. Such products may contain contaminants that could, in certain cases, cause illness, injury or death to consumers. Since SRL is not involved in manufacturing, it does not have control over the actual packaging of the products it sells, even in relation to third party re-packers. While there are specific defenses available to retailers, like SRL, under the Prevention of Food Adulteration Act, 1954 (i.e., that invoices/ bills from suppliers are deemed to be warranties over the products supplied), retailers are still directly liable in case of improper storage of products. Even an inadvertent shipment of contaminated products may lead to an increased risk of exposure to product liability claims. As such, there can be no assurance that product liability claims will not be asserted against SRL or the Company in the future, that SRL will be able to avail itself of specific defenses under the Prevention of Food Adulteration Act, 1954 (e.g., the defense of a deemed warranty is not available to a retailer in relation to articles for which a license is prescribed for the sale and where the retailer failed to procure the said article from a duly licensed manufacturer, distributor and/or dealer) or that SRL will not be obligated to undertake significant product recalls. If a material product liability claim is successful, SRL’s insurance may not be adequate to cover all liabilities it may incur, and SRL may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If SRL does not have adequate insurance or contractual indemnification available, product liability claims relating to defective products could have a material adverse effect on SRL’s ability to successfully market and sell its products, and on its, and therefore the Company’s, business, operating results and financial condition and cash flows.
Even if a product liability claim is not successful or is not fully pursued, the publicity surrounding any alleged contamination or deterioration of the products sold by SRL could have a material adverse effect on SRL’s, and therefore the Company’s, goodwill, brand, image and profitability.
SRL must have various governmental and regulatory approvals, consents and permissions to sell certain products in its stores, and it may not be able to maintain or obtain such approvals, consents and permissions, as the case may be, which could adversely impact its business.
SRL is required to have various governmental and regulatory approvals, consents and permissions to sell certain products, such as liquor and pesticides, in its stores. To the extent SRL is not able to maintain such approvals, consents and permissions for existing products, or obtain such approvals, consents and permissions for certain new products that it wishes to sell in its stores, in each case, from the applicable governmental and/or regulatory authority, this may adversely affect SRL's, and therefore the Company’s, business, operating results and financial condition.
SRL’s growth requires additional capital, which may not be available on terms acceptable to it.
The retail industry is capital intensive and requires significant expenditures for store establishment, sourcing of products and raw materials. Further, SRL has pursued and continues to pursue a strategy of continued investment in additional retail stores. SRL anticipates that it will need to obtain additional financing as it expands its operations. SRL may not be successful in obtaining additional funds in a timely manner, on favorable or acceptable terms or at all. In addition, restrictions on foreign direct investment in the retail sector in India are likely to limit SRL’s funding options. Certain of SRL’s loan documentation contain provisions that limit SRL’s ability to incur future debt. The availability of borrowed funds for SRL’s business may be greatly reduced, and the lenders may require it to invest increased amounts of equity in a project in connection with both new loans and the extension of facilities under existing loans.
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If SRL does not have access to sufficient additional capital, it may be required to delay, scale back or abandon some or all of its plans or growth strategies or reduce capital expenditures and the size of its operations, any of which could have a material adverse effect on SRL’s development.
SRL relies extensively on its information technology systems and any failures in SRL’s systems could adversely impact its business.
SRL relies extensively on its information technology systems to provide SRL with connectivity across its business functions through its software, hardware and connectivity systems. SRL has invested in ERP systems to ensure business continuity. These systems may be affected by cyber attacks or other unforeseen circumstances, which may adversely impact SRL’s business, results of operations and financial condition, and therefore adversely affect the Company’s, business, operating results and financial condition.
SRL's results of operations could be materially harmed if it is unable to accurately forecast demand for its products.
To ensure adequate inventory supply, SRL must forecast inventory needs and place orders with its manufacturers depending on daily stock positions. If SRL fails to accurately forecast demand, it may experience excess inventory levels or a shortage of product to deliver to its retailers.
Factors that could affect SRL's ability to accurately forecast demand for its products include:
• changes in consumer demand for its products; • lack of consumer acceptance for its new products; • product introductions and price discounting by competitors; • changes in general market conditions or other factors, which may result in cancellations of advance orders or a reduction or increase in the rate of reorders; and • weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items.
Inventory levels in excess of retailer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would have an adverse effect on SRL's gross margin. In addition, if SRL underestimates the demand for its products, its manufacturers may not be able to produce a sufficient number of products to meet such unanticipated demand, and this could result in delays in the shipment of SRL's products and damage to its reputation and retailer relationships. The difficulty in forecasting demand also makes it difficult to estimate SRL's future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for SRL's products could adversely impact SRL's profitability, and therefore adversely affect the Company’s, business, operating results and financial condition.
Negative publicity if any, would adversely affect the value of SRL's brand, and its sales.
SRL's business is dependent on the trust its customers have in the quality of its merchandise as well as on SRL's ability to protect its trademarks and copyrights and other intellectual property to maintain its brand value. If SRL fails to have quality products provided by third party vendors, and adequately protect its intellectual property, competitors may market products similar to SRL. Any negative publicity regarding SRL, brands or products, including those arising from a drop in quality of merchandise from its vendors, disputes concerning the ownership of intellectual property, mishaps at its stores or any other unforeseen events could adversely affect its and therefore the Company's reputation, brand value and results from operations
Risk related to the BPM business
FSL relies on a small number of clients for a large proportion of its income and loss of any of these clients could adversely affect its profitability.
FSL currently derives and believes that it will continue to derive a substantial portion of its income from a limited number of large clients. FSL’s five largest clients accounted for 45% of its income from sale of services, on a consolidated basis, in fiscal year 2014 and 46% of its income from sale of services, on a consolidated basis, in the three months ended June 30, 2014. Certain client contracts allow clients to terminate such contracts without cause, in some cases with little or no penalty. FSL expects that a significant portion of its income will continue to be attributable to a limited number of clients in the near future. In addition, most clients have not committed to exclusively use FSL for their outsourcing needs. Some of these clients could stop outsourcing
53 work to FSL without terminating or being in breach of their contract. The loss or financial difficulties of any of FSL’s most significant clients, or significant decreases in the volumes of work, would have a material adverse effect on FSL’s, and therefore the Company's, business, results of operations, financial condition and cash flows. Furthermore, major events affecting clients, such as bankruptcy, change of management, mergers and acquisitions and adverse changes in tax benefits for BPM outsourcing, could adversely impact FSL’s business from that client, and any receivables from that client would increase and may have to be written off, adversely impacting FSL’s, and therefore the Company's, income and financial condition.
FSL’s clients are largely concentrated in a few industries, which exposes FSL to the overall performance of, and outsourcing trends within, those industries.
FSL’s BPM clients are concentrated in the T&M, healthcare and BFSI industries. In fiscal year 2014, 22.6 % of FSL’s sale of services, on a consolidated basis, was derived from clients in the BFSI industry, 44.6% from clients in the telecommunications and media industry, and 32.5% from clients in the healthcare industry. In the three months ended June 30, 2014, 21% of FSL’s sale of services, on a consolidated basis, was derived from clients in the BFSI industry, 44% from clients in the telecommunications and media industry and 35% from clients in the healthcare industry. FSL’s business and growth largely depend on continued demand for services from clients and potential clients in these industries and new industries where FSL may focus its expansion efforts in the future.
A downturn in any of these industries or a slowdown or reversal of the trend to outsource business processes in general or to outsource business processes to India specifically, in any of these industries, could decrease demand for FSL’s services, which in turn can have a material adverse effect on FSL’s, and therefore the Company's, business, results of operations and financial condition.
FSL may fail to attract and retain enough sufficiently trained employees to support its operations, as competition for highly skilled personnel is intense and the IT industry generally, including FSL, experiences significant employee turnover rates.
The BPM industry is highly labor intensive and FSL’s success depends to a significant extent on its ability to attract, hire, train and retain qualified employees, including its ability to attract employees with needed skills in the geographic areas in which FSL operates. The industry, including FSL, experiences high employee turnover. As at March 31, 2014, FSL’s turnover rate for billable employees (a) in India and the Philippines (employees who have completed a six-month probationary period) who serve international clients was 54.8% and (b) in the United States, the United Kingdom and the Republic of Ireland was 38.6% per annum (last 12 months). There is significant competition for professionals in India with skills necessary to perform the services FSL offers to clients. Increased competition for these professionals, in the BPM industry or otherwise, could have an adverse effect on FSL’s business. High attrition rates among tenured employees, in particular, could result in a loss of domain and process knowledge, which could result in poor service quality and lead to breaches by FSL of its contractual obligations. Some contracts may be terminated by the client if certain of FSL's key personnel working on the client project leave FSL and FSL is unable to find suitable replacements in a timely manner or at all. A significant increase in the turnover rate among FSL employees in India, particularly among the highly skilled workforce needed to provide BPM services, would increase FSL’s recruiting and training costs and decrease its operating efficiency, productivity and profit margins and could lead to a decline in demand for its services. A lack of sufficiently qualified personnel could also inhibit FSL’s ability to establish operations in new markets and impact its strategy to expand geographically. A failure either to attract, train and retain personnel with the qualifications necessary to fulfill the needs of FSL’s existing and future clients or to assimilate new employees successfully could have a material adverse effect on FSL’s, and therefore an adverse effect on the Company's, business, results of operations, financial condition and cash flows.
Because a material portion of FSL’s income is denominated in foreign currencies and FSL actively hedges such income, FSL faces a risk that its hedging strategy may be unsuccessful.
There has been volatility in the exchange rate between the Indian rupee and each of the U.S. dollar and pound sterling in recent years and the volatility in such exchange rates may continue to fluctuate significantly in the future. The average Indian Rupee/U.S. dollar exchange rate was approximately Rs. 60.43 for fiscal year 2014, which represented a depreciation of the Indian rupee of 10.8% as compared with the average exchange rate of approximately Rs. 54.55/U.S. dollar for fiscal year 2013. The average Indian Rupee/pound sterling exchange rate was approximately Rs. 96.16 in fiscal year 2014, which represented an 11.5% depreciation of the Indian rupee as compared with the average exchange rate of approximately Rs. 86.23/pound sterling in fiscal year 2013. FSL's operating results have been and will continue to be impacted by fluctuations in the exchange rate
54 between the Indian rupee and each of the U.S. dollar and pound sterling, as well as with other foreign currencies, including the Euro, Philippine peso, Canadian dollar, Australian dollar and the Sri Lankan rupee.
FSL has significant operations onshore (within North America and Europe) and over the years it has also expanded operations in India for service offerings to domestic clients, with no foreign currency exchange risk. FSL’s cross-currency exposure (i.e., revenues and costs being in different currencies) is limited to its offshore delivery spanning across India and Philippines catering to international customers. In fiscal year 2014, FSL generated 67.7% of its revenues from onshore operations (i.e., in the United States, United Kingdom and Republic of Ireland), 9.5% from its India domestic business, both of which had no foreign exchange risk, and 22.8% from offshore operations, which is the share of FSL's revenues subject to foreign exchange risk (before hedging). FSL has a dedicated treasury function which actively tracks the movements in foreign currencies and has an internal risk management policy of prospectively hedging foreign currency exposures for two years in relation to 90% of its 22.8% offshore income stream. As such, only 2.28% of FSL's revenue is unhedged. Although FSL has been hedging its net exposures on regular basis through forward cover contracts and options, its results of operations may be adversely affected if the Indian rupee fluctuates significantly against its basket of foreign currencies, principally the U.S. dollar or pound sterling, or if its hedging strategy is unsuccessful.
Wage increases may prevent FSL from sustaining its competitive advantage and may reduce its profit margin.
FSL’s most significant costs are the salaries and related benefits of operations staff and other employees in India, the Philippines, the United Kingdom, Sri Lanka, Republic of Ireland and the United States. FSL's total employee-related expenses as a percentage of revenues from operations were 68.65%, 68.56% and 67.16% as of the end of fiscal years 2013 and 2014, and the three months ended June 30, 2014, respectively.
Wage costs in India and the Philippines have historically been significantly lower than wage costs in the United States and Europe for comparably skilled professionals, which has been favorable to FSL. However, because of rapid economic growth in India and Philippines, increased demand for BPM to India and Philippines and increased competition for skilled employees, wages for comparably skilled employees are increasing at a faster rate than in the United States and Europe, which is reducing this offshoring competitive advantage. FSL may need to increase the levels of employee compensation more rapidly than in the past to remain competitive in attracting and retaining the quality and number of employees required. Wage increases in the long term may reduce FSL’s profit margins.
FSL operates in a highly competitive environment and if it is unable to compete effectively, its income and profitability will be adversely affected.
The market for BPM services is rapidly evolving and is highly competitive and intense. FSL faces competition from:
• offshore BPM providers, particularly in India, such as Genpact, WNS, EXL Service Holdings, 24/7 and Hinduja Global Services; • the BPM divisions of global IT companies and global pure-play BPM providers located in the United States, such as Accenture, Convergys, Sitel, Teletch, Sykes, Electronic Data Systems Corp./MphasiS, International Business Machines, NCO Group, Affiliated Computer Systems, Inc. and Outsourcing Solutions, Inc.; • the BPM divisions of IT companies located in India, such as Tata Consultancy Services Limited, Infosys Technologies Limited and Wipro Technologies Limited; • healthcare-focused revenue cycle management companies located in the United States, such as Emdeoan, Parallon, Cymetrix and Conifer Group; • large companies located in the United Kingdom focused on BPM, including Capita and Serco; and • companies, including certain of clients, that choose to perform their own business processes internally through offshore captive business processing units established specifically for this purpose.
In addition, a number of FSL’s international competitors are either setting up operations in India or Philippines or are expanding existing operations in India or Philippines. This move to low cost centers has become an important element of their delivery strategy. This has resulted in increased employee attrition among Indian BPM services companies and increased wage pressure to retain skilled employees and reduce such attrition.
Some of FSL’s clients may, for various reasons including to diversify geographical risk, seek to reduce their dependence on any one country and may seek to outsource their operations to countries such as China and other
55 low-cost geographies. In addition, some of FSL’s clients have sought to outsource their operations to onshore BPMs, including FSL's operations located in the United States and United Kingdom. Although FSL operates onshore facilities in the United States and the United Kingdom, a significant increase in “onshoring” would reduce any competitive advantages FSL derives from operating out of India and Philippines.
FSL cannot assure you that it will be able to retain clients in the face of such competition. Any loss of clients as a result of competition will result in FSL’s market share declining, which would have a material adverse effect on its business and profitability.
FSL may be liable to clients for substantial damages caused by unauthorized disclosure of sensitive and confidential information or breach of intellectual property rights, whether through a breach of its computer systems, through its employees or sub-contractors or their employees or otherwise.
FSL is typically required to manage, utilize and store sensitive or confidential client data in connection with the services it provides and to protect the clients’ intellectual property rights. Under the terms of its client contracts, FSL is required to keep such information strictly confidential. The collection, use and processing of personal data is more heavily regulated in the United Kingdom and the United States, and the transfer of personal data to an outsourcing company in a jurisdiction with a less robust data protection regime is an issue that may cause concern for clients in those jurisdictions. Consequently, FSL’s contracts with those clients contain robust provisions relating to confidentiality and data protection. In addition, these client contracts do not always include a limitation on FSL’s liability to them with respect to breaches of the obligation to maintain the confidentiality of the information received from them, and a number of client contracts can be terminated immediately in the event of a breach of the data protection or confidentiality provisions. FSL does not have insurance coverage for mismanagement or misappropriation of such information. FSL actively seeks to implement measures to protect sensitive and confidential client data and to protect the clients’ intellectual property, but notwithstanding these measures, if any person, including any of FSL’s employees, ex-employees or sub-contractors or their employees, penetrates the FSL network security or otherwise mismanages or misappropriates sensitive or confidential client data or breaches a client’s intellectual property rights, FSL could be subject to significant liability and lawsuits from clients or their customers for breaching contractual confidentiality or data protection provisions or privacy laws. The occurrence of such events could have a negative impact on FSL’s, and therefore the Company's, reputation and financial condition, which would harm its business. There have been instances of data theft in the past. FSL has taken necessary legal action against such instances. For example, there are currently three criminal cases pending against former employees filed by FSL for data theft. FSL cannot assure you that instances of such data theft will not take place in the future or that it will be successful in preventing any such instances. For further details, see the section "Legal Proceedings" starting on page 234. Any further instance of data theft may adversely impact FSL's reputation and financial condition.
FSL's contracts with its clients contain certain restrictions. Furthermore, some of FSL's clients may terminate contracts without cause and with little or no notice or penalty payment. Such restrictions may adversely affect FSL's, and therefore the Company's, business, results of operations, financial condition and prospects.
Certain of FSL's contracts with its clients have an initial term of three to five years, while others roll over short- term contracts. Most of these contracts can be terminated without cause. The length of notice required to terminate without cause varies from a three to six months’ notice period.
Any termination or significant reduction in work assigned to FSL would result in a higher number of unassigned employees and unutilized infrastructure, which would negatively impact FSL's profitability. FSL may not be successful in replacing any client that elects to terminate or not renew its contract. Any such contract termination or significant reduction in work assigned to FSL by a key client or a large number of smaller clients could adversely affect FSL's, and therefore the Company's, business results of operations, financial condition and prospects.
In addition, most of FSL's clients have not committed to provide it with a minimum volume of work. FSL cannot assure you if it will be able to garner work which should be commensurate with its projected revenues from such contract. Some other restrictions contained in FSL's client contracts require prior consent from its clients in relation to sub-contracting of services provided under its contracts. FSL cannot assure you that it will be able to obtain necessary consents in relation to sub-contracting of service, shall there arise an opportunity for FSL to do so.
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If FSL cause disruptions to its clients’ businesses or provides inadequate service, its clients may have claims for substantial penalties against FSL.
Most of FSL's contracts with clients contain service level and performance requirements, including requirements relating to the quality of its services and the timing and quality of responses to the client’s customer inquiries. In some cases, the quality of services that FSL provides is measured by quality assurance ratings and surveys which are based in part on the results of direct monitoring by its clients of interactions between its employees and its clients’ customers. Failure to meet service requirements of a client or errors made by FSL's employees in the course of delivering services to its clients could disrupt such clients’ business and result in a reduction in income or a claim for substantial damages against FSL. Some of FSL's agreements specifically stipulate standards of service that, if not met by FSL, will result in lower payment to FSL. In addition, a failure or inability to meet a contractual requirement could seriously damage FSL's reputation and affect its ability to attract new business. These restrictive conditions may individually or collectively impact the autonomy and functioning of FSL's business which may adversely affect its, and therefore the Company's, business, financial condition and results of operation.
FSL is currently subject to certain ongoing material tax disputes, which if determined adversely against it may impact its financial position.
FSL is currently subject to certain material claims from the Indian Income Tax Department broadly in relation to gains on foreign currency convertible bonds, disallowances on account of interest and guarantee charges to subsidiaries and service tax department in relation to input credits. For further details in relation to these material claims please see “Legal Proceedings” at page 234. In the event such claims are determined against FSL, this may adversely affect FSL's, and therefore the Company's, financial condition and results of operation.
The total contingent liability on a consolidated basis as on June 30, 2014 in relation to FSL’s outstanding income tax demand is Rs. 1,189.37 million and outstanding service tax demand is Rs. 125.52 million.
Risks Associated with the Company’s Property Development Business
CPL’s business and financial condition will suffer if it is unable to renew license agreements with shop- owners on favorable terms.
CPL receives license fees for the retail space at Quest, its shopping mall located in Kolkata. For fiscal year 2014 and for the three months ended June 30, 2014, CPL’s revenue from mall operations was Rs. 136.3 million and Rs. 182.4 million, respectively, which constituted 0.13% and 0.58% of the Company's total revenue, respectively. The corresponding numbers for the first quarter of fiscal year 2015 was Rs. 182.4 million, constituting 0.58% of the Company's total revenue. When the license agreements expire, shop-owners may elect to not renew such license agreements or may renew them on terms less favorable to CPL. CPL’s ability to enter into such long-term arrangements is largely dependent on revenue-generation of the brands in Quest coupled with its pricing policy and the prevailing availability of similar retail space and their market rates. CPL has entered into long-term license agreements for periods of nine years or beyond with escalation provisions every three years. For CPL's key clients, the license fee shall stand escalated by 15% for every three years from the license fee commencement date. Although there is a provision of a lock-in period in almost all license agreements that range from one to three years, in the event shops do not generate adequate revenue, licensees may opt to no longer be licensed for retail space at Quest during the lock-in period. After expiry of the lock-in period, the licensee has the right to terminate the agreement after giving advance notice. This notice period ranges from three months to six months. Furthermore, in the event that a licensee vacates a property, CPL may experience a vacancy for some period of time, as well as negotiate a lower rate with a new licensee than if the prior licensee had continued or renewed, as the case may be, the license agreement in a timely manner.
CPL has limited operating history as a property development and management company.
As CPL started its property development business in 2013, it has a limited operating history as a property development and operation company. As a result, there is limited historical financial and operating information available to help you evaluate CPL’s past performances as a property development and operation company. In addition, because of CPL’s limited operating history as a property development and operation company, CPL’s historical financial results may not accurately predict its future performance. Because of CPL’s narrow business focus, its financial results are more sensitive to changes and downturns within its industry than companies with more diversified lines of business.
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Risks Associated with India and Indian Companies
Political instability or a change in economic liberalization and deregulation policies could seriously harm business and economic conditions in India generally and the Company's business in particular.
The Central Government has traditionally exercised and continues to exercise influence over many aspects of the Indian economy. The Company's business and the market price and liquidity of the Equity Shares may be affected by interest rates, changes in government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India. The governments in the past have sought to implement economic reforms policies and have undertaken initiatives that continue the economic liberalization policies pursued by previous Central Governments. There can be no assurance that liberalization policies will continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting power or real estate sector, foreign investment and other matters affecting investment in the Equity Shares could change as well. A new Central Government was elected in May 2014. The newly elected Central Government may announce new policies or withdraw existing benefits, which may be applicable to the sectors in which the Company does business. Any significant change in such policies could adversely affect business and economic conditions in India, generally, and the Company's results of operations and financial condition, in particular.
A slowdown in economic growth in India and other countries in which the Company operates could cause its business to suffer.
The Company's results of operations and financial condition are dependent on, and have been adversely affected by, conditions in financial markets in the global economy, and, particularly in India and the other countries in which the Company operates. In the recent past, the Indian economy has been affected by global economic uncertainties and liquidity crisis, domestic policy and political environment, volatility in interest rates, currency exchange rates, commodity and electricity prices, adverse conditions affecting agriculture, rising inflation rates and various other factors. GDP growth for fiscal year 2014 increased marginally to 4.7% from 4.5% for fiscal year 2013. The Reserve Bank of India, in its recent monetary policy reviews, has indicated that inflation continues to be a concern and further tightening measures may be required. Risk management initiatives by banks and lenders in such circumstances could affect the availability of funds in the future or the withdrawal of the Company's existing credit facilities. The Indian economy is undergoing many changes and it is difficult to predict the impact of certain fundamental economic changes on the Company's business. Conditions outside India, such as a slowdown or recession in the economic growth of other major countries, especially the United States, have an impact on the growth of the Indian economy. Additionally, an increase in trade deficit, a downgrading in India’s sovereign debt rating or a decline in India’s foreign exchange reserves could negatively affect interest rates and liquidity, which could adversely affect the Indian economy and the Company's business. Any downturn in the macroeconomic environment in India could adversely affect the Company's business, results of operations, financial condition and the trading price of the Equity Shares.
The uneven global recovery reflects several underlying issues and consequent risks. First, despite indications of a gathering recovery momentum, the U.S. economy remains dependent on the extension and expansion of monetary and fiscal stimulus in the form of the continuation of near-zero interest rates, quantitative easing and tax reliefs, raising questions on the sustainability of such policy approach and the impact of the eventual unwinding and reversal of these stimuli. Should a further downgrade of the sovereign credit ratings of the U.S. government occur, it is foreseeable that the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government could also be correspondingly affected by any such downgrade. Instruments of this nature are widely used as collateral by financial institutions to meet their day-to-day cash flows in the short-term debt market.
In Europe, especially the Eurozone, large budget deficits and rising public debts have triggered sovereign debt finance crisis that resulted in the bailouts of Greece, Ireland, Portugal and Spain and elevated the risk of government debt defaults, forcing governments to undertake aggressive budget cuts and austerity measures, in turn underscoring the risk of global economic and financial market volatility.
Japan has also experienced deflationary pressure since the early 1990s, made worse by the devastating earthquake and tsunami of March 2011 and the consequent damage to its nuclear industry. In emerging and developing economies, particularly China, India, Brazil and Russia, risks to macroeconomic and financial stability have arisen from the influx of short-term capital, excessive currency movements and pressures on general and asset price inflation. These have necessitated further policy tightening, introduction of liquidity management measures and imposition of some forms of capital controls.
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The resulting economic pressure on the economies in which the Company operates, a general lack of confidence in the financial markets and fears of a further worsening of the economy have affected and may continue to affect the economic conditions in such countries. The Company cannot assure you that the markets in which it operates will undergo a full, timely and sustainable recovery. The economic turmoil may continue or take place in the future, adversely affect the Company's business, results of operations and financial condition.
Financial instability in other countries may cause increased volatility in Indian financial markets.
The Indian market and the Indian economy are influenced by economic and market conditions in other countries, including, but not limited to, the conditions in the United States, in Europe and in certain emerging economies in Asia. Financial turmoil in Asia and elsewhere in the world in recent years has affected the Indian economy. Any worldwide financial instability may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector and its business.
The global credit and equity markets have experienced substantial dislocations, liquidity disruptions and market corrections. The dislocation of the sub-prime mortgage loan market in the United States since September 2008, and the more recent European sovereign debt crisis, has led to increased liquidity and credit concerns and volatility in the global credit and financial markets. These and other related events have had a significant impact on the global credit and financial markets as a whole, including reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the global credit and financial markets.
In mid-2013, concerns in relation to the tapering of the U.S. Federal Reserve’s quantitative easing program in the United States led to increased volatility particularly in the stock and currency markets in emerging economies. There are also concerns that a tightening of monetary policy in emerging markets and some developed markets, caused by increased food, fuel and commodities prices, will lead to a moderation in global growth. In particular, there are rising concerns of a possible slowdown in the Chinese economy; and China is one of India’s major trading partners. The recent sovereign rating downgrades for Brazil and Russia have also added to the growth risks for these markets. These factors might also result in a slowdown in India’s export growth momentum.
In response to such developments, legislators and financial regulators in the United States and other jurisdictions, including India, implemented a number of policy measures designed to add stability to the financial markets. However, the overall long-term impact of these and other legislative and regulatory efforts on the global financial markets is uncertain, and they may not have had the intended stabilizing effects. Any significant financial disruption in the future could have an adverse effect on the Company's cost of funding, business, future financial performance and the trading price of the Equity Shares.
Natural disasters could have a negative impact on the Indian economy and damage the Company's facilities.
Natural disasters such as floods, earthquakes or famines have in the past had a negative impact on the Indian economy. If any such event were to occur, the Company's business could be affected due to the event itself or due to its inability to effectively manage the effects of the particular event. Potential effects include the damage to infrastructure and the loss of business continuity or business information. In the event that the Company's facilities are affected by any of these factors, the Company's operations may be significantly interrupted, which may materially and adversely affect the Company's business, financial condition and results of operations.
The Companies Act, 2013 has effected significant changes to the existing Indian company law framework, which may subject the Company to higher compliance requirements and increase the Company’s compliance costs.
A majority of the provisions and rules under the Companies Act, 2013 have recently been notified and have come into effect from the date of their respective notifications, resulting in the corresponding provisions of the Companies Act, 1956 ceasing to have effect. The Companies Act, 2013 has brought into effect significant changes to the Indian company law framework, such as in the provisions related to issue of capital (including provisions in relation to issue of securities on a private placement basis), disclosures in offer documents, corporate governance norms, accounting policies and audit matters, related party transactions, introduction of a provision allowing the initiation of class action suits in India against companies by shareholders or depositors, a restriction on investment by an Indian company through more than two layers of subsidiary investment companies (subject to certain permitted exceptions), prohibitions on loans to directors and insider trading, and
59 restrictions on directors and key managerial personnel from engaging in forward dealing. The Company is also required to spend, in each financial year, at least 2% of its average net profits during three immediately preceding financial years towards corporate social responsibility activities. Further, the Companies Act, 2013 imposes greater monetary and other liability on the Company and Directors for any non-compliance. To ensure compliance with the requirements of the Companies Act, 2013, the Company may need to allocate additional resources, which may increase the Company’s regulatory compliance costs and divert management attention.
The Companies Act, 2013 introduced certain additional requirements which do not have corresponding equivalents under the Companies Act, 1956. Accordingly, the Company may face challenges in interpreting and complying with such provisions due to limited jurisprudence on them. In the event the Company’s interpretation of such provisions of the Companies Act, 2013 differs from or contradicts any judicial pronouncements or clarifications issued by the Central Government in the future, the Company may face regulatory actions or it may be required to undertake remedial steps. Additionally, some of the provisions of the Companies Act, 2013 overlap with other existing laws and regulations (such as the corporate governance norms and insider trading regulations issued by SEBI). Recently, SEBI issued revised corporate governance guidelines which are effective from October 1, 2014. Pursuant to the revised guidelines, the Company will be required to, amongst other things, ensure that there is at least one woman director on its Board at all times, establish a vigilance mechanism for directors and employees, and reconstitute certain committees in accordance with the revised guidelines. The Company may face difficulties in complying with any such overlapping requirements. Further, the Company currently cannot determine the impact of provisions of the Companies Act, 2013 and revised SEBI corporate governance guidelines, which are yet to come in force. Any increase in the Company’s compliance requirements or in its compliance costs may have an adverse effect on the Company’s business and results of operations.
Anti-takeover provisions under Indian law could prevent or deter an entity from acquiring the Company's.
The Takeover Code contains certain provisions that may delay, deter or prevent a future takeover or change in control. These provisions may discourage a third party from attempting to take control over the Company's business, even if change in control would result in the purchase of the Equity Shares at a premium to the market price or would otherwise be beneficial to the investor.
The Company’s business and activities are regulated by the Competition Act and any adverse application or interpretation of the Competition Act could materially and adversely affect its business, financial condition and results of operations.
The Competition Act was enacted for the purpose of preventing practices that have or are likely to have an adverse effect on competition in India and has mandated the Competition Commission of India (the “CCI”) to separate such practices. Under the Competition Act, any arrangement, understanding or action in concert, whether formal or informal, which causes or is likely to cause an appreciable adverse effect on competition is void and attracts substantial penalties.
Any agreement among competitors which directly or indirectly involves determination of purchase or sale prices, limits or controls production, supply markets, technical development, investment or provision of services, or shares the market by way of geographical area or number of customers in the relevant market is presumed to have an appreciable adverse effect on competition in the relevant market in India and shall be void. Further, the Competition Act prohibits abuse of dominant position by any enterprise.
On March 4, 2011, the Central Government notified and brought into force the combination regulation (merger control) provisions under the Competition Act with effect from June 1, 2011. The combination regulation provisions require that the acquisition of shares, voting rights, assets or control, or mergers or amalgamations which cross the prescribed asset and turnover based thresholds shall be mandatorily notified to and pre-approved by the CCI. In addition, on May 11, 2011, the CCI issued the final Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (which were further amended on March 28, 2014), which set out the mechanism for implementation of the merger control regime in India.
The Competition Act aims to, among others, prohibit all agreements and transactions which may have an appreciable adverse effect on competition in India. Consequently, all agreements entered into by the Company could be within the purview of the Competition Act. Further, the CCI has extra-territorial powers and can investigate any agreements, abusive conduct or combination occurring outside India if such agreement, conduct or combination has an appreciable adverse effect on competition in India. However, the Company cannot
60 predict the impact of the provisions of the Competition Act on the agreements entered into by it at this stage. The Company is not currently party to any outstanding proceedings, nor has it received notice in relation to non- compliance with the Competition Act or the agreements entered into by the Company. However, if the Company were to be affected, directly or indirectly, by the application or interpretation of any provision of the Competition Act, or any enforcement proceedings initiated by the CCI, or any adverse publicity that may be generated due to scrutiny or prosecution by the CCI, or if any prohibition or substantial penalties are levied under the Competition Act, it would adversely affect the Company’s business, results of operations and prospects.
The applicability or interpretation of the Competition Act to any merger, amalgamation or acquisition proposed by the Company, or any enforcement proceedings initiated by the CCI, either suo moto or pursuant to any complaint, for alleged violation of any provisions of the Competition Act may adversely affect the Company’s business, financial condition and results of operations.
Terrorist attacks or civil disturbances in India may have a material adverse effect on the Company’s business and the trading price of the Equity Shares could decrease.
India has from time to time experienced instances of social, religious and civil unrest and terrorist attacks. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel more difficult, and such political tensions could create a greater perception that investments in Indian companies involve higher degrees of risk. Events of this nature in the future, as well as social and civil unrest within other countries in Asia, could influence the Indian economy and the Company’s business, future financial performance, cash flows and market price of the Equity Shares.
The proposed new taxation system in India could adversely affect the Company's business.
The Central Government has proposed three major reforms in Indian tax laws, namely the goods and services tax, the direct taxes code and provisions relating to General Anti-Avoidance Rules (“ GAAR ”). As regards the implementation of the goods and service tax and the direct tax code, the Central Government has not specified any timeline for their implementation. The goods and services tax would replace the indirect taxes on goods and services such as central excise duty, service tax, customs duty, central sales tax, state value-added tax, surcharge and excise currently being collected by the Central Government and State Governments. The direct taxes code aims to introduce moderate levels of taxation, expand the tax base and facilitate voluntary compliance. It also aims to provide greater tax clarity and stability to investors who invest in Indian projects and companies, as well as clarify the taxation provisions for international transactions. It aims to consolidate and amend laws relating to all direct taxes like income tax, dividend distribution tax and wealth tax and facilitate voluntary compliance. As regards GAAR, the provisions will come into effect from April 1, 2016. The GAAR provisions intend to catch arrangements declared as “impermissible avoidance arrangements”, which is any arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and which satisfy at least one of the following tests: (a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length; (b) results, directly or indirectly, in misuse, or abuse, of the provisions of the Income Tax Act; (c) lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes. If GAAR provisions are invoked, then the tax authorities have wide powers, including denial of tax benefit or a benefit under a tax treaty. As the taxation system is intended to undergo significant overhaul, its consequent effects on the Company cannot be determined at present and there can be no assurance that such effects would not adversely affect the Company's business, future financial performance and the trading price of the Equity Shares.
Investors may be subject to Indian taxes arising out of capital gains.
Capital gains arising from the sale of equity shares in an Indian company are generally taxable in India. Currently, any gain realized on the sale of listed equity shares on a stock exchange held for more than 12 months is not subject to capital gains tax in India if STT has been paid on the transaction. STT will be levied on and collected by an Indian stock exchange on which the equity shares are sold. Any gain realized on the sale of equity shares held for more than 12 months by an Indian resident, which were sold other than on a recognized stock exchange and as a result of which no STT has been paid, is subject to capital gains tax in India. Further, any gain realized on the sale of equity shares held for a period of 12 months or less is subject to capital gains tax in India. Capital gains arising from the sale of equity shares is exempt from taxation in India in cases where an exemption is provided under a treaty between India and the country of which the seller is a resident. Generally, Indian tax treaties do not limit India’s ability to impose tax on capital gains. As a result, residents of other
61 countries may be liable for tax in India as well as in their own jurisdictions on gains arising from a sale of equity shares. For details see the section “Statement of Tax Benefit” on page 219.
Statistical and financial data in this PPD may be incomplete or unreliable.
The Company has not independently verified data obtained from industry publications and other sources referred to in this PPD and therefore, while the Company believes them to be true, it cannot assure you that they are complete or reliable. Such data may also be produced on different bases from those used in other industry publications. Therefore, discussions of matters relating to India, its economy and the industries in which the Company currently operates in this PPD are subject to the caveat that the statistical and other data upon which such discussions are based may be incomplete or unreliable. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice and other problems, the statistics herein may be inaccurate or may not be comparable to statistics produced for other economies and should not be unduly relied upon. Further, there is no assurance that they are stated or compiled on the same basis or with the same degree of accuracy as may be the case elsewhere. In all cases, investors should give consideration as to how much weight or importance they should attach to, or place on, such facts or statistics. In addition, internal company reports may be based on a number of variables and have not been verified by independent sources and may be incomplete or unreliable. Please see the " Industry Overview ” section commencing on page 76.
Any downgrading of the Company’s or India’s sovereign debt rating by rating agencies could have a negative impact on the Company’s business and the trading price of the Equity Shares.
Any adverse revisions to the Company’s or India’s sovereign credit ratings for domestic and international debt by rating agencies may adversely affect the Company’s ability to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. This could have an adverse effect on the Company’s business and future financial performance and its ability to obtain financing to fund growth, as well as on the trading price of the Equity Shares.
Significant differences exist between Indian GAAP and other accounting principles, such as U.S. GAAP and IFRS, with which investors may be more familiar. The proposed adoption of Indian Accounting Standards converging with International Financial Reporting Standards could result in the Company's financial condition and results of operations appearing materially different than under Indian GAAP.
The Company’s consolidated financial statements included in this PPD are prepared and presented in conformity with Indian GAAP. No attempt has been made to reconcile any of the information given in this PPD to any other principles or to base it on any other standards. Indian GAAP differs in certain significant respects from IFRS, U.S. GAAP, Ind-AS and other accounting principles with which prospective investors may be familiar in other countries. If the Company’s consolidated financial statements were to be prepared in accordance with such other accounting principles, the Company’s results of operations, cash flows and financial position may be substantially different. Accordingly, the degree to which the financial information included in this PPD will provide meaningful information is dependent on your familiarity with Indian GAAP and the Companies Act. Any reliance by persons not familiar with Indian GAAP on the financial disclosures present in the PPD should be limited. Prospective investors should review the accounting policies applied in the preparation of the Company's consolidated financial statements, and consult their own professional advisers for an understanding of the differences between these accounting principles and those with which they may be more familiar.
Public companies in India, including the Company, may be required to prepare financial statements under IFRS or a variation thereof, Indian Accounting Standards “IND AS”. The transition to IND AS in India is still unclear and the Company may be adversely affected by this transition.
Public companies in India, including the Company, may be required to prepare annual and interim financial statements under IFRS or IND AS or a variation thereof. The ICAI has released a near-final version of IND AS titled “First-time Adoption of Indian Accounting Standards” and the MCA, on February 25, 2011, has announced that IND AS would be implemented in a phased manner and the date of such implementation would be announced at a later date. Recently, the ICAI finalized the roadmap recommending IND AS to be implemented for the preparation of consolidated financial statements of listed companies from the accounting year beginning on or after April 1, 2016. The stand-alone financial statements will continue to be prepared pursuant to the existing notified accounting standards which would be upgraded over a period of time. The above roadmap has been submitted to the Ministry of Corporate Affairs (" MCA ") for its consideration, and as per the press release issued by ICAI dated March 24, 2014 MCA is expected to take decision in the matter.
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As at the date of this PPD, the MCA has not notified the date of implementation of IND AS. There is not yet a significant body of established practice for forming judgments regarding its implementation and application. Additionally, IND AS has fundamental differences compared with IFRS and, therefore, financial statements prepared under IND AS may be substantially different from financial statements prepared under IFRS. There can be no assurance that the Company’s financial condition, results of operations, cash flow or changes in shareholders’ equity will not appear materially different under IND AS from that under Indian GAAP or IFRS. As the Company adopts IND AS reporting, it may encounter difficulties in the process of implementing and enhancing the Company’s management information systems. There can be no assurance that the Company’s adoption of IND AS will not adversely affect its reported results of operations or financial condition, and any failure to successfully adopt IND AS in accordance with the prescribed timelines may materially and adversely affect the Company’s financial position and results of operations.
Investors may not be able to enforce a judgment of a foreign court against the Company.
The Company is a limited liability company incorporated under the laws of India. All of the Company’s Directors are residents of India and the assets of the Company are substantially located in India. As a result, it may not be possible for investors to effect service of process upon the Company or such persons in jurisdictions outside India, or to enforce against them judgments obtained in courts outside India. Moreover, it is unlikely that a court in India would award damages on the same basis as a foreign court if an action were brought in India, or that an Indian court would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with Indian public policy.
Recognition and enforcement of foreign judgments is provided for under Section 13 and Section 44A of the Civil Procedure Code on a statutory basis. Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court, within the meaning of that Section, in any country or territory outside India which the Central Government has by notification declared to be in a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the same nature of amounts payable in respect of taxes, other charges of a like nature or in respect of a fine or other penalties.
The United Kingdom, Singapore and Hong Kong have been declared by the Central Government to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code. A judgment of a court of a country which is not a reciprocating territory may be enforced in India only by a suit upon the judgment under Section 13 of the Civil Procedure Code, and not by proceedings in execution. Section 13 of the Civil Procedure Code provides that foreign judgments shall be conclusive regarding any matter directly adjudicated upon except: (a) where the judgment has not been pronounced by a court of competent jurisdiction; (b) where the judgment has not been given on the merits of the case; (c) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or refusal to recognize the law of India in cases to which such law is applicable; (d) where the proceedings in which the judgment was obtained were opposed to natural justice; (e) where the judgment has been obtained by fraud; or (f) where the judgment sustains a claim founded on a breach of any law then in force in India. Under the Civil Procedure Code, a court in India shall, upon the production of any document purporting to be a certified copy of a foreign judgment, presume that the judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on record.
The suit must be brought in India within three years from the date of judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with public policy. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India to repatriate outside India any amount recovered and any such amount may be subject to income tax in accordance with applicable laws. For further information, please see the section “Enforcement of Civil Liabilities” on page 15.
The audit reports in respect of the Company's consolidated financial statements contain certain qualifications.
The audit reports on the Company's consolidated financial statements for fiscal years 2012, 2013 and 2014, and review report for the three months period ended June 30, 2014, contain certain qualifications in relation to certain of the Company's subsidiaries with respect to the recognition of deferred tax assets. The audit report for fiscal years 2012, 2013 and 2014 and the review report for the three months period ended June 30, 2014 also
63 contains a matter of emphasis relating to the early adoption of Accounting Standard 30. Such qualifications and matter of emphasis have been made in the audit reports and review reports in relation to certain of the Company's subsidiaries. For further details, please see “Financial Information” starting on page 240 of this PPD. There can be no assurance that the Company's auditors will not qualify their opinions in the future.
The audit report in respect of the Company's unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014 contains a matter of emphasis in relation to the Supreme Court of India ordering cancellation of Sarshatali Coal block and ordering the Company to pay an additional levy for coal extracted from ICML mines since the extraction date.
In light of the SC Orders, the audit report in respect of the Company's unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014 contains an explanatory paragraph as a matter of emphasis with respect to the cancellation of the Company’s coal block allocation at the Sarshatali coal block and the Company having to bear an additional levy for coal extracted from ICML mines since the extraction date as discussed in Note 23(B) to the unaudited interim condensed consolidated financial statements the three month ended June 30, 2014. As of June 30, 2014, the total additional levy based on the coal extracted is estimated at Rs. 9,770 million. The Company's auditors have highlighted this additional levy as a matter of emphasis in their review report. To the extent the Company is unable to pass on such additional levy to its end customers, this may adversely impact the Company’s profitability, results of operations and financial condition.
Risks Related to the Equity Shares
Rights of shareholders under Indian law may be more limited than under the laws of other jurisdictions.
The Company's articles of association, regulations of the Company's Board of Directors and Indian law govern the Company's corporate affairs. Legal principles related to these matters and the validity of corporate procedures, directors' fiduciary duties and liabilities, and shareholders' rights may differ from those that would apply to a company in another jurisdiction. Shareholders' rights under Indian law may not be as extensive as shareholders' rights under the laws of other countries or jurisdictions. Investors may have more difficulty in asserting their rights as shareholder in an Indian company than as shareholder of a corporation in another jurisdiction.
There may be less information available about the companies listed on the Indian securities markets compared with information that would be available if the Company were listed on securities markets in certain other countries.
There may be differences between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of the markets in the United States and certain other countries. The SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about companies listed on an Indian stock exchange compared with information that would be available if that company was listed on a securities market in certain other countries.
The Company may be classified as a passive foreign investment company (a “PFIC”) for United States federal income tax purposes, which could subject United States investors in the Equity Shares to adverse tax consequences.
Based upon projections as to the value of the Equity Shares pursuant to this offering, and an analysis of the Company’s current income and assets as reasonably approximated for purposes of applying the PFIC rules, the Company does not expect to be classified as a PFIC for the taxable year ending March 31, 2015. However, the relevant U.S. tax rules are complex and subject to different interpretations and there can be no guarantee that the Company will not be treated as a PFIC for the current taxable year or in the future. While the Company does not expect to become a PFIC in the current or any future taxable years, the Company’s risk of becoming classified as a PFIC may substantially increase under circumstances where revenues from activities that produce passive income (i.e., rental or commodity income) significantly increase relative to the Company’s revenues from activities that produce non-passive income or where the Company determines not to deploy significant amounts of cash for working capital or other non-passive purposes. In addition, fluctuations in the market price of the Equity Shares may cause the Company to become a PFIC for the current or subsequent taxable years. If the Company were to be classified as a PFIC in any taxable year, a U.S. Holder (as defined in “ Statement of Tax Benefit – Certain U.S. Federal Income Tax Considerations ” on page 231) would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of United States federal income tax that
64 a U.S. Holder could derive from investing in a non-United States corporation that does not distribute all of its earnings on a current basis. Further, if the Company is classified as a PFIC for any year during which a U.S. Holder holds the Equity Shares, the Company generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds the Equity Shares. For details see the section “ Statement of Tax Benefit – Certain U.S. Federal Income Tax Considerations ” on page 231.
Foreign investors are subject to foreign investment restrictions under Indian law that limit the Company’s ability to attract foreign investors, which may adversely affect the trading price of the Equity Shares.
Under the foreign exchange regulations currently in force in India, transfers of shares between non-residents and residents are freely permitted (subject to certain exceptions) if they comply with the requirements specified by the RBI. If the transfer of shares is not in compliance with such requirements or falls under any of the specified exceptions, then prior approval of the RBI or the FIPB will be required. In addition, shareholders who seek to convert the Rupee proceeds from a sale of shares in India into foreign currency and repatriate that foreign currency from India will require a no-objection or tax clearance certificate from the income tax authority. Additionally, the Central Government may impose foreign exchange restrictions in certain emergency situations, including situations where there are sudden fluctuations in interest rates or exchange rates, where the Central Government experiences extreme difficulty in stabilizing the balance of payments or where there are substantial disturbances in the financial and capital markets in India. These restrictions may require foreign investors to obtain the Central Government’s approval before acquiring Indian securities or repatriating the interest or dividends from those securities or the proceeds from the sale of those securities. There can be no assurance that any approval required from the RBI or any other government agency can be obtained on any particular terms or at all.
Applicants to the Issue are not allowed to withdraw their bids after the Bid/Issue Closing Date.
In terms of the SEBI Regulations, applicants in the Issue are not allowed to withdraw their bids (" Bids ") after the bid/issue closing date (the " Bid/Issue Closing Date "). The allotment of Equity Shares in this Issue and the credit of such Equity Shares to the applicant’s demat account with depository participant could take approximately seven days and up to ten days from the Bid/Issue Closing Date. However, there is no assurance that material adverse changes in the international or national monetary, financial, political or economic conditions or other events in the nature of force majeure, material adverse changes in the Company's business, results of operation or financial condition, or other events affecting the applicant’s decision to invest in the Equity Shares, would not arise between the Bid/Issue Closing Date and the date of allotment of Equity Shares in the Issue. The occurrence of any such events after the Bid/Issue Closing Date could also impact the market price of the Equity Shares. The applicants shall not have the right to withdraw their Bids in the event of any such occurrence without the prior approval of the SEBI. The Company may complete the allotment of the Equity Shares even if such events may limit the applicants’ ability to sell the Equity Shares after the Issue or cause the trading price of the Equity Shares to decline.
There is no guarantee that the Equity Shares will be listed on the Stock Exchanges in a timely manner, or at all, and prospective investors will not be able to immediately sell their Equity Shares on the Stock Exchanges.
In accordance with Indian law and practice, final approval for listing and trading of the Equity Shares will not be applied for or granted until the Equity Shares have been issued and allotted. Such approval will require the submission of all other relevant documents authorizing the issuance of the Equity Shares. Accordingly, there could be a failure or delay in listing the Equity Shares on the Stock Exchanges, which would adversely affect your ability to sell the Equity Shares.
The trading price of the Equity Shares may be subject to volatility and you may not be able to sell the Equity Shares at or above the Issue Price.
The trading price of the Equity Shares may fluctuate after this Issue due to a variety of factors, including the Company’s results of operations and the performance of the Company’s business, competitive conditions, general economic, political and social factors, the performance of the Indian and global economy, significant developments in India’s fiscal regime, volatility in the Indian and global securities markets, performance of the Company’s competitors, the perception in the market about investments in the infrastructure sector, changes in the estimates of the Company’s performance or recommendations by financial analysts and announcements by the Company or others regarding contracts, acquisitions, strategic partnerships, joint ventures or capital commitments. In addition, if the stock markets in general experience a loss of investor confidence, the trading price of the Equity Shares could decline for reasons unrelated to the Company’s business, financial condition or
65 operating results. The trading price of the Equity Shares might also decline in reaction to events that affect other companies in the Company’s industry even if these events do not directly affect the Company. Each of these factors, among others, could adversely affect the price of the Equity Shares.
You may be restricted in your ability to exercise pre-emptive rights under Indian law and may be adversely affected by future dilution of your ownership position.
Pursuant to the Companies Act, 2013 a company incorporated in India must offer its holders of equity shares pre-emptive rights to subscribe and pay for a proportionate number of equity shares to maintain their existing ownership percentages before the issuance of any new equity shares, unless the pre-emptive rights have been waived by adoption of a special resolution when the votes cast in favor of the resolution by the holders who, being entitled so to do, vote in person or by proxy or by postal ballot, are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting. However, if the law of the jurisdiction you are in does not permit you to exercise your pre-emptive rights without the Company filing a placement document or registration statement with the applicable authority in the jurisdiction you are in, you will be unable to exercise your pre-emptive rights unless the Company makes such a filing. If the Company elects not to make such a filing, the new securities may be issued to a custodian, who may sell the securities for your benefit. The value such custodian would receive upon the sale of such securities, if any, and the related transaction costs cannot be predicted. To the extent that you are unable to exercise pre-emptive rights granted in respect of the Equity Shares held by you, your proportional interest in the Company would be reduced.
There are restrictions on daily movements in the trading price of the Equity Shares, which may adversely affect a shareholder’s ability to sell the Equity Shares or the price at which Shares can be sold at a particular point in time.
The Equity Shares are subject to a daily circuit breaker imposed on listed companies by all stock exchanges in India, which does not allow transactions beyond certain volatility in the trading price of the Equity Shares. This circuit breaker operates independently of the index-based market-wide circuit breakers generally imposed by SEBI on the Stock Exchanges. The percentage limit on the Equity Shares circuit breaker will be set by the stock exchanges based on historical volatility in the price and trading volume of the Equity Shares. The stock exchanges are not required to inform the Company of the percentage limit of the circuit breaker, and they may change the limit without the Company’s knowledge. This circuit breaker would effectively limit the upward and downward movements in the trading price of the Equity Shares. As a result of this circuit breaker, there can be no assurance regarding the ability of shareholders to sell the Equity Shares or the price at which shareholders may be able to sell their Equity Shares at any particular point in time.
An investor will not be able to sell any of the Equity Shares purchased in the Issue other than on a recognized Indian stock exchange for a period of 12 months from the date of issue of such Equity Shares.
Pursuant to the SEBI Regulations, for a period of 12 months from the date of the issue of the Equity Shares in the Issue, investors purchasing the Equity Shares in the Issue may only sell their Equity Shares on the NSE or the BSE and may not enter into any off-market trading in respect of their Equity Shares. The Company cannot be certain that these restrictions will not have an impact on the price of the Equity Shares.
Future issues or sales of the Equity Shares may significantly dilute your shareholding or affect the trading price of the Equity Shares.
Any future issue of the Equity Shares by the Company or the disposal of Equity Shares by any of the Company’s principal shareholders, or the perception that such issues or sales may occur, may dilute your shareholding in the Company, or may significantly affect the trading price of the Equity Shares.
Any trading closures at the BSE and the NSE may adversely affect the trading price of the Equity Shares.
The regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants differ, in some cases significantly, from those in Europe and the United States. A closure of, or trading stoppage on, either of the BSE and the NSE could adversely affect the trading price of the Equity Shares. Historical trading prices, therefore, may not be indicative of the prices at which the Equity Shares will trade in the future.
Investors will be subject to market risks until the Equity Shares credited to the investor’s demat account are listed and permitted to trade.
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Investors can start trading the Equity Shares allotted to them only after they have been credited to an investor’s demat account, are listed and permitted to trade. Since the Equity Shares are currently traded on the BSE and the NSE, investors will be subject to market risk from the date they pay for the Equity Shares to the date when trading approval is granted for the same. Further, there can be no assurance that the Equity Shares allocated to an investor will be credited to the investor’s demat account or that trading in the Equity Shares will commence in a timely manner.
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MARKET PRICE INFORMATION
The Equity Shares have been listed and are available for trading on the BSE, the CSE and the NSE.
(i) The following tables set forth the reported high, low and average market prices and the trading volumes of the Equity Shares on the BSE and the NSE on the dates on which such high and low prices were recorded for financial years ended March 2012, March 2013 and March 2014:
BSE
Total Total Volume Volume on Volume of on date of Total Volume date of Low Equity Average High (Number of Equity (Number of High Date of Low Date of shares price for Financial of Equity shares traded Equity (Rs.) High (Rs.) low traded on the year Year Shares traded on the date of Shares the on date (Rs.) on the date of high (million) traded on the of low (Rs. high) date of low) in million) March 349.55 July 25, 58,766 20.57 195.90 December 34,613 6.75 277.96 2012 2011 28, 2011 March 342.35 October 17,758 6.07 250.45 April 27, 14,394 3.60 296.73 2013 23, 2012 2012 March 511.85 March 28, 32,129 16.16 269.90 April 4, 6,247 1.70 368.08 2014 2014 2013 (Source: www.bseindia.com)
NSE
Volume on Total Volume on Total Volume date of Low Volume of date of High of Equity (Number of Equity Average (Number of Calendar High Date of shares traded Low Date of Equity shares price for Equity Year (Rs.) High on the date of (Rs.) low Shares traded on the year Shares high (Rs. traded on the on date (Rs.) traded on the million) the date of of low (Rs. date of high) low) million) March 349.75 July 25, 870,623 305.38 195.30 December 197,115 38.51 278.02 2012 2011 28, 2011 March 342.60 October 286,596 97.91 250.10 April 27, 72,913 18.24 296.60 2013 23, 2012 2012 March 513.40 March 28, 536,020 267.93 269.95 April 10, 464,457 125.24 368.33 2014 2014 2013 (Source: www.nseindia.com)
Notes: 1. High, low and average prices are based on the daily closing prices. 2. In case of two days with the same high or low price, the date with the higher volume has been considered.
CSE
No shares have been traded on CSE during the above periods.
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(ii) The following tables set forth the reported high, low and average market prices and the trading volumes of the Equity Shares on the BSE and the NSE on the dates on which such high and low prices were recorded during each of the last six months:
BSE
(Volume on Total (Volume on date of Volume of date of High) Total Volume Low) Average Equity Number of of Equity Number of price for Month Date of Low Date of shares High(Rs.) Equity shares traded Equity the Year High (Rs.) low traded on Shares on the date of Shares month the on date traded on the high (million) traded on (Rs.) of low date of high the date of (million) low April 523.30 April 11, 23,020 12.05 454.50 April 30, 29,976 13.75 503.16 2014 2014 2014 May 2014 646.40 May 23, 36,743 23.37 450.70 May 5, 634,284 286.54 543.26 2014 2014 June 2014 706.65 June 30, 165,263 114.05 590.05 June 13, 23,507 14.19 620.68 2014 2014 July 2014 778.55 July 7, 2 113,802 87.26 607.35 July 28, 29,185 17.98 671.24 014 2014 August 725.90 August 83,771 61.87 646.75 August 1, 57,991 38.00 692.48 2014 25, 2014 2014 September 812.75 September 90,653 72.23 701.35 September 25,709 18.12 758.37 2014 15, 2014 2, 2014 (Source: www.bseindia.com )
NSE
Total (Volume on (Volume on Volume of date of High) Total Volume date of Low) Average Equity Number of of Equity Number of price for Month High Date of Low Date of shares Equity shares traded Equity the Year (Rs.) High (Rs.) low traded on Shares on the date of Shares month the on date traded on the high (million) traded on the (Rs.) of low date of high date of low (million) April 524.10 April 11, 487,577 254.88 454.90 April 30, 703,845 324.64 503.19 2014 2014 2014 May 2014 649.75 May 23, 740,209 469.31 451.30 May 5, 460,290 205.82 544.15 2014 2014 June 2014 706.80 June 30, 1,244,319 857.97 590.40 June 13, 207,388 125.47 621.32 2014 2014 July 2014 779.85 July 7, 2 791,722 605.25 605.65 July 28, 594,140 365.47 671.25 014 2014 August 727.60 August 746,678 552.35 646.60 August 1, 684,512 449.11 692.61 2014 25, 2014 2014 September 813.85 September 1,076,761 853.63 700.40 September 248,768 175.32 758.72 2014 15, 2014 2, 2014 (Source:www.nseindia.com)
Notes:
1. High, low and average prices are based on the daily closing prices. 2. In case two days with the same high or low price, the date with the higher volume has been considered.
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CSE
No shares have been traded on CSE during the above periods.
(iii) The following table set forth the details of the number of Equity Shares traded and the volume of business transacted during the last six months and the fiscal years ending March 2012, March 2013 and March 2014 on the BSE and the NSE :
Volume of Business Transacted Period Number of Equity Shares Traded (Rs. in million) BSE NSE BSE NSE Year ending 2012 6,566,855 54,886,686 1,804.34 15,433.65 Year ending 2013 13,370,882 94,119.907 4,036.30 28,125.80 Year ending 2014 5,468,343 70,449,407 2,088.98 26,940.43 April 2014 701,391 6,076,155 364.18 3,048.82 May 2014 2,286,784 10,608,263 1,169.36 5,743.29 June 2014 761,553 9,209,412 483.80 5,783.66 July 2014 1,835,701 15,178,582 1,243.45 10,237.73 August 2014 812,576 9,865,237 564.56 6,847.60 September 2014 1,130,956 11,791,436 861.58 9,003.95 (Source: www.bseindia.com and www.nseindia.com )
(iv) The following table sets forth the market price on the BSE and the NSE i.e., September 23, 2014, the first working day following the approval of the Board of Directors for the Issue:
BSE NSE Number of Turnover Number of Turnover Open High Low Close Equity Shares (Rs. Open High Low Close Equity Shares (Rs. traded million ) traded million) 772.40 801.95 761.05 764.90 44,018 34.47 768.0 803.0 758.35 764.65 918,739 720.96 (Source: www.bseindia.com and www.nseindia.com)
CSE No shares have been traded on CSE on September 23, 2014.
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USE OF PROCEEDS
The total proceeds of the Issue will be Rs. [●] million. After deducting the Issue expenses of approximately Rs. [●] million, the net proceeds of the Issue will be approximately Rs. [●] million (the “Net Proceeds ”) .
Subject to compliance with applicable laws and regulations, we intend to use the net proceeds of the Issue towards growth in areas of power generation (including renewables space), power distribution and coal mining; to strengthen Company’s transmission and distribution network; for general corporate purposes; and towards such other purposes as may be permitted by applicable law. The proceeds of the Issue have not been earmarked or allocated for investment in the following subsidiaries of the Company – Spencer’s Retail Limited, CESC Properties Limited and their respective subsidiaries.
In accordance with the policies approved by the Board and as permissible under applicable laws and government policies, our Company will have flexibility in deploying the Net Proceeds received from the Issue. Pending utilisation for the purposes described above, we intend to temporarily invest funds in credit worthy instruments, including money market mutual funds and deposits with banks and corporates. Such investments would be in accordance with the investment policies as approved by the Board from time to time and will also be in accordance with all applicable laws and regulations.
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CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our consolidated capitalization and total borrowings as per our Financial Statements as on March 31, 2014 and as on June 30, 2014, and as adjusted to give effect to the Issue. This table should be read in conjunction with the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 127 and other financial information contained in the section “Financial Information” on page 240. (Rs. in millions) As at March 31, As at June 30, As Adjusted for
2014 2014 the Issue (b) Shareholders’ Fund (Equity) Share Capital 1,256.0 1,256.0 [●] Reserves and surplus 55,094.1 55,685.5 [●] Total Shareholders’ Funds (A) 56,350.1 56,941.5 [●] Debt Long-term borrowings 91,323.4 88,717.3 [●] Short-term borrowings 10,530.8 12,085.1 [●] Other borrowings (a) 17,309.7 20,099.4 [●] Total Debt (B) 119,163.9 120,901.8 [●]
Total (A+B) 175,514.0 177,843.3 [●]
Notes:
(a) ‘Other borrowings’ represents current maturities of long term borrowings and finance lease obligations. (b) Adjusted to post issue share capital and securities premium account (classified under Reserve and surplus). Post-Issue capitalisation can be determined only on completion of the Issue.
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CAPITAL STRUCTURE
Share capital of our Company as on the date of filing of this Preliminary Placement Document is as follows:
(Rs. in million) Aggregate nominal value Authorized equity share capital 150,000,000 Equity Shares 1,500.0 Issued equity share capital prior to the Issue 131,235,897 Equity Shares^ 1,312.4 Subscribed and paid-up share capital prior to the Issue 124,9 35,925 Equity Shares 1,256 .0^ Present Issue being offered to the Equity Shareholders through this Preliminary Placement Document [●] Equity Shares at a premium of Rs. [●], i.e. at a price of Rs. [●] per Equity Share [●] Paid up equity share capital after the Issue [●] Equity shares [●] Securities premium account prior to the Issue Existing securities premium account 12,548.5 Securities premium account after the issue [●] ^Including an amount of Rs. 6.6 million, paid on forfeited shares. For further details, please see the “Equity capital history of our Company” below.
(a) The Issue has been authorised by the Board on September 22, 2014 and the Shareholders pursuant to their resolution dated October 18, 2014.
Equity capital history of our Company
The history of the equity share capital of our Company since inception is as follows:
Date of Face Cumulative Cumulative Number Issue Issue/ Valu Number of paid-up Nature of of Equity Price Mode of Allotment Allotment/ e Equity capital Consideration Shares (Rs.) Forfeiture (Rs.) Shares (Rs.) March 28, 75 10 10 75 750 Other than cash Subscription to 1978 Memorandum of Association April 7, 7,1 94,951 10 10 7,1 95,026 71,9 50,260 Other than cash Allotted to the 1979 shareholders of the Calcutta Electric Supply Corporation Limited pursuant to a scheme of Arrangement & Amalgamation. September 300,000 10 10 7,4 95,026 74,9 50,260 Other than cash Conversion of loans 24, 1981 October 30, 650,000 10 10 8,145,026 81,450,260 Other than cash Conversion of loans 1981 May 5, 300,000 10 10 8,445,026 84,450,260 Other than cash Conversion of loans 1982 October 1, 8,5 00,000 10 10 16,9 45,026 169,4 50,260 Cash Rights Issue 1986 July 1, 3,994,596 10 25 20,939,622 209,396,220 Cash Rights Issue 1991
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Date of Face Cumulative Cumulative Number Issue Issue/ Valu Number of paid-up Nature of of Equity Price Mode of Allotment Allotment/ e Equity capital Consideration Shares (Rs.) Forfeiture (Rs.) Shares (Rs.) December 9,1 75,980 10 25 30,1 15,602 301,1 56,020 Other than cash Conversion of 11, 1991 debentures April 25, 8,366,140 10 US$ 38,481,742 384,817,420 Cash Issue of 83,66,140 1994 10.67 GDR representing equivalent number of shares at US$ 53.34 per unit of 5 GDRs. July 29, 5,0 00,000 10 142 43,4 81,742 434,8 17,420 Cash Private Placement 1995 July 24, 3,497,000 10 80 46,978,742 469,787,420 Cash Conversion of 1996 Warrant ‘A’ July 24, 11,8 41,43 10 50 58,8 20,179 588,2 01,790 Cash Conversion of 1996 7 Warrant ‘A’ October 15, 104,648 10 50 58,924,827 589,248,270 Cash Conversion of 1996 Warrant ‘A’ April 1, 8,103 10 50 58,932,930 589,329,300 Cash Conversion of 1997 Warrant “A’ February 10,1 88,66 10 20 69,1 21,595 691,2 15,950 Cash Conversion of 15, 1999 5 Warrant “B’ Forfeiture (6,226,761 - - 62,894,834 628,948,340 - Forfeiture of shares on August ) 10, 1999 Forfeiture (36,532) - - 62,858,302 628,583,020 - Forfeiture of shares on January 27, 2000 October 15, 3,300,000 10 49.7 66,158,302 661,583,020 Cash Preferential Issue 2003 Forfeiture (36,679) - - 66,121,623 661,216,230 - Forfeiture of shares on July 30, 2004 November 8,265,203 10 60 74,386,826 743,868,260 Cash Rights Issue 22, 2004 September 7,9 30,685 10 US$ 82,3 17,511 823,1 75,110 Cash Issue of 7,9 30,685 30, 2005 5.04 GDR representing equivalent number of shares March 10, 2,000,000 10 216.6 84,317,511 843,175,110 Cash Preferential Issue 2007 8 October 31,0 58,41 10 - 115,3 75,925 1,153,7 59,25 Other than cash Allotted pursuant to 12,2007 4 0 scheme of Amalgamation December 9,560,000 10 618 124,935,925 1,249,359,25 Cash Issue of shares to 13, 2007 0 QIBs Total 124,935,925
There were no allotments made in the last one year preceding the date of the Preliminary Placement Document for consideration other than cash.
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DIVIDEND POLICY
The declaration and payment of dividend by our Company is governed by the applicable provisions of the Companies Act 2013 and our Articles of Association. Under the Companies Act 2013, the board of directors of a company recommends the payment of a dividend and the shareholders approve of the same at a general meeting. In case of final dividend, it is recommended by the board of directors and approved by the shareholders at the annual general meeting (AGM) and is distributed and paid to shareholders in proportion to the paid-up value of their shares as on the record date for which such dividend is payable. Under the Companies Act 2013, dividends can only be paid in cash to shareholders listed on the register of shareholders or those persons whose names are entered as beneficial owner in the record of the depositary on the date specified as the ‘record date’ or ‘book closure date’. Under the Companies Act 2013, a company may pay dividends only out of (i) its profits in the year in which the dividend is declared (after providing for depreciation); or (ii) out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government; or (iii) accumulated profits earned by the company in the previous years and transferred by the company to the reserves in accordance with the Companies (Declaration and Payment of Dividend) Rules, 2014.
The table below sets forth the details of the dividends declared by our Company on its Equity Shares during the last three financial years:
Amount of dividend declared Financial Year Dividend per Rate of dividend exclusive of tax ending share (Rs.) (%) (Rs. million) March 2014 8 999.5 80% March 2013 7 874.6 70% March 2012 5 624.7 50%
The amounts paid as dividends in the past are not necessarily indicative of the dividend policy of our Company or dividend amounts, if any, in the future. There is no guarantee that any dividends will be declared or paid or that the amount thereof will not be decreased in the future.
Dividends are payable within 30 days of approval by the Shareholders in an AGM. The Articles grant discretion to the Board to declare and pay interim dividends as appear to it to be justified by the profits of our Company. Dividends can only be paid in cash to shareholders listed on the register of shareholders or those persons whose names are entered as beneficial owner in the records of the Depository on the date specified as the ‘record date’ or ‘book closure date’. Any shareholder who ceases to be a shareholder prior to the record date or who becomes a shareholder after the record date will not be entitled to the dividend declared by our Company.
Under the current Indian tax laws, dividends are not subject to income tax in India in the hands of the recipient. However, our Company is liable to pay a dividend distribution tax currently at the rate of 15% plus a surcharge at 10% on the dividend distribution tax and an education cess at the rate of 3% on dividend distribution tax and surcharge. With effect from October 1, 2014, dividends declared by a domestic company are required to be grossed up while making payment of dividend distribution tax. Thus, effective tax rate of dividend distribution tax from October 1, 2014 shall be 19.994% on amount actually distributed as dividend to the shareholders.
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INDUSTRY OVERVIEW
Unless otherwise indicated, the information in this section has been derived from various Indian Government publications and industry reports, and has not been prepared or independently verified by us, the Lead Manager or any of our or their respective affiliates or advisers. The information may not be consistent with other information compiled within or outside India. The information contained in these publications is based on economic and other assumptions that may prove to be incorrect and although information reproduced herein has been obtained from sources generally believed to be reliable, we, the Lead Manager and our or their respective affiliates and advisers do not make any representation, express or implied, as to their accuracy, completeness and underlying assumptions and do not guarantee their reliability. Accordingly, your investment decision should not be based on such information and you should not place undue reliance on such information, as some amounts have been rounded.
This section includes forecasts and other forward-looking estimates. These forward-looking statements are necessarily based on various assumptions and estimates that are inherently subject to various risks and uncertainties relating to possible invalidity of the underlying assumptions and estimates and possible changes or development of social, economic, business, industry, market, legal, government and regulatory circumstances, conditions and actions taken or omitted to be taken by others. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic and competitive market conditions and future government and business decisions, all of which are difficult or impossible to predict accurately. Actual results and future events could differ materially from such projections. You should not place undue reliance on such statements, or on the ability of publicly available documents, government publications, industry sources or any other third party to accurately predict future industry trends or performance.
Overview of the Indian Economy
India, the world's largest democracy in terms of population (an estimated 1,236 million, as of July 2014), had an estimated gross domestic product (" GDP ") on a purchasing power parity basis of approximately US$ 4,962 billion in 2013. This makes it the third largest economy by GDP in the world after the United States and China (Source: CIA World Factbook accessed on May 31, 2014) . India’s real GDP has grown at an average rate of over 7.2% per annum for the financial years starting April 1 to March 31 (each, a " Financial Year "), 2008-13 (Source: RBI Economic Review Financial Year 2013) with increased domestic consumption, infrastructure spend and capital expenditure by corporations. However, India's GDP growth rate has been low in the past year and the country has been affected by high inflation rates, a high current account deficit and volatility in the rupee. Nevertheless, India remains one of the fastest growing economies in the world. As per the Reserve Bank of India's Survey of Professional Forecasters on Macroeconomic and Monetary developments for the third quarter review 2013-14, the forecast of India's real GDP growth rate remains healthy at 5.6% for Financial Year 2014-15.
The following table presents a comparison of India's real GDP growth rate with the real GDP growth rate of certain other countries (in percentages):
Countries 2009 2010 2011 2012 2013E 2014E Australia 1.6 2.7 2.4 3.4 2.5 2.6 Brazil -0.3 7.5 2.7 0.9 2.5 1.8 China 9.2 10.4 9.3 7.8 7.7 7.5 India 8.5 10.3 6.6 4.7 3.2 5.4 Japan -5.5 4.7 -0.6 2.0 2.0 1.4 Korea (South) 0.3 6.3 3.7 2.0 2.8 3.7 Malaysia -1.5 7.4 5.1 5.6 4.7 5.2 Russia -7.8 4.5 4.3 3.4 1.3 1.3 Thailand -2.3 7.8 0.1 6.5 2.9 2.5 United Kingdom -5.2 1.7 1.1 0.3 1.8 2.9 United States -2.8 2.5 1.8 2.8 1.6 2.8 (Source: Figures for 2014E from the International Monetary Fund accessed on October 21, 2014 from http://www.imf.org, 2013E from the CIA World Factbook accessed on May 31, 2014, and 2009-12 from www.dataworldbank.org)
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The Indian economy is based on planning through successive five-year plans that set targets for economic development in various sectors. The eighth five-year plan covers Financial Years 1992–1997 (the " Eight Five- Year Plan "), the ninth five-year plan covers Financial Years 1997-2002 (the " Ninth Five-Year Plan "), the tenth five-year plan covers Financial Years 2002-2007 (the " Tenth Five-Year Plan "), the eleventh five-year plan covers Financial Years 2007-2012 (the " Eleventh Five-Year Plan ") and the twelfth five-year plan covers Financial Years 2012-2017 (the " Twelfth Five-Year Plan "). The Twelfth Five-Year Plan will likely continue the push to accelerate the pace of investment in infrastructure, as this is critical for sustaining and accelerating growth. Infrastructure expenditure for the Eleventh Five-Year Plan increased to 7.2% of GDP from 5.2% of GDP in the Tenth Five-Year Plan. Infrastructure expenditure is proposed to be further increased to 8.2% of GDP by the end of the Twelfth Five-Year Plan. The total infrastructure spend in the Twelfth Five-Year Plan is envisaged to increase by 130% over the Eleventh Five-Year Plan (Source: Twelfth Five-Year Plan 2012-2017, Volume I, Planning Commission, Government of India) .
Planned Infrastructure Expenditure (Eleventh and Twelfth Five-Year Plans)
60 55.7
50 XI Plan XII Plan 2.3x 40 2.2x
30 24.2 2.0x
(INR Trillion) (INR 18.2 2.5x 20 2.6x 4.4x 8.2 9.1 2.4x 9.4 10 4.5 5.2 3.8 2 0.42 0.4 0.9 0 % Pvt. Sector Power Roads Railways Ports Airports Telecom Total Contribution XIth Plan (2007-12) 48% 20% 5% 82% 64% 78% 37% XIIth Plan (2012-17) 55% 33% 19% 87% 80% 92% 48%
(Source: Twelfth Five-Year Plan 2012-2017)
Expected Investment as per the Twelfth Five-Year Plan
Set out below are certain projections prepared by the Planning Commission for investment during the Twelfth Five-Year Plan, as compared with total investments under the Eleventh Five-Year Plan:
Projected Investment in Infrastructure – Twelfth Five-Year Plan (Rs. in billions at 2011·12 prices) Total, Total, Eleventh Twelfth 2012-13 2013-14 2014-15 2015-16 2016-17 Five-Year Five-Year Plan Plan Sectors Electricity 7,284.9 2,284.1 2,592.7 2,942.7 3,334.7 3,862.4 15,016.7 Centre 2,335.0 690.6 776.5 872.3 976.2 1,092.4 4,408.0 States 1,847.0 563.4 623.4 639.1 758.9 835.7 3,470.4 Private 3,103.0 1,030.1 1,192.9 1,381.4 1,599.7 1,934.3 7,133.3 Renewable 892.2 312.0 425.9 581.3 790.8 1,076.4 3,186.3 Energy Centre 96.3 36.3 47.4 61.8 80.3 104.3 330.0 States 10.2 7.4 8.9 10.6 12.5 14.9 54.3 Private 785.7 288.3 369.7 508.9 698.0 957.2 2,802.0 Roads and 4,531.2 1,504.7 1,644.9 1,804.2 1,981.7 2,210.0 9,145.4 Bridges Centre (2) 1,946.8 619.2 645.7 672.7 698.3 725.0 3,360.9 States 1,559.0 478.4 512.2 547.9 583.8 622.0 2,744.3 Private 925.4 407.0 487.0 583.6 699.6 862.9 3,040.1 Telecommunicat 3,849.6 1,059.5 1,360.9 1,764.9 2,305.6 2,948.1 9,439.0
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Total, Total, Eleventh Twelfth 2012-13 2013-14 2014-15 2015-16 2016-17 Five-Year Five-Year Plan Plan ions (3) Centre 863.8 152.0 148.3 144.5 140.2 136.1 721.1 Private 2,985.9 907.5 212.6 1,620.4 2,165.4 2,812.0 8,717.9 Railways 2,012.4 647.1 785.7 968.8 1,217.0 1,573.6 5,192.2 Centre 1,921.5 599.9 702.0 820.8 956.0 1,113.5 4,192.2 Private 90.9 47.3 83.7 148.1 261.0 460.0 1,000.0 MRTS 416.7 135.6 171.5 213.0 298.4 413.2 1,241.6 Centre 214.7 58.9 67.8 78.1 89.5 102.7 397.0 States 147.9 47.3 54.5 62.7 71.9 82.5 319.0 Private 54.1 29.3 49.1 82.2 136.9 228.1 525.6 Irrigation 2,435.0 771.1 873.9 991.8 1,125.1 1,281.9 5,043.7 (including Watershed) Centre 144.3 46.8 59.5 77.1 101.6 136.7 42 1.7 States 2,290.7 24.3 814.3 914.7 1,023.5 1,145.2 4,622.0 Water Supply 1,207.7 365.7 426.1 497.3 580.8 683.3 2,553.2 and Sanitation Centre (4) 460.0 140.0 164.2 192.5 224.7 262.4 983.8 States (5) 746.1 223.4 257.3 296.2 339.6 389.4 1,505.8 Private 1.6 2.4 4.6 8.6 16.5 31.5 63.6 Ports (+ILW) 445.4 186.6 255.4 352.6 480.7 692.6 1,977.8 Centre 54.8 28.9 34.2 40.3 47.5 55.9 206.7 States 27.6 7.9 9.3 10.9 12.7 14.8 55.6 Private 363.0 149.8 211.9 301.4 430.5 621.9 1,715.5 Airports 363.1 76.9 107.2 152.3 219.6 321.2 877.1 Centre 118.7 24.6 27.1 29.9 32.8 36.1 150.4 States 10.3 2.7 3.5 4.6 6.0 7.8 24.5 Private 234.1 49.7 76.6 117.9 180.8 277.4 702.2 Oil and Gas 625.3 122.1 166.0 283.3 364.4 598.5 1,489.3 Pipelines Centre 351.8 93.4 113.7 138.3 0.2 203.1 715.9 States 40.7 8.3 9.9 11.6 13.7 16.2 59.7 Private 232.8 20.4 42.5 88.4 183.1 279.2 713.7 Storage 179.2 44.8 64.4 96.0 147.2 232.0 584.4 Centre 59.6 17.1 20.3 24.0 28.2 33.3 122.8 States 21.2 6.2 7.2 8.3 9.5 10.9 42.0 Private 98.5 21.5 37.0 63.8 109.5 187.9 419.6 Total 24,242.8 7,510.1 8,874.5 10,613.2 12,855.7 15,893.1 55,746.6 Centre (Total) 8,567.2 2,507.6 2,806.6 3,152.2 3,543.0 4,001.3 16,010.6 States (Total) 6,800.6 2,069.4 2,330.5 2,556.5 2,832.0 3,139.3 12,897.6 Private (Total) 8,875.0 2,933.1 2,767.5 4,904.6 6,480.6 8,752.5 26,838.4 Combined Total 24,242.8 7,510.1 8,874.5 10,613.2 12,855.7 15,893.1 55,746.6 Public 15,367.7 4,577.0 5,107.1 5,708.6 6,375.0 7,140.6 28,908.2 Private 8,875.0 2,933.1 3,767.5 4,904.6 6,480.8 8,752.5 26,838.4 GDPmp (6) 336,044.5 101,506.2 116,459.9 133,580.3 153,470.9 176,614.9 681,632.1 Investment as % 7.21 7.40 7.62 7.95 8.38 9.00 9.18 of GDPmp
Notes: (a) Excludes projections for Department for Atomic Energy (Power) and Neyveli Lignite Corporation Limited (Power), which are included in the Eleventh Five-Year Plan. (b) Includes Pradhan Mantri Gram Sadak Yojana. (c) Includes spectrum action charges.
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(d) Includes projections for Integrated Low Cost Sanitation (ILCS) Scheme. (e) Includes the Jawaharlal Nehru National Urban Renewal Mission. (f) GDPmp means Gross Domestic Product at market prices. (Source: Planning Commission. Government of India – Twelfth Five-Year Plan (Vol 1))
Power Industry Structure
The power sector in India can broadly be divided into four distinct areas – generation, transmission, distribution and consumption. Power generation is undertaken by the Indian central government (the " Central Government ") and Indian state governments (the " State Governments "), with increasing participation from private players. Power transmission is handled by the Central Government and State Governments, with limited private sector participation so far. Power distribution is carried out by various state discoms as well as by private discoms and certain licensees.
Key Issues Facing the Electricity Sector High level of network and financial losses Power utilities in India suffer from a high level of transmission and distribution losses (estimated at 23.65% (provisional) for 2011-2012) largely due to network losses, including theft and technical problems, and financial losses from non-collection (Source: CEA Report on Indian Electricity Sector 2013) . This has led to financial degradation and worsening performance of public power utilities, and has also resulted in inadequate financial resources for capacity augmentation.
Inadequate generation and transmission capacity Inadequate sources of investment have led to a shortfall in generation capacity, which has resulted in a less than optimal quality of supply. Likewise, inadequate transmission capacity in the country has led to regional surpluses being inefficiently utilized to meet shortages elsewhere. There has been some improvement in these parameters in recent years, owing to reform and regulatory initiatives. However, availability of fuel for power generation is a constraint. Coal and gas shortages may prevent plants from operating at full capacity ( Source: CEA Report on Indian Electricity Sector 2013) . Regulatory Overview
In India, control over the development of the power industry is shared between the Central Government and the State Governments. The Ministry of Power is the highest authority governing the power industry in India. The Central Electricity Authority (the " CEA "), a statutory organization constituted under the Supply Act (as defined hereinafter), is the technical branch of the Ministry of Power, assisting with technical, financial and economic matters relating to the electricity industry. In the case of hydropower projects, the CEA is responsible for approving such schemes that involve capital expenditure beyond a certain limit fixed by the Central Government from time to time. It is also responsible for the development of a sound, adequate and uniform power policy in relation to the control and utilization of national power resources. The Central Electricity Regulatory Commission (the " CERC ") constituted under the Electricity Regulatory Commissions Act, 1998, is an independent statutory body with quasi-judicial powers. Its main functions include the formulation of policy and the framing of guidelines with regard to electricity tariffs.
Several states have set up State Electricity Regulatory Commissions (" SERCs "). SERCs are engaged in regulating the purchase, distribution, supply and utilization of electricity, tariffs and charges payable, as well as the quality of service. State Governments have set up SEBs at the state level, which are tasked to ensure that the supply, transmission and distribution of electricity in such states is carried out in the most economical and efficient manner. SEBs are required to coordinate with power generating companies, as well as the government entities that control the relevant power grids. Some states have amalgamated their respective SEBs to form regional electricity boards, to ensure that electricity supply, transmission and distribution policies are consistently applied.
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Private sector companies operating in the electricity supply, transmission and distribution industry report to the Ministry of Power, as well as their respective SEBs and SERCs. Judicial Review Process One of the key functions of the CERC and SERCs is to resolve disputes involving generation and distribution companies in relation to regulation of tariffs. A generation company can file a petition to the appropriate commission: SERC, CERC or Joint Energy Regulatory Commission. For generating companies or discoms that are not satisfied with any regulatory commission order, they can file an appeal with the Appellate Tribunal for Electricity (" APTEL ") established by the Central Government. APTEL has the authority to overrule or amend an order issued by an electricity regulatory commission. As the last resort, for the generation companies or discoms not satisfied with the APTEL order, an appeal can be filed with the Supreme Court of India, the highest judicial body in India. Overview of Supply Scenario Installed Capacity The Indian power sector is the third largest in Asia after China and Japan, with a total installed capacity of 245,394 MW as of April 30, 2014 (Source: CEA Monthly Review, April 2014) . Electricity generation capacity has experienced steady growth in the past few years, with electricity availability growing from 908,574 MUs during 2012-13 to 959,829 MUs during 2013-14, an overall growth rate of 5.64% (Source: CEA Monthly Review, April 2014) . The table below illustrates the installed capacity by fuel type across the state, private and central sectors as of April 30, 2014: (Figures in MW) Installed capacity as of April 30, 2014 Renewable Hydro Thermal Nuclear Energy Total Sources Coal Gas Diesel Total State 27,482 53,828 6,548 603 60,979 – 3,804 92,265 Private 2,694 45,655 8,168 597 54,421 – 27,888 85,003 Central 10,355 45,925 7,066 – 52,991 4,780 – 68,126 Total 40,531 145,408 21,782 1,200 168,390 4,780 31,692 245,394 (Source: CEA Monthly Review, April 2014) Despite India's large capacity, the country continues to have an energy deficit due to slow progress in the development of additional energy capacity. In the implementation of the last three five-year Plans (i.e., the Ninth, Tenth and Eleventh Five-Year Plans), less than 60% of the targeted additional energy capacity was added in the Ninth and Tenth Five-Year Plans.
Targeted Capacity Expansion and Achievement in Five-Year Plans (Excluding Renewable Energy)
80 140% 115% 62.4 120% 96% 97% 60 55.0 85% 82% 100% 72% 40.2 41.1 64% 64% 30.5 88% 80% 40 50% 52% 54% 48% 60% 19.7 22.2 21.4 21.2 20.6 16.4 19.1 18.0 18.4 17.8 40% 20 12.5 14.2 9.3 10.2 7.0 4.5 4.6 20% 1.3 1.1 3.5 2.3 0 0% (51-56) (56-61) (61-66) (69-74) (74-79) (80-85) (85-90) (92-97) (97-02) (02-07) (07-12) (FY13) (FY14) Targeted Installed Achievement (%) (Source: The White Paper, CEA Power Scenario, November 2012, CEA Monthly Report, March 2014 Note: Target & Achievements exclude new Renewable Energy Sources)
Furthermore, India continues to face a considerable gap between demand and supply. The electricity sector is divided into five power regions: North, North-East, West, East and South. The Southern region faced the highest energy deficit of 6.8% among all the regions for the period from April 2013 to March 2014. The table below illustrates the actual available power supply in each region:
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Actual Power Supply March 2014 April 2013 to March 2014 Requirement Availability Requirement (Availabili Region Surplus/ Deficit(-) Surplus/Deficit(-) (MU) (MU) (MU) ty) (MU) MU (%) MU (%) 23,526 22,444 (1,082) (4.6) 309,463 290,880 (18,583) (1.0) Western 25,063 24,786 (277) (1.1) 294,659 291,856 (2,803) (1.0) Southern 25,961 24,389 (1,572 ) (6.1) 277,245 258,444 (18,801) (6.8 ) Eastern 9,593 9,504 (89 ) (0.9) 108,203 106,783 (1,420) (1.3 ) North- 1,027 952 (75) (7.3) 12,687 11,866 (821) (6.5) Eastern All India 85,170 82,075 (3,095 ) (3.6) 1,002,257 959,829 (42,428) (4.2 )
(Source: CEA Monthly Power Supply Review, April 2014)
There was slow progress in adding new capacity during the periods covered by the Eighth, Ninth and Tenth Five-Year Plans. The actual capacity addition during this period was about 50% of the initial targets. The Eleventh Five-Year Plan had a capacity addition target of 78,700 MW, which was later revised to 62,374 MW during the mid-term appraisal, whereas the actual capacity addition was 54,964 MW (Source: Planning Commission, 12th Five-Year Plan (Vol 2)) . Conventional energy sources which include thermal, nuclear and hydroelectricity constitute nearly 88% of installed capacity in India. Within thermal, coal is the dominant fuel, providing 60% share of the total capacity. Renewable energy sources, which fall under the purview of the Ministry of New and Renewable Energy (" MNRE "), contribute the remaining amount (Source: CEA Monthly Report, March 2014) .
Break-up of All India Installed Capacity (as of March 31, 2014) Total Capacity: 243 GW
RES (MNRE) 12.1% Central 28.0% Hydro State Thermal: 69.2% 37.9% (Renewable) 16.7%
Nuclear 2.0% Coal 59.8% Diesel 0.5% Gas Private 9.0% 34.0%
(Source: CEA Monthly Report, March 2014)
Future Capacity Additions – Supply and Demand On the supply side, the total planned capacity addition for the Twelfth Five-Year Plan period is 118.5 GW, including 30 GW from renewable energy sources. Capacity at the end of the Twelfth Five-Year Plan is expected to be 1.6 times than that at the end of the Eleventh Five-Year Plan. Net capacity of about 38.4 GW has already been added up to March 2014 during the current Twelfth Five-Year Plan (Source: Twelfth Five-Year Plan Vol II; CEA Monthly Report, March 2014).
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Planned Capacity Addition between FY 2014-17 as per the Twelfth Five-Year Plan
Capacity (GW) Breakup of Capacity Additions (2) 400
300 Centre 75 36% Private 200 47% 318 243 100
0 As at March 31, 2014 Planned Addition At the end of State FY15-17 (1) 12th Plan 16%
Notes: (1) Based on gross addition as per Twelfth Five-Year Plan 2012-17 (2) Excludes capacity addition in renewable energy sources covered under MNRE
(Source: Twelfth Five-Year Plan 2012-2017) According to the Twelfth Five-Year Plan, approximately 60% of expected capacity addition is expected to come from coal-based plants, 25% from renewable energy sources, 9% from hydroelectricity, 4% from nuclear energy and around 2% from gas and lignite based thermal plants. The private sector is expected to contribute approximately 53% of the additional capacity from conventional energy sources. From a demand perspective, the incremental peak load requirement is expected to be 69.5 GW and 83.9 GW in the Twelfth and Thirteenth Five-Year Plans, respectively (Source: 18 th Electric Power Survey Report by CEA, CEA Monthly Report, April 2012) . Large Energy Deficit The Indian power sector has historically been characterized by high energy shortages. In Financial Year 2013- 14, the peak energy deficit at a pan-India level is estimated to be at 4.5%, with the base energy deficit estimated at 4.2%. The following chart sets out the power deficit in India during Financial Year 2006-07:
All India Demand-Supply Position from FY 2006-07 to 2013-14
Peak 13.8% 16.6% 11.9% 12.7% 9.8% 10.6% 9.0% 4.5% Deficit %
1,200 11.1% 1,002 12% 9.9% 10.1% 9.6% 996 937 960 1,000 909 10% 831 862 858 788 739 777 747 800 691 666 691 8.7% 8% 624 8.5% 8.5% 600 6% BU 4.2% 400 4%
200 2%
0 0% 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
Base Demand Base Supply Base Deficit %
(Source: CEA, Power Scenario, November 2012, CEA Monthly Report, March 2014)
Regional Demand-Supply Scenario The energy deficit varies widely across India, with the southern region having the highest peak and base energy shortages, followed by the northern region. This was partly due to the pending integration of the Southern Grid with the National Grid which completed on December 31, 2013. The following table sets out the regional peak power shortages in India for Financial Year 2013-14.
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Regional Demand- Supply for Financial Year 2013-14
Base Demand Base Supply
350 309 295 292 291 277 300 258 250 200 150 108 107 100 50 13 12 0 Northern Western Southern Eastern North-Eastern
Base Deficit % 6.0% 1.0% 6.8% 1.3% 6.5% Peak Deficit % 6.9% 2.4% 7.6% 2.2% 5.4%
(Source: CEA Monthly Report, March 2014)
Among the states, Maharashtra, Tamil Nadu and Punjab had the largest peak deficits for the period from April 2013 to March 2014 (Source: CEA Monthly Report, March 2014). Transmission and Distribution ("T&D") In India, the T&D system is a three-tier structure consisting of regional grids, state grids and distribution networks. Transmission Most inter-state and inter-regional transmission links are owned and operated by PGCIL, which is the central transmission utility of India and facilitates the transfer of power from a region in surplus to one in deficit, although some are jointly owned by the SEBs as well. As of September 30, 2013, PGCIL owned and operated approximately 102,109 circuit kilometers of transmission network, 172 extra high voltage alternating current and high voltage direct current substations, and a total transformer capacity of 172,370 MVA. PGCIL has been implementing various transmission projects to support the generation capacity addition program. On December 31, 2013, PGCIL successfully connected the Southern Grid with the rest of the National Grid. With this interconnection, all five regional grids now operate as a single system in synchronous mode, making the Indian power system one of the largest synchronous grids in the world, with about 232 GW of installed power generation capacity (Source: Press Information Bureau, 2014: http://pib.nic.in/newsite/erelease.aspx?relid=102244). To augment the transmission of power, the Ministry of Power has targeted an expansion of the power transmission network to 364,921 circuit kilometers during the Twelfth Five-Year Plan from 257,481 circuit kilometers at the end of the Eleventh Five-Year Plan. The Ministry of Power has also targeted substation capacity to increase to 669,801 MVA by the end of the Twelfth Five-Year Plan, from 399,80 MVA at the end of Eleventh Five-Year Plan (Source: Planning Commission, 12th Five-Year Plan (Vol 2)) . Distribution State grids and distribution networks are primarily owned and operated by the respective SEBs or State Governments (through state electricity departments). State distribution networks, managed at the state level, continue to be affected by high aggregate technical and commercial (" AT&C ") losses. However, AT&C losses have fallen significantly over the years from 34.3% in 2004-05 to 27.0% in 2011-12. This implies that 27.0% of power entering the system is lost during distribution (Source: CEA Monthly Review, April 2014) . The high level of AT&C losses is mainly due to:
• Technical losses caused by an overloaded and poorly maintained distribution network; and • Commercial losses due to theft, inaccurate metering and low collection rates.
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A direct consequence of high AT&C losses is the challenging financial condition of many of the SEBs, thereby preventing SEBs from making optimal investments in electricity generating capacity and upgrading the T&D network. Power Trading The Electricity Act 2003 recognizes trading of power as a distinct activity and permits SERCs to allow open access in distributing electricity in phases that should ultimately encourage efficiency and competition. Trading of power was introduced to meet short-term demand for power. For open access in T&D, the setting-up of a power exchange was essential. Therefore, in accordance with guidelines of the Electricity Act, 2003, the Indian Energy Exchange (" IEX ") was set up in India in 2008. Previously, several private organizations have demonstrated interest in the trading of power, and have acquired trading licenses. However, increasing prices of power traded in the past three to four years resulted in the CERC imposing a ceiling on the margins power traders may achieve. Currently, the ceiling on margins stands at Rs. 0.04 per kWh for power sold at rates up to Rs . 3.0 per kWh, at Rs . 0.07 per kWh for power sold at rates above Rs . 3.0 per kWh (Source: Planning Commission of India) . Volume and Price Trends of Short Term Power The volume of power sold in the form of short-term transactions has been steadily increasing for several years.
Total Volume of Electricity Transacted on the Short-Term Market
% of Power 9% 10% 11% 11% 11% Generated
120 104.6 98.9 100 94.5 81.6 80 65.9 60
40 Volume (BUs) Volume
20
0 2009-2010 2010-2011 2011-2012 2012-2013 2013-14 (Source: CERC Report on Short-term Power Market in India: 2012-13; CERC Monthly Reports for Financial Year 2013-14)
Modal split of short-term transactions in 2013-14 are as follows:
Modal Split of Short-Term Transactions in 2013-14 Total Short Term Volume: 104.6 BU
Inter State Power Trading Exchange 16.6% Transactions 28.7%
Total Bilateral Trading: 50.8%
Distribution Licenses Unschedules 34.2% Interchanges 20.5%
(Source: CERC Monthly Reports for Financial Year 2013-14)
Short-term power tariffs fell sharply in 2009-10 following the peak levels seen in 2008-09 during the general election in India. It has been observed that prices in the bilateral markets are typically higher than the exchange prices. In the medium to long-term, merchant tariffs are expected to be affected by the improving health of discoms, as a result of the financial restructuring currently underway and the future cost of fuel.
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Mechanism for Determination of Tariffs for Power Producers Electricity tariffs can be determined pursuant to sections 62 or 63 of the Electricity Act, 2003. For projects which fall governed by section 62, CERC tariff regulations apply to the determination of tariffs. For projects governed by section 63, the Central Government has issued a model power purchase agreement and standard bidding procedures based on which tariffs are determined. On January 6, 2006, the Central Government announced the National Tariff Policy (" NTP ") for the power sector in compliance with section 3 of the Electricity Act, 2003, to extend the National Electricity Policy passed on February 12, 2005. The NTP stipulates that all future power requirements in India should be procured competitively by distribution licensees, except where existing projects are expanded or where there is a state-controlled or state-owned developer involved. In such cases, regulators are required to determine tariffs by reference to CERC standards. Under the NTP, even for public sector projects, tariffs for all new generation and transmission projects are decided on the basis of competitive bidding during a certain period of time (Source: National Tariff Policy) . Guidelines for competitive bidding by distribution licensees in relation to the determination of tariffs for the procurement of power were issued on January 19, 2005, and subsequently amended on March 27, 2009. Their principal objectives are promoting competitive procurement, facilitating transparency and fairness, reducing information asymmetry, protecting and providing flexibility to suppliers on availability of power while ensuring certainty on tariffs for purchasers (Source: Competitive Bidding Guidelines, 2005: http://powermin.nic.in/whats_new/competitive_guidelines.htm) . Determination of Tariffs for Projects with Regulated Returns Tariffs for projects with regulated returns are set by regulatory commissions based on parameters, including fixed return on equity (" ROE ") and provision of incentives to power producers. The tariff comprises of the following components based on CERC Tariff Guidelines for the regulatory period Financial Years 2015-19: 1. Capacity charges – mix of fixed, actual and normative sub-components specified by CERC, which include: (a) ROE – 15.5% (post-tax); incentives linked to plant load factors (" PLFs ") according to revised tariff regulations; (b) Tax – ROE (post-tax) to be grossed-up by the effective tax rate of the generating company for the applicable Financial Year; (c) Interest on loan capital – as per actual; (d) Depreciation – 5.28% per annum; (e) Interest on working capital – linked to base rate of the State Bank of India; (f) Operation and maintenance costs – based on normative parameters; escalation beyond Financial Year 2015 has been increased compared to 2009 regulations; (g) Cost of secondary oil – based on normative parameters; and (h) Special allowance in lieu of R&M – based on normative parameters. 2. Energy charges – linked to the actual fuel cost per unit based on normative operational parameters as specified by the regulator, which include: (a) Normative availability; (b) Gross station heat rate; (c) Secondary fuel oil consumption; and (d) Auxiliary energy consumption. 3. Any gains based on controllable factors ( e.g. , heat rate, fuel oil consumption and auxiliary consumption) are proposed to be shared 40:60 with the generating company and beneficiaries according to revised tariff regulations
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The tariff regulations notified by the CERC are also important for the various SERCs as they are guided by these regulations while framing their own tariff principles for the state sector utilities concerned (Source: CERC Tariff Guidelines 2009, Revised Terms and Conditions of Tariff, 2014). Determination of Tariff by Bidding Process – DBFOO (Case I) and DBFOT (Case II) On September 21, 2013 and November 9, 2013, the Central Government issued the model power purchase agreement (" MPPA ") for long-term procurement of electricity from design, build, finance, operate, transfer (" DBFOT ") and design, build, finance, own, operate (" DBFOO ") thermal power stations, respectively. The MPPA is part of the standard bidding documents to be adopted by distribution licensees for the procurement of electricity from power producers. An objective of the MPPA is to create a process of open and transparent competitive bidding based on the lowest tariff offer from thermal power generating stations constructed and operated on the bases of DBFOT and DBFOO, as the case may be (Source: Ministry of Power, 2003: http://powermin.nic.in/acts_notification/electricity_act2003/pdf /Guideline_for_procurement_of_power_of_electricity.pdf; Ministry of Power, 2013: http://powermin.nic.in/ acts_notification/electricity_act2003/pdf/Guidelines_4_procurement_power_on_DBFOO_Nov2013.pdf) . Projects under Case I refer to projects where the location, technology or fuel is not specified by the procurer. Projects under Case II refer to hydropower projects, load center projects, other location or fuel-specified power projects. The tariffs for projects under Case I and Case II comprise the following constituent components: 1. Fixed charges – intended to cover the fixed costs associated with the project including finance costs, depreciation and maintenance costs. (a) The utility shall pay a fixed charge determined through competitive bidding for availability of the power station which would be revised annually to reflect 30% of the variation in wholesale price index (" WPI ") for Case I bids and 30% of the variation in a composite index comprising WPI and consumer price index for Case-II bids. (b) An annual reduction of 2% in fixed charges is included to factor in asset depreciation. 2. Fuel charges – the amount payable by the utility to the concessionaire for the fuel utilized in generating electricity. Fuel charge is a pass-through which addresses a major risk faced by power producers due to fluctuating and uncertain fuel prices in the medium and long-term. (a) The framework contained in the MPPA provides alternative formulations for determination of fuel costs depending on the source and pricing of fuel supplies. Four alternative sources of fuel are (i) concessional fuel from Coal India Limited (" CIL "), (ii) fuel from captive mines, (iii) fuel through imports and (iv) fuel through imports from captive mines situated outside India that have been identified with well-defined escalating components and associated escalation of benchmarking indices. (b) In all cases of imported fuel, the foreign exchange risk is borne by the utility. (Source : Ministry of Power, 2003: http://www.powermin.nic.in/acts_notification/electricity_act2003/pdf/ Overview_of_the_Model_Power_Purchase_Agreement.pdf; Ministry of Power, 2003: http://powermin.nic.in/ acts_notification/electricity_act2003/pdf/Overview%20of%20the%20Model%20Power%20Supply%20Agreeme nt_Nov13.pdf)
Coal Supply Scenario Coal is the most important and abundant fossil fuel in India. It accounts for 55% of the country's energy needs (Source: Ministry of Coal accessed at October 16, 2014 10:57 A.M.:http://www.coal.nic.in/welcome.html) . During Financial Year 2012-13, CIL supplied the majority of its total dispatch to the power sector. In CIL's 2012-13 Financial Year, a significant amount of its coal production was sold through e-auction to the power sector. Production Trends and Outlook Newly-installed capacity has outpaced the supply of coal, especially in the past few years. This has resulted in a fall in PLF from 78.6% for Financial Year 2007-08 to 66.6% for Financial Year 2013-14. As a result, the deficit in the supply of coal in India is being met through increased imports.
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Historical Trends in Capacity Addition, Coal Consumption Growth and Thermal PLFs
20% 78.6% 80% 77.5% 76.8% 77.2% 15.1% 78% 74.8% 75.1% 15% 76% 73.6% 11.7% 72.7% 73.3% 74% 9.3% 8.9% 72.0% 10% 7.7% 8.0% 72% 7.5% 7.6% 70% (MT, GW) (MT, 4.5% 5.7% 8.9% 4.9% 8.1% 7.9% 7.3% 5% 6.5% 68% PLFs Thermal 5.1% 1.1% 5.4% 66% 4.0% 3.4% 3.4% 66.6% 0% 64% 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Growth of Coal Consumption (MT) Capacity Growth Thermal PLFs (Source: CEA Annual Report 2012-2013, CEA Annual Report 2013-2014)
The Prime Minister's Office's Directive to CIL to Sign New Fuel Supply Agreements (" FSAs ") In order to ensure adequate coal supplies for power plants dependent on linkage coal from CIL, the Prime Minister's Office in June 2012 directed CIL to sign FSAs with power generation companies that have long-term power-purchase agreements with state distribution utilities having had power plants commissioned since Financial Year 2009-10, or would be commissioned by March 31, 2015. Subsequently, as of February 2014, CIL had already signed 157 FSAs for a total capacity of 71,145 MW, in addition to those FSAs that were signed earlier (Source: Press Information Bureau, 2013: http://pib.nic.in/newsite/erelease.aspx?relid=102157) . Award of Domestic Coal Linkage for Upcoming Projects In February 2012, CEA submitted to the Ministry of Power the list of power plants recommended for LoA/tapering linkage together with their anticipated commissioning schedule. The Central Government has adopted a points-based system, as stated in the Coal Linkage Policy for the Twelfth Five-Year Plan from the Ministry of Coal, which judges power projects on numerous criteria. The cumulative score is used as a relative reference to recommend a project for coal linkage. Based on this, CIL was directed to sign FSAs with 78,000 MW of coal based capacities including 11,000 MW of tapering linkage based plants (Source: Ministry of Coal, 2013: http://www.coal.nic.in/031013a.pdf). Gas Supply Scenario Indigenous production of natural gas in India for Financial Year 2012-13 was approximately 111 million standard cubic meters per day (" mmscmd "). Oil and Natural Gas Corporation Limited (" ONGC ") is India's largest gas producer, accounting for approximately 58% of India's total domestic gas production in Financial Year 2012-13. Going forward, production from ONGC's mature fields, like the Mumbai High and Bassein fields, is expected to dip due to natural decline in reservoir pressure. However, with the increases in ONGC's production from the B and C series of fields off the west coast, and the commissioning of KG-DWN-98/2 in KG Basin in Financial Year 2017-18, its natural gas production was expected to increase from 64.5 mmscmd to 75 mmscmd in 2012-13 (Source: Allocation and Pricing of Gas, 19th Report, Ministry of Petroleum and Natural Gas dated October 2013).
The Ministry of Petroleum and Natural Gas revised the outlook for expected natural gas production in the next five-year period. Based on the revised projections, gas production in India is expected to revert to the levels attained in 2010-11 by 2016-17 ( i.e. , post the sharp decline in 2012-13).
Domestic Natural Gas Production Estimates for Financial Years 2014-17 (mmscmd) 2013 -14E 2014 -15E 2015 -16E 2016 -17E ONGC 64.2 73.1 77.3 106.0 OIL 7.5 11.0 11.2 11.5 Pvt/JVs 33.6 45.2 50.7 57.5 Total 105.3 129.2 139.2 175.0
(Source: Allocation and Pricing of Gas, 19th Report, Ministry of Petroleum and Natural Gas dated October 2013) Given the constraints in domestic gas availability, a major portion of gas requirements is being met by liquefied natural gas (" LNG ") imports. In order to encourage gas imports, the Central Government has kept the import of
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LNG under the open general license (" OGL ") category and has permitted 100% foreign investment in this industry (Source: Ministry of Petroleum and Natural Gas, Energizing the Nation – Annual Report 2013-14).
Recent Developments in the Power Sector On August 25, 2014 and September 24, 2014, judgments were delivered in the cases filed against the coal ministry for allocation of coal blocks and it was held, inter alia , that the allotment of coal blocks made by the Screening Committee of the Government of India (the " SCI "), as also the allotments made through the Central Government dispensation route are arbitrary and illegal. The cancelled licenses include 46 producing or near- production blocks, and are owned largely by power and steel sector companies. The producing mines will be allowed to continue operations until March 2015, at which point they will be handed back to CIL until they are sold as part of a new auction process.
They can bid for the same coal blocks when they come back on the market, while it will be an open bidding process. Furthermore, they will now have to pay for externally sourced coal, resulting in higher operating costs. The SCI's decision also levies an additional fine of INR 295/tonne on coal produced to date from the mines affected.
The potential long-term effects of the decision on the wider power and steel sectors will depend largely on how quickly the government proceeds with re-auctioning the licenses. This could lead to more efficient development of these coal blocks in the long term should the new process go quickly. Uncertainty regarding the original allocation process had previously contributed in part to the under-development and utilization of these blocks.
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BPO Industry
Overview
Outsourcing occurs when companies contract non-critical, but essential, business processes and services to third-party providers, either domestically or offshore. Over the past several decades, many businesses around the world have been under pressure to outsource a growing proportion of their business processes to raise productivity, focus on core competencies, create flexibility, expand into new lines of business and ultimately increase profitability. More significantly, many of these businesses view outsourcing business processes as practically a necessity, so as to access a high-quality and cost-effective workforce. As one of the world's premier global sourcing destinations, India is well-positioned to benefit from the combination of outsourcing and offshoring trends as a result of low labor costs, the high education level of the available labor pool and the prevalence of English (Source: U.S. International Trade Commission, 2006: http://www.usitc.gov/publications/332/working_papers/EC200601A.pdf).
Global Sourcing Trends
The global business process outsourcing (" BPO ") industry is large and growing rapidly. According to the NASSCOM Strategic Review 2014, worldwide spending on technology products and related services exceeded US$ 2 trillion in 2013, representing a year-on-year growth of 4.5%. The same report also estimates that the global information technology (" IT ") and business process management (" BPM ") markets recorded growth of 5.3% and 4.2%, respectively, in 2013, outpacing global GDP growth of 3%. Packaged software, IT services and BPM are key drivers for worldwide spending growth, accounting for over US$ 1 trillion, or 55% of global expenditure.
The following charts set forth the relative growth rate and size of the global BPM and IT industries, in addition to the growth rate within the global IT-BPM segment:
Relative Growth Rate and Size of the Global BPM and IT industries
(Source: NASSCOM Strategic Review 2014) Indian BPO Industry
Outsourcing of business processes is increasingly involving offshoring and India has emerged as one of the leading destinations for such outsourcing. In the mid-1990s, a limited number of multinational corporations such as General Electric Capital Services, HSBC, American Express and British Airways established captive wholly- owned BPO units in India to perform financial and administrative functions. Offshore BPO growth only started accelerating significantly from 2000 onwards with the emergence of third-party Indian service providers offering BPO services to external customers, both domestic and foreign (Source: U.S. International Trade Commission, 2006: http://www.usitc.gov/publications/332/working_papers/EC200601A.pdf). This development was followed by a shift in focus from low-skill, routine activities outsourcing in areas such as telemarketing and
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client service to higher-skilled and more sophisticated business processes such as information technology services, insurance claims administration, business consulting and market research analysis This shift in focus toward integrated, high value-added services has given rise to an India-based offshore industry capable of providing an expanded scope of complex services to clients (Source: U.S. International Trade Commission, 2006: http://www.usitc.gov/publications/332/working_papers/EC200601A.pdf) .
According to the NASSCOM Strategic Review 2014, the Indian offshore outsourcing industry is estimated to reach US$ 86 billion in 2014, indicating a year-on-year growth of approximately 13%. In addition, India presently accounts for over half of the global offshoring market with its share growing nearly 1.3 times in the last five years to 55% of the global offshoring market in 2013. The same report also anticipates that India will retain its position as the most favored offshore BPO destination for the foreseeable future.
The Indian IT-BPM segment has sustained a robust growth trajectory, and the NASSCOM Strategic Review 2014 reports that export revenue for Financial Year 2015 is projected to grow by 13-15% to reach US$ 97-99 billion. The following table shows revenues of the Indian BPO sector from offshore outsourcing and domestic outsourcing in Financial Years 2009-14:
(US$ FY2009 FY2010 FY2011 FY2012 FY2013 FY2014E million) Exports Domestic Exports Domestic Exports Domestic Exports Domestic Exports Domestic Exports Domestic IT 26,700 6,700 28,226 9,070 34,541 11,004 41,139 12,171 45,416 12,181 51,917 12,040 Services 1 BPM 11,699 1,932 12,401 2,304 14,172 2,791 15,915 3,068 17,879 3,220 19,923 3,244 Software 8,700 2,702 9,063 2,960 10,322 3,495 11,730 3,721 12,764 3,774 14,145 3,721 Products and ER&D 1,2 Hardware 395 9,046 395 9,746 395 11,732 415 12,710 440 12,835 440 12,623 TOTAL 47,493 20,380 50,086 24,080 59,430 29,022 69,198 31,670 76,499 32,010 86,425 31,628 Notes: 1. Offshore Software Product Development (OSPD), which was earlier clubbed with software products and ER&D, has now been re-classified under IT services. As such, these numbers will not match with those published earlier 2. Exports = Software Products (comprising Sale of own or resale of Software products + Packaged software) + Engineering R&D 3. Domestic = Sale of own or resale of Software products + Packaged software; Engineering Services is included under IT Services for the domestic market 4. E: Estimate (Source: NASSCOM Strategic Review 2014)
Offshore BPO is typically a long-term strategic commitment for businesses. While many businesses outsource numerous routine labor-intensive service tasks, outsourced business processes can also be complex and connected to core business competencies. These processes require BPO service providers to perform sophisticated tasks involving a high degree of customization and, in many cases, a multi-stage offshore transfer program. High BPO switching costs to migrate these processes back to the source locations or to switch BPO service provider can make a business more inclined to stay in a relationship with a specific BPO service provider, even if not entirely satisfied. As a result, once an offshore BPO service provider gains the confidence of a customer, the resulting business relationship is often sticky, that is, characterized by long-term contracts with predictable annual revenue during such contract period .
Given the long-term, strategic nature of these engagements, Indian BPO service providers are ramping up their capabilities to meet continued strong and increasingly diverse demand. Today, the IT-BPM sector is one of the largest organized private sector employers in India. According to the NASSCOM Strategic Review 2014, the IT-BPM industry employed approximately 3 million professionals directly in Financial Year 2013, a year-on- year growth of close to 6%. To leverage the high growth potential, BPO service providers are also working to strengthen customer relationships, consolidate their industry experience and expand geographically. There are several key factors contributing to the growth of India's market share in global outsourcing, including the following.
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Cost Competitiveness . Labor costs overshadow all other cost components of typical IT, BPO and call center operations. The wage gap between high-cost countries and popular offshoring locations has remained significant over time and is unlikely to close anytime soon. Moreover, this trend is likely to be supported by the strengthening of some foreign exchanges, resulting in a preponderance of outbound traffic in the services sector. The NASSCOM Strategic Review 2014 identifies India as the world’s most cost-competitive outsourcing destination, with certain cities in India offering savings of eight to ten times over source destinations and 30- 50% relative to other low-cost destinations, such as the Philippines, China and Mexico.
Abundant Skilled Resources . India has a large and highly skilled English-speaking labor pool and is expected to have one of the largest working age populations by 2020. According to the NASSCOM Strategic Review 2014, approximately 5.5 million students are expected to graduate from Indian universities in Financial Year 2013-14 alone, including approximately 868,000 graduates with technical degrees.
Service Delivery Maturity . India is the most mature BPO service delivery market, with a highly rationalized and competent provider base. With 25 years of outsourcing experience and an established reputation, Indian service providers have gained significant domain knowledge to understand business processes and their clients' business needs.
Capability to Provide High-Quality End-to-End Services . India has established a scalable infrastructure to increase depth and breadth of service offerings and provide a one-stop solution in an environment where businesses are increasingly reducing the number of technology services vendors that they are using. According to the NASSCOM Strategic Review 2014, management efforts towards operational efficiencies to curb wage inflation have resulted in higher revenues with fewer employees. As a result, there has been a visible growth of approximately 1.2 times in revenue per employee and 1.1 times in profit per employee in the last five years.
Key Industry Verticals
A number of BPO service providers have restructured themselves around verticals, concentrating on functional services in specific industry domains such as healthcare, financial services and telecommunication so as to develop and deliver end-to-end services with a view to meeting customer needs, creating products aimed at growing emerging markets and creating a substantial revenue impact for them. These verticalized business units act as a source of innovation and development, enabling BPO service providers to provide new service functions (Source: NASSCOM Strategic Review 2014).
Firstsource is engaged primarily in three key verticals namely BSFI, T&M and Healthcare, as discussed below.
Banking, Financial Services and Insurance
The global BFSI market, with an estimated market size of US$ 150 billion by 2020, represents a mature and large BPO market opportunity. The BFSI market can be divided into two main categories:
• Established BPO markets in areas such as payment processing, mortgage processing, and core bank administration; and
• Emerging BPO markets covering procurement, risk management, compliance, and an increasing number of analytics roles.
Telecommunications & Media
While the global market for the T&M market is pegged at US$ 30 billion by 2020, the growth rate in this market is considerably more moderate than those of other emerging verticals. According to the NASSCOM Strategic Review 2014, this vertical is forecasted to account for US$ 15 billion in Financial Year 2014, a growth of approximately 9% year-on-year from US$ 14 billion in Financial Year 2013. The T&M market has seen radical changes in the structure and breadth of services over the past decade. As smart digital devices converge on cloud platforms, customer support channels will become more and more interconnected. Disparate legacy systems complicate the challenge by making a single view of the customer difficult. There is pressure on businesses to reduce customer effort, reduce the cost-to-serve and improve customer experience.
A trend that is increasingly finding acceptance among businesses and BPO service providers is the multi- channel user experience. A Contact Center Satisfaction Index 2012 report by the CFI Group estimates that
91 contact channels other than telephone, such as email, web self-service, chat and other online methods, now account for more than 30% of customer service interactions
Offering multi-channel customer service provides immense cost benefits. According to Forrester Research, web chat requires half the support cost of a phone call. Web self-service incurs very minimal cost (Source: Selecting The Best Chat Strategy, Forrester Research, 2009) . Integration of web chat with other channels such as social media, SMS/text, mobile apps, video and email, with real-time analytics, and natural language support are expected to eventually enable chat to reach a wider customer base (Source: Enabling Successful Social Media Customer Care - Understanding Social Media and Operationalizing it for the Contact Center, Frost and Sullivan, 2012 . Accordingly, it is now critical for customer management services to provide services that enable customers to interact on their channel of choice.
Healthcare
The healthcare vertical is categorized into three segments:
• Payer outsourcing represented by healthcare insurance companies;
• Provider outsourcing represented by hospitals and physician groups; and
• Pharmaceutical outsourcing.
Each segment is further sub-segmented on the basis of services provided.
Payer outsourcing consists of claims processing, human resource services, member services/customer care, and finance and accounts.
Provider outsourcing includes medical billing, medical coding, medical transcription, and finance and accounts. Pharmaceutical outsourcing comprises clinical research organizations, contract manufacturing organizations and non-clinical services.
Within the healthcare vertical, Fistsource serves the payer market and the provider market. Both these segments provide opportunities for growth as payers and providers are looking at outsourcing as a viable option in order to be competitive in the business. Factors such as the rising cost of healthcare, reduced availability of labor, and quality of work provided by the vendors are some of the factors driving the outsourcing of healthcare. Healthcare reforms introduced by the U.S. Government are also driving the healthcare outsourcing market, with the Patient Protection and Affordable Care Act, 2010 (often referred to as " Obamacare "), bringing health insurance marketplaces into operation and pressuring payers to focus on member services and consumer interactions, which increases the need for contact centers to field inquiries and analytics to cut costs and boost revenues.
Under the framework of the Patient Protection and Affordable Care Act, 2010, the creation of health insurance exchanges in each state will offer a marketplace to compare policies and also create IT-BPM opportunities. These changes aim to increase the quality and affordability of healthcare, reduce the number of uninsured through public and private coverage and reduce the cost of healthcare. This could create spending opportunities in IT implementation and support for electronic health records, and, in the BPM industry, to reduce costs, raise member enrolments, billings, claims administration and data analytics services to support fact-based decision- making throughout the healthcare system.
Future Outlook of IT-BPO Industry
There is significant headroom to tap into the addressable market opportunity from exports of outsourcing services and from serving the domestic market. According to the NASSCOM Strategic Review 2014, by 2020, the IT-BPO industry can become a strategic growth engine for India with an estimated size of US$ 360-375 billion, representing approximately 10% of India’s GDP in 2020. A bottom-up analysis also shows a total export BPO market opportunity of US$ 175 billion by 2020. The Indian domestic BPO market provides an additional US$ 50 billion opportunity for the industry by 2020.
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While the global IT-BPO market offers a tremendous opportunity to BPO service providers in India, according to the NASSCOM Strategic Review 2014, it is likely to go through a paradigm shift across several parameters in the future as further detailed below.
Markets . Growth will be driven by new markets. While developed markets constitute the largest share of IT spend, emerging markets are increasingly spearheading growth as a large consumer base becomes more tech- savvy and enterprises adopt IT solutions to improve their global competitiveness. The United States continues to provide a significant market opportunity for the Indian BPO industry, with export revenue touching US$ 52 billion in Financial Year 2014, the BPO market share being at 62%. However, BPO service providers will likely look to exploit opportunities in the United Kingdom, Continental Europe and Asia Pacific more and more to reduce their geographic dependency and spread currency risk. English language-based business processes emerging from these geographies represent a market opportunity of US$ 45-75 billion in 2012.
Customers. In the future, customers may demand BPO services that go beyond just cost. As technology creates virtual supply chains, customers may require a seamless experience across time zones and geographies. The increasing demand for innovation will exert pressure on BPO service providers to achieve an end-to-end transformation to gain efficiency across all verticals.
Service Offerings. Offerings that are high-end, and deeply embedded in customer value chains may eventually emerge. Services and delivery may not be dependent on location, leading to new opportunities such as design services in manufacturing. Moreover, offerings may shift from piecemeal, technology-centric applications to a range of integrated solutions and higher-end services, spanning new service lines. While back-office processes are expected to remain the largest opportunity areas in the next few years, BPO service providers may eventually expand their offerings to include middle-office and front-office services, which together represented an opportunity in excess of US$ 100 billion as of 2012.
Labor Pool . Government pressures to create local jobs and the need for local knowledge are likely to alter the employee mix, resulting in a higher proportion of non-Indians with multilingual and localized capabilities. There could be a much greater focus on ongoing development of specialized skills and capabilities.
Retail Industry
Overview
The Indian retail sector has undergone rapid transformation over the past few years by setting scalable and profitable retail models across various categories and formats. Traditional, unorganized retail spaces are making way for department stores, hypermarkets, supermarkets and specialty stores. Modern malls now provide shopping, entertainment and food under a single roof. According to CRISIL Research, the overall retail industry in India is estimated to be worth approximately Rs. 31 trillion in 2013-14. The industry grew at 10-11% in 2013- 14, and overall growth is expected to pick up in 2014-15 to be approximately 12% (Source: CRISIL Research, Retailing Annual Review: 2014).
Retailing Format in India
The Indian retail industry today can be divided into unorganized and organized retail segments.
Until the 1990s, low-cost, unorganized retailing such as family-owned small stores with limited merchandise that generally cater to customers within their neighborhood, popularly known as kirana or mom-and-pop stores, stood as the vastly predominant form of business in the Indian retail space. However, organized retail began to emerge with the initiatives undertaken in the 1990s to liberalize India's economy.
Between 1990 and 2005, India saw the emergence of pure-play retailers, and foreign direct investment (" FDI ") inflows became increasingly prevalent in Indian retail, with international brands such as Reebok and Nike entering the market.
From 2005 to the present, domestic and foreign market participants gained a meaningful presence in the organized retail space in India. This development, however, does not necessarily spell the end of kirana stores because kirana entrepreneurs have the traditional know-how and ability to address local needs (Source: CRISIL Research, Retailing Annual Review: 2014). Indeed, an overwhelming proportion of Indian retail markets are unorganized. According to the Indian Ministry of External Affairs, the organized retailing only accounted for
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7% of the total Indian retail market in 2011 (Source: Ministry for External Affairs, Investment and Technology Promotion Division: http://www.indiainbusiness.nic.in/industry-infrastructure/service-sectors/retailing.htm).
Unorganized retailing includes small independent retailers selling goods under traditional formats such as counter stores, kirana stores, street markets, kiosks and vendors (Source: CRISIL Research, Retailing Annual Review: 2014). The operating costs of unorganized retailers is low because unlike organized retailers, unorganized retailers are not normally subject to tax (Source: Ministry for External Affairs, Investment and Technology Promotion Division: http://www.indiainbusiness.nic.in/industry-infrastructure/service- sectors/retailing.htm). However, unorganized retailers have experienced a decline in their share of business and margin after the entry of large organized retailers in recent years. This trend is likely to continue in the foreseeable future, with the share of organized retail projected to reach 20% of total retail by 2020 (Source: Ministry for External Affairs, Investment and Technology Promotion Division: http://www.indiainbusiness.nic.in/industry-infrastructure/service-sectors/retailing.htm).
Although unorganized retailing poses a significant hurdle for organized retailing, organized retailing is generally poised for growth following the further opening up of FDI in retail and strong demographic fundamentals, including rising population, rapid urbanization and a growing middle-income group. (Source: Ernst & Young, 2014 EY Pulse of Indian Retail Market March 2014: http://www.rai.net.in/cfo/presentation/E&Y_Presentation.pdf) . CRISIL Research.subdivides the organized retail sector into the following distinct formats (Source: CRISIL Research, Retailing Annual Review: 2014):
Convenience stores. Small self-service format retail stores provide a limited range of merchandise in crowded urban areas. Store area is generally limited to an average 1,000 to 2,000 square feet.
Specialty stores . Focus on a specific product range, with one, or many, brands offered under the same roof. Store space is usually between 1,000 and 5,000 square feet.
Supermarkets. Large self-service stores providing consumers with a wider range of food and household merchandise than convenience stores. Supermarkets primarily cater to residential areas, but are increasingly found in shopping malls. Store area is usually between 2,000 and 10,000 square feet.
Hypermarkets. Larger stores offering a wider range of products than supermarkets, including apparel, electronics, household items and furniture, in addition to food. Store area is usually between 75,000 and 150,000 square feet or more.
Cash and Carry. Stores stocking a wide array of brands and private labels, including food and grocery (" F&G "), apparel, household appliances and household items available at wholesale prices. Store space is usually between 85,000 and 125,000 square feet.
Department Stores. Department stores have a wide variety of product categories under one roof. These are organized into different departments, including clothing, home decor, furniture, appliances, toys, accessories and cosmetics.
Trends in Organized Retail in India
In the 2014 EY Pulse of Indian Retail Market, Ernst & Young estimated the market for the Indian retail sector to be worth US$ 520 billion. The sector is likely to grow at a compounded annual growth rate (" CAGR ") of 13% until 2018, with the market being worth US$ 950 billion by then. Growth prospects are likely to be driven by macroeconomic factors, such as GDP growth and inflation, with growth in disposable income affecting consumer spending. Since 2011-12, slow GDP growth has significantly reduced growth in the overall Indian retailing industry, owing to weak demand and caution in store expansion (Source: CRISIL Research, Retailing Annual Review: 2014) .
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The following graph demonstrates the correlation between GDP growth and growth in overall retailing:
GDP Growth and Growth in Overall Retailing
(Source: CRISIL Research, Retailing Annual Review: 2014)
CRISIL Research anticipates growth in the organized retailing industry to recover marginally to approximately 13-14% in 2014-15, with further improvements thereafter. Organized retail penetration (" ORP ") is likely to reach 10% by 2018-19 from 7.9% in 2013-14, driven by the increasing affluence of urban consumers and the growing preference for branded products in India (Source: CRISIL Research, Retailing Annual Review: 2014).
The following graph illustrates the long-term prospects for organized retailing:
Long-Term Prospects for Organized Retailing
(Source: CRISIL Research, Retailing Annual Review: 2014)
On the supply side, growth in relation to organized retailing can be supported by store expansions by existing retailers, and the entry of new retailers. Over the next five years, retail mall space is expected to increase at 10- 10.5% CAGR (Source: CRISIL Research, Retailing Annual Review: 2014). The organized retail market is expected to grow by 15-17% during 2014-15 and 2015-16, with food and groceries accounting for the largest segment.
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The following table depicts growth expectations in the organized retail market:
Growth Expectations in the Organized Retail Market
(Source: CRISIL Research, Retailing Annual Review: 2014)
Key Growth Drivers
There are a number of key growth drivers within the Indian retail industry.
Increasing urbanization. India has experienced rapid urbanization over the last decade. Migration towards urban centers has fueled economic development and helped drive growth in the Indian retail market. Urbanization is not only driving growth in India's largest "tier I" cities such as New Delhi, Kolkata and Mumbai but also in its "tier II and III" cities, such as Nagpur, Ludhiana, Vadodara, Aurangabad and Kochi. As a result, these cities are becoming centers of consumption, and organized retailers are increasingly focusing on opening stores in such locations, helping to drive the Indian retail sector into previously largely untapped and underpenetrated markets (Source: CRISIL Research, Retailing Annual Review: 2014).
Changing Demographics . Greater urbanization has in part led to a decline in household size. With a shift in family structure, large families have to a certain degree fragmented into nuclear families, driven by a need for high convenience to fit around their urban lifestyles, such as inflexible and long working hours. Nuclear families have often shown a preference for organized retail and are more willing and able to spend money, consequently boosting India's retail industry (Source: CRISIL Research, Retailing Annual Review: 2014).
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The following chart depicts a decline in the size of households:
Decline in the Size of Households
(Source: Census 2011, CRISIL Research, published in CRISIL Research, Retailing Annual Review: 2014)
Favorable Working Age Population. People within the 15-54 working age bracket are the largest retail spenders. As shown by the 2011 Indian Census, more than 50% of India's total population falls within this age bracket. Until 2020, India will be experiencing a period of "demographic bonus", where the growth rate of the working age population will exceed that of the total population (Source: Ernst & Young, 2009: http://www.cifti.org/Reports/Flavors%20of%20Incredible%20India%2009.pdf) .
The following chart depicts the various age groups of India's population:
Age Groups of India's Population
(Source: Census 2011, CRISIL Research, published in CRISIL Research, Retailing Annual Review: 2014)
United Nations data projects that India will surpass China and become the most populous country in the world by 2028, with approximately 1.4 billion people (Source: United Nations, "The World Population Prospects – The 2012 Revision": http://esa.un.org/wpp/Excel-Data/population.htm). Approximately 64% and 13% of India’s population is expected to be in the 15-59 and 60 years plus age brackets, respectively, by 2026. India's large pool of young workers with a propensity to spend, coupled with rising literacy rates, is likely to drive the increase in average disposable household income, and thereby provide a significant market opportunity for retailers (Source: CRISIL Research, Retailing Annual Review: 2014)
The liberalization of FDI Policy. The retail industry has been boosted significantly by initiatives from the Central Government. Changes in India's FDI policy now allow 100% FDI in single-brand retail trading
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(" SBRT "), which are single brand stores retailing items bearing a single brand name, and 51% FDI in multi- brand retail trading (" MBRT "), which includes supermarkets and other retail stores where multi-brand items are sold under a single roof. By increasing the cap on SBRT to 100%, the market is now open to further foreign investment and related merger and acquisition activity. Foreign companies already in joint ventures with Indian partners may wish to increase their ownership stakes. Alternatively, foreign companies with existing licenses or franchises can now set up stores under 100% ownership and acquire the existing businesses of such licensees or franchisees in India. Although the MBRT cap has not been increased to the same extent (currently at 51%) as the SBRT has, it nonetheless facilitates FDI inflows by providing greater opportunity for foreign multinational corporations to establish their business presence in India.
Consumer behavior and spending habits. India has seen a significant change in consumer behavior and spending habits in recent years that have helped drive retail sector growth. Underlying these changes has been greater urbanization, coupled with strong GDP performance, capital market growth and the emergence of new industries that are boosting income levels and the consumption of durables. Similarly, there is a sizable Indian population that travels or works abroad, which is creating an awareness of modern organized shopping formats and also leading to a change in consumer expectations from the providers of shopping options in India.
Growing preference for branded products and higher aspirations. The growth of the Indian economy, and a burgeoning middle class, is fuelling an increased demand for branded products and a shift from the traditional focus Indian consumers have had on saving. Moreover, Indian consumers are becoming increasingly loyal to particular brands, with 58% of shoppers in India emphasizing the importance of access to branded merchandise. This trend is supported by an increasing base of high net worth households, resulting in greater demand for luxury goods.
Challenges
There are a number of challenges facing the Indian retail industry as further detailed below.
A lack of proper infrastructure, supply chains and a logistics network. In the retail industry, a strong supply chain is considered the backbone of a strong business (Source: CRISIL Research, Retailing Annual Review: 2014) . However, Indian retailers often face poor infrastructure with few organized supply chains. India is a large and geographically fragmented country, with still developing state infrastructure systems.
The ability to reach all Indians in what is a large area is key for retailers wanting to succeed in organized retail. However, issues such as poor roads, communication and infrastructure act as bottlenecks for organized retailers. A key to building the Indian retail sector is therefore the ability to supply the right merchandise in the right condition within the right timeframe. With an increasing emphasis on customer and brand experience, a reliable logistic network is necessary to support every phase of retail supply chain in order to satisfy customer expectations.
A lack of required retail space . A fundamental aspect of organized retail is location. A lack of readily available quality areas, coupled with high rentals, is a major constraint. A corollary of the high cost of retail space is unavailable quality retail space. Recent trends suggest that retailers are moving out from prominent malls in tier I cities and expanding their presence in the tier II and tier III cities.
A shortage of trained human capital. The shortage in quality staff, both on the shop floor and at managerial levels, is a major concern for organized Indian retail. While the lack of skilled manpower is a challenge, it is important to ensure continuous learning opportunities for existing staff. As a result, many large domestic and international retailers have setup in-house training programs to teach, train and coach the retail workforce. However, as India's economic growth continues, alongside the rise of increasingly knowledgeable consumers and technical forms of retail, India will need to address the problems it faces in respect of the lack of quality staff in the retail sector.
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Key Categories Driving Retail Growth
The following table shows the share of categories in overall and organized retail:
Categories in Overall and Organized Retail
(Source: CRISIL Research, Retailing Annual Review: 2014)
Food and grocery. F&G, with a total retail market size of Rs. 19,656 billion, includes the retailing of fresh fruits and vegetables, dairy products, poultry and seafood, staples, cereals, processed foods, ready-to-eat meals, spices and other edible products. F&G is estimated to have the largest share of all product categories, accounting for approximately 64% of overall retail consumption. Despite its large market share, ORP is the lowest in this category at approximately 2% as this category has been dominated by unorganized retailers. The significant potential for organized presence makes this category very attractive for organized retailers.
Apparel and clothing. Apparel and clothing has a total retail market size of Rs. 3,526 billion. Organized retailers have an established presence in this category, which accounts for 25-30% of organized retailing. Margins are the highest in this category with an ORP of approximately 19%. Although retailing of menswear has developed at a reasonable pace over the years, organized retailers are now looking for opportunities in women's and children's clothing lines.
Consumer durables. The consumer durables category has a total retail market size of Rs. 1,398 billion. The largest contributing sector among durables is white goods such as air conditioners, refrigerators and washing machines. According to the Associated Chambers of Commerce & Industry of India, the demand for consumer durables is expected to reach US$ 8.4 billion by 2015. Organized retailers have a strong presence in this category, with a market share of 16% for organized retailing. The attractiveness of the consumer durables category has been increasing due to the high growth experienced in residential construction, accessible financing opportunities, increasing levels of disposable income, changing lifestyles and growing trend towards nuclear families.
Jewelry and fashion accessories. This category has a total retail market size of Rs. 3,293 billion and accounts for a 28% share of organized retailing, as most of the sales of jewelry and fashion accessories are made through unorganized retailers. Fashion accessories, which include trinkets and small gifts, are impulse purchase items, while the share of organized jewelry is quite small. Organized retailers offer a wide choice of designs and an assurance of quality to attract customers.
Furniture, home decor and furnishings. The furniture, home decor and furnishings category has the total retail market size of Rs. 1,442 billion. Traditionally, furniture made by carpenters to customized requirements dominated the Indian market. However, in recent years, the popularity of ready-made furniture has been increasingly gaining ground. Although this category is relatively new for organized retailers, with a modest share of 3% of organized retailing market share, the housing boom has widened the market further, paving the way for retailers using hypermarket formats.
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Footwear. Footwear has a total retail market size of Rs. 711 billion. This category was initially positioned as a value purchase. However, with changing consumer attitudes, footwear is now changing into a lifestyle purchase. As a result, ORP in the footwear category has been increasing gradually. CRISIL Research estimates that the ORP is at approximately 17% in 2013-14.
Health and pharmaceuticals. The share of organized retail for pharmaceutical products is estimated at Rs. 36 billion, compared with the overall retail market size of Rs. 300 billion. This category is slowly gaining prominence in the organized retailing segment. Changing disease profiles, growing health awareness, preventative approaches to healthcare and longer life expectancy are the main drivers in this category.
Books and music retailing. The share of the total retail market for book and music is 1% or Rs. 181 billion, with an ORP of 8%. Most of the ORP is concentrated in urban areas.
Future Outlook
While the retail sector in India is experiencing exponential growth, its organized retail sector is still in a nascent stage. The market share of organized retail is expected to grow to 20% by 2020 (Source: Ministry for External Affairs, Investment and Technology Promotion Division: http://www.indiainbusiness.nic.in/industry- infrastructure/service-sectors/retailing.htm). The high growth projected in organized retail will be driven by increasing urbanization, greater per capita income, changing consumer attitudes (especially the increasing brand awareness) and the growth of the working age population. The Indian retailing market is, therefore, likely to continue providing a growth opportunity for retailers, both organized and unorganized, in the foreseeable future.
DISCLAIMER - IMPORTANT NOTICE
CRISIL Research, a division of CRISIL Limited (" CRISIL "), has taken due care and caution in preparing the reports referred herein based on the information obtained by CRISIL from sources which it considers reliable. CRISIL does not guarantee the accuracy, adequacy or completeness of such data or reports, and is not responsible for any errors or omissions or for the results obtained from the use of such data or reports. CRISIL's reports are not a recommendation to invest or disinvest in any company covered therein. CRISIL has no liability whatsoever to the subscribers, users, transmitters or distributors of its reports. CRISIL operates independently of, and does not have access to information obtained by CRISIL’s Ratings Division or CRISIL Risk and Infrastructure Solutions Ltd (" CRIS "), which may, in their regular operations, obtain information of a confidential nature. The views expressed in the report are that of CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No part of the report may be published or reproduced in any form without CRISIL’s prior written approval.
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BUSINESS
The following information is qualified in its entirety, and should be read together with, the more detailed financial and other information included in this Preliminary Placement Document, including the information contained in the section titled “Risk Factors,” beginning on page 39 of this Preliminary Placement Document.
Overview
We operate a diverse set of businesses consisting of (i) power generation and distribution, (ii) business process management (" BPM "), (iii) retail; and (iv) property development. Our power, retail and property development operations are located in India and its BPM business has operations both domestically and internationally.
The Company operates a power utility engaged in the generation and distribution of electricity across 567 square kilometres of licensed area in Kolkata and Howrah and in the adjoining areas, West Bengal. The Company's license expires on September 2, 2038. As at March 31, 2014, the Company supplied electricity to approximately 2.8 million customers, including domestic, industrial and commercial users. In the year ended March 31, 2014, 82% of the units delivered to the Company's distribution system was electricity generated from the Company's own power plants in West Bengal and 18% was electricity purchased from third parties.
As of September 30, 2014, we own and operate five coal-based power plants with an aggregate capacity of 1,825 MW in the State of West Bengal and State of Maharashtra. We also own and operate a 24 MW wind power plant in the State of Rajasthan. We are in the process of developing a 600 MW coal-based power project in West Bengal, a 26 MW wind power project in the State of Gujarat and 90 MW and 45 MW hydro electric power projects in the East Kameng district of Arunachal Pradesh.
The Company owns and operates the distribution network in the cities of Kolkata and Howrah and in the adjoining areas, West Bengal through which it supplies electricity to consumers. The Company's total revenues from its power generation and distribution business for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.18.9 billion and Rs.56.1 billion, Rs.54.1 billion and Rs.47.8 billion, respectively. In the three months ended June 30, 2014 and the years ended March 31, 2014, 2013 and 2012, the Company's profit after income tax on a standalone basis was Rs.1,622.8 million, Rs. 6,518.9 million, Rs. 6,185.0 million and Rs. 5,543.1 million, respectively.
In addition to the electricity generation and distribution business, we have expanded into other businesses over time.
In 2012, the Company, through its wholly owned subsidiary Spen Liq Pvt. Ltd., acquired through primary issuance and secondary purchase, 56.86% of the issued share capital of Firstsource Solutions Ltd. (" FSL "), which operates an information technology and BPM business in the areas of customer management, transaction processing and collection service to Fortune 500 and FTSE 100 companies in the US and UK that operate in the telecom and media (" T&M ") and banking, financial services and insurance industries (" BFSI "). As of September 30, 2014, FSL had 26,923 employees supporting clients from 46 services facilities located in the United States, United Kingdom, Ireland, the Philippines, India and Sri Lanka. FSL's consolidated gross revenues for the three months ended June 30, 2014 and the year ended March 31, 2014, and for the period December 5, 2012 to March 31, 2013 was Rs.7.55 billion and Rs. 31.08 billion and Rs.9.18 billion respectively and its profit after income tax on a consolidated basis for the three months ended June 30, 2014 and for the year ended March 31, 2014 and for the period December 5, 2012 to March 31,2013 was Rs.0.53 billion, Rs.1.93 billion and Rs.0.50 billion respectively.
The Company's wholly-owned subsidiary, Spencer's Retail Limited (" SRL "), operates 125 retail stores across India, including 33 hypermarkets as of September 30, 2014. These stores cater to family needs with products ranging from groceries, home and personal care products, apparel and accessories and consumer durables and lifestyle products. SRL expects to open eight to ten hypermarkets during the course of 2015. As of September 30, 2014, SRL owned and operated 31 Au Bon Pain coffee and casual dining establishments through its subsidiary, Au Bon Pain Cafe India Limited, the master franchisee of Au Bon Pain in India. SRL's Au Bon Pain outlets are located in Bengaluru, Kolkata and NCR with additional outlets planned in NCR and West Bengal during the course of 2015. SRL's total revenues on a standalone basis for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 were Rs.4.16 billion and Rs. 14.58 billion, Rs.13.47 billion and Rs.12.06 billion, respectively and its loss after tax for the three months ended June 30, 2014 and for
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the years ended March 31, 2014, 2013 and 2012 was Rs.0.36 billion, Rs.1.66 billion, Rs.2.09 billion and Rs.2.55 billion, respectively.
We have also developed and operate a luxury mall in the City of Kolkata, the "Quest", through its wholly owned subsidiary CESC Properties Limited (“ CPL ”). The Quest houses shops, retail outlets, an entertainment zone, multiplex, food court and fine dining in eight floors along with a multi-level car park. The Quest was inaugurated on September 30, 2013 and houses volume retailers such as Spencer's as well as international luxury labels.
Our gross revenues for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 were Rs.31,693.8 million and Rs.10,2842.0 million, Rs.77,003.8 million and Rs.60,239.8 million, respectively and its consolidated profits after income tax for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.650.3 million, Rs. 4,916.4 million, Rs. 4,593.8 million and Rs. 2,458.8 million, respectively.
Strengths and Strategies
We operate a diverse set of businesses across several industries and each business presents its own unique set of strengths and strategies. The Company seeks to leverage off of its broad management expertise to optimize its portfolio of assets across businesses. Set forth below are the strengths and strategies for the Company's principal business lines.
Strengths and Strategy for the Power Generation and Distribution Business
Strengths
Sole licensee for Kolkata and Howrah with captive customer base
The Company owns and operates a power utility and is currently the sole power utility operating in its license area of 567 sq km in Kolkata and Howrah, West Bengal. The Company owns all of its generating units and its distribution network, and therefore the Company's operating costs do not include charges payable to other companies for the use of their networks, with the exception of networks used for the sales outside its license area, and in some cases purchases of electricity from third party power generators. In the year ended March 31, 2014, 82% of the units the Company delivered to its distribution system was from the Company's own power plants in West Bengal and the remaining 18% was from third parties. The Company achieved this with a PLF of 89.3% for three power plants (Budge Budge, Titagarh and Southern) coupled with a reduction in T&D Losses to 11.8% in the year ended March 31, 2014. Limited reliance on third parties for electricity enables the Company to provide consumers with a reliable supply of electricity and reduces the Company's cost base as purchasing electricity from third parties is generally more costly than its own generation cost. In addition, the Company's distribution system has a largely depreciated asset base which also enables the Company to operate a cost-efficient distribution network.
Wide and diverse customer base with comprehensive billing and collection systems
As at March 31, 2014, the Company sells electricity to approximately 2.8 million consumers, including domestic, industrial and commercial users, and no single consumer accounted for more than 2% of the Company's revenues from the power generation and distribution business. As a result of the Company's licensed area covering Kolkata, Howrah and the adjoining areas, the Company generally supplies electricity to consumers in urban areas, which the Company believes are subject to lower payment defaults than consumers in non-urban areas. In addition, the Company's billing procedure is fully computerized and handled on a centralized basis and is complimented by the Company's six regional offices to cater to various operational and commercial requirements. The Company operates a customized billing system using Oracle RDBMS, a database management system, which receives collection updates from point-of-sale machines based in the Company's 40 cash offices. This gives customers numerous options to pay their bills such as at the Company's cash offices, over the internet or using credit/debit cards. The Company's level of bad debt is low, at approximately 0.5% of total operating income in the year ended March 31, 2014, largely due to the maintenance of security deposits of an amount equal to the cost of three months electricity consumption, together with monthly meter readings by the Company's own personnel and comprehensive billing and collection systems.
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Proven track record of successfully developing and operating power projects in India
We have a proven track record of successfully developing and operating coal-based and renewable power projects in India. As of September 30, 2014, we own and operate five coal-based power plants with an aggregate capacity of 1,825 MW in the State of West Bengal and State of Maharashtra. We also own and operate a 24 MW wind power plant in the State of Rajasthan. We are in the process of developing a 600 MW coal-based power project in West Bengal, a 26 MW wind power project in the State of Gujarat and a 90 MW and a 45 MW hydroelectric power project both located in the East Kameng district of Arunachal Pradesh.
Strategy
Acquisition and development of power plants and coal mines
The Indian power sector is going through a period of consolidation, and the Company believes various players will look to dispose of assets in order to trim their balance sheets and reduce borrowing costs. This industry trend coupled with the shortage of generation capacity in India provides the Company with a unique opportunity to acquire power plants that are operating or nearing completion. The Company would selectively seek out suitable opportunities to acquire power plants in India with a view to enhance its operational power plant portfolio. We are also seeking to develop additional greenfield power projects and is currently developing a 600 MW coal-based power project in West Bengal, a 26 MW wind power project in the State of Gujarat and 90 MW and 45 MW hydro electric power projects in the East Kameng district of Arunachal Pradesh. Additionally, the Company is actively seeking to acquire coal blocks in upcoming auctions in India.
Grow power distribution business
The Company seeks to leverage off of its expertise in successfully building and operating a power distribution network by expanding into new geographies in India. The Company aims to opportunistically acquire licenses to operate power distribution networks and further strengthen its transmission network.
Maintain operational efficiencies
The Company has been able to improve its profitability in the period between fiscal year 2012 and fiscal year 2014, despite inflation. This is due to the Company's sustained efforts to improve operating and financial efficiencies, which has kept its tariff competitive. The Company is aware of the competitive issues which may arise from open access and multiple licensing and it has been exploiting various revenue streams in addition to the sale of electricity to help the Company improve profitability. The Company's cost management measures are also aimed at ensuring that there is minimal disallowance of the associated cost by the WBERC. In addition, the Company has taken action to reduce T&D Losses including on-site testing of meters for HT consumers, installation of quality static meters, closer supervision and verification of meter readings and improved billing practises, including computerized billing; installation of capacitors to maintain quality of electricity to consumers; and improvement of the distribution network. These measures have worked toward reducing the Company's T&D Losses and improving overall operational efficiency.
Strengths and Strategy of the Retail Business
Strengths
SRL is one of the leading retail store operators in India and is well positioned to capitalize on future strong growth of the retail industry in India.
SRL is one of the leading retail store operators in India, with the second largest count of hypermarkets and an overall market share of 6% in the food segment as of March 31, 2014 based on AC Nielsen data. Operating one of the first organized retail store chains in India, SRL has enjoyed strong first-mover advantage, which has allowed it to establish a leading position in the retail industry in India. SRL has grown significantly since it commenced operations, expanding its store network from the opening of its first store in June 26, 2001 to 125 stores throughout India as of September 30, 2014 . Given SRL's leading market position in the retail industry in India, SRL is well positioned to take advantage of the significant growth potential of the Indian retail industry.
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Broad merchandise mix anchored by a differentiated offering of fresh foods, proprietary products, private label and in-store services
SRL's merchandising strategy offers customers a vast range of groceries and is increasingly focusing on solutions for its shoppers to enhance and differentiate its offering. In non-food categories such as general merchandise and apparel SRL focuses on categories which are adjacent to food and which complement the grocery trip mission. These categories include but are not limited to kitchenware, appliances and linen. There is also a focus and push to improve customer service inside stores so that the overall experience with the brand is best in the market. One of the key initiatives is to reduce billing time by 50% at check-outs for the Company's customers.
Hub-and-spoke inventory management model
SRL employs a hub-and-spoke inventory management model which allows it to provide products to its stores from a centralized distribution centre which reduces delivery times and need for large inventory stores. In addition, SRL uses state-of-the art inventory management technology to track inventory levels in real-time which allows it to maintain appropriately scaled inventory levels thereby reducing working capital requirements.
Strategy
Focus on "Hyper" store format
SRL's overall strategy is to ensure that it is well-placed to take advantage of the high growth that it expects in the organized retail sector. SRL seeks to capitalize on the confluence of favourable demographics, rising consumer income and the increase in the development of shopping malls and other retail developments in India. To achieve this strategy, SRL intends to increasingly focus on the "Hyper" store format. The "Hyper" store format is a large store format with floor space averaging 23,000 square feet per store. SRL believes that this large store format allows it to provide customers with appropriate products at affordable price ranges, while competing effectively with the unorganized retail players. The Company intends to open eight to ten "Hyper" stores in fiscal year 2015 and up to ten "Hyper" stores in fiscal year 2016.
Increase revenues from sales of non-food items
For the year ended March 31, 2014, sales of food items constituted more than 60% of all sales at SRL stores. SRL is focused on increasing the sales of non-food items at its stores. In this regard it has commenced a private label products business to leverage the strength of the "Spencers" brand in driving sales of these products. SRL is also focused on ensuring that consumers have a wide variety of products and brands for items such as apparel and electronic goods, with a view to increasing consumer spending on such items at its stores.
Strengths and Strategy for FSL
Strengths
Global BPM player with access to multiple service offerings
FSL is among the largest pure play BPM providers, in terms of revenue, in India and the National Association of Software and Services Companies (" NASSCOM ") ranked FSL as the seventh largest business process management provider overall in India for fiscal year 2013. FSL has a strong portfolio of clients across the T&M, BFSI and healthcare industries. The Company believes that FSL's market leadership has positioned it to continue to capture future growth opportunities across the T&M, BFSI and healthcare industries within the BPM industry.
Strategic positioning in target industry sectors and strong customer relationships
FSL has historically targeted the BFSI, T&M and healthcare industries through a combination of organic growth and focused acquisitions. The Company believes that with over 14 years of operations and track record as a BPM company, FSL is strategically positioned to benefit from the attractive growth opportunities in these industries. FSL has long established relationships with several large global companies including 30 Fortune
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Global 500 and FTSE 100 companies. Many of these relationships have strengthened over time, as FSL has obtained repeat work from these clients and gained a greater share of their BPM expenditure.
Diversified delivery model
FSL has established a broad based global delivery model with a total seat capacity of 23,388 as of March 31, 2014 spread across India, the United States, the U.K., Ireland, the Philippines and Sri Lanka. FSL has a delivery infrastructure that is scalable and enables FSL to accommodate volume increases, add new processes, rapidly scale existing processes and meet the demands of new customers. FSL's delivery footprint offers it a number of important business advantages, including an enhanced ability to service clients that demand a multi shore capability, physical proximity to many important clients and an enhanced business continuity capability.
Established platform in the growing US healthcare market
FSL's clients include approximately 700 hospitals in the United States and numerous US health insurers. Recent US healthcare legislation has focused on cost reduction and efficiencies by both hospitals and health insurers. With its proven track record and client base, FSL is well positioned to capture the expected increase in demand in BPM services employed by both healthcare providers and healthcare insurers which are seeking to cut costs and improve operational efficiencies.
Strategy
Continue to grow the BPM business
FSL intends to consolidate its leadership position in the BPM industry by continuing to grow its BPM business. FSL intends to achieve this by increasing income from existing clients and acquiring new clients across the T&M, BFSI and healthcare industries. FSL intends to grow income from existing clients by maintaining and enhancing service quality and process excellence, continuing to invest in account and relationship management teams, expanding service offerings to cover a broad range of services and cross selling various areas of expertise across different industry sectors and geographies. In addition, by leveraging off of its industry expertise, FSL intends to develop bespoke tools and platforms to suit its client's specific needs which FSL expects will differentiate itself in the marketplace. FSL is also looking to grow by acquiring new clients. FSL aims to achieve this by leveraging the strength of its reputation and client base.
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Organization Structure
Set forth below is a simplified organizational structure chart of the Company and its subsidiaries as of September 30, 2014.
CESC LIMITED
RANCHI CESC PAPU PACHI POWER BANTAL INFRASTR CESC CESC SURYA HYDRO HYDRO DISTRIBU NALANDA SPEN LIQ SINGAPO UCTURE PROPERTI PROJECTS SRL VIDYUT POWER POWER TION POWER PVT LTD RE PTE LIMITED ES LTD LTD (100%) LIMITED PROJECT PROJECT COMPANY (100%) (100%) LTD (100%) (100%) (100%) (100%) S LTD. S LTD. LIMITED (100%) (100%) (100%) (100%)
METROM DHARIW AU BON ARK HALDIA AL PAIN GREEN MUSIC ENERGY INFRAST CAFÉ FSL COMMOD WORLD LTD RUCTURE INDIA (56.41%) 2 ITIES (100%) (100%) LTD LTD PVT. LTD (100%) (80%) 1 (100%)
Notes
(1) 20% owned by Varin Narula through JV (2) 15.07% owned by Institutions (3) The Company also owns 50% stake in a joint venture company Mahuagiri Coal Company Private Limited.
The Company's registered office is at CESC House, Chowringhee Square, Kolkata 700 001, India .
The Company's Power Generation and Distribution Business
As of September 30, 2014, we operate five coal-based thermal power plants and one wind power plant. We are also in the process of developing one coal-based thermal power plant, one wind power plant and two hydro power plants. The following table summarizes our operating power plants as well as those power plants that are under construction, development and planning:
Coal-based thermal Wind power plant Hydel power Total Capacity Details power plants (MW) (MW) plant(MW) (MW) Commissioned 1,825 24 - 1,849 Under Construction 600 26 - 626 Under Planning 3,320 - 135 3,455 Total 5,745 50 135 5,930
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The Company's gross revenues from its power generation and distribution business for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.18.9 billion and Rs.56.1 billion, Rs.54.1 billion and Rs.47.8 billion, respectively. In the three months ended June 30, 2014 and the years ended March 31, 2014, 2013 and 2012, the Company's profit after income tax on a standalone basis was Rs.1,622.8 million, Rs. 6,518.9 million, Rs. 6,185.0 million and Rs. 5,543.1 million, respectively.
Commissioned Power Projects
Budge Budge
Budge Budge is a coal-based thermal power generation plant which has a gross capacity of 750 MW. It is located in the district of South 24 Parganas in the State of West Bengal. Budge Budge comprises three power- generating units, the first two having been commissioned during the period 1997-1999 and the third in February 2010. The plant uses pulverised coal fuel as its primary energy source. The coal is sourced from various subsidiaries of Coal India Limited and Sharshatali Coal Block. The power generated by Budge Budge is then supplied to the end consumer within the Company's licensed area. Budge Budge has three 250MW units which collectively generated 5,989 million units (MU) of power in 2013-14. In the same year it had a PLF of 91.2%, whereas the national average PLF for a thermal power plant for 2013-14 was 65.6%. Its availability factor (" PAF ") for the same year was 96.2%. A number of energy-saving measures have recently been undertaken at Budge Budge. Budge Budge has been ISO 9001:2008 certified in respect of Quality Management systems and ISO 14001:2004 certified in respect of Environmental Management Systems.
Southern
Southern is a coal-based thermal power generation plant which has a gross capacity of 135 MW. It is located in the district of Kolkata in the State of West Bengal. Southern was commissioned by the Company in 1990. The plant uses pulverised coal fuel as its primary energy source. The coal is sourced from various subsidiaries of Coal India Limited and Sharshatali Coal Block. The power is supplied to end users within the Company's licensed area. The plant, which comprises two units of 67.5 MW each, generated 1,040 MU of power in 2013- 14. It achieved a PLF of 87.9%, outperforming the national average of 65.6% in 2013-14, and had a PAF of 95.6%. Southern has adopted various energy saving initiatives to improve its efficiency. These include regular energy audits and in-house refurbishment/renewal of major energy consuming equipment. In 2013, Southern successfully commissioned a unique, innovative project involving installation of three Micro Hydel generating units, each having capacity of 15 KW, in the circulating water outfall to river Hoogly. Southern has been ISO 9001:2008 certified in respect of Quality Management systems and ISO 14001:2004 certified in respect of Environmental Management Systems.
Titagarh
Titagarh is a coal-based thermal power generation plant which has a gross capacity of 240 MW. It is located in the district of North 24 Parganas in the State of West Bengal. Titagarh became fully operational in 1983. The plant uses pulverised coal fuel as its primary energy source. The coal is sourced from various subsidiaries of Coal India Limited and Sharshatali Coal Block. Titagarh comprises four units which generate 60 MW each. In 2013-14 it generated 1,776 MU of power, with a PLF of 84.5% compared to the national average of 65.6% and a PAF of 96.6%. Titagarh has conducted various on-site improvements to reduce its energy consumption while maximising its efficiency. Recent energy saving initiatives include thermo-graphic studies of drains/pipelines of boilers and turbines, and examination of boiler feed pump re-circulation. In 2013 the Company began the installation of variable-voltage, variable-frequency (VVVF) controls for ID fans in each of Titagarh's four units. The project was completed in 2014. Titagarh has been ISO 9001:2008 certified in respect of Quality Management systems and ISO 14001:2004 certified in respect of Environmental Management Systems.
New Cossipore
New Cossipore is the oldest of the Company's coal-based thermal power generating plants, which has a gross capacity of 100 MW. It is located at Cossipore in the district of Kolkata, in the state of West Bengal. This plant was commissioned in 1949. The plant's coal is sourced from various subsidiaries of Coal India Limited. The plant generated 125 MU of power in 2013-14, with a PAF of 83.8%. The main purpose of this plant is to provide reliable support to the other more efficient power generating plants during peak hours in order to maintain a consistent power supply to meet demand while maximising on efficiency. In 2013 the Company
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commissioned thermo-graphic studies of the plants drains and pipelines of boilers and turbines, and had the boiler feed pumps checked for re-circulation to ensure the plant was operating at maximum capacity.
Chandrapur
Chandrapur is a coal-based thermal power generation plant which has a gross capacity of 600 MW. It is located in the district of Chandrapur, in the State of Maharashtra. The plant comprises two units which each generate 300 MW. The first unit was commissioned in February 2014, and the second in August 2014. Two transmission lines have been constructed for the plant, one connecting to the state grid and the other to the national grid. This is to ensure flexibility in our ability to supply its customers with power both within and outside the state. A long term power purchase agreement has been secured with TANGEDCO for the supply of 100 MW. While we are in the process of securing other long term power purchasing agreements to utilise the power plant's full production capacity, it has sold power in the short term market. The coal is sourced from various trading houses, e-auction and imports from Indonesia. For additional information regarding fuel supply, see "—Fuel Supply ."
Rajasthan
In 2013 we commissioned our first wind power project in the district of Jaislamer, in the state of Rajasthan. The power station generates 24 MW which is supplied by 12 two MW wind turbines. The project was implemented by Surya Vidyut Limited, a wholly owned subsidiary of the Company. The project has achieved a net capacity utilisation factor comparable to other projects operating in the same area. We have entered into power purchase agreements for 14 MW and 10 MW, respectively.
Projects Under Construction
Haldia
The Haldia power plant is a coal-based thermal power project located in the district of East Medinipur, in the State of West Bengal. The project, which has been fully approved by WBERC, is being executed by Haldia Energy Limited (HEL), a 100% subsidiary of the Company. The plant, once fully commissioned will have a gross capacity of 600 MW.
The project is in the advanced stages of construction and will be commissioned by 2014-15. The plant will comprise of two units, each generating 300 MW. HEL has entered into a Fuel Supply Agreement with Mahanadi Coalfields Limited, a subsidiary of CIL to source the power plant. CESC Ltd, for its license area business has executed a long term power purchase agreement with HEL to buy 100% of the power generated by the plant.
Other Projects under Development and Planning
We are developing a wind power project in the district of Surendranagar, Gujarat. The project, which is expected to be commissioned in 2015, will comprise of 13 two MW wind turbines (gross capacity of 26 MW). The power from this project will be sold to Gujarat Urja Vikas Nigam Limited under a long term power purchase agreement.
We are developing two hydro electric power projects in the East Kameng district of Arunachal Pradesh. The first is the 90 MW Papu hydro electric power project and the second is the 45 MW Pachi hydro power project. Project development activities on both sites are underway, including receiving clearances for surveys and investigations and statutory clearances.
The Company, through its wholly owned subsidiary, Nalanda Power Company Limited, has entered into an agreement with the Bihar State Electricity Board for the development of a 2,000 MW power project in Bhagalpur, Bihar. The projects are in its initial stages and, as of the date of the PPD, no development activity has taken place. Similarly the company has entered into an agreement with Government of Orissa for development of 1320 MW power projects in Dhenkanal, Orissa.
Electricity Distribution/Supply License
The Company holds a license originally granted under the erstwhile Indian Electricity Act, 1910 (“ erstwhile Act ”) to supply electricity in the cities of Kolkata and Howrah and in the adjoining areas. Our Company is a
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deemed distribution licensee as per Schedule 1 of the West Bengal Electricity Regulatory Commission (Licensing and Conditions of Licence) Regulations, 2013 ( “WBERC Regulations” ). WBERC Regulations mandate that deemed licensees such as our Company which have been granted a license/sanction by the state government under the erstwhile Act and if such a license/sanction does not stipulate any period of validity then such a license shall be deemed to be valid for 25 years from the date of the WBERC Regulations and accordingly our license expires on September 2, 2038.The license is not exclusive, and the terms may be amended or the license may be revoked on not less than three months' prior written notice by WBERC in certain circumstances, including a wilful and prolonged default under the Electricity Act, 2003, or if, in the opinion of WBERC, the Company's financial position is such that it is unable to discharge fully and efficiently the duties imposed on it by the license. In such circumstances, WBERC may require the Company to sell its assets to a purchaser whose application has been accepted by WBERC in accordance with the provisions of the Electricity Act, 2003. In the event such sale does not occur, the Company may be required to pay for the removal of its assets from public land.
Supply of Fuel
Coal is the primary fuel used by the Company in the generation of electricity. The Company maintains coal stockpiles at its generating stations of an amount equivalent to approximately 22 days of consumption.
The Company historically relied on ICML, a RP-Sanjiv Goenka Group company, for up to 60% of its coal requirements. Pursuant to an order of the Supreme Court of India, the mining lease for this company has been cancelled. The Company will continue to use coal from the ICML coal mine until March 31, 2015 as permitted by the SC Orders and in the meantime, will look for alternative sources of coal. However, given the scarcity of coal in the country, there can be no assurance that the Company will be able to identify any alternative source for coal at an affordable cost or at all.
Pursuant to an order of the Supreme Court of India, the President has promulgated The Coal Mines (Special Provisions) Ordinance, 2014 to provide for a mechanism and prescribe conditions for the reallocations of the cancelled coal blocks and mines. The Company intends to actively seek to participate in the process of bidding for coal mines in India under the new ordinance, and also look to secure long-term fuel supply arrangements, either from Coal India Limited, its subsidiaries or other mine operators in India. There is no fuel supply agreement in place for the Chandrapur project. See " Risk Factors — Risks Associated with the Company's Power Business – The allocation of the right to mine coal granted to ICML (a company in which the Company owns a 26% interest) was cancelled pursuant to Supreme Court orders cancelling the allocation of all but four coal blocks made by the Indian government between 1993 and 2010. This impacts the supply of the majority of the Company’s coal requirement. Further, the Company’s ability to acquire coal mines in the future depends on government policy which is yet to be formulated and is subject to considerable uncertainty."
In the year ended March 31, 2014, the Company sourced approximately 54%, 39% and 7% of its current annual coal requirements from ICML, subsidiaries of Coal India Limited and from exporters (which are typically more costly), respectively. The collieries owned by subsidiaries of Coal India Limited which supply the Company's generating stations are also located approximately 250 to 550 kilometres from Kolkata, and coal is delivered by rail to the generating stations.
The Company also purchases small quantities of oil for the start-up of boilers and as a supporting fuel in its base load generating stations. Supplies of oil are readily available from several domestic sources like Indian Oil Corporation Ltd, Hindusthan Petroleum Corporation Ltd etc. The coal supplied from domestic sources is of a low sulphur content with a relatively high ash content. The quality of coal has, on occasion, been uneven, which has required the Company to consume oil as a support fuel for its operations. The Company has also set up a coal washery, which is operated by a third party, with a capacity of 300 tonnes per hour. The annual supply of washed coal from the said washery was 0.8 million tonnes in 2014.
Electricity Demand
The following table presents information on the Company’s peak load, rated/derated capacity, effective capacity and negative peak reserve margin for the six months ended September 30, 2014, the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012.
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Six Months Ended Three Months Year Ended March 31 September 30 Ended June 30 2014 2014 2014 2013 2012 (MW) (MW) (MW) (MW) (MW) Peak Load (1) 2,042 2,042 1,865 1,904 1,727 Rated/derated (2) capacity 1,225 1,225 1,225 1,225 1,225 Effective capacity (3) 1,102 1,102 1,102 1,102 1,102 Negative peak reserve margin (%) (4) 46 46 41 42 36
Notes: (1) The actual maximum peak load on the Company's electricity system at any single time during the year. (2) This is equivalent to installed capacity less permanent reductions in the capacity as a result of ageing, as agreed periodically with the CEA. (3) This is equivalent to 90% of the rated/derated capacity reflecting consumption by auxiliary equipment. (4) The negative peak reserve margin is equal to the difference between effective capacity and peak load as a percentage of peak load.
Electricity Generation
We have an electricity generation capacity of 1,849 MW, consisting of five coal-based generating stations all located in the State of West Bengal and the State of Maharashtra and one wind-based generating station located in the State of Rajasthan.
The following table presents information on the plant load factor (" PLF ") of our generating stations for the six months ended September 30, 2014, the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012:
Six Months Three Ended Months Year Ended March September Ended 31(1) 30 June 30 Year of Capaci Power Station 2014 2014 2014 2013 2012 Commissioning ty (MW) % % % % % Base Load Stations (2): Budge Budge (3) 1997/1999/2010 750.0 98.3 97.9 91.2 88.4 90.2 Southern 1990 135.0 98.8 98.0 87.9 89.6 87.4 Titagarh 1983 240.0 94.5 94.3 84.5 78.5 81.4 Base load Stations Combined 1,125.0 97.6 97.1 89.3 86.4 88.0 Other Stations : New Cossipore 1949 100.0 13.0 15.1 14.3 22.7 28.0 Combined 1,225.0 90.7 90.4 83.2 81.2 83.6 Rajasthan (4) 2013 24.0 28.9 27.8 21.0 18.3 N.A.
Notes: (1) Actual electricity generated by generating station unit in a year divided by that station's rated/de-rated capacity in that year. (2) Chandrapur is not included as it does not have a committed fuel supply arrangement and did not operate consistently for the entire period ended September 30, 2014.
(3) The Company's first unit at Budge Budge was commissioned in 1997 with a capacity of 250MW second unit at Budge Budge was commissioned in 1999 with a capacity of 250 MW and the third unit in 2010 with a capacity of 250 MW.
(4) For Rajasthan CUF (Capacity Utilisation Factor) is provided. The formula for computing CUF is same as PLF. CUF is used mostly in the renewable energy sector.
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The Company has achieved good results in its electricity generation, some of which are nationally and internationally benchmarked. The average PLF for the Budge Budge, Southern and Titagarh facilities was 89.34% for the year ended March 31, 2014, which was better than the Indian national average of 65.6%. The Company took various steps to achieve a high peak load factor, including full utilization of designed limit, benchmarking with best-in-class power plants, and integrated operation and maintenance planning.
The Company operates its generating stations at Budge Budge, Titagarh and Southern as base load units in order to optimize fuel efficiency. These stations generate electricity at a lower variable cost per unit than the older unit at New Cossipore. With the Company's three newer stations running as base load units and the Company's older station being used to supplement any shortfalls the Company may experience during periods of peak demand, the Company is able to generate electricity in a cost-efficient manner. The Company intends to discontinue the operations of New Cossipore plant post commissioning of its 600 MW coal-based power plant at Haldia which is currently in the advanced stages of implementation. The power plant at Haldia is designated to supply its entire power to the licensed area of the Company. The Haldia PPA with the Company has been approved by WBERC.
The Chandrapur plant currently has a PPA for 100 MW with TANGEDCO and expects to tie up the balance available power of 450 MW through a bidding process or such other route as found suitable. The power from our existing wind power plant is supplied to the state owned distribution utility in Rajasthan.
The following table presents certain information on the annual electricity generation of each of the Company's generating stations, electricity purchased from third parties for the six months ended September 30, 2014, the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012:
Six Month Three Months Ended Year Ended March 31 Ended June 30 September 30 2014 2014 2014 2013 2012 (kWh (kWh (kWh (kWh (kWh millions) millions) millions) millions) millions) Generating Station: Budge Budge 3,239 1,603 5,989 5,806 5,940 Southern 586 289 1,040 1,060 1,036 Titagarh 996 494 1,776 1,650 1,716 New Cossipore 57 33 125 199 246 Total Generation 4,878 2,419 8,930 8,715 8,938 Less: Auxiliary 403 199 754 740 759 Consumption Units Sent Out from the 4,475 2,220 8,176 7,975 8,179 Stations Power purchased from: WBSEDCL 1,137 635 1,357 1,575 998 Others(1) 288 135 364 270 434 Total power purchased 1,425 770 1,721 1,845 1,432 Export to persons other than (26) (4) (100) (26) (126) WBSEDCL Total system output 5,874 2,986 9,797 9,794 9,485 Notes: (1) Represents electricity purchased from power trading agencies to supplement electricity purchased from WBSEDCL.
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The Company's T&D Losses are calculated after adjustments for consumption in the Company's premises and distribution of power on behalf of WBSEC and are expressed as a percentage of the Company's total system output. Year Ended March 31 2014 2013 2012
T&D Losses (%) 11.8 11.9 12.1
Power Purchase Agreement With Third Parties
To the extent that the Company’s electricity generating capacity does not meet the demand for electricity in its licensed area, the Company buys electricity from WBSEDCL under a PPA. Purchases of electricity from WBSEDCL amounted to 1,357 million kWh in the year ended March 31, 2014, representing 13.8% of the units delivered to the Company’s distribution system. The original agreement has been amended by supplemental agreements from time to time and the current agreement expires on June 30, 2025. Under this agreement, WBSEDCL is obliged to supply up to 705,000 KVA of electricity at any time at a tariff to be decided by WBERC from time to time and the Company is entitled to draw electricity at five different points of supply. Maximum off-take from each point of supply is as follows: Point of Supply KVA Howrah 185,000 Lillooah 145,000 Kasba 235,000 Titagarh 40,000 Rishra 100,000
Supplementary agreements will be made in the event load requisitioned becomes higher or new points of supply are required to meet the enhanced load.
Tariff
The Company primarily operates in a regulated industry and requires regulatory approvals in relation to various operating issues, including the adjustment of the Company's tariff levels in order to cover any changes in the Company's costs and permitted returns under the applicable statutes.
From the year ending on March 31, 2007 the Company entered into a Multi-Year Tariff (the " MYT ") framework, for which WBERC has issued the WBERC Terms and Conditions of Tariff Regulations, 2007, which succeed its earlier Regulations from November, 2005. The MYT framework requires the determination of tariff by the WBERC for a number of years. The Company's tariff for the year ended March 31, 2014 was determined by WBERC in December 13 (effective April 2013 onwards) under the new regulations published in April 2011 as amended.
In determining the Company's tariff, WBERC dealt with sharing certain of the Company's income with consumers (including rental income from its property development business and export profits). Under the applicable regulations, the Company has also to provide an annual performance review in respect of the years concluded.
The WBERC produced new regulations in 2009 under which efficiency benchmarks and norms of licensees are stipulated, and incentives linked to operational efficiencies will be allowed in the tariff, thus enabling licensees to have a better understanding of the constituent elements of tariffs and ultimately enabling them to obtain higher returns. Since 2010-11, the tariff applicable to the Company has been determined taking into account new efficiency benchmarks and norms.
The Company has filed a new application with the WBERC with respect to its tariff for the 2015-17 period, however, the Company cannot commit to the exact timing and quantum of the tariff order. In the past 4-5 years the company has received its tariff orders before the close of the respective financial years with a retrospective effect which the company has been duly allowed to recover.
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The Company has been able to increase the average tariff realization from Rs 6.29 per kWh in the year ended March 31, 2013 to Rs 6.36 per kWh in the year ended March 31, 2014, which is significantly above the level determined for the year ended March 31, 2012, by way of implementation of MVCA as per the tariff regulations.
Upon receipt of the Company's request for tariff revision in each MYT period, the WBERC is, after consideration of the submissions filed, required to determine the average tariff and consumer category tariff within such time as deemed fit of the submission of the tariff petition. For finalization of fuel-related costs, the Company is required to provide the relevant details after the audit of the Company's accounts in respect of the preceding year. Fuel-related costs were finalised up to the year ended March 31, 2014 pursuant to this process. The Company is also required to file with the WBERC an annual performance review in respect of each year concluded.
Costs of Units Delivered to the System
The Company's costs of generation, transmission and distribution, which are recovered through tariffs, consist of variable costs such as fuel and electricity purchase costs, as well as fixed costs, such as employee costs, administration costs and depreciation.
The following table presents certain information concerning the Company's average generation costs including depreciation, the average cost of electricity purchased, the average cost of units delivered to the system and the average electricity tariff charged during the years ended March 31, 2014, 2013 and 2012 within the licence area:
Year ended March 31 2014 2013 2012 (Rs./kWh) (Rs./kWh) (Rs./kWh) Average cost of electricity generated (1) 2.61 2.56 2.41 Average cost of electricity purchased (2) 5.18 5.12 4.44 Average cost of units delivered to system(3) 3.26 3.23 2.90 Average revenue per unit of electricity sold (4) 6.36 6.29 5.99 Notes (1) This represents the cost of electricity generated after taking into account the cost of auxiliary electricity consumed but excluding finance cost. (2) In the year ended March 31, 2014, the Company purchased a 1721 MU from power trading agencies including WBSEDCL to cover the shortfall between demand for electricity in the Company's license area and its total generating capacity.
(3) Derived cost based on (1) and (2) above considering units sent out and purchased
(4) Earnings from the sale of electricity divided by units sold (excluding bulk power sale).
The Company's average cost of electricity generated increased from Rs. 2.56 per unit in the year ended March 31, 2013 to Rs. 2.61 per unit in the year ended March 31, 2014, primarily due to increases in fuel cost.
Distribution Network
The Company owns and operates the distribution systems through which it supplies power to consumers in the Company's license area.
The following table describes the additions to the Company's distribution network as at March 31, 2014: Addition to plant Total as atMarch 31, 2014 220 KV mains (circuit km) 245 132KV mains (circuit km) 349 33 KV mains (circuit km) 1,412 6KVand11 KV mains (circuit km) 6,134 Medium voltage mains (circuit km) 12,269
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Addition to plant Total as atMarch 31, 2014 132 KV/33 KV transformer (in MVA) 2,532 33/11/6KV transformer(in MVA) 3,338 LT substation transformer (in MVA) 2,568
T&D Losses
T&D Losses refer to the loss of electricity over the distribution network arising largely out of thermal loss, theft of electricity and faulty metering. The Company's T&D Losses for the year ended March 31, 2014 were 11.8% compared to 11.9% for the year ended March 31, 2013.
The Company has taken action to reduce T&D Losses including: on-site testing of meters for HT consumers; installation of quality static meters; closer supervision and verification of meter readings; improved billing practises, including computerized billing; installation of capacitors to maintain quality of electricity to consumers; and improvement of the distribution network.
Further enactment of stringent legislature by the State Government has also helped the Company to reduce its T & D Loss.
The Company is focused on reducing its T&D Losses, particularly those relating to theft. The Company carries out energy audits at different distribution voltage levels to identify areas particularly susceptible to electricity theft. The Company has also implemented an awareness program against theft. The Company has a loss control department which routinely disconnects unauthorized connections, disconnects consumers charged with theft and lodges complaints with the police. With the establishment of special courts in all the districts to deal exclusively with matters related to theft of electricity, the Company expects to be able to continue to reduce its T&D Losses in the near future.
Supervisory Control and Data Acquisition System
In order to increase effective utilization of the network and manpower, the Company has installed the SCADA System for its receiving stations, covering its distribution system down to substation level.
The SCADA System is a real-time monitoring system that works in conjunction with a three-tier operating system. Each receiving station represents the LCC and is controlled from its ZCC located in the respective zonal area. All LCCs and ZCCs are in turn monitored and controlled by a MCC, located at the Company's headquarters in Kolkata.
The SCADA System is being used for better control and real-time monitoring of the unmanned remote substations. Any abnormalities within the distribution system are immediately reported to the relevant ZCC and MCC. The SCADA System operations team can then take immediate action in order to reduce downtime across the network.
In addition to improving reliability and reducing interruptions in supply, the data available through the SCADA System is used for energy management, and for improving overall system performance. The Company has initiated a major drive to install and commission SCADA systems at unmanned distribution stations to remotely monitor and control such stations and ensure rapid restoration of power in affected areas. During the course of 2013 and 2014, 33 such systems were commissioned. Other major initiatives taken by the company in the field of introduction of new technology are:
• Introduction of Smart Meters : These enable availability of metering data to the customers where supply is provided at remote locations. 150 such meters were installed during the year for telecom towers. Another application of these meters is proactive supply restoration in the event of a power failure even before a customer lodges a complaint. These will soon be deployed at an additional 150 important installations.
• Development of SMS alert units : Low cost modular microprocessor based units with GSM/GPRS communication cards and necessary software have been developed to cater to a range of applications. These include alerts for supply phase outages at important LT consumer premises, alerts during
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operation of circuit breakers in RMUs and a 2-way system for indicating operation of fault passage indicators and remote resetting of the same.
• Automated Meter Reading (AMR) : Coverage of AMR increased significantly during the year to 100% of HT (1,700) and LTCT (6,000) consumers and 60% of distribution transformers (4,300). The coverage is being expanded in a phased approach to other bulk customers such as housing projects with over 20 metering points. The meter data is available in the Company's browser based ‘Meter Data Management System’ (MDMS) for viewing loading status and breakdowns to take prompt corrective actions.
Operation and maintenance
The Company's maintenance personnel undertake regular maintenance work on boilers, turbines, generators and other equipment used in the generation of electricity. Major overhaul work at the Company's generating stations is generally contracted out to third parties under the supervision of the Company's engineers and technical experts.
The Company reviews the boilers at its generating stations every two years and undertakes repairs and maintenance as required. The Company reviews other plant and equipment at the generating stations on an ongoing basis and undertakes repairs, maintenance and/or replacement based on the estimated remaining useful life of plant and equipment. The Company maintains a stock of normal spares and certain critical spares in order to reduce the time for replacement in the event of unplanned outages. On the distribution side, the Company maintains stocks of conductors and cable, HV consumer and feeder switches, distribution transformers, meters and other critical spares to meet normal outages within an acceptable turnaround time. Planned maintenance of the Company's overground and underground network is regularly undertaken by the Company's own staff and contractors, together with replacement of ageing distribution assets by qualified engineers in the Company's engineering division.
Sales and Customer Base
As of March 31, 2014, the Company sells electricity to approximately 2.8 million consumers, including approximately 2.3 million domestic consumers, approximately 0.35 million commercial users and approximately 1,700 HT users. No single consumer accounts for more than 2% of the Company's total electricity sales. Among major HT industrial users in the year ended March 31, 2014, jute mills represented 38%, and steel and engineering 24% of HT industrial consumption, respectively.
Unit sales to domestic consumers increased by around 2.1% from the year ended March 31, 2013 to the year ended March 31, 2014 and those to commercial users decreased by 1.6%. Unit sales to industrial users decreased by around 1.8% during this period.
The Company's billing procedure is fully computerized and handled on a centralized basis however the Company also hassix regional offices to cater to various operational and commercial requirements. The Company operates a customized billing system using Oracle RDBMS, a database management system, which receives collection updates from point-of-sale machines based in the Company's 40 cash offices. Customers can pay bills at the Company's cash offices, over the internet or using credit cards. The Company's level of bad debt is low, at approximately 0.5% of total operating income in the year ended March 31, 2014, largely due to the maintenance of security deposits of an amount equal to the cost of two to three months electricity consumption, together with monthly meter readings by the Company's own personnel and comprehensive billing and collection systems.
The Company provides a discount for payment of bills within the due date. Late payments are penalized by a delayed payment surcharge of 1% to 2% per month on amounts outstanding. Defaulting customers are subject to disconnection and adjustment of their security deposit against amounts outstanding.
The following tables summarize the amount of electricity sold to major categories of consumers, and the revenues earned from each such category for the (electricity sold), the three months ended June 30, 2014 and the years ended March 31, 2014, 2013 and 2012:
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Three months Year ended March 31 ended June 30 Electricity (units) 2014 2014 2013 2012 (MU) (%) (MU) (%) (MU) (%) (MU) (%) Domestic 1,331 51.11 3,907 44.74 3,825 44.21 3,593 42.55 Commercial 529 20.31 1,755 20.10 1,783 20.61 1,715 20.31 Industrial 551 21.16 2,266 25.95 2,307 26.67 2,307 27.32 Others(1) 176 6.76 663 7.59 662 7.72 656 7.77 Export(2) 17 0.65 142 1.63 68 0.79 173 2.05 Total sales 2,604 100.00 8,733 100.00 8,651 100.00 8,444 100.00
Notes: (1) Others include sale of electricity for street lighting, and to public bodies and educational institutions. (2) Includes units sold to WBSEDCL
Three Months Year Ended March 31 Ended June 30 Electricity revenue 2014 2014 2013 2012 Rs. Rs. Rs. Rs. (%) (%) (%) (%) millions millions millions millions Domestic 8,541.97 48.3 22,902.30 41.6 22,099.80 40.7 19,562.20 39.0 Commercial 4,064.49 23.0 12,911.20 23.4 12,986.30 23.9 11,955.50 23.8 Industrial 3,813.22 21.6 14,701.50 26.7 14,808.70 27.3 14,228.50 28.4 Others(1) 1,167.53 6.6 4,102.10 7.5 4,084.10 7.5 3,828.50 7.6 Export(2) 85.70 0.5 451.70 0.8 346.30 0.6 582.10 1.2 Total 17,672.91 100 55,068.80 100 54,325.20 100 50,156.80 100 Adjustment(3)(4) 947.90 617.20 1,907.30 4107.00 Total revenue 18,620.81 54,451.60 52,417.90 46,049.80 Notes: (1) Others include sale of electricity for street lighting, and to public bodies and educational institutions. (2) Export includes sale to WBSEDCL. (3) Adjustments shown above represent the amount required to be set off against revenue pursuant to applicable orders of the WBERC. (4) Adjustments for advance drawings of depreciation are allowed in tariff.
The following table indicates the number of consumers (in millions) by reference to the major categories of domestic, commercial and industrial users, for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012.
Three Months Year Ended March 31 Ended June 30 Consumer 2014 2014 2013 2012 Domestic 2.4 2.4 2.3 2.2 Commercial 0.3 0.3 0.3 0.3 Industrial 0.1 0.1 0.1 0.1 Total 2.8 2.8 2.7 2.6
Customer Service
The Company strives to be the preferred utility for consumers and provides its customers an array of services to support a superior customer experience. For example, the Company offers a 24 hour customer service hot-line and has adopted new technologies for customer support. Recently, the Company introduced a mobile app that will allow its consumers to access a host of services such as bill detail, last payment detail, bill calculator, duplicate bill request, consumption and payment history, complaints and air conditioner application. In addition,
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the Company has upgraded its website, to provide customers with various e-services, including payment of bills, applying for new connections and change of names without having to visit regional offices. The Company also allows customers to track their bills from start to delivery with the Company sending SMS to customers.
Employees
Our employees in its power generation and distribution business have a wide range of experience and skills in power project implementation, power generation and distribution operation. Of the Company's full-time employees, approximately 10% consists of officers of the Company and the remaining 90% consist of staff employees. A broad break up of such employees based on their job pattern is furnished in the table below.
The following table sets out a breakdown of the Company (for CESC Ltd and other Power business) employees by activity, excluding those of its subcontractors, as of March 31, 2014, 2013 and 2012 :
Company employee staff As of September 30 As of June 30 As of March 31 strength 2014 2014 2014 2013 2012 Generation 1,691 1,689 1,700 1,771 1,839 Distribution 4,813 4,786 4,788 4,893 4,968 Commercial 295 295 294 303 310 Direct Consumer Interface 1,052 1,053 1,040 991 1,000 Support 1,051 1,053 1,191 1,286 1,303 Total 8,902 8,876 9,013 9,244 9,420
As of September 30 As of June 30 As of March 31 Company officer staff strength 2014 2014 2014 2013 2012 Generation 474 463 424 385 352 Distribution 275 280 286 264 254 Commercial 48 48 48 51 54 Direct Consumer Interface 528 508 379 356 347 Support 74 66 61 35 22 Total 1,399 1,365 1,198 1091 1029
The Company provides integrated accommodation facilities to its employees based at the power projects. In addition, the Company provide a number of other benefits to its employees and members of their immediate family, such as subsidized work clothing, canteen facilities, annual leave, a travel allowance, provident fund, and health insurance (including on-site medical clinics). Its operations require highly skilled and experienced power project management personnel. The Company offers its employees comprehensive on-going training in order to raise their competence and capability with respect to power project operations.
Employees in India enjoy certain statutory rights that prevent them from being dismissed or made redundant except in limited circumstances. The Company has not experienced any material strikes, work stoppages or labor-related disputes in the recent past
In addition to the statutory employee pension scheme that the Company maintains for all its employees, it also maintains a defined contribution plan for eligible officers.
The Company's staff employees are unionized. A wage settlement has been executed in December 2013 valid for six years from April 2012.
Safety and Risk Management The Company implements work safety measures and standards to help ensure healthy and safe working conditions, equipment and systems of work for all its employees, contractors, visitors and customers at its power projects. It intends to reduce waste and other harmful pollutants by careful use of materials, energy and other resources in addition to maximizing recycling opportunities. Each of the Company's power projects has its own work safety management department, which will oversee compliance with safety measures and standards. In addition, its operational power projects have, and the Company intends to implement in its power projects under
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construction and in development, safety systems and emergency shutdown systems for smooth and safe stoppage of the power projects in abnormal conditions. Despite the safety procedures that the Company implements at its power plants and at sites during their construction, there have, in the past, been incidents at sites involving serious accidents and loss of life of its subcontractors' employees. As of March, 31, 2012, 2013 and 2014 there were 2 fatal and 12 non-fatal, 2 fatal and 9 non-fatal accidents and no fatal but 7 non-fatal accidents within the power generation division, respectively. With all accidents, the Company performs a detailed investigation to understand the root cause of the accident and takes corrective actions to reinforce awareness of safety procedures in activities around its power projects.
Competition and Marketing Until the enactment of the Electricity Act, 2003 and the regulations thereunder, the Company's license granted it exclusive distribution rights. The Electricity Act, 2003 provides for multiple licensing and open access for consumers to purchase electricity from any supplier. So far, no electricity supplier in India has sought to expand its business in this manner in Kolkata. See “Risk Factors — Risks Associated with our Business — Changes in the regulatory environment of the Indian electricity industry may increase competition.”
The Company believes that it is able to maintain a competitive advantage through the quality of its service. Consumer service initiatives include maintenance of reporting centres across the licensed area and a call centre for the reporting of outages or other faults. The Company also operates 162 radio linked and mobile connected service vans at strategic locations to ensure faster restoration in case of faults. Also generator facilities are being extended to consumers in the event that restoration is not possible within a specified time frame owing to nature of the problem.
The Company has established a dedicated Customer Relations department headed by a senior executive to focus on the requirements of its major consumers.
Properties The Company maintains a number of properties in its licensed area. It owns all of its generating stations, which are constructed on land held on a freehold or leasehold basis. The Company owns, on a freehold or leasehold basis, a number of properties that house its receiving stations, distribution stations, reporting centres, central stores and offices, including the head office and certain regional offices.
The following table sets forth certain details on the Company's material properties as of March 31, 2014:
Location Primary Use Owned/Leased CESC House Head Office Owned Budge Budge Generating Station Owned and leased Southern Generating Station Owned and leased Titagarh Generating Station Owned New Cossipore Generating Station Owned Chandrapur Generating Station Owned and leased Rajasthan Generating Station Owned and leased Haldia Generating Station Owned and leased Gujarat Generating Station Owned
In addition, the Company leases a number of properties that are used for offices, including regional cashier offices, LT substations and other establishments.
Its network of overhead mains and underground cables is laid across the licensed area and the Company pays fees to the relevant authorities for use of the land.
Insurance We maintain industrial all-risks policy and the total expense on account of insurance for the year ended March 31, 2014 was Rs 326.6 million. It believes that its insurance coverage is consistent with industry practice and is maintained at adequate levels. Moreover, the terms of the Company's finance facilities in respect of its projects
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requires the Company to maintain insurance in respect of its projects. As per the terms of the Company's project finance facilities, it must maintain comprehensive insurance. As such, where appropriate, it takes out (a) general industrial/operational all risks insurance; (b) erection all risks and advanced loss of profit insurance; (d) standard fire and special perils material damage insurance; (e) insurance to cover against acts of terrorism or sabotage; (f) insurance to cover against loss or damage due to burglary or housebreaking; (g) marine cargo insurance policy; and (h) directors and officers liability insurance. Notwithstanding the insurance coverage that the Company carries, the occurrence of an accident that causes losses in excess of limits specified under the relevant policy, or losses arising from events not covered by insurance policies, could materially affect its financial condition and future operating results.
The Company's Business Processing Management Business
Overview FSL offers wide range of BPM services in the areas of customer management, transaction processing and collectives services. FSL operates across multiple business functions and provides services to clients primarily in T&M, healthcare and BFSI industries through multi-shore delivery centres.
FSL is among the largest pure-play BPM providers in terms of revenue in India. NASSCOM ranked FSL as the seventh-largest business process management provider overall in India for fiscal year 2013.
FSL's consolidated gross revenues for the three months ended June 30, 2014 and the year ended March 31, 2014, and for the period December 5, 2012 to March 31, 2013 was Rs.7.55 billion and Rs. 31.08 billion and Rs.9.18 billion respectively and its profit after income tax on a consolidated basis for the three months ended June 30, 2014 and for the year ended March 31, 2014 and for the period December 5, 2012 to March 31, 2013 was Rs.0.53 billion, Rs.1.93 billion and Rs.0.50 billion respectively.
Service Offerings For the T&M industry, FSL operates across the mobile/wireless, fixed/wireline, broadband/high speed internet, and direct-to-home (" DTH ")/pay-television sub-segments. Some of the services provided by FSL include customer acquisition, provisioning and fulfilment support, customer service, billing support, dispute resolution, churn management and collections.
For the healthcare industry, FSL serves the payer market represented by the insurance companies and the provider market represented by hospitals and physician groups in the United States. Some of the services provided by FSL include mail and document management, claims processing, claims pricing, claims adjudication and adjustment, provision of database maintenance and revenue cycle management, and receivables management for healthcare providers.
For the BFSI industry, FSL operates across the cards, mortgages, general insurance and retail banking sub- segments. Some of the services provided by FSL include customer acquisition, accounts set-up, customer service and account, dispute resolution, mortgage origination and servicing, insurance policy issuance and administration, payment processing, collections, research and analytics
The following tables provide a summary of the services provided by FSL for the T&M, healthcare and BFSI segments.
Telecommunications and Media Industry
Mobile/Wireless / Broadband/High Speed Internet / Fixed/Wireline / Telecommunication and Media DTH/Pay-TV Receivables & Account setup Customer Billing / Help Saves / Win Sales & marketing collections and activation service desk support back management Inbound sales Provisioning General Invoice Overdue Dispute Outbound sales Order and inquiries request and collections resolution Lead generation returns Information complaints Credit limit / Increasing Cross sell/Up sell Logistics requests Billing expiry customer coordination Customer disputes Inbound awareness Porting service Process internal for chosen
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Mobile/Wireless / Broadband/High Speed Internet / Fixed/Wireline / Telecommunication and Media DTH/Pay-TV Receivables & Account setup Customer Billing / Help Saves / Win Sales & marketing collections and activation service desk support back management support Welcome queries for handoff calls plan Credit vetting calls charges High usage Increase Order input Account Billing management tolling Account management Billing Billing administratio Technical issues issues n support Technical Internal Help desk support actioning requests Channel Competence: Voice, Web -chat, Email, Back Office, Data processing, Social Media Value Add Services: Six Sigma Consulting, Voice and Data Analytics, Process Mapping and Feasibility Assessment, Centre for Excellence
Healthcare Industry
Healthcare & Claims Insurance Companies/Third Party Administrators/Managed Care Organisations Payer Member and Transaction Claims Provider Member/ Provider Mail Room Compliance processing Processing/Adjudication Data Services Management Inbound Proprietary Claim auditing Enrollmen Correspondenc Regulatory -Scanning, OCR Claim adjustments, t e documentat verifying, Technolog repricing Eligibility Physician ion indexing, y on an Secondary claim verificatio validation Appeals & digital integrated processing n Inbound/ grievances conversion workflow Bundling, dup Premium outbound managemen Outbound platform analysis reconcillat customer t -EOB Rules Backlog reductions ion service Fraud & processing engine Obtain, Provider abuse -Printing/ Integrated verify and overpayment mailing (ID db input collection cards, validations provider correspondence, Customise informatio policies, etc.) d output n, such as (ANSI837, names, tax NSF) IDs, addresses, NPIs, etc. Channel Competence: Data, E-mail, Fax, Correspondence Value Add Services: Six Sigma Consulting, Data Analytics, Process Mapping and Feasibility Assessment, Centre of Excellence
Healthcare Provider Hospitals / Physician Groups Patient services Eligibility service Receivables management Collection services Patient contact and Medicaid review and Ongoing and clean -up Custom telephone registration management projects for all payer collection campaign Insurance verification - Assisting patients with classes Small balance and certification Medicaid coverage - Initial billing, follow- collections Patient visit Charity assistance up and denials Skip-tracing services management - Handling all aspects management Cash acceleration Enrollments of providing charity Self-Pay "Early-Out" services
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Healthcare Provider Hospitals / Physician Groups Patient services Eligibility service Receivables management Collection services assistance cash acceleration Attorney services Self pay conversion to - Management of patient available options under interaction to ensure HIE maximum recovery MedAssist Advantage Management of provider Plan (MAP) enrolment and billing - Innovative hospital for Out-of- Primary- credit card in State medicaid conjunction with receivables CarePayment Credit balance resolution Full Business Office Outsourcing Channel Competence: Back Office, Data processing, Voice Collections Value Add Services: Data Analytics
Banking, Financial Services and Insurance Industry
Banking, Financial Credit Cards / Custody / Retail Banking / Mortgage / General & Life Services and Insurance Insurance Customer service and Transaction processing Collections fulfilment Account maintenance Check, remittance and Mortgage Early stage -Activation and item processing - Origination collections authorisation Funds transfer and - Loan vault conversion - 1st party - Account closure forex transactions - Collateral review - Pre charge-off - Lost and stolen cards Custody operations & - Underwriting Late stage collections Query management fund service - Loan booking - 3rd party collections - Transaction related - Portfolio valuation & Insurance - Skip trace - Product related reconciliations - Application processing - Helpdesk activities -Contract note - Policy amendments Interactive services generation - Policy amendment and (Email/Web chat) - Settlements cancellation - Up selling - Corporate actions - Data & trend analysis - Cross selling - Billing support -Disputes and - Performance audit complaints resolution Channel Competence: Voice, Web-chat, Email, Back Office, Data processing, Social Media Value Add Services: Six Sigma Consulting, Voice and Data Analytics, Process Mapping and Feasibility Assessment, Centre for Excellence
Client Portfolio
FSL has clients primarily based in North America, United Kingdom, Republic of Ireland, Asia Pacific and Australia in the T&M, healthcare and BFSI industries as further detailed below.
T&M Key clients include a major pay television operator in the United Kingdom, a leading telecom service provider in Australia, major mobile service providers in India, a leading European telecom service provider, and major telecom service providers in the United Kingdom, the United States and Sri Lanka.
Healthcare Within the healthcare industry, FSL serves the payer market represented by the insurance companies and the provider market represented by hospitals and physician groups in the United States. Key clients include numerous Fortune 500 health insurers and managed care companies in the United States and over 700 hospitals in the United States.
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BFSI Key clients include the major general-purpose credit card issuers in the United States, large retail banks, mortgage lenders and auto insurers in the United Kingdom, a leading Irish Bank, a leading credit card issuer in the United Kingdom and a leading private life insurer in India.
FSL's top five clients made up approximately 45% of its income from sale of services, on a consolidated basis, in fiscal year 2014 and 46% of its income from sale of services, on a consolidated basis, in the three months ended June 30, 2014. FSL's largest client during the three months ended June 30, 2014 represented approximately 24% of its income from sale of services on, a consolidated basis. See "Risk Factors—Risk relating to the BPM business—FSL relies on a small number of clients for a large proportion of its income, and loss of any of these clients could adversely affect its profitability" and " —FSL's clients are largely concentrated in a few industries, which exposes FSL to the overall performance of, and outsourcing trends within those industries."
Delivery Centres FSL services its clients through its global delivery capabilities both onshore and offshore. It had 46 delivery centres as of September 30, 2014 across India, United States, United Kingdom and Ireland, Philippines and Sri Lanka supported by a scalable infrastructure network. The locations of FSL's delivery centres for the six months ended September 30, 2014, the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 are outlined below.
Six Months Ended Three Month Ended Year Ended March
September 30 June 30 31 Global Delivery Centres 2014 2014 2014 2013 India 22 22 26 24 United States 15 14 14 14 United Kingdom 6 6 5 6 Philippines 3 3 2 2 Sri Lanka 1 1 1 1 Total 47 46 48 47
Employees
FSL employed 26,923 full-time employees as of September 30, 2014. The table below shows FSL's full-time employees and seats for the six months ended September 30, 2014, the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012. Six Months Ended Three Months Ended Year Ended March 31 September 30 June 30 2014 2014 2014 2013 Employees 26,923 27,147 27,666 31,872 Seats 23,593 23,711 23,388 24,053
The Company's Retail Business
Overview SRL is one of the leading organized retailers in India. SRL's business can be broadly divided into Spencer's (a network of food-intensive outlets providing a broad product range) and, through its subsidiary, retail coffee and food shops. SRL is a wholly-owned subsidiary of the Company.
As of September 30, 2014, SRL operates 125 stores under the Spencer's brand name in 48 cities across India, with contracted trading space of approximately 1.1 million square feet. To cater to its customers' varied needs, SRL operates through a variety of formats: "Daily", "Super" and "Hyper". The "Daily's" are convenience stores generally located in neighbourhoods, and the "Super" and "Hyper" formats are destination outlets.
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SRL was ranked second in India's most respected companies in retail in a study conducted by Business World 2013. SRL also won the "Most Admired Hypermarket Retailer of the Year Award" at the India Retail Forum in September 2013 and in September 2014.
Stages of Evolution
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Retailing Formats
Spencer's Daily
Spencer's Daily is a convenience store format with floor space averaging 2,200 square feet per store. As of September 30, 2014 there were 79 Spencer's Daily stores. These stores generally stock fruit and vegetables, food staples, processed food, fast-moving consumer goods, beverages, baked goods, and frozen and chilled goods.
Spencer's Super Spencer's Super is a grocery store format, with floor space averaging 6,700 square feet per store. As of September 30, 2014, there were 13 Spencer's Super stores. These supermarkets carry the full range of food products stocked by Spencer's Daily, with greater depth in product lines. In addition, these stores provide a range of goods for the home, brown goods and select clothing.
Spencer's Hyper Spencer's Hyper is a hypermarket format, with floor space averaging 23,000 square feet per store. As of September 30, 2014, there were 33 Spencer's Hyper stores. These stores are designed as destination discount stores and carry a full range of food products, goods for the home, clothing, white goods, electronic and electrical goods, and a full range of fast-moving consumer goods (" FMCG "). Last year, SRL opened nine new hypermarkets in the existing geographic clusters in Chennai, Kolkata, Dhanbad, Raipur, Aligarh, Meerut and Bhopal.
Development of New Stores The size and location of new stores are approved centrally pursuant to a standard template, and are determined on a regional basis by a dedicated development team based in each geographic zone/cluster. Consistent with SRL's retailing format, location and convenience are the key factors in selecting premises for new stores. SRL generally seeks premises and sites located in residential districts, close to transportation hubs, close to or in major shopping centres, adjacent to major traffic intersections or thoroughfares, or adjacent to major roads. Other criteria include the number of residents in the adjacent area and proximity to, and visibility from, roads, easy access by vehicles, as well the availability of suitable leasehold terms. Each development team's primary task is the acquisition of sites and development of new stores in sufficient numbers and suitable locations. The development teams have accumulated considerable expertise in site acquisition.
SRL employs a hub-and-spoke inventory management model which allows it to provide products to its stores from a centralized distribution centre which reduces delivery times and need for large inventory stores. In addition, SRL uses state-of-the art inventory management technology to track inventory levels in real-time which allows it to maintain appropriately scaled inventory levels thereby reducing working capital requirements. The following table shows the SRL store count as of September 30, 2014, June 30, 2014 and March 31, 2014, 2013 and 2012. As of September 30 As of June 30 As of March 31 2014 2014 2014 2013 2012 Hyper 33 33 34 25 26 Super 13 13 13 14 15 Daily 79 80 81 92 141 Total 125 126 128 131 182
As the above table demonstrates, SRL is currently targeting growth in big box format, with the number of hypermarket stores increasing from 26 in March 2012 to 34 in March 2014. SRL expects to open an additional eight to ten "Hyper" stores in 2015 and up to 10 "Hyper" Stores in 2016.
Products SRL's product range consists of approximately 13,000 items, the majority of which are produced in India. In the year ended March 31, 2014, food products comprised 61.2% of SRL's product sales. Most of SRL's product range comprises fast-selling food products and beverages. Fresh and perishable products represent 14.4% of SRL's sales. SRL carries a wide range of specialty foods, including imported goods, as well as meats, fish, baked goods, fresh juices and ready-to-eat foods.
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The product sales mix for all stores as of June 30, 2014 and March 31, 2014, 2013 and 2012 is set out as follows: Three months ended June 30 As of March 31 2014 2014 2013 2012 Category Mix % % % % Fruits and Vegetables 9.5 8.7 9.2 10.1 Staples 19.2 20.8 20.6 18.8 FMCG 46.2 45.3 44.8 45.3 Dairy and Frozen 2.8 2.9 3.2 3.6 Baked Goods 2.9 3.0 3.2 3.3 Apparel 4.8 5.4 5.5 5.2 Electricals and Electronics 5.4 4.9 4.8 4.8 General Merchandising 9.3 9.1 8.7 9.0 Total 100 100 100 100
The following table indicates the split of sales for the three months ended June 30, 2014 and for the year ended March 31, 2014, 2013 and 2012:
Three months ended June 30 As of March 31 2014 2014 2013 2012 Rs. (millions) Rs. (millions) Rs. (millions) Rs. (millions) Food 2,466.3 8,570.8 7,895.4 7,054.8 Non -Food FMCG 716.0 2,509.4 2,321.2 2,081.3 Others 810.7 2,932.2 2,757.8 2,521.8 Total 3,993.0 14,012.3 12,974.4 11,657.9
In the year ended March 31, 2014, SRL had total revenue of Rs. 14,580 million, or 8.2% higher than in the previous year when it had total revenue of Rs. 13,470 million. It generated a negative EBITDA of Rs. 701 million in the year ended March 31, 2014, which decreased from a negative EBITDA of Rs. 842 million for the previous year.
The following table provides certain information regarding SRL's store area as of September 30, 2014, June 30, 2014 and March 31, 2014, 2013 and 2012. As of September As of As of March 31 30 June 30 2014 2014 2014 2013 2012 Hyper (store area sq. ft.) 1,150,926 1,164,008 1,195,396 899,600 934,300 Super (store area sq. ft.) 124,745 124,745 132,809 135,379 142,205 Daily (store area sq. ft.) 232,153 237,683 244,533 275,107 405,531 Total 1,507,824 1,526,435 1,572,738 1,310,086 1,482,036
The following table provides certain information regarding SRL's trading area as of September 30, 2014, June 30, 2014 and March 31, 2014, 2013 and 2012. Trading area refers to the area of the store where products are displayed and the billing counters. Space for storage, employee access areas and office area are excluded.
As of September 30 As of June 30 As of March 31 2014 2014 2014 2013 2012 Hyper (trading area sq. ft) 783,409 787,734 799,595 576,924 606,447 Super (trading area sq. ft) 92,220 92,220 93,220 93,411 96,530 Daily(trading area sq. ft) 177,118 181,346 183,452 207,032 306,461 Total 1,052,747 1,061,300 1,076,267 877,367 1,009,438
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The following table provides certain information regarding SRL's operating performance for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012. Three months Year ended March 31 ended June 30 2014 2014 2013 2012 Rs. Rs. Rs. Rs. Revenue per sq ft by trading area 1,340 1,305 1,226 1,060 (Rs./month) Operating expense per sq ft by trading 192 190 183 166 area(1) (Rs./month) Operating margins per sq ft by trading 251 249 232 199 area(1) (Rs./month) Store EBITDA per sq ft by trading area 59 59 49 32 (Rs./month)
Other SRL Businesses
Au Bon Pain Cafe India Limited(" ABP ") ABP is the master franchisor in India for ABP Corporation (headquartered in Boston, Massachusetts, U.S.A.) in relation to the Au Bon Pain brand. The brand caters to the retail and coffee food segment. Au Bon Pain offers a wide range of menu choices, including sandwiches, soups, baked goods, beverages, cakes and desserts. As of September 30, 2014, the brand owned and operated stores in 31 locations across high streets and malls, business and information technology parks, hospitals and universities in the cities of Bengaluru, Kolkata and NCR. Management is considering further expanding the number of stores under this brand, with a particular emphasis on New Delhi and West Bengal during the course of this fiscal year.
Employees SRL employed 5,085 full-time employees as of September 30, 2014.
Properties All of SRL's properties are leased from third parties. SRL's leases are generally straight lease rentals, revenue sharing or a combination of the two. Terms are generally 9 to 21 years in duration. Notice periods vary by lease from three to six months.
Corporate Social Responsibility The discharge of corporate social responsibility has, with the promulgation of the Companies Act, 2013 and the rules framed thereunder, been made mandatory for companies that satisfy any one or more of the criteria as laid down under the Act. We accordingly discharge our corporate social responsibility within this broad framework.
We are committed to helping society through meaningful community development programs. We have established programs relating to education and training, health, sanitation, infrastructure development, medical aid and social development activities. We believe that these programs have benefited the people of the surrounding community and created a cordial environment between us and the people.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited consolidated financial statements as of and for the years ended March 31, 2014, 2013 and 2012, and unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014, and the schedules and notes thereto, which appear elsewhere in this PPD and are prepared in accordance with Generally Accepted Accounting Principles in India (" Indian GAAP "), in each case, to comply with the Accounting Standards notified under Section 211(3C) of the Companies Act, 1956 (the "1956 Act ") (which continues to be applicable in respect of Section 133 of the Companies Act, 2013 (the "2013 Act") in terms of General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/2013 Act, as applicable. Indian GAAP and Indian accounting standards may differ in certain material respects from generally accepted accounting principles and accounting standards in other countries, including US GAAP and IFRS. Accordingly, the degree to which our consolidated financial statements in this PPD will provide meaningful information to a prospective investor in countries other than India is entirely dependent on the reader's level of familiarity with Indian accounting practices.
For the purpose of this section, unless the context requires otherwise, references to "Fiscal Year 2014", "Fiscal Year 2013" and "Fiscal Year 2012" are to the financial year ended March 31 of the relevant year, and references to "year" are to the financial year of the Company.
Some of the information contained in the following discussion, including information with respect to our plans and strategies, contains forward-looking statements that reflect our current views with respect to future events and our financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of any number of factors, including those set forth in this section and under the sections headed “Risk Factors” and “Notice to Investors — Forward-Looking Statements."
Overview
We operate a diverse set of businesses consisting of (i) power generation and distribution, (ii) business process management (" BPM "), (iii) retail; and (iv) property development. Our power, retail and property development operations are located in India and its BPM business has operations both domestically and internationally.
The Company operates a power utility engaged in the generation and distribution of electricity across 567 square kilometres of licensed area in Kolkata and Howrah and in the adjoining areas, West Bengal. The Company's license expires on September 2, 2038. As at March 31, 2014, the Company supplied electricity to approximately 2.8 million customers, including domestic, industrial and commercial users. In the year ended March 31, 2014, 82% of the units delivered to the Company's distribution system was electricity generated from the Company's own power plants in West Bengal and 18% was electricity purchased from third parties.
As of September 30, 2014, we own and operate five coal-based power plants with an aggregate capacity of 1,825 MW in the State of West Bengal and State of Maharashtra. We also own and operate a 24 MW wind power plant in the State of Rajasthan. We are in the process of developing a 600 MW coal-based power project in West Bengal, a 26 MW wind power project in the State of Gujarat and 90 MW and 45 MW hydro electric power projects in the East Kameng district of Arunachal Pradesh.
The Company owns and operates the distribution network in the cities of Kolkata and Howrah and in the adjoining areas, West Bengal through which it supplies electricity to consumers. The Company's total revenues from its power generation and distribution business for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.18.9 billion and Rs.56.1 billion, Rs.54.1 billion and Rs.47.8 billion, respectively. In the three months ended June 30, 2014 and the years ended March 31, 2014, 2013 and 2012, the Company's profit after income tax on a standalone basis was Rs.1,622.8 million, Rs. 6,518.9 million, Rs. 6,185.0 million and Rs. 5,543.1 million, respectively.
In addition to the electricity generation and distribution business, we have expanded into other businesses over time.
In 2012, the Company, through its wholly owned subsidiary Spen Liq Pvt. Ltd., acquired through primary issuance and secondary purchase, 56.86% of the issued share capital of Firstsource Solutions Ltd. (" FSL "),
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which operates an information technology and BPM business in the areas of customer management, transaction processing and collection service to Fortune 500 and FTSE 100 companies in the US and UK that operate in the telecom and media (" T&M ") and banking, financial services and insurance industries (" BFSI "). As of September 30, 2014, FSL had 26,923 employees supporting clients from 46 services facilities located in the United States, United Kingdom, Ireland, the Philippines, India and Sri Lanka. FSL's consolidated gross revenues for the three months ended June 30, 2014 and the year ended March 31, 2014, and for the period December 5, 2012 to March 31, 2013 was Rs.7.55 billion and Rs. 31.08 billion and Rs.9.18 billion respectively and its profit after income tax on a consolidated basis for the three months ended June 30, 2014 and for the year ended March 31, 2014 and for the period December 5, 2012 to March 31,2013 was Rs.0.53 billion, Rs.1.93 billion and Rs.0.50 billion respectively.
The Company's wholly-owned subsidiary, Spencer's Retail Limited (" SRL "), operates 125 retail stores across India, including 33 hypermarkets as of September 30, 2014. These stores cater to family needs with products ranging from groceries, home and personal care products, apparel and accessories and consumer durables and lifestyle products. SRL expects to open eight to ten hypermarkets during the course of 2015. As of September 30, 2014, SRL owned and operated 31 Au Bon Pain coffee and casual dining establishments through its subsidiary, Au Bon Pain Cafe India Limited, the master franchisee of Au Bon Pain in India. SRL's Au Bon Pain outlets are located in Bengaluru, Kolkata and NCR with additional outlets planned in NCR and West Bengal during the course of 2015. SRL's total revenues on a standalone basis for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 were Rs.4.16 billion and Rs. 14.58 billion, Rs.13.47 billion and Rs.12.06 billion, respectively and its loss after tax for the three months ended June 30, 2014 and for the years ended March 31, 2014, 2013 and 2012 was Rs.0.36 billion, Rs.1.66 billion, Rs.2.09 billion and Rs.2.55 billion, respectively.
We have also developed and operate a luxury mall in the City of Kolkata, the "Quest", through its wholly owned subsidiary CESC Properties Limited (“ CPL ”). The Quest houses shops, retail outlets, an entertainment zone, multiplex, food court and fine dining in eight floors along with a multi-level car park. The Quest was inaugurated on September 30, 2013 and houses volume retailers such as Spencer's as well as international luxury labels.
Factors Affecting our Financial Condition and Results of Operations
We outline below a number of factors that have had important effects on our results of operations and that we expect will continue to impact our financial performance in the future.
Power Business
Demand for power
We derive our power business revenues primarily from the sale of electricity to regular consumers and industrial consumers in our license distribution area. A mixture of factors, including continued economic development, lifestyle changes and a growing population, are increasing the demand for energy in India. Demand for power in India has grown at a higher rate than supply in recent years, resulting in an increasing deficit in supply. Power shortages have adversely affected India‘s economy. In particular, power shortages have adversely impacted the agriculture, manufacturing and services industries. During Fiscal Year 2014, the country faced an energy deficit of 4.2% and a peak deficit of 4.5%. The CEA expects India's peak energy shortage to continue in Fiscal Year 2015. Moreover, the CEA estimates in Fiscal Year 2015 that there will be a general power shortage and a peak power shortage of 5.1% and 2.2%, respectively. According to the Planning Commission of India, there have been significant increases in installed capacities as well as efficiency improvements in the industry, which it expects to substantially reduce the supply-demand gap in the future. Furthermore, the private sector is expected to play a much larger role in future supply additions, as compared to the past. According to the Twelfth Five- Year Plan, the energy requirement during the terminal year of the plan, Fiscal Year 2017, is expected to be 1,403 billion units, while the energy requirement at the end of the Thirteenth Five-Year Plan, Fiscal Year 2022, is expected to be 1,993 billion units, assuming an estimated GDP growth rate of 9% during the periods under the Twelfth and Thirteenth Five-Year Plans. According to the 18th Electric Power Survey of India, the corresponding peak loads at the end of the Twelfth and Thirteenth Five-Year Plans is expected to be 199,540 MW and 283,470 MW, respectively. Any significant changes in demand for electricity will have a significant effect on our dispatch output, our operations and our expansion plans and in turn, on our profit and financial condition. See “ Industry Overview ” for a description of the demand for electricity in India beginning on page 76.
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Development status of our power projects
The volume of electrical output dispatched from our power projects affects our revenue and profit. Our ability to begin selling electricity is affected by the timing of new power projects commencing commercial operations. To the extent that there is a time gap between the date on which we begin commercial operations (which is the date on which we begin recognizing most of the expenses related to a project) and the date on which we begin to recognize revenue from that project, such a time gap could adversely affect our results of operations for the relevant period.
Our power projects are in various stages of development. Recently, we commissioned a 2x300 MW unit at our coal-based power plant in Chandrapur, State of Maharashtra, in each of February 2014 and August 2014, in addition to a 24 MW wind power plant in the State of Rajasthan (14 MW and 10 MW became operational in January 2013 and March 2013, respectively). We have as such expanded our operations beyond our license distribution area. We executed a PPA with Tamil Nadu Generation and Distribution Corporation Limited in relation to 100 MW of the power generated by our Chandrapur power plant, and sell the balance of this plant's power output in the merchant power market. We have also entered into PPAs with Rajasthan distribution companies for the entire power supply of our Rajasthan wind power plant.
We have scheduled the commissioning of a 600 MW power plant in Haldia, State of West Bengal and a 26 MW wind power plant in Surendranagar, State of Gujarat within the current fiscal year. For the Haldia plant, we have entered into a PPA with one of our subsidiaries for distribution of power in the license distribution area. For the Surendranagar plant, we expect to enter into a PPA shortly with Gujarat Urja Vikas Nigam Ltd, a state owned utility. We are also planning to develop coal-based power plants in the States of Orissa and Bihar and hydro power plants in the State of Arunachal Pradesh. We have acquired land for the Orissa project and are awaiting coal linkage to progress the project. We are in the process of preparing detailed project reports for the hydro power project in the State of Arunachal Pradesh.
The commissioning dates for our power projects are estimates and are subject to delay as a result of, among other things, delay or inability to obtain financing, contractor performance shortfalls, unforeseen engineering problems, force majeure events, unanticipated cost increases (including higher costs under our EPC contracts), and delays in obtaining property rights and government approvals, any of which could also give rise to cost overruns or the termination of a project’s development. The failure to complete development as planned, or in accordance with agreed specifications, could result in higher costs, penalties or liquidated damages, lower returns on capital or reduced future earnings.
In addition, construction costs are another factor affecting our results of operations. All of the construction costs of a power project are capitalized and no depreciation expenses are recorded until the assets are declared commercially operational. Depreciation expenses are recorded over the economic useful life of the asset. Thus, any increases in construction costs will result in an increase in depreciation expenses once the project begins commercial operations, thereby adversely affecting our results of operations.
Tariffs and off-take arrangements
Our revenue and profit from the sales of electricity in our licence area are directly affected by tariff rates determined by the WBERC. Our tariff rates are subject to various adjustments in accordance with applicable regulations. For instance, the WBERC determines our tariffs on a three-year basis, based on coal, freight, power purchases, employee expenses, finance cost, tax expenses and other overhead costs and expenses. However, we are able to pass on any price increases with respect to coal (including freight) and power purchases on a monthly basis to end consumers. We realize such price increase through the tariff setting mechanism prescribed by state electricity regulations in our licence distribution area.
Our revenue and profit from electricity sales in our non-license distribution area, that is, at our Chandrapur and Rajasthan plants, is based on the tariff set during bidding in relation thereto or the price available on the Indian Energy Exchange. Coal and freight costs in relation to such electricity sales can be escalated pursuant to escalation rates published by CERC and subject to the terms and conditions of specific bid documentation.
We have filed an application with the WBERC with respect to our tariff for the 2015-17 period for the license distribution area. In the event we are not able to secure timely increases in our tariff rates such delays could adversely affect our business, financial condition and results of operation. Furthermore, pursuant to the SC
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Orders, the Supreme Court of India cancelled the allocations of all but four of the coal blocks in India made between 1993 and 2010 and ordered us to pay an additional levy for coal extracted from the ICML mine by December 31, 2014. Consequently, the total additional levy payable by us is estimated at Rs. 9,770 million based on the previous coal we extracted. Our ability to pass on such levy to our customers will be subject to the appropriate recovery process in terms of law, considering the fact that the Company's fuel costs have been subjected to regulatory review/consideration and the Company's tariff to the consumer has been based on cost as approved by the WBERC.
Availability and price of fuel supply
The ability to source quality fuel at desirable prices and quantities, in light of existing regulations on electricity tariffs, is one of the key components in the success of our business, which in turn affects our results of operation and financial condition. As of June 30, 2014, we have fuel supply agreements with ICML and CIL subsidiaries. However, pursuant to SC Orders, the Supreme Court of India cancelled the allocations of all but four coal blocks made between 1993 and 2010, including the ICML mine allocation which represented 54% of the Company's aggregate coal supply during Fiscal Year 2014. The SC Orders require us to pay an additional levy for coal extracted from the ICML mine by December 31, 2014. As of June 30, 2014, the total additional levy based on the coal extracted is estimated at Rs. 9,770 million. While the Company's auditors have highlighted this additional levy as a matter of emphasis in their audit report for the unaudited interim financial statements for the three months ending June 30, 2014, they have not yet determinatively concluded on the treatment to be accorded to this additional levy. The Company, however, does not expect any such treatment by the auditors to have an adverse impact on the Company's near term profitability, results of operations and financial condition. If the additional levy is to be treated as an expense or liability by the Company's auditors, such treatment could adversely affect on the Company's profit and loss statement, especially if we are unable to build in the impact of the additional levy in its tariff (which the Company would recognize as an asset) and pass it on to the customers, partially or entirely. Payment of the additional levy by the Company and any failure to pass it on to end consumers, partially or entirely, may adversely impact the Company’s profitability, results of operations and financial condition. The majority of the Company's coal requirements have historically been met through the coal mine owned by ICML, an RP-Sanjiv Goenka Group company.
We plan to increase our supplies from CIL, which accounted for 39% of our aggregate coal supply in 2014, as a partial substitute to coal provided by ICML, in addition to participating in e-auctions held by CIL from time to time. Although, CIL and its subsidiaries are not able to supply 100% of coal assured as per the letters of assurance issued by them and given stagnating domestic coal production in India for the past three years, this is one alternative that we are currently exploring. Additionally, we prospectively intend to import more than coal than the 7% of our aggregate coal supply that we imported in Fiscal Year 2014 .
The Company does not currently have a fuel supply agreement in place for its Chandrapur power plant. See “Business – Commissioned Power Projects ” for a description of our fuel supply arrangements on page 107. In relation to the Haldia power plant, which is likely to be commissioned during Fiscal Year 2015, we have entered into fuel supply agreement with Mahanadi Coalfields Limited, a subsidiary of CIL. That said, there can be no assurance that we will be able to obtain coal supplies in sufficient quantities, in a timely manner, on commercially acceptable terms, or at all, which would adversely affect our operations and profitability.
We are exposed to fluctuations in the prices of the raw materials we require for the production of power, namely coal and oil. CIL has approved a proposal to use imported coal in order to compensate power generation companies for any shortfall in the supply of domestic coal as compared to the coal linkage requirements whereby the higher cost of imported coal is to be considered for pass-through. The cost of coal and oil consumed accounted for 20.2% of our total expenses in Fiscal Year 2014. In addition, the extent to which our profit is ultimately affected by the cost of fuel depends on our ability to pass through fuel costs to our customers as set out under the relevant regulatory guidelines and the terms of our offtake arrangements for a particular project. With respect to the additional levy for which the Company is liable pursuant to the SC Orders, please refer to note 23(B) of the unaudited interim financial statements for the three months ended June 30, 2014. The Company also intends to participate in coal block auctions in accordance with applicable statutes/regulations in terms of the coal ordinance.
Availability of cost-effective funding
We have historically relied on capital contributions from our shareholders and through debt financing, primarily from banks. We expect to continue to fund our projects in the future in the same manner. Our plans for the
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development and construction of our power projects will require substantial capital expenditures, which we expect to fund through a combination of the net proceeds of the Issue, additional debt and equity financing and, as our projects are completed, from operating cash flows. Our debt service costs as well as our overall cost of funding depend on many external factors, including developments in the regional credit markets and, in particular, interest rate movements and the existence of adequate liquidity in the debt markets, as well as on increases in the costs of our EPC contracts, which we fund through debt financing. With the recent Supreme Court of India's ruling on coal block allocations (see “ Risk Factors— The Supreme Court of India has cancelled the allocation of coal mine granted to ICML, by its judgment and order dated August 25, 2014 and September 24, 2014, respectively (the “SC Orders”), and has also imposed a levy on the allottees. The SC Orders adversely affect the Company as a majority of its coal requirements are sourced from ICML and the levy imposed by the SC Orders may have to be borne by the Company which may adversely affect the Company’s business, profitability, results of operations and financial condition ” on page 39), we expect that lenders will be cautious to incremental exposure to the power sector, which may lead to a shortage of overall funds allocated to the sector in the near term. We believe that going forward the availability of cost effective funding will be crucial and the non-availability of such funding at favorable terms could affect our business, financial condition and results of operations.
Dependence on the regulatory framework
The power sector in India is highly regulated both in terms of the inputs to the sector and in terms of the cost of electricity to the end user. The growth of the power industry in India as well as of our business is dependent on stable government policies and prudent regulations. Power generation has historically been the domain of the Central and State Governments, with State Governments responsible for transmission and distribution, and has been constrained by various factors such as shortages of public funding, political considerations and issues of transparency and accountability. Successive governments have made multiple changes in policies that facilitated the entry of private capital into the Indian power industry to propel rapid growth in the sector. The Integrated Energy Policy, which identified a causal relationship between growth and power, is one such example, and towards this end the Government has designed its policies to increase capital investment in the sector through private sector participation. The Central Government has focused on reforms on fuel (coal), approvals and permissions, and cutting transmission and distribution losses, which we believe would have a positive impact on our business and results. For further details, see the section “ Industry Overview ” beginning on page 76.
Availability and operational efficiency
The net power generation of our generation facilities is a function of the consolidated installed capacity, utilization hours and auxiliary electricity usage. Our consolidated installed capacity increases as we expand, and the utilization hours are calculated by dividing the gross power generation in a specific period by the average consolidated installed capacity in such period.
Assuming that a project operates at full capacity 24 hours per day throughout a year, its theoretical maximum utilization hours are 8,760 hours per year (i.e., 365 days x 24 hours). In addition, utilization hours are also influenced by repairs and maintenance, performance of equipment and grid constraints. Any slowdown or stoppage in operations of any of our projects due to maintenance and repairs, whether planned or unplanned, will result in a decrease in our utilization hours as well as our revenue and increase in repair and maintenance expenses. Coal-based projects, unlike hydro power generation facilities, are largely unaffected by weather conditions, and are therefore generally able to operate continuously (subject to planned output and other restrictions).
Utilization hours of our facilities is also a function of their availability and operational efficiency. By reducing unplanned outages and optimizing planned outages, availability is maximized which increases potential utilization hours from the project. The level of operational efficiency that each facility is able to attain depends on a variety of factors, including normal degradation of the generating units and the quality of repairs and operations and maintenance services performed on the projects. If our utilization hours decrease significantly with other factors remaining the same, then our revenue will also decrease. Over past ten years, our projects have maintained availability levels to accommodate for potential increases in utilization hours and demand above planned output levels. For details in relation to the efficiency of our projects, see the summary operating data for each project in “ Business – Commissioned Power Projects ” beginning on page 107.
BPM Business
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Global demand
The demand for BPM services is largely contingent on the acceptance of FSL's service offerings around the world, ability to keep pace with technological changes and provide innovative solutions services. FSL is dependent on global economic conditions and the information technology sector activity in India and abroad, along with international governmental polices affecting BPM services and the sectors on which FSL focuses its business (notably the healthcare, T&M and BSFI sectors). For example, the Central Government’s focus on and sustained increase in budgetary allocation for the information technology sector, the development of software technology parks and policy that encourages greater private sector participation, in addition to increased funding for international and multilateral development financial institutions for projects in South Asia, directly impacts FSL's business. FSL's ability to adapt and change to fluid global demand for its services, as well as governmental policies in its major markets is critical to its results from operations.
Spend driven by new regulations
BPM spend induced by the significant regulatory overhaul of the U.S. healthcare system could be a key driver for FSL's results from operations. The U.S. Patient Protection and Affordable Care Act (also popularly known as Obamacare), mandates that U.S. citizens purchase health insurance in 2014 or otherwise face penalties. This could bring millions of Americans into the insurance system and implies incremental volumes for both hospitals and insurers. Broadly, Obamacare's objectives are to (a) increase the quality and affordability of healthcare, (b) reduce the number of uninsured persons through public and private coverage and (c) reduce the cost of healthcare. This initiative could create opportunities in information technology implementation and support for electronic health records, BPM services to reduce costs, raise member enrolments, billings, claims administration and data analytics services to support fact-based decision-making throughout the U.S. healthcare system. Regulatory changes, such as Obamacare, will continue to substantially impact FSL's business.
Retail Business
Competition in organized retail
As the organized retail industry is highly fragmented, SRL faces competition from local stores, who may, for a variety of reasons such as easier access and personal relationship with customer may be able to cater to local demands better than SRL. Further, the introduction of foreign participation in the retail sector will result in the entry of multinational retail companies into the Indian market. International competitors may enjoy many of the same advantages that SRL does and may have lower cost structures, enabling them to compete vigorously vis-à- vis pricing. As a result of competition, SRL may have to price its products at prices that reduce its margin and, at the same time, increase its advertising and distribution expenditure, which may adversely affect SRL's business costs and profits.
Sales growth
SRL drives its net sales income from the sales of goods and services at its stores. SRL's net sales are affected by the number of customers, sales per customer and by price fluctuations due to inflation or deflation. Further, its net sales are affected by the concentration of SRL's stores and the expansion of its network of stores in India.
The revenue from each store varies depending upon the type of format and the location of the store. SRL's hyper format generates higher sales volume per square foot than its daily format. SRL's stores in tier I cities, in terms of population and income, generate higher sales volume as compared to its stores in other cities. Further, SRL's revenue from stores of the same format varies based on the size of the stores.
SRL's sales growth is categorized in the following manner:
1. Sales growth at existing stores – This represents same store sale growth over the corresponding period in the previous fiscal year, in addition to greater sales without a proportionate increase in store operating costs. Sales growth at the same stores is driven by adding customers, adding newer categories of products and services, ensuring higher wallet share of customers in its stores, in addition to making variations in product prices on account of inflation or deflation.
2. Sales at new stores – As part of SRL's expansion plans, it will open hypermarkets in existing and new cities in India, and intend, among other ways, to grow its sales in this manner.
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Basis of Presentation
Our audited consolidated financial statements as of and for Fiscal Years 2014, 2013 and 2012 have been prepared in accordance with Indian GAAP and in compliance with the Accounting Standards issued by the Institute of Chartered Accountants of India to comply with the Accounting Standards notified under Section 211 (3C) of the 1956 Act (which continue to be applicable in respect of Section 133 of the 2013 Act in terms of General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/2013 Act, as applicable.
Critical Accounting Policies
Preparation of financial statements in accordance with Indian GAAP, the applicable accounting standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act require our management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of our assets and liabilities, disclosures of contingent liabilities and the reported amounts of revenues and expenses. These judgments, assumptions and estimates are reflected in our accounting policies, which are more fully described in the notes to our financial statements included in this PPD.
Certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant assumptions and estimates of our management. We refer to these accounting policies as our “critical accounting policies.” Our management uses our historical experience and analysis, the terms of existing contracts, historical cost convention, industry trends, information provided by our agents and information available from other outside sources, as appropriate, when forming our assumptions and estimates. However, this task is inexact because our management is making assumptions and providing estimates on matters that are inherently uncertain.
While we believe that all aspects of our financial statements should be studied and understood in assessing our current and expected financial condition and results, we believe that the following critical accounting policies warrant additional attention:
(a) Accounting Convention
These consolidated financial statements have been prepared to comply in all material aspects with the applicable accounting principles in India, including Accounting Standards notified u/s 211(3C) of the Companies Act, 1956 and the Companies Act, 2013 to the extent applicable. A summary of important accounting policies are set out below.
(b) Basis of Accounting
The consolidated financial statements have been prepared under the historical cost convention, modified by revaluation of certain fixed assets as stated in item 3 (c ). Certain subsidiaries of the group early adopted Accounting Standard 30, 'Financial Instruments: Recognition and Measurement' (AS 30) read with Accounting Standard 31 - ' Financial Instruments: Presentation' (AS 31) issued by the Institute of Chartered Accountants of India effective 1 April 2008.
(c) Tangible Assets Tangible Assets are stated at historical cost of acquisition except tangible assets other than furniture and vehicles acquired upto 31st March 2005 of the Parent. Those assets have been adjusted for the effect of valuation made by an approved external valuer at the then current replacement cost after necessary adjustment for depreciation. Subsequent acquisition of these assets, furniture and vehicles are stated at cost of acquisition together with any incidental expenses related to acquisition and appropriate borrowing costs. In case of a project, cost also includes pre- operative expenses and where applicable, expenses during trial run after netting off of revenue earned during trial run and income arising from temporary use of funds pending utilisation. With respect to certain subsidiaries, expenditure in respect of improvements, etc. carried out at the rented / leased premises are capitalized and expenditure incurred in setting up the stores are capitalized as a part of the leasehold improvements.
(d) Intangible Assets
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Intangible assets comprising software, brands / trademarks, knowhow and licences, expected to provide future enduring economic benefits, are stated at cost of acquisition / implementation / development less accumulated amortisation. In respect of certain subsidiaries, software product development costs are expensed as incurred during the research phase until technological feasibility is established. Software development costs incurred subsequent to the achievement of technological feasibility are capitalized and amortised over the estimated useful life of the products as determined by the management. This capitalization is done only if there is an intention to and ability to complete the product, the product is likely to generate future economic benefits, adequate resources to complete the product are available and such expenses can be accurately measured. Such software development costs comprise expenditure that can be directly attributed or allocated on a reasonable and consistent basis, to the development of the product.
(e) Impairment of assets
An impairment loss is recognized, where applicable when the carrying value of assets of cash generating unit exceeds its market value or value in use, whichever is higher.
In respect of certain subsidiaries, impairment loss is recognized as follows:
(i) Financial assets
Certain subsidiaries assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. If any such indication exists, the group estimates the amount of impairment loss. The amount of loss for short-term receivables is measured as the difference between the assets carrying amount and undiscounted amount of future cash flows. Reduction, if any, is recognised in the consolidated statement of profit and loss. If at the balance sheet date there is any indication that a previously assessed impairment loss no longer exists, the recognised impairment loss is reversed, subject to maximum of initial carrying amount of the short-term receivable.
(ii) Non- Financial assets
Certain subsidiaries assesses at each balance sheet date whether there is any indication that a non-financial asset including goodwill may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the consolidated statement of profit and loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.
(f) Depreciation / Amortization
With respect to the Parent, in terms of applicable Regulations under the Electricity Act, 2003, depreciation on tangible assets other than freehold land is provided on straight line method on a prorata basis at the rates specified therein, the basis of which is considered by the West Bengal Electricity Regulatory Commission (Commission) in determining the tariff for the year of the Parent.
Leasehold land is amortized over the unexpired period of the lease.
Cost of intangible assets comprising computer software related expenditure, know-how and licences are amortised over a period ranging from three years to ten years based on its useful life.
In respect of the Parent, brands/ trademarks are amortised over a period of twenty years based on useful life assessed by an independent valuer.
For certain subsidiaries, depreciation is charged on straight line method whereas in other cases depreciation on fixed assets is provided on written down value method, wherein both the cases such charge is made at the rates prescribed in Schedule XIV under the Companies Act, 1956 with an exception of application of higher rate of depreciation in one of the subsidiaries in certain cases.
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During the year 2013-14, in respect of some of the subsidiaries, the method of providing depreciation was changed from Written Down Value Method to Straight Line Method.
(g) Expenditure during construction
Ten of the subsidiaries and the joint venture entity are yet to commence commercial operation.
Indirect expenses related to the project and incidental thereto are included under Capital Work in Progress and to be capitalized subsequently
Indirect expenditure which are not directly related to the project are charged off to the Statement of Profit and Loss.
(h) Leasing
Lease rentals in respect of assets taken under operating lease are charged to revenue. In case of one of the subsidiaries, finance leases, which effectively transfer substantially all the risk and benefits incidental to the ownership of the leased item, are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the leased liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized.
Assets given on finance lease, in respect of certain subsidiaries, are shown as amounts recoverable from the lessee. The rentals received on such leases are apportioned between the finance charge / (income) and principal amount using the implicit rate of return. The finance charge / (income) is recognised as income, and principal received is reduced from the amount receivable. All initial direct costs incurred are included in the cost of the asset.
In case there is no reasonable certainty that the company will obtain the ownership by the end of the lease term, the capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
(i) Investments
Current Investments are stated at lower of cost and fair value and Non Current Investments are stated at cost. Provision is made where there is a decline, other than temporary, in the value of Non Current Investment.
(j) Inventories
Inventories are valued at lower of cost and net realizable value. Cost is calculated on weighted average basis and comprises of expenditure incurred in the normal course of business in bringing such inventories to their location and condition. Obsolete, slow moving and defective inventories are identified at the time of physical verification of inventories and where necessary, adjustment is made for such items.
(k) Foreign Currency Transactions
Transactions in foreign currency are accounted for at the exchange rate prevailing on the date of transactions. Transactions remaining unsettled are translated at the exchange rate prevailing at the end of the financial year. Exchange gain or loss arising on settlement / translation is recognized in the Consolidated Statement of Profit and Loss. The outstanding loans repayable in foreign currency are restated at the year-end exchange rate. With respect to the Parent, exchange gain or loss arising in respect of such restatement is accounted for as an income or expense with recognition of the said amount as refundable or recoverable, which will be taken into consideration in determining the Parent’s future tariff in respect of the amount settled duly considering as appropriate, the impact of the contracts entered into for managing risks thereunder.
In respect of certain subsidiaries, the outstanding loans repayable in foreign currency are restated at year-end exchange rates or such other applicable rates considering the concerned coverages made by the subsidiaries .
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Exchange gain or loss arising in respect of such restatement and the impact of the contracts for managing risks thereunder is accounted as an income or expense.
Certain subsidiaries measure the financial liabilities, except for derivative financial liabilities, at amortised cost using the effective interest method. It measures the short-term payables with no stated rate of interest at original invoice amount, if the effect of discounting is immaterial.
The consolidated financial statements are reported in Indian rupees. The translation of the local currency of each integral foreign subsidiary within the Group into Indian rupees is performed in respect of assets and liabilities other than fixed assets, using the exchange rate in effect at the balance sheet date and for revenue and expense items other than the depreciation costs, using average exchange rate during the reporting period. Fixed assets of integral foreign operations are translated at exchange rates on the date of the transaction and depreciation on fixed assets is translated at exchange rates used for translation of the underlying fixed assets.
In respect of certain subsidiaries assets and liabilities including fixed assets are translated at exchange rates prevailing at the date of the balance sheet. The items in the statement of profit & loss are translated at the average exchange rate during the period. Goodwill arising on the acquisition of non-integral operation is translated at exchange rates prevailing at the date of the balance sheet. The difference arising out of the translations are transferred to exchange difference on consolidation of non-integral subsidiaries under Reserves & Surplus.
With respect to one of the subsidiaries, exchange differences arising on monetary items that qualify as hedging instruments in a cash flow hedge or hedge of a net investment, is initially recognized in Hedging Reserve Account or Foreign Currency Translation Reserve Account respectively. Such exchange differences are subsequently recognized in the consolidated statement of profit & loss on occurrence of the underlying hedged transaction or on disposal of the investment as the case may be.
Derivative instruments and hedge accounting with respect to certain subsidiaries :
Certain subsidiaries are exposed to foreign currency fluctuations on net investments in foreign operations and forecasted cash flows denominated in foreign currencies. The subsidiary limits the effects of foreign exchange rate fluctuations by following established risk management policies including the use of derivatives. The Company enters into derivative financial instruments, where the counterparty is a bank.
The use of foreign currency forward contracts is governed by one of the subsidiary company's policies approved by the Board of Directors, which provide written principles on the use of such financial derivatives consistent with the Company's risk management strategy. The Group does not use derivative financial instruments for speculative purposes. Certain subsidiaries use foreign currency forwards contracts and currency options to hedge its risks associated with foreign currency fluctuations relating to certain forecasted transactions. The Company designates these as cash flow hedges.
Foreign currency derivative instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognised directly in shareholder’s funds and the ineffective portion is recognised immediately in the consolidated statement of profit and loss.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the consolidated statement of profit and loss as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time for forecasted transactions, any cumulative gain or loss on the hedging instrument recognised in shareholder’s funds is retained there until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in shareholders’ funds is transferred to the consolidated statement of profit and loss for the period.
Non-derivative financial instruments and hedge accounting with respect to certain subsidiaries:
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets of the Company mainly include cash and bank balances, accounts receivables, unbilled revenues, finance lease receivables, employee travel and other advances, other
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loans and advances and derivative financial instruments with a positive fair value. Financial liabilities of the Company mainly comprise secured and unsecured loans, trade payables, accrued expenses and derivative financial instruments with a negative fair value. Financial assets / liabilities are recognised on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when all of risks and rewards of the ownership have been transferred. The transfer of risks and rewards is evaluated by comparing the exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred assets. Short-term receivables with no stated interest rates are measured at original invoice amount, if the effect of discounting is immaterial. Non- interest-bearing deposits are discounted to their present value.
It also designates financial instruments as hedges of net investments in non-integral foreign operations. The portion of changes in fair value of financial instrument that is determined to be an effective hedge is recognised in Foreign Currency Translation Reserve and would be recognised in consolidated statement of profit and loss upon sale / disposal of the related non-integral foreign operations. Changes in fair value relating to the ineffective portion of hedges are recognised in the consolidated statement of profit and loss as they arise.
(l) Revenue from Operations
Earnings from sale of electricity of the Parent are net of discount for prompt payment of bills and do not include electricity duty payable to the State Government. They also include, as per established practice, consistently followed by the Parent in the past, estimated sums recoverable from / adjustable on consumers’ account, calculated on the basis of rates approved / specified by the appropriate authorities which are reflected in the subsequent bills. In terms of the applicable regulations and tariff determination process followed by the Commission, advance against depreciation forms part of tariff. Such advance against depreciation of a year is adjusted against earning from sale of electricity for inclusion of the same in subsequent years, based on due consideration by the authorities in the tariff determination process.
With respect to the Parent, income from meter rent is accounted for as per the approved rates.
With respect to certain subsidiaries, revenue is recognized when significant risk and rewards of ownership of the goods get passed on to the buyers.
In respect of one of its subsidiaries, revenue from mall operations are based on contractual rights.
In respect of one of its subsidiaries, generation based incentive is recognized on accrual basis.
In respect of certain subsidiaries, revenue from contact centre and transaction processing services comprises from both time/unit priced and fixed fee based service contracts. Revenue from time/unit price based contracts is recognized as services are rendered and is billed in accordance with the contractual terms specified in the customer contracts. Revenue from fixed fee based service contracts is recognized on achievement of performance milestones specified in the customer contracts. Revenue from debt collection services is recognized when debts are realized. Income from contingency based contracts, in which the client is invoiced for a percentage of the reimbursement, is recognised on completion of services. Unbilled receivables represent costs incurred and revenues recognized on contracts to be billed in subsequent periods as per the terms of the contract.
(m) Other Income
Income from investments and deposits etc. is accounted for on accrual basis inclusive of related tax deducted at source, where applicable.
With respect to certain subsidiaries, income from recoveries and services mainly represents recoveries made on account of advertisement for use of space by the customer and other expenses charged from suppliers and are recognized and recorded based on the arrangements with concerned parties.
In respect of certain subsidiaries, revenue grants are recognized when reasonable certainty exists that the conditions precedent will be/ are met and the grants will be realised, on a systematic basis in the consolidated statement of profit & loss over the period necessary to match them with the related cost which they are intended to compensate.
(n) Employee Benefits
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Contributions to Provident Fund and contributory Pension Fund are accounted for on accrual basis. Provident Fund contributions are made to funds administered through duly constituted approved independent Trusts or Regional Provident Fund Commissioner. The interest rate payable to the members of the trust fund shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 and deficiency, if any, is made good by the Companies. The companies, as per its schemes, extend employee benefits current and/or post retirement, which are accounted for on accrual basis, and includes actuarial valuation as at the balance sheet date in respect of gratuity, leave encashment and certain other retiral benefits, to the extent applicable, made by independent actuaries. Actuarial gains and losses, where applicable, are recognized in the Statement of Profit and Loss. Compensation in respect of voluntary retirement scheme is charged off to revenue.
In respect of one of the subsidiaries short term employee benefits are recognised as an expense in the Statement of Profit and Loss for the year in which the related service is rendered.
The subsidiaries in the United States of America have a savings and investment plan under Section 401 (k) of the Internal Revenue Code of the United States of America. This is a defined contribution plan. Contributions made under the plan are charged to the consolidated statement of profit & loss in the period in which they accrue. Other retirement benefits are accrued based on the amounts payable as per local regulations.
(o) Taxes on Income
Current tax represents the amount payable based on computation of tax as per prevailing taxation laws under the Income Tax Act, 1961.
Certain subsidiaries have operations in Special Economic Zones (SEZ). Income from SEZ are eligible for 100% deduction for the first five years, 50% deduction for next five years and 50% deduction for another five years, subject to fulfilling certain conditions. In this regard, the Group recognises deferred taxes in respect of those originating timing differences which reverse after the tax holiday period resulting in tax consequences. Timing differences which originate and reverse within the tax holiday period do not result in tax consequence and, therefore, no deferred taxes are recognised in respect of the same.
Provision for deferred taxation is made using liability method at the current rates of taxation on all timing differences to the extent it is probable that a liability or asset will crystallize. Deferred tax assets are recognized subject to the consideration of prudence and are periodically reviewed to reassess realization thereof. Deferred tax liability or asset will give rise to actual tax payable or recoverable at the time of reversal thereof. With respect to the Parent, since tax on profits forms part of chargeable expenditure under the applicable regulations, deferred tax liability or asset is recoverable or payable through future tariff. Hence, recognition of deferred tax asset or liability is made with corresponding provision of liability or asset, as applicable.
(p) Miscellaneous expenditure to the extent not written off or adjusted
With respect to the Parent, the erstwhile governing statute, viz., the Electricity (Supply) Act, 1948 (ESA), provided for amortisation of preliminary expenses and certain capital issue expenses over the unexpired period of licence. The Parent, as per the consistently applied accounting policy continues with such amortisation of expenditure incurred upto the year 2004-05. Thereafter, pursuant to repeal of ESA, such expenditures are charged off to revenue.
(q) Employee Stock Compensation Cost
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With respect to one of the subsidiaries, measurement and disclosure of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India. The compensation cost relating to employee stock options is measured using the fair value method. Compensation expenses are amortized over the vesting period of the option on a straight line method.
One of the subsidiaries applies the intrinsic value based method of accounting for determining compensation cost for its stock-based compensation plan. The compensation cost is amortized over the vesting period of the option
Please refer to the Financial Information commencing on page 240, in addition to the audit reports in relation to the audited consolidated financial statements of the Company for Fiscal Years 2014, 2013 and 2012, and the unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014, for further information on our critical accounting policies for Fiscal Years 2014, 2013 and 2012, and for the three months ended June 30, 2014, respectively.
Results of Operations
The following table sets forth certain items derived from our audited consolidated financial statements for Fiscal Years 2014, 2013 and 2012 and unaudited condensed consolidated financial statements for the quarter ended June 30, 2014, expressed in absolute terms and as a percentage of total revenue for the periods indicated:
Three months ended FY 2014 FY 2013 FY 2012 June 30, 2014 (% of (% of (% of (% of (Rs. in (Rs. in (Rs. in (Rs. in Total Total Total Total millions) millions) millions) millions) Revenue) Revenue) Revenue) Revenue) Revenue from operations 31,390.8 99.0 101,108.5 98.3 75,566.5 98.1 58,827.3 97.7 Other income 303.0 1.0 1,733.5 1.7 1,437.3 1.9 1,412.5 2.3 Total revenue 31,693.8 100.0 102,842.0 100.0 77,003.8 100.0 60,239.8 100.0 Expenses Cost of electrical energy 4,228.5 13.3 8,910.4 8.7 9,451.6 12.3 6,360.5 10.6 purchased for power business Cost of materials consumed 33.1 0.1 97.8 0.1 62.4 0.1 27.1 - for retail business Purchases of stock-in-trade 3,376.4 10.7 11,989.6 11.7 10,835.3 14.1 10,053.0 16.7 for retail business Changes in inventories of (21.4) (0.1) (320.1) (0.3) 124.9 0.2 2.8 - finished goods, stock-in-trade and work-in-progress for retail business Cost of fuel for power 6,225.0 19.6 19,246.0 18.7 17,967.5 23.3 17,619.7 29.2 business Employee benefits expenses 7,574.0 23.9 29,600.8 28.8 13,073.6 17.0 5,986.2 9.9 Finance costs 1,987.2 6.3 5,660.2 5.5 4,304.1 5.6 3,450.9 5.7 Depreciation and 1,415.0 4.5 4,714.1 4.6 3,645.3 4.7 3,400.5 5.6 amortization expense Other expenses 5,438.3 17.2 15,358.4 14.9 11,390.2 14.8 9,146.0 15.2 Total expenses 30,256.1 95.5 95,257.2 92.6 70,854.9 92.0 56,046.7 93.0 Profit before taxation, 1,437.7 4.5 7,584.8 7.4 6,148.9 8.0 4,193.1 7.0 exceptional items and minority interest Exceptional Items - - - 417.7 0.5 (257.1) (0.4) Profit before taxation and 1,437.7 4.5 7,584.8 7.4 6,566.6 8.5 3,936.0 6.5 minority interest Tax (expense) Current tax (620.7) (2.0) (2,147.2) (2.1) (1,694.5) (2.2) (1,491.5) (2.5) MAT credit 76.7 0.2 269.0 0.3 76.7 0.1 - - Current tax (net) (544.0) (1.7) (1,878.2) (1.8) (1,617.8) (2.1) (1,491.5) (2.5) Deferred tax (net) (390.7) (1.2) (1,704.9) (1.7) (1,920.0) (2.5) (360.0) (0.6) Recoverable/(Payable) 373.8 1.2 1,727.2 1.7 1,780.0 2.3 360.0 0.6 Tax expense (560.9) (1.8) (1,855.9) (1.8) (1,757.8) (2.3) (1,491.5) (2.5)
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Three months ended FY 2014 FY 2013 FY 2012 June 30, 2014 (% of (% of (% of (% of (Rs. in (Rs. in (Rs. in (Rs. in Total Total Total Total millions) millions) millions) millions) Revenue) Revenue) Revenue) Revenue) Profit after taxation and 876.8 2.8 5,728.9 5.6 4,808.8 6.2 2,444.5 4.1 exceptional items before minority interest Minority interest (226.5) (0.7) (812.5) (0.8) (215.0) (0.3) 14.3 - Profit for the year/period – 650.3 2.1 4,916.4 4.8 4,593.8 6.0 2,458.8 4.1 transferred to surplus
Principal Income Statement Items
Total Revenue
Our total revenue includes revenue from operations and other income.
Our revenue from operations consists primarily of: (a) revenue from the sale of electricity through the power business; (b) revenue from the sale of process outsourcing services; (c) revenue from the sale of retail products; (d) revenue from the property development business; and (e) other operating revenue, including revenue from the rental of electricity meters.
Our other income consists primarily of interest income, income from recoveries and services made on account of third party advertising made in our retail business locations and net gains/losses from the sale current investments, as well as other non-operating income.
Expenses
Our expenses include the costs and expenses described below.
Cost of Electrical Energy Purchased for Power Business
Our cost of electrical energy purchased for the power business consists of power purchases to meet demand from consumers for electrical energy in the license distribution area as and when such demand exceeds our generating capacity, especially during the peak summer season.
Purchases of Stock-in-Trade for Retail Business
Our purchases of stock-in-trade for the retail business consist of the various retail products that we sell to end customers in our stores.
Cost of Fuel for Power Business
Our cost of fuel for the power business consists of coal and light diesel oil consumed in our power generation activities. Such cost of fuel also includes freight and gains and/or losses on exchange rate fluctuations.
Employee Benefits Expenses
Our employee benefits expenses consist primarily of salaries, wages and bonuses. Employee benefits expenses also include, to a lesser extent, contributions to provident and other funds and staff welfare expenses.
Finance Costs
Finance costs include interest expenses on term loans, revolving loans and other borrowing costs, as well as related losses and/or gains on foreign currency transactions.
Depreciation and Amortization Expenses
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Depreciation and amortization expenses include depreciation and amortization of tangible assets, including land, buildings, plant and equipment, distribution assets, office equipment, furniture and fixtures and amortization of intangible assets, consisting of acquired goodwill, computer software, trademarks and licenses, net of recoupments from our revaluation reserve.
Other Expenses
Other expenses include consumption of stores and spares, rent, repairs to plant and machinery, distribution systems and buildings, travel expenses, information technology, communication and connectivity expenses, and certain other miscellaneous expenses.
Tax Expenses
Our tax expenses consist of current tax (net of minimum alternate tax (" MAT ") credits) and deferred tax. MAT credits can be carried forward for set-off against regular tax payable during the subsequent years subject to certain conditions and in accordance with Indian law.
Minority Interests
If a parent company owns a controlling interest in a subsidiary which is less than 100% of its shares, a minority interest exists representing the ownership share of such subsidiary's other shareholders. These minority shareholders are entitled to a proportionate share of the profit and loss of the subsidiary to the extent of their shareholdings, which is reflected as a line item on the statement of profit and loss.
Three Months Ended June 30, 2014
Total Revenue
Our total revenue for the three months ended June 30, 2014 amounted to Rs. 31,693.8 million, comprising of (a) revenue from the power business amounting to Rs. 19,772.5 million; (b) revenue from process outsourcing services amounting to Rs. 7,540.4 million; (c) revenue from the retail business amounting to Rs. 4,203.4 million; and (d) revenue from the property business amounting to Rs. 177.5 million.
Our revenue from the power business for the three months ended June 30, 2014 was driven largely by the sale of electricity to consumers in the license distribution area during peak summer season.
Our revenue from the process outsourcing services for the three months ended June 30, 2014 was driven largely by the sale of such services to customers in the healthcare, telecommunication and media, banking financial services and insurance sectors.
Our revenue from the retail business for the three months ended June 30, 2014 was driven largely by organized retailing through the many goods sold at our hypermarkets.
Our revenue from the property business for the three months ended June 30, 2014 comprised of rent revenue from mall operations.
Total Expenses
Our total expenses for the three months ended June 30, 2014 amounted to Rs. 30,256.1 million, consisting primarily of employee benefits expenses, cost of electrical energy purchased for the power business, cost of fuel for the power business, purchases of stock-in-trade for the retail business, finance costs, depreciation and amortization and other expenses.
Employee Benefit Expenses
Our employee benefit expenses for the three months ended June 30, 2014 amounted to Rs. 7,574.0 million, consisting primarily of salaries, wages and bonus payments. Such employee benefit expenses were primarily driven by expenses attributable to the process outsourcing business and the power business.
Cost of Electrical Energy Purchased for Power Business
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Our cost of electrical energy purchased for the power business for the three months ended June 30, 2014 amounted to Rs. 4,228.5 million, which was driven by the purchase of 770 MUs of electrical energy at an average rate of Rs. 5.49 per unit during the peak summer season.
Cost of Fuel for Power Business
Our cost of fuel for the power business for the three months ended June 30, 2014 amounted to Rs. 6,225.0 million, which was driven by the consumption of 1,520,088 MT of coal at an average rate of Rs. 3,542.69 per MT and 371 KL of light diesel oil at an average rate of Rs. 67,924.36 per KL.
Purchases of Stock-in-Trade for Retail Business
Our purchases of stock-in-trade for the retail business for the three months ended June 30, 2014 amounted to Rs. 3,376.4 million, to cater to increased demand in the 126 SRL retail outlets spread across India.
Finance Costs
Our finance costs for the three months ended June 30, 2014 amounted to Rs. 1,987.2 million, consisting primarily of interest expenses of Rs. 2,962.3 million and other borrowing costs amounting to Rs. 94.8 million, partially offset by an amount of Rs. 1,069.9 million allocated to our capital account. Interest expenses related primarily to our bank loan facilities, as well as to bank overdrafts and other borrowings. Depreciation and Amortization Expense
Depreciation and amortization expenses for the three months ended June 30, 2014 amounted to Rs. 1,415.0 million, consisting primarily of depreciation of our power plants and equipment and our transmission and distribution systems in our power business, including expenses as a result of the commissioning of our Chandrapur power project.
Other Expenses
Our other expenses for the three month ended June 30, 2014 amounted to Rs. 5,438.3 million, consisting primarily of consumption of stores and spares, rent, bad debts and repairs. Our other expenses included provisions for bad debt, increased operating costs resulting from greater power demand during the peak summer season, rent and other operating expenses in our retail business, in addition to information, communication, connectivity charges, rent and other infrastructure-related expenses required in the ordinary course of business to meet customer demands for our process outsourcing business.
Profit Before Taxation and Minority Interest
As a result of the foregoing, our profit before taxation and minority interest for the three months ended June 30, 2014 amounted to Rs. 1,437.7 million.
Tax Expenses
Our tax expenses for the three months ended June 30, 2014 amounted to Rs. 620.7 million in current tax, offset by an MAT credit of Rs. 76.7 million and deferred tax (net) of Rs. 390.7 million, as well as deferred tax recoverable of an amount of Rs. 373.8 million.
Minority Interest
For the three months ended June 30, 2014, minority interest amounted to Rs. 226.5 million, primarily on account of the 43.46% ownership stake of minority shareholders in the process outsourcing business.
Profit for the Period Transferred to Surplus
As a result of the foregoing, our profit for the period transferred to surplus for the three months ended June 30, 2014 amounted to Rs. 650.3 million. Such surplus is after considering establishment cost and fixed expenses of the newly commissioned power generating project at Chandrapur which is yet to generate appropriate matching revenue.
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Fiscal Year 2014 compared to Fiscal Year 2013
Total Revenue
Our total revenue increased by Rs. 25,838.2 million, or 33.6%, from Rs. 77,003.8 million for Fiscal Year 2013 to Rs. 102,842.0 million for Fiscal Year 2014. This increase was primarily due to an increase in revenues from our process outsourcing business, as well as, to a lesser extent, increases in our revenue from the sale of electricity in our power business and in revenue from our retail business.
Revenue from our power business increased by Rs.2,852.2 million, or 5.3%, from Rs. 53,938.6 million for Fiscal Year 2013 to Rs. 56,790.8 million for Fiscal Year 2014. This increase in revenue from operations was primarily due to increased electricity consumption by consumers in the licence distribution area from 8,577 MU in Fiscal Year 2013 to 8,591 MU in Fiscal Year 2014, mainly resulting from 140,000 additional customers in Fiscal Year 2014 relative to Fiscal Year 2013.
Revenue from our process outsourcing business increased by Rs. 21,933.6 million from Rs. 9,227.4 million for Fiscal Year 2013 to Rs. 31,161.0 million for Fiscal Year 2014. While the increase in the revenue from operations from Fiscal Year 2013 to Fiscal Year 2014 was sizable, the increase was in fact largely flat primarily because we acquired the process outsourcing business in December 2012 and accordingly only included four- months of process outsourcing revenues in Fiscal Year 2013 whereas we accounted for an entire year of revenue for Fiscal Year 2014.
Revenue from our retail business increased by Rs. 903.3 million, or 6.5%, from Rs. 13,832.7 million for Fiscal Year 2013 to Rs. 14,736.0 million for Fiscal Year 2014. This increase in revenue from operation was primarily due to an increase of Rs. 79 of average monthly revenue per square foot, or 6.4%, from Rs. 1,226 monthly revenue per square foot for Fiscal Year 2013 to Rs. 1,305 monthly revenue per square foot for Fiscal Year 2014, which is a function of greater sales efficiency, coupled with the opening of nine new hypermarket stores in Fiscal Year 2014.
Revenue from our property business increased by Rs. 149.1 million from Rs. 5.1 million for Fiscal Year 2013 to Rs. 154.2 million for Fiscal Year 2014. The Company opened its mall on September 30, 2013 and in so doing, launched a property business in Fiscal Year 2014, with mall operations representing a total built-up area of 700,000 square feet.
Total Expenses
Our total expenses increased by Rs. 24,402.3 million, or 34.4%, from Rs. 70,854.9 million for Fiscal Year 2013 to Rs. 95,257.2 million for Fiscal Year 2014. This increase was primarily due to an increase in employee benefit expense, as well as cost of fuel for our power business, finance costs, purchases of stock-in-trade for our retail business and depreciation and amortization, all of which were partially offset by a slight decrease in the cost of electrical energy purchase for our power business.
Cost of Electrical Energy Purchased for Power Business
Our cost of electrical energy purchased for the power business decreased by Rs. 541.2 million, or 5.7%, from Rs. 9,451.6 million for Fiscal Year 2013 to Rs. 8,910.4 million for Fiscal Year 2014 primarily due a decrease in our purchase of electrical energy by 124 kWh, or 6.7%, from 1,845 kWh for Fiscal Year 2013 to 1,721 kWh for Fiscal Year 2014.
Costs of Purchases of Stock-in-Trade for Retail Business
Our cost of purchases of stock-in-trade for our retail business increased by Rs. 1,154.3 million, or 10.7%, from Rs. 10,835.3 million for Fiscal Year 2013 to Rs. 11,989.6 million for Fiscal Year 2014, primarily to meet greater demand for retail products from the nine new hypermarkets opened during Fiscal Year 2014.
Cost of Fuel for Power Business
Our cost of fuel for our power business increased by Rs. 1,278.5 million, or 7.1%, from Rs. 17,967.5 million for Fiscal Year 2013 to Rs. 19,246.0 million for Fiscal Year 2014, primarily due to higher coal costs. For Fiscal
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Year 2013, 5,582,526.58 MT of coal was consumed at an average rate of Rs. 3,170.61 per MT as against 5,622,740.99 MT of coal consumed at an average rate of Rs. 3,263.26 per MT for Fiscal Year 2014.
Employee Benefits Expense
Our employee benefits expense increased by Rs. 16,527.2 million, from Rs. 13,073.6 million for Fiscal Year 2013 to Rs. 29,600.8 million for Fiscal Year 2014, consisting primarily of salaries, wages and bonus payments. Such employee benefit expenses were primarily driven by expenses attributable to the process outsourcing business and the power business.
Finance Costs
Our finance costs increased by Rs. 1,356.1 million, or 31.5%, from Rs. 4,304.1 million for Fiscal Year 2013 to Rs. 5,660.2 million for Fiscal Year 2014 primarily due to exchange rate fluctuations on the payment of interest during Fiscal Year 2014, which was offset by a decrease in amortization costs on the fair value of foreign currency commercial borrowings due to repayment of such loan in Fiscal Year 2013 in the process outsourcing business and additional charges from greater borrowings to finance capital expenditure in the power business.
Depreciation and Amortization Expense
Our depreciation and amortization expense increased by Rs. 1,068.8 million, or 29.3%, from Rs. 3,645.3 million for Fiscal Year 2013 to Rs. 4,714.1 million for Fiscal Year 2014 primarily due to additional depreciation of our power plants and equipment and our power transmission and distribution systems, coupled with a full year's impact on depreciation and amortization during Fiscal Year 2014 for the process outsourcing business as against four-months of depreciation and amortization for Fiscal Year 2013.
Other Expenses
Our other expenses increased by Rs. 3,968.2 million, or 34.8%, from Rs. 11,390.2 million for Fiscal Year 2013 to Rs. 15,358.4 million for Fiscal Year 2014. Higher operating costs for our power and retail business were generally in line with greater revenue. The increase in other expenses was also driven by the process outsourcing business, including due to a full year's recognition of operating costs for Fiscal Year 2014 as against four-months of such expenses for Fiscal Year 2013, including increases in information, communication, connectivity charges, rent and other infrastructural expenses required in the ordinary course of business.
Profit Before Taxation, Exceptional Items and Minority Interest
As a result of the foregoing, our profit before taxation, exceptional items and minority interest increased by Rs. 1,435.9 million, or 23.4%, from Rs. 6,148.9 million for Fiscal Year 2013 to Rs. 7,584.8 million for Fiscal Year 2014.
Tax Expense
Our tax expense increased by Rs. 98.1 million, or 5.6 %, from Rs. 1,757.8 million for Fiscal Year 2013 to Rs. 1,855.9 million for Fiscal Year 2014 primarily due to an increase in taxable income from our different business units, especially the process outsourcing business.
Exceptional Items Expense
Our exceptional items expense decreased by Rs. 417.7 million, from Rs. 417.7 million for Fiscal Year 2013 to nil for Fiscal Year 2014, primarily because of expenses incurred for the retail business during Fiscal Year 2013 with respect to store closures and write-offs of unusable assets.
Minority Interest
Minority interest increased by Rs. 597.5 million, from Rs. 215.0 million for Fiscal Year 2013 to Rs. 812.5 million for Fiscal Year 2014, which represented the allocation of profit attributable to FSL minority shareholders. Such increase is primarily due to the fact that we acquired the process outsourcing business in
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December 2012 and only included four-months of profit distributed to FSL minority shareholders in Fiscal Year 2013 whereas we distributed an entire year of profit to such minority shareholders for Fiscal Year 2014.
Profit for the Year Transferred to Surplus
As a result of the foregoing, our profit for the year transferred to surplus increased by Rs. 322.6 million, or 7.0%, from Rs. 4,593.8 million for Fiscal Year 2013 to Rs. 4,916.4 million for Fiscal Year 2014.
Fiscal Year 2013 compared to Fiscal Year 2012
Total Revenue
Our total revenue increased by Rs. 16,764.0 million, or 27.8%, from Rs. 60,239.8 million for the Fiscal Year 2012 to Rs. 77,003.8 million for Fiscal Year 2013. This increase is primarily due to an increase in revenues from our process outsourcing business, as well as, to a lesser extent, increases in our revenue from the sale of electricity in our power business and in revenue from our retail business.
Revenue from our power business increased by Rs. 6,214.1 million, or 13.0 %, from Rs. 47,724.5 million for Fiscal Year 2012 to Rs. 53,938.6 million for Fiscal Year 2013, primarily as a result of greater electricity consumption by consumers in the licence distribution area by 306 MU, or 3.7%, from 8,271 MU in Fiscal Year 2012 to 8,577 MU in Fiscal Year 2013.
Revenue from our process outsourcing business increased by Rs. 9,227.4 million, from nil for Fiscal Year 2012 to Rs. 9,227.4 million for Fiscal Year 2013 on the basis that we acquired such business in December 2012 and included four-months of revenue from operations for Fiscal Year 2013.
Revenue from our retail business increased by Rs. 1,323.9 million, or 10.6%, from Rs. 12,508.8 million for Fiscal Year 2012 to Rs. 13,832.7 million for Fiscal Year 2013. This increase was primarily due to an increase of Rs. 166 of average monthly revenue per square foot, or 15.7%, from Rs. 1,060 monthly revenue per square foot for Fiscal Year 2012 to Rs. 1,226 monthly revenue per square foot for Fiscal Year 2013, which is a function of greater sales efficiency and partly on account of opening new stores.
Total Expenses
Our total expenses increased by Rs. 14,808.2 million, or 26.4%, from Rs. 56,046.7 million for Fiscal Year 2012 to Rs. 70,854.9 million for Fiscal Year 2013. This increase was primarily due to an increase in employee benefits expenses, cost of electrical energy purchased for the power business, other expenses and, to a lesser extent, finance costs.
Cost of Electrical Energy Purchased for Power Business
Our cost of electrical energy purchased increased by Rs. 3,091.1 million, or 48.6%, from Rs. 6,360.5 million for Fiscal Year 2012 to Rs. 9,451.6 million for Fiscal Year 2013 primarily due to an increase in our purchase of electrical energy by 413 MU, or 28.8%, from 1,432 MU for Fiscal Year 2012 to 1,845 MU for Fiscal Year 2013. This increase was primarily due to a decrease in our total electricity generation by 204 MU, or 2.5%, from 8,179 MU for Fiscal Year 2012 to 7,975 MU for Fiscal Year 2013, coupled with increase in system demand. The units delivered to system increased by 217 MU from 9,619 MU for Fiscal Year 2012 to 9836 MU for Fiscal Year 2013.
Cost of Fuel for Power Business
Our cost of fuel for the power business increased by Rs. 347.8 million, or 2.0%, from Rs. 17,619.7 million for Fiscal Year 2012 to Rs. 17,967.5 million for Fiscal Year 2013 primarily due to higher coal costs. During Fiscal Year 2012, 5,754,064.52 MT of coal were consumed at an average rate of Rs. 3,006.31 per MT as against 5,582,526.58 MT of coal being consumed at an average rate of Rs. 3,170.61 per MT for Fiscal Year 2013.
Employee Benefits Expense
Our employee benefits expense increased by Rs. 7,087.4 million, or 118.4%, from Rs. 5,986.2 million for Fiscal Year 2012 to Rs. 13,073.6 million for Fiscal Year 2013, consisting primarily of salaries, wages and bonus
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payments. Such employee benefit expenses were primarily driven by expenses attributable to the process outsourcing business and the power business. Employee benefits expense in our power business increased for Fiscal Year 2013, primarily because of an additional interim charges resulting from higher wage increases paid to employees pursuant to negotiations in relation to wage revisions that fall due every six years.
Finance Costs
Our finance costs increased by Rs. 853.2 million, or 24.7%, from Rs. 3,450.9 million for Fiscal Year 2012 to Rs. 4,304.1 million for Fiscal Year 2013 primarily due to increases in expenses for the process outsourcing business given that we acquired this business in December 2012 and four-months of process outsourcing expenses were included for Fiscal Year 2013 as against nil for Fiscal Year 2012. Furthermore, finance charges were incurred as a result of greater borrowings to finance additional routine capital expenditures in the power business.
Depreciation and Amortization Expense
Our depreciation and amortization expense increased by Rs. 244.8 million, or 7.2%, from Rs. 3,400.5 million for Fiscal Year 2012 to Rs. 3,645.3 million for Fiscal Year 2013 primarily due to first time inclusion of depreciation and amortization for four-months relating to the process outsourcing business as against nil for Fiscal Year 2012.
Other Expenses
Our other expenses increased by Rs. 2,244.2 million, or 24.5%, from Rs. 9,146.0 million for Fiscal Year 2012 to Rs. 11,390.2 million for Fiscal Year 2013. Higher operating costs for our power and retail business were generally in line with greater revenue. The increase in other expenses was also driven by the process outsourcing business, including due to a four-months' recognition of operating costs for Fiscal Year 2013 as against nil for Fiscal Year 2012, including with respect to information, communication, connectivity charges, rent and other infrastructural expenses required in the ordinary course of business.
Profit Before Taxation, Exceptional Items and Minority Interest
As a result of the foregoing, our profit before taxation, exceptional items and minority interest increased by Rs. 1,955.8 million, or 46.6%, from Rs. 4,193.1 million for Fiscal Year 2012 to Rs. 6,148.9 million for Fiscal Year 2013.
Tax Expense
Our tax expense increased by Rs. 266.3 million, or 17.9%, from Rs. 1,491.5 million for Fiscal Year 2012 to Rs. 1,757.8 million for Fiscal Year 2013 primarily due to an increase in taxable income from our different business units, especially the process outsourcing business.
Minority Interest
Our minority interest increased by Rs. 229.3 million, from positive Rs. 14.3 million for Fiscal Year 2012 to negative Rs. 215.0 million for Fiscal Year 2013. In Fiscal Year 2012, the share of loss was attributed to minority shareholders of the retail business only. In Fiscal Year 2013, the proportionate net profit from the process outsourcing business was attributable to minority shareholders thereof, which was offset by the loss attributable to minority shareholders of the retail business.
Profit for the Year – Transferred to Surplus
As a result of the foregoing, our profit for the year transferred to surplus increased by Rs. 2,135.0 million, or 86.8%, from Rs. 2,458.8 million for Fiscal Year 2012 to Rs. 4,593.8 million for Fiscal Year 2013.
Liquidity and Capital Resources
The business of power generation is capital expenditure intensive. Our plans for the development and construction of our power projects require substantial capital expenditure, which we expect to fund through a combination of net proceeds of the Issue, additional debt and equity financing, and as projects are completed, increasingly from operating cash flows. We believe that going forward the availability of sources of cost
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effective funding will be crucial and the non-availability of such funding at favourable terms could affect our business, financial condition and results of operations.
Cash Flows
Set forth below is a table of selected information from our consolidated statements of cash flows for Fiscal Years 2014, 2013 and 2012 and for the three months ended June 30, 2014:
Three months ended Particulars FY 2014 FY 2013 FY 2012 June 30, 2014 Net cash flow from operating 4,058.4 22,510.6 18,306.1 8,810.3 activities Net cash used in investing activities (5,357.1) (31,802.7 ) (39,407.3) (21,325.6) Net cash flow from financing (2,586.6) 8,224.8 19,235.9 13,491.7 activities Net increase/(decrease) in cash and (3,885.3) (1,067.3) (1,865.3) 976.4 cash equivalents Cash and cash equivalents - Opening 12,098.8 13,166.1 13,267.5 12,291.1 balance Cash and cash equivalents on - - 1,763.9 - acquisition of subsidiaries Cash and cash equivalents - Closing 8,213.5 12,098.8 13,166.1 13,267.5 balance
Cash Flows From Operating Activities
For the three months ended June 30, 2014, our net cash generated from operations amounted to Rs. 4,058.4 million. This amount consisted of a pre-tax profit of Rs. 1,437.7 million, adjusted for non-cash and other items in a net amount of Rs. 4,138.2 million, resulting in an operating profit before working capital changes of Rs. 5,575.9 million. Net working capital changes for the three months ended June 30, 2014 was Rs. (1,151.6) million. We paid net income taxes of Rs. 365.9 million.
For Fiscal Year 2014, our net cash generated from operating activities amounted to Rs. 22,510.6 million. This amount consisted of a pre-tax profit of Rs. 7,584.8 million, adjusted for non-cash and other items in a net amount of Rs. 9,765.5 million, resulting in an operating profit before working capital changes of Rs. 17,350.3 million. Net working capital changes for Fiscal Year 2014 was Rs. 7,301.1 million. We paid net income taxes of Rs. 2,140.8 million.
For Fiscal Year 2013, our net cash generated from operating activities amounted to Rs. 18,306.1 million. This amount consisted of a pre-tax profit of Rs. 6,148.9 million, adjusted for non-cash and other items in a net amount of Rs. 8,235.0 million, resulting in an operating profit before working capital changes of Rs. 14,383.9 million. Net working capital changes for Fiscal Year 2013 was Rs.5,401.1 million. We paid net income taxes of Rs. 1,478.9 million.
For Fiscal Year 2012, our net cash generated from operating activities amounted to Rs. 8,810.3 million. This amount consisted of a pre-tax profit of Rs. 4,193.1 million, adjusted for non-cash and other items in a net amount of Rs. 6,757.8 million, resulting in an operating profit before working capital changes of Rs. 10,950.9 million. Net working capital changes for Fiscal Year 2012 was Rs. (695.6) million. We paid net income taxes of Rs. 1,445.0 million.
Cash Flows From/(Used in) Investing Activities
For the three months ended June 30, 2014, our net cash used in investing activities amounted to Rs. 5,357.1 million, which consisted primarily of cash used for the purchase of fixed assets and for capital work-in-progress, which related primarily to the construction of new power plants and construction of new SRL stores.
For Fiscal Year 2014, our net cash used in investing activities amounted to Rs. 31,802.7 million, which consisted primarily of cash used for the purchase of fixed assets and for capital work-in-progress, which related
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primarily to the construction of new power plants and construction of new stores. These cash outflows were primarily offset by cash inflows received from the sale of investments and interest on our cash deposits.
For Fiscal Year 2013, our net cash used in investing activities amounted to Rs. 39,407.3 million, which consisted primarily of cash used for the purchase of fixed assets and for capital work-in-progress, which related primarily to the construction of new power plants and construction of new stores, as well cash used for investments in new acquisitions of FSL, Papu Hydropower Projects Limited and Pachi Hydropower Projects Limited, as well as an increase in our ownership stake in SRL.
For Fiscal Year 2012, our net cash used in investing activities amounted to Rs. 21,325.6 million, which consisted primarily of cash used for the purchase of fixed assets and for capital work-in-progress, which related primarily to the construction of new power plants, capital work-in-progress and construction of new SRL stores.
Cash Flows From/(Used in) Financing Activities
For the three months ended June 30, 2014, our net cash used in financing activities amounted to Rs. 2,586.6 million, which consisted primarily of Rs. 2,038.8 million in proceeds from long-term borrowings, relating to loan facilities on which we drew down during the year, which was primarily offset by Rs. 1,990.3 million in finance costs paid on our borrowings and Rs. 3,824.4 million used for the repayment of long-term borrowings.
For Fiscal Year 2014, our net cash generated from financing activities amounted to Rs. 8,224.8 million, which consisted primarily of Rs. 26,988.3 million in proceeds from long-term borrowings, relating to loan facilities on which we drew down during the year, which was primarily offset by Rs. 11,134.2 million in finance costs paid on our borrowings and Rs. 8,760.3 million used for the repayment of long-term borrowings.
For Fiscal Year 2013, our net cash generated from financing activities amounted to Rs. 19,235.9 million, which consisted primarily of Rs. 31,063.6 million in proceeds from long-term borrowings, relating loan facilities on which we drew down during the year, which was primarily offset by Rs. 5,627.3 million in finance costs paid on our borrowings and Rs. 5,626.2 million used for the repayment of long-term borrowings.
For Fiscal Year 2012, we had net cash generated from financing activities of Rs. 13,491.7 million, which consisted primarily of Rs. 20,892.9 million in proceeds from long-term borrowings, relating to loan facilities on which we drew down during the year, which was primarily offset by Rs. 3,768.7 million in finance costs paid on our borrowings and Rs. 3,889.2 million used for the repayment of long-term borrowings.
Capital Expenditure
Historical Capital Expenditure
Our principal capital expenditure requirements involve the development and construction of our power projects. For Fiscal Years 2012, 2013, 2014, we had capital expenditure of Rs. 24,724.5 million , Rs. 36,028.1 million, Rs. 39,338.5 million, respectively for the power business. We typically have minimal capital expenditures in relation to our process outsourcing, retail and property businesses.
For Fiscal Years 2013 and 2014, we had capital expenditures of Rs. 169.4 million and Rs. 1,608.1 million, respectively, for the process outsourcing business.
For Fiscal Years 2012, 2013 and 2014, we had capital expenditures of Rs. 152.7 million, Rs. 109.6 million and Rs. 579.3 million, respectively, for the retail business.
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For Fiscal Years 2012, 2013 and 2014, we had capital expenditures of Rs. 917.5 million, Rs. 1,027.1 million and Rs. 1,090.8 million, respectively, for the property business.
Planned Capital Expenditure
For Fiscal Years 2015 and 2016, we expect major planned capital expenditures in relation to the power business to create a special network augmentation program as well as balance expenditures for the Haldia power plant. We expect to incur planned capital expenditure of Rs. 18,283.1 million in Fiscal Year 2015 and Rs. 9,289.8 million in Fiscal Year 2016 in the distribution license area of the power business. We anticipate the funds needed for such capital expenditures to originate from future debt financings and partly from proceeds of this Issue. The proposed expenditure schedule for the above is set forth below:
Name of the Project(1) Fiscal Year 2015 2016 Total Generation Capex(2) 9,844.4 476.5 10,320.9 Distribution Capex 8,158.7 8,533.3 16,692.0 Other Capex(3) 280.0 280.0 560.0 Total 18,283.1 9,289.8 275,72.9
Notes:
1. This table does not include expenditures for projects that are in the planning stage.
2. For Fiscal Year 2015, "generation capex " includes capital expenditures for the 26MW wind power plant in the State of Gujarat and outstanding capital expenditures for the 600 MW Haldia power plant.
3. "Other capex" includes capital expenditure projected to be incurred primarily in relation to electricity distribution system control and information technology initiatives.
For Fiscal Years 2015 and 2016, we currently expect capital expenditures of Rs. 350.0 million and Rs. 450.0 million, respectively, for the retail business.
We do not foresee significant capital expenditures in relation to our process outsourcing for Fiscal Years 2015 and 2016.
Expenditure Pending Capitalization/Allocation
The table below sets forth the amounts spent by us towards expenditure pending capitalization:
Amounts deployed as of Amounts deployed as of Power Projects June 30, 2014 March 31, 2014 (Rs. in millions) For CESC 5,220.6 4,104.6 For Chandrapur -DIL 11,580.14 11,153.2 For Haldia 38,981.3 36,816.9 Others 1,126.46 1,042.7 Total 56,908.5 53,117.4
For details in relation to the estimated cost of and financing for the power projects, see sections titled " Objects of the Issue " on page 71 of this PPD and " Business – Commissioned Power Projects " on page 107 of this PPD.
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Indebtedness
The following table sets forth our secured and unsecured debt position as of June 30, 2014
(Rs. in millions) Amount outstanding as of June 30, Particulars 2014 A. Long-Term Borrowings: (i) Secured Term loans from banks 101,395.7 Term loans from other financial institutions 2,088.8 Finance lease obligations 149.2 Total (A1) 103,633.7 (ii) Unsecured 5,150.0 Term loans from banks Term loans from other financial institutions 33.0 Total (A2) 5,183.0 Total (A) = (A1) + (A2) 108,816.7 B. Short-Term Borrowings: (i) Secured Loans repayable on demand overdraft from banks 8,988.5 Working capital demand loan 1,805.4 Total (B1) 10,793.9 (ii) Unsecured Short -term loans from banks 1,291.2 Total (B2) 1,291.2 Total (B) = (B1) + (B2) 12,085.1 Total (A) + (B) 120,901.8
Our loan agreements with certain banks and financial institutions for term loans and working capital loans, contain restrictive covenants, which include, but are not limited to, requirements that we obtain consent from the lenders prior to altering our capital structure, amending our constitutional documents, effecting any scheme of amalgamation or reconstitution, permitting any change in the ownership or control (whereby there will be a change in our beneficial ownership), varying our shareholding structure, declaring dividends, investing any funds by way of deposits or loans or in the share capital of any other concern, undertaking any new project or implementing any scheme of expansion/diversification, entering into borrowing arrangements with other banks or financial institutions, undertaking guarantee obligations, changing our accounting year and/or accounting methods, creating any charge or lien on the security, changing the composition of our board of directors. Additionally, some of the loan agreements contain financial covenants that require us to provide additional security if demanded by the lender. In addition, some of our loans are secured by fixed and other assets.
Interest Coverage
Set forth below is the information in respect of our interest coverage for Fiscal Years 2012, 2013 and 2014:
Particulars March 31, 2014 March 31, 2013 March 31, 2012 Interest Coverage Ratio # 2. 0 2.7 2.9
#Interest Coverage Ratio is the sum of (a) profit after tax for the year from continuing operations, after excluding the impact of exceptional item, depreciation and amortisation expense, amortisation of miscellaneous expense, provision for obsolete stock, allowance for doubtful debts, store/lease deposits etc, bad debts, advance against depreciation, provision for lease equalisation, liability/provision written back, capital work-in-progress written off, effect of foreign currency Transactions/Translation (net), rental deposits written off and (b) interest paid; divided by interest paid.
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Contractual Obligations/Commitments and Contingent Liabilities Contractual Obligations/Commitments
The table below summarizes our contractual obligations as of June 30, 2014: (Rs. in millions) Payments Payments due Payments due Particulars due by one between two and after more than Total year five years five years Operating leases 1,344.7 3,054.5 3,561.4 7,960.6 Estimated amount of contracts remaining 6,555.7 - - 6,555.7 to be executed on account of capital and other commitments towards the project not provided for Others - - 1,252.1 1,252.1 Total 7,900.4 3,054.5 4,813.5 15,768.4
Contingent Liabilities
As of June 30, 2014, we had the following contingent liabilities and commitments that have not been provided for in our consolidated financial statements: (Rs. in millions) Particulars Total West Bengal Sales Tax on Meter Rentals 10.5 Municipal Tax on Certain Properties 11.3 Other Claims Against Certain CESC Limited Subsidiaries Not Acknowledged as Debt 44.3 50% Exposure to Guarantee of Joint Venture Company of CESC Limited to President of India 205 Sales Tax Demands under Appeal of Certain CESC Limited Subsidiaries 10.4 Service Tax Demands under Appeal of Certain CESC Limited Sub sidiaries 180.9 Income Tax Demands of Certain CESC Limited Subsidiaries 1189.4 Guarantees Given by Certain CESC Limited Subsidiaries 6.3 Guarantee Given by Certain CESC Limited Subsidiaries to ABP Corporation(1) N/A
Notes: (1) Not quantified.
For details in relation to litigations in which we are involved, see “Legal Proceedings” on page 234.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or other relationships with unconsolidated entities that would have been established for the purpose of facilitating off-balance sheet arrangements.
Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss related to adverse changes in market prices, including interest rate risk, foreign exchange risk, inflation and commodity risk. We are exposed to different degrees of these risks in the ordinary course of our business.
Interest Rate Risk
We will be required to enter into debt arrangements with banks and financial institutions which may have floating rate indebtedness. Accordingly, we may be exposed to increased interest expenditure in the event of increases in interest rate. We may also maintain deposits of cash and cash equivalents with banks and other financial institutions and which would expose it to market risk as a result of changes in interest rates. Moreover, the interest rates may be subject to periodic resets. Upward fluctuations in interest rates increase the cost of both existing and new debts. It is likely that in future periods, our borrowings will rise substantially given our growth plans. We currently do not use any derivative instruments to modify the nature of our exposure to floating rate indebtedness or our deposits so as to manage interest rate risk.
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Foreign Exchange Risk
While substantially all of our revenues are denominated in Rupees, we have incurred and expect to incur expenditure and indebtedness denominated in currencies other than Rupees for the development of our power projects. For example, we will be required to make certain payments in foreign currencies to EPC contractors for development and establishment of our power projects. Any depreciation of the Rupee against the currency to which we have exposure will increase our Rupee costs of servicing and repaying our expenditures and indebtedness. We currently use derivative instruments to modify the nature of some of our exposure to foreign currency fluctuations so as to manage foreign exchange risk but do not hedge the totality of our exposure to such foreign currency fluctuations.
Credit Risk
With respect to the power business, a significant part of our revenues is derived from sales to regular and industrial consumers, municipalities and other public bodies. Certain of these power purchasers have a weak credit history and we underwrite credit risk in relation thereto.
Inflation
In recent years, India has not experienced significant inflation and accordingly inflation has not had any material impact on our business and results of operations. While the Central Government initiates several economic measures from time to time to curb inflation, it is unclear whether such measures will have the desired effect.
Related Party Transactions
For details in relation to the related party transactions, see "Financial Statements".
Significant Developments After June 30, 2014 That May Affect Future Results Of Operations
Subsequent to the Unaudited interim condensed consolidated financial statements as at and for the three months period ended June 30, 2014:
(a) The long term loan of the Company, on a consolidated basis, stands at Rs. 111,872 million as at October 15, 2014 against a long term loan outstanding of Rs. 108,817 million as at June 30, 2014 primarily due to drawal of loan of Rs. 1,750 million in our Company, Rs. 1175 million in Dhariwal Infrastructure Limited, Rs. 600 million in Surya Vidyut Limited and Rs. 2,100 million in Haldia Energy Ltd coupled with increase in USD/INR rate for the above period and net of repayments during the period.
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HISTORY AND OTHER CORPORATE MATTERS
The Company was incorporated March 28, 1978 under the name of The Calcutta Electric Supply Corporation (India) Limited as a limited liability public company and received the certificate of commencement of business on March 30, 1978. Pursuant to a scheme of amalgamation in 1979, the Company took over the business of the Calcutta Electric Supply Corporation Limited, a company incorporated in England which had established one of the first generation stations in Kolkata. The name of the Company was changed to CESC Limited on January 1, 1987.
The Equity Shares are listed on the CSE, BSE and NSE. The GDRs of the Company are listed on the official list of Luxembourg Stock Exchange.
Our Company is primarily engaged in the generation and distribution of electricity.
The following are the significant recent events in the corporate history of our Company:
Year Event 2009 Purchase of “Spencer” brand Acquisition of 600 MW thermal power project at Chandrapur (Dhariwal), Maharashtra. Approval for the acquisition of 660x2 MW power project in Dhenkenal, Orissa 2010 250 MW third unit of Budge Budge thermal power plant had started commercial operation 2012 Investment in Spencer Retail Limited to make it a wholly owned subsidiary and Bantal Singapore Pte Limited 10 million Australian Dollars.
Acquired Pachi Hydro Power Projects Limited – engaged in setting up of a 45 MW hydro electric project in Arunachal Pradesh. Acquired Papu Hydropower Project Limited – engaged in setting up of a 90 MW hydro electric project on Papu River in Arunachal Pradesh. Dividend declared at 50%. Acquisition of Spen Liq Pvt Limited – as a wholly owned subsidiary. Formation of Ranch i Power Distribution Company Private Limited as a subsidiary – for carrying on the business of electricity distribution in Ranchi and Jharkhand. Acquisition of Firstsource Solutions Limited through our Subsidiary, Spen Liq Private Limited. Company wins the bid from Jharkhand State Electricity Board to take up distribution franchising in Ranchi Circle. 2013 Inauguration of mall in Kolkata, developed by CESC Properties Limited, our wholly owned subsidiary
Main Objects of the Company
1. To acquire by amalgamation, take over or otherwise as a going concern whole or part of the assets, liabilities and undertaking of The Calcutta Electric Supply Corporation Limited (a company incorporated in England having its registered office at Victoria House, Vernon Place, London WCIB 4DH with its head office at Victoria House, Chowringhee Square, Calcutta 700 001) and to take all such steps to carry the same into effect as maybe deemed necessary or expedient.
2. To carry on the business of an electric light and power company in all its branches, and the business of electrical engineers, electricians, mechanical engineers, and to generate, accumulate, distribute and supply electricity for the process of light, heat, motive power, and for all other purposes for which electric energy can be employed, and to manufacture and deal in all apparatus and things required for, or capable of being used in connection with the generation, distribution, supply, accumulation, and employment of electricity, including in the term electricity all power that may be directly or indirectly derived therefrom, or may be incidentally hereafter discovered in dealing with electricity and to carry on the business of Consultants and Advisers in relation to the business aforementioned.
3. To acquire concessions or licenses granted by and to enter into contracts with, the Government of India or the Government of any State in India or any Municipal or Local Authority, company or person, for the construction and maintenance of any electric installation for the production, transmission or use of
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electric power for lighting, heating, signalling, telephonic or traction, water pumping and distribution thereof or motive purposes, including the application thereof to railways, tramcars, omnibuses, carriages, ships, conveyances and objects, or any other purpose.
4. To construct, lay down, establish, fix, and carry out all necessary buildings, works, machinery, mains, cables, wires, lines, accumulators, lamps and appliances, and to generate, accumulate, distribute, and supply electricity, and to light streets, markets, buildings and places, both public and private.
5. To process, make marketable, use, sell and dispose of ash or any other material produced as a result of the generation of electricity and to prepare, manufacture, sell and deal in any products capable of being produced from such ash or such other materials.
For details on the Organisation Structure, please see “Business” on page 101.
Material Subsidiaries of the Company
1. Spencer’s Retail Limited (“SRL”)
SRL was incorporated on November 22, 2000 as Great Wholesale Club Limited. Pursuant to a fresh certificate of incorporation consequent to change of name dated September 14, 2006, its name was changed to Spencer’s Retail Limited. Its CIN is U51229TN2000PLC046165. Its registered office is situated in 31, Netaji Subhash Chandra Bose Road, Duncan House, Kolkata – 700 001.
It is engaged in the business of multi – brand retail through its various outlets.
As of March 31, 2014, its authorized share capital was Rs. 3,000.00 million and its paid up capital was Rs. 1,734.28 million.
Its equity shares are unlisted.
2. CESC Properties Limited (“CPL”)
CPL was incorporated on February 22, 2006 as Rosemery Enclave Private Limited. Pursuant to a fresh certificate of incorporation consequent to change of name dated April 11, 2007, its name was changed to CESC Properties Private Limited. Pursuant to certificate for change of name dated July 9, 2007, its name was further changed to CESC Properties Limited and the status was converted from private limited company to a public limited company. Its registration number is U70101WB2006PTC108175. Its registered office is situated in CESC House, Chowringhee Square, Kolkata - 700001.
It is engaged in the business of property development.
As of March 31, 2014, its authorized share capital was Rs. 2,500.00 million and its paid up capital was Rs. 2,070.10 million.
Its equity shares are unlisted.
3. Firstsource Solutions Limited (“FSL”)
FSL was incorporated on December 6, 2001 as ICICI Infotech Upstream Limited. Pursuant to a fresh certificate of incorporation consequent to change of name dated April 2, 2002, its name was changed to ICICI Onesource Limited. Further pursuant to a fresh certificate of incorporation consequent to change of name dated November 21, 2006, its name was changed to Firstsource Solutions Limited. Its CIN is L64202MH2001PLC134147. Its registered office is situated in 5th Floor, Paradigm ‘B’ Wing, Mindspace, Link Road, Malad (West), Mumbai - 400 064.
In 2012, the Company acquired 56.86% of the issued share capital of Firstsource Solutions Ltd. through our Subsidiary, Spen Liq Private Limited through primary issuance and secondary purchase from ICICI Bank Limited, Metavante Investments Mauritius Limited and Aranda Investments (Mauritius) Pte Limited.
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It is engaged in the business of business process management.
As of March 31, 2014, its authorised share capital was Rs. 8,720.00 million. The paid up share capital was Rs. 6,597.35 million.
Its equity shares are listed on the BSE and the NSE.
4. Dhariwal Infrastructure Limited (“DIL”)
DIL was incorporated on October 3, 2006 as Dhariwal Infrastructure Private Limited. Pursuant to a fresh certificate of incorporation consequent to change of name dated February 22, 2010, its name was changed to Dhariwal Infrastructure Limited. Its CIN is U70109WB2006PLC111457. Its registered office is situated in CESC House, Chowringhee Square, Kolkata - 700001.
It is engaged in the business of interalia, generation, accumulation, transmission, distribution and supply of renewable and/or non renewable energy. It owns and operates the 600MW facility at Chandrapur in Maharashtra.
As of March 31, 2014 its authorised share capital was Rs. 15,000.00 million and its paid up capital was Rs. 10,357.69 million.
Its equity shares are unlisted.
5. Haldia Energy Limited (“HEL”)
HEL was incorporated on November 29, 1994 as RPG-Northwest Mine Services Private Limited. Pursuant to a fresh certificate of incorporation dated December 20, 2006 its name was changed to Haldia Energy Private Limited. Subsequently on conversion to public limited company, a fresh certificate of incorporation was issued on January 31, 2007 changing its name to Haldia Energy Limited. Its CIN is U74210WB1994PLC066154. Its registered office is situated in Barick Bhawan, Sixth Floor, 8 Chittaranjan Avenue Kolkata - 700072.
It is engaged in the business of generation of electric energy from various conventional or non- conventional sources and generally generating, developing, acquiring by bulk purchase, accumulating, transmitting, distributing, supplying, trading, importing, exporting or otherwise dealing in all forms of electrical energy.
As of March 31, 2014 its authorised share capital was Rs. 9,000.00 million and its paid up capital was Rs. 7,304.41 million.
Its equity shares are unlisted.
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REGULATIONS AND POLICIES
The following description is a summary of the relevant regulations and policies as prescribed by the GoI and other regulatory bodies that are applicable to our business. The information detailed below has been obtained from various legislations, including rules and regulations promulgated by regulatory bodies, and the bye laws of the respective local authorities that are available in the public domain. The regulations set out below may not be exhaustive and are merely intended to provide general information to the investors and are neither designed nor intended to substitute for professional legal advice.
POWER SECTOR IN INDIA
Background
The development of electricity industry in India was fashioned by two pieces of legislations namely the Indian Electricity Act, 1910 (“ Indian Electricity Act ”) and the Electricity (Supply) Act, 1948 (the “ Supply Act ”). The Indian Electricity Act introduced a licensing system for the electricity industry and the Supply Act was responsible for introducing greater state involvement in the industry, facilitating regional co-ordination. The Supply Act promoted state-owned, vertically integrated units through the creation of the State Electricity Boards (“ SEBs ”), to develop ‘Grid System’. Under this legislation, the SEBs were made responsible for generation, transmission and distribution of electricity within the geographical limits of each State of the Indian Union. A government department was responsible for the electricity supply in states where SEBs were not set up. Under the Constitution of India, both the State Governments and the Government of India (“ GoI ”) have the power to regulate the electricity industry.
In the early 1990s, the power sector was liberalized and private participation in the generation sector was permitted by way of amendments in 1991 and 1998 to the Supply Act to open generation to private sector and establishment of regional load dispatch centres (“ RLDCs ”) and to provide for private sector participation in transmission. In 1998, the Electricity Regulatory Commissions Act, 1998 (“ ERC Act ”) was enacted by the GoI. The ERC Act provided for the establishment of independent electricity regulatory commission both at the Central and State levels. These regulatory commissions were set up with the objective of rationalizing the prevailing electricity tariff regime and promoting and regulating the electricity industry in the country. The above 3 acts were repealed by the Electricity Act, 2003.
Salient features of the Electricity Act, 2003
The Electricity Act, 2003 (“ Electricity Act ”) is a central unified legislation relating to generation, transmission, distribution, trading and use of electricity, that seeks to replace the multiple legislations that governed the Indian power sector.
The most significant reform initiative under the Electricity Act was the move towards a multi buyer, multi seller system as opposed to the existing structure which permitted only a single buyer to purchase power from power generators. In addition, Electricity Act grants the respective electricity regulatory commissions freedom in determining tariffs, without being constrained by rate-of-return regulations. An appellate tribunal, to hear appeals against the decisions of the Central Electricity Regulatory Commission (“ CERC ”) and State Electricity Regulatory Commission (“ SERC ”), was established. However, Electricity Act provided that transmission, distribution and trade of electricity are regulated activities which require licenses from the appropriate electricity regulatory commission, unless exempted by the appropriate government in accordance with the provisions of Electricity Act. It was amended in 2007 to exempt captive power generation plants from licensing requirements for supply to any licensee or consumer. GoI has also announced National Electricity Policy in 2005 to guide the development of the electricity sector in India.
The Ministry of Power has on October 17, 2013, released the draft amendments to the Electricity Act for comments. The draft amendments include, among other things, the introduction of a supply license. Supply has been defined under the draft amendments as the sale of electricity to a licensee or consumer and the supply licensee has been defined as a person authorized under section 14 of the Electricity Act to supply electricity to consumers.
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Licensing
The Electricity Act stipulates that no person can transmit, or distribute or undertake trading in electricity, unless he is authorised to do so by a licence issued by CERC or SERC, respectively under Section 14, or is exempt under Section 13 of the Electricity Act. CERC has jurisdiction over generating companies owned or controlled by the GoI or which have a composite scheme for generation and sale in more than one State. SERCs have jurisdiction over generating stations within State boundaries, except those under CERC’s jurisdiction. The respective ERC determines the tariff for supply of electricity from a generating company to a licencee, transmission, wheeling, and retail sale of electricity. The Electricity Act was amended in 2007 to exempt captive power generation plants from licencing requirements.
West Bengal Electricity Regulatory Commission (Licensing and Conditions of License) Regulations 2013 (“Regulations”)
The Regulations have been framed under the Electricity Act, 2003, as amended from time to time, inter alia, for specifying the manner and particulars of application for electricity distribution and transmission licences, the conditions for grant of licenses, the eligibility requirements of companies applying for licenses, conditions to be met by the companies during the term of the license etc. The terms and conditions of these Regulations have overriding effect on the terms and conditions of the existing licence of the deemed licensee which are inconsistent with these Regulations. Deemed licensees are entities who have been deemed to be granted the license to distribute electricity. The Regulations also enumerate the procedure for grant of licenses and the powers of the Commission in granting such licenses. The Regulations specify that the Commission may amend or alter terms and conditions applicable in a licence in public interest, with the consent of the licensee or on an application from the licensee upon such terms and conditions, as it thinks fit after giving suitable and reasonable opportunities to all interested parties for submission of written objection/ suggestion and comments. The Commission may grant licence to any person(s) for the same business as of the licensee including distribution of power in the same area of supply subject to the provisions of the Electricity Act. However, the licensee shall not enter into any agreement by virtue of which the licensee may abuse its dominant position or enter into a combination, which is likely to cause or causes an adverse effect on competition in electrical industry in the State. The prior approval of the Commission is required to be taken by the licensee in case an affiliate is to provide any goods or services to the licensee in connection with its normal core activities then prior approval will be required. The licensee may engage in any non-core activities or other business or separate business subject to the provisions of the Electricity Act and Regulations made thereunder, only so long such activity is likely to result in the optimally gainful employment of the assets, infrastructure and business process under core business of the licensee and subject to the conditions stated in the Regulations. The Regulations also specify the procedure for grant of licence for intra-state trading and the eligibility requirements of companies applying for such license.
Generation
Currently, any generating company can establish, operate and maintain a generating station if it complies with the technical standards relating to connectivity with grid. Approvals from the GoI, State Government and the techno-economic clearance from the CEA are no longer required, except for hydroelectric projects. Generating companies are now permitted to sell electricity to any licensees and where permitted by the respective SERC, to consumers.
In addition, no restriction is placed on setting up of captive power plant by any consumer or group of consumers for their own consumption. In order to qualify as a captive generating plant, the Electricity Rules, 2005 (“ Electricity Rules ”) require that not less than 26% of the ownership of the plant be held by a captive user and not less than 51% of the aggregate electricity generated in such plant, determined on an annual basis, be consumed for captive use. If the minimum percentage of captive use is not complied with in any year, the entire electricity generated is treated as supplied by a “generating company” and benefits available to a “captive generating plant” (such as exemption from payment of certain levies and surcharges) will not apply in such year. Under the Electricity Act, no surcharge is required to be paid on wheeling of power from the captive plant to the destination of the use by the consumer. Through an amendment in 2007, Section 9 was amended to state that no separate license is required for supply of electricity generated from the captive power plant to any licensee or the consumer. The respective regulatory commissions determine the tariff for supply of electricity from a generating company to any distribution licensee, transmission of electricity, wheeling of electricity and retail sale of electricity. The CERC has the jurisdiction over generating companies owned or controlled by GoI and
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those generating companies who have entered into or otherwise have a composite scheme for generation and sale in more than one state. The SERCs have jurisdiction over generating stations within the state boundaries, except those under CERC’s jurisdiction.
Transmission
The Electricity Act requires a person undertaking transmission, distribution or trading in electricity in any area in the territory of India to obtain a prior license for such activity. The Electricity Act also provides that the Central Transmission Utility (“ CTU ”) or the State Transmission Utility (“ STU ”) is a deemed transmission licensee. The GoI may notify any Government company as a CTU. Similarly the State Government may notify the SEB or any Government company as STU. A person intending to act as a transmission licensee is required to forward a copy of the application to the CTU or STU, as the case may be, which sends its recommendations to the relevant Commission. The appropriate Commission may specify any general or specific conditions that may apply to a particular licensee or a class of licenses. A license granted under the Electricity Act continues in force for a period of 25 years. The relevant Commission may at any time, if public interest requires, alter the terms of the license or revoke the license as it thinks fit in accordance with the procedure prescribed in the Electricity Act. The Electricity Act empowers the relevant Commission to issue directions to licensees if necessary, and also prescribes a detailed procedure for the sale of the utilities of the licensee in the event the relevant Commission revokes the license. The Electricity Act prohibits a licensee from assigning its license or transferring its utility or any part thereof, by sale, lease, exchange or otherwise without the prior approval of the relevant Commission, or from undertaking any transaction to acquire the utility of any other licensee or merging its utility with the utility of any other licensee, without prior approval of the relevant Commission. The duties of a transmission licensee under the Electricity Act include building, maintenance and operation of an efficient inter/intra State transmission system, and providing non-discriminatory open access to its transmission system for use by any licensee or generating company on payment of transmission charges or to any consumer who has obtained open access from the relevant SERC on payment of transmission charges and a surcharge thereon in accordance with the Electricity Act. The Electricity Act requires every transmission licensee to comply with the technical standards of operation and maintenance of transmission lines, in accordance with grid standards specified by the CEA.
Trading
The Electricity Act specifies trading in electricity as a licensed activity. Trading has been defined as purchase of electricity for resale. This may involve wholesale supply (i.e. , purchasing power from generators and selling to the distribution licensees) or retail supply ( i.e. , purchasing from generators or distribution licensees for sale to end consumers). The license to engage in electricity trading is required to be obtained from the relevant electricity regulatory commission.
The CERC, vide notification dated February 16, 2009, issued the CERC (Procedure, Terms and Conditions for grant of trading license and other related matters) Regulations, 2009, as amended from time to time (the “Trading License Regulations ”) to regulate the inter-state trading of electricity. The Trading License Regulations define inter-state trading as transfer of electricity from the territory of one state for resale to the territory of another state and includes electricity imported from any other country for resale in any state of India.
In terms of the Trading License Regulations, any person desirous of undertaking inter-state trading in electricity shall make an application to the CERC for the grant of license. The Trading License Regulations set out various qualifications for the grant of license for undertaking electricity trading, including certain technical and professional qualifications, and net worth requirements. An applicant is required to publish notice of his application in daily newspapers to facilitate objections, if any, to be filed before CERC. Further, a licensee is subject to certain conditions including the extent of trading margin, maintenance of records and submission of auditors’ report. The existing licensees are required to meet the net worth, current ratio and liquidity ratio criteria and are required to pay license fee as specified by the CERC, from time to time. The eligibility criteria include norms relating to capital adequacy and technical parameters. However, the National and Regional Load Dispatch Centres, Central and State Transmission Utilities and other transmission licensees are not allowed to trade in power. The relevant electricity regulatory commissions also have the right to fix a ceiling on trading margins in intra-state trading.
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Distribution and Retail Supply
The Electricity Act does not make any distinction between distribution and retail supply of electricity. Distribution is a licensed activity and distribution licensees are allowed to undertake trading without any separate license. Under the Electricity Act, no license is required for the purposes of supply of electricity. Thus, a distribution licensee can undertake three activities: trading, distribution and supply through one license. The distribution licensee with prior permission of the appropriate commission may engage itself in any other activities for optimal utilization of its assets.
Unregulated Rural Markets
The licensing requirement does not apply in cases where a person intends to generate and distribute electricity in rural areas as notified by the state government. However, the supplier is required to comply with the requirements specified by the CEA such as protecting the public from dangers involved, eliminating/reducing the risks of injury, notify accidents and failures of transmission and supplies of electricity. It shall also be required to comply with system specifications for supply and transmission of electricity. The Electricity Act mandates formulation of national policies governing rural electrification and local distribution and rural off-grid supply including those based on renewable and other non-conventional energy sources.
Tariff Principles
The Electricity Act has introduced significant changes in terms of tariff principles applicable to the electricity industry. Earlier, the rate of return regulation as prescribed in the Sixth Schedule of the Supply Act, which envisaged a two-part tariff, was the basis of tariff determination. Even in the case of state reform acts, this Sixth Schedule was retained as the basis. The Electricity Act has done away with this provision and the two-part tariff mechanism.
Under the Electricity Act, the appropriate electricity regulatory commissions are empowered to determine the tariff for:
• supply of electricity by a generating company to a distribution licensee: Provided that the appropriate commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity; • transmission of electricity; • wheeling of electricity; and • retail sale of electricity. Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the appropriate commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity.
The appropriate Electricity Regulatory Commission is required to be guided by the following while determining tariff:
• the principles and methodologies specified by the CERC for determination of the tariff applicable to generating companies and licensees; • generation, transmission, distribution and supply of electricity are conducted on commercial principles; • the factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments; • safeguarding consumers interest and also ensure recovery of the cost of electricity in a reasonable manner; • incorporate principles which reward efficiency in performance; • multi year tariff principles; • tariff progressively reflects the cost of supply of electricity, at an adequate and improving level of efficiency; • that the tariff progressively reduces and eliminates cross subsidies in the manner to be specified by the CERC; • the promotion of co-generation and generation of electricity from renewable sources of energy; and • the National Electricity Policy and Tariff Policy.
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It is to be noted that unlike the ERC Act, the respective electricity regulatory commissions have not been expressly permitted to depart from the tariff determining factors set out above. However, the Electricity Act provides that the electricity regulatory commission shall have to adopt such tariff that has been determined through a transparent process of bidding in accordance with the guidelines issued by the GoI. The MoP has issued detailed guidelines for competitive bidding as well as draft documentation, power purchase agreements (“ PPA ”), for competitively bid projects.
The determination of tariff for a particular power project would depend on the mode of participation in the project. Broadly, the tariffs can be determined in two ways: (i) the MoU route, based on the tariff principles prescribed by and approved by appropriate State ERC (cost plus basis consisting of a capacity charge, an energy charge, an unscheduled interchange charge and incentive payments); or (ii) competitive bidding route where the tariff is purely market based.
Supreme Court Order in relation to Coal Block Allocation
In Manohar Lal Sharma vs the Principle Secretary and others, being writ petition (criminal) no 120, 463, 515 of 2012 and 283 of 2013, the Supreme Court of India has held that the allotment of coal blocks by the Screening Committee of the Government of India and the allotments made through the Government dispensation route are arbitrary and illegal.
The Sarshatali coal block, of ICML, which supplied coal to our Company, was also de-allocated pursuant to Supreme Court Order. Further, the Mahuagarhi coal block, in Jharkhand, owned by Mahuagarhi Coal Company Private Limited (in which the Company exposure is limited to 50%), was de-allocated as well. Mining of the coal has not yet commenced from the Mahuagarhi coal block.
The Coal Mines (Special Provisions) Ordinance, 2014 (“Ordinance”)
The Supreme Court of India vide its judgment dated August 25, 2014 read with its order dated September 24, 2014 (“ SC Order ”) on the writ petition (criminal) no 120, 463, 515 of 2012 and 283 of 2013had cancelled the allocation of coal blocks, with the cancellation of forty two operational coal mines taking effect from March 31, 2015 and provided for a payment of a levy of Rs. 295 per metric ton of extracted coal. The Ordinance was thereafter promulgated on October 21, 2014 to provide for a mechanism and prescribe conditions for the re- allocation of the cancelled coal blocks and mines.
The Ordinance categorises the cancelled coal mines in three schedules. Schedule I contains the master list of all coal mines the allocation of which have been cancelled by the SC Order including those allotments which may have been de-allocated prior to and during the pendency of the said writ petition and includes coal bearing lands in or adjacent to such mines as well as the existing infrastructure. Schedule II lists the forty two operational coal mines the allocation of which was cancelled by the SC Order and Schedule III lists an additional thirty two coal mines from Schedule I.
The Ordinance stipulates that with effect from April 1, 2015 “the Central Government or a company owned by the Central Government” shall be deemed to be the licensee of the State Government for each of the mines specified in Schedule II and for all other Schedule I coal mines, the allocations have stood cancelled as of September 24, 2014.
Pursuant to the Ordinance all Schedule I coal mines are to be allocated through a public auction by way of competitive bidding. The applicable rules and the fees to be paid are yet to be prescribed, however the fees payable has been capped at Rs. 50 million.
For the seventy four coal mines specified in Schedules II and III, an additional ‘end use’ criterion is applicable for bidders. Accordingly, only entities engaged in the production of iron and steel, generation of power (including for captive use), coal beneficiation and cement would be eligible to bid. The Government has the power to notify additional end uses and to make end use as an applicable criterion for any other mines currently in Schedule I (by expanding on the existing list of Schedule III mines).
Entities or prior allottees whose allocations have been cancelled (as also their promoters) are also eligible to bid provided they have paid the levy as specified in the SC Order and have not been convicted and sentenced with imprisonment for more than three years for offences relating to coal block allocation.
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Successful bidders under the auction will be entitled to be vested with all rights, title and interest of the prior allottee in the mine (including statutory licenses, permits, approvals etc. issued to the prior allottee) and to being granted a mining lease. In case of Schedule II mines, in the event a prior allottee is also the successful bidder, such prior allottee will be entitled to continue coal mining operations post April 1, 2015 until the fresh mining lease is granted.
Prior allottees who have paid the levy, will be entitled to receive compensation for (i) land, as per the registered sale deed together with twelve per cent simple interest and (ii) mine infrastructure, as per the written down value in the audited balance sheet of the previous financial year. Prior allottees are required to disburse such compensation to repay secured creditors for any unpaid secured debt and only thereafter retain the balance.
The additional levy imposed on prior allottees shall continue to remain their liability, even where the mine is vested with a successful bidder and if not paid within the time to be specified by the Central Government, shall be realized as arrears of land revenue.
In the event the auction process is not complete, in respect of Schedule I mines the Central Government has the power to designate a custodian to manage and operate the mines. In respect of Schedule II mines, the designated custodian has the power inter alia to direct prior allottees to provide the requisite manpower and to take control and possession of lands adjacent to the mines.
This Ordinance will be placed before both Houses of Parliament and, unless passed by both Houses, shall cease to operate six weeks from the reassembly of Parliament.
Modes of participation in power projects
GoI announced major policy reforms in October 1991 widening the scope of private sector participation in power generation. The two modes of participating in power projects are either through the MoU route or the Bidding route. The initial batch of private sector power projects were therefore awarded generally on the basis of negotiation between the SEB and a single developer (“ MoU route ”).
MoU Route
The cost determination under the MoU route usually involves:
• determination of receivables of capital cost. The capital costs are required to be approved by a CEA, GoI; • approval of interest rates and local and foreign debt; • finalizing the term of loans and/or or other debt; • finalizing the extent of foreign exchange protection; • fixing operating parameters within the prescribed ceilings; • identifying deemed generation provisions; • evaluating the extent of despatchability; • evaluating the level of incentive payments; • identifying change in law in terms of tax or any other matter; • identifying the extent of working capital permissible; • evaluating the premium on fuel prices for assured supply; • identifying fuel supply and transportation risk and issues; • evaluating escalations in operation and maintenance and insurance expenses permissible; • evaluating the extent of maintenance of spares permissible; and • rebates in respect of prompt payment.
The MoU route with a cost plus approach was initially adapted to attract investment. However, there were several complexities in calculating the above costs despite the capital cost of the project being frozen by the CEA. Under the Electricity Act, the CEA does not have the power to determine capital cost for the projects anymore and the requisite filings for approval of capital cost and tariff are with the regulatory commissions.
This cost plus tariff mechanism is not ideally suited for competitive bidding (under section 63 of the Electricity Act) as this would require bidding on elements of cost of generation. However, many Commissions framed their Regulations as to determination of tariff under section 63 of the Electricity Act in cases if bilateral negotiation.
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Determination of Tariff by Bidding Process – DBFOO (Case I) and DBFOT (Case II)
The Central Government on September 21, 2013 and November 9, 2013 issued the Model Power Purchase Agreement (" MPPA ") for long term procurement of electricity from Design, Build, Finance, Operate, Transfer (" DBFOT ") and Design, Build, Finance, Own, Operate (" DBFOO ") thermal power stations respectively. The MPPA is part of the Standard Bidding Documents to be adopted by distribution licensees for procurement of electricity from power producers through a process of open and transparent competitive bidding based on offer of the lowest tariff from thermal power generating stations constructed and operated on DBFOT and DBFOO basis as the case may be.
(Source:http://powermin.nic.in/acts_notification/electricity_act2003/pdf/Guideline_for_procurement_of_power _of_electricity.pdf;http://powermin.nic.in/acts_notification/electricity_act2003/pdf/Guidelines_4_procurement_ power_on_DBFOO_Nov2013.pdf )
Projects under Case I refer to projects where the location, technology, or fuel is not specified by the procurer.
Projects under Case II refer to hydro-power projects, load centre projects or other location or fuel specified power projects.
The tariff for projects under Case I and Case II comprises of the following components:
1. Fixed charges – intended to cover the fixed costs associated with the project including finance costs, depreciation and maintenance costs.
(a) The utility shall pay a fixed charge determined through competitive bidding for availability of the power station which would be revised annually to reflect 30 per cent of the variation in wholesale price index (WPI) in case of Case-I bids and 30 per cent of the variation in a composite index comprising WPI and CPI in case of Case-II bids.
(b) Further, an annual reduction of 2 per cent in fixed charge is being stipulated to factor in asset depreciation
2. Fuel charges – is the amount payable by the utility to the concessionaire for the fuel utilized in generation of electricity. Fuel charge is a pass through which would address a major risk faced by power produces due to uncertainty relating to fuel prices over the medium and long term.
(a) The framework contained in the MPPA provides alternative formulations for determination of fuel costs depending on the source and pricing of fuel supplies. Four alternative sources of fuel are (i) concessional fuel from Coal India, (ii) fuel from captive mines, (iii) fuel through imports and (iv) fuel through imports from captive mines situated outside India have been identified with well defined escalable components and associated escalation benchmarking indices.
(b) In all cases of imported fuel, the foreign exchange risk would have to be borne by the utility.
(Source:http://www.powermin.nic.in/acts_notification/electricity_act2003/pdf/Overview_of_the_Model_Power_ Purchase_Agreement.pdf; http://powermin.nic.in/acts_notification/electricity_act2003/pdf/Overview%20of%20the%20Model%20Power% 20Supply%20Agreement_Nov13.pdf )
Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014
The Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014 (the “CERC Tariff Regulations ”) applies in all cases where tariff for a generating station or a unit and a transmission system or an element thereof (other than those generating stations or inter-state transmission systems whose tariff has been discovered through tariff based competitive bidding and generating stations based on renewable energy sources whose tariff is determined in accordance with regulations issued for renewable energy) is required to be determined by the CERC. The tariff for supply of electricity from a thermal generating station shall comprise two parts, namely, capacity charge (for recovery of annual fixed cost) and energy charge
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(for recovery of primary fuel cost and limestone cost where applicable). The tariff for supply of electricity from a hydro generating station shall comprise capacity charge and energy charge, for recovery of annual fixed cost through the two charges. The tariff for transmission of electricity on inter-State transmission system shall comprise transmission charge for recovery of annual fixed cost.
Tariff in respect of a generating station may be determined for the whole of the generating station or a stage or unit or block of the generating station, and tariff for the transmission system may be determined for the whole of the transmission system or the transmission line or sub-station. For the purpose of determination of tariff, the capital cost of the project may be broken up into stages and distinct units or blocks, transmission lines and sub- systems forming part of the project, if required, provided that where break-up of the capital cost of the project for different stages or units or blocks and transmission lines or sub-stations is not available and in case of on- going projects, the common facilities shall be apportioned on the basis of the installed capacity of the units, line length and number of bays and that in relation to multi-purpose hydro schemes, with irrigation, flood control and power components, the capital cost chargeable to the power component of the scheme only shall be considered for determination of tariff.
The generating company or the transmission licensee, as the case may be, may make an application for determination of tariff in respect of the units of the generating station or the transmission lines or sub-stations of the transmission system, within 180 days of the anticipated date of commercial operation or aniticipated to be commissioned within 180 days from the date of filing of the petition. In case of the existing projects, the generating company or the transmission licensee, as the case may be, an application shall be made not later than 180 days from the date of notification of these regulations based on admitted capital cost including any additional capital expenditure already admitted until March 31, 2014 and estimated additional capital expenditure for the tariff period from Fiscal Year 2015 until Fiscal Year 2019.
Central Electricity Regulatory Commission (Fixation of Trading Margin) Regulations, 2010
The Central Electricity Regulatory Commission (Fixation of Trading Margin) Regulations, 2010 (the “ CERC Trading Margin Regulations ”) applies to the short term buy-short term sell contracts for inter-State trading in electricity undertaken by a person who has been granted a licence by the CERC to undertake such inter-State trading in electricity, except in cases where inter-State trading in electricity is undertaken by such licensee by virtue of the provisions of Rule 9 of the Electricity Rules, 2005, on the basis of the inter-State trading licence granted by the CERC.
The CERC Trading Margin Regulations state that the licensee shall not charge trading margin exceeding seven paise/kWh in case the sale price is exceeding Rupees three/kWh and four paise/kWh where the sale price is less than or equal to Rupess three/kWh. This margin shall include all charges, except the charges for scheduled energy, open access and transmission losses. The trading margin shall be charged on the scheduled quantity of electricity. The trading margin specified above however, shall be the cumulative value of the trading margin charged by all the traders involved in the chain of transactions between the generator and the ultimate buyer, i.e. , trading margin in case of multiple trader to trader transactions shall not exceed the ceiling trading margin specified under the CERC Trading Margin Regulations.
National Electricity Policy
In compliance with the Electricity Act, 2003 the GoI notified the National Electricity Policy in February, 2005. The National Electricity Policy aims at achieving the following objectives:
(a) access to electricity - available for all households by 2010; (b) availability of power - demand to be fully met by 2012. energy and peaking shortages to be overcome and adequate spinning reserve to be available; (c) supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates; (d) per capita availability of electricity to be increased to over 1000 units by 2012; (e) minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012; (f) financial turnaround and commercial viability of electricity sector; and (g) protection of consumers’ interests.
National Electricity Plan
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Assessment of demand is an important pre-requisite for planning capacity addition. The Electricity Act requires the CEA to frame a National Electricity Plan once in five years and revise the same from time to time in accordance with the National Electricity Policy. CEA released a National Electricity Plan in January 2012, to include initiatives and measures for capacity additions in generation and transmission, energy security, greenhouse gases mitigation, optimisation of land and water requirements for thermal power plants.
Policy for setting up of Mega Power Projects
The Mega Power Policy was introduced by Ministry of Power on November 10, 1995, and amended in January 2013, wherein projects which meet the following criteria are eligible to be classified as mega power projects:
(a) a thermal power plant with capacity of 1,000 MW or more; or (b) a thermal power plant with a capacity of 700 MW or more, in the States of Jammu and Kashmir, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura; or (c) a hydro electricity power project of capacity 500 MW or more; or (d) a hydro electricity power plant of a capacity of 350 MW or more, in the States of Jammu and Kashmir, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura.
Fiscal concessions/benefits available to the Mega Power Projects:
Mega power projects are eligible for certain concessions and benefits, including waiver of customs duty for import of capital goods for setting up such projects and certain income tax benefits. Mega Power Policy benefits have been extended to brownfield projects where the size of the expansion unit would not be not less than that provided in the earlier phase of the project certified as a mega power project.
Roles of key organizations and players
The roles and functions of certain key organisations and players that operate in the power sector have been set out below:
Central and State Governments
The Electricity Act reserves a significant involvement of the central government in the functioning of the power sector. It has been assigned a number of duties, including planning and policy formulation, rule making, appointing, establishing, designating authority, prescribing duties and other tasks, funding, and issuing directions. The GoI designates a CTU and establishes the NLDC, RLDC, the appellate tribunal, the Coordination Forum, and the Regulators’ Forum. It has the power to vest the property of a CTU in a company or companies and decide on the jurisdiction of benches of the appellate tribunal. It also prescribes the duties and functions of the CEA, NLDC and RLDC.
The GoI is also responsible for the following: a) specifying additional requirements for granting more than one distribution licensee; b) providing no-objection certificates for granting license if the service area includes central government installations such as cantonment, aerodrome, defence area, etc; c) demarcating the country into transmission regions for the purpose of inter-state transmission; d) issuing guidelines for transparent bidding process; e) approving the salary and benefits of the employees of the CEA, CERC and appellate tribunal; f) referring cases to the appellate tribunal for removal of members of the CERC on the ground of misbehaviour; and g) prescribing the procedures for inquiry into misbehaviour by members.
The state government exercises appointing, designating powers, provides funds and makes rules notifications, etc. It has the powers to appoint or remove members of the SERC including the chairman, to approve the terms and conditions of appointment of the secretary to the SERC and other staff. It is also responsible for constituting the selection committee for appointing members of SERC. It establishes the state load dispatch centre (SLDC), notifies the STU, vests property of STU in companies, draws up reorganisation of the SEB through acquiring its assets and re-vests it through a transfer scheme. It is empowered to constitute special courts, and state coordination forum. The state government creates the SERC fund and can provide loan or grants for running the SERC. It also decides how the SERC should utilize the fund and how it should maintain accounts. The state government can also provide subsidy to consumers, but the Electricity Act requires it to compensate the licensee in advance by the amount of loss expected to be suffered by the licensee in implementing the subsidy. The state government notifies rural areas where exemption of license conditions would apply and issues directions to the SERC on public interest issues.
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Central Electricity Authority
The CEA was created under the Supply Act and the Electricity Act retains the agency by placing it mostly to a consultative role. There was some overlap of duties and power between the CERC and the CEA earlier, which the Electricity Act has now removed. The technical clearance required for power projects under the provisions of the Supply Act has been eliminated, except in cases of hydro projects above a certain capital investment.
Electricity Regulatory Commissions
The Electricity Act retains the two-level regulatory system for the power sector. At the central level, the CERC is responsible for regulating tariff of generating stations owned by the central government, or those involved in generating or supplying in more than one states, and regulating inter-state transmission of electricity. The SERCs on the other hand regulate intra--state transmission and supply of electricity within the jurisdiction of each state. CERC and the SERCs are guided by the National Electricity Policy, Tariff Policy and the National Electricity Plan while discharging their functions under the Electricity Act. The Electricity Regulatory Commissions are also guided by any direction given by the central government for CERC or the state government for the SERC pertaining to any policy involving public interest. The decision of the government is final and non-challengeable with respect to the question that whether directions pertain to policy involving public interest or not. The commissions have been entrusted with a variety of functions including determining tariff, granting licensees, settling disputes between the generating companies and the licensees. The Electricity Regulatory Commissions are a quasi-judicial authority with powers of a civil court and an appeal against the orders of the Commissions lie to the appellate tribunal.
Appellate Tribunal
Under the earlier electricity legislations of 1998, the High Court was the appellate authority against orders that are passed by the SERC. Under the Electricity Act, the appellate tribunal has been set up as an appellate body against orders of the relevant electricity regulatory commissions or adjudicating officers in settling disputes. The appellate tribunal has the power to summon, enforce attendance, require discovery and production of documents, receive evidence and review decisions. The orders of the appellate tribunal are executable as decrees of a civil court. The orders of the appellate tribunal can be challenged in the Supreme Court of India by the aggrieved party.
Enforcement Agencies
The roles and functions of certain key enforcement agencies that operate in the power sector have been set out below:
Investigating Authority
The Electricity Regulatory Commissions have the powers to direct any person to investigate the affairs of and undertake inspection of the generating company if there is any failure by the generating company/licensee to comply with the provisions of the Electricity Act or the license, licensee. The Electricity Regulatory Commissions may direct the generating company/licensee to take such action as may be necessary upon receipt of report from such Investigation Authority.
Electrical Inspector
If the relevant government receives a complaint that there has been an accident in connection with the generation, transmission, distribution or supply of electricity or that in case of use of electrical lines or electrical plant, there is a likelihood of injury to human being or animal, it may require an Electrical Inspector to inquire and report as to the cause of the accident and the manner and extent to which the provisions of Electricity Act have been complied with. The Electrical Inspector is vested with the powers of a civil court under the Civil Procedure Code, 1908 for enforcing the attendance of witnesses and compelling the production of documents and material objects.
Foreign Investment Regulation
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Under India’s Consolidated FDI Policy, effective from April 17, 2014, issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, GoI, foreign direct investment (“ FDI ”) in the power sector is in the 100% automatic route, requiring no approval from the Foreign Investment Promotion Board (“ FIPB ”).
Indian Energy Exchange for Online Trading in Electricity
Indian Energy Exchange (“ IEX ”) is India’s first nationwide, automated, and online electricity trading platform. Approved by CERC on August 31, 2007, the exchange would enable efficient price discovery and price risk management in the electricity market besides providing benefits like transparency and cost efficiency to its members. In February 2007, the CERC issued guidelines for grant of permission to set up power exchanges in India. The exchange is conceived to catalyse modernisation of electricity trade in the country by ushering in a transparent and neutral market through technology-enabled electronic trading platform. Indian Energy Exchange Limited, India’s first IEX began commercial operation on June 27, 2008.
Mining Laws
The Mines and Minerals (Development and Regulations) Act, 1957, as amended (“ MMDR Act ”), the Mineral Concession Rules, 1960, as amended, (“ MC Rules ”), and the Mineral Conservation and Development Rules, 1988, as amended, (“ MCD Rules ”), govern mining rights and the operations of mines in India. The MMDR Act was enacted to provide for the development and regulation of mines and minerals under the control of India and it lays down the substantive law pertaining to the grant, renewal and termination of reconnaissance, mining and prospecting licenses. The MC Rules outline the procedures for obtaining a prospecting license or the mining lease, the terms and conditions of such licenses and the model form in which they are to be issued. The MCD Rules lay down guidelines for ensuring mining is carried out in a scientific and environmentally friendly manner.
The GoI announced the National Mineral Policy in 1993, which was amended in 2008, to sustain and develop mineral resources so as to ensure their adequate supply for the present needs and future requirements of India in a manner which will minimize the adverse effects of mineral development on the forest, environment and ecology through appropriate protective measures. The aim of the National Mineral Policy is to achieve zero waste mining and the extraction and utilization of the entire run of mines within a framework of sustainable development through the establishment of a resource inventory and registry, manpower development through education and training, infrastructure development in mineral bearing areas and the facilitation of financial support for mining. At the same time, the GoI also made various amendments to India’s mining laws and regulations to reflect the principles underlying the National Mineral Policy.
Grant of a Mining Lease
A mining lease is granted by the applicable state government. The mining lease agreement governs the terms on which the lessee may use the land for the purpose of mining operations. If the land on which the mines are located belongs to private parties, the lessee must acquire the surface rights relating to the land from such private parties. If a private party refuses to grant the required surface rights to the lessee, the lessee is entitled to inform the state government and deposit with the state government compensation for the acquisition of the surface rights. If the state government deems that such amount is fair and reasonable, the state government has the power to order a private party to permit the lessee to enter the land and carry out such operations as may be necessary for the purpose of mining. For determining what constitutes a fair amount of compensation payable to the private party, state governments are guided by the principles of the Land Acquisition Act, 1894, as amended, (“ Land Acquisition Act ”), which generally governs the acquisition of land by governments from private individuals. In case of land owned by the government, the surface right to operate in the lease area is granted by the government upon application as per the norms of that state government.
If the mining operations in respect of any mining lease results in the displacement of any persons, the consent of such affected persons, and their resettlement and rehabilitation as well as payment of benefits in accordance with the guidelines of the applicable state government, including payment for the acquired land owned by those displaced persons, needs to be settled or obtained before the commencement of the mining project. In respect of minerals listed in the First Schedule of the MMDR Act, prior approval of the GoI is required to be obtained by the state government for entering into the mining lease. The approval of the GoI is granted on the basis of the recommendations of the state governments, although the GoI has the discretion to overlook the recommendation of the state governments. On receiving the clearance of the GoI, the state government grants the final mining
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lease and prospecting license. The lease can be executed only after obtaining the mine plan approval from the Indian Bureau of Mines, which is valid for a period of five years. A mining lease for a mineral or prescribed group of associated minerals cannot exceed a total area of 10 square kilometers. Further, in a state (province), one person cannot acquire mining leases covering a total area of more than 10 square kilometers. However, the GoI may, if necessary in the interest of development of any mineral, relax this requirement.
The maximum term of a mining lease is 30 years and the minimum term is 20 years. A mining lease may be renewed for further periods of 20 years or less at the option of the lessee. Renewals are subject to the lessee not being in default of any applicable laws, including environmental laws. The MC Rules provide that if a lessee uses the minerals for its own industry, then such lessee is generally entitled to a renewal of its mining lease for a period of 20 years, unless it applies for a lesser period. The lessee is required to apply to the relevant state government for the renewal of the mining lease at least one year prior to the expiry of the mining lease. Any delay in applying for a renewal of the mining lease may be waived by the applicable state government provided that the application for renewal is made prior to expiry of the mining lease. In the event that the state government does not make any orders relating to an application for renewal prior to the expiration of the mining lease, the mining lease is deemed to be extended until such time the state government makes the order on the application for renewal.
Hydro power
The National Hydro Power Policy, 2008
The National Hydro Power Policy was notified by the GoI, setting out the following objectives: (a) inducing private investment in hydropower development; (b) harnessing the balance hydroelectric potential; (c) improving resettlement and rehabilitation; and (d) facilitating financial viability. The salient features of this policy are set forth below:
(a) The existing dispensation available to the public sector regarding exemption from tariff based bidding up to January 2011 is extended to private sector hydroelectric projects;
(b) State governments would be required to follow a transparent procedure for awarding potential sites to the private sector;
(c) The concerned private developer would be required to following the existing procedure, including getting the DPR prepared, obtaining concurrence of the CEA/State government, obtaining environment, forest and other statutory clearance and then approach the appropriate regulator. It would be obligatory for the developers to go through an international competitive bidding process for award of contract for supply of equipment and construction of the project either through a turnkey contract or through a few well defined packages;
(d) Tariff of the project would be decided by the appropriate commission;
(e) Special incentive for merchant sales of up to 40% of the saleable energy is envisaged for the project(s) meeting the time lines;
(f) An additional 1% free power from the project would be provided and earmarked for local area development fund, aimed at providing a regular stream of revenue for income generation and welfare schemes, creation of additional infrastructure and common facilities on a sustained and continued basis over the life of the project. It is further recommended that the host State government would also provide a matching 1% from their share of 12% free power towards this corpus fund. This fund could be operated by a standing committee headed by an officer of the State government not lower than a district magistrate;
(g) For 10 years from the date of commissioning of the project, 100 units of electricity per month would be provided by the project developer to each project affected family through the relevant distribution company;
(h) In the interest of speedy implementation of hydroelectric projects, it is proposed that the Resettlement and Rehabilitation package should be more liberal than the National Resettlement and Rehabilitation Policy, 2007.
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The National Water Policy, 2002
The National Water Policy, notified in 1987 was significantly amended and notified in 2002 by the Ministry of Water Resources, GoI. The National Water Policy notes that water allocation priorities should be broadly as follows: drinking water; irrigation; hydropower; ecology; agro-industries and non-agricultural industries; and navigation and other uses. However, the priorities could be modified or added to, if warranted by region specific considerations. The National Water Policy states that water resource development projects should, as far as possible, be planned and developed as multipurpose projects, with an integrated and multi-disciplinary approach to the planning, formulation, clearance and implementation of projects, including catchment area treatment and management, environmental and ecological aspects, the rehabilitation of affected people and command area development. Planning of projects and economic evaluation of projects in hilly areas should take into account, among other things, possibilities of hydropower development.
Private sector participation should be encouraged in planning, development and management of water resources projects for diverse uses, wherever feasible. Private sector participation may help in introducing innovative ideas, generating financial resources, introducing corporate management and improving service efficiency and accountability to users. Various combinations of private sector participation, in building, owning, operating, leasing and transferring of water resources facilities, may be considered. Water sharing/distribution among the States should be guided by a national perspective with due regard to water resources availability and needs within the river basin. The National Water Policy recommends that the Inter-State Water Disputes Act, 1956, be amended for timely adjudication of water disputes referred to the Tribunal, respective States should formulate their own Water Policies backed by operational action plans in a time bound manner, and that States should evolve their own detailed resettlement and rehabilitation policies for the sector, taking into account the local conditions.
Accelerated Power Development and Reform Programme
Accelerated Power Development and Reform Programme (“ APDRP ”) has been formulated by the MoP, GoI in the year 2000-01 with the objective of achieving financial turnaround in the performance of the power sector utilities, especially in the area of distribution. Earlier its name was Accelerated Power Development Programme which was changed to APDRP in the year 2002-03. Funds disbursed under APDRP are used to implement specific projects relating to up-gradation and strengthening of sub-transmission and distribution network including energy accounting and metering, renovation and modernization of sub-stations, consumer indexing, SCADA, computerized billing etc. In this scheme priority is given to the states that have committed themselves to a time-bound programme of reforms as elaborated in the Memorandum of Understanding and Memorandum of Agreement and are progressing on those commitments.
Labour Related Regulations
The Factories Act, 1948
The Factories Act, 1948 (the “ Factories Act ”) seeks to regulate labor employed in factories and makes provisions for the safety, health and welfare of the workers. It applies to industries in which (i) 10 or more than 10 workers are employed on any day of the preceding 12 months and are engaged in the manufacturing process being carried out with the aid of power, or (ii) 20 or more than 20 workers are employed in the manufacturing process being carried out without the aid of power. Each State has enacted rules in respect of the prior submission of plans and their approval for the establishment, registration and licensing of factories. The Factories Act provides that the occupier of a factory, i.e., the person who has ultimate control over the affairs of the factory and in the case of a company, any one of the directors, must ensure the health, safety and welfare of all workers especially in respect of safety and proper maintenance of the factory such that it does not pose health risks, the safe use, handling, storage and transport of factory articles and substances, provision of adequate instruction, training and supervision to ensure workers’ health and safety, cleanliness and safe working conditions. The Factories Act also provides for fines to be paid and imprisonment of the manager of the factory in case of any contravention of the provisions of the Factories Act.
Depending upon the nature of the activity undertaken by us, additional applicable labor laws and regulations include the following:
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• The Employee’s Compensation Act, 1923; • The Payment of Gratuity Act, 1972; • The Payment of Bonus Act, 1965; • The Maternity Benefit Act, 1961; • The Minimum Wages Act, 1948; • The Employee’s State Insurance Act, 1948; • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; • The Payment of Wages Act, 1936; and • The Industrial Disputes Act, 1947.
Environmental Laws
The Environment Protection Act, 1986 (the “ EPA ”) is an umbrella legislation in respect of the various environment protection laws in India. The EPA vests in the GoI the power to take any measures it deems necessary or expedient for protecting and improving the quality of the environment and preventing and controlling environmental pollution. Penalties for violation of the EPA include fines up to Rs. 100,000 or imprisonment of up to five years, or both. The MoEF, in exercise of powers conferred under the EPA, issued a notification on January 6, 2011 declaring coastal stretches as coastal regulation zones and thereby imposing restrictions on industries, operations and processes in a coastal regulation zone. The EIA Notification issued under the EPA and the Environment (Protection) Rules, 1986 requires prior MoEF approval if any new project in certain specified areas is proposed to be undertaken. To obtain environmental clearance, a no-objection certificate must first be obtained from the applicable regulatory authority. This is granted after a notified public hearing, submission and approval of an environmental impact assessment report that sets out the operating parameters such as the permissible pollution load and any mitigating measures for the mine or production facility and an environmental management plan. Under the EPA and the Environment (Protection) Rules, 1986, as amended, the GoI has issued notifications) in January 1994 and September 14, 2006 (together, the “ EIA Notifications ”), which requires that prior approval of the MoEF, GoI, or State Environment Impact Assessment (“ EIA ”) Authority, as the case may be, be obtained for the establishment of any new project and for expansion or modernisation of existing projects specified in the EIA Notification (including power projects). An application for environment clearance is made after identification of the prospective site for the project or activity to which the application relates, but prior to commencing construction activity or preparation of land at the site. Certain projects which require approval from a State Environment Impact Assessment Authority (“ SEIAA ”) may not require an EIA report. For projects that require preparation of an EIA report, public consultation involving public hearing and written responses is conducted by the State PCB, prior to submission of a final EIA report. The environment clearance (for commencement of the project) is valid for up to 30 years for mining projects and five years for all other projects and activities. This period of validity may be extended by the concerned regulator for up to five years. The EIA Notification states that obtaining of prior environment clearance includes four stages, i.e., screening, scoping, public consultation and appraisal.
The MoEF by a circular dated November 1, 2010, decided that proposals for obtaining environment clearance for projects that rely on the availability of coal as a raw material, including thermal power projects, will be considered only after the availability of firm coal linkage and the status of environment and forestry clearances of the source of the coal, i.e., the linked coal mine or block, are known. If a project is dependent on coal sourced from outside India, a copy of a signed memorandum of understanding between the foreign coal supplier and project proponent is required to be submitted to the MoEF prior to environment clearance being granted. All proposals for environment clearance that are currently pending either before the MoEF or SEIAA, will be deferred and delisted until the conditions of the circular are complied with by the project proponents.
The MoEF has in November 2010, requested State governments to initiate action against projects where substantial progress relating to construction has been made and significant investments been made without obtaining requisite prior environment clearance. The memorandum prescribes the procedure for rectifying instances of non-compliance with the EIA Notification. Prior to environment clearance being granted, the concerned entity would be required to mandatorily highlight the violation before its board of directors/managing director/chief operating officer for consideration of its environmental policy or plan of action, and provide written commitment in the form of a formal resolution, to the MoEF or SEIAA within 90 days from receiving the communication from the MoEF or SEIAA, which will be uploaded on the websites of the MoEF or SEIAA. If the project proponent does not file a response with the MoEF or SEIAA within 90 days, it will be assumed that the project proponent is no longer interested in pursuing the project and the project file will be closed, after
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which the procedure for obtaining environment clearance will be required to be initiated afresh if the project proponents are desirous of pursuing the project.
The Water (Prevention and Control of Pollution) Act, 1974
The Water Act (Prevention and Control of Pollution) Act, 1974 (the “ Water Act ”) aims to prevent and control water pollution and to maintain or restore wholesomeness of water. The Water Act provides for a Central and various State Pollution Control Boards to be constituted to implement its provisions. The Water Act debars any person from establishing any industry, operation or process or any treatment and disposal system likely to discharge sewage or trade effluents into a water body, without prior consent of the State Pollution Control Board.
Further, under the Water (Prevention and Control of Pollution) Cess Act, 1977 (the “ Water Cess Act ”), a lessee carrying on any industry specified under the Water Cess Act is required to pay a surcharge calculated on the amount of water consumed and purpose for which the water is used. Penalties for non-compliance include a penalty not exceeding the cess in arrears, imprisonment up to six months or fine, or both.
The Air (Prevention and Control of Pollution) Act, 1981
The Air (Prevention and Control of Pollution) Act, 1981 (the “ Air Act ”) aims to prevent, control and abate air pollution, and stipulates that no person shall, without prior consent of the State Pollution Control Board, establish or operate any industrial plant which emits air pollutants in an air pollution control area. The Central Pollution Control Board and State Pollution Control Board constituted under the Water Act perform similar functions under the Air Act as well. All provisions of the Air Act do not automatically apply to all parts of India, and the State Pollution Control Board must notify an area as an ‘air pollution control area’ before the restrictions under the Air Act apply.
The Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008
The Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2008 (the “ Hazardous Wastes Rules ”) regulate the collection, reception, treatment, storage and disposal of hazardous waste by imposing an obligation on every occupier and operator of a facility generating hazardous waste to dispose of such waste without adverse effect on the environment. Every occupier and operator of a facility generating hazardous waste must obtain approval from the applicable State Pollution Control Board. The occupier is liable for damages caused to the environment resulting from the improper handling and disposal of hazardous waste and any fine that may be levied by the respective State Pollution Control Board.
Significant Legislations Applicable To Our Retail Business:
The Food Safety and Standards Act, 2006
The Food Safety and Standards Act, 2006 (the “FSSA”) has replaced the Prevention of Food Adulteration Act, 1954 (the “PFA Act”), vide notification dated August 4, 2011, issued by the Ministry of Health and Family Welfare (the “Ministry of Health”). The FSSA was enacted with a view to consolidate the laws relating to food and to establish the Food Safety and Standards Authority of India for laying down science based standards for articles of food and to regulate their manufacture, storage, distribution, sale and import, to ensure availability of safe and wholesome food for human consumption and for matters connected therewith or incidental thereto. The Ministry of Health, vide notification dated August 1, 2011, introduced the Food Safety and Standards (Licensing and Registration of Food Businesses), Regulations 2011(the “FSS (Licensing) Regulations”), FSS ( Packaging and Labelling Regulation ) which contains the provisions regarding the requirements and procedure of licensing and registration of persons engaged in the food business. Any person engaged in the food business, holding a license under the PFA Act, will be required to convert the existing license to a license under the FSS (Licensing) Regulations, after complying with the requirements of the FSS (Licensing) Regulations, within one year from the date of the abovementioned notification, i.e. August 1, 2011. Spencer’s Retail Limited has converted all licenses obtained under earlier Act into the new form of license and also being ensures to obtain / renew license before the due dates. Further, a nominee was appointed as per the Act for taking necessary measures to prevent any non-compliances for each store.
Prevention of Food Adulteration Act, 1954 (the “PFA Act”)
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The PFA Act was considered to be a consumer protection legislation, which had been designed to prevent, curb and check the adulteration of foodstuffs and to adequately punish the offenders. The PFA Act covers various aspects of food processing such as food colour, preservatives, pesticide residue, packaging and labelling and regulation of sales. The offence of adulteration under the PFA Act is a cognizable offence. If any offence is committed by a company under the PFA Act, then the nominee shall be liable to be proceeded against and punished accordingly. The courts are empowered to impose penalties on the offenders for the contraventions of the provisions of the PFA Act. The liabilities of the manufacturers, dealers and retailers are also prescribed thereunder. The PFA Act has since been repealed by the FSSA.
Legal Metrology Act, 2009
The Legal Metrology Act, 2009 (the “Metrology Act”), was brought into force vide notification, dated December 31, 2010, issued by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India, replacing the Standard of Weights and Measures Act, 1976, with effect from March 1, 2011. The Metrology Act was enacted with the purpose to establish and enforce standards of weights and measures and regulate trade and commerce in weights, measures and other goods, which are sold or distributed by weight, measure or number.
We are also amenable to the Shops and Establishments Acts of the states in which we have our stores and operations.
Significant Legislations Applicable To Our Business Outsourcing Business
Software Technology Parks Scheme
Software Technology Parks of India (STPI) came into existence in 1991, as an autonomous organization under Ministry of Communication and Information Technology. STPI was set-up to implement the software technology park scheme (STP Scheme) to promote software exports. STP Scheme permits the establishment of units engaged in software development and information technology enabled products and services (ITES). STP Scheme is an export oriented scheme for undertaking software development for export using data communication links or in the form of physical media including export of professional services.
The STP Scheme has been notified by the Central Government (Ministry of Commerce) in exercise of its powers under Section 3 (1) of the Foreign Trade Development and Regulation Act, 1992. The production of products which are notified as information technology enabled products and services qualify their producer or provider of such products or services for establishing a unit under the STP Scheme.
The STP Scheme provides infrastructure such as data communication facilities, operational space, common amenities, single window statutory services such as project approval, import certification and other facilities to boost software exports from India. In addition to the infrastructure support, an STP unit will be entitled to the following fiscal benefits:
1. All hardware and software imports are exempt from customs duties 2. A STP unit is exempt from payment of corporate tax up to the Fiscal Year 2010-11 3. Domestic purchases by STP units are eligible for the benefit of deemed exports to suppliers 4. Capital goods purchased from the DTA (an area within India but outside a notified STP) are entitled for exemption from excise duty and reimbursement of central sales tax; 5. The sales in the domestic tariff area shall be permissible up to 50% of the export in value terms 6. Depreciation on capital goods up to 90% over a period of five years and also the accelerated rate of 7% per quarter during the first two years subject to an overall limit of 70% in the first three years. 7. Approvals are given under a single window clearance 8. 100% foreign equity is permitted and approved by the jurisdictional director of STPI 9. All imports of hardware & software in STP units are completely duty free Setting up a STP Unit
An application is required to be made by the company desirous of setting up a unit as an STP to the director of the STP In assessing an application for setting up an STP Unit, the director will evaluate whether (a) items to be manufactured or exported are not restricted or prohibited; (b) the location is in conformity with the prescribed
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parameters; (c) the export obligation laid down in the STP Scheme is fulfilled; and (d) the unit is amenable to bonding by the Customs and all manufacturing operations are carried out in the same premises. The registration as an STP is location specific.
Pursuant to the requirements of the STP approval, the company in question is required to execute an agreement with the Government of India agreeing to comply with conditions prescribed in the STP approval, inter alia the export obligations and customs bonding of the premises. In order to be able to obtain the STP license, the company is required to obtain the following:
• an Importer Exporter Code from the Directorate General of Foreign Trade (in order to be able to export its services/products); • registration under the relevant shops and establishments statute of the state where the unit is sought to be situated; and • registration as an ‘Other Service Provider’ with the Department of Telecommunications to provide call centre services. Private Warehouse License
Following the approval under the STP, the company would be required to obtain an approval from the Customs authorities for setting up a Private Bonded Warehouse and also an In-Bond Manufacturing order to store the Capital goods obtained free of Customs /Excise duty and to carry on the manufacture of computer software.
The principal compliance required of a company accorded approval under the STP Scheme is the fulfilment of the export obligation. Additionally, the STP unit is required to file monthly, quarterly and annual returns to STPI in the nature of a performance report indicating the export performance and the CIF value of imported goods and foreign currency spent on incidental expenses.
Special Economic Zones
The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 which received Presidential assent on the 23rd of June, 2005. The draft SEZ Rules were widely discussed and put on the website of the Department of Commerce offering suggestions/comments. Around 800 suggestions were received on the draft rules. After extensive consultations, the SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. The main objectives of the SEZ Act are: (a) Generation of additional economic activity; (b) Promotion of exports of goods and services; (c) Promotion of investment from domestic and foreign sources; (d) Creation of employment opportunities; (e) Development of infrastructure facilities; The SEZ Act 2005 envisages key role for the State Governments in Export Promotion and creation of related infrastructure. A Single Window SEZ approval mechanism has been provided through a 19 member inter- ministerial SEZ Board of Approval (BoA). The application duly recommended by the State Government/ UT Administrations are considered by this BoA periodically. All decisions of the Board of approvals are with consensus. The SEZ Rules provide for different minimum land requirement for different classes of SEZs. Every SEZ is divided into a processing area where alone the SEZ units would come up and the non-processing area where the supporting infrastructure is to be created. The SEZ Rules provide for: • Simplified procedures for development, operation, and maintenance of the SEZs and for getting up units and conducting business in SEZs; • Single window clearance for setting up of an SEZ; • Single window clearance for setting up a unit in a SEZ; • Single window clearance on matters relating to Central as well as State Governments; • Simplified compliance procedure and documentation with an emphasis on self certifications
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The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include: • Duty free import/ domestic procurement of goods for development, operations and maintenance of SEZ units • 100% Income Tax exemption on export incomes for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for the next 5 years and 50% of the ploughed back export profit for the next 5 years • Exemption from minimum alternate tax under Section 115JB of the Income Tax Act • External commercial borrowing by SEZ units upto US$00 million in a year without any maturity restriction through recognized banking channels • Exemption from Central Sales Tax • Exemption from Service Tax • Single window clearance for Central and State level approvals • Exemption from State sales tax and other levies as extended by the respective State Governments The Information Technology Act, 2000/Data Protection Laws
The Information Technology Act, 2000 (“the IT Act”) was enacted with the purpose of providing legal recognition to electronic transactions. In addition to providing for the recognition of electronic records, creating a mechanism for the authentication of electronic documentation through digital signatures, the IT Act also provides for civil and criminal liability including fines and imprisonment for various computer related offenses. These include offences relating to unauthorised access to computer systems, modifying the contents of such computer systems without authorization, damaging computer systems, the unauthorized disclosure of confidential information and computer fraud. For example, section 66 of the IT Act has criminalized “hacking” of a computer resource with imprisonment up to three years, or with a fine which may extend up to Rs. 0.2 million, or with both.
The Indian Penal Code, 1860, and the Indian Evidence Act, 1872 have been amended to include electronic records as “documents” for the purpose of these statutes.
The Telecom Regulatory Framework
The usage of telecommunications infrastructure in India, including bandwidth, telecommunication links and other infrastructure is regulated by legislation, administrative orders, licensing, contractual mechanisms and policies issued by the Department of Telecommunication from time to time. The above restrictions may be imposed either directly on the end user of such infrastructure, or upon the service provider supplying such infrastructure to the end user.
Further the Telecom Regulatory Authority of India (TRAI) was established under the Telecom Regulatory Authority Act of India, 1997 is responsible for regulating the telecommunication services, making recommendation on terms and conditions of license, effective management of spectrum, laying down the standards of quality of service to be provided by the service providers and ensure the quality of service and conduct the periodical survey of such service provided by the service providers so as to protect interest of the consumers of telecommunication service, ensure effective compliance of universal service obligations, notify the rates at which telecommunication services within India and outside India shall be provided.
ITES Policies (State Specific)
Under these ITES policies, each State Government gives certain benefits and exemptions to the ITES units within the states. These include several fiscal exemptions and benefits like the following:
• Government Electricity Duty exemption • Special industrial rates for power supply • Stamp duty exemption to a certain extent • Octroi/ entry tax exemptions • VAT, Customs, Excise, Sales Tax exemptions • standard investment subsidies • Quality linked incentives
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• Employment generation subsidy • Single window clearance for projects • Quality certifications • Reimbursement on Skill Gap Trainings • Lease/ rental benefits • Human capital investment subsidy • Patent filing • Relaxation of Floor Space Index • Concessions on Works Contract • Exemption from taking consent to operate from the State Pollution Control Boards • Exemptions to maintain physical records of attendance and salary under labour legislations like Shops and Establishments Acts, relaxation under the Shops and Establishments Acts with regard to working hours, work shifts, and employment of women, option of self certification and filing of consolidated returns under several Labour Laws administered by the respective Labour Departments. • Growth of ITES sectors in Tier-II and Tier-III cities/ towns in the respective states
Significant legislations applicable to our property development business
Transfer of Property Act, 1882 (the “TP Act”)
The TP Act establishes the general principles relating to transfer of property in India. It forms a basis for identifying the categories of property that are capable of being transferred, the persons competent to transfer property, the validity of restrictions and conditions imposed on the transfer and the creation of contingent and vested interest in the property. It also provides for the rights and liabilities of the vendor and purchaser in a transaction of sale of land.
Registration Act, 1908 (the “Registration Act”)
The Registration Act has been enacted with the objective of providing public notice of the execution of documents affecting, inter alia , the transfer of interest in immovable property. The purpose of the Registration Act is the conservation of evidence, assurances, title and publication of documents and prevention of fraud. It details the formalities for registering an instrument. Section 17 of the Registration Act identifies documents for which registration is compulsory and includes, among other things, any non-testamentary instrument which purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, in any immovable property of the value of one hundred rupees or more, and a lease of immovable property for any term exceeding one year or reserving a yearly rent. A document will not affect the property comprised in it, nor be treated as evidence of any transaction affecting such property (except as evidence of a contract in a suit for specific performance or as evidence of part performance under the TP Act or as collateral), unless it has been registered. Evidence of registration is normally available through an inspection of the relevant land records, which usually contains details of the registered property. Further, registration of a document does not guarantee title of land.
Indian Stamp Act, 1899 (the “Stamp Act”)
Under the Stamp Act, stamp duty is payable on instruments evidencing a transfer or creation or extinguishment of any right, title or interest in immovable property. Stamp duty must be paid on all instruments specified under the Stamp Act at the rates specified in the schedules to the Stamp Act. The applicable rates for stamp duty on instruments chargeable with duty vary from state to state. Instruments chargeable to duty under the Stamp Act, which are not duly stamped, are incapable of being admitted in court as evidence of the transaction contained therein and it also provides for impounding of instruments that are not sufficiently stamped or not stamped at all. However, the instruments which have not been properly stamped can, in certain cases, be validated by paying a penalty of up to 10 times of the proper duty or deficient portion thereof payable on such instruments.
Indian Easements Act, 1882 (the “Easement Act”)
An easement is a right which the owner or occupier of land possesses for the beneficial enjoyment of that land and which permits him to do or to prevent something from being done, in or upon, other land not his own. Under the Easements Act, a license is defined as a right to use property without any interest in favour of the
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licensee. The period and incident may be revoked and grounds for the same may be provided in the license agreement entered in between the licensee and the licensor.
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BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Board of Directors
The general supervision, direction and management of our Company, its operations and business are vested in the Board, which exercises its power subject to Memorandum and Articles of Association of the Company and the requirements of the applicable laws. The Articles set out that the number of Directors in our Company shall not be less than three and not more than ten.
The composition of the Board is in conformity with clause 49 of the Listing Agreements entered into with the Stock Exchanges on which our Company’s Equity Shares are listed. As on the date of this Preliminary Placement Document, our Company has 10 Directors with a Non-Executive Chairman. Out of the total 10 Directors, 7 are Independent Directors.
The following table sets forth details regarding the Board at the date of this Preliminary Placement Document:
Name, Director Director Occupation, Term Age Position Identification Address Since and Nationality Number Mr. Sanjiv Goenka 53 Non-Executive 00074796 Goenka Niwas, 19, Dr. April 29, Chairman Rama Prasad Goenka 1989 Occupation: Sarani, Kolkata- Industrialist 700027
Term: Liable to retire by rotation
Nationality: Indian Mr. Pradip Kumar 73 Independent Director 00004821 B-103, Rai Enclave, October 29, Khaitan 7/1A, Sunny Park, 1992 Kolkata -700019 Occupation: Professional
Term: 5 years from October 1, 2014
Nationality: Indian Mr. Brij Mohan 87 Independent Director 00023771 10 Queens Park, May 10, Khaitan Ballygunge, 1994 Kolkata-700019 Occupation: Industrialist
Term: 5 years from April 1, 2014
Nationality: Indian Mr. Chandra 60 Independent Director 00005684 14B, Dr. U.N. May 04, Kumar Dhanuka Brahmachary Street, 2012 Kolkata- 700017 Occupation: Industrialist
Term: 5 years from April 1, 2014
Nationality: Indian
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Name, Director Director Occupation, Term Age Position Identification Address Since and Nationality Number Mr. Srikandath 68 Independent Director 01475746 P-404/5A Gariahat September Narayan Menon Road, Ground Floor, 07, 2011 Kolkata- 700029 Occupation: Retired Civil Servant
Term: 5 years from April 1, 2014
Nationality: Indian Ms. Rekha Sethi 51 Independent Director 06809515 30/19, East Patel May 30, Nagar, New Delhi - 2014 Occupation: 110008 Service
Term: 5 years from May 30, 2014
Nationality: Indian Mr. Kalaikuruchi 62 Independent Director 01875126 No. 32, 5th B Cross, August 01, Jairaj 16th Main, BTM 2014 Layout, 2nd Phase, Occupation: Bangalore-560076 Retired Civil Servant
Term: 5 years from August 1, 2014
Nationality: Indian Mr. Sanjay Kumar 59 Nominee Director of 00307575 Flat No. 32, Jolly January15, Pai IDBI Bank Limited Maker Apt, No. 2, 2013 Cuffe Parade, Mumbai Occupation: - 400005 Service
Term: Liable to retire by rotation
Nationality: Indian Mr. Aniruddha 55 Managing Director 06593527 56/7 M.N. Sen Lane, May 28, Basu PO& PS-Regent Park, 2013 Kolkata – 700040 Occupation: Service
Term: Till May 27, 2018
Nationality: Indian Mr. Pratip 61 Independent Director 00915201 DUNEDIN October 1, Chaudhuri 5, J. M. Mehta Road 2014 Mumbai - 400006 Occupation:
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Name, Director Director Occupation, Term Age Position Identification Address Since and Nationality Number Service Term 5 years from October 1, 2014
Nationality: Indian
Brief Biographies of the Directors
Mr Sanjiv Goenka
Mr Sanjiv Goenka, is the Non-Executive Chairman of our Company as well as our Promoter. He is the promoter of the RP-Sanjiv Goenka Group of Companies. Mr Goenka is currently the honorary consul of Canada in Kolkata. Mr Goenka is also on the board of Firstsource Solutions Limited, Philips Carbon Black Limited, Spencer and Company Limited, Spencer International Hotels Limited, RPG Enterprises Limited, Saregama India Limited, Harrisons Malayalam Limited, Woodlands Multispeciality Hospital Limited, STEL Holdings Limited, Noida Power Company Limited and Eveready Industries India Limited.
Mr. Pradip Kumar Khaitan
Mr. Pradip Kumar Khaitan is an Independent Director of our Company. He is a partner of Khaitan & Co, Advocates and Solicitors. He is a member of the Bar Council of India, the Bar Council of West Bengal, the Incorporated Law Society of India and the Indian Council of Arbitration. Mr. Khaitan is a director of Dalmia Bharat Limited, Electrosteel Castings Limited, OCL India Limited, Dhunseri Petrochem Limited, Graphite India Limited, India Glycols Limited, Emami Limited and Woodlands Multispeciality Hospital Limited.
Mr. Brij Mohan Khaitan
Mr. Brij Mohan Khaitan is an Independent Director of our Company. Mr. Khaitan is a director of Williamson Magor & Company Limited, Eveready Industries India Limited and Mcleod Russel India Limited, Babcock Borsig Limited and Jayshree Tea & Industries Limited.
Mr. Chandra Kumar Dhanuka
Mr. Chandra Kumar Dhanuka is an Independent Director of our Company. Mr Dhanuka is Chairman of Naga Dhunseri Group Limited, Mint Investments Limited, Trimplex Investments Limited and Jatayu Estate Private Limited, Madhuting Tea Private Limited, Plenty Valley Infra Limited, Dhunseri Investments Limited (also its Managing Director), Dhunseri Tea & Industries Limited and Dhunseri Infrastructure Limited. He is on the board of ABC Tea Workers Welfare Services, Egyptian Indian Polyester Company SAE, Dhunseri Petrochem & Tea PTE Limited, Makanadi Tea & Coffee Estates Limited and Kawalazi Estate Co. Limited. He is also the Executive Chairman and Managing Director of Dhunseri Petrochem Limited.
Mr. Srikandath Narayan Menon
Mr. Srikandath Narayan Menon is an Independent Director of our Company. He is the Chairman of Nicco Parks & Resorts Limited, Mcleod Russell India Limited and Metrovalley Business Park Private Limited.
Ms. Rekha Sethi
Ms. Rekha Sethi is an Independent Director of our Company. Ms. Sethi is on the Board of Directors for Sun Pharmaceutical Industries Limited and Sun Pharma Laboratories Limited. She is the Director General of the All India Management Association (AIMA).
Mr. Kalaikuruchi Jairaj
Mr. Kalaikuruchi Jairaj is an Independent Director of our Company. He is director of Manipal GreenTech India Private Limited, Neo Foods Private Limited and Royal Orchid Hotels Limited.
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Mr Sanjay Kumar Pai
Mr Sanjay Kumar Pai is a Nominee Director of IDBI Bank on the Board of Directors of our Company.
Mr Aniruddha Basu
Mr Aniruddha Basu is the Managing Director of the Company. He is the only executive on the Board of Directors of the Company and has the overall responsibility of the management of the Company including its growth initiatives.
Mr. Pratip Chaudhuri is an Independent Director on our Board. Mr. Chaudhuri is the former Chairman of the State Bank of India. He is also on the Board of Visa Steel Limited.
Compensation of Directors
The Nomination and Remuneration Committee determines and recommends to the Board, the compensation of the Directors.
The table below sets forth the details of the remuneration (including sitting fees, salaries, commission and perquisites) paid to the Directors during the current financial year and the last three financial years:
(in Rs. million) From April 1, 2014 to Fiscal Year Fiscal Year Fiscal Year Name September 30, 2014 2014 2013 2012 Mr. S. Goenka 0.32 83.93 78.58 69.06 Mr. P. K. Khaitan 0.14 0.31 0.41 0.37 Mr. B. M. Khaitan 0.16 0.39 0.43 0.41 Mr. C. K. Dhanuka 0. 36 0. 43 0. 45 0. 25 Mr. S. K. Pai 0. 20 0. 31 0. 27 - Mr. S. N. Menon Nil 0.25 0.25 0.25 Ms. Rekha Sethi 0.12 0.25 - - Mr. Kalaikuruchi Jairaj Nil - - - Mr. Aniruddha Basu 6.77 11.86 - -
Mr. Pratip Chaudhuri was appointed on our Board on October 1, 2014 and hence, no remuneration has been paid to him for the periods mentioned above.
Terms of employment of the Managing Director
Aniruddha Basu – Managing Director
Salary
Salary of Rs. 245,000 per month with an annual increment of Rs. 30,000.
Mr. Basu is eligible for performance bonus/ commission, at such intervals, as may be decided by the Board from time to time. Such performance bonus/ commission are subject to an overall remuneration and the same shall not exceed 5% of net profit of the Company as stipulated under the Companies Act, 2013.
Perquisites and Allowances:
He will be entitled to the usual perquisites / benefits like gas, electricity, water and furnishings, medical expenses reimbursement, leave travel concession for self and family, club memberships, personal accident insurance and provision of furniture and equipment at the residence and other benefits / allowances in accordance with the rules of the Company subject to a limit of Rs.5.5 million per annum on such perquisites / benefits. For the purpose of computation of the aforesaid limit, the following benefits / perquisites shall not be considered: (i) the Company's contribution to Provident Fund and Superannuation Fund, (ii) encashment of
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leave at the end of the tenure, and (iii) payment of Gratuity at a rate not exceeding half a month's salary for each completed year of service.
Other Benefits
An annual sum not exceeding Rs.4.8 million as may be decided by the Remuneration Committee of the Board as variable pay.
Relationship with other Directors
None of the Directors are related to each other.
Borrowing powers of the Board
The Board of Directors are authorized to borrow money upon such terms and conditions as the Board may think fit an aggregate amount not exceeding Rs. 45,000 million.
Interest of Directors
The directors of our Company may be deemed to be interested to the extent of fees payable to them for attending Board or Board committee meetings and commission as well as to the extent of reimbursement of expenses payable to them. The Managing Director may be deemed to be interested to the extent of remuneration paid to him for services rendered as an officer of our company.
Our Directors may also be regarded as interested in the Equity Shares held by them, if any, or that may be subscribed by or allotted to their relatives or the companies, firms or trusts, in which they are interested as directors, members, partners, trustees or promoters. Our Directors may also be deemed to be interested to the extent of any dividend payable to them and other distributions in respect of the said Equity Shares.
There are no existing or potential conflicts of interest between any duties owed to our Company by the Directors and the private interests or external duties of the Directors. As part of their investment portfolio, certain of the Directors may from time to time hold direct or beneficial interests in securities of our Company or other companies, with which our Company has engaged or may engage in transactions, including those in the ordinary course of business. Our Company does not believe that the holdings in such other companies create a conflict of interest because transactions typically engaged between the issuers of such securities and our Company are not likely to have a material effect on the prices of such securities.
Except as disclosed in this Preliminary Placement Document, and except to the extent of shareholding in our Company, our Directors do not have any economic interest in our Company. As of June 30, 2014, there were no outstanding transactions other than in the ordinary course of business undertaken by our Company in which the Directors were interested parties.
For details relating to contracts, agreements or arrangements entered into by our Company during the two years preceding the date of this Preliminary Placement Document, in which the Directors are interested directly or indirectly and for payments made to them in respect of such contracts, agreements or arrangements, see “Financial Information” on page 240.
Shareholding of Directors
As on September 30, 2014, following Directors hold Equity Shares of our company:
Names of Directors Number of Equity Shares held Percentage of paid up capital Mr. Sanjiv Goenka 258,498 0.21 Mr. Aniruddha Basu 110 Negligible
Except as otherwise stated in this Preliminary Placement Document, our Company has not entered into any contract, agreement or arrangement during the preceding two years from the date of this Preliminary Placement Document in which any of the Directors are interested, directly or indirectly, and no payments have been made to them in respect of any such contracts, agreements, arrangements which are proposed to be made with them.
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Further, as on September 30, 2014, no Director has taken any loans from our Company.
Corporate Governance
Our Company complies with the requirements on Corporate Governance norms provided in Clause 49 of the Listing Agreement issued by the Stock Exchanges. Our Company is committed in its responsibility towards the community and environment in which it operates, towards its employees and business partners and towards society in general.
Our Company believes that its Board is constituted in compliance with the Companies Act and the Listing Agreements which are currently in force. The Board functions either as a full Board or through various committees constituted to oversee specific operational areas.
Committees of Board of Directors
1. Audit Committee
The terms of reference of the Audit Committee of the Board of Directors were last amended on May 30, 2014. This Committee comprises of three directors. Except Mr. Sanjiv Goenka, two other directors are independent directors namely Mr. Brij Mohan Khaitan and Mr. Chandra Kumar Dhanuka. Mr. Chandra Kumar Dhanuka is the chairman of this committee.
The terms of reference of audit committee includes those mandated by the Companies Act and the listing agreement and includes inter alia the following:
(a) recommend appointment, remuneration and terms of appointment of Auditors of the Company; (b) review and monitor the auditors’ independence and performance and effectiveness of audit process; (c) examine financial statement and the auditors’ report thereon; (d) approve and subsequently modify related party transactions; (e) scrutinize inter-corporate loans and investments; (f) carry out valuation of undertakings or assets of the company, wherever it is necessary; (g) evaluate internal financial controls and risk management systems; (h) monitor the end use of funds raised through public offers and related matters; (i) oversee the working of vigil mechanism system; (j) such additional functions as required in terms of the Listing Agreements executed with the Stock Exchanges.
2. Nomination and Remuneration Committee
The Remuneration Committee of the Board of Directors was renamed as Nomination and Remuneration Committee on May 30, 2014 and was last reconstituted on February 7, 2014. This Committee comprises of four directors of which three are independent directors namely Mr. Brij Mohan Khaitan, Mr. Pradip Kumar Khaitan and Mr. Chandra Kumar Dhanuka. Mr. Brij Mohan Khaitan is the Chairman of this committee. The other member of the committee is Mr. Sanjay Kumar Pai.
The terms of reference of the committee include:
(a) Identify persons qualified to become directors or hold senior management positions and advise the Board for such appointments/ removals where necessary; (b) formulate criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy relating to the remuneration of directors, key managerial personnel and other employees; (c) evaluate the performance of every director; (d) devise a policy on Board diversity.
3. Stakeholders Relationship Committee
The Investors’ Grievance Committee of the Board of Directors was renamed as Stakeholders’ Relationship Committee on May 30, 2014.This Committee comprises of two directors namely Mr. Sanjiv Goenka and Mr. Aniruddha Basu. Mr. Goenka is the Chairman of this committee.
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4. Corporate Social Responsibility Committee
Corporate Social Responsibility Committee was constituted on May 30, 2014. This Committee comprises of three directors of which Mr. Brij Mohan Khaitan is an independent director. The other members are Mr. Sanjiv Goenka and Mr. Aniruddha Basu. Mr. Goenka is the Chairman of this committee. 5. Risk Management Committee
The Risk Management Committee was constituted on September 22, 2014. This Committee comprises of Mr. Pradip Kumar Khaitan, Mr. Brij Mohan Khaitan, Mr. Pratip Chaudhuri, Mr. Aniruddha Basu and any two senior executives of the Company as may be decided by the Managing Director.
The terms of reference of the committee include overseeing the functions of the internal risk management committee and provide necessary guidance to it in key operational areas such as risk identification, assessment and treatment exercises in respect of all divisions of the Company including in matters like fire prevention, evacuation process, security control room, disaster management, boiler management, turbine monitoring, system failure, anti- pilferage network, T&D loss minimization, adherence to regulatory standards, information technology systems, implementation of new projects etc.
6. QIP Committee
The QIP Committee was constituted on September 22, 2014. This Committee comprises of three directors, namely, Mr. Sanjiv Goenka, Mr. Brij Mohan Khaitan and Mr. Aniruddha Basu. Mr. Sanjiv Goenka is the Chairman of the QIP Committee.
The terms of reference of the committee include dealing with all matters, resolving all issues and take such other action and do such other things as may be required for the purpose of creation, issue, offer and allotment of the Equity Shares allotted though this Issue including finalizing the date of opening and other dates, issue pricing, approving the Draft and the Final Placement Documents and all such documents as may be required for the purpose, appointment of lead managers/lawyers/advisors or such other intermediaries may be considered necessary by the said committee.
Key managerial personnel of our Company
Our operations are overseen by a professional management team. Our senior management team has the requisite experience and the qualification for their respective responsibilities. In addition to our Managing Director, the following are the key managerial personnel:
(a) Mr. Subhasis Mitra, Company Secretary and Compliance Officer
Mr Subhasis Mitra is the Company Secretary and Compliance Officer in the rank of Executive Director # and is responsible for secretarial and other general management functions.
(b) Mr. Rajarshi Banerjee, Executive Director # & Chief Financial Officer
Mr Rajarshi Banerjee is the Executive Director# and Chief Financial Officer of the Company. He is responsible for the overall finance functions of the Company including its project finance related activities.
# Not a director on the Board of our Company.
Compensation of our Company’s key managerial personnel
During Fiscal Year 2014, our Company paid a total remuneration of Rs. 25.25 million, excluding commission and perquisites, to its key managerial personnel.
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Bonus or profit sharing plan of the key managerial personnel
Our Company does not have any bonus or profit sharing plan with the key managerial personnel. However, the key managerial personnel are paid bonus as per their performance, based on the discretion of the management.
Interest of key managerial personnel
The key managerial personnel of our Company do not have any interest in our Company other than to the extent of their shareholding in our Company, if any, the remuneration or benefits of which they are entitled to as per their terms of appointment and reimbursement of expenses incurred by them during the ordinary course of business.
None of our key managerial personnel have been paid any consideration of any nature from our Company, other than their remuneration.
Payment or Benefit to Officers of our Company
Except statutory benefits upon termination of their employment in our Company or superannuation, no officer of our Company is entitled to any other benefit upon termination of his employment in our Company.
Shareholding of our Company’s key managerial personnel
Number of Equity Shares Sr. Name of key managerial Percentage of paid up held as on as on September No. personnel capital 30, 2014 1. Mr. Subhasis Mitra 103 Negligible 2. Mr. Rajarshi Banerjee 114 Negligible
Other Confirmations
None of the Directors, Promoters or key managerial personnel of our Company have any financial or other material interest in the Issue and there is no effect of such interest in so far as it is different from the interests of other persons.
Further, Mr. Pradip Kumar Khaitan is a Partner of Khaitan & Co., the domestic legal counsel to the Company for the purposes of this Issue. Khaitan & Co. shall be entitled to receive fees for the services rendered for the purposes of this Issue, which shall not constitute a material interest in the Issue.
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PRINCIPAL SHAREHOLDERS AND OTHER INFORMATION
The following table presents information regarding the ownership of Equity Shares by the Shareholders as of September 30, 2014:
As on 30 September, 2014 Category Total No. of Equity Shares Percentage (%) 1. Management Group/ Families 65,572,309 52.48 2. Institutional Investors a. Mutual Funds and UTI 18 ,344 ,825 14.68 b. Banks, Financial Institutions, Insurance Companies 1,324 ,298 1.07 c. FIIs 29,986,359 24.00 Total 49,655,482 39.75 3. Others a. Private Corporate Bodies 4,300,525 3.44 b. Indian Public 4,200 ,514 3.36 c. NRIs/OCBs 1,207 ,095 0.97 d. Directors & Relatives(not in control of the Company) - - Total 9,708,134 7.77 Grand Total 124,935,925 100.00
(I)(b) Statement showing holding of securities (including shares, warrants, convertible securities) of persons belonging to the category "Promoter and Promoter Group" as on September 30, 2014
Sr.No Name of Shareholder Total Equity Shares held Percentage (%) 1 Adapt Investments Limited 2,502 ,943 2.00 2 Adorn Investments Limited 1,085,050 0.87 3 Goodluck Dealcom Private Limited 1,686 ,198 1.35 4 Integrated Coal Mining Limited 760,000 0.60 5 Off Shore India Limited 1,359,296 1.09 6 Rainbow Investments Limited 31 ,058 ,414 24.86 7 Saregama India Limited 1,544,988 1.24 8 Spencer and Company Limited 250 ,000 0.20 9 Trade Apartments Limited 1,636,896 1.31 10 Ujala Agency Private Limited 3,119 ,311 2.50 11 Universal Industrial Fund Limited 17,791,421 14.24 12 Stel Holdings Limited 2,493,470 1.99 13 Zensar Technologies Limited 100 0.00 14 Avarna Goenka 501 0.00 15 Preeti Goenka 25 ,223 0.02 16 Sanjiv Goenka 258,498 0.21 Total 65,572,309 52.48
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(I)(c)(i) Statement showing holding of securities (including shares, warrants, convertible securities) of persons belonging to the category "Public" and holding more than 1% of the total number of shares as on September 30, 2014
Sr.No. Name of the shareholder Number of Equity Shares Percentage (%) 1 HDFC Trustee Company Limited 11,205,021 8.97 2 National Westminster Bank Plc As Deposit 4,917,105 3.94 3 BNK Capital Markets Limited 3,005 ,917 2.40 4 M & G Asian Fund 1,873,251 1.50 5 SBI Magnum TaxGain Scheme 2,400,000 1.92 6 Smallcap World Fund Inc 4,521,832 3.62 TOTAL 27,923,126 22.35
(I)(c)(ii) Statement showing holding of securities (including shares, warrants, convertible securities) of persons (together with PAC) belonging to the category "Public" and holding more than 5% of the total number of shares of the company as on September 30, 2014
Sr.No. Name of the shareholder Number of Equity Shares Percentage (%) 1 HDFC Trustee Company Limited - HDFC Top 4,113,250 3.29 2 HDFC Trustee Company Limited - HDFC Equity 6,047,355 4.84 3 HDFC Trustee Company Limited - HDFC Infr 354,416 0.28 4 HDFC Trustee Company Limited - HDFC Prud 690,000 0.56 TOTAL 11,205,021 8.97
(I)(d) STATEMENT SHOWING DETAILS OF LOCKED-IN SHARES AS ON SEPTEMBER 30, 2014
Nil
(II)(a) STATEMENT SHOWING DETAILS OF DEPOSITORY RECEIPTS (DRS) AS ON SEPTEMBER 30, 2014
Sr. Type of outstanding DR(ADRs, No. of outstanding No. of shares underlying % on total No. GDRs, SDR etc.) DRs outstanding DRs shares
1 GDR 53 ,511 53 ,511 0.05 TOTAL 53,511 53,511 0.05
The GDRs of the Company are listed on the Luxemburg Stock Exchange.
(II)(b) Statement showing Holding of Depository Receipts (DRs), where underlying shares held by "Promoter/Promoter group" are in excess of 1% of the total number shares as on September 30, 2014
Nil
Our Company has only one class of security namely Equity Shares having voting right of one vote per Equity Share.
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ISSUE PROCEDURE
Below is a summary intended to present a general outline of the procedure relating to the bidding, payment, Allocation and Allotment of the Equity Shares. The procedure followed in this Issue may differ from the one mentioned below and the prospective investors are assumed to have appraised themselves of the same from our Company or the GC-BRLMs.
The prospective investors are advised to inform themselves of any restrictions or limitations that may be applicable to them. Investors that apply in the Issue will be required to confirm and will be deemed to have represented to our Company, the GC-BRLMs and their respective directors, officers, agents, affiliates and representatives that they are eligible under all applicable laws, rules, regulations, guidelines and approvals to acquire the Equity Shares. Our Company and the GC-BRLMs and their respective directors, officers, agents, affiliates and representatives accept no responsibility or liability for advising any investor on whether such investor is eligible to acquire the Equity Shares. Also see “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions”.
Qualified Institutions Placement
This Issue is being made to QIBs in reliance upon Chapter VIII of the SEBI ICDR Regulations and section 42 of the Companies Act and the rules thereunder, through the mechanism of Qualified Institutions Placement (“ QIP ”) wherein a listed company in India may issue and allot equity shares/fully convertible debentures/partly convertible debentures/non-convertible debentures with warrants or any other security (other than warrants) which are convertible into or exchangeable with equity shares at a later date to QIBs on a private placement basis.
Additionally, there is a minimum pricing requirement for pricing equity shares, offered in a QIP, under the SEBI ICDR Regulations. The issue price of the equity shares shall not be less than the average of the weekly high and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two weeks preceding the relevant date. Pursuant to amendment to the SEBI ICDR Regulations, an issuer may offer a discount of not more than 5% on the price calculated for the QIP as above, subject to the approval of the shareholders by a special resolution pursuant to Regulation 82(a) of the SEBI ICDR Regulations.
The “relevant date” referred to above means the date of the meeting in which the board of directors or the committee of directors, duly authorized by the board of directors, decides to open the proposed issue and “stock exchange” means any of the recognized stock exchanges in India on which the equity shares of the issuer of the same class are listed and on which the highest trading volume in such equity shares has been recorded during the two weeks immediately preceding the relevant date.
Equity shares must be allotted within 12 months from the date of the shareholders resolution approving the QIP. The equity shares issued pursuant to the QIP must be issued on the basis of a placement document that shall contain all material information including the information specified in Schedule XVIII of the SEBI ICDR Regulations and Form PAS- 4 as prescribed under Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
Pursuant to the provisions of Section 42 of the Companies Act and the rules made thereunder for a transaction that is not a public offering (i.e. a private placement), an invitation or offer may be made to such number of persons not exceeding two hundred, excluding QIBs and employees of a company. Hence, there is no restriction on the number of QIBs that may apply in this Issue. The placement document is a private document, provided to only QIBs interested in apply in this Issue, through serially numbered copies and is required to be placed on the website of the concerned stock exchange and of the Issuer with a disclaimer to the effect that it is in connection with an issue to QIBs and no offer is being made to the public or to any other category of investors.
Securities allotted to a QIB pursuant to a QIP shall not be sold for a period of one year from the date of allotment except on a recognized stock exchange in India.
The minimum number of allottees for each QIP shall not be less than:
• Two, where the issue size is than or equal to Rs. 250 million; and • Five, where the issue size is greater than Rs. 250 million.
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No single allottee shall be allotted more than 50% of the issue size. QIBs that belong to the same group or that are under common control shall be deemed to be a single allottee for this purpose.
The issuer is required to furnish a copy of the placement document to each stock exchange on which its equity shares are listed. Accordingly, our Company shall file a copy of this Preliminary Placement Document, and subsequently file a copy of the Placement Document with the Stock Exchanges, SEBI and ROC.
The aggregate of the proposed QIP and all previous QIPs made in the same financial year shall not exceed five times the net worth of the Issuer as per its audited balance sheet of the previous financial year.
Our Company has received the in-principle approval of the BSE, NSE and CSE dated October 28, 2014 under Clause 24 (a) of its Equity Listing Agreements for the Issue. Our company has filed a copy of this Preliminary Placement Document with the Stock exchanges. Our company will file a copy of the Placement Document with the stock exchanges. The board of directors of our Company has authorised the Issue pursuant to a resolution passed at its meeting held on September 22, 2014. The shareholders of our Company at general meeting held on October 18, 2014 have authorised the Issue by a special resolution.
The Equity Shares have not been and will not be registered, listed or otherwise qualified in any jurisdiction outside India and may not be offered or sold, and bids may not be made by persons in such jurisdictions except in compliance with applicable laws.
The Equity Shares offered hereby have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold (a) in the United States only to persons reasonably believed to be qualified institutional buyers (as defined in Rule 144A under the Securities Act) pursuant to Rule 144A under the Securities Act, and (b) outside the United States in offshore transactions in reliance on Regulation S under the Securities Act. For a description of certain restrictions on transfer of the Equity Shares, see “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on page 199 and 206 respectively.
Issue Procedure
1. Our Company and the GC-BRLMs shall identify the QIBs and circulate serially numbered copies of this Preliminary Placement Document and the serially numbered Application Form, either in electronic form or physical form to QIBs and the Application Form shall be specifically addressed to such QIBs. In terms of section 42(7) of the Companies Act, our Company shall maintain complete record of the QIBs to whom the Preliminary Placement Document and the serially numbered Application Form have been dispatched. Our Company will make the requisite filings with the RoC and with SEBI within the stipulated time period as required under the Companies Act and the rules made thereunder.
2. The list of Eligible QIBs to whom the Application Form is delivered shall be determined by the GC- BRLMs at their sole discretion. Unless a serially numbered Preliminary Placement Document along with the Application Form is addressed to a particular QIB, no invitation to subscribe shall be deemed to have been made to such QIB. Even if such documentation were to come into the possession of any person other than the intended recipient, no offer or invitation to offer shall be deemed to have been made to such other person and any application that does not comply with this requirement shall be treated as invalid.
3. QIBs may submit the Application Form, including any revisions thereof, during the Bidding Period to the GC-BRLMs.
4. Bidders shall submit Bids for, and the Company shall issue and allot to each successful Allottee at least such number of Equity Shares in the Issue which would aggregate to Rs. 20,000 calculated at the face value of the Equity Shares.
5. QIBs will be required to indicate the following in the Application Form:
(a) Full official name of the QIB to whom Equity Shares are to be Allotted;
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(b) number of Equity Shares Bid for;
(c) price at which they offer to apply for the Equity Shares provided that QIBs may also indicate that they are agreeable to submit a bid in respect of the Equity Shares which shall be any price as may be determined by our Company in consultation with the GC-BRLMs at or above the Floor Price net of such discount as approved by the shareholders of our Company;
(d) a representation that it is either (i) outside the United States or (ii) an institutional investor meeting the requirements of a “qualified institutional buyer” as defined in Rule 144A.
(e) the details of the beneficiary account(s) to which the Equity Shares should be credited.
Note: Each sub – account of an FII other than a sub – account which is a foreign corporate or a foreign individual will be considered as an individual QIB and separate Application Forms would be required from each such sub – account for submitting Bids. FIIs or sub-accounts of FIIs are required to indicate SEBI FII/ sub-account registration number in the Application Form.
6. Once a duly filled in Application Form is submitted by the QIB, such Application Form constitutes an irrevocable offer and the same cannot be withdrawn after the Issue Closing Date.
7. The Issue Closing Date shall be notified to the Stock Exchanges and the QIBs shall be deemed to have been given notice of such date.
8. The Bids made by asset management companies or custodians of Mutual Funds shall specifically state the names of the concerned schemes for which the Bids are made. In case of a Mutual Fund, a separate Bid can be made in respect of each scheme of the Mutual Fund.
9. Upon the receipt of the duly filled in Application Form, our Company in consultation with the GC- BRLMs shall decide both the Issue Price and the number of Equity Shares to be issued. On determination of the Issue Price, the GC-BRLMs will send serially numbered Confirmation of Allocation Notes to the QIBs who have been Allocated Equity Shares along with serially numbered Placement Documents. The dispatch of the CANs shall be deemed a valid, binding and irrevocable contract for the QIBs to pay the entire application amount (being the product of the Issue Price and the number of Equity Shares Allocated to such QIB). The CAN shall contain details like the number of Equity Shares Allocated to the QIB and payment instructions including the details of the amounts payable by the QIB for Allotment of the Equity Shares in its name and the Pay-In Date as applicable to the respective QIBs.
Pursuant to receiving the CAN, the Eligible QIBs would have to make the payment of the entire application monies for the Equity Shares indicated in the CAN at the Issue Price through electronic transfer to the Escrow Account by the Pay-In Date as specified in the CAN sent to the respective Eligible QIB. Please note that the allocation shall be at the absolute discretion of our Company and will be based on the recommendation of the GC-BRLMs.
10. No payment shall be made by QIBs in cash. Please note that any payment of application monies for the Equity Shares shall be made from the bank accounts of the relevant QIBs applying for the Equity Shares. Monies payable on Equity Shares to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application. Pending allotment, all monies received for subscription of the Equity Shares shall be kept by our Company in a separate bank account with a scheduled bank and shall be utilized only for the purposes permitted under the Companies Act i.e. the Escrow Account.
11. Upon receipt of the application monies from the QIBs, our Company shall Allot Equity Shares as per the details in the CAN to the QIBs. Our Company will intimate the details of the Allotment to the Stock Exchanges.
12. After passing the resolution for Allotment and prior to crediting the Equity Shares into the depository participant accounts of the successful bidders, our Company shall apply to the Stock Exchanges for listing.
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13. After receipt of the listing approvals from the BSE, NSE and CSE, our Company shall credit the Equity Shares into the Depository Participant accounts of the respective QIB.
14. Our Company shall then apply for the final trading permissions from the BSE, NSE and CSE.
15. The Equity Shares that have been credited to the beneficiary account with the Depository Participant of the QIBs shall be eligible for trading on the Stock Exchanges only upon the receipt of final listing and trading approvals from BSE, NSE and CSE.
16. Upon receipt of intimation of final listing and trading approval from BSE, NSE and CSE, our Company may inform the Eligible QIBs who have received an Allotment of the receipt of such approval. Our Company and the GC-BRLMs shall not be responsible for any delay or non-receipt of the communication of the final listing and trading permissions from the BSE, NSE and CSE or any loss arising from such delay or non-receipt. Final listing and trading approvals granted by the BSE, NSE and CSE are also placed on their respective websites. QIBs are advised to apprise themselves of the status of the receipt of the permissions from the Stock Exchanges or our Company.
Eligible Qualified Institutional Buyers
Only QIBs as defined in Regulation 2(1)(zd) of the SEBI ICDR Regulations and not otherwise excluded pursuant to Regulation 86(1)(b) of Chapter VIII of the SEBI ICDR Regulations are eligible to invest. Under Regulation 86(1)(b) of the SEBI ICDR Regulations, no Allotment shall be made, either directly or indirectly, to any QIB who is a Promoter or any person related to the Promoters. Currently QIBs eligible to Bid in the Issue include:
• Alternate investment funds registered with SEBI; • FPIs; • Foreign venture capital investors registered with SEBI; • Insurance companies registered with Insurance Regulatory and Development Authority; • Insurance funds set up and managed by the army, navy, or air force of the Union of India; • Insurance funds set up and managed by the Department of Posts, India; • Multilateral and bilateral development financial institutions; • Mutual funds registered with SEBI; • Pension Funds with minimum corpus of Rs. 25 million; • Provident Funds with minimum corpus of Rs. 25 million; • Public financial institutions as defined in section 2(72) of the Companies Act, 2013; • Scheduled commercial banks; • State industrial development corporations; • National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of Government of India published in the Gazette of India; and • Venture capital funds registered with SEBI.
FIIs (other than a sub-account which is a foreign corporate or a foreign individual) and Eligible FPIs shall participate in this Issue under Schedule 2 and Schedule 2A of FEMA 20, respectively. FIIs and Eligible FPIs are permitted to participate in the Issue subject to compliance with all applicable laws and such that the shareholding of the FPIs and FIIs does not exceed specified limits as prescribed under applicable laws in this regard. Other eligible non-resident QIBs shall participate in the Issue under Schedule 1 of the FEMA 20 and shall make the payment of application money through the foreign currency non-resident (FCNR) account and not through the special non-resident rupee (SNRR) account.
In terms of the SEBI (FPI) Regulations, the issue of Equity Shares to a single FPI or an investor group (which means the same set of ultimate beneficial owner(s) investing through multiple entities) is not permitted to be 10.00% or above of our post-Issue Equity Share capital. Further, in terms of the FEMA 20, the total holding by each FPI shall be below 10.00% of our total paid-up Equity Share capital and the total holdings of all FPIs put together shall not exceed 24.00% of our paid-up Equity Share capital. The aggregate limit of 24.00% may be increased up to the sectoral cap by way of a resolution passed by the Board of Directors followed by a special resolution passed by the shareholders of our Company. On August 26, 2005 the shareholders of our Company have passed a resolution by postal ballot for increase of the said aggregate limit upto 49%.
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Eligible FPIs are permitted to participate in the Issue subject to compliance with conditions and restrictions which may be specified by the Government from time to time.
An FII who holds a valid certificate of registration from SEBI shall be deemed to be an FPI until the expiry of the block of three years for which fees have been paid as per the SEBI FII Regulations. Subject to trailing condition, an FII or sub-account of an FII may participate in the Issue, until the expiry of its registration as a FII or sub-account, or until it obtains a certificate of registration as FPI, whichever is earlier. If the registration of the FII or sub-account has expired or is about to expire, such FII or sub-account may, subject to payment of conversion fees under the SEBI (FPI) Regulations, participate in the Issue. An FII or sub-account shall not be eligible to invest as an FII after registering as an FPI under the SEBI (FPI) Regulations.
Allotment made to FVCIs, VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to them, including in relation to lock-in requirements.
In terms of FEMA 20, for calculating the aggregate holding of FPIs in a company, holding of all registered FPIs as well as holding of FIIs (being deemed FPIs) shall be included.
Under Regulation 86(1)(b) of the SEBI ICDR Regulations, no allotment shall be made pursuant to this Issue, either directly or indirectly, to any Eligible QIB being our Promoter or any person related to our Promoter. QIBs, who have all or any of the following rights shall be deemed to be a person related to the Promoter:
(a) rights under a shareholders’ agreement or voting agreement entered into with our Promoter or persons related to our Promoter; or (b) veto rights; or (c) right to appoint any nominee director on our Board.
Provided that a Eligible QIB who does not hold any shares in our Company and who has acquired the said rights in the capacity of a lender shall not be deemed to be person related to our Promoter.
Our Company and the GC-BRLMs and any of their respective shareholders directors, officers, counsel, advisors, representatives, agents or affiliates are not liable for any amendments or modification or changes in applicable laws or regulations, which may occur after the date of this Preliminary Placement Document. QIBs are advised to make their independent investigations and satisfy themselves that they are eligible to apply. QIBs are advised to ensure that any single Application Form from them does not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable law or regulation or as specified in this Preliminary Placement Document. Further, QIBs are required to satisfy themselves that any requisite compliance pursuant to this Allotment such as public disclosures under applicable laws is complied with. QIBs are advised to consult their advisers in this regard. Furthermore, QIBs are required to satisfy themselves that their Bids would not eventually result in triggering a tender offer under the Takeover Code.
The QIBs, shall solely be responsible for compliance with the provisions of the Takeover Code, the Insider Trading Regulations, and other applicable laws, rules, regulations, guidelines notifications and circulars.
Note: Affiliates or associates of the GC-BRLMs who are Eligible QIBs may participate in this Issue subject to compliance with applicable laws.
Allotments made to FVCIs and VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to each of them respectively, including in relation to lock-in requirements.
A minimum of 10 per cent of the Equity Shares offered in the Issue shall be Allotted to Mutual Funds. If no Mutual Fund is agreeable to take up the minimum portion as specified above, such minimum portion or part thereof may be Allotted to other QIBs.
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Bid Process
Application Form
QIBs are permitted to only use the serially numbered Application Forms (which is addressed to the QIB) supplied by the GC-BRLMs in either electronic form or by physical delivery for the purpose of making a Bid (including any revision of a Bid) in terms of this Preliminary Placement Document and the Placement Document.
By making a Bid (including revisions thereof) for Equity Shares pursuant to the terms of this Preliminary Placement Document, each Eligible QIB will be deemed to have made the following representations and warranties, and the representations, warranties and agreements made under “Notice to Investors”, “Selling Restrictions”, and “Purchaser Representation and Transfer Restrictions”, “Representations By Investors”. The representations listed in this section shall be included in the Application Form:
1. The QIB confirms that it is a QIB in terms of Regulation 2(1)(zd) of the SEBI ICDR Regulations and has a valid and existing registration under the applicable laws of India and is eligible to participate in this Issue and is not excluded under Regulation 86 of the SEBI ICDR Regulations;
2. The QIB confirms that it is not a promoter of the Issuer and is not a person related to the Promoter of the Issuer, either directly or indirectly and its Application does not directly or indirectly represent the Promoter or Promoter Group or a person related to the Promoter of our Company;
3. The QIB confirms that it has no rights under a shareholders’ agreement or voting agreement with the Promoter or persons related to the Promoter, no veto rights or right to appoint any nominee director on the Board of the Issuer other than such rights acquired in the capacity of a lender (not holding any Equity Shares) which shall not be deemed to be a person related to the Promoter;
4. The QIB has no right to withdraw its Bid after the Issue Closing Date;
5. The QIB confirms that if Equity Shares are Allotted pursuant to this Issue, it shall not, for a period of one year from Allotment, sell such Equity Shares otherwise than on the floor of the Stock Exchanges;
6. The QIB confirms that the QIB is eligible to Bid and hold Equity Shares so Allotted and together with any Equity Shares held by the QIB prior to this Issue. The QIB further confirms that its holding of the Equity Shares does not and shall not, exceed the level permissible as per any applicable regulations applicable to the QIB;
7. The QIB confirms that the Bids will not eventually result in triggering an open offer under the Takeover Code;
8. The QIB confirms that to the best of its knowledge and belief together with other Eligible QIBs in this Issue that belongs to the same group or are under common control, the Allotment to the QIB shall not exceed 50% of the Issue Size. For the purposes of this statement:
(a) The expression “belongs to the same group” shall derive meaning from the concept of “companies under the same group” as provided in sub-section (11) of Section 372 of the Companies Act, 1956; and
(b) “Control” shall have the same meaning as is assigned to it by sub-clause (e) of clause 1 Regulation 2 of the Takeover Code.
9. The QIBs shall not undertake any trade in the Equity Shares credited to its Depository Participant account until such time that the final listing and trading approvals for the Equity Shares are issued by BSE, NSE and CSE.
10. The QIB confirms that (i) if it is within the United States or a U.S. person (as defined in Regulation S under the Securities Act), it is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act), if it is outside the United States or a non-U.S. person, it is purchasing the Equity Shares in an offshore transaction (as defined in Regulation S under the Securities Act). In addition, it will only
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reoffer, resell, pledge or otherwise transfer the Equity Shares in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S.
QIBs MUST PROVIDE THEIR DEPOSITORY ACCOUNT DETAILS, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. QIBs MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. FOR THIS PURPOSE, ELIGIBLE SUB- ACCOUNTs OF AN FII WOULD BE CONSIDERED AS AN INDEPENDENT ELIGIBLE QIB.
IF SO REQUIRED BY THE GC-BRLM’s, THE QIB SUBMITTING A BID, ALONG WITH THE APPLICATION FORM, WILL ALSO HAVE TO SUBMIT REQUISITE DOCUMENT(S) TO GC- BRLM’s TO EVIDENCE THEIR STATUS AS A “QIB” AS DEFINED HEREINABOVE.
Demographic details like address and bank account will be obtained from the Depositories as per the Depository Participant account details given above.
The submission of an Application Form by the QIB shall be deemed a valid, binding and irrevocable offer for the QIB to pay the entire Issue Price for its share of Allotment (as indicated by the CAN) and becomes a binding contract on the Eligible QIB, upon issuance of the CAN by the Issuer in favour of the Eligible QIB.
Submission of Application Form
All Application Forms shall be required to be duly completed with information including the name of the QIB, the price and the number of Equity Shares applied. The Application Form shall be submitted to the GC-BRLMs either through electronic form or through physical delivery at the following addresses:
Name of the GC- Address Contact Person Email Phone BRLMs CLSA India Private 8/F, Dalamal House, Sarfaraz sarfaraz.agboatwala@ +91 22 6650 5050 Limited Nariman Point, Agboatwala clsa.com Mumbai 400 021, India Citigroup Global 1202, 12th Floor, First Mitul Shah [email protected] +91 22 6175 9999 Markets India Private International Financial Limited Centre, G-Block, Bandra Kurla Complex, Bandra East, Mumbai 400 051 India Credit Suisse Ceejay House, 9th Vishal Gupta vishal.gupta.3@credit- +91 22 6777 3885 Securities (India) Floor, Plot F, suisse.com Private Limited Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai 400 018, India ICICI Securities ICICI Centre, H. T. Anurag Byas project.peak@icicisec +91 22 2288 2460 Limited Parekh Marg, urities.com Churchgate, Mumbai 400 020, India Kotak Mahindra 27 BKC, 1st Floor, Karl Sahukar [email protected] +91 22 4336 0000 Capital Company Plot No. C-27, “G” Limited Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051, India IDFC Securities Naman Chambers, C - Gaurav Goyal [email protected] +91 22 66 22 2600 Limited 32, G Block, Bandra
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Name of the GC- Address Contact Person Email Phone BRLMs Kurla Complex, Bandra (East), Mumbai 400 051
The GC-BRLMs shall not be required to provide any written acknowledgement of the same.
Permanent Account Number or PAN
Each QIB should mention its Permanent Account Number (“ PAN ”) allotted under the IT Act. The copy of the PAN card or PAN allotment letter is required to be submitted with the Application Form. Bids without this information will be considered incomplete and are liable to be rejected. It is to be specifically noted that applicant should not submit the GIR number instead of the PAN as the Application Form is liable to be rejected on this ground.
Pricing and Allocation
Build-up of the book
The QIBs shall submit their Bids (including the revision thereof) through the Application Form within the Bidding Period to the GC-BRLMs.
Price discovery and Allocation
Our Company, in consultation with the GC-BRLMs, shall finalize the Issue Price for the Equity Shares, which shall be at or above the Floor Price. However, the Issuer may offer a discount of not more than 5% on the Floor Price in terms of Regulation 85 of the ICDR Regulations.
After finalisation of the Issue Price, our company shall update this Preliminary Placement Document with the Issue details and file the same with Stock Exchanges as Placement Document.
Method of Allocation
Our Company shall determine the Allocation in consultation with the GC-BRLMs on a discretionary basis and in compliance with Chapter VIII of the SEBI ICDR Regulations.
Application Forms received from the QIBs at or above the Issue Price shall be grouped together to determine the total demand. The Allocation to all such Eligible QIBs will be made at the Issue Price. Allocation to Mutual Funds for up to a minimum of 10% of the Issue Size shall be undertaken subject to valid Application Form being received at or above the Issue Price.
THE DECISION OF OUR COMPANY IN CONSULTATION WITH THE GC-BRLMs IN RESPECT OF ALLOCATION SHALL BE FINAL AND BINDING ON ALL ELIGIBLE QIBs. ELIGIBLE QIBs MAY NOTE THAT ALLOCATION OF EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF OUR COMPANY IN CONSULTATION WITH THE GC-BRLMs AND ELIGIBLE QIBs MAY NOT RECEIVE ANY ALLOCATION EVEN IF THEY HAVE SUBMITTED VALID APPLICATION FORMS AT OR ABOVE THE ISSUE PRICE. NEITHER OUR COMPANY NOR THE GC-BRLMs ARE OBLIGED TO ASSIGN ANY REASONS FOR SUCH NON-ALLOCATION.
Number of Allottees
The minimum number of Allottees in the Issue shall not be less than:
(a) two, where the Issue Size is less than or equal to Rs. 2,500 million; or
(b) five, where the Issue Size is greater than Rs. 2,500 million;
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Provided that no single Allottee shall be Allotted more than 50 per cent. of the aggregate amount of the Issue Size, and provided further that QIBs belonging to the same group or those who are under common control shall be deemed to be a single Allottee for the purpose of this clause. For details of what constitutes “same group” or “control”, please refer to - “Bid Process - Application Form”.
The Equity Shares will be Allotted within 12 months from the date of the shareholders resolution approving this Issue.
CAN
Based on the Application Forms received, our Company in consultation with the GC-BRLMs will, in its sole and absolute discretion, decide the list of QIBs to whom the serially numbered CANs shall be sent, pursuant to which the details of the Equity Shares Allocated to them and the details of the amounts payable for Allotment of the same in their respective names shall be notified to such QIBs. Additionally, the CANs would include details of Escrow Account into which such payments would need to be made, Pay-In Date as well as the probable designated date (“ Designated Date ”), being the date of credit of the Equity Shares to the Eligible QIB’s account, as applicable to the respective Eligible QIBs.
The QIBs would also be sent a serially numbered Placement Document either in electronic form or by physical delivery along with the serially numbered CAN.
The dispatch of the serially numbered Placement Document and the CAN to the QIB shall be deemed a valid, binding and irrevocable contract for the Eligible QIB to furnish all details that may be required by the GC- BRLMs and our Company and to pay the entire Issue Price for all the Equity Shares Allocated to such QIB.
QIBs ARE ADVISED TO INSTRUCT THEIR DEPOSITORY PARTICIPANT TO ACCEPT THE EQUITY SHARES THAT MAY BE ALLOCATED / ALLOTTED TO THEM PURSUANT TO THE ISSUE.
Bank Account for the Payment of Bid Money
Our Company has opened an escrow account titled “CESC Limited – QIP Escrow Account” (“Escrow Account”) with the Escrow Bank in terms of the arrangements between our Company, the GC-BRLMs, ICICI Bank Limited (acting as the Escrow Bank). The QIBs will be required to deposit the entire amount payable for the Equity Shares Allocated to it by the Pay-In Date as mentioned in their respective CAN.
Payments are to be made only through electronic fund transfer.
Note: Payments through cheques are liable to be rejected.
If the payment is not made favouring the Escrow Account within the time stipulated in the CAN, the Application Form and the CAN of the QIB are liable to be cancelled.
In case of cancellations or default by the QIBs, our Company and the GC-BRLMs has the right to reallocate the Equity Shares at the Issue Price among existing or new QIBs at their sole and absolute discretion, subject to the compliance with the requirements of the Companies Act and the SEBI ICDR Regulations.
Our Company undertakes to utilize the amount in the Escrow Account only for the purposes of (i) adjustments against Allotment of Equity Shares in the Issue; or (ii) repayment of application money if our Company is not able to Allot Equity Shares in the Issue.
Designated Date and Allotment of Equity Shares
1. The Equity Shares will not be Allotted unless the QIBs pay the Issue Price to the Escrow Account as stated above.
2. Subject to the satisfaction of the terms and conditions of the Placement Agreement, our Company will ensure that the Allotment of the Equity Shares is completed by the Designated Date provided in the CAN for the Eligible QIBs who have paid the aggregate subscription amounts as stipulated in the CAN.
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3. In accordance with the SEBI ICDR Regulations, Equity Shares will be issued and Allotment shall be made only in the dematerialised form to the Allottees. Allottees will have the option to re-materialize the Equity Shares, if they so desire, as per the provisions of the Companies Act and the Depositories Act.
4. Our Company reserves the right to cancel this Issue at any time up to Allotment without assigning any reasons whatsoever.
5. Post receipt of the listing approvals of the BSE, NSE and CSE, the Issuer shall credit the Equity Shares into the Depository Participant account of the QIBs.
6. Following the Allotment and credit of Equity Shares into the QIBs beneficiary account, our Company will apply for final listing and trading approvals for trading on BSE, NSE and CSE.
7. In the event that we are unable to issue and Allot the Equity Shares offered in the Issue or on cancellation of the Issue, within 60 days from the date of receipt of application money, in accordance with section 42 of the Companies Act, we shall repay the application money within 15 days from expiry of 60 days, failing which we shall repay that money with interest at the rate of 12% per annum from expiry of the 60 th day. The application money to be refunded by us shall be refunded to the same bank account from which application money was remitted by the QIBs.
8. The Escrow Bank shall release the monies lying to the credit of the Escrow Bank Account to our Company after receipt of listing and trading approval from the Stock Exchanges.
9. In case of QIBs who have been Allotted more than 5% of the Equity Shares in the Issue, our Company shall disclose the name and the number of the Equity Shares Allotted to such QIB to the Stock Exchanges and the Stock Exchanges shall make the same available on their website.
Other Instructions
Our Right to Reject Bids
Our Company, in consultation with the GC-BRLMs, may reject Bids, in part or in full, without assigning any reasons whatsoever. The decision of our Company and the GC-BRLMs in relation to the rejection of Bids shall be final and binding.
Equity Shares in dematerialised form with NSDL or CDSL
1. The Allotment of the Equity Shares in this Issue shall be only in dematerialized form, (i.e., not in the form of physical certificates but be fungible and be represented by the statement issued through the electronic mode).
2. An QIB applying for Equity Shares must have at least one beneficiary account with a Depository Participant of either NSDL or CDSL prior to making the Bid.
3. Allotment to a successful QIB will be credited in electronic form directly to the beneficiary account (with the Depository Participant) of the QIB.
4. Equity Shares in electronic form can be traded only on the Stock Exchanges having electronic connectivity with NSDL and CDSL. The Stock Exchanges have electronic connectivity with NSDL and CDSL.
5. The trading of the Equity Shares would be in dematerialised form only for QIBs in the demat segment of the respective Stock Exchanges.
6. Our Company and the GC-BRLMs will not be responsible or liable for the delay in the credit of Equity Shares due to errors in the Application Form or on part of the Eligible QIBs.
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Compliance officer
Mr. Subhasis Mitra Company Secretary & Compliance Officer CESC House Chowringhee Square Kolkata 700 001 Tel: +91 033 2225 6040 Fax: +91 033 2225 5155 Email: [email protected]
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PLACEMENT
The GC-BRLMs has entered into a Placement Agreement dated October 28, 2014 with our Company, pursuant to which, the GC-BRLMs has agreed, subject to certain conditions, to place the Equity Shares of our Company, on reasonable efforts basis, pursuant to Chapter VIII of the SEBI ICDR Regulations and Section 42 of the Companies Act, 2013 and the rules made thereunder.
The Placement Agreement contains customary representations and warranties, as well as indemnities from our Company and the issue is subject to satisfaction of certain conditions and subject to termination in accordance with the terms contained therein.
Applications shall be made to list the Equity Shares and admit them to trading on the Stock Exchange. No assurance can be given as to the liquidity or sustainability of the trading market for Equity Shares, the ability of holders of the Equity Shares to sell their Equity Shares or the price at which holders of the Equity Shares will be able to sell their Equity Shares.
This Preliminary Placement Document has not been, and will not be, registered as a prospectus with the Registrar of Companies in India and that, with the exception of QIBs, no Equity Shares will be offered in India or overseas to the public or any members of the public in India or any other class of investors other than QIBs.
The Equity Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the ‘‘ Securities Act’ ’) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S (‘‘ Regulation S ’’) under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold (a) in the United States only to persons who are both qualified institutional buyers (as defined in Rule 144A under the Securities Act (“ Rule 144A ”) and referred to in this Preliminary Placement Document as “ U.S. QIBs ”; for the avoidance of doubt, the term U.S. QIBs does not refer to a category of institutional investors defined under applicable Indian regulations and referred to in this Preliminary Placement Document as “ QIBs ”), and (b) outside the United States to non-U.S. persons in reliance on Regulation S. Prospective purchasers in the United States are hereby notified that we are relying on the exemption under Section 4(a)(2) of the Securities Act. The Equity Shares are transferable only in accordance with the restrictions described under “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on page 199 and 206 respectively. For further details, see section “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on page 199 and 206 respectively.
In connection with the Issue, the GC-BRLMs (or its affiliates) may, for its own accounts, enter into asset swaps, credit derivatives or other derivative transactions relating to the Equity Shares at the same time as the offer and sale of the Equity Shares, or in secondary market transactions. As a result of such transactions, the GC-BRLMs may hold long or short positions in such Equity Shares. These transactions may comprise of a substantial portion of the Issue and no specific disclosure will be made of such positions. Affiliates of the GC-BRLMs who are eligible QIBs may purchase Equity Shares and be allocated Equity Shares for proprietary purposes and not with a view to distribution or in connection with the issuance of offshore derivative instruments see “Offshore Derivative Instruments” and “Representations by Investors”.
The GC-BRLMs and certain of their affiliates have in past provided, currently provide and may in the future from time to time provide, investment banking general financing and banking and advisory services to our company and our affiliates for which they have in the past received, currently receive and may in the future receive, customary fees.
Lock-up
The Company will not, without the prior written consent of the GC-BRLMs, during the period from the date of this Preliminary Placement Document and ending 90 days after the Allotment of Equity Shares in the Issue (both days inclusive): (a) purchase, issue, offer, lend, pledge, sell, contract to sell or issue, sell or issue any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares or file any registration statement under the US Securities Act with respect to any of the foregoing; (b) enter into any swap or other agreement or any other
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transaction that transfers, in whole or in part, any of the economic consequences of ownership of Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares; or (c) deposit Equity Shares with any other depositary in connection with a depositary receipt facility, or (d) enter into any transaction (including a transaction involving derivatives) having an economic effect similar to that of an issue, offer, sale or deposit of the Equity Shares in any depository receipt facility; or (e) publicly announce any intention to enter into any transaction described in (a) to (d) above, whether any such transaction described in (a) to (d) above is to be settled by delivery of Equity Shares or such other securities, in cash or otherwise. The foregoing restrictions do not apply to the issuance of any Issue Shares pursuant to this Issue.
The Promoters agree that, without the prior written consent of the GC-BRLMs, neither one of them will, and will procure that no member of the group of companies owned by the Sanjiv Goenka family (the “RP-Sanjiv Goenka Group”) during the period from the date of this Preliminary Placement Document and ending 90 days after the Allotment of Equity Shares in the Issue (both days inclusive): (1) directly or indirectly, offer, pledge, sell, contract to sell, purchase any option or contract to sell, grant or sell any option, right, contract or warrant to purchase, lend, make any short sale or otherwise transfer or dispose of any Shares or any other securities of the Company substantially similar to the Shares, including, but not limited to options, warrants or other securities that are convertible into, exercisable or exchangeable for, or that represent the right to receive, Shares or any such substantially similar securities, whether now owned or hereinafter acquired, (2) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Shares or any such substantially similar securities, whether now owned or hereinafter acquired; whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Shares or such other securities, in cash or otherwise, or (3) deposit Shares with any other depositary in connection with a depositary receipt facility, or (4) enter into any transaction (including a transaction involving derivatives) having an economic effect similar to that of an issue, offer, sale or deposit of the Shares in any depository receipt facility; (5) publicly announce its intention to enter into the transactions referred to in (1) to (4) above; except in each case to a member of the RP-Sanjiv Goenka Group that is also a party to the Placement Agreement or to a member of the RP-Sanjiv Goenka Group that signs an agreement with substantially similar terms to the Placement Agreement or executes a deed of adherence to the terms of the Placement Agreement in favour of the GC-BRLMs, in each case in advance of such transfer.
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SELLING RESTRICTIONS
Selling Restrictions
No action has been or will be taken in any jurisdiction by our Company or the GC-BRLMs that would permit a public offering of the Equity Shares or the possession, circulation or distribution of this Preliminary Placement Document or any other material relating to our Company or the Equity Shares in the Issue in any jurisdiction where action for such purpose is required. Accordingly, the Equity Shares in the Issue may not be offered or sold, directly or indirectly and neither this Preliminary Placement Document nor any other offering material or advertisements in connection with the Equity Shares issued pursuant to the Issue may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction and will not impose any obligations on our Company or the GC-BRLMs. The Issue will be made in compliance with SEBI Regulations. Each subscriber of the Equity Shares in the Issue will be required to make, or will be deemed to have made, as applicable, the acknowledgments and agreements as described under the section “ Purchaser Representations and Transfer Restrictions ” on page 206 .
Australia
We are not registered as a foreign company in Australia. The provision of this Preliminary Placement Document to any person does not constitute an offer of the Equity Shares to that person or an invitation to that person to apply for Equity Shares. Any such offer or invitation will only be extended to a person in Australia if that person is: • a sophisticated or professional investor for the purposes of section 708 of the Corporations Act of Australia; and
• a wholesale client for the purposes of section 761G of the Corporations Act of Australia.
This Preliminary Placement Document is not intended to be distributed or passed on, directly or indirectly, to any other class of persons in Australia.
This Preliminary Placement Document is not a disclosure document under Chapter 6D of the Corporations Act or a product disclosure statement under Part 7.9 of the Corporations Act. It is not required to, and does not, contain all the information which would be required in a disclosure document or a product disclosure document. It has not been lodged with the Australian Securities and Investments Commission. Any person to whom an Equity Share is issued or sold must not, within 12 months after the offering, offer, transfer or assign that Equity Share to investors in Australia except in circumstances where disclosure to investors is not required under the Corporations Act.
No person referred to in this Preliminary Placement Document holds an Australian financial services license. The information in this Preliminary Placement Document has been prepared without taking into account any investor’s investment objectives, financial situation or particular needs. Before acting on the information the investor should consider its appropriateness having regard to their investment objectives, financial situation and needs.
This Preliminary Placement Document has not been prepared specifically for Australian investors. It: • may contain references to dollar amounts which are not Australian dollars;
• may contain financial information which is not prepared in accordance with Australian law or practices;
• may not address risks associated with investment in foreign currency denominated investments; and
• does not address Australian tax issues.
This Preliminary Placement Document is issued by us. We are not licensed in Australia to provide financial product advice in relation to the Equity Shares. An investor in the Equity Shares will not have cooling off rights.
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Bahrain
This Preliminary Placement Document has been prepared for private information purposes of intended investors only. This Preliminary Placement Document is intended to be read by the addressee only. No invitation has been made in or from the Kingdom of Bahrain and there will be no marketing or offering of the Equity Shares to any potential investor in Bahrain. All marketing and offering is made and will be made outside of the Kingdom of Bahrain. The Central Bank of Bahrain or any other regulatory authority in Bahrain has not reviewed, nor has it approved, this offering document or the marketing of the Equity Shares and takes no responsibility for the accuracy of the statements and information contained in this Preliminary Placement Document, nor shall it have any liability to any person for any loss or damage resulting from reliance on any statements or information contained herein.
Cayman Islands
This Preliminary Placement Document does not constitute an invitation or offer to the public in the Cayman Islands of the Equity Shares, whether by way of sale or subscription. The Equity Shares are not offered or sold, and will not be offered or sold, directly or indirectly, to the public in the Cayman Islands.
Dubai International Financial Centre
This Preliminary Placement Document relates to an exempt offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority. This Preliminary Placement Document is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with exempt offers. The Dubai Financial Services Authority has not approved the Equity Shares or this document nor taken steps to verify the information set out in it, and has no responsibility for it. The securities to which this Preliminary Placement Document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this Preliminary Placement Document, you should consult an authorised financial adviser. In relation to its use in the Dubai International Financial Centre (“ DIFC ”), this Preliminary Placement Document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the Equity Shares may not be offered or sold directly or indirectly to the public in the DIFC.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “ Relevant Member State ”), each GC-BRLM has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “ Relevant Implementation Date ”), it has not made and will not make an offer of the Equity Shares which are the subject of the offering contemplated by this Preliminary Placement Document to the public in that Relevant Member State other than: (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b) to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of each GC-BRLM; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Equity Shares shall require our Company or the GC-BRLMs to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of the Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Equity Shares to be offered so as to enable an investor to decide to purchase any Equity Shares, as the same may be varied in that Member State by any measure
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implementing the Prospectus Directive in that Member State and the expression “ Prospectus Directive ” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
Hong Kong
Each GC-BRLM has represented, warranted and agreed that: (a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Equity Shares other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and
(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Equity Shares, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the applicable securities laws of Hong Kong) other than with respect to Equity Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
India
This Preliminary Placement Document has not been and will not be registered as a prospectus with the Registrar of Companies in India and the Equity Shares will not be offered or sold directly or indirectly, to the public or any members of the public in India or any other class of investors other than QIBs.
Japan
The Equity Shares have not been and will not be registered under the Financial Instrument and Exchange Law of Japan (the “ FIEL” ). The Equity Shares have not been offered or sold and will not be offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term shall mean any person resident in Japan or any corporation or other entity organised under the laws of Japan), or to others for reoffering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEL and other applicable laws, regulations and governmental guidelines in Japan.
Korea (South)
The Equity Shares have not been and will not be registered under the Securities and Exchange Act of Korea and none of the Equity Shares may be offered or sold, directly or indirectly, in Korea or to any resident of Korea or to any persons for reoffering or resale, directly or indirectly, in Korea or to any resident of Korea (as defined under the Foreign Exchange Transaction Act of Korea and its Enforcement Decree) except pursuant to an exemption from the registration requirements of the Securities and Exchange Act of Korea available thereunder and/or in compliance with applicable laws and regulations of Korea.
Kuwait
The Equity Shares have not been licenced for offering in Kuwait by the Ministry of Commerce and Industry in Kuwait, the Central Bank of Kuwait or any other relevant Kuwaiti government agency. The offering of the Equity Shares in Kuwait on the basis of a private placement or public offering is, therefore, restricted in accordance with Decree Law No. 31 of 1990, as amended, and Ministerial Order No. 113 of 1992, as amended. No private or public offering of the Equity Shares is being made in Kuwait, and no agreement relating to the sale of the Equity Shares will be concluded in Kuwait. No marketing or solicitation or inducement activities are being used to offer or market the Equity Shares in Kuwait.
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Malaysia
No approval, authorization or recognition from, or registration with, the Securities Commission of Malaysia (“ SC ”) has been applied for or will be obtained for the offer for subscription or purchase of, or invitation to subscribe for or purchase, the Equity Shares or any other securities under the Capital Markets and Services Act 2007. Neither this Preliminary Placement Document nor any prospectus or other offering document has been or will be approved by, or registered or lodged with, the SC or any other authority in connection with the offering or invitation in Malaysia.
Accordingly, no offering or invitation in respect of the Equity Shares or any other securities is or will be made in Malaysia pursuant to this Preliminary Placement Document or any amendment or supplement hereto. This Preliminary Placement Document or any amendment or supplement hereto or any other offering document in relation to the Equity Shares may not be distributed in Malaysia directly or indirectly for the purpose of any offer of the Equity Shares and no person may offer for subscription or purchase any of the Equity Shares directly or indirectly to anyone in Malaysia.
New Zealand
Each GC-BRLM represents and agrees that: • it has not offered or sold, and will not offer or sell, directly or indirectly, any Equity Shares; and
• it has not distributed and will not distribute, directly or indirectly, any offering materials or advertisement in relation to any offer of the Equity Shares, in each case in New Zealand other than:
(i) to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money;
(ii) to persons who in all the circumstances can properly be regarded as having been selected otherwise than as members of the public;
(iii) to persons who are each required to pay a minimum subscription price of at least NZ$500,OOO for the Equity Shares before the allotment of the Equity Shares (disregarding any amounts payable, or paid, out of money lent by our Company or any associated person of our Company);
(iv) to persons who are eligible persons within the meaning of section 5(2CC) of the Securities Act 1978; or
(v) in other circumstances where there is no contravention of the Securities Act 1978 of New Zealand (or any statutory modification or re-enactment of, or statutory substitution for, the Securities Act 1978 of New Zealand).
Oman
By receiving this Preliminary Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that this Preliminary Placement Document has not been approved by the Capital Market Authority of Oman (the "CMA") or any other regulatory body or authority in the Sultanate of Oman (“ Oman ”), nor has any GC-BRLM or any placement agent acting on its behalf received authorisation, licensing or approval from the CMA or any other regulatory authority in Oman, to market, offer, sell, or distribute interests in the Equity Shares within Oman.
No marketing, offering, selling or distribution of any interests in the Equity Shares has been or will be made from within Oman and no subscription for any interests in the Equity Shares may or will be consummated within Oman. Neither the GC-BRLMs nor any placement agent acting on their behalf is a company licensed by the CMA to provide investment advisory, brokerage, or portfolio management services in Oman, nor a bank licensed by the Central Bank of Oman to provide investment banking services in Oman. Neither the GC-BRLMs nor any placement agent acting on their behalf advise persons or entities resident or based in Oman as to the appropriateness of investing in or purchasing or selling securities or other financial products. Nothing contained in this Preliminary Placement Document is intended to constitute Omani investment, legal, tax, accounting or other professional advice. This Memorandum is for your information only, and nothing herein is intended to endorse or recommend a particular course of action. You should consult with an appropriate professional for specific advice on the basis of your situation.
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People's Republic of China
The Equity Shares have not been, and are not being, offered or sold, directly or indirectly, in the People's Republic of China (for such purposes, not including the Hong Kong and Macau Special Administrative Regions or Taiwan), except as permitted by the securities laws of the People's Republic of China.
Qatar (excluding the Qatar Financial Centre)
The Equity Shares have not been, and are not being, offered or sold, directly or indirectly, in the State of Qatar, except: (i) in compliance with all applicable laws and regulations of the State of Qatar; and (ii) through persons or corporate entities authorised and licenced to provide investment advice and/or engage in brokerage activity and/ or trade in respect of foreign securities in the State of Qatar.
Qatar Financial Centre
This Preliminary Placement Document does not, and is not intended to, constitute an invitation or offer of securities from or within the Qatar Financial Center (“ QFC ”), and accordingly should not be construed as such. This Preliminary Placement Document has not been reviewed or approved by or registered with the Qatar Financial Centre Authority, the Qatar Financial Centre Regulatory Authority or any other competent legal body in the QFC. This Preliminary Placement Document is strictly private and confidential, and may not be reproduced or used for any other purpose, nor provided to any person other than the recipient thereof. Our Company has not been approved or licenced by or registered with any licensing authorities within the QFC.
Saudi Arabia
This Preliminary Placement Document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations as issued by the Board of the Capital Market Authority resolution number 2-11-2004 dated 20/08/1424H (corresponding to 04/10/2004G), as amended by the Board of the Capital Market Authority resolution number 1-28-2008 dated 18 August 2008. The Capital Market Authority does not make any representation as to the accuracy or completeness of this Preliminary Placement Document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this Preliminary Placement Document. Prospective purchasers of the Equity Shares offered hereby should conduct their own due diligence on the accuracy of the information relating to the Equity Shares. If you do not understand the contents of this Preliminary Placement Document you should consult an authorised financial advisor.
Singapore
This Preliminary Placement Document has not been registered as a Prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the “ Securities and Futures Act ”). Accordingly, the Equity Shares may not be offered or sold or made the subject of an invitation for subscription or purchase nor may this Preliminary Placement Document or any other document or material in connection with the offer or sale or invitation for subscription or purchase of any Equity Shares be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (a) to an institutional investor (as defined in Section 4A of the Securities and Futures Act) pursuant to Section 274 of the Securities and Futures Act, (b) to a relevant person (as defined in Section275(2) of the Securities and Futures Act) pursuant to Section 275(1) of the Securities and Futures Act, or any person pursuant to an offer referred to in Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or (c) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.
Where the Equity Shares are acquired by persons who are relevant persons specified in Section 276 of the Securities and Futures Act, namely:
(a) a corporation (which is not an accredited investor) (as defined in Section 4A of the Securities and Futures Act) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
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(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, the shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Equity Shares pursuant to an offer made under Section 275 of the Securities and Futures Act except:
(i) to an institutional investor (under Section 274 of the Securities and Futures Act) or to a relevant person as defined in Section 275(2) of the Securities and Futures Act, or any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights or interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets and further for corporations, in accordance with the conditions specified in Section 275(1A) or Section 276(4)(i)(B) of the Securities and Futures Act;
(ii) where no consideration is or will be given for the transfer;
(iii) where the transfer is by operation of law;
(iv) as specified in Section 276(7) of the Securities and Futures Act; or
(v) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
Switzerland
The Equity Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“ SIX ”) or on any other stock exchange or regulated trading facility in Switzerland. This Preliminary Placement Document has been prepared without regard to the disclosure standards for issuance prospectuses under Article 652a or Article 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under Articles 27 ff. of the SIX Listing Manual or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this Preliminary Placement Document nor any other offering or marketing material relating to the Equity Shares or the Issue may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this Preliminary Placement Document nor any other offering or marketing material relating to the Equity Shares or the Issue or us have been or will be filed with or approved by any Swiss regulatory authority. In particular, this Preliminary Placement Document will not be filed with, and the Issue will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (“ FINMA ”), and the Issue has not been and will not be authorised under the Swiss Federal Act on Collective Investment Schemes (“ CISA ”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the Equity Shares.
The Equity Shares are being offered in Switzerland by way of a private placement, i.e., to a small number of selected investors only, without any public offer and only to investors who do not purchase the Shares with the intention to distribute them to the public. The investors will be individually approached from time to time. This Preliminary Placement Document, as well as any other offering or marketing material relating to the Shares, is confidential and it is exclusively for the use of the individually addressed investors in connection with the offer of the Equity Shares in Switzerland and it does not constitute an offer to any other person. This Preliminary Placement Document may only be used by those investors to whom it has been handed out in connection with the Issue and may neither directly nor indirectly be distributed or made available to other persons without our express consent. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in or from Switzerland.
United Kingdom
Each GC-BRLM has represented and agreed that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity(within the meaning of
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Section 21 of the Financial Services and Markets Act 2000 (as amended) (“ FSMA ”)) received by it in connection with the issue or sale of the Equity Shares in circumstances in which Section 21(1) of FSMA does not apply to our Company; and
(b) it has complied with, and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Equity Shares in, from or otherwise involving the United Kingdom.
United Arab Emirates (excluding the Dubai International Financial Centre)
This Preliminary Placement Document is strictly private and confidential and is being distributed to a limited number of investors. This Preliminary Placement Document must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. By receiving this Preliminary Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that none of our Equity Shares or the Preliminary Placement Document have been approved by or filed with the U.A.E. Central Bank, the U.A.E. Ministry of Economy and Planning, the Securities and Commodities Authority (“ SCA ”) or any other authorities in the United Arab Emirates, nor has the placement agent, if any, or any GC- BRLM received authorisation or licensing from the U.A.E. Central Bank, the U.A.E. Ministry of Economy and Planning, the SCA or any other authorities in the United Arab Emirates to market or sell our Equity Shares within the United Arab Emirates. No marketing of our Equity Shares has been or will be made from within the United Arab Emirates other than in compliance with the laws of the U.A.E. and no subscription to our Equity Shares may or will be consummated within the United Arab Emirates. It should not be assumed that the placement agent, if any, or any placement manager is a licensed broker, dealer or investment adviser under the laws applicable in the United Arab Emirates, or that any of them advise individuals resident in the United Arab Emirates as to the appropriateness of investing in or purchasing or selling securities or other financial products. The interests in our Equity Shares may not be offered or sold directly or indirectly to the public in the United Arab Emirates. This does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise.
United States of America
The Equity Shares have not been and will not be registered under the United States Securities Act of 1933, as amended and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold (a) in the United States and to U.S. Persons only to persons who are qualified institutional buyers (as defined in Rule 144A under the Securities Act and referred to in this Placement Document as “ U.S. QIBs ”) and (b) outside the United States to non-U.S. persons in an “offshore transaction” in reliance on Regulation S.
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PURCHASER REPRESENTATIONS AND TRANSFER RESTRICTIONS
Investors are advised to consult with legal counsel prior to purchasing any Equity Shares or making any resale, pledge or transfer of such Equity Shares.
Purchasers are not permitted to sell the Equity Shares Allotted pursuant to the Issue for a period of one year from the date of Allotment, except on the floor of the Stock Exchanges. Additionally, purchasers are deemed to have represented, agreed and acknowledged as below with respect to purchase and sale of Equity Shares.
The Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
Each purchaser of the Equity Shares in the United States or a U.S. person is deemed to have represented, agreed and acknowledged as follows:
1. You confirm that:
• you are a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act);
• you are not a broker-dealer which owns and invests on a discretionary basis less than US$25 million in securities of unaffiliated companies;
• you are not a participant-directed employee plan, such as a plan (including a 401(k) plan) described in subsection (a)(1)(i)(D), (E) or (F) of Rule 144A;
• you were not formed for the purpose of investing in our Company; and
• you are not an affiliate of our Company or a person acting on behalf of an affiliate of our Company.
2. You are an institution that, in the normal course of business, invests in or purchases securities similar to the Equity Shares and not with a view to distribution, and you, and any accounts for which the you are acting, (a) are a sophisticated investor that has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of its investment in the Equity Shares and (b) are able to bear the economic risk, and sustain a complete loss, of such investment in the Equity Shares. If you are acquiring the Equity Shares as a fiduciary or agent for one or more investor accounts,
• each such account is a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act);
• you have sole investment discretion with respect to each account; and
• you have full power and authority to make the representations, warranties, agreements, undertakings and acknowledgements contained herein on behalf of each such account.
3. You will base your investment decision on copy of this Preliminary Placement Document. You acknowledge that neither our Company nor any of its affiliates nor any other person (including the GC- BRLMs) or any of their respective affiliates have made or will make any representations, express or implied, to you with respect to our Company, the Issue, the Equity Shares or the accuracy, completeness or adequacy of any financial or other information concerning our Company, the Issue or the Equity Shares, other than (in the case of our Company and its affiliates only) the information contained in this Preliminary Placement Document. You acknowledge that you have not relied on and will not rely on any investigation by, or on any information contained in any research reports prepared by, the GC-BRLMs or any of their respective affiliates.
4. You understand that our Company, for U.S. federal income tax purposes, may be considered a “passive foreign investment company” for the current taxable year and that there will be certain consequences under U.S. tax laws resulting from an investment in the Equity Shares, and you will make such investigation and consult such tax and other advisors with respect thereto as you deem appropriate. You
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will satisfy yourself concerning, without limitation, the effects of U.S. federal, state and local income tax laws and foreign tax laws on your investment in the Equity Shares.
5. Any Equity Shares you acquire will be for your own account (or for the account of an investor who is a “qualified institutional buyer” as to which you exercise sole investment discretion and have authority to make the statements contained in this document) for investment purposes, and not with a view to the resale or distribution within the meaning of the U.S. federal securities laws, subject to the understanding that the disposition of its property shall at all times be and remain within its control.
6. You understand that the Equity Shares are being offered in a transaction not involving any public offering in the United States within the meaning of the Securities Act, that the Equity Shares have not been and will not be registered under the Securities Act or under the securities laws of any state or other jurisdiction of the United States.
7. You acknowledge and agree that you are not purchasing the Equity Shares as a result of any general solicitation or general advertising (as defined in Regulation D under the Securities Act) or directed selling efforts (as defined in Regulation S under the Securities Act).
8. You understand that the Equity Shares will be “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, and you agree that such securities may not be deposited into any unrestricted depository facility established or maintained by any depository bank.
9. You agree, on your own behalf and on behalf of any accounts for which you are acting, that you will not reoffer, resell, pledge or otherwise transfer the Equity Shares, except in an offshore transaction on a recognized Indian stock exchange in compliance with Regulation S under the Securities Act.
10. You agree that, prior to any sale of the Equity Shares, you shall notify the purchaser of such Equity Shares or the executing broker, as applicable, (a) of any transfer restrictions that are applicable to the Equity Shares being sold, and (b) that the Equity Shares have not been and will not be registered under the Securities Act.
11. You understand and acknowledge that our Company shall have no obligation to recognize any offer, sale, pledge or other transfer made other than in compliance with the restrictions on transfer set forth and described herein and that our Company may make notation on its records or give instructions to any transfer agent of the Equity Shares.
12. You understand that the foregoing representations, warranties, agreements, undertakings and acknowledgements are required in connection with United States and other securities laws and that our Company, the GC-BRLMs and their respective affiliates, and others are entitled to rely upon the truth and accuracy of the representations, warranties, agreements, undertakings or acknowledgements contained herein. You agree that if any of the representations, warranties, agreements, undertakings and acknowledgements made herein are no longer accurate, you shall promptly notify our Company and the GC-BRLMs in writing. All representations, warranties, agreements, undertakings and acknowledgements you have made in this document shall survive the execution and delivery hereof.
Each other purchaser of the Equity Shares is deemed to have represented, agreed and acknowledged as follows:
1. You are not a U.S. person (as defined in Regulation S under the Securities Act) and you are outside the United States.
2. You are not an affiliate of our Company or a person acting on behalf of an affiliate of our Company.
3. You are not purchasing the Equity Shares as a result of any directed selling efforts (as defined in Regulation S under the Securities Act), or any general solicitation or general advertising (as defined in Regulation D under the Securities Act).
4. You will base your investment decision on a copy of this Preliminary Placement Document. You acknowledge that neither our Company nor any of its affiliates nor any other person (including the GC- BRLMs) or any of their respective affiliates have made or will make any representations, express or implied, to you with respect to our Company, the Issue, the Equity Shares or the accuracy, completeness or adequacy of any financial or other information concerning our Company, the Issue or
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the Equity Shares, other than (in the case of our Company and its affiliates only) the information contained in this Preliminary Placement Document. You acknowledge that you have not relied on and will not rely on any investigation by, or on any information contained in any research reports prepared by, the GC-BRLMs or any of their respective affiliates.
5. You acknowledge (or if acting for the account of another person, such person has confirmed that you acknowledge) that, the Equity Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States.
6. You agree, on your own behalf and on behalf of any accounts for which you are acting, that you will not reoffer, resell, pledge or otherwise transfer the Equity Shares, except in an offshore transaction on a recognized Indian stock exchange in compliance with Regulation S under the Securities Act.
7. None of you, any of your affiliates nor any person acting on behalf of you or any of your affiliates, has made or shall make any directed selling efforts (as defined in Regulation S under the Securities Act), or any general solicitation or general advertising (as defined in Regulation D under the Securities Act), with respect to the Equity Shares.
8. You agree that, prior to any sale of the Equity Shares, you shall notify the purchaser of such Equity Shares or the executing broker, as applicable, (a) of any transfer restrictions that are applicable to the Equity Shares being sold, and (b) that the Equity Shares have not been and will not be registered under the Securities Act.
9. You understand and acknowledge that our Company shall have no obligation to recognize any offer, sale, pledge or other transfer made other than in compliance with the restrictions on transfer set forth and described herein and that our Company may make notation on its records or give instructions to any transfer agent of the Equity Shares.
10. You understand that the foregoing representations, warranties, agreements, undertakings and acknowledgements are required in connection with United States and other securities laws and that our Company, the GC-BRLMs and their respective affiliates, and others are entitled to rely upon the truth and accuracy of the representations, warranties, agreements, undertakings or acknowledgements contained herein. You agree that if any of the representations, warranties, agreements, undertakings and acknowledgements made herein are no longer accurate, you shall promptly notify our Company and the GC-BRLMs in writing. All representations, warranties, agreements, undertakings and acknowledgements you have made in this document shall survive the execution and delivery hereof.
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THE SECURITIES MARKET OF INDIA
The information in this section has been extracted from documents available on the website of SEBI and the Stock Exchanges and has not been prepared or independently verified by our Company or the GC-BRLMs or any of their respective affiliates or advisors.
The Indian securities market
India has a long history of organized securities trading. In 1875, the first stock exchange was established in Mumbai. Indian Stock Exchanges
Indian stock exchanges are regulated primarily by SEBI, as well as by the Government acting through the Ministry of Finance, Capital Markets Division, under the Securities Contracts (Regulation) Act, 1956 (the “SCRA ”) and the Securities Contracts (Regulation) Rules, 1957 (the “ SCRR ”). On June 20, 2012, SEBI, in exercise of its powers under the SCRA and the Securities and Exchange Board of India Act, 1992, as amended from time to time (the “ SEBI Act ”), notified the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (the “ SCR (SECC) Rules ”), which regulate inter alia the recognition, ownership and internal governance of stock exchanges and clearing corporations in India together with providing for minimum capitalization requirements for stock exchanges. The SCRA, the SCRR and the SCR (SECC) Rules along with various rules, bye-laws and regulations of the respective stock exchanges, regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner, in which contracts are entered into, settled and enforced between members of the stock exchanges.
The SEBI Act empowers SEBI to regulate the Indian securities markets, including stock exchanges and intermediaries in the capital markets, promote and monitor self-regulatory organisations and prohibit fraudulent and unfair trade practices. Regulations and guidelines concerning minimum disclosure requirements by public companies, investor protection, insider trading, substantial acquisitions of shares and takeover of companies, buy-backs of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, Mutual Funds, FIIs, FPIs, credit rating agencies and other capital market participants have been notified by the relevant regulatory authority.
As on July 2, 2014, there are 15 recognized stock exchanges in India. Most of the stock exchanges have their own governing board for self-regulation. The BSE and the NSE together hold a dominant position among the stock exchanges in terms of the number of listed companies, market capitalization and trading activity.
Listing of Securities
The listing of securities on a recognised Indian stock exchange is regulated by the applicable Indian laws including the Companies Act, 2013, the SCRA, the SCRR, the SEBI Act and various guidelines and regulations issued by SEBI and the listing agreements of the respective stock exchanges. The SCRA empowers the governing body of each recognised stock exchange to suspend trading of or withdraw admission to dealings in a listed security for breach of or non-compliance with any conditions or breach of company’s obligations under such listing agreement or for any reason, subject to the issuer receiving prior written notice of the intent of the exchange and upon granting of a hearing in the matter. SEBI also has the power to amend such equity listing agreements and bye-laws of the stock exchanges in India, to overrule a stock exchange’s governing body and withdraw recognition of a recognized stock exchange.
All listed companies are required to ensure a minimum public shareholding at 25% (either immediately upon listing of its equity shares or within three years of such listing). Further, where the public shareholding in a listed company falls below 25% at any time, such company is required to bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall. Consequently, a listed company may be delisted from the stock exchanges for not complying with the above-mentioned requirement. Our Company is in compliance with this minimum public shareholding requirement.
Delisting
SEBI has notified the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 in relation to the voluntary and compulsory delisting of equity shares from the stock exchanges. In addition, certain amendments to the SCRR have also been notified in relation to delisting.
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Index-Based Market-Wide Circuit Breaker System
In order to restrict abnormal price volatility in any particular stock, SEBI has instructed stock exchanges to apply daily circuit breakers which do not allow transactions beyond a certain level of price volatility. The index based market-wide circuit breaker system (equity and equity derivatives) applies at three stages of the index movement, at 10%, 15% and 20%. These circuit breakers, when triggered, bring about a co-ordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the SENSEX of the BSE or the S&P CNX NIFTY of the NSE, whichever is breached earlier.
In addition to the market-wide index-based circuit breakers, there are currently in place individual scrip-wise price bands of up to 20% movements either up or down. However, no price bands are applicable on scrips on which derivative products are available or scrips included in indices on which derivative products are available. The stock exchanges in India can also exercise the power to suspend trading during periods of market volatility. Margin requirements are imposed by stock exchanges that are required to be paid by the stockbrokers.
BSE
Established in 1875, it is the oldest stock exchange in India. In 1956, it became the first stock exchange in India to obtain permanent recognition from the Government under the SCRA.
NSE
The NSE was established by financial institutions and banks to provide nationwide online, satellite-linked, screen-based trading facilities with market-makers and electronic clearing and settlement for securities including government securities, debentures, public sector bonds and units. The NSE was recognised as a stock exchange under the SCRA in April 1993 and commenced operations in the wholesale debt market segment in June 1994. The capital market (equities) segment commenced operations in November 1994 and operations in the derivatives segment commenced in June 2000. NSE launched the NSE 50 Index, now known as S&P CNX NIFTY, on April 22, 1996 and the Mid-cap Index on January 1, 1996. The securities in the NSE 50 Index are highly liquid.
CSE
Established in 1908, CSE is one of the oldest stock exchanges in India. In 1997, CSE replaced the old manual trading system with completely computerized on-line trading & reporting system known as C-STAR (CSE Screen Based Trading And Reporting).
Internet-based Securities Trading and Services
Internet trading takes place through order routing systems, which route client orders to exchange trading systems for execution. Stockbrokers interested in providing this service are required to apply for permission to the relevant stock exchange and also have to comply with certain minimum conditions stipulated under applicable law. The NSE became the first exchange to grant approval to its members for providing internet based trading services. Internet trading is possible on both the “equities” as well as the “derivatives” segments of the NSE.
Trading Hours
Trading on both the NSE and the BSE occurs from Monday to Friday, between 9:15 a.m. and 3:30 p.m. IST (excluding the 15 minutes pre-open session from 9:00 a.m. to 9:15 a.m.). The BSE and the NSE are closed on public holidays. The recognised stock exchanges have been permitted to set their own trading hours (in the cash and derivatives segments) subject to the condition that (i) the trading hours are between 9.00 a.m. and 5.00 p.m.; and (ii) the stock exchange has in place a risk management system and infrastructure commensurate to the trading hours.
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Trading Procedure
In order to facilitate smooth transactions, the BSE replaced its open outcry system with BSE On-line Trading (or “BOLT ”) facility in 1995. This totally automated screen based trading in securities was put into practice nationwide. This has enhanced transparency in dealings and has assisted considerably in smoothening settlement cycles and improving efficiency in back-office work.
NSE has introduced a fully automated trading system called National Exchange for Automated Trading (or “NEAT ”), which operates on strict time/price priority besides enabling efficient trade. NEAT has provided depth in the market by enabling large number of members all over India to trade simultaneously, narrowing the spreads.
Takeover Regulations
Disclosure and mandatory bid obligations for listed Indian companies under Indian law are governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “ Takeover Regulations ”), which provides specific regulations in relation to substantial acquisition of shares and takeover. The Takeover Regulations came into effect on October 22, 2011 and replaced the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the “ Takeover Code 1997 ”). Once the equity shares of a company are listed on a stock exchange in India, the provisions of the Takeover Regulations will apply to any acquisition of the company’s shares/voting rights/control. The Takeover Regulations prescribes certain thresholds or trigger points in the shareholding a person or entity has in the listed Indian company, which give rise to certain obligations on part of the acquirer. Acquisitions up to a certain threshold prescribed under the Takeover Regulations mandate specific disclosure requirements, while acquisitions crossing particular thresholds may result in the acquirer having to make an open offer of the shares of the target company. The Takeover Regulations also provides for the possibility of indirect acquisitions, imposing specific obligations on the acquirer in case of such indirect acquisition.
The key changes from the Takeover Code 1997 under the Takeover Code include:
• the trigger for making a public offer upon acquisition of shares or voting rights has been increased from 15% to 25%;
• every public offer has to be made for at least 26% of all the shares held by other shareholders;
• creeping acquisition of up to 5% is permitted up to a limit of 75% of the shares or voting rights of a company;
• acquisition of control in a target company triggers the requirement to make a public offer regardless of the level of shareholding and the acquisition of shares; and
• if the indirect acquisition of a target company is a predominant part of the business or entity being acquired, it would be treated as a direct acquisition.
Insider Trading Regulations
The Insider Trading Regulations have been notified by SEBI to prohibit and penalize insider trading in India. An insider is, among other things, prohibited from dealing either on his own behalf or on behalf of any other person, in the securities of a listed company when in possession of unpublished price sensitive information.
The Insider Trading Regulations also provide disclosure obligations for shareholders holding more than a predefined percentage, and directors and officers, with respect to their shareholding in the company, and the changes therein. The definition of “insider” includes any person who has received or has had access to unpublished price sensitive information in relation to securities of a company or any person reasonably expected to have access to unpublished price sensitive information in relation to securities of a company and who is or was connected with the company or is deemed to have been connected with the company.
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Depositories
The Depositories Act provides a legal framework for the establishment of depositories to record ownership details and effect transfers in book-entry form. Further, SEBI framed regulations in relation to, among other things, the formation and registration of such depositories, the registration of participants as well as the rights and obligations of the depositories, participants, companies and beneficial owners. The depository system has significantly improved the operation of the Indian securities markets.
Derivatives (Futures and Options)
Trading in derivatives is governed by the SCRA, the SCRR and the SEBI Act. The SCRA was amended in February 2000 and derivatives contracts were included within the term “securities”, as defined by the SCRA. Trading in derivatives in India takes place either on separate and independent derivatives exchanges or on a separate segment of an existing stock exchange. The derivatives exchange or derivatives segment of a stock exchange functions as a self-regulatory organisation under the supervision of the SEBI
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DESCRIPTION OF EQUITY SHARES
The following is information relating to the Equity Shares including a brief summary of the Memorandum and Articles of Association, and the sections of the Companies Act, 2013. Prospective investors are urged to read the Memorandum and Articles of Association carefully, and consult with their advisers, as the Memorandum and Articles of Association and applicable Indian law, and not this summary, govern the rights attached to the Equity Shares.
Share Capital
Our Company’s authorized equity share capital is Rs. 1,500,000,000 divided into 150,000,000 Equity Shares. As on the date the issued equity share capital is Rs. 1,312,358,970 divided into 131,235,897 Equity Shares and paid up equity share capital is Rs. 1,249,359,250 divided into 124,935,925 Equity Shares of Rs. 10 each. This does not include 6,299,972 Equity Shares that has been forfeited by the Company. For further details, please see “Capital Structure” on page 73.
Dividends
Under Indian law, a company pays dividends upon a recommendation by its board of directors and approval by a majority of the shareholders at the AGM of shareholders held each financial year. Under the Companies Act, 2013 unless the board of directors of a company recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions specified under Section 123 of the Companies Act, 2013 and the rules made thereunder no dividend can be declared or paid by a company for any financial year except (a) out of the profits of the company for that year, calculated in accordance with the provisions of the Companies Act, 2013; or (b) out of the profits of the company for any previous financial year(s) arrived at in accordance with the Companies Act, 2013 and remaining undistributed; or (c) out of both; or (d) out of money provided by the Central Government or a state Government for payment of dividend by the Company in pursuance of a guarantee given by that Government.
The Articles of Association provide that our Company in its general meeting may declare dividends to be paid to the members according to their respective rights and interest in the profits. The dividend shall not exceed the amount recommended by our Board, though a smaller dividend may be declared. Further, our Board may from time to time pay the members interim dividend as may appear to them to be justified. No dividend may be paid otherwise than out of the profits of our Company, arrived at in the manner provided under the Companies Act. The profits of our Company shall be divisible among the members in proportion of the amount of capital paid- up or credited as paid-up on the Shares held by them. However, our Board may retain any dividends on which our Company may have a lien and may apply the same towards the satisfaction of the debts or liabilities in respect of which the lien exists. All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the Shares during any portion or portions of the period in respect of which the dividend is paid but if any Share is issued on terms providing that it shall rank for dividends as from a particular date, such Share shall rank for dividend accordingly. The Board may deduct from any dividend payable to any member all sums of money, if any, presently payable by him to the Company on account of call or otherwise in relation to the shares of the Company . A transfer of Shares shall not pass the right to any dividend declared therein before the registration of the transfer.
Subject to the provisions of the Act, no Shareholder shall be entitled to receive payment of any interest or dividends in respect of his share(s), whilst any money may be due or owing from him to our Company in respect of such share(s) either above or jointly with any other person and the Board may deduct from the interest or dividend payable to any such Shareholder all sums of money so due from him to our Company. Unless otherwise directed, dividend may be paid by cash (including by cheque or warrant) or in electronic mode to the Shareholder or person entitled or in case of joint-holders to the joint-holder first named in the register of members. Our Company is not liable for any cheque or warrant lost in transmission, or for any dividend lost due to a forged endorsement of any cheque or warrant.
Subject to applicable provisions of the FEMA, all dividends and other distributions declared and payable on the Equity Shares may be paid by our Company to the Shareholder in Rupees and may be converted into foreign currency and freely transferred out of the Republic of India without the necessity of obtaining any governmental or regulatory authorisation or approval in the Republic of India or any political subdivision or taxing authority thereof.
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Capitalisation of Reserves and Issue of Bonus Shares
In addition to permitting dividends to be paid out of current or retained earnings as described above, the Companies Act, 2013 permits the board of directors, if so approved by the shareholders in a general meeting, to capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares, which are similar to stock dividend. The Companies Act, 2013 permits the issue of fully paid up bonus shares from its free reserves, securities premium account or capital redemption reserve account, provided that bonus shares shall not be issued by capitalising reserves created by revaluation of assets. These bonus Equity Shares must be distributed to shareholders in proportion to the number of Equity Shares owned by them as recommended by the board of directors.
Any issue of bonus shares by a listed company would be subject to the SEBI ICDR Regulations. The relevant SEBI ICDR Regulations prescribe that no company shall make a bonus issue of equity shares if it has outstanding fully or partly convertible debt instruments at the time of making the bonus issue, unless it has made reservation of the equity shares in the same class in favour of the holders of the outstanding convertible debt instruments in proportion to the convertible part thereof and the equity shares reserved for the holders of fully or partly convertible debt instruments shall be issued at the time of conversion of such convertible debt instruments on the same terms or same proportion on which the bonds were issued. Further, for issuance of such bonus shares, a company should not have defaulted in the payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption of such debentures. The declaration of bonus shares in lieu of a dividend cannot be made. The bonus issuance shall be made out of free reserves built out of genuine profits or share premium collected in cash only. The reserves created by revaluation of fixed assets cannot be capitalised. Further, a company should have sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees, such as contributions to provident funds, gratuities and/or bonuses.
The Articles of Association of our Company provide that any general meeting may resolve that any moneys, investments or other assets forming a part of our Company's undivided profits standing to the credit of the reserves or any capital redemption reserve account in the hands of our Company, and available for distribution as dividend or representing premiums received on the issue of shares and standing to the credit of the share premium account, be capitalised and distributed amongst such members as would be entitled to receive the same if distributed by way of dividends and in the same proportion that they had become entitled to thereto as capital and that all or any part of such capitalised fund be applied on behalf of such members in paying up in full any unissued Shares, debentures or debenture-stock of our Company, which shall be distributed or directed towards payment of the uncalled liability on any issued Shares or debentures, and that such distribution or payment shall be accepted by such members in full satisfaction of their interest. Any sum standing to the credit of the share premium account or capital redemption reserve account, may be applied in the paying up of un-issued shares to be issued to the members of our Company, as fully paid up bonus shares.
Alteration of Share Capital
Subject to the provisions of the Companies Act, 2013 our Company may increase its share capital by issuing new shares on such terms and with such rights as it, by action of its shareholders in a general meeting may determine. According to Section 62(1)(a) of the Companies Act, 2013 such new shares shall be offered to existing shareholders in proportion to the paid up share capital on those shares at that date. The offer shall be made by notice specifying the number of shares offered and the date (being not less than 15 days and not exceeding 30 days from the date of the offer) within which the offer, if not accepted, will be deemed to have been declined. After such date or on receipt of earlier intimation from the persons to whom such notice is given that they decline to accept the shares offered, the Board may dispose of the shares offered in respect of which no acceptance has been received in a manner which shall not be disadvantageous to the shareholders of our Company. The offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to him in favour of any other person. Private placement and public issues shall be undertaken pursuant to Chapter III of the Companies Act, 2013.
Under the provisions of Section 62(1)(c) of the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014, new shares may be offered to any persons whether or not those persons include existing shareholders or employees to whom shares are allotted under a scheme of employees stock options, either for cash or for consideration other than cash, if a special resolution to that effect is passed by our Company’s shareholders in a general meeting. Our Company may, by a resolution passed in a general meeting,
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from time to time, increase the share capital by the creation of new shares of such amount as may be deemed expedient and specified in the resolution. Such increase in the share capital shall be subject to compliance with the provision of the Companies Act and of any other laws that may be in force. New shares shall be issued upon such terms and conditions and with such rights and privileges attached thereto as are consistent with provisions of the Companies Act and which the general meeting, resolving upon the creation thereof shall direct and if no direction be given, as our Board shall determine, and in particular such Shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of our Company and with a special or without any right of voting, subject to the conditions prescribed under the Companies Act, 2013.
Our Company may increase its subscribed capital on exercise of an option attached to the debentures or loans raised by our Company pursuant to the consent of the members of our Company to convert such debentures or loans into shares or to subscribe for shares in our Company.
Our Company may by Ordinary Resolution:
(a) Consolidate and divide its shares or any of them into shares of larger amount than its existing shares; (b) Subdivide its existing shares or any of them into shares of smaller amount than is fixed originally by the Memorandum of Association, such that in the subdivision, the proportion between the amount paid and the amount unpaid on each reduced Share be the same as it was in the case of the Share from which the reduced Share is derived and other conditions, if any, laid down by the Articles of Association; (c) Cancel any shares which at the date of the passing of the ordinary resolution, have not been taken or agreed to be taken by any person and also may diminish the amount of its Share capital by the amount of the shares so cancelled.
General Meetings of Shareholders
Every year our Company is required to hold an annual general meeting in addition to any other meetings. Further, our Board may, whenever it thinks fit, call an extraordinary general meeting and shall, on the requisition of a number of members who constitute not less than one-tenth of the paid-up capital of our Company, proceed to call an extraordinary general meeting. Not less than 21 days' clear notice in writing of the general meeting is to be given, but shorter notice may be given if consent in writing is accorded by all the members entitled to vote and in case of any other meetings, with the consent of members holding not less than 95% of such part of the paid-up Share capital of our Company which gives a right to vote at the meeting. An explanatory statement shall be annexed to every notice of a general meeting. The quorum requirements for a general meeting are as prescribed under Section 103 of the Companies Act 2013, and no business is to be transacted at the general meeting unless the requisite quorum is present at the commencement of the same. If the quorum is not present within half an hour of the time appointed for a meeting, the meeting, if convened upon such requisition as aforesaid, shall be dissolved; but in any other case it shall stand adjourned to the same day in the next week at the same time and place. The Articles of Association further provide that no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.
The chairman of our Board shall be entitled to take the chair at every general meeting. If there be no such chairman, or if at any meeting he shall not be present within fifteen minutes after the time appointed for holding such meeting, or is unwilling to act, the vice-chairman shall be entitled to take the chair. If the Vice-Chairman also be not available to take the chair, or is unwilling to act, the members present shall choose one of the Directors present to be the chairman of the meeting. At any general meeting, unless a poll is demanded in conformity with Section 109 of the Companies Act 2013, a declaration by the chairman that a resolution has, on a show of hands been carried, or carried unanimously or by a particular majority or lost and an entry to that effect in the minute book, should be conclusive evidence of the fact without proof of number or proportion of votes recorded in favour of or against the resolution.
Voting Rights
Every member present in person shall have one vote on a show of hands, and on poll, the member present in person or by proxy shall have one vote for each Share of our Company held by him, subject to any rights or restrictions for the time being attached to any class or classes of shares. The Articles of Association provide that votes may be given by proxies in a manner as authorised under the Articles of Association.
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The instrument appointing a proxy is required to be lodged at the registered office at least 48 hours before the time of the meeting. No proxy shall be entitled to vote on a show of hands. A vote given in accordance with the terms of an instrument appointing a proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the instrument or transfer of the Share in respect of which the vote is given provided no intimation in writing of the death or insanity, revocation or transfer shall have been received at the office of our Company before the general meeting. Provided never the less that the chairman of any general meeting shall be entitled to require such evidence as he may in his discretion think fit of the due execution of an instrument of proxy and that the same has not been revoked.
Ordinary resolutions may be passed by simple majority of those present and voting and those voting electronically. Special resolutions require that the votes cast in favour of the resolution must be at least three times the votes cast against the resolution.
Directors
The Articles of Association provide that the number of Directors shall not be less than three and not be more than ten. The Directors shall be appointed by our Company in the general meeting subject to the provisions of the Companies Act and the Articles of Association. The Directors, other than Independent Directors, to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment but as between persons who became Directors on the same day those to retire shall in default of being subject to any agreement among themselves, be determined by lot.
The Directors have the power to appoint any other persons as an addition to our Board but any Director so appointed shall hold office only up to the date of the next following annual general meeting of our Company and the total number of Directors shall not at any time exceed the maximum strength prescribed under the Articles of Association. Our Board shall also have the power to appoint any person to act as an alternate Director for a Director during the latter's absence for a period of not less than three months from India.
Our Board is required to meet at least once in every three calendar months for the dispatch of business, adjourn and otherwise regulate its meetings and proceedings as it thinks fit provided that at least four such meetings shall be held in every year. The quorum for a meeting of our Board is one-third of its total strength (any fraction contained in that one-third being rounded off as one) or two Directors, whichever is higher.
Annual Report and Financial Results
An annual report which includes information about our Company such as the Financial Statements as of the date of closing of the financial year, the Directors‘ report, the management‘s discussion and analysis and a corporate governance section is required to be sent to the Shareholders in compliance with applicable laws. Our Company is required to submit the annual report to the Stock Exchanges under the Listing Agreement. Our Company must also publish its financial results in at least one English daily newspaper circulating in the whole or substantially the whole of India and also in a daily newspaper published in the language of the region where the Registered Office is situated. Our Company files certain information online, including the annual report, Financial Statements and the shareholding pattern statement, in accordance with the requirements of the Listing Agreement and as may be specified by the SEBI from time to time.
Transfer of shares
An application for registration of a transfer of the shares in our Company may be made either by the transferor or the transferee. Where the application is made by the transferor and relates to partly paid shares, the transfer shall not be registered unless our Company gives notice of the application to the transferee and the transferee makes no objection to the transfer within two weeks from the receipt of the notice. A notice to the transferee shall be deemed to have been duly given if it is dispatched by prepaid registered post to the transferee at the address given in the instrument of transfer and shall be deemed to have been duly delivered in the ordinary course of post.
Our Company is required to comply with the rules, regulations and requirements of the stock exchange or the rules made under the Companies Act, or the rules made under the Securities Contracts (Regulation) Act, 1956, as amended (" SCRA "), or any other law or rules applicable, relating to the transfer or transmission of shares or debentures.
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Buy-back by our Company of its own shares
A company is empowered to buy-back its own shares or other specified securities out of its free reserves, the securities premium account or the proceeds of any fresh issue of shares or other specified securities (other than the kind of shares or securities proposed to be bought back) subject to certain conditions, including: • the buy-back should be authorised by the articles of association of the company; • a special resolution has been passed in a general meeting authorising the buy-back (in the case of listed companies, by means of a postal ballot) unless the buy-back is for 10% or less than 10% of the total paid-up equity capital and free reserves of the company and such buy-back has been authorized by the board of directors of the company by means of a resolution passed at its meeting; • the proceeds utilised for the buy-back is limited to not more than 25% of the total paid-up capital and free reserves of the company; • the buy-back of equity shares in any financial year is limited to not more than 25% of the total paid up equity capital of the company in that financial year. No offer of buy-back shall be made within one year from the closure of the previous offer of buy-back; • the secured and unsecured debt owed by the company is not more than twice the paid-up capital and free reserves after such buy-back; • the shares or other specified securities for buy back are fully paid-up; and • the buy-back is in accordance with the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 1998.
A company buying back its securities is required to extinguish and physically destroy the securities so bought back within seven days of the last date of completion of the buy-back. Further, a company buying back its securities is not permitted to buy back any securities for a period of one year from the date of closure of the preceding offer of buy-back or to issue the same kind of securities for six months subject to certain limited exceptions.
Other than as described above, a company is prohibited from acquiring its own shares unless the consequent reduction of capital is effected by an approval of at least 75% of its shareholders, voting on it in accordance with the Companies Act and sanctioned by the High Court in terms of the Companies Act. Subject to certain conditions, a public company is prohibited from giving, whether directly or indirectly and whether by means of loan, guarantee, provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person for any shares in the company or its holding company.
A company is also prohibited from purchasing its own shares or specified securities through any subsidiary company including its own subsidiary companies or through any investment company or group of investment companies. Further, a company is prohibited from purchasing its own shares or specified securities, inter alia, if the company is in default with respect to the repayment of deposit or interest, in the redemption of debentures or preference shares, in payment of dividend to a shareholder, in repayment of any term loan or interest payable thereon to any financial institution or bank.
Liquidation Rights
In the event that our Company is wound up, and the assets available for distribution among the members as such are insufficient to repay the whole of the paid up capital, such assets shall be distributed so that as nearly as may be the losses shall be borne by the members in proportion to the capital paid up or which ought to have been paid up at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution among the members shall be more than sufficient to repay the whole of the paid up capital at the commencement of the winding up the excess shall be distributed amongst the members but this shall be without prejudice to the rights of member registered in respect of shares issued upon special terms and conditions. .
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INDEPENDENT AUDITORS
Our Company’s consolidated financial statements for the Fiscal Years ended March 31 2014, 2013, and 2012 and the unaudited interim condensed consolidated financial statements for the three months period ended June 30, 2014, have been included in this Preliminary Placement Document. The Financial Statements are prepared in accordance with Indian GAAP as applicable to us.
Lovelock & Lewes, Chartered Accountants, have audited the Consolidated Financial Statements as of and for the Fiscal Years ended March 31 2014, 2013, and 2012 and have conducted limited review of unaudited interim condensed consolidated financial statements for the three months period ended June 30, 2014.
With respect to the unaudited interim condensed consolidated financial statements of CESC Limited for the three months ended June 30, 2014, included in this Preliminary Placement Document, Lovelock & Lewes reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated October 27, 2014 appearing herein states that they did not audit and they do not express an opinion on those unaudited interim condensed consolidated financial statements. Accordingly, the degree of reliance on their report should be restricted in light of the limited nature of the review procedures applied.
The peer review certificate of our auditor, Lovelock & Lewes, Chartered Accountants, is dated November 17, 2010. Lovelock & Lewes is subject to peer review every 3 (three) years from the date of the peer review certificate. Lovelock & Lewes was subjected to a peer review process by the Peer Review Board of the ICAI through their letter dated September 13, 2013. Mr. Santosh Kumar Mohta, Chartered Accountant being the reviewer of Lovelock & Lewes has submitted its report dated June 30, 2014 to the Peer Review Board. The renewed peer review certificate for our auditor from the Peer Review Board is currently awaited.
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STATEMENT OF TAX BENEFITS
Date: October 25, 2014
CESC Limited CESC House Chowringhee Square Kolkata – 700 001
Dear Sirs,
We hereby enclose our report on the possible tax benefits in relation to the Qualified Institutions Placement (“QIP”) available to CESC Limited (“CESC” / “Company”) and its shareholders under the current direct tax laws presently in force in India. Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant tax laws. Hence, the ability of the Company or its shareholders to derive the tax benefits is dependent upon fulfilling such conditions, which based on business imperatives the Company faces in the future, the Company may or may not choose to fulfill.
This statement is intended to provide the tax benefits to the Company and its shareholders in a general and summarized manner and does not purport to be a complete analysis or listing of all the provisions of potential tax consequences of the subscription, purchase, ownership or disposal etc. of equity shares. In view of the individual nature of tax consequences and the changing tax laws, each investor is advised to consult his or her or their own tax consultant with respect to the specific tax implications arising out of their participation in the proposed QIP.
We do not express any opinion or provide any assurance as to whether:
(a) The Company or its shareholders will continue to obtain these benefits in future; or
(b) The conditions prescribed for availing the benefits have been / would be met with.
The enclosed statement is prepared based on the information given to us by CESC and is accordingly, given specifically for the use by CESC and for the purpose of inclusion in the preliminary placement document and the placement document in connection with the QIP. Our report is based on the completeness and accuracy of the above stated facts and assumptions, which if not entirely complete or accurate, should be communicated to us immediately, as the inaccuracy or incompleteness could have a material impact on our conclusions.
The views expressed in the statement are matters of opinion based on our understanding of the law and regulations prevailing as of the date of this statement and our past experience with the tax, regulatory or other authorities as may be applicable. However, there can be no assurance that the tax authorities or regulators may not take a position contrary to our views.
Legislation and the policies of the authorities as well as their interpretations are also subject to change from time to time, and these may have a bearing on the advice that we have given. Accordingly, any change or amendment in the law or relevant regulations would necessitate a review of our comments and recommendations contained in this statement. Unless specifically requested, we have no responsibility to carry out any review of our comments for changes in laws or regulations occurring after the date of issue of this statement.
Notwithstanding anything to the contrary, this advice was prepared exclusively for CESC in relation to the QIP, and is based on the facts as presented to us as at the date the advice was given. The advice is dependent on specific facts and circumstances and may not be appropriate to another party.
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Neither we, nor our Partners / Directors, employees and / or agents, owe or accept any duty of care or any responsibility to any other party, whether in contract or in tort (including without limitation, negligence or breach of statutory duty) however arising, and shall not be liable in respect of any loss, damage or expense of whatever nature which is caused to any other party.
Yours faithfully, For Batliboi, Purohit & Darbari Chartered Accountants FRN: 303086E
Hemal Mehta Partner Membership No: 063404
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Qualified Institutions Placement (QIP) STATEMENT OF POSSIBLE TAX BENEFITS
This Statement lists the possible key tax benefits that may be relevant to be available to the Qualified Institutional Buyers (QIB) as these may pertain to benefits to them or to the company or to the subsidiary companies of the company under the current tax laws, namely, Income-tax Act, 1961 (‘IT Act’) and Wealth-tax Act, 1957 read with Finance Act presently in force in India. These require certain conditions to be satisfied under the relevant tax laws. Hence, the ability of the Company or its shareholders to avail the tax benefits is dependent upon fulfilling of such specified conditions, which based on the business imperatives, the Company or its shareholders may or may not be able to avail of or choose otherwise. This Statement sets out below the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of equity shares. This Statement is only intended to provide general information to the investors and is neither designed nor intended to be a substitute for a professional tax advice. Each investor is advised to consult his or her or their own tax consultant with respect to the specific tax implications arising out of their participation in the issue. In respect of non-residents, the tax implications mentioned below shall be further subject to any benefits available under the Double Taxation Avoidance Agreement (‘DTAA’), if any, between India and the country in which the non-resident is a tax resident and subject to terms and conditions of the respective DTAA and protocols thereunder. Further, for the purpose of availing benefit under the DTAA in India, a non-resident will have to furnish tax residency certificate from the Government of his/her country alongwith with prescribed documents as per the provision of section 90(4) of IT Act. Treaty entitlement would need to be established by the non-resident before availing of any benefit under such DTAA. The stated benefits will be available only to the sole / first named holder in case the shares are held by joint shareholders.
I. To the Company
The following benefits are available to the company after fulfilling the conditions as per the respective provisions of the relevant tax laws: (i) Special tax benefits available to the Company
Subject to the fulfillment of conditions prescribed under the sections mentioned hereunder, the Company may be eligible, inter-alia , for the following specified deductions /incentives in computing its taxable income for the relevant financial year: Deduction under section 80-IA of the IT Act Under Section 80IA of the IT Act, an assessee is eligible for claiming deduction of 100% of the profits derived inter-alia from its industrial undertakings engaged in generation or generation and distribution of power for any 10 consecutive assessment years out of 15 assessment years beginning from the year in which the undertaking begins to generate power on or before 31.03.2017. Such claim of deduction can only be made out of the net taxable income of the company after adjusting brought forward losses/ un-absorbed depreciation (if any). However, such benefit is not available in computing book profit for the purpose of determination of MAT (Minimum Alternate Tax) liability under section 115JB of the IT Act. The Company’s 250 MW Budge Budge Unit 3 commissioned during the year 2009-10 is eligible for the benefit u/s.80IA with respect to the profits and gains derived from the said unit subject to fulfillment of all prescribed conditions, which however the Company has not availed in its income tax returns till AY 2013-14. (ii) Dividends:
Exemption u/s 10(34) of the IT Act. As per section 10(34) of the IT Act, any income by way of dividends, referred to in section 115-O, from a domestic company is exempt from tax in the hands of the company. Such income is also exempt
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from tax while computing book profit for the purpose of determination of MAT liability under section 115JB of the IT Act. However, in view of the provisions of Section 14A of the IT Act, no deduction is allowed in respect of any expenditure incurred in relation to earning of such dividend income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions contained therein. The tax burden on such dividend is on the company paying the dividend under section 115-O. Exemption u/s 10(35) of the IT Act As per section 10(35) of the IT Act, the following incomes will be exempt in the hands of the company: (a) Income received in respect of the units of a mutual fund specified under clause (23D) of Section 10 of the IT Act; or (b) Income received in respect of units from the administrator of the specified undertaking; or (c) Income received in respect of units from the specified company However, this exemption does not apply to any income arising from transfer of units of the administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be. Such income is also exempt from tax while computing book profit for the purpose of determination of MAT liability. However, in view of the provisions of Section 14A of the IT Act, no deduction is allowed in respect of any expenditure incurred in relation to earning such income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions contained therein. Also, Section 94(7) of the IT Act provides that losses arising from the sale/transfer of shares or units, which are purchased within a period of three months prior to the record date and sold/transferred within three months (for shares) or nine months (for units) respectively after such record date, will be disallowed to the extent dividend income on such shares or units is tax exempt. As per section 94(8) of the IT Act, if an investor purchases units within three months prior to the record date for entitlement of bonus units, and is allotted bonus units on the basis of holding original units on the record date without any payment and such person sells / redeems the original units within nine months of the record date, then the loss arising from sale/ redemption of the original units will be ignored for the purpose of computing income chargeable to tax and the amount of loss ignored shall be regarded as the cost of acquisition of the bonus unit. (iii) Income from buyback of shares
Exemption u/s 10(34A) of the IT Act As per section 10(34A) of the IT Act, any income arising to the Company being a shareholder, on account of buyback of shares (not being listed on a recognized stock exchange) by a company as referred to in section 115QA of the IT Act will be exempt from tax. Such income is also exempt from tax while computing book profit for the purpose of determination of MAT liability. Under section 115QA of the IT Act, the tax burden for such buyback is on the company buying back its own shares. (iv) Depreciation
The Company is entitled to claim depreciation on specified tangible and intangible assets owned and used by it for the purpose of its business as per provisions of section 32 of the IT Act. As per the provisions of section 32(1)(iia) of the Act, the company, which is engaged in generation and distribution of power, is also eligible to claim additional depreciation on machinery and plant at the rate of 20% subject to the conditions specified therein. (v) Carry forward and set-off of business loss and unabsorbed depreciation
Business loss (other than speculative loss), if any, arising to the Company during a year can be set-off against the income under any other head of income, other than income under the head “salaries”, in terms of the provisions of section 71 of the IT Act. Balance business loss, if any, can be carried forward
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and set off against business profits for eight subsequent years in terms of the provisions of section 72 of the IT Act. Unabsorbed depreciation under section 32(2) of the IT Act can be carried forward and set-off against any source of income in subsequent years subject to provisions of section 72(2) of the IT Act. (vi) Capital gains
(a) As per section 2(42A) of the IT Act, capital assets held by the Company being security (other than units) listed in a recognised stock exchange in India or units of the Unit Trust of India or unit of an equity oriented fund or zero coupon bonds will be considered as short term capital asset, if the period of holding of such security or units is twelve months or less. If the period of holding is more than twelve months, it will be considered as long term capital asset as per section 2(29A) of the IT Act. For other capital assets the threshold would be thirty six months instead of twelve months as stated above. Further, gain/loss arising from the transfer of short term capital asset and long term capital asset is regarded as short term capital gains/loss and long term capital gains/loss respectively.
(b) Section 48 of the IT Act, which prescribes the mode of computation of Capital Gains, provides for deduction of cost of acquisition/improvement and expenses incurred in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of Capital Gains. However, in respect of long term capital gains, it offers a benefit by permitting substitution of cost of acquisition/improvement with the indexed cost of acquisition/improvement, which adjusts the cost of acquisition/ improvement by a cost inflation index as prescribed from time to time. However, such indexation benefit would not be available on bonds and debentures.
(c) As per section 10(38) of the IT Act, long term capital gains arising to the Company from transfer of long term capital asset being an equity share in a Company or a unit of an equity oriented fund or a unit of a business trust transacted through a recognized stock exchange in India, where such transaction is chargeable to Securities Transaction Tax (STT), will be exempt in the hands of the Company. However, even exempt capital gains shall be included in computing book profit for the purpose of determining MAT under section 115JB of the IT Act.
Long term capital gains, resulting on transfer of listed securities or units or zero coupon bond, other than through a recognized stock exchange, calculated with indexation benefit is taxable at 20% plus applicable surcharge and cess. However, as per the proviso to section 112(1), if such tax on long term capital gains exceeds the tax on long term capital gains computed at the rate of 10 percent without indexation benefit, then such excess shall be ignored for the purpose of computing the tax payable by the assessee. Further no deduction under Chapter VI-A would be allowed in computing such long term capital gains subjected to tax under section 112. (d) As per section 54EC of the IT Act and subject to the conditions specified therein, the Company can claim deduction from long-term capital gains [which is not exempt under section 10(38)], to the extent such capital gains are invested in certain notified bonds (currently bonds issued by National Highways Authority of India and Rural Electrification Corporation Limited have been notified for this purpose) within six months from the date of transfer. However, the maximum investment in such bonds and consequent deduction from capital gains is Indian Rupees Five million whether made in one or more financial years Further, if such bonds are transferred or converted into money (availing loan or advance on the security of such bonds would be considered as conversion into money for this purpose), within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the bonds are so transferred or converted into money.
(e) Gains arising to the Company on transfer of short term capital assets are currently chargeable to tax at the rate of 30 percent plus applicable surcharge and education cess. However, as per section 111A of the IT Act, short term capital gains arising to the Company from the sale of equity share or a unit of an equity oriented fund or a unit of a business trust transacted through
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a recognized stock exchange in India, where such transaction is chargeable to STT, will be taxable at the rate of 15% plus applicable surcharge and education cess.
(f) As per Section 70 of the IT Act, loss from transfer of Short Term Capital Asset (Short Term Capital Loss) computed for the given year is allowed to be set-off by the Company against any other Short Term as well as Long Term Capital Gains computed for the said year. However, loss on transfer of Long Term Capital Asset (Long Term Capital Loss) computed for the given year is allowed to be set-off by the Company only against the Long Term Capital Gains computed for the said year. Further, as per Section 71 of the IT Act, Short Term Capital Loss or Long Term Capital Loss for the year cannot be set-off against income for the same year under any other head.
As per Section 74 of the Act, the balance loss under the head Capital Gains, which is not set off under the provisions of Section 70, is allowed to be carried forward by the Company for eight subsequent assessment years for being set off as under – • Short Term Capital Loss can be set off against any Capital Gain for the year of set-off; • Long Term Capital Loss can be set off against any Capital Gain other than Short Term Capital Gain for the year of set-off.
It may be noted that no set off/ carry forward may be allowable in respect of exempt capital gains/loss. (vii) Credit of MAT
The Company is allowed, as per section 115JAA(1A) of the IT Act, credit in respect of tax paid (MAT) under section 115JB of the IT Act for any assessment year commencing on or after April 1, 2006, as under - • Amount of MAT credit eligible to be carried forward will be the MAT paid for the assessment year (for which credit is carried forward minus tax computed as per the normal provisions of the IT Act for that assessment year; • MAT credit can be set off in a subsequent year in which normal tax is payable. • Amount of tax of such subsequent assessment year against which MAT Credit is to be set off is tax payable as per the normal provisions of the IT Act minus MAT computed for such subsequent assessment year. • Such MAT credit shall not be allowed to be carried forward beyond the tenth assessment year immediately succeeding the assessment year in which the MAT credit becomes allowable under section 115JAA(1A) of the IT Act.
(viii) Concessional rate of tax on Dividend from Foreign subsidiaries.
Under Section 115BBD of the IT Act, dividend received by the Company from its foreign subsidiary company, in which it holds not less than 26% of the equity share capital, is to be taxed at concessional rate of tax @ 15% plus applicable surcharge and cess. (ix) Credit of Dividend Distribution Tax paid by subsidiary company As per section 115-O of the IT Act, the Company is liable to pay Dividend Distribution Tax (DDT) on dividend declared/ distributed/ paid by it. As per sub-section (1A) to section 115-O, the Company will be allowed to set-off the dividend received from its subsidiary company (holding is more than half in the nominal value of equity share of the company) during the financial year against the dividend distributed by it, while computing the DDT if: (a) The dividend is received from its domestic subsidiary and the subsidiary has paid the DDT payable on such dividend; or (b) The dividend is received from a foreign subsidiary; the Company has paid tax under section 115BBD. However, the same amount of dividend shall not be taken into account for reduction more than once.
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(x) Other Deductions:
A deduction equal to 100% or 50%, as the case may be, of the sums paid as donations to certain specified entities is allowable as per section 80G of the IT Act. (xi) Key tax benefit available to subsidiaries of the Company engaged in the business of generation and / or distribution of power:
Haldia Energy Limited (developing stage), Dhariwal Infrastructure Limited & Surya Vidyut Limited, subsidiaries of CESC Ltd. are eligible for benefit u/s. 80IA of the IT Act with respect to the profits and gains derived from their power generating undertakings subject to fulfillment of all prescribed conditions for eligibility of each of the undertakings for deduction including quantification of profits earned by each of the undertakings (computed in accordance with provisions of Section 92BA of the IT Act). II. To the shareholders of the Company
A. Resident shareholders
1. Under Section 10(34) of the IT Act, income by way of dividend referred to in Section 115-O received on the shares of the Company is exempt from income tax in the hands of shareholders. However it is pertinent to note that section 14A of the IT Act restricts claim for deduction of expenses incurred in relation to exempt income. Thus, any expenditure incurred to earn the dividend income is not an allowable expenditure.
As per section 94(7) of the IT Act, losses arising from sale/transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed as exempt. 2. The characterization of the gains/ losses, arising from sale of shares, as capital gains or business income would depend on the nature of holding in the hands of the shareholder and various other factors.
3. Shares listed in a recognised stock exchange in India which is held by a resident investor for a period of more than 12 months shall be treated as long term capital assets. If the shares are held for a period of up to 12 months, the capital gain arising on the transfer thereof is to be treated as short-term capital gain.
4. The Long Term Capital Gains arising to the shareholders of the Company, on transfer of the Company’s shares in a transaction carried out through a recognized stock exchange in India, and where such transaction is chargeable to Securities Transaction Tax, shall be exempt from tax as per provisions of Section 10(38). However, even exempt capital gains shall be included in computing book profit under section 115JB of the IT Act for corporate shareholders.
Long Term Capital Gains resulting on transfer of the shares of the company other than through a recognized stock exchange, calculated with indexation benefit is taxable at 20% plus applicable surcharge and cess. However, as per the proviso to section 112(1), if such tax on long term capital gains exceeds the tax on long term capital gains computed at the rate of 10 percent without indexation benefit, then such excess shall be ignored for the purpose of computing the tax payable by the assessee. Further no deduction under Chapter VI-A would be allowed in computing such long term capital gains subjected to tax under section 112.
5. The Short Term Capital Gains arising to the shareholders of the Company on transfer of the Company’s shares in a transaction carried out through a recognized stock exchange in India, and where such transaction is chargeable to Securities Transaction Tax, tax will be chargeable @ 15% as per provisions of Section 111A plus applicable surcharge and education cess. Further no deduction under Chapter VI-A would be allowed in computing such short term capital gains subjected to tax under section 111A. In other cases, i.e. where the transaction is not subjected to STT, the short term capital gains would be chargeable as a part of the total
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income and would be exigible to tax at the rate of 30% plus applicable surcharge and education cess.
6. As per section 54EC of the IT Act and subject to the conditions specified therein, the shareholder can claim deduction from long-term capital gains [which is not exempt under section 10(38)], to the extent such capital gains are invested in certain notified bonds (currently bonds issued by National Highways Authority of India and Rural Electrification Corporation Limited have been notified for this purpose) within six months from the date of transfer. However, the maximum investment in such bonds and consequent deduction from capital gains is Indian Rupees Five million whether made in one or more financial years Further, if such bonds are transferred or converted into money (availing loan or advance on the security of such bonds would be considered as conversion into money for this purpose), within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the bonds are so transferred or converted into money.
7. As per Section 70 of the IT Act, loss from transfer of Short Term Capital Asset (Short Term Capital Loss) computed for the given year is allowed to be set-off by the Company against any other Short Term as well as Long Term Capital Gains computed for the said year. However, loss on transfer of Long Term Capital Asset (Long Term Capital Loss) computed for the given year is allowed to be set-off by the Company only against the Long Term Capital Gains computed for the said year. Further, as per Section 71 of the IT Act, Short Term Capital Loss or Long Term Capital Loss for the year cannot be set-off against income for the same year under any other head.
As per Section 74 of the Act, the balance loss under the head Capital Gains, which is not set off under the provisions of Section 70, is allowed to be carried forward by the Company for eight subsequent assessment years for being set off as under – • Short Term Capital Loss can be set off against any Capital Gain for the year of set- off; • Long Term Capital Loss can be set off against any Capital Gain other than Short Term Capital Gain for the year of set-off.
It may be noted that no set off/ carry forward may be allowable in respect of exempt capital gains/loss. 8. In terms of Section 36(xv) of the Act, the STT paid by the shareholder in respect of the taxable securities transactions entered into in the course of his business of transactions/trading in shares would be eligible for deduction from the amount of income chargeable under the head ―Profit and gains of business or profession, provided the income arising out of such taxable securities transactions is included in computation of business profits. As such, no deduction will be allowed in computing the income chargeable to tax as capital gains of such amount paid on account of STT.
B. Non-resident shareholders – other than Foreign Institutional Investors 1. Dividend (whether interim or final) declared, distributed or paid, under Section 115-O of the IT Act, by the Company are exempt in the hands of shareholders as per the provisions of Section 10(34) of the Act. However it is pertinent to note that section 14A of the IT Act restricts claim for deduction of expenses incurred in relation to exempt income. It may however be noted that section 14A is not relevant for non-residents not having business presence in India.
As per section 94(7) of the IT Act, losses arising from sale/transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed as exempt. 2. The characterization of the gains/ losses, arising from sale of shares, as capital gains or business income would depend on the nature of holding in the hands of the shareholder and various other factors.
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3. Shares listed in a recognised stock exchange in India which is held by a non-resident investor for a period of more than 12 months shall be treated as long-term capital assets. If the shares are held for a period of up to 12 months, the capital gain arising on the sale thereof is to be treated as short-term capital gain.
4. The long-term Capital Gains accruing to the shareholders of the Company, being a non- resident, on sale of the Company’s shares in a transaction carried out through a recognized stock exchange in India, and where such transaction is chargeable to Securities Transaction Tax, shall be exempt from tax, as per provisions of Section 10(38). However, even exempt capital gains shall be included in computing book profit under section 115JB of the IT Act for corporate shareholders. It may be noted that there are divergent views on application of section 115JB on non-resident corporate entities without any taxable presence in India.
Long Term Capital Gains resulting on transfer of the shares of the Company other than through a recognized stock exchange, calculated with indexation benefit is taxable at 20% plus applicable surcharge and cess. However, as per the proviso to section 112(1), if such tax on long term capital gains exceeds the tax on long term capital gains computed at the rate of 10 percent without indexation benefit, then such excess shall be ignored for the purpose of computing the tax payable by the assessee. Further no deduction under Chapter VI-A would be allowed in computing such long term capital gains subjected to tax under section 112. However, in view of the divergent judicial precedents on this aspect, the applicability of this proviso needs to be evaluated on a case to case basis. 5. Under section 111A of the IT Act, Short Term Capital Gains arising to the shareholders of the Company on sale of the Company’s shares in a transaction carried out through a recognized stock exchange in India, where STT has been paid, will be chargeable to tax at 15 per cent. plus applicable surcharge and education cess as per the provisions of Section 111A of the IT Act. In other situations where the transaction is not subject to STT, the short term capital gains would be chargeable as a part of the total income and would be taxed accordingly. It would be subject at the rate of 30 per cent. plus applicable surcharge and education cess for a non-resident individual shareholder and at the rate of 40 per cent. plus applicable surcharge and education cess for a non-resident corporate shareholder. The actual rate of tax on short-term capital gains depends on a number of factors, including the legal status of the Non-Resident holder and the type of income chargeable in India. Further, no deduction under Chapter VI-A would be allowed in computing such short term capital gains subjected to tax under section 111A.
6. Under the provisions of Section 90(2) of the IT Act, if the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the non-resident are more beneficial, then the provisions of the DTAA shall be applicable. However, the non-resident investor will have to furnish a tax residency certificate of his being a resident in a country outside India and such other document as may be prescribed as per the provision of section 90(4) of IT Act, to avail the benefit of the applicable DTAA. Treaty entitlement would need to be established by the non- resident before availing of any benefit under such DTAA.
7. As per Section 70 of the IT Act, loss from transfer of Short Term Capital Asset (Short Term Capital Loss) computed for the given year is allowed to be set-off by the Company against any other Short Term as well as Long Term Capital Gains computed for the said year. However, loss on transfer of Long Term Capital Asset (Long Term Capital Loss) computed for the given year is allowed to be set-off by the Company only against the Long Term Capital Gains computed for the said year. Further, as per Section 71 of the IT Act, Short Term Capital Loss or Long Term Capital Loss for the year cannot be set-off against income for the same year under any other head.
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As per Section 74 of the Act, the balance loss under the head Capital Gains, which is not set off under the provisions of Section 70, is allowed to be carried forward by the Company for eight subsequent assessment years for being set off as under – • Short Term Capital Loss can be set off against any Capital Gain for the year of set-off; • Long Term Capital Loss can be set off against any Capital Gain other than Short Term Capital Gain for the year of set-off.
It may be noted that no set off/ carry forward may be allowable in respect of exempt capital gains/loss. 8. Where the shares have been subscribed in convertible foreign exchange, Non Resident Indians, i.e. an individual being a citizen of India or person of Indian origin who is not a resident, (‘NRI’) have the option of being governed by the provisions of Chapter XII- A of the IT Act, which, inter alia, entitles them to the following benefits:
(a) Under section 115E of the IT Act, where the total income of a NRI includes long-term capital gains arising out of transfer of shares of the Company, such Long term capital gain [in cases not covered under Section 10(38) of the IT Act] shall be taxable at the rate of 10% plus applicable surcharge and education cess. The benefit of indexation of cost would not be available.
(b) Under Section 115F of the IT Act, LTCG [in cases not covered under Section 10(38) of the IT Act] arising to an NRI from the transfer of shares of the Company subscribed in convertible foreign exchange shall be exempt from Income tax, if the net consideration is reinvested in specified assets or in any savings certificates referred to in Section 10(4B), within six months of the date of transfer. If part of the net consideration is so reinvested, the exemption shall be proportionately reduced. The amount so exempted shall be chargeable to tax subsequently under the head long-term capital gains, if the specified assets are transferred or converted into money within three years from the date of their acquisition.
(c) Under Section 115G of the IT Act, it shall not be necessary for an NRI to furnish his return of income under Section 139(1) of the IT Act, if his income assessable under the Act consists of only investment income or LTCG or both arising out of assets acquired, purchased or subscribed in convertible foreign exchange and tax deductible at source has been deducted there from as per the provisions of Chapter XVII-B of the IT Act.
C. Non-resident shareholders – Foreign Institutional Investors (FII) 1. Shares listed in a recognised stock exchange in India which is held by a non-resident investor for a period of more than 12 months shall be treated as long-term capital assets. If the shares are held for a period of up to 12 months, the capital gain arising on the sale thereof is to be treated as short-term capital gain.
2. The gains/ losses, arising from sale of shares in the hands of a FII would be taxable under the head ‘capital gains’.
3. The long-term Capital Gains arising to the shareholders of the Company on sale of the Company’s shares in a transaction carried out through a recognized stock exchange in India, and where such transaction is chargeable to Securities Transaction Tax, shall be exempt from tax as per provisions of Section 10(38). However, even exempt capital gains shall be included in computing book profit under section 115JB of the IT Act for corporate shareholders . It may be noted that there are divergent views on application of section 115JB on all non-resident corporate entities.
4. As per the provisions of Section 115AD of the Act, long term capital gains arising to the shareholders of the Company from the transfer of shares of the Company, being listed in recognized stock exchanges otherwise than as mentioned in point 3 above,
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shall be charged to tax @ 10% plus applicable surcharge and education cess. The benefit of indexation and the adjustment with respect to fluctuation in foreign exchange rate would not be allowed to such Shareholders.
5. The short-term Capital Gains arising to the shareholders of the Company on transfer of the Company’s shares in a transaction carried out through a recognized stock exchange in India, and where such transaction is chargeable to Securities Transaction Tax, tax will be chargeable @ 15% plus applicable surcharge and education cess as per provisions of Section 111A. In other cases, i.e. where the transaction is not subjected to STT, as per the provisions of section 115AD of the Act, the short term capital gains would be chargeable to tax @ 30% plus applicable surcharge and education cess.
6. As per Section 70 of the IT Act, loss from transfer of Short Term Capital Asset (Short Term Capital Loss) computed for the given year is allowed to be set-off by the Company against any other Short Term as well as Long Term Capital Gains computed for the said year. However, loss on transfer of Long Term Capital Asset (Long Term Capital Loss) computed for the given year is allowed to be set-off by the Company only against the Long Term Capital Gains computed for the said year. Further, as per Section 71 of the IT Act, Short Term Capital Loss or Long Term Capital Loss for the year cannot be set-off against income for the same year under any other head.
As per Section 74 of the Act, the balance loss under the head Capital Gains, which is not set off under the provisions of Section 70, is allowed to be carried forward by the Company for eight subsequent assessment years for being set off as under – • Short Term Capital Loss can be set off against any Capital Gain for the year of set-off; • Long Term Capital Loss can be set off against any Capital Gain other than Short Term Capital Gain for the year of set-off.
It may be noted that no set off/ carry forward may be allowable in respect of exempt capital gains/loss. 7. As per Section 196D of IT Act, no tax is to be deducted from any income, by way of Capital Gains arising to an FII from the transfer of securities referred to in section 115AD of the IT Act 8. Under Section 10(34) of the IT Act, income by way of dividend referred to in Section 115-O received on the shares of the Company is exempt from income tax in the hands of shareholders. However it is pertinent to note that section 14A of the IT Act restricts claim for deduction of expenses incurred in relation to exempt income. It may however be noted that section 14A is not relevant for non-residents not having taxable presence in India. As per section 94(7) of the IT Act, losses arising from sale/transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed as exempt. 7. Under the provisions of Section 90(2) of the IT Act, if the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the non-resident are more beneficial, then the provisions of the DTAA shall be applicable. However, the non-resident investor will have to furnish a tax residency certificate of his being a resident in a country outside India and such other document as may be prescribed as per the provision of section 90(4) of IT Act, to avail the benefit of the applicable DTAA. Treaty entitlement would need to be established by the non- resident before availing of any benefit under such DTAA.
D. Others 1. Under section 10(25)(ii) of the IT Act any income received by the trustees on behalf of a recognized provident fund is unconditionally exempt from tax. Section 10(25)(iii) of the IT Act unconditionally exempts any income received by the trustees of a approved
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superannuation fund. Accordingly, the dividend income and any gains resulting from the transfer of such shares is also not taxable per se in the hands of a recognized provident fund or an approved superannuation fund.
2. Any income of a mutual fund registered with SEBI is exempted from income-tax under section 10(23D) of the IT Act. The income receivable by such mutual funds either by way of dividend from investments in the shares or gains from transfer of the shares are also not taxable in the hands of the Mutual Funds.
III. Tax Benefits available to the shareholders under the Wealth-Tax Act, 1957 Shares of the Company held by the shareholder is not treated as an asset within the meaning of section 2(ea) of Wealth Tax Act, 1957. Hence no Wealth Tax is payable on the market value of shares of the Company held by the shareholder of the Company.
IV. TAX DEDUCTION AT SOURCE No income tax is deductible at source from income by way of capital gains arising to a resident shareholder under the present provisions of the IT Act. However, as per the provisions of Section 195 of the IT Act, any income by way of capital gains payable to non-residents [other than LTCG exempt u/s 10(38) and long term capital gain arising to a FII] would be subject to withholding of tax at the applicable rate specified under the domestic tax laws or under the DTAA (if any), whichever is beneficial to the assessee. However, for the purpose of availing benefit under the DTAA, a non-resident investor will have to furnish a tax residency certificate from the Government of his country alongwith with prescribed documentations as per the provision of section 90(4) of IT Act. In absence of PAN, the withholding tax rate applicable would be higher of the rate specified under the provisions of the Act, rates in force or at the rate of twenty per cent plus applicable surcharge and cess.
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Certain U.S. Federal Income Tax Considerations The following discussion is a summary of certain U.S. federal income tax consequences of acquiring, holding and disposing of the Equity Shares. This discussion applies only to “U.S. Holders”, as defined below, that acquire their Equity Shares in this offer and hold the Equity Shares as “capital assets” (generally, property held for investment). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “ Code ”), its legislative history, existing final, temporary and proposed Treasury Regulations, administrative pronouncements by the U.S. Internal Revenue Service (the “ IRS ”), and judicial decisions, all as currently available and all of which are subject to change (possibly on a retroactive basis) and to different interpretations. No ruling will be sought from the IRS with respect to any statement or conclusion in this discussion, and no assurances can be given that the IRS will not challenge such statement or conclusion in the following discussion or, if challenged, a court of competent jurisdiction will uphold such statement or conclusion.
This discussion does not purport to address all U.S. federal income tax consequences that may be relevant to a particular U.S. Holder and you are urged to consult your own tax advisor about your specific tax situation. This discussion does not address the tax consequences that may be relevant to U.S. Holders subject to special tax rules, including, for example:
• insurance companies; • tax-exempt organizations; • dealers in securities or currencies; • traders in securities that make mark-to-market elections with respect to their shares; • banks or other financial institutions; • real estate investment trusts; • regulated investment companies; • grantor trusts; • entities classified as partnerships or other pass-through entities for U.S. federal income tax purposes or holders of equity interests therein; • persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; • U.S. expatriates; • persons subject to the alternative minimum tax; • persons that hold the Equity Shares as part of a hedge, straddle, conversion, constructive sale or other integrated transaction; or • persons that own or have owned, directly, indirectly, or constructively, 10% or more of the total combined voting power, if any, of the Equity Shares.
The Company does not expect to be treated as a passive foreign investment company (a “ PFIC ”) for U.S. federal income tax purposes, and, except where specifically described below, this discussion assumes that the Company will not be a PFIC. Please see the discussion under “Taxation— Passive Foreign Investment Company Rules” below.
This discussion does not address the state, local and non-U.S. tax consequences of acquiring, owning and disposing of the Equity Shares. This discussion also does not address any U.S. federal tax consequences other than U.S. federal income tax consequences (such as the estate and gift tax, the alternative minimum tax or the Medicare tax on net investment income).
As used herein, the term “ U.S. Holder ” means a beneficial owner of the Equity Shares that is for U.S. federal income tax purposes:
• an individual who is a citizen or resident of the United States; • a corporation, or any other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; • an estate the income of which is subject to U.S. federal income tax regardless of its source; or • a trust if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust.
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If an entity treated as a partnership for U.S. federal income tax purposes holds the Equity Shares, the tax treatment of a partner will generally depend on the status of the partner and on the activities of the partnership. Partnerships considering the purchase of the Equity Shares, and partners in such partnership, should consult their own independent tax advisors.
Investors should consult their own tax advisors with respect to the tax consequences to them of acquiring, owning and disposing of the Equity Shares, including the tax consequences under U.S. federal, state, local and non-U.S. tax laws.
Distributions on Equity Shares
The U.S. dollar value of distributions made by the Company of cash or property with respect to the Equity Shares generally will be treated as foreign source dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because the Company does not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect and this discussion assumes that a distribution will be treated as a dividend for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors regarding the tax treatment of any distributions received in a currency other than U.S. dollars.
A U.S. Holder may be entitled, subject to a number of complex limitations and conditions, to claim a U.S. foreign tax credit in respect of any Indian income taxes withheld on dividends received on the Equity Shares. In lieu of claiming a foreign tax credit, U.S. Holders may instead claim a deduction of any Indian income taxes in computing their taxable income, subject to generally applicable limitations. The rules relating to computing foreign tax credits or deducting foreign taxes are extremely complex, and U.S. Holders are urged to consult their own tax advisors regarding the availability of foreign tax credits in their particular situation.
The dividends received deduction generally available with respect to dividends paid by U.S. corporations to certain U.S. corporate shareholder will not be available with respect to dividends paid by the Company. Dividends paid by the Company are generally expected to qualify for the reduced tax rates available to non- corporate U.S. Holders (including individuals) for qualified dividend income if the U.S. holder meets the applicable holding periods with respect to each dividend payment and other applicable requirements and provided that there is substantial and regular trading, for purposes of the U.S.-India tax treaty, on the NSE in the Company's Shares.
Sale, Exchange or Other Taxable Disposition of Equity Shares
A U.S. Holder generally will recognize U.S. source capital gain or loss upon the sale, exchange or other taxable disposition of the Equity Shares measured by the difference between the amount realized on the sale, exchange or other taxable disposition of the Equity Shares and the U.S. Holder’s basis in the shares. Generally, the basis of a U.S. Holder’s Equity Shares will be the U.S. dollar value of the Rupee denominated purchase price determined on the date of settlement. Any such gain or loss will be long-term capital gain or loss if the Equity Shares have been held for more than one year. Certain non-corporate U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to limitations. U.S. Holders should discuss the tax treatment of any Indian taxes imposed on the sale, exchange or other disposition of shares with their tax advisors.
U.S. Holder's should consult their tax advisors regarding the tax treatment of any amounts paid or received for the acquisition or sale, exchange or other disposition of Equity Shares in a currency other than the U.S. dollar.
Passive Foreign Investment Company Rules
Based on the nature of the Company’s business and its current composition of income and assets, the Company does not expect to be a PFIC. However, because PFIC status depends upon the composition of a company’s income and assets and the market value of its assets from time to time, the Company cannot assure prospective investors that it will not be considered a PFIC for any taxable year. In general, a non-U.S. corporation will be classified as a PFIC if in any taxable year either (i) 75% or more of its gross income consists of passive income (e.g., dividends, interest and certain rents and royalties) or (ii) 50% or more of its assets, by value, determined on the basis of a quarterly average, consists of assets that produce, or are held for the production of, passive income.
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If the Company is a PFIC for any taxable year during which a U.S. Holder owns shares, such U.S. Holder could be subject to significantly greater amounts of U.S. tax than would otherwise apply with respect to (i) any gain on the sale or exchange of Equity Shares, whether otherwise taxable or not or (ii) certain dividends. U.S. Holders would also be subject to additional annual U.S. tax reporting obligations. U.S. Holders should consult their tax advisors concerning the consequences if the Company is classified as a PFIC.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS in connection with payments on the Equity Shares and the proceeds from a sale or other disposition of the Equity Shares, unless a U.S. Holder establishes an exemption from these rules. If a U.S. Holder does not establish an exemption from these rules, such U.S. Holder may be subject to backup withholding on the amounts received unless such U.S. Holder provides its taxpayer identification number and otherwise complies with the requirements of the backup withholding rules. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder's U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
U.S. Holders should consult their tax advisors regarding any tax reporting or filing obligations they may have as a result of acquiring, holding or disposing of Equity Shares. Failure to comply with certain reporting obligations could result in the imposition of substantial penalties.
The above discussion is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership or disposition of the Equity Shares. You should consult your own tax advisor concerning the tax consequences applicable in your particular situation.
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LEGAL PROCEEDINGS
Our Company, its Subsidiaries and the Joint Venture are subject to various legal proceedings from time to time, mostly arising in the ordinary course of their business. Except as described below, we are not involved in any legal proceedings and our Company is not aware of any proceedings that are threatened, which if determined adversely, may have, or have had, a material adverse effect on our business, properties, financial condition or results or operations of our Company. We believe that none of the contingencies, either individually or in the aggregate, would have a material adverse effect on our financial condition, results of operations or cash flows. Our Company has no outstanding defaults in relation to statutory dues payable, dues payable to holders of any debentures and interest thereon, and in respect of deposits and interest thereon, defaults in repayment of loans from any bank or financial institution.
A summary of legal proceedings where the amount involved exceeds Rs. 40.0 million and certain other litigation we consider material is set forth below.
Tax Litigation
The Commercial Taxes Directorate assessed Rs.6.9 million as sales tax on meter rentals received during the year ended 31 March, 1993 and raised a demand of Rs.3.6 million on account of interest. Against the above demand, the Company had deposited a sum of Rs.7.5 million with the sales tax authorities and obtained a stay against the balance demand from the Deputy Commissioner of Commercial Taxes. The sales tax authorities also indicated their intention to levy such sales tax on meter rentals for the subsequent years, against which, the Company filed a writ petition in the Calcutta High Court and requested an interim order, inter alia, for restraining the sales tax authorities from proceeding with the assessment for the subsequent years until disposal of the appeal. An interim order dated June 18, 1996, has been issued by the High Court permitting the sales tax authorities to carry out assessments but restraining them from serving any assessment order on the Company. The matter is still pending before the High Court.
Civil litigations
1. The Supreme Court of India vide its judgment dated August 25, 2014 read with its order dated September 24, 2014 (“SC Order”) on the writ petition no 120, 463, 515 of 2012 and 283 of 2013 had inter alia cancelled the allocation of all coal blocks (except 4 coal blocks) by the Screening Committee of the Government of India and the allotments made through the Government dispensation route, including the Sarashatali coal mine (operated by ICML), on the ground of allocations being arbitrary and illegal. The Sarashatali coal mine, supplies majority of the coal for the operations of the power generations stations of our Company. Further, on October 21, 2014, the Coal Mines (Special Provisions) Ordinance, 2014 (the “Ordinance”) was promulgated to inter alia, provide for a mechanism and prescribe conditions for the reallocation of the cancelled coal blocks and mines. The Company has filed a writ petition before the Honble Supreme Court, praying inter alia that the references to Sarashatali coal mine should be removed from the relevant schedules of the Ordinance, and the additional levy of Rs. 295 per tonne of coal as per the SC Order not be made applicable to the Company. Alternatively, the Company has also prayed that the Union of India be directed to grant a coal linkage to the Company in lieu of the cancellation of the Sarshatali coal mine without any disruption of electricity supplied to its consumers in and around Kolkata.
2. Damodar Valley Corporation (“DVC” or “Petitioner”) has instituted a suit before the Calcutta High Court, being case no. 236 of 2001, against the Company in relation to the arbitration award dated June 27, 2001. The parties had entered into an agreement, effective from March 1, 1990, for the purchase of power by our Company from DVC. Disputes arose between the parties on the revised tariff rates set by DVC for the power purchased by the Respondent. The disputes were referred to arbitration and the Respondent was required to pay Rs. 145.1 million along with interest. The Petitioner, being aggrieved by the value of the award, has instituted the present suit before the Calcutta High Court. The matter is currently pending.
3. Our Company, alongwith our subsidiary Ranchi Power Distribution Company Limited, has instituted a writ petition, bearing no. 3358 of 2014, against Jharkhand Bijli Vitran Nigam Limited and others (“Respondents”) before the High Court of Jharkhand at Ranchi. The matter is in relation to inviting
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tenders by the Jharkhand State Electricity Board (“JSEB”) for appointment of distribution franchisee for distribution of power in Ranchi, Jamshedpur and Dhanbad. Our Company along with several other companies, including Direct Media Distribution Ventures Pvt. Ltd (“Direct Media”), submitted bids for grant of the tender. Our Company was awarded the tender to distribute electricity in Ranchi and our Company entered into a distribution supply agreement with JSEB. Direct Media had filed a writ petition no. 5524 of 2012 against JSEB challenging their decision to, inter alia, granting distribution franchisees to our Company. Our Company has been impleaded as respondents in this writ petition by Direct Media. The Government had taken the decision to cancel the tender and had referred the matter to JSEB (now the Respondents). Our Company has filed in present writ petition to forbear the respondents in interfering in the distribution franchisee agreement entered into between our Company and JSEB. The High Court, interim order, has stated that in the event the Respondents are taking any decision in the matter, the same should not be influenced by the decision of the government. Final orders are yet to be passed in the matter.
Litigations under the Factories Act, 1948
The Company, through its employees, are party to three proceedings, before the Chief Judicial Magistrate, Alipore, instituted by the Inspector of Factories, West Bengal. Two of the proceedings have been instituted, one case alleging death and the other alleging injury caused to workmen by shortcomings in safety standards. The third case has been instituted alleging improper procedure for conducting medical examination of workmen. In all three cases, the concerned employees of the Company have filed petitions before the High Court at Calcutta to quash the proceedings, wherein they have denied the alleged violations.
Criminal litigations against our Company
Our Company is involved in five criminal litigations that have been instituted against it and its employees. Brief details of these litigations are as follows:
(a) Two complaints against our Company for power failure during the festive season in Kolkata, India. Both matters have been currently stayed by the High Court. (b) Complaint against officers of the Company alleging assault. The issue of process against the accused have been set aside and the final order is awaited. (c) Complaint against officers of the Company alleging fraud by way of forging of signatures while issuing a no-objection. The matter has been stayed by the High Court. (d) Complaint against the employees of the Company alleging criminal conspiracy to fraudulently obtain an electric meter. The matter has been stayed by the High Court.
Litigation involving subsidiaries
Litigation against Firstsource Solutions Limited
Criminal
1. Mr. Sunil Rawat, roommate of Mr. Krishna Avatar and former employee of Firstsource Solutions Limited (“FSL”) filed a first information report bearing number 110/2010 at Basti Bawa Khel Police station, against the employees of FSL namely Mr. Vikas Bhadari and Mr. Bhupendra Jasrotia and the then employees namely Mr. Akash Parmar, Mr. Jagdish Jakkaiah and Mr. Parminder Sehal under section 306 of the Indian Penal Code, 1860 in relation to the death of Mr. Krishna Avtar, who was an employee of FSL. It is alleged that the deceased committed suicide due to the harassment by the above mentioned individuals in relation to an investigations regarding theft and misuse of data. The matter is currently pending before Additional Sessions Judge, Jalandar.
2. Union Territory of Puducherry filed an FIR bearing number 78/ 2011 at Redddiarpalayam Police station, against Mr Ezhilmaran Ramaswamy, an employee of FSL. It is alleged that the employees of the centre were not given a paid holiday on the day of the election, in violation of section 135 (B) Representation of the People Act, 1951 read with section 190(b) of Code of Criminal Procedure, 1973 in relation to the opening of FSL office on the day of election. The matter is currently pending before the Judicial Magistrate - I, Puducherry.
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3. Ms Ankita Jadon (Ex-employee of FSL) filed FIR bearing number 06/2012 at Cyber Crime Cell, Bhopal under section 419 of IPC and Section 66 D of Information Technology Act, 2008 for creating fake e-mail ID in her name and emailing her resignation through the same. Upon investigation Police indicted Mr Abhishek Muralidharan (employee of FSL). The matter is currently pending before First Class Magistrate, Bhopal.
Income tax
1. In respect of assessment year 2009-2010 the Deputy Commissioner of Income Tax, Mumbai vide an order dated January 1, 2014 held that income from gains on FCCB were taxable and added arms length price of FSL’s international transactions to the total income. As a result, a demand notice dated January 1, 2014 was issued demanding payment of Rs. 455.38 million, from FSL. Aggrieved by the Order, FSL filed an appeal before the Commissioner of Income Tax (Appeals) against the order dated January 1, 2014 passed by Deputy Commissioner of Income Tax, Mumbai. FSL had also filed a rectification application under section 154 of the Income Tax Act against the order dated January 1, 2014 in respect of certain errors apparent from records. Subsequently, the Deputy Commissioner of Income Tax, Mumbai passed a rectification order dated March 3, 2014 under section 154 of the Income Tax Act determining a total income of Rs. 905.42 million along with a demand notice of Rs. 403.27 million. FSL has further filed an appeal before the Commissioner of Income Tax (Appeals) (“ CIT(A) ”) against the rectification order passed in the matter. The matter is pending before CIT(A).
2. In relation to the assessment year 2011-12, the Income Tax Officer(OSD)(TDS) vide an order dated March 25, 2013, inter alia demanded a payment of Rs. 339.19 million, from FSL. Aggrieved by the order, FSL has filed an appeal dated April 17, 2013 before the Commissioner of Income Tax (Appeals) against the order dated March 25, 2013 passed by the Income tax Officer(OSD)(TDS). On October 15, 2012 a survey was conducted by the Assessing Officer, in the office of FSL, under section 133A of Income Tax Act. During the survey it was found that FSL had issued foreign currency convertible bonds(“ FCCB ”) carrying an implicit interest rate of 6.86%, which is payable to bondholders without deduction of TDS under section 196C of the Act and non deduction of TDS on bank guarantee commission under section 194H of the Act. Accordingly, in relation to the assessment year 2011-12, the Assessing Officer vide an order, interalia stated that FSL was in default of section 201 (1) and 201(1) (A) of the Income Tax Act, for short deduction of TDS and nonpayment of interest thereon. Further, a demand notice dated March 25, 2010 was issued, demanding payment of Rs. 339.20 million, from FSL, by the Assessing Officer. Aggrieved by the Order, FSL filed the Appeal, inter alia on the ground that the Assessing Officer erred in holding FSL liable to deduct TDS under section 194C on interest payable on FCCB and to deduct TDS on bank guarantee commission. The matter is currently pending.
3. In relation to the assessment year 2012-13, the Income tax Officer(OSD)(TDS) vide an order dated February 28, 2014, inter alia stated that FSL was in default of section 201(1) and 201(1)(A) of the Income Tax Act, for short deduction of TDS and nonpayment of interest thereon. Further, a demand notice dated February 28, 2014 was issued, demanding payment of Rs. 112.40 million, from FSL. Aggrieved by the order, FSL has filed an appeal dated April 4, 2014 before the Commissioner of Income Tax (Appeals) against the order dated February 28, 2014 passed by the Income Tax Officer(OSD)(TDS). The matter is pending.
4. In relation to assessment year 2009-10, the Joint Commissioner of Income Tax, Chennai vide an order dated March 31, 2013 disallowed certain deductions under section 10B and 40(1)(a)(ia) of the Income Tax Act. As a result, a demand notice dated March 31, 2013 was issued, demanding payment of Rs. 61.30 million, from FSL. Aggrieved by the order, FSL filed an appeal dated April 30, 2013. The matter is currently pending before Commissioner of Income Tax (Appeals).
5. In relation to assessment year 2008-2009, the Deputy Commissioner of Income Tax vide an order dated January 3, 2014, interalia disallowed bond issue expenses, deducted credit for the tax deducted at source. As a result, a demand notice dated February 24, 2014, demanding payment of Rs. 59.05 million was issued. Aggrieved by the order, FSL filed an appeal dated February 19, 2014 before the Commissioner of Income Tax (Appeals). The matter is pending before CIT(A).
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6. In relation to assessment year 2006-2007, the Deputy Commissioner of Income Tax vide an order dated January 6, 2014 , disallowed certain deductions under section 10A and 10B of the Income Tax Act. The Deputy Commissioner of Income Tax vide a rectification order under section 154 of the Income Tax Act, 1961 dated March 5, 2014, set off certain setting off the brought forward losses and issued a demand notice demanding payment of Rs. 41.09 million, from FSL. Aggrieved by the Order, FSL filed an appeal dated February 21, 2014 before the Commissioner of Income Tax (Appeals). The matter is pending before CIT(A).
7. In relation to assessment year 2010-2011, the Deputy Commissioner of Income Tax vide an order dated May 5, 2014 interalia added arms length price of FSL’s international transactions to the total income and disallowed certain deductions under section 10A and 10B of the Income Tax Act. As a result, a demand notice dated May 5, 2014 was issued, demanding payment of Rs. 50.63 million, from FSL. Aggrieved by the Order, FSL filed an appeal, dated June 17, 2014 before the Commissioner of Income Tax (Appeals). The matter is pending before CIT(A).
Show Cause notice 1. The Commissioner, Service Tax-I, Mumbai issued a show cause notice number ST/MUM//DIV-III/Gr- VII/First Source/2011/2385 dated October 24, 2011 (“ Show Cause Notice ") to FSL, for the period from 2006-07 to 2010-11 demanding an aggregate service taxamount of Rs. 29.44 million along with applicable interest and penalty under the applicable provisions of the Finance Act, 1994 and Cenvat Credit Rules, 2004. The notice alleges that our Company has wrongly availed cenvat credit amounting to Rs. 93.28 million. FSL has filed its reply to the Show Cause Notice, dated January, 2012. Further the Commissioner, Service Tax-I, Mumbai issued a notice number ST/MUM/DIV-III/Gr-VII/First Source/2011/6581 dated July 24, 2012,to FSL, for the period 2011 to 2012 in relation to short payment of service tax approximately amounting to Rs. 3.2 million. The matter is pending before the Office of the Commissioner, Service Tax-I, Mumbai.
Litigation involving Spencer’s Retail Limited
1. 28 criminal complaints have been filed against SRL and others including its employees for alleged violations, including adulteration of food items or misbranding of packaging, under the Prevention of Food Adulteration Act, 1954 (the “ Act ”) and the Prevention of Food Adulteration Rules, 1955. Such cases are pending predominantly before the Court of the Metropolitan Magistrate with a few pending before the High Court. The penalties under the Act include imprisonment for a term ranging from six months to six years and fines ranging from a minimum of Rs. 1,000 to a minimum of Rs. 2,000. In addition, repeat offenders are liable to have their registrations under the Act cancelled.
2. The Assistant Labour Officer and Inspector, Hyderabad filed proceedings before the Court of the XII Metropolitan Magistrate and Additional Chief Metropolitan Magistrate, Nampally, Hyderabad against Music World Retail Limited (100% subsidiary of SRL) for contravention of Section 31(1) of the Andhra Pradesh Shops and Establishment Act, 1988 by failing to close the shop on a holiday. The matter is currently pending.
Litigation involving Dhariwal Infrastructure Limited
Dhariwal Infrastructure Limited (“DIL” or “Plaintiff”) has filed a suit bearing number S/2404/2012 before the Bombay High Court on June 21, 2012 against Reliance Infrastructure Limited (“Defendant”). DIL owns a coal based power project in Tadali, Chandrapur and had applied for coal linkage from South Eastern Coalfields Limited (“SECL”), a subsidiary of Coal India Limited and had received two letters of assurances for the linkage. On June 7, 2011, the Defendant initiated competitive bidding for procurement of power and DIL submitted a bid and submitted a bank guarantee of Rs. 60 million. In 2011, prior to the signing of the fuel supply agreement (“FSA”), there was a change in the new model FSA, to be entered into with SECL, with regard to both the quantity and period of coal supply. In view of the above change in FSA, DIL informed the Defendant about the situation and its inability to supply power on the same terms as per the Bid. Consequently, the Defendant invoked the bank guarantee. DIL has instituted the present suit for a declaration that the invocation of bank guarantee is void and illegal and that Defendant be ordered to pay the amount of Rs. 60 million with interest at 24% per annum along with damages of Rs. 20 million. The matter is currently pending.
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Litigation involving Haldia Energy Limited
Show cause notice
1. The Assistant Registrar of Companies, Ministry of Corporate Affairs (“ MCA ”) issued three Show Cause Notices (“ Notices ”), all dated June 17, 2013, bearing numbers (1) ROC/SCN/211(3A)/066154/936, (2) ROC/SCN/211(1)/066154/937 and (3) ROC/SCN/211(3B)/66154/938 to Haldia Energy Limited (“ HEL ) for alleged noncompliance of (1) Section 211(3A) of the Companies Act, 1956 read with Accounting Standard 29 in relation to the treatment of a bank guarantee of Rs. 158.48 million as a contingent liability (2) Section 211(1) read with Schedule VI of the Companies Act, 1956 in relation to disclosure of investments in its balance sheet and (3) Section 211(3B) of the Companies Act, 1956 read with Accounting Standard 29 in relation to the treatment of a bank guarantee of Rs. 158.48 million as a contingent liability, respectively. Summons have also been issued to the officers of HEL in relation to the Notices. HEL responded to the Notices by its letter dated July 1, 2013, requesting the withdrawal of the Notices and clarifying (1) the treatment of the bank guarantee (2) the details and disclosures of these investments and (3) the treatment of the bank guarantee.
2. MCA issued a Show Cause Notice dated July 2, 2013 bearing number ROC/SCN/217(2AA)/66154/1580 to HEL for non compliance of Section 217(2AA) of the Companies Act, 1956 read with Accounting Standard-29 in relation to disclosures in the Directors Responsibility Statement. HEL responded by its letter dated July 8, 2013 clarifying reasons for non-inclusion of the disclosures and requesting that the notice be withdrawn.
Other Confirmations
There have been no litigation or legal action pending or taken by any ministry or department of the Government or a statutory authority, in India, against the Promoter of our Company during the last three years immediately preceding the year of the circulation of this Preliminary Placement Document.
There have been no other instances of compounding of offences, prosecutions filed (whether pending or not) fines imposed, compounding of offences in the last three years immediately preceding the year of the offer.
There have been no other inquiries, inspections or investigations initiated or conducted under the Companies Act or any previous company law in the last three years immediately preceding the year of circulation of this Placement Document with respect to our Company and its subsidiaries.
Frauds committed against our Company in the last three years
Financial Action taken by the Fraud year Company Fiscal Year Except for certain instances of theft of electricity by third parties as Appropriate actions such as 2014 noticed and reported by the loss control cell of the Company, the recoveries have been taken amount of which is not ascertainable there are no other material by the management. fraud noticed or reported during the year. Fiscal Year No material fraud noticed or reported during the year, except in Appropriate actions such as 2013 cases of theft of electricity by third parties as reported by the loss recoveries have been taken control cell of the Company, the amount of which is not by the management. ascertainable. Fiscal Year No fraud noticed or reported during the year, except in cases of Appropriate actions such as 2012 theft of electricity reported by the loss control cell of the Company recoveries have been taken the amount of which is not ascertainable. by the management.
Details of default, if any, including therein the amount involved, duration of default and present status, in repayment of:
As of date of this Preliminary Placement Document, other than the cased pending before the Calcutta High Court under the West Bengal Sales Tax Act, 1994, as disclosed on page 234, there is no outstanding default in payment of statutory dues, repayment of debentures and interest thereon, repayment of deposits and interest thereon and repayment of loan from any bank or financial institution and interest thereon.
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GENERAL INFORMATION
1. The Company was incorporated on March 28, 1978 under the name of The Calcutta Electric Supply Corporation (India) Limited as a limited liability public company and received the certificate of commencement of business on March 30, 1978. The name of the Company was changed to CESC Limited on January 1, 1987. The CIN of our Company is L31901WB1978PLC031411.
2. Details of the Compliance Officer:
Mr. Subhasis Mitra Company Secretary and Compliance Officer CESC House Chowringhee Square Kolkata 700 001 Tel : +91 033 2225 6040 Fax: +91 033 2225 5155 Email : [email protected]; website
3. Our Equity Shares are listed on the BSE, the CSE and the NSE. The Issue was authorised and approved by the Board of Directors on September 22, 2014. The shareholders of our Company at a general meeting held on October 18, 2014 have authorised the Issue by a special resolution
4. We have received in-principle approval to list the Equity Shares to be issued pursuant to the Issue, from the BSE, NSE and CSE on October 28, 2014.
5. Copies of our Memorandum and Articles of Association will be available for inspection between 10:00 a.m. to 5:00 p.m. on any weekday (except Saturdays and public holidays) at our Registered Office.
6. We have obtained all consents, approvals and authorisations required in connection with this Issue.
7. Except as disclosed in this Preliminary Placement Document, there has been no material change in our financial or trading position since June 30, 2014, the date of the latest financial statements prepared in accordance with Indian GAAP included in this Preliminary Placement Document, except as disclosed herein.
8. Our statutory auditors, Lovelock & Lewes, Chartered Accountants, have audited the consolidated financial statements for the Financial Years ended March 31, 2014, 2013 and 2012, included in this Preliminary Placement Document. Further Lovelock & Lewes, Chartered Accountants, have also conducted limited review of the unaudited interim condensed consolidated financial statements for the three month period ended June 30, 2014.
9. Except as disclosed in this Preliminary Placement Document, there are no litigation or arbitration proceedings against or affecting us, or our assets or revenues, nor are we aware of any pending or threatened litigation or arbitration proceedings, which are or might be material in the context of this Issue. For details of litigations, please see page 234.
10. The Floor Price is Rs. 677.84 per Equity Share, calculated in accordance with the provisions of Chapter VIII of the SEBI ICDR Regulations.
11. We may offer a discount of not more than 5% on the Floor Price in accordance with and in terms of Regulation 85 of the SEBI ICDR Regulations.
12. Our Company confirms that it is in compliance with the minimum public shareholding requirements as required under the terms of the Equity Listing Agreements with the Stock Exchanges.
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FINANCIAL INFORMATION
Financial Statements Page No Unaudited interim condensed consolidated financial statements as at and for the three month s F – 1 period ended June 30, 2014 Consolidated Financial Statements as at and for the Fiscal Year 2014 F – 30 Consolidated Financial Statements as at and for the Fiscal Year 2013 F – 64 Consolidated Financial Statements as at and for the Fiscal Year 2012 F - 100
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REVIEW REPORT ON UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors CESC Limited CESC House Chowringhee Square Kolkata – 700 001
1. This review report is issued in accordance with the terms of our agreement dated October 22, 2014.
2. We have reviewed the accompanying Unaudited Interim Condensed Consolidated Financial Statements of CESC Limited (the “Company”), its subsidiaries and jointly controlled entity (hereinafter referred to as the “Group”), comprising its Unaudited Interim Condensed Consolidated Balance Sheet as at June 30, 2014, and the Unaudited Interim Condensed Consolidated Statement of Profit and Loss for the three months ended June 30, 2014 and Unaudited Interim Condensed Consolidated Cash Flow Statement for the three months then ended, together with the related notes thereon (herein after referred to as the “Consolidated Interim Financial Statements”) prepared by the Management of the Company for the purposes of inclusion in the Preliminary Placement Document and the Placement Document (hereinafter collectively referred to as the “Placement Documents”) prepared in connection with the proposed offering of the equity shares of the Company pursuant to a Qualified Institutions Placement (‘QIP’) to ‘Qualified Institutional Buyers’ as defined under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 , as amended (the “Regulations”) under Chapter VIII of the Regulations, to persons outside the United States of America pursuant to Regulation S of the States Securities Act of 1933, as amended (the “Securities Act”) and to Qualified Institutional Buyers as defined in Rule 144A of the Securities Act.
Management’s Responsibility for the Consolidated Interim Financial Statements
3. The preparation of the Consolidated Interim Financial Statements in accordance with the recognition and measurement principles laid down in Accounting Standard (AS) 25 - Interim Financial Reporting, Accounting Standard (AS) 21 – Consolidated Financial Statements, and Accounting Standard (AS) 27 – Financial Reporting of Interests in Joint Ventures, issued pursuant to the Companies (Accounting Standards) Rules, 2006 as per Section 211(3C) of the Companies Act, 1956 read with the General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013, and other accounting principles generally accepted in India, is the responsibility of the Management of the Company, including the creation and maintenance of all accounting and other records supporting its contents. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the consolidated interim financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
4. We conducted our review of the Consolidated Interim Financial Statements in accordance with the Standard on Review Engagements (SRE) 2410 - Review of Interim Financial
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Information Performed by the Independent Auditor of the Entity, issued by the Institute of Chartered Accountants of India. This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement.
5. A review is limited primarily to inquiries of the Group’s personnel and analytical procedures applied to the Group’s financial data and thus provide less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Basis of Qualified Conclusion
6. We draw your attention to the following qualification included in the review report of Spencer’s Retail Limited, a subsidiary of the Company issued by an Independent Firm of Chartered Accountants vide its report dated October 21, 2014, reproduced by us as under:
“Attention is drawn to note no. 12 to the condensed consolidated interim financial statements regarding continuation of net deferred tax asset (DTA) of Rs. 31,053.45 lakhs (Rs. 31,053.45 lakhs) in the accounts based on the future profitability projections made by the management. However, in the absence of virtual certainty as stated in Accounting Standard 22 on Deferred Taxes, we are unable to express any opinion on the projections.
Had the above asset been reversed, there would be a loss of Rs. 35,089.62 Lakhs as against the reported loss of Rs. 4,036.17 lakhs and shareholder’s funds would have reduced by Rs. 31,053.45 lakhs. This had also caused us to qualify our audit opinion on the consolidated financial statements relating to the preceding year.”
Had the deferred tax asset, referred to above, been reversed in the consolidated interim financial statements, the profit of the group would have been reduced by Rs. 310.53 crore resulting in a loss of Rs. 245.50 crores as against the reported profit of Rs. 65.03 crores and shareholders’ funds would have been reduced by Rs 310.53 crores.
Qualified Conclusion
7. Based on our review conducted as above, except for the effects of the matter in the Basis of Qualified Conclusion paragraph above, nothing has come to our attention that causes us to believe that the accompanying Unaudited Consolidated Interim Financial Statements has not been prepared in all material respects, in accordance with Accounting Standard (AS) 25 - Interim Financial Reporting, Accounting Standard (AS) 21 – Consolidated Financial Statements, and Accounting Standard (AS)27 – Financial Reporting of Interests in Joint Ventures notified under the Companies Act, 1956 read with the General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013, and other accounting principles generally accepted in India.
Emphasis of Matter
8. We draw attention to Note no.23B of the Consolidated Interim Financial Statements, relating to cancellation of Sarsathali coal block by the Hon'ble Supreme Court of India and levy of additional pecuniary charges on the coal extracted therefrom. The Company plans to initiate legal proceedings to seek appropriate relief from the additional pecuniary charges, if any, and depending on the final outcome of the matter proceed for recovery thereof. The financial implication of the above is not ascertainable at this stage and the company intends to evaluate alternative sources of fuel for its existing generating stations. Our conclusion is not qualified in respect of this matter.
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9. We draw your attention to the following emphasis of matter paragraph included in the audit report of Firstsource Solutions Limited, a step-down subsidiary of the Company issued by an Independent Firm of Chartered Accountants vide its report dated August 1, 2014, reproduced by us as under: “Without qualifying our opinion, we draw attention to Note 3 to the consolidated financial results that describes the early adoption by the Company of AS 30, Financial Instruments: Recognition and Measurement, read with AS 31, Financial Instruments — Presentation along with prescribed limited revisions to other Accounting Standards, issued by the Institute of Chartered Accountants of India, as in management's opinion, it more appropriately reflects the nature/ substance of the related transactions. AS 30, along with limited revisions to the other accounting standards, has not currently been notified by the National Advisory Committee on Accounting Standards (NACAS) pursuant to the Companies (Accounting Standards) Rules, 2006 which continues to apply under Section 133 of the Companies Act, 2013. Consequent to early adoption of AS 30 and the related limited revisions, consolidated profit after taxation for the quarter ended 30 June 2014 is higher by Rs 44 million.”
Our conclusion is not qualified in respect of this matter.
Other Matter(s)
10. We did not review the financial statements of 27 subsidiaries and 1 jointly controlled entity included in the consolidated financial statements, which constitute total assets of Rs 12536.96 crores and net assets of Rs 3638.61 crores as at June 30, 2014, total revenue of Rs. 1266.80 crores, net loss of Rs 95.36 crores and net cash flows amounting to Rs (22.61) crores for the period then ended. These financial statements and other financial information have been reviewed/audited by other auditors whose reports have been furnished to us, and our opinion on the consolidated interim financial statements to the extent they have been derived from such financial statements is based solely on the review/audit report of such other auditors.
11. We did not review the interim financial statements of one- subsidiary which constitute total assets of Rs 66.32 crores and net assets of Rs 66.30 crores as at June 30, 2014, total revenue of Rs. Nil, net loss of Rs 0.01 crores and net cash flows amounting to Rs 0.01 crores for the three months then ended. The unaudited interim financial statements has been provided to us by the Company’s Management, and our conclusion on the Consolidated Interim Financial Statements to the extent they relate to this subsidiary is based solely on such unaudited interim financial statements furnished to us.
Restrictions on use
12. Our obligations in respect of this review report are entirely separate from, and our responsibility and liability is in no way changed by any other role we may have (or may have had) as auditors of the Company or otherwise. Nothing in this review report, nor anything said or done in the course of or in connection with the services that are the subject of this report, will extend any duty of care we may have in our capacity as auditors of any financial statements of the Company.
13. This report is addressed to the Board of Directors of the Company and has been prepared for and only for the purposes of inclusion in the Placement Documents prepared in connection with the proposed offering of the equity shares of the Company pursuant to a Qualified Institutions Placement (‘QIP’) to ‘Qualified Institutional Buyers’ as defined under the Regulations under Chapter VIII of the Regulations and to persons outside the United States of America pursuant to Regulation S of the Securities Act and to Qualified Institutional Buyers as defined in Rule 144A of the Securities Act. These documents will be submitted / filed with the stock exchanges where the Company's equity shares are listed, Securities
F - 3
Exchange Board of India (‘SEBI’) and the Registrar of Companies (‘ROC’) in Kolkata, as applicable. This report should not be otherwise used or shown to or otherwise distributed to any other party or used for any other purpose except with our prior consent in writing. Lovelock & Lewes neither accepts nor assumes any duty, responsibility or liability to any other party or for any other purpose.
For Lovelock & Lewes Firm Registration Number: 301056E Chartered Accountants
Sougata Mukherjee Kolkata Partner October 27, 2014 Membership Number: 057084
F - 4 CESC LIMITED
Unaudited Interim Condensed Consolidated Balance Sheet as at 30th June, 2014
Rs. in crore As at 30th As at 31st Particulars Note No. June, 2014 March, 2014
I. EQUITY AND LIABILITIES
Shareholders' funds Share capital 4 125.60 125.60 Reserves and surplus 5 5,568.55 5,509.41 5,694.15 5,635.01
Minority Interest 938.35 907.93 Non-current liabilities Long-term borrowings 6 8,871.73 9,132.34 Advance against Depreciation 800.79 776.90 Consumers' Security Deposit 1,310.57 1,279.53 Other long term liabilities 7 1,624.00 1,776.83 Long-term provisions 8 187.23 167.34 12,794.32 13,132.94 Current liabilities Short-term borrowings 9 1,208.51 1,053.08 Trade Payables 645.98 531.75 Other current liabilities 10 3,719.32 3,469.91 Short-term provisions 11 243.89 212.55 5,817.70 5,267.29 TOTAL 25,244.52 24,943.17
II. ASSETS
Non-current assets Fixed assets Tangible assets 12 11,973.85 11,982.83 Intangible assets 13 2,536.07 2,528.27 Capital work-in-progress 5,690.85 5,311.74 (Includes share of Joint Venture- Rs. 3.17 crore; 31st 20,200.77 19,822.84 March, 2014 Rs. 3.17 crore) Non-current investments 14 73.73 73.66 Deferred tax assets (net) 34 275.43 277.36 Long-term loans and advances 15 588.15 539.85 Other non-current assets 16 212.31 237.72 21,350.39 20,951.43 Current assets
Current Investments 17 60.43 32.33 Inventories 18 531.50 538.30 Trade receivables 19 1,735.75 1,530.15 Cash and bank balances 20 821.35 1,209.88 Short-term loans and advances 21 309.33 241.68 Other Current Assets 22 435.77 439.40 3,894.13 3,991.74 TOTAL 25,244.52 24,943.17
0.00 (0.00)
Notes forming part of Financial Statements 1 - 43
This is the Unaudited Interim Condensed Consolidated Balance Sheet referred to in our Report of even date.
For Lovelock & Lewes Firm Registration Number -301056E Chartered Accountants Aniruddha Basu Managing Director
Sougata Mukherjee Subhasis Mitra Rajarshi Banerjee Partner Company Secretary Executive Director & CFO Membership No.: 057084 Place : Kolkata Date : 27th October ,2014
F - 5 CESC LIMITED
Unaudited Interim Condensed Consolidated Statement of Profit and Loss for the period ended 30th June, 2014
Rs. in crore
PARTICULARS Note No. Q1'14-15 2013-14
Revenue from operations 24 3,139.08 10,110.85 Other income 25 30.30 173.35
Total Revenue 3,169.38 10,284.20
Expenses
Cost of Electrical Energy purchased for Power Business 422.85 891.04 Cost of materials consumed for Retail Business 26 3.31 9.78 Purchases of stock-in -trade for Retail Business 337.64 1,198.96 Changes in inventories of finished goods, stock-in-trade and work- in -progress for Retail Business 27 (2.14) (32.01) Cost of Fuel for Power Business 622.50 1,924.60 Employee benefit expense 29 757.40 2,960.08 Finance costs 30 198.72 566.02 Depreciation and amortisation expense 31 141.50 471.41 Other expenses 32 543.83 1,535.84
Total expenses 3,025.61 9,525.72
Profit before Taxation, and Minority Interest 143.77 758.48 Tax expenses: Current Tax (62.07) (214.72) MAT Credit 7.67 26.90 Current Tax (net) (54.40) (187.82) Deferred Tax (net) (39.07) (170.49) Recoverable/(Payable) 28 37.38 172.72 Profit after Taxation before Minority Interest 87.68 572.89 Minority Interest (22.65) (81.25) Profit for the period - transferred to Surplus 65.03 491.64
Earnings per equity share : (Face Value of Rs. 10 per share) Basic and Diluted 5.21 39.35
Notes forming part of Financial Statements 1 - 43
This is the Unaudited Interim Condensed Consolidated Statement of Profit and Loss referred to in our Report of even date.
For Lovelock & Lewes Firm Registration Number -301056E Chartered Accountants Aniruddha Basu Managing Director
Sougata Mukherjee Subhasis Mitra Rajarshi Banerjee Partner Company Secretary Executive Director & CFO Membership No.: 057084 Place : Kolkata Date : 27th October ,2014
F - 6 CESC LIMITED
Unaudited Interim Condensed Consolidated Cash Flow Statement for the period ended 30th June, 2014 Rs. In crore Particulars Q1 2014 a. Cash flows from operating activities 405.84 b. Cash flows from investing activities (535.71) c. Cash flows from financing activities (258.66) d. Net increase/(decrease) in Cash and Cash equivalents (388.53) e. Cash and Cash equivalents -Opening Balance 1,209.88 f. Cash and Cash equivalents -Closing Balance 821.35
This is the Unaudited Interim Condensed Consolidated Cash Flow Statement referred to in our Report of even date.
For Lovelock & Lewes Firm Registration Number -301056E Aniruddha Basu Chartered Accountants Managing Director
Sougata Mukherjee Subhasis Mitra Rajarshi Banerjee Partner Company Secretary Executive Director & CFO Membership No.: 057084 Place : Kolkata Date : 27th October ,2014
F - 7 Notes forming Part of Financial Statements
Note 1 a) Basis of Preparation of Interim Condensed Consolidated Interim Financial Statements
The interim condensed consolidated financial statements comprises of the interim financial statements of CESC Limited (the Parent), its subsidiaries and proportionate interests in joint venture entities.The interim condensed consolidated financial statements have been prepared in accordance with Accounting Standard 25 on "Interim Financial Reporting", Accounting Standard 21 on "Consolidated Financial Statements" and Accounting Standard 27 on "Financial Reporting of Interests in Joint Ventures" issued pursuant to Companies (Accounting Standards) Rules, 2006 as per Section 211(3C) of the Companies Act ,1956 , read with General Circular 15/2013 dated 13 th.September 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act , 2013 , and other accounting principles generally accepted in india .
The Consolidated Financial Statements are prepared on the following basis :
· The unaudited condensed financial statements of the Parent and its subsidiary companies have been combined on a line by line basis by adding together like items of assets, liabilities, income and expenses. The intra-group balances, intra-group transactions and unrealized profits or losses thereon have been fully eliminated. · The condensed financial statements of the subsidiaries used in the consolidation are drawn upto the same reporting date as that of the Parent. · Joint venture has been accounted for in the Condensed Consolidated Financial Statements using the proportionate consolidation method whereby a venturer’s share of each of the assets, liabilities, income and expenses of the jointly controlled entity is accounted for on a pro- rata basis.
Note 1 b) The subsidiaries considered in the preparation of the Condensed Consolidated Financial Statements are:
% of Holding as Sl. Country of Name of the Subsidiaries at Operations No. Incorporation 30-June-14
1 Spencer's Retails Limited (SRL) India 100.00 Yes 2 Music World Retail Limited (100% subsidiary of SRL) India 100.00 Yes 3 Au Bon Pain Café India Limited (80% subsidiary of SRL) India 80.00 Yes 4 CESC Properties Limited (CPL) India 100.00 Yes 5 Metromark Green Commodities Private Limited (100% subsidiary of CPL) India 100.00 No 6 CESC Infrastructure Limited (CIL) India 100.00 No 7 Haldia Energy Limited (HEL) India 100.00 No 8 Dhariwal Infrastructure Limited (DIL) India 100.00 Yes 9 Surya Vidyut Limited (SVL) India 100.00 Yes 10 Nalanda Power Company Limited India 100.00 No 11 CESC Projects Limited India 100.00 No 12 Bantal Singapore Pte Limited Singapore 100.00 No 13 Pachi Hydropower Projects Limited India 100.00 No 14 Papu Hydropower Projects Limited India 100.00 No 15 Ranchi Power Distribution Company Limited India 100.00 No 16 Spen Liq Private Limited India 100.00 No 17 Firstsource Solutions Limited (FSL) India 56.54 Yes 18 Firstsource Group USA, Inc. (FG USA) (100% subsidiary of FSL) USA 56.54 Yes 19 Firstsource BPO Ireland Ltd. (100% subsidiary of FSL) Ireland 56.54 Yes 20 Firstsource Solutions UK Ltd. (FS UK) (100% subsidiary of FSL) UK 56.54 Yes 21 Anunta Tech Infrastructure Services Ltd. (74% subsidiary of FSL) India 56.54 Yes 22 Firstsource-Dialog Solutions Pvt. Ltd. (100% subsidiary of FSL) Sri Lanka 41.84 Yes 23 MedAssist Holding, Inc. (MH Inc)(100% subsidiary of FG USA) USA 56.54 Yes 24 Firstsource Business Process Services, LLC ( FBPS) (100% subsidiary of FG USA) USA 56.54 Yes 25 Firstsource Solutions USA, LLC ( FS USA) (100% subsidiary of MH Inc) USA 56.54 Yes 26 Firstsource Advantage, LLC (100% subsidiary of FBPS) USA 56.54 Yes 27 Firstsource Transaction Services, LLC (100% subsidiary of FS USA) USA 56.54 Yes 28 Firstsource Solutions S.A. (Argentina) (99.98% subsidiary of FS UK) Argentina 56.53 Yes
Note 1 c) Mahuagarhi Coal Company Private Limited (MCPL) , a joint venture company as on 30th June 2014 , was incorporated in India on 4th April, 2008 for development of Mahuagarhi Coal field in the State of Jharkhand in India and mining coal therefrom for meeting the coal requirement of the proposed thermal plant projects of the Joint Venture Partners.
Note 2 The operations of the Parent are governed by the Electricity Act, 2003 and various Regulations and/or policies framed thereunder by the appropriate authorities. Accordingly, in preparing the condensed financial statements, the relevant provisions of the said Act, Regulations etc., have been duly considered.
Note 3 The accounting policy followed in preparation of these interim condensed consolidated financial statements are consistent with those followed
in the most recent annual consolidated financial statements of the company , i.e. for the year ended 31st March 2014 except for depreciation. In case of certain subsidiaries, depreciation is provided on a straight line method based on useful life as prescribed under Schedule II of the Companies Act , 2013 . Consequent to the above, the depreciation charges for the quarter ended 30th June 2014 is lower by Rs. 10.35 crore. Further, based on transitional provision provided in note 7(b) of Schedule II an amount of Rs. 4.34 crore has been adjusted with retained earnings (Refer note 5(i)). In case of FSL Group certain classes of assets, based on internal assessment, the management believes that the useful lives determined by the management best represent the period over which management expects to use these assets. Hence the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of Companies Act 2013.
F - 8 Notes forming part of Financial statements
NOTE 4 SHARE CAPITAL Rs. in Crore
As at 30th June, As at 31st March, 2014 2014
( a) Authorised Share Capital 15,00,00,000 Equity Shares of Rs.10/- each 150.00 150.00
(b) Issued Capital 13,12,35,897 Equity Shares of Rs.10/- each 131.24 131.24
( c) Subscribed and paid up capital 12,49,35,925 Equity Shares of Rs.10/- each 124.94 124.94 (d) Forfeited Shares (amount originally paid up) 0.66 0.66 125.60 125.60
(e) Reconciliation of the shares outstanding at the beginning As at 30th June, 2014 As at 31st March, 2014 and at the end of the reporting period Amount Amount ( No. of shares) ( No. of shares) (Rs.in Crore) (Rs.in Crore) Opening and closing Balance 12,49,35,925 124.94 12,49,35,925 124.94
(f) Terms /rights attached to equity shares :
The Parent has only one class of equity shares having a par value of Rs. 10 per share fully paid up. Holders of Equity Shares are entitled to one vote per share. In the event of liquidation of the Parent, the holders of equity shares will be entitled to receive sale proceeds from remaining assets of the Parent after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders .
F - 9 Notes forming part of Financial statements
NOTE 5 RESERVES AND SURPLUS Rs. in Crore
As at 30th As at 31st June, 2014 March, 2014
(a) Capital contribution from consumer as at beginning of the period / year 816.62 710.24 Add : Contribution during the period / year 19.87 106.38 836.49 816.62
(b) Capital Reserve on consolidation 502.29 502.29 Less: Adjusted with Goodwill on consolidation 502.29 502.29 - -
(c) Capital Redemption Reserve 20.13 20.13
(d) Securities Premium Account 1,254.85 1,254.85
(e ) Revaluation Reserve as at the beginning of the period / year 961.23 1,058.91 Less : Withdrawal on account of depreciation on amount added on revaluation 24.02 96.10 937.21 962.81 Less : Withdrawal of the residual amount added on revaluation consequent to sale/disposal of revalued assets - 1.58 937.21 961.23
(f ) Fund for unforseen exigencies at the beginning of the period/ year 179.18 141.55
Add : Transfer during the period/ year from Surplus - 37.63 179.18 179.18
(g) Hedge Reserve as at the beginning of the period/ year 12.49 15.61 Less: Movement during the period/ year 2.13 3.12 Less: Consequent to change in group interest (0.01) (0.00) 10.37 12.49
(h) Foreign Currency Translation Reserve as at the beginning of the period / year 119.18 6.76 Add: Movement during the period/ year 6.62 112.67 Less: Consequent to change in group interest 0.50 0.25 125.30 119.18
(i) General Reserve/ Surplus as at the beginning of the period / year 2,145.73 1,809.92 Add : Profit for the period/ year 65.03 491.64 Less: Depreciation Adjustment 4.34 - Less: Consequent to change in group interest 1.40 1.26 Less: Transfer to fund for unforseen exigencies - 37.63 Less: Proposed Dividend - 99.95 Less: Tax on Proposed Dividend - 16.99
2,205.02 2,145.73 5,568.55 5,509.41
F - 10 Notes forming part of Financial statements
NOTE 6 LONG-TERM BORROWINGS Rs. in Crore
As at 30th As at 31st March, June, 2014 2014 (A) Secured Term Loans (1) Rupee Loans : (i) Banks 6,459.13 6,302.07 (ii) Financial Institutions 208.88 218.38 6,668.01 6,520.45 (2) Foreign Currency Loans from banks 3,680.44 3,813.07 (3) Finance Lease obligations 14.92 10.76 10,363.37 10,344.28 (B ) Unsecured (i) Banks 515.00 515.00 (ii) Rupee Loan from Financial Institutions 3.30 4.03 518.30 519.03 10,881.67 10,863.31
Less : Current maturities of long term borrowing transferred to Other Current Liabilities ( Refer Note 10) 2,009.94 1,730.97 8,871.73 9,132.34 (C ) Nature of Security : 1. (i) Out of the Term Loans in (A) above in respect of the Parent, Rs 2966.31 crore are secured , ranking pari passu inter se, by equitable mortgage/hypothecation of the fixed assets of the Parent including its land, buliding and any other constructions thereon, plant and machinery etc as a first charge and as a second charge by hypothecation of the Parent's current assets comprising stock of stores, coal and other consumables, book debts, monies receivable and bank balances. However, creation of the said mortgage security in respect of ten Rupee loans and one Foreign Currency Loan aggregating Rs 1452.97 crore is in process. User rights in respect of a freehold land having a book value of Rs 62.55 crore have been offered as security for financial assistance availed of by a subsidiary company to its lenders.
(ii) Out of the Term Loan in (A) above, Rs 334.35 crores, in (A) above, in respect of the Parent, are secured, ranking pari passu inter se, by hypothecation of the movable fixed assets and current assets of the Parent by way of a charge subservient to the charge of the first and second charge holders on the said assets.
2. Out of the Term Loan in (A) above, Rs 210 crores in respect of one of the subsidiaries , is secured by way of hypothecation with an exclusive charge on all movable fixed assets,current assets, and scheduled receivables of the subsidiary with respect to their Mall project, both present & future, and also with equitable assignments of all rights under the Development Agreement executed with the Parent.
3. Out of the Term Loans in (A) above, Rs. 2771.11 crores in respect of another subsidiary are secured , ranking pari passu inter se with first charge by way of equitable mortgage/ hypothecation of fixed assets of the subsidiary including its land, buildings and the construction thereon where exists and plant and machinery etc and hypothecation of subsidiary's current assets.
4. (i) Out of the Term Loans in (A) above, Rs. 1717.41 crore in respect of another subsidiary are secured, ranking pari passu inter se with first charge by way of mortgage / hypothecation of fixed assets of the subsidiary including its land, buildings and the contruction thereon where exists and plant and machinery etc and hypothecation of subsidiary's current assets. (ii) Out of the Foreign Currency Loans in (A) above, loans amounting to Rs. 963.95 crore in respect of the above subsidiary are secured with first charge by way of mortgage /hypothecation of fixed assets of the subsidiary including its Land , buildings and the contruction thereon where exists and plant and machinery etc and hypothecation of subsidiary's current assets. (iii) Out of the Foreign Currency Loans in (A) above, loan of Rs. Rs. 181.47 crore in respect of the above subsidiary is secured with second charge by way of hypothecation of movable fixed assets and current assets of the subsidiary.
5. In respect of one of the subsidiaries, the Foreign Currency Loan of Rs. 120.98 crores in (A) above is secured with an exclusive charge by way of mortgage/hypothecation of the fixed assets of the subsidiary including its land,building, construction thereon where exist, plant & machinery etc. and by way of hypothecation of current assets of the subsidiary, in respect of 24 MW wind project at Jaisalmer, Rajasthan.
6. (i) In respect of certain subsidiaries, out of Foreign Currency Loan in (A) above, loans amounting to Rs.119.45 crore is secured against pari passu charge on all current assets, non-current assets and fixed assets of such subsidiaries except assets of Anunta and FDS.
(ii) Term Loan of Rs. 744.67 crore in (A) above in respect of certain subsidiaries is secured against pari passu charge on all current assets, non-current assets and fixed assets of such subsidiaries except assets of Anunta and FDS.
(iii) Finance lease obligation amounting to Rs. 14.92 crore in (A) above in respect of certain subsidiaries is secured by way of hypothecation of underlying fixed assets taken on lease.
7 (i) Term loan of Rs. 68.75 crore in (A) above, in respect of one of the subsidiaries, is secured by hypothecation by way of first charge on all the current and movable assets ( tangible & intangible, both, present and future) and all the receivables of the company arising out of, pursuant to or under the merchant establishment agreement (including the credit card receivables account) save and except any asset situated in or any such receivables arising from the hyper stores situated at Vishakhapatnam, Hyderabad and Malad ( Mumbai).
(ii) Secured loan of Rs. 150 crore in (A) above, in respect of the above subsidiary is covered / secured by Parent's letter of comfort and hypothecation by way of first charge on all the current and movable assets (tangible & intangible, both, present and future) and all the receivables of the company arising out of, pursuant to or under the merchant establishment agreement (including the credit card receivables account).
F - 11 Notes forming part of Financial statements
NOTE 7 OTHER LONG TERM LIABILITIES Rs. In Crore As at 30th June, As at 31st March, 2014 2014
(a) Trade Payables 182.97 182.97 (b) Others 1,441.03 1,593.86 1,624.00 1,776.83
NOTE 8 LONG TERM PROVISIONS Rs. in Crore As at 30th June, As at 31st March, 2014 2014 Provision for employee benefits 187.23 167.34
187.23 167.34 NOTE 9 SHORT-TERM BORROWINGS Rs. in Crore As at 30th June, As at 31st March, 2014 2014 A Secured Loans repayable on demand Overdraft from banks 898.85 602.19 Working Capital demand loan 180.54 179.76 B Unsecured Short term Loan from banks 129.12 271.13 1,208.51 1,053.08 C Nature of Security
1 The overdraft facilities from banks in respect of the Parent amounting to Rs.764.11 crore in (A) above are secured, ranking pari passu inter se, by hypothecation of Parent's current assets comprising stock of stores, coal and other consumables, book debts, monies receivable and bank balances as a first charge and as second charge by equitable mortgage/ hypothecation of the fixed assets of the Parent including its land, buildings and other constructions thereon where exists, plant and machinery etc. However, creation of the said mortgage security in respect of overdraft facilities from banks aggregating Rs.190 crore is in process.
2 The working capital demand loan of Rs. 180.54 crore in A above, in respect of one of the subsidiaries is secured against charge on all current assets, non-current assets and fixed assets of that subsidiary.
3 The overdraft facilities from banks in respect of one of the subsidiaries, amounting to Rs. 33.50 crores in A above, is secured against margin money deposits.
4 The overdraft facilities from Banks in respect of one of the subsidiary, amounting to Rs. 101.24 crores is secured with first charge by way of equitable mortgage /hypothecation of Fixed assets of the subsidiary including its land, buildings, the construction thereon where exists, plant and machinery etc, and hypothecation of subsidiary's current assets
F - 12 Notes forming part of Financial statements
NOTE 10 OTHER CURRENT LIABILITIES Rs. in Crore As at 30th June, As at 31st March, 2014 2014 (a) Current maturities of long-term borrowings ( refer note 6) 2,003.32 1,725.47 (b) Current maturities of finance lease obligations ( refer note 6) 6.62 5.50 (c) Interest accrued but not due on borrowings 75.17 77.19 (d) Interest accrued and due on borrowings 0.45 0.05 (e) Book overdraft from Banks 25.99 27.39 (f) Unclaimed dividend 1.76 1.76 (g) Unclaimed public deposit 0.03 0.03 (h) Liabilities on capital account 523.63 566.82 (i) Other payables 1,082.30 1,065.65 (j) Add : Share of Joint Venture (Refer Note 1c ) 0.05 0.05 3,719.32 3,469.91 Rs. in Crore As at 30th June, As at 31st March, NOTE 11 SHORT TERM PROVISIONS 2014 2014
(a) Provision for employee benefits 73.87 66.64 (b) Provision for taxation (net of advance tax) 41.76 16.81 ( c) Proposed Dividend 99.95 99.95 (d) Tax on Proposed Dividend 16.99 16.99 (e) Provision for claims on Lease Property 11.32 12.16 243.89 212.55
F - 13 NOTE 12 : TANGIBLE ASSETS
GROSS BLOCK AT COST OR VALUATION DEPRECIATION / AMORTISATION NET BLOCK
As at As at As at As at As at As at PARTICULARS 1st April, Additions/ Withdrawals/ 30th June, 1st April, Additions/ Withdrawals/ 30th June, 30th June, 31st March, 2014 Adjustments Adjustments 2014 2014 Adjustments Adjustments* 2014 2014 2014
Land Freehold 863.31 - - 863.31 0.10 - - 0.10 863.21 863.21 Leasehold 499.92 23.57 - 523.49 35.12 0.83 - 35.95 487.54 464.80
Buildings and Structures 1,769.80 7.58 5.42 1,771.96 541.49 16.03 3.11 554.41 1,217.55 1,228.31
Plant and Equipment 8,644.54 50.07 0.36 8,694.25 3,140.18 77.23 (0.50) 3,217.91 5,476.34 5,504.36
Transmission and Distribution System 5,245.67 59.08 - 5,304.75 1,866.93 44.28 - 1,911.21 3,393.54 3,378.74
Meters and Other Apparatus on Consumers' Premises 528.52 6.65 - 535.17 267.66 5.74 - 273.40 261.77 260.86
River Tunnel 4.88 - - 4.88 3.03 0.06 - 3.09 1.79 1.85
Furniture and Fixtures 188.41 4.57 0.45 192.53 108.34 4.96 (0.09) 113.39 79.14 80.07
Office Equipments 444.75 5.16 3.07 446.84 332.39 10.25 2.08 340.56 106.28 112.36
Vehicles 20.42 0.09 - 20.51 13.37 0.47 (0.00) 13.84 6.67 7.05
Railway Sidings 103.16 - - 103.16 21.94 1.20 - 23.14 80.02 81.22
18,313.38 156.77 9.30 18,460.85 6,330.55 161.05** 4.60 6,487.00 11,973.85 11,982.83
* Includes adjustments relating to foreign exchange on account of translation of foreign subsidiaries / entities.
** Includes transitional provision of Rs.4.34 crore which has been adjusted with General Reserve ( note 5)
F - 14 NOTE : 13 INTANGIBLE ASSETS
GROSS BLOCK AT COST OR VALUATION AMORTISATION NET BLOCK
As at As at As at As at As at As at PARTICULARS 1st April, Additions/ Withdrawals/ 30th June, 1st April, Additions/ Withdrawals/ 30th June, 30th June, 31st March, 2014 Adjustments Adjustments 2014 2014 Adjustments Adjustments* 2014 2014 2014
Goodwill on consolidation 2,438.13 10.94 - 2,449.07 - - - - 2,449.07 2,438.13
Goodwill (Acquired) 101.08 2.45 - 103.53 70.50 4.87 (1.73) 77.10 26.43 30.58
Trademarks 32.00 - - 32.00 8.00 0.41 - 8.41 23.59 24.00
Licence 14.08 0.02 - 14.10 5.17 0.29 - 5.46 8.64 8.91
Computer Software 175.54 5.66 - 181.20 148.89 3.54 (0.43) 152.86 28.34 26.65
2,760.83 19.07 - 2,779.90 232.56 9.11 (2.16) 243.83 2,536.07 2,528.27
* Includes adjustments relating to foreign exchange on account of translation of foreign subsidiaries / entities.
F - 15 Notes forming part of Financial statements
NOTE 14 NON CURRENT INVESTMENTS Rs. in Crore
As at 30th As at 31st March, 2014 June, 2014 A. Trade Investments -Unquoted (a) Investments in Equity Instruments 13,000 Equity Shares of Integrated Coal Mining Limited of Rs.10 each 0.01 0.01 B Other Investments -Unquoted
(a) Investments in Equity Instruments 60,00,000 Equity Shares of Crescent Power Limited of Rs.10 each 6.00 6.00
(b) Investments in Mutual Fund Phillipines Treasury Bills* 2.75 2.68
(c) Others 10,000 Equity Shares of Retailer's Association of India of Rs.10 each 0.01 0.01 C Other Investments -Quoted Investments in Equity Instruments 1,21,95,122 Equity Shares of Resource Generation Limited ( Market Value - Rs.12.30 crore) 64.96 64.96 73.73 73.66
D All non- current investments are long term in nature.
* These securities have been earmarked in favour of SEC, Philippines in compliance with corporation code of Philippines.
Rs. in Crore
As at 30th As at 31st March, 2014 NOTE 15 LONG-TERM LOANS AND ADVANCES June, 2014
( Unsecured , considered good ) (a) Capital advances 350.67 281.60 (b) Security Deposits 79.58 79.18 (c) Deposits 34.61 33.70 (d) Advance Tax (net of provision for tax) 60.69 61.30 (e) Share Application money to bodies corporate 22.00 22.00 (f) Other Loans and advances 40.60 62.07 ( Includes advance for property acquisition , employee related loans etc.) ( Unsecured , considered doubtful ) Security Deposits 0.91 0.91 Less: Allowances for doubtful advances 0.91 0.91 588.15 539.85
F - 16 Notes forming part of Financial statements
NOTE 16 OTHER NON-CURRENT ASSETS Rs. in Crore
As at 30th June, As at 31st March, 2014 2014
(a ) Long Term Trade Receivables 86.23 118.75 (b ) Unamortised Cost (Refer Note 40) 2.98 3.31 (c) Minimum Alternate Tax credit carried forward 94.20 86.53 (d) Unamortised costs towards miscellaneous expenditure to the extent not written off or adjusted 3.40 3.58 (e) Bank Deposits with maturity more than 12 months (Refer note (h) below) 0.00 0.05 (f) Margin Money deposits (refer note (i) below) 25.42 25.29 (g) Interest receivable on deposits 0.08 0.21 212.31 237.72
(h) Includes in respect of certain subsidiaries Rs.Nil ( 31.03.2014 : Rs.0.05 crore) under lien for bank guarantees with custom authorities
(i) Represents deposits pledged with banks against Bank Guarantee and Overdraft facilities with respect to certain subsidiaries.
NOTE 17 CURRENT INVESTMENTS Rs. in Crore
As at 30th June, As at 31st March, 2014 2014 Unquoted (a) Investments in Equity Instruments 29,728,500 Equity Shares of Noida Power Company Limited of Rs. 10 each 29.73 29.73
(b) Investments in Mutual Funds
2207912.148 units of Rs. 158.5208 each of ICICI Prudential Institutional Liquid Super Institutional Plan - Growth 2.70 2.60 37,323.779 units of Rs. 2150.9641 each of UTI Liquid Cash Plan Institutional - Direct Plan- Growth Option 8.00 - 131012.946 units of Rs.1526.5667 each of Reliance Liquid fund - Treasury plan- Daily Dividend 20.00 - 60.43 32.33
NOTE 18 INVENTORIES Rs. in Crore
As at 30th June, As at 31st March, 2014 2014
(a) Raw Materials 1.47 1.51 (b) Work in Progress - 0.01 (c) Finished Goods 0.35 0.33 (d) Traded Goods 144.37 142.24 (e) Fuel 175.97 217.39 (f) Stores and Spares 212.12 179.09 (g) Packing Materials 2.66 2.28 536.94 542.85 Less: Provision for obsolete stock of Traded Goods and Packing Materials 5.44 4.55 531.50 538.30
F - 17 Notes forming part of Financial statements
NOTE 19 TRADE RECEIVABLES Rs. in Crore
As at 30th June, As at 31st March, 2014 2014
(a) Outstanding for a period exceeding six months from due date of payment Secured , considered good 33.93 32.35 Unsecured , considered good 259.01 231.51 Doubtful 6.64 6.46 299.58 270.32 Less : Allowances for doubtful debts 6.64 6.46 292.94 263.86 (b) Other receivables Secured , considered good 732.01 653.42 Unsecured , considered good 710.55 612.87 Unsecured , considered doubtful 3.19 2.47 1,445.75 1,268.76
Less: Allowances for doubtful debts 2.94 2.47 1,442.81 1,266.29
1,735.75 1,530.15
NOTE 20 CASH AND BANK BALANCES Rs. in Crore
As at 30th June, As at 31st March, 2014 2014
(a) Cash and cash equivalents Balances with banks In Current Account 412.70 519.12 Bank deposits with original maturity upto 3 months ( refer note ( e) below) 268.16 295.96 Cheques , draft on hand 7.61 102.15 Cash on hand 20.23 9.50 - 708.70 926.73 (b) Other bank balances
Dividend Accounts 1.76 1.76 Bank deposits with original maturity more than 3 months ( refer note (f) and (g) below) 114.02 323.00 Margin Money Deposit 0.98 Deposit Accounts - - Escrow Account 1.29 4.49 118.05 329.25 (c) Less: Current account balance held in trust for customers in respect of certain subsidiaries 5.41 46.11 821.34 1,209.87
(d) Add : Share of Joint Venture 0.01 0.01 821.35 1,209.88
(e) In respect of the Parent , amount lying in deposit accounts with banks as at 30th June, 2014 includes Rs. 91.75 appropriated upto the previous year towards Fund for unforeseen exigencies and interest attributable thereto.
(f) In respect of the Parent , amount lying in deposit accounts with banks with orginal maturity more than three months as at 30th June, 2014 includes Rs. 59 crore appropriated for upto the previous year towards Fund for unforeseen exigencies and interest attributable thereto.
(g) Bank deposits with original maturity more than 3 months under Other bank balances include Rs. 0.02 crore having original maturity more than 12 months as on the reporting date.
F - 18 Notes forming part of Financial statements
NOTE 21 SHORT-TERM LOANS AND ADVANCES Rs. in Crore
As at 30th June, 2014 As at 31st March, 2014
Other Advances (Unsecured , considered good) Advance for goods and services 81.41 44.47 Security deposit / advances 1.88 - Advance tax (net) 6.03 4.36 Others 220.01 192.85 309.33 241.68 (Unsecured , considered doubtful)
Security deposit / advances 0.01 - 0.01 Less :Allowances for doubtful advances 0.01 0.01 309.33 241.68
NOTE 22 OTHER CURRENT ASSETS Rs. in Crore
As at 30th June, 2014 As at 31st March, 2014
(a) Deferred Payment 187.99 196.71 (b) Unbilled Revenue 212.77 211.05
( c) Others Interest accrued on deposits 29.43 25.18 Unamortised cost 1.57 1.87 Others 3.29 3.87 (d) Unamortised costs towards miscellaneous expenditure to the extent not written off or adjusted 0.72 0.72
435.77 439.40
F - 19 Notes forming part of Financial statements
NOTE 23
A CONTINGENT LIABILITIES AND COMMITMENTS (TO THE EXTENT NOT PROVIDED FOR) a. Claims against the parent company not acknowledged as debts :
The West Bengal Taxation Tribunal had held meter rentals received by the company from consumers to be deemed sales under the provisions of the Bengal Finance (Sales Tax) Act, 1941 and that sales tax was payable on such rentals. Based on such findings the Commercial Taxes Directorate assessed Rs 0.69 Crores as sales tax on meter sales received during the year ended 31st March , 1993 and raised a demand of Rs 0.36 Crores on account of interest. Against the above demand, the Company had deposited a sum of Rs 0.75 Crores with the sales tax authorities and obtained a stay against the balance demand from the Deputy Commissioner of Commercial Taxes. The sales tax authorities also indicated their intention to levy such sales tax on meter rentals for the subsequent years as well, against which, the Company filed a writ petition in the Calcutta High Court and prayed for an interim order, inter alia, restraining the sales tax authorities from proceeding with the assessment for the subsequent years till disposal of the appeal. An interim order has been issued by the High Court permitting the sales tax authorities to carry out assessments but restraining them from serving any assessment order on the Parent. The disposal of the case is still pending.
b. Other money for which the parent company is contingently liable : Municipal Tax : Rs 1.13 Crores in respect of certain properties , the rates of which are disputed by the Company. c. For commitment relating to leasing arrangement , refer note 33.
d. Commitment of the Group on account of estimated amount of contracts remaining to be executed on
capital account and the same towards borrowing obligation of a body corporate from a bank, not
provided for amounts to Rs.655.57 crore and Rs.125.21 crore respectively . e. Claims against a subsidiary not acknowledged as debts :
(i) Retailer's Association of India (RAI) of which one of the subsidiary is a member, has filed Special Leave Petition before the Hon'ble Supreme Court of India, about the applicability of service tax on commercial rent on immovable property. Pending disposal of the case, the Supreme Court has passed an interim ruling in Oct 2011 directing the members of RAI to pay 50% of total service tax liability upto Sep 2011 to the department and to furnish a surety for balance 50%. The Supreme Court has also clarified that the successful party in the appeal shall be entitled to interest on the amount stayed by the Court, at such rate as may be directed at the time of the final disposal of appeal. Accordingly the subsidiary has already deposited Rs 4.6 crore and furnished a surety of Rs 4.6 crore towards the balance Service Tax Liability, while interest, whose quantum and applicability is presently not ascertainable, will be provided on disposal of the petition.
Further the subsidiary has been making provision for service tax on rent subsequent to such interim ruling, the balance whereof as on 30 th June 2014 is Rs 11.31 crores .
(ii) Other Claims against certain subsidiaries not acknowledged as debt Rs 4.43 Crores .
(iii) The joint venture company of the Group has provided a bank guarantee amounting to Rs 41 crore in
favor of The President of India, acting through the Ministry of Coal, Govt of India towards future liability
of the joint venture in the Royalty for one year in respect of allocation of Mahuagarhi Coal Block in the
State of Jharkhand. The exposure of the Group in the joint venture company is limited to 50%.
f. Contingent Liability not provided for with respect to certain subsidiaries :
Particulars Amount in Rs Crores Sales Tax Demands under appeal 1.04 Service tax demands under appeal 18.09 Income tax demands (amount deposited Rs 7.29 Crores) 118.94 Guarantees given 0.63 Guarantee to ABP Corporation on to discharge obligation,if any, in the event of default Not Quantified
F - 20 Notes forming part of Financial statements
B A portion of the Company’s coal requirement is being met since October 2002 from the production of Sarsathali coal block allocated by the Ministry of Coal, Government of India. The mining activity being carried out , in its present form by Integrated Coal Mining Limited , a body corporate, in which the Company has equity stake, in terms of the conditionalities of allocation, would be affected by the judgements dated 25th August 2014 and 24th September 2014 of the Hon’ble Supreme Court of India in Coal Block Allocation Case (WP (C ) No 463 of 2012 etc). Vide the aforesaid judgements passed by the Hon’ble Supreme Court of India the process of allocation of coal adopted by the Government of India in vogue since 1993 was held to be wanting in material respects which resulted in Hon’ble Court cancelling most of the allocations, including those made to Central as well as State Public Sector Undertakings, made under that process, while directing levy of additional pecuniary charges in respect of coal extracted by the above referred body corporate which is estimated to be Rs 977 crores upto 30.6.2014.
The aforesaid body corporate has mined coal from Sarsathali coal block for embedded generating stations of CESC, the statutory distribution licensee supplying electricity to the end consumers in Kolkata and surrounding areas. The management is working out plans for supply of fuel from alternative sources to its existing generating stations and such mechanism would be worked out based on the modalities to be framed as per the Hon’ble Apex Court’s decision, as aforesaid, the applicable statutes including Coal Mines (Special Provisions) Ordinance 2014 and within the regulatory framework of Electricity Act, 2003, rules framed thereunder and/or WBERC . Having obtained legal advices it has been contemplated to initiate appropriate proceedings before the Hon’ble Apex Court seeking among other reliefs also a relief to distinguish the above coal block from the operating boundaries / parameters of the above judgement and exlusion of its mines from the applicability of Coal Mines (Special Provisions) Ordinance 2014 alongwith prayers for interim reliefs. On final outcome of the matter if pecuniary liability, in the form of additional levy gets crystallised in respect of coal extracted from the above referred mine, appropriate recovery process thereof would be initiated in terms of law considering the fact that fuel cost of the Company has been subjected to the regulatory review / consideration and the Company’s tariff to consumers have been based on cost etc. incurred by the Company, as approved by the WBERC. In view of the above, the financial implication, if any, arising on the Company is not ascertainable at this stage.
F - 21 Notes forming part of Financial statements
NOTE 24 REVENUE FROM OPERATIONS Rs. in Crore Rs. in Crore Q1'14-15 2013-14
(a) Earnings from sale of electricity (refer note (f) ) 1,947.95 5,509.73 (b) Earnings from sale of retail products (net of excise duty) 403.26 1,416.24 (c) Earnings from sale of services 761.52 3,126.42 (d) Earnings from Mall Operations 17.14 12.27 (e) Other Operating Revenue Meter Rent 11.66 44.01 Others (net) ( refer note (g) ) (2.45) 2.18 3,139.08 10,110.85
(f ) Earnings from sale of electricity in respect of the Parent are determined in accordance with the relevant orders of the Commission, where appropriate, giving due effect to the required adjustments. Such adjustments include a sum of Rs.( 119) crore in respect of the cost of electrical energy purchased, fuel and related costs and also those relating to revenue account, based on the Parent’s understanding of the applicable regulatory provisions on this count, after giving effect of the impact arising from applicable orders in this regard for earlier years and the net impact of the said adjustments has been included in Other long term liabilities. The accurate quantification and disposal of the matters are being given effect to, from time to time, on receipt of necessary direction from the appropriate authorities. The said earnings are also net of discount for prompt payment of bills allowed to consumers on a net basis from month to month and advance against depreciation amounting to Rs. 19.24 crore and Rs. 23.89 crore respectively.
(g) In respect of certain subsidiaries other operating revenue of Rs.(6.33) crore includes net loss of Rs.6.76 crore on restatement and settlement of debtor balances and related gain / loss on forward/ option contracts and income of Rs.0.43 crore for the period on account of grant income earned.
NOTE 25 OTHER INCOME Rs. in Crore Q1'14-15 2013-14 (a) Interest Income 11.11 62.23 ( b) Income from Recoveries and Services 15.64 50.34 ( c) Gain on sale of current investments (net) 2.03 26.03 (d) Delayed Payment Surcharge 1.95 13.46 (e) Other Non -operating Income 12.40 28.58 43.13 185.49 Less : Allocated to capital work in progress 12.83 12.14 30.30 173.35
F - 22 Notes forming part of Financial statement
Rs. in Crore NOTE 26 COST OF MATERIALS CONSUMED
Q1'14-15 2013-14 Opening Stock of Raw Material 1.51 0.83 Add :Purchases during the period 3.27 10.46
Less :Closing stock of Raw Material 1.47 1.51 3.31 9.78
NOTE 27 CHANGES IN INVENTORIES OF FINISHED GOODS, STOCK-IN-TRADE AND WORK- IN -PROGRESS Rs. in Crore
Rs. in Crore Q1'14-15 2013-14 (Increase)/decrease in stocks Stock at the beginning of the period : Finished Goods 0.33 0.09 Stock -in-trade 142.24 110.42 Work-in-progress 0.01 0.06 Total (A) 142.58 110.57 Less :Stock at the end of the period : Finished Goods 0.35 0.33 Stock -in-trade 144.37 142.24 Work-in-progress - 0.01 Total (B) 144.72 142.58 (Increase) in stocks (A-B) (2.14) (32.01)
NOTE 28
The deferred tax recoverable in Statement of Profit and Loss amounting to Rs.37.38 crore represents deferred tax liability recoverable through future tariff under applicable regulation.
F - 23 Notes forming part of Financial statements
NOTE 29 EMPLOYEE BENEFIT EXPENSE Rs. in Crore
Q1'14-15
(a) Salaries, wages and bonus 694.64 (b) Contribution to provident and other funds 51.61 (c) Employees' welfare expenses 33.49 779.74 Less : Allocated to capital account etc. 22.34
757.40
F - 24 Notes forming part of Financial statements
NOTE 30 FINANCE COSTS Rs. in Crore Q1'14-15
(a) Interest expense 296.23 (b) Other Borrowing Costs 9.48 305.71 Less : Allocated to capital account 106.99 198.72
NOTE 31 DEPRECIATION AND AMORTISATION EXPENSES Rs. in Crore
Q1'14-15 (a) Depreciation/ amortisation on tangible assets 156.71 (b) Amortisation on intangible assets 9.11 165.82 Less : Recoupment from revaluation reserve 24.02 Less : Allocated to capital account 0.30 141.50
F - 25 Notes forming part of Financial statements
NOTE 32 OTHER EXPENSES Rs. in Crore
Q1'14-15 2013-14
(a) Power and Fuel 26.11 79.64 (b) Packing Materials Consumed 1.57 5.58 (c) Consumption of stores and spares 84.31 343.55
(d) Repairs Building 3.09 17.79 Plant and Machinery 20.19 103.03 Distribution System 29.88 80.45 Others 6.81 27.33 59.97 228.60 (e) Insurance 9.50 32.66 (f) Rent 61.39 231.93 (g) Rates and taxes 6.55 26.17 (h) Bad debts / Advances 60.00 26.62 (i) Allowances for doubtful debts , Store/Lease Deposits/ advances /Security Deposit 0.69 - (j) Amortisation of miscellaneous expenditure 0.18 0.72 (k) Loss on sale / disposal of assets (net) 0.44 8.76 (l) Interest on Consumers' Security Deposit 24.72 78.89 (m) Travelling and conveyance 27.56 135.24 (n) Information, communication and connectivity charges 28.83 128.94 (o) Miscellaneous expenses 207.82 453.23 599.64 1,824.07 Add : Share of Joint Venture [Refer Note 1(c)] 0.00 0.01 Less : Allocated to capital account 55.81 288.24 543.83 1,535.84
F - 26 Notes forming part of Financial statements
33 Leases : (a) With respect to Parent:
Future rentals payable in respect of non-cancellable leases for assets comprising various equipment and vehicles acquired under operating leases for the period ranging between 36-60 months work out to Rs. 7.42 crore and Rs. 4.18 crore during next one year and thereafter till five years respectively. There are no restrictions in respect of such leases.
(b) With respect to certain Subsidiaries:
(i) Certain subsidiaries have taken retail stores,office facilities,residential facilities and office equipments on operating lease and the lease rent is payable as per the agreements entered into with the lessors. Agreements are both in the nature of cancellable and non-cancellable leases. The lease term is for varied years and renewable for further years as per the agreements at the option of the subsidiaries. There are no restrictions imposed by these lease agreements. There are no sub-leases.
Operating Leases ( Rs. In Crore) Jun-14 Lease payments for the year 52.93 Future minimum lease payments – Not later than one year 127.05 Later than one year but not later than five 305.45 year Later than five year 351.96
Rent includes Rs.10.80 crore with respect to one of the subsidiaries being lease rent, payable by them in future years, but accounted for during the period as lease equalization in terms of Accounting Standard-19 on ‘Leases’ as per Companies (Accounting Standard) Rules, 2006, which requires lease rental to be charged on a straight line basis over the lease term.
(ii) Subsidiaries in Process Outsourcing business have acquired certain capital assets under finance lease. Future minimum lease payments under finance lease as at 30th June, 2014 are as follows:
( Rs. In Crore) Minimum lease Finance charges Present value of minimum lease As at 30th June, 2014 payments payments
Amount payable within one year from the 7.46 0.86 6.61 balance sheet date
Amount payable in the period between one 8.81 0.50 8.31 year and five years 16.27 1.36 14.92
(iii) Subsidiaries in Process Outsourcing business have given vehicles on finance lease to its employees as per policy. As at 30th June, 2014, the future minimum lease rentals receivables are as follows:
( Rs. In Crore) Minimum lease Finance charges Present value of minimum lease As at 30th June, 2014 payments payments
Amount receivable within one year from the 2.50 0.46 2.04 balance sheet date Amount receivable in the period between one 3.52 0.40 3.12 year and five years 6.02 0.86 5.16
(c) With respect to subsidiaries in Process Outsoucing business, assets taken on finance lease included in the Fixed Assets Note no. 12 and 13 are as follows:
( Rs. In Crore) Tangible Assets Intangible Assets Leasehold Buildings Office Equipments Plant and Equipment Furniture and Software and Structures Fixtures As at 30th June, 2014
Gross Block (at cost) 12.64 6.37 11.53 3.24 6.85 Accumulated Depreciation / Amortisation 6.61 6.37 11.53 1.61 2.25 Net Block 6.03 - - 1.63 4.60
F - 27 Notes forming part of Financial statements
34 The major components of Deferred Tax Assets / (Liabilities) based on the timing difference as at 30 June, 2014 are as under : ( Rs. In core) 30 June 2014 2013-14 Parent Others Total Parent Others Total Liabilities Excess of tax depreciation over book (1,096.01) (286.50) (1,382.51) (1,058.63) (222.28) (1,280.91) depreciation Assets Unabsorbed business depreciation 80.63 80.63 80.63 80.63 Unabsorbed business losses 392.63 392.63 331.65 331.65 Other Timing Differences 15.34 88.67 104.01 15.34 87.36 102.70 Net Deferred Tax Liability (1,080.67) 275.43 (805.24) (1,043.29) 277.36 (765.93) Less : Recoverable deferred tax element of 1,080.67 1,080.67 1,043.29 1,043.29 Parent Net Deferred Tax Asset - 275.43 275.43 - 277.36 277.36 Note In respect of one of the subsidiaries , there are unabsorbed depreciation and carried forward losses as at the Balance Sheet date. However, based on future profitability projections, the subsidiary is virtually certain that there would be sufficient taxable income in future and hence, continues to carry Deferred Tax Assets ( DTA) of Rs. 310.53 crore. The subsidiary,however , has not recognised any further DTA on the losses of the current period based on its projections and ground of prudence.
35 Earnings per share: Computation of Earnings per share (Rs. In crore) Particulars 2013-14 Profit after Tax and before exceptional items (Rs.in crore) (A) 65.03 12,49,35,925 Weighted Average no. of shares for Earnings per share (B) Basic and Diluted Earnings per share of Rs. 10/- each before 5.21 Exceptional Items = [(A) / (B)] (Rs.) Profit after Tax and after exceptional items (Rs.in crore) (C) 65.03 12,49,35,925 Weighted Average no. of shares for Earnings per share (D)
Basic and Diluted Earnings per share of Rs. 10/- each after Exceptional 5.21 Items= [(C) / (D)] (Rs.)
36 Certain subsidiaries have incurred losses during the period, primarily due to nascent stage of organized retail industry in the country and have accumulated losses against shareholders’ funds as on the Balance Sheet date. However, the subsidiaries having created a robust infrastructure for organized retail business are confident of generating positive cash flows and operational surplus in the near future with certain interim support from the Parent and the promoters .
37 The joint venture company has furnished necessary details in response to a letter from the Ministry of Coal, Govt. of India addressed to the joint venture partners regarding the status of execution of the projects for development of the coal mine. Certain inquiries were initiated in the earlier year against the other Joint Venture partner.The agency has submitted its closure report to the court of law. The effect, if any, shall be taken into account upon conclusion of the inquiry.
38 The shareholders of Spencer's Retail Limited (SRL), a subsidiary, at the general meeting held on 14th May 2014 have passed a special resolution recalling the scheme of amalgamation earlier approved by them and also approved by the Hon'ble High Court at Kolkata envisaging amalgamation of Music World Retail Limited, wholly owned subsidiary of SRL, with SRL ( 'the Scheme' ) vide the Hon'ble High Court's order dated 26th March 2013 passed in Company Petition No. 126 of 2012 connected with Company Application No. 150 of 2012. SRL has been legally advised that, in the said circumstances the Scheme does not have to be given effect of and the certified copy of the order of the Hon'ble High Court, which is still awaited, will not be filed with the Registrar of Companies, West Bengal, upon its receipt.
39 Employee Stock Option Plans During the three months ended 30 June 2014, one of the subsidiaries granted 5,000,000 options at an exercise price of Rs 28.90. The market price of the underlying equity shares was equal to the above exercise price on the date of grant. During the three months ended 30 June 2014 1,686,562 equity shares were issued pursuant to exercise of options under the Employee Stock Option Scheme of the subsidiaries. 40 Adoption of AS 30
In December 2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement, recommendatory in respect of accounting periods commencing on or after 1st April, 2009 and mandatory in respect of accounting periods commencing on or after 1st April, 2011. In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, along with limited revision to other accounting standards, has currently not been notified under Rule 7 of the Companies (Accounts) Rules, 2014. On 1st October, 2008, certain subsidiaries, early adopted AS 30 in its entirety, read with AS 31, effective 1st April, 2008 and the limited revisions to other Accounting Standards. AS 30 states that particular sections of other Accounting Standards; AS 4, Contingencies and Events Occurring after Balance sheet date, to the extent it deals with contingencies, AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the ‘forward exchange contracts’ and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory (1st April, 2011). In view of that, in case of certain subsidiaries, on an early adoption of AS 30, accounting treatment made on the basis of the relevant sections of Accounting Standards referred above viz. AS 4, AS 11 and AS 13 stands withdrawn as it believes that principles of AS 30 more appropriately reflect the nature of these transactions. Pursuant to the early adoption of AS 30, certain subsidiaries have discounted interest free deposits to their present value and the difference between original amount of deposit and the discounted present value has been disclosed as “Unamortised cost” under Other Current and Non-Current Assets. This unamortised cost is charged to the Statement of Profit and Loss over the period of related lease. Correspondingly, interest income is accrued on these interest-free deposits using the implicit rate of return over the period of lease and is recognised under “Interest income”. In accordance with the transition provisions of AS 30, impact on first time adoption was accounted in General Reserve. The said subsidiaries have also designated forward contracts to hedge highly probable forecasted transactions on the principles as set out in AS-30. Consequent to the early adoption of AS 30 as stated above, the profit after taxation for the period and Reserves and Surplus as at the Balance sheet date with respect to certain subsidiaries is higher by Rs 4.40 crores and by Rs.0.5 Crores respectively. The increase in Reserve and Surplus includes translation gain on the investment in non-integral foreign operation used as hedging against translation loss on ECB, which is currently credited to Reserve and Surplus, would be transferred to interim condensed consolidated statement of profit and loss upon disposal of non-integral foreign operation.
F - 28 Notes forming part of Financial statements
(Rs. In crore) 41 Consolidated Segment Reporting
Year ended Year ended 30.06.2014 31.03.2014 (Audited) (1) (2) 1. Segment Revenue (Net) a) Power 1,977.25 b) Retail 420.34 c) Property 17.75 d) Process Outsourcing 754.04 3,169.38 0
2. Segment Results ( Profit before interest and tax)
a) Power 282.39 b) Retail (25.10) c) Property 11.16 d) Process Outsourcing 74.04 342.49 0
3. Capital Employed
a) Power 14,211.86 b) Retail 243.98 c) Property 406.98 d) Process Outsourcing 1,227.34 16,090.16 0
42 Related Party disclosure Related Party and their relationship
Names of Related Parties Nature of Relationship
Mr. Aniruddha Basu Key Management Personnel, CESC Limited
Mahuagarhi Coal Company Private Limited Joint Venture
43 The Group is preparing condensed interim financial statements under Accounting Standard 25 "Interim Financial Reporting" for the first time and has adopted the transitional provision as laid down in para 44 of the said Standard . Accordingly , comparative Statement of the Profit and Loss and Cash Flow Statement for the comparable interim period has not been provided. Previous years' figures wherever disclosed have been regrouped or rearranged where considered necessary.
For Lovelock & Lewes Aniruddha Basu Firm Registration Number -301056E Managing Director Chartered Accountants
Sougata Mukherjee Subhasis Mitra Rajarshi Banerjee Partner Company Secretary Executive Director & CFO Membership No.: 057084 Place : Kolkata Date : 27th October ,2014
F - 29 Independent Auditors' Report To the Board of Directors of CESC Limited
1. We have audited the accompanying consolidated financial control. An audit also includes evaluating the appropriateness of statements (the "Consolidated Financial Statements") of CESC accounting policies used and the reasonableness of the accounting Limited ("the Company") and its subsidiaries, its jointly controlled estimates made by Management, as well as evaluating the overall entity; hereinafter referred to as the "Group" (refer Note presentation of the consolidated financial statements. [1 (b & c)] to the attached consolidated financial statements) 5. We believe that the audit evidence we have obtained is sufficient which comprise the consolidated Balance Sheet as at March 31, and appropriate to provide a basis for our audit opinion. 2014, and the consolidated Statement of Profit and Loss and the consolidated Cash Flow Statement for the year then ended, Basis for Qualified Opinion and a summary of significant accounting policies and other explanatory information which we have signed under reference 6. Attention is drawn to note no 34 to the consolidated financial to this report. statements regarding continuation of net deferred tax asset (DTA) of ` 310.53 crores in the accounts of certain subsidiaries based Management's Responsibility for the Consolidated Financial on the future profitability projections made by the management. Statements However, in the absence of virtual certainty as stated in Accounting Standard 22 on Deferred taxes, we are unable to express any 2. The Company's Management is responsible for the preparation opinion on the projections and their consequent impact if any, of these consolidated financial statements that give a true and on such Deferred tax Asset. fair view of the consolidated financial position, consolidated financial performance and consolidated cash flows of the Group Had the above asset been reversed the profit of the group would in accordance with accounting principles generally accepted in be ` 181.11 Crores as against the reported profit of ` 491.64 India. This responsibility includes the design, implementation Crores and the shareholders fund would have reduced by ` 310.53 and maintenance of internal control relevant to the preparation Crores. and presentation of the consolidated financial statements that give a true and fair view and are free from material misstatement, Opinion whether due to fraud or error. 7. We report that the consolidated financial statements have been prepared by the Company's Management in accordance with the Auditors' Responsibility requirements of Accounting Standard (AS) 21 - Consolidated 3. Our responsibility is to express an opinion on these consolidated Financial Statements, and Accounting Standard (AS) 27 - Financial financial statements based on our audit. We conducted our audit Reporting of Interests in Joint Ventures notified under the in accordance with the Standards on Auditing and other Companies Act, 1956 read with the General Circular 15/2013 dated applicable authoritative pronouncements issued by the Institute September 13, 2013 of the Ministry of Corporate Affairs in respect of Chartered Accountants of India. Those Standards require that of Section 133 of the Companies Act, 2013 we comply with ethical requirements and plan and perform the 8. Based on our audit and on consideration of reports of other audit to obtain reasonable assurance about whether the auditor(s) on separate financial statements and on the other consolidated financial statements are free from material financial information of the component(s) of the Group as referred misstatement. to in paragraph 10 below, and to the best of our information and 4. An audit involves performing procedures to obtain audit evidence according to the explanations given to us, in our opinion, subject about the amounts and disclosures in the consolidated financial to our remarks in paragraph 6 above, the accompanying statements. The procedures selected depend on the auditors' consolidated financial statements give a true and fair view in judgement, including the assessment of the risks of material conformity with the accounting principles generally accepted in misstatement of the consolidated financial statements, whether India : due to fraud or error. In making those risk assessments, the (a) in the case of the consolidated Balance Sheet, of the state of auditors consider internal control relevant to the Company's affairs of the Group as at March 31, 2014 preparation and fair presentation of the consolidated financial (b) in the case of the consolidated Statement of Profit and Loss, statements in order to design audit procedures that are of the profit/ loss for the year ended on that date; and appropriate in the circumstances , but not for the purpose of (c) in the case of the consolidated Cash Flow Statement, of the expressing an opinion on the effectiveness of the entity's internal cash flows for the year ended on that date.
F - 30 Independent Auditors' Report (Contd.)
Emphasis of Matter Other Matter(s)
9. Without qualifying our opinion, we draw attention to Note 40 10. We did not audit the financial statements of 28 subsidiaries and to the consolidated financial statements that describes the early 1 jointly controlled entity included in the consolidated financial adoption by the Group of Accounting Standard (AS) 30, Financial statements, which constitute total assets of ` 12312.93 Crores Instruments: Recognition and Measurements, read with AS 31, and net assets of ` 3419.64 Crores as at 31st March 2014, total Financial Instruments - Presentation along with prescribed limited revenue of ` 4683.39 Crores, net loss of ` 128.45 Crores and net revisions to other accounting standards issued by the Institute cash flows amounting to ` (116.88) Crores for the year then ended. of Chartered Accountants of India, as in management's opinion, These financial statements and other financial information have it more appropriately reflects the nature/ substance of the been audited by other auditors whose reports have been furnished related transactions. AS 30, along with prescribed limited revisions to us, and our opinion on the consolidated financial statements to other accounting standards, has not yet been notified under to the extent they have been derived from such financial statements the Companies (Accounting Standards) Rules, 2006. Consequent is based solely on the report of such other auditors. to early adoption of AS 30 and the related limited revisions, the profit after taxation for the period and reserves and surplus as at the balance sheet date is higher by ` 16.90 Crores and by ` 0.30 Crores respectively.
For Lovelock & Lewes Firm Registration Number-301056E Chartered Accountants
Sougata Mukherjee Partner Kolkata, 30th May, 2014 Membership No. : 057084
F - 31 Consolidated Balance Sheet as at 31st March, 2014
` in Crore Particulars Note No. As at As at 31st March, 2014 31st March, 2013
I. EQUITY AND LIABILITIES Shareholders funds Share capital 4 125.60 125.60 Reserves and surplus 5 5,509.41 5,017.97 5,635.01 5,143.57 Minority Interest 907.93 742.50 Non-current liabilities Long-term borrowings 6 9,132.34 7,811.28 Deferred tax liabilities(net) 34 33.17 28.50 Advance against Depreciation 776.90 714.23 Consumers Security Deposit 1,279.53 1,138.78 Other long term liabilities 7 1,776.83 1,869.76 Long-term provisions 8 167.34 135.98 13,166.11 11,698.53 Current liabilities Short-term borrowings 9 1,053.08 1,052.63 Trade Payables 531.75 577.48 Other current liabilities 10 3,469.91 1,956.97 Short-term provisions 11 212.55 141.94 5,267.29 3,729.02 TOTAL 24,976.34 21,313.62
II. ASSETS Non-current assets Fixed assets Tangible assets 12 11,982.83 8,620.49 Intangible assets 13 2,528.27 2,292.17 Capital work-in-progress 5,311.74 5,109.67 (Includes share of Joint Venture - ` 3.17 crore; 19,822.84 16,022.33 31st March, 2013 ` 3.12 crore)
Non-current investments 14 73.66 97.56 Deferred tax assets (net) 34 310.53 310.53 Long-term loans and advances 15 539.85 561.39 Other non-current assets 16 237.72 339.00 20,984.60 17,330.81 Current assets Current Investments 17 32.33 114.74 Inventories 18 538.30 434.23 Trade receivables 19 1,530.15 1,620.10 Cash and bank balances 20 1,209.88 1,316.61 Short-term loans and advances 21 241.68 200.54 Other Current Assets 22 439.40 296.59 3,991.74 3,982.81 TOTAL 24,976.34 21,313.62 Notes forming part of Consolidated Financial Statements 1 - 47
This is the Consolidated Balance Sheet referred to in our Report of even date. For Lovelock & Lewes For and on behalf of the Board of Directors Firm Registration Number-301056E Chartered Accountants Director Pradip Kumar Khaitan Managing Director Aniruddha Basu Sougata Mukherjee Partner Membership No. : 057084 Subhasis Mitra Rajarshi Banerjee Kolkata, 30th May, 2014 Company Secretary Executive Director & CFO
F - 32 Consolidated Statement of Profit and Loss for the year ended 31st March, 2014
` in Crore
Particulars Note No. 2013-14 2012-13
Revenue from operations 24 10,110.85 7,556.65 Other income 25 173.35 143.73 Total Revenue 10,284.20 7,700.38
Expenses Cost of electrical energy purchased for Power Business 891.04 945.16 Cost of materials consumed for Retail Business 26 9.78 6.24 Purchases of stock-in -trade for Retail Business 1,198.96 1,083.53 Changes in inventories of finished goods, stock-in-trade and work- in -progress for Retail Business 27 (32.01) 12.49 Cost of fuel for Power Business 28 1,924.60 1,796.75 Employee benefit expenses 29 2,960.08 1,307.36 Finance costs 30 566.02 430.41 Depreciation and amortisation expenses 31 471.41 364.53 Other expenses 32 1,535.84 1,139.02 Total expenses 9,525.72 7,085.49
Profit before Taxation, Exceptional Items and Minority Interest 758.48 614.89 Exceptional Items - 41.77 Profit before Taxation and Minority Interest 758.48 656.66
Tax expenses : Current tax (214.72) (169.45) MAT Credit 26.90 7.67 Current tax (net) (187.82) (161.78) Deferred tax (net) (170.49) (192.00) Recoverable/(Payable) 172.72 178.00 Profit after Taxation and Exceptional Items before Minority Interest 572.89 480.88 Minority Interest (81.25) (21.50) Profit for the year - transferred to Surplus 491.64 459.38
Earnings per share (Face Value of ` 10 per share) : Basic and Diluted before Exceptional Items 35 39.35 33.43 Basic and Diluted after Exceptional Items 39.35 36.77
Notes forming part of Consolidated Financial Statements 1 - 47
This is the Consolidated Statement of Profit & Loss referred to in our Report of even date. For Lovelock & Lewes For and on behalf of the Board of Directors Firm Registration Number-301056E Chartered Accountants Director Pradip Kumar Khaitan Managing Director Aniruddha Basu Sougata Mukherjee Partner Membership No. : 057084 Subhasis Mitra Rajarshi Banerjee Kolkata, 30th May, 2014 Company Secretary Executive Director & CFO
F - 33 Consolidated Cash Flow Statement for the year ended 31st March, 2014
` in Crore Particulars 2013-14 2012-13 A. Cash flow from Operating Activities Profit before Exceptional Items and Taxation 758.48 614.89 Adjustments for : Depreciation and amortisation expenses 471.41 364.53 Loss / (Profit) on sale / disposal of assets (net) 4.51 9.88 Gain on sale of current investments (net) (26.03) (50.40) Dividend Income (0.60) (0.31) Amortisation of Miscellaneous expenditure 0.72 0.72 Provision for obsolete stock (0.74) (7.12) Allowances for doubtful debts, Store / Lease Deposits / Advances made / Security deposit - 0.65 Bad debts / Advances made 26.62 27.34 Finance Cost 566.02 430.41 Interest Income (62.23) (67.40) Advance against depreciation 62.67 148.20 Loss/Gain on foreign currency transaction (net) Exchange (64.17) - Provision for Lease equalisation - (2.97) Liability / Provision Written Back (3.64) (4.70) Capital work-in-progress written off - 4.14 Effect of Foreign Currency Transactions / Translation (net) 0.14 (31.22) Rent expense on account of adoption of AS 30 1.86 1.75 Rental deposits written off 0.01 - Operating Profit before Working Capital changes 1,735.03 1,438.39
Adjustments for : Trade and other receivables 348.92 22.55 Inventories (52.41) (19.37) Trade and other payables 433.60 520.43 Cash Generated from Operations 2,465.14 1,962.00 Income Tax Paid (214.08) (147.89) Net cash flow from Operating Activities 2,251.06 1,814.11
B. Cash flow from Investing Activities Purchase of Fixed Assets / Capital Work-in-Progress (3,420.89) (3,612.44) Sale of Fixed Assets 34.61 15.28 Sale of Current Investments (net) 108.44 84.39 Redemption of Long Term Investments 30.00 - Dividend received 0.60 0.31 Interest received 66.97 84.42 Advance to bodies Corporate for share subscription - (7.88) Investment on acquisitions - (504.81) Net cash used in Investing Activities (3,180.27) (3,940.73)
F - 34 Consolidated Cash Flow Statement for the year ended 31st March, 2014
` in Crore Particulars 2013-14 2012-13 C. Cash flow from Financing Activities Issue of Share Capital 3.66 1.00 Proceeds from Long Term Borrowings 2,698.83 3,106.36 Repayment of Long Term Borrowings (876.03) (562.62) Repayment of Public Deposits (0.44) (0.04) Net increase/(decrease) in Cash Credit facilities and other Short Term Borrowings 105.42 (94.31) Capital Contributions and Advance received from Consumers 106.54 108.51 Finance Costs paid (1,113.42) (562.73) Dividends paid (87.22) (62.45) Dividend tax paid (14.86) (10.13) Net Cash flow from Financing Activities 822.48 1,923.59
Net Increase / (Decrease) in cash and cash equivalents (106.73) (203.03) Cash and Cash equivalents - Opening Balance [Refer Note (c) below] 1316.61 1,343.25 Cash and cash equivalents on acquisition of subsidiaries - 176.39 Cash and Cash equivalents - Closing Balance [Refer Note (c) below] 1,209.88 1,316.61 Notes : a) The Cash Flow Statement has been prepared under the indirect method as given in the Accounting Standard on Cash Flow Statement (AS-3) as per Companies (Accounting Standard) Rules, 2006. b) Closing Balance of Cash and Cash equivalents represent "Cash and Bank balances" and includes ` 1.76 crore (31st March, 2013 - Rs 1.52 crore) lying in designated accounts with banks on account of unclaimed dividends which are not available for use by the Company, ` 150.75 crore (31st March, 2013 - ` 117.00 crore) appropriated upto 31st March, 2014 towards Fund for unforeseen exigencies and interest attributable thereto. c) Cash and Cash Equivalents comprise : 2013-14 2012-13 Balances with Banks : In Current Account 519.12 572.30 Bank deposits with original maturity upto 3 months 295.96 468.05 Cheques, drafts on hand 102.15 12.92 Cash on hand 9.50 9.93 Other Bank Balances : Dividend Accounts 1.76 1.52 Bank deposits with original maturity more than 3 months 323.00 270.56 Deposit Accounts - 0.05 Escrow Account 4.49 21.87 Less: Current Account balance held in trust for customers in respect of certain subsidiaries 46.11 40.67 Add: Share of Joint Venture 0.01 0.08 1,209.88 1,316.61 d) Previous year's figures have been regrouped / rearranged wherever necessary.
This is the Consolidated Cash Flow Statement referred to in our Report of even date. For Lovelock & Lewes For and on behalf of the Board of Directors Firm Registration Number-301056E Chartered Accountants Director Pradip Kumar Khaitan Managing Director Aniruddha Basu Sougata Mukherjee Partner Membership No. : 057084 Subhasis Mitra Rajarshi Banerjee Kolkata, 30th May, 2014 Company Secretary Executive Director & CFO
F - 35 Notes forming Part of Consolidated Financial Statements
NOTE - 1. a) Basis of Preparation The consolidated financial statements comprises of the financial statements of CESC Limited (the Parent), its subsidiaries and proportionate interests in joint venture entity. The Consolidated Financial Statements have been prepared in accordance with the Accounting Standard 21 on Consolidated Financial Statements and Accounting Standard 27 on Financial Reporting of Interests in Joint Ventures notified under Companies Act, 1956 read with the General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013. The Consolidated Financial Statements are prepared on the following basis : · The audited financial statements of the Parent and its subsidiary companies have been combined on a line by line basis by adding together like items of assets, liabilities, income and expenses. The intra-group balances, intra-group transactions and unrealised profits or losses thereon have been fully eliminated. · The financial statements of the subsidiaries used in the consolidation are drawn upto the same reporting date as that of the Parent. · Joint venture has been accounted for in the Consolidated Financial Statements using the proportionate consolidation method whereby a venturers share of each of the assets, liabilities, income and expenses of the jointly controlled entity is accounted for on a pro-rata basis. b) The subsidiaries considered in the preparation of the Consolidated Financial Statements are : Sl. Name of the Subsidiaries Country of Percentage of Percentage of No. Incorporation ownership ownership interest as at interest as at 31st March, 2014 31st March, 2013 1 Spencers Retail Limited (SRL) India 100 100 2 Music World Retail Limited(100% subsidiary of SRL) India 100 100 3 Au Bon Pain Café India Limited(80% subsidiary of SRL) India 80 80 4 CESC Properties Limited (CPL) India 100 100 5 Metromark Green Commodities Private Limited(100% subsidiary of CPL) India 100 100 6 CESC Infrastructure Limited (CIL) India 100 100 7 Haldia Energy Limited (HEL) India 100 100 8 Dhariwal Infrastructure Limited (DIL) India 100 100 9 Surya Vidyut Limited (SVL) India 100 100 10 Nalanda Power Company Limited India 100 100 11 CESC Projects Limited India 100 100 12 Bantal Singapore Pte Ltd Singapore 100 100 13 Pachi Hydropower Projects Limited India 100 100 14 Papu Hydropower Projects Limited India 100 100 15 Ranchi Power Distribution Company Limited India 100 100 16 Spen Liq Private Limited (SLPL) India 100 100 17 Firstsource Solutions Limited (FSL) India 56.69 56.86 18 Firstsource Group USA, Inc. (FG USA )(100% subsidiary of FSL) USA 56.69 56.86 19 Firstsource BPO Ireland Ltd.(100% subsidiary of FSL) Ireland 56.69 56.86 20 Firstsource Solutions UK Ltd. (FS UK)(100% subsidiary of FSL) UK 56.69 56.86 21 Anunta Tech Infrastructure Services Ltd.(100% subsidiary of FSL) India 56.69 56.86 22 Firstsource-Dialog Solutions Pvt. Ltd.(74% subsidiary of FSL) Srilanka 41.95 42.08 23 MedAssist Holding, Inc. (MH Inc.)(100% subsidiary of FG USA) USA 56.69 56.86 24 Firstsource Business Process Services, LLC (FBPS)(100% subsidiary of FG USA) USA 56.69 56.86 25 Firstsource Solutions USA, LLC (FS USA)(100% subsidiary of MH Inc.) USA 56.69 56.86 26 Firstsource Advantage, LLC (FA)(100% subsidiary of FBPS) USA 56.69 56.86 27 Firstsource Transaction Services, LLC (100% subsidiary of FS USA) USA 56.69 56.86 28 Firstsource Solutions S.A. (Argentina) (99.98% subsidiary of FS UK) * Argentina 56.68 29 Twin Lakes Property LLC (Twinlakes-I )(100% subsidiary of FA) # USA 56.69 56.86 30 Twin Lakes Property LLC (Twinlakes-II )(100% subsidiary of FA) # USA 56.69 56.86 * w.e.f. 31st December 2013 # Dissolved during the year The subsidiary companies appearing in Sl. Nos. 5 to 16 except Sl. No. 8 & 9 are yet to commence their commercial operations.
F - 36 Notes forming Part of Consolidated Financial Statements (Contd.)
c) Interests in joint venture : The Groups interests in jointly controlled entity (incorporated joint venture) remains in Mahuagarhi Coal Company Private Limited, which was incorporated in India on 4th April, 2008 and percentage of ownership interest as at 31st March, 2013 stands at 50%. The company was incorporated for the development of Mahuagarhi coal field and exploration of coal therefrom and is yet to commence commercial operations.
NOTE - 2 The operations of the Parent are governed by the Electricity Act, 2003 and various Regulations and/or policies framed thereunder by the appropriate authorities. Accordingly, in preparing the financial statements, the relevant provisions of the said Act, Regulations etc., have been duly considered.
NOTE - 3 SIGNIFICANT ACCOUNTING POLICIES (a) Accounting Convention These consolidated financial statements have been prepared to comply in all material aspects with the applicable accounting principles in India, including Accounting Standards notified u/s 211(3C) of the Companies Act, 1956 and the Companies Act, 2013 to the extent applicable. A summary of important accounting policies are set out below.
(b) Basis of Accounting The consolidated financial statements have been prepared under the historical cost convention, modified by revaluation of certain fixed assets as stated in item 3 (c ). Certain subsidiaries of the group early adopted Accounting Standard 30, Financial Instruments: Recognition and Measurement (AS 30) read with Accounting Standard 31 - Financial Instruments: Presentation (AS 31) issued by the Institute of Chartered Accountants of India effective 1 April 2008.
(c) Tangible Assets Tangible Assets are stated at historical cost of acquisition except tangible assets other than furniture and vehicles acquired upto 31st March 2005 of the Parent. Those assets have been adjusted for the effect of valuation made by an approved external valuer at the then current replacement cost after necessary adjustment for depreciation. Subsequent acquisition of these assets, furniture and vehicles are stated at cost of acquisition together with any incidental expenses related to acquisition and appropriate borrowing costs. In case of a project, cost also includes pre-operative expenses and where applicable, expenses during trial run after netting off of revenue earned during trial run and income arising from temporary use of funds pending utilisation. With respect to certain subsidiaries, expenditure in respect of improvements, etc. carried out at the rented / leased premises are capitalized and expenditure incurred in setting up the stores are capitalized as a part of the leasehold improvements.
(d) Intangible Assets Intangible assets comprising software, brands / trademarks, knowhow and licences, expected to provide future enduring economic benefits, are stated at cost of acquisition / implementation / development less accumulated amortisation. In respect of certain subsidiaries, software product development costs are expensed as incurred during the research phase until technological feasibility is established. Software development costs incurred subsequent to the achievement of technological feasibility are capitalized and amortised over the estimated useful life of the products as determined by the management. This capitalization is done only if there is an intention to and ability to complete the product, the product is likely to generate future economic benefits, adequate resources to complete the product are available and such expenses can be accurately measured. Such software development costs comprise expenditure that can be directly attributed or allocated on a reasonable and consistent basis, to the development of the product.
(e) Impairment of assets An impairment loss is recognized, where applicable when the carrying value of assets of cash generating unit exceeds its market value or value in use, whichever is higher. In respect of certain subsidiaries, impairment loss is recognized as follows:
a. Financial assets Certain subsidiaries assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. If any such indication exists, the group estimates the amount of impairment loss. The amount of loss for short-term receivables is measured as the difference between the assets carrying amount and undiscounted amount of future cash flows. Reduction, if any, is recognised in the consolidated statement of profit and loss. If at the balance sheet date there is any indication that a previously assessed impairment loss no longer exists, the recognised impairment loss is reversed, subject to maximum of initial carrying amount of the short-term receivable.
b. Non-financial assets Certain subsidiaries assesses at each balance sheet date whether there is any indication that a non-financial asset including goodwill may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset. If such
F - 37 Notes forming Part of Consolidated Financial Statements (Contd.)
recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the consolidated statement of profit and loss. If at the balance sheet date, there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.
(f) Depreciation / Amortization With respect to the Parent, in terms of applicable Regulations under the Electricity Act, 2003, depreciation on tangible assets other than freehold land is provided on straight line method on a prorata basis at the rates specified therein, the basis of which is considered by the West Bengal Electricity Regulatory Commission (Commission) in determining the tariff for the year of the Parent. Additional charge of depreciation for the year on increase in value arising from revaluation is recouped from Revaluation Reserve.
Leasehold land is amortized over the unexpired period of the lease.
Cost of intangible assets, comprising computer software related expenditure, are amortised in three years, except in case of a subsidiary, where such assets amounting to ` 14.40 crore (Gross Block) as at 31st March, 2014 (31st March 2013 : ` 11.72 crore) are amortised over a period of four-six years. In respect of another subsidiary, such intangible assets amounting to ` 129.74 crore (Gross Block) as at 31 March 2014 (31st March 2013: ` 106.03 crores) are amortised over a period of 2 to 4 years. In respect of another subsidiary, intangible assets like know-how and licences amounting to ` 9.58 crore (Gross Block) as at 31st March, 2014 (31st March 2013: ` 3.18 crore) are amortised over a period of 2 to 10 years. In respect of certain subsidiaries, licence amounting to ` 0.67 crore (Gross Block) as at 31st March, 2014 (31st March 2013: ` 0.67 crore) is amortised over a period of 3 years. In respect of the Parent, brands/trademarks are amortised over a period of twenty years based on useful life assessed by an independent valuer.
In respect of certain subsidiaries higher rate of depreciation is applied based on useful life of relevant assets (which are shorter than those prescribed under the Companies Act, 1956), the Gross Block of such assets amounts to ` 635.98 crore (31st March 2013 : ` 617.73 crores). Goodwill on acquired assets, amounting to ` 101.08 crores (31st March 2013; ` 88.71 crores) are amortised over a period of 5 years or estimated useful life, whichever is shorter.
For certain subsidiaries, depreciation is charged on straight line method at the rates prescribed in Schedule XIV under the Companies Act, 1956 and in one of the subsidiaries in certain cases a higher rate of depreciation is applied based on the useful life of the relevant assets (Gross Block ` 3371.76 crore, 31st March 2013 : ` 756.69 crore). In case of certain other subsidiaries, depreciation on fixed assets (Gross Block ` 0.37 crore, 31st March 2013 : ` 19.68 crore) is provided on written down value method at the rates prescribed in Schedule XIV under the Companies Act, 1956.
During the year, in respect of some of the subsidiaries, the method of providing depreciation was changed from Written Down Value Method to Straight Line Method. Consequent to adoption of straight line basis for depreciation, charge on account of depreciation for the year ended 31st March 2014 is lower by an amount of ` 39.78 crores. In respect of one of the subsidiaries, the method of providing depreciation was changed from Written Down Value Method to Straight Line Method, as per the rates prescribed in West Bengal Electricity Commission (Terms and Conditions of Tariff) Regulations, 2011. Consequent to this change in policy, charge on account of depreciation for the year ended 31st March 2014 is lower by an amount of ` 0.32 crores.
(g) Expenditure during construction Ten of the subsidiaries and the joint venture entity are yet to commence commercial operation.
Indirect expenses related to the project and incidental thereto are included under Capital Work in Progress and are to be capitalized subsequently.
Indirect expenditure which are not directly related to the project are charged off to the Statement of Profit and Loss.
(h) Leasing Lease rentals in respect of assets taken under operating lease are charged to revenue.
In case of one of the subsidiaries, finance leases, which effectively transfer substantially all the risk and benefits incidental to the ownership of the leased item, are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the leased liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized.
Assets given on finance lease,in respect of certain subsidiaries, are shown as amounts recoverable from the lessee. The rentals received on such leases are apportioned between the finance charge / (income) and principal amount using the implicit rate of
F - 38 Notes forming Part of Consolidated Financial Statements (Contd.)
return. The finance charge / (income) is recognised as income, and principal received is reduced from the amount receivable. All initial direct costs incurred are included in the cost of the asset.
In case there is no reasonable certainty that the company will obtain the ownership by the end of the lease term, the capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
(i) Investments Current Investments are stated at lower of cost and fair value and Non Current Investments are stated at cost. Provision is made where there is a decline, other than temporary, in the value of Non Current Investment.
(j) Inventories Inventories are valued at lower of cost and net realizable value. Cost is calculated on weighted average basis and comprises of expenditure incurred in the normal course of business in bringing such inventories to their location and condition. Obsolete, slow moving and defective inventories are identified at the time of physical verification of inventories and where necessary, adjustment is made for such items.
(k) Foreign Currency Transactions Transactions in foreign currency are accounted for at the exchange rate prevailing on the date of transactions. Transactions remaining unsettled are translated at the exchange rate prevailing at the end of the financial year. Exchange gain or loss arising on settlement / translation is recognized in the Consolidated Statement of Profit and Loss. The outstanding loans repayable in foreign currency are restated at the year-end exchange rate. With respect to the Parent, exchange gain or loss arising in respect of such restatement is accounted for as an income or expense with recognition of the said amount as refundable or recoverable, which will be taken into consideration in determining the Parents future tariff in respect of the amount settled duly considering as appropriate, the impact of the contracts entered into for managing risks thereunder.
In respect of certain subsidiaries, the outstanding loans repayable in foreign currency are restated at year-end exchange rates or such other applicable rates considering the concerned coverages made by the subsidiaries. Exchange gain or loss arising in respect of such restatement and the impact of the contracts for managing risks thereunder is accounted as an income or expense.
Certain subsidiaries measure the financial liabilities, except for derivative financial liabilities, at amortised cost using the effective interest method. It measures the short-term payables with no stated rate of interest at original invoice amount, if the effect of discounting is immaterial.
The consolidated financial statements are reported in Indian rupees. The translation of the local currency of each integral foreign subsidiary within the Group into Indian rupees is performed in respect of assets and liabilities other than fixed assets, using the exchange rate in effect at the balance sheet date and for revenue and expense items other than the depreciation costs, using average exchange rate during the reporting period. Fixed assets of integral foreign operations are translated at exchange rates on the date of the transaction and depreciation on fixed assets is translated at exchange rates used for translation of the underlying fixed assets.
In respect of certain subsidiaries assets and liabilities including fixed assets are translated at exchange rates prevailing at the date of the balance sheet. The items in the statement of profit & loss are translated at the average exchange rate during the period. Goodwill arising on the acquisition of non-integral operation is translated at exchange rates prevailing at the date of the balance sheet. The difference arising out of the translations are transferred to exchange difference on consolidation of non-integral subsidiaries under Reserves & Surplus.
With respect to one of the subsidiaries, exchange differences arising on monetary items that qualify as hedging instruments in a cash flow hedge or hedge of a net investment, is initially recognized in Hedging Reserve Account or Foreign Currency Translation Reserve Account respectively. Such exchange differences are subsequently recognized in the consolidated statement of profit & loss on occurrence of the underlying hedged transaction or on disposal of the investment as the case may be.
Derivative instruments and hedge accounting with respect to certain subsidiaries :
Certain subsidiaries are exposed to foreign currency fluctuations on net investments in foreign operations and forecasted cash flows denominated in foreign currencies. The subsidiary limits the effects of foreign exchange rate fluctuations by following established risk management policies including the use of derivatives. The Company enters into derivative financial instruments, where the counterparty is a bank.
The use of foreign currency forward contracts is governed by one of the subsidiary companys policies approved by the Board of Directors, which provide written principles on the use of such financial derivatives consistent with the Companys risk managment strategy. The Group does not use derivative financial instruments for speculative purposes. Certain subsidiaries use foreign currency forwards contracts and currency options to hedge its risks associated with foreign currency fluctuations relating to certain forcasted transactions. The Company designates these as cash flow hedges.
F - 39 Notes forming Part of Consolidated Financial Statements (Contd.)
Foreign currency derivative instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognised directly in shareholders funds and the ineffective portion is recognised immediately in the consolidated statement of profit and loss. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the consolidated statement of profit and loss as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time for forecasted transactions, any cumulative gain or loss on the hedging instrument recognised in shareholders funds is retained there until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in shareholders funds is transferred to the consolidated statement of profit and loss for the period. Non-derivative financial instruments and hedge accounting with respect to certain subsidiaries. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets of the Company mainly include cash and bank balances, accounts receivables, unbilled revenues, finance lease receivables, employee travel and other advances, other loans and advances and derivative financial instruments with a positive fair value. Financial liabilities of the Company mainly comprise secured and unsecured loans, trade payables, accrued expenses and derivative financial instruments with a negative fair value. Financial assets / liabilities are recognised on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when all of risks and rewards of the ownership have been transferred. The transfer of risks and rewards is evaluated by comparing the exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred assets. Short-term receivables with no stated interest rates are measured at original invoice amount, if the effect of discounting is immaterial. Non-interest-bearing deposits are discounted to their present value. It also designates financial instruments as hedges of net investments in non-integral foreign operations. The portion of changes in fair value of financial instrument that is determined to be an effective hedge is recognised in Foreign Currency Translation Reserve and would be recognised in consolidated statement of profit and loss upon sale / disposal of the related non-integral foreign operations. Changes in fair value relating to the ineffective portion of hedges are recognised in the consolidated statement of profit and loss as they arise. (l) Revenue from Operations Earnings from sale of electricity of the Parent are net of discount for prompt payment of bills and do not include electricity duty payable to the State Government. They also include, as per established practice, consistently followed by the Parent in the past, estimated sums recoverable from / adjustable on consumers account, calculated on the basis of rates approved / specified by the appropriate authorities which are reflected in the subsequent bills. In terms of the applicable regulations and tariff determination process followed by the Commission, advance against depreciation forms part of tariff. Such advance against depreciation of a year is adjusted against earning from sale of electricity for inclusion of the same in subsequent years, based on due consideration by the authorities in the tariff determination process. With respect to the Parent, income from meter rent is accounted for as per the approved rates. With respect to certain subsidiaries, revenue is recognized when significant risk and rewards of ownership of the goods get passed on to the buyers. In respect of one of its subsidiaries, revenue from mall operations are based on contractual rights. In respect of one of its subsidiaries, generation based incentive is recognised on accrual basis. In respect of certain subsidiaries, revenue from contact centre and transaction processing services comprises from both time/unit priced and fixed fee based service contracts. Revenue from time/unit price based contracts is recognized as services are rendered and is billed in accordance with the contractual terms specified in the customer contracts.Revenue from fixed fee based service contracts is recognized on achievement of performance milestones specified in the customer contracts. Revenue from debt collection services is recognized when debts are realized. Income from contingency based contracts, in which the client is invoiced for a percentage of the reimbursement, is recognised on completion of services.Unbilled receivables represent costs incurred and revenues recognized on contracts to be billed in subsequent periods as per the terms of the contract. (m) Other Income Income from investments and deposits etc. is accounted for on accrual basis inclusive of related tax deducted at source, where applicable. With respect to certain subsidiaries, income from recoveries and services mainly represents recoveries made on account of advertisement for use of space by the customer and other expenses charged from suppliers and are recognized and recorded based on the arrangements with concerned parties. Government Grants In respect of certain subsidiaries, revenue grants are recognized when reasonable certainty exists that the conditions precedent will be/ are met and the grants will be realised, on a systematic basis in the consolidated statement of profit & loss over the period necessary to match them with the related cost which they are intended to compensate.
F - 40 Notes forming Part of Consolidated Financial Statements (Contd.)
(n) Employee Benefits Contributions to Provident Fund and contributory Pension Fund are accounted for on accrual basis. Provident Fund contributions are made to funds administered through duly constituted approved independent Trusts or Regional Provident Fund Commissioner. The interest rate payable to the members of the trust fund shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 and deficiency, if any, is made good by the Companies. The companies, as per its schemes, extend employee benefits current and/or post retirement, which are accounted for on accrual basis, and includes actuarial valuation as at the balance sheet date in respect of gratuity, leave encashment and certain other retiral benefits, to the extent applicable, made by independent actuaries. Actuarial gains and losses, where applicable, are recognized in the Statement of Profit and Loss. Compensation in respect of voluntary retirement scheme is charged off to revenue.
In respect of one of the subsidiaries short term employee benefits are recognised as an expense in the Statement of Profit and Loss for the year in which the related service is rendered.
The subsidiaries in the United States of America have a savings and investment plan under Section 401 (k) of the Internal Revenue Code of the United States of America. This is a defined contribution plan. Contributions made under the plan are charged to the consolidated statement of profit & loss in the period in which they accrue. Other retirement benefits are accrued based on the amounts payable as per local regulations.
(o) Finance Costs Finance cost comprise interest expenses, applicable gain/loss on foreign currency borrowings in appropriate cases and borrowing costs. Such Finance Costs attributable to acquisition and / or construction of qualifying assets are capitalized as a part of cost of such assets upto the date where such assets are ready for their intended use. Other borrowing costs are charged off to Statement of Profit & Loss. Finance costs in case of foreign currency borrowings is accounted for as appropriate, duly considering the impact of the contracts entered into for managing risks therefor. In respect of one of the subsidiaries ancillary costs incurred in connection with the arrangement of borrowings are amortized over the period of borrowings for which these are incurred.
(p) Taxes on Income Current tax represents the amount payable based on computation of tax as per prevailing taxation laws under the Income Tax Act, 1961.
Certain subsidiaries have operations in Special Economic Zones (SEZ). Income from SEZ are eligible for 100% deduction for the first five years, 50% deduction for next five years and 50% deduction for another five years, subject to fulfilling certain conditions. In this regard, the Group recognises deferred taxes in respect of those originating timing differences which reverse after the tax holiday period resulting in tax consequences. Timing differences which originate and reverse within the tax holiday period do not result in tax consequence and, therefore, no deferred taxes are recognised in respect of the same.
Provision for deferred taxation is made using liability method at the current rates of taxation on all timing differences to the extent it is probable that a liability or asset will crystallize. Deferred tax assets are recognized subject to the consideration of prudence and are periodically reviewed to reassess realization thereof. Deferred tax liability or asset will give rise to actual tax payable or recoverable at the time of reversal thereof. With respect to the Parent, since tax on profits forms part of chargeable expenditure under the applicable regulations, deferred tax liability or asset is recoverable or payable through future tariff. Hence, recognition of deferred tax asset or liability is made with corresponding provision of liability or asset, as applicable.
(q) Miscellaneous expenditure to the extent not written off or adjusted With respect to the Parent, the erstwhile governing statute, viz., the Electricity (Supply) Act, 1948 (ESA), provided for amortisation of preliminary expenses and certain capital issue expenses over the unexpired period of licence. The Parent, as per the consistently applied accounting policy continues with such amortisation of expenditure incurred upto the year 2004-05. Thereafter, pursuant to repeal of ESA, such expenditures are charged off to revenue.
(r) Employee Stock Compensation Cost With respect to one of the subsidiaries, measurement and disclosure of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India. The compensation cost relating to employee stock options is measured using the fair value method. Compensation expenses are amortized over the vesting period of the option on a straight line method.
One of the subsidiaries applies the intrinsic value based method of accounting for determining compensation cost for its stock- based compensation plan. The compensation cost is amortized over the vesting period of the option.
F - 41 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013
NOTE - 4 SHARE CAPITAL
(a) Authorised Share Capital 15,00,00,000 Equity Shares of ` 10 each 150.00 150.00
(b) Issued Capital 13,12,35,897 Equity Shares of ` 10 each 131.24 131.24
(c) Subscribed and paid up capital 12,49,35,925 Equity Shares of ` 10 each 124.94 124.94
(d) Forfeited Shares (amount originally paid up) 0.66 0.66 125.60 125.60
(e) Reconciliation of the shares outstanding at the beginning and at the end of the reporting period As at 31st March, 2014 As at 31st March, 2013 No. of shares Amount No. of shares Amount (` In Crore) (` In Crore)
Opening and Closing Balances 124,935,925 124.94 124,935,925 124.94
(f) Terms /rights attached to equity shares : The Parent has only one class of equity shares having a par value of ` 10 per share fully paid up. Holders of Equity Shares are entitled to one vote per share. During the year ended 31st March, 2014 the amount of dividend per share recommended by the Board of Directors of the Parent as distributions to equity shareholders is ` 8 (previous year: ` 7 ) subject to declaration at the ensuing Annual General Meeting by the members. In the event of liquidation of the Parent, the holders of equity shares will be entitled to receive sale proceeds from remaining assets of the Parent after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
(g) Details of shareholders holding more than 5% shares in the parent. As at 31st March, 2014 As at 31st March, 2013 Name of shareholder No. of shares % of holding No. of shares % of holding
Rainbow Investments Limited 31,058,414 25 31,058,414 25 Universal Industrial Fund Limited 17,791,421 14 17,791,421 14 HDFC Trustee Company Limited 11,205,021 9 10,940,021 9
F - 42 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013
NOTE - 5 RESERVES AND SURPLUS
(a) Capital contribution from consumer as at beginning of the year 710.24 646.38 Add : Contribution during the year 106.38 63.86 816.62 710.24
(b) Capital Reserve on consolidation 502.29 502.29 Less : Adjusted with Goodwill on consolidation (502.29) (502.29)
(c) Capital Redemption Reserve 20.13 20.13
(d) Securities Premium Account 1,254.85 1,254.85
(e) Revaluation Reserve as at the beginning of the year 1,058.91 1,155.77 Less : Withdrawal on account of depreciation / amortisation on amount added on revaluation 96.10 96.34 962.81 1,059.43
Less : Withdrawal of the residual amount added on revaluation consequent to sale/disposal of revalued assets 1.58 0.52 961.23 1,058.91
(f) Fund for unforeseen exigencies at the beginning of the year 141.55 109.67 Add : Transfer during the year from Surplus (Refer Note (i) below) 37.63 31.88 179.18 141.55
(g) Hedge Reserve as at the beginning of the year 15.61 Less: Movement during the year (3.12) Less: Consequent to change in group interest (0.00) 12.49 15.61
(h) Foreign Currency Translation Reserve as at the beginning of the year 6.76 Add: Movement during the year 112.67 Less: Consequent to change in group interest (0.25) 119.18 6.76
(i) General Reserve / Surplus as at the beginning of the year 1,809.92 1,484.74 Add : Profit for the year 491.64 459.38 Less: Consequent to change in group interest 1.26 Less : Transfer to fund for unforseen exigencies 37.63 31.88 Less : Proposed Dividend 99.95 87.46 Less : Tax on Proposed Dividend 16.99 14.86 2,145.73 1,809.92 5,509.41 5,017.97
(j) Amount transferred during the year to fund for unforeseen exigencies in respect of the Parent to be invested as per the statute.
F - 43 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013
NOTE - 6 LONG-TERM BORROWINGS (A) Secured Term Loans (1) Rupee Loans : (i) Banks 6,302.07 5,801.49 (ii) Financial Institutions 218.38 266.38 6,520.45 6,067.87 (2) Foreign Currency Loans from banks 3,813.07 2,053.17 (3) Finance Lease obligations 10.76 11.26 10,344.28 8,132.30 (B) Unsecured (i) Banks 515.00 470.00 (ii) Rupee Loan from Financial Institutions 4.03 5.82 519.03 475.82 10,863.31 8,608.12 Less : Current maturities of long term borrowing transferred to 1,730.97 796.84 Other Current Liabilities ( Refer Note 10) 9,132.34 7,811.28 (C) Nature of Security : 1 (i) Out of the Term Loans in (A) above in respect of the Parent, ` 3,071.48 crore are secured, ranking pari passu inter se, by equitable mortgage/hypothecation of the fixed assets of the Parent including its land, buildings and any other constructions thereon, plant and machinery, etc as a first charge and as a second charge, by hypothecation of the Parents current assets comprising stock of stores, coal and other consumables, book debts, monies receivable and bank balances. However, creation of the said mortgage security in respect of ten Rupee Loans and one Foreign Currency Loan (Previous year seven Rupee Loans and one Foreign Currency Loan) aggregating ` 1,470.59 crore is in process. User rights in respect of a freehold land having a book value of ` 62.55 crore have been offered as security for financial assistance availed of by a subsidiary company to its lenders; and (ii) Out of the Term Loans in (A) above ` 382.56 crore, in respect of the Parent, are secured, ranking pari passu inter se, by hypothecation of movable fixed assets and current assets of the Parent by way of a charge subservient to the charge of the first and second charge holders on the said assets. 2 Out of the Term Loan in (A) above, ` 210 crore in respect of one of the subsidiaries, is secured by way of hypothecation with an exclusive charge on all movable fixed assets, current assets and scheduled receivables of the subsidiary with respect to their Mall project , both present and future, and also with equitable assignment of all rights under Development Agreement executed with the Parent. 3 Out of the Term Loan in (A) above, ` 2616.12 crore in respect of another subsidiary are secured, ranking pari passu inter se with first charge by way of equitable mortgage /hypothecation of fixed assets of the subsidiary including its land, buildings and the construction thereon, plant and machinery etc and hypothecation of the Subsidiarys current assets. 4 (i) Out of the Term Loan in (A) above, ` 1,601.51 crore in respect of another subsidiary are secured, ranking pari passu inter se, with first charge by way of mortgage/hypothecation of fixed assets of the subsidiary including its land, buildings and the construction thereon, plant and machinery etc and hypothecation of the subsidiarys current assets. (ii) Out of the Foreign Currency Loan in (A) above, loans amounting to ` 996.32 crore in respect of the above subsidiary are secured with first charge by way of mortgage/hypothecation of fixed assets of the subsidiary including its land, buildings and the construction thereon where exists and plant and machinery etc and hypothecation of subsidiarys current assets. (iii) Out of the Foreign Currency Loan in (A) above, loan of ` 181.47 crore in respect of the above subsidiary is secured with second charge by way of hypothecation of movable fixed assets and current assets of the subsidiary. 5 In respect of one of the subsidiaries, the Foreign Currency Loan of ` 120.98 crore in (A) above is secured with an exclusive charge by way of mortgage/hypothecation on the fixed assets of the subsidiary including its land, building, construction thereon where exist, plant and machinery etc and by way of hypothecation of the current assets of the subsidiary in respect of 24MW wind power project at Jaisalmer, Rajasthan.
F - 44 Notes forming Part of Consolidated Financial Statements (Contd.)
6 (i) In respect of certain subsidiaries, out of Foreign Currency Loan in (A) above, loans amounting to ` 119.23 crore is secured against pari passu charge on all current assets, non-current assets and fixed assets of such subsidiaries except assets of Anunta and FDS. (ii) Term Loan of ` 808.85 crore in (A) above in respect of certain subsidiaries is secured against pari passu charge on all current assets, non-current assets and fixed assets of such subsidiaries except assets of Anunta and FDS. (iii) Finance lease obligation amounting to ` 10.76 crore in (A) above in respect of certain subsidiaries is secured by way of hypothecation of underlying fixed assets taken on lease. 7 (i) Term loan of ` 75 crore in (A) above, in respect of one of the subsidiaries, is secured by hypothecation by way of first charge on all the current and movable assets (tangible & intangible, both, present and future) and all the receivables of the company arising out of, pursuant to or under the merchant establishment agreement (including the credit card receivables account) save and except any asset situated in or any such receivables arising from the hyper stores situated at Vishakhapatnam, Hyderabad and Malad ( Mumbai). (ii) Secured loan of ` 150 crore in (A) above, in respect of the above subsidiary is covered/secured by Parents letter of comfort and hypothecation by way of first charge on all the current and movable assets (tangible & intangible, both, present and future) and all the receivables of the company arising out of, pursuant to or under the merchant establishment agreement (including the credit card receivables account). (D) Major terms of repayment of long term borrowings disclosed in (A) and (B) above : ` in Crore Maturity Profile of Long Term Rupee Term Rupee Term Finance Lease Foreign Total Current Borrowings outstanding as at Loan from Loan from Obligations Currency Maturities 31st March 2014 Banks Financial Loans Institutions Loans with residual maturity of upto one year - - - 750.18 750.18 750.18 Loans with residual maturity between 1 and 3 years 506.59 - 10.76 589.38 1,106.73 248.64 Loans with residual maturity between 3 and 5 years 638.33 47.13 - 1,328.06 2,013.52 374.65 Loans with residual maturity between 5 and 10 years 2,439.67 171.25 - 648.52 3,259.44 357.50 Loans with residual maturity beyond 10 years 3,236.51 - - 496.93 3,733.44 - Total 6,821.10 218.38 10.76 3,813.07 10,863.31 1,730.97 Interest rates on Rupee Term Loans from Banks and Financial Institutions are based on spread over respective Lenders benchmark rate and that of on Foreign Currency Loans are based on spread over LIBOR. All of the above are repayable in periodic instalments over the maturity period of the respective loans.
` in Crore As at As at 31st March, 2014 31st March, 2013 NOTE - 7 OTHER LONG TERM LIABILITIES (a) Trade Payables 182.97 42.42 (b) Others* 1,593.86 1,827.34 1,776.83 1,869.76 *Others represent those arising from adjustments detailed in Note 24, the unadjusted balance of sums received from consumers for capital jobs, pending completion thereof in respect of the Parent and retention liabilities in respect of certain subsidiaries etc. NOTE - 8 LONG TERM PROVISIONS Provision for employee benefits 167.34 135.98 167.34 135.98
F - 45 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013 NOTE - 9 SHORT-TERM BORROWINGS A. Secured (i) Loans repayable on demand Overdraft from banks 602.19 664.41 Export Finance from Bank 66.13 - Working Capital demand loan 179.76 - (ii) Foreign Currency Loans Buyers Credit - 188.18 B. Unsecured Short term Loan from banks 205.00 200.04 1,053.08 1,052.63 C. Nature of Security 1. The overdraft facilities from banks in respect of the Parent amounting to ` 575.58 crore in (A) (i) above are secured, ranking pari passu inter se, by hypothecation of Parents current assets comprising stock of stores, coal and other consumables, book debts, monies receivable and bank balances as a first charge and as second charge by equitable mortgage/ hypothecation of the fixed assets of the Parent including its land, buildings and other constructions thereon where exists, plant and machinery etc. However, creation of the said mortgage security in respect of overdraft facilities from banks aggregating ` 190 crore is in process. 2 The working capital demand loan of ` 179.76 crore in A (i) above, in respect of one of the subsidiaries is secured against charge on all current assets, non-current assets and fixed assets of that subsidiary. The export finance from banks of ` 66.13 crore in A (i) above, in respect of the above subsidiary,including post-shipment and pre-shipment, is repayable on demand/receipt from customers. 3 The overdraft facilities from banks in respect of one of the subsidiaries, amounting to ` 26.61 crore in A (i) above, is secured against margin money deposits. ` in Crore As at As at 31st March, 2014 31st March, 2013 NOTE - 10 OTHER CURRENT LABILITIES (a) Current maturities of long-term borrowings (Refer Note 6) 1,725.47 792.69 (b) Current maturities of finance lease obligations (Refer Note 6) 5.50 4.15 (c) Interest accrued but not due on borrowings 77.19 64.30 (d) Interest accrued and due on borrowings 0.05 0.89 (e) Book overdraft from Banks 27.39 24.61 (f) Unclaimed dividend 1.76 1.52 (g) Unclaimed public deposit 0.03 0.47 (h) Liabilities on capital account 566.82 292.95 (i) Other payables 1,065.65 775.34 (j) Add : Share of Joint Venture (Refer Note 1c) 0.05 0.05 3,469.91 1,956.97 (k) Unclaimed dividend and unclaimed Public Deposits in respect of the Parent do not include any amounts, due and outstanding, to be credited to Investor Education and Protection Fund. (l) Other payables includes outstanding interest on consumer security deposit, employee related liability, creditors towards contractual obligations etc. ` in Crore As at As at 31st March, 2014 31st March, 2013 NOTE - 11 SHORT TERM PROVISIONS (a) Provision for employee benefits 66.64 23.73 (b) Provision for taxation (net of advance tax ) 16.81 3.88 (c) Proposed Dividend 99.95 87.46 (d) Tax on Proposed Dividend 16.99 14.86 (e) Provision for Claims on Lease Property 12.16 12.01 212.55 141.94
F - 46 Notes forming Part of Consolidated Financial Statements(Contd.) ` in Crore
NOTE 12 - TANGIBLE ASSETS
GROSS BLOCK AT COST OR VALUATION DEPRECIATION / AMORTISATION NET BLOCK
As at Additions / As at As at Additions / As at As at As at PARTICULARS 1st April, Adjustments Additions/ Withdrawals/31st March, 1st April, Adjustments Additions/ Withdrawals/ 31st March, 31st 31st March, March, 2013 on Acquisition Adjustments * Adjustments2014 2013 on Acquisition Adjustments Adjustments2014 * 2014 2013
Land Freehold 860.64 - 7.60 4.93 863.31 0.10 - - - 0.10 863.21 860.54 Leasehold 490.52 - 9.40 - 499.92 31.96 - 3.16 - 35.12 464.80 458.56 Buildings and Structures 1,057.45 - 767.98 55.63 1,769.80 507.16 - 52.94 18.61 541.49 1,228.31 550.29 Plant and Equipment 6,219.40 - 2,456.07 30.93 8,644.54 2,897.63 - 256.55 14.003,140.18 5,504.36 3,321.77 Transmission and Distribution System 4,695.32 - 569.55 19.20 5,245.67 1,728.48 - 155.94 17.49 1,866.93 3,378.74 2,966.84 Meters and Other Apparatus on Consumers Premises 511.18 - 27.00 9.66 528.52 249.43 - 22.37 4.14 267.66 260.86 261.75 River Tunnel 4.88 - - - 4.88 2.77 - 0.26 - 3.03 1.85 2.11 Furniture and Fixtures 178.15 - 28.31 18.05188.41 107.36 - 11.41 10.43 108.34 80.07 70.79 Office Equipments 396.68 - 65.12 17.05 444.75 295.27 - 26.49 (10.63)332.39 112.36 101.41 Vehicles 20.80 - 1.94 2.32 20.42 13.16 - 1.84 1.63 13.37 7.05 7.64 F
- Railway Sidings 39.43 - 63.73 - 103.16 20.64 - 1.30 - 21.94 81.22 18.79 47 14,474.45 - 3,996.70 157.77 18,313.38 5,853.96 - 532.26 55.67 6,330.55 11,982.83 8,620.49
Previous Year 12,902.11 608.03 1,071.08 106.77 14,474.45 4,987.59 492.79 448.65 75.07 5,853.96 8,620.49
Note: In respect of one of the subsidiaries, depreciation for the year includes Rs. 5.23 crore (previous year Rs. 1.68 crore) being accelerated depreciation on certain moveable items not in use from closed / disposed stores. * Includes adjustments relating to foreign exchange on account of translation of foreign subsidiaries / entities.
NOTE 13 - INTANGIBLE ASSETS ` in Crore GROSS BLOCK AT COST OR VALUATION AMORTISATION NET BLOCK
As at Additions / As at As at Additions / As at As at As at PARTICULARS 1st April, Adjustments Additions/ Withdrawals/31st March, 1st April, Adjustments Additions/ Withdrawals/ 31st March, 31st 31st March, March, 2013 on Acquisition Adjustments * Adjustments2014 2013 on Acquisition Adjustments Adjustments2014 * 2014 2013
Goodwill on consolidation 2,205.08 - 237.07 4.02 2,438.13 - - - - - 2,438.13 2,205.08
Goodwill (Acquired) 88.71 - 26.80 14.43 101.08 56.47 - 20.34 6.3170.50 30.58 32.24
Trademarks 32.00 - - - 32.00 6.40 - 1.60 - 8.00 24.00 25.60
Licence 14.44 - 0.06 0.42 14.08 4.25 - 1.18 0.26 5.17 8.91 10.19
Computer Software 148.13 - 36.04 8.63 175.54 129.07 - 13.74 (6.08) 148.89 26.65 19.06
2,488.36 - 299.97 27.50 2,760.83 196.19 - 36.86 0.49 232.56 2,528.27 2,292.17
Previous Year 393.76 197.00 2,399.97 502.37 2,488.36 38.66 143.60 14.01 0.08 196.19 2,292.17
* Includes adjustments relating to foreign exchange on account of translation of foreign subsidiaries / entities. Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013
NOTE - 14 NON CURRENT INVESTMENTS
A. Trade Investments -Unquoted (a) Investments in Equity Instruments 13,000 Equity Shares of Integrated Coal Mining Limited of ` 10 each 0.01 0.01 (b) Investments in Preference shares 3,00,00,000 1% Cumulative Optionally Convertible Redeemable Preference Shares of Integrated Coal Mining Limited of ` 10 each - 30.00 B Other Investments - Unquoted (a) Investments in Equity Instruments 60,00,000 Equity Shares of Crescent Power Limited of ` 10 each 6.00 6.00 (b) Investment in Mutual Fund Philippines Treasury Bills* 2.68 2.68 (c) Others 10,000 Equity Shares of Retailers Association of India of ` 10 each 0.01 0.01
C Other Investments - Quoted - Investments in Equity Instruments 1,21,95,122 (31st March, 2013 : 1,21,95,122) Equity Shares of Resource Generation Limited (Market value - ` 12.30 crore) 64.96 58.86 73.66 97.56 DAll non- current investments are long term in nature. *These securities have been earmarked in favour of SEC, Philippines in compliance with corporation code of Philippines.
NOTE - 15 LONG-TERM LOANS AND ADVANCES
Unsecured, considered good (a) Capital advances 281.60 294.81 (b) Security Deposits 79.18 113.52 (c) Deposits (Refer note 40) 33.70 37.48 (d) Advance tax ( net of provision for tax) 61.30 70.22 (e) Share Application money to bodies corporate 22.00 20.00 (f) Other Loans and advances 62.07 25.36 (Includes advance for property acquisition, employee related loans etc)
Unsecured, considered doubtful Security Deposits 0.91 2.40 Less : Allowances for doubtful advances 0.91 2.40
539.85 561.39
F - 48 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013
NOTE - 16 OTHER NON-CURRENT ASSETS
(a) Long Term Trade Receivables 118.75 252.82 (b) Unamortised Cost ( Refer Note 40) 3.31 5.19 (c) Minimum Alternate Tax credit carried forward 86.53 59.63 (d) Unamortised costs towards miscellaneous expenditure to the extent not written off or adjusted 3.58 4.29 (e) Bank deposits with maturity more than 12 months (Refer note (h) below) 0.05 0.95 (f) Margin money deposits (Refer note (i) below) 25.29 16.05 (g) Interest receivable on deposits 0.21 0.07 237.72 339.00
(h) Includes in respect of certain subsidiaries, ` 0.05 crore (31st March, 2013 : ` 0.25 crore) under lien for bank guarantees with customs authorities (i) Represents deposits pledged with banks against Bank Guarantee and Overdraft facilities with respect to certain subsidiaries.
NOTE - 17 CURRENT INVESTMENTS
Unquoted (a) Investments in Equity Instruments 29,728,500 Equity Shares of Noida Power Company Limited of ` 10 each 29.73 29.73
(b) Investments in Mutual Funds 137,087 ( 31st March, 2013 : Nil) units of ICICI Prudential Liquid - Direct Plan Growth 2.60 - Nil ( 31st March, 2013: 2845.027) units of ` 24.57 each of HDFC Cash Management Fund Treasury Advantage Plan - 0.01 Nil (31st March, 2013 : 1,56,106.740) units of ` 1,921.762 each of UTI Liquid Cash Plan - Institutional - Direct Plan - Growth - 30.00 Nil (31st March, 2013 : 2,19,395.53) units of ` 1,139.494 each of Principal Cash Management Fund -Direct Plan-Growth - 25.00 Nil (31st March, 2013 : 17,31,102.135) units of ` 173.3 each of ICICI Prudential Liquid - Direct Plan- Growth - 30.00 32.33 114.74
NOTE - 18 INVENTORIES
(a) Raw Materials 1.51 0.83 (b) Work in Progress 0.01 0.06 (c) Finished Goods 0.33 0.09 (d) Traded Goods 142.24 110.42 (e) Fuel (includes goods in transit ` 23.57 crore; 31st March, 2013 ` 22.79 crore) 217.39 172.04 (f) Stores and Spares (includes goods in transit ` 1.74 crore; 31st March, 2013 ` 2.45 crore) 179.09 153.37 (g) Packing Materials 2.28 2.71 542.85 439.52 Less : Provision for obsolete stock of Traded Goods and Packing Materials 4.55 5.29 538.30 434.23
F - 49 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013
NOTE - 19 TRADE RECEIVABLES
(a) Outstanding for a period exceeding six months from due date of payment Secured, considered good 32.35 26.83 Unsecured, considered good 231.51 196.09 Doubtful 6.46 9.05 270.32 231.97 Less : Allowances for doubtful debts 6.46 9.05 263.86 222.92 (b) Other receivables Secured, considered good 653.42 437.73 Unsecured, considered good 612.87 959.45 Unsecured, considered doubtful 2.47 - 1,268.76 1,397.18 Less : Allowances for doubtful debts 2.47 - 1,266.29 1,397.18 1,530.15 1,620.10
NOTE - 20 CASH AND BANK BALANCES
(a) Cash and cash equivalents Balances with banks In Current Account 519.12 572.30 Bank deposits with original maturity upto 3 months (Refer note (e) below) 295.96 468.05 Cheques , draft on hand 102.15 12.92 Cash on hand 9.50 9.93 926.73 1,063.20 (b) Other bank balances Dividend Accounts 1.76 1.52 Bank deposits with original maturity more than 3 months (Refer note (f) and (g) below) 323.00 270.56 Deposit Accounts - 0.05 Escrow Account 4.49 21.87 329.25 294.00 (c) Less: Current account balance held in trust for customers in respect of certain subsidiaries 46.11 40.67 1,209.87 1,316.53
(d) Add : Share of Joint Venture [Refer note 1(c)] 0.01 0.08 1,209.88 1,316.61
(e) In respect of the Parent, amount lying in deposit accounts with banks as at 31st March, 2014 includes ` Nil (31st March, 2013 : `26.00 crore) appropriated upto the previous year towards Fund for unforeseen exigencies and interest attributable thereto. (f) In respect of the Parent, amount lying in deposit accounts with banks with original maturity more than three months as at 31st March, 2014 includes ` 150.75 crore (31st March, 2013 : ` 91.00 crore) appropriated upto the previous year towards Fund for unforeseen exigencies and interest attributable thereto. (g) Includes in respect of certain subsidiaries amount of ` 1.50 crore (31st March, 2013: ` 1.36 crore) towards line of credit.
F - 50 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore As at As at 31st March, 2014 31st March, 2013
NOTE - 21 SHORT-TERM LOANS AND ADVANCES
Other Advances (Unsecured, considered good) Advance for goods and services 44.47 39.49 Security deposit / advances - 0.22 Advance tax (net) 4.36 12.71 Others * 192.85 148.12 241.68 200.54 (Unsecured, considered doubtful) Security deposit / advances 0.01 -
Less : Allowances for doubtful advances (0.01) -
- -
241.68 200.54
* Above include expenditure incurred for setting up power projects to be transferred to the specific project developing entities, in due course.
NOTE - 22 OTHER CURRENT ASSETS
(a) Deferred Payment 196.71 116.46 (b) Unbilled Revenue 211.05 136.44 (c) Receivable towards claims and services rendered - (considered good) 0.54 1.91 (d) Others Others 3.33 5.88 Interest accrued on Deposits 25.18 35.18 Unamortised cost (Refer note 40) 1.87 - (e) Unamortised costs towards miscellaneous expenditure to the extent not written off or adjusted 0.72 0.72 439.40 296.59
F - 51 Notes forming Part of Consolidated Financial Statements (Contd.)
NOTE - 23 CONTINGENT LIABILITIES AND COMMITMENTS (TO THE EXTENT NOT PROVIDED FOR)
(a) Claims against the Parent not acknowledged as debts: The West Bengal Taxation Tribunal had held meter rentals received by the Parent from consumers to be deemed sales under the provisions of the Bengal Finance (Sales Tax) Act, 1941 and that sales tax was payable on such rentals. Based on such findings the Commercial Taxes Directorate assessed ` 0.69 crore as sales tax on meter rentals received during the year ended 31st March, 1993 and raised a demand of ` 0.36 crore on account of interest. Against the above demand, the Parent had deposited a sum of ` 0.75 crore with the sales tax authorities and obtained a stay against the balance demand from the Deputy Commissioner of Commercial Taxes. The sales tax authorities also indicated their intention to levy such sales tax on meter rentals for the subsequent years as well, against which, the Parent filed a writ petition in the Calcutta High Court and prayed for an interim order, inter alia, restraining the sales tax authorities from proceeding with the assessment for the subsequent years till disposal of the appeal. An interim order has been issued by the High Court permitting the sales tax authorities to carry out assessments but restraining them from serving any assessment order on the Parent. The disposal of the case is still pending.
(b) Other money for which the Parent is contingently liable : Municipal Tax : ` 1.12 crore (31st March, 2013 : ` 1.06 crore) in respect of certain properties, the rates of which are disputed by the Parent.
(c) For commitment relating to leasing arrangment, refer Note 33.
(d) Commitment of the Parent on account of estimated amount of contracts remaining to be executed on capital account and the same towards borrowing obligation of a body corporate from a bank, not provided for amount to ` 161.89 crore (31st March, 2013 : ` 127.06 crore), and ` 132.08 crore (31st March, 2013 : ` 161.25 crore) respectively and commitment in respect of other subsidiaries ` 546.64 crore (31st March, 2013 : ` 2071.99 crore).
(e) Claim against a Subsidiary not acknowledged as debts : (i) Retailers Association of India (RAI) of which one of the subsidiaries is a member, has filed Special Leave Petition before the Honble Supreme Court of India, about the applicability of service tax on commercial rent on immovable property. Pending disposal of the case, the Supreme Court has passed an interim ruling in Oct 2011 directing the members of RAI to pay 50% of total service tax liability upto Sept 2011 to the department and to furnish a surety for balance 50%. The Supreme Court has also clarified that the successful party in the appeal shall be entitled to interest on the amount stayed by the Court, at such rate as may be directed at the time of the final disposal of appeal. Accordingly the subsidiary has deposited ` 4.60 crore and furnished a surety for ` 4.60 crore towards the balance service tax liability, while interest, whose quantum and applicability is presently not ascertainable, will be provided on the disposal of the petition. Further the subsidiary has been making provision for service tax on rent subsequent to such interim ruling, the balance whereof as on 31st March, 2014 is ` 12.16 crore (31st March, 2013 : ` 12.01 crore). (ii) Other claims against certain subsidiaries not acknowledged as debt ` 4.43 crore (31st March,2013 : ` 2.59 crore) (iii) The Joint Venture Company of the Group has provided a bank guarantee amounting to ` 41 crore in favour of The President of India, acting through the Ministry of Coal, Government of India towards future liability of the joint venture in the Royalty for one year in respect of allocation of Mahuagarhi Coal Block in the State of Jharkhand. The exposure of the Group in the Joint Venture Company is limited to 50%. (f) Contingent Liability not provided for with respect to certain subsidiaries : ` in Crore Particulars 31st March, 31st March, 2014 2013 - Sales tax demands under appeal 1.30 1.69 - Service tax demands under appeal 18.09 19.64 - Income tax demands (amount deposited ` 7.29 crore) 124.03 44.24 - Gurantees given 0.34 0.09 - Guarantee to ABP Corporation to discharge obligation, if any, in event of default Not Quantified Not Quantified
F - 52 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore 2013-14 2012-13 NOTE - 24 REVENUE FROM OPERATIONS (a) Earnings from sale of electricity 5,509.73 5,242.67 (b) Earnings from sale of retail products (net of Excise Duty) 1,416.24 1,331.54 (c) Earnings from sale of services 3,126.42 922.61 (d) Earnings from Mall operations 12.27 (e) Other Operating Revenue Meter Rent 44.01 42.34 Others 2.18 17.49 10,110.85 7,556.65
(f) Earnings from sale of electricity in respect of the Parent are determined in accordance with the relevant orders of the Comm ission, where appropriate, giving due effect to the required adjustments. Such adjustments include a sum of ` (0.95) crore (previous year: ` 42.53 crore) in respect of the cost of electrical energy purchased, fuel and related costs and also those relating to revenue account, based on the Parents understanding of the applicable regulatory provisions on this count, after giving effect of the impact arising from applicable orders in this regard for earlier years and the net impact of the said adjustments has been included in Other long term liabilities. The accurate quantification and disposal of the matters are being given effect to, from time to time, on receipt of necessary direction from the appropriate authorities. The said earnings are also net of discount for prompt payment of bills allowed to consumers on a net basis from month to month and advance against depreciation amounting to ` 62.41 crore (previous year : ` 81.91 crore) and ` 62.67 crore (previous year : ` 148.20 crore) respectively. ` in Crore NOTE - 25 OTHER INCOME 2013-14 2012-13 (a) Interest Income 62.23 67.40 (b) Dividend Income 0.60 0.31 (c) Income from Recoveries and Services 50.34 41.20 (d) Gain on sale of current investments (net) 26.03 50.40 (e) Delayed Payment Surcharge 13.46 14.03 (f) Profit on sale of assets 4.25 4.28 (g) Other Non -operating Income 28.58 4.56 185.49 182.18 Less : Allocated to capital account 12.14 38.45 173.35 143.73
NOTE - 26 COST OF MATERIALS CONSUMED Opening Stock of Raw Material 0.83 0.19 Add : Purchases 10.46 6.88 Less : Closing stock of Raw Material 1.51 0.83 9.78 6.24
F - 53 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore 2013-14 2012-13
NOTE - 27 CHANGES IN INVENTORIES OF FINISHED GOODS, STOCK-IN-TRADE AND WORK- IN -PROGRESS (Increase)/decrease in stocks Stock at the beginning of the year : Finished Goods 0.09 0.03 Stock -in-trade 110.42 123.00 Work-in-progress 0.06 0.03 Total (A) 110.57 123.06 Less : Stock at the end of the year : Finished Goods 0.33 0.09 Stock -in-trade 142.24 110.42 Work-in-progress 0.01 0.06 Total (B) 142.58 110.57 (Increase) / Decrease in stocks (A-B) (32.01) 12.49
NOTE - 28 COST OF FUEL FOR POWER BUSINESS
(a) Cost of Fuel includes freight ` 281.59 crore ( previous year: ` 286.69 crore). (b) Cost of Fuel includes loss of ` 7.37 crore (previous year: loss of ` 3.06 crore) due to exchange fluctuations.
NOTE 29 EMPLOYEE BENEFITS EXPENSE (A) 1. Salaries, wages and bonus 2,768.84 1,255.41 2. Contribution to provident and other funds 200.89 92.82 3. Employees welfare expenses 115.27 53.63 3,085.00 1,401.86 Less : Allocated to capital account etc. 124.92 94.50 2,960.08 1,307.36
(B) Employee Benefits The Group makes contributions for provident fund and pension (including for superannuation) schemes. For these schemes, such contributions are made based on current salaries, to funds maintained by the Group and for certain categories, to State Plans. For certain schemes, contributions are also made by the employees. An amount of ` 67.20 crore (previous year : ` 43.65 crore), has been charged to the Statement of Profit and Loss . The Group also operates schemes like gratuity, leave encashment and other retiral benefits including medical which offers specified benefits to the eligible employees. Annual actuarial valuations are carried out by independent actuaries. Wherever independent trust funds have been set up, annual contributions are made by the Group and in certain cases, such trust funds in turn, invests in the Employees Group Benefit Scheme of eligible agencies. Employees are not required to make any contribution.
F - 54 Notes forming Part of Consolidated Financial Statements (Contd.)
NOTE - 29 EMPLOYEE BENEFIT EXPENSES (Contd.) Net Liability / (Asset) recognized in the Balance Sheet : ` in Crore For the year ended 31st March, 2014 For the year ended 31st March, 2013 Gratuity Leave Medical Pension Gratuity Leave Medical Pension Encashment Encashment Present value of funded obligation/ yet to be funded obligation 257.39 - - - 207.88 - - - Fair Value of Plan Assets 199.62 - - - 189.09 - - - 57.77 - - - 18.79 - - - Present value of un-funded obligation 0.47 91.68 32.84 25.78 0.29 72.56 23.70 20.86 Unrecognised past service cost ------Net Liability/(Asset) 58.24 91.68 32.84 25.78 19.08 72.56 23.70 20.86 ` in Crore For the year ended For the year ended For the year ended 31st March, 2012 31st March, 2011 31st March, 2010 Gratuity Leave Medical Pension Gratuity Leave Medical Gratuity Leave Medical Encashment Encashment Encashment Present value of funded obligation/ yet to be funded obligation 172.71 - - - 155.35 - - 132.76 - - Fair Value of Plan Assets 161.43 - - - 152.63 - - 117.13 - - 11.28 - - - 2.72 - - 15.63 - - Present value of un-funded obligation - 62.47 18.69 16.71 - 57.67 17.33 - 50.34 15.39 Unrecognised past service cost ------Net Liability/(Asset) 11.28 62.47 18.69 16.71 2.72 57.67 17.33 15.63 50.34 15.39
Experience Adjustment ` in Crore For the year ended 31st March, 2014 For the year ended 31st March, 2013 Gratuity Leave Medical Pension Gratuity Leave Medical Pension Encashment Encashment Experience (Gain) / Loss adjustment on plan liabilities 60.12 22.74 2.24 6.62 6.74 4.83 3.51 7.20 Experience (Gain) / Loss adjustment on plan assets 0.96 - - - (1.59) - - - Experience (Gain) / Loss adjustment on plan liabilities due to change in assumption (13.65) (5.42) (3.74) (0.09) 7.30 3.00 0.96 (0.22) ` in Crore For the year ended 31st March, 2012 For the year ended 31st March, 2011 Gratuity Leave Medical Gratuity Leave Medical Encashment Encashment Experience (Gain) / Loss adjustment on plan liabilities 14.80 4.42 1.66 12.67 5.81 (0.44) Experience (Gain) / Loss adjustment on plan assets (0.17) - - 0.36 - - Experience (Gain) / Loss adjustment on plan liabilities due to change in assumption (4.92) (1.92) (1.04) (14.61) 2.32 1.91
Expenditure shown in the Note 29 to Statement of Profit and Loss as follows : ` in Crore
For the year ended 31st March, 2014 For the year ended 31st March, 2013 Gratuity Leave Medical Pension Gratuity Leave Medical Pension Encashment Encashment Current Service Cost 12.04 2.40 - - 9.14 2.30 - - Interest Cost 16.04 5.67 1.90 1.58 16.12 5.20 1.59 - Expected Return on Plan Assets (15.17) - - - (14.66) - - - Actuarial loss/(gain) 43.97 18.06 (1.50) 6.53 12.78 8.13 4.46 6.98 Past Service Cost - - 10.05 - - - - - Total 56.88 26.13 10.45 8.11 23.38 15.63 6.05 6.98
F - 55 Notes forming Part of Consolidated Financial Statements (Contd.)
Reconciliation of Opening and Closing Balances of the present value of obligations: ` in Crore For the year ended 31st March, 2014 For the year ended 31st March, 2013 Gratuity Leave Medical Pension Gratuity Leave Medical Pension Encashment Encashment Opening defined benefit obligation 208.17 72.55 23.70 20.86 172.71 62.47 18.59 16.71 Adjustment on acquisition - - - - 12.33 - - - Current Service Cost 12.04 2.40 - - 9.14 2.30 - - Past Service Cost - - 10.05 - - - -- Interest Cost 16.04 5.67 1.90 1.58 16.12 5.20 1.59 - Plan Amendments ------Actuarial loss/(gain) 45.96 18.06 (1.50) 6.53 14.32 8.13 4.46 6.98 Benefits paid (24.35) (7.00) (1.31) (3.19) (16.44) (5.56) (0.94) (2.83) Closing Defined Benefit Obligation 257.86 91.68 32.84 25.78 208.18 72.54 23.70 20.86
Reconciliation of Opening and Closing Balances of fair value of plan assets: ` in Crore For the year ended 31st March, 2014 For the year ended 31st March, 2013 Gratuity Leave Medical Pension Gratuity Leave Medical Pension Encashment Encashment Opening fair value of Plan Assets 189.09 - - - 161.43 - - - Adjustment on acquisition - - - - 5.81 - - - Expected Return on Plan Assets 15.17 - - - 14.64 - - - Actual Company Contributions 17.72 - - - 21.61 - - - Actuarial gain/(loss) 1.99 - - - 1.55 - - - Benefits paid (24.35) - - - (15.96) - - - Closing Fair Value on Plan Assets 199.62 - - - 189.08 - - - Actual Return on Plan Assets 17.16 - - - 16.19 - - - The major categories of plan assets consist of funds maintained with insurer like LICI, ICICI Prudential, Birla Sun Life and HDFC Standard Life
Effect of increase/decrease of one percentage point in the assumed medical inflation rates: For the year ended For the year ended 31st March, 2014 31st March, 2013 Increase Decrease Increase Decrease Effect on defined benefit obligation 33.17 (24.32)* 0.24 (0.17)* * in case of hospitalised treatment only
Principal Actuarial Assumptions Used: For the year ended 31st March, 2014 For the year ended 31st March, 2013 Discount Rates 9.00% to 9.20% 8.00% to 8.20% Expected Return on Plan Assets 8.75% to 9.20% 8.20% to 8.75% Rate of increase in medical cost trend 2.50% 2.50% Mortality Rates LIC 2006-08 Ultimate LIC 2006-08 Ultimate
The estimates of future salary increase considered in the actuarial valuation takes into account factors like inflation, seniority, promotion and other relevant factors. The expected return on plan assets is based on actuarial expectation of the average long term rate of return expected on investments of the funds during the estimated terms of the obligations. The contribution expected to be made by the Group for the year ending 31st March, 2015 is not readily ascertainable and therefore, not disclosed. However, certain subsidiaries expect to contribute ` 0.50 crore to the Gratuity fund for the year ending 31st March, 2015. In respect of the Patent, present value of un-funded obligation towards PF interest amounts to ` 2.22 crore (31st March, 2013 : ` Nil) Above disclosures as required by AS -15 - Employee Benefits are given to the extent available from the actuarial report.
F - 56 Notes forming Part of Consolidated Financial Statements (Contd.)
` in Crore
2013-14 2012-13 NOTE - 30 FINANCE COSTS
(a) Interest expense 1,089.95 767.54 (b) Other Borrowing Costs 62.00 43.17 (c) Applicable net loss on foreign currency transactions and translation 146.25 91.56 1,298.20 902.27 Less : Allocated to capital and deferred payment account 732.18 471.86 566.02 430.41
NOTE - 31 DEPRECIATION AND AMORTISATION EXPENSES
Depreciation/ amortisation on tangible assets 532.26 448.65 Amortisation on intangible assets 36.86 14.01 569.12 462.66 Less : Recoupment from revaluation reserve 96.10 96.34 Less : Allocated to capital account 1.61 1.79 471.41 364.53 NOTE - 32 OTHER EXPENSES
(a) Power and Fuel 79.64 53.25 (b) Packing Materials Consumed 5.58 4.79 (c) Consumption of stores and spares 343.55 299.67 (d) Repairs Building 17.79 17.10 Plant and Machinery 103.03 88.54 Distribution System 80.45 97.51 Others 27.33 25.80 228.60 228.95 (e) Insurance 32.66 15.90 (f) Rent 231.93 140.62 (g) Rates and taxes 26.17 14.12 (h) Bad debts / Advances made 26.62 27.34 (i) Allowances for doubtful debts , Store/Lease Deposits/ advances made /Security Deposit 0.65 (j) Amortisation of miscellaneous expenditure 0.72 0.72 (k) Loss on sale / disposal of assets (net) [ Refer Note q] 8.76 14.16 (l) Interest on Consumers Security Deposit 78.89 70.81 (m) Foreign Exchange Restatement 43.54 116.46 (n) Travelling and conveyance 135.24 65.93 (o) Information, communication and connectivity charges 128.94 51.03 (p) Miscellaneous expenses 453.23 362.27 1,824.07 1,466.67 Add : Share of Joint Venture [ Refer Note 1(c)] 0.01 0.01 1,824.08 1,466.68 Less : Allocated to capital account 288.24 327.66 1,535.84 1,139.02
(q) Includes write off of goodwill on consolidation pertaining to a subsidiary amounting to ` 0.88 crores.
F - 57 Notes forming Part of Consolidated Financial Statements (Contd.)
NOTE - 33 Leases : (a) With respect to Parent : Future rentals payable in respect of non-cancellable leases for assets comprising various equipment and vehicles acquired under operating leases for the period ranging between 36-60 months work out to ` 7.42 crore (previous year : ` 2.76 crore) and ` 5.91 crore (previous year : ` 0.77 crore) during next one year and thereafter till five years respectively. There are no restrictions in respect of such leases. (b) With respect to certain Subsidiaries : (i) Certain Subsidiaries have taken retail stores, office facilities, residential facilities, office equipment & vehicles on operating lease and the lease rent is payable as per the agreements entered into with the lessors. Agreements are both in the nature of cancellable and non cancellable leases. The lease term is for varied years and renewable for further years as per the agreements at the option of the subsidiary. There are no restrictions imposed by these lease arrangements. There are no subleases. The details of lease rental payable are given below : Operating Leases ` in Crore 2013-14 2012-13 Lease payments for the year 154.17 126.71 Future minimum lease payments Not later than one year 115.62 127.95 Later than one year but not later than five years 278.89 329.79 Later than five years 359.97 383.77
(ii) Subsidiaries in Process Outsourcing business have acquired certain capital assets under finance lease. Future minimum lease payments under finance lease as at 31st March, 2014 are as follows: ` in Crore As at 31st March, 2014 Minimum lease Finance charges Present value payments of minimum lease payments Amount payable within one yearfrom the balance sheet date 6.17 0.67 5.50 Amount payable in the period between one year and five years 5.54 0.28 5.26 11.71 0.95 10.76
(iii) Subsidiaries in Process Outsourcing business have given vehicles on finance lease to its employees as per policy. As at 31st March, 2014, the future minimum lease rentals receivables are as follows: ` in Crore As at 31st March, 2014 Minimum lease Finance charges Present value payments of minimum lease payments Amount receivable within one year from the balance sheet date 2.47 0.47 2.00 Amount receivable in the period between one year and five years 3.60 0.41 3.19 6.07 0.88 5.19
(c) With respect to subsidiaries in Process Outsoucing business, assets taken on finance lease included in the Fixed Assets Note no. 12 is as follows: ` in Crore As at 31st March, 2014 Tangible Assets Intangible Assets Leasehold Office Plant and Furniture Software Buildings and Equipments Equipments and Fixtures Structures Gross Block (at cost) 12.36 6.37 10.32 3.24 3.89 Accumulated Depreciation/ 4.85 6.37 10.32 1.47 1.55 Amortisation Net Block 7.51 1.77 2.34
F - 58 Notes forming Part of Consolidated Financial Statements (Contd.)
NOTE - 34 The major components of net Deferred Tax Assets / (Liabilities) based on the timing difference as at 31st March, 2014 are as under:
Deffered Tax Liabilities (net) ` in Crore 2013-14 2012-13 Liabilities Excess of tax depreciation over book depreciation (222.28) (159.83) Assets Unabsorbed business losses 132.23 83.03 Other Timing Differences 56.88 48.30 Net Deferred Tax Liability (33.17) (28.50)
Deffered Tax Assets (net) ` in Crore 2013-14 2012-13 Liabilities Excess of tax depreciation over book depreciation (1,058.63) (887.92)
Assets Unabsorbed business depreciation 80.63 82.08 Unabsorbed business losses 199.42 199.42 Other Timing Differences 45.82 46.38 Net Deferred Tax Liability (732.76) (560.04) Less : Recoverable deferred tax element of Parent 1,043.29 870.57 Net Deferred Tax Asset 310.53 310.53
Note : In respect of one of the subsidiaries , there are unabsorbed depreciation and carried forward losses as at the Balance Sheet date. However, based on future profitability projections, the subsidiary is virtually certain that there would be sufficient taxable income in future and hence, continues to carry Deferred Tax Assets (DTA) of ` 310.53 crore (31st March, 2013 : ` 310.53 crore)
NOTE - 35 Earnings per share: Computation of Earnings per share ` in Crore Particulars 2013-14 2012-13
Profit after Tax and before exceptional items (` in crore) (A) 491.64 417.61 Weighted Average no. of shares for Earnings per share (B) 124,935,925 124,935,925 Basic and Diluted Earnings per share of ` 10/- each before 39.35 33.43 Exceptional Items = [(A) / (B)] (`) Profit after Tax and after exceptional items (` in crore) (C) 491.64 459.38 Weighted Average no. of shares for Earnings per share (D) 124,935,925 124,935,925 Basic and Diluted Earnings per share of ` 10/- each after 39.35 36.77 Exceptional Items= [(C) / (D)] (`)
NOTE - 36 Certain subsidiaries have incurred losses during the year, primarily due to nascent stage of organized retail industry in the country and have accumulated losses against shareholders funds as on the Balance Sheet date. However, the subsidiaries having created a robust infrastructure for organized retail business are confident of generating positive cash flows and operational surplus in the near future with certain interim support from the Parent and the promoters.
F - 59 Notes forming Part of Consolidated Financial Statements (Contd.)
NOTE - 37 In respect of the Parent, the Members of the Company at the Thirty-fifth Annual General Meeting held on 26 July, 2013 have approved payment of commission to the non executive directors at a rate not exceeding 3% per annum of the net profits of the Parent for each of five financial years commencing from 2013-14. Approval of the Central Government for payment of such commission in excess of 1% of the net profit of the Parent for the financial year 2013-14 is being sought and accordingly the Commission proposed for non executive directors in excess of said 1% i.e ` 16.67 crore, is subject to approval of the Central Government.
NOTE - 38 In line with the changed business scenario with respect to the retailing of music through physical format and also in continuation of its steps taken by the Group in the previous year, the Group has fully discontinued its operations in one of the subsidiaries during the year. Promoters will continue to provide its funding for discharging its balance liabilities. Accordingly, the financial statements have been prepared stating balance unpaid liabilities and realisable assets of one of the subsidiaries.
NOTE - 39 Employee Stock Option Plans Certain subsidiaries have following stock option plans : (i) Stock option scheme 2002 (Scheme 2002) As per the Scheme, Compensation cum Board Governance Committee (the Committee) shall issue stock options to the employees at an exercise price equal to the fair value on the date of grant, as determined by an independent valuer. The Scheme 2002 provides that these options would vest in tranches over a period of 12 to 48 months from the date of grant. Further, the participants shall exercise the options within a period of nine years commencing on or after the expiry of twelve months from the date of the grant of the options. (ii) Employee stock option scheme 2003 (Scheme 2003) - The terms and conditions under this Scheme are similar to those under Scheme 2002 except for the following, which were included in line with the amended SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999: The Scheme 2003 would be administered and supervised by the members of the Compensation committee. Exercise price to be determined based on a fair valuation carried out at the beginning of every six months for options granted during those respective periods. The Exercise Price shall be determined by the Committee on the date the Option is granted in accordance with, and subject to, the Securities and Exchange Board of India (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (as amended from time to time); The Scheme provides that these options would vest in tranches over a period of 24 to 36 months from the date of grant. Further, the exercise period of Scheme 2003 has been approved as 10 years from the date of the grant of Options. Certain portions of Scheme 2003 include Executive Options. 50% of the vesting for Executive Options is time linked and the balance 50% is performance linked. The vesting period for time linked Executive Options has been set as 24 to 60 month from the date of grant. 50% of Executive Options which are performance linked shall vest in proportion to the achievement of 5 year performance targets to be decided by the Committee, with the first vesting being at the end of the second year from the date of grant of Executive Options. The number of Executive Options vesting at the end of each year would be in proportion to the percentage achievement against the targets and if the targets were not met, the vesting period would be extended beyond 5 years. If performance was better than targets, the Options would vest in less than 5 years. Options under these plans have been granted to employees at an exercise price ranging from ` Nil to ` 90 per option. Outstanding options as at 31st March, 2013 48,008,532 Granted during the year 11,075,000 Exercised during the year (2,153,625) Forfeited and lapsed during the year (9,324,271) Outstanding options as at 31st March, 2014 47,605,636
Outstanding options as at 31st March, 2014 out of Scheme 2002 is Nil and Scheme 2003 is 47,605,636. The weighted average remaining contractual term for Scheme 2003 is 37.49 to 91.96 months respectively.
F - 60 Notes forming Part of Consolidated Financial Statements (Contd.)
These subsidiaries apply the intrinsic value based method of accounting for determining compensation cost for its stock- based compensation plan. Had the compensation cost been determined using the fair value approach, the subsidiarys net income and basic and diluted earnings per share as reported would have reduced to the proforma amounts as indicated: (` In crore) Particulars 2013-14 2012-13 Net income as reported 491.64 459.38 Less : Stock-based employee compensation expense (fair value method) 12.11 4.47 Proforma net income 479.53 454.91 Basic and diluted income as reported earnings per share as reported (`) 39.35 36.77 Proforma basic and diluted earnings per share (`) 38.38 36.39 The key assumptions used to estimate the fair value of options are : Dividend yield 0% Expected Life 5.5-7 years Risk free interest rate 6.50% to 9.06% Volatility 0% to 75%
NOTE - 40 Adoption of AS 30 In December 2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement, recommendatory in respect of accounting periods commencing on or after 1st April, 2009 and mandatory in respect of accounting periods commencing on or after 1st April, 2011 for the Company. In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, along with limited revision to other accounting standards, has currently not been notified under the Companies (Accounting Standard) Rules, 2006. On 1st October, 2008, certain subsidiaries, early adopted AS 30 in its entirety, read with AS 31, effective 1st April, 2008 and the limited revisions to other Accounting Standards. AS 30 states that particular sections of other Accounting Standards; AS 4, Contingencies and Events Occurring after Balance she et date, to the extent it deals with contingencies, AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the forward exchange contracts and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory (1st April, 2011). In view of that, in case of certain subsidiaries, on an early adoption of AS 30, accounting treatment made on the basis of the relevant sections of Accounting Standards referred above viz. AS 4, AS 11 and AS 13 stands withdrawn as it believes that principles of AS 30 more appropriately reflect the nature of these transactions. Pursuant to the early adoption of AS 30, certain subsidiaries have discounted non-interest-bearing deposits to their present value and the difference between original amount of deposit and the discounted present value has been disclosed as Unamortised cost under other current and non-current assets. This unamortised cost is charged to the statement of profit and loss over the period of related lease. Correspondingly, interest income is accrued on these interest-free deposits using the implicit rate of return over the period of lease and is recognised under Interest income. In accordance with the transition provisions of AS 30, impact on first time adoption was accounted in General Reserve. The said subsidiaries have also designated forward contracts to hedge highly probable forecasted transactions on the principles as set out in AS-30 (also refer Note 41). Consequent to the early adoption of AS 30 as stated above, the profit after taxation for the period and Reserves and Surplus as at the Balance sheet date with respect to certain subsidiaries is higher by ` 16.90 crores (31st March, 2013 : lower by ` 28.10 crores) and by ` 0.3 Crores (31st March, 2013: ` 2 crores) respectively. The increase in reserve and surplus includes translation gain on the investment in non-integral foreign operation used as hedging against translation loss on ECB, which is currently cr edited to reserve and surplus, would be transferred to consolidated statement of profit and loss upon disposal of non-integral foreign operation.
NOTE - 41 Derivatives As at 31st March, 2014, certain subsidiaries have derivative financial instruments to sell USD 30,597,632 (31st March, 2013: USD 20,673,912) having fair value gain of ` 4.58 Crores (31st March, 2013: loss of ` 0.96 Crores), GBP 51,429,893 (31st March, 2013: GBP 22,827,009) having fair value loss of ` 12.55 Crores (31st March, 2013 : gain of ` 5.72 Crores) and AUD 2,902,890 (31st March, 2013: AUD 7,950,000) having fair value gain of ` 1.02 Crores (31st March 2013 : loss of ` 2.39 Crores) relating to highly probable forecasted transactions.
F - 61 Notes forming Part of Consolidated Financial Statements (Contd.)
NOTE - 42 Consolidated Segment Reporting (a) Primary Segment Information - Business Segments (` In Crore) Particulars Power Retail Property Process Outsourcing Total 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 Sales Revenue from external customers 5,577.07 5,303.94 1,416.24 1,337.47 12.27 0.00 3,105.27 915.24 10,110.85 7,556.65 Other Segment Revenue 102.01 89.92 57.36 45.80 3.15 0.51 10.83 7.50 173.35 143.73 Total Segment Revenue 5,679.08 5,393.86 1,473.60 1,383.27 15.42 0.51 3,116.10 922.74 10,284.20 7,700.38 Segment Results Before Interest, Tax and Exceptional Items 1,147.74 1,087.50 (111.07) (121.94) (0.01) (1.87) 287.84 81.61 1,324.50 1,045.30 Unallocated Finance Costs (566.02) (430.41) Exceptional Items 41.77 - 41.77 Profit before Taxation and Minority Interests 758.48 656.66 Provision for Taxation (185.59) (175.78) Profit after Taxation before Minority Interests 572.89 480.88 Segment Assets 19,710.36 17,013.24 470.29 427.11 442.84 325.43 1,538.68 949.34 22,162.17 18,715.12 Unallocated Assets 2,814.17 2,598.50 Total Assets 24,976.34 21,313.62 Segment Liability 5,718.05 4,969.97 227.82 190.56 39.84 17.77 364.37 365.73 6,350.08 5,544.03 Unallocated Liabilities 12,083.32 9,883.55 Total Liabilities 18,433.40 15,427.55 Capital Expenditure 3,933.85 3,602.81 57.93 10.96 109.08 102.71 160.81 16.94 4,261.67 3,733.42 Depreciation (including amortisation of Intangible assets) 357.10 301.35 35.24 35.10 3.37 0.07 75.70 28.01 471.41 364.53 Non Cash Expenditure other than depreciation 89.90 31.60 0.86 10.69 - - - 0.65 90.76 42.94
Notes : Business Segments : The internal business segmentations and the activities encompassed therein are as follows : Power : Generation / Distribution of electricity Retail : Organised Retailing Property : Property Development Process Outsourcing : Business Process Outsourcing
(b) Secondary Segment Information - Geographical Segments (` In Crore) Particulars Segment Revenue excluding Segment Assets Capital Expenditure other segment revenue 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 Within India 7,262.25 6,751.93 21,295.22 17,954.30 4,245.43 3,716.48 UK 1,113.51 314.07 147.60 191.20 2.05 - USA and Canada 1,458.37 421.62 2,720.80 2,514.58 13.75 - Rest of the World 276.72 83.07 154.49 123.00 0.44 - Unallocated - - 658.23 530.54 - 16.94
Total 10,110.85 7,570.68 24,976.34 21,313.62 4,261.67 3,733.42
In respect of subsidiaries in Process Outsourcing business having operations outside India, as the fixed assets and services are used interchangeably between the segments by the businesses, the Group believes that it is currently not practicable to provide geographical segment disclosures relating to these assets and capital expenditure which has been considered as unallocated expenditure. (c) The segment wise revenue, results, assets and liabilities figures relate to the respective amounts directly identifiable to each of the segments.
F - 62 Notes forming Part of Consolidated Financial Statements (Contd.)
NOTE - 43 Related Party disclosure Related Party and their relationship Names of Related Parties Nature of Relationship Mr. S. Banerjee (till 31st July, 2013) Key Management Personnel, CESC Limited Mr. Aniruddha Basu (from 28th May, 2013) Key Management Personnel, CESC Limited Mahuagarhi Coal Company Private Limited Joint Venture
Particulars of transactions : (` In Crore) Nature Key Management Personnel 2013-14 2012-13 Directors Remuneration 0.99 4.78 Closing Balance: Debit - - Credit 3.50 3.50
NOTE - 44 In respect of the Parent, the outstanding foreign currency loans of ` 605.10 crore (31st March, 2013 : ` 654.86 crore) disclosed in Note 6, have been fully hedged in Indian Rupee. Trade Payables include ` NIL crore (31st March, 2013 : ` 41.74 crore) representing amount payable in United States Dollar restated at year end exchange rate which have not been hedged.
NOTE - 45 Miscellaneous Expenses in Note 32 include research and development expense of ` 1.14 crore (31st March, 2013 : ` 1.32 crore) in respect of the Parent.
NOTE - 46 In respect of certain subsidairies, out of the outstanding Long Term Borrowings disclosed in Note 6, loan balance amounting to ` 2254.81 crore ( 31st March, 2013 : ` 1405.89 crore) have been contractually covered in Indian Rupee and ` 25.07 crore (31st March, 2013 : ` 72.03 crore) represents sum restated at year end exchange rate in respect of underlying contractual obligations in United States Dollars.
NOTE - 47 The Group has reclassified previous years figures to conform to this years classification alongwith other regrouping / rearrangement whereever necessary.
For Lovelock & Lewes For and on behalf of the Board of Directors Firm Registration Number-301056E Chartered Accountants Director Pradip Kumar Khaitan Managing Director Aniruddha Basu Sougata Mukherjee Partner Membership No. : 057084 Subhasis Mitra Rajarshi Banerjee Kolkata, 30th May, 2014 Company Secretary Executive Director & CFO
F - 63 F - 64 F - 65 F - 66 F - 67 F - 68 F - 69 F - 70 F - 71 F - 72 F - 73 F - 74 F - 75 F - 76 F - 77 F - 78 F - 79 F - 80 F - 81 F - 82 F - 83 F - 84 F - 85 F - 86 F - 87 F - 88 F - 89 F - 90 F - 91 F - 92 F - 93 F - 94 F - 95 F - 96 F - 97 F - 98 F - 99 Report of the Auditors
AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS OF CESC LIMITED THE BOARD OF DIRECTORS OF CESC LIMITED
1. We have audited the attached consolidated Balance Sheet to 31 March, 2011 based on the future profitability projections of CESC Limited (the Company) and its subsidiaries and made by the management. The Company has not recognized jointly controlled entity, hereinafter referred to as the Group DTA of Rs.7,920.15 lakhs for the current year as a matter (refer Note 1(b) and 1(c) to the attached consolidated financial of prudence. However, we are unable to express any opinion statements) as at 31st March, 2012, the related consolidated on the above projections and their consequent impact, if Statement of Profit and Loss and the consolidated Cash any, on such Deferred Tax Asset. This had also caused us Flow Statement for the year ended on that date annexed to qualify our audit opinion on the financial statements thereto, which we have signed under reference to this report. relating to the preceding year. These consolidated financial statements are the responsibility of the Companys management.Our responsibility is to Had the impact of above item been considered, there would express an opinion on these financial statements based on be a loss of Rs.57,692.18 lakhs (after adjusting DTA of our audit. Rs.32,154.69 lakhs recognized upto 31st March,2011) as against the reported loss of Rs.25,537.49 lakhs and 2. We conducted our audit in accordance with the auditing shareholders funds would have been reduced by standards generally accepted in India.Those Standards Rs.32,154.69 lakhs. require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 5. We report that the consolidated financial statements have are free of material misstatement.An audit includes examining, been prepared by the Companys Management in accordance on a test basis, evidence supporting the amounts and with the requirements of Accounting Standard (AS) 21 - disclosures in the financial statements.An audit also includes Consolidated Financial Statements and Accounting Standard assessing the accounting principles used and significant (AS) 27 - Financial Reporting of Interests in Joint Ventures estimates made by management, as well as evaluating the notified under sub-section 3C of Section 211 of the overall financial statement presentation.We believe that our Companies Act, 1956. audit provides a reasonable basis for our opinion. 6. Based on our audit and on consideration of reports of other 3. We did not audit the financial statements of 10 subsidiaries and a jointly controlled entity included in the consolidated auditors on separate financial statements and on the other financial statements, which constitute total assets of financial information of the components of the Group as Rs.3,711.07 crore and net assets of Rs.591.88 crore as at referred to above, and to the best of our information and 31st March, 2012, total revenue of Rs.1,257.33 crore, net according to the explanations given to us, in our opinion, loss of Rs.301.81 crore and net cash flows amounting to subject to our remarks in paragraph 4 above, the attached Rs.99.81 crore for the year then ended. These financial consolidated financial statements give a true and fair view statements and other financial information have been audited in conformity with the accounting principles generally by other auditors whose reports have been furnished to us, accepted in India: and our opinion on the consolidated financial statements to the extent they have been derived from such financial (a) in the case of the consolidated Balance Sheet, of the statements is based solely on the report of such other state of affairs of the Group as at 31st March, 2012; auditors. (b) in the case of the consolidated Statement of Profit and 4. In respect of one of the subsidiaries, the auditors had made Loss, of the profit of the Group for the year ended on the following observation : that date; and
Attention is drawn to note no. 13 to the financial statements (c) in the case of the consolidated Cash Flow Statement, regarding recognition of net deferred tax asset (DTA) of of the cash flows of the Group for the year ended on Rs.32,154.69 lakhs (Rs.32,154.69 lakhs) in the accounts up that date.
For Lovelock & Lewes Firm Registration Number-301056E Chartered Accountants
Prabal Kr. Sarkar Partner Kolkata, 13 June 2012 Membership No. 52340
F - 100 Consolidated Balance Sheet as at 31st March, 2012
Rs. in Crore As at 31st As at 31st Particulars Note No. March, 2012 March, 2011 I. EQUITY AND LIABILITIES Shareholders funds Share capital4 125.60 125.60 Reserves and surplus 5 4,716.70 4,575.16 4,842.30 4,700.76
Minority Interest 2.69 2.11 Non-current liabilities Long-term borrowings 6 4,300.73 2,899.18 Advance against Depreciation 566.03 514.26 Consumers Security Deposit 1,050.90 934.81 Other long term liabilities 7 992.00 779.17 Long-term provisions 8 92.34 69.39 7,002.00 5,196.81 Current liabilities Short-term borrowings 9 993.95 839.73 Trade Payables 404.08 382.13 Other current liabilities 10 1,446.09 1,015.74 Short-term provisions 11 95.67 70.06 2,939.79 2,307.66 TOTAL 14,786.78 12,207.34 II. ASSETS Non Current Assets Fixed assets Tangible assets 12 7,914.52 7,701.36 Intangible assets 13 355.10 360.42 Capital work-in-progress 2,454.21 561.20 (Includes share of Joint Venture-Rs. 2.23 crore; 10,723.83 8,622.98 31st March, 2011 Rs. 1.46 crore) Non-current investments 14 91.36 37.37 Deferred tax assets (net) 34 321.55 321.55 Long-term loans and advances 15 548.28 439.74 Other non-current assets 16 5.01 18.61 11,690.03 9,440.25 Current Assets Current Investments 17 85.00 380.00 Inventories 18 407.74 407.90 Trade receivables 19 994.08 576.04 Cash and bank balances 20 1,343.25 1,229.11 Short-term loans and advances 21 194.61 138.55 Other Current Assets 22 72.07 35.49 3,096.75 2,767.09 TOTAL 14,786.78 12,207.34 Notes forming part of Financial Statements 1 - 45
This is the Consolidated Balance Sheet referred to in our Report of even date. For Lovelock & Lewes Firm Registration Number-301056E Chartered Accountants Prabal Kr. Sarkar For and on behalf of Board of Directors Partner Vice-Chairman S. Goenka Membership No. : 52340 Subhasis Mitra Director P. K. Khaitan Kolkata, 13 June, 2012 Vice President & Company Secretary Managing Director S. Banerjee
F - 101 Consolidated Statement of Profit and Loss for the year ended 31st March, 2012
Rs. in Crore
Particulars Note No. 2011-12 2010-11
Revenue from operations 24 5,891.72 5,179.02 Other income 25 132.26 114.86
Total Revenue 6,023.98 5,293.88
Expenses
Cost of Electrical Energy purchased for Power Business 636.05 665.42 Cost of materials consumed for Retail Business 26 2.57 0.53 Purchase of stock-in-trade for Retail Business 1,005.30 830.87 Changes in inventories of finished goods, stock-in-trade and work-in-progress for Retail Business 27 0.28 17.10 Cost of Fuel for Power Business 28 1,761.97 1,428.30 Employee benefit expenses 29 598.62 554.55 Finance costs 30 345.09 312.05 Depreciation and amortisation expenses 31 340.05 316.48 Other expenses 32 914.74 816.97 Total expenses 5,604.67 4,942.27
Profit before Taxation, Exceptional Items and Minority Interest 419.31 351.61 Exceptional Items 38 25.71 21.24 Profit before Taxation and Minority Interest 393.60 330.37
Tax expenses : Current (149.15) (128.21) Deferred (net) 75.23
Profit after Taxation and Exceptional Items before Minority Interest 244.45 277.39 Minority Interest 1.43 0.99 Profit for the year - transferred to Surplus 245.88 278.38
Earnings per equity share (Face Value of Rs. 10 per share) : Basic and Diluted before Exceptional Items 35 21.74 23.98 Basic and Diluted after Exceptional Items 19.68 22.28
Notes forming part of Financial Statements 1 - 45
This is the Consolidated Statement of Profit and Loss referred to in our Report of even date. For Lovelock & Lewes Firm Registration Number-301056E Chartered Accountants Prabal Kr. Sarkar For and on behalf of Board of Directors Partner Vice-Chairman S. Goenka Membership No. : 52340 Subhasis Mitra Director P. K. Khaitan Kolkata, 13 June, 2012 Vice President & Company Secretary Managing Director S. Banerjee
F - 102 Consolidated Cash Flow Statement for the year ended 31st March, 2012
Rs. in Crore 2011-12 2010-11 A. Cash flow from Operating Activities Profit before Exceptional Items and Taxation 419.31 351.61 Adjustments for : Depreciation and amortisation expenses 340.05 316.48 Loss on Sale / Disposal of Assets (net) 4.18 7.73 Gain on sale of current investments (net) (22.65) (30.75) Gain on sale of long term investments (0.81) Dividend Income (0.30) (0.30) Amortisation of Miscellaneous expenditure 0.72 0.72 Provision for Obsolete Stock 4.90 Allowances for doubtful debts, Store / Lease deposits / Advances made/Security deposit 1.68 14.46 Bad debts / Advances made 25.72 29.39 Fixed Assets written off 0.18 Interest Expense 332.43 298.77 Interest Income (65.38) (50.86) Advance against depreciation 51.77 67.55 Loss on foreign currency transactions (net) 2.16 Provision for Lease equalisation 10.80 8.03 Filling Fees 0.33 2.34 Liability / Provision Written back (15.09) (3.77) Operating Profit before Working Capital changes 1,082.76 1,018.64
Adjustment for : Trade and other receivables (443.16) (34.64) Inventories (3.72) (40.33) Trade and other payables 419.37 48.87 Cash Generated from Operations 1,055.25 992.54 Income Tax paid (144.50) (124.02) Net cash flow from Operating Activities 910.75 868.52
B. Cash flow from Investing Activities Purchase of Fixed Assets / Capital Work-in-Progress (2,451.93) (1,215.20) Sale of Fixed Assets 7.33 4.26 Purchase of long term investments (47.90) Sale of Current Investments (net) 340.53 50.76 Sale of Long Term Investments 2.16 Dividend received 0.30 0.30 Interest received 57.58 39.20 Advance for share subscription (40.63) (5.60) Net cash used in Investing Activities (2,132.56) (1,126.28)
F - 103 Consolidated Cash Flow Statement for the year ended 31st March, 2012
Rs. in Crore 2011-12 2010-11 C. Cash flow from Financing Activities Issue of Share Capital 2.01 1.00 Proceeds from Long Term Borrowings (net of refinance loan) 2,089.29 795.00 Repayment of Long Term Borrowings (388.92) (366.25) Repayment of Public Deposits (0.11) (0.45) Net increase / (decrease) in Cash Credit facilities and other Short Term Borrowings (56.97) 180.62 Capital Contributions and Advance received from Consumers 112.74 83.14 Interest paid (364.21) (316.16) Dividends paid (49.77) (49.73) Dividend tax paid (8.11) (8.30) Net Cash flow from Financing Activities 1,335.95 318.87
Net Increase in cash and cash equivalents 114.14 61.11
Cash and Cash equivalents - Opening Balance 1,229.11 1,168.00
Cash and Cash equivalents - Closing Balance 1,343.25 1,229.11
Notes : a) The Cash Flow Statement has been prepared under the indirect method as given in the Accounting Standard on Cash Flow Statement (AS-3) as per The Companies (Accounting Standards) Rules, 2006. b) Closing Balance of Cash and Cash equivalents represent Cash and Bank balances and includes Rs. 1.50 crore (31.3.2011 - Rs. 1.30 crore) lying in designated accounts with banks on account of unclaimed dividends which are not available for use by the Company, Rs. 85.70 crore (31.3.2011 - Rs. 61.40 crore) appropriated upto the previous year towards Fund for unforeseen exigencies and interest attributable thereto, Rs. 16.49 crore (31.3.2011 - Rs. 9.35 crore) pledged with banks against Bank Guarantee and Overdraft facilities with respect to one of the subsidiaries, Rs. Nil (31.3.2011- Rs. 0.14 crore) deposit pledged with Sales Tax Authorities with respect to another subsidiary and balance in Escrow account of Rs. 0.45 crore (31.3.2011 - Rs. 0.09 crore) with respect to another subsidiary. c) Previous years figures have been regrouped / rearranged wherever necessary.
This is the Consolidated Cash Flow Statement referred to in our Report of even date
For Lovelock & Lewes Firm Registration Number-301056E Chartered Accountants
Prabal Kr. Sarkar For and on behalf of Board of Directors Partner Vice-Chairman S. Goenka Membership No. : 52340 Subhasis Mitra Director P. K. Khaitan Kolkata, 13 June, 2012 Vice President & Company Secretary Managing Director S. Banerjee
F - 104 Notes forming part of Financial Statements
NOTE 1 a) Basis of Preparation The Consolidated Financial Statements comprises of the financial statements of CESC Limited (the Parent), its subsidiaries and proportionate interests in joint venture entity. The Consolidated Financial Statements have been prepared in accordance with the Accounting Standard 21 on Consolidated Financial Statements and Accounting Standard 27 on Financial Reporting of Interests in Joint Ventures notified under The Companies (Accounting Standards) Rules, 2006.
The Consolidated Financial Statements are prepared on the following basis :
l The audited financial statements of the Parent and its subsidiary companies have been combined on a line by line basis by adding together like items of assets, liabilities, income and expenses. The intra-group balances, intra-group transactions and unrealized profits or losses thereon have been fully eliminated.
l The financial statements of the subsidiaries used in the consolidation are drawn upto the same reporting date as that of the Parent.
l Joint venture has been accounted for in the Consolidated Financial Statements using the proportionate consolidation method whereby a venturers share of each of the assets, liabilities, income and expenses of the jointly controlled entity is accounted for on a pro-rata basis.
b) The subsidiaries considered in the preparation of the Consolidated Financial Statements are :
Percentage of Percentage of ownership Sl. Name of the Subsidiaries Country of ownership interest interest as at No. Incorporation as at 31st March, 2012 31st March, 2011 1. Spencers Retail Limited (SRL) India 94.71 94.72 2. Music World Retail Limited (100% subsidiary of SRL) India 94.71 94.72 3. Au Bon Pain Café India Limited (80% subsidiary of SRL) India 75.77 75.78 4. CESC Properties Limited (CPL) India 100 100 5. Metromark Green Commodities Private Limited (100% subsidiary of CPL) India 100 100 6. CESC Infrastructure Limited (CIL) India 100 100 7. Haldia Energy Limited (HEL) India 100 100 8. Dhariwal Infrastructure Limited (DIL) India 100 100 (100% subsidiary of HEL till 20th December, 2011 and 100% subsidiary of CIL w.e.f. 21st December, 2011) 9. Surya Vidyut Limited (SVL) India 100 100 (100% subsidiary of HEL till 20th December, 2011 and 100% direct sibsidiary of CESC Limited w.e.f. 21st December, 2011) 10. Nalanda Power Company Limited India 100 100 11. CESC Projects Limited India 100 (w.e.f. 13th June, 2011) 12. Bantal Singapore Pte Ltd. (w.e.f. 30th May, 2011) Singapore 100
c) Interests in joint venture : The Groups interests in jointly controlled entity (incorporated joint venture) remains in Mahuagarhi Coal Company Private Limited, which was incorporated in India on 4th April, 2008 and percentage of ownership interest as at 31st March, 2012 stands at 50%. The company was incorporated for the development of Mahuagarhi coal field and exploration of coal therefrom and is yet to commence commercial operations.
F - 105 Notes forming part of Financial Statements (Contd.)
NOTE 2 The operations of the Parent are governed by the Electricity Act, 2003 and various Regulations and/or policies framed thereunder by the appropriate authorities. Accordingly, in preparing the financial statements, the relevant provisions of the said Act, Regulations etc., have been duly considered.
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES
(a) Accounting Convention These consolidated financial statements have been prepared to comply in all material aspects with the applicable accounting principles in India and the Accounting Standards notified under The Companies (According Standards) Rules, 2006. A summary of important accounting policies are set out below.
(b) Basis of Accounting The consolidated financial statements have been prepared under the historical cost convention, modified by revaluation of certain fixed assets as stated in item 3 (c).
(c) Tangible Assets Tangible Assets are stated at historical cost of acquisition except tangible assets other than furniture and fixtures, office equipments and vehicles acquired upto 31st March, 2005 of the Parent. Those assets have been adjusted for the effect of valuation made by an approved external valuer at the then current replacement cost after necessary adjustment for depreciation. Subsequent acquisition of these assets, furniture and fixtures, office equipments and vehicles are stated at cost of acquisition together with any incidental expenses related to acquisition and appropriate borrowing costs. In case of a project, cost also includes pre- operative expenses and where applicable, expenses during trial run after netting off of revenue earned during trial run and income arising from temporary use of funds pending utilisation. An impairment loss is recognized, where applicable, when the carrying value of tangible assets of cash generating unit exceed its market value or value in use, whichever is higher. With respect to certain subsidiaries, expenditure in respect of improvements, etc. carried out at the rented / leased premises are capitalized and expenditure incurred in setting up the stores are capitalized as a part of the leasehold improvements.
(d) Intangible Assets Intangible assets comprising computer software, trademarks, licences, café opening fees, and franchisee rights expected to provide future enduring economic benefits, are stated at cost of acquisition / implementation / development less accumulated amortisation. An impairment loss is recognized where applicable, when the carrying value of intangible assets of cash generating unit exceed its market value or value in use, whichever is higher.
(e) Depreciation / Amortisation With respect to the Parent, in terms of applicable Regulations under the Electricity Act, 2003, depreciation on tangible assets other than freehold land is provided on straight line method on a prorata basis at the rates specified therein, the basis of which is considered by the West Bengal Electricity Regulatory Commission (Commission) in determining the tariff for the year of the Parent. Additional charge of depreciation for the year on increase in value arising from revaluation is recouped from Revaluation Reserve. Leasehold land is amortised over the unexpired period of the lease. Cost of intangible assets, comprising software related expenditure, are amortised in three years, except in case of a subsidiary, where such assets amounting to Rs. 9.07 crore (Gross Block) as at 31st March, 2012 (previous year : Rs. 8.83 crore) are amortised over a period of six years. In respect of another subsidiary, such intangible assets amounting to Rs. 3.11 crore (Gross Block) as at 31st March, 2012 (previous year : Rs. 2.89 crore) are amortised over a period of 4 to 10 years. Trademarks and licences are amortised over a period of twenty years and nine to ten years respectively based on assessment of useful life. For certain subsidiaries, depreciation is charged on straight line method at the rates prescribed in Schedule XIV under the Companies Act, 1956 and in one of the subsidiaries in certain cases a higher rate of depreciation is applied based on the useful life of the relevant assets (Gross Block Rs. 450.57 crore, previous year : Rs. 408.90 crore). In case of other subsidiaries, depreciation on fixed assets (Gross Block Rs. 101.09 crore, previous year : Rs. 91.63 crore) is provided on written down value method at the rates prescribed in Schedule XIV under the Companies Act, 1956.
(f) Expenditure during construction Nine of the subsidiaries and the joint venture entity are yet to commence commercial operation. Indirect expenses related to the project and incidental thereto are included under Capital Work-in-Progress and to be capitalized subsequently. Indirect expenditure which are not directly related to the project are charged off to the Statement of Profit and Loss.
F - 106 Notes forming part of Financial Statements (Contd.)
(g) Leasing Lease rentals in respect of assets taken under operating lease are charged to revenue. In case of one of the subsidiaries, finance leases, which effectively transfer substantially all the risk and benefits incidental to the ownership of the leased item, are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the leased liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized. In case there is no reasonable certainty that the company will obtain the ownership by the end of the lease term, the capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
(h) Investments Current investments are stated at lower of cost and fair value and Non-Current Investments are stated at cost. Provision is made where there is a decline, other than temporary, in the value of Non-Current Investment.
(i) Inventories Inventories are valued at lower of cost and net realizable value. Cost is calculated on weighted average basis and comprises of expenditure incurred in the normal course of business in bringing such inventories to their location and condition. Obsolete, slow moving and defective inventories are identified at the time of physical verification of inventories and where necessary, adjustment is made for such items.
(j) Foreign Currency Transactions Transactions in foreign currency are accounted for at the exchange rate prevailing on the date of transactions. Transactions remaining unsettled are translated at the exchange rate prevailing at the end of the financial year. Exchange gain or loss arising on settlement / translation is recognized in the Statement of Profit and Loss. The outstanding loans repayable in foreign currency are restated at the year-end exchange rate. With respect to the Parent, exchange gain or loss arising in respect of such restatement is accounted for as an income or expense with recognition of the said amount as refundable or recoverable, which will be taken into consideration in determining the Parents future tariff in respect of the amount settled. Foreign currency loans, availed of by the Parent on a fully hedged basis in Indian Rupee and where as per the terms of the underlying contracts no exchange fluctuation is on the Parents account, are accounted for in the currencies in which such loans have been fully hedged. In respect of one of the subsidiaries, the outstanding loans repayable in foreign currency are restated at year end exchange rates or such other applicable rates considering the concerned coverages made by that subsidiary.
(k) Revenue from Operations Earnings from sale of electricity of the Parent are net of discount for prompt payment of bills and do not include electricity duty payable to the State Government. They also include, as per established practice, consistently followed by the Parent in the past, estimated sums recoverable from / adjustable on consumers account, calculated on the basis of rates approved / specified by the appropriate authorities which are reflected in the subsequent bills. In terms of the applicable regulations and tariff determination process followed by the Commission, advance against depreciation forms part of tariff. Such advance against depreciation of a year is adjusted against earning from sale of electricity for inclusion of the same in subsequent years, based on due consideration by the authorities in the tariff determination process. With respect to the Parent, income from hire of meters is accounted for as per the approved rates and delayed payment surcharge, as a general practice, is determined and recognized on receipt of overdue payment from consumers. With respect to the subsidiaries, revenue is recognized when significant risk and rewards of ownership of the goods get passed on to the buyers.
(l) Other Income Income from investments and deposits etc. is accounted for on accrual basis inclusive of related tax deducted at source, where applicable. With respect to the subsidiaries, income from recoveries and services mainly represents recoveries made on account of advertisement for use of space by the customer and other expenses charged from suppliers and are recognized and recorded based on the arrangements with concerned parties.
F - 107 Notes forming part of Financial Statements (Contd.)
(m) Employee Benefits Contributions to Provident Fund and contributory Pension Fund are accounted for on accrual basis. Provident Fund contributions are made to funds administered through duly constituted approved independent Trusts or Regional Provident Fund Commissioner. The interest rate payable to the members of the trust fund shall not be lower than the statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 and deficiency, if any, is made good by the Companies, impact of which ascertained by way of actuarial valuation as at the year end. The Group, as per its schemes, extend employee benefits current and / or post retirement, which are accounted for on accrual basis, and includes actuarial valuation as at the balance sheet date in respect of gratuity, leave encashment and certain medical benefits, to the extent applicable, made by independent actuaries. Actuarial gains and losses, where applicable, are recognized in the Statement of Profit and Loss. Compensation in respect of voluntary retirement scheme is charged off to revenue. In respect of one of the subsidiaries short term employee benefits are recognized as an expense at the undiscounted amount in the Statement of Profit and Loss for the year in which the related service is rendered.
(n) Finance Costs Finance Costs comprise interest expenses, applicable gain / loss on foreign currency borrowings in appropriate cases and borrowing costs. Such finance costs attributable to acquisition and / or construction of qualifying assets are capitalized as a part of cost of such assets upto the date where such assets are ready for their intended use. Other borrowing costs are charged to revenue. In respect of one of the subsidiaries ancilliary costs amounting to Rs. 1.52 crore (previous year : Rs. 1.46 crore) incurred in connection with the arrangement of borrowings are amortised over the period of borrowings for which these are incurred.
(o) Taxes on Income Current tax represents the amount payable based on computation of tax as per prevailing taxation laws under the Income Tax Act, 1961. Provision for deferred taxation is made using liability method at the current rates of taxation on all timing differences to the extent it is probable that a liability or asset will crystallize. Deferred tax assets are recognized subject to the consideration of prudence and are periodically reviewed to reassess realization thereof. Deferred tax liability or asset will give rise to actual tax payable or recoverable at the time of reversal thereof. With respect to the Parent, since tax on profits forms part of chargeable expenditure under the applicable regulations, deferred tax liability or asset is recoverable or payable through future tariff. Hence, recognition of deferred tax asset or liability is made with corresponding provision of liability or asset, as applicable.
(p) Miscellaneous expenditure to the extent not written off or adjusted With respect to the Parent, the erstwhile governing statute, viz., the Electricity (Supply) Act, 1948 (ESA), provided for amortisation of preliminary expenses and certain capital issue expenses over the unexpired period of licence. The Parent, as per the consistently applied accounting policy continues with such amortisation of expenditure incurred upto the year 2004-05. Thereafter, pursuant to repeal of ESA, such expenditures are charged off to revenue.
(q) Employee Stock Compensation Cost With respect to one of the subsidiaries, measurement and disclosure of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India. The subsidiary measures compensation cost relating to employee stock options using the fair value method. Compensation expenses are amortized over the vesting period of the option on a straight line method.
F - 108 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011
NOTE 4 SHARE CAPITAL
(a) Authorised Share Capital 15,00,00,000 Equity Shares of Rs. 10/- each 150.00 150.00
(b) Issued Capital 13,12,35,897 Equity Shares of Rs. 10/- each 131.24 131.24
(c) Subscribed and paid up capital 12,49,35,925 Equity Shares of Rs. 10/- each 124.94 124.94
(d) Forfeited Shares (amount originally paid up) 0.66 0.66
125.60 125.60
(e) Reconciliation of the shares outstanding at the begining and at the end of the reporting period As at 31st March, 2012 As at 31st March, 2011
Number of shares Amount Number of shares Amount
Rs. In Crore Rs. In Crore
Opening and Closing Balance 12,49,35,925 124.94 12,49,35,925 124.94
(f) Terms / rights attached to equity shares :
The Parent has only one class of equity shares having a par value of Rs. 10 per share fully paid up. Each holder of equity share is entitled to one vote per share. During the year ended 31st March, 2012 the amount of dividend per share recommended by the Board of Directors of the Parent as distributions to equity shareholders is Rs. 5 (31.03.2011 -Rs. 4) subject to declaration at the ensuing Annual General Meeting by the members. In the event of liquidation of the Parent, the holders of equity shares will be entitled to receive sale proceeds from remaining assets of the Parent after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
(g) Details of shareholders holding more than 5% shares in the Parent As at 31st March, 2012 As at 31st March, 2011
Name of shareholder Number of shares % of holding Number of shares % of holding
Rainbow Investments Limited 3,10,58,414 25 3,10,58,414 25
Universal Industrial Fund Limited 1,77,91,421 14 1,77,91,444 14
(h) With respect to the Parent, 3,10,58,414 Equity Shares of Rs. 10 each were allotted as fully paid-up on 12th October, 2007 pursuant to a Scheme of Amalgamation sanctioned by the Honble High Court at Calcutta, without consideration being recieved in cash.
F - 109 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011
NOTE 5 RESERVES AND SURPLUS
(a) Capital contribution from consumer as at beginning of the year 576.37 525.50 Add : Contribution during the year 70.01 50.87 646.38 576.37
(b) Capital Reserve on consolidation 37.72 37.72
(c) Capital Redemption Reserve 20.13 20.13
(d) Securities Premium Account 1,254.85 1,254.85
(e) Revaluation Reserve as at the beginning of the year 1,264.96 1,373.71 Less : Withdrawal on account of depreciation on amount added on revaluation 105.37 106.56 1,159.59 1,267.15 Less : Withdrawal of the residual amount added on revaluation consequent to sale/disposal of revalued assets 3.82 2.19 1,155.77 1,264.96
(f) Fund for unforeseen exigencies at the beginning of the year 81.57 58.10
Add : Transfer during the year from Surplus (Refer Note (i) below) 28.10 23.47 109.67 81.57
(g) Foreign Currency Translation Reserve 7.44
(h) General Reserve / Surplus as at the beginning of the year 1,339.56 1,142.73 Add : Profit for the year 245.88 278.38 Less : Transfer to Fund for unforeseen exigencies 28.10 23.47 Less : Proposed Dividend 62.47 49.97 Less : Tax on Proposed Dividend 10.13 8.11 1,484.74 1,339.56 4,716.70 4,575.16
(i) Amount transferred during the year to Fund for unforeseen exigencies in respect of the Parent to be invested as per the statute.
F - 110 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011
NOTE 6 LONG-TERM BORROWINGS
(A) Secured Term Loans (1) Rupee Loans : (i) Banks 3,135.28 1,946.43 (ii) Financial Institutions 389.55 510.51 3,524.83 2,456.94 (2) Foreign Currency Loans from banks 897.14 469.09 4,421.97 2,926.03
(B) Unsecured (i) Banks 300.00 300.00 (ii) Floating Rate Notes 70.85 62.07 370.85 362.07 4,792.82 3,288.10
Less : Current maturities of long term borrowings transferred to Other Current Liabilities (Refer Note 10) 492.09 388.92 4,300.73 2,899.18
(C) Nature of Security : 1. Term loans in (A) above in respect of the Parent are secured by equitable mortgage / hypothecation of the fixed assets of the Parent including its land, buildings and other constructions thereon, plant and machinery etc. as a first charge and as a second charge, by hypothecation of the Parents current assets comprising stock of stores, coal and other consumables, book debts, monies receivable and bank balances. However, creation of the said mortgage security in respect of two Rupee Loans and one Foreign Currency Loan aggregating Rs. 397.50 crore (31st March, 2011 - Rs. Nil) is in process. User rights in respect of a freehold land having a book value of Rs. 68.95 crore have been offered for financial assistance availed of by a subsidiary to its lenders. 2. The security for the term loans in respect of the parent in (A) above ranks pari passu inter se. 3. Term loans amounting to Rs. 101.25 crore in (A)(1)(i) above in respect of one of the subsidiaries are secured by hypothecation by way of first charge on all the current and movable assets (tangible & intangible, both present and future) and all the receivables of the subsidiary arising out of, pursuant to or under the merchant establishment agreement (including the credit card receivables account) save and except any asset situated in or any such receivables arising from the hyper stores situated at Vishakhapatnam, Hyderabad and Malad (Mumbai). Beside, the above term loan of Rs. 26.25 crore is also secured by the unconditional and irrevocable Letter of Comfort from the Parent. 4. Term Loan amounting to Rs. 100 crore in (A)(1)(i) above in respect of another subsidiary are secured by way of mortgage / hypothecation of current assets, all fixed assets (both present and future) of the subsidiary in respect of the Mall project including project land, together with an exclusive charge by way of hypothecation on all cash flows of the project, both present and future. However, creation of mortgage security in respect of immovable assets of the project is in process. 5. Term Loan amounting to Rs. 840 crore in (A) (1)(i) above and Foreign Currency Loan amounting to Rs. 290.35 crore in respect of another subsidiary are secured with first charge by way of equitable mortgage / hypothecation of fixed assets of the subsidiary including its land, buildings and construction thereon, where exists, plant and machinery etc. and hypothecation of the subsidiarys current assets. 6. Term Loan amounting to Rs. 517 crore in (A) (1)(i) above in respect of another subsidiary is secured with first charge by way of equitable mortgage / hypothecation of fixed assets of the subsidiary including its land, buildings and construction thereon, where exists, plant and machinery etc. and hypothecation of the subsidiarys current assets.
F - 111 Notes forming part of Financial Statements (Contd.)
(D) Major terms of repayment of long term borrowings disclosed in (A) and (B) above : Rs. in Crore
Rupee Term Rupee Foreign Maturity Profile of Long Term Borrowings Loan from Current Term Loan Currency Total outstanding as at 31st March, 2012 Financial Maturities from Banks Loans Institutions
Loans with residual maturity of upto 1 year 6.91 65.17 79.88 151.96 151.96 Loans with residual maturity between 1 and 3 years 70.12 30.00 26.59 126.71 77.81 Loans with residual maturity between 3 and 5 years 300.00 50.29 350.29 9.56 Loans with residual maturity between 5 and 10 years 1,606.25 294.38 520.89 2,421.52 248.01
Loans with residual maturity beyond 10 years 1,452.00 290.34 1,742.34 4.75
Total 3,435.28 389.55 967.99 4,792.82 492.09 Interest rates on Rupee Loans from Banks and Financial Institutions are based on spread over respective Lenders benchmark rate and that of on Foreign Currency Loans are based on spread over LIBOR.
NOTE 7 Other long term liabilities represent those arising from adjustments detailed in Note 24, the unadjusted balance of sums recieved from consumers for capital jobs, pending completion thereof in respect of the Parent and retention liabilities in respect of certain subsidiaries etc.
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011 NOTE 8 LONG TERM PROVISIONS Provision for employee benefits 92.34 69.39 92.34 69.39
NOTE 9 SHORT TERM BORROWING A. Secured (i) Loans repayable on demand Overdraft from banks 432.76 374.73 (ii) Foreign Currency Loans Buyers Credit 211.19 B. Unsecured Short term Loan from banks 350.00 465.00 993.95 839.73 C. Nature of Security 1. Overdraft facilities from banks in (A) (i) above in respect of the Parent are secured by hypothecation of the Parents current assets comprising stock of stores, coal and other consumables, book debts, monies receivable and bank balances as a first charge and as a second charge by equitable mortgage / hypothecation of fixed assets of the Parent including its land, buildings and other constructions thereon where exists, plant and machinery etc. However, creation of the said mortgage security in respect of overdraft facilities from banks aggregating Rs. 97.60 crore (31.3.2011 Rs. 97.60 crore) is in process. 2. The security for the overdraft facilities from banks in (A)(i) above ranks pari passu inter se. 3. Foreign currency loans amounting to Rs. 211.19 crore in respect of one of the subsidiaries is secured with first charge by way of equitable mortgage / hypothecation of fixed assets of the subsidiary including its land, buildings and construction thereon, where exists, plant and machinery, etc and hypothecation of the subsidiarys current assets.
F - 112 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011
NOTE 10 OTHER CURRENT LIABILITIES
(a) Current maturities of long-term borrowings (Refer Note 6) 492.09 388.92 (b) Interest accured but not due on borrowings 33.97 27.37 (c) Interest accured and due on borrowings 1.24 (d) Book overdraft from Banks 26.39 11.40 (e) Unclaimed dividend 1.50 1.30 (f) Unclaimed public deposit 0.51 0.62 (g) Liabilities on capital account 214.03 111.62 (h) Other payables 676.36 474.51 (i) Add : Share of Joint Venture (Refer Note 1c) 0.00 0.00 1,446.09 1,015.74
(j) Unclaimed dividend and unclaimed Public Deposits in respect of the Parent do not include any amounts, due and outstanding, to be credited to Investor Education and Protection Fund. (k) Other payables includes outstanding interest on consumers security deposit, employee related liability, creditors towards contractual obligations etc.
NOTE 11 SHORT TERM PROVISIONS
(a) Provision for employee benefits 16.44 8.03 (b) Provision for taxation (net of advance payment of tax of Rs. 361.43 crore ; 31.03.2011- Rs. 271.78 crore) 6.63 3.95 (c) Proposed Dividend 62.47 49.97 (d) Tax on Proposed Dividend 10.13 8.11 95.67 70.06
F - 113 Notes Forming Part Of Financial Statements (Contd.)
NOTE 12 - TANGIBLE ASSETS Rs. in Crore GROSS BLOCK AT COST OR VALUATION DEPRECIATION / AMORTISATION NET BLOCK As at As at As at As at As at As at PARTICULARS 1st April, Additions / Withdrawals / 31st March, 1st April, Additions / Withdrawals / 31st March, 31st March, 31st March, 2011 Adjustments Adjustments 2012 2011 Adjustments Adjustments 2012 2012 2011
Land Freehold 848.78 4.40 - 853.18 0.09 0.01 - 0.10 853.08 848.69 Leasehold 450.04 5.06 2.24 452.86 26.78 2.93 0.50 29.21 423.65 423.26 Building and Structures Freehold 414.19 18.90 - 433.09 74.70 12.24 - 86.94 346.15 339.49 Leasehold 434.39 7.18 18.04 423.53 259.72 19.73 23.95 255.50 168.03 174.67 Plant and Equipment 5,468.10 231.48 41.72 5,657.86 2,394.98 211.66 22.51 2,584.13 3,073.73 3,073.12 Distribution System 3,915.54 345.63 - 4,261.17 1,498.67 133.93 - 1,632.60 2,628.57 2,416.87 Meters and Other Apparatus on Consumers Premises 466.89 31.17 7.11 490.95 219.54 19.12 5.05 233.61 257.34 247.35 F -
114 River Tunnel 4.88 - - 4.88 2.25 0.26 - 2.51 2.37 2.63 Furniture and Fixtures 110.75 23.93 20.62 114.06 35.49 15.90 6.58 44.81 69.25 75.26 Office Equipment 142.65 12.95 2.21 153.39 69.97 18.12 1.46 86.63 66.76 72.68 Vehicles 17.02 1.52 0.91 17.63 10.29 2.11 0.67 11.73 5.90 6.73 Railway Sidings Freehold 4.56 0.17 - 4.73 4.46 - - 4.46 0.27 0.10 Leasehold 34.70 - - 34.70 14.19 1.09 - 15.28 19.42 20.51 12,312.49 682.39 92.85 12,902.03 4,611.13 437.10 60.72 4,987.51 7,914.52 7,701.36 Previous Year 11,700.00 670.84 58.35 12,312.49 4,218.65 416.76 24.28 4,611.13 7,701.36 Note : In respect of one of the subsidiaries, depreciation for the year includes Rs. 7.20 crore (previous year : Rs. 14.35 crore) being accelerated depreciation on certain movable items not in use from closed / disposed stores. NOTE 13 - INTANGIBLE ASSETS Goodwill on Consolidation 314.18 - - 314.18 ---- 314.18 314.18 Trademarks 32.00 - - 32.00 3.20 1.60 - 4.80 27.20 28.80 Licence 9.68 0.19 0.00 9.87 1.49 0.98 0.00 2.47 7.40 8.19 Computer Software 33.95 3.88 0.04 37.79 24.70 6.79 0.02 31.47 6.32 9.25 389.81 4.07 0.04 393.84 29.39 9.37 0.02 38.74 355.10 360.42 Previous Year 385.73 4.08 389.81 22.07 7.32 29.39 360.42 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011 NOTE 14 NON CURRENT INVESTMENTS A. Trade Investments - Unquoted (a) Investments in Equity Instruments 13,000 Equity Shares of Integrated Coal Mining Limited of Rs. 10 each 0.01 0.01 (b) Investments in Preference shares 3,00,00,000 1% Cumulative Optionally Convertible Redeemable Preference Shares of Integrated Coal Mining Limited of Rs. 10 each 30.00 30.00
B. Other Investments - Unquoted Investments in Equity Instruments 60,00,000 Equity Shares of Crescent Power Limited of Rs. 10 each 6.00 6.00
Investment in Mutual Fund Nil (31.03.2011 - 12,685.585) units of UTI-Floating rate fund of Rs. 1000 each - 1.35 Others 10,000 Equity Shares of Retailers Association of India of Rs. 10 each 0.01 0.01
C. Other Investments - Quoted Investments in Equity Instruments 1,21,95,122 (31.03.2011 - Nil) Equity Shares of Resource Generation Limited 55.34 (Market Value: Rs. 31.00 crore) 91.36 37.37 D. All non-current investments are long term in nature. No provision in respect of dimunition in value of long term investments in certain quoted shares has been made in this account, since these are long term strategic investments and dimunition is considered temporary in nature.
NOTE 15 LONG-TERM LOANS AND ADVANCES Unsecured, considered good (a) Capital advances 435.19 316.37 (b) Security Deposits 77.59 81.40 (c) Other Loans and advances 35.50 41.97 (Includes advance for property acquisition, employee related loans etc.) 548.28 439.74
NOTE 16 OTHER NON-CURRENT ASSETS (a) Deferred Payments 12.89 (b) Unamortised costs towards miscellaneous expenditure to the extent not written off or adjusted 5.01 5.72 5.01 18.61
F - 115 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011 NOTE 17 CURRENT INVESTMENTS Unquoted Investments in Mutual Funds 3,83,382.045 (31.03.2011 - Nil) units of Rs. 1304.1821 each of IDFC Cash Fund - Super Inst Plan C - Growth 50.00 22,07,912.148 (31.03.2011 - Nil) units of Rs. 158.5208 each of ICICI Prudential Institutional Liquid Super Institutional Plan - Growth 35.00 Nil (31.03.2011 - 2,13,908.731) units of Rs. 1402.4673 each of DSP Black Rock Liquidity Fund - Inst Plan - Growth 30.00 Nil (31.03.2011- 1,91,28,871.205) units of Rs. 15.6831 each of Birla Sunlife Cash Plus - Inst Premium - Growth 30.00 Nil (31.03.2011 - 1, 55,592.979) unit of Rs. 1606.7563 each of UTI Liquid Cash Plan Institutional - Growth Option 25.00 Nil (31.03.2011 - 4,19,55,460.084) units of Rs. 11.9174 each of IDFC Cash Fund - Super Inst Plan C - Growth 50.00 Nil (31.03.2011 - 1,90,249.866) units of Rs. 1051.2491 each of IDBI Liquid Fund - Growth 20.00 Nil (31.03.2011 - 42,008,334.454) units of Rs. 11.9024 each of IDFC Cash Fund-Super Inst Plan C - Growth 50.00 Nil (31.03.2011 - 311,185.9589) units of Rs. 1606.7563 each of UTI Liquid Fund Cash Plan-Inst-Growth Option 50.00 Nil (31.03.2011 - 3,454,751.735) units of Rs. 144.7282 each of ICICI Prudential Liquid Super Inst Plan - Growth 50.00 Nil (31.03.2011 - 127,04,801.399) units of Rs. 19.6776 each of HDFC Liquid Fund - Premium Plus Plan - Growth 25.00 Nil (31.03.2011 - 34,50,541.321) units of Rs. 144.9048 each of ICICI Prudential Institutional Liquid Super Institutional Plan - Growth 50.00 85.00 380.00
NOTE 18 INVENTORIES (a) Raw Materials 0.19 0.12 (b) Work in Progress 0.03 0.02 (c) Finished Goods 0.03 0.02 (d) Traded Goods 123.00 123.30 (e) Fuel (includes goods in transit Rs. 47.92 crore ; 31st March, 2011- Rs. 37.36 crore) 156.48 153.90 (f) Stores and Spares (includes goods in transit Rs. 1.02 crore ; 31st March, 2011 - Rs. 0.38 crore) 138.22 140.54 (g) Packing Materials 2.20 2.41 420.15 420.31 Less : Provision for obsolete stock of Traded Goods and Packing Materials 12.41 12.41 407.74 407.90
F - 116 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011 NOTE 19 TRADE RECEIVABLES (a) Outstanding for a period exceeding six months Secured, considered good 25.32 2.39 Unsecured, considered good 83.92 20.07 Doubtful 4.27 5.34 113.51 27.80 Less : Allowances for doubtful debts 4.27 5.34 109.24 22.46
(b) Other receivables Secured, considered good 397.61 326.43 Unsecured, considered good 487.23 227.15 884.84 553.58 994.08 576.04
NOTE 20 CASH AND BANK BALANCES (a) Cash and Cash equivalents Balance with banks In Current Accounts 469.90 270.83 Bank deposits with original maturity upto 3 months (Refer Note (d) below) 499.15 535.00 Cheques, drafts on hand 14.64 6.94 Cash on hand 7.18 6.16 990.87 818.93
(b) Other bank balances Dividend Accounts 1.50 1.30 Bank deposits with original maturity more than 3 months (Refer Note (e) and (f) below) 333.89 399.11 Deposit Accounts (Refer note (g) below) 16.50 9.49 Escrow Account 0.45 0.09 352.34 409.99
(c) Add : Share of Joint Venture 0.04 0.19 1,343.25 1,229.11
(d) In respect of the Parent, amount lying in deposit accounts with banks as at 31st March, 2012 includes Rs. 62.70 crore (31 March 2011 : Rs. 61.40 crore) appropriated upto the previous year towards Fund for unforeseen exigencies and interest attributable thereto. (e) In respect of the Parent, amount lying in deposit accounts with banks as at 31st March, 2012 includes Rs. 23.00 crore (31 March 2011 : Nil) appropriated upto the previous year towards Fund for unforeseen exigencies and interest attributable thereto. (f) Bank deposits with original maturity more than 3 months under Other bank balances include Rs. 63.55 crore (31st March, 2011 - Rs. 72.60 crore) having original maturity more than 12 months as on the reporting date. (g) Includes Rs. 16.49 crore (31 March 2011 : Rs. 9.35 crore) pledged with banks against Bank Guarantee and Overdraft facilities with respect to one of the subsidiaries, Rs. Nil (31 March 2011 Rs. 0.14 crore) deposit pledged with Sales Tax Authorities with respect to the another subsidiary.
F - 117 Notes forming part of Financial Statements (Contd.)
Rs. in Crore As at 31st As at 31st March, 2012 March, 2011 NOTE 21 SHORT-TERM LOANS AND ADVANCES Other Advances (Unsecured, considered good) Share Application money to bodies corporate 46.23 5.60 Advance for goods and services 42.32 32.11 Security deposit / advances 2.52 1.04 Others* 103.54 99.80 194.61 138.55
(Unsecured, considered doubtful) Security deposit / advances 5.65 11.66 Advances recoverable 0.26 Others 9.98 Less : Allowances for doubtful advances 5.65 21.90
194.61 138.55
* Above include expenditure incurred by the Parent for setting up power projects to be transferred to the specific project developing entities, in due course.
NOTE 22 OTHER CURRENT ASSETS (a) Deferred Payments 21.68
(b) Receivable towards claims and services rendered - considered good 1.64 5.93 - considered doubtful 2.01 Less : Allowances for doubtful receivables 2.01
1.64 5.93
(c) Others Insurance claim receivables 0.20 0.21 Interest accrued on deposits 47.83 28.63
(d) Unamortised costs towards miscellaneous expenditure to the extent not written off or adjusted 0.72 0.72
72.07 35.49
F - 118 Notes forming part of Financial Statements (Contd.)
NOTE 23 CONTINGENT LIABILITIES AND COMMITMENTS (TO THE EXTENT NOT PROVIDED) (a) Claims against the Parent not acknowledged as debts : The West Bengal Taxation Tribunal had held meter rentals received by the Parent from consumers to be deemed sales under the provisions of the Bengal Finance (Sales Tax) Act, 1941 and that sales tax was payable on such rentals. Based on such findings the Commercial Taxes Directorate assessed Rs. 0.69 crore as sales tax on meter rentals received during the year ended 31st March, 1993 and raised a demand of Rs. 0.36 crore on account of interest. Against the above demand, the Parent had deposited a sum of Rs. 0.75 crore with the sales tax authorities and obtained a stay against the balance demand from the Deputy Commissioner of Commercial Taxes. The sales tax authorities also indicated their intention to levy such sales tax on meter rentals for the subsequent years as well, against which, the Parent filed a writ petition in the Calcutta High Court and prayed for an interim order, inter alia, restraining the sales tax authorities from proceeding with the assessment for the subsequent years till disposal of the appeal. An interim order has been issued by the High Court permitting the sales tax authorities to carry out assessments but restraining them from serving any assessment order on the Parent. The disposal of the case is still pending.
(b) Other money for which the Parent is contingently liable : i) Municipal Tax : Rs. 1.01 crore (previous year : Rs. 0.95 crore) in respect of certain properties, the rates of which are disputed by the Parent. ii) Water Cess : Rs. Nil (previous year : Rs. 6.74 crore) - disputed by the Parent. The future cash outflow in respect of above cannot be ascertained at this stage.
(c) For commitment relating to leasing arrangement, refer Note 33.
(d) Claim against a Subsidiary not acknowledged as debts : i) Retailers Association of India (RAI) of which one of the subsidiaries is a member, has filed Special Leave Petition before the Honble Supreme Court of India, about the applicability of service tax on commercial rent on immovable property. Pending disposal of the case, the Supreme Court has passed an interim ruling in October 2011 directing the members of RAI to pay 50% of total service tax liability upto September 2011 to the department and to furnish a surety for balance 50%. The Supreme Court has also clarified that the successful party in the appeal shall be entitled to interest on the amount stayed by the Court, at such rate as may be directed at the time of the final disposal of appeal. Accordingly, the subsidiary has deposited Rs. 4.60 crore and furnished a surety for Rs. 4.60 crore towards the service tax liability, while interest, whose quantum and applicability is presently not ascertainable, will be provided on the disposal of the petition. ii) Other claims against a subsidiary not acknowledged as debt Rs. 1.71 crore (previous year : Rs. 1.08 crore)
(e) Contingent Liability not provided for with respect to a Subsidiary : Rs. in Crore
Particulars 31st March, 31st March, 2012 2011
- Sales tax demands under appeal 1.21 0.47
- Service tax demands 1.16
- Guarantee to ABP Corporation to discharge obligation, Not Not if any, in event of default Quantified Quantified
F - 119 Notes forming part of Financial Statements (Contd.)
Rs. in Crore 2011-12 2010-11
NOTE 24 REVENUE FROM OPERATIONS (a) Earnings from sale of electricity 4,603.74 4,094.21 (b) Earnings from sale of retail products (net of Excise Duty) 1,209.32 1,002.71 (c) Other Operating Revenue Meter Rent 40.60 38.85 Delayed Payment Surcharge 8.99 10.35 Others 29.07 32.90 (includes provision written back - Rs. 15.09 crore ; 31.03.2011 - Rs. 3.77 crore) 5,891.72 5,179.02
(d) Earnings from sale of electricity in respect of the Parent, are determined in accordance with the relevant orders of the Commission, where appropriate, giving due effect to the required adjustments. Such adjustments include the effect of increase in tariff for the account months of April, 2011 to January, 2012 in terms of the order of the Commission, recovery of which has since commenced and will be made, as directed, and that by netting of a sum of Rs. 358.93 crore (previous year : Rs. (154.36) crore) in respect of the cost of electrical energy purchased, fuel and related costs and those relating to revenue account, based on the Companys understanding of the applicable regulatory provisions on this count, after giving effect of the impact arising from applicable orders in this regard for earlier years and the net impact of the said adjustments has been included in Other long term liabilities, to the extent appropriate. The accurate quantification and disposal of the matters are being given effect to, from time to time, on receipt of necessary direction from the appropriate authorities. The said earnings are also net of discount for prompt payment of bills and advance against depreciation amounting to Rs. 79.35 crore (previous year : Rs. 71.20 crore) and Rs. 51.77 crore (previous year : Rs. 67.55 crore) respectively.
Rs. in Crore 2011-12 2010-11
NOTE 25 OTHER INCOME (a) Interest Income 78.02 50.86 (b) Dividend Income 0.30 0.30 (c) Income from Recoveries and Services 33.09 27.97 (d) Gain on sale of current investments (net) 45.53 30.75 (e) Gain on sale of non-current investments (net) 0.81 (f) Profit on sale of assets (net) 1.68 (g) Other Non-operating Income 8.35 4.98
167.78 114.86 Less : Allocated to capital account 35.52
132.26 114.86
F - 120 Notes forming part of Financial Statements (Contd.)
Rs. in Crore 2011-12 2010-11
NOTE 26 COST OF MATERIALS CONSUMED FOR RETAIL BUSINESS Opening Stock of Raw Material 0.12 0.07 Add : Purchases 2.64 0.58 Less : Closing stock of Raw Material 0.19 0.12
2.57 0.53
NOTE 27 CHANGES IN INVENTORIES OF FINISHED GOODS, STOCK-IN-TRADE AND WORK-IN-PROGRESS FOR RETAIL BUSINESS (Increase) / decrease in stocks Stock at the beginning of the year : Finished Goods 0.02 0.01 Stock-in-trade 123.30 140.42 Work-in-progress 0.02 0.01
Total (A) 123.34 140.44 Less : Stock at the end of the year : Finished Goods 0.03 0.02 Stock-in-trade 123.00 123.30 Work-in-progress 0.03 0.02
Total (B) 123.06 123.34
Decrease/(Increase) in stocks (A-B) 0.28 17.10
NOTE 28 COST OF FUEL FOR POWER BUSINESS (a) Cost of Fuel includes freight Rs. 230.98 crore (previous year : Rs. 190.87 crore). (b) Cost of Fuel includes gain of Rs. 4.55 crore (previous year : gain of Rs. 1.25 crore) due to exchange fluctuations.
F - 121 Notes forming part of Financial Statements (Contd.)
Rs. in Crore 2011-12 2010-11 NOTE 29 EMPLOYEE BENEFIT EXPENSES (A) 1. Salaries, wages and bonus 576.17 523.42 2. Contribution to provident and other funds 58.58 66.10 3. Employees welfare expenses 32.05 23.89 666.80 613.41 Less : Allocated to capital account etc. 68.18 58.86 598.62 554.55
(B) Employee Benefits The Group makes contributions for provident fund and pension (including for superannuation) schemes. For these schemes, such contributions are made based on current salaries, to funds maintained by the Group and for certain categories, to State Plans. For certain schemes, contributions are also made by the employees. An amount of Rs. 36.14 crore (31 March, 2011 : Rs. 36.72 crore), has been charged to the Statement of Profit and Loss. The Group also operates schemes like gratuity, leave encashment and other retiral benefits including medical which offers specified benefits to the eligible employees. Annual actuarial valuations are carried out by independent actuaries. Wherever independent trust funds have been set up, annual contributions are made by the Group and in certain cases, such trust funds in turn, invests in the Employees Group Benefit Scheme of eligible agencies. Employees are not required to make any contribution.
Net Liability / (Asset) recognized in the Balance Sheet : Rs. in Crore
For the year ended For the year ended For the year ended For the year ended 31st March, 2012 31st March, 2011 31st March, 2010 31st March, 2009 Gratuity Leave Medical Gratuity Leave Medical Gratuity Leave Medical Gratuity Leave Medical Encash Encash Encash Encash ment ment ment ment Present value of funded obligation yet to be 172.71 -- -- 155.35 - - 132.76 - - 101.12 - - Fair Value of Plan Assets 161.43 -- -- 152.63 - - 1117.13 - - 107.13 - - 11.28 -- -- 2.72 - - 15.63 - - (6.01) - - Present value of un-funded obligation -- 62.47 18.69 -- 57.67 17.33 - 50.34 15.39 - 51.53 14.08 Unrecognised past service cost ------Net Liability/(Asset) 11.28 62.47 18.69 2.72 57.67 17.33 15.63 50.34 15.39 (6.01) 51.53 14.08
Experience Adjustment Rs. in Crore For the year ended 31 March, 2012 For the year ended 31 March, 2011 Gratuity Leave Medical Gratuity Leave Medical Encashment Encashment Experience (Gain) / Loss adjustment on plan liabilities 14.80 4.42 1.66 12.67 5.81 (0.44) Experience (Gain) / Loss adjustment on plan assets (0.17) 0.36 Experience (Gain) / Loss adjustment on plan liabilities due to change in assumption (4.92) (1.92) (1.04) (14.61) 2.32 1.91
F - 122 Notes forming part of Financial Statements (Contd.)
NOTE 29 EMPLOYEE BENEFIT EXPENSES (Contd.)
Expenditure shown in the Note 29 to Statement of Profit and Loss as follows : Rs. in Crore For the year ended 31 March, 2012 For the year ended 31 March, 2011 Gratuity Leave Medical Gratuity Leave Medical Encashment Encashment Current Service Cost 7.91 2.15 6.94 0.95 Interest Cost 12.39 4.60 1.41 10.42 3.94 1.25 Expected Return on Plan Assets (12.58) (10.52) Actuarial loss / (gain) 10.79 3.28 0.62 19.44 8.161.47 Past Service Cost Total 18.51 10.03 2.03 26.28 13.05 2.72
Reconciliation of Opening and Closing Balances of the present value of obligations : Rs. in Crore For the year ended 31 March, 2012 For the year ended 31 March, 2011 Gratuity Leave Medical Gratuity Leave Medical Encashment Encashment Opening defined benefit obligation 155.35 57.67 17.33 132.7650.35 15.39 Current Service Cost 7.91 2.15 6.94 0.95 Interest Cost 12.39 4.60 1.41 10.42 3.94 1.25 Plan Amendments Actuarial loss / (gain) 11.00 3.28 0.62 19.77 8.15 1.47 Benefits paid (13.94) (5.23) (0.77) (14.54) (5.72) (0.78) Closing Defined Benefit Obligation 172.71 62.47 18.59 155.35 57.67 17.33
Reconciliation of Opening and Closing Balances of fair value of plan assets : Rs. in Crore
For the year ended 31 March, 2012 For the year ended 31 March, 2011 Gratuity Leave Medical Gratuity Leave Medical Encashment Encashment Opening fair value of Plan Assets 152.63 111.71 Expected Return on Plan Assets 12.58 10.52 Actual Company Contributions 9.95 44.61 Actuarial gain / (loss) 0.21 0.33 Benefits paid (13.94) (14.54) Closing Fair Value on Plan Assets 161.43 152.63 Actual Return on Plan Assets 12.79 10.85
The major categories of plan assets consist of funds maintained with LICI, ICICI Prudential, Birla Sun Life and HDFC Standard Life. Effect of increase/decrease of one percentage point in the assumed medical inflation rates :
For the year ended 31 March, 2012 For the year ended 31 March, 2011 Increase Decrease Increase Decrease Effect on defined benefit obligation 0.19(0.13)* 0.17 (0.12)* *in case of hospitalised treatment only
F - 123 Notes forming part of Financial Statements (Contd.)
NOTE 29 EMPLOYEE BENEFIT EXPENSES (Contd.)
Principal Actuarial Assumptions Used : For the year ended 31 March, 2012 For the year ended 31 March, 2011 Discount Rates 8.50% to 8.75% 8.00% to 8.50% Expected Return on Plan Assets 8.00% to 8.75% 8.30% to 8.50% Rate of increase in medical cost trend 2.50% 2.50% Mortality Rates LIC 1994-96 Ultimate LIC 1994-96 Ultimate
The estimates of future salary increase considered in the actuarial valuation takes into account factors like inflation, seniority, promotion and other relevant factors. The expected return on plan assets is based on actuarial expectation of the average long term rate of return expected on investments of the funds during the estimated terms of the obligations. The contribution expected to be made by the Group for the year ending 31st March, 2013 is not readily ascertainable and therefore, not disclosed. Above disclosures as required by AS - 15 - Employee Benefits are given to the extent available from the actuarial report.
Rs. in Crore 2011-12 2010-11
NOTE 30 FINANCE COSTS (a) Interest expense 483.96 346.94 (b) Other Borrowing Costs 59.84 39.43 (c) Applicable net loss on foreign currency transactions and translation 15.54 1.55
559.34 387.92 Less : Allocated to capital and deferred payments account 214.25 75.87
345.09 312.05
NOTE 31 DEPRECIATION AND AMORTISATION EXPENSES Depreciation / amortisation on tangible assets 437.06 406.37 Amortisation on intangible assets 9.37 17.66 446.43 424.03 Less : Recoupment from revaluation reserve 105.37 106.57 Less : Allocated to capital account 1.01 0.98 340.05 316.48
F - 124 Notes forming part of Financial Statements (Contd.)
Rs. in Crore 2011-12 2010-11 NOTE 32 OTHER EXPENSES (a) Power and Fuel 32.42 26.39 (b) Packing Materials Consumed 6.56 7.58 (c) Consumption of stores and spares 288.08 251.74 (d) Repairs Building 16.03 15.18 Plant and Machinery 62.48 53.59 Distribution System 98.01 51.53 Others 22.76 17.39
199.28 137.69 (e) Insurance 11.81 10.63 (f) Rent 113.64 106.19 (g) Rates and taxes 12.08 17.09 (h) Bad debts / Advances made 25.72 29.39 (i) Provision for obsolete stock 4.90 (j) Allowances for doubtful debts, Store / Lease Deposits / advances made / Security Deposit 1.68 14.46 (k) Amortisation of miscellaneous expenditure 0.72 0.72 (l) Loss on sale / disposal of assets (net) 5.86 7.73 (m) Interest on Consumers Security Deposit 64.60 59.58 (n) Miscellaneous expenses 330.54 281.32
1,092.99 955.41 Add : Share of Joint Venture 0.03 0.09
1,093.02 955.50 Less : Allocated to capital account 178.28 138.53
914.74 816.97
F - 125 Notes forming part of Financial Statements (Contd.)
NOTE 33 Leases :
(a) With respect to Parent :
Future rentals payable in respect of non-cancellable leases for assets comprising various equipment and vehicles acquired under operating leases for the period ranging between 36-60 months work out to Rs. 8.93 crore (previous year : Rs. 9.77 crore) and Rs. 2.27 crore (previous year : Rs. 10.47 crore) during next one year and thereafter till five years respectively. There are no restrictions in respect of such leases.
(b) With respect to certain Subsidiaries :
Subsidiaries in retail business has taken retail stores on operating lease generally and the lease rent is payable as per the agreements entered into with the lessors. Agreements are both in the nature of cancellable and non cancellable leases. The lease term is for varied years and renewable for further years as per the agreements at the option of the subsidiary. There are no restrictions imposed by these lease arrangements. There are no sub-leases. One of the subsidiaries has taken leased premises under non-cancellable operating lease for a period of 21 years. The details of lease rental are given below :
Operating Leases (Rs. in Crore)
2011-12 2010-11 Lease payments for the year 83.16 79.19 Future minimum lease payments Not later than one year 60.30 56.28 Later than one year but not later than five years 228.91 278.11 Later than five years 403.77 327.32
Rent includes Rs. 10.80 crore (previous year: Rs. 8.03 crore) with respect to one of the subsidiaries being lease rent, payable by them in future years, but accounted for during the year as lease equalization in terms of Accounting Standard -19 on Leases as per Companies (Accounting Standard) Rules, 2006, which requires lease rental to be charged on a straight line basis over the lease term.
NOTE 34 The major components of Deferred Tax Assets / (Liabilities) based on the timing difference as at 31 March, 2012 are as under :
(Rs. in Crore)
2011-12 2010-11 Liabilities Excess of tax depreciation over book depreciation (691.60) (677.57)
Assets Unabsorbed business depreciation 82.78 80.55 Unabsorbed business losses 199.42 199.42 Other Timing Differences 37.91 61.72 Net Deferred Tax Liability (371.49) (335.88) Less : Recoverable deferred tax element of Parent 693.04 657.43 Net Deferred Tax Asset 321.55 321.55
Note: In respect of one of the subsidiaries, net deferred tax asset of Rs. 321.55 crore had been accounted for upto 31st March, 2011, but as a matter of prudence no credit for Rs. 79.20 crore, being deferred tax asset for the current year, has been considered in the financial statements. There are unabsorbed depreciation and carried forward losses as at the Balance Sheet date. However, based on future profitability projections, the Management is virtually certain that there would be sufficient taxable income in future to claim the above tax credit.
F - 126 Notes forming part of Financial Statements (Contd.)
NOTE 35 Earnings per Share : Computation of earnings per share
Particulars 2011-12 2010-11
Profit after Tax and before exceptional items (Rs. in crore) (A) 271.59 299.62 Weighted Average number of shares for Earnings per share (B) 12,49,35,925 12,49,35,925 Basic and Diluted Earnings per Shares of Rs. 10/- each 21.74 23.98 before Exceptional items = [(A) / (B)] (Rs.) Profit after Tax and after exceptional items (Rs. in crore) (C) 245.88 278.38 Weighted Average number of shares for Earnings per Share (D) 12,49,35,925 12,49,35,925 Basic and Diluted Earnings per Share of Rs. 10/- each 19.68 22.28 after Exceptional items = [(C) / (D)] (Rs.)
NOTE 36 Certain subsidiaries have incurred losses during the year, primarily due to nascent stage of organized retail industry in the country and have accumulated losses against shareholders funds as on the Balance Sheet date. However, the subsidiaries having created a robust infrastructure for organized retail business are confident of generating positive cash flows and operational surplus in the near future with certain interim support from the Parent and the promoters.
NOTE 37 In respect of the Parent, the Members at the Thirtieth Annual General Meeting held on 30 July, 2008 and the Central Government vide its letter dated 20 August, 2009 approved payment of commission to the non-executive directors from 2008-09 to 2012-13 at a rate not exceeding 1% per annum of the net profits of the Parent computed in the manner laid down in Section 198(1) of the Companies Act, 1956.
The Board of Directors in its meeting held on 13 June, 2012 has considered to seek the approval of the Members at the forthcoming Annual General Meeting and of the Central Government thereafter, for payment of commission to the non-executive directors for each of the years 2011-12 and 2012-13 at an increased rate not exceeding 3% per annum of the net profits of the Parent as required under Section 310 of the said Act. Accordingly, the commission proposed for non-executive directors in excess of 1% of the net profits i.e. Rs. 13.95 crore, for the year 2011-12, is subject to the approval of the Members and of the Central Government.
NOTE 38 Exceptional items of Rs. 25.71 crore (previous year - Rs. 21.24 crore) pertaining to certain subsidiaries represent additional cost incurred on closure of franchisee business and loss on account of non-usable assets written off with respect to the non-viable and loss making closed stores.
F - 127 Notes forming part of Financial Statements (Contd.)
NOTE 39 Consolidated Segment Reporting (Rs. in crore)
Power Retail Property Total 2011-12 2010-11 2011-12 2010-11 2011-12 2010-11 2011-12 2010-11 Sales Revenue from external customers 4,679.30 4,171.45 1,212.42 1,007.57 5,891.72 5,179.02 Other Segment Revenue 93.15 82.59 38.46 31.45 0.65 0.82 132.26 114.86 Total Segment Revenue 4,772.45 4,254.04 1,250.88 1,039.02 0.65 0.82 6,023.98 5,293.88 Segment Results Before Interest, Tax and Exceptional Items 958.86 894.77 (194.07) (231.77) (0.39) 0.66 764.40 663.66 Unallocated Finance Costs (345.09) (312.05) Exceptional Items (25.71) (21.24) (25.71) (21.24) Profit before Taxation and Minority Interests 393.60 330.37 Provision for Taxation (149.15) (52.98) Profit after Taxation before Minority Interests 244.45 277.39 Segment Assets 13,493.71 10,928.17 460.26 523.84 197.07 119.60 14,151.05 11,571.61 Unallocated Assets 635.73 635.73 Total Assets 14,786.78 12,207.34 Segment Liability 3,886.79 3,159.50 250.42 206.27 11.18 6.92 4,148.39 3,372.69 Unallocated Liabilities 5,793.40 4,131.78 Total Liabilities 9,941.79 7,504.47 Capital Expenditure 2,472.45 1,023.91 15.27 28.74 91.75 58.22 2,579.47 1,110.87 Depreciation (including amortisation of Intangible assets) 285.52 261.86 54.47 54.59 0.06 0.03 340.05 316.48 Non Cash Expenditure other than depreciation 23.94 36.05 14.98 21.63 38.92 57.68
Notes : a. Business Segments : The internal business segmentations and the activities encompassed therein are as follows : Power : Generation / Distribution of electricity Retail : Organised Retailing Property : Property Development b. All the operations of the Group are mainly confined within India and has no other reportable geographical segment. The unallocated revenue, results and capital employed are Rs. Nil, Rs. (0.05) crore and Rs. 56.63 crore respectively. c. The segment wise revenue, results, assets and liabilities figures relate to the respective amounts directly identifiable to each of the segments.
F - 128 Notes forming part of Financial Statements (Contd.)
NOTE 40 Related Party disclosure Related Party and their relationship
Names of Related Parties Nature of Relationship
Mr. S. Banerjee Key Management Personnel, CESC Limited
Mahuagarhi Coal Company Private Limited Joint Venture
Particulars of transactions : (Rs. in crore) Nature Key Management Personnel 2011-12 2010-11 Directors Remuneration 4.73 3.33 Closing Balance : Debit Credit 3.50 2.40
NOTE 41 In respect of the Parent out of the outstanding foreign currency loans of Rs. 677.64 crore (31.03.2011 : Rs. 531.16 crore) disclosed in Note 6, loan balance amounting to Rs. 606.79 crore (31.03.2011 : Rs. 469.09 crore) have been fully hedged in Indian Rupee and Rs. 70.85 crore (31.03.2011 : Rs. 62.07 crore) represents sum restated at year end exchange rate in respect of underlying contractual obligations in United States Dollar. Trade Payables include Rs. 76.60 crore (31.03.2011 : Rs. 19.63 crore) representing amount payable in United States Dollar restated at year end exchange rate which have not been hedged.
NOTE 42 Miscellaneous Expenses in Note 32 include research and development expense of Rs. 1.17 crore (previous year : Rs. 0.70 crore) in respect of the Parent.
NOTE 43 i) In respect of one of the subsidiaries, out of the outstanding Long Term Borrowings disclosed in Note 6, loan balance amounting to Rs. 176.64 crore have been contractually covered in Indian Rupee and Rs. 113.71 crore (31.03.2011 : Rs. Nil) represents sum restated at year end exchange rate in respect of underlying contractual obligations in United States Dollars.
ii) In respect of one of the susidiaries, Foreign Currency Loans under Short Term Borrowings disclosed in Note 9 of Rs. 211.19 crore (31.3.11 - Rs. Nil) represents sum restated at year end exchange rate in respect of underlying contractual obligations in United States Dollars.
NOTE 44 The Group was using pre-revised schedule VI to the Companies Act, 1956, for preparation and presentation of its financial statements for previous years figures till the year ended 31st March, 2011. During the year ended 31st March, 2012, the revised schedule VI notified under Companies Act, 1956 has been become applicable to the Group. The Group has reclassified previous years figures to conform to this years classification alongwith other regrouping / rearrangement whereever necessary.
F - 129 Notes Forming Part Of Financial Statements (Contd.)
NOTE 45 Information Regarding Subsidiary Companies : (Rs. in Crore)
Music Au Bau Metromark Dhariwal Nalanda Spencers CESC Surya CESC Bantal World Pain Café Green CESC Haldia Infrastr- Power Retail Properties Vidyut Projects Singapore Retail India Commodities Infrastructure Energy ucture Company Limited Limited Limited Limited Pte Limited Limited Limited Private Limited Limited Limited Limited Limited
Issued and Subscribed Share Capital 26.01 5.00 30.00 85.01 0.02 826.05 712.96 459.77 0.90 7.24 0.50 56.68 Reserves (916.05) 12.21 (16.54) (2.45) (0.44) (2.29) (18.15) (21.07) (0.41) 0.06 (0.02) (0.05) Total Assets 867.39 47.94 16.05 198.62 2.20 1,519.36 1,582.44 1,971.97 0.49 7.39 0.50 56.68 Total Liabilities 867.39 47.94 16.05 198.62 2.20 1,519.36 1,582.44 1,971.97 0.49 7.39 0.50 56.68 Investments (except in case of investments in the subsidiaries) 0.01 Turnover 1206.26 36.24 8.92 3.13 6.06 0.39 Profit / (loss) before taxation (255.37) (25.82) (7.09) (1.17) (0.07) (0.26) (17.36) (5.66) (0.13) 0.31 (0.02) (0.05) Provision for taxation 10.03 0.12 F -
130 Profit / (loss) after taxation (255.37) (25.82) (7.09) (1.17) (0.07) (0.26) (17.36) (15.69) (0.13) 0.19 (0.02) (0.05) Proposed Dividend
For Lovelock & Lewes Firm Registration Number-301056E Chartered Accountants For and on behalf of Board of Directors Prabal Kr. Sarkar Vice-Chairman S. Goenka Partner Membership No. : 52340 Subhasis Mitra Director P. K.Khaitan Kolkata, 13 June, 2012 Vice President & Company Secretary Managing Director S. Banerjee
DECLARATION
Our Company certifies that all relevant provisions of Chapter VIII and Schedule XVIII of the SEBI ICDR Regulations have been complied with and no statement made in this Preliminary Placement Document is contrary to the provisions of Chapter VIII and Schedule XVIII of the SEBI ICDR Regulations and that all approvals and permissions required to carry on our Company’s business have been obtained, are currently valid and have been complied with. Our Company further certifies that all the statements in this Preliminary Placement Document are true and correct.
Signed by:
______Aniruddha Basu
Place: Kolkata Date:
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DECLARATION
We, the Board of Directors of the Company certify that:
(i) the Company has complied with the provisions of the Companies Act, 2013 and the rules made thereunder;
(ii) the compliance with the Companies Act, 2013 and the rules does not imply that payment of dividend or interest or repayment of debentures, if applicable, is guaranteed by the Central Government; and
(iii) the monies received under the offer shall be used only for the purposes and objects indicated in the Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4).
Signed by:
______Aniruddha Basu
I am authorized by the Committee of Directors, vide resolution dated October 22, 2014 to sign this form and declare that all the requirements of Companies Act, 2013 and the rules made thereunder in respect of the subject matter of this form and matters incidental thereto have been complied with. Whatever is stated in this form and in the attachments thereto is true, correct and complete and no information material to the subject matter of this form has been suppressed or concealed and is as per the original records maintained by the promoters subscribing to the Memorandum of Association and the Articles of Association.
It is further declared and verified that all the required attachments have been completely, correctly and legibly attached to this form.
Signed by:
______Name: Aniruddha Basu Designation: Managing Director
Place: Kolkata Date:
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ISSUER
CESC Limited Registered Office of the Issuer, CESC House, Chowringhee Square, Kolkata 700 001, India Website: www.cesc.co.in; CIN: L31901WB1978PLC031411, Contact Person: Subhasis Mitra, Company Secretary and Compliance Officer
Details of Compliance Officer Mr. Subhasis Mitra, Company Secretary and Compliance Officer, CESC House, Chowringhee Square, Kolkata 700 001, India Tel: +91 033 2225 6040; Fax: +91 033 2225 5155; Email: [email protected]; website: www.cesc.co.in
GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS
CLSA India Citigroup Global Credit Suisse ICICI Securities Kotak Mahindra IDFC Securities Private Markets India Securities (India) Limited Capital Company Limited Limited Private Limited Private Limited ICICI Centre, H. T. Limited Naman Chambers, 8/F, Dalamal 1202, 12th Floor, Ceejay House, 9th Parekh Marg, 27 BKC, 1st Floor, C-32, G Block, Bandra House, First International Floor, Plot F, Churchgate, Plot No. C-27, “G” Kurla Complex, Nariman Point, Financial Centre, G- Shivsagar Estate, Mumbai 400 020 Block, Bandra Kurla Bandra (East), Mumbai 400 Block, Bandra Kurla Dr. Annie Besant India Complex, Bandra Mumbai - 400 051, 021, Complex, Bandra Road, Worli, (East), India India East, Mumbai 400 Mumbai 400 018, Mumbai – 400051, 051 India India India
DOMESTIC LEGAL COUNSEL TO THE COMPANY
Khaitan & Co One Indiabulls Center, 13th Floor, Tower 1, 841 Senapati Bapat Marg, Mumbai 400 013, Maharashtra, India
DOMESTIC LEGAL COUNSEL TO THE GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS
Luthra & Luthra Law Offices Luthra & Luthra Law Offices Indiabulls Finance Center, 9th Floor, Ashoka Estate, Tower 2 Unit A2, 20th Floor, Barakhamba Road, Elphinstone Road, New Delhi 110 001 Senapati Bapat Marg, India Mumbai 400013 Maharashtra, India
INTERNATIONAL LEGAL COUNSEL TO THE GLOBAL COORDINATORS AND BOOK RUNNING LEAD MANAGERS
Clifford Chance Pte Limited Marina Bay Financial Centre 25 th Floor Tower 3 12 Marina Boulevard Singapore 018982
AUDITORS
Lovelock & Lewes, Chartered Accountants Plot No. Y-14, Block-EP, Sector-V, Salt Lake Electronic Complex, Bidhan Nagar, Kolkata 700 091, India
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